THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 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
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Dear Shareholder:
We are pleased to provide the semi-annual report for
Managed Assets Trust, High
Yield Bond Trust, Capital Appreciation Fund, Cash Income
Trust and The Travelers
Series Trust (U.S. Government Securities, Social Awareness
Stock and Utilities
Portfolios) for the period ended June 30, 1997. Please
note that the
commentaries for The Travelers Series Trust begin on page
35 of this report. In
this letter, we briefly discuss general economic and
market conditions. In
addition, more detailed comparisons showing the growth of
a hypothetical $10,000
invested in each Trust or Portfolio since its inception
date can be found in
this report. A more detailed summary of performance and
current holdings for
each Trust or Portfolio can be found in the appropriate
sections that follow.
ECONOMIC REVIEW AND OUTLOOK
Economic activity in the first quarter of 1997 showed
surprising strength as
real Gross Domestic Product ("GDP") growth rose well above
5%. Despite the
unexpected strength in the economy and a decline in
unemployment to about 5%,
reported inflation remained low. However, the stronger
U.S. economy, reflected
in both a tight labor market and a high capacity
utilization rate, sparked
concerns about rising future inflation and prompted an
increasingly vigilant
Federal Reserve Board ("Fed") to raise the federal-funds
rate by 25 basis points
(0.25%) on March 25, 1997. (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.) Concerns of higher interest
rates triggered a
correction in both the stock and bond markets at the end
of the first quarter of
1997.
The key economic news in the second quarter of 1997 was a
distinct slowdown in
economic growth and surprisingly low inflation. Both stock
and bond market
investors drew relief from these developments as the
prospects of further Fed
tightening receded. Interest rates fell from above 7% to
6.8% by the end of the
second quarter of 1997 and the stock market began a
furious rally that saw stock
prices rise by almost 20%.
The second quarter of 1997 began with a singular focus on
the future direction
of Fed action. After an increase of 25 basis points in the
federal-funds rate in
late March on the heels of strong economic growth in the
first quarter, it was
considered quite likely that rates would rise during the
second quarter. The
prospect of higher rates created turmoil within the U.S.
capital markets and
stocks, in particular, were hit hard in early April.
Economic data released in
early May provided mounting evidence of a slower economy
and low inflation.
Retail sales for April were soft and producer prices
showed a dramatic decline
of 0.4%. The consensus forecast for second quarter real
economic growth has now
dropped below 2%.
The inflation trend in recent months has been nothing
short of remarkable,
especially in light of the low unemployment rate and high
capacity utilization
rates in the U.S. economy. The consumer price deflator,
which is considered to
be a better inflation measure than the consumer price
index ("CPI"), fell to a
30-year low in May at an annual rate of 1.6%. Gains in
average hourly wages, a
closely monitored signal of wage inflation, have slowed
from 4.1% to 3.5%.
Commodity price indexes are declining, oil prices are
falling and the price of
gold is now below $320, its lowest level in five years. In
other words,
inflation just does not appear to be an issue at this
point.
The biggest contributing factor in the demise of inflation
appears to be the
significant gains in productivity achieved over the last
few years. It is widely
acknowledged that conventional measures of productivity
gains are being
understated and, under that scenario, lower-than-expected
inflation may be
explained by higher-than-expected productivity gains.
Several other factors also
suggest that the current disinflationary trend is likely
to be both secular and
global in nature. These include a high level of
disinflation in the growing
technology sector, significant government downsizing and
severe global
competition.
The second quarter rally in the stock and bond markets
suggests that investors
have reduced their inflation expectations and,
consequently, the likelihood of
further Fed tightening. In our view, the biggest risk to
the presently benign
investment climate looms on the economic landscape. A
resurgence of economic
growth in the second half of the year may prompt the Fed
to act yet again on a
preemptive basis to choke off inflationary pressures.
Strong retail sales may
well hold the key to a reacceleration in third quarter
economic growth. The
boost in consumer spending could come from any one of
several sources: increased
refinancing activity, the wealth effect of a stronger
stock market, record
levels of consumer confidence and the recent strong growth
in real disposable
personal income.
While the relatively high real yield levels in the bond
market suggests that
bond investors still remain wary of an increase in
inflation, we think the stock
market is clearly vulnerable to such a development.
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FIXED INCOME COMMENTARY
Bond prices also rose higher in the second quarter. The
Lehman Long
Government/Corporate Index performed the best with a gain
of 5.5% as interest
rates fell below 7%. The yield curve became flatter as the
spread between long-
and short-term bonds narrowed by 0.20% in the quarter.
Stronger growth with low inflation has been good for bonds
as it has reduced
government financing needs. Low inflation coupled with a
declining budget
deficit provides positive support for the bond market.
Going forward, the
bullish case for bonds can be attributed to a reduced
budget deficit and the
absence of inflation in final goods pricing. While wages
may be drifting higher,
so are productivity gains due to technological
improvements. At the same time,
global competition and an 8.5% year-to-date increase in
the trade weighted
dollar should prevent higher product inflation. Year-over
year Producer Price
Index ("PPI") statistics show no signs of price pressures,
and CPI has been at a
2.0% to 2.5% rate for the past few years. Additionally,
the CPI is generally
agreed to be overstated and the government may be in the
process of gradually
reducing this upward basis.
The key question for the markets will be the pace of
growth in the second half
of the year and how the bond market and Fed react to it.
We do not believe that
growth necessarily leads to further inflation on the
finished goods side. As
long as wage growth is offset by productivity increases,
higher growth with low
unemployment does not have to lead to a rise in inflation.
However there is
still much debate on what the market and the Fed think
about the relationship
between economic growth and inflation. If growth is above
3%, the market may
still expect higher inflation or the Fed may raise rates
on a preemptive basis.
Within the fixed income markets, spreads remain tight and
there is a high level
of complacency. Within the corporate market, spreads
remain compressed between
different quality levels and "riskier" borrowers have
access to an abundance of
capital. This condition is unlikely to change in the near
term as good economic
growth has reduced the stress on weaker credits. High
issues of Collateralized
Bond Obligations ("CBO") have created a new class of buyer
for lower quality
issues, one that is more concerned with default likelihood
rather than relative
pricing. Mortgage-backed spreads have tightened as market
volatility has been
low and prepayments have been within their predicted
range. Mortgage spreads are
unlikely to widen much as long as government agencies such
as Federal National
Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation
("FHLMC") are quick to arbitrage any spread widening.
Corporate spreads are
likely to take their cues from the high yield and equity
markets. As long as
these remain well bid for, high quality spreads should
remain firm.
Historically, October has been a month when spreads have
become wider and we
would therefore, not be surprised to see some modest
pressure on spreads as the
fourth quarter begins.
EQUITY COMMENTARY
The U.S. stock market continues to be in one of the
strongest bull market runs
ever. Stock prices have now doubled over the last two and
a half years and
almost tripled in the last five years in an ideal
investment climate of solid
economic growth, low inflation and strong corporate
profits growth.
The year 1997 began on a positive note for the stock
market. Fueled by strong
fourth quarter earnings and robust money flows into mutual
funds, the Standard &
Poor's 500 Composite Stock Index ("S&P 500") gained over
7% in January and
February, and continued to move to new highs in early
March. However, as
evidence of unexpectedly robust economic growth came to
hand, investors became
increasingly concerned about the risk of higher inflation
and interest rates.
The Fed raised short-term rates in March, and long-term
Treasury bond yields
moved back over the psychologically important 7% level.
The upward spike in interest rates triggered a sharp sell
off in the stock
market during the last week of March, erasing most of the
market's year-to-date
gains. For the entire first quarter, the S&P 500 edged out
a 2.7% gain with
dividends. Small capitalization issues generally fared
worse. During the first
three months of 1997, the Russell 2000 Stock Index
declined 5.5% in value.
The second quarter of 1997 was the best quarter for the
U.S. stock market in
over ten years. The stock market rally was broad in nature
lifting most stocks
and indexes to record high levels. The S&P 500 soared by
17.44% in the second
quarter, the Russell 2000 Index rose 16.2% and the Nasdaq
Composite Index
performed even better with a gain of 18.0%. (The S&P 500
is an unmanaged
capitalization-weighted index of 500 widely held common
stocks. The Russell 2000
Index 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. The
Nasdaq Composite Index is a capitalization-weighted index
of all stocks which
trade on Nasdaq.)
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As noted, the stock market got off to a rocky start in
April as the effects of
the Fed rate hike from late March rippled through the
capital markets. The S&P
500 sold off a low of 733 and the Dow Jones Industrial
Average retreated to
almost 6300 on April 14, 1997, as investors focused on the
likelihood of higher
rates. The investor mood swing to optimism was triggered
by the release of solid
first quarter earnings in April and the market rally began
in real earnest when
inflation reports in early May showed a significant
decline in producer and
consumer prices.
First quarter 1997 corporate earnings were again ahead of
expectations. The
final tally on the earnings scorecard showed that 54% of
all companies reported
earnings in excess of expectations while 31% of companies
disappointed relative
to the consensus. The preponderance of positive earnings
surprises continues a
trend which now extends to 17 consecutive quarters and is
unprecedented in terms
of duration or magnitude. Moreover, the agreement on a
balanced budget in
Washington and the prospects of a lower capital gains tax
added further fuel to
the stock market rally in the middle of the quarter. The
flood of liquidity into
the market continued unabated in the second quarter and
put more buying pressure
on stocks.
There are no indications right now to suggest that
earnings are at any great
risk in the near term. The earnings preannouncement season
at the end of the
quarter, when companies typically confess to upcoming
earnings shortfalls, was
uneventful and early second quarter earnings seem to be
quite strong.
There are no visible signs on the horizon that inflation
is
likely to flare up
in the near future. The employment cost index and hourly
wage gains are likely
to be the most closely monitored gauges of expected
inflation. We believe the
biggest risk on the interest rate front lies in a stronger
than-expected economy
in the second half. In fact, the Fed may be inclined to
respond to strong
economic data even before it begins to affect inflation
measures.
We remain cautious on the U.S. stock market. With all the
good news already
reflected in stock prices, the stock market has virtually
no margin for error.
We suspect that any unpleasant surprise will be enough
provocation to trigger a
correction. The market will focus on earnings or interest
rates for any negative
developments but any wild card surprise such as an oil
price shock could mean
trouble. The positive long-term trends toward low
inflation and lower interest
rates should, however, contain the downside in the stock
market and limit any
correction to the traditional 10% to 15% range from prior
highs.
Foreign stock markets also enjoyed a strong second quarter
with the Morgan
Stanley Capital International Europe Australia Far East
index ("MSCI EAFE")
rising by 13.0% in U.S. dollar terms. (The MSCI EAFE Index
consists of the
equity total returns for Europe, Australia, New Zealand
and the Far East.) The
bull market in global stocks also saw the Latin America
index advance by 22.5%
in the second quarter while the emerging markets index
gained 8.6% in U.S.
dollar terms.
MANAGED ASSETS TRUST
Managed Assets Trust gained 10.9% in the second quarter of
1997 while the 60/40%
S&P 500/Lehman Government/Corporate Index advanced by
11.8%. For the first half
of 1997, Managed Assets Trust enjoyed a total return of
11.82%.
The first half of 1997 provided stock market investors
with a glimpse of the
"best of all worlds" scenario, combining solid economic
growth, the lowest level
of inflation seen in a decade, a balanced budget agreement
out of Washington,
the promise of lower capital gains taxes, strong corporate
earnings growth,
merger activity rivaling the late 1980s and an abundance
of liquidity.
As a result, the U.S. stock market remains in one of the
strongest bull market
runs ever. The second quarter, in particular, was the best
quarter for the U.S.
stock market in over ten years. Virtually all sectors of
the stock market
reached new highs in the first half of 1997.
The U.S. bond market also rose higher in the second
quarter. The Lehman
Long-Term Bond Index performed the best with a gain of
5.5% as interest rates
fell below 7% in the second quarter. The yield curve
became flatter as the
spread between long-and short-term bonds narrowed by 20
basis points in the
quarter.
The dominant theme in the U.S. capital markets in the
second quarter was the
disappearing act staged by inflation. The remarkable good
news on the inflation
front finally seemed to get bond investors' attention as
the yield on long-term
bonds began to move lower. Stock market investors, on the
other hand, simply
accelerated their frenzied rush into stocks which
continues to drive valuations
higher.
The stock and bond markets have offered an interesting
contrast in terms of
their somewhat asymmetrical views on future inflation.
Even with a drop in
interest rates to 6.8% at the end of June, the bond market
is still fairly
cautious in terms of inflation expectations and future Fed
actions. It can well
be argued that inflation has been running close to 2% over
the last
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several months and yet the bond market has consistently
priced real rates at
fairly high levels. Real federal funds rates have been
around 3.3% and real long
term rates have been at about 4.7%, levels considerably
higher than the
historical average. To put these interest rates in
perspective, real Fed funds
rates peaked at 3.3% during the tightening monetary period
in 1987 whereas they
have traded at those levels for several months now.
The bond market, therefore, has been unwilling to give
ground to inflation and
has remained skeptical about the sustainability of this
low inflation. The
conservative reaction in the bond market leaves it better
prepared to deal with
an inflation shock or further Fed tightening.
The stock market has been far more enthusiastic in its
reaction to low
inflation. For that matter, stocks have been quick to
impound into prices all
the good news on the economic and earnings front as well.
Unlike the bond
market, stock prices have quickly adjusted to good news as
soon as it has become
available. The resulting high valuation levels in the
stock market now leave it
vulnerable to any disappointment on either the inflation
or earnings front.
As a result of this disparate investor behavior, the stock
market has been able
to far outperform the bond market over the last 18 months.
The return to risk
reward for stock investors has been even more favorable as
stock market
volatility has remained unusually low over the same
period.
Valuations in the stock market continue to be stretched.
The 12-month forward
P/E multiple on the S&P 500 now stands at 18.4 times which
is a record high over
the last 25 years. By most valuation measures, we believe
the market is between
10% and 15% overvalued.
We remain cautious on the U.S. stock market. With all good
news already
reflected in stock prices, the stock market has virtually
no margin for error.
We suspect that any unpleasant surprise will be enough
provocation to trigger a
correction. As we discussed earlier, the bond market has
refrained from building
up a similar level of excess and, therefore, offers better
value than stocks at
this point. We recommend a small underweight position in
U.S. stocks at this
point.
HIGH YIELD BOND TRUST
For the six months ended June 30, 1997, the High Yield
Bond Trust had a total
return of 8.13%. The Portfolio began the second quarter of
1997 with a high cash
balance comprising roughly 24% of the Portfolio. While the
Portfolio performed
well in the second quarter of 1997, its high cash position
penalized its
performance as the high yield bond market rallied. The
following issues had a
positive impact on the Portfolio's performance: Diamond
Cable, Florist
Transworld, Food 4 Less, ICF Kaiser, Syratech, SFX
Broadcasting and United
International Holdings.
The high yield bond market recovered from its modest
return of 1.47% in the
first quarter of 1997 to post a solid 4.32% for the second
quarter of 1997.
Lower-quality high yield bonds outperformed the BB-sector
as
the sound economic
outlook lifted the riskier credit issues over the near
term.
The high yield bond market has continued to rally on
strong demand from both new
investors and mutual funds. Given the market's strong
condition, we have seen a
record amount of new high yield bond issuance (more than
$60 billion) during the
first six months of this year. Moreover, during the past
twelve months there has
been a meaningful increase in the number of structured
transactions
incorporating high yield securities that has caused the
demand for high yield
bonds to rise even more. In the past two years, a number
of institutions,
particularly insurance companies, have begun to create
collateralized bond
obligations (CBOs) that use high yield securities as
collateral. Given the
intense demand on the part of many investors for current
yield the past year has
resulted in a significant increase in the creation of
CBOs. The amount of total
capital invested in the high yield bond market has risen
to record levels.
CAPITAL APPRECIATION FUND
In the second quarter, stocks registered their best
performance since the first
quarter of 1987. Large stocks remained the clear market
leaders, but smaller
companies also performed well, which made for a much
healthier overall market.
The S&P 500 gained 17.44% for the quarter. For the six
months ended June 30,
1997, the Fund generated a total return of 16.88% versus
the 20.6% for the S&P
500 over the same period.
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We continue to enjoy excellent economic conditions, with
little inflation, low
interest rates and increasing productivity. In sum, it is
still a very good
environment for financial assets. Raw materials as well as
labor are plentiful
internationally, which brought about deflation in many
core commodity prices as
the quarter ended -- copper, aluminum, grains and gold all
declined
significantly -- and continues to restrain inflationary
wage pressures. The
Fed's decision not to raise interest rates at both its May
and July meetings was
a further endorsement of the economy's basic health and
stability. Finally, the
budget process in Washington, D.C. is providing an
encouraging backdrop for
financial markets.
This quarter we experienced substantial gains in many of
our holdings, despite
some lingering cross-currents in technology as the quarter
began, when it proved
difficult to sort out the prospects for a few large
technology positions. In
spite of this ebb and flow, we posted good returns with
Microsoft Corp. and
Lucent Technologies. Microsoft, the dominant presence in
PC and network
operating systems, is beginning another upgrade cycle for
its NT, Office and
Windows products. Earnings are very consistent, not only
due to product demand
but also because Microsoft employs conservative accounting
methods. Lucent has
made a number of changes aimed at producing more
consistent revenues and
earnings, including restructuring the pay of its sales
force, cutting sales and
administrative expenses, and joint venturing with Philips
Electronics to sell
Lucent's electronic consumer goods (primarily cellular
telephones) under the
Philips name.
Dell Computer also appreciated nicely. Dell is clearly the
best operator in the
PC business. Inventory turnover averages only 12 days, and
the company has
remained focused on the commercial PC market, where demand
for new processors
and other upgrades is still strong. Dell is also just
getting started in the
high-margin server market. Dell's operating model is so
effective that Compaq
Computer, the largest PC retailer in the industry,
recently announced that it
wants to copy the Dell model, and tried to purchase
Gateway 2000 in order to
enter the direct order PC business, where Dell has been
very successful.
Our drug stocks also produced good returns this quarter.
Warner-Lambert's two
new drugs, Lipitor, which reduces cholesterol, and
Rezulin, for diabetes, have
been well received. Lipitor, which was introduced
approximately six months ago,
has already captured 21% of a highly competitive market.
Eli Lilly's Zyprexa,
for the treatment of schizophrenia, and Reopro, which
treats cardiovascular
disease, are selling well.
Two core growth companies, FNMA and First Data, also
appreciated. FNMA is
repurchasing stock and continues to post improved earnings
despite mediocre loan
growth. Credit card transaction processor First Data came
under pressure earlier
in the year on concerns over a potential slowdown in
credit
card use. However,
these fears were overblown, and the stock gained almost
30%.
Finally, two new holdings, Diamond Offshore Drilling and
Delta and Pine Land,
were up nicely. Delta and Pine has developed a new insect
resistant cotton seed
that is just beginning to penetrate the market. Diamond
Offshore is the leading
provider of deep-water drilling equipment. Exploration
budgets at the major oil
companies are at an all-time high, demand for Diamond
Offshore's products is
excellent and day rates are up. The company's fixed costs
are stable, which
gives it huge pricing leverage as more equipment goes into
the field.
