THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
June 30, 1998
MANAGED ASSETS TRUST
HIGH YIELD BOND TRUST
CAPITAL APPRECIATION FUND
MONEY MARKET PORTFOLIO
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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SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
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DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for The Travelers Series
Trust -- Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund,
Money Market Portfolio (formerly known as Cash Income Trust) ("Fund") and the
Travelers Series Trust -- U.S. Government Securities, Social Awareness Stock and
Utilities Portfolios; ("Portfolio") for the period ended June 30, 1998.
In this letter, we briefly discuss general economic and market conditions. In
addition, more detailed comparisons showing the growth of a hypothetical $10,000
investment in each Trust or Portfolio since its inception 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 pages listed below.
<TABLE>
<CAPTION>
MARKET SCHEDULE OF
SUBACCOUNT COMMENTARY INVESTMENTS
- ---------- ---------- -----------
<S> <C> <C>
Managed Assets Trust.................................. 3 9
High Yield Bond Trust................................. 4 18
Capital Appreciation Fund............................. 4 23
Money Market Portfolio................................ 6 26
U.S. Government Securities Portfolio.................. 37 42
Social Awareness Stock Portfolio...................... 37 43
Utilities Portfolio................................... 38 46
</TABLE>
ECONOMIC REVIEW AND OUTLOOK
The U.S. economy continues to provide the domestic capital markets with the
almost ideal conditions of low interest rates, lower inflation and steady
economic growth. First quarter Gross Domestic Product ("GDP") growth was well
ahead of expectations and led to the prospect of a Federal Reserve Board ("Fed")
tightening midway through the first half of 1998. Reported inflation, however,
remains low and the Asian currency crisis has caused the Fed to lean towards a
more neutral stance.
Despite the strong first quarter, the U.S. economy has recently showed signs of
slowing down. While industrial production and retail sales have gone down, the
most compelling evidence of the slowdown comes from the bond market. For the
first time since 1990, the yield curve, defined by the spread between the
two-year and ten-year Treasury yields, is now slightly inverted. (The yield
curve shows the difference between short- and long-term yields.) In the past, an
inverted yield curve has been a harbinger of an economic downturn.
Fed Chairman Alan Greenspan notes in his latest testimony that the Fed remains
more concerned about inflation rather than an economic recession. We see no
indications of either an economic or earnings recession in the near future and
the risk in the stock market, in our view, is largely mitigated by this outlook.
The U.S. stock market posted handsome returns in the first half of 1998. On a
year-to-date basis, the Dow Jones Industrial Average ("DJIA") rose 13.2% while
the broader Standard and Poor's 500 Index ("S&P 500") gained 17.7%. At this
pace, the stock market would yet again produce another year of 30% or more
appreciation, a three-year run unprecedented in the history of the stock market.
The bond market produced healthy returns as yields on 30-year U.S. Treasury
bonds fell to their lowest level since the introduction of these securities in
1977.
We look ahead to a slower economy in the second half of 1998. The absence of
inflationary pressures should keep long-term bond yields below 6% while the
combination of lofty valuations and slower corporate earnings growth in 1998
could find stocks at the upper end of a trading range for the rest of the year.
EQUITY MARKET COMMENTARY
After three remarkable years of market appreciation averaging more than 30%
annually, the first quarter's S&P 500 total return of almost 15% was that much
more impressive. Since 1995, the stock market's climb has also been supported by
a dramatic increase in money flows by domestic and foreign investors, as well as
corporate buybacks and merger activity. Low domestic inflation and steady
revenue gains have also contributed to the expansion in the P/E multiple. (a P/E
ratio shows the relationship between a stock's price and the company's earnings
for the last four quarters.)
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Stock market volatility increased significantly in the second quarter. Investor
focus shifted from the prospects of Fed tightening to the Asian crisis and
eventually to hopes of reasonable corporate earnings growth for the second
quarter. Large-capitalization stocks posted a gain for the second quarter of
1998 while small-capitalization stocks declined to fall farther behind their
large-cap stock counterparts.
A seesaw pattern in stock prices persisted at the beginning of the second
quarter of 1998, as stock prices remained almost unchanged at the end of April
from a month earlier. Interest rate concerns took center stage towards the end
of April as the Fed publicly discussed a shift to a tightening bias. Long-term
interest rates shot up above 6% while the S&P 500 fell 4.3% from April 23, 1998
to April 27, 1998.
Inflation, however, continued to remain low and, despite a strong first quarter
GDP report, a slowdown in the second half of 1998 became more apparent. Bond
prices stabilized as a result of such evidence in late April and early May and
stock prices recovered to the levels established at the end of the first
quarter.
Renewed concerns over Asia and slowing earnings growth rocked the stock market
in May. The S&P 500 declined by almost 2% while the Russell 2000 Index fell
nearly 5%. (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.) Several companies provided early guidance about
lower second quarter earnings during the month of May. Investors already worried
about record valuations in the stock market, showed no mercy in their response
to such disappointments as some stock prices tumbled down by as much as 50%.
Growth stocks performed better than value stocks in the second quarter of 1998
in the large-cap universe. In particular, the technology, health care and
consumer discretionary sectors performed quite well while the energy sector
underperformed significantly in the wake of falling oil prices.
The widely anticipated earnings pre-announcement season at the end of June, when
companies confess to upcoming earnings shortfalls, was not as severe as in prior
quarters. Many stock market investors appear to have drawn a positive inference
from this event and the current outlook for second quarter earnings seems
favorable.
Besides the historically high valuations for large-capitalization stocks, we
think the principal risk to the U.S. stock market remains on the earnings front.
If Asia remains in a protracted recession, which is a likely scenario at this
point, a slowdown in the global economy could take its toll on U.S. corporate
profits. A prolonged period of anemic earnings growth would trigger a correction
in the stock market through a contraction in the price-to-earnings multiple. We
remain cautious about the U.S. stock market in the short term but bullish over
the intermediate to long term.
FIXED INCOME MARKET COMMENTARY
Just when many investors were getting somewhat more comfortable with risk again,
the Asian financial crisis re-erupted in May and June. Unrest in Indonesia and
further weakness in the Japanese yen were some of the latest highlights in the
latest chapter of the Asian crisis. The region's turmoil sent Asia's stock
markets down again and caused major setbacks in most emerging country stock and
bond markets. In addition, heightened investor concerns about greater risk
triggered yet another crisis in Russia's fragile markets.
In reaction to the renewed troubles in Asia, the U.S. bond market rallied as
many global investors sought refuge in U.S. Treasury securities during the
reporting period. Combined with U.S. Secretary of Treasury Rubin's intervention
to stabilize the yen, the rally in U.S. Treasurys helped to support the U.S.
stock and bond markets by the end of the second quarter of 1998. Within the U.S.
bond markets, investment-grade bonds barely performed better than U.S.
Treasurys. Many longer-maturity bonds could not keep pace with the strong
performance of the 30-year U.S. Treasury bond. Mortgage-backed security spreads
widened and discount bonds performed better than premium bonds, as mortgage
prepayments remained high. Corporate bond spreads widened due to heavy issuance
(i.e., more supply) with the most widening occurring in bonds issued by
corporations that were more impacted by the Asian crisis.
Municipal bonds performed poorly as heavy issuance and investor "sticker shock"
kept tax-exempt bond yields from declining as much as U.S. Treasurys. High yield
bonds and emerging market bonds also lagged U.S. Treasurys during the second
quarter of 1998, although high-yield bonds are still ahead of U.S. Treasurys for
the first six months of 1998.
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We continue to believe that interest rates in the U.S. will slowly move lower as
the crisis in Asia pushes U.S. GDP down to a 1% to 2% annual range in the second
half of 1998. Exports from the U.S. have sharply declined and the trade deficit
has widened rapidly. We expect even greater deterioration in the U.S. trade
deficit as Asian imports accelerate in the second half of the year. Inventory
growth in the U.S. was strong in the first half of 1998, and that condition
should slow projected U.S. economic growth in the second half of the year. In
addition, we expect that corporate profits will continue to be flat, which
combined with high inventories and weak commodity prices, should help to weaken
capital spending during the next several quarters.
Within the U.S. bond market, we anticipate that the yield curve will be steeper
six to twelve months as of this writing. We think that the yield curve will
likely stay flat until it becomes clearer that the inflationary risks from
currently tight U.S. labor markets have passed. As rates decline, bond spreads
are likely to widen. In addition, bond spreads should widen more because of a
continuation of the flight to quality as well as the fact that the supply of
bonds should remain high at these rate levels. The overall low inflationary
environment and the expected economic slowdown, along with the increased
volatility in the stock market, have created a favorable backdrop for fixed
income investments.
MANAGED ASSETS TRUST
Managed Assets Trust ("Fund") seeks to provide a high total investment return
through a fully managed investment policy. For the six months ended June 30,
1998, the Trust had a total return of 12.76% versus 17.72% for the S&P 500 and
4.17% for the Lehman Government/Corporate Index benchmark.
During the first half of 1998, stock selection in the health care, consumer
discretionary, producer durables and autos and transportation sectors made the
strongest positive contribution to the Fund's overall relative performance. In
the health care sector, the Fund benefited from its positions in companies with
strong diversified sources of earnings such as Chancellor Media, New York Times
and Meredith Corp. as well as a number of different retailers such as Costco,
Albertsons and Jones Apparel.
In the producer durables sector, the managers' positions in Textron and United
Technologies helped performance in the first quarter. In the transportation
sector, their emphasis on the better performing airline and automobile
industries also made a positive contribution to performance. Their individual
stock picks here such as Delta Air Lines, AMR Corp. and Ford Motor Co. all
performed well. Their positions in Equitable Companies and Morgan Stanley Dean
Witter helped performance in the financial services sector towards the end of
the second quarter.
The managers lost ground relative to the benchmark primarily in the technology
sector. Their relative performance was penalized by not holding a number of
better performing stocks such as EMC Corp. and Digital Equipment. They were also
hurt by overweight positions in VLSI Technology and Oracle, which both reported
earnings disappointments.
The managers believe that the current economic expansion has further to go and
that inflation will remain low. These factors argue in favor of a continuation
of the current bull market. Earnings growth, however, is clearly slowing down
and the recent market strength and current valuations are both predicated on a
healthy earnings rebound in the second half of the year and into 1999. Besides
the historically high valuations for large capitalization stocks, the principal
risk to the U.S. stock market remains on the earnings front. A prolonged period
of anemic earnings growth would trigger a correction in the stock market through
a contraction in the P/E multiple. They remain cautious about the U.S. stock
market over the short term. In this environment, the managers believe that it is
particularly important to identify companies with sustainable earnings growth at
attractive valuations across a wide variety of industries.
In their disciplined approach to stock selection, the managers screen their
research universe of over 1,000 securities for companies that offer improving
fundamentals and relative earnings gains at discounted stock valuations. In the
technology sector, they focus on higher growth industries like networking and
software through their positions in Cisco and Intuit. They maintain an
underweight position in the weak performing semi-conductor group by excluding
stocks such as Motorola that have produced a string of negative earnings
surprises. In the health care sector, they continue to emphasize Guidant, a
leading manufacturer of medical devices that regulate heart activity through
chest implants. The managers' focus among the financial services sector remains
on the securities industry where they have positions in Merrill Lynch, Morgan
Stanley Dean Witter and The Equitable Companies.
3
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HIGH YIELD BOND TRUST
The High Yield Bond Trust ("Fund") seeks to generate income. The assets of the
Fund will be invested in bonds which, as a class, sell at discounts from par
value and are typically high-risk securities. For the six months ended June 30,
1998, the Fund had a total return of 5.15%. In comparison, the Lehman Aggregate
Bond Index posted a total return of 3.93% for the same period.
The high yield bond market generated relatively weak results in the second
quarter of 1998 and underperformed most other sectors of the bond market. Total
returns for the U.S. bond markets were in the 1% to 6% range, with the high
yield bond market at the lower end.
The 30-year U.S. Treasury bond generated the strongest results (i.e., more than
6%) of all the sectors, as many investors became more convinced that the Asian
crisis would contribute to an economic slowdown in the U.S. beginning in the
second quarter of 1998. The U.S. Treasury market has been sought out as a "safe
haven" by many investors concerned about increased economic uncertainty.
Moreover, an extremely heavy amount of new high yield bond issuances also caused
the high yield bond market to underperform versus other U.S. bond market
sectors. The higher-rated issues generated the strongest results among high
yield bonds given their greater sensitivity to interest rates. On the other
hand, the lowest-rated high yield bond issues generated the weakest returns and
that was not surprising given their greater sensitivity to general economic
conditions and stock market performance. While the stock market generated
positive results during the reporting period, there was considerably greater
volatility in the stock markets because of the higher uncertainty among many
investors.
Year-to-date, the total of newly issued high yield bonds was roughly $110
billion, which is more than twice last year's figure of $50 billion. Moreover,
year-to-date there has been approximately $15 billion of cash inflows into high
yield bond mutual funds, while above last year's total of $8 billion, an amount
that was clearly insufficient to counterbalance the effects of the extremely
heavy new issue calendar. However, continued strong demand for high yield bonds
from pension funds and insurance companies somewhat limited the underperformance
of the high yield bond market versus other bond sectors during the second
quarter of 1998.
The U.S. economy today remains generally supportive of high yield bonds and
inflation continues to be modest. In fact, recent retail sales growth in the
U.S. and housing sales and employment remains quite strong. The manager believes
that it is still an open question as to whether Asia's problems will have any
meaningful negative impact on future U.S. economic growth. While the Fed remains
concerned about the strength of the U.S. economy and the potential for higher
inflation in the future, there has been little evidence of inflationary
pressures so far.
As the high yield bond market continued to underperform during the second
quarter of 1998, the manager began to gradually take advantage of what he
believed to be attractively priced "B" rated issues. Given the continued
problems in Asia, the manager plans to remain underweighted in basic commodity
industries such as steel, forest products and petrochemicals, industries that
have been negatively affected by deflationary trends over the past six months.
(Deflation is when prices actually fall. Deflation should not be confused with
disinflation. Disinflation is the slowing down of the rate at which prices
increase.) The manager has recently started to lower the exposure to the energy
industry given the continued weakness in energy prices and the expectation that
as long as Asia remains mired in difficulties, energy prices should remain
depressed. The manager remains positive on the long-term trends in the energy
industry and does not plan to entirely eliminate the Fund's current energy
positions.
While the manager still expects U.S. economic growth to slow and corporate
profit margins may deteriorate for the rest of 1998, a meaningful U.S. economic
slowdown is not expected for the balance of the year. As a result, the manager
has become more opportunistically invested in select better-priced "B" and "BB"
rated new issues.
CAPITAL APPRECIATION FUND
The Capital Appreciation Fund ("Fund") seeks growth of capital through the use
of common stocks. Income is not an objective. The Fund invests principally in
common stocks of small to large companies that are expected to experience wide
fluctuations in price, both rising and falling. For the six months ending June
30, 1998, the Capital Appreciation Fund posted a total return of 29.99%. In
comparison, the Russell 2000 Index returned 4.93% for the same period.
4
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SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
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Markets generally moved ahead in the second quarter, masking the sharp
volatility that characterized the period. The S&P 500 rose 2.8%, while the DJIA
increased 1.8%. Despite a strong start, equity markets struggled mid-quarter
amid bad news from Asia and disappointing earnings reports in the semiconductor
industry. Better news helped the markets recover lost ground to end the quarter
on a high note. Meanwhile, the U.S. economic backdrop has been very positive.
Consumer spending remained resilient, housing starts held at near-record highs
and weakness in Asia kept the U.S. economy from boiling over. Inflation remained
in-check, and signs of slower economic growth in the second half of the year
drove the yield on the 30-year U.S. Treasury Bond down to 5.6% by the end of the
quarter.
