THE TRAVELERS VARIABLE
PRODUCTS FUNDS
ANNUAL REPORTS
December 31, 1997
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
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the annual report for Managed Assets Trust, High Yield
Bond Trust, Capital Appreciation Fund, Cash Income Trust ("Trust" or "Fund") and
the Travelers Series Trust (U.S. Government Securities, Social Awareness Stock
and Utilities Portfolios; "Portfolios") for the year ended December 31, 1997.
In this letter, we briefly discuss general economic and market conditions. In
addition, more detailed comparisons showing the growth of a hypothetical $10,000
investment in each Trust or Portfolio since its inception can be found in this
report. A detailed summary of performance and current holdings for each Trust or
Portfolio can be found in the pages listed below.
<TABLE>
<CAPTION>
MARKET SCHEDULE OF
COMMENTARY INVESTMENTS
---------- -----------
<S> <C> <C>
Managed Assets Trust.................................. 3 9
High Yield Bond Trust................................. 4 17
Capital Appreciation Fund............................. 5 23
Cash Income Trust..................................... 6 26
U.S. Government Securities Portfolio.................. 39 44
Social Awareness Stock Portfolio...................... 39 45
Utilities Portfolio................................... 40 48
</TABLE>
ECONOMIC REVIEW AND OUTLOOK
The big story in the second half of 1997 was the Asian economic and financial
crisis. What started out as a localized disturbance in Thailand in July 1997
soon spread to other countries in Southeast Asia and wreaked havoc on their
currency and capital markets. The events in Asia raise the specter of a global
economic slowdown and prospects of global deflation.
We begin with a discussion of the outlook for inflation and the potential for
deflation with a focus on the U.S. economy. The remarkable string of good news
on the inflation front in the U.S. continued in the fourth quarter of 1997. The
Producer Price Index ("PPI") fell slightly in the fourth quarter and declined by
- -1.2% for 1997. Producer prices fell in 9 out of 12 months in 1997 while the
Consumer Price Index rose by a mere 1.7% in 1997, the smallest rise since 1986.
Inflation has rarely or ever been so low at such a late stage in the economic
cycle.
Technology-driven productivity gains have contributed to the recent
disinflationary trend and the significant devaluation of several Asian
currencies should result in lower import prices and help domestic inflation to
decline further.
With worldwide overproduction, the cost of items such as cars and electronic
goods is actually showing near-zero growth. Prices of some of the most important
industrial commodities, including oil and copper, have tumbled in recent months
and the price of gold, a traditional hedge against inflation, was at an 18-year
low in December 1997, well below $300 per ounce.
Despite a tight labor market in the U.S., wage inflation has not surged. Global
deflationary pressures should offset wage inflation in 1998. (Deflation is a
decline in the prices of goods and services or when there are major imbalances,
too much supply and little or no demand. Disinflation is a slowing down in the
rate of price increases and means you do not have pricing power today, but there
are not any major imbalances or dislocations to the economy) While we
acknowledge the arguments in favor of global deflation, we have not seen enough
evidence to foresee zero or negative inflation in 1998 and believe we will
continue to experience a period of overall price stability.
The crisis in Southeast Asia also raises the possibility of a global economic
slowdown. The U.S. economy derives almost 15% of its total output from exports.
Approximately 10% of these exports are made to Southeast Asia. While it is
difficult to predict the eventual impact on U.S. exports, most reasonable
estimates of growth shortfalls suggest that the impact on U.S. Gross Domestic
Product ("GDP") growth will be no more that -0.5%. Economic growth forecasts for
1998 have been revised down recently and the consensus GDP growth estimate for
1998 is now about 2.5%.
The continued good news on the inflation front sent U.S. interest rates lower
during the fourth quarter. Long-term rates fell from 6.4% to 5.9% as investors
began to discount a deflationary outlook and became comfortable with a stable
monetary policy environment.
1
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
Short-term interest rates have held steady even as inflation and long-term rates
have fallen. Even though the Federal Reserve Board ("Fed") has not raised short
rates for several months now, monetary policy has effectively become tighter as
the real federal funds rate, (actual rate less inflation), has risen to 3.3%.
(The federal-funds rate is the interest rate banks charge each other for
overnight loans and a closely watched indicator of the direction of interest
rates.) With Asian currencies in turmoil, we believe that the Fed is likely to
stay put here and that the odds of another Fed hike are remote.
EQUITY MARKET COMMENTARY
The year 1997 turned out to be another spectacular one for the U.S. stock
market. For the first time ever, the U.S. stock market posted three consecutive
years of gains in excess of 20%. The current bull market continues to be driven
by stable economic growth, robust earnings growth and a continuation of low
inflation.
Stock market volatility also increased in 1997 when the Dow Jones Industrial
Average ("DJIA") (DJIA is a price-weighted average of 30 actively traded blue
chip stocks, primarily industrials.) moved up or down by more than 1% every
third trading day on average. The uncertainty on the earnings front as a result
of the Asian financial and currency crisis should sustain a high level of
volatility and complicate the market outlook for 1998.
After a strong showing in the first half of 1997, the U.S. stock market posted
solid gains in the third quarter. The S&P 500 Index ("S&P 500"), gained 7.5% in
the third quarter of 1997, the Russell 2000 Index ("Russell 2000"), rose sharply
by 14.9% and the NASDAQ Index performed even better with a spectacular rise of
16.9%. The U.S. stock market posted a mixed performance in the fourth quarter.
The S&P 500 gained 2.9% in the fourth quarter, while the Russell 2000 fell by
- -3.4% and the NASDAQ Index declined by -6.8%. For the calendar year 1997, the
S&P 500 rose by 33.4%, the Russell 2000 advanced by 22.4% and the NASDAQ Index
gained 21.6%. (The S&P 500 is a capitalization-weighted measure of 500 widely
held common stocks. The Russell 2000 is made up of 2,000 smaller-capitalized
U.S.-based companies whose common stocks trade on either the New York, American
or NASDAQ stock exchanges.)
Stock market volatility increased in the third quarter with the DJIA registering
its second-largest point decline and its single-largest daily gain within a
three-week period in the middle of the third quarter. Most stock market indexes
fell about 3% on August 15, 1997, on a groundswell of earnings concerns after a
few, large cap consumer companies warned about earnings disappointments for the
third quarter. Investor sentiment reversed on September 2, 1997 when a weaker
economic report from the National Association of Purchasing Managers ("NAPM")
dispelled fears of further Fed tightening. The stock market reversed course with
an equally spectacular 3% gain as bond prices rose sharply also.
The events in Southeast Asia came into sharp focus for U.S. investors when a
sell-off in Hong Kong, a beacon of stability in the region, dropped the DJIA by
554 points on Monday, October 27, 1997, and was a major factor of the largest
point loss in history. After a wild swing in trading the following day, stock
prices began to stabilize. Despite more bad news in terms of large-scale
bankruptcies in South Korea and Japan in the ensuing weeks, U.S. investors
assessed a relatively modest impact on the domestic economy and the stock market
was able to recover its losses from Gray Monday and even nudge higher by
year-end in select sectors.
Second quarter earnings showed the same pattern of good news from earlier
quarters which investors have now almost come to expect as a routine outcome.
Positive surprises again far outnumbered disappointing earnings reports. Over
61% of all companies reported earnings above consensus while only 26% failed to
deliver on earnings expectations.
Third quarter earnings were also ahead of expectations. The final tally on the
earnings scorecard showed that 55% of all companies reported positive earnings
surprises while 28% turned in earnings disappointments. We observe yet again
that the current string of good earnings reports has now reached 19 consecutive
quarters and is unprecedented in terms of both magnitude and duration.
The consensus forecast for 1998 corporate earnings growth is now 7.2%. The key
to stock market performance in 1998 will be the extent to which corporate
profits remain immune to the problems in Asia. The obvious contributors to
likely shortfalls in earnings will be currency translation losses and lower
export revenues stemming from lower demand in Asia. With current valuations at
fairly high levels, the stock market should be intolerant of any earnings
disappointments.
2
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
We suspect that the global stock markets are currently more vulnerable to the
woes of a weak economy than the risk of higher interest rates stimulated by
economic strength. It is difficult to gauge the precise impact of the Asian
crisis on corporate earnings and as a result, 1998 promises to be a year of
great uncertainty.
FIXED INCOME MARKET COMMENTARY
For the first time in seven quarters, bonds outperformed stocks as the Asian
crisis that began in Thailand in July 1997 spread throughout Asia and other
emerging markets. The crisis impacted all global markets in late October when
the Hong Kong dollar came under pressure. The S&P 500 went down roughly 10% in
October leading to a sharp rally in the U.S. bond market, while declining bond
yields and bargain hunting by some investors helped stabilize financial markets
as the reporting period drew to a close. The U.S. stock market and emerging debt
markets posted positive returns in November and December as both of these
markets did not offset the amount lost in October. As of this writing, Asia's
problems continue to challenge many investment professionals.
We believe that many investors have underestimated the damage caused by the
crisis in Asia. Imports from countries with devalued currencies will keep
downward pressure on the inflation rate in the U.S., taking that issue off the
radar screen for many investors. The reduction in corporate revenues will impact
some combination of profits and employment. To the extent that corporations
reduce their labor forces to preserve profits, pressure will be taken off U.S.
labor markets and the Fed will be given a compelling reason to cut rates.
Moreover, many of the problems in Asia are the result of building too much
capacity in industries such as automobiles, chemicals and semiconductors. This
overcapacity, which has been exacerbated by the decline of demand in Asia,
should slow down U.S. capital spending growth, which has been in the recent past
the fastest-growing component of GDP.
Looking ahead to 1998, we expect that the difference between short-term and
long-term interest rates will probably widen. In our opinion, one of two
scenarios could develop that could cause this change in the relationship between
interest rates. We believe the most likely scenario is that ongoing financial
turmoil in Asian could hamper U.S. economic growth and lead the Fed to
compensate by lowering short-term interest rates. The other possibility is that
U.S. economy continues to grow robustly, heightening investor concerns of
greater inflationary pressures. In this case, investors would shift their
attention to the tight U.S. labor market, reflecting their inflationary concerns
in the form of higher long-term interest rates. This latter scenario could
happen if Asian economies recover quickly or if interest-rate sensitive
industries of the U.S. economy pick up sufficiently to offset any adverse
affects that the Asian crisis might have on domestic economic growth.
MANAGED ASSETS TRUST
Managed Assets Trust ("Trust") returned 2.40% for the fourth quarter of 1997
versus 3.14% for the 60% S&P 500, 40% Lehman Government/Corporate Index
benchmark. Returns were hurt by being slightly overweighted in stocks and a
small exposure to emerging market debt. For the year ended December 31, 1997,
the Trust returned 21.31% versus 23.92% for the 60/40 benchmark primarily hurt
by its underweighting in stocks in the second quarter of 1997.
For the first time in seven quarters, bonds outperformed stocks as the Asian
crisis that started in Thailand in July spread throughout Asia and other
emerging markets. The crisis hit all global markets in late October when the
Hong Kong dollar was under pressure. The S&P 500 dropped 10% in October leading
to a sharp rally in the U.S. bond market. Emerging market debt declined even
more than stocks, with the J.P. Morgan EMBI Index declining 14% from peak to
trough. The decline in bond yields and bargain hunting by investors stabilized
markets so that U.S. stocks and emerging market debt posted positive returns in
November and December, although not offsetting the amount they lost in October.
However, Asian problems continued to occur and kept the markets on guard. For
the quarter, the S&P 500 was up roughly 2.86%, bringing its return to 33.35% for
the year. The Lehman Government/Corporate Bond Index was up 3.25% for the
quarter bringing its return to 9.76% for the year.
Looking ahead for the remainder of 1998, we expect that the difference between
short-term and long-term interest rates will probably widen. In our opinion, one
of two scenarios could develop that could cause this change in the relationship
between interest rates. We believe the most likely scenario is that ongoing
financial turmoil in Asian could hamper U.S. economic growth and lead the Fed to
compensate by lowering short-term interest rates. The other possibility is that
the U.S. economy
3
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
continues to grow robustly, heightening investor concerns of greater
inflationary pressures. In this case, investors would shift their attention to
the tight U.S. labor market, reflecting their inflationary concerns in the form
of higher long-term interest rates. This latter scenario could happen if Asian
economies recover quickly or if interest-rate sensitive industries of the U.S.
economy pick up sufficiently to offset any adverse affects that the Asian crisis
might have on domestic economic growth.
We think corporate earnings will continue to be higher than expectations as
corporations adjust their labor needs more quickly than expected for any revenue
changes caused by the Asian slowdown. Therefore, stocks should be able to
provide a 10% -- 15% return in a slower economic environment. Yet stocks may
face more risk from a stronger-than-expected economy that takes liquidity from
the financial markets. The Trust has an emphasis on stocks, while its bond
portfolio's duration is longer than its target because of our bullishness on
bonds.
HIGH YIELD BOND TRUST
For the year ended December 31, 1997, the High Yield Bond Trust ("Trust") had a
total return of 16.56%. In comparison, the Lehman Aggregate Bond Index posted a
total return of 9.65% for the same period. The high yield bond market generated
relatively strong performance throughout 1997 with total returns in excess of
about 13% compared to 6% to 11% returns for intermediate (i.e., less than 10
years) U.S. Treasurys and investment grade corporate bonds and roughly 12% to
14% for long-term (i.e., ten or more years) U.S. Treasurys and investment grade
corporate bonds.
The Fund generated competitive total returns within that range for 1997. Within
the high yield bond market, the lower-quality issues generated the strongest
total returns in 1997 (i.e., a roughly 16% range). This was not surprising given
the strong performance of the domestic stock market. The lower-quality segment
of the high yield bond market tends to be more closely correlated to the
domestic stock market than the higher-quality segments of the high yield bond
market.
The high yield bond market began to underperform U.S. Treasurys in the fourth
quarter of 1997 as fears of an economic slowdown and lower corporate profits
caused high yield bond premiums to increase versus the U.S. Treasury market. The
greatest underperformance in the fourth quarter of 1997 was among the
lower-quality issues. In periods of increasing economic uncertainty, the
lower-quality segments of the high yield bond market generally underperform
because of their greater vulnerability to weaker economic conditions. The more
interest-rate sensitive higher quality issues generated the strongest total
returns as general interest rates declined.
By the start of the fourth quarter, the crisis in Asia had taken center stage
with severe currency and financial market declines in a number of Asian
countries potentially threatening economic stability not only in the Far Eastern
region, but throughout the world. Asia represents more than 25% of world
economic output and is a significant producer and consumer of a large number of
products and services. Consequently, there was a dramatic increase in market
volatility in the fourth quarter, especially in the world's stock markets. Many
investors began to invest more aggressively in U.S. Treasurys that are viewed as
the ultimate safe haven during periods of economic uncertainty. Despite this
increasing uncertainty over economic growth and corporate profitability, the
domestic stock market had another strong year, with total returns in the 25% to
33% range.
In 1997, the domestic high yield bond market responded favorably to the strength
in the domestic stock and U.S. Treasury markets. During the year, a total of $19
billion of new money flowed into open-end high yield bond funds. In addition,
there was higher demand for high-yield bonds from insurance companies and
pension funds. The overall demand was significant enough to absorb a record
total of more than $120 billion of new high yield issues. Given this record new
issuance, the high yield bond market now totals more than $450 billion in size,
representing a meaningful 25% of the entire domestic corporate bond market.
We continue to believe that U.S. economic growth remains mixed and that many
consumer-sensitive sectors will continue to experience fierce price competition.
In addition, the significant problems in Asia could also put severe pressure on
commodity goods prices as troubled Asian companies attempt to increase their
exports to the rest of the world to make up for the expected economic declines
in their own region. We also believe that a slowdown in overall world economic
growth is inevitable as the severe economic decline in Asia sharply reduces
demand for U.S. and European products. Consequently, the first half of 1998
could see an increase in many default rates among certain high yield bonds,
especially the weaker more vulnerable companies that are having difficulty
competing.