Nike and Texas Instruments were sold at a profit during
the quarter. The revenue
growth rate slowed at Nike, and DRAM demand declined at
Texas Instruments.
Halliburton (energy company) was let go at a loss, due to
concerns about the
strength of its engineering and construction business.
Going forward, we are still very optimistic about the
equity markets. Although
valuations are rich in some stocks, healthy earnings
prospects and low interest
rates should support higher prices. In addition, our
Treasury yields also remain
high compared to international rates, making them
attractive to foreign
investors. As long as economic growth is moderate and
inflation is low, there
should be room for interest rates to come down. If this
proves to be the case,
financial assets will continue to benefit.
CASH INCOME TRUST
Cash Income Trust seeks to provide shareholders with high
current income from
short-term money market instruments while emphasizing
preservation of capital
and maintaining a high degree of liquidity. Cash Income
Trust pursues this
objective by investing in securities maturing in one year
or less.
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For the six months ended June 30, 1997, Cash Income Trust
generated an effective
yield of 4.84% and as of June 30, 1997 had an average
maturity of 16 days. Cash
Income Trust continues to invest primarily in U.S.
Treasuries and government
agency securities. This investment strategy has provided
Cash Income Trust with
safety, liquidity and stability.
You should be aware that your investment in the Cash
Income Trust 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 Asset
Trust, High Yield Bond Trust, Capital Appreciation Fund
and Cash Income Trust.
We look forward to continuing to help you achieve your
financial goals.
Sincerely,
McLendon sig
Heath B. McLendon
Chairman
July 28, 1997
6
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- ------------------------------
PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF
6/30/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN -----------------------
-------------
<S> <C>
Six Months Ended 6/30/97+ 11.82%
Year Ended 6/30/97
21.44%
Five Years Ended 6/30/97
12.82%
Ten Years Ended 6/30/97
12.85%
+Total return is not annualized, as it
may not be representative of the total
return for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made on
June
30, 1987 assuming reinvestment of dividends through June
30, 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
fixedrate
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>
Measurement Lehman
Period Managed Government Consumer
Standard
(Fiscal Year Assets Bond Price &
Poors
Covered) Trust Index Index 500
Index
<S> <C> <C> <C>
<C>
Jun-87 10000 10000 10000
10000
Dec-87 10620 10274 10165
8259
Dec-88 10824 11053 10614
9627
Dec-89 11816 12626 11107
12672
Dec-90 15021 13673 11785
12279
Dec-91 15392 15877 12146
16012
Dec-92 18732 17081 12498
17232
Dec-93 19695 18966 12842
18964
Dec-94 21533 18299 13185
19213
Dec-95 21050 21821 13520
23425
Dec-96 23938 22453 13968
28801
Jun-97 26768 23068 14065
34734
</TABLE>
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- ---------------------
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
6/30/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 8.13%
Year Ended 6/30/97
16.25%
Five Years Ended 6/30/97
11.43%
Ten Years Ended 6/30/97
9.93%
+Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made
on June
30, 1987 assuming reinvestment of dividends through June
30, 1997.
The Lehman Aggregate Bond Index, an unmanaged index, is
composed of
the Lehman Intermediate Government/Corporate Bond Index
and the
Mortgage Backed Securities Index and includes treasury
issues,
agency issues, corporate bond issues and mortgage-backed
securities. The Consumer Price Index is a measure of the
average
change in prices over time in a fixed market basket of
goods and
services. The First Boston High Yield Index Top Tier is a
broad-based market measure of high yield bonds, commonly
known as
"junk bonds."
<TABLE>
<CAPTION>
Lehman
Measurement Period High Yield Aggregate
Consumer
(Fiscal Year Covered) Bond Trust Bond Index Price
Index
<S> <C> <C> <C>
Jun-87 10000 10000
10000
Dec-87 10381 10293
10165
Dec-88 10346 11105
10614
Dec-89 11853 12720
11107
Dec-90 12019 13859
11785
Dec-91 10922 16077
12146
Dec-92 13774 17266
12498
Dec-93 15587 18950
12842
Dec-94 17771 18397
13185
Dec-95 17547 21795
13520
Dec-96 20363 22586
13968
Jun-97 22019 23205
14065
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming reinvestment
of dividends. The returns do not reflect expenses
associated with the subaccount
such as administrative fees, account charges and surrender
charges which, if
reflected, would reduce the performance shown.
7
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF
6/30/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 16.88%
Year Ended 6/30/97
28.25%
Five Years Ended 6/30/97
21.61%
Ten Years Ended 6/30/97
16.45%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made
on June
30, 1987 assuming reinvestment of dividends through June
30,
1997. The Standard & Poor's 500 Index is an unmanaged
index
composed of 500 widely held common stocks listed on the
New York
Stock Exchange, American Stock Exchange and over-the-
counter
market. The Russell 2000 Index is a capitalization
weighted total
return index which is comprised of 2,000 of the
smallest capitaled U.S. domiciled companies with less
than average
growth
orientation whose common stock is traded in the United
States of
the New York Stock Exchange, American Stock Exchange and
NASDAQ.
The Consumer Price Index is a measure of the average
change in
prices over time in a fixed market basket of goods and
services.
<TABLE>
<CAPTION>
Measurement
Period Capital Russell Consumer
Standard
(Fiscal Year Appreciation 2000 Price &
Poors
Covered) Fund Index Index 500
Index
<S> <C> <C> <C>
<C>
Jun-87 10000 10000 10000
10000
Dec-87 9720 7395 10165
8259
Dec-88 8931 9245 10614
9627
Dec-89 9830 10749 11107
12672
Dec-90 11374 8655 11785
12279
Dec-91 10665 12640 12146
16012
Dec-92 14414 14967 12498
17232
Dec-93 16951 17792 12842
18964
Dec-94 19509 7383 13185
19213
Dec-95 18580 9484 13520
23425
Dec-96 23828 11048 13968
28801
Jun-97 27850 12175 14065
34734
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gains or losses from portfolio
investments assuming
reinvestments of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
8
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 59.5% ------------------------------------
- ----------------------------------------------------------
- ----------
CONSUMER CYCLICALS -- 8.0%
16,300 Accustaff
Inc.++....................................................
.. ......... $ 386,106
10,200 American Stores Co.
..........................................................
. 503,625
16,400 Borders Group,
Inc.++....................................................
.. .... 395,650
5,400 Colgate-Palmolive Co.
.........................................................
352,350
17,300 Costco Cos., Inc.
..........................................................
.. . 569,278
10,400 CVS Corp.
..........................................................
.. ......... 533,000
6,100 Eastman Kodak Co.
..........................................................
.. . 468,175
13,300 Federated Department Stores
Inc.++.............................................
462,175
7,600 Gannett Co.
..........................................................
.. ....... 750,500
5,200 Gap Inc.
..........................................................
.. .......... 202,150
14,100 Gillette Co.
..........................................................
.. ...... 1,335,975
10,100 HFS
Inc.++....................................................
.. ............... 585,800
4,900 Hilton Hotels Corp.
..........................................................
. 130,156
9,400 Home Depot Inc.
..........................................................
.. ... 648,013
16,948 Kimberly-Clark Corp.
..........................................................
843,163
13,200 Lowe's Cos., Inc.
..........................................................
.. . 490,050
5,400 McDonalds Corp.
..........................................................
.. ... 260,888
10,400 New York Times Co., Class A
shares.............................................
514,800
4,600 Nike Inc., Class B
shares....................................................
.. 268,525
15,200 Proctor & Gamble Co.
..........................................................
2,147,000
7,400 Sears Roebuck & Co.
..........................................................
. 397,750
27,500 Stride Rite Corp.
..........................................................
.. . 354,062
12,500 Tele-Communications
Inc.++....................................................
. 185,547
10,000 Time Warner Inc.
..........................................................
.. .. 482,500
17,800 TJX Cos., Inc.
..........................................................
.. .... 469,475
2,600 Unilever
NV........................................................
.. .......... 566,800
43,000 Wal-Mart Stores, Inc.
.........................................................
1,453,938
12,477 Walt Disney Co.
..........................................................
.. ... 1,001,279 ------------------------------------
- ----------------------------------------------------------
- ----------
16,758,730 -----------------------------------------------
- ---------------------------------------------------------
CONSUMER STAPLES -- 4.7%
9,200 Anheuser-Busch Co.
..........................................................
.. 385,825
3,800 Campbell Soup Co.
..........................................................
.. . 190,000
44,800 Coca-Cola Co.
..........................................................
.. ..... 3,024,000
10,900 Conagra Inc.
..........................................................
.. ...... 698,963
7,000 CPC International Inc.
........................................................
646,187
11,700 Dean
Foods.....................................................
..
.............. 472,388
3,100 Gallaher Group
PLC.......................................................
.. .... 57,156
1,300 Kellogg Co.
..........................................................
.. ....... 111,313
29,000 PepsiCo, Inc.
..........................................................
.. ..... 1,089,313
45,800 Philip Morris, Inc.
..........................................................
. 2,032,375
6,800 Pioneer Hi-Bred
International.............................................
.. ... 544,000
9,000 Sara Lee Corp.
..........................................................
.. .... 374,625
9,200 Whitman Corp.
..........................................................
.. ..... 232,875
- ----------------------------------------------------------
- ----------------------------------------------
9,859,020 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
ENERGY -- 0.4%
6,400 Louisiana Land & Exploration Co.
.............................................. $
365,600
4,500 Schlumberger Ltd.
..........................................................
.. . 562,500
- ----------------------------------------------------------
- ----------------------------------------------
928,100 --------------------------------------------------
- ------------------------------------------------------
FINANCE -- 8.1%
8,265 Allstate Corp.
..........................................................
.. .... 603,345
4,900 Ambac Inc.
..........................................................
.. ........ 374,238
9,200 American Express Co.
..........................................................
685,400
8,750 American International Group Inc.
.............................................
1,307,031 10,389 Banc One Corp.
..........................................................
.. .... 503,217
10,400 Bank of Boston
Corp.++...................................................
.. .... 749,450
7,100 Bank of New
York......................................................
.. ....... 308,850
19,000 BankAmerica Corp.
..........................................................
.. . 1,226,688
3,600 Barnett Banks Inc.
..........................................................
.. 189,000
8,036 Chase Manhattan Corp.
.........................................................
779,994
3,100 Chubb Corp.
..........................................................
.. ....... 207,313
8,400
Citicorp..................................................
.. ................... 1,012,725
14,000 Federal Home Loan Mortgage Corp.
..............................................
481,250
20,600 Federal National Mortgage
Association..........................................
898,675
2,600 First Bank System Inc.
........................................................
221,975
6,000 First Chicago NBD Corp.
.......................................................
363,000
2,800 First Union Corp.
..........................................................
.. . 259,000
5,700 Golden West Financial Corp.
...................................................
399,000
7,200 Hartford Financial Services Group Inc.
........................................ 595,800
6,700 Household International Inc.
..................................................
786,831
3,400 J.P. Morgan & Co.
..........................................................
.. . 354,875
16,800 Mellon Bank Corp.
..........................................................
.. . 758,100
6,200 Merrill Lynch & Co., Inc.
.....................................................
369,675
10,950 Morgan Stanley Dean Witter
Discover............................................
471,534
12,000 NationsBank Corp.
..........................................................
.. . 774,000
8,400 Northern Trust Corp.
..........................................................
406,613
6,700 Norwest Corp.
..........................................................
.. ..... 376,875
5,900 PNC Bank Corp.
..........................................................
.. .... 245,587
7,600 SunAmerica, Inc.
..........................................................
.. .. 370,500
4,100 SunTrust Banks, Inc.
..........................................................
225,756
1,800 Wells Fargo & Co.
..........................................................
.. . 485,100
- ----------------------------------------------------------
- ----------------------------------------------
16,791,397 -----------------------------------------------
- ---------------------------------------------------------
HEALTHCARE -- 7.2%
9,100 Abbott
Laboratories..............................................
.. ............ 607,425
7,000 American Home Products Corp.
..................................................
535,500
4,800 Amgen
Inc.++....................................................
.. ............. 278,850
25,500 Beverly Enterprises, Inc.
.....................................................
414,375
3,300 Boston Scientific Corp.
.......................................................
202,744
23,300 Bristol-Myers Squibb Co.
......................................................
1,887,300
12,300 Columbia/HCA Healthcare Corp.
.................................................
483,544
6,400 Eli Lilly & Co.
..........................................................
.. ... 699,600
6,800 Guidant Corp.
..........................................................
.. ..... 578,000
6,500 HBO & Co.
..........................................................
.. ......... 447,687
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
HEALTHCARE -- 7.2% (CONTINUED)
29,600 Johnson &
Johnson...................................................
.. ......... $ 1,905,500
4,500 Medtronic Inc.
..........................................................
.. .... 364,500
27,200 Merck & Co.
..........................................................
.. ....... 2,815,200
11,700 Pfizer Inc.
..........................................................
.. ....... 1,398,150
12,400 PhyCor, Inc.
..........................................................
.. ...... 426,638
13,800 Schering-Plough Corp.
.........................................................
660,675
3,500 United Healthcare Corp.
.......................................................
182,000
12,000 U.S. Surgical Corp.
..........................................................
. 447,000
5,000 Warner-Lambert Co.
..........................................................
.. 621,250 -----------------------------------------------
- ---------------------------------------------------------
14,955,938 -----------------------------------------------
- ---------------------------------------------------------
INSURANCE -- 1.1%
2,700 Aetna Inc.
..........................................................
.. ........ 276,413
1,400 Cigna
Corp......................................................
.. ............. 248,500
15,000 Conseco Inc.
..........................................................
.. ...... 555,000
1,800 Lincoln National Corp.
........................................................
115,875
8,600 Marsh & McLennan Cos.,
Inc.....................................................
613,825
4,000 Transatlantic Holdings, Inc.
..................................................
397,000 --------------------------------------------------
- ------------------------------------------------------
2,206,613 ------------------------------------------------
- --------------------------------------------------------
MATERIALS & PROCESSING -- 4.5%
5,000 Aluminum Co. of
America...................................................
.. ... 376,875
6,900 Avery Dennison Corp.
..........................................................
276,862
4,100 Corning Inc.
..........................................................
.. ...... 228,062
7,000 Cummins Engine Co., Inc.
......................................................
493,938
8,800 Cytec Industries Inc.
.........................................................
328,900
20,400 E.I. du Pont de Nemours & Co.
.................................................
1,282,650
9,600 Ecolab, Inc.
..........................................................
.. ...... 458,400
3,100 Fortune Brands, Inc.
..........................................................
115,669
13,900 Freeport-McMoRan
Copper....................................................
.. .. 432,638
4,900 Georgia-Pacific Corp.
.........................................................
418,338
18,100 Homestake Mining Co.
..........................................................
236,431
12,100 Masco Corp.
..........................................................
.. ....... 505,175
9,900 McDonnell Douglas Corp.
.......................................................
678,150
6,800 Mead Corp.
..........................................................
.. ........ 423,300
19,700 Monsanto Co.
..........................................................
.. ...... 848,331
4,400 Raytheon Co.
..........................................................
.. ...... 224,400
8,600 United Technologies Corp.
.....................................................
713,800
14,700 U.S. Industries, Inc.
.........................................................
523,688
11,700 USX-US Steel
Group.....................................................
.. ...... 410,231
8,800 Waste Management Inc.
.........................................................
282,700
3,700 Weyerhauser Co.
..........................................................
.. ... 192,400
- ----------------------------------------------------------
- ----------------------------------------------
9,450,938 ------------------------------------------------
- --------------------------------------------------------
OIL -- 5.0%
7,100 Amerada Hess Corp.
..........................................................
.. 394,494
9,000 Amoco Corp.
..........................................................
.. ....... 782,437
8,100 Ashland Inc.
..........................................................
.. ...... 375,638
4,200 Atlantic Richfield Co.
........................................................
296,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
OIL -- 5.0% (CONTINUED)
12,000 Baker Hughes Inc.
..........................................................
.. . $ 464,250
12,000 Chevron Corp.
..........................................................
.. ..... 887,250
38,800 Exxon Corp.
..........................................................
.. ....... 2,386,200
19,600 Mobil Corp.
..........................................................
.. ....... 1,369,550
31,600 Royal Dutch Petroleum Co.
.....................................................
1,718,250
10,200 Texaco Inc.
..........................................................
.. ....... 1,109,250
14,200 Unocal Corp.
..........................................................
.. ...... 551,138
- ----------------------------------------------------------
- ----------------------------------------------
10,334,557 -----------------------------------------------
- ---------------------------------------------------------
PRODUCER DURABLES -- 5.0%
5,200 Allied Signal Inc.
..........................................................
.. 436,800
5,600 Betzdearborn, Inc.
..........................................................
.. 369,600
6,400 Boeing Co.
..........................................................
.. ........ 339,600
3,700 Caterpillar Inc.
..........................................................
.. .. 397,288
10,650 Crane Co.
..........................................................
.. ......... 445,303
11,400 Deere & Co.
..........................................................
.. ....... 625,575
4,500 Dow Chemical Co.
..........................................................
.. .. 392,063
8,200 Emerson Electric Co.
..........................................................
451,512
62,400 General Electric Co.
..........................................................
4,079,400
6,700 Honeywell Inc.
..........................................................
.. .... 508,362
12,800 Illinois Tool
Works.....................................................
.. ..... 639,200
3,680 Lockheed Martin Corp.
.........................................................
381,110
7,800 Minnesota Mining & Manufacturing Co.
.......................................... 795,600
4,700 Raychem Corp.
..........................................................
.. ..... 349,562
11,900 Westinghouse Electric Corp.
...................................................
275,188 --------------------------------------------------
- ------------------------------------------------------
10,486,163 -----------------------------------------------
- ---------------------------------------------------------
TECHNOLOGY -- 8.1%
10,000 Advanced Micro Devices, Inc.
..................................................
360,000
4,625 Andrew Corp.
..........................................................
.. ...... 129,789
3,300 Applied Materials, Inc.
.......................................................
233,578
5,700 Automatic Data Processing, Inc.
...............................................
267,900
11,900 Cisco Systems, Inc.
..........................................................
. 799,159
5,400 Compaq Computer Corp.
.........................................................
535,950
6,575 Computer Associates International, Inc.
....................................... 366,145
3,300 Dell Computer Corp.
..........................................................
. 387,440
23,000 Edison
International.............................................
.. ............ 572,125
11,200 Gateway 2000
Inc.++....................................................
.. ...... 363,300
18,600 Hewlett Packard Co.
..........................................................
. 1,041,600
12,600 Intel Corp.
..........................................................
.. ....... 1,784,081
19,000 International Business Machines Corp.
......................................... 1,713,563
15,200 Liberty Media, Class A
shares..................................................
361,475
15,200 LSI Logic Corp.
..........................................................
.. ... 486,400
11,569 Lucent Technologies Inc.
......................................................
833,691
6,100 McAfee Associates, Inc.
.......................................................
384,681
22,200 Microsoft Corp.
..........................................................
.. ... 2,807,606
13,800 Motorola Inc.
..........................................................
.. ..... 1,048,800
12,000 Oracle Corp.
..........................................................
.. ...... 604,125
5,200
PacifiCorp................................................