During the period, the Fund outpaced its benchmark, the S&P 500, supported by
strong gains in the managers' large capitalization growth stocks, especially in
the technology and pharmaceutical industries. Among their technology stocks,
they benefited from their focus on market leaders like Cisco Systems, Microsoft,
and America Online (AOL). These companies enjoy a dominant market position, and
were able to weather the Asian crisis with no visible earnings impact. Cisco
Systems was a particularly strong performer. The company offset its Asian
exposure with strong gains elsewhere, and its equipment business is poised for
extraordinary growth against the backdrop of telecommunications deregulation and
the expansion of Internet traffic.
Meanwhile, Microsoft recovered from concerns over the Justice Department's
anti-trust suit, to rebound on an Appeals Court opinion in support of the
company. The managers remain impressed with Microsoft's potential -- their
product pipeline remains tremendous and advanced word on the Windows 98 launch
has been very positive. AOL was another strong performer. The market is
beginning to recognize AOL's successful transformation from service provider to
media channel, as its subscriber base recently surpassed the total number of MTV
viewers.
Pharmaceuticals have been among their strongest positions, supported by several
broad-based themes. First, demographic trends and the rising global utilization
of existing drugs have created a positive backdrop for the industry leaders.
Additionally, technological innovations have accelerated the R&D process, and
over the next few years the managers expect to see a dramatic increase in new
drug launches, to treat everything from cancers to obesity. Despite a
substantial run-up in its stock price, the managers remain very positive on
Pfizer's prospects for a variety of reasons. Not only does it offer a very
strong product pipeline of its own, but its marketing channel is so renowned
that companies like Monsanto and Warner-Lambert have sought Pfizer out to
partner on some of their most promising new drugs.
Among their financial stocks, they are also upbeat on BankAmerica. The bank's
strategic merger with NationsBank has provided the combined bank with a very
profitable geographic and demographic footprint across the Sunbelt. With their
geographic expansion complete, the combined bank is set to cut costs, exploit
synergies, boost operating margins, and unleash shareholder value. Their
cultures are complementary, and with BankAmerica's management at the helm, the
managers think the bank is well placed to emerge as a dominant franchise in the
new banking landscape.
Despite the Fund's strong performance, the managers did have a few
disappointments. AIG, the largest insurer in Asia, had its results restrained
due to the lingering currency storms. However, AIG is using this opportunity to
expand its distribution system and market reach in Asia, and they remain very
confident in the company's long-term potential. Additionally, the managers have
maintained some minor positions in a handful of rapidly growing midsize
companies. While they believe these companies could one day emerge as dominant
players within their respective industries, many of these holdings sport
relatively high price-to-earnings multiples due to their exceptional growth.
During the quarter, the managers saw stocks with higher valuations come under
pressure, as investors flocked toward the more predictable earnings of the large
capitalization names. Although this was a short-term setback, the managers held
on to these positions due to their impressive long-term prospects.
Looking forward, the managers do not expect the ride to get any smoother. Firms
with significant international exposure, especially in Asia, will most likely
continue to see their profit margins squeezed. The current risk is that the
Asian undertow could become strong enough to pull down U.S. and European
economic growth. They personally view this as a very small risk however, given
the resilience of consumer demand at home and the benefits of restructuring and
monetary convergence in Europe. Nonetheless, the managers will continue to
monitor the situation carefully. Most importantly, they have tried to invest in
companies that transcend the vagaries of the marketplace and can weather these
storms with minimal damage to their bottom lines.
5
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MONEY MARKET PORTFOLIO
Money Market Portfolio ("Fund") 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. The Fund pursues this
objective by investing in securities maturing in one year or less.
For the six-months ended June 30, 1998, the Fund generated an effective yield of
2.54% and as of June 30, 1998, had an average maturity of 22 days. The Fund
continues to invest primarily in U.S. Treasuries and government agency
securities. This investment strategy has provided the Fund with relative safety,
liquidity and relative stability. However, you should be aware that your
investment in the Fund is neither insured nor guaranteed by the U.S. Government.
Moreover, no assurance can be given that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
In closing, we would like to thank you for your investment in Managed Asset
Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market
Portfolio. We look forward to continuing to help you pursue your financial
goals.
Sincerely,
/s/ HEATH B. McLENDON
Heath B. McLendon
Chairman
July 10, 1998
6
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PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 6/30/98 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
<S> <C>
Six Months Ended 6/30/98+ 12.76%
Year Ended 6/30/98 22.33%
Five Years Ended 6/30/98 14.92%
Ten Years Ended 6/30/98 14.18%
+ 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, 1988, assuming reinvestment of dividends, through June 30,
1998. The Lehman Government/Corporate Bond Index is a weighted
composite of the Lehman Government Bond Index, which is a
broad-based index of all public debt obligations of the U.S.
Government and its agencies and has an average maturity of nine
years and the Lehman Corporate Bond Index, which is comprised of
all public fixed-rate non-convertible investment-grade domestic
corporate debt, excluding collateralized mortgage obligations. The
Consumer Price Index is a measure of the average change in prices
over time in a fixed market basket of goods and services. The
Standard & Poor's 500 Index is an unmanaged index composed of 500
widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange and over-the-counter market.
<TABLE>
<CAPTION>
Measurement Lehman Standard
Period Managed Government/Corporation Consumer & Poor's
(Fiscal Year Assets Bond Price 500
Covered) Trust Index Index Index
<S> <C> <C> <C> <C>
Jun-88 10000 10000 10000 10000
Dec-88 10919 10285 10212 10343
Dec-89 13880 11749 10687 13615
Dec-90 14223 12723 11339 13192
Dec-91 17310 14774 11686 17203
Dec-92 18199 15894 12025 18513
Dec-93 19897 17648 12355 20374
Dec-94 19451 17028 12686 20642
Dec-95 24726 20305 13008 25167
Dec-96 28133 20893 13439 30943
Dec-97 34128 22932 13667 41265
Jun-98 38482 23888 13811 48577
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 6/30/98 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
<S> <C>
Six Months Ended 6/30/98+ 5.15%
Year Ended 6/30/98 13.35%
Five Years Ended 6/30/98 11.13%
Ten Years Ended 6/30/98 9.80%
+ 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, 1988, assuming reinvestment of dividends, through June 30,
1998. The Lehman Aggregate Bond Index, an unmanaged index, is
composed of the Lehman Intermediate Government/Corporate Bond Index
and the Mortgage Backed Securities Index and includes treasury
issues, agency issues, corporate bond issues and mortgage-backed
securities. The Consumer Price Index is a measure of the average
change in prices over time in a fixed market basket of goods and
services. The First Boston High Yield Index Top Tier is a
broad-based market measure of high yield bonds, commonly known as
"junk bonds."
<TABLE>
<CAPTION>
First
Boston
Measurement High Lehman High
Period Yield Aggregate Consumer Yield
(Fiscal Year Bond Bond Price Index
Covered) Trust Index Index Top Tier
<S> <C> <C> <C> <C>
Jun-88 10000 10000 10000 10000
Dec-88 11456 10277 10212 11223
Dec-89 11617 11771 10687 12703
Dec-90 10557 12826 11339 12821
Dec-91 13313 14878 11686 15755
Dec-92 15064 15978 12025 17130
Dec-93 17174 17537 12355 19806
Dec-94 16958 17025 12686 19769
Dec-95 19581 20170 13008 23461
Dec-96 22723 20902 13439 25976
Dec-97 26487 22919 13667 29257
Jun-98 27851 23819 13811 30527
</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
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PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 6/30/98 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
<S> <C>
Six Months Ended 6/30/98+ 29.99%
Year Ended 6/30/98 40.28%
Five Years Ended 6/30/98 23.32%
Ten Years Ended 6/30/98 19.47%
+ 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 $10,000 made on June
30, 1988, assuming reinvestment of dividends, through June 30,
1998. The Standard & Poor's 500 Index is an unmanaged index
composed of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange and over-the-counter
market. The Russell 2000 Index is a capitalization weighted total
return index which is comprised of 2,000 of the smallest
capitaled U.S. domiciled companies with less than average growth
orientation whose common stock is traded in the United States of
the New York Stock Exchange, American Stock Exchange and NASDAQ.
The Consumer Price Index is a measure of the average change in
prices over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Measurement Standard
Period Capital & Poor's Russell Consumer
(Fiscal Year Appreciation 500 2000 Price
Covered) Fund Index Index Index
<S> <C> <C> <C> <C>
Jun-88 10000 10000 10000 10000
Dec-88 11006 10343 9846 10212
Dec-89 12735 13615 11448 10687
Dec-90 11940 13192 9217 11339
Dec-91 16139 17203 13462 11686
Dec-92 18980 18513 15940 12025
Dec-93 21844 20374 18949 12355
Dec-94 20803 20642 7863 12686
Dec-95 28369 25167 10101 13008
Dec-96 36370 30943 11767 13438
Dec-97 45879 41292 14398 13667
Jun-98 59636 48609 15108 13811
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gains or losses from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
8
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCK -- 66.4%
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
BASIC INDUSTRIES -- 0.4%
10,100 Mead Corp. ................................................. $ 320,675
10,100 Owens-Illinois, Inc. ....................................... 451,975
10,500 Willamette Industries, Inc. ................................ 336,000
- -----------------------------------------------------------------------------------------------------
1,108,650
- -----------------------------------------------------------------------------------------------------
BASIC MATERIALS - DEVELOPMENT -- 0.2%
11,286 Crane Co. .................................................. 548,076
- -----------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 0.9%
9,900 Cordant Technologies Inc. .................................. 456,637
9,100 General Dynamics Corp. ..................................... 423,150
12,500 Ingersoll-Rand Co. ......................................... 550,781
12,200 Kaufman and Broad Home Corp. ............................... 387,350
14,000 Pulte Corp. ................................................ 418,250
- -----------------------------------------------------------------------------------------------------
2,236,168
- -----------------------------------------------------------------------------------------------------
COMPUTERS SERVICES -- 0.2%
9,900 Ceridian Corp. ............................................. 581,625
- -----------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 7.5%
12,700 AccuStaff, Inc.++........................................... 396,875
9,100 Borders Group, Inc.++....................................... 336,700
9,000 Colgate-Palmolive Co. ...................................... 792,000
13,200 Costco Cos., Inc. .......................................... 832,837
19,400 CVS Corp. .................................................. 755,387
9,800 Federated Department Stores, Inc. .......................... 527,362
9,800 Gannett Co. ................................................ 696,412
7,800 Gap, Inc. .................................................. 480,675
13,200 Gillette Co. ............................................... 748,275
17,400 Home Depot Inc. ............................................ 1,445,287
9,600 Jones Apparel Group, Inc. .................................. 351,000
9,548 Kimberly-Clark Corp. ....................................... 438,014
26,800 KMart Corp. ................................................ 515,900
4,400 Loews Corp. ................................................ 383,350
12,400 McDonald's Corp. ........................................... 855,600
8,800 New York Times Co., Class A Shares.......................... 697,400
23,800 Procter & Gamble Corp. ..................................... 2,167,288
7,600 Ross Stores, Inc. .......................................... 327,750
300 Stride Rite Corp. .......................................... 4,519
9,277 The Walt Disney Co. ........................................ 974,665
11,700 Thomas & Betts Corp. ....................................... 576,225
9,800 Time Warner, Inc. .......................................... 837,287
22,600 TJX Cos., Inc. ............................................. 545,225
9,700 Unilever NV................................................. 765,694
40,000 Wal-Mart Stores, Inc. ...................................... 2,430,000
- -----------------------------------------------------------------------------------------------------
18,881,727
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER PRODUCTS -- 0.2%
5,930 Eastman Kodak Co. .......................................... $ 433,261
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.4%
14,200 Adolph Coors Co., Class B Shares............................ 484,575
100 Anheuser-Busch Cos., Inc. .................................. 4,719
41,300 Coca-Cola Co. .............................................. 3,560,300
6,910 Dean Foods Co. ............................................. 379,618
15,700 H.J. Heinz & Co. ........................................... 881,162
13,200 Interstate Bakeries Corp. .................................. 438,075
7,300 Kellogg Co. ................................................ 274,206
16,000 MidAmerican Energy Holdings Co. ............................ 346,000
27,000 PepsiCo, Inc. .............................................. 1,112,063
36,200 Philip Morris Cos., Inc. ................................... 1,425,375
17,500 Sara Lee Corp. ............................................. 978,906
11,500 Suiza Foods Corp.++......................................... 686,406
370 Vlasic Foods International Inc.++........................... 7,446
6,000 Whirlpool Corp.++........................................... 412,500
- -----------------------------------------------------------------------------------------------------
10,991,351
- -----------------------------------------------------------------------------------------------------
ENERGY -- 0.3%
4,700 Halliburton Co. ............................................ 209,444
8,400 Schlumberger Ltd. .......................................... 573,825
- -----------------------------------------------------------------------------------------------------
783,269
- -----------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 10.7%
12,365 Allstate Corp. ............................................. 1,132,170
6,200 Ambac Financial Group, Inc. ................................ 362,700
8,600 American Express Co. ....................................... 980,400
15,025 American International Group, Inc. ......................... 2,193,650
7,917 Associates First Capital Corp. ............................. 608,619
5,527 Banc One Corp. ............................................. 308,476
16,100 BankAmerica Corp. .......................................... 1,391,644
14,600 BankBoston Corp. ........................................... 812,125
4,000 Bankers Trust New York Corp. ............................... 464,250
15,072 Chase Manhattan Corp. ...................................... 1,137,936
8,400 Citicorp.................................................... 1,253,700
7,950 Comerica, Inc. ............................................. 526,688
8,600 Countrywide Credit Industries., Inc. ....................... 436,450
12,900 Fannie Mae.................................................. 783,675
13,000 Freddie Mac ................................................ 611,813
5,600 First Union Corp. .......................................... 326,200
9,200 Fleet Financial Group, Inc. ................................ 768,200
5,300 Golden West Financial Corp. ................................ 563,456
5,100 Hartford Financial Services Group, Inc. .................... 583,313
3,200 J.P. Morgan & Co., Inc. .................................... 374,800
661 M & T Bank Corp. ........................................... 366,194
11,200 Merrill Lynch & Co., Inc. .................................. 1,033,200
9,200 MGIC Investment Corp. ...................................... 524,975
17,150 Morgan Stanley Dean Witter & Co. ........................... 1,567,081
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 10.7% (CONTINUED)
21,175 NationsBank Corp. .......................................... $ 1,619,888
22,900 Norwest Corp. .............................................. 855,888
5,500 PNC Bank Corp. ............................................. 295,969
10,100 Republic New York Corp. .................................... 635,669
7,900 State Street Corp. ......................................... 549,050
13,600 Summit Bancorp.............................................. 646,000
13,900 SunAmerica, Inc. ........................................... 798,381
9,800 SunTrust Banks, Inc. ....................................... 796,863
18,400 Washington Mutual, Inc. .................................... 798,675
2,900 Wells Fargo & Co. .......................................... 1,070,100
- -----------------------------------------------------------------------------------------------------
27,178,198
- -----------------------------------------------------------------------------------------------------
HEALTHCARE -- 7.8%
28,800 Abbott Laboratories......................................... 1,177,200
30,500 American Home Products Corp. ............................... 1,578,375
20,400 Bristol-Myers Squibb Co. ................................... 2,344,725
21 Crescendo Pharmaceuticals Corp. ............................ 268
20,600 Eli Lilly & Co. ............................................ 1,360,888
10,300 Guidant Corp. .............................................. 734,519
23,000 HBO & Co. .................................................. 810,750
12,750 Health Management Associates, Inc., Class A Shares.......... 426,328
30,600 HEALTHSOUTH Corp.++......................................... 816,638
20,200 Johnson & Johnson........................................... 1,489,750
10,800 Lincare Holdings, Inc. ..................................... 454,275