4
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
We believe the financial markets will remain choppy as investors continue to
sort out the potential negative impact on world economic growth from the large
declines in both the currencies and financial assets of the emerging markets in
Asia and Latin America.
CAPITAL APPRECIATION FUND
For the year ended December 31, 1997, the Capital Appreciation Fund posted a
total return of 26.14%. In comparison, the Russell 2000 returned 22.36% for the
same period. As the year ended, Southeast Asia became the focal point of
international markets, injecting volatility into equities worldwide. Despite
substantial and at times unsettling fluctuations, the S&P 500 gained 33.35% for
the year ended December 31, 1997.
Asia's expanding financial crisis engulfed new victims, and South Korea, the
world's eleventh largest economy, became the latest to be infected with the
"Asian contagion." At home, the growing Asian downturn raised new concerns about
corporate earnings, and selling became pronounced. As a result, the DJIA
experienced its worst single day point decline, dropping more than 550 points on
October 27, 1997. Markets around the world moved lower, and most established
markets actually experienced a true correction.
However, U.S. stocks proved resilient, and many investors once again treated the
decline as a buying opportunity. Specifically, a global flight toward quality
benefited the U.S. Treasury market, where long-term yields fell from 6.40% to
5.92% -- a substantial decline. Although stocks drew strength from falling
interest rates, the rebound was limited in scope. The large multinationals drove
the S&P 500's returns towards year end, and as a result, most other areas
underperformed the Index.
During the period, we remained focused on a wide variety of companies including
technology, telecommunications, pharmaceuticals, health care, financial services
and select retailers. Ultimately, we look for companies that are benefiting from
broader demographic trends both here and abroad. With Asia's escalating crisis,
the follow-through effects will most likely become more intense in coming
months, so we've focused on well-established companies with dominant business
franchises.
In the technology area, we zeroed in on blue-chip companies with predictable
earnings streams that should not be impacted by Asia's turmoil. Microsoft Corp.
has been a long time favorite of ours, and remains a core position in the Fund.
The company dominates the software industry and is now making headway into
networking with the proliferation of its WindowsNT product. We also held Dell
Computers & Co. which, despite reporting record earnings, finished the reporting
period lower on concerns over the Far East. We still believe that Dell's
long-term earnings potential is intact because revenues from the Far East
account for only a fraction of Dell's sales. More recently, we were able to use
the technology sector's weakness to add or increase several positions, including
America Online, Inc. and Cisco Systems, Inc.
We also held several high-quality pharmaceutical manufacturers, including
Warner-Lambert Co., Eli Lilly Corp. and Pfizer, Inc. These companies have either
launched or are rolling out several exciting new products with exceptional sales
potential. Combine this with an aging population that will increasingly draw on
pharmaceutical products to treat ailments, and this creates tremendous long-term
earnings for select drug manufacturers. Although Warner-Lambert enjoyed an
incredible run in 1997, the stock price suffered a temporary setback recently.
One of its two new blockbuster drugs (Rezulin) received negative press regarding
side-effects that affect a very small portion of the drug's users. However, due
to Rezulin's quality of life improvements for diabetics, we still believe that
the drug could eventually generate over $1 billion dollars in sales per year.
While we had many strong performers, we did have some disappointments, with
Oxford Health being the most significant. Two weeks prior to the company's
earnings announcement, we met with Denver-based senior management and did a
thorough review of the company. We sold our position at a loss after that
meeting.
As we enter 1998, liquidity flows into stocks remain strong, fueled in part by
lower interest rates. Looking at the economy, the hit to GDP from Asia's
downturn should act as a brake, reigning in any inflationary pressures, which is
good news for stocks. The current danger is that a slowdown in the global
economy will inevitably work its way back to some U.S. companies. Pricing power
remains weak for most of Corporate America, and rising labor wages continue to
pressure margins at many companies. But in a less robust environment, we believe
that superior companies with exceptional earnings
5
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
- --------------------------------------------------------------------------------
will be rewarded. We've therefore focused our assets in a variety of
high-quality companies where we are very confident about their future earnings.
A result, we are positive about the Fund's prospects in 1998.
CASH INCOME TRUST
Cash Income Trust ("Fund") seeks to provides shareholders with 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.
For the year ended December 31, 1997, the Fund generated an effective yield of
5.03% and as of December 31, 1997 had an average maturity of 31 days. The Fund
continues to invest primarily in U.S. Treasurys and government agency
securities. This investment strategy has provided the Fund with safety,
liquidity and stability.
You should be aware that your investment in the Fund is neither insured nor
guaranteed by the U.S. Government. Moreover, no assurance can be given that the
Fund will be able to maintain a stable net asset value of $1.00 per share.
In closing, we would like to thank you for your investment in Managed Assets
Trust, High Yield Bond Trust, Capital Appreciation Fund and Cash Income Trust.
We look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 26, 1998
6
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C>
Year Ended 12/31/97 21.31%
Five Years Ended 12/31/97 13.40%
Ten Years Ended 12/31/97 13.06%
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1987, assuming reinvestment of dividends, through
December 31, 1997. 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 Standard Managed Government/ Consumer
Period & Poor's Assets Corporate Price
(Fiscal Year 500 Index Trust Bond Index Index
Covered)
<S> <C> <C> <C> <C>
Dec-87 10000 10000 10000 10000
Dec-88 11657 10919 10758 10442
Dec-89 15344 13880 12289 10927
Dec-90 14867 14223 13308 11594
Dec-91 19388 17310 15454 11949
Dec-92 20864 18199 16626 12295
Dec-93 22961 19897 18460 12633
Dec-94 23263 19497 17811 12971
Dec-95 28363 24726 21239 13301
Dec-96 34872 28133 21854 13742
Dec-97 46506 34128 23987 13975
</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 12/31/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/97 16.56%
Five Years Ended 12/31/97 11.95%
Ten Years Ended 12/31/97 10.23%
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1987, assuming reinvestment of dividends, through
December 31, 1997. The Lehman Aggregate Bond Index, an unmanaged
index, is composed of the Lehman Intermediate Government/Corporate
Bond Index and the Mortgage Backed Securities Index and includes
treasury issues, agency issues, corporate bond issues and
mortgage-backed securities. The Consumer Price Index is a measure
of the average change in prices over time in a fixed market basket
of goods and services. The First Boston High Yield Index Top Tier
is a broad-based market measure of high yield bonds, commonly known
as "junk bonds."
<TABLE>
<CAPTION>
First Boston
High Yield Consumer
Measurement Period Index Top High Yield Lehman Aggregate Price
(Fiscal Year Covered) Tier Bond Trust Bond Index Index
<S> <C> <C> <C> <C>
Dec-87 10000 10000 10000 10000
Dec-88 11223 11457 10789 10442
Dec-89 12703 11618 12357 10927
Dec-90 12821 10558 13465 11594
Dec-91 15775 13315 15619 11949
Dec-92 17130 15066 16774 12295
Dec-93 19806 17177 18410 12633
Dec-94 19769 16960 17873 12971
Dec-95 23461 19584 21175 13301
Dec-96 25976 22727 21943 13742
Dec-97 29257 26491 24060 13975
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
7
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/97 26.14%
Five Years Ended 12/31/97 19.31%
Ten Years Ended 12/31/97 16.46%
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1987, assuming reinvestment of dividends, through
December 31, 1997. The Standard & Poor's 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange and over-the-counter
market. The Russell 2000 Index is a capitalization weighted total
return index which is comprised of 2,000 of the smallest capitaled
U.S. domiciled companies with less than average growth orientation
whose common stock is traded in the United States of the New York
Stock Exchange, American Stock Exchange and NASDAQ. The Consumer
Price Index is a measure of the average change in prices over time
in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Measurement
Period Capital Standard Russell Consumer
(Fiscal Year Appreciation & Poor's 2000 Price
Covered) Fund 500 Index Index Index
<S> <C> <C> <C> <C>
Dec-87 10000 10000 10000 10000
Dec-88 11657 11006 12501 10442
Dec-89 15344 12735 14535 10927
Dec-90 14867 11940 11703 11594
Dec-91 19388 16139 17093 11949
Dec-92 20864 18980 20239 12295
Dec-93 22961 21844 24060 12633
Dec-94 23263 20803 9983 12971
Dec-95 28363 28369 12825 13301
Dec-96 34872 36370 14940 13742
Dec-97 46537 45879 18282 13975
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gains or losses from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
8
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK -- 63.6%
- ---------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 8.5%
13,600 Accustaff Inc.++............................................................ $ 312,800
17,500 Albertsons, Inc. ........................................................... 829,063
9,800 Borders Group Inc.++ ....................................................... 306,863
24,271 Cendant Corp. .............................................................. 834,326
9,700 Colgate-Palmolive Co. ...................................................... 712,950
14,200 Costco Cos., Inc. .......................................................... 633,231
10,400 CVS Corp. .................................................................. 666,250
13,000 Family Dollar Stores Inc. .................................................. 381,063
10,500 Federated Dept. Stores Inc.++............................................... 452,156
10,500 Gannett Co. ................................................................ 649,031
7,800 Gap Inc. ................................................................... 276,413
7,100 Gillette Co. ............................................................... 713,106
14,100 Home Depot Inc. ............................................................ 830,138
5,200 Jones Apparel Group, Inc. .................................................. 223,600
10,248 Kimberly-Clark Corp. ....................................................... 505,355
4,700 Lowes Cos., Inc. ........................................................... 498,788
5,400 McDonalds Corp. ............................................................ 257,850
4,000 MGM Grand, Inc. ............................................................ 144,250
9,900 Mirage Resorts, Inc. ....................................................... 225,225
10,400 New York Times Co., Class A shares.......................................... 687,700
25,600 Procter & Gamble Co. ....................................................... 2,043,200
4,400 Rohm & Haas Co. ............................................................ 421,300
8,200 Ross Stores, Inc. .......................................................... 298,788
300 Stride Rite Corp. .......................................................... 3,600
5,800 Thomas & Betts Corp. ....................................................... 274,050
15,900 Time Warner Inc. ........................................................... 985,800
12,100 TJX Cos., Inc. ............................................................. 415,938
13,000 Torchmark Corp. ............................................................ 546,813
10,400 Unilever NV................................................................. 649,350
10,400 Walgreen Co. ............................................................... 326,300
43,000 Wal-Mart Stores, Inc. ...................................................... 1,695,813
12,477 Walt Disney Co. ............................................................ 1,236,003
- ---------------------------------------------------------------------------------------------------------
19,037,113
- ---------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.9%
9,200 Anheuser-Busch Cos., Inc. .................................................. 404,800
10,875 Archer-Daniels-Midland Co. ................................................. 235,852
10,400 Brunswick Corp. ............................................................ 315,250
3,700 Campbell Soup Co. .......................................................... 215,063
44,300 Coca-Cola Co. .............................................................. 2,951,488
21,800 Conagra Inc. ............................................................... 715,313
7,510 Dean Foods Co. ............................................................. 446,845
8,700 Interstate Bakeries Corp. .................................................. 325,163
7,800 Kellogg Co. ................................................................ 387,075
7,300 Liz Claiborne, Inc. ........................................................ 305,231
29,000 PepsiCo, Inc. .............................................................. 1,056,688
45,800 Philip Morris Cos., Inc. ................................................... 2,075,313
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CONSUMER STAPLES -- 4.9% (CONTINUED)
14,400 Sara Lee Corp. ............................................................. $ 810,900
5,300 Thiokol Corp. .............................................................. 430,625
6,400 Whirlpool Corp. ............................................................ 352,000
- ---------------------------------------------------------------------------------------------------------
11,027,606
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 0.4%
8,500 MidAmerican Energy Holdings Co. ............................................ 187,000
9,000 Schlumberger Ltd. .......................................................... 724,500
- ---------------------------------------------------------------------------------------------------------
911,500
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.7%
8,265 Allstate Corp. ............................................................. 751,082
6,700 Ambac Financial Group, Inc. ................................................ 308,200
9,200 American Express Co. ....................................................... 821,100
16,125 American International Group Inc. .......................................... 1,753,594
5,389 Banc One Corp. ............................................................. 292,690
7,100 Bank of New York Co., Inc. ................................................. 410,469
17,300 BankAmerica Corp. .......................................................... 1,262,900
4,300 Bankers Trust New York Corp. ............................................... 483,481
3,600 Barnett Banks Inc. ......................................................... 258,750
5,400 Baxter International Inc. .................................................. 272,363
8,136 Chase Manhattan Corp. ...................................................... 890,892
8,400 Citicorp.................................................................... 1,062,075
5,700 Comerica, Inc. ............................................................. 514,425
14,000 Federal Home Loan Mortgage Co. ............................................. 587,125
13,800 Federal National Mortgage Association....................................... 787,463
3,000 First Chicago NBD Corp. .................................................... 250,500
661 First Empire State Corp. ................................................... 307,365
11,300 First Union Corp. (N.C.).................................................... 579,125
4,700 Fleet Financial Group, Inc. ................................................ 352,206
5,700 Golden West Financial Corp. ................................................ 557,531
5,500 Hartford Financial Services Group Inc. ..................................... 514,594
3,400 J.P Morgan & Co. ........................................................... 383,775
4,000 KeyCorp New................................................................. 283,250
5,000 Mellon Bank Corp. .......................................................... 303,125
12,000 Merrill Lynch & Co., Inc. .................................................. 875,250
9,900 MGIC Investment Corp. ...................................................... 658,350
18,450 Morgan Stanley, Dean Witter, Discover and Co. .............................. 1,090,856
4,100 National City Corp. ........................................................ 269,575
14,000 NationsBank Corp. .......................................................... 851,375
4,600 Northern Trust Corp. ....................................................... 321,713
14,200 Norwest Corp. .............................................................. 548,475
5,900 PNC Bank Corp. ............................................................. 336,669
8,500 State Street Corp. ......................................................... 494,594
7,000 SunAmerica, Inc. ........................................................... 299,250
4,100 SunTrust Banks, Inc. ....................................................... 292,638
4,900 UnionBanCal Corp. .......................................................... 526,750
2,600 U.S. Bancorp................................................................ 291,038
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL SERVICES -- 9.7% (CONTINUED)
4,500 Washington Mutual Inc. ..................................................... $ 287,016
1,800 Wells Fargo & Co. .......................................................... 610,988
- ---------------------------------------------------------------------------------------------------------
21,742,617
- ---------------------------------------------------------------------------------------------------------
HEALTHCARE -- 7.6%
9,100 Abbott Laboratories......................................................... 596,619
16,400 American Home Products Corp. ............................................... 1,254,600
18,800 Beverly Enterprises, Inc. .................................................. 244,400
21,900 Bristol-Myers Squibb Co. ................................................... 2,072,288
491 Crescendo Pharmaceuticals Corp. ............................................ 5,677
16,800 Eli Lilly & Co. ............................................................ 1,169,700
11,100 Guidant Corp. .............................................................. 690,975
12,400 HBO & Co. .................................................................. 595,200
13,650 Health Management Associates Inc., Class A shares .......................... 344,663
7,300 Health Care and Retirement Corp. ........................................... 293,825
2,700 HealthCare COMPARE Corp. ................................................... 138,713
29,600 Johnson & Johnson........................................................... 1,949,900
5,800 Lincare Holdings, Inc. ..................................................... 330,600
23,100 Merck & Co. ................................................................ 2,454,375
9,500 Omnicare, Inc. ............................................................. 294,500
20,850 Pfizer Inc. ................................................................ 1,554,628
8,555 PharMerica, Inc. ........................................................... 89,560
11,319 Quorum Health Group, Inc. .................................................. 297,124
19,200 Schering-Plough Corp. ...................................................... 1,192,800
6,000 Shared Medical Systems Corp. ............................................... 396,000
7,300 Warner-Lambert Co. ......................................................... 905,200
3,200 Wellpoint Heath Networks Inc. .............................................. 135,200
- ---------------------------------------------------------------------------------------------------------
17,006,547
- ---------------------------------------------------------------------------------------------------------
INSURANCE -- 1.0%
9,600 Conseco Inc. ............................................................... 436,200
9,400 Equitable Cos., Inc. ....................................................... 467,650
10,600 Everest Reinsurance Holdings, Inc. ......................................... 437,250