.. ................... 114,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
TECHNOLOGY -- 8.1% (CONTINUED)
16,400 Read-Rite Corp.
..........................................................
.. ... $ 341,838
4,400 Seagate Technology, Inc.
......................................................
154,825
6,500 Sun Microsystems Inc.
.........................................................
241,922
3,200 Texas Instruments Inc.
........................................................
269,000
5,900 3Com Corp.
..........................................................
.. ........ 265,316
6,200 Xerox Corp.
..........................................................
.. ....... 489,025
- ----------------------------------------------------------
- ----------------------------------------------
16,957,734 -----------------------------------------------
- --------------------------------------------------------
TRANSPORTATION -- 1.7%
6,300 Burlington Northern Sante
Fe...................................................
566,213
12,800 Chrysler Corp.
..........................................................
.. .... 420,000
11,200 Continental Airlines, Inc., Class B
shares..................................... 391,300
21,100 Ford Motor Co.
..........................................................
.. .... 796,525
12,900 General Motors Corp.
..........................................................
718,369
7,800 Lear Corp.
..........................................................
.. ........ 346,125
4,000 Union Pacific Corp.
..........................................................
. 282,000 ------------------------------------------------
- --------------------------------------------------------
3,520,532 ------------------------------------------------
- --------------------------------------------------------
UTILITIES -- 5.7%
5,100 AES
Corp.++...................................................
.. ............... 360,825
25,900 American Telephone & Telegraph Corp.
.......................................... 908,119
10,500 Ameritech Corp.
..........................................................
.. ... 713,344
9,900 Baltimore Gas & Electric Co.
..................................................
264,206
8,200 Bell Atlantic Corp.
..........................................................
. 622,175
19,000 Bellsouth Corp.
..........................................................
.. ... 881,120
9,700 CalEnergy Co.,
Inc.++....................................................
.. .... 368,600
7,600 Columbia Gas
System....................................................
.. ...... 495,900
3,800 Duke Energy Corp.
..........................................................
.. . 182,163
12,800 Enron Corp.
..........................................................
.. ....... 522,400
10,700 FPL Group Inc.
..........................................................
.. .... 492,869
15,600 GTE Corp.
..........................................................
.. ......... 684,450
4,900 Houston Industries, Inc.
......................................................
105,044
12,700 MCI Communications Corp.
......................................................
486,172
4,700 Northern Telecom
Ltd.......................................................
.. .. 427,700
8,300 Nynex Corp.
..........................................................
.. ....... 478,287
4,100 Pacific
Enterprises...............................................
.. ........... 137,862
20,227 SBC Communications, Inc.
......................................................
1,251,546
8,700 Sonat Inc.
..........................................................
.. ........ 445,875
12,700 Southern Co.
..........................................................
.. ...... 277,812
6,300 Sprint Corp.
..........................................................
.. ...... 331,538
10,000 Texas Utilities Co.
..........................................................
. 344,375
3,400 US West Communications
Group...................................................
128,138
29,100 Worldcom Inc.
..........................................................
.. ..... 931,200
- ----------------------------------------------------------
- ----------------------------------------------
11,841,720 -----------------------------------------------
- ---------------------------------------------------------
TOTAL COMMON STOCK (Cost -
$85,322,071).......................................
124,091,442 ----------------------------------------------
- ----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
PREFERRED STOCK -- 2.1% ----------------------------------
- ----------------------------------------------------------
- ------------
FINANCIAL -- 0.6%
4,000 Excel Reality Trust Inc., Convertible
2.125%................................... $ 109,000
2,000 Finova Finance, Convertible
5.500%.............................................
115,000
4 Fuji Finance, Convertible
0.250%...............................................
109,444
8,000 Merry Land & Investment, Convertible
2.150%.................................... 217,000
8,000 National Australia Bank, Convertible
7.875%.................................... 223,500
4,000 St. Paul Capital, Convertible
6.000%...........................................
277,000
5,000 Tosco Financial Trust, Convertible
5.750%......................................
278,750 --------------------------------------------------
- ------------------------------------------------------
1,329,694 ------------------------------------------------
- --------------------------------------------------------
INDUSTRIAL -- 1.5%
4,000 Amcor Ltd., Convertible
7.250%.................................................
211,750
10,000 Calenergy Capital II, Convertible
6.250%+......................................
567,500 12,000 International
Paper.....................................................
.. ..... 639,000
10,990 News Corp., Ltd., Convertible
5.000%...........................................
945,140
9,000 Occidental Petroleum
Corp.+....................................................
525,375
4,000 Rouse Co.
..........................................................
.. ......... 193,000
- ----------------------------------------------------------
- ----------------------------------------------
3,081,765 ------------------------------------------------
- --------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -
$4,057,871).....................................
4,411,459 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
CORPORATE BONDS -- 23.2% ---------------------------------
- ----------------------------------------------------------
- -------------
FINANCIAL -- 2.6%
$ 500,000 Great Western Financial, 6.375% due
7/1/00................................. 495,625
5,000,000 New Plan Reality, 5.950% due
11/2/26.......................................
5,004,500 ------------------------------------------------
- --------------------------------------------------------
5,500,125 ------------------------------------------------
- --------------------------------------------------------
GOVERNMENT, NATIONAL -- 2.9%
2,000,000 Canada - Global Bond, 6.375% due
7/21/05................................... 1,971,250
3,000,000 Panama-IRB, 3.500% due
7/17/14.............................................
2,321,250
2,000,000 Poland, 6.438% due
10/27/24................................................
1,718,750 ------------------------------------------------
- --------------------------------------------------------
6,011,250 ------------------------------------------------
- --------------------------------------------------------
INDUSTRIAL -- 10.3%
2,000,000 Becton Dickinson, 8.800% due
3/1/01........................................
2,130,000
2,000,000 Cox Communication Inc., 6.875% due
6/15/05................................. 1,970,000
2,000,000 McDonnell Douglas, 9.750% due
4/1/12.......................................
2,400,000 3,000,000 McKesson Corp., 6.875% due
3/1/02+.........................................
3,003,750
4,000,000 Philip Morris, 7.750% due
1/15/27..........................................
3,920,000
1,000,000 SIGMT, 1993-4b, 5.800% due
3/15/98.........................................
990,560
2,020,000 Tele-Comm Inc., 9.650% due
10/1/03.........................................
2,184,125
5,000,000 Xerox Corp., 6.250% due
11/15/26...........................................
4,850,000 ------------------------------------------------
- --------------------------------------------------------
21,448,435 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
OIL -- 0.3%
$ 500,000 Apache Corp, 6.000% due
1/15/02............................................ $
592,500 --------------------------------------------------
- ----------
- ---------------------------------------------
TELEPHONE -- 3.7%
5,000,000 Bellsouth Cap Funding, 6.040% due
11/15/26................................. 4,918,750
3,000,000 Bellsouth Telecom, 7.000% due
12/1/2095....................................
2,850,000 ------------------------------------------------
- --------------------------------------------------------
7,768,750 ------------------------------------------------
- -------------------------------------------------------
TRANSPORTATION -- 1.9%
3,000,000 CSX, 6.950% due
5/1/27+...................................................
. 3,015,000
880,199 Wilmington Trust, 9.250% due
1/2/07+.......................................
907,582 --------------------------------------------------
- ------------------------------------------------------
3,922,582 ------------------------------------------------
- --------------------------------------------------------
UTILITY - ELECTRIC -- 1.5%
3,000,000 Tenaga Nasional, 7.200% due
4/29/07........................................
3,071,250 ------------------------------------------------
- --------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -
$47,689,603)................................
48,314,892 -----------------------------------------------
- ---------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 3.9% ----------------------
- ----------------------------------------------------------
- ------------------------
FINANCIAL -- 0.5%
500,000 Equitable Cos., 6.125% due
12/15/24........................................
686,250
500,000 USF&G Corp., zero coupon due
3/3/09........................................
358,750 --------------------------------------------------
- ------------------------------------------------------
1,045,000 ------------------------------------------------
- --------------------------------------------------------
GOVERNMENT, NATIONAL -- 0.2%
500,000 Republic of Italy, 5.000% due
6/28/01......................................
507,500 --------------------------------------------------
- ------------------------------------------------------
INDUSTRIAL -- 2.9%
1,400,000 Alza Corp., zero coupon due
7/14/14........................................
624,750
300,000 Berkshire Hathaway, 1.000% due
12/03/01....................................
312,750 500,000 CUC International Inc., 3.000%
due
2/15/02................................. 531,875
300,000 GVC Corp. Ltd., zero coupon due
5/21/02+................................... 311,625
580,000 Hilton Hotels Corp. 5.000% due
5/15/06.....................................
620,600 500,000 Home Depot Inc., 3.250% due
10/1/01........................................
573,750
300,000 Inco Ltd., 7.750% due
3/15/16..............................................
314,625
300,000 Indian Petrochemicals, 8.800% due
3/11/02+................................. 317,625
1,000,000 Marriot International, zero coupon due
3/25/11............................. 616,250
100,000 Omnicom, zero coupon due
1/3/07............................................
121,625
400,000 Rouse Co., 5.750% due
7/23/02..............................................
417,000
300,000 RPM Inc., zero coupon due
9/30/12..........................................
144,750
500,000 Scholastic Corp., 5.000% due
8/15/05.......................................
406,875
200,000 Taiwan Semiconductor, zero coupon due
7/3/02+.............................. 200,000
500,000 Trinova Corp., 6.000% due
10/15/02.........................................
521,875 --------------------------------------------------
- ------------------------------------------------------
6,035,975 ------------------------------------------------
- --------------------------------------------------------
UTILITY - ELECTRIC -- 0.3%
600,000 Potomac Electric Power, 5.000% due
9/1/02.................................. 554,250 --
- ----------------------------------------------------------
- --------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -
$7,490,037)..................... 8,142,725 ----------
- ----------------------------------------------------------
- ------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 3.6% ---------
- ----------------------------------------------------------
- -------------------------------------
$ 3,000,000 U.S. Treasury Strip, zero coupon due
5/15/07............................... $ 1,566,660
387,863 FHLMC, 8.500% due
9/1/02...................................................
397,680
3,237,993 FNMA, 7.500% due
10/1/25...................................................
3,247,092
171,320 FNMA, 8.500% due
3/1/05....................................................
177,423
727,603 GNMA, 7.500% due
12/15/25..................................................
730,332
193,425 GNMA, 7.500% due
5/15/23...................................................
194,151
207,731 GNMA, 9.000% due
12/15/16..................................................
219,676
210,679 GNMA, 9.000% due
11/15/19..................................................
222,794
207,929 GNMA, 9.500% due
3/15/20...................................................
224,369
376,019 GNMA, 9.500% due
1/15/20...................................................
405,748 --------------------------------------------------
- ------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES AND
OBLIGATIONS
(Cost -
$7,322,719)...............................................
.. ...... 7,385,925 ---------------------------------
- ----------------------------------------------------------
- -------------
SHORT-TERM U.S. GOVERNMENT INSTRUMENTS -- 0.2%
350,000 U.S. Treasury Bill, 5.060% due
7/10/97#....................................
349,556 70,000 U.S. Treasury Bill, 5.070% due
7/10/97#....................................
69,911 75,000 U.S. Treasury Notes, 5.480% due
8/21/97.................................... 74,420
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL SHORT-TERM U.S. GOVERNMENT
INSTRUMENTS (Cost --
$493,887).................................................
.. ...... 493,887 ---------------------------------
- ----------------------------------------------------------
- -------------
COMMERCIAL PAPER -- 3.8%
8,000,000 Merrill Lynch & Co., Inc., 5.550% due
7/8/97
(Cost -- $7,991,360).......... 7,991,360 ------------
- ----------------------------------------------------------
- ----------------------------------
REPURCHASE AGREEMENT -- 3.7%
7,611,000 Citibank, 6.000% due 7/1/97; Proceeds at
maturity -- $7,612,266; (Fully
collateralized by U.S. Treasury Notes;
5.500% due 12/31/00; Market
value -- $7,766,069) (Cost -
$7,611,000)..................................
7,611,000 ------------------------------------------------
- --------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$167,978,548*).......................... $208,442,690 --
- ----------------------------------------------------------
- --------------------------------------------
</TABLE>
++ Non-income producing security.
+ Security is exempt from registration under rule 144A of
the Securities Act of
1933. This security may be sold in transactions that are
exempt from
registration, normally to qualified institutional
buyers. # Security segregated by Custodian for open
futures contract
commitments.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
CORPORATE BONDS AND NOTES -- 90.7% -----------------------
- ----------------------------------------------------------
- -----------------------BROADCASTING -- 2.6%
$500,000 BBB- TKR Cable One Inc., Debentures,
10.500% due 10/30/07.................. $ 549,375 -----
- ----------------------------------------------------------
- ------------------------------------------
CONSUMER NON-DURABLES -- 2.5%
340,000 NR French Fragrances Inc., Sr. Notes,
10.375% due 5/15/07+............... 351,050
180,000 B Syratech Corp., Sr. Notes, 11.000%
due
4/15/07........................ 193,050 ------------
- ----------------------------------------------------------
- -----------------------------------
544,100 --------------------------------------------------
- -------------------------------------------------------
ENERGY -- 8.0%
150,000 NR Belden Blake Corp., Sr. Sub.
Notes,
9.875% due 6/15/07+............... 150,000
310,000 B Energy Corp. of America, Sr. Sub.
Notes, 9.500% due 5/15/07........... 310,000
100,000 B- Pacalta Resources Ltd., Sr.
Notes,
10.750% due 6/15/04+............... 101,750
400,000 B+ Parker Drilling Corp., Sr. Notes,
Series B, 9.750% due 11/15/06+...... 418,000
Transamerican Energy Corp.:
200,000 NR Sr. Secured Notes, 11.500% due
6/15/02+............................... 195,000
400,000 B+ Sr. Secured Discount Notes, step bond
to yield 13.000% due 6/15/02+... 290,000
100,000 BB Triton Energy Ltd., Sr. Notes, 8.750%
due 4/15/02..................... 101,125
100,000 B+ Wiser Oil Co., Sr. Sub. Notes, 9.500%
due 5/15/07+.................... 100,500 -----------
- ----------------------------------------------------------
- ------------------------------------
1,666,375 ------------------------------------------------
- ---------------------------------------------------------
FINANCE -- 2.1%
400,000 B- B. F. Saul Real Estate Investment
Trust, Sr. Secured Notes, Series B,
11.625% due
4/1/02+...................................................
431,000 --------------------------------------------------
- -------------------------------------------------------
FOOD AND DRUG -- 9.9%
150,000 NR Archibald Candy Corp., Sr. Secured
Notes, 10.250% due 7/1/04+......... 152,250
100,000 NR Arisco Productos Alimenticios SA,
Notes, 10.750% due 5/22/05+......... 102,375
60,000 B Dominicks Finer Foods, Sr. Sub.
Notes,
Series B, 10.875% due 5/1/05... 66,600
500,000 B- Duane Reade Corp., Sr. Notes, Series
B, 12.000% due 9/15/02........... 527,500
267,032 NR Food 4 Less Holdings Inc., Sr. Sub.
Debentures, Payment-in-kind,
13.625% due
6/15/07...................................................
317,768
100,000 NR Leiner Health Products Inc., Sr. Sub.
Notes, 9.625% due 7/10/07+...... 102,000
200,000 B Penn Traffic Co., Sr. Notes, 8.625%
due 12/15/03...................... 162,750
250,000 B- Pueblo Extra International Inc., Sr.
Notes, 9.500% due 8/1/03......... 242,500
250,000 NR Randalls Food Markets Inc., Sr. Sub.
Notes, 9.375% due 7/1/07+........ 249,375
140,000 B+ Shoppers Food Warehouse Corp., Sr.
Notes, 9.750% due 6/15/04+......... 140,350 --------
- ----------------------------------------------------------
- ---------------------------------------
2,063,468 ------------------------------------------------
- --------------------------------------------------------
FOOD/TOBACCO -- 7.6%
500,000 B+ Americold Corp., 1st Mortgage, Series
B, 11.500% due 3/1/05........... 540,000
250,000 NR AFC Enterprises Inc., Sr. Sub. Notes,
10.250% due 5/15/07+............ 254,375
240,000 B+ Fresh Delmonte Produce N.V.,
Sr.
Notes, 10.000% due 5/1/03............ 246,600
236,896 NR FRD Acquisition Co., Sr. Notes,
Series
B, 12.500% due 7/15/04......... 252,885
100,000 NR North Atlantic Trading Inc., Sr.
Notes, 11.000% due 6/15/04+.......... 101,750
200,000 NR Windy Hill Pet Food Inc., Sr. Sub.
Notes, 9.750% due 5/15/07+......... 203,500
- ----------------------------------------------------------
- -----------------------------------------------
1,599,110 ------------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
FOREST PRODUCTS -- 3.5%
$ 50,000 B Broadway Corp., Sr. Sub. Notes,
10.250% due 4/15/07+.................. $ 53,625
250,000 NR Indah Kiat Finance Mauritius Ltd.,
Guaranteed Sr. Notes, 10.000% due
7/1/07+...................................................
.. .......... 249,688
300,000 B Silgan Corp., Sr. Sub. Debentures,
9.000% due 6/1/09+................. 303,000
130,000 B- Stone Container Corp., Sr. Sub.
Debentures, 12.250% due 4/1/02........ 133,575 -----
- ----------------------------------------------------------
- ------------------------------------------
739,888 --------------------------------------------------
- ------------------------------------------------------
GAMING/LEISURE -- 4.1%
100,000 NR Colorado Gaming Entertainment Co.,
Sr.
Secured Notes, Payment-in-kind,
12.000% due
6/1/03....................................................
99,875
350,000 B+ Hollywood Casino Corp., Guaranteed
Sr.
Secured Notes, 12.750% due
11/1/03...................................................
.. .......... 373,625
200,000 B Riddell Sports Inc., Sr. Notes,
10.500% due 7/15/07+.................. 205,000
190,000 BB- Trump Atlantic City Associates
Funding
Inc., 1st Mortgage Notes,
11.250% due
5/1/06....................................................
186,200 --------------------------------------------------
- -------------------------------------------------------
864,700 --------------------------------------------------
- -------------------------------------------------------
HEALTHCARE PRODUCTS -- 0.9%
180,000 B- Regency Health Services Inc., Sr.
Sub.
Notes, 9.875% due 10/15/02..... 186,300 ------------
- ----------------------------------------------------------
- -----------------------------------
HOUSING -- 5.4%
130,000 B- Associated Materials Inc., Sr. Sub.
Notes, 11.500% due 8/15/03........ 137,800
350,000 B+ Greystone Homes Inc., Sr. Notes,
10.750% due 3/1/04................... 379,313
250,000 B NVR Inc., Sr. Notes, 11.000% due
4/15/03.............................. 268,438
340,000 NR Reliant Building Products Inc., Sr.
Sub. Notes, 10.875% due 5/1/04+... 350,200
- ----------------------------------------------------------
- -----------------------------------------------
1,135,751 ------------------------------------------------
- --------------------------------------------------------
INFORMATION/TECHNOLOGY -- 0.8%
160,000 B+ Unisys Corp., Sr. Notes, Series B,
12.000% due 4/15/03................ 175,200 --------
- ----------------------------------------------------------
- --------------------------------------MANUFACTURING --
5.1%
200,000 B CMI Industries Inc., Sr. Sub. Notes,
9.500% due 10/1/03............... 200,750
150,000 B- Roller Bearing Co., Guaranteed Sr.
