THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 1997
MANAGED ASSETS TRUST HIGH
YIELD BOND TRUST
CAPITAL APPRECIATION FUND CASH INCOME TRUST
THE TRAVELERS SERIES TRUST:
U.S. Government Securities
Portfolio Social Awareness Stock
Portfolio Utilities Portfolio
[TRAVELERSLIFE LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
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Dear Shareholder:
We are pleased to provide the semi-annual report for
Managed Assets Trust, High
Yield Bond Trust, Capital Appreciation Fund, Cash Income
Trust and The Travelers
Series Trust (U.S. Government Securities, Social Awareness
Stock and Utilities
Portfolios) for the period ended June 30, 1997. Please
note that the
commentaries for The Travelers Series Trust begin on page
35 of this report. In
this letter, we briefly discuss general economic and
market conditions. In
addition, more detailed comparisons showing the growth of
a hypothetical $10,000
invested in each Trust or Portfolio since its inception
date can be found in
this report. A more detailed summary of performance and
current holdings for
each Trust or Portfolio can be found in the appropriate
sections that follow.
ECONOMIC REVIEW AND OUTLOOK
Economic activity in the first quarter of 1997 showed
surprising strength as
real Gross Domestic Product ("GDP") growth rose well above
5%. Despite the
unexpected strength in the economy and a decline in
unemployment to about 5%,
reported inflation remained low. However, the stronger
U.S. economy, reflected
in both a tight labor market and a high capacity
utilization rate, sparked
concerns about rising future inflation and prompted an
increasingly vigilant
Federal Reserve Board ("Fed") to raise the federal-funds
rate by 25 basis points
(0.25%) on March 25, 1997. (The federal-funds rate is the
interest rate banks
charge each other for overnight loans and is a closely
watched indicator of the
direction of interest rates.) Concerns of higher interest
rates triggered a
correction in both the stock and bond markets at the end
of the first quarter of
1997.
The key economic news in the second quarter of 1997 was a
distinct slowdown in
economic growth and surprisingly low inflation. Both stock
and bond market
investors drew relief from these developments as the
prospects of further Fed
tightening receded. Interest rates fell from above 7% to
6.8% by the end of the
second quarter of 1997 and the stock market began a
furious rally that saw stock
prices rise by almost 20%.
The second quarter of 1997 began with a singular focus on
the future direction
of Fed action. After an increase of 25 basis points in the
federal-funds rate in
late March on the heels of strong economic growth in the
first quarter, it was
considered quite likely that rates would rise during the
second quarter. The
prospect of higher rates created turmoil within the U.S.
capital markets and
stocks, in particular, were hit hard in early April.
Economic data released in
early May provided mounting evidence of a slower economy
and low inflation.
Retail sales for April were soft and producer prices
showed a dramatic decline
of 0.4%. The consensus forecast for second quarter real
economic growth has now
dropped below 2%.
The inflation trend in recent months has been nothing
short of remarkable,
especially in light of the low unemployment rate and high
capacity utilization
rates in the U.S. economy. The consumer price deflator,
which is considered to
be a better inflation measure than the consumer price
index ("CPI"), fell to a
30-year low in May at an annual rate of 1.6%. Gains in
average hourly wages, a
closely monitored signal of wage inflation, have slowed
from 4.1% to 3.5%.
Commodity price indexes are declining, oil prices are
falling and the price of
gold is now below $320, its lowest level in five years. In
other words,
inflation just does not appear to be an issue at this
point.
The biggest contributing factor in the demise of inflation
appears to be the
significant gains in productivity achieved over the last
few years. It is widely
acknowledged that conventional measures of productivity
gains are being
understated and, under that scenario, lower-than-expected
inflation may be
explained by higher-than-expected productivity gains.
Several other factors also
suggest that the current disinflationary trend is likely
to be both secular and
global in nature. These include a high level of
disinflation in the growing
technology sector, significant government downsizing and
severe global
competition.
The second quarter rally in the stock and bond markets
suggests that investors
have reduced their inflation expectations and,
consequently, the likelihood of
further Fed tightening. In our view, the biggest risk to
the presently benign
investment climate looms on the economic landscape. A
resurgence of economic
growth in the second half of the year may prompt the Fed
to act yet again on a
preemptive basis to choke off inflationary pressures.
Strong retail sales may
well hold the key to a reacceleration in third quarter
economic growth. The
boost in consumer spending could come from any one of
several sources: increased
refinancing activity, the wealth effect of a stronger
stock market, record
levels of consumer confidence and the recent strong growth
in real disposable
personal income.
While the relatively high real yield levels in the bond
market suggests that
bond investors still remain wary of an increase in
inflation, we think the stock
market is clearly vulnerable to such a development.
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FIXED INCOME COMMENTARY
Bond prices also rose higher in the second quarter. The
Lehman Long
Government/Corporate Index performed the best with a gain
of 5.5% as interest
rates fell below 7%. The yield curve became flatter as the
spread between long-
and short-term bonds narrowed by 0.20% in the quarter.
Stronger growth with low inflation has been good for bonds
as it has reduced
government financing needs. Low inflation coupled with a
declining budget
deficit provides positive support for the bond market.
Going forward, the
bullish case for bonds can be attributed to a reduced
budget deficit and the
absence of inflation in final goods pricing. While wages
may be drifting higher,
so are productivity gains due to technological
improvements. At the same time,
global competition and an 8.5% year-to-date increase in
the trade weighted
dollar should prevent higher product inflation. Year-over
year Producer Price
Index ("PPI") statistics show no signs of price pressures,
and CPI has been at a
2.0% to 2.5% rate for the past few years. Additionally,
the CPI is generally
agreed to be overstated and the government may be in the
process of gradually
reducing this upward basis.
The key question for the markets will be the pace of
growth in the second half
of the year and how the bond market and Fed react to it.
We do not believe that
growth necessarily leads to further inflation on the
finished goods side. As
long as wage growth is offset by productivity increases,
higher growth with low
unemployment does not have to lead to a rise in inflation.
However there is
still much debate on what the market and the Fed think
about the relationship
between economic growth and inflation. If growth is above
3%, the market may
still expect higher inflation or the Fed may raise rates
on a preemptive basis.
Within the fixed income markets, spreads remain tight and
there is a high level
of complacency. Within the corporate market, spreads
remain compressed between
different quality levels and "riskier" borrowers have
access to an abundance of
capital. This condition is unlikely to change in the near
term as good economic
growth has reduced the stress on weaker credits. High
issues of Collateralized
Bond Obligations ("CBO") have created a new class of buyer
for lower quality
issues, one that is more concerned with default likelihood
rather than relative
pricing. Mortgage-backed spreads have tightened as market
volatility has been
low and prepayments have been within their predicted
range. Mortgage spreads are
unlikely to widen much as long as government agencies such
as Federal National
Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation
("FHLMC") are quick to arbitrage any spread widening.
Corporate spreads are
likely to take their cues from the high yield and equity
markets. As long as
these remain well bid for, high quality spreads should
remain firm.
Historically, October has been a month when spreads have
become wider and we
would therefore, not be surprised to see some modest
pressure on spreads as the
fourth quarter begins.
EQUITY COMMENTARY
The U.S. stock market continues to be in one of the
strongest bull market runs
ever. Stock prices have now doubled over the last two and
a half years and
almost tripled in the last five years in an ideal
investment climate of solid
economic growth, low inflation and strong corporate
profits growth.
The year 1997 began on a positive note for the stock
market. Fueled by strong
fourth quarter earnings and robust money flows into mutual
funds, the Standard &
Poor's 500 Composite Stock Index ("S&P 500") gained over
7% in January and
February, and continued to move to new highs in early
March. However, as
evidence of unexpectedly robust economic growth came to
hand, investors became
increasingly concerned about the risk of higher inflation
and interest rates.
The Fed raised short-term rates in March, and long-term
Treasury bond yields
moved back over the psychologically important 7% level.
The upward spike in interest rates triggered a sharp sell
off in the stock
market during the last week of March, erasing most of the
market's year-to-date
gains. For the entire first quarter, the S&P 500 edged out
a 2.7% gain with
dividends. Small capitalization issues generally fared
worse. During the first
three months of 1997, the Russell 2000 Stock Index
declined 5.5% in value.
The second quarter of 1997 was the best quarter for the
U.S. stock market in
over ten years. The stock market rally was broad in nature
lifting most stocks
and indexes to record high levels. The S&P 500 soared by
17.44% in the second
quarter, the Russell 2000 Index rose 16.2% and the Nasdaq
Composite Index
performed even better with a gain of 18.0%. (The S&P 500
is an unmanaged
capitalization-weighted index of 500 widely held common
stocks. The Russell 2000
Index is made up of 2,000 smaller-capitalized U.S.-based
companies whose common
stocks trade on either the New York, American or Nasdaq
stock exchanges. The
Nasdaq Composite Index is a capitalization-weighted index
of all stocks which
trade on Nasdaq.)
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As noted, the stock market got off to a rocky start in
April as the effects of
the Fed rate hike from late March rippled through the
capital markets. The S&P
500 sold off a low of 733 and the Dow Jones Industrial
Average retreated to
almost 6300 on April 14, 1997, as investors focused on the
likelihood of higher
rates. The investor mood swing to optimism was triggered
by the release of solid
first quarter earnings in April and the market rally began
in real earnest when
inflation reports in early May showed a significant
decline in producer and
consumer prices.
First quarter 1997 corporate earnings were again ahead of
expectations. The
final tally on the earnings scorecard showed that 54% of
all companies reported
earnings in excess of expectations while 31% of companies
disappointed relative
to the consensus. The preponderance of positive earnings
surprises continues a
trend which now extends to 17 consecutive quarters and is
unprecedented in terms
of duration or magnitude. Moreover, the agreement on a
balanced budget in
Washington and the prospects of a lower capital gains tax
added further fuel to
the stock market rally in the middle of the quarter. The
flood of liquidity into
the market continued unabated in the second quarter and
put more buying pressure
on stocks.
There are no indications right now to suggest that
earnings are at any great
risk in the near term. The earnings preannouncement season
at the end of the
quarter, when companies typically confess to upcoming
earnings shortfalls, was
uneventful and early second quarter earnings seem to be
quite strong.
There are no visible signs on the horizon that inflation
is
likely to flare up
in the near future. The employment cost index and hourly
wage gains are likely
to be the most closely monitored gauges of expected
inflation. We believe the
biggest risk on the interest rate front lies in a stronger
than-expected economy
in the second half. In fact, the Fed may be inclined to
respond to strong
economic data even before it begins to affect inflation
measures.
We remain cautious on the U.S. stock market. With all the
good news already
reflected in stock prices, the stock market has virtually
no margin for error.
We suspect that any unpleasant surprise will be enough
provocation to trigger a
correction. The market will focus on earnings or interest
rates for any negative
developments but any wild card surprise such as an oil
price shock could mean
trouble. The positive long-term trends toward low
inflation and lower interest
rates should, however, contain the downside in the stock
market and limit any
correction to the traditional 10% to 15% range from prior
highs.
Foreign stock markets also enjoyed a strong second quarter
with the Morgan
Stanley Capital International Europe Australia Far East
index ("MSCI EAFE")
rising by 13.0% in U.S. dollar terms. (The MSCI EAFE Index
consists of the
equity total returns for Europe, Australia, New Zealand
and the Far East.) The
bull market in global stocks also saw the Latin America
index advance by 22.5%
in the second quarter while the emerging markets index
gained 8.6% in U.S.
dollar terms.
MANAGED ASSETS TRUST
Managed Assets Trust gained 10.9% in the second quarter of
1997 while the 60/40%
S&P 500/Lehman Government/Corporate Index advanced by
11.8%. For the first half
of 1997, Managed Assets Trust enjoyed a total return of
11.82%.
The first half of 1997 provided stock market investors
with a glimpse of the
"best of all worlds" scenario, combining solid economic
growth, the lowest level
of inflation seen in a decade, a balanced budget agreement
out of Washington,
the promise of lower capital gains taxes, strong corporate
earnings growth,
merger activity rivaling the late 1980s and an abundance
of liquidity.
As a result, the U.S. stock market remains in one of the
strongest bull market
runs ever. The second quarter, in particular, was the best
quarter for the U.S.
stock market in over ten years. Virtually all sectors of
the stock market
reached new highs in the first half of 1997.
The U.S. bond market also rose higher in the second
quarter. The Lehman
Long-Term Bond Index performed the best with a gain of
5.5% as interest rates
fell below 7% in the second quarter. The yield curve
became flatter as the
spread between long-and short-term bonds narrowed by 20
basis points in the
quarter.
The dominant theme in the U.S. capital markets in the
second quarter was the
disappearing act staged by inflation. The remarkable good
news on the inflation
front finally seemed to get bond investors' attention as
the yield on long-term
bonds began to move lower. Stock market investors, on the
other hand, simply
accelerated their frenzied rush into stocks which
continues to drive valuations
higher.
The stock and bond markets have offered an interesting
contrast in terms of
their somewhat asymmetrical views on future inflation.
Even with a drop in
interest rates to 6.8% at the end of June, the bond market
is still fairly
cautious in terms of inflation expectations and future Fed
actions. It can well
be argued that inflation has been running close to 2% over
the last
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several months and yet the bond market has consistently
priced real rates at
fairly high levels. Real federal funds rates have been
around 3.3% and real long
term rates have been at about 4.7%, levels considerably
higher than the
historical average. To put these interest rates in
perspective, real Fed funds
rates peaked at 3.3% during the tightening monetary period
in 1987 whereas they
have traded at those levels for several months now.
The bond market, therefore, has been unwilling to give
ground to inflation and
has remained skeptical about the sustainability of this
low inflation. The
conservative reaction in the bond market leaves it better
prepared to deal with
an inflation shock or further Fed tightening.
The stock market has been far more enthusiastic in its
reaction to low
inflation. For that matter, stocks have been quick to
impound into prices all
the good news on the economic and earnings front as well.
Unlike the bond
market, stock prices have quickly adjusted to good news as
soon as it has become
available. The resulting high valuation levels in the
stock market now leave it
vulnerable to any disappointment on either the inflation
or earnings front.
As a result of this disparate investor behavior, the stock
market has been able
to far outperform the bond market over the last 18 months.
The return to risk
reward for stock investors has been even more favorable as
stock market
volatility has remained unusually low over the same
period.
Valuations in the stock market continue to be stretched.
The 12-month forward
P/E multiple on the S&P 500 now stands at 18.4 times which
is a record high over
the last 25 years. By most valuation measures, we believe
the market is between
10% and 15% overvalued.
We remain cautious on the U.S. stock market. With all good
news already
reflected in stock prices, the stock market has virtually
no margin for error.
We suspect that any unpleasant surprise will be enough
provocation to trigger a
correction. As we discussed earlier, the bond market has
refrained from building
up a similar level of excess and, therefore, offers better
value than stocks at
this point. We recommend a small underweight position in
U.S. stocks at this
point.
HIGH YIELD BOND TRUST
For the six months ended June 30, 1997, the High Yield
Bond Trust had a total
return of 8.13%. The Portfolio began the second quarter of
1997 with a high cash
balance comprising roughly 24% of the Portfolio. While the
Portfolio performed
well in the second quarter of 1997, its high cash position
penalized its
performance as the high yield bond market rallied. The
following issues had a
positive impact on the Portfolio's performance: Diamond
Cable, Florist
Transworld, Food 4 Less, ICF Kaiser, Syratech, SFX
Broadcasting and United
International Holdings.
The high yield bond market recovered from its modest
return of 1.47% in the
first quarter of 1997 to post a solid 4.32% for the second
quarter of 1997.
Lower-quality high yield bonds outperformed the BB-sector
as
the sound economic
outlook lifted the riskier credit issues over the near
term.
The high yield bond market has continued to rally on
strong demand from both new
investors and mutual funds. Given the market's strong
condition, we have seen a
record amount of new high yield bond issuance (more than
$60 billion) during the
first six months of this year. Moreover, during the past
twelve months there has
been a meaningful increase in the number of structured
transactions
incorporating high yield securities that has caused the
demand for high yield
bonds to rise even more. In the past two years, a number
of institutions,
particularly insurance companies, have begun to create
collateralized bond
obligations (CBOs) that use high yield securities as
collateral. Given the
intense demand on the part of many investors for current
yield the past year has
resulted in a significant increase in the creation of
CBOs. The amount of total
capital invested in the high yield bond market has risen
to record levels.
CAPITAL APPRECIATION FUND
In the second quarter, stocks registered their best
performance since the first
quarter of 1987. Large stocks remained the clear market
leaders, but smaller
companies also performed well, which made for a much
healthier overall market.
The S&P 500 gained 17.44% for the quarter. For the six
months ended June 30,
1997, the Fund generated a total return of 16.88% versus
the 20.6% for the S&P
500 over the same period.
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We continue to enjoy excellent economic conditions, with
little inflation, low
interest rates and increasing productivity. In sum, it is
still a very good
environment for financial assets. Raw materials as well as
labor are plentiful
internationally, which brought about deflation in many
core commodity prices as
the quarter ended -- copper, aluminum, grains and gold all
declined
significantly -- and continues to restrain inflationary
wage pressures. The
Fed's decision not to raise interest rates at both its May
and July meetings was
a further endorsement of the economy's basic health and
stability. Finally, the
budget process in Washington, D.C. is providing an
encouraging backdrop for
financial markets.
This quarter we experienced substantial gains in many of
our holdings, despite
some lingering cross-currents in technology as the quarter
began, when it proved
difficult to sort out the prospects for a few large
technology positions. In
spite of this ebb and flow, we posted good returns with
Microsoft Corp. and
Lucent Technologies. Microsoft, the dominant presence in
PC and network
operating systems, is beginning another upgrade cycle for
its NT, Office and
Windows products. Earnings are very consistent, not only
due to product demand
but also because Microsoft employs conservative accounting
methods. Lucent has
made a number of changes aimed at producing more
consistent revenues and
earnings, including restructuring the pay of its sales
force, cutting sales and
administrative expenses, and joint venturing with Philips
Electronics to sell
Lucent's electronic consumer goods (primarily cellular
telephones) under the
Philips name.
Dell Computer also appreciated nicely. Dell is clearly the
best operator in the
PC business. Inventory turnover averages only 12 days, and
the company has
remained focused on the commercial PC market, where demand
for new processors
and other upgrades is still strong. Dell is also just
getting started in the
high-margin server market. Dell's operating model is so
effective that Compaq
Computer, the largest PC retailer in the industry,
recently announced that it
wants to copy the Dell model, and tried to purchase
Gateway 2000 in order to
enter the direct order PC business, where Dell has been
very successful.
Our drug stocks also produced good returns this quarter.
Warner-Lambert's two
new drugs, Lipitor, which reduces cholesterol, and
Rezulin, for diabetes, have
been well received. Lipitor, which was introduced
approximately six months ago,
has already captured 21% of a highly competitive market.
Eli Lilly's Zyprexa,
for the treatment of schizophrenia, and Reopro, which
treats cardiovascular
disease, are selling well.
Two core growth companies, FNMA and First Data, also
appreciated. FNMA is
repurchasing stock and continues to post improved earnings
despite mediocre loan
growth. Credit card transaction processor First Data came
under pressure earlier
in the year on concerns over a potential slowdown in
credit
card use. However,
these fears were overblown, and the stock gained almost
30%.
Finally, two new holdings, Diamond Offshore Drilling and
Delta and Pine Land,
were up nicely. Delta and Pine has developed a new insect
resistant cotton seed
that is just beginning to penetrate the market. Diamond
Offshore is the leading
provider of deep-water drilling equipment. Exploration
budgets at the major oil
companies are at an all-time high, demand for Diamond
Offshore's products is
excellent and day rates are up. The company's fixed costs
are stable, which
gives it huge pricing leverage as more equipment goes into
the field.
Nike and Texas Instruments were sold at a profit during
the quarter. The revenue
growth rate slowed at Nike, and DRAM demand declined at
Texas Instruments.
Halliburton (energy company) was let go at a loss, due to
concerns about the
strength of its engineering and construction business.
Going forward, we are still very optimistic about the
equity markets. Although
valuations are rich in some stocks, healthy earnings
prospects and low interest
rates should support higher prices. In addition, our
Treasury yields also remain
high compared to international rates, making them
attractive to foreign
investors. As long as economic growth is moderate and
inflation is low, there
should be room for interest rates to come down. If this
proves to be the case,
financial assets will continue to benefit.
CASH INCOME TRUST
Cash Income Trust seeks to provide shareholders with high
current income from
short-term money market instruments while emphasizing
preservation of capital
and maintaining a high degree of liquidity. Cash Income
Trust pursues this
objective by investing in securities maturing in one year
or less.
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For the six months ended June 30, 1997, Cash Income Trust
generated an effective
yield of 4.84% and as of June 30, 1997 had an average
maturity of 16 days. Cash
Income Trust continues to invest primarily in U.S.
Treasuries and government
agency securities. This investment strategy has provided
Cash Income Trust with
safety, liquidity and stability.
You should be aware that your investment in the Cash
Income Trust is neither
insured nor guaranteed by the U.S. Government. Moreover,
no assurance can be
given that the Fund will be able to maintain a stable net
asset value of $1.00
per share.
In closing, we would like to thank you for your investment
in Managed Asset
Trust, High Yield Bond Trust, Capital Appreciation Fund
and Cash Income Trust.
We look forward to continuing to help you achieve your
financial goals.
Sincerely,
McLendon sig
Heath B. McLendon
Chairman
July 28, 1997
6
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- ------------------------------
PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF
6/30/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN -----------------------
-------------
<S> <C>
Six Months Ended 6/30/97+ 11.82%
Year Ended 6/30/97
21.44%
Five Years Ended 6/30/97
12.82%
Ten Years Ended 6/30/97
12.85%
+Total return is not annualized, as it
may not be representative of the total
return for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made on
June
30, 1987 assuming reinvestment of dividends through June
30, 1997.
The Lehman Government/Corporate Bond Index is a weighted
composite
of the Lehman Government Bond Index, which is a broad-based
index
of all public debt obligations of the U.S. Government and
its
agencies and has an average maturity of nine years and the
Lehman
Corporate Bond Index, which is comprised of all public
fixedrate
non-convertible investment-grade domestic corporate debt,
excluding
collateralized mortgage obligations. The Consumer Price
Index is a
measure of the average change in prices over time in a
fixed market
basket of goods and services. The Standard & Poor's 500
Index is an
unmanaged index composed of 500 widely held common stocks
listed on
the New York Stock Exchange, American Stock Exchange and
over-the-
counter market.
<TABLE>
<CAPTION>
Measurement Lehman
Period Managed Government Consumer
Standard
(Fiscal Year Assets Bond Price &
Poors
Covered) Trust Index Index 500
Index
<S> <C> <C> <C>
<C>
Jun-87 10000 10000 10000
10000
Dec-87 10620 10274 10165
8259
Dec-88 10824 11053 10614
9627
Dec-89 11816 12626 11107
12672
Dec-90 15021 13673 11785
12279
Dec-91 15392 15877 12146
16012
Dec-92 18732 17081 12498
17232
Dec-93 19695 18966 12842
18964
Dec-94 21533 18299 13185
19213
Dec-95 21050 21821 13520
23425
Dec-96 23938 22453 13968
28801
Jun-97 26768 23068 14065
34734
</TABLE>
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- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming reinvestment
of dividends. The returns do not reflect expenses
associated with the subaccount
such as administrative fees, account charges and surrender
charges which, if
reflected, would reduce the performance shown.
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF
6/30/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 8.13%
Year Ended 6/30/97
16.25%
Five Years Ended 6/30/97
11.43%
Ten Years Ended 6/30/97
9.93%
+Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made
on June
30, 1987 assuming reinvestment of dividends through June
30, 1997.
The Lehman Aggregate Bond Index, an unmanaged index, is
composed of
the Lehman Intermediate Government/Corporate Bond Index
and the
Mortgage Backed Securities Index and includes treasury
issues,
agency issues, corporate bond issues and mortgage-backed
securities. The Consumer Price Index is a measure of the
average
change in prices over time in a fixed market basket of
goods and
services. The First Boston High Yield Index Top Tier is a
broad-based market measure of high yield bonds, commonly
known as
"junk bonds."
<TABLE>
<CAPTION>
Lehman
Measurement Period High Yield Aggregate
Consumer
(Fiscal Year Covered) Bond Trust Bond Index Price
Index
<S> <C> <C> <C>
Jun-87 10000 10000
10000
Dec-87 10381 10293
10165
Dec-88 10346 11105
10614
Dec-89 11853 12720
11107
Dec-90 12019 13859
11785
Dec-91 10922 16077
12146
Dec-92 13774 17266
12498
Dec-93 15587 18950
12842
Dec-94 17771 18397
13185
Dec-95 17547 21795
13520
Dec-96 20363 22586
13968
Jun-97 22019 23205
14065
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming reinvestment
of dividends. The returns do not reflect expenses
associated with the subaccount
such as administrative fees, account charges and surrender
charges which, if
reflected, would reduce the performance shown.
7
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF
6/30/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 16.88%
Year Ended 6/30/97
28.25%
Five Years Ended 6/30/97
21.61%
Ten Years Ended 6/30/97
16.45%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made
on June
30, 1987 assuming reinvestment of dividends through June
30,
1997. The Standard & Poor's 500 Index is an unmanaged
index
composed of 500 widely held common stocks listed on the
New York
Stock Exchange, American Stock Exchange and over-the-
counter
market. The Russell 2000 Index is a capitalization
weighted total
return index which is comprised of 2,000 of the
smallest capitaled U.S. domiciled companies with less
than average
growth
orientation whose common stock is traded in the United
States of
the New York Stock Exchange, American Stock Exchange and
NASDAQ.
The Consumer Price Index is a measure of the average
change in
prices over time in a fixed market basket of goods and
services.
<TABLE>
<CAPTION>
Measurement
Period Capital Russell Consumer
Standard
(Fiscal Year Appreciation 2000 Price &
Poors
Covered) Fund Index Index 500
Index
<S> <C> <C> <C>
<C>
Jun-87 10000 10000 10000
10000
Dec-87 9720 7395 10165
8259
Dec-88 8931 9245 10614
9627
Dec-89 9830 10749 11107
12672
Dec-90 11374 8655 11785
12279
Dec-91 10665 12640 12146
16012
Dec-92 14414 14967 12498
17232
Dec-93 16951 17792 12842
18964
Dec-94 19509 7383 13185
19213
Dec-95 18580 9484 13520
23425
Dec-96 23828 11048 13968
28801
Jun-97 27850 12175 14065
34734
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gains or losses from portfolio
investments assuming
reinvestments of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
8
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 59.5% ------------------------------------
- ----------------------------------------------------------
- ----------
CONSUMER CYCLICALS -- 8.0%
16,300 Accustaff
Inc.++....................................................
.. ......... $ 386,106
10,200 American Stores Co.
..........................................................
. 503,625
16,400 Borders Group,
Inc.++....................................................
.. .... 395,650
5,400 Colgate-Palmolive Co.
.........................................................
352,350
17,300 Costco Cos., Inc.
..........................................................
.. . 569,278
10,400 CVS Corp.
..........................................................
.. ......... 533,000
6,100 Eastman Kodak Co.
..........................................................
.. . 468,175
13,300 Federated Department Stores
Inc.++.............................................
462,175
7,600 Gannett Co.
..........................................................
.. ....... 750,500
5,200 Gap Inc.
..........................................................
.. .......... 202,150
14,100 Gillette Co.
..........................................................
.. ...... 1,335,975
10,100 HFS
Inc.++....................................................
.. ............... 585,800
4,900 Hilton Hotels Corp.
..........................................................
. 130,156
9,400 Home Depot Inc.
..........................................................
.. ... 648,013
16,948 Kimberly-Clark Corp.
..........................................................
843,163
13,200 Lowe's Cos., Inc.
..........................................................
.. . 490,050
5,400 McDonalds Corp.
..........................................................
.. ... 260,888
10,400 New York Times Co., Class A
shares.............................................
514,800
4,600 Nike Inc., Class B
shares....................................................
.. 268,525
15,200 Proctor & Gamble Co.
..........................................................
2,147,000
7,400 Sears Roebuck & Co.
..........................................................
. 397,750
27,500 Stride Rite Corp.
..........................................................
.. . 354,062
12,500 Tele-Communications
Inc.++....................................................
. 185,547
10,000 Time Warner Inc.
..........................................................
.. .. 482,500
17,800 TJX Cos., Inc.
..........................................................
.. .... 469,475
2,600 Unilever
NV........................................................
.. .......... 566,800
43,000 Wal-Mart Stores, Inc.
.........................................................
1,453,938
12,477 Walt Disney Co.
..........................................................
.. ... 1,001,279 ------------------------------------
- ----------------------------------------------------------
- ----------
16,758,730 -----------------------------------------------
- ---------------------------------------------------------
CONSUMER STAPLES -- 4.7%
9,200 Anheuser-Busch Co.
..........................................................
.. 385,825
3,800 Campbell Soup Co.
..........................................................
.. . 190,000
44,800 Coca-Cola Co.
..........................................................
.. ..... 3,024,000
10,900 Conagra Inc.
..........................................................
.. ...... 698,963
7,000 CPC International Inc.
........................................................
646,187
11,700 Dean
Foods.....................................................
..
.............. 472,388
3,100 Gallaher Group
PLC.......................................................
.. .... 57,156
1,300 Kellogg Co.
..........................................................
.. ....... 111,313
29,000 PepsiCo, Inc.
..........................................................
.. ..... 1,089,313
45,800 Philip Morris, Inc.
..........................................................
. 2,032,375
6,800 Pioneer Hi-Bred
International.............................................
.. ... 544,000
9,000 Sara Lee Corp.
..........................................................
.. .... 374,625
9,200 Whitman Corp.
..........................................................
.. ..... 232,875
- ----------------------------------------------------------
- ----------------------------------------------
9,859,020 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
ENERGY -- 0.4%
6,400 Louisiana Land & Exploration Co.
.............................................. $
365,600
4,500 Schlumberger Ltd.
..........................................................
.. . 562,500
- ----------------------------------------------------------
- ----------------------------------------------
928,100 --------------------------------------------------
- ------------------------------------------------------
FINANCE -- 8.1%
8,265 Allstate Corp.
..........................................................
.. .... 603,345
4,900 Ambac Inc.
..........................................................
.. ........ 374,238
9,200 American Express Co.
..........................................................
685,400
8,750 American International Group Inc.
.............................................
1,307,031 10,389 Banc One Corp.
..........................................................
.. .... 503,217
10,400 Bank of Boston
Corp.++...................................................
.. .... 749,450
7,100 Bank of New
York......................................................
.. ....... 308,850
19,000 BankAmerica Corp.
..........................................................
.. . 1,226,688
3,600 Barnett Banks Inc.
..........................................................
.. 189,000
8,036 Chase Manhattan Corp.
.........................................................
779,994
3,100 Chubb Corp.
..........................................................
.. ....... 207,313
8,400
Citicorp..................................................
.. ................... 1,012,725
14,000 Federal Home Loan Mortgage Corp.
..............................................
481,250
20,600 Federal National Mortgage
Association..........................................
898,675
2,600 First Bank System Inc.
........................................................
221,975
6,000 First Chicago NBD Corp.
.......................................................
363,000
2,800 First Union Corp.
..........................................................
.. . 259,000
5,700 Golden West Financial Corp.
...................................................
399,000
7,200 Hartford Financial Services Group Inc.
........................................ 595,800
6,700 Household International Inc.
..................................................
786,831
3,400 J.P. Morgan & Co.
..........................................................
.. . 354,875
16,800 Mellon Bank Corp.
..........................................................
.. . 758,100
6,200 Merrill Lynch & Co., Inc.
.....................................................
369,675
10,950 Morgan Stanley Dean Witter
Discover............................................
471,534
12,000 NationsBank Corp.
..........................................................
.. . 774,000
8,400 Northern Trust Corp.
..........................................................
406,613
6,700 Norwest Corp.
..........................................................
.. ..... 376,875
5,900 PNC Bank Corp.
..........................................................
.. .... 245,587
7,600 SunAmerica, Inc.
..........................................................
.. .. 370,500
4,100 SunTrust Banks, Inc.
..........................................................
225,756
1,800 Wells Fargo & Co.
..........................................................
.. . 485,100
- ----------------------------------------------------------
- ----------------------------------------------
16,791,397 -----------------------------------------------
- ---------------------------------------------------------
HEALTHCARE -- 7.2%
9,100 Abbott
Laboratories..............................................
.. ............ 607,425
7,000 American Home Products Corp.
..................................................
535,500
4,800 Amgen
Inc.++....................................................
.. ............. 278,850
25,500 Beverly Enterprises, Inc.
.....................................................
414,375
3,300 Boston Scientific Corp.
.......................................................
202,744
23,300 Bristol-Myers Squibb Co.
......................................................
1,887,300
12,300 Columbia/HCA Healthcare Corp.
.................................................
483,544
6,400 Eli Lilly & Co.
..........................................................
.. ... 699,600
6,800 Guidant Corp.
..........................................................
.. ..... 578,000
6,500 HBO & Co.
..........................................................
.. ......... 447,687
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
HEALTHCARE -- 7.2% (CONTINUED)
29,600 Johnson &
Johnson...................................................
.. ......... $ 1,905,500
4,500 Medtronic Inc.
..........................................................
.. .... 364,500
27,200 Merck & Co.
..........................................................
.. ....... 2,815,200
11,700 Pfizer Inc.
..........................................................
.. ....... 1,398,150
12,400 PhyCor, Inc.
..........................................................
.. ...... 426,638
13,800 Schering-Plough Corp.
.........................................................
660,675
3,500 United Healthcare Corp.
.......................................................
182,000
12,000 U.S. Surgical Corp.
..........................................................
. 447,000
5,000 Warner-Lambert Co.
..........................................................
.. 621,250 -----------------------------------------------
- ---------------------------------------------------------
14,955,938 -----------------------------------------------
- ---------------------------------------------------------
INSURANCE -- 1.1%
2,700 Aetna Inc.
..........................................................
.. ........ 276,413
1,400 Cigna
Corp......................................................
.. ............. 248,500
15,000 Conseco Inc.
..........................................................
.. ...... 555,000
1,800 Lincoln National Corp.
........................................................
115,875
8,600 Marsh & McLennan Cos.,
Inc.....................................................
613,825
4,000 Transatlantic Holdings, Inc.
..................................................
397,000 --------------------------------------------------
- ------------------------------------------------------
2,206,613 ------------------------------------------------
- --------------------------------------------------------
MATERIALS & PROCESSING -- 4.5%
5,000 Aluminum Co. of
America...................................................
.. ... 376,875
6,900 Avery Dennison Corp.
..........................................................
276,862
4,100 Corning Inc.
..........................................................
.. ...... 228,062
7,000 Cummins Engine Co., Inc.
......................................................
493,938
8,800 Cytec Industries Inc.
.........................................................
328,900
20,400 E.I. du Pont de Nemours & Co.
.................................................
1,282,650
9,600 Ecolab, Inc.
..........................................................
.. ...... 458,400
3,100 Fortune Brands, Inc.
..........................................................
115,669
13,900 Freeport-McMoRan
Copper....................................................
.. .. 432,638
4,900 Georgia-Pacific Corp.
.........................................................
418,338
18,100 Homestake Mining Co.
..........................................................
236,431
12,100 Masco Corp.
..........................................................
.. ....... 505,175
9,900 McDonnell Douglas Corp.
.......................................................
678,150
6,800 Mead Corp.
..........................................................
.. ........ 423,300
19,700 Monsanto Co.
..........................................................
.. ...... 848,331
4,400 Raytheon Co.
..........................................................
.. ...... 224,400
8,600 United Technologies Corp.
.....................................................
713,800
14,700 U.S. Industries, Inc.
.........................................................
523,688
11,700 USX-US Steel
Group.....................................................
.. ...... 410,231
8,800 Waste Management Inc.
.........................................................
282,700
3,700 Weyerhauser Co.
..........................................................
.. ... 192,400
- ----------------------------------------------------------
- ----------------------------------------------
9,450,938 ------------------------------------------------
- --------------------------------------------------------
OIL -- 5.0%
7,100 Amerada Hess Corp.
..........................................................
.. 394,494
9,000 Amoco Corp.
..........................................................
.. ....... 782,437
8,100 Ashland Inc.
..........................................................
.. ...... 375,638
4,200 Atlantic Richfield Co.
........................................................
296,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
OIL -- 5.0% (CONTINUED)
12,000 Baker Hughes Inc.
..........................................................
.. . $ 464,250
12,000 Chevron Corp.
..........................................................
.. ..... 887,250
38,800 Exxon Corp.
..........................................................
.. ....... 2,386,200
19,600 Mobil Corp.
..........................................................
.. ....... 1,369,550
31,600 Royal Dutch Petroleum Co.
.....................................................
1,718,250
10,200 Texaco Inc.
..........................................................
.. ....... 1,109,250
14,200 Unocal Corp.
..........................................................
.. ...... 551,138
- ----------------------------------------------------------
- ----------------------------------------------
10,334,557 -----------------------------------------------
- ---------------------------------------------------------
PRODUCER DURABLES -- 5.0%
5,200 Allied Signal Inc.
..........................................................
.. 436,800
5,600 Betzdearborn, Inc.
..........................................................
.. 369,600
6,400 Boeing Co.
..........................................................
.. ........ 339,600
3,700 Caterpillar Inc.
..........................................................
.. .. 397,288
10,650 Crane Co.
..........................................................
.. ......... 445,303
11,400 Deere & Co.
..........................................................
.. ....... 625,575
4,500 Dow Chemical Co.
..........................................................
.. .. 392,063
8,200 Emerson Electric Co.
..........................................................
451,512
62,400 General Electric Co.
..........................................................
4,079,400
6,700 Honeywell Inc.
..........................................................
.. .... 508,362
12,800 Illinois Tool
Works.....................................................
.. ..... 639,200
3,680 Lockheed Martin Corp.
.........................................................
381,110
7,800 Minnesota Mining & Manufacturing Co.
.......................................... 795,600
4,700 Raychem Corp.
..........................................................
.. ..... 349,562
11,900 Westinghouse Electric Corp.
...................................................
275,188 --------------------------------------------------
- ------------------------------------------------------
10,486,163 -----------------------------------------------
- ---------------------------------------------------------
TECHNOLOGY -- 8.1%
10,000 Advanced Micro Devices, Inc.
..................................................
360,000
4,625 Andrew Corp.
..........................................................
.. ...... 129,789
3,300 Applied Materials, Inc.
.......................................................
233,578
5,700 Automatic Data Processing, Inc.
...............................................
267,900
11,900 Cisco Systems, Inc.
..........................................................
. 799,159
5,400 Compaq Computer Corp.
.........................................................
535,950
6,575 Computer Associates International, Inc.
....................................... 366,145
3,300 Dell Computer Corp.
..........................................................
. 387,440
23,000 Edison
International.............................................
.. ............ 572,125
11,200 Gateway 2000
Inc.++....................................................
.. ...... 363,300
18,600 Hewlett Packard Co.
..........................................................
. 1,041,600
12,600 Intel Corp.
..........................................................
.. ....... 1,784,081
19,000 International Business Machines Corp.
......................................... 1,713,563
15,200 Liberty Media, Class A
shares..................................................
361,475
15,200 LSI Logic Corp.
..........................................................
.. ... 486,400
11,569 Lucent Technologies Inc.
......................................................
833,691
6,100 McAfee Associates, Inc.
.......................................................
384,681
22,200 Microsoft Corp.
..........................................................
.. ... 2,807,606
13,800 Motorola Inc.
..........................................................
.. ..... 1,048,800
12,000 Oracle Corp.
..........................................................
.. ...... 604,125
5,200
PacifiCorp................................................
.. ................... 114,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
TECHNOLOGY -- 8.1% (CONTINUED)
16,400 Read-Rite Corp.
..........................................................
.. ... $ 341,838
4,400 Seagate Technology, Inc.
......................................................
154,825
6,500 Sun Microsystems Inc.
.........................................................
241,922
3,200 Texas Instruments Inc.
........................................................
269,000
5,900 3Com Corp.
..........................................................
.. ........ 265,316
6,200 Xerox Corp.
..........................................................
.. ....... 489,025
- ----------------------------------------------------------
- ----------------------------------------------
16,957,734 -----------------------------------------------
- --------------------------------------------------------
TRANSPORTATION -- 1.7%
6,300 Burlington Northern Sante
Fe...................................................
566,213
12,800 Chrysler Corp.
..........................................................
.. .... 420,000
11,200 Continental Airlines, Inc., Class B
shares..................................... 391,300
21,100 Ford Motor Co.
..........................................................
.. .... 796,525
12,900 General Motors Corp.
..........................................................
718,369
7,800 Lear Corp.
..........................................................
.. ........ 346,125
4,000 Union Pacific Corp.
..........................................................
. 282,000 ------------------------------------------------
- --------------------------------------------------------
3,520,532 ------------------------------------------------
- --------------------------------------------------------
UTILITIES -- 5.7%
5,100 AES
Corp.++...................................................
.. ............... 360,825
25,900 American Telephone & Telegraph Corp.
.......................................... 908,119
10,500 Ameritech Corp.
..........................................................
.. ... 713,344
9,900 Baltimore Gas & Electric Co.
..................................................
264,206
8,200 Bell Atlantic Corp.
..........................................................
. 622,175
19,000 Bellsouth Corp.
..........................................................
.. ... 881,120
9,700 CalEnergy Co.,
Inc.++....................................................
.. .... 368,600
7,600 Columbia Gas
System....................................................
.. ...... 495,900
3,800 Duke Energy Corp.
..........................................................
.. . 182,163
12,800 Enron Corp.
..........................................................
.. ....... 522,400
10,700 FPL Group Inc.
..........................................................
.. .... 492,869
15,600 GTE Corp.
..........................................................
.. ......... 684,450
4,900 Houston Industries, Inc.
......................................................
105,044
12,700 MCI Communications Corp.
......................................................
486,172
4,700 Northern Telecom
Ltd.......................................................
.. .. 427,700
8,300 Nynex Corp.
..........................................................
.. ....... 478,287
4,100 Pacific
Enterprises...............................................
.. ........... 137,862
20,227 SBC Communications, Inc.
......................................................
1,251,546
8,700 Sonat Inc.
..........................................................
.. ........ 445,875
12,700 Southern Co.
..........................................................
.. ...... 277,812
6,300 Sprint Corp.
..........................................................
.. ...... 331,538
10,000 Texas Utilities Co.
..........................................................
. 344,375
3,400 US West Communications
Group...................................................
128,138
29,100 Worldcom Inc.
..........................................................
.. ..... 931,200
- ----------------------------------------------------------
- ----------------------------------------------
11,841,720 -----------------------------------------------
- ---------------------------------------------------------
TOTAL COMMON STOCK (Cost -
$85,322,071).......................................
124,091,442 ----------------------------------------------
- ----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
PREFERRED STOCK -- 2.1% ----------------------------------
- ----------------------------------------------------------
- ------------
FINANCIAL -- 0.6%
4,000 Excel Reality Trust Inc., Convertible
2.125%................................... $ 109,000
2,000 Finova Finance, Convertible
5.500%.............................................
115,000
4 Fuji Finance, Convertible
0.250%...............................................
109,444
8,000 Merry Land & Investment, Convertible
2.150%.................................... 217,000
8,000 National Australia Bank, Convertible
7.875%.................................... 223,500
4,000 St. Paul Capital, Convertible
6.000%...........................................
277,000
5,000 Tosco Financial Trust, Convertible
5.750%......................................
278,750 --------------------------------------------------
- ------------------------------------------------------
1,329,694 ------------------------------------------------
- --------------------------------------------------------
INDUSTRIAL -- 1.5%
4,000 Amcor Ltd., Convertible
7.250%.................................................
211,750
10,000 Calenergy Capital II, Convertible
6.250%+......................................
567,500 12,000 International
Paper.....................................................
.. ..... 639,000
10,990 News Corp., Ltd., Convertible
5.000%...........................................
945,140
9,000 Occidental Petroleum
Corp.+....................................................
525,375
4,000 Rouse Co.
..........................................................
.. ......... 193,000
- ----------------------------------------------------------
- ----------------------------------------------
3,081,765 ------------------------------------------------
- --------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -
$4,057,871).....................................
4,411,459 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
CORPORATE BONDS -- 23.2% ---------------------------------
- ----------------------------------------------------------
- -------------
FINANCIAL -- 2.6%
$ 500,000 Great Western Financial, 6.375% due
7/1/00................................. 495,625
5,000,000 New Plan Reality, 5.950% due
11/2/26.......................................
5,004,500 ------------------------------------------------
- --------------------------------------------------------
5,500,125 ------------------------------------------------
- --------------------------------------------------------
GOVERNMENT, NATIONAL -- 2.9%
2,000,000 Canada - Global Bond, 6.375% due
7/21/05................................... 1,971,250
3,000,000 Panama-IRB, 3.500% due
7/17/14.............................................
2,321,250
2,000,000 Poland, 6.438% due
10/27/24................................................
1,718,750 ------------------------------------------------
- --------------------------------------------------------
6,011,250 ------------------------------------------------
- --------------------------------------------------------
INDUSTRIAL -- 10.3%
2,000,000 Becton Dickinson, 8.800% due
3/1/01........................................
2,130,000
2,000,000 Cox Communication Inc., 6.875% due
6/15/05................................. 1,970,000
2,000,000 McDonnell Douglas, 9.750% due
4/1/12.......................................
2,400,000 3,000,000 McKesson Corp., 6.875% due
3/1/02+.........................................
3,003,750
4,000,000 Philip Morris, 7.750% due
1/15/27..........................................
3,920,000
1,000,000 SIGMT, 1993-4b, 5.800% due
3/15/98.........................................
990,560
2,020,000 Tele-Comm Inc., 9.650% due
10/1/03.........................................
2,184,125
5,000,000 Xerox Corp., 6.250% due
11/15/26...........................................
4,850,000 ------------------------------------------------
- --------------------------------------------------------
21,448,435 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
OIL -- 0.3%
$ 500,000 Apache Corp, 6.000% due
1/15/02............................................ $
592,500 --------------------------------------------------
- ----------
- ---------------------------------------------
TELEPHONE -- 3.7%
5,000,000 Bellsouth Cap Funding, 6.040% due
11/15/26................................. 4,918,750
3,000,000 Bellsouth Telecom, 7.000% due
12/1/2095....................................
2,850,000 ------------------------------------------------
- --------------------------------------------------------
7,768,750 ------------------------------------------------
- -------------------------------------------------------
TRANSPORTATION -- 1.9%
3,000,000 CSX, 6.950% due
5/1/27+...................................................
. 3,015,000
880,199 Wilmington Trust, 9.250% due
1/2/07+.......................................
907,582 --------------------------------------------------
- ------------------------------------------------------
3,922,582 ------------------------------------------------
- --------------------------------------------------------
UTILITY - ELECTRIC -- 1.5%
3,000,000 Tenaga Nasional, 7.200% due
4/29/07........................................
3,071,250 ------------------------------------------------
- --------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -
$47,689,603)................................
48,314,892 -----------------------------------------------
- ---------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 3.9% ----------------------
- ----------------------------------------------------------
- ------------------------
FINANCIAL -- 0.5%
500,000 Equitable Cos., 6.125% due
12/15/24........................................