6,800 Marsh & McLennan Cos., Inc.................................................. 507,025
3,950 Transatlantic Holdings, Inc. ............................................... 282,425
- ---------------------------------------------------------------------------------------------------------
2,130,550
- ---------------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 3.7%
6,143 Aeroquip-Vickers Inc. ...................................................... 301,391
7,600 Alumax Inc. ................................................................ 258,400
5,000 Aluminum Co. of America..................................................... 351,875
30,400 Bethlehem Steel Corp. ...................................................... 262,200
10,900 Crompton & Knowles Corp. ................................................... 288,850
8,600 Dayton Hudson Corp. ........................................................ 580,500
4,400 Eaton Corp. ................................................................ 392,700
20,200 E.I. Du Pont de Nemours & Co. .............................................. 1,213,263
4,900 Georgia-Pacific Corp. ...................................................... 297,675
4,900 Georgia-Pacific (Timber Group).............................................. 111,169
11,800 Lyondell Petrochemical Co. ................................................. 312,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
MATERIALS & PROCESSING -- 3.7% (CONTINUED)
12,100 Masco Corp. ................................................................ $ 615,588
6,000 Mercury General Corp. ...................................................... 331,500
10,700 Monsanto Co. ............................................................... 449,400
7,400 National Services Industries, Inc. ......................................... 366,763
918 Raytheon Co., Class A shares................................................ 45,283
7,600 Raytheon Co., Class B shares................................................ 383,800
10,500 United Technologies Corp. .................................................. 764,531
10,800 U.S. Industries, Inc. ...................................................... 325,350
11,700 USX-US Steel Group Inc. .................................................... 365,625
3,700 Weyerhauser Co. ............................................................ 181,531
- ---------------------------------------------------------------------------------------------------------
8,200,094
- ---------------------------------------------------------------------------------------------------------
OIL -- 4.7%
9,000 Amoco Corp. ................................................................ 766,125
6,200 Atlantic Richfield Co. ..................................................... 496,775
3,496 BJ Services Co. ............................................................ 251,494
10,600 Burlington Resources Inc. .................................................. 475,013
12,000 Chevron Corp. .............................................................. 924,000
5,900 Enron Corp. ................................................................ 245,219
7,100 Ensco International Inc. ................................................... 237,850
42,700 Exxon Corp. ................................................................ 2,612,706
14,300 Mobil Corp. ................................................................ 1,032,281
5,000 Phillips Petroleum Co. ..................................................... 243,125
31,600 Royal Dutch Petroleum Co. ADR............................................... 1,712,325
16,800 Texaco Inc. ................................................................ 913,500
14,200 Unocal Corp. ............................................................... 551,138
- ---------------------------------------------------------------------------------------------------------
10,461,551
- ---------------------------------------------------------------------------------------------------------
PRODUCER DURABLES -- 5.6%
10,400 Allied Signal Inc. ......................................................... 404,950
9,200 AVX Corp. .................................................................. 169,625
18,270 Boeing Co. ................................................................. 894,088
7,400 Caterpillar Inc. ........................................................... 359,363
11,900 CBS Corp. .................................................................. 350,306
11,400 Deere & Co. ................................................................ 664,763
4,500 Dow Chemical Co. ........................................................... 456,750
8,200 Emerson Electric Co. ....................................................... 462,788
15,200 Entergy Corp. .............................................................. 455,050
58,400 General Electric Co. ....................................................... 4,285,100
6,700 Honeywell Inc. ............................................................. 458,950
9,900 Illinois Tool Works, Inc. .................................................. 595,238
5,500 International Paper Co. .................................................... 237,188
3,900 King World Productions, Inc. ............................................... 225,225
7,200 Knight-Ridder, Inc. ........................................................ 374,400
3,680 Lockheed Martin Corp. ...................................................... 362,480
12,700 LTV Corp. .................................................................. 123,825
5,000 Minnesota Mining & Manufacturing Co. ....................................... 410,313
6,200 Pitney Bowes Inc. .......................................................... 557,613
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
PRODUCER DURABLES -- 5.6% (CONTINUED)
9,400 Raychem Corp. .............................................................. $ 404,788
11,500 20th Century Industries..................................................... 299,000
- ---------------------------------------------------------------------------------------------------------
12,551,803
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 8.8%
16,300 Applied Materials, Inc. .................................................... 490,528
17,850 Cisco Systems, Inc. ........................................................ 996,253
23,550 Compaq Computer Corp. ...................................................... 1,329,103
6,462 Computer Associates International, Inc. .................................... 341,678
6,600 Dell Computer Corp. ........................................................ 554,606
23,000 Edison International........................................................ 625,313
7,400 Fluor Corp. ................................................................ 276,575
14,800 Hewlett-Packard Co. ........................................................ 925,000
27,800 Intel Corp. ................................................................ 1,952,081
19,000 International Business Machines Corp. ...................................... 1,986,688
11,569 Lucent Technologies Inc. ................................................... 924,074
9,700 Meredith Corp. ............................................................. 346,169
25,100 Microsoft Corp. ............................................................ 3,243,391
11,000 Motorola Inc. .............................................................. 627,688
18,000 Oracle Corp. ............................................................... 401,063
5,200 PacifiCorp.................................................................. 142,025
8,600 Parker-Hannifin Corp. ...................................................... 394,525
6,500 SCI Systems, Inc. .......................................................... 283,156
6,500 Sun Microsystems Inc. ...................................................... 259,594
10,700 Sysco Corp. ................................................................ 487,519
8,600 Tellabs, Inc. .............................................................. 453,919
7,400 Texas Instruments Inc. ..................................................... 333,000
9,200 Textron, Inc. .............................................................. 575,000
10,300 Tyco International Ltd. .................................................... 464,144
13,600 USX Marathon Group.......................................................... 459,000
16,800 VLSI Technology, Inc. ...................................................... 396,900
6,200 Xerox Corp. ................................................................ 457,638
- ---------------------------------------------------------------------------------------------------------
19,726,630
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.2%
2,900 Burlington Northern Railroad Co. ........................................... 269,519
12,800 Chrysler Corp. ............................................................. 450,400
11,200 Continental Airlines, Inc., Class B shares.................................. 539,000
32,500 Ford Motor Co. ............................................................. 1,582,344
14,400 General Motors Corp. ....................................................... 873,000
13,300 Navistar International Corp. ............................................... 330,006
7,200 Norfolk Southern Corp. ..................................................... 221,850
4,800 Phelps Dodge Corp. ......................................................... 298,800
4,000 Union Pacific Corp. ........................................................ 249,750
- ---------------------------------------------------------------------------------------------------------
4,814,669
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 6.5%
9,700 Airtouch Communications Inc. ............................................... 403,156
10,500 Ameritech Corp. ............................................................ 845,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
UTILITIES -- 6.5% (CONTINUED)
31,000 American Telephone & Telegraph Corp. ....................................... $ 1,898,750
9,900 Baltimore Gas & Electric Co. ............................................... 337,219
14,574 Bell Atlantic Corp. ........................................................ 1,326,234
19,000 Bellsouth Corp. ............................................................ 1,069,938
4,800 Chancellor Media Corp. ..................................................... 358,350
6,600 Clear Channel Communications Inc. .......................................... 524,288
4,700 Columbia Gas Systems........................................................ 369,244
3,800 Duke Energy Corp. .......................................................... 210,425
9,800 FPL Group Inc. ............................................................. 580,038
18,300 GTE Corp. .................................................................. 956,175
4,900 Houston Industries, Inc. ................................................... 130,769
12,700 MCI Communications Corp. ................................................... 544,116
4,700 Northern Telecom Ltd. ...................................................... 418,300
22,827 SBC Communications, Inc. ................................................... 1,672,078
8,700 Sonat Inc. ................................................................. 398,025
12,700 Southern Co. ............................................................... 328,613
8,200 Sprint Corp. ............................................................... 480,725
10,000 Texas Utilities Co. ........................................................ 415,625
8,700 US West Communications Group................................................ 392,562
31,300 WorldCom Inc. .............................................................. 946,825
- ---------------------------------------------------------------------------------------------------------
14,606,705
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $98,700,190).................................... 142,217,385
- ---------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 2.3%
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.9%
2,000 Finova Finance, 5.500%...................................................... 140,000
4 Fuji Finance Bermuda Trust-Sponsored ADR, 0.250%............................ 35,495
14,564 Equity Residential Properties, 7.250%....................................... 360,459
4,000 Excel Reality Trust Inc., 2.125%............................................ 121,375
8,000 Merry Land & Investment, Series C, $2.150................................... 223,500
8,000 National Australia Bank, 7.875%............................................. 227,500
6,000 Newell Financial Trust, 5.250%.............................................. 310,500
4,000 St. Paul Capital, 6.000%.................................................... 288,000
5,000 Tosco Financial Trust, 5.750%............................................... 321,875
- ---------------------------------------------------------------------------------------------------------
2,028,704
- ---------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 1.4%
4,000 Amcor Ltd., 7.250%.......................................................... 190,000
10,000 Calenergy Capital II, 6.250%+............................................... 525,000
12,000 International Paper, 5.250%................................................. 586,500
10,990 News Corp. Ltd., 5.000%..................................................... 978,110
9,000 Occidental Petroleum Corp., $3.025+......................................... 590,625
4,000 Rouse Co., Series B, $3.000................................................. 202,000
- ---------------------------------------------------------------------------------------------------------
3,072,235
- ---------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $4,730,477)...................... 5,100,939
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
BONDS -- 18.0%
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.5%
$ 500,000 Great Western Financial, 6.375% due 7/1/00.................................. $ 501,875
5,000,000 Nationwide Health, 6.900% due 10/1/37....................................... 5,143,750
- ---------------------------------------------------------------------------------------------------------
5,645,625
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT - NATIONAL -- 0.9%
2,000,000 Canada - Global Bond, 6.375% due 7/21/05.................................... 2,040,000
- ---------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 9.0%
2,000,000 Becton Dickinson, 8.800% due 3/1/01......................................... 2,147,500
2,000,000 Cox Communications Inc., 6.875% due 6/15/05................................. 2,045,000
3,000,000 IBM International, 6.250% due 10/10/2000.................................... 3,012,222
200,000 Omnicom Inc., 2.250% due 1/6/13............................................. 210,750
4,000,000 Philip Morris Co., Inc., 7.750% due 1/15/27................................. 4,335,000
1,000,000 Signet Master Trust, 1993-4b, 5.800% due 3/15/99............................ 997,830
2,020,000 Tele-Comm Inc., 9.650% due 10/1/03.......................................... 2,234,625
5,000,000 Xerox Corp., 6.250% due 11/15/26++.......................................... 5,081,250
- ---------------------------------------------------------------------------------------------------------
20,064,177
- ---------------------------------------------------------------------------------------------------------
MISCELLANEOUS -- 1.3%
3,000,000 TRW Inc., 6.250% due 1/5/98................................................. 2,997,917
- ---------------------------------------------------------------------------------------------------------
OIL -- 0.2%
500,000 Apache Corp, 6.000% due 1/15/02............................................. 571,250
- ---------------------------------------------------------------------------------------------------------
TELEPHONE -- 2.3%
5,000,000 Bellsouth Cap Funding, 6.040% due 11/15/26.................................. 5,056,250
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.8%
3,000,000 CSX, 6.950% due 5/1/27+..................................................... 3,078,750
880,199 Wilmington Trust, 9.250% due 1/2/07+........................................ 903,366
- ---------------------------------------------------------------------------------------------------------
3,982,116
- ---------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $38,805,078)................................. 40,357,335
- ---------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 3.2%
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.2%
500,000 USF&G Corp., zero coupon due 3/3/09......................................... 345,000
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT - NATIONAL -- 0.3%
500,000 Republic of Italy, 5.000% due 6/28/01....................................... 615,000
- ---------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 2.4%
1,108,000 Alza Corp., zero coupon due 7/14/14......................................... 509,680
500,000 Athena Neurosciences Inc., 4.750% due 11/15/04+............................. 511,875
300,000 Berkshire Hathaway, 1.000% due 12/2/01...................................... 479,625
500,000 CUC International Inc., 3.000% due 2/15/02+................................. 630,000
300,000 GVC Corp. Ltd., zero coupon due 5/21/02+.................................... 315,000
500,000 Home Depot Inc., 3.250% due 10/1/01......................................... 680,000
300,000 Inco Ltd., 7.750% due 3/15/16............................................... 300,750
300,000 Indian Petrochemicals, 2.500% due 3/11/02+ ++............................... 288,000
1,000,000 Marriott International, zero coupon due 3/25/11............................. 647,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
INDUSTRIAL -- 2.4% (CONTINUED)
$ 100,000 Omnicom, 4.250% due 1/3/07.................................................. $ 139,875
500,000 Scholastic Corp., 5.000% due 8/15/05........................................ 443,125
200,000 Taiwan Semiconductor, zero coupon due 7/3/02+............................... 214,000
200,000 Telefonica Europa, 2.000% due 7/15/02....................................... 216,500
- ---------------------------------------------------------------------------------------------------------
5,375,930
- ---------------------------------------------------------------------------------------------------------
UTILITY - ELECTRIC -- 0.3%
600,000 Potomac Electric Power Co., 5.000% due 9/1/02............................... 582,750
- ---------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $6,037,041)...................... 6,918,680
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECTOR -- 11.8%
375,000 U.S. Treasury Bill, 5.010% due 3/12/98++.................................... 371,350
3,000,000 U.S. Treasury Note, 5.875% due 9/30/02...................................... 3,017,520
3,000,000 U.S. Treasury Note, 7.875% due 11/15/04..................................... 3,355,470
2,000,000 U.S. Treasury Note, 6.500% due 8/15/05...................................... 2,087,540
3,000,000 U.S. Treasury Note, 6.125% due 8/15/07++.................................... 3,084,180
5,000,000 U.S. Treasury Strips, zero coupon due 2/15/04............................... 3,536,400
4,950,003 FHLMC, 8.00% due 9/1/04..................................................... 5,115,482
299,635 FHLMC, 8.500% due 9/1/02.................................................... 308,435
3,500,000 FNMA Dwarf, 6.00% due 5/15/12#.............................................. 3,439,835
155,906 FNMA, 8.500% due 3/1/05..................................................... 161,997
892,165 GNMA, 7.500% due 12/15/25 @................................................. 914,742
323,403 GNMA, 9.000% due 12/15/16 @................................................. 346,043
499,110 GNMA, 9.500% due 3/15/20 @.................................................. 540,288
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR (Cost -- $25,974,482).......................... 26,279,282
- ---------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $174,247,268)................................ 220,873,621
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.1%
2,527,000 Citibank, 6.35% due 1/2/98; Proceeds at maturity -- $2,527,889; (Fully
collateralized by U.S. Treasury Notes, 6.625% due 4/30/02; Market
value -- $2,580,189) (Cost -- $2,527,000)................................... 2,527,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $176,774,268*)........................... $223,400,621
- ---------------------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
+ Security is exempt from registration under rule 144A of the Securities Act of
1933. This security may be sold in transactions that are exempt from
registration, normally to qualified institutional buyers.
++ Security is segregated by the Custodian for futures contract commitments
and/or for securities traded on a "to-be-announced" basis.