Sub. Notes, 9.625% due 6/15/07+.... 152,250
50,000 B Selmer Co. Inc., Sr. Sub. Notes,
11.000% due 5/15/05.................. 54,750
400,000 B- Terex Corp., Sr. Secured Notes,
13.250% due 5/15/02+.................. 449,000
200,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07+................... 205,000 ------
- ----------------------------------------------------------
- -----------------------------------------
1,061,750 ------------------------------------------------
- --------------------------------------------------------
MEDIA/ENTERTAINMENT -- 18.2%
180,000 B Affinity Group Inc., Sr. Sub. Notes,
11.500% due 10/15/03............. 193,500
150,000 BB- Cobb Theatres Corp., Sr. Secured
Notes, 10.625% due 3/1/03............ 164,813
55,000 B- Commemorative Brands Inc., Sr. Sub.
Notes, 11.000% due 1/15/07........ 57,750
500,000 B3* Commodore Media Inc., Sr. Sub.
Notes,
7.500% due 5/1/03............... 545,000
350,000 B- Diamond Cable Communication PLC., Sr.
Discount Notes, step bond to
yield 10.500% due
2/15/07+..........................................
208,250
100,000 B Globolstar LP, Sr. Notes, 11.250% due
6/15/04+........................ 94,000
350,000 B- Kabelmedia Holdings GMBH, Sr.
Discount
Notes, step bond to yield
12.840% due
8/1/06....................................................
215,250
500,000 NR Live Entertainment Inc., Sr. Sub.
Notes, 12.000% due 3/23/99.......... 501,250
400,000 B- Paxson Communications Corp., Sr. Sub.
Notes, 11.625% due 10/1/02+..... 433,500
400,000 B- Pegasus Media Communications Inc.,
Notes, Series B, 12.500% due
7/1/05+...................................................
.. .......... 441,000
300,000 B- Plitt Theaters Inc., Sr. Sub. Notes,
10.875% due 6/15/04.............. 313,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
MEDIA/ENTERTAINMENT -- 18.2% (CONTINUED)
$170,000 NR PTC International Finance BV, Co.
Guaranteed, step bond to yield
10.652% due
7/1/07+...................................................
$ 103,275
200,000 B+ Telewest Communications PLC, Sr.
Discount Debentures, step bond to
yield
10.751% due
10/1/07...................................................
145,000
190,000 NR Sun Media Corp., Sr. Sub. Notes,
9.500% due 5/15/07+.................. 192,375
250,000 B- United International Holdings Inc.,
Ltd., Sr. Secured Discount Notes,
zero coupon
to yield 11.320% due
11/15/99.........................................
195,000 --------------------------------------------------
- -------------------------------------------------------
3,803,463 ------------------------------------------------
- --------------------------------------------------------
METALS/MINERALS -- 1.9%
100,000 B Continental Global Group Corp., Sr.
Notes, 11.000% due 4/1/07......... 105,125
90,000 B- MMI Products Inc., Sr. Sub. Notes,
11.250% due 4/15/07+............... 96,075
180,000 B+ Wells Aluminum Corp., Sr. Notes,
10.125% due 6/1/05+.................. 186,975 ------
- ----------------------------------------------------------
- -----------------------------------------
388,175 --------------------------------------------------
- -------------------------------------------------------
RETAIL -- 3.7%
500,000 B+ K Mart Corp., Medium Term Notes,
7.900% due 12/14/00.................. 487,500
150,000 B+ Leslies Poolmart Inc., Sr. Notes,
10.375% due 7/15/04+................ 154,689
40,000 CCC Specialty Foods Inc., Sr. Sub.
Notes,
11.250% due 8/15/03............. 35,200
100,000 BB- Specialty Retailers Inc., Sr. Notes,
8.500% due 7/15/05+.............. 100,750 ----------
- ----------------------------------------------------------
- -------------------------------------
778,139 --------------------------------------------------
- -------------------------------------------------------
SERVICES -- 13.9%
500,000 NR Emcor Group Inc., Sub. Notes, Series
C, 11.000% due 12/15/01.......... 522,500
400,000 CCC+ Florists Transworld Delivery Inc.,
Sr.
Sub. Notes, Series B,
14.000% due
12/15/01..................................................
427,000
150,000 NR Hedstrom Corp., Sr. Sub. Notes,
10.000% due 6/1/07+................... 153,000
150,000 B- ICF Kaiser International Inc., Sr.
Sub. Notes, 13.000% due 12/31/03... 153,562
400,000 B Mail-Well Corp., Sr. Sub.
Notes,
10.500% due 2/15/04+................. 424,000
500,000 Caa* Sullivan Graphics Inc., Sr.
Sub.
Notes, 12.750% due 8/1/05+........... 519,375
500,000 B- U.S. Banknote Corp., Sr. Notes,
Series
B, 11.625% due 8/1/02+......... 507,500
200,000 B- Williams Scotsman Inc., Sr. Notes,
9.875% due 6/1/07+................. 200,500 --------
- ----------------------------------------------------------
- ---------------------------------------
2,907,437 ------------------------------------------------
- --------------------------------------------------------
TRANSPORTATION -- 0.5%
100,000 B Atlantic Express Transportation
Corp.,
Sr. Secured Notes, 10.750% due
2/1/04....................................................
..
.......... 104,375 ---------------------------------
- ----------------------------------------------------------
- --------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $18,091,154)................. 18,998,606 -----
- ----------------------------------------------------------
- ------------------------------------------
FOREIGN GOVERNMENT BONDS -- 4.2%
200,000 BB- Brazil- NMB L-Bearer, Government
Guaranteed, 6.938% due 4/15/09....... 174,625
354,921 BB+ Panama-PDI, Debentures, 6.563% due
7/17/16............................ 312,774
Republic of Venezuela:
250,000 B+ Government Guaranteed, 6.750% due
3/31/20............................. 196,875
200,000 B+ Sr. Unsub. Notes, 9.125% due
6/18/07.................................. 200,400 --
- ----------------------------------------------------------
- ---------------------------------------------
TOTAL FOREIGN GOVERNMENT BONDS (Cost
- - $859,340)..................... 884,674
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
SHARES
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
COMMON STOCK -- 0.0%
ENERGY -- 0.0%
264 Baycorp Holdings Ltd. (Cost --
$0).................................... $ 2,013 ----
- ----------------------------------------------------------
- -------------------------------------------
PREFERRED STOCK -- 0.7%
BROADCASTING -- 0.7%
1,300 SFX Broadcasting Inc., 12.625% (Cost
- -
- - $132,537)..................... 147,874
- ----------------------------------------------------------
- -----------------------------------------------
WARRANTS -- 0.1% -----------------------------------------
- ----------------------------------------------------------
- -----MANUFACTURING -- 0.1%
1,600 Terex Corp., Expire
5/15/02++.........................................
19,200 ---------------------------------------------------
- ---------
- ----------------------------------------------
METAL PRODUCTS -- 0.0%
500 Gulf State Steel Alabama Inc.,
Expire
4/15/03+++...................... 2,500
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL WARRANTS (Cost -
$0)...........................................
21,700 ---------------------------------------------------
- ------------------------------------------------------
FACE
AMOUNT
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
REPURCHASE AGREEMENT -- 4.3%
$890,000 Citibank, 6.000% due 7/1/97; Proceeds
at maturity -- $890,148; (Fully
collateralized by U.S. Treasury
Notes, 5.875% due 3/31/99; (Market
value -- $901,125) (Cost -
$890,000)................................. 890,000 -
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$19,973,031**)..................... $20,944,867 --------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
+ Security is exempt from registration under Rule 144A of
the Securities Act of
1933. These securities may be resold in transactions
exempt from
registration, normally to qualified institutional buyers.
++ Non-income producing security.
** Aggregate cost for Federal income tax purposes is
substantially the same.
See page 21 for definition of bond ratings.
SUMMARY OF BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
STANDARD & % OF TOTAL CORPORATE
MOODY'S AND/OR POOR'S BONDS & NOTES
- --------------------------------------------------------
<S> <C> <C> <C>
Ba BB 8.0%
B B
60.0
Caa CCC
5.0
NR NR
27.0
- ---------------------------------------------------------
100.0% ------
- --------------------------------------------------</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<pg$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. ("Moodys"). The definitions of the
applicable rating symbols are
set forth below:
Standard & Poor's -- Rating from "AA" to "C" may be
modified by the addition of
a plus (+) or a minus (-) sign to show relative standings
within the major
rating categories.
<TABLE>
<S> <C> <C>
AAA -- Debt rated "AAA" has the highest
rating
assigned by Standard & Poor's. Capacity to
pay interest and repay principal is
extremely strong.
AA -- Debt rated "AA" has a very strong
capacity to pay interest and repay principal and
differs from the highest rated issue
only in a small degree.
A -- Debt rated "A" has a strong capacity
to
pay interest and repay principal although
it is somewhat more susceptible to
the adverse effects of changes in circumstances
and economic conditions than debt in
higher rated categories.
BBB -- Debt rated "BBB" are regarded as
having
an adequate capacity to pay interest and
repay principal. Whereas they
normally exhibit adequate protection parameters,
adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity to pay interest and
repay principal for bonds in this category
than for bonds in higher rated
categories.
BB, B and CCC -- Debt rated "BB" and "B" are regarded,
on balance, as predominantly speculative with
respect to capacity to pay interest
and repay principal in accordance with the
terms of the obligation. "BB"
represents a lower degree of speculation than "B",
and "CCC" the highest degree of
speculation. While such bonds will likely have some
quality and protective
characteristics,
these are outweighed by large uncertainties
or major risk exposures to adverse
conditions.
C -- The rating "C" is reserved for income
bonds on which no interest is being paid.
D -- Debt rated "D" are in default, and
payment of interest and/or repayment of
principal is in arrears.
</TABLE>
Moody's -- Numerical modifiers 1, 2, and 3 may be applied
to each generic rating
from "Aa" to "C", where 1 is the highest and 3 the lowest
rating within its
generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds that are rated "Aaa" are judged
to be of the best quality. They carry the
smallest degree of investment fisk
and are generally referred to as "gilt edge."
Interest payments are protected by a
large or by an exceptionally stable margin and
principal is secure. While the
various protective elements are likely to change,
such changes as can be visualized are
most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged
to
be of high quality by all standards.
Together with the "Aaa" group they
comprise what are generally known as high grade
bonds. They are rated lower than the
best bonds because margins of protection may
not be as large as in "Aaa"
securities or fluctuation of protective elements may be
of greater amplitude or there may be
other elements present which make the
long-term risks appear somewhat
larger than in "Aaa" securities.
A -- Bonds that are rated "A" possess many
favorable investment attributes and are to be
considered as upper medium grade
obligations. Factors giving security to principal
and interest are considered adequate
but elements may be present which suggest a
susceptibility to impairment some
time in the future.
Baa -- Bonds that are rated "Baa" are
considered to be medium grade obligations; that is,
they are neither highly protected nor
poorly secured. Interest payment and
principal security appear adequate
for the present but certain protective elements
may be lacking or may be
characteristically unreliable over any great length of
time. These bonds lack outstanding
investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged
to
have speculative elements; their future
cannot be considered as well assured.
Often the protection of interest and
principal payments may be very
moderate and thereby not well safeguarded during
both good and bad times over the
future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds that are rated "B" generally
lack
characteristics of desirable investments.
Assurance of interest and principal
payments or of maintenance of other terms of
the contract over any long period of
time may be small.
Caa -- Bonds that are rated "Caa" are of
poor
standing. These issues may be in default, or
present elements of danger may exist
with respect to principal or interest.
Ca -- Bonds that are rated "Ca" represent
obligations which are speculative in a high
degree. Such issues are often in
default or have other marked shortcomings.
C -- Bonds that are rated "C" are the
lowest
rated class of bonds, and issues so rated
can be regarded as having extremely
poor prospects of ever attaining any real
investment standing.
NR -- Indicates that the bond is not rated
by
Standard & Poor's or Moody's.
</TABLE>
21
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 90.8% ------------------------------------
- ----------------------------------------------------------
- ----------
AIRCRAFT & AEROSPACE -- 2.0%
99,700 Textron
Inc.......................................................
.. ....... $ 6,617,588 --------------------------------
- ----------------------------------------------------------
- --------------
AIRLINES -- 3.4%
50,750 Alaska Air Group,
Inc......................................................
1,300,469
138,650 UAL
Corp.++...................................................
.. ........... 9,922,141
- ----------------------------------------------------------
- ----------------------------------------------
11,222,610 -----------------------------------------------
- ---------------------------------------------------------
BANKING -- 7.8%
102,050 Bank of New
York......................................................
.. ... 4,439,175
10,000 Catskill Financial
Corp.++.................................................
155,000
63,190
Citicorp..................................................
.. ............... 7,618,344
10,000 Community Federal
Bancorp..................................................
180,000
10,000 First Bergen
Bancorp...................................................
.. .. 152,500
10,000 GA Financial
Inc.......................................................
.. .. 188,750
28,550 Mercantile Bancorp,
Inc....................................................
1,734,413
10,000 PFF Bancorp,
Inc.++....................................................
.. .. 187,500
47,000 R & G Financial
Corp......................................................
. 1,222,000
35,791 Wells Fargo &
Co........................................................
.. . 9,645,674
- ----------------------------------------------------------
- ----------------------------------------------
25,523,356 -----------------------------------------------
- ---------------------------------------------------------
BEVERAGE -- 4.9%
93,250 Coca-Cola
Co........................................................
.. ..... 6,294,375
429,275 Coca-Cola
Enterprises...............................................
.. ..... 9,873,325 ----------------------------------
- ----------------------------------------------------------
- ------------
16,167,700 -----------------------------------------------
- ---------------------------------------------------------
BUSINESS SERVICES -- 4.7%
46,075 Danka Business Systems
ADR.................................................
1,883,316
31,087 Diebold
Inc.......................................................
.. ....... 1,212,393
276,225 First Data
Corp......................................................
.. .... 12,136,636 -----------------------------------
- ----------------------------------------------------------
- -----------
15,232,345 -----------------------------------------------
- ---------------------------------------------------------
CHEMICAL -- 7.0%
175,575 Cytec Industries
Inc.++....................................................
6,562,116
375,350 Monsanto
Co........................................................
.. ...... 16,163,509 ---------------------------------
- ----------------------------------------------------------
- -------------
22,725,625 -----------------------------------------------
- --------------------------------------------------------
COMMUNICATIONS -- 0.5%
65,000 Qwest Communications International,
Inc.++................................. 1,771,250 ---
- ----------------------------------------------------------
- -------------------------------------------
COMPUTERS -- 8.8%
17,500 Compaq Computer
Corp.++...................................................
. 1,736,875
108,075 Dell Computer
Corp.++...................................................
.. . 12,692,058
59,625 Intel
Corp......................................................
.. ......... 8,455,570
168,425 Seagate Technology,
Inc.++.................................................
5,926,455 ------------------------------------------------
- --------------------------------------------------------
28,810,958 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
CONSUMER STAPLES -- 2.3%
250,000 US Office Products Co.
.................................................... $
7,640,625 ------------------------------------------------
- --------------------------------------------------------
DIVERSIFIED OPERATIONS -- 4.0%
202,450 General Electric Co.
......................................................
13,235,168 -----------------------------------------------
- ---------------------------------------------------------
DRUGS AND HEALTHCARE -- 10.5%
35,850 American Home
Products..................................................
.. . 2,742,525
8,400 Bristol-Myers Squibb Co.
..................................................
680,400
123,475 Eli Lilly & Co.
..........................................................
. 13,497,360
63,475 Pfizer, Inc.
..........................................................
.. .. 7,585,263
78,125 Warner-Lambert Co.
........................................................
9,707,031 ------------------------------------------------
- --------------------------------------------------------
34,212,579 -----------------------------------------------
- ---------------------------------------------------------
FINANCIAL SERVICES -- 10.8%
32,950 Charles Schwab Corp.
......................................................
1,340,653
10,000 Chester Bancorp Inc.
......................................................
148,750
179,325 Federal Home Loan Mortgage Corp.
.......................................... 6,164,297
196,655 Federal National Mortgage
Association......................................
8,579,074
10,000 First Defiance Financial
Corp..............................................
146,250
132,355 Merrill Lynch & Co., Inc.
.................................................
7,891,667
10,000 South Street Financial
Co.++...............................................
165,000
98,075 State Street Boston Corp.
.................................................
4,535,969
50,725 Student Loan Marketing
Association.........................................
6,442,075 ------------------------------------------------
- --------------------------------------------------------
35,413,735 -----------------------------------------------
- ---------------------------------------------------------
FOOD -- 0.4%
25,365 Safeway
Inc.++....................................................
.. ....... 1,169,961 --------------------------------
- ----------------------------------------------------------
- -------------MANUFACTURING -- 4.6%
84,625 Applied Materials,
Inc.++..................................................
5,992,508
142,800 E. I. du Pont de Nemours & Co.
............................................
8,978,550 ------------------------------------------------
- --------------------------------------------------------
14,971,058 -----------------------------------------------
- ---------------------------------------------------------
MATERIALS & PROCESSING -- 2.3%
208,050 Delta & Pine Land Co.
.....................................................
7,411,781 ------------------------------------------------
- --------------------------------------------------------
NATURAL GAS -- 1.3%
75,500 Praxair Inc.
..........................................................
.. .. 4,228,000
- ----------------------------------------------------------
- ----------------------------------------------
OIL & GAS -- 5.5%
106,425 Diamond Offshore Drilling,
Inc.++..........................................
8,314,453
52,550 Schlumberger Ltd.
.........................................................
6,568,750
41,625 Transocean Offshore Inc.
..................................................
3,023,016 ------------------------------------------------
- --------------------------------------------------------
17,906,219 -----------------------------------------------
- --------------------------------------------------------
TELECOMMUNICATIONS -- 5.2%
28,450 Cincinnati Bell, Inc.
.....................................................
896,175
224,450 Lucent Technologies
Inc....................................................
16,174,428 -----------------------------------------------
- ---------------------------------------------------------
17,070,603 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
RETAIL -- 2.0%
34,875 Fred Meyer,
Inc.++....................................................
..
... $ 1,802,602
44,875 Gucci
Group.....................................................
.. ......... 2,888,828
46,650 Starbucks
Corp.++...................................................
.. ..... 1,816,434
- ----------------------------------------------------------
- ----------------------------------------------
6,507,864 ------------------------------------------------
- --------------------------------------------------------
SOFTWARE -- 2.8%
73,425 Microsoft
Corp.++...................................................
.. ..... 9,279,084
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL COMMON STOCK (Cost --
$225,628,571)..................................
297,118,109 ----------------------------------------------
- ----------------------------------------------------------
FOREIGN STOCK -- 5.8%
801 Bayerische Motoren Werke
AG................................................
660,988
17,506 Volkswagen
AG........................................................
.. .... 13,280,690
56,000 Sony Corp.
