<PAGE> 1
THE TRAVELERS VARIABLE
PRODUCTS FUND
ANNUAL REPORTS
DECEMBER 31, 1996
THE TRAVELERS SERIES TRUST:
LARGE CAP PORTFOLIO
EQUITY INCOME PORTFOLIO
[TRAVELERSLIFE LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the past
year.
EQUITY INCOME PORTFOLIO
PERFORMANCE 4 How the fund has done over time.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 9 Statements of assets and
liabilities, operations, and
changes in net assets, as well
as financial highlights.
LARGE CAP PORTFOLIO
PERFORMANCE 11 How the fund has done over time.
FUND TALK 12 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 13 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 16 Statements of assets and
liabilities, operations, and
changes in net assets, as well
as financial highlights.
NOTES 18 Notes to the financial
statements.
REPORT OF INDEPENDENT ACCOUNTANTS 20 The auditors' opinion.
DISTRIBUTIONS 21
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the fund. This report is not
authorized for distribution to prospective investors in the fund unless
preceded or accompanied by an effective prospectus.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Neither of the funds is a bank.
ANNUAL REPORT 2
<PAGE> 3
MARKET ENVIRONMENT
Most stock and bond markets posted positive returns in 1996, aided by moderate
growth and low inflation. Sustained corporate earnings growth and a favorable
interest rate environment also proved beneficial. Japan, however, was the major
exception as an underperforming stock market and a weak yen undermined returns
for U.S.-based investors. The strongest gains came from the often-volatile
emerging bond markets in 1996, while performance of the bond markets of
developed countries was mixed.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index -- a broad measure of U.S. stock market
performance -- rose 22.96% for the 12 months that ended December 31, 1996, well
above the index's long-term average annual return of about 12%. The Russell
2000 Index -- a measure of small stock performance -- rose 16.49%. The Dow
Jones Industrial Average -- an index of 30 blue-chip stocks -- posted a return
of 28.70%, closing above 6500 for the first time in November.
The U.S. stock market spent much of the past year breaking price and trading
volume records. Solid corporate earnings reports, large cash inflows into
mutual funds, widespread optimism and a generally favorable interest rate
environment propelled share prices higher. Large-capitalization stocks thrived
as investors sought their lower volatility and higher degree of liquidity over
smaller-cap stocks in an environment where it was sometimes difficult to
discern the health of the economy.
Most industry sectors experienced positive, if not strong performance. At
mid-year, technology stocks suffered from a sell-off sparked by fears that
company earnings were weakening. Nevertheless, this sector proved to be the
strongest in the U.S. market in 1996. Earnings surprises and positive earnings
projections were the main drivers of solid performance, especially among
semiconductor manufacturers, companies that make disk drives and monitors, and
software firms. Even though consensus estimates pointed toward increases in
short-term interest rates by the Fed, financial stocks -- usually sensitive to
changes in interest rates -- shrugged off this concern and posted solid
performance based on low interest rates and positive business prospects. Energy
stocks reaped the benefits of higher-than-expected energy prices, which
resulted in part from the delayed re-entry of Iraq into the world market.
Uncertainty over the direction of the economy benefited consumer nondurables --
such as food, beverage and tobacco companies -- health care and traditional
big-name growth stocks, as these companies tend to post steady earnings growth
in many economic environments.
Utilities stocks struggled in 1996 for two reasons. First, and most important,
uncertainty over the direction and form of deregulation in the sector tended to
diminish investor interest. Second, stocks in the sector tend to move in
concert with bonds, which lagged due to periodic inflation fears and confusing
economic signals. Stocks in the telecommunications field especially were
affected by uncertainty over legislation signed into law in February 1996.
Biotechnology issues had a hard time recovering from a correction in stock
prices from overvalued levels that they experienced earlier in 1996. Cyclical
stocks -- those that usually rise and fall with the economy -- posted mixed
results that largely depended on the outlook for companies in the specific
sector rather than the direction of the economy.
FOREIGN STOCK MARKETS
Foreign stock markets posted mixed results in 1996. The Morgan Stanley Capital
International (MSCI) EAFE Index -- which measures stock performance in Europe,
Australia and the Far East -- returned 6.05% in 1996. Europe posted the most
consistently strong equity markets due to stronger economic growth, lower
interest rates, higher corporate earnings, the relative weakness of the
continent's major currencies and a new emphasis on shareholder friendliness by
many of the region's corporations. The MSCI Europe Index was up 21.09% in 1996.
The Japanese stock market underperformed on the weakness of the economic
recovery and the uncertainty for any substantial economic reform. The Tokyo
Stock Exchange TOPIX Total Return Index was off 16.26%. Emerging market equity
performance ran the gamut from negative to positive, with the MSCI Emerging
Markets Free Index returning 6.03% for 1996. While Hong Kong was a top
performer -- benefiting from the rising value of the property sector, solid
economic growth and stable interest rates -- other Asian markets posted mixed
returns as concerns rose over declining export growth in the region. Latin
America enjoyed a strong first half, but faded toward the end of 1996 due to
low domestic savings rates and inefficient governments, among other factors.
U.S. BOND MARKETS
Uncertainty over the direction of the economy led to mixed performance in U.S.
bond markets in 1996. For the year, the Lehman Brothers Aggregate Bond Index --
a broad measure of the performance of the U.S. taxable bond market -- posted a
total return of 3.63%. Stronger-than-expected economic signals rattled the bond
market in the early spring. Investors spent most of the summer anticipating a
short-term interest rate increase by the Federal Reserve Board. However, the
Fed neither raised nor lowered rates through the end of 1996. Interest rates
responded to the Fed's inaction by falling during much of October and November.
In December, though, bond prices dropped due to inflation concerns,
stronger-than-expected economic data and comments by Fed Chairman Alan
Greenspan that the stock markets may be overvalued.
FOREIGN BOND MARKETS
While low inflation and moderate growth helped provide a positive backdrop for
most bond markets in 1996, performance in overseas bond markets was mixed. The
Salomon Brothers World Government Bond Index -- a measure of government bond
market performance in developed nations -- returned 3.62% for the 12 months
that ended December 31, 1996. In Europe, focus centered on the continuing
progress toward the European Monetary Union (EMU). Attractive opportunities
arose as countries worked to meet the requirements for joining the EMU.
However, Germany and Japan -- two of the larger components of the Salomon
Brothers World Government Bond Index -- experienced currency problems that hurt
returns. In stark contrast to the developed world, the often-volatile emerging
debt markets enjoyed a particularly strong year, helped by inflows of foreign
capital, low interest rates and the implementation of country-specific reforms
- -- especially in Latin America. The J.P. Morgan Emerging Markets Bond Index --
of which Latin America is a large component -- posted a return of 34.16% during
the period.
3 ANNUAL REPORT
<PAGE> 4
EQUITY INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment, assuming
reinvestment of the fund's dividend income and capital gains (the profits the
fund earns when it sells securities that have grown in value).
<TABLE>
<CAPTION>
- --------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------
PERIOD ENDED DECEMBER 31, 1996
LIFE OF
FUND
<S> <C>
Equity Income Portfolio 11.69%
S&P 500 (R) 13.51%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a
set period -- in this case, since the fund started on August 30, 1996.
You can compare the fund's return to the performance of the Standard & Poor's
500 Index -- a widely recognized, unmanaged index of common stocks. This
benchmark includes reinvested dividends and capital gains, if any.
If certain fund expenses had not been reimbursed, the total return would have
been lower.
Performance numbers are net of all fund operating expenses, but do not include
any insurance charges imposed by your insurance company's separate account. If
performance information included the effect of these additional charges, the
total return would be lower.
Past performance is no guarantee of future results. Principal and investment
return will vary and you may have a gain or loss when you withdraw your money.
X UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how it will do tomorrow. The stock
market, for example, has a history of growth in the long run and volatility in
the short run. In turn, the share price and return of a fund that invests in
stocks will vary. That means if you sell your shares during a market downturn,
you might lose money. But if you can ride out the market's ups and downs, you
may have a gain.
- ----------------------------------------------------
$10,000 OVER LIFE OF FUND
- ----------------------------------------------------
Equity Income Portfolio Standard & Poor's 500
[CHART]
Let's say hypothetically that $10,000 was invested in the Equity Income
Portfolio on August 30, 1996, when the fund started. As the chart shows, by
December 31, 1996, the investment would have grown to $11,169 -- an 11.69%
increase. With reinvested dividends and capital gains, if any, a $10,000
investment in the S&P 500 would have grown to $11,351 over the same period -- a
13.51% increase.