# Security is traded on a "to-be-announced" basis (See Note 8).
@ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS AND NOTES -- 91.4%
- ----------------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 1.0%
$250,000 B Stanadyne Automotive Corp., Sr. Sub. Notes, 10.250% due 12/15/07+...... $ 250,000
- ----------------------------------------------------------------------------------------------------------
CHEMICALS -- 2.3%
100,000 B+ Huntsman Corp., Sr. Sub. Notes, 9.500% due 7/1/07+..................... 105,000
150,000 B- Koppers Industry Inc., Sr. Sub. Notes, 9.875% due 12/1/07+............. 154,500
300,000 B Polymer Group Inc., Sr. Sub. Notes, Series B, 9.000% due 7/1/07........ 300,000
- ----------------------------------------------------------------------------------------------------------
559,500
- ----------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 2.3%
200,000 B- Amscan Holdings, Sr. Sub. Notes, 9.875% due 12/15/07+.................. 204,500
340,000 NR French Fragrances Inc., Sr. Notes, Series B, 10.375% due 5/15/07+...... 358,700
- ----------------------------------------------------------------------------------------------------------
563,200
- ----------------------------------------------------------------------------------------------------------
ENERGY -- 5.8%
125,000 B Anker Coal Group Inc., Sr. Notes, 9.750% due 10/1/07+.................. 125,000
74,000 B- Belden Blake Corp., Sr. Sub. Notes, Series B, 9.875% due 6/15/07+...... 75,017
230,000 B Energy Corp. of America, Sr. Sub. Notes, Series A, 9.500% due
5/15/07.............................................................. 230,575
200,000 B- Panaco Inc., Sr. Notes, 10.625% due 10/1/04+........................... 201,500
400,000 B+ Parker Drilling Corp., Sr. Notes, Series B, 9.750% due 11/15/06+....... 432,000
200,000 B Southwest Royalties Inc., Sr. Notes, 10.500% due 10/15/04+............. 198,000
65,000 B+ Transamerican Energy Corp., Sr. Secured Notes, 11.500% due 6/15/02+.... 63,863
100,000 BB Triton Energy Ltd., Sr. Notes, 8.750% due 4/15/02...................... 102,500
- ----------------------------------------------------------------------------------------------------------
1,428,455
- ----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.1%
100,000 B- American Banknote, Sr. Sub. Notes, 11.250% due 12/1/07+(a)............. 100,375
400,000 B- B. F. Saul Real Estate Investment Trust, Sr. Secured Notes, Series B,
11.625% due 4/1/02+.................................................. 428,000
250,000 B- ITT Publimedia, Sr. Sub. Notes, 9.375% due 9/15/07..................... 263,750
464,000 B- Unicco Service Finance, Sr. Sub. Notes, 9.875% due 10/15/07+........... 465,740
- ----------------------------------------------------------------------------------------------------------
1,257,865
- ----------------------------------------------------------------------------------------------------------
FOOD AND DRUG -- 15.2%
350,000 B AFC Enterprises Inc., Sr. Sub. Notes, 10.250% due 5/15/07+............. 370,125
500,000 B+ Americold Corp., 1st Mortgage, Series B, 11.500% due 3/1/05............ 535,625
150,000 NR Archibald Candy Corp., Sr. Secured Notes, 10.250% due 7/1/04+.......... 157,125
500,000 B- Duane Reade Corp., Sr. Notes, Series B, 12.000% due 9/15/02............ 525,000
285,225 NR Food 4 Less Holdings Inc., Sr. Sub. Debentures, Payment-in-kind,
13.625% due 6/15/07.................................................. 347,974
236,896 NR FRD Acquisition Co., Sr. Notes, Series B, 12.500% due 7/15/04.......... 257,032
290,000 BB- Fresh Del Monte Produce N.V., Sr. Notes, 10.000% due 5/1/03............ 303,412
180,000 B Friendly Ice Cream Corp., Sr. Notes, 10.500% due 12/1/07............... 181,350
150,000 B+ Mrs. Fields Original Cookies Inc., Sr. Notes, 10.125% due 12/1/01+..... 151,125
80,000 B Penn Traffic Co., Sr. Notes, 8.625% due 12/15/03....................... 68,500
90,000 B- Pueblo Xtra International Inc., Sr. Notes, 9.500% due 8/1/03........... 85,500
300,000 B Ralph's Supermarket Inc., Sr. Sub. Notes, 10.450% due 6/15/04.......... 338,250
140,000 B+ Shoppers Food Warehouse Corp., Sr. Notes, 9.750% due 6/15/04+.......... 143,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
FOOD AND DRUG -- 15.2% (CONTINUED)
$100,000 B Toms Foods Inc., Sr. Notes, 10.500% due 11/1/04+....................... $ 100,000
210,000 NR Windy Hill Pet Food Inc., Sr. Sub. Notes, 9.750% due 5/15/07+.......... 218,925
- ----------------------------------------------------------------------------------------------------------
3,783,443
- ----------------------------------------------------------------------------------------------------------
FOREST PRODUCTS -- 1.2%
300,000 B Silgan Holdings Inc., Sr. Sub. Debentures, 9.000% due 6/1/09+.......... 308,625
- ----------------------------------------------------------------------------------------------------------
GAMING/LEISURE -- 5.8%
50,000 B Alliance Gaming Corp., Sr. Sub Notes, 10.000% due 8/1/07+.............. 50,375
200,000 B+ Autotote Corp., Sr. Notes, 10.875% due 8/1/04.......................... 209,000
407,000 B- Bally's Total Fitness Holdings Corp., Sr. Sub. Notes, 9.875% due
10/15/07+............................................................ 411,070
100,000 NR Colorado Gaming Entertainment Co., Sr. Secured Notes, Payment-in-kind,
12.000% due 6/1/03................................................... 108,000
100,000 B- Fitzgerald Gaming Corp., Sr. Secd. Notes, 12.25% due 12/15/04+......... 101,000
180,000 BB Grand Casinos Inc., 1st Mortgage Notes, 10.125% due 12/1/03............ 194,400
350,000 B+ Hollywood Casino Corp., Guaranteed Sr. Secured Notes, 12.750% due
11/1/03.............................................................. 374,500
- ----------------------------------------------------------------------------------------------------------
1,448,345
- ----------------------------------------------------------------------------------------------------------
HEALTHCARE -- 0.7%
160,000 B Physician Sales and Services Inc., Sr. Sub Notes, 8.500% due
10/1/07+............................................................. 164,800
- ----------------------------------------------------------------------------------------------------------
HOUSING -- 7.3%
421,300 NR Encor Group Inc., Sub. Notes, Series C, 11.000% due 12/15/01........... 442,365
350,000 BB+ Greystone Homes Inc., Sr. Notes, 10.750% due 3/1/04.................... 382,812
100,000 BB- Johns Manville International Group Inc., Sr. Notes, 10.875% due
12/15/04............................................................. 111,000
200,000 BB Kaufman Broad Home Corp., Sr. Notes, 7.750% due 10/15/04............... 198,000
150,000 B- Kevco Inc., Sr. Sub. Notes, 10.375% due 12/1/07+....................... 153,375
250,000 B+ NVR Inc., Sr. Notes, 11.000% due 4/15/03............................... 270,625
255,000 B- Reliant Building Products Inc., Sr. Sub. Notes, Series B, 10.875% due
5/1/04+.............................................................. 266,156
- ----------------------------------------------------------------------------------------------------------
1,824,333
- ----------------------------------------------------------------------------------------------------------
INFORMATION/TECHNOLOGY -- 0.7%
160,000 B+ Unisys Corp., Sr. Notes, Series B, 12.000% due 4/15/03................. 181,200
- ----------------------------------------------------------------------------------------------------------
MANUFACTURING -- 6.2%
250,000 B+ Burke Industries Inc., Sr. Notes, 10.00% due 8/15/07+.................. 260,000
250,000 B+ Pillowtex Corp., Sr. Sub. Notes, 9.000% due 12/15/07+.................. 255,938
250,000 B- Roller Bearing Co., Guaranteed Sr. Sub. Notes, 9.625% due 6/15/07+..... 251,875
50,000 B Selmer Co., Inc., Sr. Sub. Notes, 11.000% due 5/15/00.................. 55,187
100,000 B- Sullivan Graphics Inc., Sr. Sub. Notes, 12.750% due 8/1/05+............ 102,000
267,000 B- Terex Corp., Sr. Secured Notes, 13.250% due 5/15/02+................... 305,047
140,000 B- Viasystems Inc., Sr. Sub. Notes, 9.750% due 6/1/07+.................... 144,725
150,000 B- Werner Holdings Co., Inc., Sr. Sub. Notes, 10.000% due 11/15/07+....... 154,125
- ----------------------------------------------------------------------------------------------------------
1,528,897
- ----------------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 15.5%
300,000 B Affinity Group Inc., Sr. Sub. Notes, 11.500% due 10/15/03.............. 320,625
American Communications Services:
95,000 NR Sr. Disc. Notes, step bond to yield 12.656% due 11/1/05.............. 76,475
100,000 NR Sr. Notes, 13.750% due 7/15/07+...................................... 118,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
MEDIA/ENTERTAINMENT -- 15.5% (CONTINUED)
$200,000 BB+ Cablevision Systems Corp., Sr. Notes, 7.875% due 12/15/07.............. $ 204,750
500,000 NR Commodore Media Inc., Sr. Sub. Notes, 7.500% due 5/1/03................ 557,500
350,000 B- Diamond Cable Communication PLC., Sr. Discount Notes, step bond to
yield 10.750% due 2/15/07+........................................... 239,750
200,000 B+ James Cable Partners LP Fin Corp., Sr. Notes, Series B, 10.750% due
8/15/04.............................................................. 211,500
250,000 B- Kabelmedia Holdings GMBH, Sr. Discount Notes, step bond to yield
12.840% due 8/1/06................................................... 183,437
400,000 B- Paxson Communications Corp., Sr. Sub. Notes, 11.625% due 10/1/02+...... 429,000
200,000 B- Pegasus Communications Corp., Sr. Notes, 9.625% due 10/15/05+.......... 205,500
400,000 B- Pegasus Media Communications Inc., Notes, Series B, 12.500% due
7/1/05+.............................................................. 457,000
250,000 B- Plitt Theaters Inc., Sr. Sub. Notes, 10.875% due 6/15/04............... 269,375
100,000 B- Source Media Inc., Sr. Notes, 12.000% due 11/01/04+.................... 99,000
150,000 B+ Telewest Communications PLC, Sr. Discount Debentures, step bond to
yield 10.751% due 10/1/07............................................ 117,000
150,000 B- Transwestern Publishing Co., Sr. Sub. Notes, 9.625% due 11/15/07+...... 155,250
240,000 B- United International Holdings Inc. Ltd., Sr. Secured Discount Notes,
zero coupon to yield 12.160% due 11/15/99............................ 196,800
- ----------------------------------------------------------------------------------------------------------
3,841,462
- ----------------------------------------------------------------------------------------------------------
METALS/MINERALS -- 1.6%
300,000 B- ACME Metals Inc., Sr. Notes, 10.875% due 12/15/07+..................... 294,750
100,000 NR Continental Global Group Corp., Sr. Notes, 11.000% due 4/1/07.......... 107,000
- ----------------------------------------------------------------------------------------------------------
401,750
- ----------------------------------------------------------------------------------------------------------
PAPER -- 3.4%
400,000 B Mail-Well Corp., Sr. Sub. Notes, 10.500% due 2/15/04+.................. 430,000
270,000 BB- Paperboard Industries International Inc., Sr. Notes, 8.375% due
9/15/07+............................................................. 274,725
133,000 B- Riverwood International Corp., Sr. Notes, 10.625% due 8/1/07........... 134,995
- ----------------------------------------------------------------------------------------------------------
839,720
- ----------------------------------------------------------------------------------------------------------
RETAIL -- 3.2%
500,000 B+ KMart Corp., Medium Term Notes, 7.900% due 12/14/00.................... 500,625
300,000 BB- Specialty Retailers Inc., Sr. Notes, 8.500% due 7/15/05+............... 306,000
- ----------------------------------------------------------------------------------------------------------
806,625
- ----------------------------------------------------------------------------------------------------------
SERVICES -- 5.1%
100,000 B- Details Inc., Sr. Sub. Notes, 10.00% due 11/15/05+..................... 102,750
260,000 CCC+ Florists Transworld Delivery Inc., Sr. Sub. Notes, Series B, 14.000%
due 12/15/01......................................................... 291,200
150,000 B- ICF Kaiser International Inc., Sr. Sub. Notes, 13.00% due 12/31/03..... 157,500
250,000 B- Production Resource Group LLC, Sr. Sub. Notes, 11.500% due 1/15/08+.... 251,250
260,000 B- Richmont Marketing Specialists, Sr. Sub. Notes, 10.125% due
12/15/07+............................................................ 264,550
200,000 B- Williams Scotsman Inc., Sr. Notes, 9.875% due 6/1/07+.................. 207,000
- ----------------------------------------------------------------------------------------------------------
1,274,250
- ----------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 5.3%
400,000 B- Communications Instruments Inc., Sr. Sub. Notes, 10.000% due
9/15/04+............................................................. 408,000
400,000 NR Jordan Telecommunications Products, Sr. Discount Notes, Series B, step
bond to yield 10.629% due 08/1/07+................................... 322,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
TELECOMMUNICATIONS -- 5.3% (CONTINUED)
$150,000 NR Knology Holdings Inc., Sr. Discount Notes, step bond to yield 11.875%
due 10/15/07+(a)..................................................... $ 82,500
240,000 CCC Nextel Communications Inc., Sr. Discount Notes, step bond to yield
9.750% due 10/31/07+................................................. 146,400
200,000 B- TSF Communications Corp., Sr. Sub. Notes, 10.375% due 11/1/07+......... 199,500
200,000 B- USN Communications Inc., Sr. Notes, step bond to yield 14.618% due
8/15/04.............................................................. 153,500
- ----------------------------------------------------------------------------------------------------------
1,311,900
- ----------------------------------------------------------------------------------------------------------
TEXTILES -- 0.8%
200,000 B+ Delta Mills Inc., Sr. Notes, 9.625% due 9/1/07+........................ 204,000
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.9%
260,000 B Atlantic Express Transportation Corp., Sr. Secured Notes, 10.750% due
2/1/04+.............................................................. 276,250
300,000 B- Atlas Air Inc., Sr. Notes, 10.750% due 8/1/05.......................... 317,250
130,000 B+ Kitty Hawk Inc., Sr. Secured Notes, 9.950% due 11/15/04+............... 132,925
- ----------------------------------------------------------------------------------------------------------
726,425
- ----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $21,621,626).................. 22,704,795
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
STOCK -- 2.0%
- ----------------------------------------------------------------------------------------------------------
ENERGY -- 0.3%
264 BayCorp Holdings Ltd. ............................................... 1,749
740 Paxson Communications Corp., Preferred, Payment-in-kind, Exchangeable
12.500%............................................................ 74,740
- ----------------------------------------------------------------------------------------------------------
76,489
- ----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.8%
1,300 SFX Broadcasting Inc., Series E, Preferred, Payment-in-kind,
Exchangeable 12.625%............................................... 154,700
2,000 Source Media Inc., Preferred, Payment-in-kind, Exchangeable
13.500%............................................................ 50,500
- ----------------------------------------------------------------------------------------------------------
205,200
- ----------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.9%
2,000 American Communications Services Inc., Preferred, Payment-in-kind
Exchangeable 12.750%+.............................................. 209,000
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $461,588)....................................... 490,689
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
WARRANTS -- 0.1%
- ----------------------------------------------------------------------------------------------------------
MANUFACTURING -- 0.1%
1,600 Terex Corp., Expire 5/15/02++........................................ $ 28,800
- ----------------------------------------------------------------------------------------------------------
METAL PRODUCTS -- 0.0%
500 Gulf State Steel Alabama Inc., Expire 4/15/03+++..................... 2,500
2,000 USN Communications Inc., Expire 8/15/04.............................. 20
- ----------------------------------------------------------------------------------------------------------
2,520
- ----------------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $17)......................................... 31,320
- ----------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $22,083,231).......................... 23,226,804
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT -- 6.5%
$1,603,000 Citibank, 6.350% due 1/2/98, Proceeds at maturity -- $1,603,563
(Fully collaterized by U.S. Treasury Notes, 6.625% due 4/30/02;
Market value -- $1,671,128) (Cost -- $1,603,000)..................... 1,603,000
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $23,686,231**).................... $24,829,804
- ----------------------------------------------------------------------------------------------------------
</TABLE>
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Security issued with attached warrants.
++ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 22 for definition of bond ratings.
SUMMARY OF BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
STANDARD & % OF TOTAL CORPORATE
MOODY'S AND/OR POOR'S BONDS & NOTES
- ---------------------------------------------------------
<S> <C> <C> <C>
B B 76.0%
Ba BB 9.0
Caa CCC 1.0
NR NR 14.0
- ---------------------------------------------------------
100.0%
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PG$PCN>
- --------------------------------------------------------------------------------
BOND RATINGS
All ratings are by Standard & Poor's Rating Service ("Standard & Poor's"),
except that those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings 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>
22
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK -- 85.0%
- ---------------------------------------------------------------------------------------------------------
AIRCRAFT & AEROSPACE -- 1.5%
99,700 Textron Inc. .............................................................. $ 6,231,250
- ---------------------------------------------------------------------------------------------------------
AIRLINES -- 3.1%
15,850 Alaska Air Group, Inc. .................................................... 614,188
135,225 UAL Corp.++................................................................ 12,508,312
- ---------------------------------------------------------------------------------------------------------
13,122,500
- ---------------------------------------------------------------------------------------------------------
BANKING -- 5.4%
57,800 Bank of New York........................................................... 3,341,563
103,190 Citicorp................................................................... 13,047,086
42,825 Mercantile Bancorp, Inc.................................................... 2,633,738
11,016 Wells Fargo & Co. ......................................................... 3,739,244
- ---------------------------------------------------------------------------------------------------------
22,761,631
- ---------------------------------------------------------------------------------------------------------
BEVERAGE -- 6.0%
93,250 Coca-Cola Co............................................................... 6,212,781
526,100 Coca-Cola Enterprises...................................................... 18,709,431
- ---------------------------------------------------------------------------------------------------------
24,922,212
- ---------------------------------------------------------------------------------------------------------
CHEMICAL -- 6.2%
175,575 Cytec Industries Inc.++.................................................... 8,241,052
375,350 Monsanto Co. .............................................................. 15,764,700
75,070 Solutia Inc. .............................................................. 2,003,431
- ---------------------------------------------------------------------------------------------------------
26,009,183
- ---------------------------------------------------------------------------------------------------------
COMMUNICATIONS -- 0.9%
65,000 Qwest Communications International, Inc.++................................. 3,867,500
- ---------------------------------------------------------------------------------------------------------
COMPUTERS -- 6.7%
200,750 Compaq Computer Corp. ..................................................... 11,329,828
196,150 Dell Computer Corp.++...................................................... 16,476,600
- ---------------------------------------------------------------------------------------------------------
27,806,428
- ---------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 1.8%
375,000 US Office Products Co...................................................... 7,359,375
- ---------------------------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS -- 4.0%
227,450 General Electric Co. ...................................................... 16,689,144
- ---------------------------------------------------------------------------------------------------------
DRUGS AND HEALTHCARE -- 13.7%
296,950 Eli Lilly & Co. ........................................................... 20,675,144
253,225 Pfizer, Inc. .............................................................. 18,881,089
143,375 Warner-Lambert Co. ........................................................ 17,778,500
- ---------------------------------------------------------------------------------------------------------
57,334,733
- ---------------------------------------------------------------------------------------------------------
ELECTRONICS -- 1.4%
126,950 Texas Instruments Inc. .................................................... 5,712,750
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL SERVICES -- 12.3%
226,425 Charles Schwab Corp........................................................ $ 9,495,698
179,325 Federal Home Loan Mortgage Corp............................................ 7,520,442
196,655 Federal National Mortage Association....................................... 11,221,626
120,905 Merrill Lynch & Co., Inc................................................... 8,818,508
63,300 SLM Holding Corp. ......................................................... 8,806,613
98,075 State Street Boston Corp. ................................................. 5,706,739
- ---------------------------------------------------------------------------------------------------------
51,569,626
- ---------------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 2.0%
277,400 Delta & Pine Land Co....................................................... 8,460,700
- ---------------------------------------------------------------------------------------------------------
OIL & GAS -- 6.8%
169,500 Diamond Offshore Drilling, Inc............................................. 8,157,188
204,375 Schlumberger Ltd........................................................... 16,452,187
83,250 Transocean Offshore Inc. .................................................. 4,011,609
- ---------------------------------------------------------------------------------------------------------
28,620,984
- ---------------------------------------------------------------------------------------------------------
RETAIL -- 0.6%
69,750 Fred Meyer, Inc.++......................................................... 2,537,156
- ---------------------------------------------------------------------------------------------------------
SOFTWARE -- 9.4%
85,900 America Online, Inc. ...................................................... 7,661,206
150,500 Cisco Systems, Inc.++...................................................... 8,390,375
158,650 J.D. Edwards & Co. ........................................................ 4,680,175
142,350 Microsoft Corp.++.......................................................... 18,398,738
- ---------------------------------------------------------------------------------------------------------
39,130,494
- ---------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.2%
167,325 Lucent Technologies Inc. .................................................. 13,365,084
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $258,949,318).................................. 355,500,750
- ---------------------------------------------------------------------------------------------------------
FOREIGN STOCK -- 2.1%
2,183 Philips Electronics........................................................ 130,939
96,000 Sony Corp. ................................................................ 8,564,506
- ---------------------------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $8,786,658)................................... 8,695,445
- ---------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $267,735,976)............................... 364,196,195
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT -- 12.9%
$54,062,000 Citibank, 6.350% due 1/2/98; Proceeds at maturity -- $54,081,068 (Fully
collateralized by U.S. Treasury Notes, 6.125% due 12/31/01; Market
value -- $50,562,500; and U.S. Treasury Notes, 6.625% due 4/30/02; Market
value -- $4,581,788) (Cost -- $54,062,000)................................. $ 54,062,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $321,797,976*).......................... $418,258,195
- ---------------------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
CASH INCOME TRUST
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 97.8%
$ 400,000 Asset Securitization Corp. matures 1/26/98........................ 5.97% $ 398,364
400,000 Bell Atlantic Financial matures 1/6/98............................ 5.76 399,684
400,000 BHP Finance (USA) Inc. matures 1/26/98............................ 5.76 398,359
500,000 Campbell Soup Co. matures 1/22/98................................. 5.78 498,338
500,000 Ciesco L.P. matures 1/22/98....................................... 5.83 498,323
400,000 Corporate Asset Funding matures 1/8/98............................ 5.70 399,563
450,000 Daimler-Benz North America matures 1/20/98........................ 5.77 448,649
500,000 Dillard Investment Co., Inc., matures 1/13/98..................... 6.03 499,008
300,000 Export Development Corp. matures 1/26/98.......................... 5.63 298,844
400,000 Ford Motor Credit Corp. matures 1/8/98............................ 5.69 399,564
500,000 General Electric Capital Corp. matures 2/19/98.................... 5.83 496,087
400,000 General Mills Inc. matures 1/8/98................................. 5.73 399,561
500,000 Goldman, Sachs Group L.P. matures 1/29/98......................... 5.93 497,725
500,000 H.J. Heinz Co. matures 2/3/98..................................... 5.83 497,365
500,000 Household Finance Corp. mature 1/7/98............................. 5.64 to 5.90 499,530
400,000 IBM Credit Corp. matures 1/7/98................................... 5.73 399,623
500,000 Johnson Controls matures 1/20/98.................................. 5.96 498,448
400,000 J.P. Morgan matures 1/6/98........................................ 5.66 399,690
400,000 Manitoba Hydro Electric matures 2/19/98........................... 5.75 396,913
400,000 Morgan Stanley matures 1/22/98.................................... 5.78 398,670
500,000 Northern Indiana Public Service Corp. matures 1/21/98............. 5.93 498,375
500,000 Pearson, Inc. matures 1/12/98..................................... 5.93 499,107
500,000 Potomac Electric Power Co. matures 1/9/98......................... 6.18 499,322
500,000 PPG Industries matures 1/29/98.................................... 5.71 497,811
500,000 Progress Capital Holdings matures 1/5/98.......................... 5.83 499,680
500,000 Prudential Funding Co. mature 1/4/98 to 1/21/98................... 5.84 to 5.85 498,483
500,000 Southern New England Telecom matures 1/20/98...................... 5.90 498,464
500,000 Tampa Electric Co. matures 1/12/98................................ 5.93 499,106
500,000 Teco Finance Inc. matures 1/23/98................................. 5.79 498,255
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -- $13,210,911)...................... 13,210,911
- ------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.2%
293,000 Citibank, 6.35% due 1/2/98; Proceeds at maturity -- $293,101;
(Fully collateralized by U.S. Treasury Notes, 6.625% due 4/30/02;
Market value -- $302,325) (Cost -- $293,000)...................... 293,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $13,503,911*).................. $13,503,911
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments -- Cost.............................. $174,247,268 $22,083,231 $267,735,976 $13,210,911
Repurchase agreements -- Cost.................... 2,527,000 1,603,000 54,062,000 293,000
- ------------------------------------------------------------------------------------------------------------
Investments, at value............................ $220,873,621 $23,226,804 $364,196,195 $13,210,911
Repurchase agreements, at value.................. 2,527,000 1,603,000 54,062,000 293,000
Cash............................................. 751 706 671 727
Receivable for securities sold................... 4,388,391 -- 1,145,361 --
Dividends and interest receivable................ 1,143,590 438,675 181,502 50
Receivable for Fund shares sold.................. 13,881 32,647 405,581 --
Receivable from affiliate........................ -- -- -- 23,348
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................... 228,947,234 25,301,832 419,991,310 13,528,036
- ------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased................. 4,907,054 -- 12,011,596 --
Investment advisory fees payable................. 93,346 10,583 252,953 --
Administration fees payable...................... 11,241 1,270 20,236 --
Dividends payable................................ -- -- -- 24,178
Accrued expenses................................. 65,313 17,801 5,308 10,057
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................ 5,076,954 29,654 12,290,093 34,235
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................... $223,870,280 $25,272,178 $407,701,217 $13,493,801
- ------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital.................................. $160,370,796 $25,718,998 $295,792,208 $13,493,801
Undistributed net investment income.............. 6,032,308 1,906,327 1,757,481 --
Accumulated net realized gain (loss) from
security transactions and futures contracts... 10,907,773 (3,496,720) 13,691,309 --
Net unrealized appreciation of investments and
futures contracts............................. 46,559,403 1,143,573 96,460,219 --
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................... $223,870,280 $25,272,178 $407,701,217 $13,493,801
- ------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING................................. 12,682,454 2,554,899 8,801,078 13,493,801
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE......................... $17.65 $9.89 $46.32 $1.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest............................................... $ 5,078,799 $2,071,449 $ 1,882,080 $339,989
Dividends.............................................. 2,263,576 12,591 2,639,119 --
Less: Foreign withholding tax.......................... -- -- (45,564) --
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................ 7,342,375 2,084,040 4,475,635 339,989
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)...................... 1,035,501 105,287 2,436,487 19,634
Administration fees (Note 3)........................... 121,093 11,741 183,798 3,644
Shareholder communications............................. 63,998 6,000 42,800 800
Audit and legal........................................ 43,732 21,000 19,913 18,050
Custody................................................ 23,298 10,400 20,160 6,257
Shareholder and system servicing fees.................. 7,799 11,200 7,673 6,012
Trustees' fees......................................... 6,025 6,000 5,909 6,544
Registration fees...................................... -- -- -- 3,080
Other.................................................. 5,884 6,085 1,414 1,800
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES......................................... 1,307,330 177,713 2,718,154 65,821
Less: Expense reimbursement (Note 3)................... -- -- -- (31,300)
- -------------------------------------------------------------------------------------------------------------
NET EXPENSES........................................... 1,307,330 177,713 2,718,154 34,521
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.................................... 6,035,045 1,906,327 1,757,481 305,468
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 4 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities)....................................... 14,416,928 813,430 14,695,393 (72)*
Futures contracts................................... (1,488,265) -- -- --
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................... 12,928,663 813,430 14,695,393 (72)
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Futures Contracts:
Beginning of year................................... 25,676,994 658,102 45,698,691 --
End of year......................................... 46,559,403 1,143,573 96,460,219 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................ 20,882,409 485,471 50,761,528 --
- -------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS..... 33,811,072 1,298,901 65,456,921 (72)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS................... $39,846,117 $3,205,228 $ 67,214,402 $305,396
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents net realized losses from the sale of short-term securities for Cash
Income Trust.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 6,035,045 $ 1,906,327 $ 1,757,481 $ 305,468
Net realized gain (loss)......................... 12,928,663 813,430 14,695,393 (72)
Increase in net unrealized appreciation.......... 20,882,409 485,471 50,761,528 --
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 39,846,117 3,205,228 67,214,402 305,396
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income............................ (1,469,979) (15,738) -- (305,378)
Net realized gains............................... (4,813,889) -- (2,626) --
- ------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS................. (6,283,868) (15,738) (2,626) (305,378)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares................. 7,217,202 7,500,172 143,131,359 28,240,251
Net asset value of shares issued for
reinvestment of dividends..................... 6,283,868 15,738 2,626 286,879
Cost of shares reacquired........................ (11,803,520) (2,724,265) (26,776,295) (18,576,002)
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 1,697,550 4,791,645 116,357,690 9,951,128
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 35,259,799 7,981,135 183,569,466 9,951,146
NET ASSETS:
Beginning of year................................ 188,610,481 17,291,043 224,131,751 3,542,655
- ------------------------------------------------------------------------------------------------------------
END OF YEAR*..................................... $223,870,280 $25,272,178 $407,701,217 $13,493,801
- ------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of: ............................................. $6,032,308 $1,906,327 $1,757,481 --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) 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 11):
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) $219,605 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PG$PCN>
- --------------------------------------------------------------------------------
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 a 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 asked
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, or minus amortized premium, which approximates value;
(d) securities that have a maturity of 60 days or more are valued at prices
based on market quotations for securities of similar type, yield and maturity;
(e) 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; foreign dividends are recorded on the ex-dividend date or
as soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (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 accounting records of the Fund are maintained in U.S.
dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars on the date of valuation. Purchases and sales of
securities and income and expenses are translated at the rate of exchange quoted
on the respective date that such transactions are recorded. Differences between
income and expense amounts recorded and collected or paid are adjusted when
reported by the custodian; (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, 1997,
reclassifications were made to the capital accounts of the Managed Assets Trust,
High Yield Bond Trust and Capital Appreciation Fund 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 $818,671 was reclassified to paid-in
capital. In addition, for the Capital Appreciation Fund, a portion of
accumulated net realized gain amounting to $144 was reclassified to paid-in
capital. Net investment income, net realized gains and net assets were not
affected by this change; (j) 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 (k)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
2. 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"),
Capital Appreciation Fund ("CAF") and Cash Income Trust ("CIT"). MAT, CAF and
CIT pay TAMIC an investment management and advisory fee calculated at the annual
rate of 0.50%, 0.75% 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. The
Travelers reimbursed CIT for expenses of $31,300.