..........................................................
.. .... 4,888,928
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL FOREIGN STOCK (Cost --
$14,586,624)..................................
18,830,606 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
REPURCHASE AGREEMENT -- 3.4%
$11,027,000 Citibank, 5.988% due 7/1/97; Proceeds at
maturity -- $11,028,834; (Fully
collateralized by U.S. Treasury Notes,
6.500% due 8/31/01; Market
value -- $11,249,381) (Cost -
$11,027,000)................................
11,027,000 -----------------------------------------------
- ---------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$251,242,195*).......................... $326,975,715 --
- ----------------------------------------------------------
- --------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CASH INCOME TRUST
<TABLE>
<CAPTION>
FACE
ANNUALIZED
AMOUNT SECURITY
YIELD VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S>
<C> <C>
COMMERCIAL PAPER -- 95.5%
$ 180,000 Allied Signal Inc. matures
7/7/97................................ 5.58% $
179,834
180,000 American Express Co. matures
7/2/97.............................. 5.56
179,972
180,000 Becton Dickinson & Co. matures
7/8/97............................ 5.55
179,806
149,900 Chase Manhattan Bank matures
7/8/97.............................. 5.57
149,739
175,000 Dillard Investment Co., Inc. matures
7/22/97..................... 5.58 174,432
180,000 Ford Motor Credit Corp. matures
7/29/97.......................... 5.56
179,226
180,000 General Electric Capital Corp. matures
7/23/97................... 5.60 179,390
180,000 General Mills Inc. matures
7/8/97................................ 5.55
179,807
180,000 Goldman, Sachs matures
7/10/97................................... 5.58
179,749
180,000 Household Finance Corp. matures
7/22/97.......................... 5.60
179,416
175,000 May Department Stores matures
7/29/97............................ 5.62
174,242
180,000 Merrill Lynch Co. matures
7/14/97................................ 5.61
179,637
180,000 National Rural Utilities matures
7/17/97......................... 5.57
179,558
175,000 Northern Indiana Public Service Corp.
matures
7/21/97............ 5.57 174,461
180,000 Paccar Financial Corp. matures
7/7/97............................ 5.52
179,835
180,000 PacifiCorp matures
7/17/97....................................... 5.60
179,555
180,000 Pearson Inc. matures
7/15/97..................................... 5.58
179,611
175,000 Progress Capital Holdings matures
7/11/97........................ 5.57 174,730
176,000 Prudential Funding Co. matures
7/21/97........................... 5.58
175,459
175,000 Southern California Edison Co. matures
7/23/97................... 5.57 174,406
180,000 Southern New England Telecom matures
7/22/97..................... 5.56 179,419
180,000 Tampa Electric Co. matures
7/28/97............................... 5.57
179,251
180,000 Transamerica Finance Corp. matures
7/11/97....................... 5.63 179,719
180,000 TRW Inc. matures
7/7/97.......................................... 5.59
179,834 --------------------------------------------------
- -------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -
$4,251,088)......................
4,251,088
- ----------------------------------------------------------
- -----------------------------------------------
REPURCHASE AGREEMENT -- 4.5%
198,000 Citibank, 5.59% due 7/1/97, Proceeds at
maturity -- $198,031;
(Fully collateralized by U.S. Treasury
Notes, 8.75% due 8/15/00;
Market value -- $218,295) (Cost -
$198,000)..................... 198,000
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$4,449,088*).................. $4,449,088
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ----------------------------------------------------------
- -------------------------------------------------
<S> <C>
<C> <C> <C>
ASSETS:
Investments -- Cost...............................
$167,978,548 $19,973,031 $251,242,195 $4,449,088
- ----------------------------------------------------------
- ------------------------------------------------
Investments, at value.............................
$208,442,690 $20,944,867 $326,975,715 $4,449,088
Cash..............................................
229 205,826 155 768
Dividends and interest receivable.................
1,099,628 375,048 86,591
114
Receivable from securities
sold................... 893,678 422,579
128,290 --
Receivable from broker -- variation
margin........ 83,125 -- --
- --
Receivable from
affiliate......................... -- -
- - -- 14,855
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL ASSETS......................................
210,519,350 21,948,320 327,190,751 4,464,825
- ----------------------------------------------------------
- ------------------------------------------------
LIABILITIES:
Investment advisory fees payable..................
84,967 8,519 166,085 --
Administration fees payable.......................
10,235 1,022 12,502 --
Payable for securities purchased..................
1,408,138 648,106 86,583 --
Dividends payable.................................
- -- -- -- 6,714
Accrued expenses..................................
19,687 16,258 4,048 1,776
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL LIABILITIES.................................
1,523,027 673,905 269,218 8,490
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL NET ASSETS....................................
$208,996,323 $21,274,415 $326,921,533 $4,456,335
- ----------------------------------------------------------
- -------------------------------------------------
NET ASSETS:
Paid-in capital...................................
$156,846,314 $24,249,684 $239,162,568 $4,456,335
Undistributed net investment income...............
3,725,600 656,407 1,274,156 --
Accumulated net realized gain (loss) from security
transactions...................................
7,886,167 (4,603,512) 10,751,141 --
Net unrealized appreciation of investments,
futures contracts and foreign currencies.......
40,538,242 971,836 75,733,668 --
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL NET ASSETS....................................
$208,996,323 $21,274,415 $326,921,533 $4,456,335 ---
- ----------------------------------------------------------
- ----------------------------------------------
SHARES OUTSTANDING..................................
12,474,281 2,318,711 7,617,350 4,456,335
- ----------------------------------------------------------
- -------------------------------------------------
NET ASSET VALUE, PER SHARE..........................
$16.75 $9.18 $42.92 $1.00
- ----------------------------------------------------------
- -------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX
MONTHS
ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ----------------------------------------------------------
- --------------------------------------------------
<S>
<C> <C> <C> <C>
INVESTMENT INCOME:
Interest...............................................
$
2,608,814 $ 912,810 $ 942,881 $108,363
Dividends..............................................
1,053,145 -- 1,274,157 --
Less: Foreign withholding tax..........................
- -- -- (42,871) --
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL INVESTMENT INCOME................................
3,661,959 912,810 2,174,167 108,363
- ----------------------------------------------------------
- -------------------------------------------------EXPENSES:
Investment advisory fees (Note 3)......................
486,500 47,082 1,002,275 9,526
Administration fees (Note 3)...........................
55,213 4,756 69,061 1,469
Shareholder communications.............................
29,115 8,300 23,000 450
Audit and legal........................................
23,140 10,000 7,000 8,315
Custody................................................
16,860 3,000 9,000 3,487
Shareholder and system servicing fees..................
5,000 4,300 3,920 2,860
Trustees' fees.........................................
5,000 4,400 5,000 3,272
Pricing service fees...................................
3,000 -- -- --
Registration fees......................................
- -- -- -- 400
Other..................................................
1,780 1,610 360 --
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL EXPENSES.........................................
625,608 83,448 1,119,616 29,779
Less: Expense reimbursement............................
- -- -- -- (16,196)
- ----------------------------------------------------------
- --------------------------------------------------
NET EXPENSES...........................................
625,608 83,448 1,119,616 13,583
- ----------------------------------------------------------
- --------------------------------------------------
NET INVESTMENT INCOME....................................
3,036,351 829,362 1,054,551 94,780
- ----------------------------------------------------------
- --------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 4 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities)*......................................
5,413,500 336,616 11,972,060 (25)
Futures contracts...................................
(1,098,325) -- -- --
- ----------------------------------------------------------
- --------------------------------------------------
NET REALIZED GAIN (LOSS)...............................
4,315,175 336,616 11,972,060 (25) --------
- ----------------------------------------------------------
- ------------------------------------------
Change in Net Unrealized Appreciation of Investments,
Futures Contracts and Foreign Currencies:
Beginning of period.................................
25,676,994 658,102 45,698,691 --
End of period.......................................
40,538,242 971,836 75,733,668 --
- ----------------------------------------------------------
- --------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................
14,861,248 313,734 30,034,977 --
- ----------------------------------------------------------
- --------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES.....................................
19,176,423 650,350 42,007,037 (25)
- ----------------------------------------------------------
- --------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................
$22,212,774 $1,479,712 $ 43,061,588 $ 94,755 -------
- ----------------------------------------------------------
- -------------------------------------------
</TABLE>
* Represents only gains from the sale of short-term
securities for the Cash
Income Trust.
SEE NOTES TO FINANCIAL
STATEMENTS.
27
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE
30, 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............................. $
3,036,351 $ 829,362 $ 1,054,551 $ 94,780
Net realized gain (loss)..........................
4,315,175 336,616 11,972,060 (25)
Increase in net unrealized appreciation...........
14,861,248 313,734 30,034,977 --
- ----------------------------------------------------------
- -------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............
22,212,774 1,479,712 43,061,588 94,755
- ----------------------------------------------------------
- ------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income.............................
- -- -- -- (94,737)
- ----------------------------------------------------------
- -------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS..................
- -- -- -- (94,737)
- ----------------------------------------------------------
- -------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares..................
3,264,591 3,595,019 69,418,802 7,780,666
Net asset value of shares issued for
reinvestment of dividends......................
- -- -- -- 94,737
Cost of shares reacquired.........................
(5,091,523) (1,091,359) (9,690,608) (6,961,741)
- ----------------------------------------------------------
- -------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS...................................
(1,826,932) 2,503,660 59,728,194 913,662
- ----------------------------------------------------------
- -------------------------------------------------
INCREASE IN NET ASSETS..............................
20,385,842 3,983,372 102,789,782 913,680
NET ASSETS:
Beginning of period...............................
188,610,481 17,291,043 224,131,751 3,542,655
- ----------------------------------------------------------
- -------------------------------------------------
END OF PERIOD*....................................
$208,996,323 $21,274,415 $326,921,533 $4,456,335
- ----------------------------------------------------------
- -------------------------------------------------
* Includes undistributed net investment income
of: ..............................................
$3,725,600 $656,407 $1,274,156 --
- ----------------------------------------------------------
- -------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ----------------------------------------------------------
- --------------------------------------------------
<S> <C>
<C> <C> <C>
OPERATIONS:
Net investment income............................. $
6,221,446 $ 1,631,694 $ 1,149,455 $ 94,484
Net realized gain (loss)..........................
13,430,793 (304,388) 13,938,060 --
Increase in net unrealized appreciation...........
3,373,072 857,828 24,478,515 --
- ----------------------------------------------------------
- --------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............
23,025,311 2,185,134 39,566,030 94,484
- ----------------------------------------------------------
- -------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income.............................
(10,914,123) (2,978,125) (1,741,271) (94,502)
Net realized gains................................
(17,258,729) -- (23,015,510) --
- ----------------------------------------------------------
- --------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS..................
(28,172,852) (2,978,125) (24,756,781) (94,502)
- ----------------------------------------------------------
- --------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares..................
7,067,309 5,233,862 72,301,317 9,941,686
Net asset value of shares issued for
reinvestment of
dividends...................... 28,172,852
2,978,125 24,756,781 94,502
Cost of shares reacquired.........................
(12,757,653) (3,030,251) (9,891,028) (7,910,199) --
- ----------------------------------------------------------
- ------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS........................
22,482,508 5,181,736 87,167,070 2,125,989 ----
- ----------------------------------------------------------
- ----------------------------------------------
INCREASE IN NET ASSETS..............................
17,334,967 4,388,745 101,976,319 2,125,971
NET ASSETS:
Beginning of year.................................
171,275,514 12,902,298 122,155,432 1,416,684 ---
- ----------------------------------------------------------
- -----------------------------------------------
END OF YEAR*......................................
$188,610,481 $17,291,043 $224,131,751 $ 3,542,655 --
- ----------------------------------------------------------
- ------------------------------------------------
* Includes undistributed net investment income
of:...............................................
$689,249 $(172,955) $219,605 ---------
- ----------------------------------------------------------
- ------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<pg$pcn> -------------------------------------------------
- ------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Managed Assets Trust, High Yield Bond Trust,
Capital Appreciation Fund
and Cash Income Trust (collectively, "Fund(s)") are each a
Massachusetts
business trust registered under the Investment Company Act
of 1940, as amended,
as diversified, open-end management investment companies.
Shares of the Funds
are offered only to insurance company separate accounts
that fund certain
variable annuity and variable life insurance contracts.
The significant accounting policies consistently
followed by the Funds are:
(a) security transactions are accounted for on trade date;
(b) securities traded
on national securities markets are valued at the closing
prices on such markets;
securities for which no sales price were reported and U.S.
government and agency
obligations are valued at the mean between the last
reported bid and 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 and, or minus amortized premium,
which approximates
market value; (d) securities that have a maturity of 60
days or more are valued
at prices based on market quotations for securities of
similar type, yield and
maturity; (e) interest income, adjusted for amortization
of premium and
accretion of discount, is recorded on the accrual basis
and dividend income is
recorded on the ex-dividend date; 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,
1996, reclassifications were made to the capital accounts
of the High Yield Bond
Trust, Capital Appreciation Fund and Cash Income Trust to
reflect permanent
book/tax differences and income and gains available for
distributions under
income tax regulations. Accordingly, for the High Yield
Bond Trust a portion of
accumulated net realized loss amounting to $1,893,310 was
reclassified to
paid-in capital. Net investment income, net realized gains
and net assets were
not affected by this change; (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 $250,000,000 of its
average daily net assets. This fee is calculated daily and
paid monthly.
TAMIC has a sub-advisory agreement with The Travelers
Investment Management
Company, Inc. ("TIMCO"), an indirect wholly owned
subsidiary of Travelers Group
Inc. Pursuant to the sub-advisory agreement, TIMCO is
responsible for the
day-to-day portfolio operations and investment decisions
for MAT. As a result,
TAMIC pays TIMCO, as sub-advisor, 0.25% of the average
daily net assets of MAT.
TIMCO also has a sub-advisory agreement with Janus
Capital Corporation
("Janus"). Pursuant to the sub-advisory agreement, Janus
is responsible for the
day-to-day portfolio operations and investment decisions
for CAF. As a result,
TIMCO pays Janus, as sub-advisor, 0.55% of the average
daily net assets of CAF.
30
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Travelers Insurance Company ("Travelers Insurance")
acts as administrator
to the Funds. The Funds pay Travelers Insurance an
administration fee calculated
at an annual rate of 0.06% of its average daily net
assets. Travelers Insurance
has entered into a sub-administrative services agreement
with Smith Barney
Mutual Funds Management Inc. ("SBMFM"), a subsidiary of
Smith Barney Holdings
Inc. ("SBH"). Travelers Insurance pays SBMFM, as sub
administrator, a fee
calculated at an annual rate of 0.06% for the average
daily net assets of each
Fund. This fee is calculated daily and paid monthly.
SB received brokerage commissions of $3,530 from
affiliated brokers.
One Trustee and all officers of the Funds are
employees of Travelers Group
Inc., or its subsidiaries.
4. INVESTMENTS
During the six months ended June 30, 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.................................................
.. .. $78,952,894 $17,477,715 $198,723,695 -------
- ----------------------------------------------------------
- ----------------------------------------
Sales.....................................................
.. .. 81,429,405 10,944,026 125,088,536
</TABLE>
- ----------------------------------------------------------
- ---------------------
At June 30, 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................................ $41,421,245
$1,037,816 $79,745,703
Gross unrealized
depreciation................................ (957,103)
(65,980) (4,012,183) ---------------------------------
- ----------------------------------------------------------
- ---------------
Net unrealized
appreciation..................................
$40,464,142 $971,836 $75,733,520 ---------------------
- ----------------------------------------------------------
- ---------------------------
</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 bear the
market risk that arises
from changes in the value of the financial instruments and
securities indices
(futures contracts) and the credit risk should a
counterparty fail to perform
under such contracts.
At June 30, 1997, MAT had sold 25 financial futures
contracts on the
Standard & Poor's 500 Index expiring in September 1997.
The basis value of such
contracts was $11,202,225. The market value of such
contracts on June 30, 1997
was $11,128,125, thereby resulting in an unrealized gain
of
$74,100.
31
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased
by the Funds,
represent investments, which are "marked-to-market" daily.
When a purchased
option expires, the Funds realize a loss in the amount of
the premium paid. When
the Funds enter into closing sales transactions, the Funds
realize a gain or
loss depending on whether the proceeds from the closing
sales transaction are
greater or less than the premium paid for the option. When
the Funds exercise a
put option, it will realize a gain or loss from the sale
of the underlying
security and the proceeds from such sale will be decreased
by the premium
originally paid. When the Funds exercise a call option,
the cost of the security
which the Funds purchase upon exercise will be increased
by the premium
originally paid.
As of June 30, 1997, the Funds had no open purchased
call or put options
contracts.
8. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, HYBT had, for Federal income
tax purposes,
approximately $4,751,000 of capital loss carryforwards
available to offset
future capital gains. To the extent that these
carryforward losses can be used
to offset realized capital gains, it is probable that such
gains will not be
distributed. The amount and expiration of the
carryforwards are indicated below.
Expiration occurs on December 31 of the year indicated:
<TABLE>
<CAPTION>
1996 1997 1998
1999 2000 2001 2002 2004
<S> <C> <C> <C>
<C> <C> <C> <C> <C> --------
- ----------------------------------------------------------
- --------------------------------------------------
Carryforward
Amounts............ $530,000 $1,094,000
$1,970,000 $748,000 $48,000 $135,000 $38,000
$188,000 -------------------------------------------------
- ----------------------------------------------------------
- ---------</TABLE>
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of
an unlimited number of
shares of beneficial interest without par value.
Transactions in shares of each
Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
<S>
<C> <C> ----------------------------------
- ----------------------------------------------------------
- -----------
MANAGED ASSETS TRUST
Shares
sold.....................................................
206,135 469,580
Shares issued on
reinvestment...................................
- -- 1,926,518
Shares
redeemed.................................................
(326,069) (847,611)
- ----------------------------------------------------------
- ---------------------------------------------
Net Increase
(Decrease).........................................
(119,934) 1,548,487 ----------------------------
- ----------------------------------------------------------
- -----------------
HIGH YIELD BOND TRUST
Shares
sold.....................................................
405,971 591,013
Shares issued on
reinvestment...................................
- -- 356,007
Shares
redeemed.................................................
(123,742) (343,196)
- ----------------------------------------------------------
- ---------------------------------------------
Net
Increase..................................................
.. 282,229 603,824
- ----------------------------------------------------------
- ---------------------------------------------
CAPITAL APPRECIATION FUND
Shares
sold.....................................................
1,772,207 1,994,300
Shares issued on
reinvestment...................................
- -- 716,103
Shares
redeemed.................................................
(258,840) (287,644)
- ----------------------------------------------------------
- ---------------------------------------------
Net
Increase..................................................
.. 1,513,367 2,422,759 ------------------------
- ----------------------------------------------------------
- ---------------------
CASH INCOME TRUST
Shares
sold.....................................................
7,780,666 9,941,686
Shares issued on
reinvestment...................................
94,737 94,502
Shares
redeemed.................................................
(6,961,741) (7,910,199) -------------------------
- ----------------------------------------------------------
- --------------------
Net
Increase..................................................