686,250
500,000 USF&G Corp., zero coupon due
3/3/09........................................
358,750 --------------------------------------------------
- ------------------------------------------------------
1,045,000 ------------------------------------------------
- --------------------------------------------------------
GOVERNMENT, NATIONAL -- 0.2%
500,000 Republic of Italy, 5.000% due
6/28/01......................................
507,500 --------------------------------------------------
- ------------------------------------------------------
INDUSTRIAL -- 2.9%
1,400,000 Alza Corp., zero coupon due
7/14/14........................................
624,750
300,000 Berkshire Hathaway, 1.000% due
12/03/01....................................
312,750 500,000 CUC International Inc., 3.000%
due
2/15/02................................. 531,875
300,000 GVC Corp. Ltd., zero coupon due
5/21/02+................................... 311,625
580,000 Hilton Hotels Corp. 5.000% due
5/15/06.....................................
620,600 500,000 Home Depot Inc., 3.250% due
10/1/01........................................
573,750
300,000 Inco Ltd., 7.750% due
3/15/16..............................................
314,625
300,000 Indian Petrochemicals, 8.800% due
3/11/02+................................. 317,625
1,000,000 Marriot International, zero coupon due
3/25/11............................. 616,250
100,000 Omnicom, zero coupon due
1/3/07............................................
121,625
400,000 Rouse Co., 5.750% due
7/23/02..............................................
417,000
300,000 RPM Inc., zero coupon due
9/30/12..........................................
144,750
500,000 Scholastic Corp., 5.000% due
8/15/05.......................................
406,875
200,000 Taiwan Semiconductor, zero coupon due
7/3/02+.............................. 200,000
500,000 Trinova Corp., 6.000% due
10/15/02.........................................
521,875 --------------------------------------------------
- ------------------------------------------------------
6,035,975 ------------------------------------------------
- --------------------------------------------------------
UTILITY - ELECTRIC -- 0.3%
600,000 Potomac Electric Power, 5.000% due
9/1/02.................................. 554,250 --
- ----------------------------------------------------------
- --------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -
$7,490,037)..................... 8,142,725 ----------
- ----------------------------------------------------------
- ------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 3.6% ---------
- ----------------------------------------------------------
- -------------------------------------
$ 3,000,000 U.S. Treasury Strip, zero coupon due
5/15/07............................... $ 1,566,660
387,863 FHLMC, 8.500% due
9/1/02...................................................
397,680
3,237,993 FNMA, 7.500% due
10/1/25...................................................
3,247,092
171,320 FNMA, 8.500% due
3/1/05....................................................
177,423
727,603 GNMA, 7.500% due
12/15/25..................................................
730,332
193,425 GNMA, 7.500% due
5/15/23...................................................
194,151
207,731 GNMA, 9.000% due
12/15/16..................................................
219,676
210,679 GNMA, 9.000% due
11/15/19..................................................
222,794
207,929 GNMA, 9.500% due
3/15/20...................................................
224,369
376,019 GNMA, 9.500% due
1/15/20...................................................
405,748 --------------------------------------------------
- ------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES AND
OBLIGATIONS
(Cost -
$7,322,719)...............................................
.. ...... 7,385,925 ---------------------------------
- ----------------------------------------------------------
- -------------
SHORT-TERM U.S. GOVERNMENT INSTRUMENTS -- 0.2%
350,000 U.S. Treasury Bill, 5.060% due
7/10/97#....................................
349,556 70,000 U.S. Treasury Bill, 5.070% due
7/10/97#....................................
69,911 75,000 U.S. Treasury Notes, 5.480% due
8/21/97.................................... 74,420
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL SHORT-TERM U.S. GOVERNMENT
INSTRUMENTS (Cost --
$493,887).................................................
.. ...... 493,887 ---------------------------------
- ----------------------------------------------------------
- -------------
COMMERCIAL PAPER -- 3.8%
8,000,000 Merrill Lynch & Co., Inc., 5.550% due
7/8/97
(Cost -- $7,991,360).......... 7,991,360 ------------
- ----------------------------------------------------------
- ----------------------------------
REPURCHASE AGREEMENT -- 3.7%
7,611,000 Citibank, 6.000% due 7/1/97; Proceeds at
maturity -- $7,612,266; (Fully
collateralized by U.S. Treasury Notes;
5.500% due 12/31/00; Market
value -- $7,766,069) (Cost -
$7,611,000)..................................
7,611,000 ------------------------------------------------
- --------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$167,978,548*).......................... $208,442,690 --
- ----------------------------------------------------------
- --------------------------------------------
</TABLE>
++ Non-income producing security.
+ Security is exempt from registration under rule 144A of
the Securities Act of
1933. This security may be sold in transactions that are
exempt from
registration, normally to qualified institutional
buyers. # Security segregated by Custodian for open
futures contract
commitments.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
CORPORATE BONDS AND NOTES -- 90.7% -----------------------
- ----------------------------------------------------------
- -----------------------BROADCASTING -- 2.6%
$500,000 BBB- TKR Cable One Inc., Debentures,
10.500% due 10/30/07.................. $ 549,375 -----
- ----------------------------------------------------------
- ------------------------------------------
CONSUMER NON-DURABLES -- 2.5%
340,000 NR French Fragrances Inc., Sr. Notes,
10.375% due 5/15/07+............... 351,050
180,000 B Syratech Corp., Sr. Notes, 11.000%
due
4/15/07........................ 193,050 ------------
- ----------------------------------------------------------
- -----------------------------------
544,100 --------------------------------------------------
- -------------------------------------------------------
ENERGY -- 8.0%
150,000 NR Belden Blake Corp., Sr. Sub.
Notes,
9.875% due 6/15/07+............... 150,000
310,000 B Energy Corp. of America, Sr. Sub.
Notes, 9.500% due 5/15/07........... 310,000
100,000 B- Pacalta Resources Ltd., Sr.
Notes,
10.750% due 6/15/04+............... 101,750
400,000 B+ Parker Drilling Corp., Sr. Notes,
Series B, 9.750% due 11/15/06+...... 418,000
Transamerican Energy Corp.:
200,000 NR Sr. Secured Notes, 11.500% due
6/15/02+............................... 195,000
400,000 B+ Sr. Secured Discount Notes, step bond
to yield 13.000% due 6/15/02+... 290,000
100,000 BB Triton Energy Ltd., Sr. Notes, 8.750%
due 4/15/02..................... 101,125
100,000 B+ Wiser Oil Co., Sr. Sub. Notes, 9.500%
due 5/15/07+.................... 100,500 -----------
- ----------------------------------------------------------
- ------------------------------------
1,666,375 ------------------------------------------------
- ---------------------------------------------------------
FINANCE -- 2.1%
400,000 B- B. F. Saul Real Estate Investment
Trust, Sr. Secured Notes, Series B,
11.625% due
4/1/02+...................................................
431,000 --------------------------------------------------
- -------------------------------------------------------
FOOD AND DRUG -- 9.9%
150,000 NR Archibald Candy Corp., Sr. Secured
Notes, 10.250% due 7/1/04+......... 152,250
100,000 NR Arisco Productos Alimenticios SA,
Notes, 10.750% due 5/22/05+......... 102,375
60,000 B Dominicks Finer Foods, Sr. Sub.
Notes,
Series B, 10.875% due 5/1/05... 66,600
500,000 B- Duane Reade Corp., Sr. Notes, Series
B, 12.000% due 9/15/02........... 527,500
267,032 NR Food 4 Less Holdings Inc., Sr. Sub.
Debentures, Payment-in-kind,
13.625% due
6/15/07...................................................
317,768
100,000 NR Leiner Health Products Inc., Sr. Sub.
Notes, 9.625% due 7/10/07+...... 102,000
200,000 B Penn Traffic Co., Sr. Notes, 8.625%
due 12/15/03...................... 162,750
250,000 B- Pueblo Extra International Inc., Sr.
Notes, 9.500% due 8/1/03......... 242,500
250,000 NR Randalls Food Markets Inc., Sr. Sub.
Notes, 9.375% due 7/1/07+........ 249,375
140,000 B+ Shoppers Food Warehouse Corp., Sr.
Notes, 9.750% due 6/15/04+......... 140,350 --------
- ----------------------------------------------------------
- ---------------------------------------
2,063,468 ------------------------------------------------
- --------------------------------------------------------
FOOD/TOBACCO -- 7.6%
500,000 B+ Americold Corp., 1st Mortgage, Series
B, 11.500% due 3/1/05........... 540,000
250,000 NR AFC Enterprises Inc., Sr. Sub. Notes,
10.250% due 5/15/07+............ 254,375
240,000 B+ Fresh Delmonte Produce N.V.,
Sr.
Notes, 10.000% due 5/1/03............ 246,600
236,896 NR FRD Acquisition Co., Sr. Notes,
Series
B, 12.500% due 7/15/04......... 252,885
100,000 NR North Atlantic Trading Inc., Sr.
Notes, 11.000% due 6/15/04+.......... 101,750
200,000 NR Windy Hill Pet Food Inc., Sr. Sub.
Notes, 9.750% due 5/15/07+......... 203,500
- ----------------------------------------------------------
- -----------------------------------------------
1,599,110 ------------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
FOREST PRODUCTS -- 3.5%
$ 50,000 B Broadway Corp., Sr. Sub. Notes,
10.250% due 4/15/07+.................. $ 53,625
250,000 NR Indah Kiat Finance Mauritius Ltd.,
Guaranteed Sr. Notes, 10.000% due
7/1/07+...................................................
.. .......... 249,688
300,000 B Silgan Corp., Sr. Sub. Debentures,
9.000% due 6/1/09+................. 303,000
130,000 B- Stone Container Corp., Sr. Sub.
Debentures, 12.250% due 4/1/02........ 133,575 -----
- ----------------------------------------------------------
- ------------------------------------------
739,888 --------------------------------------------------
- ------------------------------------------------------
GAMING/LEISURE -- 4.1%
100,000 NR Colorado Gaming Entertainment Co.,
Sr.
Secured Notes, Payment-in-kind,
12.000% due
6/1/03....................................................
99,875
350,000 B+ Hollywood Casino Corp., Guaranteed
Sr.
Secured Notes, 12.750% due
11/1/03...................................................
.. .......... 373,625
200,000 B Riddell Sports Inc., Sr. Notes,
10.500% due 7/15/07+.................. 205,000
190,000 BB- Trump Atlantic City Associates
Funding
Inc., 1st Mortgage Notes,
11.250% due
5/1/06....................................................
186,200 --------------------------------------------------
- -------------------------------------------------------
864,700 --------------------------------------------------
- -------------------------------------------------------
HEALTHCARE PRODUCTS -- 0.9%
180,000 B- Regency Health Services Inc., Sr.
Sub.
Notes, 9.875% due 10/15/02..... 186,300 ------------
- ----------------------------------------------------------
- -----------------------------------
HOUSING -- 5.4%
130,000 B- Associated Materials Inc., Sr. Sub.
Notes, 11.500% due 8/15/03........ 137,800
350,000 B+ Greystone Homes Inc., Sr. Notes,
10.750% due 3/1/04................... 379,313
250,000 B NVR Inc., Sr. Notes, 11.000% due
4/15/03.............................. 268,438
340,000 NR Reliant Building Products Inc., Sr.
Sub. Notes, 10.875% due 5/1/04+... 350,200
- ----------------------------------------------------------
- -----------------------------------------------
1,135,751 ------------------------------------------------
- --------------------------------------------------------
INFORMATION/TECHNOLOGY -- 0.8%
160,000 B+ Unisys Corp., Sr. Notes, Series B,
12.000% due 4/15/03................ 175,200 --------
- ----------------------------------------------------------
- --------------------------------------MANUFACTURING --
5.1%
200,000 B CMI Industries Inc., Sr. Sub. Notes,
9.500% due 10/1/03............... 200,750
150,000 B- Roller Bearing Co., Guaranteed Sr.
Sub. Notes, 9.625% due 6/15/07+.... 152,250
50,000 B Selmer Co. Inc., Sr. Sub. Notes,
11.000% due 5/15/05.................. 54,750
400,000 B- Terex Corp., Sr. Secured Notes,
13.250% due 5/15/02+.................. 449,000
200,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07+................... 205,000 ------
- ----------------------------------------------------------
- -----------------------------------------
1,061,750 ------------------------------------------------
- --------------------------------------------------------
MEDIA/ENTERTAINMENT -- 18.2%
180,000 B Affinity Group Inc., Sr. Sub. Notes,
11.500% due 10/15/03............. 193,500
150,000 BB- Cobb Theatres Corp., Sr. Secured
Notes, 10.625% due 3/1/03............ 164,813
55,000 B- Commemorative Brands Inc., Sr. Sub.
Notes, 11.000% due 1/15/07........ 57,750
500,000 B3* Commodore Media Inc., Sr. Sub.
Notes,
7.500% due 5/1/03............... 545,000
350,000 B- Diamond Cable Communication PLC., Sr.
Discount Notes, step bond to
yield 10.500% due
2/15/07+..........................................
208,250
100,000 B Globolstar LP, Sr. Notes, 11.250% due
6/15/04+........................ 94,000
350,000 B- Kabelmedia Holdings GMBH, Sr.
Discount
Notes, step bond to yield
12.840% due
8/1/06....................................................
215,250
500,000 NR Live Entertainment Inc., Sr. Sub.
Notes, 12.000% due 3/23/99.......... 501,250
400,000 B- Paxson Communications Corp., Sr. Sub.
Notes, 11.625% due 10/1/02+..... 433,500
400,000 B- Pegasus Media Communications Inc.,
Notes, Series B, 12.500% due
7/1/05+...................................................
.. .......... 441,000
300,000 B- Plitt Theaters Inc., Sr. Sub. Notes,
10.875% due 6/15/04.............. 313,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
MEDIA/ENTERTAINMENT -- 18.2% (CONTINUED)
$170,000 NR PTC International Finance BV, Co.
Guaranteed, step bond to yield
10.652% due
7/1/07+...................................................
$ 103,275
200,000 B+ Telewest Communications PLC, Sr.
Discount Debentures, step bond to
yield
10.751% due
10/1/07...................................................
145,000
190,000 NR Sun Media Corp., Sr. Sub. Notes,
9.500% due 5/15/07+.................. 192,375
250,000 B- United International Holdings Inc.,
Ltd., Sr. Secured Discount Notes,
zero coupon
to yield 11.320% due
11/15/99.........................................
195,000 --------------------------------------------------
- -------------------------------------------------------
3,803,463 ------------------------------------------------
- --------------------------------------------------------
METALS/MINERALS -- 1.9%
100,000 B Continental Global Group Corp., Sr.
Notes, 11.000% due 4/1/07......... 105,125
90,000 B- MMI Products Inc., Sr. Sub. Notes,
11.250% due 4/15/07+............... 96,075
180,000 B+ Wells Aluminum Corp., Sr. Notes,
10.125% due 6/1/05+.................. 186,975 ------
- ----------------------------------------------------------
- -----------------------------------------
388,175 --------------------------------------------------
- -------------------------------------------------------
RETAIL -- 3.7%
500,000 B+ K Mart Corp., Medium Term Notes,
7.900% due 12/14/00.................. 487,500
150,000 B+ Leslies Poolmart Inc., Sr. Notes,
10.375% due 7/15/04+................ 154,689
40,000 CCC Specialty Foods Inc., Sr. Sub.
Notes,
11.250% due 8/15/03............. 35,200
100,000 BB- Specialty Retailers Inc., Sr. Notes,
8.500% due 7/15/05+.............. 100,750 ----------
- ----------------------------------------------------------
- -------------------------------------
778,139 --------------------------------------------------
- -------------------------------------------------------
SERVICES -- 13.9%
500,000 NR Emcor Group Inc., Sub. Notes, Series
C, 11.000% due 12/15/01.......... 522,500
400,000 CCC+ Florists Transworld Delivery Inc.,
Sr.
Sub. Notes, Series B,
14.000% due
12/15/01..................................................
427,000
150,000 NR Hedstrom Corp., Sr. Sub. Notes,
10.000% due 6/1/07+................... 153,000
150,000 B- ICF Kaiser International Inc., Sr.
Sub. Notes, 13.000% due 12/31/03... 153,562
400,000 B Mail-Well Corp., Sr. Sub.
Notes,
10.500% due 2/15/04+................. 424,000
500,000 Caa* Sullivan Graphics Inc., Sr.
Sub.
Notes, 12.750% due 8/1/05+........... 519,375
500,000 B- U.S. Banknote Corp., Sr. Notes,
Series
B, 11.625% due 8/1/02+......... 507,500
200,000 B- Williams Scotsman Inc., Sr. Notes,
9.875% due 6/1/07+................. 200,500 --------
- ----------------------------------------------------------
- ---------------------------------------
2,907,437 ------------------------------------------------
- --------------------------------------------------------
TRANSPORTATION -- 0.5%
100,000 B Atlantic Express Transportation
Corp.,
Sr. Secured Notes, 10.750% due
2/1/04....................................................
..
.......... 104,375 ---------------------------------
- ----------------------------------------------------------
- --------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $18,091,154)................. 18,998,606 -----
- ----------------------------------------------------------
- ------------------------------------------
FOREIGN GOVERNMENT BONDS -- 4.2%
200,000 BB- Brazil- NMB L-Bearer, Government
Guaranteed, 6.938% due 4/15/09....... 174,625
354,921 BB+ Panama-PDI, Debentures, 6.563% due
7/17/16............................ 312,774
Republic of Venezuela:
250,000 B+ Government Guaranteed, 6.750% due
3/31/20............................. 196,875
200,000 B+ Sr. Unsub. Notes, 9.125% due
6/18/07.................................. 200,400 --
- ----------------------------------------------------------
- ---------------------------------------------
TOTAL FOREIGN GOVERNMENT BONDS (Cost
- - $859,340)..................... 884,674
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
SHARES
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
COMMON STOCK -- 0.0%
ENERGY -- 0.0%
264 Baycorp Holdings Ltd. (Cost --
$0).................................... $ 2,013 ----
- ----------------------------------------------------------
- -------------------------------------------
PREFERRED STOCK -- 0.7%
BROADCASTING -- 0.7%
1,300 SFX Broadcasting Inc., 12.625% (Cost
- -
- - $132,537)..................... 147,874
- ----------------------------------------------------------
- -----------------------------------------------
WARRANTS -- 0.1% -----------------------------------------
- ----------------------------------------------------------
- -----MANUFACTURING -- 0.1%
1,600 Terex Corp., Expire
5/15/02++.........................................
19,200 ---------------------------------------------------
- ---------
- ----------------------------------------------
METAL PRODUCTS -- 0.0%
500 Gulf State Steel Alabama Inc.,
Expire
4/15/03+++...................... 2,500
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL WARRANTS (Cost -
$0)...........................................
21,700 ---------------------------------------------------
- ------------------------------------------------------
FACE
AMOUNT
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
REPURCHASE AGREEMENT -- 4.3%
$890,000 Citibank, 6.000% due 7/1/97; Proceeds
at maturity -- $890,148; (Fully
collateralized by U.S. Treasury
Notes, 5.875% due 3/31/99; (Market
value -- $901,125) (Cost -
$890,000)................................. 890,000 -
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$19,973,031**)..................... $20,944,867 --------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
+ Security is exempt from registration under Rule 144A of
the Securities Act of
1933. These securities may be resold in transactions
exempt from
registration, normally to qualified institutional buyers.
++ Non-income producing security.
** Aggregate cost for Federal income tax purposes is
substantially the same.
See page 21 for definition of bond ratings.
SUMMARY OF BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
STANDARD & % OF TOTAL CORPORATE
MOODY'S AND/OR POOR'S BONDS & NOTES
- --------------------------------------------------------
<S> <C> <C> <C>
Ba BB 8.0%
B B
60.0
Caa CCC
5.0
NR NR
27.0
- ---------------------------------------------------------
100.0% ------
- --------------------------------------------------</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
BOND RATINGS
All ratings are by Standard & Poor's Rating Service
("Standard & Poor's"),
except that those identified by an asterisk (*) are rated
by Moody's Investors
Service, Inc. ("Moodys"). The definitions of the
applicable rating symbols are
set forth below:
Standard & Poor's -- Rating from "AA" to "C" may be
modified by the addition of
a plus (+) or a minus (-) sign to show relative standings
within the major
rating categories.
<TABLE>
<S> <C> <C>
AAA -- Debt rated "AAA" has the highest
rating
assigned by Standard & Poor's. Capacity to
pay interest and repay principal is
extremely strong.
AA -- Debt rated "AA" has a very strong
capacity to pay interest and repay principal and
differs from the highest rated issue
only in a small degree.
A -- Debt rated "A" has a strong capacity
to
pay interest and repay principal although
it is somewhat more susceptible to
the adverse effects of changes in circumstances
and economic conditions than debt in
higher rated categories.
BBB -- Debt rated "BBB" are regarded as
having
an adequate capacity to pay interest and
repay principal. Whereas they
normally exhibit adequate protection parameters,
adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity to pay interest and
repay principal for bonds in this category
than for bonds in higher rated
categories.
BB, B and CCC -- Debt rated "BB" and "B" are regarded,
on balance, as predominantly speculative with
respect to capacity to pay interest
and repay principal in accordance with the
terms of the obligation. "BB"
represents a lower degree of speculation than "B",
and "CCC" the highest degree of
speculation. While such bonds will likely have some
quality and protective
characteristics,
these are outweighed by large uncertainties
or major risk exposures to adverse
conditions.
C -- The rating "C" is reserved for income
bonds on which no interest is being paid.
D -- Debt rated "D" are in default, and
payment of interest and/or repayment of
principal is in arrears.
</TABLE>
Moody's -- Numerical modifiers 1, 2, and 3 may be applied
to each generic rating
from "Aa" to "C", where 1 is the highest and 3 the lowest
rating within its
generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds that are rated "Aaa" are judged
to be of the best quality. They carry the
smallest degree of investment fisk
and are generally referred to as "gilt edge."
Interest payments are protected by a
large or by an exceptionally stable margin and
principal is secure. While the
various protective elements are likely to change,
such changes as can be visualized are
most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged
to
be of high quality by all standards.
Together with the "Aaa" group they
comprise what are generally known as high grade
bonds. They are rated lower than the
best bonds because margins of protection may
not be as large as in "Aaa"
securities or fluctuation of protective elements may be
of greater amplitude or there may be
other elements present which make the
long-term risks appear somewhat
larger than in "Aaa" securities.
A -- Bonds that are rated "A" possess many
favorable investment attributes and are to be
considered as upper medium grade
obligations. Factors giving security to principal
and interest are considered adequate
but elements may be present which suggest a
susceptibility to impairment some
time in the future.
Baa -- Bonds that are rated "Baa" are
considered to be medium grade obligations; that is,
they are neither highly protected nor
poorly secured. Interest payment and
principal security appear adequate
for the present but certain protective elements
may be lacking or may be
characteristically unreliable over any great length of
time. These bonds lack outstanding
investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged
to
have speculative elements; their future
cannot be considered as well assured.
Often the protection of interest and
principal payments may be very
moderate and thereby not well safeguarded during
both good and bad times over the
future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds that are rated "B" generally
lack
characteristics of desirable investments.
Assurance of interest and principal
payments or of maintenance of other terms of
the contract over any long period of
time may be small.
Caa -- Bonds that are rated "Caa" are of
poor
standing. These issues may be in default, or
present elements of danger may exist
with respect to principal or interest.
Ca -- Bonds that are rated "Ca" represent
obligations which are speculative in a high
degree. Such issues are often in
default or have other marked shortcomings.
C -- Bonds that are rated "C" are the
lowest
rated class of bonds, and issues so rated
can be regarded as having extremely
poor prospects of ever attaining any real
investment standing.
NR -- Indicates that the bond is not rated
by
Standard & Poor's or Moody's.
</TABLE>
21
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 90.8% ------------------------------------
- ----------------------------------------------------------
- ----------
AIRCRAFT & AEROSPACE -- 2.0%
99,700 Textron
Inc.......................................................
.. ....... $ 6,617,588 --------------------------------
- ----------------------------------------------------------
- --------------
AIRLINES -- 3.4%
50,750 Alaska Air Group,
Inc......................................................
1,300,469
138,650 UAL
Corp.++...................................................
.. ........... 9,922,141
- ----------------------------------------------------------
- ----------------------------------------------
11,222,610 -----------------------------------------------
- ---------------------------------------------------------
BANKING -- 7.8%
102,050 Bank of New
York......................................................
.. ... 4,439,175
10,000 Catskill Financial
Corp.++.................................................
155,000
63,190
Citicorp..................................................
.. ............... 7,618,344
10,000 Community Federal
Bancorp..................................................
180,000
10,000 First Bergen
Bancorp...................................................
.. .. 152,500
10,000 GA Financial
Inc.......................................................
.. .. 188,750
28,550 Mercantile Bancorp,
Inc....................................................
1,734,413
10,000 PFF Bancorp,
Inc.++....................................................
.. .. 187,500
47,000 R & G Financial
Corp......................................................
. 1,222,000
35,791 Wells Fargo &
Co........................................................
.. . 9,645,674
- ----------------------------------------------------------
- ----------------------------------------------
25,523,356 -----------------------------------------------
- ---------------------------------------------------------
BEVERAGE -- 4.9%
93,250 Coca-Cola
Co........................................................
.. ..... 6,294,375
429,275 Coca-Cola
Enterprises...............................................
.. ..... 9,873,325 ----------------------------------
- ----------------------------------------------------------
- ------------
16,167,700 -----------------------------------------------
- ---------------------------------------------------------
BUSINESS SERVICES -- 4.7%
46,075 Danka Business Systems
ADR.................................................
1,883,316
31,087 Diebold
Inc.......................................................
.. ....... 1,212,393
276,225 First Data
Corp......................................................
.. .... 12,136,636 -----------------------------------
- ----------------------------------------------------------
- -----------
15,232,345 -----------------------------------------------
- ---------------------------------------------------------
CHEMICAL -- 7.0%
175,575 Cytec Industries
Inc.++....................................................
6,562,116
375,350 Monsanto
Co........................................................
.. ...... 16,163,509 ---------------------------------
- ----------------------------------------------------------
- -------------
22,725,625 -----------------------------------------------
- --------------------------------------------------------
COMMUNICATIONS -- 0.5%
65,000 Qwest Communications International,
Inc.++................................. 1,771,250 ---
- ----------------------------------------------------------
- -------------------------------------------
COMPUTERS -- 8.8%
17,500 Compaq Computer
Corp.++...................................................
. 1,736,875
108,075 Dell Computer
Corp.++...................................................
.. . 12,692,058
59,625 Intel
Corp......................................................
.. ......... 8,455,570
168,425 Seagate Technology,
Inc.++.................................................
5,926,455 ------------------------------------------------
- --------------------------------------------------------
28,810,958 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
CONSUMER STAPLES -- 2.3%
250,000 US Office Products Co.
.................................................... $
7,640,625 ------------------------------------------------
- --------------------------------------------------------
DIVERSIFIED OPERATIONS -- 4.0%
202,450 General Electric Co.
......................................................
13,235,168 -----------------------------------------------
- ---------------------------------------------------------
DRUGS AND HEALTHCARE -- 10.5%
35,850 American Home
Products..................................................
.. . 2,742,525
8,400 Bristol-Myers Squibb Co.
..................................................
680,400
123,475 Eli Lilly & Co.
..........................................................
. 13,497,360
63,475 Pfizer, Inc.
..........................................................
.. .. 7,585,263
78,125 Warner-Lambert Co.
........................................................
9,707,031 ------------------------------------------------
- --------------------------------------------------------
34,212,579 -----------------------------------------------
- ---------------------------------------------------------
FINANCIAL SERVICES -- 10.8%
32,950 Charles Schwab Corp.
......................................................
1,340,653
10,000 Chester Bancorp Inc.
......................................................
148,750
179,325 Federal Home Loan Mortgage Corp.
.......................................... 6,164,297
196,655 Federal National Mortgage
Association......................................
8,579,074
10,000 First Defiance Financial
Corp..............................................
146,250
132,355 Merrill Lynch & Co., Inc.
.................................................
7,891,667
10,000 South Street Financial
Co.++...............................................
165,000
98,075 State Street Boston Corp.
.................................................
4,535,969
50,725 Student Loan Marketing
Association.........................................
6,442,075 ------------------------------------------------
- --------------------------------------------------------
35,413,735 -----------------------------------------------
- ---------------------------------------------------------
FOOD -- 0.4%
25,365 Safeway
Inc.++....................................................
.. ....... 1,169,961 --------------------------------
- ----------------------------------------------------------
- -------------MANUFACTURING -- 4.6%
84,625 Applied Materials,
Inc.++..................................................
5,992,508
142,800 E. I. du Pont de Nemours & Co.
............................................
8,978,550 ------------------------------------------------
- --------------------------------------------------------
14,971,058 -----------------------------------------------
- ---------------------------------------------------------
MATERIALS & PROCESSING -- 2.3%
208,050 Delta & Pine Land Co.
.....................................................
7,411,781 ------------------------------------------------
- --------------------------------------------------------
NATURAL GAS -- 1.3%
75,500 Praxair Inc.
..........................................................
.. .. 4,228,000
- ----------------------------------------------------------
- ----------------------------------------------
OIL & GAS -- 5.5%
106,425 Diamond Offshore Drilling,
Inc.++..........................................
8,314,453
52,550 Schlumberger Ltd.
.........................................................
6,568,750
41,625 Transocean Offshore Inc.
..................................................
3,023,016 ------------------------------------------------
- --------------------------------------------------------
17,906,219 -----------------------------------------------
- --------------------------------------------------------
TELECOMMUNICATIONS -- 5.2%
28,450 Cincinnati Bell, Inc.
.....................................................
896,175
224,450 Lucent Technologies
Inc....................................................
16,174,428 -----------------------------------------------
- ---------------------------------------------------------
17,070,603 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
RETAIL -- 2.0%
34,875 Fred Meyer,
Inc.++....................................................
..
... $ 1,802,602
44,875 Gucci
Group.....................................................
.. ......... 2,888,828
46,650 Starbucks
Corp.++...................................................
.. ..... 1,816,434
- ----------------------------------------------------------
- ----------------------------------------------
6,507,864 ------------------------------------------------
- --------------------------------------------------------
SOFTWARE -- 2.8%
73,425 Microsoft
Corp.++...................................................
.. ..... 9,279,084
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL COMMON STOCK (Cost --
$225,628,571)..................................
297,118,109 ----------------------------------------------
- ----------------------------------------------------------
FOREIGN STOCK -- 5.8%
801 Bayerische Motoren Werke
AG................................................
660,988
17,506 Volkswagen
AG........................................................
.. .... 13,280,690
56,000 Sony Corp.
..........................................................
.. .... 4,888,928
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL FOREIGN STOCK (Cost --
$14,586,624)..................................
18,830,606 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
REPURCHASE AGREEMENT -- 3.4%
$11,027,000 Citibank, 5.988% due 7/1/97; Proceeds at
maturity -- $11,028,834; (Fully
collateralized by U.S. Treasury Notes,
6.500% due 8/31/01; Market
value -- $11,249,381) (Cost -
$11,027,000)................................
11,027,000 -----------------------------------------------
- ---------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$251,242,195*).......................... $326,975,715 --
- ----------------------------------------------------------
- --------------------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
CASH INCOME TRUST
<TABLE>
<CAPTION>
FACE
ANNUALIZED
AMOUNT SECURITY
YIELD VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S>
<C> <C>
COMMERCIAL PAPER -- 95.5%
$ 180,000 Allied Signal Inc. matures
7/7/97................................ 5.58% $
179,834
180,000 American Express Co. matures
7/2/97.............................. 5.56
179,972
180,000 Becton Dickinson & Co. matures
7/8/97............................ 5.55
179,806
149,900 Chase Manhattan Bank matures
7/8/97.............................. 5.57
149,739
175,000 Dillard Investment Co., Inc. matures
7/22/97..................... 5.58 174,432
180,000 Ford Motor Credit Corp. matures
7/29/97.......................... 5.56
179,226
180,000 General Electric Capital Corp. matures
7/23/97................... 5.60 179,390
180,000 General Mills Inc. matures
7/8/97................................ 5.55
179,807
180,000 Goldman, Sachs matures
7/10/97................................... 5.58
179,749
180,000 Household Finance Corp. matures
7/22/97.......................... 5.60
179,416
175,000 May Department Stores matures
7/29/97............................ 5.62
174,242
180,000 Merrill Lynch Co. matures
7/14/97................................ 5.61
179,637
180,000 National Rural Utilities matures
7/17/97......................... 5.57
179,558
175,000 Northern Indiana Public Service Corp.
matures
7/21/97............ 5.57 174,461
180,000 Paccar Financial Corp. matures
7/7/97............................ 5.52
179,835
180,000 PacifiCorp matures
7/17/97....................................... 5.60
179,555
180,000 Pearson Inc. matures
7/15/97..................................... 5.58
179,611
175,000 Progress Capital Holdings matures
7/11/97........................ 5.57 174,730
176,000 Prudential Funding Co. matures
7/21/97........................... 5.58
175,459
175,000 Southern California Edison Co. matures
7/23/97................... 5.57 174,406
180,000 Southern New England Telecom matures
7/22/97..................... 5.56 179,419
180,000 Tampa Electric Co. matures
7/28/97............................... 5.57
179,251
180,000 Transamerica Finance Corp. matures
7/11/97....................... 5.63 179,719
180,000 TRW Inc. matures
7/7/97.......................................... 5.59
179,834 --------------------------------------------------
- -------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -
$4,251,088)......................
4,251,088
- ----------------------------------------------------------
- -----------------------------------------------
REPURCHASE AGREEMENT -- 4.5%
198,000 Citibank, 5.59% due 7/1/97, Proceeds at
maturity -- $198,031;
(Fully collateralized by U.S. Treasury
Notes, 8.75% due 8/15/00;
Market value -- $218,295) (Cost -
$198,000)..................... 198,000
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$4,449,088*).................. $4,449,088
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ----------------------------------------------------------
- -------------------------------------------------
<S> <C>
<C> <C> <C>
ASSETS:
Investments -- Cost...............................
$167,978,548 $19,973,031 $251,242,195 $4,449,088
- ----------------------------------------------------------
- ------------------------------------------------
Investments, at value.............................
$208,442,690 $20,944,867 $326,975,715 $4,449,088
Cash..............................................
229 205,826 155 768
Dividends and interest receivable.................
1,099,628 375,048 86,591
114
Receivable from securities
sold................... 893,678 422,579
128,290 --
Receivable from broker -- variation
margin........ 83,125 -- --
- --
Receivable from
affiliate......................... -- -
- - -- 14,855
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL ASSETS......................................
210,519,350 21,948,320 327,190,751 4,464,825
- ----------------------------------------------------------
- ------------------------------------------------
LIABILITIES:
Investment advisory fees payable..................
84,967 8,519 166,085 --
Administration fees payable.......................
10,235 1,022 12,502 --
Payable for securities purchased..................
1,408,138 648,106 86,583 --
Dividends payable.................................
- -- -- -- 6,714
Accrued expenses..................................
19,687 16,258 4,048 1,776
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL LIABILITIES.................................
1,523,027 673,905 269,218 8,490
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL NET ASSETS....................................
$208,996,323 $21,274,415 $326,921,533 $4,456,335
- ----------------------------------------------------------
- -------------------------------------------------
NET ASSETS:
Paid-in capital...................................
$156,846,314 $24,249,684 $239,162,568 $4,456,335
Undistributed net investment income...............
3,725,600 656,407 1,274,156 --
Accumulated net realized gain (loss) from security
transactions...................................
7,886,167 (4,603,512) 10,751,141 --
Net unrealized appreciation of investments,
futures contracts and foreign currencies.......
40,538,242 971,836 75,733,668 --
- ----------------------------------------------------------
- -------------------------------------------------
TOTAL NET ASSETS....................................
$208,996,323 $21,274,415 $326,921,533 $4,456,335 ---
- ----------------------------------------------------------
- ----------------------------------------------
SHARES OUTSTANDING..................................
12,474,281 2,318,711 7,617,350 4,456,335
- ----------------------------------------------------------
- -------------------------------------------------
NET ASSET VALUE, PER SHARE..........................
$16.75 $9.18 $42.92 $1.00
- ----------------------------------------------------------
- -------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX
MONTHS
ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ----------------------------------------------------------
- --------------------------------------------------
<S>
<C> <C> <C> <C>
INVESTMENT INCOME:
Interest...............................................
$
2,608,814 $ 912,810 $ 942,881 $108,363
Dividends..............................................
1,053,145 -- 1,274,157 --
Less: Foreign withholding tax..........................
- -- -- (42,871) --
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL INVESTMENT INCOME................................
3,661,959 912,810 2,174,167 108,363
- ----------------------------------------------------------
- -------------------------------------------------EXPENSES:
Investment advisory fees (Note 3)......................
486,500 47,082 1,002,275 9,526
Administration fees (Note 3)...........................
55,213 4,756 69,061 1,469
Shareholder communications.............................
29,115 8,300 23,000 450
Audit and legal........................................
23,140 10,000 7,000 8,315
Custody................................................
16,860 3,000 9,000 3,487
Shareholder and system servicing fees..................
5,000 4,300 3,920 2,860
Trustees' fees.........................................
5,000 4,400 5,000 3,272
Pricing service fees...................................
3,000 -- -- --
Registration fees......................................
- -- -- -- 400
Other..................................................
1,780 1,610 360 --
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL EXPENSES.........................................
625,608 83,448 1,119,616 29,779
Less: Expense reimbursement............................
- -- -- -- (16,196)
- ----------------------------------------------------------
- --------------------------------------------------
NET EXPENSES...........................................
625,608 83,448 1,119,616 13,583
- ----------------------------------------------------------
- --------------------------------------------------
NET INVESTMENT INCOME....................................
3,036,351 829,362 1,054,551 94,780
- ----------------------------------------------------------
- --------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 4 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities)*......................................
5,413,500 336,616 11,972,060 (25)
Futures contracts...................................
(1,098,325) -- -- --
- ----------------------------------------------------------
- --------------------------------------------------
NET REALIZED GAIN (LOSS)...............................
4,315,175 336,616 11,972,060 (25) --------
- ----------------------------------------------------------
- ------------------------------------------
Change in Net Unrealized Appreciation of Investments,
Futures Contracts and Foreign Currencies:
Beginning of period.................................
25,676,994 658,102 45,698,691 --
End of period.......................................
40,538,242 971,836 75,733,668 --
- ----------------------------------------------------------
- --------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................
14,861,248 313,734 30,034,977 --
- ----------------------------------------------------------
- --------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES.....................................
19,176,423 650,350 42,007,037 (25)
- ----------------------------------------------------------
- --------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................
$22,212,774 $1,479,712 $ 43,061,588 $ 94,755 -------
- ----------------------------------------------------------
- -------------------------------------------
</TABLE>
* Represents only gains from the sale of short-term
securities for the Cash
Income Trust.
SEE NOTES TO FINANCIAL
STATEMENTS.
27
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE
30, 1997
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ----------------------------------------------------------
- -------------------------------------------------
<S> <C>
<C> <C> <C>
OPERATIONS:
Net investment income............................. $
3,036,351 $ 829,362 $ 1,054,551 $ 94,780
Net realized gain (loss)..........................
4,315,175 336,616 11,972,060 (25)
Increase in net unrealized appreciation...........
14,861,248 313,734 30,034,977 --
- ----------------------------------------------------------
- -------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............
22,212,774 1,479,712 43,061,588 94,755
- ----------------------------------------------------------
- ------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income.............................
- -- -- -- (94,737)
- ----------------------------------------------------------
- -------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS..................
- -- -- -- (94,737)
- ----------------------------------------------------------
- -------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares..................
3,264,591 3,595,019 69,418,802 7,780,666
Net asset value of shares issued for
reinvestment of dividends......................
- -- -- -- 94,737
Cost of shares reacquired.........................
(5,091,523) (1,091,359) (9,690,608) (6,961,741)
- ----------------------------------------------------------
- -------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS...................................
(1,826,932) 2,503,660 59,728,194 913,662
- ----------------------------------------------------------
- -------------------------------------------------
INCREASE IN NET ASSETS..............................
20,385,842 3,983,372 102,789,782 913,680
NET ASSETS:
Beginning of period...............................
188,610,481 17,291,043 224,131,751 3,542,655
- ----------------------------------------------------------
- -------------------------------------------------
END OF PERIOD*....................................
$208,996,323 $21,274,415 $326,921,533 $4,456,335
- ----------------------------------------------------------
- -------------------------------------------------
* Includes undistributed net investment income
of: ..............................................
$3,725,600 $656,407 $1,274,156 --
- ----------------------------------------------------------
- -------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL CASH
ASSETS BOND APPRECIATION INCOME
TRUST TRUST FUND TRUST
- ----------------------------------------------------------
- --------------------------------------------------
<S> <C>
<C> <C> <C>
OPERATIONS:
Net investment income............................. $
6,221,446 $ 1,631,694 $ 1,149,455 $ 94,484
Net realized gain (loss)..........................
13,430,793 (304,388) 13,938,060 --
Increase in net unrealized appreciation...........
3,373,072 857,828 24,478,515 --
- ----------------------------------------------------------
- --------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............
23,025,311 2,185,134 39,566,030 94,484
- ----------------------------------------------------------
- -------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income.............................
(10,914,123) (2,978,125) (1,741,271) (94,502)
Net realized gains................................
(17,258,729) -- (23,015,510) --
- ----------------------------------------------------------
- --------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS..................
(28,172,852) (2,978,125) (24,756,781) (94,502)
- ----------------------------------------------------------
- --------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares..................
7,067,309 5,233,862 72,301,317 9,941,686
Net asset value of shares issued for
reinvestment of
dividends...................... 28,172,852
2,978,125 24,756,781 94,502
Cost of shares reacquired.........................
(12,757,653) (3,030,251) (9,891,028) (7,910,199) --
- ----------------------------------------------------------
- ------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS........................
22,482,508 5,181,736 87,167,070 2,125,989 ----
- ----------------------------------------------------------
- ----------------------------------------------
INCREASE IN NET ASSETS..............................
17,334,967 4,388,745 101,976,319 2,125,971
NET ASSETS:
Beginning of year.................................
171,275,514 12,902,298 122,155,432 1,416,684 ---
- ----------------------------------------------------------
- -----------------------------------------------
END OF YEAR*......................................
$188,610,481 $17,291,043 $224,131,751 $ 3,542,655 --
- ----------------------------------------------------------
- ------------------------------------------------
* Includes undistributed net investment income
of:...............................................
$689,249 $(172,955) $219,605 ---------
- ----------------------------------------------------------
- ------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<pg$pcn> -------------------------------------------------
- ------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Managed Assets Trust, High Yield Bond Trust,
Capital Appreciation Fund
and Cash Income Trust (collectively, "Fund(s)") are each a
Massachusetts
business trust registered under the Investment Company Act
of 1940, as amended,
as diversified, open-end management investment companies.
Shares of the Funds
are offered only to insurance company separate accounts
that fund certain
variable annuity and variable life insurance contracts.
The significant accounting policies consistently
followed by the Funds are:
(a) security transactions are accounted for on trade date;
(b) securities traded
on national securities markets are valued at the closing
prices on such markets;
securities for which no sales price were reported and U.S.
government and agency
obligations are valued at the mean between the last
reported bid and asked
prices or on the basis of quotations received from
reputable brokers or other
recognized sources; (c) securities maturing within 60 days
are valued at cost
plus accreted discount and, or minus amortized premium,
which approximates
market value; (d) securities that have a maturity of 60
days or more are valued
at prices based on market quotations for securities of
similar type, yield and
maturity; (e) interest income, adjusted for amortization
of premium and
accretion of discount, is recorded on the accrual basis
and dividend income is
recorded on the ex-dividend date; foreign dividends are
recorded on the
ex-dividend date or as soon as practical after the Fund
determines the existence
of a dividend declaration after exercising reasonable due
diligence; (f) gains
or losses on the sale of securities are calculated by
using the specific
identification method; (g) dividends and distributions to
shareholders are
recorded on the ex-dividend date; (h) the accounting
records of the Fund are
maintained in U.S. dollars. All assets and liabilities
denominated in foreign
currencies are translated into U.S. dollars on the date of
valuation. Purchases
and sales of securities and income and expenses are
translated at the rate of
exchange quoted on the respective date that such
transactions are recorded.
Differences between income and expense amounts recorded
and collected or paid
are adjusted when reported by the custodian; (i) the
character of income and
gains to be distributed are determined in accordance with
income tax regulations
which may differ from generally accepted accounting
principles. At December 31,
1996, reclassifications were made to the capital accounts
of the High Yield Bond
Trust, Capital Appreciation Fund and Cash Income Trust to
reflect permanent
book/tax differences and income and gains available for
distributions under
income tax regulations. Accordingly, for the High Yield
Bond Trust a portion of
accumulated net realized loss amounting to $1,893,310 was
reclassified to
paid-in capital. Net investment income, net realized gains
and net assets were
not affected by this change; (j) the Funds intend to
comply with the
requirements of the Internal Revenue Code of 1986, as
amended, pertaining to
regulated investment companies and to make distributions
of taxable income
sufficient to relieve it from substantially all Federal
income and excise taxes;
and (k) estimates and assumptions are required to be made
regarding assets,
liabilities and changes in net assets resulting from
operations when financial
statements are prepared. Changes in the economic
environment, financial markets
and any other parameters used in determining these
estimates could cause actual
results to differ.
2. DIVIDENDS
Cash Income Trust declares and records a dividend
of substantially all of
its net investment income on each business day. Such
dividends are paid or
reinvested on the payable date.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER
TRANSACTIONS
Travelers Asset Management International Corporation
("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as
investment manager and
advisor to the Managed Assets Trust ("MAT"), High Yield
Bond Trust ("HYBT"),
Capital Appreciation Fund ("CAF") and Cash Income Trust
("CIT"). MAT, CAF and
CIT pay TAMIC an investment management and advisory fee
calculated at the annual
rate of 0.50%, 0.75% and 0.3233%, respectively of its
average daily net assets.
HYBT pays TAMIC an investment management and advisory fee
calculated at an
annual rate of: 0.50% on the first $50,000,000, 0.40% on
the next $100,000,000,
0.30% on the next $100,000,000 and 0.25% on the amount
over $250,000,000 of its
average daily net assets. This fee is calculated daily and
paid monthly.
TAMIC has a sub-advisory agreement with The Travelers
Investment Management
Company, Inc. ("TIMCO"), an indirect wholly owned
subsidiary of Travelers Group
Inc. Pursuant to the sub-advisory agreement, TIMCO is
responsible for the
day-to-day portfolio operations and investment decisions
for MAT. As a result,
TAMIC pays TIMCO, as sub-advisor, 0.25% of the average
daily net assets of MAT.
TIMCO also has a sub-advisory agreement with Janus
Capital Corporation
("Janus"). Pursuant to the sub-advisory agreement, Janus
is responsible for the
day-to-day portfolio operations and investment decisions
for CAF. As a result,
TIMCO pays Janus, as sub-advisor, 0.55% of the average
daily net assets of CAF.
