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JANUARY 15, 1997 SUPPLEMENT TO
PROSPECTUS DATED JULY 31, 1996
THE TRAVELERS SERIES TRUST
The following information supplements the Prospectus dated July 31, 1996 for the
Travelers Series Trust and its portfolios.
Effective January 15, 1997, the Mid Cap Disciplined Equity Fund (or
"Portfolio"), is being added as a new series of shares under The Travelers
Series Trust. Information relating to the new Portfolio, its investment
objectives, policies and investment risks, as well as the investment adviser and
subadviser, are provided below.
INVESTMENT OBJECTIVE
The investment objective of the Mid Cap Disciplined Equity Fund is to
seek growth of capital by investing primarily in a broadly diversified portfolio
of U.S. common stocks.
The investment subadviser's approach to equity management is designed
to provide diversified exposure to the mid and small capitalization segments of
the U.S. equity market. Travelers Investment Management Company ("TIMCO")
selects stocks with a primarily quantitative screening process that seeks
attractive relative value and earnings growth. In order to achieve consistent
relative performance, TIMCO manages the portfolio to mirror the overall risk,
sector weightings and style characteristics of the Standard & Poor's 400 stock
index ("S&P 400 Index"). The S&P 400 Index is a value-weighted stock index
consisting of 400 mid-sized U.S. companies.
Stock selection is based on the intersection of various appraisal
models reflecting valuation, earnings, and relative price performance. Valuation
rankings are derived by comparing price/earnings ratios relative to expected
long-term earnings growth. Stocks are also ranked on the trend and magnitude of
reported earnings, earnings surprises and changes in analysts' earnings
estimates. These fundamental appraisal factors are supplemented by an analysis
of short-term price changes exhibited by individual securities that deviate
significantly from related industry group performance.
Portfolio decision-making follows a disciplined process. Stocks which
are ranked favorably by TIMCO's appraisal models are reviewed by a team of
senior portfolio managers. A sophisticated risk model is used to evaluate each
stock's potential contribution to overall portfolio risk. Stocks that are
determined to be underpriced on a risk-adjusted basis are overweighted in the
portfolio relative to the S&P 400 Index.
Conversely, TIMCO will sell a stock holding if the earnings outlook for
the issuing company becomes less favorable or the stock's valuation is no longer
attractive relative to the company's expected growth rate or risk.
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The Mid Cap Disciplined Equity Fund will use exchange-traded financial
futures contracts consisting of stock index futures contracts and futures
contracts on debt securities ("interest rate futures") as a hedge to protect
against changes in stock prices or interest rates. A stock index futures
contract is a contractual obligation to buy or sell a specified index of stocks
at a future date for a fixed price.
The Mid Cap Disciplined Equity Fund will not purchase or sell futures
contracts for which the aggregate initial margin exceeds 5% of the fair market
value of its assets, after taking into account unrealized profits and losses on
any such contracts which it has entered into. When a futures contract is
purchased, the Mid Cap Disciplined Equity Fund will set aside an amount of cash
and cash equivalents equal to the total market value of the futures contract,
less the amount of the initial margin. At no time will the Mid Cap Disciplined
Equity Fund's transactions in such futures be used for speculative purposes.
All financial futures contracts will be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC"). To
ensure that its futures transactions meet CFTC standards, the Mid Cap
Disciplined Equity Fund will enter into futures contracts for hedging purposes
only (i.e., for the purposes or with the intent specified in CFTC regulations
and interpretations, subject to the requirements of the Securities and Exchange
Commission).
The Mid Cap Disciplined Equity Fund may write covered call options on
portfolio securities for which call options are available and which are listed
on a national securities exchange. It may also purchase index or individual
equity call options as an alternative to holding stocks or stock index futures,
or purchase index or individual equity put options as a defensive measure.
RISK FACTORS
There can, of course, be no assurance that the Mid Cap Disciplined
Equity Fund will achieve its investment objective since there is uncertainty in
every investment. Equity securities are subject to financial risks relating to
the earning stability and overall financial soundness of an issue. They are also
subject to market risks relating to the effect of general changes in the
securities market on the price of a security. In addition, there may be more
risk associated with the Mid Cap Disciplined Equity Fund to the extent that it
invests in small or mid-sized companies. More risk is associated with investment
in small or mid-sized companies than with larger companies because such
companies may be dependent on only one or two products and may be more
vulnerable to competition from larger companies with greater resources and to
economic conditions affecting their market sector. Small or mid-sized companies
may be new, without long business or management histories, and perceived by the
market as unproven. Their securities may be held primarily by insiders or
institutional investors, which may affect marketability. The prices of these
stocks often fluctuate more than the overall stock market.