.. 913,662 2,125,989
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
32
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 1997(1)
1996 1995 1994 1993 1992
- ----------------------------------------------------------
- -----------------------------------------------------
<S> <C>
<C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $14.98
$15.50 $12.85 $14.21 $14.02 $14.78
- ----------------------------------------------------------
- ----------------------------------------------------INCOME
(LOSS) FROM OPERATIONS:
Net investment income................. 0.24
0.46 0.49 0.46 0.51 0.64
Net realized and unrealized gain
(loss)............................. 1.53
1.50 2.83 (0.73) 0.72 0.01
- ----------------------------------------------------------
- -----------------------------------------------------
Total Income (Loss) From Operations..... 1.77
1.96 3.32 (0.27) 1.23 0.65
- ----------------------------------------------------------
- -----------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income................. --
(0.89) (0.50) (0.67) (0.85)
(1.04)
Net realized gains.................... --
(1.59) (0.17) (0.42) (0.19)
(0.37)
- ----------------------------------------------------------
- -----------------------------------------------------
Total Distributions..................... --
(2.48) (0.67) (1.09) (1.04) (1.41)
- ----------------------------------------------------------
- -----------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $16.75
$14.98 $15.50 $12.85 $14.21 $14.02
- ----------------------------------------------------------
- -----------------------------------------------------
TOTAL RETURN............................ 11.82%++
13.78% 27.12% (2.24)% 9.33% 5.14%
- ----------------------------------------------------------
- -----------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $208,996
$188,610 $171,276 $140,887 $156,767 $148,971
- ----------------------------------------------------------
- ----------------------------------------------------RATIOS
TO AVERAGE NET ASSETS:
Expenses (3).......................... 0.64%+
0.58% 0.58% 0.61% 0.56% 0.56%
Net investment income................. 3.12+
3.51 3.49 3.59 3.65 4.97
- ----------------------------------------------------------
- ----------------------------------------------------
PORTFOLIO TURNOVER RATE................. 42%
108% 110% 97% 86% 112%
- ----------------------------------------------------------
- ----------------------------------------------------
AVERAGE COMMISSIONS PER SHARES PAID ON
EQUITY TRANSACTIONS (4)............... $ 0.06 $
0.06 -- -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 1997(1)
1996 1995 1994 1993 1992
- ----------------------------------------------------------
- -----------------------------------------------------
<S> <C>
<C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $8.49
$9.00 $8.49 $9.25 $8.91 $8.75
- ----------------------------------------------------------
- ----------------------------------------------------INCOME
(LOSS) FROM OPERATIONS:
Net investment income................. 0.37
0.91 0.80 0.66 0.68 0.88
Net realized and unrealized gain
(loss)............................. 0.32
0.41 0.41 (0.76) 0.47 0.18
- ----------------------------------------------------------
- -----------------------------------------------------
Total Income (Loss) From Operations..... 0.69
1.32 1.21 (0.10) 1.15 1.06
- ----------------------------------------------------------
- -----------------------------------------------------
LESS DISTRIBUTION FROM (2):
Net investment income................. --
(1.83) (0.70) (0.66) (0.81) (0.90)
- ----------------------------------------------------------
- -----------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $9.18
$8.49 $9.00 $8.49 $9.25 $8.91
- ----------------------------------------------------------
- -----------------------------------------------------
TOTAL RETURN............................ 8.13%++
16.05% 15.47% (1.26)% 14.01% 13.16% ---
- ----------------------------------------------------------
- --------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $21,274
$17,291 $12,902 $11,716 $12,765 $10,289 --
- ----------------------------------------------------------
- --------------------------------------------------RATIOS
TO AVERAGE NET ASSETS:
Expenses (5).......................... 0.81%+
0.97% 1.25% 1.25% 0.99% 0.56%
Net investment income................. 6.40+
11.01 9.37 7.71 7.69 10.24 ----
- ----------------------------------------------------------
- ------------------------------------------------PORTFOLIO
TURNOVER RATE................. 73%
84% 222% 146.% 19% 52% ------
- ----------------------------------------------------------
- ----------------------------------------------</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Distributions from realized gains include both net
realized short-term and
long-term capital gains. Prior to 1996 net realized
short-term capital gains
were included in distributions from net investment
income.
(3) The ratios of expenses to average net assets for the
years 1993 and 1992
reflects an expense reimbursement by The Travelers in
connection with
voluntary expense limitations. Without the expense
reimbursement, the ratios
of expenses to average net assets would have been 0.60%
and 0.63%, for the
years ended December 31, 1993 and 1992, respectively.
(4) For the fiscal years beginning after 1995, the SEC
instituted new guidelines
requiring the disclosure of average commissions per
share on Funds which
held more than 10% of their assets in commissionable
equity securities.
(5) The ratio of expenses to average net assets reflects
an expense
reimbursement by The Travelers in connection with
voluntary expense
limitations. Without the expense reimbursement, the
ratios of expenses to
average net assets would have been 1.28%, 1.33%, 1.31%
and 1.28%, for the
years ended December 31, 1995, 1994, 1993 and 1992,
respectively.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
33
<pg$pcn>
- ----------------------------------------------------------
- --
- --------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1997(1) 1996
1995 1994 1993(2) 1992
- ----------------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $36.72
$33.18
$24.50 $25.87 $22.72 $19.63
- ----------------------------------------------------------
- ----------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............ 0.13
0.23
0.24 0.19 0.19 0.28
Net realized and unrealized gain
(loss)........................ 6.07
8.49
8.61 (1.41) 3.21 3.13
- ----------------------------------------------------------
- ----------------------------------------------------
Total Income (Loss) From
Operations....................... 6.20
8.72
8.85 (1.22) 3.40 3.41
- ----------------------------------------------------------
- ----------------------------------------------------
LESS DISTRIBUTION FROM (3):
Net investment income............ --
(0.41)
(0.17) (0.15) (0.25) (0.32)
Net realized gains............... --
(4.77)
- -- -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------
Total Distributions................ --
(5.18)
(0.17) (0.15) (0.25) (0.32)
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $42.92
$36.72
$33.18 $24.50 $25.87 $22.72
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL RETURN....................... 16.88%++
28.21%
36.37% (4.76)% 15.09% 17.60%
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $326,922
$224,132
$122,155 $78,494 $62,414 $29,506
- ----------------------------------------------------------
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)..................... 0.84%+
0.83%
0.85% 0.89% 0.87% 0.56%
Net investment income............ 0.79+
0.69
0.84 0.79 0.81 1.39
- ----------------------------------------------------------
- ---------------------------------------------------
PORTFOLIO TURNOVER RATE............ 52%
84%
124% 106% 155% 126%
- ----------------------------------------------------------
- ----------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (5)....... $ 0.06 $ 0.06
- -- -- -- --
- ----------------------------------------------------------
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CASH INCOME TRUST 1997(1) 1996
1995 1994 1993 1992
- ----------------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $1.00
$1.00
$1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------
- ----------------------------------------------------
Net investment income (6)........ 0.0238
0.0412
0.0417 0.0278 0.0214 0.0322
Distributions from net investment
income........................ (0.0238)
(0.0412)
(0.0417) (0.0278) (0.0214) (0.0322)
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $1.00
$1.00
$1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL RETURN....................... 2.29%++
4.20%
4.17% 2.78% 2.14% 3.22%
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $4,456
$3,543
$1,417 $1,203 $647 $697
- ----------------------------------------------------------
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (6)(7).................. 0.68%+
0.78%
1.25% 1.25% 0.94% 0.38%
Net investment income............ 4.75+
3.72
- -- -- -- --
- ----------------------------------------------------------
- ---------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Effective May 1, 1993, Janus Capital Corporation
became sub-adviser for
Capital Appreciation Fund.
(3) 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.
(4) The ratio of expenses to average net assets for 1993
and 1992 reflects an
expense reimbursement by The Travelers in connection
with voluntary expense
limitations. Without the expense reimbursement, the
ratios of expenses to
average net assets would have been 0.96% and 0.91%, for
the years ended
December 31, 1993 and 1992, respectively.
(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.
(6) The Travelers reimbursed CIT for $16,196 and $43,376
in expenses for the six
months ended June 30, 1997 and the year ended December
31, 1996,
respectively. If such fees were not waived and expenses
not reimbursed, the
per share decreases of net investment income would have
been $0.004 and
$0.02, respectively, and the expense ratios would have
been 1.49%
(annualized) and 1.71%, respectively.
(7) The ratio of expenses to average net assets for 1995
1992 reflects an
expense reimbursement by The Travelers in connection
with voluntary expense
limitations. Without the expense reimbursement, the
ratios of expenses to
average net assets would have been 7.37%, 6.40%, 8.47%
and 7.70% for the
years ended December 31, 1995, 1994, 1993 and 1992,
respectively.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
34
<pg$pcn>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
For the six months ended June 30, 1997, the U.S.
Government Securities Portfolio
had a total return of 3.13%. As of June 30, 1997 the
composition of assets was
46% in mortgage-backed securities, 40% in U.S. Treasuries,
11.5% in U.S. agency
securities and 2.5% in cash.
The second quarter came on the heels of a Federal Reserve
Board ("Fed")
tightening on March 25, 1997. By the end of the first
quarter of 1997, the yield
on the 30-year U.S. Treasury bond rose to 7.10%. Market
expectations of another
Fed move at the May meeting kept interest rates high for
the
first half of the
quarter, diminishing only after negative retail sales in
April were reported in
the middle of May. By the time the quarter had ended,
rates were essentially at
the levels very close to where the year began.
Corporate bonds and mortgage-backed securities did better
than U.S. Treasuries
by a small margin. In the U.S. government securities
market, agency debentures
(i.e., general debt obligations backed only by the
integrity of the borrower and
documented by an agreement called an indenture) fared
marginally better than
other U.S. Treasuries because of their slight yield
advantage.
The Portfolio's exposure to GNMA adjustable rate mortgage
securities helped its
performance during the reporting period. Going forward, we
expect to maintain a
fairly neutral duration in the Portfolio but we intend to
maintain its
overweighting in mortgage-backed securities.
Solid gains in jobs and income, advancing financial
markets and high levels of
consumer confidence have created ideal conditions for
possibly greater consumer
spending. These ideal conditions may in turn cause labor
markets to tighten and
trigger a shift in the Fed's monetary policy. In our view,
the timing and
direction of the next Fed move is uncertain and will only
take place when there
are clearer indications about the strength of the U.S.
economy.
SOCIAL AWARENESS STOCK PORTFOLIO
The Social Awareness Stock Portfolio seeks high total
return by investing in the
equity securities of issuers who demonstrate a positive
awareness of their
impact on the society in which they operate. For the six
months ended June 30,
1997, the Portfolio generated a total return of 16.62%. As
of June 30, 1997, the
Portfolio owned 70 stocks, with an overweighting in
financial, technology and
transportation issues. The stock focus in the Portfolio is
on middle- to
large-sized companies with an average market
capitalization of $29.5 billion.
Although a preference for strong, large-capitalization
stocks still persists,
the stock market continues to run on all cylinders with
better breadth across
the population of stocks. We have resisted the temptation
to simply equate
higher stock prices with excessive speculation. With an
economy characterized by
low inflation, positive interest rates and strong profits
and cash flows, we
believe that the long-term values behind this market
remain solid.
On a short-term momentum basis, however, conditions are
almost too good and
prices are reaching extreme levels. In other words, there
aren't many real
market laggards and most stocks are participating in
varying degrees in the
market's historic advance. The first half market gains
were even more
significant when you consider that interest rates remained
approximately flat,
and earnings grew on the order of about 10%. This has made
it a bit more
difficult to find inexpensive values with our disciplined
investment strategy.
During the six months under review, health care,
financial, high technology and
capital goods were the market sectors that performed best.
At the other extreme
were the infrastructure sectors like utilities,
communications services, basic
materials and energy that were sector laggards. The
Portfolio's sector
weightings at the end of June generally contributed to its
solid performance.
During the reporting period, we sold nine existing stock
positions, reduced one
position, added to 13 existing holdings and bought eight
new issues. The new
names represent a diverse list such American Stores,
Dollar General, Rite-Aid
and Wendy's (consumer retail sector), Beckman Instruments
(medical area), Chase
Manhattan (finance) and Cisco Systems and Motorola
(technology).
UTILITIES PORTFOLIO
The Utilities Portfolio seeks to provide current income
and as a secondary goal,
capital appreciation, by investing at least 25% of its
assets in the utilities
industry. For the six months ended June 30, 1997, the
Utilities Portfolio
generated a total return of 4.17%.
35
<pg$pcn>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
So far in 1997, favorable economic news, better-than
expected gross domestic
product (GDP), continued low inflation and strong
corporate earnings growth
fueled the U.S. economy and financial markets. (GDP is the
total output of goods
and services.) However, this positive economic
environment, continued to
challenge utility stocks as a whole because of the
uncertainty surrounding
industry restructuring.
The strong equity market, as measured by the Standard and
Poor's 500 Index and
the Dow Jones Industrial Average led by technology and
cyclical issues, provided
investors with investment returns substantially above
historical averages.
Despite this strong performance, the volatility of the
markets increased during
the past six months. In our opinion, this increase in
market volatility has not
deterred investors who continue to avoid more defensive
stocks such as
utilities. As a group, the utilities industry continued to
underperform relative
to the broad-based equity market.
Despite the market's underweighting in the utility
industry and the cloud of
uncertainty caused by deregulation, we remain very
positive on the utility
industry as a whole and anticipate several positive
regulatory decisions both at
the state and federal level in the months ahead. Although
the level of long-term
interest rates continues to be an important influence on a
utility company's
relative performance, we think that improving a company's
competitive position
is a more significant factor in achieving attractive
investment returns. Given
the wide disparity in the performance of different utility
stocks, we believe
that careful stock selection remains key to achieving
superior total return
performance.
With respect to the long-term outlook for utilities, many
states have recently
enacted competitive restructuring proposals. Under these
proposals, power
providers would compete for customers in an open market.
In our view, these
proposals are not only positive compared to many of the
early more punitive
proposals, but essentially provide the local utility the
opportunity to recover
its "stranded costs." (Stranded costs are expenses that
utilities are at risk of
not recovering in a competitive environment.) Stranded
costs, often associated
with expensive nuclear plants, includes any assets or
expenses that, when
recovered through traditional power rates, can cause
utility rates to exceed the
market price of power. Certain states have passed
legislation to permit the
recovery of stranded costs through the issuance of asset
backed bonds.
As full retail competition is established, clearly not all
utilities, whether in
the electric, gas or telecommunications industries, will
be
impacted by
competition to the same extent. Deregulation, while
increasing the business risk
for companies with higher expenses, should provide
opportunities for lower-cost,
well-managed companies. We expect volatility in the
utility industry to persist
as the reduction in regulatory protection proceeds and the
financial markets
differentiate between those companies that are
"competitively blessed," (with
lower cost structures, strong service territory growth and
competitive
management skills), and those companies that are perceived
to be "fundamentally
challenged," (due to the burden of high cost structures,
limited customer growth
and lack of a clear corporate strategy). As noted, the
increasing disparity of
performance within the utility industry has resulted from
a combination of
fundamental factors and competitive uncertainty.
In our opinion, merger and acquisition activity within the
electric utility,
natural gas and telecommunication industry have generally
generated superior
total returns. We anticipate the pace of merger activity
within the utility
industry to increase as state and federal regulatory
proposals are finalized.
Consolidation such as mergers that integrate two
industries, (e.g.,
electric/natural gas) are primarily driven by competitive
concerns. A successful
merger often allows two companies to leverage their
production costs over a
larger customer base.
In an effort to take advantage of better relative market
performance and total
return, we have strategically increased the Portfolio's
emphasis in natural gas
stocks. The natural gas holdings in the Portfolio are
companies that we believe
should deliver solid core earnings growth while at the
same time rapidly growing
their non-regulated businesses. Supporting our confidence
in the natural gas
sector through the end of the 1997 is a positive commodity
price forecast and
solid earning performance for many natural gas companies.
In addition, we continue to increase the Portfolio's
emphasis in the
telecommunications industry. Although not immune to
regulatory concerns, select
companies within the telecommunications industry offer the
Portfolio
diversification and compelling investment opportunities.
Many telecommunications
companies stand to benefit from the integration of long
distance, local, cable
and internet services, as well as the rapid expansion of
global
telecommunications networks.
Our portfolio strategy continues to focus on long-term
growth and current
income. Looking ahead to 1998, deregulation and
competition will continue to
evolve implying both increased volatility and greater
opportunity. We anticipate
that as the competitive regulatory framework takes shape,
issues of market share
and customer satisfaction will replace concerns regarding
transition plans and
rate decreases. The Portfolio maintains its emphasis in
quality, low-cost
companies with a predictable earnings base.
36
<pg$pcn>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
For the remaining six months of 1997, we expect to
continue the moderate,
sustainable growth in the U.S. economy. We believe
inflation should remain under
control as the Federal Reserve Board appears resolved to
take the necessary
preemptive steps if any signs of inflationary pressures
emerge.
In closing, we thank you for your investment in The
Travelers Series Trust. We
look forward to continuing to help you achieve your
financial goals.
Sincerely,
McLendon sig
Heath B. McLendon
Chairman
August 1, 1997
37
<pg$pcn> -------------------------------------------------
- ------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES
PORTFOLIO AS OF 6/30/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 3.13%
Year Ended 6/30/97 9.59%
1/24/92* through 6/30/97 7.01%
<CAPTION>
CUMULATIVE TOTAL RETURN --------
-------------------------------------
<S> <C>
1/24/92* through 6/30/97
7.09%
+ Total return is not annualized, as it
may not be representative of the total
return for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made
on January
24, 1992 and assuming reinvestment of dividends through
June 30,
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>
U.S.
Government Lehman
Measurement Period Securities Government
Consumer
(Fiscal Year Covered) Portfolio Bond Index Price
Index
<S> <C> <C> <C>
1/24/92 10000 10000
10000
Dec-92 10790 10920
10275
Dec-93 11813 12125
10557
Dec-94 11147 11699
10840
Dec-95 13869 13950
11115
Dec-96 14077 14354
11484
6/30/97 14511 14732
11607
</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 6/30/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------
--------------------------------------<S>
<C>
Six Months Ended 6/30/97+
16.62%
Year Ended 6/30/97
28.38%
5/1/92* through 6/30/97
16.61%
<CAPTION>
CUMULATIVE TOTAL RETURN --------
------------------------------------<S>
<C>
5/1/92* through 6/30/97
113.88% + Total return is not annualized,
as it may
not be representative of the total return
for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made
on May 1,
1992 assuming reinvestment of dividends through June 30,
1997. The
Standard & Poor's 500 Index is an unmanaged index composed
of 500
widely held common stocks listed on the New York Stock
Exchange,
American Stock Exchange and the over-the-counter market.