30
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Travelers Insurance Company ("Travelers Insurance")
acts as administrator
to the Funds. The Funds pay Travelers Insurance an
administration fee calculated
at an annual rate of 0.06% of its average daily net
assets. Travelers Insurance
has entered into a sub-administrative services agreement
with Smith Barney
Mutual Funds Management Inc. ("SBMFM"), a subsidiary of
Smith Barney Holdings
Inc. ("SBH"). Travelers Insurance pays SBMFM, as sub
administrator, a fee
calculated at an annual rate of 0.06% for the average
daily net assets of each
Fund. This fee is calculated daily and paid monthly.
SB received brokerage commissions of $3,530 from
affiliated brokers.
One Trustee and all officers of the Funds are
employees of Travelers Group
Inc., or its subsidiaries.
4. INVESTMENTS
During the six months ended June 30, 1997, the
aggregate cost of purchases
and proceeds from sales of investments (including
maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
MANAGED HIGH CAPITAL
ASSETS YIELD BOND APPRECIATION
TRUST TRUST FUND --------------------
- ----------------------------------------------------------
- ----------------------------
<S>
<C> <C> <C>
Purchases.................................................
.. .. $78,952,894 $17,477,715 $198,723,695 -------
- ----------------------------------------------------------
- ----------------------------------------
Sales.....................................................
.. .. 81,429,405 10,944,026 125,088,536
</TABLE>
- ----------------------------------------------------------
- ---------------------
At June 30, 1997, the aggregate gross unrealized
appreciation and
depreciation of investments for Federal income tax
purposes were substantially
as follows:
<TABLE>
<CAPTION>
MANAGED HIGH CAPITAL
ASSETS YIELD BOND APPRECIATION
TRUST TRUST FUND -------------------
- ----------------------------------------------------------
- -----------------------------
<S>
<C> <C> <C>
Gross unrealized
appreciation................................ $41,421,245
$1,037,816 $79,745,703
Gross unrealized
depreciation................................ (957,103)
(65,980) (4,012,183) ---------------------------------
- ----------------------------------------------------------
- ---------------
Net unrealized
appreciation..................................
$40,464,142 $971,836 $75,733,520 ---------------------
- ----------------------------------------------------------
- ---------------------------
</TABLE>
5. REPURCHASE AGREEMENTS
The Funds purchase (and its custodian takes
possession of) U.S. Government
securities from banks and securities dealers subject to
agreements to resell the
securities to the sellers at a future date (generally, the
next business day) at
an agreed-upon higher repurchase price. The Funds require
continual maintenance
of the market value of the collateral in amounts at least
equal to 102% of the
repurchase price.
6. FUTURES CONTRACTS
Initial margin deposits made upon entering into
futures contracts are
recognized as assets. The initial margin is segregated by
the custodian and is
noted in the schedule of investments. During the period
the futures contract is
open, changes in the value of the contract are recognized
as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect
the market value of
the contract at the end of each day's trading. Variation
margin payments are
made or received and recognized as assets due from or
liabilities due to broker,
depending upon whether unrealized gains or losses are
incurred. When the
contract is closed, the Funds record a realized gain or
loss equal to the
difference between the proceeds from (or cost of) the
closing transactions and
the Funds' basis in the contract. The Funds bear the
market risk that arises
from changes in the value of the financial instruments and
securities indices
(futures contracts) and the credit risk should a
counterparty fail to perform
under such contracts.
At June 30, 1997, MAT had sold 25 financial futures
contracts on the
Standard & Poor's 500 Index expiring in September 1997.
The basis value of such
contracts was $11,202,225. The market value of such
contracts on June 30, 1997
was $11,128,125, thereby resulting in an unrealized gain
of
$74,100.
31
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased
by the Funds,
represent investments, which are "marked-to-market" daily.
When a purchased
option expires, the Funds realize a loss in the amount of
the premium paid. When
the Funds enter into closing sales transactions, the Funds
realize a gain or
loss depending on whether the proceeds from the closing
sales transaction are
greater or less than the premium paid for the option. When
the Funds exercise a
put option, it will realize a gain or loss from the sale
of the underlying
security and the proceeds from such sale will be decreased
by the premium
originally paid. When the Funds exercise a call option,
the cost of the security
which the Funds purchase upon exercise will be increased
by the premium
originally paid.
As of June 30, 1997, the Funds had no open purchased
call or put options
contracts.
8. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, HYBT had, for Federal income
tax purposes,
approximately $4,751,000 of capital loss carryforwards
available to offset
future capital gains. To the extent that these
carryforward losses can be used
to offset realized capital gains, it is probable that such
gains will not be
distributed. The amount and expiration of the
carryforwards are indicated below.
Expiration occurs on December 31 of the year indicated:
<TABLE>
<CAPTION>
1996 1997 1998
1999 2000 2001 2002 2004
<S> <C> <C> <C>
<C> <C> <C> <C> <C> --------
- ----------------------------------------------------------
- --------------------------------------------------
Carryforward
Amounts............ $530,000 $1,094,000
$1,970,000 $748,000 $48,000 $135,000 $38,000
$188,000 -------------------------------------------------
- ----------------------------------------------------------
- ---------</TABLE>
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of
an unlimited number of
shares of beneficial interest without par value.
Transactions in shares of each
Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
<S>
<C> <C> ----------------------------------
- ----------------------------------------------------------
- -----------
MANAGED ASSETS TRUST
Shares
sold.....................................................
206,135 469,580
Shares issued on
reinvestment...................................
- -- 1,926,518
Shares
redeemed.................................................
(326,069) (847,611)
- ----------------------------------------------------------
- ---------------------------------------------
Net Increase
(Decrease).........................................
(119,934) 1,548,487 ----------------------------
- ----------------------------------------------------------
- -----------------
HIGH YIELD BOND TRUST
Shares
sold.....................................................
405,971 591,013
Shares issued on
reinvestment...................................
- -- 356,007
Shares
redeemed.................................................
(123,742) (343,196)
- ----------------------------------------------------------
- ---------------------------------------------
Net
Increase..................................................
.. 282,229 603,824
- ----------------------------------------------------------
- ---------------------------------------------
CAPITAL APPRECIATION FUND
Shares
sold.....................................................
1,772,207 1,994,300
Shares issued on
reinvestment...................................
- -- 716,103
Shares
redeemed.................................................
(258,840) (287,644)
- ----------------------------------------------------------
- ---------------------------------------------
Net
Increase..................................................
.. 1,513,367 2,422,759 ------------------------
- ----------------------------------------------------------
- ---------------------
CASH INCOME TRUST
Shares
sold.....................................................
7,780,666 9,941,686
Shares issued on
reinvestment...................................
94,737 94,502
Shares
redeemed.................................................
(6,961,741) (7,910,199) -------------------------
- ----------------------------------------------------------
- --------------------
Net
Increase..................................................
.. 913,662 2,125,989
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
32
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 1997(1)
1996 1995 1994 1993 1992
- ----------------------------------------------------------
- -----------------------------------------------------
<S> <C>
<C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $14.98
$15.50 $12.85 $14.21 $14.02 $14.78
- ----------------------------------------------------------
- ----------------------------------------------------INCOME
(LOSS) FROM OPERATIONS:
Net investment income................. 0.24
0.46 0.49 0.46 0.51 0.64
Net realized and unrealized gain
(loss)............................. 1.53
1.50 2.83 (0.73) 0.72 0.01
- ----------------------------------------------------------
- -----------------------------------------------------
Total Income (Loss) From Operations..... 1.77
1.96 3.32 (0.27) 1.23 0.65
- ----------------------------------------------------------
- -----------------------------------------------------
LESS DISTRIBUTIONS FROM (2):
Net investment income................. --
(0.89) (0.50) (0.67) (0.85)
(1.04)
Net realized gains.................... --
(1.59) (0.17) (0.42) (0.19)
(0.37)
- ----------------------------------------------------------
- -----------------------------------------------------
Total Distributions..................... --
(2.48) (0.67) (1.09) (1.04) (1.41)
- ----------------------------------------------------------
- -----------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $16.75
$14.98 $15.50 $12.85 $14.21 $14.02
- ----------------------------------------------------------
- -----------------------------------------------------
TOTAL RETURN............................ 11.82%++
13.78% 27.12% (2.24)% 9.33% 5.14%
- ----------------------------------------------------------
- -----------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $208,996
$188,610 $171,276 $140,887 $156,767 $148,971
- ----------------------------------------------------------
- ----------------------------------------------------RATIOS
TO AVERAGE NET ASSETS:
Expenses (3).......................... 0.64%+
0.58% 0.58% 0.61% 0.56% 0.56%
Net investment income................. 3.12+
3.51 3.49 3.59 3.65 4.97
- ----------------------------------------------------------
- ----------------------------------------------------
PORTFOLIO TURNOVER RATE................. 42%
108% 110% 97% 86% 112%
- ----------------------------------------------------------
- ----------------------------------------------------
AVERAGE COMMISSIONS PER SHARES PAID ON
EQUITY TRANSACTIONS (4)............... $ 0.06 $
0.06 -- -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 1997(1)
1996 1995 1994 1993 1992
- ----------------------------------------------------------
- -----------------------------------------------------
<S> <C>
<C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $8.49
$9.00 $8.49 $9.25 $8.91 $8.75
- ----------------------------------------------------------
- ----------------------------------------------------INCOME
(LOSS) FROM OPERATIONS:
Net investment income................. 0.37
0.91 0.80 0.66 0.68 0.88
Net realized and unrealized gain
(loss)............................. 0.32
0.41 0.41 (0.76) 0.47 0.18
- ----------------------------------------------------------
- -----------------------------------------------------
Total Income (Loss) From Operations..... 0.69
1.32 1.21 (0.10) 1.15 1.06
- ----------------------------------------------------------
- -----------------------------------------------------
LESS DISTRIBUTION FROM (2):
Net investment income................. --
(1.83) (0.70) (0.66) (0.81) (0.90)
- ----------------------------------------------------------
- -----------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $9.18
$8.49 $9.00 $8.49 $9.25 $8.91
- ----------------------------------------------------------
- -----------------------------------------------------
TOTAL RETURN............................ 8.13%++
16.05% 15.47% (1.26)% 14.01% 13.16% ---
- ----------------------------------------------------------
- --------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $21,274
$17,291 $12,902 $11,716 $12,765 $10,289 --
- ----------------------------------------------------------
- --------------------------------------------------RATIOS
TO AVERAGE NET ASSETS:
Expenses (5).......................... 0.81%+
0.97% 1.25% 1.25% 0.99% 0.56%
Net investment income................. 6.40+
11.01 9.37 7.71 7.69 10.24 ----
- ----------------------------------------------------------
- ------------------------------------------------PORTFOLIO
TURNOVER RATE................. 73%
84% 222% 146.% 19% 52% ------
- ----------------------------------------------------------
- ----------------------------------------------</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Distributions from realized gains include both net
realized short-term and
long-term capital gains. Prior to 1996 net realized
short-term capital gains
were included in distributions from net investment
income.
(3) The ratios of expenses to average net assets for the
years 1993 and 1992
reflects an expense reimbursement by The Travelers in
connection with
voluntary expense limitations. Without the expense
reimbursement, the ratios
of expenses to average net assets would have been 0.60%
and 0.63%, for the
years ended December 31, 1993 and 1992, respectively.
(4) For the fiscal years beginning after 1995, the SEC
instituted new guidelines
requiring the disclosure of average commissions per
share on Funds which
held more than 10% of their assets in commissionable
equity securities.
(5) The ratio of expenses to average net assets reflects
an expense
reimbursement by The Travelers in connection with
voluntary expense
limitations. Without the expense reimbursement, the
ratios of expenses to
average net assets would have been 1.28%, 1.33%, 1.31%
and 1.28%, for the
years ended December 31, 1995, 1994, 1993 and 1992,
respectively.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
33
<pg$pcn>
- ----------------------------------------------------------
- --
- --------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1997(1) 1996
1995 1994 1993(2) 1992
- ----------------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $36.72
$33.18
$24.50 $25.87 $22.72 $19.63
- ----------------------------------------------------------
- ----------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............ 0.13
0.23
0.24 0.19 0.19 0.28
Net realized and unrealized gain
(loss)........................ 6.07
8.49
8.61 (1.41) 3.21 3.13
- ----------------------------------------------------------
- ----------------------------------------------------
Total Income (Loss) From
Operations....................... 6.20
8.72
8.85 (1.22) 3.40 3.41
- ----------------------------------------------------------
- ----------------------------------------------------
LESS DISTRIBUTION FROM (3):
Net investment income............ --
(0.41)
(0.17) (0.15) (0.25) (0.32)
Net realized gains............... --
(4.77)
- -- -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------
Total Distributions................ --
(5.18)
(0.17) (0.15) (0.25) (0.32)
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $42.92
$36.72
$33.18 $24.50 $25.87 $22.72
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL RETURN....................... 16.88%++
28.21%
36.37% (4.76)% 15.09% 17.60%
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $326,922
$224,132
$122,155 $78,494 $62,414 $29,506
- ----------------------------------------------------------
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)..................... 0.84%+
0.83%
0.85% 0.89% 0.87% 0.56%
Net investment income............ 0.79+
0.69
0.84 0.79 0.81 1.39
- ----------------------------------------------------------
- ---------------------------------------------------
PORTFOLIO TURNOVER RATE............ 52%
84%
124% 106% 155% 126%
- ----------------------------------------------------------
- ----------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (5)....... $ 0.06 $ 0.06
- -- -- -- --
- ----------------------------------------------------------
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CASH INCOME TRUST 1997(1) 1996
1995 1994 1993 1992
- ----------------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $1.00
$1.00
$1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------
- ----------------------------------------------------
Net investment income (6)........ 0.0238
0.0412
0.0417 0.0278 0.0214 0.0322
Distributions from net investment
income........................ (0.0238)
(0.0412)
(0.0417) (0.0278) (0.0214) (0.0322)
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $1.00
$1.00
$1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL RETURN....................... 2.29%++
4.20%
4.17% 2.78% 2.14% 3.22%
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $4,456
$3,543
$1,417 $1,203 $647 $697
- ----------------------------------------------------------
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (6)(7).................. 0.68%+
0.78%
1.25% 1.25% 0.94% 0.38%
Net investment income............ 4.75+
3.72
- -- -- -- --
- ----------------------------------------------------------
- ---------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Effective May 1, 1993, Janus Capital Corporation
became sub-adviser for
Capital Appreciation Fund.
(3) Distributions from realized gains include both net
realized short-term and
long-term capital gains. Prior to 1996 net realized
short-term capital gains
were included in distributions from net investment
income.
(4) The ratio of expenses to average net assets for 1993
and 1992 reflects an
expense reimbursement by The Travelers in connection
with voluntary expense
limitations. Without the expense reimbursement, the
ratios of expenses to
average net assets would have been 0.96% and 0.91%, for
the years ended
December 31, 1993 and 1992, respectively.
(5) For the fiscal years beginning after 1995, the SEC
instituted new guidelines
requiring the disclosure of average commissions per
share on Funds which
held more than 10% of their assets in commissionable
equity securities.
(6) The Travelers reimbursed CIT for $16,196 and $43,376
in expenses for the six
months ended June 30, 1997 and the year ended December
31, 1996,
respectively. If such fees were not waived and expenses
not reimbursed, the
per share decreases of net investment income would have
been $0.004 and
$0.02, respectively, and the expense ratios would have
been 1.49%
(annualized) and 1.71%, respectively.
(7) The ratio of expenses to average net assets for 1995
1992 reflects an
expense reimbursement by The Travelers in connection
with voluntary expense
limitations. Without the expense reimbursement, the
ratios of expenses to
average net assets would have been 7.37%, 6.40%, 8.47%
and 7.70% for the
years ended December 31, 1995, 1994, 1993 and 1992,
respectively.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
34
<pg$pcn>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
For the six months ended June 30, 1997, the U.S.
Government Securities Portfolio
had a total return of 3.13%. As of June 30, 1997 the
composition of assets was
46% in mortgage-backed securities, 40% in U.S. Treasuries,
11.5% in U.S. agency
securities and 2.5% in cash.
The second quarter came on the heels of a Federal Reserve
Board ("Fed")
tightening on March 25, 1997. By the end of the first
quarter of 1997, the yield
on the 30-year U.S. Treasury bond rose to 7.10%. Market
expectations of another
Fed move at the May meeting kept interest rates high for
the
first half of the
quarter, diminishing only after negative retail sales in
April were reported in
the middle of May. By the time the quarter had ended,
rates were essentially at
the levels very close to where the year began.
Corporate bonds and mortgage-backed securities did better
than U.S. Treasuries
by a small margin. In the U.S. government securities
market, agency debentures
(i.e., general debt obligations backed only by the
integrity of the borrower and
documented by an agreement called an indenture) fared
marginally better than
other U.S. Treasuries because of their slight yield
advantage.
The Portfolio's exposure to GNMA adjustable rate mortgage
securities helped its
performance during the reporting period. Going forward, we
expect to maintain a
fairly neutral duration in the Portfolio but we intend to
maintain its
overweighting in mortgage-backed securities.
Solid gains in jobs and income, advancing financial
markets and high levels of
consumer confidence have created ideal conditions for
possibly greater consumer
spending. These ideal conditions may in turn cause labor
markets to tighten and
trigger a shift in the Fed's monetary policy. In our view,
the timing and
direction of the next Fed move is uncertain and will only
take place when there
are clearer indications about the strength of the U.S.
economy.
SOCIAL AWARENESS STOCK PORTFOLIO
The Social Awareness Stock Portfolio seeks high total
return by investing in the
equity securities of issuers who demonstrate a positive
awareness of their
impact on the society in which they operate. For the six
months ended June 30,
1997, the Portfolio generated a total return of 16.62%. As
of June 30, 1997, the
Portfolio owned 70 stocks, with an overweighting in
financial, technology and
transportation issues. The stock focus in the Portfolio is
on middle- to
large-sized companies with an average market
capitalization of $29.5 billion.
Although a preference for strong, large-capitalization
stocks still persists,
the stock market continues to run on all cylinders with
better breadth across
the population of stocks. We have resisted the temptation
to simply equate
higher stock prices with excessive speculation. With an
economy characterized by
low inflation, positive interest rates and strong profits
and cash flows, we
believe that the long-term values behind this market
remain solid.
On a short-term momentum basis, however, conditions are
almost too good and
prices are reaching extreme levels. In other words, there
aren't many real
market laggards and most stocks are participating in
varying degrees in the
market's historic advance. The first half market gains
were even more
significant when you consider that interest rates remained
approximately flat,
and earnings grew on the order of about 10%. This has made
it a bit more
difficult to find inexpensive values with our disciplined
investment strategy.
During the six months under review, health care,
financial, high technology and
capital goods were the market sectors that performed best.
At the other extreme
were the infrastructure sectors like utilities,
communications services, basic
materials and energy that were sector laggards. The
Portfolio's sector
weightings at the end of June generally contributed to its
solid performance.
During the reporting period, we sold nine existing stock
positions, reduced one
position, added to 13 existing holdings and bought eight
new issues. The new
names represent a diverse list such American Stores,
Dollar General, Rite-Aid
and Wendy's (consumer retail sector), Beckman Instruments
(medical area), Chase
Manhattan (finance) and Cisco Systems and Motorola
(technology).
UTILITIES PORTFOLIO
The Utilities Portfolio seeks to provide current income
and as a secondary goal,
capital appreciation, by investing at least 25% of its
assets in the utilities
industry. For the six months ended June 30, 1997, the
Utilities Portfolio
generated a total return of 4.17%.
35
<pg$pcn>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
So far in 1997, favorable economic news, better-than
expected gross domestic
product (GDP), continued low inflation and strong
corporate earnings growth
fueled the U.S. economy and financial markets. (GDP is the
total output of goods
and services.) However, this positive economic
environment, continued to
challenge utility stocks as a whole because of the
uncertainty surrounding
industry restructuring.
The strong equity market, as measured by the Standard and
Poor's 500 Index and
the Dow Jones Industrial Average led by technology and
cyclical issues, provided
investors with investment returns substantially above
historical averages.
Despite this strong performance, the volatility of the
markets increased during
the past six months. In our opinion, this increase in
market volatility has not
deterred investors who continue to avoid more defensive
stocks such as
utilities. As a group, the utilities industry continued to
underperform relative
to the broad-based equity market.
Despite the market's underweighting in the utility
industry and the cloud of
uncertainty caused by deregulation, we remain very
positive on the utility
industry as a whole and anticipate several positive
regulatory decisions both at
the state and federal level in the months ahead. Although
the level of long-term
interest rates continues to be an important influence on a
utility company's
relative performance, we think that improving a company's
competitive position
is a more significant factor in achieving attractive
investment returns. Given
the wide disparity in the performance of different utility
stocks, we believe
that careful stock selection remains key to achieving
superior total return
performance.
With respect to the long-term outlook for utilities, many
states have recently
enacted competitive restructuring proposals. Under these
proposals, power
providers would compete for customers in an open market.
In our view, these
proposals are not only positive compared to many of the
early more punitive
proposals, but essentially provide the local utility the
opportunity to recover
its "stranded costs." (Stranded costs are expenses that
utilities are at risk of
not recovering in a competitive environment.) Stranded
costs, often associated
with expensive nuclear plants, includes any assets or
expenses that, when
recovered through traditional power rates, can cause
utility rates to exceed the
market price of power. Certain states have passed
legislation to permit the
recovery of stranded costs through the issuance of asset
backed bonds.
As full retail competition is established, clearly not all
utilities, whether in
the electric, gas or telecommunications industries, will
be
impacted by
competition to the same extent. Deregulation, while
increasing the business risk
for companies with higher expenses, should provide
opportunities for lower-cost,
well-managed companies. We expect volatility in the
utility industry to persist
as the reduction in regulatory protection proceeds and the
financial markets
differentiate between those companies that are
"competitively blessed," (with
lower cost structures, strong service territory growth and
competitive
management skills), and those companies that are perceived
to be "fundamentally
challenged," (due to the burden of high cost structures,
limited customer growth
and lack of a clear corporate strategy). As noted, the
increasing disparity of
performance within the utility industry has resulted from
a combination of
fundamental factors and competitive uncertainty.
In our opinion, merger and acquisition activity within the
electric utility,
natural gas and telecommunication industry have generally
generated superior
total returns. We anticipate the pace of merger activity
within the utility
industry to increase as state and federal regulatory
proposals are finalized.
Consolidation such as mergers that integrate two
industries, (e.g.,
electric/natural gas) are primarily driven by competitive
concerns. A successful
merger often allows two companies to leverage their
production costs over a
larger customer base.
In an effort to take advantage of better relative market
performance and total
return, we have strategically increased the Portfolio's
emphasis in natural gas
stocks. The natural gas holdings in the Portfolio are
companies that we believe
should deliver solid core earnings growth while at the
same time rapidly growing
their non-regulated businesses. Supporting our confidence
in the natural gas
sector through the end of the 1997 is a positive commodity
price forecast and
solid earning performance for many natural gas companies.
In addition, we continue to increase the Portfolio's
emphasis in the
telecommunications industry. Although not immune to
regulatory concerns, select
companies within the telecommunications industry offer the
Portfolio
diversification and compelling investment opportunities.
Many telecommunications
companies stand to benefit from the integration of long
distance, local, cable
and internet services, as well as the rapid expansion of
global
telecommunications networks.
Our portfolio strategy continues to focus on long-term
growth and current
income. Looking ahead to 1998, deregulation and
competition will continue to
evolve implying both increased volatility and greater
opportunity. We anticipate
that as the competitive regulatory framework takes shape,
issues of market share
and customer satisfaction will replace concerns regarding
transition plans and
rate decreases. The Portfolio maintains its emphasis in
quality, low-cost
companies with a predictable earnings base.
36
<pg$pcn>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
For the remaining six months of 1997, we expect to
continue the moderate,
sustainable growth in the U.S. economy. We believe
inflation should remain under
control as the Federal Reserve Board appears resolved to
take the necessary
preemptive steps if any signs of inflationary pressures
emerge.
In closing, we thank you for your investment in The
Travelers Series Trust. We
look forward to continuing to help you achieve your
financial goals.
Sincerely,
McLendon sig
Heath B. McLendon
Chairman
August 1, 1997
37
<pg$pcn> -------------------------------------------------
- ------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES
PORTFOLIO AS OF 6/30/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 3.13%
Year Ended 6/30/97 9.59%
1/24/92* through 6/30/97 7.01%
<CAPTION>
CUMULATIVE TOTAL RETURN --------
-------------------------------------
<S> <C>
1/24/92* through 6/30/97
7.09%
+ Total return is not annualized, as it
may not be representative of the total
return for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made
on January
24, 1992 and assuming reinvestment of dividends through
June 30,
1997. The Lehman Government Bond Index is a broad-based
Index of
all public debt obligations of the U.S. Government and its
agencies
and has an average maturity of nine years. The Consumer
Price Index
is a measure of the average change in prices over time in
a fixed
market basket of goods and services.
<TABLE>
<CAPTION>
U.S.
Government Lehman
Measurement Period Securities Government
Consumer
(Fiscal Year Covered) Portfolio Bond Index Price
Index
<S> <C> <C> <C>
1/24/92 10000 10000
10000
Dec-92 10790 10920
10275
Dec-93 11813 12125
10557
Dec-94 11147 11699
10840
Dec-95 13869 13950
11115
Dec-96 14077 14354
11484
6/30/97 14511 14732
11607
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming
reinvestments of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO
AS OF 6/30/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------
--------------------------------------<S>
<C>
Six Months Ended 6/30/97+
16.62%
Year Ended 6/30/97
28.38%
5/1/92* through 6/30/97
16.61%
<CAPTION>
CUMULATIVE TOTAL RETURN --------
------------------------------------<S>
<C>
5/1/92* through 6/30/97
113.88% + Total return is not annualized,
as it may
not be representative of the total return
for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made
on May 1,
1992 assuming reinvestment of dividends through June 30,
1997. The
Standard & Poor's 500 Index is an unmanaged index composed
of 500
widely held common stocks listed on the New York Stock
Exchange,
American Stock Exchange and the over-the-counter market.
The Consumer Price Index is a measure of the average
change in prices
over time in a fixed market basket of goods and services.
<TABLE>
<CAPTION>
Social
Awareness Standard &
Measurement Period Stock Poors 500
Consumer
(Fiscal Year Covered) Portfolio Index Price
Index
<S> <C> <C> <C>
5/1/92 10000 10000
10000
Dec-92 10950 10673
10157
Dec-93 11777 11745
10436
Dec-94 11461 11900
10716
Dec-95 15285 14509
10988
Dec-96 18340 17838
11353
6/30/97 21388 21513
11474
</TABLE>
- ----------------------------------------------------------
- --
- --------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming
reinvestments of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
38
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF
6/30/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ------------------
---------------------------
<S> <C>
Six Months Ended 6/30/97+ 4.17%
Year Ended 6/30/97
7.01%
2/4/94* through 6/30/97
12.04%
<CAPTION>
CUMULATIVE TOTAL RETURN --------
------------------------------------<S>
<C>
2/4/94* through 6/30/97
47.21%
+ Total return is not annualized, as it may
not be representative of the total return
for this year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made
on February 4, 1994 assuming reinvestment of dividends
through June
30, 1997. Standard & Poor's 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on
the New York
Stock Exchange, American Stock Exchange and over-the-
counter market. The Consumer Price Index is a measure of
the average change
in prices over time in a fixed market basket of goods and
services.
<TABLE>
<CAPTION>
Standard &
Measurement Period Utilities Poors 500
Consumer
(Fiscal Year Covered) Portfolio Index Price
Index
<S> <C> <C> <C>
2/4/94 10000 10000
10000
Dec-94 10170 10072
10205
Dec-95 13149 13852
10464
Dec-96 14139 17031
10811
6/30/97 14721 20539
10927
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming
reinvestments of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
39
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 97.5%
$ 1,750,000 U.S. Treasury Bond, 12.000% due
8/15/13..................................... $
2,461,760 2,500,000 U.S. Treasury
Bond, 8.125% due
8/15/19......................................
2,853,825 3,200,000 U.S. Treasury
Bond, 8.000% due
11/15/21.....................................
3,620,256 6,000,000 U.S. Treasury FICO
Strip, zero coupon due
9/26/19........................... 1,220,820
939,124 FHLMC Certificates, 8.000% due
5/1/26.......................................
962,011 2,521,812 FHLMC Certificates, 8.000% due
4/1/27.......................................
2,582,487 1,958,551 FNMA Certificates, 7.000% due
5/1/24........................................
1,927,939 1,929,836 FNMA Certificates, 7.000% due
6/1/24........................................
1,899,669 1,935,368 FNMA Certificates, 7.500% due
8/1/26........................................
1,941,406 370,403 GNMA Certificates, 8.500% due
3/15/18.......................................
391,005 589,091 GNMA Certificates, 8.500% due
5/15/18.......................................
621,857 213,761 GNMA Certificates, 8.500% due
6/15/18.......................................
225,651 141,904 GNMA Certificates, 8.500% due
7/15/18.......................................
149,797 975,530 FNMA Certificates, 7.500% due
11/1/26@......................................
978,575 3,000,000 Tennessee Valley Authority
Debenture, 6.375%
due 6/15/05.................... 2,935,080
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (Cost -- $24,616,862).......... 24,772,138
- ----------------------------------------------------------
- ----------------------------------------------
REPURCHASE AGREEMENT -- 2.5%
625,000 Citibank, 6.000% due 7/1/97; Proceeds at
maturity -- $625,104;
(Fully collateralized by U.S. Treasury
Notes, 5.875% due 2/28/99;
Market value -- $641,025)(Cost --
$625,000)................................. 625,000 -
- ----------------------------------------------------------
- ---------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$25,241,862*)............................ $25,397,138 --
- ----------------------------------------------------------
- --------------------------------------------
</TABLE>
@ Date shown represents the last in range of maturity
dates
of mortgage
certificates owned.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
40
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 70.8% ------------------------------------
- ----------------------------------------------------------
- ----------
BASIC MATERIALS -- 3.3%
2,000 Air Products & Chemicals,
Inc.....................................................
$ 162,500
5,000 Engelhard Corp.
..........................................................
.. ...... 104,687
4,800 Praxair,
Inc.......................................................
.. ............. 268,800 ----------------------------
- ----------------------------------------------------------
- ------------------
535,987 --------------------------------------------------
- ------------------------------------------------------
CAPITAL GOODS -- 1.2%
1,500 AMP,
Inc.......................................................
.. ................. 62,625
2,000 Pitney Bowes, Inc.
..........................................................
.. ... 139,000 --------------------------------------
- ----------------------------------------------------------
- --------
201,625 --------------------------------------------------
- -----------------------------------------------------
COMMUNICATIONS -- 3.2%
800 Bell Atlantic
Corp......................................................
.. ........ 60,700
3,000 Cisco Systems
Inc.++....................................................
.. ........ 201,375
2,300 MCI Communications Corp.
.........................................................
88,047
2,200 Motorola, Inc.
167,200 --------------------------------------------------
- ------------------------------------------------------
517,322 --------------------------------------------------
- ------------------------------------------------------
CONSUMER CYCLICALS -- 10.0%
3,000 Dollar General Corp.
..........................................................
.. . 112,500
2,900 Home Depot, Inc.
..........................................................
.. ..... 199,919
3,500 Kaufman & Broad Home Corp.
.......................................................
61,469
3,000 May Department
Stores....................................................
.. ....... 141,750
2,000 Nine West Group,
Inc.++....................................................
..
..... 76,375
4,000 Pep Boys -- Manny, Moe &
Jack.....................................................
136,250
3,000 Rite Aid Corp.
..........................................................
.. ....... 149,625
4,000 Toys "R" Us,
Inc.++....................................................
.. ......... 140,000
3,800 Tribune Co.
..........................................................
.. .......... 182,637
5,800 Wal-Mart Stores, Inc.
..........................................................
.. 196,113
3,000 Xerox Corp.
..........................................................
.. .......... 236,625 -------------------------------
- ----------------------------------------------------------
- ---------------
1,633,263 ------------------------------------------------
- --------------------------------------------------------
CONSUMER STAPLES -- 10.5%
2,700 American Stores Co.
..........................................................
.. .. 133,313
2,000 Coca-Cola Co.
..........................................................
.. ........ 135,000
2,000 Gillette Co.
..........................................................
.. ......... 189,500
6,000 Kroger
Co.++.....................................................
.. ............... 174,000
2,000 McDonald's Corp.
..........................................................
.. ..... 96,625
5,000 Newell Co.
..........................................................
.. ........... 198,125
4,800 PepsiCo, Inc.
..........................................................
.. ........ 180,300
2,800 Sysco Corp.
..........................................................
.. .......... 102,200
1,000 Unilever N.V.
..........................................................
.. ........ 218,000
1,600 Walt Disney Co.
..........................................................
.. ...... 128,400
6,000 Wendy's International, Inc.
......................................................
155,625 --------------------------------------------------
- ------------------------------------------------------
1,711,088 ------------------------------------------------
- --------------------------------------------------------
ENERGY -- 1.0%
2,800 Anadarko Petroleum Corp.
.........................................................
168,000 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
FINANCE -- 16.8%
1,600 Aetna Inc.
..........................................................
.. ........... $ 163,800
3,500 American Express Co.
..........................................................
.. . 260,750
1,250 American International Group Inc.
................................................
186,719
4,000 Associates 1st Capital Corp.
.....................................................
222,000
2,700 Bank of Boston Corp.
..........................................................
.. . 194,569
3,000 Barnett Banks, Inc.
..........................................................
.. .. 157,500
1,500 Chase Manhattan Corp.
..........................................................
.. 145,594
1,800
Citicorp..................................................
.. ...................... 217,012
4,800 Federal Home Loan Mortgage Corp.
.................................................
165,000
3,000 H. F. Ahmanson & Co.
..........................................................
.. . 129,000
2,500 Lincoln National Corp.
..........................................................
. 160,937
4,400 NationsBank Corp.
..........................................................
.. .... 283,800
6,800 State Street Corp.
..........................................................
.. ... 314,500
1,500 Transamerica Corp.
..........................................................
.. ... 140,344 --------------------------------------
- ----------------------------------------------------------
- --------
2,741,525 ------------------------------------------------
- --------------------------------------------------------
HEALTHCARE -- 8.2%
3,200 Amgen
Inc.......................................................
.. ................ 186,000
4,300 DENTSPLY International, Inc.
.....................................................
210,700
3,600 Johnson &
Johnson...................................................
.. ............ 231,750
2,300 Merck & Co., Inc.
..........................................................
.. .... 238,050
1,200 Pfizer, Inc.
..........................................................
.. ......... 143,400
2,400 Schering-Plough Corp.
..........................................................
.. 114,900
6,200 Stryker Corp.
..........................................................
.. ........ 216,225 ---------------------------------
- ----------------------------------------------------------
- -------------
1,341,025 ------------------------------------------------
- -------------------------------------------------------
MANUFACTURING -- 0.6%
2,000 Beckman Instruments, Inc.
........................................................
96,500 ---------------------------------------------------
- -----------------------------------------------------
TECHNOLOGY -- 13.5%
4,500 Belden, Inc.
..........................................................
.. ......... 153,281
2,500 Compaq Computer
Corp.++...................................................
.. ...... 248,125
5,000 Computer Associates
International.............................................
.. .. 278,438
7,000 EMC
Corp.++...................................................
.. .................. 273,000
1,000 Intel Corp.
..........................................................
.. .......... 141,812
1,400 International Business Machines Corp.
............................................ 126,262
4,600 Lucent Technologies Corp.
........................................................
331,488
2,000 Madge Networks
N.V.++....................................................
.. ....... 12,750
3,300 Marshall
Industries++..............................................
.. ............. 122,925
3,500 Oracle
Corp.++...................................................
.. ............... 176,312
2,500 Perkin-Elmer Corp.
..........................................................
.. ... 198,906
4,000 Sun Microsystems
Inc.++....................................................
.. ..... 148,875
- ----------------------------------------------------------
- ----------------------------------------------
2,212,174 ------------------------------------------------
- -------------------------------------------------------
TRANSPORTATION -- 1.5%
4,500 Mesaba Holdings,
Inc.++....................................................
.. ..... 66,375
1,400 Norfolk Southern Corp.
..........................................................
. 141,050
1,300 Southwest
Airlines..................................................
.. ............ 33,638 -----------------------------
- ----------------------------------------------------------
- -----------------
241,063 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
UTILITIES -- 1.0%
4,000 Enron Corp.
..........................................................
.. .......... $ 163,250 -------------------------------
- ----------------------------------------------------------
- ---------------
TOTAL COMMON STOCK (Cost -
$7,407,734)...........................................
11,562,822 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
REPURCHASE AGREEMENTS -- 29.2%
$2,767,000 Chase Manhattan Bank, 5.72% due 7/1/97;
Proceeds at maturity -- $2,767,440; 2,767,000
(Fully collateralized by U.S. Treasury
Notes, 6.750% due 4/30/00; Market
value -
$2,825,400)...............................................
.. .......
2,000,000 Citibank, 5.96% due 7/1/97; Proceeds at
maturity -- $2,000,331; (Fully 2,000,000
collateralized by U.S. Treasury Notes,
6.875% due 3/31/00; Market
value -
$2,044,125)...............................................
.. ....... -----------------------------------------------
- ---------------------------------------------------------
4,767,000
TOTAL REPURCHASE AGREEMENTS (Cost -
$4,767,000)............................ ------------------
- ----------------------------------------------------------
- ----------------------------
$16,329,822
TOTAL INVESTMENTS -- 100% (Cost --
$12,174,734*)............................ ----------------
- ----------------------------------------------------------
- ------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCK -- 81.1% ------------------------------------
- ----------------------------------------------------------
- ----------
ELECTRIC - UTILITY -- 55.5%
10,000 Allegheny Power System,
Inc....................................................
$ 266,875
11,000 American Electric Power Co.,
Inc...............................................
462,000
7,500 Baltimore Gas & Electric
Co....................................................
200,156
15,000 CINergy
Corp......................................................
.. ........... 522,188
7,500 CIPSCO,
Inc.......................................................
.. ........... 274,219
15,000 CMS Energy
Corp......................................................
.. ........ 528,750
10,000 DPL
Inc.......................................................
.. ............... 246,250
12,750 DQE
Inc.......................................................
.. ............... 360,187
20,000 Edison
International.............................................
.. ............ 497,500
7,000 Energen
Corp......................................................
.. ........... 235,812
15,000 Entergy Corp.
..........................................................
.. ..... 410,625
15,000 Florida Progress
Corp......................................................
.. .. 469,687
10,000 FPL Group
Inc.......................................................
.. ......... 460,625
10,000 GPU
Inc.......................................................
.. ............... 358,750
15,000 Illinova
Corp......................................................
.. .......... 330,000
10,000 KN Energy
Inc.......................................................
.. ......... 421,250
15,000 Long Island Lighting
Co........................................................
345,000
10,000 New York State Electric & Gas
Corp.............................................
208,750
10,000 NIPSCO Industries,
Inc.......................................................
..
413,125
3,000 Oneok
Inc.......................................................
.. ............. 96,563
10,000
PacifiCorp................................................
.. ................... 220,000
5,000 Pinnacle West Capital
Corp.....................................................
150,313
5,000 Potomac Electric Power
Co......................................................
115,625
7,500 Public Service Co. of
Colorado.................................................
311,250
8,000 Public Service Co. of New
Mexico...............................................
143,000
15,000 SCANA
Corp......................................................
.. ............. 372,188
15,000 Sierra Pacific
Resources.................................................
.. .... 480,000
12,500 Southern
Co........................................................
.. .......... 273,437
10,000 Texas Utilities
Co........................................................
.. ... 344,375
12,000 UtiliCorp United,
Inc.......................................................
.. . 349,500
- ----------------------------------------------------------
- ----------------------------------------------
9,868,000 ------------------------------------------------
- --------------------------------------------------------
NATURAL GAS -- 13.8%
8,000 Coastal
Corp......................................................
.. ........... 425,500
5,000 Columbia Gas Systems,
Inc......................................................
326,250
7,000 Enron
Corp......................................................
.. ............. 285,687
5,000 Equitable Resources Inc.
......................................................
141,875
7,000 MCN
Corp......................................................
.. ............... 214,375
10,000 Pacific
Enterprises...............................................
.. ........... 336,250
15,000 Southwest Gas Corp.
..........................................................
. 298,125
10,000 Williams Cos.,
Inc.......................................................
.. .... 437,500
- ----------------------------------------------------------
- --
- ---------------------------------------------
2,465,562 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<pg$pcn> -------------------------------------------------
- ------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
TELEPHONE -- 11.8%
2,000 Bell Atlantic Corp.
..........................................................
. $ 151,750
10,000 GTE Corp.
..........................................................
.. ......... 438,750
7,000 MCI Communications Corp.
......................................................
267,969
5,000 Qwest Communications International Inc.
....................................... 136,250
3,000 SBC Communications
Inc.......................................................
.. 185,625
10,000 Teleport Communications Group,
Inc.++..........................................
341,250
5,000 US West Media
Group++...................................................
.. ..... 101,250
15,000 WorldCom, Inc.
..........................................................
.. .... 480,000
- ----------------------------------------------------------
- ----------------------------------------------
2,102,844 ------------------------------------------------
- --------------------------------------------------------
14,436,406
TOTAL COMMON STOCK (Cost -
$12,296,057)....................................... ------
- ----------------------------------------------------------
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
<C> <S>
<C> ------------------------------------------------------
- --------------------------------------------------
CORPORATE BONDS -- 3.6% ----------------------------------
- ----------------------------------------------------------
- ------------
ELECTRIC - UTILITY -- 2.3%
$ 200,000 Arizona Public Service Co., 7.25% due
8/1/23................................. 188,642
200,000 Philadelphia Electric, 8.75% due
4/1/22...................................... 212,250
- ----------------------------------------------------------
- ----------------------------------------------
400,892 --------------------------------------------------
- ------------------------------------------------------
TELEPHONE -- 1.3%
230,000 MCI Communication Corp., 7.75% due
3/23/25................................... 229,425 -
- ----------------------------------------------------------
- ---------------------------------------------
630,317
TOTAL CORPORATE BONDS (Cost --
$605,989)..................................... -----------
- ----------------------------------------------------------
- -----------------------------------
U.S. TREASURY OBLIGATIONS -- 2.9%
500,000 U.S. Treasury Notes, 7.75% due 11/30/99
(Cost
- -- $499,832)................... 517,265 ------------
- ----------------------------------------------------------
- ----------------------------------
15,583,988
SUB-TOTAL INVESTMENTS (Cost --
$13,401,878).................................. -----------
- ----------------------------------------------------------
- -----------------------------------
REPURCHASE AGREEMENT -- 12.4%
2,208,000 Chase Manhattan Bank, 5.75% due by 7/1/97;
Proceeds at 2,208,000
maturity -- $2,208,353; (Fully
collateralized by U.S. Treasury Notes, 6.75%
due 4/30/00; Market value -- $2,254,000)
(Cost -- $2,208,000)................ ---------------------
- ----------------------------------------------------------
- -------------------------
$17,791,988
TOTAL INVESTMENTS -- 100% (Cost --
$15,609,878*)............................. ---------------
- ----------------------------------------------------------
- -------------------------------
</TABLE>
++ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30,1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------
- ----------------------------------------------------
<S>
<C> <C> <C>
ASSETS:
Investments -- Cost..................................
$24,616,862 $ 7,407,734 $13,401,878
Repurchase agreements -- Cost........................
625,000 4,767,000 2,208,000 -----------
- ----------------------------------------------------------
- ----------------------------------------
Investments, at value................................
$24,772,138 $ 11,562,822 $15,583,988
Repurchase agreements, at value......................
625,000 4,767,000 2,208,000
Cash.................................................
437 935 303
Receivable from affiliate............................
- -- 25,093 --
Dividends and interest receivable....................
269,759 7,484 44,083
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL ASSETS.........................................
25,667,334 16,363,334 17,836,374
- ----------------------------------------------------------
- ---------------------------------------------------
LIABILITIES:
Investment advisory fees payable.....................
6,805 8,125 9,081
Administration fees payable..........................
1,263 800 570
Accrued expenses.....................................
38,997 44,746 29,959
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL LIABILITIES....................................
47,065 53,671 39,610
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL NET ASSETS.......................................
$25,620,269 $ 16,309,663 $17,796,764
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSETS:
Paid-in capital......................................
$25,366,667 $ 11,851,444 $15,207,835
Undistributed net investment income..................
790,396 51,756 331,494
Accumulated net realized gain (loss) from security
transactions......................................
(692,070) 251,375 75,325
Net unrealized appreciation of investments...........
155,276 4,155,088 2,182,110
- ----------------------------------------------------------
- ----------------------------------------------------
TOTAL NET ASSETS.......................................
$25,620,269 $ 16,309,663 $17,796,764
- ----------------------------------------------------------
- ----------------------------------------------------
SHARES OUTSTANDING.....................................
2,286,540 887,129 1,397,603
- ----------------------------------------------------------
- ----------------------------------------------------
NET ASSET VALUE, PER SHARE.............................
$11.20 $18.38 $12.73
- ----------------------------------------------------------
- ---------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX
MONTHS
ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO ------------------
- ----------------------------------------------------------
- ------------------------------
<S>
<C> <C> <C>
INVESTMENT INCOME:
Interest..................................................
.. . $ 870,923 $ 77,647 $ 111,504
Dividends.................................................
.. . -- 55,338
316,410
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL INVESTMENT
INCOME...................................... 870,923
132,985 427,914 -----------------------------------
- ----------------------------------------------------------
- -------------
EXPENSES:
Investment advisory fees (Note
2)............................ 40,802
42,049 60,769
Audit and
legal............................................
.. 10,496 10,025 11,000
Administration fees (Note
2)................................. 7,572
3,881 5,240
Shareholder
communications...................................
5,850 6,938 8,500
Shareholder and system servicing
fees........................ 5,788 6,346
4,000
Trustees'
fees...............................................
3,200 3,500 3,500
Custody...................................................
.. . 3,065 3,183 2,250
Other.....................................................
.. . 1,028 5,307 6,125
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL
EXPENSES...............................................
77,801 81,229 101,384
- ----------------------------------------------------------
- ------------------------------------------------
NET INVESTMENT
INCOME..........................................
793,122 51,756 326,530
- ----------------------------------------------------------
- ------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE
3): Realized Gain From Security Transactions (excluding
short-term securities):
Proceeds from
sales....................................... 39,847,698
1,314,750 6,315,309
Cost of securities
sold................................... 39,838,979
1,060,462 6,239,984
- ----------------------------------------------------------
- ------------------------------------------------
NET REALIZED
GAIN............................................
8,719 254,288 75,325 ----------------------
- ----------------------------------------------------------
- --------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of
period.......................................
184,657 2,448,669 1,870,929
End of
period.............................................
155,276 4,155,088 2,182,110 --------------------
- ----------------------------------------------------------
- ----------------------------
INCREASE (DECREASE) IN NET UNREALIZED
APPRECIATION........... (29,381) 1,706,419
311,181 --------------------------------------------------
- --------------------------------------------------------
NET GAIN (LOSS) ON
INVESTMENTS.................................
(20,662) 1,960,707 386,506
- ----------------------------------------------------------
- ------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS......................... $ 772,460
$2,012,463 $ 713,036 --------------------------------
- ----------------------------------------------------------
- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE
30, 1997
<TABLE>
<CAPTION>
U.S.
GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------
- -----------------------------------------------
<S> <C>
<C> <C>
OPERATIONS:
Net investment income............................. $
793,122 $ 51,756 $ 326,530
Net realized gain.................................
8,719 254,288 75,325
Increase (decrease) in net unrealized
appreciation...................................
(29,381) 1,706,419 311,181
- ----------------------------------------------------------
- -----------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............
772,460 2,012,463 713,036
- ----------------------------------------------------------
- ----------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................
- -- -- --
- ----------------------------------------------------------
- -----------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS...................................
- -- -- --
- ----------------------------------------------------------
- -----------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares..................
1,370,841 4,626,716 1,268,577
Net asset value of shares issued for reinvestment
of dividends...................................
- -- -- --
Cost of shares reacquired.........................
(2,531,566) (1,369,511) (2,399,075)
- ----------------------------------------------------------
- -----------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS...................................
(1,160,725) 3,257,205 (1,130,498)
- ----------------------------------------------------------
- -----------------------------------------------
INCREASE (DECREASE) IN NET ASSETS...................
(388,265) 5,269,668 (417,462)
NET ASSETS:
Beginning of period...............................
26,008,534 11,039,995 18,214,226
- ----------------------------------------------------------
- -----------------------------------------------
END OF PERIOD*....................................
$25,620,269 $ 16,309,663 $17,796,764
- ----------------------------------------------------------
- -----------------------------------------------
* Includes undistributed net investment income
of:...............................................
$790,396 $51,756 $331,494
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<pg$pcn> -------------------------------------------------
- ------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S. SOCIAL
GOVERNMENT AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
<S>
<C> <C> <C>
- ----------------------------------------------------------
- -----------------------------------------------OPERATIONS:
Net investment
income...................................... $ 1,540,387
$ 37,123 $ 670,946
Net realized gain
(loss)................................... (704,606)
400,819 829,616
Increase (decrease) in net unrealized
appreciation......... (612,404) 1,159,056
(222,208) ------------------------------------------------
- ----------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS..................... 223,377
1,596,998 1,278,354 --------------------------------
- ----------------------------
- ----------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment
income......................................
(3,539,054) (233,199) (1,107,160)
Net realized
gains.........................................
(423,418) (525,148) (974,548) ----------------
- ----------------------------------------------------------
- --------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................
(3,962,472) (758,347) (2,081,708) --------------
- ----------------------------------------------------------
- ----------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of
shares........................... 6,750,676
4,848,116 7,458,285
Net asset value of shares issued for reinvestment of
dividends...............................................
3,962,472 758,347 2,081,708
Cost of shares
reacquired..................................
(9,157,807) (2,459,930) (5,862,088) ------------------
- ----------------------------------------------------------
- ------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........ 1,555,341 3,146,533
3,677,905 ------------------------------------------------
- ----------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS............................ (2,183,754)
3,985,184 2,874,551
NET ASSETS:
Beginning of
year..........................................
28,192,288 7,054,811 15,339,675 ---------------------
- ----------------------------------------------------------
- ---------------------------
END OF
YEAR*...............................................
$26,008,534 $11,039,995 $18,214,226 --------------
- ----------------------------------------------------------
- ----------------------------------
* Includes undistributed net investment income
of:........... $(2,726) --
$4,964
- ----------------------------------------------------------
- ------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<pg$pcn> -------------------------------------------------
- ------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The U.S. Government Securities, Social Awareness Stock
and Utilities
Portfolios (collectively, "Portfolio(s)") are separate
investment portfolios of
The Travelers Series Trust ("Trust"). The Trust is a
Massachusetts business
trust registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company and
consists of these
portfolios and eleven other separate investment portfolios:
Travelers Quality
Bond, Lazard International Stock, MFS Emerging Growth,
Federated High Yield,
Federated Stock, Large Cap, Equity Income, Mid-Cap
Disciplined Equity Fund, Zero
Coupon Bond Fund Portfolio Series 1998, Zero Coupon Bond
Fund Portfolio Series
2000 and Zero Coupon Bond Fund Portfolio Series 2005
Portfolios. Shares of the
Trust are offered only to insurance company separate
accounts that fund certain
variable annuity and variable life insurance contracts. The
financial statements
and financial highlights for the other portfolios are
presented in separate
semi-annual reports.
The significant accounting policies consistently
followed by the Portfolios
are: (a) security transactions are accounted for on trade
date; (b) securities
traded on national securities markets are valued at the
closing prices on such
markets; securities for which no sales prices were
reported and U.S. Government
and Agency obligations are valued at the mean between the
last reported bid and
asked prices or on the basis of quotations received from
reputable brokers or
other recognized sources; (c) securities maturing within
60 days are valued at
cost plus accreted discount and, or minus amortized
premium, which approximates
market value; (d) securities that have a maturity of 60
days or more are valued
at prices based on market quotations for securities of
similar type, yield and
maturity; (e) interest income, adjusted for amortization
of premium and
accretion of discount, is recorded on the accrual basis
and dividend income is
recorded on the ex-dividend date; (f) gains or losses on
the sale of securities
are calculated by using the specific identification
method; (g) dividends and
distributions to shareholders are recorded on the ex
dividend date; (h) the
Portfolios intend to comply with the requirements of the
Internal Revenue Code
of 1986, as amended, pertaining to regulated investment
companies and to make
distributions of taxable income sufficient to relieve it
from substantially all
Federal income and excise taxes; (i) the character of
income and gains to be
distributed are determined in accordance with income tax
regulations which may
differ from generally accepted accounting principles. At
December 31, 1996,
reclassifications were made to the Portfolio capital
accounts to reflect
permanent book/tax differences and income and gains
available for distribution
under income tax regulations. Accordingly, a portion of
overdistributed net
investment income and accumulated net realized loss
amounting to $6,915 and
$9,045, respectively, were reclassified to paid-in capital
for Social Awareness
Stock Portfolio. Net investment income, net realized gains
and net assets for
each Portfolio were not affected by these changes; and (j)
estimates and
assumptions are required to be made regarding assets,
liabilities and changes in
net assets resulting from operations when financial
statements are prepared.
Changes in the economic environment, financial markets and
any other parameters
used in determining these estimates could cause actual
results to differ.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER
TRANSACTIONS
Travelers Asset Management International Corporation
("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as
investment manager and
advisor to the U.S. Government Securities Portfolio
("USGS"). USGS pays TAMIC an
investment management and advisory fee calculated at the
annual rate of 0.3233%
of its average daily net assets. This fee is calculated
daily and paid monthly.
Greenwich Street Advisors ("GSA"), a division of
Smith Barney Mutual Funds
Management Inc. ("SBMFM") which is a subsidiary of Smith
Barney Holdings Inc.
("SBH") and an indirect wholly owned subsidiary of
Travelers Group Inc., acts as
investment manager and advisor to the Social Awareness
Stock ("SAS") and
Utilities ("Utilities") Portfolios. SAS pays GSA an
investment management and
advisory fee calculated at an annual rate of : 0.65% on
the first $50 million,
0.55% on the next $50 million, 0.45% on the next $100
million and 0.40% on
amounts over $200 million of the average daily net assets.
Utilities pays GSA an
investment management and advisory fees calculated at an
annual rate of 0.65% of
the average daily net assets. These fees are calculated
daily and paid monthly.
50
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Travelers Insurance Company ("Travelers Insurance")
acts as administrator
to the Portfolios. The Portfolios pay Travelers Insurance
an administration fee
calculated at an annual rate of 0.06% of the average daily
net assets. Travelers
Insurance has entered into a sub-administrative services
agreement with SBMFM.
Travelers Insurance pays SBMFM, as sub-administrator, a
fee calculated at an
annual rate of 0.06% of the average daily net assets of
each Portfolio. This fee
is calculated daily and paid monthly.
One Trustee and all officers of the Trust are
employees of Travelers Group
Inc., or its subsidiaries.
3. INVESTMENTS
During the six months ended June 30, 1997, the
aggregate cost of purchases
and proceeds from sales of investments (including
maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
USGS SAS UTILITIES --------------------
- ----------------------------------------------------------
- ----------------------------
<S>
<C> <C> <C>
Purchases.................................................
.. .... $ 41,695,116 $1,584,840 $5,196,884 -------
- ----------------------------------------------------------
- ----------------------------------------
Sales.....................................................
.. .... 39,847,698 1,314,750 6,315,309
</TABLE>
- ----------------------------------------------------------
- ---------------------
At June 30, 1997, aggregate gross unrealized
appreciation and depreciation
of investments for Federal income tax purposes were
substantially as follows:
<TABLE>
<CAPTION>
USGS SAS UTILITIES ----------------------
- ----------------------------------------------------------
- --------------------------
<S>
<C> <C> <C>
Gross unrealized
appreciation.......................................
$203,706 $4,206,799 2,306,548
Gross unrealized
depreciation.......................................
(48,430) (51,711) (124,438) -------------------
- ----------------------------------------------------------
- -----------------------------
Net unrealized
appreciation.........................................
$155,276 $4,155,088 $2,182,110 -------------------
- ----------------------------------------------------------
- -----------------------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes
possession of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price.
The Portfolios require
continual maintenance of the market value of the
collateral in amounts at least
equal to 102% of the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into
futures contracts are
recognized as assets. The initial margin is segregated by
the custodian and is
noted in the schedule of investments. During the period
the futures contract is
open, changes in the value of the contract are recognized
as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect
the market value of
the contract at the end of each day's trading. Variation
margin payments are
made or received and recognized as assets due from or
liabilities due to broker,
depending upon whether unrealized gains or losses are
incurred. When the
contract is closed, the Portfolios record a realized gain
or loss equal to the
difference between the proceeds from (or cost of) the
closing transactions and
the Portfolio's basis in the contract. The Portfolios bear
the market risk that
arises from changes in the value of the financial
instruments and securities
indices (futures contracts) and the credit risk should a
counterparty fail to
perform under such contracts.
At June 30, 1997, the Portfolios had no open futures
contracts.
51
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased
by the Portfolios,
represent investments, which are "marked-to-market" daily.
When a purchased
option expires, the Portfolios will realize a loss in the
amount of the premium
paid. When the Portfolios enter into closing sales
transactions, the Portfolios
will realize a gain or loss depending on whether the
proceeds from the closing
sales transactions are greater or less than the premium
paid for the option.
When the Portfolios exercise a put option, they will
realize a gain or loss from
the sale of the underlying security and the proceeds from
such sale will be
decreased by the premium originally paid. When the
Portfolios exercise a call
option, the cost of the security which the Portfolios
purchase upon exercise
will be increased by the premium originally paid.
As of June 30, 1997, the Portfolios had no open
purchased call or put
options contracts.
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, U.S. Government Securities
Portfolio had, for Federal
income tax purposes, approximately $715,000 of capital
loss carryforwards
available to offset future capital gains through 2004. To
the extent that these
carryforward losses are used to offset capital gains, it
is probable that the
gains so offset will not be distributed.
8. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of
an unlimited number of
shares of beneficial interest without par value.
Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996 ---------------------
- ----------------------------------------------------------
- ------------------------
<S>
<C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares
sold.....................................................
125,466 606,114
Shares issued on
reinvestment...................................
- -- 355,511
Shares
redeemed.................................................
(232,804) (834,803) ---------------------------
- -------------------------------------------------------
Net Increase
(Decrease).........................................
(107,338) 126,822 ----------------------------
- ------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares
sold.....................................................
269,793 323,694
Shares issued on
reinvestment...................................
- -- 51,251
Shares
redeemed.................................................
(83,021) (167,210) ----------------------------
- ------------------------------------------------------
Net
Increase..................................................
.. 186,772 207,735 --------------------------
- --------------------------------------------------------
UTILITIES PORTFOLIO
Shares
sold.....................................................
103,856 590,496
Shares issued on
reinvestment...................................
- -- 169,391
Shares
redeemed.................................................
(196,396) (463,451) ---------------------------
- -------------------------------------------------------
Net Increase
(Decrease).........................................
(92,540) 296,436 -----------------------------
- -----------------------------------------------------
</TABLE>
52
<pg$pcn>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1997(1)
1996 1995 1994 1993 1992(2) -------
- ----------------------------------------------------------
- -------------------------------------------
<S> <C>
<C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $10.86
$12.43 $10.58 $11.63 $10.79 $10.00 --------
- ----------------------------------------------------
- -------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income....................... 0.35
0.68 0.65 0.60 0.57 0.53
Net realized and unrealized gain (loss)..... (0.01)
(0.52) 1.80 (1.23) 0.44 0.26
- ----------------------------------------------------------
- --------------------------------------------------
Total Income (Loss) From Operations........... 0.34
0.16 2.45 (0.63) 1.01 0.79
- ----------------------------------------------------------
- --------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income....................... --
(1.55) (0.60) (0.39) (0.17) --
Net realized gains.......................... --
(0.18) -- (0.03) -- --
- ----------------------------------------------------------
- --------------------------------------------------
Total Distributions........................... --
(1.73) (0.60) (0.42) (0.17) --
- ----------------------------------------------------------
- --------------------------------------------------
NET ASSET VALUE, END OF PERIOD................ $11.20
$10.86 $12.43 $10.58 $11.63 $10.79
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL RETURN.................................. 3.13%++
1.46% 24.42% (5.64)% 9.48% 7.90%++
- ----------------------------------------------------------
- --------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............. $25,620
$26,009 $28,192 $24,522 $25,520 $9,017
- ----------------------------------------------------------
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)................................ 0.62%+
0.62% 0.56% 0.71% 0.58% 0.38%+
Net investment income....................... 6.35+
5.68 5.80 5.56 5.04 4.72+
- ----------------------------------------------------------
- -------------------------------------------------PORTFOLIO
TURNOVER RATE....................... 170%
501% 214% 16% 51% 25%
- ----------------------------------------------------------
- --------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 1997(1)
1996 1995 1994 1993 1992(5)
- ----------------------------------------------------------
- --------------------------------------------------
<S> <C>
<C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $15.76
$14.32 $11.05 $11.64 $10.95 $10.00
- ----------------------------------------------------------
- --------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (6)................... 0.06
0.31 0.12 0.16 0.17 0.16
Net realized and unrealized gain (loss)..... 2.56
2.42 3.47 (0.45) 0.65 0.79
- ----------------------------------------------------------
- --
- -------------------------------------------------
Total Income (Loss) From Operations........... 2.62
2.73 3.59 (0.29) 0.82 0.95 ----------
- ----------------------------------------------------------
- ----------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income....................... --
(0.43) (0.14) (0.24) (0.13) --
Net realized gains.......................... --
(0.86) (0.18) (0.06) -- ------------
- ----------------------------------------------------------
- ---------------------------------------
Total Distributions........................... -
(1.29) (0.32) (0.30) (0.13) ------------
- ----------------------------------------------------------
- ---------------------------------------
NET ASSET VALUE, END OF PERIOD................ $18.38
$15.76 $14.32 $11.05 $11.64 $10.95 --------
- ----------------------------------------------------------
- ------------------------------------------
TOTAL RETURN.................................. 16.62%++
19.98% 33.37% (2.69)% 7.55% 9.50%++ ------
- ----------------------------------------------------------
- --------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............. $16,310
$11,040 $7,055 $3,879 $3,361 $1,394 -------
- ----------------------------------------------------------
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (6)(7)............................. 1.25%+
1.25% 1.25% 1.25% 1.05% 0.71%+
Net investment income....................... 0.80+
0.43 0.99 1.43 1.50 2.22+ ---------
- ----------------------------------------------------------
- ----------------------------------------PORTFOLIO TURNOVER
RATE....................... 13% 26% 73%
137% 60% 56% --------------------------------
- ----------------------------------------------------------
- ------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS(8)................... $0.06
$0.06 -- -- -- ------------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from January 24, 1992 (commencement of
operations) to
December 31, 1992.
(3) Distributions from realized gains include both net
realized short-term and
long-term capital gains. Prior to 1996 net realized
short-term capital gains
were included in distributions from net investment
income.
(4) The expense ratios for the year ended December 31,
1993 and the period ended
December 31, 1992 reflect expense reimbursement by The
Travelers in
connection with voluntary expense limitations. Without
the expense
reimbursement, the expense ratios would have been 0.77%
and 0.72%
(annualized), respectively.
(5) For the period from May 1, 1992 (inception date) to
December 31, 1992.
(6) For the year ended December 31, 1996, The Travelers
reimbursed the Portfolio
for $25,093 in expenses. If such fees were not
waived and expenses not
reimbursed, the per share decrease of net
investment income would have been
$0.06 and the expense ratio would have been 1.69%.
(7) The expense ratios for the years ended December 31,
1995, 1994, 1993 and the
period ended December 31, 1992 reflect expense
reimbursement by The
Travelers in connection with voluntary expense
limitations. Without the
expense reimbursement, the expense ratios would
have been 1.75%, 3.34%,
3.73% and 2.19% (annualized), respectively.
(8) For the fiscal years beginning after 1995, the SEC
instituted new guidelines
requiring the disclosure of average commissions per
share on Funds which
held more than 10% of their assets in
commissionable equity securities.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
53
<pg$pcn> -------------------------------------------------
- ------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO
1997(1) 1996 1995 1994(2)
- ----------------------------------------------------------
- -----------------------------------------------
<S>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $12.22 $12.85
$10.17 $10.00 -----------------------------------------
- ----------------------------------------------------------
- ------
INCOME FROM OPERATIONS:
Net investment
income..........................................
0.23 0.47 0.48 0.35
Net realized and unrealized gain
(loss)........................ 0.28 0.47
2.44 (0.18) ------------------------------------------
- ----------------------------------------------------------
- -----
Total Income From
Operations..................................... 0.51
0.94 2.92 0.17 --------------------------------
- ----------------------------------------------------------
- ---------------
LESS DISTRIBUTIONS FROM (3):
Net investment
income.......................................... -
(0.84) (0.24) --
Net realized
gains............................................. -
(0.73) -- ----------------------------------
- ----------------------------------------------------------
- --------------
Total
Distributions.............................................
. -- (1.57) (0.24) ------------------------
- ----------------------------------------------------------
- ------------------------
NET ASSET VALUE, END OF
PERIOD................................... $12.73
$12.22 $12.85 $10.17 ------------------------------
- ----------------------------------------------------------
- -----------------
TOTAL
RETURN....................................................
. 4.17%++ 7.47% 29.29% 1.70%++ ----------------
- ----------------------------------------------------------
- -------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................ $17,797
$18,214 $15,340 $5,757 --------------------------------
- ----------------------------------------------------------
- ---------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
(4)...................................................
1.16%+ 1.07% 1.25% 1.25%+
Net investment
income.......................................... 3.74+
3.88 4.29 3.86+ -------------------------------
- ----------------------------------------------------------
- ----------------
PORTFOLIO TURNOVER
RATE.......................................... 35%
39% 25% 32% ---------------------------------
- ----------------------------------------------------------
- --------------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS
(5).... $0.06 $0.06 -- ------------
- ----------------------------------------------------------
- ------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from February 4, 1994 (commencement of
operations) to
December 31, 1994.
(3) Distributions from realized gains include both net
realized short-term and
long-term capital gains. Prior to 1996 net realized
short-term capital gains
were included in distributions from net investment
income.
(4) The ratios of expenses to average net assets for
the year ended December 31,
1995 and the period ended December 31, 1994 reflect
expense reimbursements
by The Travelers in connection with voluntary
expense limitations. Without
the expense reimbursements, the ratios of expenses
to average net assets
would have been 1.27% and 3.49% (annualized),
respectively.
(5) For the fiscal years beginning after 1995, the SEC
instituted new guidelines
requiring the disclosure of average commissions per
share on Funds which
held more than 10% of their assets in
commissionable equity securities.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized
54
<pg$pcn>
Investment Advisers --------
------------
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL
APPLICATION FUND, CASH
INCOME TRUST AND
THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT
SECURITIES PORTFOLIO
TRAVELERS ASSET MANAGEMENT INTERNATIONAL
CORPORATION
Hartford, Connecticut
THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK
PORTFOLIO AND UTILITIES
PORTFOLIO
SMITH BARNEY MUTUAL FUNDS MANAGEMENT
INC.
New York, New York
Independent Accountants ------
-------------------
KPMG PEAT MARWICK
New York, New York
Custodian
----------
PNC BANK, N.A.
This report is prepared for the general information of
contract owners and is
not an offer of shares of Managed Assets Trust, High
Yield Bond Trust, Capital
Appreciation Fund, Cash Income Trust, The Travelers
Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock
Portfolio or Utilities
Portfolio. It should not be used in connection with any
offer except in
conjunction with the Prospectuses for the Variable
Annuity and Variable
Universal Life Insurance products offered by The
Travelers Insurance Company and
the Prospectuses for the underlying funds, which
collectively contain all
pertinent information, including the applicable sales
commissions.
Printed in U.S.A. VG-181 (Semi)(8-97)
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 1997
[PHOTO]
THE TRAVELERS SERIES TRUST:
TRAVELERS QUALITY BOND PORTFOLIO
LAZARD INTERNATIONAL STOCK
PORTFOLIO MFS EMERGING GROWTH
PORTFOLIO FEDERATED HIGH YIELD
PORTFOLIO FEDERATED STOCK PORTFOLIO
MID CAP DISCIPLINED EQUITY
FUND
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
THE TRAVELERS SERIES TRUST:
TRAVELERS QUALITY BOND
PORTFOLIO LAZARD INTERNATIONAL
STOCK
PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
MID CAP DISCIPLINED EQUITY FUND
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for six
of the fourteen
portfolios of The Travelers Series Trust -- Travelers
Quality Bond, Lazard
International Stock, MFS Emerging Growth, Federated High
Yield, Federated Stock
Portfolios and Mid Cap Disciplined Equity Fund
("Portfolios") for the period
ended June 30, 1997. In this letter, we briefly discuss
general economic and
market conditions and outline each Portfolio's investment
strategy. A detailed
summary of performance and current holdings for each
Portfolio can be found in
the appropriate sections that follow in the report.
ECONOMIC REVIEW AND OUTLOOK
Economic activity in the first quarter of 1997 showed
surprising strength as
real Gross Domestic Product ("GDP") growth rose by 4.9%.
Despite the unexpected
strength in the economy and a decline in unemployment to
about 5.0%, reported
inflation remained low. However, the stronger U.S.
economy, reflected in both a
tight labor market and a high capacity utilization rate,
sparked concerns about
rising future inflation and prompted an increasingly
vigilant Federal Reserve
Board ("Fed") to raise the federal-funds rate by 25 basis
points (0.25%) on
March 25, 1997. (The federal-funds rate is the interest
rate banks charge each
other for overnight loans and is a closely watched
indicator of the direction of
interest rates.) Concerns of higher interest rates
triggered a correction in
both the stock and bond markets at the end of the first
quarter of 1997.
The key economic news in the second quarter of 1997 was a
distinct slowdown in
economic growth and surprisingly low inflation. Both stock
and bond market
investors drew relief from these developments as the
prospects of further Fed
tightening receded. Interest rates fell from above 7.0% to
6.8% by the end of
the second quarter of 1997 and the stock market began on a
furious rally that
saw stock prices rise by almost 20%.
The second quarter of 1997 began with a singular focus on
the future direction
of Fed action. After an increase of 25 basis points in the
federal-funds rate in
late March on the heels of strong economic growth in the
first quarter, it was
considered quite likely that rates would rise during the
second quarter. The
prospects of higher rates created turmoil within the U.S.
capital markets and
stocks, in particular, were hit hard in early April.
Economic data released in
early May provided mounting evidence of a slower economy
and low inflation.
Retail sales for April were soft and producer prices
showed a dramatic decline
of 0.4%. The consensus forecast for second quarter real
economic growth has now
dropped below 2.0%.
The inflation trend in recent months has been nothing
short of remarkable,
especially in light of the low unemployment rate and high
capacity utilization
rates in the U.S. economy. The consumer price deflator,
which is considered to
be a better inflation measure than the Consumer Price
Index ("CPI"), fell to a
30-year low in May at an annual rate of 1.6%. Gains in
average hourly wages, a
closely monitored signal of wage inflation, have slowed
from 4.1% to 3.5%.
Commodity price indexes are declining, oil prices are
falling and the price of
gold is now below $320, its lowest level in five years. In
other words,
inflation just does not appear to be an issue at this
point.
The biggest contributing factor in the demise of inflation
appears to be the
significant gains in productivity achieved over the last
few years. It is widely
acknowledged that conventional measures of productivity
gains are being
understated and, under that scenario, lower-than-expected
inflation may be
explained by higher-than-expected productivity gains.
Several other factors also
suggest that the current disinflationary trend is likely
to be both secular and
global in nature. These include a high level of
disinflation in the growing
technology sector, significant government downsizing and
severe global
competition.
The second quarter rally in the stock and bond markets
suggests that investors
have reduced their inflation expectations and,
consequently, the likelihood of
further Fed tightening. In our view, the biggest risk to
the presently benign
investment climate looms on the economic landscape. A
resurgence of economic
growth in the second half of the year may prompt the Fed
to act yet again on a
preemptive basis to choke off inflationary pressures.
Strong retail sales may
well hold the key to a reacceleration in third quarter
economic growth. The
boost in consumer spending could come from any one of
several sources: increased
refinancing activity, the wealth effect of a stronger
stock market, record
levels of consumer confidence and the recent strong growth
in real disposable
personal income.
While the relatively high real yield levels in the bond
market suggest that bond
investors still remain wary of an increase in inflation,
we think the stock
market is clearly vulnerable to such a development.
1
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
FIXED INCOME COMMENTARY
Bond prices rose higher in the second quarter. The Lehman
Long
Government/Corporate Index performed the best with a gain
of 5.5% as interest
rates fell below 7%. The yield curve became flatter as the
spread between long-
and short-term bonds narrowed by 0.20% in the quarter.
Stronger growth with low inflation has been good for bonds
as it has reduced
government financing needs. The low inflation environment
coupled with a
declining budget deficit provides positive support for the
bond market. Going
forward, the bullish case for bonds can be attributed to a
reduced budget
deficit and absence of inflation in final goods pricing.
While wages may be
drifting higher, so are productivity gains due to
technological improvements. At
the same time, global competition and an 8.5% year-to-date
increase in the trade
weighted dollar should prevent higher product inflation.
Year-over-year Producer
Price Index ("PPI") statistics show no signs of price
pressures, and CPI has
been at a 2.0% to 2.5% rate for the past few years.
Additionally, the CPI is
generally agreed to be overstated and the government may
be in the process of
gradually reducing this upward bias.
The key question for the markets will be the pace of
growth in the second half
of the year and how the bond market and Fed react to it.
We do not believe that
growth necessarily leads to further inflation on the
finished goods side. As
long as wage growth is offset by productivity increases,
higher growth with low
unemployment does not have to lead to a rise in inflation.
However there is
still much debate on what the market and the Fed think
about the relationship
between economic growth and inflation. If growth is above
3%, the market may
still expect higher inflation or the Fed may raise rates
on a preemptive basis.
Within the fixed income markets, spreads remain tight and
there is a high level
of complacency. Within the corporate market, spreads
remain compressed between
different quality levels and "riskier" borrowers have
access to an abundance of
capital. This condition is unlikely to change in the near
term as good economic
growth has reduced the stress on weaker credits. High
issues of Collateralized
Bond Obligations ("CBOs") has created a new class of buyer
for lower quality
issues, on that is more concerned with default likelihood
than relative pricing.
Mortgage-backed spreads have tightened as market
volatility has been low and
prepayments have been within their predicted range.
Mortgage spreads are
unlikely to widen much as long as government agencies such
as Federal National
Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation
("FHLMC") are quick to arbitrage any spread widening.
Corporate spreads are
likely to take their cues from the high yield and equity
markets. As long as
these remain well bid for, high quality spreads should
remain firm.
Historically, October has been a month when spreads have
become wider and we
would therefore not be surprised to see some modest
pressure on spreads as the
fourth quarter begins.
EQUITY COMMENTARY
The U.S. stock market continues to be in one the strongest
bull market runs
ever. Stock prices have now doubled over the last two and
a half years and
almost tripled in the last five years in an ideal
investment climate of solid
economic growth, low inflation and strong corporate
profits growth.
The year 1997 began on a positive note for the stock
market. Fueled by strong
fourth quarter earnings and robust money flows into mutual
funds, the Standard &
Poor's 500 Stock Index ("S&P 500") gained over 7% in
January and February, and
continued to move to new highs in early March. However, as
evidence of
unexpectedly robust economic growth came to hand,
investors became increasingly
concerned about the risk of higher inflation and interest
rates. The Fed raised
short-term rates in March, and long-term Treasury bond
yields moved back over
the psychologically important 7% level.
The upward spike in interest rates triggered a sharp sell
off in the stock
market during the last week of March, erasing most of the
market's year-to-date
gains. For the entire first quarter, the S&P 500 edged out
a
2.7% gain with
dividends. Small capitalization issues generally fared
worse. During the first
three months of 1997, the Russell 2000 Stock Index
declined 5.5% in value.
The second quarter of 1997 was the best quarter for the
U.S. stock market in
over ten years. The stock market rally was broad in nature
lifting most stocks
and indexes to record high levels. The S&P 500 soared by
17.5% in the second
quarter, the Russell 2000 Index rose 16.2% and the Nasdaq
Composite Index
performed even better with a gain of 18.0%. (The S&P 500
is an unmanaged
capitalization-weighted index of 500 widely held common
stocks. The Russell 2000
Index is made up of 2,000 smaller-capitalized U.S.-based
companies whose common
stocks trade on either the New York, American or Nasdaq
stock exchanges. The
Nasdaq Composite Index is a capitalization-weighted index
of all stocks which
trade on Nasdaq.)
2
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
As noted, the stock market got off to a rocky start in
April as the effects of
the Fed rate hike from late March rippled through the
capital markets. The S&P
500 sold off a low of 733 and the Dow Jones Industrial
Average ("DJIA")
retreated to almost 6300 on April 14, 1997, as investors
focused on the
likelihood of higher rates. The investor mood swing to
optimism was triggered by
the release of solid first quarter earnings in April and
the market rally began
in earnest when inflation reports in early May showed a
significant decline in
producer and consumer prices.
First quarter 1997 corporate earnings were again ahead of
expectations. The
final tally on the earnings scorecard showed that 54% of
all companies reported
earnings in excess of expectations while 31% of companies
disappointed relative
to the consensus. The preponderance of positive earnings
surprises continues a
trend which now extends to 17 consecutive quarters and is
unprecedented in terms
of duration or magnitude. Moreover, the agreement on a
balanced budget in
Washington and the prospects of a lower capital gains tax
added further fuel to
the stock market rally in the middle of the quarter. The
flood of liquidity into
the market continued unabated in the second quarter and
put more buying pressure
on stocks.
There are no indications right now to suggest that
earnings are at any great
risk in the near term. The earnings pre-announcement
season at the end of the
quarter, when companies typically confess to upcoming
earnings shortfalls, was
uneventful and early second quarter earnings seem to be
quite strong.
There are no visible signs on the horizon that inflation
is likely to flare up
in the near future. The employment cost index and hourly
wage gains are likely
to be the most closely monitored gauges of expected
inflation. We believe the
biggest risk on the interest rate front lies in a stronger
than-expected economy
in the second half. In fact, the Fed may be inclined to
respond to strong
economic data even before it begins to affect inflation
measures.
We remain cautious on the U.S. stock market. With all the
good news already
reflected in stock prices, the stock market has virtually
no margin for error.
We suspect that any unpleasant surprise will be enough
provocation to trigger a
correction. The market will focus on earnings or interest
rates for any negative
developments but any wild card surprise such as an oil
price shock could mean
trouble. The positive long-term trend towards low
inflation and lower interest
rates should, however, contain the downside in the stock
market and limit any
correction to the tradition 10% to 15% range from prior
highs.
Foreign stock markets also enjoyed a strong second quarter
with the Morgan
Stanley Capital International Europe Australia Far East
index ("MSCI EAFE")
rising by 13.0% in U.S. dollar terms. (The MSCI EAFE Index
consists of the
equity total returns for Europe, Australia, New Zealand
and the Far East.) The
bull market in global stocks also saw the Latin America
index advance by 22.5%
in the second quarter while the Emerging Markets index
gained 8.6% in U.S.
dollar terms.
TRAVELERS QUALITY BOND PORTFOLIO
The second quarter of 1997 began with weak financial
markets following a March
Fed rate increase. Financial markets bottomed in April and
roared in May and
June as investor fears of further Fed tightening subsided
with a much lower than
expected employment cost index increase, three consecutive
months of negative
retail sales growth and five consecutive months of
negative producer price
inflation reports. Investors seem to have a growing
conviction that we are in a
new era where inflation can stay low despite low levels of
unemployment last
seen in 1973. In addition to inflation, the drop in the
size of the Federal
government's budget deficit has been a major surprise.
This has led to a sharp
drop in Federal financing needs which has initially
manifested itself in a sharp
drop in Treasury bill rates. The surprise was generated by
higher than expected
tax receipts due to stock market capital gains, option
exercises and strong
corporate profits.
Second quarter GDP growth has slowed to 2%-3% from a 5.9%
pace in the first
quarter. Factors such as warm weather and the timing of
refunds vs. tax payments
were responsible for the fast pace of first quarter
growth, stealing from growth
in the second quarter. Going forward, the bullish case for
bonds has been made
because technological improvements, global competition and
low levels of
unemployment should not lead to higher product inflation.
The bear case for
bonds is that economic growth above 3% is likely to lead
to expectations of
further Fed tightening. The bear argument expresses our
bias.
For the quarter, the Lehman Intermediate
Government/Corporate Index returned
2.95%. Travelers Quality Bond Portfolio had a 2.38% return
which was 57 basis
points (0.57%) behind our index. The slightly shorter
duration strategy which
helped our total return in the first quarter created the
drag in the second. For
the year, the Lehman Intermediate Government/Corporate
Index has returned 2.83%
while the Portfolio has gained 3.23%, 40 basis points
ahead of the index.
3
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
International equity markets moved ahead strongly in the
second quarter of 1997.
After a modest gain in the first quarter, the MSCI EAFE
Index rose 13%, led by a
24% gain in Japan. Improving sentiment helped domestic
Japanese companies drive
the rebounding stock market, while the yen bounced off its
lows to further
propel performance. In the Pacific Rim Region, the quarter
closed with China
peacefully regaining control of Hong Kong after 156 years
of British rule. In
Europe, the Labour party claimed victory in the U.K.
elections, followed by a
Socialist-led coalition victory in France, while European
currency political
rhetoric continued to accelerate throughout the quarter.
Although this political
news dominated the headlines, fundamental corporate change
was at the heart of
the impressive rise in select European equity markets. The
Portfolio
participated in most of this bull rise in the second
quarter and still leads the
MSCI EAFE Index by a healthy margin year to date. The
Lazard International Stock
Portfolio had a total return of 9.74% for the six months
ended June 30, 1997
versus the total return of the MSCI EAFE Index of 11.36%.
Japan was the strongest performing equity market in dollar
terms. Over the last
two years, the Japanese equity market has become polarized
as companies forced
to change to compete with global peers have driven
performance, while domestic
companies in regulated industries have languished.
Deregulation, pension reform
and improving corporate governance are beginning to compel
change in Japanese
domestic companies. In the face of first-time competition,
NTT has begun to
restructure and has plans to spin-off its cellular phone
business. Strong
performance of our domestic Japanese holdings, which began
to close some of the
gap relative to the global exporters, offset low exposure
to Japan. Ito-Yokado
(retailing), Mitsui Marine & Fire (insurance), Orix
(leasing), Promise (consumer
loans), and Sumitomo Trust (financial services) all
significantly outperformed
the Nikkei Index. New legislation to allow easier share
buybacks and
incentive-based stock options provided a further glimmer
of change. In response,
several companies announced buyback plans while Sony, Orix
and Omron tentatively
planned for management stock options.
With the exception of a slight dip ahead of the French
elections, European
equity markets steadily advanced to new heights during the
quarter. Despite a
changing political climate, many European companies
continue to forge a path of
value creation for their shareholders. Corporate action
benefited the Portfolio
in almost every country. In the Netherlands, the stock of
Philips Electronics,
rose 61% in local terms as the restructuring program
implemented by CEO Cor
Boonstra last year is now bearing fruit in the form of its
first quarterly
upturn since first quarter 1995.
In Finland, UPM-Kymmene first reduced its stake in Rauma,
its non-core
engineering subsidiary, through an innovative scrip
dividend and share
repurchase, then reduced its stake in Nokia through a
large block trade. In
Germany, Daimler-Benz continued to sharpen its focus by
selling its Cap Gemini
stake, a French software consultancy, while strengthening
its core activities
with the purchase of Ford's U.S. truck business. In the
U.K., it did not take
Unilever long to find a buyer for its non-core specialty
chemicals arm. ICI
bought it for $8 billion. Grand Metropolitan announced a
merger with Guinness to
create a powerful combination of brands and distribution
in the fragmented
global spirits industry.
France continues to drag its feet regarding European
defense industry
consolidation, but British Aerospace is not waiting
around. In a bold
cross-Atlantic move, it aligned itself with Lockheed-
Martin in a bid for the
Joint Strike Fighter contract in the U.S. Even in France,
where concern that a
Socialist victory would stall economic progress, companies
instituted change.
Elf Aquitane and Total proposed share repurchase plans
while Generale des Eaux
sold Ffr 4.2 billion of property assets. Rhone-Poulenc
announced plans to
reshape itself into a pharmaceutical company by buying the
Ffr 25 billion
minority interest in Rhone-Poulenc Rorer, its U.S. quoted
drugs arm.
In our view, the litany of change attests to corporate
progress that is likely
to drive European equity market performance for some time
to come. However,
restructuring is not a panacea. Despite being engaged in
50 cost-reduction
projects and completing nearly 80% of its L2.3 billion
disposal program, BTR
(U.K.) slipped as weak economic conditions in key markets
dimmed its profit
outlook. Rank (U.K.) stumbled on a profits warning after
finally selling its
non-core stake in Rank Xerox. However, both companies
trade at attractive
valuations. Restructuring is not a path without bumps and
we closely monitor the
will and ability of companies to create shareholder value.
However, during the
reporting period, positive changes have far outweighed
negative ones in the
international equity market.
4
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
MFS EMERGING GROWTH PORTFOLIO
For the six months ended June 30, 1997, the MFS Emerging
Growth Portfolio
provided a total return of 10.62%. This compares to a
10.20% return for the
Russell 2000 Index.
Although the Portfolio's performance benefited from the
strong appreciation of
many of its holdings in the technology, health care and
retailing sectors, the
overall market in 1997 continues to be dominated by large
capitalization stocks
as represented by DJIA and the S&P 500. However, the
Portfolio's performance
compared favorably to the Russell 2000 Index, as investors
rewarded the earnings
growth of the many companies owned in the Portfolio.
The past six months was a paradoxical time for investors.
On the one hand, the
economy was stronger than expected, but there were a
notable number of
company-specific earnings disappointments that had not
been anticipated. Another
paradox in this strong economy has been the extremely low
rate of inflation.
Despite these tranquil economic times, there has been
considerable interest rate
volatility and, accompanying it, higher than average
market volatility. In our
opinion, this situation has provided opportunities for
identifying rapidly
growing companies at attractive valuations.
The Portfolio's performance benefited from strong
performance in its technology
holdings, primarily software. Companies such as SAP,
Compuware and Microsoft
reported much better than expected earnings, and their
stocks' prices responded
positively. Our holdings in business and computer services
also helped the
Portfolio's performance. Learning Tree International,
Accustaff, Corestaff and
Technology Solutions, which serve the burgeoning demands
of corporations in
information technology, aided performance. The health care
sector continued to
yield mixed results. Medical device companies such as
Guidant and Medtronic,
which have innovative products serving global markets, did
well. However, HMOs
such as Pacificare and United Healthcare were hurt by
higher than expected costs
and limited pricing power.
One important holding that did not perform as well as
expected was HFS, a
service provider in the hotel, real estate and car rental
industries, which
merged with CUC International, a provider of membership
services to consumers.
Investors are still assimilating the many synergies of
these two complex
businesses. We are optimistic that the market will
ultimately reward the
underlying value of this powerful combination.
Looking forward, we see a continuation of the steady
economic growth and
favorable interest rates that the U.S. has been
experiencing for the past
several years. We believe that our investment strategy of
finding rapidly
growing companies early in their development and growth
stocks at reasonable
prices should reward investors for the rest of 1997.
FEDERATED HIGH YIELD PORTFOLIO
High yield bonds delivered outstanding returns in the
first half of 1997, on
both a relative and absolute basis. These returns were
driven by an almost ideal
economic performance by the domestic economy. First-
quarter growth was very
strong, while the second quarter slowed to a respectable
but perhaps more
sustainable pace. From a high yield bond investor
perspective, the continued
strong performance of the economy resulted in low default
rates and modestly
tighter yield spreads between high yield bonds and
Treasury securities. Perhaps
more remarkable, this strong economic growth occurred
without rekindling
inflationary pressures. Despite a 25 basis point increase
(0.25%) in the fed
funds rate by the Fed interest rates on 10-year Treasury
securities rose only 7
basis points. Strong economic growth, good corporate
earnings growth, and low
inflation drove stock prices to record levels. The strong
equity market provided
high yield issuers with increased financial flexibility
and provided increased
equity value "protection" to high yield securities.
Finally, high yield bonds benefited from extremely strong
demand during the
period, which offset a record amount of new-issue
activity. Mutual funds
continued to have inflows, while insurance companies and
pension funds continued
to allocate money to the high yield market. Also,
structured products such as
collateralized bond obligations allocated substantial
dollars to the high yield
sector. These factors contributed to the outstanding
returns for the high yield
sector. For example, the Lehman Brothers High Yield Bond
Index returned 5.82%
over the period, outperforming the Lehman Brothers
Aggregate Bond Index, a
measure of high-quality bond performance, which returned
3.09% over the period.
(The Aggregate Bond Index is composed of the Lehman
Government/Corporate Index
and the Mortgage-Backed Securities Index and includes
Treasury issues, agency
issues, corporate bond issues and mortgage-backed
securities.)
The Federated High Yield Portfolio, which returned 6.72%,
performed very well
over the period, outperforming both the Lehman Brothers
High Yield Bond Index
and the Lipper High Current Yield Fund Average, which
returned 5.99%. The
5
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
Portfolio benefited from good security selection during
the period, avoiding
most of the deteriorating credit situations in the quarter
such as Penn Traffic,
Harvard Industries and Grand Union. Several sector and
specific holdings
performed well above the overall market. The Portfolio's
holdings in the
Australian cable TV market rebounded strongly from
depressed year-end levels.
The Portfolio's radio holdings, especially preferred
stocks of American Radio
and Chancellor Broadcasting, performed very well as
investors' comfort level
with the consolidation occurring in the radio industry
increased. In the
domestic cable area, the Portfolio's holdings such as
Cablevision Systems
performed very well as investors focused on the value in
well-run highly
clustered cable operators. This performance was
highlighted by Microsoft's $1
billion equity investment in Comcast. Finally, specific
holdings such as
Millicom International and Nextel turned in good
performances during the period,
based on company-specific events.
Our outlook for the high yield bond market continues to be
optimistic,
especially as we look ahead at the rest of 1997. We see
nothing to alter our
expectations of steady economic growth and modest
inflation. The Portfolio's
largest sector exposures continue to be
telecommunications, cable TV and
broadcasting. Many of the Portfolio's telecommunications
positions, such as
Teleport and Qwest Communications, are benefiting from
technology advances and
deregulation. The domestic cable TV market is rapidly
changing as new delivery
devices such as satellite broadcasters attempt to gain
subscribers. We believe
that the new delivery entrants will expand the overall
market but large,
well-managed, well-clustered traditional operators should
continue to thrive.
The Portfolio also has exposure to the United Kingdom's
cable TV and
telecommunications market, which is still in its early
stages of development. We
think these issuers will gain market share and eventually
consolidate,
benefiting high yield issuers. Recently the Portfolio has
increased its exposure
in the oil and gas industry, focusing on the drilling
sector and producers, who
we believe will benefit from expanding production.
Finally, the Portfolio has
modestly increased the overall credit quality in response
to the spread
tightening that has occurred over the past six months.
FEDERATED STOCK PORTFOLIO
The U.S. stock market continues to show surprising
strength in 1997. However,
volatility on a daily basis has increased as investors
remain uncertain with
regard to the direction of the economy and interest rates.
We think our focus on
quality and strict valuation parameters continues to
benefit our shareholders.
The Federated Stock Portfolio had a total return of 19.73%
versus the S&P 500
Index of 20.6% for the six months ended June 30, 1997.
The danger of "market timing" was apparent during the
second quarter. In early
April, the conventional wisdom was that the economy was
too strong, which would
have forced the Fed to increase interest rates in an
effort to thwart inflation.
Accordingly, many investors began reducing their exposure
to U.S. equities. What
followed was an apparent slowdown in the economy, which
convinced investors that
there would be no need to change current interest rates.
This renewed optimism
then led to a market increase from the low single digits
to a 20% total return
by June 30, 1997.
While we do believe that there are some industries and
numerous stocks that are
overvalued, we are not convinced that market timing is a
logical way to protect
our shareholders. We believe that our valuation
disciplines, which force us to
sell overpriced securities and focus on undervalued
situations, are in our
shareholders' best long-term interests. Given current
valuations, our recent
emphasis has been on high-quality well-run, companies that
for various reasons
have not fully participated in the unprecedented bull
market of the past 2 1/2
years.
Our largest industry underweight continues to be
technology as the valuations
continue at all time highs and the fundamental picture is
not as robust as it
was two years ago. Conversely, we remain overweight in
energy as we believe
global industrialization should continue to expand demand
while historic
underinvestment has kept supply contained. What follows
are our thoughts
regarding certain key Portfolio holdings.
Sun Company, Inc. -- The largest refiner in the United
States that is in the
midst of a company restructuring as well as sharing an
improving fundamental
outlook for its industry. Additionally, Sun's yield is
50% greater than the
overall market.
Lexmark International Group "A" -- An IBM spinoff that
manufactures printers for
personal computers. Lexmark, along with Hewlett-Packard,
has been gaining market
share in the laser printer area at the expense of their
Japanese competitors.
Viacom, Inc. -- Dominant franchises such as MTV and
Blockbuster video in the
entertainment industry allow us to diversify and do so at
unprecedented low
valuations.
6
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
Reader's Digest Association -- This brand-name company has
high-quality globally
recognized products that have been under pressure, as its
management has had a
flawed strategy of trying to sell more products to
existing clients versus
increasing its client base. The stock currently trades at
valuations that we
believe reflect investors' emotions, not the value of the
company. While we
admit this is a turnaround situation, the current yield of
6.3% gives us
incentive to be patient.
Dow Chemical Co. -- This firm has been shunned by
investors concerned about the
"polyethylene cycle." Current valuations are extremely low
for this dominant
company. Dow has been behind its competitors in its
restructuring efforts,
allowing for more future potential.
MID CAP DISCIPLINED EQUITY FUND
The Mid Cap Disciplined Equity Fund seeks to provide
diversified exposure to the
mid- and small-capitalization sector of the U.S. equity
market. Stock selection
is based on a disciplined quantitative screening process
that favors companies
that are able to grow earnings above consensus
expectations and offer attractive
relative value. In order to achieve consistent relative
performance, we manage
the Portfolio to mirror the overall risk, sector
weightings and growth/value
style characteristics of the Standard & Poor's 400 stock
index, a value-weighted
index comprised of mid- and small-company stocks.