TAMIC has a sub-advisory agreement with The Travelers Investment Management
Company, Inc. ("TIMCO"), an indirect wholly owned subsidiary of Travelers Group
Inc. Pursuant to the sub-advisory agreement, TIMCO is responsible for the
day-to-day portfolio operations and investment decisions for MAT. As a result,
TAMIC pays TIMCO, as sub-advisor, 0.25% of the average daily net assets of MAT.
31
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TAMIC 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,
TAMIC 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 Mutual Management
Corp. ("MMC"), formerly known as Smith Barney Mutual Funds Management, Inc., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance
pays MMC, 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.
Brokerage commissions of $15,010 were received 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, 1997, 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.................................................... $186,544,096 $35,518,049 $362,587,231
- -----------------------------------------------------------------------------------------------------------
Sales........................................................ 177,972,207 26,755,511 264,154,624
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
MANAGED HIGH CAPITAL
ASSETS YIELD BOND APPRECIATION
TRUST TRUST FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized appreciation................................ $47,904,567 $1,161,383 $102,374,047
Gross unrealized depreciation................................ (1,278,214) (17,810) (5,913,828)
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation.................................. $46,626,353 $1,143,573 $96,460,219
- -----------------------------------------------------------------------------------------------------------
</TABLE>
5. REPURCHASE AGREEMENTS
The Funds purchase (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Funds require continual maintenance
of the market value of the collateral in amounts at least equal to 102% of the
repurchase price.
6. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Funds' basis in the contract.
The Funds enter into such contracts to hedge portions of their respective
portfolios. The Funds bear the market risk that arises from changes in the value
of the financial instruments and securities indices (futures contracts).
32
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, MAT had sold 26 financial futures contracts on the
Standard & Poor's 500 Index expiring in March 1998. The basis value of such
contracts was $6,297,200. The market value of such contracts on December 31,
1997 was $6,364,150, thereby resulting in an unrealized loss of $66,950.
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.
At December 31, 1997, the Funds had no open purchased call or put options
contracts.
8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in GNMA/FNMA transactions. Securities purchased on
a TBA basis are not settled until they are delivered to the Funds, normally 15
to 45 days later. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other securities.
At December 31, 1997, MAT held one TBA security with a cost of $3,439,470.
9. CAPITAL LOSS CARRYFORWARD
At December 31, 1997, HYBT had, for Federal income tax purposes,
approximately $3,281,000 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>
1998 1999 2000 2001 2002 2004
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Carryforward Amounts............... $1,970,000 $748,000 $48,000 $134,000 $38,000 $343,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
10. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in U.S. companies and the U.S. Government. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. Government.
33
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. 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, 1997 DECEMBER 31, 1996
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
MANAGED ASSETS TRUST
Shares sold.................................................... 430,658 469,580
Shares issued on reinvestment.................................. 364,705 1,926,518
Shares redeemed................................................ (707,124) (847,611)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 88,239 1,548,487
- --------------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
Shares sold.................................................... 811,252 591,013
Shares issued on reinvestment.................................. 1,591 356,007
Shares redeemed................................................ (294,426) (343,196)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 518,417 603,824
- --------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
Shares sold.................................................... 3,339,655 1,994,300
Shares issued on reinvestment.................................. 59 716,103
Shares redeemed................................................ (642,619) (287,644)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 2,697,095 2,422,759
- --------------------------------------------------------------------------------------------------------
CASH INCOME TRUST
Shares sold.................................................... 28,240,251 9,941,686
Shares issued on reinvestment.................................. 286,879 94,502
Shares redeemed................................................ (18,576,002) (7,910,199)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 9,951,128 2,125,989
- --------------------------------------------------------------------------------------------------------
</TABLE>
34
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................ $14.98 $15.50 $12.85 $14.21 $14.02
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................... 0.48 0.46 0.49 0.46 0.51
Net realized and unrealized gain (loss)......... 2.70 1.50 2.83 (0.73) 0.72
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............... 3.18 1.96 3.32 (0.27) 1.23
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (1):
Net investment income........................... (0.12) (0.89) (0.50) (0.67) (0.85)
Net realized gains.............................. (0.39) (1.59) (0.17) (0.42) (0.19)
- --------------------------------------------------------------------------------------------------------------
Total Distributions............................... (0.51) (2.48) (0.67) (1.09) (1.04)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR...................... $17.65 $14.98 $15.50 $12.85 $14.21
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN...................................... 21.31% 13.78% 27.12% (2.24)% 9.33%
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................... $223,870 $188,610 $171,276 $140,887 $156,767
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2).................................... 0.63% 0.58% 0.58% 0.61% 0.56%
Net investment income........................... 2.91 3.51 3.49 3.59 3.65
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................... 90% 108% 110% 97% 86%
- --------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARES PAID ON EQUITY
TRANSACTIONS (3)................................ $0.05 $0.06 -- -- --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................ $8.49 $9.00 $8.49 $9.25 $8.91
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................... 0.76 0.91 0.80 0.66 0.68
Net realized and unrealized gain (loss)......... 0.65 0.41 0.41 (0.76) 0.47
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............... 1.41 1.32 1.21 (0.10) 1.15
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (1):
Net investment income........................... (0.01) (1.83) (0.70) (0.66) (0.81)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR...................... $9.89 $8.49 $9.00 $8.49 $9.25
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN...................................... 16.56% 16.05% 15.47% (1.26)% 14.01%
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................... $25,272 $17,291 $12,902 $11,716 $12,765
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4).................................... 0.84% 0.97% 1.25% 1.25% 0.99%
Net investment income........................... 9.04 11.01 9.37 7.71 7.69
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................... 137% 84% 222% 146% 19%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(2) The ratio of expenses to average net assets for 1993 reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratio of expenses to
average net assets would have been 0.60% for the year ended December 31,
1993.
(3) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
(4) The ratio of expenses to average net assets reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 1.28%, 1.33% and 1.31%, for the years
ended December 31, 1995, 1994 and 1993, respectively.
35
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1997 1996 1995 1994 1993(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............ $36.72 $33.18 $24.50 $25.87 $22.72
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income....................... 0.19 0.23 0.24 0.19 0.19
Net realized and unrealized gain (loss)..... 9.41 8.49 8.61 (1.41) 3.21
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations........... 9.60 8.72 8.85 (1.22) 3.40
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income....................... -- (0.41) (0.17) (0.15) (0.25)
Net realized gains.......................... (0.00)* (4.77) -- -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions........................... (0.00)* (5.18) (0.17) (0.15) (0.25)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $46.32 $36.72 $33.18 $24.50 $25.87
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................. 26.14% 28.21% 36.37% (4.76)% 15.09%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............... $407,701 $224,132 $122,155 $78,494 $62,414
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)................................ 0.84% 0.83% 0.85% 0.89% 0.87%
Net investment income....................... 0.54 0.69 0.84 0.79 0.81
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE....................... 89% 84% 124% 106% 155%
- -------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (4).................. $0.07 $0.06 -- -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CASH INCOME TRUST 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<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)................... 0.049 0.0412 0.0417 0.0278 0.0214
Distributions from net investment income.... (0.049) (0.0412) (0.0417) (0.0278) (0.0214)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................. 5.03% 4.20% 4.17% 2.78% 2.14%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............... $13,494 $3,543 $1,417 $1,203 $647
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (5)(6)............................. 0.57% 0.78% 1.25% 1.25% 0.94%
Net investment income....................... 5.03 3.72 -- -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective May 1, 1993, Janus Capital Corporation became sub-adviser for
Capital Appreciation Fund.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior 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 reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratio of expenses to
average net assets would have been 0.96% for the year ended December 31,
1993.
(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) The Travelers reimbursed CIT for $31,300 and $43,376 in expenses for the
years ended December 31, 1997 and December 31, 1996, respectively. If
expenses were not reimbursed, the per share decreases of net investment
income would have been $0.002 and $0.02, respectively, and the actual
expense ratios would have been 1.39% and 1.71%, respectively.
(6) The ratio of expenses to average net assets for 1995-1993 reflects an
expense reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 7.37%, 6.40% and 8.47% for the years
ended December 31, 1995, 1994 and 1993, respectively.
* Amount represents less than $0.01 per share.
36
<PG$PCN>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Shareholders and Boards of Trustees of
Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Cash
Income Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Managed Assets Trust, High Yield Bond Trust,
Capital Appreciation Fund and Cash Income Trust as of December 31, 1997, and the
related statements of operations, statements of changes in net assets, and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets for the year ended December 31, 1996 and the financial highlights for
each of the years in the four-year period then ended were audited by other
auditors whose report thereon, dated February 24, 1997, expressed an unqualified
opinion on those financial statements and financial highlights.
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, 1997, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. 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, High Yield Bond Trust, Capital Appreciation Fund and Cash
Income Trust as of December 31, 1997, their results of their operations, changes
in their net assets and their financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 10, 1998
37
<PG$PCN>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Trust hereby designates for the fiscal year ended
December 31, 1997:
- Percentage of the ordinary dividends paid as qualifying for the corporate
dividends received deduction:
<TABLE>
<S> <C>
Managed Assets Trust................................................. 30.45%
</TABLE>
- The Taxpayer Relief Act of 1997 enacted differing rates of tax on various
long-term capital gain transactions. As a result, the Managed Assets
Trust designates:
- Total long-term capital gain distributions paid of $1,457,043 are
considered "28 percent rate gains".
A total of 1.37% of the ordinary dividends paid by the Managed Assets Trust from
net investment income are derived from federal obligations and may be exempt
from taxation at the state level.
38
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
For the year ended December 31, 1997, the U.S. Government Securities Portfolio
("Portfolio") had a total return of 12.62%, which was above its Lipper
Analytical Services, Inc. peer group total return average of 8.20%. (Lipper is
an independent fund-tracking organization.) As of December 31, 1997, the
composition of assets was roughly 50% in mortgage-backed securities, and
approximately 35% in U.S. Government securities.
In the first four months of the reporting period, we emphasized mortgage-backed
securities in the Portfolio. However, as the year unfolded, U.S. Treasuries
became our primary focus. In addition, in the last six weeks of the period under
review, approximately 60% of the Portfolio was invested in Treasurys and about
40% was in mortgage-backed securities.
In our view, one of the most important events for the market in 1997 was the
widely publicized currency and economic turmoil in Asia, specifically in Korea,
Japan and Indonesia. As these currencies were devalued, the U.S. dollar was
clearly a beneficiary. Other notable events during the reporting period include:
- As a result of the unexpected strength in the U.S. economy, the Federal
Reserve Board ("Fed") raised the federal-funds rate by 25 basis points,
or 0.25%, at its March 1997 meeting. (The federal-funds rate is the
interest rate banks charge each other for overnight loans and is a
closely watched indicator of the direction of interest rates.)
- The not-so-successful introduction of inflation-indexed bonds by the U.S.
Treasury.
- The drastic reduction in the U.S. budget deficit. According to the latest
report by the Congressional Budget Office, the deficit will go down to $5
billion in fiscal 1998 and may actually run annual surpluses in 2001 if
present policies continue.
- As a result of lower rates, mortgage refinancing has increased.
- The drive toward the European Monetary Union continues to be on target
for 1999.
Looking ahead to 1998, we anticipate the following events to have an impact on
the bond market:
- The turmoil in Asia may be worse than what is being reported. Therefore,
the troubles in Asia will depress U.S. economic activity even more than
current consensus expectations.
- The Fed will probably ease its monetary policy and lower rates. In fact,
several Fed Governors have recently shifted to a more "dovish" view
regarding interest rates.
- Interest rates will be lower and the yield on the 30-Year U.S. Treasury
bond should initially trend toward 5 1/2%.
Moderate economic growth, combined with historically low inflation and the
threat of financial and economic turmoil in Southeast Asia, should provide more
than enough ammunition for rates to go lower. While non-believers would suggest
rates are too low, there is no compelling evidence to warrant a reversal of the
present trend. High real rates, a lesser supply of U.S. Treasurys and a strong
dollar are just some of the reasons why we remain bullish on bonds.
SOCIAL AWARENESS STOCK PORTFOLIO
The Social Awareness Stock Portfolio ("Portfolio") seeks high total return by
investing in the stocks of issuers who demonstrate a positive awareness of their
impact on the society in which they operate. For the year ended December 31,
1997, the Portfolio returned 27.28%. In comparison, the S&P 500 posted a total
return of 33.35% for the same period.
The year 1997 ended on a solid note, with long-term bonds providing very good
investment returns for the last quarter (up approximately 6%), while the broad
stock market, although positive, generated only about one-half that return. (The
benchmark S&P 500, for instance, returned 33.35% in 1997.) Psychologically, the
year's closing was dominated by the financial crisis that plagued Asian
economies and even spread into some of the other third world nations.
Deflationary fears and a flight to quality were the major themes of this
regional debacle.
In a stock market already characterized by extreme volatility, the Asian crisis
has rattled investor complacency -- currency collapses, market slides, deflation
tides and financial bailouts. Prices declined because Pacific-rim troubles
"infected" the U.S. markets, then prices rose for domestic securities as
investors flocked to quality. And they surged ahead in the last week of the year
as it appeared that world banks would bail out Korea, the eleventh largest
economy in the world. The markets are keenly sensitive to external factors
because they are basically "fairly" valued based on current inflation, interest
rates and earnings conditions. Therefore, any event that flags a possible change
in those elements is almost immediately factored into the structure. We view the
overseas developments as basically a regional event and not destructive to the
U.S. economy.
39
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
However, events in Asia will likely slow growth next year. Unless our global
view changes, we remain positive on the U.S. stock market.
Within the U.S. stock market, company size made a very big difference in
performance results -- namely the larger, the better. Consumer focus buried
cyclical and high technology industries. Sectors such as utilities, health care
and financials did significantly better than others. And finally, on a stylistic
basis, growth company stocks did twice as well as those defined as value.
During the fourth quarter of 1997, we established seven new stock positions in
the Portfolio, adding to our 24 previously owned stocks. In addition, we reduced
two holdings and sold seven holdings. (Over 75% of our buying took place in the
second half of October, as the S&P 500 went down by more than 5%.) Retail,
health, infrastructure (energy, water and electric), as well as financial and
technology services were all well represented in the Portfolio. As a result of
these actions, the Portfolio's asset allocation to stocks was approximately 89%,
with about 11% held in cash reserve awaiting additional buying opportunities. At
the end of December, the Portfolio owned 78 individual names, and continued to
over emphasize consumer cyclical, financial, technology and transportation
stocks.
UTILITIES PORTFOLIO
For the one year ended December 31, 1997, the Utilities Portfolio ("Portfolio")
had a total return of 25.29%. By all measures, the year 1997 was a positive one
for the broader utility sector, with indices such as the Dow Jones Utility
Average and Philadelphia Exchange Index of Utilities reaching all-time highs. In
the second half of 1997, the Philadelphia Utility Index ("UTY") outperformed the
S&P 500 by 13.8% and was up 20.1% nominally. The relative move in the UTY's
ended almost four years of underperformance by the electric utility sector.
In our view, the utility industry's good relative performance was driven by
several factors including the attractive yield relative to either bonds or other
stocks, falling long-term interest rates, improved regulatory reforms and the
prospects for sustained earnings and dividend growth. In addition to these
factors, superior relative performance by the utilities in the second half of
1997 reflected a flight to quality as investors grew concerned about the market
as a whole. Investors were particularly concerned about those sectors sensitive
to economic activity that will slow as a result of turmoil in the Asian markets.