The Consumer Price Index is a measure of the average
change in prices
over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Social
Awareness Standard &
Measurement Period Stock Poors 500
Consumer
(Fiscal Year Covered) Portfolio Index Price
Index
<S> <C> <C> <C>
5/1/92 10000 10000
10000
Dec-92 10950 10673
10157
Dec-93 11777 11745
10436
Dec-94 11461 11900
10716
Dec-95 15285 14509
10988
Dec-96 18340 17838
11353
6/30/97 21388 21513
11474
</TABLE>
- ----------------------------------------------------------
- --
- --------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming
reinvestments of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
38
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF
6/30/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 4.17%
Year Ended 6/30/97
7.01%
2/4/94* through 6/30/97
12.04%
<CAPTION>
CUMULATIVE TOTAL RETURN --------
------------------------------------<S>
<C>
2/4/94* through 6/30/97
47.21%
+ Total return is not annualized, as it may
not be representative of the total return
for this year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made
on February 4, 1994 assuming reinvestment of dividends
through June
30, 1997. Standard & Poor's 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on
the New York
Stock Exchange, American Stock Exchange and over-the-
counter market. The Consumer Price Index is a measure of
the average change
in prices over time in a fixed market basket of goods and
services.
<TABLE>
<CAPTION>
Standard &
Measurement Period Utilities Poors 500
Consumer
(Fiscal Year Covered) Portfolio Index Price
Index
<S> <C> <C> <C>
2/4/94 10000 10000
10000
Dec-94 10170 10072
10205
Dec-95 13149 13852
10464
Dec-96 14139 17031
10811
6/30/97 14721 20539
10927
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming
reinvestments of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
39
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 97.5%
$ 1,750,000 U.S. Treasury Bond, 12.000% due
8/15/13..................................... $
2,461,760 2,500,000 U.S. Treasury
Bond, 8.125% due
8/15/19......................................
2,853,825 3,200,000 U.S. Treasury
Bond, 8.000% due
11/15/21.....................................
3,620,256 6,000,000 U.S. Treasury FICO
Strip, zero coupon due
9/26/19........................... 1,220,820
939,124 FHLMC Certificates, 8.000% due
5/1/26.......................................
962,011 2,521,812 FHLMC Certificates, 8.000% due
4/1/27.......................................
2,582,487 1,958,551 FNMA Certificates, 7.000% due
5/1/24........................................
1,927,939 1,929,836 FNMA Certificates, 7.000% due
6/1/24........................................
1,899,669 1,935,368 FNMA Certificates, 7.500% due
8/1/26........................................
1,941,406 370,403 GNMA Certificates, 8.500% due
3/15/18.......................................
391,005 589,091 GNMA Certificates, 8.500% due
5/15/18.......................................
621,857 213,761 GNMA Certificates, 8.500% due
6/15/18.......................................
225,651 141,904 GNMA Certificates, 8.500% due
7/15/18.......................................
149,797 975,530 FNMA Certificates, 7.500% due
11/1/26@......................................
978,575 3,000,000 Tennessee Valley Authority
Debenture, 6.375%
due 6/15/05.................... 2,935,080
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (Cost -- $24,616,862).......... 24,772,138
- ----------------------------------------------------------
- ----------------------------------------------
REPURCHASE AGREEMENT -- 2.5%
625,000 Citibank, 6.000% due 7/1/97; Proceeds at
maturity -- $625,104;
(Fully collateralized by U.S. Treasury
Notes, 5.875% due 2/28/99;
Market value -- $641,025)(Cost --
$625,000)................................. 625,000 -
- ----------------------------------------------------------
- ---------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$25,241,862*)............................ $25,397,138 --
- ----------------------------------------------------------
- --------------------------------------------
</TABLE>
@ Date shown represents the last in range of maturity
dates
of mortgage
certificates owned.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
40
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 70.8% ------------------------------------
- ----------------------------------------------------------
- ----------
BASIC MATERIALS -- 3.3%
2,000 Air Products & Chemicals,
Inc.....................................................
$ 162,500
5,000 Engelhard Corp.
..........................................................
.. ...... 104,687
4,800 Praxair,
Inc.......................................................
.. ............. 268,800 ----------------------------
- ----------------------------------------------------------
- ------------------
535,987 --------------------------------------------------
- ------------------------------------------------------
CAPITAL GOODS -- 1.2%
1,500 AMP,
Inc.......................................................
.. ................. 62,625
2,000 Pitney Bowes, Inc.
..........................................................
.. ... 139,000 --------------------------------------
- ----------------------------------------------------------
- --------
201,625 --------------------------------------------------
- -----------------------------------------------------
COMMUNICATIONS -- 3.2%
800 Bell Atlantic
Corp......................................................
.. ........ 60,700
3,000 Cisco Systems
Inc.++....................................................
.. ........ 201,375
2,300 MCI Communications Corp.
.........................................................
88,047
2,200 Motorola, Inc.
167,200 --------------------------------------------------
- ------------------------------------------------------
517,322 --------------------------------------------------
- ------------------------------------------------------
CONSUMER CYCLICALS -- 10.0%
3,000 Dollar General Corp.
..........................................................
.. . 112,500
2,900 Home Depot, Inc.
..........................................................
.. ..... 199,919
3,500 Kaufman & Broad Home Corp.
.......................................................
61,469
3,000 May Department
Stores....................................................
.. ....... 141,750
2,000 Nine West Group,
Inc.++....................................................
..
..... 76,375
4,000 Pep Boys -- Manny, Moe &
Jack.....................................................
136,250
3,000 Rite Aid Corp.
..........................................................
.. ....... 149,625
4,000 Toys "R" Us,
Inc.++....................................................
.. ......... 140,000
3,800 Tribune Co.
..........................................................
.. .......... 182,637
5,800 Wal-Mart Stores, Inc.
..........................................................
.. 196,113
3,000 Xerox Corp.
..........................................................
.. .......... 236,625 -------------------------------
- ----------------------------------------------------------
- ---------------
1,633,263 ------------------------------------------------
- --------------------------------------------------------
CONSUMER STAPLES -- 10.5%
2,700 American Stores Co.
..........................................................
.. .. 133,313
2,000 Coca-Cola Co.
..........................................................
.. ........ 135,000
2,000 Gillette Co.
..........................................................
.. ......... 189,500
6,000 Kroger
Co.++.....................................................
.. ............... 174,000
2,000 McDonald's Corp.
..........................................................
.. ..... 96,625
5,000 Newell Co.
..........................................................
.. ........... 198,125
4,800 PepsiCo, Inc.
..........................................................
.. ........ 180,300
2,800 Sysco Corp.
..........................................................
.. .......... 102,200
1,000 Unilever N.V.
..........................................................
.. ........ 218,000
1,600 Walt Disney Co.
..........................................................
.. ...... 128,400
6,000 Wendy's International, Inc.
......................................................
155,625 --------------------------------------------------
- ------------------------------------------------------
1,711,088 ------------------------------------------------
- --------------------------------------------------------
ENERGY -- 1.0%
2,800 Anadarko Petroleum Corp.
.........................................................
168,000 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
FINANCE -- 16.8%
1,600 Aetna Inc.
..........................................................
.. ........... $ 163,800
3,500 American Express Co.
..........................................................
.. . 260,750
1,250 American International Group Inc.
................................................
186,719
4,000 Associates 1st Capital Corp.
.....................................................
222,000
2,700 Bank of Boston Corp.
..........................................................
.. . 194,569
3,000 Barnett Banks, Inc.
..........................................................
.. .. 157,500
1,500 Chase Manhattan Corp.
..........................................................
.. 145,594
1,800
Citicorp..................................................
.. ...................... 217,012
4,800 Federal Home Loan Mortgage Corp.
.................................................
165,000
3,000 H. F. Ahmanson & Co.
..........................................................
.. . 129,000
2,500 Lincoln National Corp.
..........................................................
. 160,937
4,400 NationsBank Corp.
..........................................................
.. .... 283,800
6,800 State Street Corp.
..........................................................
.. ... 314,500
1,500 Transamerica Corp.
..........................................................
.. ... 140,344 --------------------------------------
- ----------------------------------------------------------
- --------
2,741,525 ------------------------------------------------
- --------------------------------------------------------
HEALTHCARE -- 8.2%
3,200 Amgen
Inc.......................................................
.. ................ 186,000
4,300 DENTSPLY International, Inc.
.....................................................
210,700
3,600 Johnson &
Johnson...................................................
.. ............ 231,750
2,300 Merck & Co., Inc.
..........................................................
.. .... 238,050
1,200 Pfizer, Inc.
..........................................................
.. ......... 143,400
2,400 Schering-Plough Corp.
..........................................................
.. 114,900
6,200 Stryker Corp.
..........................................................
.. ........ 216,225 ---------------------------------
- ----------------------------------------------------------
- -------------
1,341,025 ------------------------------------------------
- -------------------------------------------------------
MANUFACTURING -- 0.6%
2,000 Beckman Instruments, Inc.
........................................................
96,500 ---------------------------------------------------
- -----------------------------------------------------
TECHNOLOGY -- 13.5%
4,500 Belden, Inc.
..........................................................
.. ......... 153,281
2,500 Compaq Computer
Corp.++...................................................
.. ...... 248,125
5,000 Computer Associates
International.............................................
.. .. 278,438
7,000 EMC
Corp.++...................................................
.. .................. 273,000
1,000 Intel Corp.
..........................................................
.. .......... 141,812
1,400 International Business Machines Corp.
............................................ 126,262
4,600 Lucent Technologies Corp.
........................................................
331,488
2,000 Madge Networks
N.V.++....................................................
.. ....... 12,750
3,300 Marshall
Industries++..............................................
.. ............. 122,925
3,500 Oracle
Corp.++...................................................
.. ............... 176,312
2,500 Perkin-Elmer Corp.
..........................................................
.. ... 198,906
4,000 Sun Microsystems
Inc.++....................................................
.. ..... 148,875
- ----------------------------------------------------------
- ----------------------------------------------
2,212,174 ------------------------------------------------
- -------------------------------------------------------
TRANSPORTATION -- 1.5%
4,500 Mesaba Holdings,
Inc.++....................................................
.. ..... 66,375
1,400 Norfolk Southern Corp.
..........................................................
. 141,050
1,300 Southwest
Airlines..................................................
.. ............ 33,638 -----------------------------
- ----------------------------------------------------------
- -----------------
241,063 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
UTILITIES -- 1.0%
4,000 Enron Corp.
..........................................................
.. .......... $ 163,250 -------------------------------
- ----------------------------------------------------------
- ---------------
TOTAL COMMON STOCK (Cost -
$7,407,734)...........................................
11,562,822 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
REPURCHASE AGREEMENTS -- 29.2%
$2,767,000 Chase Manhattan Bank, 5.72% due 7/1/97;
Proceeds at maturity -- $2,767,440; 2,767,000
(Fully collateralized by U.S. Treasury
Notes, 6.750% due 4/30/00; Market
value -
$2,825,400)...............................................
.. .......
2,000,000 Citibank, 5.96% due 7/1/97; Proceeds at
maturity -- $2,000,331; (Fully 2,000,000
collateralized by U.S. Treasury Notes,
6.875% due 3/31/00; Market
value -
$2,044,125)...............................................
.. ....... -----------------------------------------------
- ---------------------------------------------------------
4,767,000
TOTAL REPURCHASE AGREEMENTS (Cost -
$4,767,000)............................ ------------------
- ----------------------------------------------------------
- ----------------------------
$16,329,822
TOTAL INVESTMENTS -- 100% (Cost --
$12,174,734*)............................ ----------------
- ----------------------------------------------------------
- ------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 81.1% ------------------------------------
- ----------------------------------------------------------
- ----------
ELECTRIC - UTILITY -- 55.5%
10,000 Allegheny Power System,
Inc....................................................
$ 266,875
11,000 American Electric Power Co.,
Inc...............................................
462,000
7,500 Baltimore Gas & Electric
Co....................................................
200,156
15,000 CINergy
Corp......................................................
.. ........... 522,188
7,500 CIPSCO,
Inc.......................................................
.. ........... 274,219
15,000 CMS Energy
Corp......................................................
.. ........ 528,750
10,000 DPL
Inc.......................................................
.. ............... 246,250
12,750 DQE
Inc.......................................................
.. ............... 360,187
20,000 Edison
International.............................................
.. ............ 497,500
7,000 Energen
Corp......................................................
.. ........... 235,812
15,000 Entergy Corp.
..........................................................
.. ..... 410,625
15,000 Florida Progress
Corp......................................................
.. .. 469,687
10,000 FPL Group
Inc.......................................................
.. ......... 460,625
10,000 GPU
Inc.......................................................
.. ............... 358,750
15,000 Illinova
Corp......................................................
.. .......... 330,000
10,000 KN Energy
Inc.......................................................
.. ......... 421,250
15,000 Long Island Lighting
Co........................................................
345,000
10,000 New York State Electric & Gas
Corp.............................................
208,750
10,000 NIPSCO Industries,
Inc.......................................................
..
413,125
3,000 Oneok
Inc.......................................................
.. ............. 96,563
10,000
PacifiCorp................................................
.. ................... 220,000
5,000 Pinnacle West Capital
Corp.....................................................
150,313
5,000 Potomac Electric Power
Co......................................................
115,625
7,500 Public Service Co. of
Colorado.................................................
311,250
8,000 Public Service Co. of New
Mexico...............................................
143,000
15,000 SCANA
Corp......................................................
.. ............. 372,188
15,000 Sierra Pacific
Resources.................................................
.. .... 480,000
12,500 Southern
Co........................................................
.. .......... 273,437
10,000 Texas Utilities
Co........................................................
.. ... 344,375
12,000 UtiliCorp United,
Inc.......................................................
.. . 349,500
- ----------------------------------------------------------
- ----------------------------------------------
9,868,000 ------------------------------------------------
- --------------------------------------------------------
NATURAL GAS -- 13.8%
8,000 Coastal
Corp......................................................
.. ........... 425,500
5,000 Columbia Gas Systems,
Inc......................................................
326,250
7,000 Enron
Corp......................................................
.. ............. 285,687
5,000 Equitable Resources Inc.
......................................................
141,875
7,000 MCN
Corp......................................................
.. ............... 214,375
10,000 Pacific
Enterprises...............................................
.. ........... 336,250
15,000 Southwest Gas Corp.
..........................................................
. 298,125
10,000 Williams Cos.,
Inc.......................................................
.. .... 437,500
- ----------------------------------------------------------
- --
- ---------------------------------------------
2,465,562 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
TELEPHONE -- 11.8%
2,000 Bell Atlantic Corp.
..........................................................
. $ 151,750
10,000 GTE Corp.
..........................................................
.. ......... 438,750
7,000 MCI Communications Corp.
......................................................
267,969
5,000 Qwest Communications International Inc.
....................................... 136,250
3,000 SBC Communications
Inc.......................................................
.. 185,625
10,000 Teleport Communications Group,
Inc.++..........................................
341,250
5,000 US West Media
Group++...................................................
.. ..... 101,250
15,000 WorldCom, Inc.
..........................................................
.. .... 480,000
- ----------------------------------------------------------
- ----------------------------------------------
2,102,844 ------------------------------------------------
- --------------------------------------------------------
14,436,406
TOTAL COMMON STOCK (Cost -
$12,296,057)....................................... ------
- ----------------------------------------------------------
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
<C> <S>
<C> ------------------------------------------------------
- --------------------------------------------------
CORPORATE BONDS -- 3.6% ----------------------------------
- ----------------------------------------------------------
- ------------
ELECTRIC - UTILITY -- 2.3%
$ 200,000 Arizona Public Service Co., 7.25% due
8/1/23................................. 188,642
200,000 Philadelphia Electric, 8.75% due
4/1/22...................................... 212,250
- ----------------------------------------------------------
- ----------------------------------------------
400,892 --------------------------------------------------
- ------------------------------------------------------
TELEPHONE -- 1.3%
230,000 MCI Communication Corp., 7.75% due
3/23/25................................... 229,425 -
- ----------------------------------------------------------
- ---------------------------------------------
630,317
TOTAL CORPORATE BONDS (Cost --
$605,989)..................................... -----------
- ----------------------------------------------------------
- -----------------------------------
U.S. TREASURY OBLIGATIONS -- 2.9%
500,000 U.S. Treasury Notes, 7.75% due 11/30/99
(Cost
- -- $499,832)................... 517,265 ------------
- ----------------------------------------------------------
- ----------------------------------
15,583,988
SUB-TOTAL INVESTMENTS (Cost --
$13,401,878).................................. -----------
- ----------------------------------------------------------
- -----------------------------------
REPURCHASE AGREEMENT -- 12.4%
2,208,000 Chase Manhattan Bank, 5.75% due by 7/1/97;
Proceeds at 2,208,000
maturity -- $2,208,353; (Fully
collateralized by U.S. Treasury Notes, 6.75%
due 4/30/00; Market value -- $2,254,000)
(Cost -- $2,208,000)................ ---------------------
- ----------------------------------------------------------
- -------------------------
$17,791,988
TOTAL INVESTMENTS -- 100% (Cost --
$15,609,878*)............................. ---------------
- ----------------------------------------------------------
- -------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30,1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------
- ----------------------------------------------------
<S>
<C> <C> <C>
ASSETS:
Investments -- Cost..................................
$24,616,862 $ 7,407,734 $13,401,878
Repurchase agreements -- Cost........................
625,000 4,767,000 2,208,000 -----------
- ----------------------------------------------------------
- ----------------------------------------
Investments, at value................................
$24,772,138 $ 11,562,822 $15,583,988
Repurchase agreements, at value......................
625,000 4,767,000 2,208,000
Cash.................................................
437 935 303
Receivable from affiliate............................
- -- 25,093 --
Dividends and interest receivable....................
269,759 7,484 44,083
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL ASSETS.........................................
25,667,334 16,363,334 17,836,374
- ----------------------------------------------------------
- ---------------------------------------------------
LIABILITIES:
Investment advisory fees payable.....................
6,805 8,125 9,081
Administration fees payable..........................
1,263 800 570
Accrued expenses.....................................
38,997 44,746 29,959
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL LIABILITIES....................................
47,065 53,671 39,610
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL NET ASSETS.......................................
$25,620,269 $ 16,309,663 $17,796,764
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSETS:
Paid-in capital......................................
$25,366,667 $ 11,851,444 $15,207,835
Undistributed net investment income..................
790,396 51,756 331,494
Accumulated net realized gain (loss) from security
transactions......................................
(692,070) 251,375 75,325
Net unrealized appreciation of investments...........
155,276 4,155,088 2,182,110
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL NET ASSETS.......................................
$25,620,269 $ 16,309,663 $17,796,764
- ----------------------------------------------------------
- ----------------------------------------------------
SHARES OUTSTANDING.....................................
2,286,540 887,129 1,397,603
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSET VALUE, PER SHARE.............................
$11.20 $18.38 $12.73
- ----------------------------------------------------------
- ---------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX
MONTHS
ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO ------------------
- ----------------------------------------------------------
- ------------------------------
<S>
<C> <C> <C>
INVESTMENT INCOME:
Interest..................................................
.. . $ 870,923 $ 77,647 $ 111,504
Dividends.................................................
.. . -- 55,338
316,410
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL INVESTMENT
INCOME...................................... 870,923
132,985 427,914 -----------------------------------
- ----------------------------------------------------------
- -------------
EXPENSES:
Investment advisory fees (Note
2)............................ 40,802
42,049 60,769
Audit and
legal............................................
.. 10,496 10,025 11,000
Administration fees (Note
2)................................. 7,572
3,881 5,240
Shareholder
communications...................................