The Mid Cap Disciplined Equity Fund was launched on April
1, 1997. The initial
cash flow into the Portfolio was invested in a diversified
portfolio of stocks
during the first week of April. Net of fees and expenses,
the Mid Cap
Disciplined Equity Fund's total return of 13.60% for the
second quarter of 1997
was in line with the 14.49% average return achieved by
variable annuity stock
funds in the Lipper Analytical Services Inc. mid cap
category.
During the first half, stock selection in the financial
services sector made the
strongest positive contribution to the Fund's overall
relative performance. In
financial services, our biggest relative performance gain
came from our
overweighted position in a number of specialty property
casualty insurers whose
shares were up strongly during the quarter, including
Progressive Corp., Everest
Reinsurance and Transatlantic Holdings. The Portfolio also
benefited from
overweighted positions in a number of better performing
banks including Northern
Trust and State Street, both of which are leveraging their
dominant position in
global custody services to achieve above-average revenue
and earnings growth.
We lost ground to the benchmark primarily in the energy
and technology sectors.
In the energy sector, we were hurt by the weakness of
Chesapeake Energy
Corporation in the oil exploration and production group.
The shares of
Chesapeake declined sharply on news of disappointing
drilling results on the
company's newest properties in Louisiana. In technology,
our relative
performance suffered as a result of the portfolio being
underweighted in a
number of stocks that ran up strongly on either takeover
activity or positive
earnings surprises. These included Verifone (on a take-
over by Hewlett-Packard),
Stratus Computer and Solectron.
The effort by U.S. corporations to capture leading global
market positions
through productivity-enhancing measures has been critical
to the U.S. equity
market's spectacular rise, and we expect more and more
U.S. firms to seek growth
through a global strategy. We believe that the current
economic expansion has
further to go, that inflation will remain low and that
corporate earnings will
continue to grow, although perhaps more slowly than seen
in the past year.
Therefore, the bull market should remain intact. Despite
all these positives, we
expect market volatility to increase through the remainder
of this market cycle.
With valuation at current levels, investors are nervous
and likely to
demonstrate little tolerance for any cyclical rise in
inflation and interest
rates, or even hints of bad news at the individual company
level.
In this environment, we believe that it is particularly
important to identify
companies with sustainable earnings growth at attractive
valuations across a
wide variety of industries. Our disciplined approach to
stock selection
emphasizes equities that exhibit improving fundamentals,
measured by changes in
analysts' earnings estimates and the trend of recent
earnings surprises, and
which also trade at a reasonable price-to-earnings (P/E)
ratio relative to
expected earnings growth rates. (The price/earnings ratio
is the price of a
stock divided by its earnings per share.)
7
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST --------
- ----------------------------------------------------------
- -------------
In closing, we would like to thank you for your investment
in The Travelers
Series Trust Portfolios. We look forward to continuing to
help you achieve your
financial goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 28, 1997
8
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- ------------------------------------------------
<C> <S> <C>
<C>
U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 24.8%
$500,000 AAA U.S. Treasury Notes, 6.375% due
5/15/99............................... $ 502,605
250,000 AAA U.S. Treasury Notes, 6.625% due
4/30/02............................... 252,375
250,000 AAA Federal Farm Credit Bank, Medium
Term Notes, 7.340% due 9/19/01....... 250,095
250,000 AAA Federal Home Loan Bank, Notes,
7.300% due 10/18/01.................... 250,150
250,000 AAA Federal National Mortgage
Association, 8.550% due 12/10/04............ 252,150
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES AND
OBLIGATIONS
(Cost -- $1,503,953)
1,507,375 ------------------------------------------------
- ----------------------------------------------------------
CORPORATE BONDS AND NOTES -- 61.1% -----------------------
- ----------------------------------------------------------
- ------------------------BROADCASTING -- 3.7%
200,000 BBB Continental Cablevision, Inc., Sr.
Sub. Debentures, 11.000% due
6/1/07....................................................
.. .......... 224,000
- ----------------------------------------------------------
- ------------------------------------------------
FINANCIAL SERVICES -- 16.2%
250,000 BBB+ Banponce Financial Corp., Medium
Term Notes, 6.750% due 8/9/01........ 248,438
400,000 A+ Grand Metro Investment PLC, zero
coupon notes to yield 6.998% due
1/6/04....................................................
.. .......... 256,500
225,000 AA+ Hewlett-Packard Finance, 6.500%
due
12/30/99.......................... 225,984
250,000 A+ New Plan Realty Trust, Medium Term
Notes, 5.950% due 11/2/26.......... 250,225 ---------
- ----------------------------------------------------------
- ---------------------------------------
981,147 --------------------------------------------------
- -------------------------------------------------------
INDUSTRIALS -- 16.8%
250,000 BBB- James River Corp., Notes, 6.750%
due
10/1/99.......................... 249,688
250,000 A McKesson Corp., Notes, 6.875% due
3/1/02+............................. 250,312
250,000 A- Sears Roebuck Acceptance Corp.,
Medium Term Notes, 6.400% due
9/25/00...................................................
.. .......... 248,437
250,000 A+ Texaco Capital Inc., Guaranteed
Notes, 8.500% due 2/15/03............. 270,625 ------
- ----------------------------------------------------------
- ------------------------------------------
1,019,062 ------------------------------------------------
- ---------------------------------------------------------
TELECOMMUNICATIONS -- 7.9%
250,000 AAA BellSouth Capital Funding Corp.,
Debentures, 6.040% due 11/15/26...... 245,938
225,000 A MCI Communications Corp., Sr.
Notes,
7.125% due 6/15/27............... 231,750 -----------
- ----------------------------------------------------------
- -------------------------------------
477,688 --------------------------------------------------
- --------------------------------------------------------
TOBACCO -- 4.1%
250,000 A Philip Morris Cos. Inc., Notes,
6.950% due 6/1/06..................... 251,250 ------
- ----------------------------------------------------------
- -----------------------------------------TRANSPORTATION --
4.1%
250,000 BBB- CSX Transportation Inc.,
Debentures,
6.950% due 5/1/27+............... 251,250 -----------
- ----------------------------------------------------------
- -------------------------------------
UTILITIES - ELECTRIC -- 8.3%
250,000 BBB Illinois Power, 1st Mortgage Bond,
6.500% due 9/1/99.................. 250,312
250,000 A+ Tenaga Nasional Berhad, Notes,
7.200% due 4/29/07+.................... 255,938 -----
- ----------------------------------------------------------
- -------------------------------------------
506,250 --------------------------------------------------
- --------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $3,711,981).................. 3,710,647 ------
- ----------------------------------------------------------
- ------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -
$5,215,934) 5,218,022
- ----------------------------------------------------------
- ------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT
SECURITY VALUE
- ----------------------------------------------------------
- ------------------------------------------------
<C> <S> <C>
<C>
REPURCHASE AGREEMENT -- 14.1%
$852,000 Citibank, 5.905% due 7/1/97;
Proceeds at maturity -- $852,140;
(Fully collateralized by U.S.
Treasury Notes, 5.875% due 2/28/99;
Market value -- $875,050) (Cost -
$852,000).......................... $ 852,000 ---------
- ----------------------------------------------------------
- ---------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$6,067,934**)...................... $6,070,022 ---------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
+ Security is exempt from registration under Rule 144A of
the Securities Act of
1933. This security may be resold in transactions that
are exempt from
registration, normally to qualified institutional
buyers. ** Aggregate cost for Federal income tax purposes
is substantially the same.
See page 34 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
STOCKS -- 82.7% ------------------------------------------
- ----------------------------------------------------------
- ----
AUSTRALIA -- 1.7%
19,900 Westpac Banking Corp.
Ltd......................................................
$ 118,825
- ----------------------------------------------------------
- ----------------------------------------------
DENMARK -- 0.9%
1,100 Unidanmark A/S, Class A
Shares.................................................
61,879 ---------------------------------------------------
- -----------------------------------------------------
FINLAND -- 0.5%
1,500 UPM-Kymmene
Corp......................................................
.. ....... 34,654
- ----------------------------------------------------------
- ----------------------------------------------
FRANCE -- 10.7%
800 Alcatel
Alsthom...................................................
.. ........... 100,290
2,300 Banque Nationale de
Paris.....................................................
. 94,883
670 Compagnie de Saint
Gobain....................................................
.. 97,801
920 Compagnie Generale des
Eaux....................................................
117,997
740 Compagnie Generale des Eaux Warrants, Expire
5/2/01+........................... 443
1,200 Elf Aquitaine
S.A.......................................................
.. ..... 129,586
300 Havas
S.A.......................................................
.. ............. 21,640
4,000 Rhone-Poulenc, Class A
Shares..................................................
163,516
350 Total S.A., Class B
Shares....................................................
. 35,411 -------------------------------------------------
- -------------------------------------------------------
761,567 --------------------------------------------------
- ------------------------------------------------------
GERMANY -- 11.3%
1,500 Daimler-Benz
AG........................................................
.. ...... 122,145
2,080 Deutsche Bank
AG........................................................
.. ..... 122,227
3,000 Hoeschst
AG........................................................
.. .......... 127,224
220 Mannesmann
AG........................................................
.. ........ 98,347
2,800 Metallgesellschaft
AG+.......................................................
.. 57,925
570 Metro
AG........................................................
.. ............. 62,149
320 Thyssen
AG........................................................
.. ........... 77,034
300 Viag
AG........................................................
.. .............. 137,123 ---------------------------
- ----------------------------------------------------------
- -------------------
804,174 --------------------------------------------------
- ------------------------------------------------------
HONG KONG -- 2.3%
2,673 HSBC Holdings
PLC.......................................................
.. ..... 80,390
9,500 Swire Pacific Ltd.
..........................................................
.. 85,530 ------------------------------------------------
- --------------------------------------------------------
165,920 --------------------------------------------------
- ------------------------------------------------------
ITALY -- 4.5%
16,600 Ente Nazionale Idrocarburi S.p.A.
............................................. 93,746
15,700 Fiat S.p.A.
..........................................................
.. ....... 56,378
29,000 Fiat S.p.A. Privilizio
........................................................
53,517
13,300 Instituto Nationale delle Assicurazioni
....................................... 20,121
27,100 Stet Societa' Finanziaria Telefonica
S.p.A..................................... 93,747 --
- ----------------------------------------------------------
- --------------------------------------------
317,509 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
JAPAN -- 18.0%
2,000 Honda Motor Co.
Ltd.......................................................
.. ... $ 60,299
1,000 Ito-Yokado Co.
Ltd.......................................................
.. .... 58,114
8,000 Matsushita Electric Industrial Co.
Ltd......................................... 161,496
12,000 Mitsubishi Heavy Industrial
Ltd................................................
92,179
3,000 Mitsui Marine and Fire Insurance Co.
Ltd....................................... 21,708
1,100 Nintendo Corp.
Ltd.......................................................
.. .... 92,283
13 Nippon Telegraph &
Telephone.................................................
.. 124,967
4,000 NKK
Corp......................................................
.. ............... 8,599
2,000 Omron
Corp......................................................
.. ............. 42,471
1,000 Orix
Corp......................................................
.. .............. 74,194
900 Promise Co.
Ltd.......................................................
.. ....... 51,595
11,000 Ricoh Co.
Ltd.......................................................
.. ......... 144,193
8,000 Sekisui Chemical
Co........................................................
.. .. 81,098
1,400 Sony
Corp......................................................
.. .............. 122,223
13,000 Sumitomo Trust &
Banking...................................................
.. .. 139,736
- ----------------------------------------------------------
- ----------------------------------------------
1,275,155 ------------------------------------------------
- --------------------------------------------------------
MALAYSIA -- 0.3%
5,000 Genting
Berhad....................................................
.. ........... 23,970 ------------------------------
- ----------------------------------------------------------
- ----------------
NETHERLANDS -- 3.7%
410 Heineken
N.V.......................................................
.. .......... 70,102
1,300 Philips Electronics N.V.
......................................................
93,288
1,880 Royal Dutch Petroleum Co., New York
Registered
Shares.......................... 102,234
- ----------------------------------------------------------
- ----------------------------------------------
265,624 --------------------------------------------------
- ------------------------------------------------------
NEW ZEALAND -- 0.5%
14,600 Lion Nathan
Ltd.......................................................
.. ....... 36,912
- ----------------------------------------------------------
- ----------------------------------------------
SPAIN -- 0.7%
1,800 Telefonica de
Espana....................................................
.. ..... 52,138 ------------------------------------
- ----------------------------------------------------------
- ----------
SWEDEN -- 3.2%
3,733 Astra AB, Class B
Shares....................................................
.. . 65,904
980 Electrolux AB, Class B
Shares..................................................
70,721
2,700 Svenska Handelsbanken, Class A
Shares..........................................
86,422 ---------------------------------------------------
- -----------------------------------------------------
223,047 --------------------------------------------------
- ------------------------------------------------------
SWITZERLAND -- 7.3%
60 Elektrowatt AG, Class B
Shares.................................................
22,264
70 Holderbank Financier Glarus
AG.................................................
66,212
84 Nestle
SA........................................................
.. ............ 110,971
82 Novartis
AG........................................................
.. .......... 132,344
25 SGS Societe Generale de Surveillance Holding
SA, Class B Shares................ 53,502
51 Societe Suisse pour la Microelectronique et
l'Horlogerie....................... 29,175
250 Zuerich
Versicherungsgesellschaft.................................
.. ........... 99,630 ------------------------------
- ----------------------------------------------------------
- ----------------
514,098 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
UNITED KINGDOM -- 17.1%
9,900 B.A.T. Industries
PLC.......................................................
.. . $ 88,562
7,300 British Aerospace
PLC.......................................................
.. . 162,377
18,800 BTR
PLC.......................................................
.. ............... 64,299
13,498 Cadbury Schweppes
PLC.......................................................
.. . 120,299
3,200 EMI Group
PLC.......................................................
.. ......... 57,385
9,600 General Electric Co.
PLC.......................................................
57,359
13,143 Grand Metropolitan
PLC.......................................................
.. 127,197
25,900 LucasVarity
PLC.......................................................
.. ....... 89,660
13,200 Mirror Group
PLC.......................................................
.. ...... 41,302
12,100 National Power
PLC.......................................................
.. .... 105,121
4,800 Prudential Corp.
PLC.......................................................
.. .. 46,454
7,600 Rank Group
PLC.......................................................
.. ........ 48,128
9,300 Redland
PLC.......................................................
.. ........... 52,703
51,000 Sears
PLC.......................................................
.. ............. 56,869
3,200 Unilever
PLC.......................................................
.. .......... 91,685
- ----------------------------------------------------------
- ----------------------------------------------
1,209,400 ------------------------------------------------
- --------------------------------------------------------
TOTAL STOCKS(Cost -
$5,108,200)...............................................
5,864,872 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
REPURCHASE AGREEMENT -- 17.3%
$1,227,000 Citibank, 6.000% due 7/1/97; Proceeds at
maturity -- $1,227,205;
(Fully collateralized by U.S. Treasury
Notes, 5.125% due 3/31/98;
Market value -- $1,259,375)
(Cost -
$1,227,000)...............................................
.. ......... 1,227,000
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost --
$6,335,200*)............................... $7,091,872 -
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCKS -- 89.9% -----------------------------------
- ----------------------------------------------------------
- ----------BIOTECHNOLOGY -- 1.4%
9,400 Biochem Pharmaceuticals,
Inc.+............................................... $
209,150
3,150 Guidant
Corp......................................................
.. ......... 267,750
- ----------------------------------------------------------
- ----------------------------------------------
476,900 --------------------------------------------------
- ------------------------------------------------------
BUSINESS MACHINES -- 0.7%
4,100 Affiliated Computer Services
Inc.+...........................................
114,800
3,650 Sun Microsystems,
Inc.+.....................................................
. 135,848 ------------------------------------------------
- --------------------------------------------------------
250,648 --------------------------------------------------
- ------------------------------------------------------
BUSINESS SERVICES -- 11.4%
9,600 Accustaff
Inc.+.....................................................
.. ....... 227,400
42,100 ADT
Ltd.+.....................................................
.. ............. 1,389,300
2,500 Ceridian
Corp.+....................................................
.. ........ 105,625
1,000 Corestaff
Inc.+.....................................................
.. ....... 27,000
14,600 CUC International
Inc.+.....................................................
. 376,863
10,600 Danka Business Systems,
Inc..................................................
433,275
6,000 DST Systems
Inc.+.....................................................
.. ..... 199,875
4,900 Employee Solutions
Inc.+.....................................................
27,256
300 IKON Office Solutions,
Inc...................................................
7,481
16,650 Learning Tree International,
Inc.+...........................................
738,844
300 The SABRE Group Holdings,
Inc.+..............................................
8,138
300 Staff Leasing,
Inc.+.....................................................
.. .. 5,625
11,300 Technology Solutions
Co.+....................................................
446,350
1,500 Transaction Systems Architects,
Inc.+........................................
51,750
- ----------------------------------------------------------
- ----------------------------------------------
4,044,782 ------------------------------------------------
- --------------------------------------------------------
COMPUTER SOFTWARE - PC -- 3.3%
125 Autodesk,
Inc.......................................................
.. ....... 4,789
3,660 First Data
Corp......................................................
.. ...... 160,811
7,850 Microsoft
Corp.+....................................................
.. ....... 992,044
- ----------------------------------------------------------
- ----------------------------------------------
1,157,644 ------------------------------------------------
- --------------------------------------------------------
COMPUTER SOFTWARE - SYSTEMS -- 18.3%
200 Adobe Systems,
Inc.......................................................
.. .. 7,013
20,300 BMC Software,
Inc.+.....................................................
.. ... 1,124,113
24,605 Cadence Design Systems,
Inc.+................................................
824,268
30,135 Computer Associates International,
Inc....................................... 1,678,143
19,250 Compuware
Corp.+....................................................
.. ....... 919,188
100 Genesys Telecommunications Laboratories,
Inc.+............................... 2,775
100 Great Plains Software,
Inc.+.................................................
2,700
100 Infinity Financial Technology,
Inc.+.........................................
1,631 100 Intelligroup,
Inc.+.....................................................
.. ... 963
1,600 Lear
Corp.+....................................................
.. ............ 71,000
34,200 Oracle Systems
Corp.+....................................................
.. .. 1,722,825
100 RWD Technologies,
Inc.+.....................................................
. 1,725
300 SAP Aktiengesellschaft,
ADR..................................................
20,738
200 Sybase,
Inc.+.....................................................
.. ......... 2,975
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMPUTER SOFTWARE - SYSTEMS -- 18.3% (CONTINUED)
2,300 Synopsys,
Inc.+.....................................................
.. ....... $ 84,525
1,400 Xionics Document Technology,
Inc.+...........................................
20,650 ---------------------------------------------------
- -----------------------------------------------------
6,485,232 ------------------------------------------------
- --------------------------------------------------------
CONSUMER GOODS & SERVICES -- 5.4%
8,400 Carson,
Inc.+.....................................................
.. ......... 90,300
6,200 Coleman Co.,
Inc.+.....................................................
.. .... 106,950
100 800-JR CIGAR,
Inc.+.....................................................
.. ... 2,075
1,900 Jostens,
Inc.......................................................
.. ........ 50,825
9,500 Service Corp.
International.............................................
.. ... 312,313
400 Silgan Holdings,
Inc.+.....................................................
.. 15,500
19,200 Tyco International
Ltd.......................................................
1,335,600 ------------------------------------------------
- --------------------------------------------------------
1,913,563 ------------------------------------------------
- --------------------------------------------------------
ELECTRONICS -- 1.8%
6,900 Altera
Corp.+....................................................
.. .......... 348,450
2,600 Kulicke & Soffa Industries,
Inc.+............................................
84,419
1,500 Sony Corp.
ADR.......................................................
.. ...... 132,000
1,700 Xilinx,
Inc.+.....................................................
.. ......... 83,406
- ----------------------------------------------------------
- ----------------------------------------------
648,275 --------------------------------------------------
- ------------------------------------------------------
ENERGY -- 0.3%
3,000 Keystone International
Inc...................................................
104,063 --------------------------------------------------
- -----------------------------------------------------
ENTERTAINMENT -- 3.6%
2,600 American Radio Systems
Corp..................................................
103,675
3,400 Clear Channel Communications,
Inc.+..........................................
209,100
6,300 Cox Radio
Inc.+.....................................................
.. ....... 161,438
2,600 Emmis Broadcasting
Corp.+....................................................
113,425
2,000 Gemstar International Group
Ltd..............................................
36,750
4,600 Harrah's Entertainment,
Inc.+................................................
83,950
5,800 Heritage Media
Corp.+....................................................
.. .. 109,475
4,200 Jacor Communications,
Inc.+..................................................
160,650
4,050 Lin Television
Corp.+....................................................
.. .. 178,706
100 Metro Networks,
Inc.+.....................................................
.. . 2,425
2,800 Univision Communications
Inc.+...............................................
109,550 --------------------------------------------------
- ------------------------------------------------------
1,269,144 ------------------------------------------------
- --------------------------------------------------------
FINANCIAL INSTITUTIONS -- 1.8%
700 AmeriTrade Holding
Corp.+....................................................
11,025
6,587 Franklin Resources,
Inc......................................................
477,969
4,700 Nationwide Financial Services,
Inc...........................................
124,844 200 New Century Financial
Corp.+.................................................
2,900 ----------------------------------------------------
- ----------------------------------------------------
616,738 --------------------------------------------------
- ------------------------------------------------------
FOOD & BEVERAGE -- 1.3%
8,600 Smith's Food & Drug Centers,
Inc.+...........................................
461,175 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
MACHINERY -- 0.5%
100 JLK Direct Distribution
Inc.+................................................ $
2,563
2,100 SI Handling Systems,
Inc.....................................................
38,850
2,250 SPX
Corp.+....................................................
.. ............. 145,828 ---------------------------
- ----------------------------------------------------------
- -------------------
187,241 --------------------------------------------------
- ------------------------------------------------------
MEDICAL & HEALTH SERVICES -- 11.8%
1,500 AmeriSource Health
Corp.+....................................................
74,813
2,200 Boston Scientific
Corp.+....................................................
. 135,163
1,900 Cardinal Health,
Inc.+.....................................................
.. 108,775
2,200 Columbia/HCA Healthcare
Corp.................................................
86,488
82 Foundation Health Systems,
Inc.+.............................................
2,486
3,300 Genesis Health Ventures,
Inc.+...............................................
111,375
2,400 Health Management Associates,
Inc.+..........................................
68,400
33,200 HEALTHSOUTH
Corp.+....................................................
.. ..... 827,925
800 Healthsource,
Inc.+.....................................................
.. ... 17,350
2,900 IDX Systems
Corp.+....................................................
.. ..... 100,050
1,800 Mariner Health Group,
Inc.+..................................................
27,788
7,300 MedPartners,
Inc.+.....................................................
.. .... 157,863
4,300 Medtronic,
Inc.......................................................
.. ...... 348,300
3,000 Mentor
Corp......................................................
.. .......... 88,875
15,100 Tenet Healthcare
Corp.+....................................................
.. 446,394
24,500 United Healthcare
Corp......................................................
. 1,274,000
7,400 Vencor,
Inc.+.....................................................
.. ......... 312,650
- ----------------------------------------------------------
- ----------------------------------------------
4,188,695 ------------------------------------------------
- -------------------------------------------------------
MISCELLANEOUS -- 0.6%
1,100 Gibson Greetings,
Inc.+.....................................................
. 24,750
50 Gucci Group
NV........................................................
.. ..... 3,219
1,000 Newport News Shipbuilding
Inc................................................
19,438
500 Santa Fe International
Corp.+................................................
17,000
100 The Shaw Group,
Inc.+.....................................................
.. . 1,625
2,200 Stone Container
Corp.+....................................................
..
. 31,488
800 Tower Automotive,
Inc.+.....................................................
. 34,400
1,900 Wisconsin Central Transportation
Corp.+...................................... 70,775
- ----------------------------------------------------------
- ----------------------------------------------
202,695 --------------------------------------------------
- ------------------------------------------------------
POLLUTION CONTROL -- 0.5%
4,520 USA Waste Services,
Inc.+....................................................
174,585 --------------------------------------------------
- ------------------------------------------------------
RESTAURANTS & LODGING -- 5.6%
5,400 Applebees International,
Inc.................................................
144,450
28,512 HFS,
Inc.+.....................................................
.. ............ 1,653,696
4,200 Hilton Hotels
Corp......................................................
.. ... 111,563
300 Promus Hotel
Corp.+....................................................
.. .... 11,625
2,200 Wyndham Hotel
Corp.+....................................................
.. ... 71,775
- ----------------------------------------------------------
- ----------------------------------------------
1,993,109 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
STORES -- 9.4%
4,000 American Stores
Co........................................................
..
. $ 197,500
5,750 Consolidated Stores
Corp.+...................................................
199,810
25,800 Corporate Express,
Inc.+.....................................................
372,488
4,600 Costco Cos.,
Inc.+.....................................................
.. .... 151,225
6,600 CVS
Corp......................................................
.. ............. 338,250
3,000 Dillard's
Inc.......................................................
.. ....... 103,875
1,500 Hollywood Entertainment
Corp.+...............................................
34,313
4,300 Home Depot,
Inc.......................................................
.. ..... 296,431
7,800 Micro Warehouse,
Inc.+.....................................................
.. 133,575
3,700 Office Depot,
Inc.+.....................................................
.. ... 71,919
16,200 Rite Aid
Corp......................................................
.. ........ 807,975
26,150 Staples,
Inc.+.....................................................
.. ........ 607,988
- ----------------------------------------------------------
- ----------------------------------------------
3,315,349 ------------------------------------------------
- -------------------------------------------------------
TELECOMMUNICATIONS -- 10.2%
300 Aspect Telecommunication
Corp.+..............................................
6,675
19,700 Cisco Systems,
Inc.+.....................................................
.. .. 1,322,360
1,500 Intermedia Communications
Inc.+..............................................
48,560
6,075 Lucent Technologies,
Inc.....................................................
437,780
200 Qwest Communications International
Inc.+..................................... 5,450
1,300 Tel-Save Holdings,
Inc.+.....................................................
19,820
2,800 Telecommunicacoas Brasileiras S/A
ADR........................................ 424,900
42,200 Worldcom
Inc.+.....................................................
.. ........ 1,350,400 --------------------------------
- ----------------------------------------------------------
- --------------
3,615,945 ------------------------------------------------
- --------------------------------------------------------
UTILITIES - TELEPHONE -- 2.0%
12,100 MCI Communications
Corp......................................................
463,204
4,700 Sprint
Corp......................................................
.. .......... 247,338
- ----------------------------------------------------------
- ----------------------------------------------
710,542 --------------------------------------------------
- ------------------------------------------------------
TOTAL COMMON STOCKS (Cost --
$28,464,557)....................................
31,816,325 -----------------------------------------------
- ---------------------------------------------------------
FOREIGN STOCKS -- 4.2% -----------------------------------
- ----------------------------------------------------------
- -----------
GERMANY -- 1.5%
2,500 SAP AG,
Preferred.................................................
.. ......... 515,752
- ----------------------------------------------------------
- ----------------------------------------------
JAPAN -- 2.5%
8,000 Canon Inc.
..........................................................
.. ...... 218,125
1,000 Nidec Corp.
..........................................................
.. ..... 48,938
1,000 Rohm Co.
..........................................................
.. ........ 103,120
5,000 Secom Co.
..........................................................
.. ....... 367,474
1,000 Sony Corp.
..........................................................
.. ...... 87,302
2,000 Takeda Chemical
Industries................................................
.. . 56,279
- ----------------------------------------------------------
- ----------------------------------------------
881,238 --------------------------------------------------
- ------------------------------------------------------
POLAND -- 0.1%
400 Telecel-Comunicaaoes Pessoais,
SA............................................
33,221 ---------------------------------------------------
- -----------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
SWITZERLAND -- 0.1%
15 Kuoni Reisen
AG........................................................
.. .... $ 51,444 ------------------------------------
- ----------------------------------------------------------
- ----------
TOTAL FOREIGN STOCKS (Cost --
$1,266,341)....................................
1,481,655 ------------------------------------------------
- --------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -
$29,730,898)..................................
33,297,980 -----------------------------------------------
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
SHORT-TERM INVESTMENT -- 5.9%
$2,100,000 Federal Home Loan Discount Note, 5.500% due
7/1/97
(Cost -
$2,100,000)...............................................
.. ........ 2,100,000 --------------------------------
- ----------------------------------------------------------
- --------------
TOTAL INVESTMENTS -- 100% (Cost --
$31,830,898*)............................. $35,397,980 -
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
CORPORATE BONDS AND NOTES -- 88.2% -----------------------
- ----------------------------------------------------------
- ------------------------
AUTOMOTIVE -- 1.6%
$100,000 B Collins & Aikman Products Co., Sr.
Sub. Note, 11.500% due 4/15/06...... $113,250 --------
- ----------------------------------------------------------
- ---------------------------------------
BANKING -- 1.6%
100,000 Ba3* First Nationwide Escrow Corp., Sr.
Sub. Note, 10.625% due 10/1/03...... 110,500 --------
- ----------------------------------------------------------
- ---------------------------------------
BROADCAST RADIO & TV -- 5.1%
50,000 B- Chancellor Broadcasting Co., Sr.
Sub.
Note, 9.375% due 10/1/04......... 52,000
50,000 B Heritage Media Corp., Sr. Sub. Note,
8.750% due 2/15/06................ 52,000
50,000 B Outdoor Systems Inc., Sr. Sub. Note,
8.875% due 6/15/07................ 48,750
100,000 B Sinclair Broadcast Group, Sr. Sub.
Note, 10.000% due 9/30/05........... 103,750
100,000 B- Sullivan Broadcast Holdings, Inc.,
Sr.
Sub. Note, 10.250% due
12/15/05..................................................
.. ......... 103,500
- ----------------------------------------------------------
- -----------------------------------------------
360,000 --------------------------------------------------
- ------------------------------------------------------
BUILDING/CONSTRUCTION -- 0.7%
50,000 B3* American Builders & Contractors
Supply
Co., Inc., Sr. Sub. Note,
10.625% due
5/15/07@.................................................
51,500 ---------------------------------------------------
- ------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES -- 1.8%
65,000 B+ Knoll, Inc., Sr. Sub. Note, 10.875%
due 3/15/06........................ 72,150
50,000 B- United Stationers Supply Co., Sr.
Sub.
Note, 12.750% due 5/1/05........ 56,000 ------------
- ----------------------------------------------------------
- -----------------------------------
128,150 --------------------------------------------------
- -------------------------------------------------------
CABLE TELEVISION -- 10.0%
50,000 NR Australis Holdings Ltd., step bond
to
yield 15.000% due 11/1/02........ 36,000
100,000 B Cablevision Systems Co., Sr. Sub.
Debenture, 9.875% due 2/15/13........ 105,500
100,000 B Charter Communications Southeast,
L.P., Sr. Note, 11.250% due
3/15/06...................................................
.. ......... 108,250
150,000 B- Diamond Cable Communications PLC, Sr.
Disc. Note, step bond to yield
11.109% due
2/15/07@.................................................
89,250
100,000 CCC+ Echostar Satellite Broadcasting
Corp.,
Sr. Disc. Note, step bond to
yield 13.017% due
3/15/04..........................................
71,500
100,000 B International Cabletel, Inc., Sr.
Note, step bond to yield 11.941% due
2/1/06....................................................
.. ......... 69,250
100,000 BB+ Rogers Cablesystems Ltd., Sr. Secured
2nd Priority Note, 10.000% due
3/15/05...................................................
.. ......... 108,750
150,000 BB Telewest PLC, Sr. Disc. Debenture,
step bond to yield 11.396% due
10/1/07...................................................
.. ......... 108,750
- ----------------------------------------------------------
- -----------------------------------------------
697,250 --------------------------------------------------
- -------------------------------------------------------
CHEMICALS & PLASTICS -- 2.5%
100,000 B- Astor Corp., Sr. Sub. Note, 10.500%
due 10/15/06....................... 106,750
100,000 B+ Sterling Chemicals Holdings Inc., Sr.
Disc. Note, step bond to yield
12.485% due
8/15/08..................................................
66,250 ---------------------------------------------------
- ------------------------------------------------------
173,000 --------------------------------------------------
- -------------------------------------------------------
CLOTHING & TEXTILES -- 3.0%
50,000 B- Collins & Aikman Floorcoverings,
Inc.,
Sr. Sub. Note, 10.000% due
1/15/07@..................................................
.. ......... 50,625
50,000 B- Glenoit Corp., Sr. Sub. Note,
11.000%
due 4/15/07...................... 52,688
100,000 B+ Westpoint Stevens, Inc., Sr. Sub.
Debenture, 9.375% due 12/15/05....... 105,125
- ----------------------------------------------------------
- -----------------------------------------------
208,438 --------------------------------------------------
- -------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
CONSUMER PRODUCTS -- 4.9%
$100,000 BB- American Safety Razor Co., Sr. Note,
9.875% due 8/1/05................. $ 104,750
50,000 NR ICON Fitness Corp., Sr. Disc. Note,
step bond to yield 14.000% due
11/15/06..................................................
.. ......... 27,187
50,000 NR Renaissance Cosmetics, Inc., Sr.
Note,
11.750% due 2/15/04............. 52,375
100,000 B Simmons Co., Sr. Sub. Note, 10.750%
due 4/15/06........................ 105,625
50,000 B Syratech Corp., Sr. Note, 11.000%
due
4/15/07.......................... 53,625
- ----------------------------------------------------------
- -----------------------------------------------
343,562 --------------------------------------------------
- -------------------------------------------------------
ECOLOGICAL SERVICES & EQUIPMENT -- 1.4%
75,000 B+ Allied Waste Industries, Sr. Disc.
Note, step bond to yield 11.300% due
6/1/07@...................................................
.. ......... 46,500
50,000 B+ Allied Waste North America, Inc.,
Sr.
Sub. Note, 10.250% due
12/1/06@..................................................
.. ......... 54,000
- ----------------------------------------------------------
- -----------------------------------------------
100,500 --------------------------------------------------
- -------------------------------------------------------
ELECTRONICS -- 1.5%
50,000 B Fairchild Semiconductor Corp., Sr.
Sub. Note, 10.125% due 3/15/07@..... 53,000
50,000 B- Viasystems Inc., Sr. Sub. Note,
9.750%
due 6/1/07@..................... 51,250 ------------
- ----------------------------------------------------------
- -----------------------------------
104,250 --------------------------------------------------
- -------------------------------------------------------
FINANCIAL -- 0.7%
50,000 BB- Olympic Financial, Ltd., Unit,
11.500%
due 3/15/07..................... 51,125 ------------
- ----------------------------------------------------------
- -----------------------------------
FOOD & DRUG RETAILERS -- 1.6%
100,000 B Ralph's Grocery Co., Sr. Note,
10.450%
due 6/15/04..................... 109,250 ------------
- ----------------------------------------------------------
- -----------------------------------
FOOD PRODUCTS -- 2.3%
50,000 B- International Home Foods Inc., Sr.
Sub. Note, 10.375% due 11/1/06...... 51,875
100,000 B- Van de Kamp's, Inc., Sr. Sub. Note,
12.000% due 9/15/05................ 111,375 ---------
- ----------------------------------------------------------
- --------------------------------------
163,250 --------------------------------------------------
- -------------------------------------------------------
FOREST PRODUCTS -- 2.2%
100,000 B Four M Corp., Sr. Secured Note,
12.000% due 6/1/06..................... 104,000
50,000 NR Uniforet Inc., Sr. Note, 11.125% due
10/15/06.......................... 46,750 ----------
- ----------------------------------------------------------
- -------------------------------------
150,750 --------------------------------------------------
- -------------------------------------------------------
HEALTHCARE -- 3.2%
100,000 B Dade International, Inc., Sr. Sub.
Note, 11.125% due 5/1/06............ 111,500
100,000 B+ Tenet Healthcare Corp., Sr. Sub.
Note,
10.125% due 3/1/05.............. 109,500 ------------
- ----------------------------------------------------------
- -----------------------------------
221,000 --------------------------------------------------
- -------------------------------------------------------
HOTELS, MOTELS, INNS & CASINOS -- 1.6%
100,000 B- Courtyard By Marriott II L.P., Sr.
Note, 10.750% due 2/1/08............ 109,000 --------
- ----------------------------------------------------------
- ---------------------------------------
INDUSTRIAL -- 3.0%
50,000 B2* Amphenol Corp., Sr. Sub. Note,
9.875%
due 5/15/07...................... 52,000
50,000 B Continental Global Group, Sr. Note,
11.000% due 4/1/07@................ 52,562
50,000 NR International Knife & Saw, Inc., Sr.
Sub. Note, 11.375% due 11/15/06... 53,750
50,000 B2* MMI Products, Inc., Sr. Sub. Note,
11.250% due 4/15/07@................ 53,375
- ----------------------------------------------------------
- -----------------------------------------------
211,687 --------------------------------------------------
- -------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
LEISURE & ENTERTAINMENT -- 5.4%
$100,000 B2* AMF Group, Inc., Sr. Disc. Note,
step
bond to yield 11.960% due
3/15/06...................................................
.. ......... $ 72,000
100,000 B Cobblestone Golf Group Inc., Sr.
Note,
11.500% due 6/1/03.............. 105,750
100,000 B Six Flags Theme Parks, Sr. Sub. Disc.
Note, step bond to yield 12.250%
due
6/15/05...................................................
.. ..... 102,000
100,000 BB- Viacom Inc., Sub. Debenture, 8.000%
due 7/7/06......................... 97,750
- ----------------------------------------------------------
- -----------------------------------------------
377,500 --------------------------------------------------
- -------------------------------------------------------
MACHINERY & EQUIPMENT -- 2.3%
50,000 B- Alvey Systems Inc., Sr. Sub. Note,
11.375% due 1/31/03................. 51,750
100,000 B3* Tokheim Corp., Sr. Sub. Note, 11.500%
due 8/1/06....................... 107,374
- ----------------------------------------------------------
- -----------------------------------------------
159,124 --------------------------------------------------
- ----------
- ---------------------------------------------MANUFACTURING
- -- 0.7%
50,000 B- Roller Bearing Co. of America, Inc.,
Sr. Sub. Note, 9.625% due
6/15/07@..................................................
.. ......... 50,750
- ----------------------------------------------------------
- -----------------------------------------------
OIL & GAS -- 5.2%
50,000 B Abraxas Petroleum, Sr. Note, 11.500%
due 11/1/04....................... 54,875
Forcenergy Gas Exploration, Inc.,
Sr. Sub. Notes:
50,000 B 9.500% due
11/1/06...................................................
.. 51,750
50,000 NR 8.500% due
2/15/07...................................................
.. 49,000
50,000 BB- Pride Petroleum Services, Inc., Sr.
Note, 9.375% due 5/1/07............ 52,000
50,000 B United Meridan Corp., Sr. Sub. Note,
10.375% due 10/15/05.............. 54,250
50,000 B2* United Refining Co., Sr. Note,
10.750%
due 6/15/07@.................... 49,875
50,000 NR XCL, Ltd., Unit, 13.500% due
5/1/04@................................... 50,250 --
- ----------------------------------------------------------
- ---------------------------------------------
362,000 --------------------------------------------------
- -------------------------------------------------------
PRINTING & PUBLISHING -- 4.1%
150,000 B Affiliated Newspaper Investments,
Inc., Sr. Disc. Note, step bond to
yield 12.262% due
7/1/06.............................................
127,500
50,000 BB- Hollinger International Publishing,
Inc., Sr. Sub. Note, 9.250% due
3/15/07...................................................
.. ......... 51,125
50,000 B- Peterson Publishing Co., L.L.C., Sr.
Sub. Note, 11.125% due 11/15/06... 55,750
50,000 B- Von Hoffmann Press, Inc., Sr. Sub.
Note, 10.375% due 5/15/07@.......... 52,000 --------
- ----------------------------------------------------------
- ---------------------------------------
286,375 --------------------------------------------------
- -------------------------------------------------------
SERVICES -- 0.7%
50,000 NR Intertek Finance PLC, Sr. Sub. Note,
10.250% due 11/1/06............... 51,875 ----------
- ----------------------------------------------------------
- -------------------------------------
STEEL -- 1.6%
100,000 B GS Technologies Operating Co., Inc.,
Sr. Note, 12.250% due 10/1/05..... 110,375
- ----------------------------------------------------------
- -----------------------------------------------
SURFACE TRANSPORTATION -- 5.3%
100,000 BB Gearbulk Holding Ltd, Sr. Note,
11.250% due 12/1/04.................... 111,000
50,000 B1* Statia Terminals International
N.V.,
1st Mortgage Note, 11.750% due
11/15/03..................................................
.. ......... 53,000
100,000 BB- Stena AB, Sr. Note, 10.500% due
12/15/05............................... 109,500
100,000 B Trism, Inc., Sr. Sub. Note, 10.750%
due 12/15/00....................... 95,000
- ----------------------------------------------------------
- -----------------------------------------------
368,500 --------------------------------------------------
- -------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
TELECOMMUNICATIONS & CELLULAR -- 11.2%
$100,000 NR Brooks Fiber Properties, Inc. Sr.
Disc. Note, step bond to yield
11.524% due
3/1/06...................................................
$ 68,250
100,000 B Intermedia Communications of Florida,
Inc., Sr. Disc. Note, step bond
to yield 10.755% due
5/15/06.........................................
70,000
50,000 B McLeod Inc., Sr. Disc. Note, step
bond
to yield 10.500% due 3/1/07@.... 31,875
100,000 NR Millicom International Cellular,
S.A.,
Sr. Sub. Disc. Note, step bond
to yield 13.270% due
6/1/06..........................................
36,875
100,000 B3* Nextel Communications, Inc., Sr.
Disc.
Note, step bond to yield
13.986% due
8/15/04..................................................
77,250
100,000 B Paging Network, Inc., Sr. Sub. Note,
10.000% due 10/15/08.............. 96,500
50,000 B2* PhoneTel Technologies, Inc. Sr.
Note,
12.000% due 12/15/06............. 51,500
50,000 B+ Qwest Communications International,
Inc., Sr. Note, 10.875% due
4/1/07@...................................................
.. ........... 54,625
100,000 CCC+ Sygnet Wireless, Inc. Sr. Note,
11.500% due 10/1/06.................... 100,375
100,000 B Teleport Communications Group, Inc.
Sr. Disc. Note, step bond to yield
10.828% due
7/1/07...................................................
72,375
50,000 Ba3* Telesystems International Wireless
Inc., Sr. Disc. Note, step bond to
yield 13.250% due
6/30/07@...........................................
27,000
100,000 B+ Vanguard Cellular Systems Inc.,
Debenture, 9.375% due 4/15/06.......... 100,875
- ----------------------------------------------------------
- -----------------------------------------------
787,500 --------------------------------------------------
- -------------------------------------------------------
TOBACCO -- 0.7%
50,000 BB+ Dimon Inc., Sr. Note, 8.875% due
6/1/06................................ 52,250 ------
- ----------------------------------------------------------
- -----------------------------------------
UTILITIES -- 2.3%
100,000 BB California Energy Co., Inc., Sr.
Note,
10.250% due 1/15/04............. 108,500
50,000 BB- El Paso Electric Co., 1st Mortgage
Note, 9.400% due 5/1/11............. 53,688 --------
- ----------------------------------------------------------
- ---------------------------------------
162,188 --------------------------------------------------
- -------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $5,898,030)................... 6,174,899 -----
- ----------------------------------------------------------
- ------------------------------------------
SHARES
SECURITY VALUE
- ----------------------------------------------------------
- ----------------------------------------------NON-
CONVERTIBLE PREFERRED STOCK -- 1.6%
1,058 K-III Communications Corp., Series
B,
Payment-in-kind
(Cost -
$107,088).................................................
.. .. 114,369
- ----------------------------------------------------------
- -----------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 3.9%
1,052 American Radio Systems Corp., Sub.
Debenture, $11.375.................. 112,570
500 Capstar Broadcasting Partners,
Senior
Preferred, $12.000@.............. 50,250
500 Chancellor Radio Broadcasting Co.,
Exchangeable Preferred, 12.000%@.... 56,875
53 Pegasus Communications Corp., Unit,
Series A, 12.750%.................. 51,326
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost -- $258,984).................. 271,021
- ----------------------------------------------------------
- -----------------------------------------------
WARRANTS -- 0.1%
50 Australis Holdings Pty. Ltd. Expires
10/30/01.......................... 2
100 Sterling Chemicals Holdings, Inc.,
Expires 8/15/08..................... 3,500
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL WARRANTS (Cost -
$0)............................................
3,502 ----------------------------------------------------
- -----------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT
SECURITY VALUE
- ----------------------------------------------------------
- ------------------------------------------------
<C> <S> <C>
<C>
REPURCHASE AGREEMENT -- 6.2%
$ 434,000 Citibank, 6.000% due 7/1/97;
Proceeds at maturity -- $434,072; (Fully
collateralized by U.S. Treasury
Notes, 4.750% due 8/31/98; Market
value $446,669) (Cost -
$434,000).................................... $ 434,000
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$6,698,102**)...................... $6,997,791 ---------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
@ Security is exempt from registration under Rule 144A of
the Securities Act of
1933. This security may be resold in transactions that
are exempt from
registration, normally to qualified institutional
buyers. ** Aggregate cost for Federal income tax purposes
is substantially the same.
See page 34 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
COMMON STOCKS -- 91.6% -----------------------------------
- ----------------------------------------------------------
- -----------
AIRLINES -- 1.0%
2,200 KLM Royal Dutch
Airlines..................................................
.. .. $ 67,925
- ----------------------------------------------------------
- ----------------------------------------------
APPAREL -- 2.4%
3,100 Russell Corp.
..........................................................
.. .... 91,838
800 V.F. Corp.
..........................................................
.. ....... 68,100
- ----------------------------------------------------------
- ----------------------------------------------
159,938 --------------------------------------------------
- ------------------------------------------------------
AUTOMOTIVE -- 1.5%
800 General Motors
Corp......................................................
.. ... 44,550
1,200 PACCAR Inc.
..........................................................
.. ...... 55,725 -----------------------------------
- ----------------------------------------------------------
- -----------
100,275 --------------------------------------------------
- ------------------------------------------------------
BANKING -- 1.0%
1,200 National City Corp.
..........................................................
63,000 ---------------------------------------------------
- -----------------------------------------------------
BEVERAGES -- 2.3%
4.100 PepsiCo Inc.
..........................................................
.. ..... 154,006 ------------------------------------
- ----------------------------------------------------------
- ----------
BUILDING MATERIALS -- 1.1%
2,139 Martin Marietta
Materials.................................................
.. .. 69,250
- ----------------------------------------------------------
- ----------------------------------------------
CABLE TELEVISION -- 2.0%
8,600 Tele-communications,
Inc.+....................................................
127,925 --------------------------------------------------
- ------------------------------------------------------
CHEMICALS -- 2.9%
1,100 BetzDearborn Inc.
..........................................................
.. 72,600
700 Dow Chemical Corp.
..........................................................
. 60,988
1,800 Morton International Inc.
....................................................