<TABLE>
<CAPTION>
INVESTMENT SUMMARY
- ----------------------------------------------------
TOP FIVE STOCKS AS OF DECEMBER 31, 1996
- ----------------------------------------------------
% OF FUND'S
INVESTMENTS
<S> <C>
Philip Morris Companies, Inc. 4.1
General Electric Co. 3.9
British Petroleum PLC ADR 3.6
Federal National Mortgage Association 2.8
General Motors Corp. 2.2
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1996
- ----------------------------------------------------
% OF FUND'S
INVESTMENTS
<S> <C>
Finance 21.3
Energy 14.4
Industrial Machinery & Equipment 8.4
Utilities 8.1
Nondurables 7.0
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
ASSET ALLOCATION AS OF DECEMBER 31, 1996*
- ----------------------------------------------------
% OF FUND'S
INVESTMENTS
<S> <C>
Stocks 92.7%
Convertible
securities 2.8%
Short-term investments 4.5%
* Foreign investments 5.5%
</TABLE>
[CHART]
ANNUAL REPORT 4
<PAGE> 5
EQUITY INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
[PHOTO]
An interview with
Stephen Petersen, Portfolio
Manager of Traveler's
Equity Income Portfolio
Q. HOW DID THE FUND PERFORM, STEPHEN?
A. While performing well on an absolute basis, the fund underperformed the
Standard & Poor's 500 Index, which returned 13.51% from the fund's inception on
August 30, 1996 through December 31, 1996. Given that the fund has only been in
existence for four months, I'd like to point out that it's difficult to draw
any conclusions from such a short period of time, and that a fund's performance
is best judged over the long term.
Q. WHY DID THE FUND'S RETURN LAG THE S&P 500 DURING THE PERIOD?
A. There are a couple of reasons, although primarily it's because of the
equity-income style of investing this fund follows. Equity-income fund managers
seek to own stocks of quality companies that also have attractive dividend
yields equal to or greater than the market average. Having that sort of
orientation attracts equity-income style managers to utility stocks, financial
stocks and cyclical stocks such as automobiles and basic industries. As a
group, the industries I just mentioned -- with the exception of financial
stocks -- performed well on an absolute basis but underperformed the overall
market during the past year. As in 1995, the strong performance of the overall
stock market was primarily concentrated in technology stocks and larger
market-capitalization stocks.
Q. AND THE FUND DIDN'T HAVE LARGE HOLDINGS IN MANY OF THE OUTPERFORMING STOCKS?
A. Exactly. The past 12 months have not really been a stock picker's market,
but one in which the S&P 500 managed to outperform most actively managed mutual
funds, including this one. Also, the fund had a fairly large weighting in
mid-cap stocks that underperformed the market average.
Q. WHAT HOLDINGS DID PERFORM WELL?
A. The fund was helped by its weighting in financial stocks such as the Federal
National Mortgage Association and Bank of New York.
Q. HOW WOULD YOU DESCRIBE YOUR INVESTMENT STYLE TO SHAREHOLDERS IN THIS FUND?
A. As a long-time equity income manager, my investment strategy has always been
to look for better-than-average yielding large-cap stocks with attractive
attributes that will lead to capital appreciation over time. I also try to buy
stocks that are currently out-of-favor within this framework, and I put
together the portfolio on a stock by stock basis focusing on individual
turnaround or recovery stories rather than broad sector trends. Once the
out-of-favor stocks appreciate, I sell them and buy other out-of-favor stocks.
My investment style is a methodical, straight-forward process that emphasizes
individual stock picking more than anything else.
Q. WHAT DO YOU LOOK FOR IN DIVIDEND-YIELDING STOCKS?
A. I usually buy stocks that have dividend yield equal to or above the average
yield of the S&P 500 -- currently about 2%. If I own companies with lower
yields, it's because the company has decided to distribute excess capital to
shareholders in other ways, such as stock repurchase programs. This is
consistent with my strategy of owning companies that are strong income
producers with higher-than-average dividends, along with stocks of undervalued
companies that I think have the potential to appreciate over time.
Q. DOES THE FUND OWN TURNAROUND STOCKS OR COMPANIES UNDERGOING POSITIVE CHANGE?
A. Yes. While my goal is to have the fund primarily invested in quality
companies with consistent earnings growth, I would like to own some companies
that haven't performed well in the market recently, and therefore may have
lower valuations and better opportunity for capital appreciation. It's an
approach I've used in the past with some other funds I've managed, and it's
worked well.
Q. WHAT'S YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. I don't sense that there's been any significant change in the mood of the
market -- it still favors consistent earnings growth. Since the market has
continued to reward stocks of large-cap companies with consistent earnings,
it's been quite difficult for bottom-up stock pickers to outperform the general
market. However, as everyone knows, the economic recovery has been underway
since 1991 -- historically, quite a long period of time for a strong economy
without an interruption or correction. Therefore, I'm trying to structure the
fund so it can perform relatively well when and if the market changes course.
While I think the outlook for this fund remains good, investors should be
cautious after two years of more than 20% returns from the overall market.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
X FUND FACTS
GOAL: seeks reasonable income by investing primarily in income-producing equity
securities to provide current income and increase the value of the fund's
shares
START DATE: August 30, 1996
SIZE: as of December 31, 1996, more than $3 million
MANAGER: Stephen Petersen, since inception, joined Fidelity in 1980
5 ANNUAL REPORT
<PAGE> 6
EQUITY INCOME PORTFOLIO
INVESTMENTS DECEMBER 31, 1996
Showing Percentage of Total Value Investment in Securities
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 92.7%
- ------------------------------------------------------------------------------------
SHARES VALUE (NOTE 1)
<S> <C> <C>
AEROSPACE & DEFENSE - 3.2%
AEROSPACE & DEFENSE - 2.8%
Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . 21 $ 2,220
Harsco Corp. . . . . . . . . . . . . . . . . . . . . . . 200 13,700
Lockheed Martin Corp. . . . . . . . . . . . . . . . . . . 400 36,600
Northrop Grumman Corp. . . . . . . . . . . . . . . . . . 200 16,550
Rockwell International Corp. . . . . . . . . . . . . . . 500 30,438
----------
99,508
----------
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. . . . . . . . . . . . . . . . . . . . . . . 300 14,438
----------
SHIP BUILDING & REPAIR - 0.0%
Newport News Shipbuilding, Inc. (a) . . . . . . . . . . . 40 600
----------
TOTAL AEROSPACE & DEFENSE . . . . . . . . . . . . . . . . 114,546
----------
BASIC INDUSTRIES - 5.4%
CHEMICALS & PLASTICS - 2.8%
du Pont (E.I.) de Nemours & Co. . . . . . . . . . . . . . 400 37,750
Great Lakes Chemical Corp. . . . . . . . . . . . . . . . 300 14,025
Nalco Chemical Co. . . . . . . . . . . . . . . . . . . . 400 14,450
Union Carbide Corp. . . . . . . . . . . . . . . . . . . . 500 20,438
Witco Corp. . . . . . . . . . . . . . . . . . . . . . . . 500 15,250
----------
101,913
----------
METALS & MINING - 1.3%
Alumax, Inc. (a) . . . . . . . . . . . . . . . . . . . . 411 13,717
Aluminum Co. of America . . . . . . . . . . . . . . . . . 500 31,875
----------
45,592
----------
PAPER & FOREST PRODUCTS - 1.3%
Champion International Corp. . . . . . . . . . . . . . . 300 12,975
International Paper Co. . . . . . . . . . . . . . . . . . 200 8,075
Weyerhaeuser Co. . . . . . . . . . . . . . . . . . . . . 500 23,688
----------
44,738
----------
TOTAL BASIC INDUSTRIES . . . . . . . . . . . . . . . . . 192,243
----------
CONGLOMERATES - 3.7%
AlliedSignal, Inc. . . . . . . . . . . . . . . . . . . . 500 33,500
American Standard Companies, Inc. (a) . . . . . . . . . . 400 15,300
Textron, Inc. . . . . . . . . . . . . . . . . . . . . . . 200 18,850
Tyco International Ltd. . . . . . . . . . . . . . . . . . 500 26,438
United Technologies Corp. . . . . . . . . . . . . . . . . 600 39,600
----------
133,688
----------
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.3%
Masco Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 10,800
---------
REAL ESTATE INVESTMENT TRUSTS - 0.3%
Equity Residential Properties Trust (SBI) . . . . . . . . 300 12,375
---------
TOTAL CONSTRUCTION & REAL ESTATE . . . . . . . . . . . . 23,175
---------
DURABLES - 6.9%
AUTOS, TIRES, & ACCESSORIES - 5.9%
Chrysler Corp. . . . . . . . . . . . . . . . . . . . . . 1,800 59,400