17,500 Merck & Co., Inc. .......................................... 2,340,625
23,650 Pfizer Inc. ................................................ 2,570,459
17,900 Schering-Plough Corp. ...................................... 1,640,088
20,400 Warner-Lambert Co. ......................................... 1,415,250
12,000 Watson Pharmaceuticals, Inc.++.............................. 560,250
- -----------------------------------------------------------------------------------------------------
19,720,388
- -----------------------------------------------------------------------------------------------------
INSURANCE -- 0.8%
8,800 Equitable Cos., Inc. ....................................... 659,450
9,900 Everest Reinsurance Holdings, Inc. ......................... 380,531
9,450 Marsh & McLennan Cos., Inc. ................................ 571,134
3,650 Transatlantic Holdings, Inc. ............................... 282,191
- -----------------------------------------------------------------------------------------------------
1,893,306
- -----------------------------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 3.3%
5,743 Aeroquip-Vickers, Inc. ..................................... 335,248
11,100 Alumax, Inc. ............................................... 514,763
27,700 Bethlehem Steel Corp. ...................................... 344,519
15,800 Crompton & Knowles Corp. ................................... 397,963
19,400 Dayton-Hudson Corp. ........................................ 940,900
18,800 E.I. du Pont de Nemours & Co. .............................. 1,402,950
4,600 Georgia-Pacific (Timber Group).............................. 106,088
8,200 Georgia-Pacific Corp. ...................................... 483,288
11,000 Lyondell Petrochemical Co. ................................. 334,813
11,300 Masco Corp. ................................................ 683,650
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
MATERIALS AND PROCESSING -- 3.3% (CONTINUED)
5,600 Mercury General Corp. ...................................... $ 360,150
10,000 Monsanto Co. ............................................... 558,750
7,100 Raytheon Co. ............................................... 419,788
818 Raytheon Co., Class A Shares................................ 47,137
9,800 United Technologies Corp. .................................. 906,500
10,900 USX-US Steel Group, Inc. ................................... 359,700
3,400 Weyerhaeuser Co. ........................................... 157,038
- -----------------------------------------------------------------------------------------------------
8,353,245
- -----------------------------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.2%
8,700 Medtronic, Inc. ............................................ 554,625
- -----------------------------------------------------------------------------------------------------
NATURAL GAS -- 0.3%
23,200 Williams Cos., Inc. ........................................ 783,000
- -----------------------------------------------------------------------------------------------------
OIL -- 4.5%
29,100 Amoco Corp. ................................................ 1,211,288
5,800 Atlantic Richfield Co. ..................................... 453,125
8,892 BJ Services Co. ............................................ 258,424
9,900 Burlington Resources, Inc. ................................. 426,319
11,200 Chevron Corp. .............................................. 930,300
5,500 Enron Corp. ................................................ 297,344
45,900 Exxon Corp. ................................................ 3,273,244
18,600 Mobil Oil Corp. ............................................ 1,425,225
29,400 Royal Dutch Petroleum Co. ADR............................... 1,611,488
15,600 Texaco Inc. ................................................ 931,125
13,200 Unocal Corp. ............................................... 471,900
- -----------------------------------------------------------------------------------------------------
11,289,782
- -----------------------------------------------------------------------------------------------------
PRODUCER DURABLES -- 4.1%
9,700 Allied Signal Inc. ......................................... 430,437
16,970 Boeing Co. ................................................. 756,226
6,900 Caterpillar Inc. ........................................... 364,837
10,600 Deere & Co. ................................................ 560,475
4,200 Dow Chemical Corp. ......................................... 406,087
7,600 Emerson Electric Co. ....................................... 458,850
14,200 Entergy Corp. .............................................. 408,250
52,600 General Electric Co. ....................................... 4,786,600
9,200 Illinois Tool Works, Inc. .................................. 613,525
5,100 International Paper Co. .................................... 219,300
17,000 Office Depot Inc.++......................................... 536,562
11,500 Pitney Bowes, Inc. ......................................... 553,437
11,500 20th Century Industries..................................... 329,906
- -----------------------------------------------------------------------------------------------------
10,424,492
- -----------------------------------------------------------------------------------------------------
RETAIL -- 0.3%
4,700 J.C. Penney Co., Inc. ...................................... 339,869
11,200 Kroger Co. ................................................. 480,200
- -----------------------------------------------------------------------------------------------------
820,069
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL-FOOD CHAINS -- 0.3%
16,173 Safeway Inc. ............................................... $ 658,039
- -----------------------------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 0.3%
22,200 General Nutrition Cos., Inc., Class A Shares++.............. 692,362
- -----------------------------------------------------------------------------------------------------
TECHNOLOGY -- 10.3%
12,900 Berg Electronics Corp.++.................................... 252,356
24,550 Cisco Systems Inc. ......................................... 2,260,902
37,484 Compaq Computer Corp. ...................................... 1,063,608
6,062 Computer Associates International Inc. ..................... 336,820
6,900 Compuware Corp.++........................................... 352,547
12,300 Dell Computer Corp. ........................................ 1,141,209
21,400 Edison International........................................ 632,637
19,500 EMC Corp. .................................................. 873,844
13,800 Hewlett-Packard Co. ........................................ 826,275
29,800 Intel Corp. ................................................ 2,207,994
21,100 International Business Machines Corp. ...................... 2,422,544
6,900 Intuit Inc. ................................................ 422,841
29,538 Lucent Technologies Inc. ................................... 2,457,192
12,800 Meredith Corp. ............................................. 600,800
46,700 Microsoft Corp. ............................................ 5,062,572
16,800 Oracle Corp. ............................................... 412,125
4,800 PacifiCorp.................................................. 108,600
13,100 Sun Microsystems Inc. ...................................... 569,441
13,800 Symbol Technologies, Inc. .................................. 520,950
23,700 Sysco Corp. ................................................ 607,312
8,000 Tellabs, Inc. .............................................. 572,750
6,900 Texas Instruments, Inc. .................................... 402,356
19,600 Tyco International Ltd. .................................... 1,234,800
5,800 Xerox Corp. ................................................ 589,425
- -----------------------------------------------------------------------------------------------------
25,931,900
- -----------------------------------------------------------------------------------------------------
TEXTILES -- 0.2%
15,900 Fruit of The Loom, Inc., Class A Shares..................... 527,681
- -----------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.8%
10,040 AMR Corp.++................................................. 835,830
11,900 Chrysler Corp. ............................................. 670,862
10,400 Continental Airlines, Inc., Class B Shares++................ 633,100
9,000 CSX Corp. .................................................. 409,500
4,400 Delta Air Lines, Inc. ...................................... 568,700
30,300 Ford Motor Co. ............................................. 1,787,700
13,400 General Motors Corp. ....................................... 895,287
24,800 Navistar International Corp.++.............................. 716,100
3,700 Union Pacific Corp. ........................................ 163,262
6,200 US Airways Group, Inc. ..................................... 491,350
- -----------------------------------------------------------------------------------------------------
7,171,691
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 6.4%
9,000 AirTouch Communications, Inc., Series A..................... $ 525,938
26,900 American Telephone & Telegraph Corp.++...................... 1,536,662
19,600 Ameritech Corp. ............................................ 879,550
27,148 Bell Atlantic Corp. ........................................ 1,238,627
17,700 Bellsouth Corp. ............................................ 1,188,112
8,900 Chancellor Media Corp. ..................................... 441,941
9,300 Clear Channel Communications Inc. .......................... 1,014,862
6,600 Columbia Energy Group....................................... 367,125
9,100 FPL Group, Inc. ............................................ 573,300
17,000 GTE Corp. .................................................. 945,625
4,600 Houston Industries Inc. .................................... 142,025
11,800 MCI Communications Corp. ................................... 685,506
10,400 MediaOne Group Inc. ........................................ 456,950
8,800 Northern Telecom Ltd. ...................................... 499,400
34,154 SBC Communications, Inc. ................................... 1,366,160
8,100 Sonat Inc. ................................................. 312,863
11,800 Southern Co. ............................................... 326,713
7,701 Sprint Corp. ............................................... 542,921
8,800 Tele-Communications, Inc., Class A Shares++................. 337,975
16,600 Texas Utilities Co. ........................................ 690,975
8,384 U. S. West, Inc. ........................................... 394,049
6,000 Viacom Inc., Class B Shares................................. 349,500
29,100 WorldCom, Inc. ............................................. 1,409,531
- -----------------------------------------------------------------------------------------------------
16,226,310
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $108,422,723)................... 167,789,215
- -----------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 1.9%
- -----------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 1.0%
6,000 Equity Office Properties.................................... 270,750
18,564 Equity Residential Properties, 7.250%....................... 457,139
4,000 Excel Realty Trust Inc., 2.125%............................. 118,000
2,000 Finova Finance, 5.500%...................................... 157,000
12,000 General Growth Properties 7.250%............................ 303,000
8,000 Merry Land & Investment, Series C, $12.50................... 209,500
8,000 National Australia Bank, 7.875%............................. 229,500
6,000 Newell Financial Trust, 5.250%.............................. 348,750
4,000 Reckson Associates Realty, 7.625%........................... 95,000
5,000 Tosco Financial Trust, 5.750%............................... 280,000
- -----------------------------------------------------------------------------------------------------
2,468,639
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIALS -- 0.9%
4,000 Amcor Ltd., 7.250%.......................................... $ 194,250
10,000 Calenergy Capital II, 6.250%................................ 470,000
12,000 International Paper, 5.250%................................. 588,000
10,990 News Corp. Ltd., 5.000%..................................... 949,261
4,000 Rouse Co., Series B, $3.00.................................. 199,000
- -----------------------------------------------------------------------------------------------------
2,400,511
- -----------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $4,738,342).................. 4,869,150
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 2.3%
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES -- 0.1%
$ 300,000 Security Capital US Real Estate Inc., 2.000% due 5/22/03+... 252,937
- -----------------------------------------------------------------------------------------------------
HEALTHCARE -- 0.2%
300,000 Genzyme Corp., 5.250% due 6/1/05+........................... 293,250
200,000 Rite Aid Corp., 5.250% due 9/15/02.......................... 245,750
- -----------------------------------------------------------------------------------------------------
539,000
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL -- 1.4%
380,000 Alza Corp., zero coupon due 7/14/14......................... 223,250
262,000 Athena Neurosciences Inc., 4.750% due 11/15/04.............. 304,575
300,000 GVC Corp. Ltd., zero coupon due 5/21/02+.................... 319,500
300,000 Inco Ltd., 7.750% due 3/15/16............................... 288,750
300,000 Indian Petrochemicals, 2.500% due 3/11/02+.................. 294,000
1,000,000 Marriott International, zero coupon due 3/25/11............. 661,250
100,000 Omnicom Group, 4.250% due 1/3/07............................ 167,000
200,000 Omnicom Inc., 2.250% due 1/6/13............................. 244,750
500,000 Scholastic Corp., 5.000% due 8/15/05........................ 451,875
200,000 Taiwan Semiconductor, zero coupon due 7/3/02+............... 221,500
200,000 Telefonica Europa, 2.000% due 7/15/02....................... 302,000
- -----------------------------------------------------------------------------------------------------
3,478,450
- -----------------------------------------------------------------------------------------------------
MISCELLANEOUS -- 0.1%
200,000 Interpublic Group, 1.800% due 9/16/04....................... 188,000
- -----------------------------------------------------------------------------------------------------
TECHNOLOGY -- 0.3%
600,000 Ingram Micro, Inc., zero coupon due 6/9/18+................. 216,750
300,000 Interim Services Inc., 4.500% due 6/1/05.................... 316,875
238,000 STMicroelectronics N.V., zero coupon due 6/10/08............ 204,383
100,000 Thermo Instrument Systems, 4.000% due 1/15/05............... 99,500
- -----------------------------------------------------------------------------------------------------
837,508
- -----------------------------------------------------------------------------------------------------
UTILITIES -- ELECTRIC -- 0.2%
600,000 Potomac Electric Power Co., 5.000% due 9/1/02............... 582,750
- -----------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $5,390,131)...... 5,878,645
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 10.3%
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 2.2%
$ 500,000 Great Western Financial, 6.375% due 7/1/00.................. $ 503,125
5,000,000 Nationwide Health, 6.900% due 10/1/37....................... 5,181,250
- -----------------------------------------------------------------------------------------------------
5,684,375
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL -- 4.5%
2,000,000 Becton Dickinson, 8.800% due 3/1/01......................... 2,135,000
2,000,000 Cox Communications Inc., 6.875% due 6/15/05................. 2,085,000
2,000,000 Raytheon Co., 6.550% due 3/15/10............................ 2,010,000
5,000,000 Xerox Corp., 6.250% due 11/15/26............................ 5,118,750
- -----------------------------------------------------------------------------------------------------
11,348,750
- -----------------------------------------------------------------------------------------------------
TELEPHONE -- 2.0%
5,000,000 Bellsouth Capital Funding, 6.040% due 11/15/26.............. 5,075,000
- -----------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.6%
3,000,000 CSX, 6.950% due 5/1/27...................................... 3,090,000
836,618 Wilmington Trust, 9.250% due 1/2/07+........................ 847,544
- -----------------------------------------------------------------------------------------------------
3,937,544
- -----------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $25,167,714)................. 26,045,669
- -----------------------------------------------------------------------------------------------------
FOREIGN BONDS -- 2.0%
- -----------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT BONDS -- 0.8%
2,000,000 Canada-Global Bond, 6.375% due 7/21/05...................... 2,068,750
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL -- 1.2%
3,000,000 IBM International, 6.250% due 10/10/00...................... 3,023,667
- -----------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS (Cost -- $4,943,266).................... 5,092,417
- -----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECTOR -- 15.0%
5,000,000 U.S. Physical Callable Corpus, zero coupon due 2/15/04...... 3,689,400
175,000 U.S. Treasury Bill, 5.010% due 9/17/98++.................... 173,100
11,200,000 U.S. Treasury Note, 5.750% due 4/30/03...................... 11,306,736
3,000,000 U.S. Treasury Note, 7.875% due 11/15/04++................... 3,369,750
2,000,000 U.S. Treasury Note, 6.500% due 8/15/05...................... 2,110,340
3,000,000 U.S. Treasury Note, 6.125% due 8/15/07...................... 3,121,920
4,000,000 U.S. Treasury Bond, 6.125% due 11/15/27..................... 4,288,520
244,793 FHLMC, 8.500% due 9/1/02.................................... 252,900
4,014,232 FHLMC, 8.000% due 9/1/04.................................... 4,144,694
45,522 FNMA, 8.500% due 3/1/05..................................... 47,470
79,761 FNMA, 8.500% due 3/1/05..................................... 83,176
3,387,433 FNMA Dwarf, 6.000% due 1/1/13............................... 3,353,559
991,295 FNMA, 6.500% due 12/1/27.................................... 987,578
155,474 GNMA, 9.000% due 12/15/16@.................................. 166,502
164,544 GNMA, 9.000% due 11/15/19@.................................. 176,215
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 278,021 GNMA, 9.500% due 1/15/20@................................... $ 300,435
102,855 GNMA, 9.500% due 3/15/20@................................... 111,147
191,005 GNMA, 7.500% due 5/15/23@................................... 196,376
- -----------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR (Cost -- $37,224,915).......... 37,879,818
- -----------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $185,887,091)................ 247,554,914
- -----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.1%
5,305,000 Citibank, 5.900% due 7/1/98; Proceeds at
maturity -- $5,305,869; (Fully collateralized by U.S.