We see continued strength in the utility sectors in 1998, despite the magnitude
of the sectors' December rally. In fact, we see an opportunity in the first half
of 1998 to take advantage of the groups' vulnerability to a short-term pullback
in relative performance. We intend to use this opportunity to adjust the
Portfolio's allocations and to establish several new positions. In light of our
macro view that stock market valuations are full and long-term interest rates
will continue to go down, we anticipate that the higher-yielding utility sectors
will remain relatively attractive compared to other sectors of the markets. If
slower corporate earnings growth materializes, a stronger case will be made for
the utilities. Companies such as Edison International, Duke Energy Corp.,
Florida Power & Light, SBC Communications and WorldCom will lead the expansion
of the sector's multiples as each company establishes individual leadership in
its own markets.
Irrespective of the markets, we expect that the pace of new mergers and
acquisitions in 1998 will increase over 1997 levels. We also expect a
continuation of positive "incentive for performance-based rate" reforms that
have enabled companies to strategically cut costs, lower their capital spending
and invest in higher margin non-regulated businesses, thereby creating the value
that justifies expanded P/E multiples (a price/earnings ratio shows the
relationship between a stock's price and the company's earnings for the last
four quarters).
In 1998, as was the case in 1997, we continue to emphasize quality, targeting
companies with strong balance sheets and positive free cash flows. Our
investment strategy also favors companies with managements who have implemented
a strategic plan for completing in a changing marketplace.
40
<PG$PCN>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
We expect continued volatility in the utilities industries as the financial
markets differentiate between competitive and non-competitive companies. The
Portfolio will continue to diversify in both traditional low volatility utility
companies such as Florida Power and Light and Texas Utilities Co. as well as
companies with higher growth potential such as WorldCom, Inc. and Teleport
Communications Group, Inc.
In closing, we thank you for your investment in The Travelers Series Trust. We
look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 26, 1998
41
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/97 12.62%
Five Years Ended 12/31/97 7.99%
1/24/92* through 12/31/97 8.06%
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------
<S> <C>
1/24/92* through 12/31/97 58.46%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on January
24, 1992, assuming reinvestment of dividends, through December 31,
1997. 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>
Lehman U.S. Government Consumer
Measurement Period Government Securities Price
(Fiscal Year Covered) Bond Index Portfolio Index
<S> <C> <C> <C>
1/24/92 10000 10000 10000
Dec-92 10723 10790 10275
Dec-93 11866 11813 10557
Dec-94 11464 11147 10840
Dec-95 13567 13869 11115
Dec-96 13943 14077 11484
Dec-97 15280 15094 11679
</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 12/31/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/97 27.28%
Five Years Ended 12/31/97 16.35%
5/1/92* through 12/31/97 16.12%
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------
<S> <C>
5/1/92* through 12/31/97 133.43%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on May 1,
1992, assuming reinvestment of dividends, through December 31,
1997. The Standard & Poor's 500 Index is an unmanaged index
composed of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange and the over-the-counter
market. The Consumer Price Index is a measure of the average change
in prices over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Social
Standard Awareness Consumer
Measurement Period & Poor's Stock Price
(Fiscal Year Covered) 500 Index Portfolio Index
<S> <C> <C> <C>
5/1/92 10000 10000 10000
Dec-92 10673 10950 10157
Dec-93 11745 11777 10436
Dec-94 11900 11461 10716
Dec-95 14509 15285 10988
Dec-96 17838 18340 11353
Dec-97 23789 23343 11545
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
42
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 12/31/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
<S> <C>
Year Ended 12/31/97 25.29%
2/4/94* through 12/31/97 16.79%
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------
<S> <C>
2/4/94* through 12/31/97 83.40%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
February 4, 1994, assuming reinvestment of dividends, through
December 31, 1997. Standard & Poor's 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange and over-the-counter
market. The Consumer Price Index is a measure of the average change
in prices over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Standard Consumer
Measurement Period & Poor's Utilities Price
(Fiscal Year Covered) 500 Index Portfolio Index
<S> <C> <C> <C>
2/4/94 10000 10000 10000
Dec-94 10072 10170 10205
Dec-95 13852 13149 10464
Dec-96 17031 14139 10811
Dec-97 22712 17705 10995
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
43
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1997
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 89.3%
$ 3,000,000 U.S. Treasury Bond, 6.125% due 11/15/27...................................... $ 3,085,410
3,200,000 U.S. Treasury Bond, 8.000% due 11/15/21...................................... 3,991,840
2,500,000 U.S. Treasury Bond, 8.125% due 8/15/19....................................... 3,127,850
9,000,000 FICO Strip, zero coupon due 9/26/19++........................................ 2,322,900
1,594,372 FHLMC, 6.500% due 2/1/26..................................................... 1,580,916
114,481 FHLMC, 6.500% due 2/1/27..................................................... 113,337
66,403 FHLMC, 6.500% due 4/1/27..................................................... 65,740
164,390 FHLMC, 6.500% due 5/1/27..................................................... 162,747
1,010,000 FHLMC, 6.500% due 12/1/27.................................................... 998,951
1,862,129 FNMA, 7.000% due 5/1/24...................................................... 1,883,656
1,896,215 FNMA, 7.000% due 6/1/24...................................................... 1,918,135
1,485,000 FNMA, 7.000% due 12/1/27..................................................... 1,496,598
1,778,803 FNMA, 7.500% due 8/1/26...................................................... 1,822,153
945,100 FNMA, 7.500% due 11/1/26..................................................... 967,839
196,118 FNMA, 7.500% due 9/1/27...................................................... 200,777
2,000,000 GNMA ARM, 6.000% due 1/28/27#................................................ 2,013,760
366,301 GNMA, 8.500% due 3/15/18..................................................... 390,683
549,098 GNMA, 8.500% due 5/15/18..................................................... 585,647
167,918 GNMA, 8.500% due 6/15/18..................................................... 179,095
140,729 GNMA, 8.500% due 7/15/18..................................................... 150,097
171,402 GNMA, 9.000% due 8/15/08..................................................... 185,116
132,420 GNMA, 9.000% due 9/15/08..................................................... 143,015
870,405 GNMA, 9.000% due 10/15/08.................................................... 940,043
268,447 GNMA, 9.000% due 12/15/08.................................................... 289,924
234,335 GNMA, 9.000% due 1/15/09..................................................... 253,083
68,466 GNMA, 9.000% due 2/15/09..................................................... 73,943
195,345 GNMA, 9.000% due 3/15/09..................................................... 210,973
363,000 GNMA, 9.000% due 4/15/09..................................................... 392,042
405,766 GNMA, 9.000% due 5/15/09..................................................... 438,230
121,922 GNMA, 9.000% due 9/15/09..................................................... 131,676
3,000,000 Tennessee Valley Authority Debenture, 6.375% due 6/15/05..................... 3,067,500
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost -- $31,476,624)........... 33,183,676
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 10.7%
3,992,000 Citibank, 6.350% due 1/2/98; Proceeds at maturity -- $3,993,406; (Fully
collateralized by U.S. Treasury Notes, 6.625% due 4/30/02 Market
value -- $4,076,175) (Cost -- $3,992,000).................................... 3,992,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $35,468,624*)............................. $37,175,676
- ---------------------------------------------------------------------------------------------------------
</TABLE>
++ Security is segregated by the Custodian for open purchase commitments and/or
for securities traded on a "to-be-announced" basis.
# Security is traded on a "to-be-announced" basis (See Note 7).
* Aggregate cost for Federal income tax purpose is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK -- 88.7%
- ---------------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 4.8%
2,000 Air Products & Chemicals, Inc. .................................................. $ 164,500
3,100 Aluminum Co. of America.......................................................... 218,162
15,000 Engelhard Corp. ................................................................. 260,625
8,000 Praxair, Inc. ................................................................... 360,000
- ---------------------------------------------------------------------------------------------------------
1,003,287
- ---------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 2.2%
1,500 AMP, Inc. ....................................................................... 63,000
4,500 Belden, Inc. .................................................................... 158,625
2,000 Pitney Bowes, Inc. .............................................................. 179,875
2,000 US Filter Corp.++................................................................ 59,875
- ---------------------------------------------------------------------------------------------------------
461,375
- ---------------------------------------------------------------------------------------------------------
COMMUNICATIONS -- 1.8%
800 Bell Atlantic Corp. ............................................................. 72,800
2,300 MCI Communications Corp. ........................................................ 98,469
7,000 WorldCom, Inc.++................................................................. 211,750
- ---------------------------------------------------------------------------------------------------------
383,019
- ---------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 13.6%
3,750 Dollar General Corp. ............................................................ 135,937
4,350 Home Depot, Inc. ................................................................ 256,106
11,000 Kaufman & Broad Home Corp. ...................................................... 246,813
11,000 Liz Claiborne, Inc. ............................................................. 459,938
7,500 Lowe's Cos., Inc. ............................................................... 357,656
7,100 May Department Stores............................................................ 374,081
4,000 Pep Boys -- Manny, Moe & Jack.................................................... 95,500
4,000 Staples, Inc.++.................................................................. 111,000
6,000 Sylvan Learning Systems, Inc.++.................................................. 234,000
4,000 Toys "R" Us, Inc.++.............................................................. 125,750
3,800 Tribune Co. ..................................................................... 236,550
5,800 Wal-Mart Stores, Inc. ........................................................... 228,738
- ---------------------------------------------------------------------------------------------------------
2,862,069
- ---------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 11.4%
9,400 American Stores Co. ............................................................. 193,287
2,000 Gillette Co. .................................................................... 200,875
7,500 Kroger Co.++..................................................................... 277,031
5,000 Newell Co. ...................................................................... 212,500
4,800 PepsiCo, Inc. ................................................................... 174,900
3,000 Rite Aid Corp. .................................................................. 176,063
9,600 Sysco Corp. ..................................................................... 437,400
480 Tricon Global Restaurants, Inc.++................................................ 13,950
4,000 Unilever N. V. .................................................................. 249,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CONSUMER STAPLES -- 11.4% (CONTINUED)
1,600 Walt Disney Co. ................................................................. $ 158,500
12,000 Wendy's International, Inc. ..................................................... 288,750
- ---------------------------------------------------------------------------------------------------------
2,383,006
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 1.0%
3,300 Anadarko Petroleum Corp. ........................................................ 200,269
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 20.4%
1,600 Aetna Inc. ...................................................................... 112,900
3,300 Allstate Corp. .................................................................. 299,888
3,500 Amercian Express Co. ............................................................ 312,375
1,875 American International Group Inc. ............................................... 203,906
4,000 Associates 1st Capital Corp. .................................................... 284,500
2,700 BankBoston Corp. ................................................................ 253,631
3,000 Barnett Banks, Inc. ............................................................. 215,625
3,500 Chase Manhattan Corp. ........................................................... 383,250
1,800 Citicorp ........................................................................ 227,587
6,800 Federal Home Loan Mortgage Corp. ................................................ 285,175
3,000 H. F. Ahmanson & Co. ............................................................ 200,813
2,500 Lincoln National Corp. .......................................................... 195,312
4,400 NationsBank Corp. ............................................................... 267,575
4,000 St. Paul Co., Inc. .............................................................. 328,250
6,800 State Street Corp. .............................................................. 395,675
3,000 Transamerica Corp. .............................................................. 319,500
- ---------------------------------------------------------------------------------------------------------
4,285,962
- ---------------------------------------------------------------------------------------------------------
HEALTHCARE -- 10.9%
4,200 Amgen Inc. ...................................................................... 227,325
2,000 Beckman Instruments, Inc. ....................................................... 80,000
8,600 DENTSPLY International, Inc. .................................................... 262,300
3,600 Johnson & Johnson ............................................................... 237,150
3,300 Merck & Co., Inc. ............................................................... 350,625
2,400 Pfizer, Inc. .................................................................... 178,950
6,400 Schering-Plough Corp. ........................................................... 397,600
6,200 Stryker Corp. ................................................................... 230,950
10,000 Tenet Healthcare Corp.++......................................................... 331,250
- ---------------------------------------------------------------------------------------------------------
2,296,150
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 16.6%
7,300 Automatic Data Processing, Inc. ................................................. 448,038
6,900 Cisco Systems Inc.++ ............................................................ 384,675
6,250 Compaq Computer Corp. ........................................................... 352,734
7,500 Computer Associates International ............................................... 396,563
14,000 EMC Corp.++ ..................................................................... 384,125
4,000 International Business Machines Corp. ........................................... 418,250
4,600 Lucent Technologies Corp. ....................................................... 367,425
2,200 Motorola Inc. ................................................................... 125,538
5,250 Oracle Corp.++ .................................................................. 117,141
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY -- 16.6% (CONTINUED)
4,000 Sun Microsystems Inc.++ ......................................................... $ 159,500
4,400 Xerox Corp. ..................................................................... 324,775
- ---------------------------------------------------------------------------------------------------------
3,478,764
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.1%
4,500 Mesaba Holdings, Inc.++ ......................................................... 117,000
4,200 Norfolk Southern Corp. .......................................................... 129,412
7,950 Southwest Airlines .............................................................. 195,769
- ---------------------------------------------------------------------------------------------------------
442,181
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 3.9%
8,000 Enron Corp. ..................................................................... 332,500
3,500 NIPSCO Industries, Inc. ......................................................... 173,031
11,000 Williams Cos., Inc. ............................................................. 312,125
- ---------------------------------------------------------------------------------------------------------
817,656
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $13,287,998)......................................... 18,613,738
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT -- 11.3%
$2,373,000 Citibank, 6.35% due 1/2/98; Proceeds at maturity -- $2,373,837; (Fully
collaterized by U.S. Treasury Notes, 6.625% due 4/30/02; Market
value -- $2,423,813) (Cost -- $2,373,000)................................... 2,373,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $15,660,998*)............................ $20,986,738
- ---------------------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK -- 85.8%
- ---------------------------------------------------------------------------------------------------------
ELECTRIC - UTILITY -- 58.0%
11,000 American Electric Power Co., Inc. .............................................. $ 567,875
7,500 Baltimore Gas & Electric Co. ................................................... 255,469
15,000 Central & South West Corp. ..................................................... 405,938
15,000 CINergy Corp. .................................................................. 574,687
15,000 CMS Energy Corp. ............................................................... 660,937
10,000 Dominion Resources, Inc. ....................................................... 425,625
12,000 DPL Inc. ....................................................................... 345,000
15,000 Duke Energy Corp. .............................................................. 830,625
20,000 Edison International............................................................ 543,750
10,000 Endesa.......................................................................... 181,875
15,000 Florida Progress Corp. ......................................................... 588,750
10,000 FPL Group Inc. ................................................................. 591,875
10,000 GPU Inc. ....................................................................... 421,250
10,000 KN Energy Inc. ................................................................. 540,000
10,000 Long Island Lighting Co. ....................................................... 301,250
10,000 New Century Energies, Inc. ..................................................... 479,375
10,000 NIPSCO Industries, Inc. ........................................................ 494,375
10,000 Northern States Power Co. ...................................................... 582,500
10,000 PacifiCorp...................................................................... 273,125
5,000 Pinnacle West Capital Corp. .................................................... 211,875
8,000 Public Service Co. of New Mexico................................................ 189,500
15,000 SCANA Corp. .................................................................... 449,063
15,000 Sierra Pacific Resources........................................................ 562,500
15,000 Southern Co. ................................................................... 388,125
15,000 Texas Utilities Co. ............................................................ 623,437
15,000 Unicom Corp. ................................................................... 461,250
12,000 UtiliCorp United, Inc. ......................................................... 465,750
- ---------------------------------------------------------------------------------------------------------
12,415,781
- ---------------------------------------------------------------------------------------------------------
NATURAL GAS -- 16.0%
8,000 Coastal Corp. .................................................................. 495,500
5,000 Columbia Gas Systems, Inc. ..................................................... 392,812
8,000 Consolidated Natural Gas Co. ................................................... 484,000
7,000 Energen Corp. .................................................................. 278,250
3,000 Enron Corp. .................................................................... 124,688
5,000 Equitable Resources Inc. ....................................................... 176,875
10,000 MCN Corp. ...................................................................... 403,750
3,000 ONEOK, Inc. .................................................................... 121,125
10,000 Pacific Enterprises............................................................. 376,250
15,000 Southwest Gas Corp. ............................................................ 280,312
10,000 Williams Cos., Inc. ............................................................ 283,750
- ---------------------------------------------------------------------------------------------------------
3,417,312
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
TELEPHONE -- 11.8%
10,000 France Telecom S.A.++........................................................... $ 360,000
10,000 GTE Corp. ...................................................................... 522,500
8,000 NEXTLINK Communications Inc.++.................................................. 170,500
3,000 Qwest Communications International Inc. ........................................ 178,500
3,000 SBC Communications Inc. ........................................................ 219,750
9,000 Teleport Communications Group, Inc.++........................................... 493,875
5,000 US West Media Group++........................................................... 144,375
15,000 WorldCom, Inc. ................................................................. 453,750
- ---------------------------------------------------------------------------------------------------------
2,543,250
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $13,649,234)........................................ 18,376,343
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
<S> <C>
- ---------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 3.0%
- ---------------------------------------------------------------------------------------------------------
ELECTRIC - UTILITY -- 1.9%
$200,000 Arizona Public Service Co., 7.25% due 8/1/23................................. 200,680
200,000 Philadelphia Electric, 8.75% due 4/1/22...................................... 209,750
- ---------------------------------------------------------------------------------------------------------
410,430
- ---------------------------------------------------------------------------------------------------------
TELEPHONE -- 1.1%
230,000 MCI Communication Corp., 7.75% due 3/23/25................................... 238,338
- ---------------------------------------------------------------------------------------------------------
648,768
TOTAL CORPORATE BONDS (Cost -- $606,132).....................................