Eaton Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 20,925
General Motors Corp. . . . . . . . . . . . . . . . . . . 1,400 78,050
Goodyear Tire & Rubber Co. . . . . . . . . . . . . . . . 200 10,275
Johnson Controls, Inc. . . . . . . . . . . . . . . . . . 200 16,575
Snap-on Tools Corp. . . . . . . . . . . . . . . . . . . . 450 16,031
TRW, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 200 9,900
----------
211,156
----------
CONSUMER ELECTRONICS - 0.7%
Maytag Co. . . . . . . . . . . . . . . . . . . . . . . . 500 9,875
Whirlpool Corp. . . . . . . . . . . . . . . . . . . . . . 300 13,988
----------
23,863
----------
TEXTILES & APPAREL - 0.3%
Kellwood Co. . . . . . . . . . . . . . . . . . . . . . . 500 10,000
----------
TOTAL DURABLES . . . . . . . . . . . . . . . . . . . . . 245,019
----------
ENERGY - 13.9%
ENERGY SERVICES - 2.5%
Dresser Industries, Inc. . . . . . . . . . . . . . . . . 700 21,700
Halliburton Co. . . . . . . . . . . . . . . . . . . . . . 300 18,075
Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . 500 49,938
----------
89,713
----------
OIL & GAS - 11.4%
Amerada Hess Corp. . . . . . . . . . . . . . . . . . . . 200 11,575
Amoco Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 24,150
Atlantic Richfield Co. . . . . . . . . . . . . . . . . . 300 39,750
British Petroleum PLC ADR . . . . . . . . . . . . . . . . 900 127,238
Burlington Resources, Inc. . . . . . . . . . . . . . . . 200 10,075
Exxon Corp. . . . . . . . . . . . . . . . . . . . . . . . 100 9,800
Kerr-McGee Corp. . . . . . . . . . . . . . . . . . . . . 100 7,200
Mobil Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 24,450
Occidental Petroleum Corp. . . . . . . . . . . . . . . . 500 11,688
Phillips Petroleum Co. . . . . . . . . . . . . . . . . . 300 13,275
Royal Dutch Petroleum Co. ADR . . . . . . . . . . . . . . 300 51,225
Total SA sponsored ADR . . . . . . . . . . . . . . . . . 500 20,125
USX-Marathon Group . . . . . . . . . . . . . . . . . . . 1,000 23,875
Unocal Corp. . . . . . . . . . . . . . . . . . . . . . . 825 33,516
---------
407,942
---------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . 497,655
---------
FINANCE - 21.3%
BANKS - 8.4%
Bank of Boston Corp. . . . . . . . . . . . . . . . . . . 300 19,275
Bank of New York Co., Inc. . . . . . . . . . . . . . . . 1,800 60,750
BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . 300 29,925
Chase Manhattan Corp. . . . . . . . . . . . . . . . . . . 300 26,775
Citicorp . . . . . . . . . . . . . . . . . . . . . . . . 200 20,600
Comerica, Inc. . . . . . . . . . . . . . . . . . . . . . 400 20,950
First Bank System, Inc. . . . . . . . . . . . . . . . . . 400 27,300
NationsBank Corp. . . . . . . . . . . . . . . . . . . . . 500 48,875
Norwest Corp. . . . . . . . . . . . . . . . . . . . . . . 400 17,400
Wells Fargo & Co. . . . . . . . . . . . . . . . . . . . . 100 26,975
----------
298,825
----------
CREDIT & OTHER FINANCE - 2.2%
Beneficial Corp. . . . . . . . . . . . . . . . . . . . . 200 12,675
First Chicago NBD Corp. . . . . . . . . . . . . . . . . . 900 48,375
Household International, Inc. . . . . . . . . . . . . . . 200 18,450
----------
79,500
----------
FEDERAL SPONSORED CREDIT - 2.8%
Federal National Mortgage Association . . . . . . . . . . 2,700 100,575
---------
INSURANCE - 6.9%
Aetna, Inc. . . . . . . . . . . . . . . . . . . . . . . . 400 32,000
Allstate Corp. . . . . . . . . . . . . . . . . . . . . . 1,200 69,450
American Bankers Insurance Group, Inc. . . . . . . . . . 400 20,450
American Financial Group, Inc. . . . . . . . . . . . . . 600 22,650
CIGNA Corp. . . . . . . . . . . . . . . . . . . . . . . . 100 13,663
General Re Corp. . . . . . . . . . . . . . . . . . . . . 100 15,775
</TABLE>
See accompanying notes which are in integral part of the Financial statements.
ANNUAL REPORT 6
<PAGE> 7
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
- ------------------------------------------------------------------------------------
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
INSURANCE - CONTINUED
<S> <C> <C>
ITT Hartford Group, Inc. . . . . . . . . . . . . . . . . 600 $ 40,500
Provident Companies, Inc. . . . . . . . . . . . . . . . . 200 9,675
Reliastar Financial Corp. . . . . . . . . . . . . . . . . 400 23,100
----------
247,263
----------
SAVINGS & LOANS - 0.7%
Washington Mutual, Inc. . . . . . . . . . . . . . . . . . 600 25,988
---------
SECURITIES INDUSTRY - 0.3%
Lehman Brothers Holdings, Inc. . . . . . . . . . . . . . 300 9,413
----------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . 761,564
----------
HEALTH - 3.9%
DRUGS & PHARMACEUTICALS - 2.9%
American Home Products Corp. . . . . . . . . . . . . . . 200 11,725
Bristol-Myers Squibb Co. . . . . . . . . . . . . . . . . 300 32,625
Pharmacia & Upjohn, Inc. . . . . . . . . . . . . . . . . 600 23,775
Pfizer, Inc. . . . . . . . . . . . . . . . . . . . . . . 200 16,575
Schering-Plough Corp. . . . . . . . . . . . . . . . . . . 300 19,425
----------
104,125
----------
MEDICAL EQUIPMENT & SUPPLIES - 1.0%
Allegiance Corp. . . . . . . . . . . . . . . . . . . . . 60 1,658
Baxter International, Inc. . . . . . . . . . . . . . . . 300 12,300
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . 400 19,900
---------
33,858
----------
TOTAL HEALTH . . . . . . . . . . . . . . . . . . . . . . 137,983
----------
HOLDING COMPANIES - 0.8%
CINergy Corp. . . . . . . . . . . . . . . . . . . . . . . 400 13,350
U.S. Industries, Inc. (a) . . . . . . . . . . . . . . . . 400 13,750
----------
27,100
----------
INDUSTRIAL MACHINERY & EQUIPMENT - 8.0%
ELECTRICAL EQUIPMENT - 4.3%
General Electric Co. . . . . . . . . . . . . . . . . . . 1,400 138,425
Westinghouse Electric Corp. . . . . . . . . . . . . . . . 700 13,913
----------
152,338
----------
INDUSTRIAL MACHINERY & EQUIPMENT - 2.1%
Caterpillar, Inc. . . . . . . . . . . . . . . . . . . . . 200 15,050
Cooper Industries, Inc. . . . . . . . . . . . . . . . . . 400 16,850
Ingersoll-Rand Co. . . . . . . . . . . . . . . . . . . . 300 13,350
Keystone International, Inc. . . . . . . . . . . . . . . 500 10,063
Parker-Hannifin Corp. . . . . . . . . . . . . . . . . . . 300 11,625
Tenneco, Inc. . . . . . . . . . . . . . . . . . . . . . . 200 9,025
----------
75,963
----------
POLLUTION CONTROL - 1.6%
Browning-Ferris Industries, Inc. . . . . . . . . . . . . 900 23,625
WMX Technologies, Inc. . . . . . . . . . . . . . . . . . 1,000 32,625
----------
56,250
----------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT . . . . . . . . . 284,551
----------
MEDIA & LEISURE - 1.5%
ENTERTAINMENT - 0.4%
Viacom, Inc. Class B (non-vtg.) (a) . . . . . . . . . . . 400 13,950
---------
LEISURE DURABLES & TOYS - 0.3%
Hasbro, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 11,663
---------
LODGING & GAMING - 0.5%
ITT Corp. (a) . . . . . . . . . . . . . . . . . . . . . . 400 17,350
---------
PUBLISHING - 0.3%
ACNielsen Corp. (a) . . . . . . . . . . . . . . . . . . . 66 998
Cognizant Corp. (a) . . . . . . . . . . . . . . . . . . . 200 6,600
Dun & Bradstreet Corp. . . . . . . . . . . . . . . . . . 200 4,750
---------
12,348
----------
TOTAL MEDIA & LEISURE . . . . . . . . . . . . . . . . . . 55,311
----------
NONDURABLES - 6.3%
FOODS - 0.9%
General Mills, Inc. . . . . . . . . . . . . . . . . . . . 300 19,013
Ralston Purina Group . . . . . . . . . . . . . . . . . . 200 14,675
----------
33,688
----------
HOUSEHOLD PRODUCTS - 0.4%
Rubbermaid, Inc. . . . . . . . . . . . . . . . . . . . . 600 13,650
---------
TOBACCO - 5.0%
Philip Morris Companies, Inc. . . . . . . . . . . . . . . 1,300 146,413
RJR Nabisco Holdings Corp. . . . . . . . . . . . . . . . 900 30,600
---------
177,013
----------
TOTAL NONDURABLES . . . . . . . . . . . . . . . . . . . . 224,351
----------
RETAIL & WHOLESALE - 4.8%
APPAREL STORES - 0.4%
Limited, Inc. (The) . . . . . . . . . . . . . . . . . . . 700 12,863
---------
DRUG STORES - 0.3%
CVS Corp. . . . . . . . . . . . . . . . . . . . . . . . . 300 12,413
---------
GENERAL MERCHANDISE STORES - 3.2%
Dayton Hudson Corp. . . . . . . . . . . . . . . . . . . . 300 11,775
Federated Department Stores, Inc. (a) . . . . . . . . . . 600 20,475
May Department Stores Co. (The) . . . . . . . . . . . . . 300 14,025
Sears, Roebuck & Co. . . . . . . . . . . . . . . . . . . 500 23,063
Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . 2,000 45,750
----------
115,088
----------
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Tandy Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 13,200
Toys "R" Us, Inc. (a) . . . . . . . . . . . . . . . . . . 600 18,000
----------
31,200
----------
TOTAL RETAIL & WHOLESALE. . . . . . . . . . . . . . . . . 171,564
---------
SERVICES - 1.0%
LEASING & RENTAL - 0.4%