54,338 ---------------------------------------------------
- -----------------------------------------------------
187,926 --------------------------------------------------
- -----------------------------------------------------
COMMUNICATIONS -- 2.5%
1,100 GTE Corp.
..........................................................
.. ........ 48,262
3,100 MCI
Communications............................................
.. .............. 118,672 ---------------------------
- ----------------------------------------------------------
- -------------------
166,934 --------------------------------------------------
- ------------------------------------------------------
CONSUMER PRODUCTS -- 1.1%
1,400 Kimberly-
Clark.....................................................
.. ......... 69,650
- ----------------------------------------------------------
- ----------------------------------------------
DIVERSIFIED HEALTHCARE -- 1.1%
4,400 Beverly
Enterprises+..............................................
.. .......... 71,500
- ----------------------------------------------------------
- ----------------------------------------------
DIVERSIFIED OPERATIONS -- 1.7%
4,400 ITT Industries Inc.
..........................................................
113,300 --------------------------------------------------
- ------------------------------------------------------
DRUGS -- 4.1%
800 American Home
Products..................................................
..
.... 61,200
1,700 Bristol Myers
Squibb....................................................
.. .... 137,700
700 Merck & Co. Inc.
..........................................................
.. . 72,450
- ----------------------------------------------------------
- ----------------------------------------------
271,350 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
ENERGY -- 1.8%
800 Atlantic
Richfield.................................................
.. ......... $ 56,400
2,500 Occidental Petroleum Corp.
...................................................
62,656 ---------------------------------------------------
- -----------------------------------------------------
119,056 --------------------------------------------------
- ------------------------------------------------------
FINANCIAL SERVICES -- 3.9%
2,025 Bear, Stearns & Co., Inc.
....................................................
69,230
1,300 Fannie
Mae.......................................................
.. ........... 56,712
2,100 H&R Block Inc.
..........................................................
.. ... 67,725
1,500 Morgan Stanley Dean Witter Discover &
Co...................................... 64,594 ----
- ----------------------------------------------------------
- ------------------------------------------
258,261 --------------------------------------------------
- ----------
- --------------------------------------------FOOD
PROCESSING -- 0.8%
600 CPC
International.............................................
.. .............. 55,387 ---------------------------
- ----------------------------------------------------------
- -------------------
HOSPITAL SUPPLIES & SERVICES -- 2.5%
1,400 Abbott
Laboratories..............................................
.. ........... 93,450
1,400 United
Healthcare................................................
.. ........... 72,800
- ----------------------------------------------------------
- ----------------------------------------------
166,250 --------------------------------------------------
- ------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.0%
4,400 Rubbermaid Inc.
..........................................................
.. .. 130,900
- ----------------------------------------------------------
- ----------------------------------------------
INDUSTRIAL CONTROLS -- 1.7%
500 Unilever N.V., New York
Shares................................................
109,000 --------------------------------------------------
- ------------------------------------------------------
INSURANCE -- 7.7%
1,700 Alimerica Financial Corp.
....................................................
67,787
1,400 Allstate Corp.
..........................................................
.. ... 102,200
900 Cigna Corp.
..........................................................
.. ...... 159,750
2,000 Marsh & McLennan Inc.
........................................................
142,750
1,100 Providian Financial
Corp.+....................................................
35,338 ---------------------------------------------------
- -----------------------------------------------------
507,825 --------------------------------------------------
- ------------------------------------------------------
MACHINERY - GENERAL INDUSTRY -- 2.3%
2,400 Ingersoll-
Rand......................................................
.. ........ 148,200
- ----------------------------------------------------------
- ----------------------------------------------
MEDICAL -- 2.9%
2,800 Biomet Inc.
..........................................................
.. ...... 52,150
1,800 Columbia/HCA Healthcare Corp.
................................................
70,763
3,200 Healthsource, Inc.
..........................................................
. 69,400 -------------------------------------------------
- -------------------------------------------------------
192,313 --------------------------------------------------
- ------------------------------------------------------
MULTIMEDIA -- 0.8%
1,800 Viacom,
Inc.+.....................................................
.. .......... 53,438
- ----------------------------------------------------------
- ----------------------------------------------
OIL & GAS -- 10.2%
1,300 Chevron Corp.
..........................................................
.. .... 96,119
1,100 Coastal Corp.
..........................................................
.. .... 58,506
1,600 Exxon Corp.
..........................................................
.. ...... 98,400
1,200 Royal Dutch Petroleum Co.
ADR.................................................
65,250
3,300 Sun Corp.
..........................................................
.. ........ 102,300
900
Texaco....................................................
.. .................. 97,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
OIL & GAS -- 10.2% (CONTINUED)
3,200 USX Marathon Group Inc.
...................................................... $
92,400
800 Western Atlas
Inc.+.....................................................
.. .... 58,600 -------------------------------------
- -----------------------
- ---------------------------------------------
669,450 --------------------------------------------------
- -----------------------------------------------------
PHARMACEUTICAL -- 1.0%
700 SmithKline Beecham Inc.
......................................................
64,138 ---------------------------------------------------
- -----------------------------------------------------
PUBLISHING -- 1.3%
3,000 Readers
Digest....................................................
.. .......... 86,063
- ----------------------------------------------------------
- ----------------------------------------------
REAL ESTATE -- 0.4%
1,000 Boston
Properties+...............................................
.. ........... 27,500
- ----------------------------------------------------------
- ----------------------------------------------
RETAIL -- 7.8%
2,700 Dayton-Hudson Corp.
..........................................................
143,606
1,500 Fred Meyer,
Inc.+.....................................................
.. ...... 77,531
7,800 K-Mart
Corp.+....................................................
.. ........... 95,550
1,200 Tambrands, Inc.
..........................................................
.. .. 59,850
4,100 Walmart Corp.
..........................................................
.. .... 138,631 -------------------------------------
- ----------------------------------------------------------
- ---------
515,168 --------------------------------------------------
- ------------------------------------------------------
STEEL & IRON -- 1.1%
4,900 LTV Corp.
..........................................................
.. ........ 69,825
- ----------------------------------------------------------
- ----------------------------------------------
TECHNOLOGY -- 9.8%
1,800 AMP,
Inc.......................................................
.. ............. 75,150
1,900 Cabletron
Systems+..................................................
.. ........ 53,794
2,000 C.R. Bard Inc.
..........................................................
.. ... 72,625
1,100 General Motors, Class H
Shares................................................
63,525
800 International Business
Machines...............................................
72,150
2,500 Lexmark Holding Inc., Class A
Shares+.........................................
75,937
1,000 Lucent Technologies Inc.
.....................................................
72,062
900
Raytheon..................................................
.. .................. 45,900
2,500 Storage Technologies,
Inc.+...................................................
111,250 --------------------------------------------------
- ------------------------------------------------------
642,393 --------------------------------------------------
- ------------------------------------------------------
TOBACCO -- 2.3%
500 Loews Corp.
..........................................................
.. ...... 50,062
1,200 Philip Morris Co.
..........................................................
.. 53,250
1,500 RJR Nabisco
Holdings..................................................
.. ...... 49,500 -----------------------------------
- ----------------------------------------------------------
- -----------
152,812 --------------------------------------------------
- -----------------------------------------------------
TRANSPORTATION -- 1.1%
2,300 CNF Transportation Inc.
......................................................
74,175 ---------------------------------------------------
- -----------------------------------------------------
UTILITIES -- 4.0%
1,600 CMS Energy Corp.
..........................................................
.. . 56,400
1,000 Columbia Gas Systems Inc.
....................................................
65,250
2,900 Houston
Industries................................................
.. .......... 62,169
3,300 Pacific Gas & Electric Co.
...................................................
80,025 ---------------------------------------------------
- -----------------------------------------------------
263,844 --------------------------------------------------
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
WASTE MANAGEMENT -- 1.5%
2,900 Browning-Ferris
Industries................................................
.. .. $ 96,425
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL COMMON STOCKS (Cost --
$5,093,673)......................................
6,025,402 ------------------------------------------------
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
REPURCHASE AGREEMENT -- 8.4%
$ 552,000 Citibank, 5.853% due 7/1/97; Proceeds at
maturity -- $552,090;
(Fully collateralized by U.S. Treasury
Notes, 5.125% due 3/31/98;
Market value $564,900) (Cost -
$552,000).....................................
552,000 --------------------------------------------------
- ------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost --
$5,645,673*)............................... $6,577,402 -
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MID CAP DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
- ----------------------------------------------------------
-
- --------------------------------------------
<C> <S>
<C>
COMMON STOCKS -- 86.0% -----------------------------------
- ----------------------------------------------------------
- ----------
AUTOMOTIVE & TRANSPORTATION -- 2.2%
540 Alexander & Baldwin Inc.
........................................................
$ 14,109
310 Continental Airlines Inc., Class B
Shares+.......................................
10,832 200 GATX Corp.
..........................................................
.. .......... 11,551
260 Illinois Central Corp.
..........................................................
9,085
150 Kansas City Southern Industries, Inc.
........................................... 9,675
240 Lear
Corp.+....................................................
.. ................ 10,650
270 OEA Inc.
..........................................................
.. ............ 10,665 -----------------------------
- ----------------------------------------------------------
- ----------------
76,567 ---------------------------------------------------
- ----------------------------------------------------
CONSTRUCTION SERVICES -- 0.2%
480 Clayton Homes Inc.
..........................................................
.. .. 6,841
- ----------------------------------------------------------
- ---------------------------------------------
CONSUMER DISCRETIONARY -- 17.0%
430 Accustaff
Inc.+.....................................................
.. ........... 10,186
200 AH Belo Corp., Class A
Shares....................................................
8,325
380 Alberto Culver Co., Class A
Shares...............................................
8,859
610 Bed Bath & Beyond
Inc.+.....................................................
.. ... 18,529
900 Best Buy Co.,
Inc.+.....................................................
.. ....... 13,387
360 Borders Group
Inc.+.....................................................
..
....... 8,685
200 Cintas Corp.
..........................................................
.. ........ 13,750
420 Circus Circus Enterprise
Inc.+...................................................
10,343
690 Claires Stores Inc.
..........................................................
.. . 12,075
337 Consolidated Stores
Corp.+....................................................
.. . 11,711
200 Cracker Barrel Old Country Store Inc.
........................................... 5,300
256 CVS Corp.
..........................................................
.. ........... 13,120
800 Dial Corp.
..........................................................
.. .......... 12,500
390 Dollar General Corp.
..........................................................
.. 14,625
180 Evergreen Media Corp., Class A
Shares+...........................................
8,032
600 Family Dollar Stores Inc.
.......................................................
16,350
300 Fred Meyer
Inc.+.....................................................
.. .......... 15,506
240 Gartner Group Inc., Class A
Shares+..............................................
8,625
360 General Nutrition Co.,
Inc.+.....................................................
10,080
320 Harley Davidson Inc.
..........................................................
.. 15,340
400 Herman Miller Inc.
..........................................................
.. .. 14,400
203 HFS
Inc.+.....................................................
.. ................. 11,774
300 Hillenbrand Industries, Inc.
....................................................
14,250
540 International Game
Technology................................................
.. .. 9,585
370 Jones Apparel Group
Inc.+.....................................................
.. . 17,668
310 Kohl's
Corp.+....................................................
.. .............. 16,410
450 Lands' End
Inc.+.....................................................
.. .......... 13,331
390 Leggett & Platt Inc.
..........................................................
.. 16,770
350 Manpower Inc.
..........................................................
.. ....... 15,575
730 Mirage Resorts
Inc.+*....................................................
.. ...... 18,432
200 New York Times Co., Class A
Shares...............................................
9,900
680 Office Depot
Inc.+.....................................................
.. ........ 13,217
340 Omnicom
Group.....................................................
.. ............. 20,952
450 Paychex Inc.
..........................................................
.. ........ 17,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MID CAP DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ---------------------------------------------------
<C> <S>
<C>
CONSUMER DISCRETIONARY -- 17.0% (CONTINUED)
300 Payless Shoesource
Inc.+.....................................................
.. .. $ 16,406
200 Promus Hotel
Corp.+....................................................
.. ........ 7,750
300 Reynolds & Reynolds Co., Class A
Shares..........................................
4,725
1,090 Staples
Inc.+.....................................................
.. ............. 25,342
400 Tele-Comm Liberty Media, Class A
Shares+.........................................
9,500
170 Tiffany & Co.
..........................................................
.. ....... 7,853
400 TJX Cos., Inc.
..........................................................
.. ...... 10,550
240 Tribune Co.
..........................................................
.. ......... 11,535
350 US Industries
Inc.+.....................................................
.. ....... 12,469
560 Unifi Inc.
..........................................................
.. .......... 20,930
350 Viking Office Products
Inc.+.....................................................
6,650
40 Washington Post Co., Class B
Shares*.............................................
15,920 ---------------------------------------------------
- ----------------------------------------------------
594,322 --------------------------------------------------
- -----------------------------------------------------
CONSUMER STAPLES -- 4.2%
1,390 Coca-Cola
Enterprises*..............................................
.. ........... 31,970
300 Costco Cos.,
Inc.+.....................................................
.. ........ 9,863
440 Dean Foods Co.
..........................................................
.. ...... 17,765
480 Dole Foods Co.
Inc.*.....................................................
.. ...... 20,520
200 Interstate Bakeries Corp.
.......................................................
11,863
340 McCormick & Co.
..........................................................
.. ..... 8,585
130 Pioneer Hibred International, Inc.
..............................................
10,400 900 Tyson Foods Inc., Class A
Shares*................................................
17,212
430 Universal Corp.
..........................................................
.. ..... 13,625
200 Whitman Corp.
..........................................................
.. ....... 5,063
- ----------------------------------------------------------
- ---------------------------------------------
146,866 --------------------------------------------------
- -----------------------------------------------------
ENERGY -- 4.4%
250 Anadarko Petroleum Corp.
........................................................
15,000
370 Apache Corp.
..........................................................
.. ........ 12,025
340 BJ Services
Co.+......................................................
.. ......... 18,232
300 Ensco International
Inc.+.....................................................
..
. 15,825
990 Global Marine
Inc.+.....................................................
.. ....... 23,017
160 Louisiana Land & Exploration Co.
................................................
9,140
440 Noble Affiliates Inc.
..........................................................
. 17,022
420 Noble Drilling
Corp.+....................................................
.. ...... 9,476
260 Tidewater Inc.
..........................................................
.. ...... 11,440
210 Transocean Offshore Inc.
........................................................
15,251
220 Weatherford Enterra
Inc.+.....................................................
.. . 8,470
- ----------------------------------------------------------
- ---------------------------------------------
154,898 --------------------------------------------------
- -----------------------------------------------------
FINANCIALS -- 14.8%
300 Aflac Inc.
..........................................................
.. .......... 14,175
275 AMBAC Inc.
..........................................................
.. .......... 21,003
160 American Bankers Insurance
Group+................................................
10,120
200 Amsouth
Bancorporation............................................
.. ............. 7,563
270 Bear, Stearns & Co. Inc.
........................................................
9,232
530 Capital One Financial Corp.
.....................................................
20,007
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MID CAP DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
- ----------------------------------------------------------
- ---------------------------------------------
<C> <S>
<C>
FINANCIALS -- 14.8% (CONTINUED)
570 City National Corp.
..........................................................
.. . $ 13,716
310 Conseco Inc.
..........................................................
.. ........ 11,470
250 Crestar Financial Corp.
.........................................................
9,718
30 First Empire State Corp.
........................................................
10,110
195 First of America Bank Corp.
.....................................................
8,921
510 First Tennessee National Corp.
..................................................
24,480
330 Firstar Corp.
..........................................................
.. ....... 10,065
540 Franklin Resources Inc.
.........................................................
39,184
550 Hibernia Corp., Class A
Shares...................................................
7,665
250 Lehman Brothers Holdings Inc.
...................................................
10,125
380 Marshall & Ilsley
Corp.*....................................................
.. ... 15,438
170 Mercantile Bancorp., Inc.
.......................................................
10,327
460 Mercantile Bankshares Corp.
.....................................................
18,400
660 Northern Trust Corp.
..........................................................
.. 31,928
390 PaineWebber Group, Inc.
.........................................................
13,650
150 PMI Group Inc.
..........................................................
.. ...... 9,356
410 Progressive Corp.
..........................................................
.. ... 35,670
100 Provident Co., Inc.
..........................................................
.. . 5,350
520 Regions Financial Corp.
.........................................................
16,445
640 South Trust Corp.
..........................................................
.. ... 26,480
680 State Street Corp.
..........................................................
.. .. 31,450
190 Summit
Bancorp...................................................
.. .............. 9,524
690 SunAmerica Inc.
..........................................................
.. ..... 33,638
210 TransAtlantic Holdings Inc.
.....................................................
20,843
210 Union Planters Corp.
..........................................................
.. 10,894 ------------------------------------------------
- -------------------------------------------------------
516,947 --------------------------------------------------
- -----------------------------------------------------
HEALTHCARE -- 6.7%
500 Acuson
Corp.+....................................................
.. .............. 11,500
200 Apria Healthcare Group,
Inc.+....................................................
3,550
250 Bergen Brunswig Corp., Class A
Shares............................................
6,969
310 Biogen
Inc.+.....................................................
.. .............. 10,501
520 Centocor
Inc.+.....................................................
.. ............ 16,153
260 Chiron
Corp.+....................................................
.. .............. 5,428
486 Foundation Health Systems Inc., Class A
Shares+.................................. 14,732
310 Genzyme
Corp.+....................................................
.. ............. 8,603
200 HBO & Co.
..........................................................
.. ........... 13,775
100 McKesson Corp.
..........................................................
.. ...... 7,750
510 Mylan
Laboratories..............................................
.. ............... 7,522
480 Oxford Health Plans
Inc.+.....................................................
.. . 34,440
230 Pacificare Health Systems Inc., Class B
Shares+.................................. 14,691
390 Phycor
Inc.+.....................................................
.. .............. 13,431
410 Stryker Corp.
..........................................................
.. ....... 14,299
340 Tenet Healthcare
Corp.+....................................................
..
.... 10,051
275 US Surgical
Corp......................................................
.. ......... 10,244
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MID CAP DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ---------------------------------------------------
<C> <S>
<C>
HEALTHCARE -- 6.7% (CONTINUED)
280 Vencor
Inc.+.....................................................
.. .............. $ 11,830
490 Watson Pharmaceuticals
Inc.+.....................................................
20,703 ---------------------------------------------------
- ----------------------------------------------------
236,172 --------------------------------------------------
- -----------------------------------------------------
INTERGRATED OILS -- 1.5%
200 Amerada Hess Corp.
..........................................................
.. .. 11,113
190 Murphy Oil Corp.
..........................................................
.. .... 9,264
560 Tosco Corp.
..........................................................
.. ......... 16,765
400 Valero Energy Corp.
..........................................................
.. . 14,500
- ----------------------------------------------------------
- ---------------------------------------------
51,642 ---------------------------------------------------
- ----------------------------------------------------
MATERIALS & PROCESSING -- 5.8%
230 Alumax
Inc.+.....................................................
.. .............. 8,726
100 Avery Dennison Corp.
..........................................................
.. 4,014
220 Bemis Co.
..........................................................
.. ........... 9,516
220 BetzDearborn Inc.
..........................................................
.. ... 14,520
250 Bosie Cascade Corp.
..........................................................
.. . 8,829
300 Bowater Inc.
..........................................................
.. ........ 13,875
670 Crompton & Knowles Corp.
........................................................
14,907
420 Cytec Industries
Inc.+.....................................................
.. .... 15,697
200 Ecolab Inc.
..........................................................
.. ......... 9,550
400 IMC Global Inc.
..........................................................
.. ..... 14,000
690 International Specialty Products
Inc.+...........................................
9,703
270 James River Corp.
..........................................................
.. ... 9,990
680 LTV Corp.
..........................................................
.. ........... 9,690
150 Lubrizol Corp.
..........................................................
.. ...... 6,292
150 Mead Corp.
..........................................................
.. .......... 9,338
210 Olin Corp.
..........................................................
.. .......... 8,204
150 Praxair Inc.
..........................................................
.. ........ 8,400
390 Sealed Air
Corp.+....................................................
.. .......... 18,525
270 USX-US Steel Group, Inc.
........................................................
9,468 ----------------------------------------------------
- ---------------------------------------------------
203,244 --------------------------------------------------
- -----------------------------------------------------
PRODUCER DURABLES -- 6.0%
500 AGCO Corp.
..........................................................
.. .......... 17,969
400 American Power Conversion
Corp.+.................................................
7,600
280 Crane Co.
..........................................................
..
........... 11,709
440 Danaher Corp.
..........................................................
.. ....... 22,359
480 Hubbell Inc., Class B
Shares+...................................................
. 21,121
430 Jacobs Engineering Group
Inc.+...................................................
11,556
190 Litton Industries
Inc.+.....................................................
.. ... 9,179
250 Molex Inc.
..........................................................
.. .......... 9,125
200 Precision Castparts Corp.
.......................................................
11,925
110 Raychem Corp.
..........................................................
.. ....... 8,182
360 Sunstrand Corp.
..........................................................
.. ..... 20,092
230 Thiokol Corp.
..........................................................
.. ....... 16,100
300 US Filter
Corp.+....................................................
.. ........... 8,175
100 United Waste Systems Inc.
.......................................................
4,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MID CAP DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ---------------------------------------------------
<C> <S>
<C>
PRODUCER DURABLES -- 6.0% (CONTINUED)
310 USA Waste Services
Inc.+.....................................................
.. .. $ 11,974
490 Watts Industries, Inc., Class A
Shares...........................................
11,760
190 York International Corp.
........................................................
8,740 ----------------------------------------------------
- ---------------------------------------------------
211,666 --------------------------------------------------
- -----------------------------------------------------
TECHNOLOGY -- 11.9%
200 Adaptec
Inc.+.....................................................
.. ............. 6,950
460 ADC Telecommunications
Inc.+.....................................................
15,353
370 Altera
Corp.+....................................................
.. .............. 18,685
390 America Online
Inc.+.....................................................
.. ...... 21,695
650 Analog Devices
Inc.+.....................................................
.. ...... 17,265
210 Arrow Electronics
Inc.+.....................................................
.. ... 11,156
410 Atmel
Corp.+....................................................
.. ............... 11,480
190 Avnet Inc.
..........................................................
.. .......... 10,925
630 BMC Software
Inc.+*....................................................
.. ........ 34,886
680 Cadence Design Systems
Inc.+.....................................................
22,780
300 Cambridge Technology Partners
Inc.+..............................................
9,600
300 Comdisco Inc.
..........................................................
.. ....... 7,800
360 Compuware
Corp.+....................................................
.. ........... 17,190
280 Diebold Inc.
..........................................................
.. ........ 10,920
210 Encad
Inc.+.....................................................
.. ............... 8,715
230 LAM Research
Corp.+....................................................
.. ........ 8,524
510 Linear Technology Corp.
.........................................................
26,392
360 LSI Logic
Corp.+....................................................
.. ........... 11,520
260 Maxim Integrated Products
Inc.+..................................................
14,787
150 McAfee Associates
Inc.+.....................................................
.. ... 9,469
420 NCR
Corp.+....................................................
.. ................. 12,495
280 Policy Management Systems
Corp.+.................................................
13,160
480 Quantum
Corp.+....................................................
.. ............. 9,751
390 Read-Rite
Corp.+....................................................
.. ........... 8,141
170 Solectron
Corp.+....................................................
.. ........... 11,900
260 Storage Technology
Corp.+....................................................
.. .. 11,570
180 Sunguard Data Systems
Inc.+.....................................................
. 8,370
420 Symbol Technologies Inc.
........................................................
14,123
360 Teradyne
Inc.+.....................................................
.. ............ 14,130
390 Xilinx
Inc.+.....................................................
.. .............. 19,134 ---------------------------
- ----------------------------------------------------------
- ------------------
418,866 --------------------------------------------------
- -----------------------------------------------------
UTILITIES -- 11.3%
410 AES
Corp.+*...................................................
.. ................. 29,008
800 Allegheny Power System,
Inc.*....................................................
21,351
340 Boston Edison Co.
..........................................................
.. ... 8,968
510 Brooklyn Union Gas
Co.*......................................................
.. .. 14,599
520 Calenergy
Inc.+*....................................................
.. ........... 19,760
260 Century Telephone
Enterprise................................................
.. ... 8,758
740 CMS Energy Corp.
..........................................................
.. .... 26,085
180 Columbia Gas System, Inc.
.......................................................
11,746
160 Consolidated Natural Gas Co.
....................................................
8,610
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
MID CAP DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
- ----------------------------------------------------------
-
- --------------------------------------------
<C> <S>
<C>
UTILITIES -- 11.3% (CONTINUED)
110 El Paso Natural Gas Co.
.........................................................
$ 6,050
420 Florida Progress Corp.
*.........................................................
13,152
310 Illinova Corp.
..........................................................
.. ...... 6,820
240 IPALCO Enterprises,
Inc.*.....................................................
.. . 7,500
640 LG&E Energy
Corp.*....................................................
.. ......... 14,120
200 Mapco Inc.
..........................................................
.. .......... 6,300
300 MCN Energy Group Inc.
..........................................................
. 9,188
440 National Fuel Gas
Co.*......................................................
.. ... 18,454
960 Nextel Communications
Inc.+.....................................................
. 18,180
480 Nipsco Industries,
Inc.*.....................................................
.. .. 19,830
530 Northeast
Utilities.................................................
.. ........... 5,068
650 Pinnacle West Capital
Corp.*....................................................
. 19,541
570 Public Service Co. of
Colorado*.................................................
. 23,655
780 SCANA
Corp.*....................................................
.. ............... 19,354
270 Southern New England Telecommunications Corp.
................................... 10,496
860 Teco Energy
Inc.*.....................................................
.. ......... 21,984
260 Telephone & Data Systems, Inc.
..................................................
9,880
290 360 Communications
Co.+......................................................
.. .. 4,966
470 Wisconsin Energy
Corp.*....................................................
.. .... 11,692
- ----------------------------------------------------------
- ---------------------------------------------
395,115 --------------------------------------------------
- -----------------------------------------------------
TOTAL COMMON STOCKS (Cost -
$2,685,492).........................................
3,013,146 ------------------------------------------------
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ----------------------------------------------------
<C> <S>
<C>
SHORT-TERM INVESTMENTS -- 14.0% --------------------------
- ----------------------------------------------------------
- --------------------
U.S. TREASURY OBLIGATION -- 0.4%
$ 15,000 U.S. Treasury Bill, 5.120% due 9/18/97 (Cost -
- -
$14,840)@....................... 14,840 ------------
- ----------------------------------------------------------
- ----------------------------------
REPURCHASE AGREEMENT -- 13.6%
485,000 Citibank, 6.000% due 7/1/97; Proceeds at
maturity -- $475,079;
(Fully collateralized by U.S. Treasury Notes,
5.000% due 2/15/99;
Market value -- $486,819)(Cost -
$475,000).....................................
475,000 --------------------------------------------------
- ------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost --
$489,840)................................. 489,840 --
- ----------------------------------------------------------
- --------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$3,175,332**)................................ $3,502,986
- ----------------------------------------------------------
- ----------------------------------------------
</TABLE>
+ Non-income producing security.
* Security has been partially segregated by custodian to
cover open
commitments.
@ Security serves as collateral for futures contracts.
** Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
- ----------------------------------------------------------
- ---------------------
BOND RATINGS
All ratings are by Standard & Poor's Ratings Service
("Standard & Poor's"),
except those identified by an asterisk (*) are rated by
Moody's Investors
Service, Inc. ("Moody's"). The definitions of the
applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "CCC" may be
modified by the addition
of a plus (+) or minus (-) sign to show relative
standings within the major
rating categories.
<TABLE>
<S> <C> <C>
AAA -- Bonds rated "AAA" have the highest
rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal
is extremely strong.
AA -- Bonds rated "AA" have a very strong
capacity to pay interest and repay principal
and differ from the highest rated
issue only in a small degree.
A -- Bonds rated "A" have a strong
capacity
to pay interest and repay principal although
they are somewhat more susceptible
to the adverse effects of changes in
circumstances and economic
conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as
having an adequate capacity to pay interest and
repay principal. Whereas they
normally exhibit adequate protection parameters,
adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity to pay interest
and
repay principal for bonds in this category
than in higher rated categories.
BB, B and CCC -- Bonds rated "BB" and "B" are
regarded,
on balance, as predominantly speculative
with respect to capacity to pay
interest and repay principal in accordance with the
terms of the obligation. BB
represents a lower degree of speculation than B, and
CCC the highest degree of
speculation. While such bonds will likely have some
quality and protective
characteristics, these are outweighed by large
uncertainties
or major risk exposures to adverse
conditions.
</TABLE>
Moody's -- Numerical modifiers 1, 2, and 3 may be applied
to each generic rating
from "Aa" to "B", where 1 is the highest and 3 the lowest
rating within its
generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds that are rated "Aaa" are
judged
to be of the best quality. They carry the
smallest degree of investment risk
and are generally referred to as "gilt edge."
Interest payments are protected by a
large or by an exceptionally stable margin and
principal is secure. While the
various protective elements are likely to change,
such changes as can be visualized
are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged
to be of high quality by all standards.
Together with the Aaa group they
comprise what are generally known as high grade
bonds. They are rated lower than the
best bonds because margins of protection may
not be as large as in Aaa securities
or fluctuation of protective elements may be
of greater amplitude or there may be
other elements present which make the
long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated "A" possess
many
favorable investment attributes and are to be
considered as upper medium grade
obligations. Factors giving security to principal
and interest are considered adequate
but elements may be present which suggest a
susceptibility to impairment some
time in the future.
Baa -- Bonds that are rated "Baa" are
considered as medium grade obligations, i.e., they
are neither highly protected nor
poorly secured. Interest payments and principal
security appear adequate for the
present but certain protective elements may be
lacking or may be
characteristically unreliable over any great length of
time. Such
bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds that are rated "Ba" are
judged
to have speculative elements; their future
cannot be considered as well
assured. Often the protection of interest and
principal payments may be very
moderate, and therefore not well safeguarded during
both good and bad times over the
future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds that are rated "B" generally
lack characteristics of desirable investments.
Assurance of interest and principal
payment or of maintenance of other terms of the
contract over any long period of
time
may be small.
NR -- Indicates that the bond is not rated
by Standard & Poor's or Moody's.
</TABLE>
34
<PAGE>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
LAZARD MFS MID
CAP
TRAVELERS
INTERNATIONAL EMERGING FEDERATED FEDERATED
DISCIPLINED
QUALITY
BOND STOCK GROWTH HIGH YIELD STOCK
EQUITY
PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
FUND -----------------------------------------------------
- ----------------------------------------------------------
- ----------------
<S> <C>
<C> <C> <C> <C>
<C>
ASSETS:
Investments -- Cost........................ $5,215,934
$ 5,108,200 $29,730,898 $6,264,102 $5,093,673 $
2,685,492
Short-term investments -- Cost............. 852,000
1,227,000 2,100,000 434,000 552,000
489,840
Foreign currency -- Cost................... --
89,640 -- -- --
- -
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
Investments, at value...................... $5,218,022
$ 5,864,872 $33,297,980 $6,563,791 $6,025,402 $
3,013,146
Short-term investments, at value........... 852,000
1,227,000 2,100,000 434,000 552,000
489,840
Foreign currency, at value................. --
89,105 -- -- --
- -
- -
Cash....................................... 884
56,599 36,922 377 229
416
Dividends and interest receivables......... 64,570
32,799 17,053 113,073 8,374
2,518
Receivables from securities sold........... --
27,416 235,579 -- 33,150
21,280
Receivables from affiliate................. 9,583
18,261 5,454 4,463 11,064
8,597
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
TOTAL ASSETS............................... 6,145,059
7,316,052 35,692,988 7,115,704 6,630,219
3,535,797 ------------------------------------------------
- ----------------------------------------------------------
- ---------------------
LIABILITIES:
Payables for securities purchased.......... --
15,952 384,638 128,251 26,468
23,660
Investment advisory fees payable........... --
- - -- 3,543 -- --
Administration fees payable................ --
- - 1,622 326 -- --
Payable to broker -- variation margin...... --
- - -- -- -- 1,875
Accrued expenses........................... 15,787
26,235 24,400 13,552 20,781
10,950 ---------------------------------------------------
- ----------------------------------------------------------
- ------------------
TOTAL LIABILITIES.......................... 15,787
42,187 410,660 141,803 47,249
36,485 ---------------------------------------------------
- ----------------------------------------------------------
- ------------------
TOTAL NET ASSETS............................. $6,129,272
$ 7,273,865 $35,282,328 $6,973,901 $6,582,970 $
3,499,312 ------------------------------------------------
- ----------------------------------------------------------
- ---------------------
NET ASSETS:
Paid-in capital............................ $5,951,689
$ 6,399,288 $32,313,827 $6,369,051 $5,221,714 $
3,093,345
Accumulated net investment income (loss)... 157,901
27,085 (32,492) 273,526 35,828
6,657
Accumulated net realized gain (loss) on
security transactions and
futures contracts....................... 17,594
90,774 (566,089) 31,635 393,699
72,959
Net unrealized appreciation of investments,
futures contracts and
foreign currencies...................... 2,088
756,718 3,567,082 299,689 931,729
326,351 --------------------------------------------------
- ----------------------------------------------------------
- -------------------
TOTAL NET ASSETS............................. $6,129,272
$ 7,273,865 $35,282,328 $6,973,901 $6,582,970 $
3,499,312 ------------------------------------------------
- ----------------------------------------------------------
- ---------------------
SHARES OUTSTANDING........................... 592,999
614,625 3,024,196 626,947 495,391
308,155
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
NET ASSET VALUE, PER SHARE...................
$10.34
$11.83 $11.67 $11.12 $13.29
$11.36
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE> ---------------------------------------------------
- ----------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX
MONTHS
ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
TRAVELERS
LAZARD MFS
MID
CAP
QUALITY
INTERNATIONAL EMERGING FEDERATED FEDERATED
DISCIPLINED
BOND
STOCK GROWTH HIGH YIELD STOCK
EQUITY
PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
FUND -----------------------------------------------------
- ----------------------------------------------------------
- ----------------
<S> <C>
<C> <C> <C> <C>
<C>
INVESTMENT INCOME:
Interest.................................... $178,162
$ 10,454 $ 52,269 $285,407 $ 5,988 $
5,945
Dividends................................... --
74,275 23,003 14,590 58,917
8,355
Less: Foreign withholding tax............... --
(8,202) -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------------
- ------------
TOTAL INVESTMENT INCOME..................... 178,162
76,527 75,272 299,997 64,905
14,300 ---------------------------------------------------
- ----------------------------------------------------------
- ------------------
EXPENSES:
Investment advisory fees (Note 2)........... 8,734
20,780 85,077 18,924 19,130
5,637
Audit and legal.............................
7,380
7,000 7,800 5,000 8,750
4,667
Shareholder and system servicing fees.......
5,680 3,181 3,500 2,000 3,010
1,503
Pricing service fees........................ 3,390
3,788 -- 900 --
- --
Trustees' fees.............................. 2,500
2,000 3,000 1,000 3,500
1,200
Custody..................................... 1,900
8,459 18,900 1,450 2,525
300
Administration fees (Note 2)................
1,621 1,501 6,806 1,747 1,836
483
Shareholder communications..................
- -1,800 7,605 1,000 3,900
2,000
Registration fees........................... --
- - -- -- -- 333
Other....................................... 650
188 800 100 1,000
117
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
TOTAL EXPENSES.............................. 31,855
48,697 133,488 32,121 43,651
16,240
Less: Investment advisory fee and expense
reimbursements (Note 2).................. (11,594)
(17,212) (25,724) (4,463) (14,574)
(8,597) --------------------------------------------------
- ----------------------------------------------------------
- -------------------
NET EXPENSES................................ 20,261
31,485 107,764 27,658 29,077
7,643 ----------------------------------------------------
- ----------------------------------------------------------
- -----------------
NET INVESTMENT INCOME (LOSS).................. 157,901
45,042 (32,492) 272,339 35,828
6,657 ----------------------------------------------------
- ----------------------------------------------------------
- -----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS AND FOREIGN
CURRENCIES (NOTES 3 AND 5):
Net Realized Gain (Loss) From:
Security transactions (excluding
short-term securities).................. 17,594
98,474 (546,854) 31,635 393,699
43,803
Futures contracts........................ ---
- -- -- -- 29,156
Foreign currency transactions............ -
(17,087) (8,924) -- --
- -
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
NET REALIZED GAIN (LOSS).................... 17,594
81,387 (555,778) 31,635 393,699
72,959 ---------------------------------------------------
- ----------------------------------------------------------
- ------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments
and Foreign Currencies:
Beginning of period...................... 48,017
311,067 (19,224) 209,283 333,273
- --
End of period............................ 2,088
756,718 3,567,082 299,689 931,729
326,351 --------------------------------------------------
- ----------------------------------------------------------
- -------------------
INCREASE (DECREASE) IN NET UNREALIZED
APPRECIATION............................. (45,929)
445,651 3,586,306 90,406 598,456
326,351 --------------------------------------------------
- ----------------------------------------------------------
- -------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCIES............ (28,335)
527,038 3,030,528 122,041 992,155
399,310 --------------------------------------------------
- ----------------------------------------------------------
- -------------------
INCREASE IN NET ASSETS FROM OPERATIONS........ $129,566
$ 572,080 $ 2,998,036 $394,380 $1,027,983 $
405,967 --------------------------------------------------
- ----------------------------------------------------------
- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE> ---------------------------------------------------
- ----------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE
30, 1997
<TABLE>
<CAPTION>
LAZARD MFS
MID CAP
TRAVELERS
INTERNATIONAL EMERGING FEDERATED
FEDERATED DISCIPLINED
QUALITY BOND
STOCK GROWTH HIGH YIELD STOCK
EQUITY
PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
FUND(1) --------------------------------------------------
- ----------------------------------------------------------
- --------------------
<S> <C> <C>
<C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)... $ 157,901 $
45,042 $ (32,492) $ 272,339 $ 35,828
$ 6,657
Net realized gain (loss)....... 17,594
81,387 (555,778) 31,635 393,699
72,959
Increase (decrease) in net
unrealized appreciation..... (45,929)
445,651 3,586,306 90,406 598,456
326,351
- ----------------------------------------------------------
- ----------------------------------------------------------
- ------------
INCREASE IN NET ASSETS FROM
OPERATIONS.................. 129,566
572,080 2,998,036 394,380 1,027,983
405,967 --------------------------------------------------
- ----------------------------------------------------------
- --------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income.......... --
(10,591) -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------------
- -------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO
SHAREHOLDERS................ --
(10,591) -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------------
- -------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares......................
774,143
2,457,573 19,820,374 1,221,082 5,861,834
3,093,345
Net asset value of shares
issued for reinvestment of
dividends................... --
10,591 -- -- ---
Cost of shares reacquired...... (46,956)
(78,117) (459,928) (22,664) (3,686,374) -
- ----------------------------------------------------------
- ----------------------------------------------------------
- ------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS..... 727,187
2,390,047 19,360,446 1,198,418 2,175,460
3,093,345 ------------------------------------------------
- ----------------------------------------------------------
- ----------------------
INCREASE IN NET ASSETS........... 856,753
2,951,536 22,358,482 1,592,798 3,203,443
3,499,312
NET ASSETS:
Beginning of period............ 5,272,519
4,322,329 12,923,846 5,381,103 3,379,527
- -
- ----------------------------------------------------------
- ----------------------------------------------------------
- ------------
END OF PERIOD*................. $6,129,272 $
7,273,865 $35,282,328 $6,973,901 $ 6,582,970
$3,499,312 -----------------------------------------------
- ----------------------------------------------------------
- -----------------------
* Includes accumulated net
investment income (loss) of: .. $157,901
$27,085 $(32,492) $273,526 $35,828
$6,657 ---------------------------------------------------
- ----------------------------------------------------------
- -------------------
</TABLE>
(1) For the period from April 1, 1997 (commencement of
operations) to June 30,
1997.
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
LAZARD MFS
TRAVELERS
INTERNATIONAL EMERGING FEDERATED
FEDERATED
QUALITY
BOND STOCK GROWTH HIGH YIELD STOCK
PORTFOLIO(1) PORTFOLIO(2) PORTFOLIO(1)
PORTFOLIO(1) PORTFOLIO(1) --------------------------------
- ----------------------------------------------------------
- -------------------------------------
<S> <C>
<C> <C> <C> <C>
OPERATIONS:
Net investment income...................... $
97,521
$ 7,084 $ 33,395 $ 154,634 $
17,122
Net realized gain (loss)...................
31,374
(5,063) 2,110 16,573 29,045
Increase in net unrealized appreciation
(depreciation)..........................
48,017
311,067 (19,224) 209,283 333,273
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.....
176,912
313,088 16,281 380,490 379,440
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................... (97,521)
- -- (33,395) (153,447) (17,122)
Net realized gain.......................... (31,374)
- -- (12,421) (16,573) (29,045)
Capital.................................... --
- -- (13,669) -- (1,834)
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS
TO SHAREHOLDERS.........................
(128,895) -- (59,485)
(170,020) (48,001)
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares...........
5,094,655 4,009,241 12,907,565 5,000,613
3,000,087
Net asset value of shares issued for
reinvestment of dividends...............
129,847 -- 59,485
170,020 48,001
Cost of shares reacquired.................. --
- -- -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS............................
5,224,502
4,009,241 12,967,050 5,170,633
3,048,088
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
INCREASE IN NET ASSETS.......................
5,272,519 4,322,329 12,923,846 5,381,103
3,379,527
NET ASSETS:
Beginning of period........................ -
- -- -- -- --
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
END OF PERIOD*............................. $5,272,519
$ 4,322,329 $ 12,923,846 $5,381,103
$3,379,527 -----------------------------------------------
- ----------------------------------------------------------
- ----------------------
* Includes undistributed net investment
income of: ................................ -
$9,721 -- $1,187 --
- ----------------------------------------------------------
- ----------------------------------------------------------
- -----------
</TABLE>
(1) For the period from August 30, 1996 (commencement of
operations) to December
31, 1996.
(2) For the period from August 1, 1996 (commencement
of operations) to December
31, 1996.
SEE NOTES TO FINANCIAL
STATEMENTS.
38
<PAGE>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Quality Bond, Lazard International
Stock, MFS Emerging
Growth, Federated High Yield, Federated Stock Portfolios
and Mid Cap Disciplined
Equity Fund ("Portfolio(s)") are separate investment
portfolios of The Travelers
Series Trust ("Trust"). The Trust is a Massachusetts
business trust registered
under the Investment Company Act of 1940, as amended, as a
diversified, open-end
management investment company and consists of these
portfolios and eight other
separate investment portfolios: U.S. Government
Securities, Social Awareness
Stock, Utilities, Large Cap, Equity Income, Zero Coupon
Bond Fund Portfolio
Series 1998, Zero Coupon Bond Fund Portfolio Series 2000
and Zero Coupon Bond
Fund Portfolio Series 2005 Portfolios. Shares of the Trust
are offered only to
insurance company separate accounts that fund certain
variable annuity and
variable life insurance contracts. The financial
statements and financial
highlights for the other portfolios are presented in
separate semi-annual
reports.
The significant accounting policies consistently
followed by the Portfolios
are: (a) security transactions are accounted for on trade
date; (b) securities
traded on national securities markets are valued at the
closing price on such
markets or, if there were no sales during the day, at
current quoted bid price;
securities primarily traded on foreign exchanges are
generally valued at the
closing values of such securities on their respective
exchanges, except that
when a significant occurrence exists subsequent to the
time a value was so
established and it is likely to have significantly changed
the value, then the
fair value of those securities will be determined by
consideration of other
factors by or under the direction of the Board of
Trustees; securities traded in
the over-the-counter market are valued on the basis of the
bid price at the
close of business on each day; U.S. government agencies
and obligations are
valued at the mean between the last reported bid and ask
prices; (c) securities
maturing within 60 days are valued at cost plus accreted
discount and, or minus
amortized premium, which approximates value; (d)
securities that have a maturity
of 60 days or more are valued at prices based on market
quotations for
securities of similar type, yield and maturity; (e)
interest income, adjusted
for amortization of premium and accretion of discount, is
recorded on an accrual
basis and dividend income is recorded on the ex-dividend
date; foreign dividends
are recorded on the ex-dividend date or as soon as
practical after the Portfolio
determines the existence of a dividend declaration after
exercising reasonable
due diligence; (f) gains or losses on the sale of
securities are calculated by
using the specific identification method; (g) dividends
and distributions to
shareholders are recorded on the ex-dividend date; (h) the
accounting records of
the Portfolios are maintained in U.S. dollars. All assets
and liabilities
denominated in foreign currencies are translated into U.S.
dollars based on the
rate of exchange of such currencies against U.S. dollars
on the date of
valuation. Purchases and sales of securities, income and
expenses are translated
at the rate of exchange quoted on the respective date that
such transactions are
recorded. Differences between income or expense amounts
recorded and collected
or paid are adjusted when reported by the custodian bank;
(i) the Portfolios
intend to comply with the requirements of the Internal
Revenue Code of 1986, as
amended, pertaining to regulated investment companies and
to make distributions
of taxable income sufficient to relieve it from
substantially all Federal income
and excise taxes; and (j) estimates and assumptions are
required to be made
regarding assets, liabilities and changes in net assets
resulting from
operations when financial statements are prepared. Changes
in the economic
environment, financial markets and any other parameters
used in determining
these estimates could cause actual results to differ.
In addition, the Lazard International Stock Portfolio
may enter into
forward exchange contracts in order to hedge against
foreign currency risk.
These contracts are marked to market daily, by recognizing
the difference
between the contract exchange rate and the current market
rate as an unrealized
gain or loss. Realized gains or losses are recognized when
the contracts are
settled.
As of June 30, 1997, there were no open forward
foreign currency contracts.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER
TRANSACTIONS
Travelers Asset Management International Corporation
("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as
investment manager and
advisor to the Travelers Quality Bond ("TQB"), Lazard
International Stock
("LIS"), MFS Emerging Growth ("MEG"), Federated High Yield
("FHY"), Federated
Stock ("FSP") Portfolios and Mid Cap Disciplined Equity
Fund ("MCDE"). TQB, LIS,
MEG, FHY, FSP and MCDE each pays TAMIC an investment
management and advisory fee
calculated at the annual rate of 0.3233%, 0.35%, 0.375%,
0.25%, 0.25% and 0.70%,
respectively, of the average daily net assets. This fee is
calculated daily and
paid monthly.
TAMIC has entered into sub-advisory agreements with
Lazard Freres Asset
Management ("Lazard"), Massachusetts Financial Services
("MFS"), Federated
Investment Counseling ("Federated") and the Travelers
Investment Management
39
<PAGE>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Co., Inc. ("TIMCO"). Pursuant to each sub-advisory
agreement, Lazard, MFS and
TIMCO are responsible for the day-to-day portfolio
operations and investment
decisions for LIS, MEG and MCDE, respectively. Federated
is responsible for the
day-to-day portfolio operations and investment decisions
for FHY and FSP. As a
result the Portfolios pay the following fees calculated at
an annual rate:
- LIS pays Lazard 0.475% of the average daily
net assets
- MEG pays MFS 0.375% of the average daily net
assets
- FHY and FSP pay Federated 0.40% and 0.375%,
respectively, of their
average daily net assets.