5,850 6,938 8,500
Shareholder and system servicing
fees........................ 5,788 6,346
4,000
Trustees'
fees...............................................
3,200 3,500 3,500
Custody...................................................
.. . 3,065 3,183 2,250
Other.....................................................
.. . 1,028 5,307 6,125
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL
EXPENSES...............................................
77,801 81,229 101,384
- ----------------------------------------------------------
- ------------------------------------------------
NET INVESTMENT
INCOME..........................................
793,122 51,756 326,530
- ----------------------------------------------------------
- ------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE
3): Realized Gain From Security Transactions (excluding
short-term securities):
Proceeds from
sales....................................... 39,847,698
1,314,750 6,315,309
Cost of securities
sold................................... 39,838,979
1,060,462 6,239,984
- ----------------------------------------------------------
- ------------------------------------------------
NET REALIZED
GAIN............................................
8,719 254,288 75,325 ----------------------
- ----------------------------------------------------------
- --------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of
period.......................................
184,657 2,448,669 1,870,929
End of
period.............................................
155,276 4,155,088 2,182,110 --------------------
- ----------------------------------------------------------
- ----------------------------
INCREASE (DECREASE) IN NET UNREALIZED
APPRECIATION........... (29,381) 1,706,419
311,181 --------------------------------------------------
- --------------------------------------------------------
NET GAIN (LOSS) ON
INVESTMENTS.................................
(20,662) 1,960,707 386,506
- ----------------------------------------------------------
- ------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS......................... $ 772,460
$2,012,463 $ 713,036 --------------------------------
- ----------------------------------------------------------
- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE
30, 1997
<TABLE>
<CAPTION>
U.S.
GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------
- -----------------------------------------------
<S> <C>
<C> <C>
OPERATIONS:
Net investment income............................. $
793,122 $ 51,756 $ 326,530
Net realized gain.................................
8,719 254,288 75,325
Increase (decrease) in net unrealized
appreciation...................................
(29,381) 1,706,419 311,181
- ----------------------------------------------------------
- -----------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............
772,460 2,012,463 713,036
- ----------------------------------------------------------
- ----------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................
- -- -- --
- ----------------------------------------------------------
- -----------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS...................................
- -- -- --
- ----------------------------------------------------------
- -----------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares..................
1,370,841 4,626,716 1,268,577
Net asset value of shares issued for reinvestment
of dividends...................................
- -- -- --
Cost of shares reacquired.........................
(2,531,566) (1,369,511) (2,399,075)
- ----------------------------------------------------------
- -----------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS...................................
(1,160,725) 3,257,205 (1,130,498)
- ----------------------------------------------------------
- -----------------------------------------------
INCREASE (DECREASE) IN NET ASSETS...................
(388,265) 5,269,668 (417,462)
NET ASSETS:
Beginning of period...............................
26,008,534 11,039,995 18,214,226
- ----------------------------------------------------------
- -----------------------------------------------
END OF PERIOD*....................................
$25,620,269 $ 16,309,663 $17,796,764
- ----------------------------------------------------------
- -----------------------------------------------
* Includes undistributed net investment income
of:...............................................
$790,396 $51,756 $331,494
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
<S>
<C> <C> <C>
- ----------------------------------------------------------
- -----------------------------------------------OPERATIONS:
Net investment
income...................................... $ 1,540,387
$ 37,123 $ 670,946
Net realized gain
(loss)................................... (704,606)
400,819 829,616
Increase (decrease) in net unrealized
appreciation......... (612,404) 1,159,056
(222,208) ------------------------------------------------
- ----------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS..................... 223,377
1,596,998 1,278,354 --------------------------------
- ----------------------------
- ----------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment
income......................................
(3,539,054) (233,199) (1,107,160)
Net realized
gains.........................................
(423,418) (525,148) (974,548) ----------------
- ----------------------------------------------------------
- --------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................
(3,962,472) (758,347) (2,081,708) --------------
- ----------------------------------------------------------
- ----------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of
shares........................... 6,750,676
4,848,116 7,458,285
Net asset value of shares issued for reinvestment of
dividends...............................................
3,962,472 758,347 2,081,708
Cost of shares
reacquired..................................
(9,157,807) (2,459,930) (5,862,088) ------------------
- ----------------------------------------------------------
- ------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........ 1,555,341 3,146,533
3,677,905 ------------------------------------------------
- ----------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS............................ (2,183,754)
3,985,184 2,874,551
NET ASSETS:
Beginning of
year..........................................
28,192,288 7,054,811 15,339,675 ---------------------
- ----------------------------------------------------------
- ---------------------------
END OF
YEAR*...............................................
$26,008,534 $11,039,995 $18,214,226 --------------
- ----------------------------------------------------------
- ----------------------------------
* Includes undistributed net investment income
of:........... $(2,726) --
$4,964
- ----------------------------------------------------------
- ------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<pg$pcn> -------------------------------------------------
- ------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
semi-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 and, or minus amortized
premium, which approximates
market value; (d) securities that have a maturity of 60
days or more are valued
at prices based on market quotations for securities of
similar type, yield and
maturity; (e) interest income, adjusted for amortization
of premium and
accretion of discount, is recorded on the accrual basis
and dividend income is
recorded on the ex-dividend date; (f) gains or losses on
the sale of securities
are calculated by using the specific identification
method; (g) dividends and
distributions to shareholders are recorded on the ex
dividend date; (h) the
Portfolios intend to comply with the requirements of the
Internal Revenue Code
of 1986, as amended, pertaining to regulated investment
companies and to make
distributions of taxable income sufficient to relieve it
from substantially all
Federal income and excise taxes; (i) the character of
income and gains to be
distributed are determined in accordance with income tax
regulations which may
differ from generally accepted accounting principles. At
December 31, 1996,
reclassifications were made to the Portfolio capital
accounts to reflect
permanent book/tax differences and income and gains
available for distribution
under income tax regulations. Accordingly, a portion of
overdistributed net
investment income and accumulated net realized loss
amounting to $6,915 and
$9,045, respectively, were reclassified to paid-in capital
for Social Awareness
Stock Portfolio. Net investment income, net realized gains
and net assets for
each Portfolio were not affected by these changes; and (j)
estimates and
assumptions are required to be made regarding assets,
liabilities and changes in
net assets resulting from operations when financial
statements are prepared.
Changes in the economic environment, financial markets and
any other parameters
used in determining these estimates could cause actual
results to differ.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER
TRANSACTIONS
Travelers Asset Management International Corporation
("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as
investment manager and
advisor to the U.S. Government Securities Portfolio
("USGS"). USGS pays TAMIC an
investment management and advisory fee calculated at the
annual rate of 0.3233%
of its average daily net assets. This fee is calculated
daily and paid monthly.
Greenwich Street Advisors ("GSA"), a division of
Smith Barney Mutual Funds
Management Inc. ("SBMFM") which is a subsidiary of Smith
Barney Holdings Inc.
("SBH") and an indirect wholly owned subsidiary of
Travelers Group Inc., acts as
investment manager and advisor to the Social Awareness
Stock ("SAS") and
Utilities ("Utilities") Portfolios. SAS pays GSA an
investment management and
advisory fee calculated at an annual rate of : 0.65% on
the first $50 million,
0.55% on the next $50 million, 0.45% on the next $100
million and 0.40% on
amounts over $200 million of the average daily net assets.
Utilities pays GSA an
investment management and advisory fees calculated at an
annual rate of 0.65% of
the average daily net assets. These fees are calculated
daily and paid monthly.
50
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Travelers Insurance Company ("Travelers Insurance")
acts as administrator
to the Portfolios. The Portfolios pay Travelers Insurance
an administration fee
calculated at an annual rate of 0.06% of the average daily
net assets. Travelers
Insurance has entered into a sub-administrative services
agreement with SBMFM.
Travelers Insurance pays SBMFM, as sub-administrator, a
fee calculated at an
annual rate of 0.06% of the average daily net assets of
each Portfolio. This fee
is calculated daily and paid monthly.
One Trustee and all officers of the Trust are
employees of Travelers Group
Inc., or its subsidiaries.
3. INVESTMENTS
During the six months ended June 30, 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.................................................
.. .... $ 41,695,116 $1,584,840 $5,196,884 -------
- ----------------------------------------------------------
- ----------------------------------------
Sales.....................................................
.. .... 39,847,698 1,314,750 6,315,309
</TABLE>
- ----------------------------------------------------------
- ---------------------
At June 30, 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.......................................
$203,706 $4,206,799 2,306,548
Gross unrealized
depreciation.......................................
(48,430) (51,711) (124,438) -------------------
- ----------------------------------------------------------
- -----------------------------
Net unrealized
appreciation.........................................
$155,276 $4,155,088 $2,182,110 -------------------
- ----------------------------------------------------------
- -----------------------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes
possession of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price.
The Portfolios require
continual maintenance of the market value of the
collateral in amounts at least
equal to 102% of the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into
futures contracts are
recognized as assets. The initial margin is segregated by
the custodian and is
noted in the schedule of investments. During the period
the futures contract is
open, changes in the value of the contract are recognized
as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect
the market value of
the contract at the end of each day's trading. Variation
margin payments are
made or received and recognized as assets due from or
liabilities due to broker,
depending upon whether unrealized gains or losses are
incurred. When the
contract is closed, the Portfolios record a realized gain
or loss equal to the
difference between the proceeds from (or cost of) the
closing transactions and
the Portfolio's basis in the contract. The Portfolios bear
the market risk that
arises from changes in the value of the financial
instruments and securities
indices (futures contracts) and the credit risk should a
counterparty fail to
perform under such contracts.
At June 30, 1997, the Portfolios had no open futures
contracts.
51
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased
by the Portfolios,
represent investments, which are "marked-to-market" daily.
When a purchased
option expires, the Portfolios will realize a loss in the
amount of the premium
paid. When the Portfolios enter into closing sales
transactions, the Portfolios
will realize a gain or loss depending on whether the
proceeds from the closing
sales transactions are greater or less than the premium
paid for the option.
When the Portfolios exercise a put option, they will
realize a gain or loss from
the sale of the underlying security and the proceeds from
such sale will be
decreased by the premium originally paid. When the
Portfolios exercise a call
option, the cost of the security which the Portfolios
purchase upon exercise
will be increased by the premium originally paid.
As of June 30, 1997, the Portfolios had no open
purchased call or put
options contracts.
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, U.S. Government Securities
Portfolio had, for Federal
income tax purposes, approximately $715,000 of capital
loss carryforwards
available to offset future capital gains through 2004. To
the extent that these
carryforward losses are used to offset capital gains, it
is probable that the
gains so offset will not be distributed.
8. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of
an unlimited number of
shares of beneficial interest without par value.
Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996 ---------------------
- ----------------------------------------------------------
- ------------------------
<S>
<C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares
sold.....................................................
125,466 606,114
Shares issued on
reinvestment...................................
- -- 355,511
Shares
redeemed.................................................
(232,804) (834,803) ---------------------------
- -------------------------------------------------------
Net Increase
(Decrease).........................................
(107,338) 126,822 ----------------------------
- ------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares
sold.....................................................
269,793 323,694
Shares issued on
reinvestment...................................
- -- 51,251
Shares
redeemed.................................................
(83,021) (167,210) ----------------------------
- ------------------------------------------------------
Net
Increase..................................................
.. 186,772 207,735 --------------------------
- --------------------------------------------------------
UTILITIES PORTFOLIO
Shares
sold.....................................................
103,856 590,496
Shares issued on
reinvestment...................................
- -- 169,391
Shares
redeemed.................................................
(196,396) (463,451) ---------------------------
- -------------------------------------------------------
Net Increase
(Decrease).........................................
(92,540) 296,436 -----------------------------
- -----------------------------------------------------
</TABLE>
52
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1997(1)
1996 1995 1994 1993 1992(2) -------
- ----------------------------------------------------------
- -------------------------------------------
<S> <C>
<C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $10.86
$12.43 $10.58 $11.63 $10.79 $10.00 --------
- ----------------------------------------------------
- -------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income....................... 0.35
0.68 0.65 0.60 0.57 0.53
Net realized and unrealized gain (loss)..... (0.01)
(0.52) 1.80 (1.23) 0.44 0.26
- ----------------------------------------------------------
- --------------------------------------------------
Total Income (Loss) From Operations........... 0.34
0.16 2.45 (0.63) 1.01 0.79
- ----------------------------------------------------------
- --------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income....................... --
(1.55) (0.60) (0.39) (0.17) --
Net realized gains.......................... --
(0.18) -- (0.03) -- --
- ----------------------------------------------------------
- --------------------------------------------------
Total Distributions........................... --
(1.73) (0.60) (0.42) (0.17) --
- ----------------------------------------------------------
- --------------------------------------------------
NET ASSET VALUE, END OF PERIOD................ $11.20
$10.86 $12.43 $10.58 $11.63 $10.79
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL RETURN.................................. 3.13%++
1.46% 24.42% (5.64)% 9.48% 7.90%++
- ----------------------------------------------------------
- --------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............. $25,620
$26,009 $28,192 $24,522 $25,520 $9,017
- ----------------------------------------------------------
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)................................ 0.62%+
0.62% 0.56% 0.71% 0.58% 0.38%+
Net investment income....................... 6.35+
5.68 5.80 5.56 5.04 4.72+
- ----------------------------------------------------------
- -------------------------------------------------PORTFOLIO
TURNOVER RATE....................... 170%
501% 214% 16% 51% 25%
- ----------------------------------------------------------
- --------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 1997(1)
1996 1995 1994 1993 1992(5)
- ----------------------------------------------------------
- --------------------------------------------------
<S> <C>
<C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $15.76
$14.32 $11.05 $11.64 $10.95 $10.00
- ----------------------------------------------------------
- --------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (6)................... 0.06
0.31 0.12 0.16 0.17 0.16
Net realized and unrealized gain (loss)..... 2.56
2.42 3.47 (0.45) 0.65 0.79
- ----------------------------------------------------------
- --
- -------------------------------------------------
Total Income (Loss) From Operations........... 2.62
2.73 3.59 (0.29) 0.82 0.95 ----------
- ----------------------------------------------------------
- ----------------------------------------
LESS DISTRIBUTIONS FROM (3):
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 PERIOD................ $18.38
$15.76 $14.32 $11.05 $11.64 $10.95 --------
- ----------------------------------------------------------
- ------------------------------------------
TOTAL RETURN.................................. 16.62%++
19.98% 33.37% (2.69)% 7.55% 9.50%++ ------
- ----------------------------------------------------------
- --------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............. $16,310
$11,040 $7,055 $3,879 $3,361 $1,394 -------
- ----------------------------------------------------------
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (6)(7)............................. 1.25%+
1.25% 1.25% 1.25% 1.05% 0.71%+
Net investment income....................... 0.80+
0.43 0.99 1.43 1.50 2.22+ ---------
- ----------------------------------------------------------
- ----------------------------------------PORTFOLIO TURNOVER
RATE....................... 13% 26% 73%
137% 60% 56% --------------------------------
- ----------------------------------------------------------
- ------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS(8)................... $0.06
$0.06 -- -- -- ------------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from January 24, 1992 (commencement of
operations) to
December 31, 1992.
(3) 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.
(4) The expense ratios for the year ended December 31,
1993 and the period ended
December 31, 1992 reflect expense reimbursement by The
Travelers in
connection with voluntary expense limitations. Without
the expense
reimbursement, the expense ratios would have been 0.77%
and 0.72%
(annualized), respectively.
(5) For the period from May 1, 1992 (inception date) to
December 31, 1992.
(6) For the year ended December 31, 1996, The Travelers
reimbursed the Portfolio
for $25,093 in expenses. If such fees were not
waived and expenses not
reimbursed, the per share decrease of net
investment income would have been
$0.06 and the expense ratio would have been 1.69%.
(7) The expense ratios for the years ended December 31,
1995, 1994, 1993 and the
period ended December 31, 1992 reflect expense
reimbursement by The
Travelers in connection with voluntary expense
limitations. Without the
expense reimbursement, the expense ratios would
have been 1.75%, 3.34%,
3.73% and 2.19% (annualized), respectively.
(8) For the fiscal years beginning after 1995, the SEC
instituted new guidelines
requiring the disclosure of average commissions per
share on Funds which
held more than 10% of their assets in
commissionable equity securities.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
53
<pg$pcn> -------------------------------------------------
- ------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO
1997(1) 1996 1995 1994(2)
- ----------------------------------------------------------
- -----------------------------------------------
<S>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $12.22 $12.85
$10.17 $10.00 -----------------------------------------
- ----------------------------------------------------------
- ------
INCOME FROM OPERATIONS:
Net investment
income..........................................
0.23 0.47 0.48 0.35
Net realized and unrealized gain
(loss)........................ 0.28 0.47
2.44 (0.18) ------------------------------------------
- ----------------------------------------------------------
- -----
Total Income From
Operations..................................... 0.51
0.94 2.92 0.17 --------------------------------
- ----------------------------------------------------------
- ---------------
LESS DISTRIBUTIONS FROM (3):
Net investment
income.......................................... -
(0.84) (0.24) --
Net realized
gains............................................. -
(0.73) -- ----------------------------------
- ----------------------------------------------------------
- --------------
Total
Distributions.............................................
. -- (1.57) (0.24) ------------------------
- ----------------------------------------------------------
- ------------------------
NET ASSET VALUE, END OF
PERIOD................................... $12.73
$12.22 $12.85 $10.17 ------------------------------
- ----------------------------------------------------------
- -----------------
TOTAL
RETURN....................................................
. 4.17%++ 7.47% 29.29% 1.70%++ ----------------
- ----------------------------------------------------------
- -------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................ $17,797
$18,214 $15,340 $5,757 --------------------------------
- ----------------------------------------------------------
- ---------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
(4)...................................................
1.16%+ 1.07% 1.25% 1.25%+
Net investment
income.......................................... 3.74+
3.88 4.29 3.86+ -------------------------------
- ----------------------------------------------------------
- ----------------
PORTFOLIO TURNOVER
RATE.......................................... 35%
39% 25% 32% ---------------------------------
- ----------------------------------------------------------
- --------------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS
(5).... $0.06 $0.06 -- ------------
- ----------------------------------------------------------
- ------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from February 4, 1994 (commencement of
operations) to
December 31, 1994.
(3) Distributions from realized gains include both net
realized short-term and
long-term capital gains. Prior to 1996 net realized
short-term capital gains
were included in distributions from net investment
income.
(4) The ratios of expenses to average net assets for
the year ended December 31,
1995 and the period ended December 31, 1994 reflect
expense reimbursements
by The Travelers in connection with voluntary
expense limitations. Without
the expense reimbursements, the ratios of expenses
to average net assets
would have been 1.27% and 3.49% (annualized),
respectively.
(5) For the fiscal years beginning after 1995, the SEC
instituted new guidelines
requiring the disclosure of average commissions per
share on Funds which
held more than 10% of their assets in
commissionable equity securities.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized
54
<pg$pcn>
Investment Advisers --------
------------
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL
APPLICATION 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
SMITH BARNEY MUTUAL FUNDS MANAGEMENT
INC.
New York, New York
Independent Accountants ------
-------------------
KPMG PEAT MARWICK
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 (Semi)(8-97)