Treasury Notes, 5.375% due 6/30/03; Market
value -- $5,412,800) (Cost -- $5,305,000)................... 5,305,000
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $191,192,091*)........... $252,859,914
- -----------------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
+ Security is exempt from registration under rule 144A of the Securities Act of
1933. This security may be sold in transactions that are exempt from
registration, normally to qualified institutional buyers.
++ Security is segregated by the Custodian for futures contract commitments
and/or for securities traded on a "to-be-announced" basis.
@ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 70.9%
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
AIRLINES -- 1.8%
$ 474,000 B- Atlas Air Inc., Sr. Notes, 10.750% due 8/1/05............... $ 502,440
- ---------------------------------------------------------------------------------------------------
BROADCASTING, CABLE AND TV -- 1.5%
400,000 B- Paxson Communications, Sr. Sub Notes, 11.625% due
10/01/02.................................................. 431,000
- ---------------------------------------------------------------------------------------------------
CASINOS -- 1.6%
400,000 BB Grand Casinos, 1st Mortgage Notes, 10.125% due 12/1/03...... 437,000
- ---------------------------------------------------------------------------------------------------
CHEMICALS -- 0.6%
155,000 B Polymer Group Inc., Company Guaranty, 9.000% due 7/1/07..... 158,100
- ---------------------------------------------------------------------------------------------------
CONSTRUCTION SERVICES -- 3.1%
350,000 B+ Beazer Homes USA, Company Guaranty, 8.875% due 4/1/08....... 341,250
350,000 BB+ Greystone Homes Inc., Sr. Notes, 10.750% due 3/1/04......... 377,125
150,000 B- Kevco Inc., Company Guaranty, 10.375% due 12/1/07........... 155,250
- ---------------------------------------------------------------------------------------------------
873,625
- ---------------------------------------------------------------------------------------------------
ELECTRONICS/COMPUTERS -- 0.7%
160,000 BB- Unisys Corp., Sr. Notes, 12.000% due 4/15/03................ 181,800
- ---------------------------------------------------------------------------------------------------
ENERGY -- 0.8%
240,000 B- Belden & Blake, Company Guaranty, 9.875% due 6/15/07........ 235,800
- ---------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 1.7%
150,000 B- B.F. Saul Real Estate Investment Trust, Sr. Notes, 9.750%
due 4/1/08................................................ 148,500
100,000 B- Diamond Holdings PLC, Company Guaranty, 9.125% due
2/1/08+................................................... 104,250
250,000 B Pacific & Atlantic Holdings, Notes, 11.500% due 5/30/08+.... 235,625
- ---------------------------------------------------------------------------------------------------
488,375
- ---------------------------------------------------------------------------------------------------
FOOD AND DRUG -- 5.4%
580,000 B AFC Enterprises Inc., Sr. Sub. Notes, 10.250% due 5/15/07... 617,700
260,000 B Archibald Candy Corp., Company Guaranty, 10.250% due
7/1/04.................................................... 276,900
240,000 B- Duane Reade Inc., Sr. Sub. Notes, 9.250% due 2/15/08........ 244,800
236,896 B FRD Acquisition, Senior Notes, 12.500% due 7/15/04.......... 260,602
100,000 B- Windy Hill Pet Food Co., Sr. Sub Notes, 9.750% due
5/15/07................................................... 106,000
- ---------------------------------------------------------------------------------------------------
1,506,002
- ---------------------------------------------------------------------------------------------------
HEALTHCARE -- 0.6%
160,000 B+ Physician Sales & Services, Company Guaranty, 8.500% due
10/1/07................................................... 164,800
- ---------------------------------------------------------------------------------------------------
INDUSTRIALS -- 10.2%
300,000 B- Advance Holding Corp., Debentures, step bond to yield
12.818% due 4/15/09+...................................... 178,500
290,000 B- Advance Stores Co., Sr. Sub Notes, 10.250% due 4/15/08+..... 301,238
310,000 B+ Avondale Mills Inc., Company Guaranty, 10.250% due 5/1/06... 333,250
400,000 B+ Diamond Triumph Auto, Sr. Notes, 9.250% due 4/1/08+......... 408,000
260,000 NR Elgar Holdings Inc., Sr. Notes, 9.875% due 2/1/08+.......... 241,150
250,000 B Grove Holdings LLC, Debentures, step bond to yield 11.838%
due 5/1/09................................................ 142,500
240,000 B- MTL Inc., Sr. Sub. Notes, 10.000% due 6/15/06+.............. 239,400
500,000 B- Numatics Inc., Sr Sub Notes, 9.625% due 4/1/08+............. 507,500
180,000 B+ TBS Shipping International Ltd., 1st Mortgage, 10.000% due
5/1/05+................................................... 164,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
INDUSTRIALS -- 10.2% (CONTINUED)
$ 150,000 B- Transwestern Publishing, Sr. Sub. Notes, 9.625% due
11/15/07.................................................. $ 153,750
<C> <S> <C> <C>
180,000 B- Unicco Service, Company Guaranty, Series B, 9.875% due
10/15/07.................................................. 182,250
- ---------------------------------------------------------------------------------------------------
2,852,238
- ---------------------------------------------------------------------------------------------------
MANUFACTURING -- 3.0%
193,000 B+ French Fragrance Inc., Sr. Notes, 10.375% due 5/15/07....... 206,510
305,000 B- Reliant Building Product, Sr. Sub. Notes, 10.875% due
5/1/04.................................................... 307,288
250,000 B- Roller Bearing Co. Inc., Company Guaranty, 9.625% due
6/15/07................................................... 254,375
50,000 B- Sullivan Graphics Inc., Sr. Sub Notes, 12.750% due 8/1/05... 52,938
- ---------------------------------------------------------------------------------------------------
821,111
- ---------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 7.5%
310,000 B Affinity Group, Sr. Sub. Notes, 11.500% due 10/15/03........ 327,438
500,000 B Jacor Communications Corp., Company Guaranty, 9.750% due
12/15/06.................................................. 546,250
90,000 B- Pegasus Communications Corp., Sr. Notes, 9.625% 10/15/05.... 92,925
400,000 B- Pegasus Media & Communication Inc., Notes, 12.500% due
7/1/05.................................................... 453,000
250,000 B- Plitt Theaters Inc., Sr. Sub. Notes, 10.875 6/15/04......... 273,438
150,000 B+ Telewest Communications PLC, Debentures, step bond to yield
10.515% due 10/1/07+...................................... 124,875
445,000 B United International Holdings Inc., Sr. Discount Notes, step
bond to yield 10.750% due 2/15/08......................... 274,788
- ---------------------------------------------------------------------------------------------------
2,092,714
- ---------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS -- 1.6%
420,000 B- Mediq Inc., Sr. Sub Notes, 11.000% due 6/1/08+.............. 432,600
- ---------------------------------------------------------------------------------------------------
METALS/MINING -- 2.7%
153,000 B Continental Global Group Corp., Senior Notes, 11.000% due
4/1/07.................................................... 161,033
300,000 BB Great Central Mines Ltd, Sr. Notes, 8.875% due 4/1/08+...... 297,000
WHX Corp., Sr. Notes:
180,000 NR 10.500% due 4/15/05......................................... 183,600
110,000 B 10.500% due 4/15/05+........................................ 112,200
- ---------------------------------------------------------------------------------------------------
753,833
- ---------------------------------------------------------------------------------------------------
OIL DRILLING AND SERVICES -- 1.5%
400,000 NR Parker Drilling Co., Sr. Notes, 9.750% due 11/15/06......... 410,000
- ---------------------------------------------------------------------------------------------------
PAPER -- 1.5%
400,000 B Mail-Well Corp., Sr Sub Notes, 10.500% due 2/15/04.......... 429,500
- ---------------------------------------------------------------------------------------------------
RECREATIONAL ACTIVITIES -- 2.8%
357,000 B- Ballys Total Fitness, Sr. Sub Notes, 9.875% due 10/15/07.... 368,603
430,000 CCC+ SFX Entertainment Inc., Sr. Sub. Notes, 9.125% due
2/1/08+................................................... 423,550
- ---------------------------------------------------------------------------------------------------
792,153
- ---------------------------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
400,000 B Friendly Ice Cream Corp., Company Guaranty, 10.500% due
12/1/07................................................... 423,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS SECURITY VALUE
===================================================================================================
<S> <C> <C> <C>
RETAIL -- 5.4%
$ 520,000 NR Galey & Lord Inc., Company Guaranty, 9.125% due 3/1/08...... $ 504,400
500,000 BB KMart Corp., Notes, 7.900% due 12/14/00..................... 500,625
490,000 BB- Speciality Retailers Inc., Company Guaranty, 8.500% due
7/15/05................................................... 505,925
- ---------------------------------------------------------------------------------------------------
1,510,950
- ---------------------------------------------------------------------------------------------------
SCHOOLS -- 2.3%
640,000 B- La Petite Academy, Sr. Notes, 10.000% due 5/15/08+.......... 648,000
- ---------------------------------------------------------------------------------------------------
SERVICES -- 3.0%
260,000 CCC+ Florists Transworld Delivery Inc., Sr. Notes, 14.000% due
12/15/01.................................................. 285,350
230,000 B- Production Resource Group LLP, Sr. Sub. Notes, 11.500% due
1/15/08+.................................................. 223,100
185,000 B- Richmont Marketing Specialist, Sr. Sub Notes, 10.125% due
12/15/07+................................................. 188,931
120,000 B- Williams Scotsman Inc., Company Guaranty, 9.875% due
6/1/07.................................................... 125,400
- ---------------------------------------------------------------------------------------------------
822,781
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY -- 1.7%
220,000 B- Fisher Scientific International Inc., Sr. Sub Notes, 9.000%
due 2/1/08................................................ 218,900
250,000 B- PSINET Inc., Sr. Notes, 10.000% due 2/15/05................. 256,250
- ---------------------------------------------------------------------------------------------------
475,150
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.6%
E.Spire Communication Inc.:
100,000 NR Senior Notes, 13.750% due 7/15/07........................... 114,750
125,000 NR Sr. Discount Notes, step bond to yield 11.632% due
11/1/05................................................... 103,750
400,000 B+ Jordan Telecomm Products, Sr. Discount Notes, step bond to
yield 10.629% due 8/1/07.................................. 332,000
535,000 B Level 3 Communications, Sr. Notes, 9.125% due 5/1/08........ 521,625
200,000 B- T/SF Communications Corp., Company Guaranty, 10.375% due
11/1/07................................................... 205,000
- ---------------------------------------------------------------------------------------------------
1,277,125
- ---------------------------------------------------------------------------------------------------
TEXTILES -- 1.5%
415,000 B+ Delta Mills Inc., Company Guaranty, 9.625% due 9/1/07+...... 409,293
- ---------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.8%
220,000 B Atlantic Express Transportation Corp., Company Guaranty,
10.750% due 2/1/04........................................ 234,850
- ---------------------------------------------------------------------------------------------------
UTILITIES -- 1.5%
417,000 B- International Utility, Sr. Sub Notes, 10.750% due 2/1/08+... 427,944
- ---------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $19,319,416)....... 19,792,184
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
===================================================================================================
STOCK -- 2.2%
===================================================================================================
<S> <C> <C> <C>
BROADCASTING, CABLE & TV -- 0.3%
740 Paxson Communications Corp., Preferred, Payment-in-kind,
Exchangeable 12.500% due 10/31/06......................... 78,070
- --------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 1.3%
4,500 Eagle-Picher Holdings, Preferred, 11.750% due 3/1/08+....... 262,125
850 SFX Broadcasting Inc., Preferred, Payment-in-kind, 12.625%
due 10/31/06.............................................. 98,706
- --------------------------------------------------------------------------------------------------
360,831
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<pg$pcn>
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SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- 0.6%
3,100 Niagra Mohawk Power......................................... $ 46,306
1,140 International Utility Structures @.......................... 124,545
- --------------------------------------------------------------------------------------------------
170,851
- --------------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $587,662).............................. 609,752
- --------------------------------------------------------------------------------------------------
WARRANTS -- 0.2%
- --------------------------------------------------------------------------------------------------
MANUFACTURING -- 0.1%
1,600 Terex Corp., Appreciation Rights, Expire 5/15/02............ 35,200
- --------------------------------------------------------------------------------------------------
METAL PRODUCTS -- 0.1%
2,000 USN Corp., Expire 8/15/04................................... 24,000
- --------------------------------------------------------------------------------------------------
STEEL -- 0.0%
500 Gulf States Steel Inc., Expire 4/15/03...................... 25
- --------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $17)................................ 59,225
- --------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $19,907,095)................. 20,461,161
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 26.7%
$6,448,000 Chase Securities, 5.700% due 7/1/98; Proceeds at
maturity -- $6,449,019 (Fully collateralized by U.S.
Treasury Notes, 5.500% due 2/28/03; Market
value -- $6,580,219)........................................ 6,448,000
1,000,000 Citibank, 5.900% due 7/1/98; Proceeds at
maturity -- $1,000,162 (Fully collateralized by U.S.
Treasury Notes, 5.375% due 2/15/01; Market
value -- $1,021,331)........................................ 1,000,000
- --------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $7,448,000)............ 7,448,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $27,355,095**)........... $27,909,161
- --------------------------------------------------------------------------------------------------
</TABLE>
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
@ Security issued with attached warrants.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 22 for definition of bond ratings.
SUMMARY OF BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
STANDARD & % OF TOTAL CORPORATE
MOODY'S AND/OR POOR'S BONDS & NOTES
- -------------------------------------------------
<S> <C> <C>
B B 77.0%
Ba BB 11.0
Caa CCC 4.0
NR NR 8.0
- -------------------------------------------------
100.0%
- -------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<pg$pcn>
- --------------------------------------------------------------------------------
BOND RATINGS
All ratings are by Standard & Poor's Rating Service ("Standard & Poor's"),
except that those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "C" may be modified by the addition of
a plus (+) or a minus (-) sign to show relative standings within the major
rating categories.