- TAMIC pays TIMCO 0.35% of MCDE's average daily
net assets.
These fees are calculated daily and paid
monthly.
Travelers Insurance Company ("Travelers Insurance")
acts as administrator
to the Portfolios. The Portfolios pay Travelers Insurance
an administration fee
calculated at an annual rate of 0.06% of its average daily
net assets. Travelers
Insurance has entered into a sub-administrative services
agreement with Smith
Barney Mutual Funds Management Inc. ("SBMFM"), a
subsidiary of Smith Barney
Holdings Inc. ("SBH"). Travelers Insurance pays SBMFM, as
sub-administrator, a
fee calculated at an annual rate of 0.06% of the average
daily net assets of the
Portfolios. This fee is calculated daily and paid monthly.
For the six months ended June 30, 1997, Travelers
Insurance waived all or
part of its fees for the Portfolios, and agreed to
reimburse TQB and MCDE for
expenses in the amounts of $1,239, and $2,960,
respectively.
One Trustee and all officers of the Trust are
employees of Travelers Group
Inc., or its subsidiaries.
3. INVESTMENTS
The aggregate costs of purchases and proceeds from
sales of investments
(including maturities, but excluding short-term
securities), during the six
months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
PURCHASES SALES -----------------------------------
- ----------------------------------------------------------
- -----------
<S>
<C> <C>
Travelers Quality Bond
Portfolio............................................ $
4,267,959 $ 3,753,531
Lazard International Stock
Portfolio........................................
2,082,348 960,627
MFS Emerging Growth
Portfolio...............................................
33,286,718 12,671,642
Federated High Yield
Portfolio..............................................
2,759,134 1,662,068
Federated Stock
Portfolio.................................................
.. 5,065,565 3,351,924
Mid Cap Disciplined Equity
Fund.............................................
3,201,310 559,621 ---------------------------------
- ----------------------------------------------------------
- -------------
</TABLE>
At June 30, 1997, aggregate gross unrealized
appreciation and depreciation
of investments for Federal income tax purposes were
substantially as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
PORTFOLIO
APPRECIATION DEPRECIATION APPRECIATION
- ----------------------------------------------------------
- ------------------------------------------------
<S>
<C> <C> <C>
Travelers Quality Bond
Portfolio............................ $ 20,449 $
(18,361) $ 2,088
Lazard International Stock
Portfolio........................ 868,288 (111,616)
756,672
MFS Emerging Growth
Portfolio............................... 3,976,734
(409,652) 3,567,082
Federated High Yield
Portfolio.............................. 384,250 (84,561)
299,689
Federated Stock
Portfolio................................... 956,826
(25,097) 931,729
Mid Cap Disciplined Equity
Fund............................. 357,411 (29,757)
327,654
- ----------------------------------------------------------
- ------------------------------------------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodians take
possession of) U.S.
government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price.
The Portfolios require
continual maintenance of the market value of the
collateral in amounts at least
equal to 102% of the repurchase price.
40
<PAGE>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. FUTURES CONTRACTS
The LIS, MEG and MCDE Portfolios may from time to
time enter into futures
contracts.
Initial margin deposits made upon entering into
futures contracts are
recognized as assets. Securities equal to the initial
margin amount are
segregated by the custodian in the name of the broker.
Additional securities are
also segregated up to the current market value of the
futures contracts. During
the period the futures contract is open, changes in the
value of the contract
are recognized as unrealized gains or losses by "marking-
tomarket" on a daily
basis to reflect the market value of the contract at the
end of each day's
trading. Variation margin payments are received or made
and recognized as assets
due from or liabilities due to broker, depending upon
whether unrealized gains
or losses are incurred. When the contract is closed, the
Portfolio records a
realized gain or loss equal to the difference between the
proceeds from (or cost
of) the closing transactions and the Portfolio's basis in
the contract. The
Portfolios bear the market risk that arises from changes
in the value of the
financial instruments and securities indices (futures
contracts) and the credit
risk should a counterparty fail to perform under such
contracts.
As of June 30, 1997, MCDE had the following open
futures contracts:
<TABLE>
<CAPTION>
EXPIRATION
# OF BASIS MARKET UNREALIZED
MONTH/YEAR
CONTRACTS VALUE VALUE LOSS
- ----------------------------------------------------------
- --------------------------------------------------
<S> <C>
<C> <C> <C> <C>
FUTURES CONTRACTS TO BUY:
Mid Cap 400 Index....................... 9/97
3 $435,703 $434,400 $ (1,303)
- ----------------------------------------------------------
- --------------------------------------------------
</TABLE>
6. OPTIONS CONTRACTS
The LIS, MEG, FHY and MCDE Portfolios may from time
to time enter into
options contracts.
Premiums paid when put or call options are purchased
by the Portfolios,
represent investments, which are "marked-to-market" daily.
When a purchased
option expires, the Portfolios will realize a loss in the
amount of the premium
paid. When the Portfolios enter into a closing sales
transaction, the Portfolios
will realize a gain or loss depending on whether the
proceeds from the closing
sales transactions are greater or less than the premium
paid for the option.
When the Portfolio exercises a put option, it will realize
a gain or loss from
the sale of the underlying security and the proceeds from
such sale will be
decreased by the premium originally paid. When the
Portfolios exercise a call
option, the cost of the security which the Portfolios
purchase upon exercise
will be increased by the premium originally paid.
As of June 30, 1997, the Portfolios had no
open purchased call or put
option contracts.
When Portfolios write a covered call or put option,
an amount equals to the
premium received by the Portfolios is recorded as a
liability, the value of
which is marked-to-market daily. When a written option
expires, the Portfolios
realize a gain equal to the amount of the premium
received. When the Portfolios
enter into a closing purchase transaction, the Portfolios
realize a gain (or
loss if the cost of the closing purchase transaction
exceeds the premium
received when the option was sold) without regard to any
unrealized gain or loss
on the underlying security, and the liability related to
such option is
eliminated. When a written call option is exercised, the
cost of the security
sold will be decreased by the premium originally received.
When a put option is
exercised, the amount of the premium originally received
will reduce the cost of
the security which the Portfolios purchased upon exercise.
When written index
options are exercised, settlement is made in cash. The
risk associated with
purchasing options is limited to the premium originally
paid. The Portfolios
enter into options for hedging purposes. The risk in
writing a covered call
option is that the Portfolios give up the opportunity to
participate in any
increase in the price of the underlying security beyond
the exercise price. The
risk in writing a put option is that the Portfolios are
exposed to the risk of a
loss if the market price of the underlying security
declines.
During the six months ended June 30, 1997, the
Portfolios did not write any
options.
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, LIS had, for Federal income tax
purposes,
approximately $7,000 of capital loss carryforwards
available to offset future
realized capital gains through 2004. To the extent that
these carryforward
losses are used to offset capital gains, it is probable
that the gains so offset
will not be distributed.
41
<PAGE>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. FOREIGN SECURITIES
Investing in securities of foreign companies and
foreign governments
involves special risks and considerations not typically
associated with
investing in U.S. companies and the U.S. government. These
risks include
revaluation of currencies and future adverse political and
economic
developments. Moreover, securities of many foreign
companies and foreign
governments and their markets may be less liquid and their
prices more volatile
than those of securities of comparable U.S. companies and
the U.S. government.
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of
an unlimited number of
shares of beneficial interest without par value.
Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1997 DECEMBER 31, 1996 --------------------
- ----------------------------------------------------------
- ------------------------
<S>
<C> <C>
TRAVELERS QUALITY BOND PORTFOLIO(1):
Shares
sold.................................................
75,533 509,203
Shares issued on
reinvestment............................... --
12,856
Shares
redeemed.............................................
(4,593) --------------------------------
- ----------------------------------------------------------
- -------------
Net
Increase................................................
70,940 522,059 -----------------------------
- ----------------------------------------------------------
- ---------------
LAZARD INTERNATIONAL STOCK PORTFOLIO(2):
Shares
sold.................................................
219,753 400,880
Shares issued on
reinvestment............................... 995
- --
Shares
redeemed.............................................
(7,003) --------------------------------
- ----------------------------------------------------------
- -------------
Net
Increase................................................
213,745 400,880 ----------------------------
- ----------------------------------------------------------
- ----------------
MFS EMERGING GROWTH PORTFOLIO(1):
Shares
sold.................................................
1,839,938 1,219,526
Shares issued on
reinvestment............................... --
5,638
Shares
redeemed.............................................
(40,906) --
- ----------------------------------------------------------
- --------------------------------------------
Net
Increase................................................
1,799,032 1,225,164
- ----------------------------------------------------------
- --------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO(1):
Shares
sold.................................................
112,625 500,058
Shares issued on
reinvestment............................... --
16,317
Shares
redeemed.............................................
(2,053) --
- ----------------------------------------------------------
- --------------------------------------------
Net
Increase................................................
110,572 516,375
- ----------------------------------------------------------
- --------------------------------------------
FEDERATED STOCK PORTFOLIO(1):
Shares
sold.................................................
489,863 300,008
Shares issued on
reinvestment............................... --
4,324
Shares
redeemed.............................................
(298,804) --
- ----------------------------------------------------------
- --------------------------------------------
Net
Increase................................................
191,059 304,332
- ----------------------------------------------------------
- --------------------------------------------
MID CAP DISCIPLINED EQUITY FUND(3):
Shares
sold.................................................
308,155 --
Shares issued on
reinvestment............................... -- --
Shares
redeemed............................................. --
- --
- ----------------------------------------------------------
- --------------------------------------------
Net
Increase................................................
308,155 --
- ----------------------------------------------------------
- --------------------------------------------
</TABLE>
(1) For the period from August 30, 1996 (commencement of
operations) to December
31, 1996.
(2) For the period from August 1, 1996 (commencement
of operations) to December
31, 1996.
(3) For the period from April 1, 1997 (commencement
of operations) to June 30,
1997.
42
<PAGE>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
TRAVELERS QUALITY BOND PORTFOLIO
1997(1) 1996(2) ------------------------------------
- ----------------------------------------------------------
- ---------
<S>
<C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................................. $
10.10 $ 10.00
- ----------------------------------------------------------
- ---------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income(3).................................................
.. .... 0.27 0.19
Net realized and unrealized gain
(loss)........................................ (0.03)
0.16 -----------------------------------------------------
- --------------------------------------------------
Total Income From
Operations................................................
.. ... 0.24 0.35 ----------------------------
- ----------------------------------------------------------
- -----------------
LESS DISTRIBUTIONS FROM:
Net investment
income....................................................
.. .... -- (0.19)
Net realized
gain......................................................
.. ...... -- (0.06) ------------------------
- ----------------------------------------------------------
- ---------------------
Total
Distributions.............................................
.. ............... -- (0.25) ---------------
- ----------------------------------------------------------
- ------------------------------
NET ASSET VALUE, END OF
PERIOD...................................................
$ 10.34 $ 10.10 ------------------------------------
- ----------------------------------------------------------
- ---------
TOTAL
RETURN++..................................................
.. ............... 2.38% 3.56% ---------------
- ----------------------------------------------------------
- ------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................................ $
6,129 $ 5,273 --------------------------------------
- ----------------------------------------------------------
- -------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(3)...............................................
.. ................... 0.75% 0.75%
Net investment
income....................................................
.. .... 5.84 5.62
- ----------------------------------------------------------
- ---------------------------------------------
PORTFOLIO TURNOVER
RATE......................................................
.. .. 76% 35%
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from August 30, 1996 (commencement of
operations) to December
31, 1996.
(3) The Travelers has waived all of its fees for the
periods June 30, 1997 and
December 31, 1996. In addition, The Travelers has
agreed to reimburse the
Portfolio for $1,239 of the Portfolio's expenses for
the periods ended June
30, 1997 and December 31, 1996. If such fees were not
waived or reimbursed,
the per share decrease in net investment income and the
expense ratios would
have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES
EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME FEE
WAIVERS AND REIMBURSEMENT+
------------------------ ------
- -----------------------
<S> <C> <C>
1997 $ 0.02
1.18%
1996 0.03
1.76
</TABLE>
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
43
<PAGE> ---------------------------------------------------
- ----------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK PORTFOLIO
1997(1) 1996(2) ------------------------------------
- ----------------------------------------------------------
- ---------
<S>
<C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................................. $
10.78 $ 10.00
- ----------------------------------------------------------
- ---------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income(3).................................................
.. .... 0.08 0.02
Net realized and unrealized
gain...............................................
1.00 0.76 ------------------------------------------------
- -------------------------------------------------------
Total Income From
Operations................................................
.. ... 1.08 0.78 ----------------------------
- ----------------------------------------------------------
- -----------------
LESS DISTRIBUTIONS FROM:
Net investment
income....................................................
.. .... (0.03) ------------------------------
- ----------------------------------------------------------
- ----------------
Total
Distributions.............................................
.. ............... (0.03) -------------------
- ----------------------------------------------------------
- ---------------------------
NET ASSET VALUE, END OF
PERIOD...................................................
$ 11.83 $ 10.78 ------------------------------------
- ----------------------------------------------------------
- ---------
TOTAL
RETURN++..................................................
.. ............... 9.74% 7.80% ---------------
- ----------------------------------------------------------
- ------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................................ $
7,274 $ 4,322 --------------------------------------
- ----------------------------------------------------------
- -------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(3)...............................................
.. ................... 1.23% 1.25%
Net investment
income....................................................
.. .... 1.77 0.42 ---------------------------
- ----------------------------------------------------------
- ------------------
PORTFOLIO TURNOVER
RATE......................................................
.. .. 20% 9% ----------------------------
- ----------------------------------------------------------
- -----------------
AVERAGE COMMISSIONS PER SHARE ON EQUITY
TRANSACTIONS............................. $0.03
$0.01 ----------------------------------------------------
- ---------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from August 1, 1996 (commencement of
operations) to December
31, 1996.
(3) The Travelers has waived part or all of its fees for
the periods ended June
30, 1997 and December 31, 1996. In addition, The
Travelers has agreed to
reimburse the Portfolio for $12,454 of the Portfolio's
expenses for the
period ended December 31, 1996. If such fees were not
waived or reimbursed,
the per share decrease in net investment income and the
expense ratios would
have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES
EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME FEE
WAIVERS AND REIMBURSEMENT+
------------------------ ------
- -----------------------
<S> <C> <C>
1997 $ 0.03
1.91%
1996 0.07
2.87
</TABLE>
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
44
<PAGE> ---------------------------------------------------
- ----------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
MFS EMERGING GROWTH PORTFOLIO
1997(1) 1996(2) ------------------------------------
- ----------------------------------------------------------
- -------
<S>
<C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................................... $10.55
$10.00 ---------------------------------------------------
- --------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income
(loss)(3)..............................................
(0.01) 0.03
Net realized and unrealized
gain............................................. 1.13
0.57 -----------------------------------------------------
- ------------------------------------------------
Total Income From
Operations................................................
.. . 1.12 0.60
- ----------------------------------------------------------
- -------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment
income....................................................
.. .. -- (0.03)
Net realized
gain......................................................
.. .... -- (0.01)
Capital...................................................
.. ................. -- (0.01) -------------
- ----------------------------------------------------------
- ------------------------------
Total
Distributions.............................................
.. ............. -- (0.05) -----------------
- ----------------------------------------------------------
- --------------------------
NET ASSET VALUE, END OF
PERIOD.................................................
$11.67 $10.55 -------------------------------------
- ----------------------------------------------------------
- ------
TOTAL
RETURN++..................................................
.. ............. 10.62% 6.00% -----------------
- ----------------------------------------------------------
- --------------------------
NET ASSETS, END OF PERIOD
(000'S)..............................................
$35,282 $12,924 ------------------------------------
- ----------------------------------------------------------
- -------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(3)...............................................
.. ................. 0.95% 0.95%
Net investment
income....................................................
.. .. (0.28) 0.55 -----------------------------
- ----------------------------------------------------------
- --------------
PORTFOLIO TURNOVER
RATE......................................................
.. 60% 49% -------------------------------------
- ----------------------------------------------------------
- ------
AVERAGE COMMISSIONS PER SHARE ON EQUITY
TRANSACTIONS........................... $0.03
$0.03
- ----------------------------------------------------------
- -------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from August 30, 1996 (commencement of
operations) to December
31, 1996.
(3) The Travelers has waived part or all of its fees for
the periods ended June
30, 1997 and December 31, 1996. In addition, The
Travelers has agreed to
reimburse the Portfolio for $16,407 of the Portfolio's
expenses for the
period ended December 31, 1996. If such fees were not
waived or reimbursed,
the per share decrease in net investment income and the
expense ratios would
have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES
EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME FEE
WAIVERS AND REIMBURSEMENT+
------------------------ ------
- -----------------------
<S> <C> <C>
1997 $ 0.01
1.17%
1996 0.06
2.09
</TABLE>
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
45
<PAGE> ---------------------------------------------------
- ----------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
FEDERATED HIGH YIELD PORTFOLIO
1997(1) 1996(2) ------------------------------------
- ----------------------------------------------------------
- ---------
<S>
<C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................................. $
10.42 $ 10.00
- ----------------------------------------------------------
- --
- -------------------------------------------INCOME FROM
OPERATIONS:
Net investment
income(3).................................................
.. .... 0.43 0.31
Net realized and unrealized
gain...............................................
0.27 0.46 ------------------------------------------------
- -------------------------------------------------------
Total Income From
Operations................................................
.. ... 0.70 0.77 ----------------------------
- ----------------------------------------------------------
- -----------------
LESS DISTRIBUTIONS FROM:
Net investment
income....................................................
.. .... -- (0.31)
Net realized
gain......................................................
.. ...... -- (0.04) ------------------------
- ----------------------------------------------------------
- ---------------------
Total
Distributions.............................................
.. ............... -- (0.35) ---------------
- ----------------------------------------------------------
- ------------------------------
NET ASSET VALUE, END OF
PERIOD...................................................
$ 11.12 $ 10.42 ------------------------------------
- ----------------------------------------------------------
- ---------
TOTAL
RETURN++..................................................
.. ............... 6.72% 7.61% ---------------
- ----------------------------------------------------------
- ------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................................ $
6,974 $ 5,381 --------------------------------------
- ----------------------------------------------------------
- -------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(3)...............................................
.. ................... 0.95% 0.95%
Net investment
income....................................................
.. .... 9.33 8.78 ---------------------------
- ----------------------------------------------------------
- ------------------
PORTFOLIO TURNOVER
RATE......................................................
.. .. 28% 23% ----------------------------
- ----------------------------------------------------------
- -----------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from August 30, 1996 (commencement of
operations) to December
31, 1996.
(3) The Travelers has waived part or all of its fees for
the periods ended June
30, 1997 and December 31, 1996. In addition, The
Travelers has agreed to
reimburse the Portfolio for $9,268 of the Portfolio's
expenses for the
period ended December 31, 1996. If such fees were not
waived or reimbursed,
the per share decrease in net investment income and the
expense ratios would
have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES
EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME FEE
WAIVERS AND REIMBURSEMENT+
------------------------ ------
- -----------------------
<S> <C> <C>
1997 $ 0.01
1.11%
1996 0.04
2.19
</TABLE>
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
46
<PAGE> ---------------------------------------------------
- ----------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
FEDERATED STOCK PORTFOLIO
1997(1) 1996(2) ------------------------------------
- ----------------------------------------------------------
- ---------
<S>
<C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................................. $
11.10 $ 10.00
- ----------------------------------------------------------
- ---------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income(3).................................................
.. .... 0.07 0.06
Net realized and unrealized
gain...............................................
2.12 1.20 ------------------------------------------------
- -------------------------------------------------------
Total Income From
Operations................................................
.. ... 2.19 1.26 ----------------------------
- ----------------------------------------------------------
- -----------------
LESS DISTRIBUTIONS FROM:
Net investment
income....................................................
.. .... -- (0.06)
Net realized
gain......................................................
.. ...... -- (0.09)
Capital...................................................
.. ................... -- (0.01) ------------
- ----------------------------------------------------------
- ---------------------------------
Total
Distributions.............................................
.. ............... -- (0.16) ----------------
- ----------------------------------------------------------
- -----------------------------
NET ASSET VALUE, END OF
PERIOD...................................................
$ 13.29 $ 11.10 ------------------------------------
- ----------------------------------------------------------
- ---------
TOTAL
RETURN++..................................................
.. ............... 19.73% 12.61% ---------------
- ----------------------------------------------------------
- ------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................................ $
6,583 $ 3,380 --------------------------------------
- ----------------------------------------------------------
- -------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(3)...............................................
.. ................... 0.96% 0.95%
Net investment
income....................................................
.. .... 1.17 1.55 ---------------------------
- ----------------------------------------------------------
- ------------------
PORTFOLIO TURNOVER
RATE......................................................
.. .. 61% 11% ----------------------------
- ----------------------------------------------------------
- -----------------
AVERAGE COMMISSIONS PER SHARE ON EQUITY
TRANSACTIONS............................. $0.05
$0.05 ----------------------------------------------------
- ---------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from August 30, 1996 (commencement of
operations) to December
31, 1996.
(3) The Travelers has waived part or all of its fees for
the periods ended June
30, 1997 and December 31, 1996. In addition, The
Travelers has agreed to
reimburse the Portfolio for $15,460 of the Portfolio's
expenses for the
period ended December 31, 1996. If such fees were not
waived or reimbursed,
the per share decrease in net investment income and the
expense ratios would
have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES
EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME FEE
WAIVERS AND REIMBURSEMENT+
------------------------ ------
- -----------------------
<S> <C> <C>
1997 $ 0.03
1.43%
1996 0.08
3.03
</TABLE>
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
47
<PAGE> ---------------------------------------------------
- ----------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
MID CAP DISCIPLINED EQUITY
FUND 1997(1) ---------------------------------------------
- ----------------------------------------------------------
<S>
<C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................................
$ 10.00
- ----------------------------------------------------------
- ---------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income(2).................................................
.. .... 0.02
Net realized and unrealized
gain...............................................
1.34 -----------------------------------------------------
- --------------------------------------------------
Total Income From
Operations................................................
..
... 1.36 -------------------------------
- ----------------------------------------------------------
- --------------
LESS DISTRIBUTIONS FROM:
Net investment
income....................................................
.. .... ------------------------------
- ----------------------------------------------------------
- ----------------
Total
Distributions.............................................
.. ............... -------------------
- ----------------------------------------------------------
- ---------------------------
NET ASSET VALUE, END OF
PERIOD...................................................
$ 11.36
- ----------------------------------------------------------
- ---------------------------------------------
TOTAL
RETURN++..................................................
.. ............... 13.60% ---------------
- ----------------------------------------------------------
- ------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................................
$ 3,499
- ----------------------------------------------------------
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(2)...............................................
.. ................... 0.95%
Net investment
income....................................................
.. .... 0.83 ---------------------------
- ----------------------------------------------------------
- ------------------
PORTFOLIO TURNOVER
RATE......................................................
.. .. 19% ----------------------------
- ----------------------------------------------------------
- -----------------
AVERAGE COMMISSIONS PER SHARE ON EQUITY
TRANSACTIONS.............................
$0.05 ----------------------------------------------------
- ---------------------------------------------------
</TABLE>
(1) For the period from April 1, 1997 (commencement of
operations) to June 30,
1997 (unaudited).
(2) The Travelers has waived all of its fees for the
period ended June 30, 1997.
In addition, The Travelers has agreed to reimburse the
Portfolio for $2,960
of the Portfolio's expenses for the period ended June
30, 1997. If such fees
were not waived or reimbursed, the per share decrease
in net investment
income would have been $0.03 and the expense ratio
would have been 2.01%
(annualized).
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
48
<PAGE>
Investment Advisors
TRAVELERS ASSET MANAGEMENT
INTERNATIONAL
CORPORATION
Hartford, Connecticut
Independent Accountants
KPMG PEAT MARWICK LLP
New York, New York
Custodians
PNC BANK, N.A.
THE CHASE MANHATTAN BANK, N.A.
This report is prepared for the general information of
contract owners and is
not an offer of shares of The Travelers Series Trust:
Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth,
Federated High Yield, Federated
Stock Portfolios and Mid Cap Disciplined Equity Fund. It
should not be used in
connection with any offer except in conjunction with the
Prospectuses for the
Variable Annuity and Variable Universal Life Insurance
products offered by The
Travelers Insurance Company and the Prospectuses for the
underlying funds, which
collectively contain all pertinent information, including
the applicable sales
commissions.
Series Trust (Semi-Annual) (6-97) Printed in U.S.A.
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
June 30, 1997
THE TRAVELERS SERIES TRUST:
ZERO COUPON BOND FUND PORTFOLIO SERIES
1998 ZERO COUPON BOND FUND PORTFOLIO
SERIES 2000 ZERO COUPON BOND FUND
PORTFOLIO SERIES 2005
[TRAVELERSLIFE LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
TRAVELERS SERIES TRUST: ZERO COUPON BOND FUND PORTFOLIOS:
SERIES 1998, 2000,
2005 -----------------------------------------------------
- --------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for The
Travelers Series Trust:
Zero Coupon Bond Fund Portfolios: Series 1998, 2000 and
2005 ("Portfolio(s)")
for the period ended June 30, 1997. In this letter, we
briefly discuss general
economic and market conditions. In addition, more detailed
comparisons showing
the growth of a hypothetical $10,000 invested in each
Portfolio since inception
date can also be found in this report. A more detailed
summary of performance
and current holdings for each Portfolio can be found in
the appropriate sections
that follow.
ECONOMIC REVIEW AND OUTLOOK
The key economic news in the second quarter of 1997 was a
distinct slowdown in
economic growth and surprisingly low inflation. Both stock
and bond market
investors drew relief from these developments as the
prospects of further
Federal Reserve Board ("Fed") tightening receded. Interest
rates fell from above
7.0% to 6.8% by the end of the second quarter and the
stock market embarked on a
furious rally that saw prices rise by almost 20%.
The second quarter of 1997 began with a singular focus on
the future direction
of Fed action. After an increase of 25 basis points in the
federal-funds rate in
late March on the heels of strong economic growth in the
first quarter, it was
considered quite likely that rates would rise during the
second quarter. (The
federal-funds rate is the interest rate banks charge each
other for overnight
loans and an indicator of the direction of interest
rates.) The prospects of
higher rates created turmoil within the U.S. capital
markets and stocks, in
particular, were hit hard in early April. Economic data
released in early May
provided mounting evidence of a slower economy and low
inflation. Retail sales
for April were soft and producer prices showed a dramatic
decline of 0.4%.
The inflation trend in recent months has been nothing
short of remarkable,
especially in light of the low unemployment rate and high
capacity utilization
rates in the U.S. economy. The consumer price deflator,
which is considered to
be a better inflation measure than the consumer price
index, fell to a 30-year
low in May at an annual rate of 1.6%. Gains in average
hourly wages, a closely
monitored signal for wage inflation, have slowed from 4.1%
to 3.5%. Commodity
price indexes are declining, oil prices are falling and
the price of gold is now
below $320, its lowest level in five years. In other
words, inflation just does
not appear to be an issue at this point.
The biggest contributing factor in the demise of inflation
appears to be the
significant gains in productivity achieved over the last
few years. It is widely
acknowledged that conventional measures of productivity
gains are being
understated and, under that scenario, lower-than-expected
inflation may be
explained by higher-than-expected productivity gains.
Several other factors also
suggest that the current disinflationary trend is likely
to be both secular and
global in nature. These include a high level of
disinflation in the growing
technology sector, significant government downsizing and
severe global
competition.
The second quarter rally in the bond market suggests that
investors have reduced
their inflation expectations and, consequently, the
likelihood of further Fed
tightening. In our view, the biggest risk to the presently
benign investment
climate looms on the economic landscape. A resurgence of
economic growth in the
second half of the year may prompt the Fed to act yet
again on a preemptive
basis to choke off inflationary pressures. Strong retail
sales may well hold the
key to a reacceleration in third quarter economic growth.
The boost in consumer
spending could come from any one of several sources:
increased refinancing
activity, the wealth effect of a stronger stock market,
record levels of
consumer confidence and the recent strong growth in real
disposable personal
income.
FIXED INCOME COMMENTARY
The Lehman Intermediate Government/Corporate Index
returned 2.79% for the second
quarter of 1997 and 6.95% for the one year ended June 30,
1997. Over the past
twelve months, the Lehman Long Government/Corporate Index
generated a total
return of 8.80%.
There are no visible signs on the horizon that inflation
is likely to flare up
in the near future. The employment cost index and hourly
wage gains are likely
to be the most closely monitored gauges of expected
inflation. We believe the
biggest risk on the interest rate front lies in stronger
than-expected economy
in the second half. In fact, the Fed may be inclined to
respond to strong
economic data even before it begins to affect inflation
measures.
Within the fixed income markets, spreads remain tight and
there has been a high
level of complacency. Within the corporate market, spreads
remain compressed
between different quality levels and "riskier" borrowers
have access to an
abundance of
1
<PAGE>
capital. This condition is unlikely to change in the near
term as good economic
growth has reduced the stress on weaker credits.
Mortgage-backed security spreads have tightened as market
volatility has been
low and prepayments have been within their predicted
range. Mortgage-backed
securities outperformed investment grade corporates as
spreads narrowed and
volatility remained low. Callable securities performed
better than noncallable
securities due to their higher yields and the tight range
of interest rates.
Within the corporate market, the lowest quality areas
continued to do best.
Corporate spreads continued to tighten despite several
large issuances including
a record $4.3 billion raised by Norfolk Southern to
finance their acquisition of
part of Conrail. Municipal bonds underperformed vs.
Treasuries as ratios widened
due to increased issuance.
Corporate spreads are likely to take their cues from the
high yield bond market
and equity market. As long as these remain well bid for,
high-quality spreads
should remain firm. Historically, October has been a month
when some spread
widening has occurred, so we would not be surprised to see
some modest pressure
as the fourth quarter 1997 begins.
Emerging markets continue to attract new buyers from both
the high yield bond
and the high grade bond spectrum of buyers. Political
turmoil or a run on some
of the local currencies may rattle the global fixed-income
markets, but as
worldwide economic growth and access to capital remains
strong, the likelihood
of a "tequila effect" repeat is low.
ZERO COUPON BOND FUND PORTFOLIO PERFORMANCE
The three Zero Coupon Bond Fund Portfolios commenced
operations on October 11,
1995. These Portfolios were set up as an option for the
Travelers Single Premium
Variable Universal Life Product offered by The Travelers
Insurance Company and
The Travelers Life and Annuity Company. The three
Portfolios have target
maturity dates of December 1998, December 2000 and
December 2005, respectively.
The Portfolios invest primarily in U.S. Treasury zero
coupon bonds which provide
a "locked-in" rate of return. Zero coupons, sometimes
referred to as "strips,"
are long-term U.S. Treasury bonds that have been
"stripped" of their interest
coupons. Instead of regular interest payments, these
securities offer return
based on the difference between the purchase price and the
value at maturity, or
par value. The yield for a zero coupon is the difference
in price over the time
until the bond matures.
To enhance performance, we have added corporate zero
coupons and other spread
assets such as senior notes. Because spread assets are
difficult to find, we
vary the maturities within a year or two range to increase
the universe of
spread assets. We balance the Portfolio's maturities to
match the interest rate
risk of a zero coupon with the Portfolios' target maturity
date.
ZERO COUPON BOND FUND PORTFOLIO SERIES 1998
The Zero Coupon Bond Fund Portfolio Series 1998 had a
total return of 2.50% for
the six months ended June 30, 1997 versus the Merrill
Lynch Zero Coupon - 2 year
total return of 2.81% for the same period.
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
The Zero Coupon Bond Fund Portfolio Series 2000 had a
total return of 2.31% for
the six months ended June 30, 1997 versus the Merrill
Lynch Zero Coupon - 5 year
total return of 2.59% for the same period.
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
The Zero Coupon Bond Fund Portfolio Series 2005 had a
total return of 2.11% for
the six months ended June 30, 1997 versus the Merrill
Lynch Zero Coupon - 10
year total return of 2.31% for the same period.
In closing, thank you for investing in The Travelers
Series Trust: Zero Coupon
Bond Fund Portfolios. We look forward to serving your
investment needs.
Sincerely,
/S/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 22, 1997
2
<PAGE> ---------------------------------------------------
- ----------------------------
PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO
SERIES 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS ---------------------
------------------------
<S> <C>
Six Months Ended 6/30/97+ 2.50%
Year Ended 6/30/97
6.35
10/11/95* through 6/30/97
5.26
*Commencement of operations
+Total Return is not annualized, as it
may not be representative of the total
return for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made
on October
11, 1995, assuming reinvestment of dividends, through June
30,
1997. The Merrill Lynch Zero Coupon - 2 year is comprised
of U.S.
government stripped securities which have a maturity not
greater
than two years.
<TABLE>
<CAPTION>
Zero Coupon
Bond Fund Merrill
Lynch Measurement Period Portfolio Zero Coupon
-
(Fiscal Year Covered) Series 1998 2 year
<S> <C> <C>
10/11/95 10,000
10,000
12/31/95 10,211
10,299
12/31/96 10,655
10,738
6/30/97 10,922
11,039
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost. Average
annual total returns are historical in nature and measure
net investment income
and capital gain or loss from portfolio investments
assuming reinvestment of
dividends. The returns do not reflect expenses associated
with the subaccount
such as administrative fees, account charges and surrender
charges which, if
reflected, would reduce the performance shown.
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO
SERIES 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS ---------------------
------------------------
<S> <C>
Six Months Ended 6/30/97+ 2.31%
Year Ended 6/30/97
6.91
10/11/95* through 6/30/97
4.81
*Commencement of operations
+Total Return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made
on October
11, 1995, assuming reinvestment of dividends, through June
30,
1997. The Merrill Lynch Zero Coupon - 5 year is comprised
of U.S.
government stripped securities which have a maturity not
greater
than five years.
<TABLE>
<CAPTION>
Zero Coupon
Bond Fund Merrill
Lynch Measurement Period Portfolio Zero Coupon
-
(Fiscal Year Covered) Series 2000 5 year
<S> <C> <C>
10/11/95 10,000
10,000
12/31/95 10,252
10,405
12/31/96 10,596
10,648
6/30/97 10,841
10,924
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gain or loss from portfolio investments
assuming reinvestment
of dividends. The returns do not reflect expenses
associated with the subaccount
such as administrative fees, account charges and surrender
charges which, if
reflected, would reduce the performance shown.
3
<PAGE>
- ----------------------------------------------------------
- ---------------------
PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO
SERIES 2005
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS ---------------------
------------------------
<S> <C>
Six Months Ended 6/30/97+ 2.11%
Year Ended 6/30/97
9.21
10/11/95* through 6/30/97
4.59
*Commencement of operations
+Total Return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made
on
October
11, 1995, assuming reinvestment of dividends, through June
30,
1997. The Merrill Lynch Zero Coupon - 10 year is comprised
of U.S.
government stripped securities which have a maturity not
greater
than ten years.
<TABLE>
<CAPTION>
Zero Coupon
Bond Fund Merrill
Lynch Measurement Period Portfolio Zero Coupon
-
(Fiscal Year Covered) Series 2005 10 year
<S> <C> <C>
10/11/95 10,000
10,000
12/31/95 10,480
10,587
12/31/96 10,580
10,584
6/30/97 10,802
10,829
</TABLE>
- ----------------------------------------------------------
- ---------------------
Past performance is not predictive of future performance.
Investment return and
principal value of an investment will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than their
original cost.
Average annual total returns are historical in nature and
measure net investment
income and capital gains or losses from portfolio
investments assuming
reinvestment of dividends. The returns do not reflect
expenses associated with
the subaccount such as administrative fees, account
charges and surrender
charges which, if reflected, would reduce the performance
shown.
4
<PAGE>
- ----------------------------------------------------------
- ---------------------
SCHEDULES OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
ZERO COUPON BOND FUND PORTFOLIO SERIES
1998
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
U.S. TREASURY OBLIGATION -- 56.8%
$810,000 AAA U.S. Treasury Notes, Stripped
Principal Payment Only due 11/15/98
(Cost -
$748,788).................................................
.. .. $ 747,573 ---------------------------------------
- ----------------------------------------------------------
- -------COLLATERALIZED MORTGAGE OBLIGATION -- 3.4%
48,964 AAA Federal Home Loan Mortgage Corp.,
zero
coupon bond to yield 6.727% due
12/15/99 (Cost -
$44,968)...........................................
44,650 ---------------------------------------------------
- ------------------------------------------------------
CORPORATE BONDS AND NOTES -- 15.3% -----------------------
- ----------------------------------------------------------
- ------------------------
AUTOMOBILE -- 3.7%
48,000 A General Motors Acceptance Corp.,
Notes, 7.500% due 5/26/00............. 49,140 ------
- ----------------------------------------------------------
- -----------------------------------------
BANKING -- 3.9%
60,000 AAA Deutsche Bank Financial, zero coupon
medium term note to yield 6.401%
due
2/1/00....................................................
.. ..... 50,925 ------------------------------------
- ----------------------------------------------------------
- -----------
FINANCE -- 7.7%
60,000 A* Avco Financial Services, Inc., zero
coupon structure note to yield
6.571% due
12/16/98..................................................
54,675
50,000 A Sears Overseas Financial NV, zero
coupon bond to yield 5.945% due
7/12/98...................................................
.. ......... 46,971
- ----------------------------------------------------------
- -----------------------------------------------
101,646 --------------------------------------------------
- -------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $202,738)..................... 201,711 -----
- ----------------------------------------------------------
- ------------------------------------------
FOREIGN CORPORATE BONDS AND NOTES -- 16.1% ---------------
- ----------------------------------------------------------
- --------------------------------
BANKING -- 7.8%
60,000 A2* Chemical New York NV Corp., zero
coupon bond to yield 7.085% due
2/16/99...................................................
.. ......... 50,287
60,000 NR International Bank of Reconstruction
&
Development, zero coupon bond to
yield 7.042% due
4/16/99.............................................
52,331 ---------------------------------------------------
- ------------------------------------------------------
102,618 --------------------------------------------------
- -------------------------------------------------------
FOOD -- 4.2%
62,000 A1* PepsiCo, Inc., zero coupon note to
yield 6.720% due 5/25/99............ 55,025
- ----------------------------------------------------------
- -----------------------------------------------
INSURANCE -- 4.1%
60,000 AA New England Life, zero coupon bond
to
yield 7.001% due 2/1/99.......... 54,413
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL FOREIGN CORPORATE BONDS AND
NOTES (Cost -- $216,890)............. 212,056
- ----------------------------------------------------------
- -----------------------------------------------
REPURCHASE AGREEMENT -- 8.4%
111,000 Citibank, 5.270% due 7/1/97; Proceeds
at maturity -- $111,016;
(Fully collateralized by U.S.
Treasury Note, 5.375% due 5/31/98;
Market value -- $115,144) (Cost -
$111,000)........................... 111,000
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$1,324,384**)....................... $1,316,990 --------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
** Aggregate cost for Federal income tax purposes is
substantially the same.
See page 8 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> ---------------------------------------------------
- ----------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
ZERO COUPON BOND FUND PORTFOLIO SERIES
2000
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- -----------------------------------------------
<C> <S> <C>
<C>
U.S. TREASURY OBLIGATIONS -- 58.1%
$558,000 AAA U.S. Treasury Notes, Stripped
Principal Payment Only due 11/15/00...... $ 453,118
167,000 AAA U.S. Treasury Notes, Stripped
Principal Payment Only due 5/15/01....... 131,292
300,000 AAA U.S. Treasury Notes, Stripped
Principal Payment Only due 8/15/01....... 232,032
74,000 AAA U.S. Treasury Notes, Stripped
Principal Payment Only due 11/15/02...... 52,891
47,000 AAA U.S. Treasury Notes, Stripped
Principal Payment Only due 2/15/03....... 32,945 ---
- ----------------------------------------------------------
- --------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost -- $907,596)..................... 902,278 -----
- ----------------------------------------------------------
- -----------------------------------------COLLATERALIZED
MORTGAGE OBLIGATION -- 3.3%
62,000 AAA Federal Home Loan Mortgage Corp.,
zero
coupon bond to yield 7.433% due
9/15/18 (Cost -
$51,818)............................................
51,305 ---------------------------------------------------
- ------------------------------------------------------
CORPORATE BONDS AND NOTES -- 18.2% -----------------------
- ----------------------------------------------------------
- ------------------------
FINANCIAL SERVICES -- 6.6%
65,000 AAA Exxon Capital Ventures, Inc., zero
coupon guaranteed note to yield
6.538% due
2/15/01...................................................
51,431
60,000 AAA Deutsche Bank Financial, Inc., zero
coupon medium term note to yield
6.546% due
2/1/00....................................................
50,925 ---------------------------------------------------
- ------------------------------------------------------
102,356 --------------------------------------------------
- -------------------------------------------------------
FOODS -- 3.3%
70,000 AA- Archer-Daniels Midland Co., zero
coupon bond to yield 6.505% due
5/1/02....................................................
.. ......... 50,662
- ----------------------------------------------------------
- -----------------------------------------------
HOSPITAL SUPPLIES & SERVICES -- 3.4%
65,000 A- Hospital Corp. of America, zero
coupon
bond to yield 7.306% due
6/1/00....................................................
.. ......... 52,325
- ----------------------------------------------------------
- ----------------------------------------------
TELECOMMUNICATIONS -- 4.9%
70,000 BBB- Tele-Communications Inc., amortizing
note, 9.650% due 10/1/03.......... 75,687 ----------
- ----------------------------------------------------------
- -------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $283,242)..................... 281,030 -----
- ----------------------------------------------------------
- ------------------------------------------
FOREIGN BONDS AND NOTES -- 20.4% -------------------------
- ----------------------------------------------------------
- ----------------------
BANKING -- 6.6%
60,000 A1* Chemical New York NV Corp., zero
coupon bond to yield 7.085% due
2/16/99...................................................
.. ......... 50,288
60,000 NR International Bank of Reconstruction
&
Development, zero coupon bond to
yield 7.042% due
4/16/99.............................................
52,331 ---------------------------------------------------
- ------------------------------------------------------
102,619 --------------------------------------------------
- -------------------------------------------------------
FINANCIAL SERVICES -- 3.4%
65,000 A+ American Express Co., zero coupon
bond
to yield 6.736% due 12/12/00.... 52,244 ------------
- ----------------------------------------------------------
- -----------------------------------
FOODS -- 3.5%
62,000 A1* PepsiCo, Inc., zero coupon note to
yield 6.720% due 5/25/99............ 55,025
- ----------------------------------------------------------
- -----------------------------------------------
FOREIGN GOVERNMENT -- 3.4%
64,000 AA+ Kingdom of Sweden, zero coupon note
to
yield 6.210% due 7/31/00........ 52,760 ------------
- ----------------------------------------------------------
- -----------------------------------
INSURANCE -- 3.5%
60,000 AA New England Life, zero coupon bond
to
yield 7.001% due 2/1/99.......... 54,413
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (Cost
- -$323,186)....................... 317,061 -----------
- ----------------------------------------------------------
- ------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$1,565,842**)....................... $1,551,674 --------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
** Aggregate cost for Federal income tax purposes is
substantially the same.
See page 8 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> ---------------------------------------------------
- ---------
- --------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
ZERO COUPON BOND FUND PORTFOLIO SERIES
2005
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- ----------------------------------------------------------
- ------------------------------------------------
<C> <S> <C>
<C>
U.S. TREASURY OBLIGATIONS -- 84.1%
$1,090,000 AAA U.S. Treasury Note, Stripped
Principal Payment Only due 11/15/05...... $ 632,876
1,435,000 AAA U.S. Treasury Note, Stripped
Principal Payment Only due 2/15/06....... 817,706
379,000 AAA U.S. Treasury Note, Stripped
Principal Payment Only due 2/15/09....... 174,420 ---
- ----------------------------------------------------------
- ---------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost -- $1,620,404).................. 1,625,002 ------
- ----------------------------------------------------------
- ------------------------------------------
CORPORATE BONDS AND NOTES -- 5.3% ------------------------
- ----------------------------------------------------------
- ------------------------
FINANCE -- 2.7%
80,000 A+ Grand Metro Investment, zero
coupon
note to yield 6.967% due 1/6/04... 51,300
- ----------------------------------------------------------
- ------------------------------------------------
FOODS -- 2.6%
70,000 AA- Archer-Daniels Midland Co., zero
coupon bond to yield 6.505% due
5/1/02....................................................
.. ........ 50,662
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $103,555).................... 101,962 ------
- ----------------------------------------------------------
- ------------------------------------------
FOREIGN BONDS AND NOTES -- 10.6% -------------------------
- ----------------------------------------------------------
- -----------------------
BANKING -- 2.8%
75,000 A1* Chemical New York NV Corp., zero
coupon bond to yield 7.390% due
2/16/02...................................................
.. ........ 55,031
- ----------------------------------------------------------
- ------------------------------------------------
FINANCE -- 2.6%
80,000 AAA Exxon Capital Corp., zero coupon
note to yield 7.057% due 11/15/04.... 50,200
- ----------------------------------------------------------
- ------------------------------------------------
FOODS -- 2.6%
80,000 A+ General Mills Inc., zero coupon
bond
to yield 7.322% due 8/15/04...... 49,300
- ----------------------------------------------------------
- ------------------------------------------------
INSURANCE -- 2.6%
80,000 AAA American International Group, zero
coupon bond to yield 7.103% due
8/15/04...................................................
.. ........ 49,700
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES
(Cost -- $206,182)...................... 204,231
- ----------------------------------------------------------
- ------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -
$1,930,141**)...................... $1,931,195 ---------
- ----------------------------------------------------------
- ---------------------------------------
</TABLE>
** Aggregate cost for Federal income tax purposes is
substantially the same.
See page 8 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> ---------------------------------------------------
- ----------------------------
BOND RATINGS
All ratings are by Standard & Poor's Ratings Service
("Standard & Poor's),
except those identified by an asterisk (*) are rated by
Moody's Investors
Service, Inc. ("Moody's"). The definitions of the
applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "BBB" may be
modified by the addition
of a plus (+) or minus (-) sign to show relative
standings within the major
rating categories.
<TABLE>
<S> <C> <C>
AAA -- Bonds rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay
interest and repay principal are extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to
pay interest and repay principal and differ
from the highest rated issue only in a small
degree.
A -- Bonds rated "A" have a strong capacity to pay
interest and repay principal although they are
somewhat more susceptible to the adverse
effects of changes in circumstances and economic
conditions than bonds in higher rated
categories.
BBB -- Bonds rated "BBB" are regarded as having an
adequate capacity to pay interest and repay
principal. Whereas they normally exhibit
adequate protection parameters, adverse economic
conditions or changing circumstances are more
likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this
category than in higher rated categories.
Moody's -- Numerical modifiers 1, 2, and 3 may be applied
to each generic rating from "Aa" to "Baa",
where 1 is the highest and 3 the lowest rating within its
generic category.
Aaa -- Bonds that are rated "Aaa" are judged to be of
the best quality. They carry the smallest
degree of investment risk and are generally
referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally
stable margin and principal is secure. While the
various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds that are rated "Aa" are judged to be of
high quality by all standards. Together with
the Aaa group they comprise what are generally
known as high grade bonds. They are rated
lower than the best bonds because margins of
protection may not be as large as in Aaa
securities or fluctuation of protective
elements may be of greater amplitude or there may be
other elements present which make the long-term
risks appear somewhat larger than in Aaa
securities.