GATX Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 14,550
---------
PRINTING - 0.6%
Deluxe Corp. . . . . . . . . . . . . . . . . . . . . . . 400 13,100
Donnelley (R.R.) & Sons Co. . . . . . . . . . . . . . . . 300 9,413
---------
22,513
----------
TOTAL SERVICES . . . . . . . . . . . . . . . . . . . . . 37,063
----------
TECHNOLOGY - 2.6%
COMMUNICATIONS EQUIPMENT - 0.1%
Lucent Technologies, Inc. . . . . . . . . . . . . . . . . 97 4,486
---------
COMPUTERS & OFFICE EQUIPMENT - 1.4%
Digital Equipment Corp. (a) . . . . . . . . . . . . . . . 300 10,913
International Business Machines Corp. . . . . . . . . . . 200 30,200
Xerox Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 10,525
----------
51,638
----------
ELECTRONICS - 0.6%
AMP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 300 11,513
Thomas & Betts Corp.. . . . . . . . . . . . . . . . . . . 200 8,875
----------
20,388
----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
7 ANNUAL REPORT
<PAGE> 8
EQUITY INCOME PORTFOLIO
INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
- ------------------------------------------------------------------------------------
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
PHOTOGRAPHIC EQUIPMENT - 0.5%
<S> <C> <C>
Eastman Kodak Co. . . . . . . . . . . . . . . . . . . . . 200 $ 16,050
---------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . 92,562
---------
TRANSPORTATION - 1.0%
AIR TRANSPORTATION - 0.3%
Viad Corp. . . . . . . . . . . . . . . . . . . . . . . . 700 11,550
---------
RAILROADS - 0.7%
Burlington Northern Santa Fe Corp. . . . . . . . . . . . 200 17,275
CSX Corp. . . . . . . . . . . . . . . . . . . . . . . . . 200 8,450
----------
25,725
----------
TOTAL TRANSPORTATION . . . . . . . . . . . . . . . . . . 37,275
---------
UTILITIES - 7.8%
ELECTRIC UTILITY - 1.4%
American Electric Power Co., Inc. . . . . . . . . . . . . 300 12,338
Entergy Corp. . . . . . . . . . . . . . . . . . . . . . . 500 13,875
Illinova Corp. . . . . . . . . . . . . . . . . . . . . . 400 11,000
Pinnacle West Capital Corp. . . . . . . . . . . . . . . . 400 12,700
----------
49,913
----------
GAS - 1.6%
El Paso Natural Gas Co. . . . . . . . . . . . . . . . . . 18 909
MCN Corp. . . . . . . . . . . . . . . . . . . . . . . . . 300 8,663
Pacific Enterprises . . . . . . . . . . . . . . . . . . . 600 18,225
PanEnergy Corp. . . . . . . . . . . . . . . . . . . . . . 300 13,500
Questar Corp. . . . . . . . . . . . . . . . . . . . . . . 400 14,700
----------
55,997
----------
TELEPHONE SERVICES - 4.8%
AT&T Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 13,050
Ameritech Corp. . . . . . . . . . . . . . . . . . . . . . 600 36,375
Bell Atlantic Corp. . . . . . . . . . . . . . . . . . . . 400 25,900
BellSouth Corp. . . . . . . . . . . . . . . . . . . . . . 700 28,263
Frontier Corp. . . . . . . . . . . . . . . . . . . . . . 400 9,050
NYNEX Corp. . . . . . . . . . . . . . . . . . . . . . . . 700 33,688
SBC Communications, Inc. . . . . . . . . . . . . . . . . 500 25,875
---------
172,201
----------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . 278,111
----------
TOTAL COMMON STOCKS
(Cost $3,007,577). . . . . . . . . . . . . . . . . . . 3,313,761
---------
- ------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 2.5%
- ------------------------------------------------------------------------------------
ENERGY - 0.5%
OIL & GAS - 0.5%
Occidental Petroleum Corp.
Indexed $3.00 . . . . . . . . . . . . . . . . . . . . . 300 17,700
---------
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.4%
Westinghouse Electric Corp.
$1.30 (b) . . . . . . . . . . . . . . . . . . . . . . 800 14,300
---------
MEDIA & LEISURE - 0.3%
ENTERTAINMENT - 0.3%
Time Warner Financing Trust
$1.24 . . . . . . . . . . . . . . . . . . . . . . . . 300 11,625
---------
NONDURABLES - 0.7%
TOBACCO - 0.7%
RJR Nabisco Holdings Corp.
depositary shares . . . . . . . . . . . . . . . . . . 3,700 24,975
---------
RETAIL & WHOLESALE - 0.3%
GENERAL MERCHANDISE STORES - 0.3%
K mart Financing I $3.875 . . . . . . . . . . . . . . . . 200 $ 9,750
---------
UTILITIES - 0.3%
CELLULAR - 0.3%
AirTouch Communications, Inc.
Class B $1.74 . . . . . . . . . . . . . . . . . . . . 400 10,900
---------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $83,497) . . . . . . . . . . . . . . . . . . . . 89,250
---------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 0.3%
- ------------------------------------------------------------------------------------
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT
<S> <C> <C>
RETAIL & WHOLESALE - 0.3%
GENERAL MERCHANDISE STORES - 0.3%
Federated Department
Stores, Inc. 5%, 10/1/03
(Cost $11,500) . . . . . . . . . . . . . . . . . .Ba3 $ 10,000 11,613
---------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CASH EQUIVALENTS -- 4.5%
- ------------------------------------------------------------------------------------
MATURITY
AMOUNT
<S> <C> <C>
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 6.75%, dated
12/31/96 due 1/2/97 . . . . . . . . . . . . . . . . . $160,060 160,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,262,574) . . . . . . . . . . . . . . . . . . $ 3,574,624
===========
</TABLE>
LEGEND
(a) Non-income producing
(b) 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. At the period end, the value of
these securities amounted to $14,300 or 0.4% of net assets.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities, aggregated
$3,229,602 and $140,258, respectively.
The fund placed a portion of its portfolio transactions with brokerage firms
which are affiliates of Fidelity Management & Research Company. The commissions
paid to these affiliated firms amounted to $29 for the period (see Note 4 of
Notes to Financial Statements).
INCOME TAX INFORMATION
At December 31, 1996, the aggregate cost of investment securities for income
tax purposes was $3,262,574. Net unrealized appreciation aggregated $312,050,
of which $351,079 related to appreciated investment securities and $39,029
related to depreciated investment securities.
See accompanying notes which are an integral part of the financial statements.
ANNUAL REPORT 8
<PAGE> 9
EQUITY INCOME PORTFOLIO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
ASSETS
<S> <C>
Investment in securities, at value
(including repurchase agreements
of $160,000) (cost $3,262,574)--
See accompanying schedule . . . . . . . . . . . . . . . . $ 3,574,624
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,439
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . 8,248
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 124
Receivable for expense reductions . . . . . . . . . . . . . . . . . 37,905
------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . 3,622,340
LIABILITIES
Other payables and
accrued expenses . . . . . . . . . . . . . . . . . . . . . 21,943
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,600,397
============
Net Assets consist of:
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,275,445
Accumulated undistributed net realized
gain (loss) on investments . . . . . . . . . . . . . . . . 12,902
Net unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . . . 312,050
------------
NET ASSETS, for 324,747 shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . $ 3,600,397
============
NET ASSET VALUE, offering price
and redemption price per share
($3,600,397 / 324,747 shares) . . . . . . . . . . . . . . $11.09
======
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
AUGUST 30, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,559
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,215
----------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 35,774
EXPENSES
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,203
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . 20,052
Non-interested trustees' compensation . . . . . . . . . . . . . . . . . . 1,667
Custodian fees and expenses . . . . . . . . . . . . . . . . . . . . . . . 6,623
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,500
----------
Total expenses before reductions . . . . . . . . . . . . . . . . 50,432
Expense reductions . . . . . . . . . . . . . . . . . . . . . . . (40,114) 10,318
---------- ----------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 25,456
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities . . . . . . . . . . . . . . . . . . . . . 13,230
Change in net unrealized
appreciation (depreciation)
on investment securities . . . . . . . . . . . . . . . . . . . . 312,050
----------
NET GAIN (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,280
----------
NET INCREASE (DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . $ 350,736
==========
</TABLE>
See accompanying notes which are an integral part of the financial statements.