<TABLE>
<S> <C> <C>
AAA -- Bonds rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds 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 -- Bonds 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 -- Bonds 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 -- Bonds rated "BB" and "B" are regarded, on balance, as
and CCC 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 -- Bonds 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 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 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 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 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 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 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 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 rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
22
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
COMMON STOCK -- 89.1%
- ----------------------------------------------------------------------------------------
<C> <S> <C>
AIRCRAFT AND AEROSPACE -- 1.2%
99,700 Textron Inc. ............................................... $ 7,147,244
- ----------------------------------------------------------------------------------------
AIRLINES -- 0.1%
11,715 UAL Corp.++................................................. 913,770
- ----------------------------------------------------------------------------------------
BANKING -- 4.2%
83,000 BankAmerica Corp. .......................................... 7,174,313
57,800 Bank of New York............................................ 3,507,737
83,295 Citicorp.................................................... 12,431,779
42,825 Mercantile Bancorp, Inc. ................................... 2,157,309
- ----------------------------------------------------------------------------------------
25,271,138
- ----------------------------------------------------------------------------------------
BEVERAGE -- 6.2%
193,250 Coca-Cola Co. .............................................. 16,522,875
526,100 Coca-Cola Enterprises....................................... 20,649,425
- ----------------------------------------------------------------------------------------
37,172,300
- ----------------------------------------------------------------------------------------
CHEMICALS -- 4.8%
175,575 Cytec Industries Inc.++..................................... 7,769,194
368,745 Monsanto Co. ............................................... 20,603,627
29,210 Solutia Inc. ............................................... 837,962
- ----------------------------------------------------------------------------------------
29,210,783
- ----------------------------------------------------------------------------------------
COMPUTERS -- 6.2%
402,860 Dell Computer Corp.++....................................... 37,390,444
- ----------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 4.7%
410,630 McDonald's Corp. ........................................... 28,333,470
- ----------------------------------------------------------------------------------------
COMMUNICATIONS -- 0.9%
150,000 Qwest Communications International, Inc.++.................. 5,231,250
- ----------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS -- 7.2%
100,000 CBS Corp. .................................................. 3,175,000
252,450 General Electric Co. ....................................... 22,972,950
204,685 Time Warner Inc. ........................................... 17,487,775
- ----------------------------------------------------------------------------------------
43,635,725
- ----------------------------------------------------------------------------------------
DRUGS AND HEALTHCARE -- 13.0%
296,950 Eli Lilly & Co. ............................................ 19,617,259
18,070 MedImmune Inc.++............................................ 1,127,116
253,225 Pfizer, Inc. ............................................... 27,522,392
430,125 Warner-Lambert Co. ......................................... 29,839,922
- ----------------------------------------------------------------------------------------
78,106,689
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<pg$pcn>
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SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS -- 2.6%
11,000 Sony Corp., Sponsored ADR................................... $ 946,688
251,950 Texas Instruments Inc. ..................................... 14,691,834
- ----------------------------------------------------------------------------------------
15,638,522
- ----------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.2%
226,425 Charles Schwab Corp. ....................................... 7,358,812
247,930 Fannie Mae.................................................. 15,061,748
179,325 Freddie Mac................................................. 8,439,483
120,905 Merrill Lynch & Co., Inc. .................................. 11,153,486
150,300 Morgan Stanley Dean Witter & Co. ........................... 13,733,662
- ----------------------------------------------------------------------------------------
55,747,191
- ----------------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 2.0%
277,400 Delta & Pine Land Co. ...................................... 12,344,300
- ----------------------------------------------------------------------------------------
RETAIL -- 3.1%
156,880 Costco Cos., Inc. .......................................... 9,893,245
209,250 Fred Meyer, Inc.++.......................................... 8,893,125
- ----------------------------------------------------------------------------------------
18,786,370
- ----------------------------------------------------------------------------------------
SOFTWARE -- 15.3%
236,300 America Online, Inc. ....................................... 25,047,800
275,190 Cisco Systems, Inc.++....................................... 25,334,679
67,380 Intuit Inc.++............................................... 4,127,025
158,650 J.D. Edwards & Co.++........................................ 6,812,034
284,700 Microsoft Corp.++........................................... 30,854,363
- ----------------------------------------------------------------------------------------
92,175,901
- ----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 8.4%
200,000 CIENA Corp.++............................................... 13,925,000
334,650 Lucent Technologies Inc. ................................... 27,838,697
200,000 MediaOne Group Inc.++....................................... 8,787,500
- ----------------------------------------------------------------------------------------
50,551,197
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $316,298,888)................... 537,656,294
- ----------------------------------------------------------------------------------------
FOREIGN STOCK -- 4.4%
848,713 Smithkline Beecham.......................................... 10,330,299
189,000 Sony Corp. ................................................. 16,273,733
- ----------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $29,169,365)................... 26,604,032
- ----------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $345,468,253)................ 564,260,326
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 6.5%
$38,985,000 Citibank, 5.900% due 7/1/98; Proceeds at
maturity -- $38,991,389; (Fully collateralized by US.
Treasury Notes, 5.375% due 6/30/03; Market
value -- $39,765,175) (Cost -- $38,985,000)................. $ 38,985,000
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $384,453,253*)........... $603,245,326
- ----------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
COMMERCIAL PAPER -- 100.0%
$1,000,000 American Home Products matures 8/21/98...................... 5.56% $ 992,208
1,000,000 Asset Securitization Corp. matures 7/16/98.................. 5.55 997,704
1,000,000 Associates Corp. of America matures 7/13/98................. 5.55 998,156
1,000,000 Bell Atlantic Financial Services matures 7/24/98............ 5.56 996,466
1,000,000 Campbell Soup Co. matures 7/22/98........................... 5.60 996,745
1,000,000 Corporate Asset Funding matures 7/09/98..................... 5.55 998,771
1,000,000 Eaton Corp. matures 7/13/98................................. 5.60 998,140
1,000,000 E.I. duPont De Nemours matures 7/29/98...................... 5.54 995,737
900,000 Ford Motor Credit Corp. matures 7/15/98..................... 5.76 897,988
125,000 General Electric Capital Corp. matures 7/29/98.............. 5.56 124,467
1,000,000 Goldman, Sachs L.P. matures 8/04/98......................... 5.56 994,796
1,000,000 H.J. Heinz Co. matures 7/09/98.............................. 5.52 998,782
1,000,000 J.C. Penney matures 9/14/98................................. 5.58 988,543
400,000 Marsh & Mclennan Co. matures 7/9/98......................... 5.56 399,512
1,000,000 Merrill Lynch & Co., Inc. matures 7/22/98................... 5.61 996,745
1,000,000 Motorola Inc. matures 7/1/98................................ 5.52 1,000,000
1,000,000 National Rural Utilities matures 7/17/98.................... 5.56 997,556
1,000,000 Northern State Power Co. matures 7/27/98.................... 5.62 995,956
1,000,000 Potomac Electric Power Co. matures 7/27/98.................. 5.56 996,028
1,000,000 Private Expense Funding Corp. matures 7/7/98................ 5.56 999,083
1,000,000 Progress Capital Holdings matures 7/10/98................... 5.52 998,632
1,000,000 Provodian Master Trust matures 7/8/98....................... 5.61 998,913
900,000 Prudential Funding Co. matures 7/21/98...................... 5.55 897,245
1,000,000 Sherwin Williams Co. matures 7/2/98......................... 5.56 999,847
1,000,000 Southern New England Telecom matures 7/20/98................ 5.58 997,071
1,000,000 Teco Finance Inc. matures 8/18/98........................... 5.56 992,667
1,000,000 Toys 'R' Us Inc. matures 7/20/98............................ 5.51 997,108
1,000,000 TRW Inc. matures 7/27/98.................................... 5.57 995,999
1,000,000 Xerox matures 7/16/98....................................... 5.29 997,812
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $27,238,677*)............ $27,238,677
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1998
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments -- Cost.............................. $185,887,091 $19,907,095 $345,468,253 $27,238,677
Repurchase agreements -- Cost.................... 5,305,000 7,448,000 38,985,000 --
- ------------------------------------------------------------------------------------------------------------
Investments, at Value............................ $247,554,914 $20,461,161 $564,260,326 $27,238,677
Repurchase agreements, at Value.................. 5,305,000 7,448,000 38,985,000 --
Cash............................................. 200,290 902 678 21,716
Dividends and interest receivable................ 1,131,103 438,218 117,779 --
Receivable for securities sold................... 9,084,779 624,164 661,257 --
Receivable from broker -- variation margin....... 25,500 -- -- --
Receivable from affiliate........................ -- 17,000 -- --
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................... 263,301,586 28,989,445 604,025,040 27,260,393
- ------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased................. 9,063,708 -- -- --
Investment advisory fees payable................. 107,772 12,661 367,153 1,539
Administration fees payable...................... 12,972 1,519 -- 536
Dividends payable................................ -- -- -- 44,988
Accrued expenses................................. 73,606 16,797 -- 1,998
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................ 9,258,058 30,977 367,153 49,061
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................... $254,043,528 $28,958,468 $603,657,887 $27,211,332
- ------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital.................................. $178,883,201 $29,941,083 $377,831,141 $27,211,332
Undistributed net investment income.............. 2,795,001 1,194,348 427,193 --
Accumulated net realized gain (loss) from
security transactions and futures contracts... 10,806,092 (2,731,029) 6,607,480 --
Net unrealized appreciation of investments
and futures contracts......................... 61,559,234 554,066 218,792,073 --
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................... $254,043,528 $28,958,468 $603,657,887 $27,211,332
- ------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING................................. 13,686,204 2,978,845 10,318,436 27,211,332
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE......................... $18.56 $9.72 $58.50 $1.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest.............................................. $ 2,336,868 $1,282,523 $ 1,173,118 $635,698
Dividends............................................. 1,218,557 20,982 1,307,959 --
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................... 3,555,425 1,303,505 2,481,077 635,698
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)..................... 597,471 69,695 1,848,557 36,325
Administration fees (Note 3).......................... 71,697 8,364 147,885 6,978
Shareholder communications............................ 37,920 2,760 24,795 896
Audit and legal....................................... 26,359 10,208 9,546 11,165
Custody............................................... 14,195 6,680 9,521 2,824
Shareholder and system servicing fees................. 3,092 7,888 3,718 3,773
Trustees' fees........................................ 2,888 -- 3,222 3,013
Registration fees..................................... -- -- -- 1,059
Other................................................. 8,047 3,437 6,715 1,472
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES........................................ 761,669 109,032 2,053,959 67,505
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................... 2,793,756 1,194,473 427,118 568,193
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 4 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities*)..................................... 11,738,622 765,691 8,192,316 (470)
Futures contracts.................................. (807,590) -- -- --
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).............................. 10,931,032 765,691 8,192,316 (470)
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Futures Contracts:
Beginning of period................................ 46,559,403 1,143,573 96,460,219 --
End of period...................................... 61,559,234 554,066 218,792,073 --
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION.... 14,999,831 (589,507) 122,331,854 --
- -------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS.... 25,930,863 176,184 130,524,170 (470)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................. $28,724,619 $1,370,657 $130,951,288 $567,723
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Except for the Money Market Portfolio where the net realized losses are only
from the sale of short-term securities.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED
JUNE 30, 1998
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 2,793,756 $ 1,194,473 $ 427,118 $ 568,193
Net realized gain (loss)......................... 10,931,032 765,691 8,192,316 (470)
Increase (decrease) in net unrealized
appreciation.................................. 14,999,831 (589,507) 122,331,854 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 28,724,619 1,370,657 130,951,288 567,723
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income............................ (6,031,063) (1,906,452) (1,757,406) (567,723)
Net realized gains............................... (11,032,713) -- (15,276,145) --
- -------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS................. (17,063,776) (1,906,452) (17,033,551) (567,723)
- -------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares................. 7,171,092 4,356,173 68,689,580 45,413,437
Net asset value of shares issued for reinvestment
of dividends.................................. 17,063,776 1,906,452 17,033,551 546,429
Cost of shares reacquired........................ (5,722,463) (2,040,540) (3,684,198) (32,242,335)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 18,512,405 4,222,085 82,038,933 13,717,531
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 30,173,248 3,686,290 195,956,670 13,717,531
NET ASSETS:
Beginning of period.............................. 223,870,280 25,272,178 407,701,217 13,493,801
- -------------------------------------------------------------------------------------------------------------
END OF PERIOD*................................... $254,043,528 $28,958,468 $603,657,887 $ 27,211,332
- -------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:.............................................. $2,795,001 $1,194,348 $427,193 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 6,035,045 $ 1,906,327 $ 1,757,481 $ 305,468
Net realized gain (loss)......................... 12,928,663 813,430 14,695,393 (72)
Increase in net unrealized appreciation.......... 20,882,409 485,471 50,761,528 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 39,846,117 3,205,228 67,214,402 305,396
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income............................ (1,469,979) (15,738) -- (305,378)
Net realized gains............................... (4,813,889) -- (2,626) --
- -------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (6,283,868) (15,738) (2,626) (305,378)
- -------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares................. 7,217,202 7,500,172 143,131,359 28,240,251
Net asset value of shares issued for reinvestment
of dividends.................................. 6,283,868 15,738 2,626 286,879
Cost of shares reacquired........................ (11,803,520) (2,724,265) (26,776,295) (18,576,002)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 1,697,550 4,791,645 116,357,690 9,951,128
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 35,259,799 7,981,135 183,569,466 9,951,146
NET ASSETS:
Beginning of year................................ 188,610,481 17,291,043 224,131,751 3,542,655
- -------------------------------------------------------------------------------------------------------------
END OF YEAR*..................................... $223,870,280 $25,272,178 $407,701,217 $ 13,493,801
- -------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:.............................................. $6,032,308 $1,906,327 $1,757,481 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<pg$pcn>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund
and Money Market Portfolio (formerly known as Cash Income Trust) (collectively,
"Fund(s)") are each a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment companies. Shares of the Funds are offered only to
insurance company separate accounts that fund certain variable annuity and
variable life insurance contracts.
The significant accounting policies consistently followed by the Funds are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported and U.S. government and agency
obligations are valued at the mean between the last reported bid and asked
prices or on the basis of quotations received from reputable brokers or other
recognized sources; (c) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates value;
(d) securities that have a maturity of 60 days or more are valued at prices
based on market quotations for securities of similar type, yield and maturity;
(e) interest income, adjusted for amortization of premium and accretion of
discount, is recorded on the accrual basis and dividend income is recorded on
the ex-dividend date; foreign dividends are recorded on the ex-dividend date or
as soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (f) gains or losses on
the sale of securities are calculated by using the specific identification
method; (g) dividends and distributions to shareholders are recorded on the
ex-dividend date; (h) the accounting records of the Fund are maintained in U.S.
dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars on the date of valuation. Purchases and sales of
securities and income and expenses are translated at the rate of exchange quoted
on the respective date that such transactions are recorded. Differences between
income and expense amounts recorded and collected or paid are adjusted when
reported by the custodian; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the capital accounts of the Managed Assets Trust,
High Yield Bond Trust and Capital Appreciation Fund to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, for the High Yield Bond Trust, a portion of
accumulated net realized loss amounting to $818,671 was reclassified to paid-in
capital. In addition, for the Capital Appreciation Fund, a portion of
accumulated net realized gain amounting to $144 was reclassified to paid-in
capital. Net investment income, net realized gains and net assets were not
affected by this change; (j) the Funds intend to comply with the requirements of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; and (k)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
2. DIVIDENDS
Money Market Portfolio 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 Money Market Portfolio ("MMP"). MAT, CAF
and MMP 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
$250,000,000 of its average daily net assets. This fee is calculated daily and
paid monthly.
TAMIC has a sub-advisory agreement with The Travelers Investment Management
Company, Inc. ("TIMCO"), an indirect wholly owned subsidiary of Travelers Group
Inc. Pursuant to the sub-advisory agreement, TIMCO is responsible for the
day-to-day portfolio operations and investment decisions for MAT. As a result,
TAMIC pays TIMCO, as sub-advisor, 0.25% of the average daily net assets of MAT.
31
<pg$pcn>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TAMIC also has a sub-advisory agreement with Janus Capital Corporation
("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the
day-to-day portfolio operations and investment decisions for CAF. As a result,
TAMIC pays Janus, as sub-advisor, 0.55% of the average daily net assets of CAF.
Travelers Insurance Company ("Travelers Insurance") acts as administrator
to the Funds. The Funds pay Travelers Insurance an administration fee calculated
at an annual rate of 0.06% of its average daily net assets. Travelers Insurance
has entered into a sub-administrative services agreement with Mutual Management
Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH").
Travelers Insurance pays MMC, as sub-administrator, a fee calculated at an
annual rate of 0.06% for the average daily net assets of each Fund. This fee is
calculated daily and paid monthly.
Brokerage commissions of $234,787 were received from affiliated brokers.
One Trustee and all officers of the Funds are employees of Travelers Group
Inc., or its subsidiaries.
4. INVESTMENTS
During the six months ended June 30, 1998, 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................................................... $84,503,638 $19,408,755 $157,188,420
- ------------------------------------------------------------------------------------------------------
Sales....................................................... 80,330,912 22,448,922 87,468,459
- ------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1998, 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............................... $63,102,985 $717,624 $221,767,259
Gross unrealized depreciation............................... (1,435,162) (163,558) (2,975,186)
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation................................. $61,667,823 $554,066 $218,792,073
- --------------------------------------------------------------------------------------------------------
</TABLE>
5. REPURCHASE AGREEMENTS
The Funds purchase (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Funds require continual maintenance
of the market value of the collateral in amounts at least equal to 102% of the
repurchase price.
6. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Funds' basis in the contract.
The Funds enter into such contracts to hedge portions of their respective
portfolios. The Funds bear the market risk that arises from changes in the value
of the financial instruments and securities indices (futures contracts).
At June 30, 1998, MAT had sold 12 financial futures contracts on the
Standard & Poor's 500 Index expiring in September 1998. The basis value of such
contracts was $3,320,411. The market value of such contracts on June 30, 1998
was $3,429,000, resulting in an unrealized loss of $108,589.
32
<pg$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.
At June 30, 1998, the Funds had no open purchased call or put options
contracts.
8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in GNMA/FNMA transactions. Securities purchased on
a TBA basis are not settled until they are delivered to the Funds, normally 15
to 45 days later. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other securities.
At June 30, 1998, MAT held no TBA securities.
9. CAPITAL LOSS CARRYFORWARD
At December 31, 1997, HYBT had, for Federal income tax purposes,
approximately $3,281,000 of capital loss carryforwards available to offset
future capital gains. To the extent that these carryforward losses can be used
to offset realized capital gains, it is probable that such gains will not be
distributed. The amount and expiration of the carryforwards are indicated below.
Expiration occurs on December 31 of the year indicated:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2004
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carryforward Amounts............... $1,970,000 $748,000 $48,000 $134,000 $38,000 $343,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
10. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in U.S. companies and the U.S. Government. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. Government.
33
<pg$pcn>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------
MANAGED ASSETS TRUST
<S> <C> <C>
Shares sold................................................. 381,050 430,658
Shares issued on reinvestment............................... 921,868 364,705
Shares redeemed............................................. (299,168) (707,124)
- --------------------------------------------------------------------------------------------------
Net Increase................................................ 1,003,750 88,239
- --------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
Shares sold................................................. 426,825 811,252
Shares issued on reinvestment............................... 196,339 1,591
Shares redeemed............................................. (199,218) (294,426)
- --------------------------------------------------------------------------------------------------
Net Increase................................................ 423,946 518,417
- --------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
Shares sold................................................. 1,297,007 3,339,655
Shares issued on reinvestment............................... 292,021 59
Shares redeemed............................................. (71,670) (642,619)
- --------------------------------------------------------------------------------------------------
Net Increase................................................ 1,517,358 2,697,095
- --------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Shares sold................................................. 45,413,437 28,240,251
Shares issued on reinvestment............................... 546,429 286,879
Shares redeemed............................................. (32,242,335) (18,576,002)
- --------------------------------------------------------------------------------------------------
Net Increase................................................ 13,717,531 9,951,128
- --------------------------------------------------------------------------------------------------
</TABLE>
34
<pg$pcn>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 1998(1) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $17.65 $14.98 $15.50 $12.85 $14.21 $14.02
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................ 0.20 0.48 0.46 0.49 0.46 0.51
Net realized and unrealized gain
(loss)............................ 2.05 2.70 1.50 2.83 (0.73) 0.72
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.... 2.25 3.18 1.96 3.32 (0.27) 1.23
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income................ (0.47) (0.12) (0.89) (0.50) (0.67) (0.85)
Net realized gains................... (0.87) (0.39) (1.59) (0.17) (0.42) (0.19)
- -----------------------------------------------------------------------------------------------------------------
Total Distributions.................... (1.34) (0.51) (2.48) (0.67) (1.09) (1.04)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......... $18.56 $17.65 $14.98 $15.50 $12.85 $14.21
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................... 12.76%++ 21.31% 13.78% 27.12% (2.24)% 9.33%
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)...... $254,044 $223,870 $188,610 $171,276 $140,887 $156,767
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)......................... 0.64%+ 0.63% 0.58% 0.58% 0.61% 0.56%
Net investment income................ 2.34+ 2.91 3.51 3.49 3.59 3.65
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................ 34% 90% 108% 110% 97% 86%
- -----------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARES PAID ON
EQUITY TRANSACTIONS (4).............. $0.06 $0.05 $0.06 -- -- --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 1998(1) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $9.89 $8.49 $9.00 $8.49 $9.25 $8.91
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................ 0.33 0.76 0.91 0.80 0.66 0.68
Net realized and unrealized gain
(loss)............................ 0.18 0.65 0.41 0.41 (0.76) 0.47
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.... 0.51 1.41 1.32 1.21 (0.10) 1.15
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income................ (0.68) (0.01) (1.83) (0.70) (0.66) (0.81)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......... $9.72 $9.89 $8.49 $9.00 $8.49 $9.25
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................... 5.15%++ 16.56% 16.05% 15.47% (1.26)% 14.01%
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)...... $28,958 $25,272 $17,291 $12,902 $11,716 $12,765
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (5)......................... 0.78%+ 0.84% 0.97% 1.25% 1.25% 0.99%
Net investment income................ 8.56+ 9.04 11.01 9.37 7.71 7.69
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................ 88% 137% 84% 222% 146% 19%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(3) The ratio of expenses to average net assets for 1993 reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratio of expenses to
average net assets would have been 0.60% for the year ended December 31,
1993.
(4) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
(5) The ratio of expenses to average net assets reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 1.28%, 1.33% and 1.31%, for the years
ended December 31, 1995, 1994 and 1993, respectively.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
35
<pg$pcn>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1998(1) 1997 1996 1995 1994 1993(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $46.32 $36.72 $33.18 $24.50 $25.87 $22.72
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............ 0.02 0.19 0.23 0.24 0.19 0.19
Net realized and unrealized gain
(loss)........................ 13.87 9.41 8.49 8.61 (1.41) 3.21
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations....................... 13.89 9.60 8.72 8.85 (1.22) 3.40
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income............ (0.18) -- (0.41) (0.17) (0.15) (0.25)
Net realized gains............... (1.53) (0.00)* (4.77) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions................ (1.71) (0.00)* (5.18) (0.17) (0.15) (0.25)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $58.50 $46.32 $36.72 $33.18 $24.50 $25.87
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................... 29.99%++ 26.14% 28.21% 36.37% (4.76)% 15.09%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $603,658 $407,701 $224,132 $122,155 $78,494 $62,414
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)..................... 0.83%+ 0.84% 0.83% 0.85% 0.89% 0.87%
Net investment income............ 0.17+ 0.54 0.69 0.84 0.79 0.81
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............ 19% 89% 84% 124% 106% 155%
- -------------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (5)....... $0.06 $0.07 $0.06 -- -- --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO 1998(1) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<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 (4).......... 0.0203 0.049 0.0412 0.0417 0.0278 0.0214
Distributions from net investment
income.......................... (0.0203) (0.049) (0.0412) (0.0417) (0.0278) (0.0214)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD....... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................... 2.56%++ 5.03% 4.20% 4.17% 2.78% 2.14%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S).... $27,211 $13,494 $3,543 $1,417 $1,203 $647
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (6)(7).................... 0.58%+ 0.57% 0.78% 1.25% 1.25% 0.94%
Net investment income.............. 4.89+ 5.03 3.72 -- -- --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1998 (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 reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratio of expenses to
average net assets would have been 0.96% for the year ended December 31,
1993.
(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 Money Market Portfolio for $31,300 and $43,376 in
expenses for the years ended December 31, 1997 and December 31, 1996,
respectively. If expenses were not reimbursed, the per share decreases of
net investment income would have been $0.002 and $0.02, respectively, and
the actual expense ratios would have been 1.39% and 1.71%, respectively.
(7) The ratio of expenses to average net assets for 1995-1993 reflects an
expense reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratios of expenses to
average net assets would have been 7.37%, 6.40% and 8.47% for the years
ended December 31, 1995, 1994 and 1993, respectively.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
36
<pg$pcn>
THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
U.S. Government Securities Portfolio ("Portfolio") seeks to select investments
from the point of view of an investor concerned primarily with highest credit
quality, current income and total return. The assets of the Portfolio will be
invested in direct obligations of the United States, its agencies and
instrumentalities. For the six months ended June 30, 1998, the Portfolio had a
total return of 4.95%, which was above its Lipper Analytical Services, Inc. peer
group total return average of 3.27%. (Lipper is an independent fund-tracking
organization.) As of June 30, 1998, the composition of assets was roughly 79% in
mortgage-backed securities and approximately 21% in U.S. Government securities.
During the reporting period, two distinct themes dominated bond markets: ongoing
economic turmoil in Asia and steady U.S. economic growth with low inflation.
Both of these developments have provided quite favorable conditions for bonds
and helped send U.S. interest rates to historical lows.
As you can see from the chart below, interest rates have continued to decline
during the past six months:
<TABLE>
<CAPTION>
12/31/97 6/30/98
-------- -------
<S> <C> <C>
90-Day U.S. Treasury Bill................................... 5.34% 5.09%
2-Year U.S. Treasury Note................................... 5.64 5.47
5-Year U.S. Treasury Note................................... 5.70 5.46
10-Year U.S. Treasury Bond.................................. 5.74 5.45
30-Year U.S. Treasury Bond.................................. 5.92 5.62
</TABLE>
It has been more than a year since the first signs of trouble in Asian began to
surface and, so far, no clear resolution has emerged. The U.S. dollar has
strengthened considerably in response to weakening economies in the region, and
as the crisis drags on, fears of another round of currency devaluations has
heightened. Moreover, major Asian banks could soon find themselves enveloped in
a crisis of their own as they face mounting numbers of non-performing loans.
One result of the Asian crisis has been a flight of capital to U.S. financial
markets as many investors sought out a "safe haven" from the tumult surrounding
many global markets. The manager believes that foreign investors, whose holdings
of U.S. Treasury securities have nearly doubled in the last three years, have
been attracted to Treasurys because of a strong U.S. dollar as well as the
competitive yields that they currently offer.
In addition, a robust U.S. economy has dramatically increased tax receipts,
enabling government officials to project a federal budget surplus for the first
time in years and reducing the need for federal borrowing. Issuance of U.S.
Treasury securities in 1998 is expected to be substantially less than in 1997
and auctions of 3-year U.S. Treasury notes have been eliminated all together.
This decreased supply combined with a burgeoning demand has helped sustain a
U.S. Treasury market rally, driving the yield on the benchmark 30-year U.S.
Treasury bond to new historic lows.
For its part, the Federal Reserve Board ("Fed") has chosen to remain on the
sidelines. At its meetings in March 1998 and May 1998, the Federal Open Market
Committee ("FOMC"), the Fed's policy-making panel, elected to leave short-term
interest rates unchanged. However, the FOMC did indicate a bias toward
tightening monetary policy on fears that persistent strength in the U.S. economy
would soon lead to a pick-up in inflationary pressures. The FOMC also ended its
July 1998 meeting without action but has not yet released details of its
decision.
Looking ahead, the manager views the U.S. bond market as very attractive. With
currently low interest rates and mortgage prepayments at their highest since
1993, some would argue that interest rates should not decline further. There is
evidence that suggests interest rates could drop even more. Real interest rates
(the interest rate after subtracting the effects of inflation) are approaching
4% compared to a historical norm of 2.75%. The manager anticipates that by
year's end the 30-year U.S. Treasury bond could yield as low as 5% and
short-term rates could reach 4% within a year.
Moreover, there are a number of reasons to expect a slowdown in U.S. economic
growth, therefore diminishing the threat of higher inflation. The manager
believes that the U.S. has yet to feel the full impact of the Asian crisis and
the accompanying narrowing of corporate profit margins. In addition, we do not
believe that business investment and home building can sustain their recent
energetic pace. For all of the above reasons, the manager remains very positive
on the prospects for U.S. government agency securities.
SOCIAL AWARENESS STOCK PORTFOLIO
The Social Awareness Stock Portfolio ("Portfolio") seeks long-term capital
appreciation and retention of net investment income by selecting investments,
primarily common stocks, that meet the social criteria established for the
Portfolio. The
37
<pg$pcn>
THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
Portfolio's social criteria currently excludes companies that derive a
significant portion of their revenues from the production of tobacco, tobacco
products, alcohol, or military defense related services or gambling services.
For the six months ended June 30, 1998, the Portfolio returned 18.80% and did
better than the S&P 500, which posted a total return of 17.72% for the same
period.
The second quarter of 1998 provided very mixed results in the stock market,
depending on where you looked to identify performance. The S&P 500, a
traditional measure of the market, rose 2.9%, but the Index's performance was
significantly influenced by the larger companies that dominate the Index. When
viewed on a basis that gives equal weight to all companies, the same 500 stocks
showed a decline in price of 1.3%.
For the year-to-date, the equal weight S&P 500 underperformed the size-weighted
S&P 500 by 550 basis points (about 12.1% versus roughly 17.6%) and the small-
and mid-sized companies did even worse (about 6% to approximately 9%). (A basis
point is one-one hundredth of a percent.) Approximately 60% of industry groups
fell short of the S&P 500 Index's performance during the most recent three
months of the reporting period. As a general rule, the Portfolio's manager would
have wanted to own big, growth, long bonds, retailers, computers and healthcare.
Within that environment, their Portfolio performed quite well.
For the first half, the Portfolio exceeded all of these market measures,
providing an 18.80% return, despite maintaining about 10% cash reserves. In
examining these results, the managers estimate that some 60% can be attributable
to the economic sector emphasis that they adopted in the Portfolio, with the
remaining 40% associated with their specific stock selection within those
sectors. The portfolio managers were relatively active on a transactional basis
during the first half of the year, making in excess of 70 individual trades.
After eliminating partial actions, 13 new positions were established, 23
enlarged, 7 eliminated and 5 reduced. In total, the managers were a net buyer of
about $4 million in stock. Their new purchases were broadly diversified and
included energy, consumer, insurance, technology, transportation, REITs,
restaurants, agriculture, health care and education.
At quarter end, they held a total of 82 individual stocks, with an overweighting
in consumer cyclical and transportation. The managers continue to de-emphasize
the capital goods, communication service and energy sectors. The quality grade
of their stock portfolio averages around an S&P A-, with a market beta of 0.97.
(Beta is a measure of a security's volatility relative to the rest of the
market. The S&P 500 has a beta of one. A higher beta figure indicates a security
that is more volatile than the market and a security with a beta figure less
than one is less volatile than the market.) The average market capitalization of
their stocks was $31 billion. The managers expect that their strategy during the
second half of the year will emphasize internal portfolio adjustments, rather
than any major asset allocation shift. Nonetheless, if the market were to
provide some downside volatility without significant deterioration in the
underlying fundamental investment conditions, they believe that they possess the
flexibility to increase their equity allocation by another 10%.
UTILITIES PORTFOLIO
The Utilities Portfolio ("Portfolio") seeks to provide current income by
investing in equity and debt securities of companies in the utility industries.
For the six months ended June 30, 1998, the Portfolio had a total return of
8.10%. In comparison, the Lipper Analytical Services, Inc. peer group total
return average was 7.62%. (Lipper is an independent fund-tracking organization.)
During the first half of 1998, the utility industry continued to go up with
several of the major indices reaching all-time highs. The Portfolio's positive
performance was a result of a favorable interest rates, attractive relative
valuations of the electric utility group when compared to the overall stock
market and a continuation of improving regulatory reforms within the utility
industry. The transition to a more competitive electric industry continued to
evolve with several additional companies creating long-range plans to focus on
one sector (generation or distribution) of the industry instead of the
traditional fully integrated model. This creates additional opportunities for
investors as the managers expect a less homogeneous group and variance in
performance of individual companies. The utility sector should become less
focused on income and more on total investment return.
The managers remain positive on the utility sector as a balance to a diversified
investment portfolio. They expect overall economic growth to slow in the second
half of 1998 which should provide a positive environment for utilities bonds.