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FUNDAMENTAL INVESTMENT POLICIES
The investment policies of the Mid Cap Disciplined Equity Fund are fundamental
and may not be changed without a vote of the majority of the outstanding voting
securities of the Fund, as defined in the Investment Company Act of 1940 ("1940
Act"). These policies permit the Fund to:
1. invest up to 5% of its assets in the securities of any one issuer;
2. borrow money from banks in amounts of up to 10% of its assets,
but only as a temporary measure for emergency or extraordinary
purposes;
3. pledge up to 10% of its assets to secure borrowings;
4. invest up to 25% of its assets in the securities of issuers in the
same industry; and
5. invest up to 10% of its assets in repurchase agreements
maturing in more than seven days and securities for which market
quotations are not readily available.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental and may not
be changed without a vote of a majority of the outstanding voting securities of
the Mid Cap Disciplined Equity Fund, as defined in the 1940 Act. The Mid Cap
Disciplined Equity Fund may not:
1. invest more than 5% of its total assets, computed at market
value, in the securities of any one issuer;
2. invest in more than 10% of any class of securities of any one
issuer;
3. invest more than 5% of the value of its total assets in companies
which have been in operation for less than three years;
4. borrow money, except to facilitate redemptions or for emergency or
extraordinary purposes and then only from banks and in amounts of
up to 33 1/3% of its gross assets computed at cost; while
outstanding, a borrowing may not exceed one-third of the value of
its net assets, including the amount borrowed; the Mid Cap
Disciplined Equity Fund has no intention of attempting to increase
its net income by means of borrowing and all borrowings will be
repaid before additional investments are made; assets pledged to
secure borrowings shall be no more than the lesser of the amount
borrowed or 10% of the gross assets of the Mid Cap Disciplined
Equity Fund computed at cost;
5. underwrite securities, except that the Mid Cap Disciplined Equity
Fund may purchase securities from issuers thereof or others and
dispose of such securities in a manner consistent with its other
investment policies; in the disposition of restricted securities
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the Account may be deemed to be an underwriter, as defined in the
Securities Act of 1933 (the "1933 Act");
6. purchase real estate or interests in real estate, except through
the purchase of securities of a type commonly purchased by
financial institutions which do not include direct interest in
real estate or mortgages, or commodities or commodity contracts,
except transactions involving financial futures in order to limit
transaction and borrowing costs and for hedging purposes as
described above;
7. invest for the primary purpose of control or management;
8. make margin purchases or short sales of securities, except for
short-term credits which are necessary for the clearance of
transactions, and to place not more than 5% of its net asset value
in total margin deposits for positions in futures contracts;
9. make loans, except that the Mid Cap Disciplined Equity Fund may
purchase money market securities, enter into repurchase
agreements, buy publicly and privately distributed debt securities
and lend limited amounts of its portfolio securities to
broker-dealers; all such investments must be consistent with the
Account's investment objective and policies;
10. invest more than 25% of its total assets in the securities of
issuers in any single industry;
11. purchase the securities of any other investment company, except
in the open market and at customary brokerage rates and in no
event more than 3% of the voting securities of any investment
company;
12. invest in interests in oil, gas or other mineral exploration or
development programs; or
13. invest more than 5% of its net assets in warrants, valued at the
lower of cost or market; warrants acquired by the Account in units
or attached to securities will be deemed to be without value with
regard to this restriction. The Mid Cap Disciplined Equity Fund is
subject to restrictions in the sale of portfolio securities to,
and in its purchase or retention of securities of, companies in
which the management personnel of TIMCO have a substantial
interest.
The Mid Cap Disciplined Equity Fund may make investments in an amount
of up to 15% of the value of its net assets in restricted securities which may
not be publicly sold without registration under the 1933 Act. In most instances
such securities are traded at a discount from the market value of unrestricted
securities of the same issuer until the restriction is eliminated. If and when
the Mid Cap Disciplined Equity Fund sells such portfolio securities, it may be
deemed an underwriter, as such term is defined in the 1933 Act, with respect
thereto, and registration of such securities under the 1933 Act may be required.