9 ANNUAL REPORT
<PAGE> 10
EQUITY INCOME PORTFOLIO
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
AUGUST 30, 1996
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1996
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,456
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,230
Change in net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . 312,050
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . 350,736
-----------
Distributions to shareholders from net investment income . . . . . . . . . . . . . . . . . . (25,784)
-----------
Share transactions
Net proceeds from sales of shares . . . . . . . . . . . . . . . . . . . . . . . . . 3,249,728
Reinvestment of distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,784
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (67)
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS . . . . . . 3,275,445
-----------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . . 3,600,397
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
-----------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,600,397
===========
OTHER INFORMATION
Shares
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,467
Issued in reinvestment of distributions . . . . . . . . . . . . . . . . . . . . . . 2,286
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
-----------
Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,747
===========
</TABLE>
See accompanying notes which are an integral part of the financial statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------
AUGUST 30, 1996
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1996
- ---------------------------------------------------------------------------------------------------------
<S> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period . . . . . . . . . . . . . . . . . $ 10.00
---------
Income from investment Operations
Net investment income . . . . . . . . . . . . . . . . . . . . .08
Net realized and unrealized gain (loss) . . . . . . . . . . . 1.09
---------
Total from investment operations . . . . . . . . . . . . . . . 1.17
---------
Less Distributions
From net investment income . . . . . . . . . . . . . . . . . . (.08)
---------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . $ 11.09
=========
TOTAL RETURN (B,C) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.69%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) . . . . . . . . . . . . . . . . $ 3,600
Ratio of expenses to average net assets . . . . . . . . . . . . . . . . .95%(A)
Ratio of net investment income to average net assets . . . . . . . . . 2.34%(A)
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . 14%(A)
Average commission rate(D) . . . . . . . . . . . . . . . . . . . . . . $ .0168
</TABLE>
(A) Annualized
(B) Total returns for periods of less than one year are not annualized.
(C) The total return would have been lower had certain expenses not been
reduced during the period shown (see Note 5 of Notes to Financial
Statements).
(D) A fund is required to disclose its average commission rate per share for
security trades notes on which commissions are changed. This amount may
vary from period to period and fund to fund depending on the mix of
trades executed in various markets where trading practices and commission
rate structures may differ.
ANNUAL REPORT 10
<PAGE> 11
LARGE CAP PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment assuming
reinvestment of the fund's dividend income and capital gains (the profits the
fund earns when it sells securities that have grown in value).
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
- -------------------------------------------------
PERIOD ENDED DECEMBER 31, 1996
- -------------------------------------------------
LIFE OF
FUND
<S> <C>
Large Cap Portfolio 13.30%
S&P 500 (R) 13.51%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a
set period -- in this case, since the fund started on August 30, 1996.
You can compare the fund's return to the performance of the Standard & Poor's
500 Index -- a widely recognized, unmanaged index of common stocks. This
benchmark includes reinvested dividends and capital gains, if any.
If certain fund expenses had not been reimbursed, the total return would have
been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE
ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF
PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, THE
TOTAL RETURN WOULD BE LOWER.
Past performance is no guarantee of future results. Principal and investment
return will vary and you may have a gain or loss when you withdraw your money.
X UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how it will do tomorrow. The stock
market, for example, has a history of growth in the long run and volatility in
the short run. In turn, the share price and return of a fund that invests in
stocks will vary. That means if you sell your shares during a market downturn,
you might lose money. But if you can ride out the market's ups and downs, you
may have a gain.
- -------------------------------------------------
$10,000 OVER LIFE OF FUND
- -------------------------------------------------
Large Cap Portfolio Standard & Poor's 500
[CHART]
Let's say hypothetically that $10,000 was invested in the Large Cap Portfolio
on August 30, 1996, when the fund started. As the chart shows, by December 31,
1996, the investment would have grown to $11,330 -- a 13.30% increase. With
reinvested dividends and capital gains, if any, a $10,000 investment in the S&P
500 would have grown to $11,351 over the same period -- a 13.51% increase.
INVESTMENT SUMMARY
<TABLE>
<CAPTION>
- -------------------------------------------------
TOP FIVE STOCKS AS OF DECEMBER 31, 1996
- -------------------------------------------------
% OF FUND'S
INVESTMENTS
<S> <C>
International Business Machines Corp. 2.7
Owens-Illinois, Inc. 2.1
Merck & Co., Inc. 1.9
Adaptec, Inc. 1.8
General Electric Co. 1.7
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1996
- -------------------------------------------------
% OF FUND'S
INVESTMENTS
<S> <C>
Technology 20.8
Health 12.2
Finance 12.0
Retail & Wholesale 8.8
Nondurables 7.2
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
ASSET ALLOCATION AS OF DECEMBER 31, 1996*
- -------------------------------------------------
% OF FUND'S
INVESTMENTS
<S> <C>
Stocks 94.3%
Short-term investments 5.7%
* Foreign investments 3.6%
</TABLE>
[CHART]
11 ANNUAL REPORT
<PAGE> 12
LARGE CAP PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
[PHOTO]
An interview with
Thomas Sprague,
Portfolio Manager of
Large Cap Portfolio
Q. TOM, HOW HAS THE FUND PERFORMED?
A. Since its inception on August 30, 1996, the fund has performed roughly in
line with the Standard & Poor's 500 Index, which posted a return of 13.51%. At
the same time, I'd like to point out that it's difficult to make any
conclusions about a fund's performance over such a short time period. A fund's
performance should be judged over the long term.
Q. TOM, SINCE THIS IS THE FUND'S FIRST REPORT, LET'S TAKE A FEW MINUTES
DISCUSSING YOUR INVESTMENT DISCIPLINE. HOW DO YOU GO ABOUT SELECTING STOCKS FOR
THE FUND?
A. I base my investment decisions by focusing primarily on three
characteristics: long-term earnings growth, short-term earnings momentum and
attractive overall stock valuations -- stock prices relative to other measures
such as earnings. Looking first at long-term earnings growth, I search out
companies that can increase their earnings more than the 8% average posted by
the fund's benchmark, the S&P 500 Index. In fact, I prefer to buy the stocks of
companies that can post earnings growth of at least 10% a year over a
three-year period. These are companies that have built some type of sustainable
competitive advantage in manufacturing, distribution, marketing or research &
development. The second step is to determine which of these companies will beat
market expectations of their earnings over the short-term. Finally, I try to
make sure a stock's price is attractive.
Q. HOW DO YOU DO THAT?
A. I analyze a stock's price per unit of earnings growth, using a measure
called price-to-earnings to growth, or "p-e to growth." If, for example, the
market is selling at a price-to-earnings ratio of about 16 times earnings, and
earnings are growing at 8% a year, the market's "p-e to growth" measure would
be 16 divided by 8, or 2. I'm looking for stocks with a "p-e to growth" of
closer to one, which means I can get a unit of earnings growth priced at half
the market -- in other words, a bargain. With this strategy, I can stay fully
focused on the stocks that have true earnings growth and are selling at
reasonable valuations because, over time, the market tends to reward stocks
such as these.
Q. HOW WOULD YOU CHARACTERIZE THE INVESTMENT CLIMATE OVER THE PAST FOUR MONTHS?
A. It's been pretty benign. Interest rates generally have been down, although
they spiked somewhat in December. At that time, Federal Reserve Board Chairman
Alan Greenspan commented on the market's exuberance and caused some volatility
in the stock market as well, although the market ended the year on an up note.
Corporate earnings generally have come in stronger than expected. The
combination of good earnings growth and a relatively positive interest rate
environment allowed the market to post solid returns during the period.
Q. INVESTMENTS IN TECHNOLOGY REPRESENT THE FUND'S TOP MARKET SECTOR, 20.8% OF
INVESTMENTS AT THE END OF THE PERIOD. WHAT'S THE ATTRACTION THERE?
A. Valuations -- or stock prices relative to other measures such as earnings --
were attractive, and business prospects for many companies showed improvement.
Inventories were worked down and demand increased -- as seen in the
semiconductor's book-to-bill ratio. As a result, I've overweighted the fund's
technology stake versus the index during the period. Some of the technology
stocks I favored were chip-maker Intel -- which reported a 41% year-over-year
earnings gain in the third quarter -- semiconductor company Adaptec, IBM and
networking firm Cisco Systems.
Q. WHAT ARE THE MAIN DIFFERENCES BETWEEN LARGE AND SMALL COMPANIES?
A. Large companies typically have been around longer and are more entrenched
within their marketplaces. As a result, they're able to develop capabilities
that make it harder for smaller companies to compete. A good large company has
many weapons in its arsenal. Walt Disney, for example, rarely has a period with
"down earnings." If the company is expecting a period of weakness, it can dip
into its film archives and re-release a film like "Snow White." This action
gives it an earnings boost that smaller companies can't match. The drawback to
larger companies is that, because of their sheer size, they normally don't
exhibit the rapid growth rate typically posted by smaller companies. Smaller
companies also can react more quickly to market shifts.