Moreover, any increase in stock market volatility could shift investment capital
to more defensive sectors such as utilities. Their portfolio focus emphasizes
quality companies with a strong financial position and special situations where
management has begun to implement a strategic plan for future growth.
38
<pg$pcn>
THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
The Portfolio's asset allocation is 89% stocks, 5% bonds and 6% cash. The common
stock sector consists of 55% electric utilities, 18% natural gas and 14%
telecommunications/media. New additions included MDU Resources, Montana Power,
Peco Energy, Public Service Enterprises and National Fuel Gas. The Portfolio's
managers have sold their holdings of Central and Southwest Corporation, Long
Island Lighting and French Telecom.
In closing, we thank you for your investment in The Travelers Series Trust. We
look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. McLENDON
Heath B. McLendon
Chairman
July 26, 1998
39
<pg$pcn>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 6/30/98
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
<S> <C>
Six Months Ended 6/30/98+ 4.95%
Year Ended 6/30/98 14.60%
Five Years Ended 6/30/98 7.51%
1/24/92* through 6/30/98 8.22%
CUMULATIVE TOTAL RETURN
----------------------------------------------
1/24/92* through 6/30/98 66.30%
+ 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, assuming reinvestment of dividends, through June 30,
1998. The Lehman Government Bond Index is a broad-based Index of
all public debt obligations of the U.S. Government and its agencies
and has an average maturity of nine years. The Consumer Price Index
is a measure of the average change in prices over time in a fixed
market basket of goods and services.
<TABLE>
<CAPTION>
Lehman
Measurement Period U.S. Government Consumer
(Fiscal Year Covered) Government Bond Index Price Index
<S> <C> <C> <C>
1/24/92 $ 10000 $ 10000 $ 10000
Dec-92 10790 10723 10275
Dec-93 11813 11866 10557
Dec-94 11147 11464 10840
Dec-95 13869 13567 11115
Dec-96 14077 13943 11484
Dec-97 15846 15280 11679
Jun-98 16630 15919 11801
</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 6/30/98
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
<S> <C>
Six Months Ended 6/30/98 18.80%
Year Ended 6/30/98 29.65%
Five Years Ended 6/30/98 19.77%
5/1/92* through 6/30/98 17.98%
CUMULATIVE TOTAL RETURN
----------------------------------------------
5/1/92* through 6/30/98 177.31%
+ 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, 1998.
The Standard & Poor's 500 Index is an unmanaged index composed of
500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and the over-the-counter market.
The Consumer Price Index is a measure of the average change in
prices over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Social
Awareness Standard &
Measurement Period Stock Poor's 500 Consumer
(Fiscal Year Covered) Portfolio Index Price Index
<S> <C> <C> <C>
5/1/92 $ 10000 $ 10000 $ 10000
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
Dec-97 23343 23789 11545
Jun-98 27731 28004 11666
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
40
<pg$pcn>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 6/30/98 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
<S> <C>
Six Months Ended 6/30/98+ 8.10%
Year Ended 6/30/98 30.01%
2/4/94* through 6/30/98 16.82%
CUMULATIVE TOTAL RETURN
----------------------------------------------
2/4/94* through 6/30/98 98.25%
+ 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
February 4, 1994, assuming reinvestment of dividends, through June
30, 1998. Standard & Poor's 500 Index is an unmanaged index
composed of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange and over-the-counter
market. The Consumer Price Index is a measure of the average change
in prices over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Standard &
Measurement Period Utilities Poor's 500 Consumer
(Fiscal Year Covered) Portfolio Index Price Index
<S> <C> <C> <C>
2/4/94 $ 10000 $ 10000 $ 10000
Dec-94 10170 10072 10205
Dec-95 13149 13852 10464
Dec-96 14638 17031 10811
Dec-97 18340 22712 10995
Jun-98 19825 26737 11110
</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.
41
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1998
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 92.7%
<C> <S> <C>
U.S. Treasury Bonds:
$3,500,000 8.125% due 8/15/19.......................................... $ 5,158,600
4,500,000 7.500% due 11/15/24......................................... 5,583,375
4,000,000 6.125% due 11/15/27......................................... 3,752,455
2,888,725 FHLMC Certificates, 6.500% due 12/1/27@..................... 2,886,995
FNMA Certificates:
1,984,664 6.500% due 3/1/13@.......................................... 1,997,830
2,973,885 6.500% due 12/1/27.......................................... 2,980,588
5,021,444 7.000% due 5/1/28@.......................................... 5,108,869
GNMA Certificates:
2,512,159 9.000% due 9/15/09@......................................... 2,715,468
1,017,054 8.500% due 7/15/18@......................................... 1,089,194
2,016,637 6.000% due 4/20/28.......................................... 1,971,263
3,951,324 6.500% due 4/15/28.......................................... 3,945,121
4,000,000 Tennessee Valley Authority Debenture, 6.250% due 12/15/17... 4,140,000
- --------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $40,186,162)....................................... 41,329,758
- --------------------------------------------------------------------------------------
<CAPTION>
REPURCHASE AGREEMENT -- 7.3%
<C> <S> <C>
3,232,000 Citibank, 5.900% due 7/1/98; Proceeds at
maturity -- $3,232,527; (Fully collateralized by U.S.
Treasury Notes, 5.500% due 5/31/2003 Market
value -- $3,285,000) (Cost -- $3,232,000)................... 3,232,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $43,418,162*)............ $44,561,758
- --------------------------------------------------------------------------------------
</TABLE>
@ Date shown represents last in range of maturity dates of mortgage certificates
owned.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
42
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 88.8%
- -----------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 3.6%
4,000 Air Products & Chemicals, Inc. ............................. $ 160,000
3,500 Aluminum Co. of America..................................... 230,781
15,000 Engelhard Corp. ............................................ 303,750
8,000 Praxair, Inc. .............................................. 374,500
- -----------------------------------------------------------------------------------------------------
1,069,031
- -----------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 4.3%
4,500 Belden, Inc. ............................................... 137,812
5,000 Deere & Co. ................................................ 264,375
4,600 Philips Electronics N.V..................................... 391,000
4,000 Pitney Bowes, Inc. ......................................... 192,500
11,000 US Filter Corp.++........................................... 308,688
- -----------------------------------------------------------------------------------------------------
1,294,375
- -----------------------------------------------------------------------------------------------------
COMMUNICATION -- 1.9%
6,300 MCI Communications Corp. ................................... 366,187
4,000 WorldCom, Inc.++............................................ 193,750
- -----------------------------------------------------------------------------------------------------
559,937
- -----------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 14.6%
5,000 Black & Decker Corp. ....................................... 305,000
9,375 Dollar General Corp. ....................................... 370,898
4,350 Home Depot, Inc. ........................................... 361,322
11,000 Kaufman and Broad Home Corp. ............................... 349,250
7,000 Liz Claiborne, Inc. ........................................ 365,750
15,000 Lowe's Cos., Inc. .......................................... 608,438
8,000 May Department Stores....................................... 524,000
13,800 Staples, Inc.++............................................. 399,338
12,000 Sylvan Learning Systems, Inc.++............................. 393,000
4,000 Toys "R" Us, Inc.++......................................... 94,250
3,800 Tribune Co. ................................................ 261,488
5,800 Wal-Mart Stores, Inc. ...................................... 352,350
- -----------------------------------------------------------------------------------------------------
4,385,084
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 11.2%
9,400 American Stores Co. ........................................ 227,362
18,000 Brinker International, Inc.++............................... 346,500
4,000 Gillette Co. ............................................... 226,750
8,700 Kroger Co.++................................................ 373,012
6,800 Newell Co. ................................................. 338,725
4,800 PepsiCo, Inc. .............................................. 197,700
9,200 Rite Aid Corp. ............................................. 345,575
19,200 Sysco Corp. ................................................ 492,000
480 Tricon Global Restaurants, Inc.++........................... 15,210
4,000 Unilever N. V............................................... 315,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 11.2% (CONTINUED)
<C> <S> <C>
1,600 Walt Disney Co. ............................................ $ 168,100
14,000 Wendy's International, Inc. ................................ 329,000
- -----------------------------------------------------------------------------------------------------
3,375,684
- -----------------------------------------------------------------------------------------------------
ENERGY -- 2.7%
3,300 Anadarko Petroleum Corp. ................................... 221,719
4,300 British Petroleum Co. PLC................................... 379,475
2,500 Western Atlas Inc.++........................................ 212,188
- -----------------------------------------------------------------------------------------------------
813,382
- -----------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 18.9%
4,000 Allstate Corp. ............................................. 366,250
3,500 Amercian Express Co. ....................................... 399,000
1,875 American International Group Inc. .......................... 273,750
4,000 Associates First Capital Corp. ............................. 307,500
5,400 BankBoston Corp. ........................................... 300,375
7,600 Chase Manhattan Corp. ...................................... 573,800
1,800 Citicorp.................................................... 268,650
8,000 Freddie Mac................................................. 376,500
3,000 H. F. Ahmanson & Co. ....................................... 213,000
10,000 IndyMac Mortgage Holdings, Inc. ............................ 227,500
3,500 Lincoln National Corp. ..................................... 319,813
7,962 NationsBank Corp. .......................................... 609,093
9,000 Provident Cos., Inc. ....................................... 310,500
8,000 St. Paul Co., Inc. ......................................... 336,500
6,800 State Street Corp. ......................................... 472,600
3,000 Transamerica Corp. ......................................... 345,375
- -----------------------------------------------------------------------------------------------------
5,700,206
- -----------------------------------------------------------------------------------------------------
HEALTHCARE -- 10.3%
6,200 Amgen Inc. ................................................. 405,325
12,000 DENTSPLY International, Inc. ............................... 300,000
5,600 Johnson & Johnson........................................... 413,000
3,300 Merck & Co., Inc. .......................................... 441,375
10,000 Mylan Laboratories Inc. .................................... 300,625
2,400 Pfizer, Inc. ............................................... 260,850
4,400 Schering-Plough Corp. ...................................... 403,150
7,200 Stryker Corp. .............................................. 276,300
10,000 Tenet Healthcare Corp.++.................................... 312,500
- -----------------------------------------------------------------------------------------------------
3,113,125
- -----------------------------------------------------------------------------------------------------
TECHNOLOGY -- 14.6%
10,000 Anixter International Inc.++................................ 190,625
4,300 Automatic Data Processing, Inc. ............................ 313,363
625 Caliber Learning Network, Inc............................... 9,609
6,900 Cisco Systems Inc.++........................................ 635,231
12,500 Compaq Computer Corp. ...................................... 354,687
6,700 Computer Associates International........................... 372,269
14,000 EMC Corp.++................................................. 627,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
TECHNOLOGY -- 14.6% (CONTINUED)
<C> <S> <C>
1,700 Intel Corp. ................................................ $ 126,012
4,400 International Business Machines Corp. ...................... 505,175
5,200 Lucent Technologies Corp. .................................. 432,575
2,200 Motorola Inc. .............................................. 115,637
4,000 Sun Microsystems Inc.++..................................... 173,750
5,400 Xerox Corp. ................................................ 548,775
- -----------------------------------------------------------------------------------------------------
4,405,083
- -----------------------------------------------------------------------------------------------------
TRANSPORTATION -- 3.3%
6,750 Mesaba Holdings, Inc.++..................................... 155,250
4,200 Norfolk Southern Corp. ..................................... 125,213
7,950 Southwest Airlines.......................................... 235,519
15,000 USFreightways Corp. ........................................ 492,656
- -----------------------------------------------------------------------------------------------------
1,008,638
- -----------------------------------------------------------------------------------------------------
UTILITIES -- 3.4%
10,000 Enron Corp. ................................................ 540,625
14,700 Williams Cos., Inc. ........................................ 496,125
- -----------------------------------------------------------------------------------------------------
1,036,750
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $17,696,336).................... 26,761,295
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 11.2%
<C> <S> <C>
$3,381,000 Citibank, 5.90% due 7/1/98; Proceeds at
maturity -- $3,381,552; (Fully collaterized by U.S. Treasury
Notes, 5.750% due 2/15/01; Market value -- $3,455,250)
(Cost -- $3,381,000)........................................ 3,381,000
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $21,077,336*)............ $30,142,295
- -----------------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
COMMON STOCK -- 88.8%
- ------------------------------------------------------------------------------------------
ELECTRIC-UTILITY -- 55.2%
<C> <S> <C>
11,000 American Electric Power Co., Inc. .......................... $ 499,125
15,000 BEC Energy.................................................. 622,500
15,000 Cinergy Corp. .............................................. 525,000
20,225 Citizens Utilities Co., Class B Shares++.................... 194,666
15,000 CMS Energy Corp. ........................................... 660,000
15,000 DQE, Inc. .................................................. 540,000
15,000 Duke Energy Corp. .......................................... 888,750
20,000 Edison International........................................ 591,250
10,000 Endesa, Sponsored ADR....................................... 216,250
20,000 Florida Progress Corp. ..................................... 822,500
10,000 FPL Group, Inc. ............................................ 630,000
10,000 Houston Industries Inc. .................................... 308,750
9,500 Illinova Corp. ............................................. 285,000
12,000 LG&E Energy Corp. .......................................... 324,750
10,000 MDU Resources Group, Inc. .................................. 356,875
10,000 New Century Energies, Inc. ................................. 454,375
20,000 Niagara Mohawk Power Corp.++................................ 298,750
20,000 NIPSCO Industries, Inc. .................................... 560,000
20,000 Northern States Power Co.................................... 572,500
10,000 PacifiCorp.................................................. 226,250
25,000 PECO Energy Co.............................................. 729,688
6,600 Pinnacle West Capital Corp. ................................ 297,000
10,000 Public Services Enterprise Group Inc. ...................... 344,375
15,000 SCANA Corp. ................................................ 447,188
15,000 Sierra Pacific Resources.................................... 544,688
15,000 Southern Co. ............................................... 415,312
20,000 Texas Utilities Co.......................................... 832,500
15,000 Montana Power Co............................................ 521,250
12,000 UtiliCorp United, Inc. ..................................... 452,250
- ------------------------------------------------------------------------------------------
14,161,542
- ------------------------------------------------------------------------------------------
ELECTRONICS -- 1.8%
10,000 General Motors Corp., Class H (Hughes Electronics).......... 471,250
- ------------------------------------------------------------------------------------------
NATURAL GAS -- 17.9%
8,000 Coastal Corp. .............................................. 558,500
10,000 Consolidated Natural Gas Co................................. 588,750
24,000 Energen Corp. .............................................. 483,000
10,000 K N Energy, Inc. ........................................... 541,875
15,000 MCN Energy Group Inc. ...................................... 373,125
15,000 National Fuel Gas Co........................................ 653,437
22,557 Sempra Energy............................................... 625,956
10,000 Southwest Gas Corp. ........................................ 244,375
15,000 Williams Cos., Inc. ........................................ 506,250
- ------------------------------------------------------------------------------------------
4,575,268
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<pg$pcn>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1998
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
TELEPHONE -- 13.9%
<C> <S> <C>
10,000 GTE Corp. .................................................. $ 556,250
8,000 NEXTLINK Communications Inc., Class A Shares++.............. 303,000
6,000 Qwest Communication Intl. Inc.++............................ 209,250
10,000 SBC Communications Inc. .................................... 400,000
9,000 Teleport Communications Group Inc., Class A Shares.......... 488,250
20,000 US West Media Group++....................................... 878,750
15,000 WorldCom, Inc. ............................................. 726,562
- ------------------------------------------------------------------------------------------
3,562,062
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $17,597,445).................... 22,770,122
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------
CORPORATE BONDS -- 2.6%
- ------------------------------------------------------------------------------------------
ELECTRIC-UTILITY -- 1.6%
<C> <S> <C>
$200,000 Arizona Public Service Co., 7.25% due 8/1/23................ 200,750
200,000 Philadelphia Electric, 8.75% due 4/1/22..................... 211,500
- ------------------------------------------------------------------------------------------
412,250
- ------------------------------------------------------------------------------------------
TELEPHONE -- 1.0%
230,000 MCI Communication Corp., 7.75% due 3/23/25.................. 244,375
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $606,280).................... 656,625
- ------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATION -- 2.0%
500,000 U.S Treasury Notes, 7.70% due 11/30/99 (Cost -- $499,898)... 514,990
- ------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $18,703,623)................. 23,941,737
- ------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.6%
1,690,000 Citibank, 5.09% due 7/1/98; Proceeds at
maturity -- $1,690,277; (Fully collateralized by U.S.