The Mid Cap Disciplined Equity Fund will not bear the expense of such
registration. The Mid Cap Disciplined Equity Fund intends to reach
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agreements with all such issuers whereby they will pay all expenses of
registration. In determining securities subject to the 15% limitation, the Mid
Cap Disciplined Equity Fund will include, in addition to restricted securities,
repurchase agreements maturing in more than seven days and other securities not
having readily available market quotations.
PORTFOLIO TURNOVER
Although the Mid Cap Disciplined Equity Fund intends to invest in
securities selected primarily for prospective capital growth and does not intend
to place emphasis on obtaining short-term trading profits, such short-term
trading may occur. A high turnover rate should not be interpreted as indicating
a variation from the stated investment policy. It will normally increase the Mid
Cap Disciplined Equity Fund's brokerage costs. The Portfolio turnover rate is
anticipated to be approximately 100%-125%.
FUND EXPENSES
Pursuant to a Management Agreement dated October 25, 1996 between the Series
Trust and the Travelers, the Company agreed to reimburse the Series Trust for
the amount by which each Portfolio's aggregate annual expenses (including
investment advisory fees, but excluding brokerage commissions, interest charges
and taxes) exceed a percentage of each Portfolio's average net assets for any
fiscal year. For the Mid Cap Disciplined Equity Fund, the amount equals
.95%. There is, however, no guarantee of fund expense reimbursements by
Travelers.
For its first year, the Mid Cap Disciplined Equity Fund's expenses are
anticipated to be .25%, not including management fees. The subadvisory fee, as
described below, is paid by the Investment Adviser.
INVESTMENT ADVISER AND SUBADVISER
The investment adviser to the Portfolio is Travelers Asset Management
International Corporation (TAMIC). TAMIC is a registered investment adviser that
has provided investment advisory services since its incorporation in 1978. Its
principal offices are located at One Tower Square, Hartford, Connecticut, and it
is an indirect wholly owned subsidiary of Travelers Group Inc., a financial
services holding company. TAMIC also acts as investment adviser or subadviser
for other investment companies used to fund variable products, as well as for
individual and pooled pension and profit-sharing accounts, and for domestic and
offshore insurance companies affiliated with The Travelers Insurance Company.
For its investment advisory services, TAMIC receives a fee, equal, on an annual
basis, to .70% of the Portfolio's average daily net assets.
The subadviser to the Portfolio is Travelers Investment Management Company
(TIMCO), a registered investment adviser that has provided investment advisory
services since its incorporation in 1967. Its principal offices are located at
One Tower Square, Hartford, Connecticut, and it is a wholly owned subsidiary of
Smith Barney Holdings Inc., which is a wholly owned subsidiary of Travelers
Group Inc. TIMCO also acts as investment adviser or subadviser for other
investment companies used to fund variable products, as well as for individual
and
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pooled pension and profit-sharing accounts, and for affiliated companies of
The Travelers Insurance Company. For its investment subadvisory services, TIMCO
receives a fee from TAMIC equal, on an annual basis, to 0.35% of the Portfolio's
average daily net assets.
INVESTMENT PROFESSIONALS
The investment professionals responsible for the daily operations of the
Fund are Kent A. Kelley, Sandip A. Bhagat and Jake E. Hurwitz. Mr. Kelley is
Chief Executive Officer, and a director of TIMCO. He has been with Travelers
since 1976. In addition to earning a Bachelors degree from New York University
and a Masters degree from Yale University, Mr. Kelley is also a Chartered
Financial Analyst.
Mr. Bhagat is President and a director of TIMCO. He has been with Travelers
since 1987. In addition to a Bachelors of Science degree from the University of
Bombay, he also earned two Masters degrees (in Chemical Engineering and in
Finance) from the University of Connecticut. Mr. Bhagat was designated a
Chartered Financial Analyst in 1991.
Mr. Hurwitz is a senior portfolio manager for TIMCO. He has been with Travelers
since 1986. Mr. Hurwitz earned a Bachelors of Arts degree from Vanderbilt
University and two Masters degrees; one from the University of California
(History) and one from New York University (Business Administration: Finance and
International Business). Mr. Hurwitz received his Chartered Financial Analyst
designation in 1984.
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