Q. WHAT'S YOUR OUTLOOK AS WE ENTER 1997?
A. Earnings growth and interest rates have the most impact on stock market
performance. Since I don't try to predict where rates are going, I'll stick to
my basic philosophy of looking for companies that offer short-term earnings
momentum, long-term earnings growth and good valuations. If rates stay where
they are and earnings growth momentum can be sustained, the market should stay
healthy. If something significant happens -- be it a rate hike or a recession
- -- it could be a different ball game.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
X FUND FACTS
GOAL: Long-term growth of capital by investing primarily in equity securities
of companies with large market capitalization
START DATE: August 30, 1996
SIZE: as of December 31, 1996, more than $3 million
MANAGER: Thomas Sprague, since inception; joined Fidelity in 1989
ANNUAL REPORT 12
<PAGE> 13
LARGE CAP PORTFOLIO
INVESTMENTS DECEMBER 31, 1996
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
COMMON STOCKS -- 94.3%
- -------------------------------------------------------------------------------
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.9%
<S> <C> <C>
Boeing Co. . . . . . . . . . . . . . . . . . . 100 $ 10,620
Lockheed Martin Corp. . . . . . . . . . . . . . 200 18,300
--------------
28,920
--------------
BASIC INDUSTRIES - 4.6%
CHEMICALS & PLASTICS - 1.5%
du Pont (E.I.) de Nemours & Co. . . . . . . . . 200 18,875
Monsanto Co. . . . . . . . . . . . . . . . . . 400 15,550
Praxair, Inc. . . . . . . . . . . . . . . . . . 400 18,450
--------------
52,875
--------------
METALS & MINING - 0.3%
Alumax, Inc. . . . . . . . . . . . . . . . . . 300 10,013
--------------
PACKAGING & CONTAINERS - 2.5%
Owens-Illinois, Inc. (a) . . . . . . . . . . . 3,200 72,800
Tupperware Corp. . . . . . . . . . . . . . . . 200 10,725
--------------
83,525
--------------
PAPER & FOREST PRODUCTS - 0.3%
Kimberly-Clark Corp. . . . . . . . . . . . . . 100 9,525
--------------
TOTAL BASIC INDUSTRIES . . . . . . . . . . . . 155,938
--------------
CONGLOMERATES - 2.0%
AlliedSignal, Inc. . . . . . . . . . . . . . . 400 26,800
Tyco International Ltd. . . . . . . . . . . . . 800 42,300
--------------
69,100
--------------
CONSTRUCTION & REAL ESTATE - 0.5%
BUILDING MATERIALS - 0.5%
Sherwin-Williams Co. . . . . . . . . . . . . . 300 16,800
--------------
DURABLES - 2.8%
AUTOS, TIRES, & ACCESSORIES - 0.6%
Snap-on Tools Corp. . . . . . . . . . . . . . . 600 21,375
--------------
CONSUMER ELECTRONICS - 0.6%
Black & Decker Corp. . . . . . . . . . . . . . 400 12,050
Newell Co. . . . . . . . . . . . . . . . . . . 300 9,450
--------------
21,500
--------------
HOME FURNISHINGS - 0.7%
Leggett & Platt, Inc. . . . . . . . . . . . . . 700 24,238
--------------
TEXTILES & APPAREL - 0.9%
Jones Apparel Group, Inc. (a) . . . . . . . . . 200 7,475
Nine West Group, Inc. (a) . . . . . . . . . . . 200 9,275
Warnaco Group, Inc. Class A . . . . . . . . . . 400 11,850
--------------
28,600
--------------
TOTAL DURABLES . . . . . . . . . . . . . . . . 95,713
--------------
ENERGY - 7.0%
ENERGY SERVICES - 3.0%
BJ Services Co. (a) . . . . . . . . . . . . . . 400 20,400
Dresser Industries, Inc. . . . . . . . . . . . 600 18,600
Halliburton Co. . . . . . . . . . . . . . . . . 600 36,150
Schlumberger Ltd. . . . . . . . . . . . . . . . 200 19,975
Weatherford Enterra, Inc. . . . . . . . . . . . 200 6,000
--------------
101,125
--------------
OIL & GAS - 4.0%
Anadarko Petroleum Corp. . . . . . . . . . . . 200 12,950
British Petroleum PLC ADR . . . . . . . . . . . 300 42,413
Oryx Energy Co. . . . . . . . . . . . . . . . . 300 7,425
Phillips Petroleum Co. . . . . . . . . . . . . 300 13,275
Royal Dutch Petroleum Co. ADR . . . . . . . . . 200 34,150
Texaco, Inc. . . . . . . . . . . . . . . . . . 100 9,813
Unocal Corp. . . . . . . . . . . . . . . . . . 400 16,250
--------------
136,276
--------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . 237,401
--------------
FINANCE - 12.0%
BANKS - 4.8%
Bank of New York Co., Inc. . . . . . . . . . . 1,600 54,000
BankAmerica Corp. . . . . . . . . . . . . . . . 300 29,925
Citicorp . . . . . . . . . . . . . . . . . . . 300 30,900
NationsBank Corp. . . . . . . . . . . . . . . . 500 48,875
--------------
163,700
--------------
CREDIT & OTHER FINANCE - 0.3%
Household International, Inc. . . . . . . . . . 100 9,225
--------------
FEDERAL SPONSORED CREDIT - 2.1%
Federal Home Loan
Mortgage Corporation . . . . . . . . . . . . . 300 33,038
Federal National Mortgage Association . . . . . 1,000 37,250
--------------
70,288
--------------
INSURANCE - 4.8%
Aetna, Inc. . . . . . . . . . . . . . . . . . . 500 40,000
Allstate Corp. . . . . . . . . . . . . . . . . 900 52,088
AMBAC, Inc. . . . . . . . . . . . . . . . . . . 300 19,913
American International Group, Inc. . . . . . . 100 10,825
MBIA, Inc. . . . . . . . . . . . . . . . . . . 200 20,250
UNUM Corp. . . . . . . . . . . . . . . . . . . 300 21,675
--------------
164,751
--------------
TOTAL FINANCE . . . . . . . . . . . . . . . . . 407,964
--------------
HEALTH - 12.2%
DRUGS & PHARMACEUTICALS - 5.3%
American Home Products Corp. . . . . . . . . . 700 41,038
Bristol-Myers Squibb Co. . . . . . . . . . . . 300 32,625
Merck & Co., Inc. . . . . . . . . . . . . . . . 800 63,400
Pfizer, Inc. . . . . . . . . . . . . . . . . . 100 8,288
Schering-Plough Corp. . . . . . . . . . . . . . 200 12,950
SmithKline Beecham PLC ADR . . . . . . . . . . 300 20,400
--------------
178,701
--------------
MEDICAL EQUIPMENT & SUPPLIES - 3.4%
Baxter International, Inc. . . . . . . . . . . 400 16,400
Becton, Dickinson & Co. . . . . . . . . . . . . 800 34,700
Bergen Brunswig Corp. Class A . . . . . . . . . 700 19,950
Cardinal Health, Inc. . . . . . . . . . . . . . 150 8,738
Johnson & Johnson . . . . . . . . . . . . . . . 400 19,900
St. Jude Medical, Inc. (a) . . . . . . . . . . 400 17,050
--------------
116,738
--------------
MEDICAL FACILITIES MANAGEMENT - 3.5%
Columbia/HCA Healthcare Corp. . . . . . . . . . 1,200 48,900
HEALTHSOUTH Rehabilitation Corp. . . . . . . . 300 11,588
Health Management Associates, Inc.