Treasury Notes, 5.375% due 6/30/03; Market
value -- $1,740,000) (Cost -- $1,690,000)................... 1,690,000
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $20,393,623*)............ $ 25,631,737
- ------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments -- Cost.................................. $40,186,162 $17,696,336 $18,703,623
Repurchase agreement -- Cost......................... 3,232,000 3,381,000 1,690,000
- -------------------------------------------------------------------------------------------------------------
Investments, at Value................................ $41,329,758 $26,761,295 $23,941,737
Repurchase agreement, at Value....................... 3,232,000 3,381,000 1,690,000
Cash................................................. 25 168 854
Receivable from affiliate............................ -- 11,000 --
Dividends and interest receivable.................... 335,103 20,834 76,166
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................... 44,896,886 30,174,297 25,708,757
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable..................... 6,011 16,449 13,932
Administration fees payable.......................... 1,737 1,568 1,018
Accrued expenses..................................... 15,798 24,356 43,558
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................... 23,546 42,373 58,508
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $44,873,340 $30,131,924 $25,650,249
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital...................................... $41,811,880 $20,557,850 $18,966,663
Undistributed net investment income.................. 1,117,808 97,583 352,869
Accumulated net realized gain from security
transactions...................................... 800,056 411,532 1,092,603
Net unrealized appreciation of investments........... 1,143,596 9,064,959 5,238,114
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $44,873,340 $30,131,924 $25,650,249
- -------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING..................................... 3,673,277 1,294,473 1,632,592
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................. $12.22 $23.28 $15.71
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................ $1,207,668 $ 85,505 $ 82,140
Dividends............................................... -- 125,690 378,990
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................. 1,207,668 211,195 461,130
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)....................... 63,756 84,143 76,738
Administration fees (Note 2)............................ 11,832 7,767 7,083
Audit and legal......................................... 7,000 11,282 10,745
Pricing fees............................................ 2,132 -- --
Custody................................................. 1,800 2,480 1,722
Shareholder communications.............................. 1,700 1,884 6,429
Shareholder and system servicing fees................... 1,693 3,674 3,798
Trustees' fees.......................................... -- 744 1,791
Other................................................... -- 1,638 --
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................... 89,913 113,612 108,306
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................... 1,117,755 97,583 352,824
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales.................................. 38,140,797 1,856,484 6,920,934
Cost of securities sold.............................. 36,803,474 1,433,938 5,828,446
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN....................................... 1,337,323 422,546 1,092,488
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period.................................. 1,707,052 5,325,740 4,788,605
End of period........................................ 1,143,596 9,064,959 5,238,114
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION...... (563,456) 3,739,219 449,509
- -------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS................................... 773,867 4,161,765 1,541,997
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... $1,891,622 $4,259,348 $1,894,821
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 1,117,755 $ 97,583 $ 352,824
Net realized gain................................ 1,337,323 422,546 1,092,488
Increase (decrease) in net unrealized
appreciation.................................. (563,456) 3,739,219 449,509
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 1,891,622 4,259,348 1,894,821
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ (23,805) (156,049) (643,885)
Net realized gains............................... -- (535,746) (609,017)
- -------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (23,805) (691,795) (1,252,902)
- -------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares................. 13,823,677 5,881,047 3,691,633
Net asset value of shares issued for reinvestment
of dividends.................................. 23,805 691,728 1,252,902
Cost of shares reacquired........................ (6,121,402) (1,021,616) (1,349,261)
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 7,726,080 5,551,159 3,595,274
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 9,593,897 9,118,712 4,237,193
NET ASSETS:
Beginning of period.............................. 35,279,443 21,013,212 21,413,056
- -------------------------------------------------------------------------------------------------------
END OF PERIOD*................................... $44,873,340 $30,131,924 $25,650,249
- -------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:. $1,117,808 $97,583 $352,869
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<pg$pcn>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER
31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 1,693,404 $ 156,049 $ 643,930
Net realized gain................................ 195,243 535,769 631,548
Increase in net unrealized appreciation.......... 1,522,395 2,877,071 2,917,676
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 3,411,042 3,568,889 4,193,154
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ (1,694,724) -- (19,187)
Net realized gains............................... -- -- (8,193)
- -------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (1,694,724) -- (27,380)
- -------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares................. 11,415,299 8,734,543 4,576,098
Net asset value of shares issued for reinvestment
of dividends.................................. 1,694,724 -- 27,380
Cost of shares reacquired........................ (5,555,432) (2,330,215) (5,570,422)
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 7,554,591 6,404,328 (966,944)
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 9,270,909 9,973,217 3,198,830
NET ASSETS:
Beginning of year................................ 26,008,534 11,039,995 18,214,226
- -------------------------------------------------------------------------------------------------------
END OF YEAR*..................................... $35,279,443 $21,013,212 $21,413,056
- -------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:. $23,858 $156,049 $643,930
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<pg$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 16 other separate investment portfolios: Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated
Stock, Large Cap, Equity Income, Disciplined Mid Cap Stock (formerly known as
Mid Cap Disciplined Equity Fund), Convertible Bond, Strategic Stock, Disciplined
Small Cap Stock, MFS Mid Cap Growth, MFS Research, 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, or minus amortized premium, which approximates
value; (d) securities that have a maturity of 60 days or more are valued at
prices based on market quotations for securities of similar type, yield and
maturity; (e) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date; (f) gains or losses on the sale of securities
are calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the
Portfolios intend to comply with the requirements of the Internal Revenue Code
of 1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the capital accounts of the U.S. Government
Securities Portfolio, Social Awareness Stock Portfolio and Utilities Portfolio
to reflect permanent book/tax differences and income and gains available for
distribution under income tax regulations. Accordingly, for the U.S. Government
Securities Portfolio, a portion of accumulated net realized gains amounting to
$3,817 was reclassified to paid-in capital. In addition, for the Social
Awareness Stock Portfolio, a portion of accumulated net realized gains amounting
to 8,124 was reclassified to paid-in capital. Net investment income, net
realized gains and net assets for each Portfolio were not affected by these
changes; and (j) estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as investment manager and
advisor to the U.S. Government Securities Portfolio ("USGS"). USGS pays TAMIC an
investment management and advisory fee calculated at the annual rate of 0.3233%
of its average daily net assets. This fee is calculated daily and paid monthly.
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH") and an indirect wholly owned subsidiary of Travelers
Group Inc., acts as investment manager and advisor to the Social Awareness Stock
("SAS") and Utilities ("Utilities") Portfolios. SAS pays MMC an investment
management and advisory fee calculated at an annual rate of: 0.65% on the first
$50 million, 0.55% on the next $50 million, 0.45% on the next $100 million and
0.40% on amounts over $200 million of the average daily net assets. Utilities
pays MMC investment management and advisory fees calculated at an annual rate of
0.65% of the average daily net assets. These fees are calculated daily and paid
monthly.
52
<pg$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 MMC.
Travelers Insurance pays MMC, as sub-administrator, a fee calculated at an
annual rate of 0.06% of the average daily net assets of each Portfolio. This fee
is calculated daily and paid monthly.
One Trustee and all officers of the Trust are employees of Travelers Group
Inc., or its subsidiaries.
3. INVESTMENTS
During the six months ended June 30, 1998, 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................................................... $46,524,404 $ 5,842,277 $ 9,776,656
- -----------------------------------------------------------------------------------------------------
Sales....................................................... 38,140,797 1,856,484 6,920,934
- -----------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1998, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
USGS SAS UTILITIES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized appreciation............................... $1,143,596 $9,381,508 $5,420,227
Gross unrealized depreciation............................... -- (316,549) (182,113)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation................................. $1,143,596 $9,064,959 $5,238,114
- --------------------------------------------------------------------------------------------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes possession of) U.S.
Government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to 102% of the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Portfolios record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Portfolio's basis in the contract.
The Portfolios enter into such contracts to hedge portions of their
respective portfolios. The Portfolios bear the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts).
At June 30, 1998, the Portfolios had no open futures contracts.
53
<pg$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.
At June 30, 1998, the Portfolios had no open purchased call or put options
contracts.
7. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Portfolios may trade securities on a "to-be-announced" ("TBA") basis.
In a TBA transaction, the Portfolios commit to purchasing or selling securities
for which specific information is not yet known at the time of the trade,
particularly the face amount and maturity date in GNMA/FNMA transactions.
Securities purchased on a TBA basis are not settled until they are delivered to
the Portfolios, normally 15 to 45 days later. These transactions are subject to
market fluctuations and their current value is determined in the same manner as
for other securities.
At June 30, 1998, USGS held no TBA securities.
8. CAPITAL LOSS CARRYFORWARD
At December 31, 1997, U.S. Government Securities Portfolio had, for Federal
income tax purposes, approximately $513,000 of capital loss carryforwards
available to offset future capital gains through 2004. To the extent that these
carryforward losses are used to offset capital gains, it is probable that the
gains so offset will not be distributed.
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold................................................. 1,158,700 978,971
Shares issued on reinvestment............................... 1,971 145,971
Shares redeemed............................................. (514,502) (491,712)
- --------------------------------------------------------------------------------------------------
Net Increase................................................ 646,169 633,230
- --------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold................................................. 262,115 479,843
Shares issued on reinvestment............................... 29,867 --
Shares redeemed............................................. (44,919) (132,790)
- --------------------------------------------------------------------------------------------------
Net Increase................................................ 247,063 347,053
- --------------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO
Shares sold................................................. 236,599 341,896
Shares issued on reinvestment............................... 80,677 1,816
Shares redeemed............................................. (85,033) (433,506)
- --------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... 232,243 (89,794)
- --------------------------------------------------------------------------------------------------
</TABLE>
54
<pg$pcn>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1998(1) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $11.65 $10.86 $12.43 $10.58 $11.63 $10.79
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income..................... 0.30 0.58 0.68 0.65 0.60 0.57
Net realized and unrealized gain (loss)... 0.28 0.79 (0.52) 1.80 (1.23) 0.44
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......... 0.58 1.37 0.16 2.45 (0.63) 1.01
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income..................... (0.01) (0.58) (1.55) (0.60) (0.39) (0.17)
Net realized gains........................ -- -- (0.18) -- (0.03) --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions......................... (0.01) (0.58) (1.73) (0.60) (0.42) (0.17)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............. $12.22 $11.65 $10.86 $12.43 $10.58 $11.63
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN................................ 4.95%++ 12.62% 1.46% 24.42% (5.64)% 9.48%
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........... $44,873 $35,279 $26,009 $28,192 $24,522 $25,520
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (3).............................. 0.44%+ 0.49% 0.62% 0.56% 0.71% 0.58%
Net investment income..................... 5.47+ 6.10 5.68 5.80 5.56 5.04
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................... 99% 208% 501% 214% 16% 51%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 1998(1) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $20.06 $15.76 $14.32 $11.05 $11.64 $10.95
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (4)................. 0.05 0.15 0.31 0.12 0.16 0.17
Net realized and unrealized gain (loss)... 3.71 4.15 2.42 3.47 (0.45) 0.65
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......... 3.76 4.30 2.73 3.59 (0.29) 0.82
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income..................... (0.12) -- (0.43) (0.14) (0.24) (0.13)
Net realized gains........................ (0.42) -- (0.86) (0.18) (0.06) --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions......................... (0.54) -- (1.29) (0.32) (0.30) (0.13)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............. $23.28 $20.06 $15.76 $14.32 $11.05 $11.64
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN................................ 18.80%++ 27.28% 19.98% 33.37% (2.69)% 7.55%
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........... $30,132 $21,013 $11,040 $7,055 $3,879 $3,361
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)(5)........................... 0.88%+ 0.98% 1.25% 1.25% 1.25% 1.05%
Net investment income..................... 0.75+ 0.97 0.43 0.99 1.43 1.50
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................... 8% 19% 26% 73% 137% 60%
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (6)................ $0.06 $0.06 $0.06 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1998 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 ratio of expenses to average net assets for the year ended December 31,
1993 reflects an expense reimbursement by The Travelers in connection with
voluntary expense limitations. Without the expense reimbursement, the ratio
of expenses to average net assets would have been 0.77%.
(4) For the year ended December 31, 1996, The Travelers reimbursed the Portfolio
for $25,093 in expenses. If such fees were not waived and expenses not
reimbursed, the per share decrease of net investment income would have been
$0.06 and the actual expense ratio would have been 1.69%.
(5) The ratios of expenses to average net assets for the years ended December
31, 1995, 1994 and 1993 reflect an expense reimbursement by The Travelers in
connection with voluntary expense limitations. Without the expense
reimbursements, the ratios of expenses to average net assets would have been
1.75%, 3.34% and 3.73%, respectively.
(6) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
55
<pg$pcn>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO 1998(1) 1997 1996 1995 1994(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $15.29 $12.22 $12.85 $10.17 $10.00
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income................................ 0.18 0.46 0.47 0.48 0.35
Net realized and unrealized gain (loss).............. 1.05 2.63 0.47 2.44 (0.18)
- --------------------------------------------------------------------------------------------------------------------
Total Income From Operations........................... 1.23 3.09 0.94 2.92 0.17
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income................................ (0.42) (0.01) (0.84) (0.24) --
Net realized gains................................... (0.39) (0.01) (0.73) -- --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions.................................... (0.81) (0.02) (1.57) (0.24) --
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................... $15.71 $15.29 $12.22 $12.85 $10.17
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................... 8.10%++ 25.29% 7.47% 29.29% 1.70%++
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)...................... $25,650 $21,413 $18,214 $15,340 $5,757
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)......................................... 0.92%+ 1.06% 1.07% 1.25% 1.25%+
Net investment income................................ 2.99+ 3.58 3.88 4.29 3.86+
- --------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................ 31% 68% 39% 25% 32%
- --------------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY
TRANSACTIONS (5)..................................... $0.06 $0.06 $0.06 -- --
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1998 (audited).
(2) For the period from February 4, 1994 (commencement of operations) to
December 31, 1994.
(3) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(4) The ratios of expenses to average net assets for the year ended December 31,
1995 and the period ended December 31, 1994 reflect expense reimbursements
by The Travelers in connection with voluntary expense limitations. Without
the expense reimbursements, the ratios of expenses to average net assets
would have been 1.27% and 3.49% (annualized), respectively.
(5) For the fiscal years beginning after 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share on Funds which
held more than 10% of their assets in commissionable equity securities.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized
56
<pg$pcn>
Investment Advisers
-------------------
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY
MARKET PORTFOLIO AND
THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK PORTFOLIO AND UTILITIES
PORTFOLIO
MUTUAL MANAGEMENT CORP.
New York, New York
Independent Auditors
---------------------
KPMG PEAT MARWICK LLP
New York, New York
Custodian
---------
PNC BANK, N.A.
This report is prepared for the general information of contract owners and is
not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Money Market Portfolio, 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-Annual)(8-98)
<pg$pcn>