- ---------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 2.4%
500,000 U.S. Treasury Notes, 7.75% due 11/30/99 (Cost -- $499,865)................... 518,725
- ---------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $14,755,231).................................. 19,543,836
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 8.8%
1,875,000 Citibank, 6.35% due by 1/2/98; Proceeds at maturity -- $1,875,659; (Fully
collateralized by U.S. Treasury Note, 6.6250% due 4/30/02; Market
value -- $1,918,200) (Cost -- $1,875,000).................................... 1,875,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $16,630,231*)............................. $21,418,836
- ---------------------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments -- Cost.................................. $31,476,624 $ 13,287,998 $14,755,231
Repurchase agreements -- Cost........................ 3,992,000 2,373,000 1,875,000
- ---------------------------------------------------------------------------------------------------------------
Investments, at value................................ $33,183,676 $ 18,613,738 $19,543,836
Repurchase agreements, at value...................... 3,992,000 2,373,000 1,875,000
Cash................................................. 525 923 978
Receivable for Fund shares sold...................... -- 35,970 --
Receivable from affiliate............................ -- 25,093 --
Dividends and interest receivable.................... 238,175 17,231 60,285
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................... 37,414,376 21,065,955 21,480,099
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased..................... 2,010,313 -- --
Payable for Fund shares purchased.................... 88,743 -- 13,837
Investment advisory fees payable..................... 9,750 11,138 10,795
Administration fees payable.......................... 1,794 1,078 728
Accrued expenses..................................... 24,333 40,527 41,683
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................... 2,134,933 52,743 67,043
- ---------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $35,279,443 $ 21,013,212 $21,413,056
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital...................................... $34,085,800 $ 15,006,691 $15,371,389
Undistributed net investment income.................. 23,858 156,049 643,930
Accumulated net realized gain (loss) from
security transactions and futures contracts....... (537,267) 524,732 609,132
Net unrealized appreciation of investments........... 1,707,052 5,325,740 4,788,605
- ---------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $35,279,443 $ 21,013,212 $21,413,056
- ---------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING..................................... 3,027,108 1,047,410 1,400,349
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................. $11.65 $20.06 $15.29
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................ $ 1,830,022 $ 170,723 $ 204,572
Dividends............................................... -- 142,104 629,621
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................. 1,830,022 312,827 834,193
- ---------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)....................... 86,779 104,002 116,989
Audit and legal......................................... 17,550 23,750 20,006
Administration fees (Note 2)............................ 17,467 9,600 9,580
Shareholder and system servicing fees................... 5,345 7,209 7,858
Custody................................................. 2,981 5,000 4,301
Shareholder communications.............................. 2,500 3,800 11,513
Pricing fees............................................ 2,084 -- --
Trustees' fees.......................................... 1,500 1,500 4,015
Other................................................... 412 1,917 16,001
- ---------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................... 136,618 156,778 190,263
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................... 1,693,404 156,049 643,930
- ---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FUTURES
CONTRACTS (NOTES 3 AND 5):
Realized Gain From:
Security transactions (excluding short-term
securities)........................................ 146,348 535,769 631,548
Futures contracts.................................... 48,895 -- --
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN....................................... 195,243 535,769 631,548
- ---------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year.................................... 184,657 2,448,669 1,870,929
End of year.......................................... 1,707,052 5,325,740 4,788,605
- ---------------------------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................. 1,522,395 2,877,071 2,917,676
- ---------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND FUTURES CONTRACTS............. 1,717,638 3,412,840 3,549,224
- ---------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... $ 3,411,042 $3,568,889 $4,193,154
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 1,693,404 $ 156,049 $ 643,930
Net realized gain................................ 195,243 535,769 631,548
Increase in net unrealized appreciation.......... 1,522,395 2,877,071 2,917,676
- ----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 3,411,042 3,568,889 4,193,154
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ (1,694,724) -- (19,187)
Net realized gains............................... -- -- (8,193)
- ----------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (1,694,724) -- (27,380)
- ----------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares................. 11,415,299 8,734,543 4,576,098
Net asset value of shares issued for reinvestment
of dividends.................................. 1,694,724 -- 27,380
Cost of shares reacquired........................ (5,555,432) (2,330,215) (5,570,422)
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 7,554,591 6,404,328 (966,944)
- ----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 9,270,909 9,973,217 3,198,830
NET ASSETS:
Beginning of year................................ 26,008,534 11,039,995 18,214,226
- ----------------------------------------------------------------------------------------------------------
END OF YEAR*..................................... $35,279,443 $ 21,013,212 $21,413,056
- ----------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:.............................................. $23,858 $156,049 $643,930
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31,
1996
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL 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 9):
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) -- $4,964
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PG$PCN>
- --------------------------------------------------------------------------------
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 eleven other separate investment portfolios: Travelers Quality
Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield,
Federated Stock, Large Cap, Equity Income, Mid-Cap Disciplined Equity Fund, 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
asked 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, or minus amortized premium, which approximates
value; (d) securities that have a maturity of 60 days or more are valued at
prices based on market quotations for securities of similar type, yield and
maturity; (e) 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, 1997,
reclassifications were made to the capital accounts of the U.S. Government
Securities Portfolio, Social Awareness Stock Portfolio and Utilities Portfolio
to reflect permanent book/tax differences and income and gains available for
distribution under income tax regulations. Accordingly, for the U.S. Government
Securities Portfolio, a portion of accumulated net realized gains amounting to
$3,817 was reclassified to paid-in capital. In addition, for the Social
Awareness Stock Portfolio, a portion of accumulated net realized gains amounting
to 8,124 was reclassified to paid-in capital. 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.
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.
Mutual Management Corp. ("MMC"), formerly known as Smith Barney Mutual
Funds Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc.
("SSBH") 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 MMC 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 $200 million of the average daily net assets. Utilities pays MMC
investment management and advisory fees calculated at an annual rate of 0.65% of
the average daily net assets. These fees are calculated daily and paid monthly.
54
<PG$PCN>
- --------------------------------------------------------------------------------
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 MMC.
Travelers Insurance pays MMC, 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, 1997, 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....................................................... $62,069,149 $8,362,808 $10,679,007
- -----------------------------------------------------------------------------------------------------------
Sales........................................................... 52,832,129 2,493,936 11,000,476
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
USGS SAS UTILITIES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized appreciation..................................... $1,707,052 $5,539,306 $4,788,605
Gross unrealized depreciation..................................... -- (213,566) --
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation....................................... $1,707,052 $5,325,740 $4,788,605
- -----------------------------------------------------------------------------------------------------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes possession of) U.S.
Government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to 102% of the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Portfolios record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Portfolio's basis in the contract.
The Portfolios enter into such contracts to hedge portions of their
respective portfolios. The Portfolios bear the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts).
At December 31, 1997, the Portfolios had no open futures contracts.
55
<PG$PCN>
- --------------------------------------------------------------------------------
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.
At December 31, 1997, the Portfolios had no open purchased call or put
options contracts.
7. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Portfolios may trade securities on a "to-be-announced" ("TBA") basis.
In a TBA transaction, the Portfolios commit to purchasing or selling securities
for which specific information is not yet known at the time of the trade,
particularly the face amount and maturity date in GNMA/FNMA transactions.
Securities purchased on a TBA basis are not settled until they are delivered to
the Portfolios, normally 15 to 45 days later. These transactions are subject to
market fluctuations and their current value is determined in the same manner as
for other securities.
At December 31, 1997, USGS held one TBA security with a cost of $2,010,313.
8. CAPITAL LOSS CARRYFORWARD
At December 31, 1997, U.S. Government Securities Portfolio had, for Federal
income tax purposes, approximately $513,000 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.
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
Portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold.................................................... 978,971 606,114
Shares issued on reinvestment.................................. 145,971 355,511
Shares redeemed................................................ (491,712) (834,803)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 633,230 126,822
- --------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold.................................................... 479,843 323,694
Shares issued on reinvestment.................................. -- 51,251
Shares redeemed................................................ (132,790) (167,210)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 347,053 207,735
- --------------------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO
Shares sold.................................................... 341,896 590,496
Shares issued on reinvestment.................................. 1,816 169,391
Shares redeemed................................................ (433,506) (463,451)
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease)........................................ (89,794) 296,436
- --------------------------------------------------------------------------------------------------------
</TABLE>
56
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $10.86 $12.43 $10.58 $11.63 $10.79
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................................ 0.58 0.68 0.65 0.60 0.57
Net realized and unrealized gain (loss).............. 0.79 (0.52) 1.80 (1.23) 0.44
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................... 1.37 0.16 2.45 (0.63) 1.01
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (1):
Net investment income................................ (0.58) (1.55) (0.60) (0.39) (0.17)
Net realized gains................................... -- (0.18) -- (0.03) --
- ------------------------------------------------------------------------------------------------------------
Total Distributions.................................... (0.58) (1.73) (0.60) (0.42) (0.17)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................... $11.65 $10.86 $12.43 $10.58 $11.63
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................... 12.62% 1.46% 24.42% (5.64)% 9.48%
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)........................ $35,279 $26,009 $28,192 $24,522 $25,520
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)......................................... 0.49% 0.62% 0.56% 0.71% 0.58%
Net investment income................................ 6.10 5.68 5.80 5.56 5.04
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................ 208% 501% 214% 16% 51%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $15.76 $14.32 $11.05 $11.64 $10.95
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (3)............................ 0.15 0.31 0.12 0.16 0.17
Net realized and unrealized gain (loss).............. 4.15 2.42 3.47 (0.45) 0.65
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................... 4.30 2.73 3.59 (0.29) 0.82
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (1):
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........................... $20.06 $15.76 $14.32 $11.05 $11.64
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................... 27.28% 19.98% 33.37% (2.69)% 7.55%
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)........................ $21,013 $11,040 $7,055 $3,879 $3,361
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)(4)...................................... 0.98% 1.25% 1.25% 1.25% 1.05%
Net investment income................................ 0.97 0.43 0.99 1.43 1.50
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................ 19% 26% 73% 137% 60%
- ------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (5)........................... $0.06 $0.06 -- -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(2) The ratio of expenses to average net assets for the year ended December 31,
1993 reflects an expense reimbursement by The Travelers in connection with
voluntary expense limitations. Without the expense reimbursement, the ratio
of expenses to average net assets would have been 0.77%.
(3) 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
$0.06 and the actual expense ratio would have been 1.69%.
(4) The ratios of expenses to average net assets for the years ended December
31, 1995, 1994 and 1993 reflect an expense reimbursement by The Travelers in
connection with voluntary expense limitations. Without the expense
reimbursements, the ratios of expenses to average net assets would have been
1.75%, 3.34% and 3.73%, respectively.
(5) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
57
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO 1997 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............................... $12.22 $12.85 $10.17 $10.00
- ----------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income.......................................... 0.46 0.47 0.48 0.35
Net realized and unrealized gain (loss)........................ 2.63 0.47 2.44 (0.18)
- ----------------------------------------------------------------------------------------------------------
Total Income From Operations..................................... 3.09 0.94 2.92 0.17
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income.......................................... (0.01) (0.84) (0.24) --
Net realized gains............................................. (0.01) (0.73) -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions.............................................. (0.02) (1.57) (0.24) --
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................................... $15.29 $12.22 $12.85 $10.17
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN..................................................... 25.29% 7.47% 29.29% 1.70%++
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).................................. $21,413 $18,214 $15,340 $5,757
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)................................................... 1.06% 1.07% 1.25% 1.25%+
Net investment income.......................................... 3.58 3.88 4.29 3.86+
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................................... 68% 39% 25% 32%
- ----------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS (4).... $0.06 $0.06 -- --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from February 4, 1994 (commencement of operations) to
December 31, 1994.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(3) The ratios of expenses to average net assets for the year ended December 31,
1995 and the period ended December 31, 1994 reflect expense reimbursements
by The Travelers in connection with voluntary expense limitations. Without
the expense reimbursements, the ratios of expenses to average net assets
would have been 1.27% and 3.49% (annualized), respectively.
(4) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized
58
<PG$PCN>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees of
The Travelers Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the U.S. Government Securities Portfolio,
Social Awareness Stock Portfolio and Utilities Portfolio of The Travelers Series
Trust as of December 31, 1997, and the related statements of operations,
statements of changes in net assets, and financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The statements of changes in net assets for the year ended December 31,
1996 and the financial highlights for each of the years in the four-year period
then ended were audited by other auditors whose report thereon, dated February
24, 1997, expressed an unqualified opinion on those financial statements and
financial highlights.
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, 1997, by correspondence with the custodian. As to securities
purchased but not yet received, we performed other appropriate auditing
procedures. 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 positions of the
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and
Utilities Portfolio of The Travelers Series Trust as of December 31, 1997, the
results of their operations, changes in their net assets and their financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 10, 1998
59
<PG$PCN>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Trust hereby designates for the fiscal year
ended December 31, 1997:
- Percentage of the ordinary dividends paid as qualifying for the
corporate dividends received deduction:
<TABLE>
<S> <C>
Utilities Portfolio.................................................. 70.08%
</TABLE>
A total of 36.50% of the ordinary dividends paid by the U.S. Government
Securities Portfolio from net investment income are derived from federal
obligations and may be exempt from taxation at the state level.
60
<PG$PCN>
(This page intentionally left blank)
<PG$PCN>
Investment Advisers
--------------------
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, CASH
INCOME TRUST AND
THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK PORTFOLIO AND UTILITIES
PORTFOLIO
MUTUAL MANAGEMENT CORP.
New York, New York
Independent Auditors
---------------------
KPMG PEAT MARWICK LLP
New York, New York
Custodian
----------
PNC BANK, N.A.
This report is prepared for the general information of contract owners and is
not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Cash Income Trust, The Travelers Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio or Utilities
Portfolio. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity and Variable
Universal Life Insurance products offered by The Travelers Insurance Company and
the Prospectuses for the underlying funds, which collectively contain all
pertinent information, including the applicable sales commissions.
Printed in U.S.A. VG-181 (Annual)(2-98)
<PG$PCN>