Class A (a) . . . . . . . . . . . . . . . . . . 600 13,500
Health Care & Retirement Corp. (a) . . . . . . 500 14,313
Tenet Healthcare Corp. (a) . . . . . . . . . . 700 15,313
Vencor, Inc. (a) . . . . . . . . . . . . . . . 500 15,813
--------------
119,427
--------------
TOTAL HEALTH . . . . . . . . . . . . . . . . . 414,866
--------------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
13 ANNUAL REPORT
<PAGE> 14
LARGE CAP PORTFOLIO
INVESTMENTS -- CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
- -------------------------------------------------------------------------------
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 4.1%
ELECTRICAL EQUIPMENT - 2.1%
<S> <C> <C>
General Electric Co. . . . . . . . . . . . . . 600 $ 59,325
Westinghouse Electric Corp. . . . . . . . . . . 600 11,925
--------------
71,250
--------------
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
Caterpillar, Inc. . . . . . . . . . . . . . . . 400 30,100
Ingersoll-Rand Co. . . . . . . . . . . . . . . 400 17,800
Stanley Works (The) . . . . . . . . . . . . . . 700 18,900
--------------
66,800
--------------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT . . . . 138,050
--------------
MEDIA & LEISURE - 4.3%
ENTERTAINMENT - 0.4%
Carnival Cruise Lines, Inc. Class A . . . . . . 400 13,200
--------------
LEISURE DURABLES & TOYS - 0.2%
Hasbro, Inc. . . . . . . . . . . . . . . . . . 200 7,775
--------------
LODGING & GAMING - 2.4%
HFS, Inc. (a) . . . . . . . . . . . . . . . . . 600 35,850
Hilton Hotels Corp. . . . . . . . . . . . . . . 300 7,838
La Quinta Motor Inns, Inc. . . . . . . . . . . 500 9,563
Marriott International, Inc. . . . . . . . . . 500 27,625
--------------
80,876
--------------
PUBLISHING - 0.6%
Knight-Ridder, Inc. . . . . . . . . . . . . . . 300 11,475
Times Mirror Co. Class A . . . . . . . . . . . 200 9,950
--------------
21,425
--------------
RESTAURANTS - 0.7%
Brinker International, Inc. (a) . . . . . . . . 1,000 16,000
Rainforest Cafe, Inc. . . . . . . . . . . . . . 300 7,050
--------------
23,050
--------------
TOTAL MEDIA & LEISURE . . . . . . . . . . . . . 146,326
--------------
NONDURABLES - 7.2%
AGRICULTURE - 0.4%
Pioneer Hi-Bred International, Inc. . . . . . . 200 14,000
--------------
BEVERAGES - 0.8%
Coca-Cola Co. (The) . . . . . . . . . . . . . . 200 10,525
PepsiCo, Inc. . . . . . . . . . . . . . . . . . 600 17,550
--------------
28,075
--------------
FOODS - 1.1%
ConAgra, Inc. . . . . . . . . . . . . . . . . . 100 4,975
General Mills, Inc. . . . . . . . . . . . . . . 200 12,675
Ralston Purina Group . . . . . . . . . . . . . 100 7,338
Sysco Corp. . . . . . . . . . . . . . . . . . . 400 13,050
--------------
38,038
--------------
HOUSEHOLD PRODUCTS - 2.0%
Clorox Co. . . . . . . . . . . . . . . . . . . 100 10,038
First Brands Corp. . . . . . . . . . . . . . . 300 8,513
Gillette Co. . . . . . . . . . . . . . . . . . 200 15,550
Procter & Gamble Co. . . . . . . . . . . . . . 300 32,250
--------------
66,351
--------------
TOBACCO - 2.9%
Philip Morris Companies, Inc. . . . . . . . . . 500 56,313
RJR Nabisco Holdings Corp. . . . . . . . . . . 1,200 40,800
--------------
97,113
--------------
TOTAL NONDURABLES . . . . . . . . . . . . . . . 243,577
--------------
PRECIOUS METALS - 0.3%
Newmont Mining Corp. . . . . . . . . . . . . . 200 8,950
--------------
RETAIL & WHOLESALE - 8.8%
APPAREL STORES - 0.6%
Gymboree Corp. (a) . . . . . . . . . . . . . . 900 20,588
--------------
DRUG STORES - 1.3%
General Nutrition Companies, Inc. (a) . . . . . 900 15,188
Rite Aid Corp. . . . . . . . . . . . . . . . . 700 27,825
--------------
43,013
--------------
GENERAL MERCHANDISE STORES - 1.1%
Dollar General Corp. . . . . . . . . . . . . . 200 6,400
Sears, Roebuck & Co. . . . . . . . . . . . . . 700 32,288
--------------
38,688
--------------
GROCERY STORES - 1.1%
Kroger Co. (The) (a) . . . . . . . . . . . . . 400 18,600
Safeway, Inc. . . . . . . . . . . . . . . . . . 400 17,100
--------------
35,700
--------------
RETAIL & WHOLESALE, MISCELLANEOUS - 4.7%
Circuit City Stores, Inc. . . . . . . . . . . . 800 24,100
Lowe's Companies, Inc. . . . . . . . . . . . . 600 21,300
PETsMART, Inc. (a) . . . . . . . . . . . . . . 1,500 32,813
Staples, Inc. (a) . . . . . . . . . . . . . . . 1,000 18,063
Toys "R" Us, Inc. (a) . . . . . . . . . . . . . 1,700 51,000
Viking Office Products, Inc. . . . . . . . . . 500 13,344
--------------
160,620
--------------
TOTAL RETAIL & WHOLESALE . . . . . . . . . . . 298,609
--------------
SERVICES - 1.4%
ADVERTISING - 0.6%
Omnicom Group, Inc. . . . . . . . . . . . . . . 400 18,300
--------------
SERVICES - 0.8%
CDI Corp. . . . . . . . . . . . . . . . . . . . 600 17,025
Service Corp. International . . . . . . . . . . 400 11,200
--------------
28,225
--------------
TOTAL SERVICES . . . . . . . . . . . . . . . . 46,525
--------------
TECHNOLOGY - 20.8%
COMMUNICATIONS EQUIPMENT - 4.8%
Ascend Communications, Inc. (a) . . . . . . . . 600 37,275
Aspect Telecommunications Corp. . . . . . . . . 100 6,350
Cisco Systems, Inc. (a) . . . . . . . . . . . . 800 50,900
Network General Corp. (a) . . . . . . . . . . . 1,400 42,350
Pairgain Technologies, Inc. . . . . . . . . . . 400 12,175
3Com Corp. (a) . . . . . . . . . . . . . . . . 200 14,675
--------------
163,725
--------------
COMPUTER SERVICES & SOFTWARE - 4.6%
America Online, Inc. (a) . . . . . . . . . . . 300 9,975
American Management Systems, Inc. (a) . . . . . 500 12,250
Automatic Data Processing, Inc. . . . . . . . . 500 21,438
CUC International, Inc. (a) . . . . . . . . . . 1,550 36,813
Computer Sciences Corp. (a) . . . . . . . . . . 200 16,425
Electronic Data Systems Corp. . . . . . . . . . 200 8,650
Equifax, Inc. . . . . . . . . . . . . . . . . . 300 9,188
Forte Software, Inc. . . . . . . . . . . . . . 500 16,375
Oracle Systems Corp. (a) . . . . . . . . . . . 200 8,350
PeopleSoft, Inc. . . . . . . . . . . . . . . . 200 9,588
SunGard Data Systems, Inc. . . . . . . . . . . 200 7,900
--------------
156,952
--------------
See accompanying notes which are an integral part of the financial statements.
ANNUAL REPORT 14
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
- -------------------------------------------------------------------------------
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - 6.7%
<S> <C> <C>
Adaptec, Inc. (a) . . . . . . . . . . . . . . . 1,500 $ 60,000
Bay Networks, Inc. (a) . . . . . . . . . . . . 1,000 20,875
Compaq Computer Corp. (a) . . . . . . . . . . . 200 14,850
International Business Machines Corp. . . . . . 600 90,600
Pitney Bowes, Inc. . . . . . . . . . . . . . . 600 32,700
Silicon Graphics, Inc. . . . . . . . . . . . . 300 7,650
--------------
226,675
--------------
ELECTRONICS - 3.7%
Analog Devices, Inc. (a) . . . . . . . . . . . 500 16,938
Intel Corp. . . . . . . . . . . . . . . . . . . 400 52,375
Linear Technology Corp. . . . . . . . . . . . . 900 39,488
Maxim Integrated Products, Inc. (a) . . . . . . 400 17,300
--------------
126,101
--------------
PHOTOGRAPHIC EQUIPMENT - 1.0%
Eastman Kodak Co. . . . . . . . . . . . . . . . 400 32,100
--------------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . 705,553
--------------
TRANSPORTATION - 0.7%
RAILROADS - 0.7%
CSX Corp. . . . . . . . . . . . . . . . . . . . 600 25,350
--------------
UTILITIES - 4.7%
CELLULAR - 1.0%
360 Degrees Communications Co. (a) . . . . . . 900 20,813
Vodafone Group PLC sponsored ADR . . . . . . . 300 12,413
--------------
33,226
--------------
TELEPHONE SERVICES - 3.7%
Ameritech Corp. . . . . . . . . . . . . . . . . 400 24,250
Cincinnati Bell, Inc. . . . . . . . . . . . . . 100 6,163
Frontier Corp. . . . . . . . . . . . . . . . . 400 9,050
LCI International, Inc. (a) . . . . . . . . . . 500 10,750
MCI Communications Corp. . . . . . . . . . . . 400 13,075
SBC Communications, Inc. . . . . . . . . . . . 800 41,400
WorldCom, Inc. (a) . . . . . . . . . . . . . . 800 20,850
--------------
125,538
--------------
TOTAL UTILITIES . . . . . . . . . . . . . . . . 158,764
--------------
TOTAL COMMON STOCKS
(Cost $2,852,938) . . . . . . . . . . . . . 3,198,406
--------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CASH EQUIVALENTS -- 5.7%
- -------------------------------------------------------------------------------
MATURITY
AMOUNT
<S> <C> <C>
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 6.75%, dated
12/31/96 due 1/2/97 . . . . . . . . . . . . $ 192,072 192,000
--------------
TOTAL INVESTMENT IN SECURITIES - 100%
Cost $3,044,938) . . . . . . . . . . . . . $ 3,390,406
==============
</TABLE>
LEGEND
(a)Non-income producing
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities, aggregated
$3,399,944 and $591,247, respectively.
The fund placed a portion of its portfolio transactions with brokerage firms
which are affiliates of Fidelity Management & Research Company. The commissions
paid to these affiliated firms amounted to $355 for the period (see Note 4 of
Notes to Financial Statements).
INCOME TAX INFORMATION
At December 31, 1996, the aggregate cost of investment securities for income
tax purposes was $3,044,938. Net unrealized appreciation aggregated $345,468,
of which $388,731 related to appreciated investment securities and $43,263
related to depreciated investment securities.
See accompanying notes which are an integral part of the financial statement.
15 ANNUAL REPORT
<PAGE> 16
LARGE CAP PORTFOLIO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
<S> <C>
ASSETS
Investment in securities, at value
(including repurchase agreements
of $192,000) (cost $3,044,938)--
See accompanying schedule . . . . . . . . . . . . . . . . $ 3,390,406
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
Receivable for fund shares sold . . . . . . . . . . . . . . . . . . 235
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . 4,292
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 20
Receivable for expense reductions . . . . . . . . . . . . . . . . . 38,107
------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . 3,433,426
LIABILITIES
Other payables and
accrued expenses . . . . . . . . . . . . . . . . . . . . . 21,942
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,411,484
============
Net Assets consist of:
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,023,210
Accumulated undistributed net
realized gain (loss) on investments . . . . . . . . . . . 42,806
Net unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . . . 345,468
------------
NET ASSETS, for 302,060 shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . $ 3,411,484
============
NET ASSET VALUE, offering price
and redemption price per share
($3,411,484 / 302,060 shares) . . . . . . . . . . . . . . $11.29
======
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
AUGUST 30, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,218
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,702
-----------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . . . . 20,920
EXPENSES
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,211
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . 376
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . 20,052
Non-interested trustees' compensation . . . . . . . . . . . . . . . 1,667
Custodian fees and expenses . . . . . . . . . . . . . . . . . . . . 6,756
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,500
----------
Total expenses before reductions . . . . . . . . . . . . . 50,562
Expense reductions . . . . . . . . . . . . . . . . . . . . (40,246) 10,316
---------- -----------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . 10,604
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities . . . . . . . . . . . . . . . . . . 44,241
Change in net unrealized
appreciation (depreciation)
on investment securities . . . . . . . . . . . . . . . . . 345,468
-----------
NET GAIN (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . 389,709
-----------
NET INCREASE (DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . $ 400,313
==========
</TABLE>
See accompanying notes which are an integral part of the financial statements.
ANNUAL REPORT 16
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
AUGUST 30, 1996
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1996
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,604
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,241
Change in net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . 345,468
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . 400,313
------------
Distributions to shareholders from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,039)
------------
Share transactions
Net proceeds from sales of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,011,171
Reinvestment of distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,039
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS . . . . . . . . . . . . . . . 3,023,210
------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,411,484
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
------------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,411,484
============
OTHER INFORMATION
Shares
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301,006
Issued in reinvestment of distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,054
------------
Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,060
============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
AUGUST 30, 1996
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1996
<S> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00
---------
Income from Investment Operations
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.29
---------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.33
---------
Less Distributions
From net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.04)
---------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.29
=========
TOTAL RETURN (B,C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.30%
RATIOS AND SUPPLEMENT DATA
Net assets, end of period (000 omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,411
Ratio of expenses to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95%(A)
Ratio of net investment income to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98%(A)
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57%(A)
Average commission rate(D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .0214
</TABLE>
(A) Annualized
(B) Total returns for periods of less than one year are not annualized.
(C) The total return would have been lower had certain expenses not been
reduced during the period shown (see Note 5 of Notes to Financial
Statements).
(D) A fund is required to disclose its average commission rate per share for
security trades on which commissions are changed. This amount may vary
from period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
17 ANNUAL REPORT
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES.
Equity Income Portfolio and Large Cap Portfolio (the funds) are funds of The
Travelers Series Trust (the trust) and are authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act of
1940, as amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The financial statements have been
prepared in conformity with generally accepted accounting principles which
permit management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the funds:
SECURITY VALUATION. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities (including restricted securities) for which
exchange quotations are not readily available (and in certain cases debt
securities which trade on an exchange) are valued primarily using
dealer-supplied valuations or at their fair value as determined in good faith
under consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued at
amortized cost or original cost plus accrued interest, both of which
approximate current value.
INCOME TAXES. Each fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By so qualifying, each fund
will not be subject to income taxes to the extent that it distributes
substantially all of its taxable income for the fiscal year. The schedules of
investments include information regarding income taxes under the caption
"Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date, except
certain dividends from foreign securities where the ex-dividend date may have
passed, are recorded as soon as the funds are informed of the ex-dividend date.
Non-cash dividends included in dividend income, if any, are recorded at the
fair market value of the securities received. Interest income is accrued as
earned. Investment income is recorded net of foreign taxes withheld where
recovery of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the funds
in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences may result in distribution reclassifications.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid in capital and may affect the
per-share allocation between net investment income and realized and unrealized
gain (loss). Accumulated undistributed net realized gain (loss) on investments
may include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the funds, along with affiliated entities of Fidelity
Management & Research Company (FMR), may transfer uninvested cash balances into
one or more joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of purchase
for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the funds, or to the Joint Trading
Account, at a bank custodian. The securities are marked-to-market daily and
maintained at a value at least equal to the principal amount of the repurchase
agreement (including accrued interest). FMR, the funds' investment sub-adviser,
is responsible for determining that the value of the underlying securities
remains in accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The funds are permitted to invest in securities that are
subject to legal or contractual restrictions on resale. These securities
generally may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the period, the funds had no
investments in restricted securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than short-term
securities) is included under the caption "Other Information" at the end of
each applicable fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As each fund's investment adviser, Travelers Asset Management
International Corporation (TAMIC), an affiliate of The Travelers Insurance
Company (The Travelers), receives a fee that is computed daily at an annualized
rate of .75% of each fund's average net assets. TAMIC, on behalf of each fund,
has entered into a sub-advisory agreement with FMR. For its services as each
fund's sub-adviser, FMR is paid a portion of TAMIC's
ANNUAL REPORT 18
<PAGE> 19
4. FEES AND OTHER TRANSACTION WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
management fee that is computed daily at an annualized rate of .45% of each
fund's average net assets.
TRANSFER AGENT FEES. The Travelers is each fund's transfer, dividend
disbursing, and shareholder servicing agent. The trust, on behalf of each fund,
has entered into a sub-arrangement with Fidelity Investments Institutional
Operations Company (FIIOC), an affiliate of FMR, under which FIIOC performs
each fund's transfer, dividend disbursing, and shareholder servicing agent
functions. For its services, FIIOC receives account fees and asset-based fees
that vary according to account size and type of account.
ACCOUNTING FEES. The trust, on behalf of each fund, has entered into a service
agent agreement with Fidelity Service Co. (FSC), an affiliate of FMR, under
which FSC maintains each fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. Certain funds placed a portion of their portfolio
transactions with brokerage firms which are affiliates of FMR. The commissions
paid to these affiliated firms are shown under the caption "Other Information"
at the end of each applicable fund's schedule of investments.
5. EXPENSE REDUCTIONS.
The Travelers voluntarily agreed to reimburse each funds' operating expenses
above an annual rate of .95% of average net assets. For the period, the
reimbursement reduced expenses by $40,114 and $40,246 for Equity Income
Portfolio and Large Cap Portfolio, respectively. Through an arrangement
between The Travelers and Fidelity Investments Institutional Services Co., Inc.
(FIIS), an affiliate of FMR, FIIS has agreed to pay The Travelers a portion of
these reimbursements.
6. BENEFICIAL INTEREST.
At the end of the period, The Travelers, its affiliates and Separate Accounts
of The Travelers were record owners of approximately 100% of the total
outstanding shares of each fund.
19 ANNUAL REPORT
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of The Travelers Series Trust and the Shareholders of Equity
Income Portfolio and Large Cap Portfolio:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for Moody's and Standard &
Poor's ratings), and the related statements of operations and changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of Equity Income Portfolio and Large Cap Portfolio
(funds of The Travelers Series Trust) at December 31, 1996, and the results of
their operations, the changes in their net assets and the financial highlights
for the period August 30, 1996 (commencement of operations) through December
31, 1996 in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of The Travelers Series Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1997
ANNUAL REPORT 20
<PAGE> 21
DISTRIBUTIONS
The Board of Trustees of The Travelers Series Trust voted to pay to
shareholders of record at the opening of business on record date, the following
distributions derived from capital gains realized from sales of portfolio
securities:
<TABLE>
<CAPTION>
PAY DATE RECORD DATE CAPITAL GAINS
<S> <C> <C> <C>
Equity Income Portfolio 2/7/97 2/7/97 $.03
Large Cap Portfolio 2/7/97 2/7/97 $.14
</TABLE>
21 ANNUAL REPORT
<PAGE> 22
ANNUAL REPORT 22
<PAGE> 23
23 ANNUAL REPORT
<PAGE> 24
INVESTMENT ADVISER
Travelers Asset Management International Corporation
Hartford, Connecticut
INVESTMENT SUB-ADVISER
Fidelity Management & Research Company
Boston, Massachusetts
INDEPENDENT ACCOUNTANTS
Price Waterhouse
Boston, Massachusetts
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Series Trust: Equity Income or Large
Cap Portfolios. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity Insurance products
offered by the Travelers Insurance Company or the Travelers Life and Annuity
Company and the prospectuses for the underlying funds, which collectively
contain all pertinent information, including the applicable sales commissions.