A -- Bonds that are rated "A" possess many favorable
investment attributes and are to be
considered as upper medium grade obligations.
Factors giving security to principal and
interest are considered adequate but elements
may be present which suggest a susceptibility
to impairment some time in the future.
Baa -- Bonds that are rated "Baa" are considered as
medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest
payments and principal security appear adequate
for the present but certain protective elements
may be lacking or may be characteristically
unreliable over any great length of time. Such
bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
NR -- Indicates that the bond is not rated by
Standard
& Poor's or Moody's.
</TABLE>
8
<PAGE>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON ZERO
COUPON
BOND FUND BOND FUND BOND FUND
PORTFOLIO PORTFOLIO PORTFOLIO
SERIES 1998 SERIES 2000 SERIES
2005
- ----------------------------------------------------------
- --------------------------------------------------
<S>
<C> <C> <C>
ASSETS:
Investments, at value (Cost -- $1,324,384, $1,565,842 and
$1,930,141,
respectively)....................................
$1,316,990 $1,551,674 $1,931,195
Cash......................................................
.. .... 827 69,211 16,864
Interest
receivable.............................................
911 1,680 --
Receivable from
affiliate.......................................
46,767 46,660 45,808
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL
ASSETS....................................................
1,365,495 1,669,225 1,993,867
- ----------------------------------------------------------
- -------------------------------------------------
LIABILITIES:
Accrued
expenses................................................
19,401 18,857 16,802
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL
LIABILITIES...............................................
19,401 18,857 16,802
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL NET
ASSETS..................................................
$1,346,094 $1,650,368 $1,977,065
- ----------------------------------------------------------
- --------------------------------------------------
NET ASSETS:
Paid-in
capital.................................................
$1,317,951 $1,622,259 $1,922,712
Undistributed net investment
income............................. 36,483 47,987
63,806
Accumulated net realized loss on security
transactions.......... (946) (5,710)
(10,507)
Net unrealized appreciation (depreciation) of
investments....... (7,394) (14,168)
1,054 ----------------------------------------------------
- --------------------------------------------------------
TOTAL NET
ASSETS..................................................
$1,346,094 $1,650,368 $1,977,065 -----------------
- ----------------------------------------------------------
- ---------------------------------
SHARES
OUTSTANDING...............................................
. 131,441 161,880 194,208 ------------------
- ----------------------------------------------------------
- --------------------------------
NET ASSET VALUE, PER
SHARE........................................ $10.24
$10.19 $10.18 ------------------------------------
- ----------------------------------------------------------
- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> ---------------------------------------------------
- ----------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX
MONTHS
ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON ZERO COUPON
BOND FUND BOND FUND BOND FUND
PORTFOLIO PORTFOLIO PORTFOLIO
SERIES 1998 SERIES 2000 SERIES
2005
- ----------------------------------------------------------
- --------------------------------------------------
<S>
<C> <C> <C>
INVESTMENT INCOME:
Interest..................................................
.. .. $ 37,473 $ 49,174 $ 63,954 --------
- ----------------------------------------------------------
- -----------------------------------------EXPENSES:
Audit and
legal...............................................
10,000 10,000 10,000
Shareholder and system servicing
fees......................... 3,750
3,750
3,750
Trustees'
fees................................................
1,000 1,000 1,000
Investment advisory fees (Note
2)............................. 660
791
983
Custody...................................................
.. .. 100 100 100
Other.....................................................
.. .. 1,000 1,000 1,000
- ----------------------------------------------------------
- --------------------------------------------------
TOTAL
EXPENSES................................................
16,510 16,641 16,833
Less: Investment advisory fee and expense reimbursements
(Note
2)........................................................
. (15,520) (15,454) (15,359)
- ----------------------------------------------------------
- --------------------------------------------------
NET
EXPENSES..................................................
990 1,187 1,474 ----------------------
- ----------------------------------------------------------
- ----------------------------
NET INVESTMENT
INCOME...........................................
36,483 47,987 62,480
- ----------------------------------------------------------
- --------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3):
Net Realized Loss From Security Transactions (excluding
short-term securities):
Proceeds from
sales........................................ 305,684
463,791 178,552
Cost of securities
sold.................................... 306,630
466,463 181,585
- ----------------------------------------------------------
- --------------------------------------------------
NET REALIZED
LOSS.............................................
(946) (2,672) (3,033) --------------------
- ----------------------------------------------------------
- ------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of
period........................................
(4,686) (6,197) 19,427
End of
period..............................................
(7,394) (14,168) 1,054 -------------------
- ----------------------------------------------------------
- -------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION
(DEPRECIATION)............................................
. (2,708) (7,971) (18,373)
- ----------------------------------------------------------
- --------------------------------------------------
NET LOSS ON
INVESTMENTS.........................................
(3,654) (10,643) (21,406) ------------------
- ----------------------------------------------------------
- --------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS.......................... $ 32,829 $
37,344 $ 41,074 -----------------------------------
- ----------------------------------------------------------
- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- ----------------------------------------------------------
- ---------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 1998
1997 1996 ---------------------------------------
- ----------------------------------------------------------
- -------
<S>
<C> <C>
OPERATIONS:
Net investment
income....................................................
.. . $ 36,483 $ 65,673
Net realized gain
(loss)....................................................
(946) 1,301
Increase in net unrealized
depreciation.....................................
(2,708) (17,675) ------------------------------------
- ----------------------------------------------------------
- ----------
INCREASE IN NET ASSETS FROM
OPERATIONS......................................
32,829 49,299 -------------------------------------
- ----------------------------------------------------------
- --------DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment
income....................................................
.. . -- (78,270)
Net realized
gain......................................................
.. ... -- (943)
- ----------------------------------------------------------
- ----------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS
- -- (79,213) ----------------------------------------
- ----------------------------------------------------------
- ------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of
shares............................................
35,964 239,165
Net asset value of shares issued for reinvestment of
dividends -- 79,213
Cost of shares
reacquired................................................
.. . (25,269) (9,692)
- ----------------------------------------------------------
- ----------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS......................... 10,695
308,686 --------------------------------------------------
- ------------------------------------------------------
INCREASE IN NET
ASSETS....................................................
.. .. 43,524 278,772
NET ASSETS:
Beginning of
period....................................................
.. ... 1,302,570 1,023,798 ------------------------
- ----------------------------------------------------------
- ----------------------
END OF
PERIOD*...................................................
.. ......... $1,346,094 $1,302,570 ------------------
- ----------------------------------------------------------
- ----------------------------
* Includes undistributed net investment income
of:............................ $36,483 --
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> ---------------------------------------------------
- ----------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
1997 1996 ---------------------------------------
- ----------------------------------------------------------
- -------
<S>
<C> <C>
OPERATIONS:
Net investment
income....................................................
.. . $ 47,987 $ 76,115
Net realized
loss......................................................
.. ... (2,672) (1,828)
Increase in net unrealized
depreciation.....................................
(7,971) (25,539) ------------------------------------
- ----------------------------------------------------------
- ----------
INCREASE IN NET ASSETS FROM
OPERATIONS......................................
37,344 48,748 -------------------------------------
- ----------------------------------------------------------
- --------DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment
income....................................................
.. . -- (88,804)
- ----------------------------------------------------------
- ----------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS................... --
(88,804)
- ----------------------------------------------------------
- --
- --------------------------------------------FUND SHARE
TRANSACTIONS (NOTE 8):
Net proceeds from sale of
shares............................................
61,582 504,039
Net asset value of shares issued for reinvestment of
dividends.............. -- 88,804
Cost of shares
reacquired................................................
.. . (13,302) (17,510)
- ----------------------------------------------------------
- ----------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS......................... 48,280
575,333 --------------------------------------------------
- ------------------------------------------------------
INCREASE IN NET
ASSETS....................................................
.. .. 85,624 535,277
NET ASSETS:
Beginning of
period....................................................
.. ... 1,564,744 1,029,467 ------------------------
- ----------------------------------------------------------
- ----------------------
END OF
PERIOD*...................................................
.. ......... $1,650,368 $1,564,744 ------------------
- ----------------------------------------------------------
- ----------------------------
* Includes undistributed net investment income
of:............................ $47,987 --
- ----------------------------------------------------------
- ---------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> ---------------------------------------------------
- ----------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
1997 1996 ---------------------------------------
- ----------------------------------------------------------
- -------
<S>
<C> <C>
OPERATIONS:
Net investment
income....................................................
.. . $ 62,480 $ 94,226
Net realized
loss......................................................
.. ... (3,033) (5,606)
Decrease in net unrealized
appreciation.....................................
(18,373) (17,386) -----------------------------------
- ----------------------------------------------------------
- -----------
INCREASE IN NET ASSETS FROM
OPERATIONS......................................
41,074 71,234 -------------------------------------
- ----------------------------------------------------------
- --------DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment
income....................................................
.. . -- (106,679)
- ----------------------------------------------------------
- ----------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS................... --
(106,679)
- ----------------------------------------------------------
- ----------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of
shares............................................
71,593 1,100,998
Net asset value of shares issued for reinvestment of
dividends.............. -- 106,679
Cost of shares
reacquired................................................
.. . (189,844) (167,911)
- ----------------------------------------------------------
- ----------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.............. (118,251) 1,039,766 ----
- ----------------------------------------------------------
- ------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS.............................................
(77,177) 1,004,321
NET ASSETS:
Beginning of
period....................................................
.. ... 2,054,242 1,049,921 ------------------------
- ----------------------------------------------------------
- ----------------------
END OF
PERIOD*...................................................
.. ......... $1,977,065 $2,054,242 ------------------
- ----------------------------------------------------------
- ----------------------------
* Includes undistributed net investment income
of:............................ $63,806 $1,326
- ----------------------------------------------------------
- ----------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> ---------------------------------------------------
- ----------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Zero Coupon Bond Fund Portfolio Series 1998
("Series 1998"), Zero
Coupon Bond Fund Portfolio Series 2000 ("Series 2000") and
Zero Coupon Bond Fund
Portfolio Series 2005 ("Series 2005"), (collectively the
"Portfolios"), are
separate investment portfolios of The Travelers Series
Trust ("Trust"). The
Trust is a Massachusetts business trust registered under
the Investment Company
Act of 1940, as amended, as a diversified, open-end
management investment
company and consists of these portfolios and eleven other
separate investment
portfolios: U.S. Government Securities, Social Awareness
Stock, Utilities,
Travelers Quality Bond, Lazard International Stock, MFS
Emerging Growth,
Federated High Yield, Federated Stock, Large Cap, Equity
Income Portfolios and
Mid Cap Disciplined Equity Fund. Shares of the Trust are
offered only to
insurance company separate accounts that fund certain
variable annuity and
variable life insurance contracts. The financial
statements and financial
highlights for the other portfolios are presented in
separate semi-annual
reports.
The significant accounting policies consistently
followed by the Portfolios
are: (a) security transactions are accounted for on trade
date; (b) securities
traded on national securities markets are valued at the
closing prices on such
markets; securities for which no sales prices were
reported and U.S. government
agencies and obligations are valued at the mean between
the last reported bid
and ask prices or on the basis of quotations received from
reputable brokers or
other recognized sources; (c) securities maturing within
60 days are valued at
cost plus accreted discount and, or minus amortized
premium, which approximates
value; (d) securities that have a maturity of 60 days or
more are valued at
prices based on market quotations for securities of
similar type, yield and
maturity; (e) interest income, adjusted for amortization
of premium and
accretion of discount, is recorded on an accrual basis;
(f) gains or losses on
the sale of securities are calculated by using the
specific identification
method; (g) dividends and distributions to shareholders
are recorded on the
ex-dividend date; (h) the Portfolios intend to comply with
the requirements of
the Internal Revenue Code of 1986, as amended, pertaining
to regulated
investment companies and to make distributions of taxable
income sufficient to
relieve it from substantially all Federal income and
excise taxes; (i) the
character of income and gains to be distributed are
determined in accordance
with income tax regulations which may differ from
generally accepted accounting
principles. At December 31, 1996, reclassifications were
made to the Portfolios'
capital accounts to reflect permanent book/tax differences
and income and gains
available for distributions under income tax regulations.
Accordingly, a portion
of overdistributed net investment income amounting to
$169, $97, and $520, were
reclassified to paid-in capital for Series 1998, Series
2000, and Series 2005,
respectively. Net investment income, net realized gains
and net assets for each
Portfolio were not affected by these changes; and (j)
estimates and assumptions
are required to be made regarding assets, liabilities and
changes in net assets
resulting from operations when financial statements are
prepared. Changes in the
economic environment, financial markets and any other
parameters used in
determining these estimates could cause actual results to
differ.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER
TRANSACTIONS
Travelers Asset Management International Corporation
("TAMIC"), an indirect
wholly owned subsidiary of Travelers Group Inc., acts as
investment manager and
advisor to the Portfolios. The Portfolios pay TAMIC an
investment management and
advisory fee calculated at an annual rate of 0.10% of the
average daily net
assets. This fee is calculated daily and paid monthly.
Travelers Insurance Company ("Travelers Insurance")
acts as administrator
to the Portfolios. The Portfolios pay Travelers Insurance
an administration fee
calculated at an annual rate of 0.06% of the average daily
net assets. Travelers
Insurance has entered into a sub-administrative services
agreement with Smith
Barney Mutual Funds Management, Inc. ("SBMFM"). Travelers
Insurance pays SBMFM,
as sub-administrator, a fee calculated at an annual rate
of 0.06% of the average
daily net assets of each Portfolio. This fee is calculated
daily and paid
monthly.
For the six months ended June 30, 1997, Travelers
Insurance has agreed to
reimburse Series 1998, Series 2000, and Series 2005 for
expenses in the amount
of $15,520, $15,454, and $15,359, respectively.
14
<PAGE>
- ----------------------------------------------------------
- --
- --------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS
During the six months ended June 30, 1997, the
aggregate cost of purchases
and proceeds from sales of investments (including
maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
SERIES 1998 SERIES 2000 SERIES 2005 --------------
- ----------------------------------------------------------
- ----------------------------------------
<S>
<C> <C> <C>
Purchases.................................................
.. ........ $ 208,035 $ 427,702 $ 25,773
Sales.....................................................
.. ........ 305,684 463,791 178,552 --
- ----------------------------------------------------------
- ---------------------------------------------------
</TABLE>
At June 30, 1997, the aggregate unrealized
appreciation and depreciation of
investments for Federal income tax purposes were
substantially as follows:
<TABLE>
<CAPTION>
SERIES 1998 SERIES 2000 SERIES 2005 --------------
- ----------------------------------------------------------
- ----------------------------------------
<S>
<C> <C> <C>
Gross unrealized
appreciation....................................... $
138 $ 4,200 $ 24,236
Gross unrealized
depreciation.......................................
(7,532) (18,368) (23,182) -----------------
- ----------------------------------------------------------
- -------------------------------------
Net unrealized appreciation
(depreciation).......................... $(7,394)
$ (14,168) $ 1,054 --------------------------------
- ----------------------------------------------------------
- ---------------------</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes
possession of) U.S.
government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price.
The Portfolios require
continual maintenance of the market value of the
collateral
in amounts at least
equal to 102% of the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into
futures contracts are
recognized as assets. Securities equal to the initial
margin amount are
segregated by the custodian in the name of the broker.
Additional securities are
also segregated up to the current market value of the
futures contracts. During
the period the futures contract is open, changes in the
value of the contract
are recognized as unrealized gains or losses by "marking-
tomarket" on a daily
basis to reflect the market value of the contract at the
end of each day's
trading. Variation margin payments are received or made
and recognized as assets
due from or liabilities due to broker, depending upon
whether unrealized gains
or losses are incurred. When the contract is closed, the
Portfolios record a
realized gain or loss equal to the difference between the
proceeds from (or cost
of) the closing transactions and the Portfolios' basis in
the contract. The
Portfolios bear the market risk that arises from changes
in the value of the
financial instruments and securities indices (futures
contracts) and the credit
risk should a counterparty fail to perform under such
contracts.
At June 30, 1997, the Portfolios had no open futures
contracts.
6. STRIPPED SECURITIES
Each Portfolio will invest primarily in "Stripped
Securities," a term used
collectively for Stripped Treasury Securities, Stripped
Government Securities,
Stripped Corporate Securities, and Stripped Eurodollar
Obligations; as well as
other stripped securities. Stripped securities can be
securities consisting of
debt obligations that have been stripped of unmatured
interest coupons,
securities consisting of unmatured interest coupons that
have been stripped from
debt obligations, or debt obligations that are issued
without interest coupons
and are sold at substantial discounts from their face
amounts.
Stripped securities do not make periodic payments of
interest prior to
maturity. The market value of stripped securities will
fluctuate in response to
changes in economic conditions, interest rates and the
market's perception of
the securities. Fluctuations in response to interest rates
may be greater than
those for debt obligations of comparable maturities that
pay interest currently.
The amount of fluctuation increases with a longer period
of maturity.
15
<PAGE>
- ----------------------------------------------------------
- ---------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, Series 2000 and Series 2005
had, for Federal income
tax purposes, approximately $700 and $7,500, respectively,
of capital loss
carryforwards available to offset future capital gains. To
the extent that these
carryforward losses are used to offset capital gains, it
is probable that the
gains so offset will not be distributed. The amount and
expiration of the
carryforwards are indicated below. Expiration occurs on
December 31 of the year
indicated:
<TABLE>
<CAPTION>
2003 2004 ------------------------------------------
- ----------------------------------------------------------
- --
<S>
<C> <C>
Series
2000......................................................
.. ................. $ 700 --
Series
2005......................................................
.. ................. 1,900 $5,600 ------------------
- ----------------------------------------------------------
- --------------------------
</TABLE>
8. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of
an unlimited number of
shares of beneficial interest without par value.
Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996 --------------------
- ----------------------------------------------------------
- ------------------------
<S>
<C> <C>
SERIES 1998
Shares
sold....................................................
3,568 23,525
Shares issued on
reinvestment..................................
- -7,906
Shares
redeemed................................................
(2,489) (944) -----------------------------
- ----------------------------------------------------------
- ---------------
Net
Increase..................................................
. 1,079 30,487 -----------------------------
- ----------------------------------------------------------
- ---------------
SERIES 2000
Shares
sold....................................................
6,123 50,040
Shares issued on
reinvestment..................................
- -8,881
Shares
redeemed................................................
(1,330) (1,710) -----------------------------
- ----------------------------------------------------------
- ---------------
Net
Increase..................................................
. 4,793 57,211 -----------------------------
- ----------------------------------------------------------
- ---------------
SERIES 2005
Shares
sold....................................................
7,217 111,855
Shares issued on
reinvestment..................................
- -10,654
Shares
redeemed................................................
(19,055) (16,627) ----------------------------
- ----------------------------------------------------------
- ----------------
Net Increase
(Decrease)........................................
(11,838) 105,882 -----------------------------
- ----------------------------------------------------------
- ---------------
</TABLE>
16
<PAGE>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 1998
1997(a) 1996 1995(b)
- ----------------------------------------------------------
- ----------------------------------------------
<S>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD................................. $ 9.99 $10.25
$10.00
- ----------------------------------------------------------
- ----------------------------------------------
INCOME FROM OPERATIONS:
Net investment income
(c).......................................... 0.28
0.53 0.12
Net realized and unrealized gain
(loss)............................ (0.03) (0.13)
0.13 -----------------------------------------------------
- ---------------------------------------------------
Total Income From
Operations.........................................
0.25 0.40 0.25 -----------------------------------
- ----------------------------------------------------------
- -----------
LESS DISTRIBUTIONS FROM:
Net investment
income..............................................
- - (0.65) --
Net realized
gains.................................................
- -- (0.01) --------------------------------
- ----------------------------------------------------------
- ---------------
Total
Distributions.............................................
.. ... -- (0.66) -------------------
- ----------------------------------------------------------
- ----------------------------
NET ASSET VALUE, END OF
PERIOD....................................... $10.24
$ 9.99 $10.25
- ----------------------------------------------------------
- ----------------------------------------------
TOTAL
RETURN....................................................
.. ... 2.50%++ 3.94% 2.50%++ -------------
- ----------------------------------------------------------
- ---------------------------------
NET ASSETS, END OF PERIOD
(000'S).................................... $1,346
$1,303 $1,024 --------------------------------------
- ----------------------------------------------------------
- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses
(c)(d)....................................................
0.15%+ 0.15% 0.15%+
Net investment
income..............................................
5.51+ 5.64 5.55+ --------------------------
- ----------------------------------------------------------
- --------------------
PORTFOLIO TURNOVER
RATE..............................................
16% 19% 20% -------------------------------------
- ----------------------------------------------------------
- ---------
</TABLE>
(a) For the six months ended June 30, 1997 (unaudited).
(b) For the period from October 11, 1995 (commencement
of operations) to
December 31, 1995.
(c) For the six months ended June 30, 1997 and the year
ended December 31, 1996,
The Travelers reimbursed the Portfolio for $15,520
and $31,112 in expenses,
respectively. If expenses were not reimbursed, the
per share decrease of net
investment income and expense ratios would have been as
follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE
RATIOS
TO NET INVESTMENT INCOME WITHOUT
REIMBURSEMENT
------------------------ ----------
- ----------
<S> <C> <C>
1997 $ 0.12
2.51%+
1996 0.24
2.82
</TABLE>
(d) The expense ratio for the period ended December 31,
1995 reflects an expense
reimbursement by The Travelers in connection with
voluntary expense
limitations. Without the expense reimbursement, the
expense ratio would have
been 6.51% (annualized).
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
17
<PAGE>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
1997(a) 1996 1995(b)
- ----------------------------------------------------------
- ---------------------------------------------
<S>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD................................. $ 9.96 $10.31
$10.00
- ----------------------------------------------------------
- ---------------------------------------------
INCOME FROM OPERATIONS:
Net investment income
(c).......................................... 0.30
0.50 0.13
Net realized and unrealized gain
(loss)............................ (0.07) (0.22)
0.18 -----------------------------------------------------
- --------------------------------------------------
Total Income From
Operations.........................................
0.23 0.28 0.31 -----------------------------------
- ----------------------------------------------------------
- ----------
LESS DISTRIBUTIONS FROM:
Net investment
income..............................................
- - (0.63) --
- ----------------------------------------------------------
- ---------------------------------------------
Total
Distributions.............................................
.. ... -- (0.63) -------------------
- ----------------------------------------------------------
- ---------------------------
NET ASSET VALUE, END OF
PERIOD....................................... $10.19
$ 9.96 $10.31
- ----------------------------------------------------------
- ---------------------------------------------
TOTAL
RETURN....................................................
.. ... 2.31%++ 2.76% 3.10%++ -------------
- ----------------------------------------------------------
- --------------------------------
NET ASSETS, END OF PERIOD
(000'S).................................... $1,650
$1,565 $1,029 --------------------------------------
- ----------------------------------------------------------
- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses
(c)(d)....................................................
0.15%+ 0.15% 0.15%+
Net investment
income..............................................
6.05+ 5.74 5.61+ --------------------------
- ----------------------------------------------------------
- -------------------
PORTFOLIO TURNOVER
RATE..............................................
27% 33% 34% -------------------------------------
- ----------------------------------------------------------
- --------
</TABLE>
(a) For the six months ended June 30, 1997 (unaudited).
(b) For the period from October 11, 1995 (commencement of
operations) to
December 31, 1995.
(c) For the six months ended June 30, 1997 and the year
ended December 31, 1996,
The Travelers reimbursed the Portfolio for $15,454 and
$31,032 in expenses,
respectively. If expenses were not reimbursed, the per
share decrease of net
investment income and expense ratios would have been
as
follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE
RATIOS
TO NET INVESTMENT INCOME WITHOUT
REIMBURSEMENT
------------------------ ----------
- ----------
<S> <C> <C>
1997 $ 0.10
2.10%+
1996 0.20
2.49
</TABLE>
(d) The expense ratio for the period ended December 31,
1995 reflects an expense
reimbursement by The Travelers in connection with
voluntary expense
limitations. Without the expense reimbursement, the
expense ratio would have
been 6.51% (annualized).
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
18
<PAGE>
- ----------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout
each period:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
1997(a) 1996 1995(b)
- ----------------------------------------------------------
- -------------------------------------------
<S>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $ 9.97 $10.48
$10.00 ---------------------------------------------------
- --------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income
(c)....................................... 0.32 0.48
0.13
Net realized and unrealized gain
(loss)......................... (0.11) (0.38)
0.35
- ----------------------------------------------------------
- -------------------------------------------
Total Income From
Operations...................................... 0.21
0.10 0.48
- ----------------------------------------------------------
- -------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment
income........................................... -
(0.61) --
- ----------------------------------------------------------
- -------------------------------------------
Total
Distributions.............................................
.. -- (0.61) ----------------------------
- ----------------------------------------------------------
- ----------------
NET ASSET VALUE, END OF
PERIOD.................................... $10.18
$ 9.97 $10.48 -------------------------------------
- ----------------------------------------------------------
- ------
TOTAL
RETURN....................................................
.. 2.11%++ 0.90% 4.80%++
- ----------------------------------------------------------
- -------------------------------------------
NET ASSETS, END OF PERIOD
(000'S)................................. $1,977
$2,054 $1,050
- ----------------------------------------------------------
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
(c)(d).................................................
0.15%+ 0.15% 0.15%+
Net investment
income...........................................
6.34+ 6.14 5.89+
- ----------------------------------------------------------
- -------------------------------------------
PORTFOLIO TURNOVER
RATE........................................... 1%
17% 23%
- ----------------------------------------------------------
- -------------------------------------------
</TABLE>
(a) For the six months ended June 30, 1997 (unaudited).
(b) For the period from October 11, 1995 (commencement of
operations) to
December 31, 1995.
(c) For the six months ended June 30, 1997 and the year
ended December 31, 1996,
The Travelers reimbursed the Portfolio for $15,359 and
$30,922 in expenses,
respectively. If expenses were not reimbursed, the per
share decrease of net
investment income and expense ratios would have been as
follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE
RATIOS
TO NET INVESTMENT INCOME WITHOUT
REIMBURSEMENT
------------------------ ----------
- ----------
<S> <C> <C>
1997 $ 0.08
1.72%+
1996 0.15
2.17
</TABLE>
(d) The expense ratio for the period ended December 31,
1995 reflects an expense
reimbursement by The Travelers in connection with
voluntary expense
limitations. Without the expense reimbursement, the
expense ratio would have
been 6.48% (annualized).
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
19
<PAGE>
Investment Advisor
TRAVELERS ASSET MANAGEMENT
INTERNATIONAL
CORPORATION
Hartford, Connecticut
Independent Auditors
KPMG PEAT MARWICK LLP
New York, New York
Custodian
PNC BANK, N.A.
This report is prepared for the general information of
contract owners and is
not an offer of shares of Zero Coupon Bond Fund Portfolio
Series 1998, Zero
Coupon Bond Fund Portfolio Series 2000 and Zero Coupon
Bond Fund Portfolio
Series 2005. It should not be used in connection with any
offer except in
conjunction with the Prospectuses for the Variable
Universal Life Insurance
products offered by The Travelers Insurance Company and
The Travelers Life and
Annuity Company and the Prospectuses for the underlying
funds, which
collectively contain all pertinent information, including
the applicable sales
commissions.
VG-ZERO (Semi-Annual) (6-97) Printed in U.S.A.
[LOGO]
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 1997
THE TRAVELERS SERIES TRUST:
LARGE CAP PORTFOLIO
EQUITY INCOME PORTFOLIO
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
EQUITY INCOME PORTFOLIO
PERFORMANCE 3 How the fund has done over time.
FUND TALK 4 The manager's review of fund performance,
strategy and outlook.
INVESTMENTS 5 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.
</TABLE>
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.
SEMIANNUAL REPORT 2
<PAGE>
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).
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
PERIODS ENDED JUNE 30, 1997 PAST 6 LIFE OF
MONTHS FUND
<S> <C> <C>
Equity-Income Portfolio 18.25% 32.07%
S&P 500(R) 20.61% 36.90%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a
set period -- in this case, six months or 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 returns 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 RETURNS 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.
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. Average annual total returns will appear once the fund is a year old.
- - 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
<TABLE>
<CAPTION>
EQUITY
INCOME STANDARD &
PORTFOLIO POOR'S 500
<S> <C> <C>
1996/08/30 10000.00 10000.00
1996/09/30 10360.00 10477.38
1996/10/31 10720.00 10766.35
1996/11/30 11370.00 11580.18
1996/12/31 11168.65 11350.78
1997/01/31 11662.13 12059.97
1997/02/28 11843.74 12154.52
1997/03/31 11379.28 11655.09
1997/04/30 11803.35 12350.90
1997/05/31 12621.21 13102.83
1997/06/30 13206.83 13689.83
</TABLE>
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
June 30, 1997, the investment would have grown to $13,207 -- a 32.07% increase.
With reinvested dividends and capital gains, if any, a $10,000 investment in
the S&P 500 would have grown to $13,690 over the same period -- a 36.90%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
General Electric Co. 3.8
Philip Morris Companies, Inc. 3.3
American Express Co. 2.3
Federal National Mortgage Association 2.1
Allstate Corp. 1.6
</TABLE>
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Finance 23.3
Energy 9.9
Industrial Machinery & Equipment 8.8
Utilities 8.6
Nondurables 6.8
</TABLE>
ASSET ALLOCATION AS OF JUNE 30, 1997*
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Stocks 90.4%
Convertible securities 0.7%
Short-term investments 8.9%
*Foreign investments 6.9%
</TABLE>
3 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
[PHOTO]
An interview with
Stephen Petersen,
Portfolio Manager of
Equity Income Portfolio
Q. HOW DID THE FUND PERFORM, STEVE?
A. For the six-month period ending June 30, 1997, the fund underperformed
the Standard & Poor's 500 Index, which returned 20.61%. Since its inception on
August 30, 1996, the fund trailed the S&P 500, which returned 36.90%.
Q. WHY DID THE FUND SOMEWHAT UNDERPERFORM THE S&P INDEX OVER THE PAST SIX
MONTHS?
A. When you compare the performance of most actively managed diversified
funds, like this one, against the S&P 500 index's performance over the period,
very few beat the index. In fact, in the first quarter of 1997, less than 9% of
all fund managers did so. That's because the index was heavily weighted in a
small number of very large-capitalization stocks, and those stocks were the top
performers over the period. Diversified funds, by definition, own stocks of
several different cap sizes, not just large-cap stocks. In addition, many of
the top stocks that contributed to the S&P 500 index's performance, such as
technology giants Intel and Microsoft, don't pay dividends, and are therefore
not the kind of stocks this fund tends to own. In short, the fund didn't
underperform because of poor investment decisions. In fact, most of its
heaviest weighted stocks performed relatively well. It's just that some of the
very large-cap stocks it didn't own performed better.
Q. HOW DOES THE FUND DEFINE TYPICAL EQUITY-INCOME STOCKS?
A. In general, they are fairly large market cap companies that pay higher
dividend yields than the market. The fund also looks for companies that have
been out of favor or those that have been relatively weak performers and where
there's now potential for a turnaround in one form or another. By using this
combination of established companies and up-and-coming companies, I try to
maximize the fund's total returns.
Q. WHAT WERE THE FUND'S STRONGEST-PERFORMING STOCKS OVER THE PERIOD?
A. General Electric, the fund's largest holding, showed consistently
strong earnings growth and performed better than initial expectations. It also
benefited from solid cash flow and a sound management team. Another top five
holding, Philip Morris, continued to look very strong. Over the period, many of
its earnings came from its food business and its tobacco business outside the
U.S. In other words, Philip Morris' major growth was outside areas of the
company affected by the litigation against the tobacco industry. In addition,
financial stock Fannie Mae -- the Federal National Mortgage Association -- which
buys mortgages, packages them, creates securities and then sells them back to
the marketplace, turned in a strong performance over the period. American
Express, another financial stock, also looked attractive. It traded at a
discount to the overall market and showed signs of good earnings growth.
Q. AT THE END OF THE PERIOD, FINANCIAL STOCKS MADE UP ABOUT 23% OF THE
FUND. WHY DID THEY LOOK GOOD?
A. Financial stocks, which tend to do well when interest rates are low,
benefited from the favorable interest rate environment over the period. Over
the past six months, many banks generated more capital than they needed to run
their businesses, and they invested it by buying back their own stock. In
addition, both acquiring and acquired financial companies benefited from recent
mergers. Over the period, banks also profited from solid loan growth as the
U.S. economy continued to remain relatively strong.
Q. STEVE, HOW DOES THE FUND LOOK GOING FORWARD?
A. Generally, I will be sticking with large-cap, steady earnings-growth
companies with attractive fundamentals and valuations. In addition, I will
continue to look for attractive, overlooked, oversold or misunderstood types of
companies, which I think show some interesting possibilities going forward.
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.
- - 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 June 30, 1997, more than $6 million
MANAGER: Stephen Petersen, since inception, joined Fidelity in 1980
SEMIANNUAL REPORT 4
<PAGE>
EQUITY INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS -- 90.4%
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
AEROSPACE & DEFENSE - 5.8%
AEROSPACE & DEFENSE - 4.4%
AlliedSignal, Inc. . . . . . . . . . . . . . . . . . . . 1,100 $ 92,400
Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . 1,142 60,483
GenCorp, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 11,563
Gulfstream Aerospace Corp. . . . . . . . . . . . . . . . 300 8,625
Lockheed Martin Corp. . . . . . . . . . . . . . . . . . . 1,200 124,275
Rockwell International Corp. . . . . . . . . . . . . . . 100 5,900
Textron, Inc. . . . . . . . . . . . . . . . . . . . . . . 600 39,825
Thiokol Corp. . . . . . . . . . . . . . . . . . . . . . . 100 7,000
United Technologies Corp. . . . . . . . . . . . . . . . . 1,000 83,000
-----------
433,071
-----------
DEFENSE ELECTRONICS - 1.3%
Northrop Grumman Corp. . . . . . . . . . . . . . . . . . 400 35,125
Raytheon Co. . . . . . . . . . . . . . . . . . . . . . . 1,700 86,700
-----------
121,825
-----------
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc. . . . . . . . . . . . . . 440 8,553
-----------
TOTAL AEROSPACE & DEFENSE . . . . . . . . . . . . . . . . . . . . . . 563,449
-----------
BASIC INDUSTRIES - 6.6%
CHEMICALS & PLASTICS - 2.7%
Air Products & Chemicals, Inc. . . . . . . . . . . . . . 200 16,250
du Pont (E.I.) de Nemours & Co. . . . . . . . . . . . . . 1,000 62,875
Great Lakes Chemical Corp. . . . . . . . . . . . . . . . 400 20,950
Hercules, Inc. . . . . . . . . . . . . . . . . . . . . . 300 14,363
Millennium Chemicals, Inc. . . . . . . . . . . . . . . . 700 15,925
Nalco Chemical Co. . . . . . . . . . . . . . . . . . . . 600 23,175
Olin Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 11,719
Union Carbide Corp. . . . . . . . . . . . . . . . . . . . 1,300 61,181
Witco Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,000 37,938
-----------
264,376
-----------
IRON & STEEL - 0.4%
Allegheny Teledyne, Inc. . . . . . . . . . . . . . . . . 400 10,800
Inland Steel Industries, Inc. . . . . . . . . . . . . . . 800 20,900
Lukens, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 5,644
-----------
37,344
-----------
METALS & MINING - 1.8%
Alcan Aluminium Ltd. . . . . . . . . . . . . . . . . . . 500 17,057
Alumax, Inc. (a) . . . . . . . . . . . . . . . . . . . . 1,111 42,149
Aluminum Co. of America . . . . . . . . . . . . . . . . . 900 67,838
Harsco Corp. . . . . . . . . . . . . . . . . . . . . . . 700 28,350
Kaiser Aluminum Corp. (a) . . . . . . . . . . . . . . . . 600 7,350
Phelps Dodge Corp. . . . . . . . . . . . . . . . . . . . 100 8,519
-----------
171,263
-----------
PAPER & FOREST PRODUCTS - 1.7%
Boise Cascade Corp. . . . . . . . . . . . . . . . . . . . 500 17,656
Champion International Corp. . . . . . . . . . . . . . . 600 33,150
Georgia-Pacific Corp. . . . . . . . . . . . . . . . . . . 200 17,075
Kimberly-Clark Corp. . . . . . . . . . . . . . . . . . . 800 39,800
Weyerhaeuser Co. . . . . . . . . . . . . . . . . . . . . 1,200 62,400
-----------
170,081
-----------
TOTAL BASIC INDUSTRIES . . . . . . . . . . . . . . . . . . . . . . . 643,064
-----------
CONSTRUCTION & REAL ESTATE - 1.1%
BUILDING MATERIALS - 0.5%
American Standard Companies, Inc. (a) . . . . . . . . . . 600 26,850
Masco Corp. . . . . . . . . . . . . . . . . . . . . . . . 500 20,875
-----------
47,725
-----------
CONSTRUCTION - 0.1%
Lennar Corp. . . . . . . . . . . . . . . . . . . . . . . 300 9,581
-----------
ENGINEERING - 0.1%
EG & G, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 11,250
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Equity Residential Properties Trust (SBI) . . . . . . . . 700 33,250
-----------
TOTAL CONSTRUCTION & REAL ESTATE . . . . . . . . . . . . . . . . . . 101,806
-----------
DURABLES - 5.0%
AUTOS, TIRES, & ACCESSORIES - 2.9%
Chrysler Corp. . . . . . . . . . . . . . . . . . . . . . 2,600 85,313
Cummins Engine Co., Inc. . . . . . . . . . . . . . . . . 200 14,113
Dana Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 7,600
Eaton Corp. . . . . . . . . . . . . . . . . . . . . . . . 500 43,656
General Motors Corp. . . . . . . . . . . . . . . . . . . 1,100 61,256
Johnson Controls, Inc. . . . . . . . . . . . . . . . . . 700 28,744
Modine Manufacturing Co. . . . . . . . . . . . . . . . . 500 14,875
Snap-On Tools Corp. . . . . . . . . . . . . . . . . . . . 750 29,531
-----------
285,088
-----------
CONSUMER DURABLES - 0.8%
Minnesota Mining & Manufacturing Co. . . . . . . . . . . 700 71,400
-----------
CONSUMER ELECTRONICS - 0.7%
Maytag Co. . . . . . . . . . . . . . . . . . . . . . . . 1,100 28,738
Sunbeam-Oster, Inc. . . . . . . . . . . . . . . . . . . . 400 15,100
Whirlpool Corp. . . . . . . . . . . . . . . . . . . . . . 500 27,281
-----------
71,119
-----------
TEXTILES & APPAREL - 0.6%
Dexter Corp. . . . . . . . . . . . . . . . . . . . . . . 500 16,000
Kellwood Co. . . . . . . . . . . . . . . . . . . . . . . 800 22,200
Unifi, Inc. . . . . . . . . . . . . . . . . . . . . . . . 600 22,425
-----------
60,625
-----------
TOTAL DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,232
-----------
ENERGY - 9.6%
ENERGY SERVICES - 2.1%
Baker Hughes, Inc. . . . . . . . . . . . . . . . . . . . 300 11,606
Dresser Industries, Inc. . . . . . . . . . . . . . . . . 1,200 44,700
Halliburton Co. . . . . . . . . . . . . . . . . . . . . . 500 39,625
Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . 900 112,500
-----------
208,431
-----------
OIL & GAS - 7.5%
Amerada Hess Corp. . . . . . . . . . . . . . . . . . . . 400 22,225
Amoco Corp. . . . . . . . . . . . . . . . . . . . . . . . 600 52,163
Atlantic Richfield Co. . . . . . . . . . . . . . . . . . 1,200 84,600
British Petroleum PLC ADR . . . . . . . . . . . . . . . . 2,132 159,634
Burlington Resources, Inc. . . . . . . . . . . . . . . . 400 17,650
Exxon Corp. . . . . . . . . . . . . . . . . . . . . . . . 400 24,600
Mobil Corp. . . . . . . . . . . . . . . . . . . . . . . . 700 48,913
Occidental Petroleum Corp. . . . . . . . . . . . . . . . 1,000 25,063
Phillips Petroleum Co. . . . . . . . . . . . . . . . . . 500 21,875
Royal Dutch Petroleum Co. . . . . . . . . . . . . . . . . 2,400 130,500
Santa Fe Energy Resources, Inc. (a) . . . . . . . . . . . 600 8,813
Total SA sponsored ADR . . . . . . . . . . . . . . . . . 900 45,563
USX-Marathon Group . . . . . . . . . . . . . . . . . . . 1,600 46,200
Unocal Corp. . . . . . . . . . . . . . . . . . . . . . . 1,125 43,664
-----------
731,463
-----------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939,894
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
5 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
INVESTMENTS (UNAUDITED) - CONTINUED
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
FINANCE - 23.3%
BANKS - 8.3%
Bank of New York Co., Inc. . . . . . . . . . . . . . . . 3,100 $ 134,850
Bank of Nova Scotia . . . . . . . . . . . . . . . . . . . 200 8,764
BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . 2,100 135,581
BankBoston Corp. . . . . . . . . . . . . . . . . . . . . 500 36,031
Chase Manhattan Corp. . . . . . . . . . . . . . . . . . . 500 48,531
Citicorp . . . . . . . . . . . . . . . . . . . . . . . . 300 36,169
Comerica, Inc. . . . . . . . . . . . . . . . . . . . . . 700 47,600
First Bank System, Inc. . . . . . . . . . . . . . . . . . 700 59,763
National Bank of Canada . . . . . . . . . . . . . . . . . 2,200 27,567
NationsBank Corp. . . . . . . . . . . . . . . . . . . . . 2,100 135,450
Norwest Corp. . . . . . . . . . . . . . . . . . . . . . . 800 45,000
Royal Bank of Canada . . . . . . . . . . . . . . . . . . 900 40,774
Wells Fargo & Co. . . . . . . . . . . . . . . . . . . . . 200 53,900
-----------
809,980
-----------
CREDIT & OTHER FINANCE - 5.2%
American Express Co. . . . . . . . . . . . . . . . . . . 3,000 223,500
Beneficial Corp. . . . . . . . . . . . . . . . . . . . . 400 28,425
Edper Group Ltd. (The)
Class A (ltd. vtg.) . . . . . . . . . . . . . . . . . . 1,000 16,695
First Chicago NBD Corp. . . . . . . . . . . . . . . . . . 1,900 114,950
Fleet Financial Group, Inc. . . . . . . . . . . . . . . . 700 44,275
Household International, Inc. . . . . . . . . . . . . . . 500 58,719
Transamerica Corp. . . . . . . . . . . . . . . . . . . . 200 18,713
-----------
505,277
-----------
FEDERAL SPONSORED CREDIT - 2.1%
Federal National Mortgage Association . . . . . . . . . . 4,800 209,400
-----------
INSURANCE - 6.1%
Aetna, Inc. . . . . . . . . . . . . . . . . . . . . . . . 400 40,950
Allstate Corp. . . . . . . . . . . . . . . . . . . . . . 2,200 160,600
American Bankers Insurance Group, Inc. . . . . . . . . . 600 37,950
American Financial Group, Inc. . . . . . . . . . . . . . 700 29,706
Brascan Ltd. Class A . . . . . . . . . . . . . . . . . . 1,400 34,629
CIGNA Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 35,500
Fremont General Corp. . . . . . . . . . . . . . . . . . . 1,000 40,250
General Re Corp. . . . . . . . . . . . . . . . . . . . . 200 36,400
Hartford Financial Services Group, Inc. . . . . . . . . . 900 74,475
Highlands Insurance Group, Inc. (a) . . . . . . . . . . . 400 8,050
Marsh & McLennan Companies, Inc. . . . . . . . . . . . . 200 14,275
Provident Companies, Inc. . . . . . . . . . . . . . . . . 300 16,050
Providian Financial Corp. (a) . . . . . . . . . . . . . . 200 6,425
Reliastar Financial Corp. . . . . . . . . . . . . . . . . 800 58,500
-----------
593,760
-----------
SAVINGS & LOANS - 1.2%
Great Western Financial Corp. . . . . . . . . . . . . . . 900 48,375
Washington Mutual, Inc. . . . . . . . . . . . . . . . . . 1,200 71,700
-----------
120,075
-----------
SECURITIES INDUSTRY - 0.4%
Bear Stearns Companies, Inc. . . . . . . . . . . . . . . 420 14,359
Lehman Brothers Holdings, Inc. . . . . . . . . . . . . . 600 24,300
-----------
38,659
-----------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,277,151
-----------
HEALTH - 3.1%
DRUGS & PHARMACEUTICALS - 2.3%
American Home Products Corp. . . . . . . . . . . . . . . 400 30,600
Bristol-Myers Squibb Co. . . . . . . . . . . . . . . . . 1,200 97,200
Pharmacia & Upjohn, Inc. . . . . . . . . . . . . . . . . 600 20,850
Pfizer, Inc. . . . . . . . . . . . . . . . . . . . . . . 100 11,950
Schering-Plough Corp. . . . . . . . . . . . . . . . . . . 1,400 67,025
-----------
227,625
-----------
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Allegiance Corp. . . . . . . . . . . . . . . . . . . . . 560 15,260
Bausch & Lomb, Inc. . . . . . . . . . . . . . . . . . . . 300 14,138
Baxter International, Inc. . . . . . . . . . . . . . . . 100 5,225
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . 300 19,313
-----------
53,936
-----------
MEDICAL FACILITIES MANAGEMENT - 0.2%
Foundation Health Systems, Inc.
Class A (a) . . . . . . . . . . . . . . . . . . . . . . 590 17,884
-----------
TOTAL HEALTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,445
-----------
HOLDING COMPANIES - 0.7%
CINergy Corp. . . . . . . . . . . . . . . . . . . . . . . 700 24,369
Norfolk Southern Corp. . . . . . . . . . . . . . . . . . 400 40,300
U.S. Industries, Inc. (a) . . . . . . . . . . . . . . . . 200 7,125
-----------
71,794
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 8.8%
ELECTRICAL EQUIPMENT - 4.5%
Emerson Electric Co. . . . . . . . . . . . . . . . . . . 300 16,519
General Electric Co. . . . . . . . . . . . . . . . . . . 5,600 366,100
Westinghouse Electric Corp. . . . . . . . . . . . . . . . 2,608 60,310
-----------
442,929
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 2.7%
Caterpillar, Inc. . . . . . . . . . . . . . . . . . . . . 300 32,213
Cooper Industries, Inc. . . . . . . . . . . . . . . . . . 600 29,850
Harnischfeger Industries, Inc. . . . . . . . . . . . . . 400 16,600
Ingersoll-Rand Co. . . . . . . . . . . . . . . . . . . . 600 37,050
Keystone International, Inc. . . . . . . . . . . . . . . 900 31,219
Parker-Hannifin Corp. . . . . . . . . . . . . . . . . . . 600 36,413
Stewart & Stevenson Services, Inc. . . . . . . . . . . . 400 10,562
Tyco International Ltd. . . . . . . . . . . . . . . . . . 1,000 69,563
-----------
263,470
-----------
POLLUTION CONTROL - 1.6%
Browning-Ferris Industries, Inc. . . . . . . . . . . . . 1,700 56,525
Safety Kleen Corp. . . . . . . . . . . . . . . . . . . . 600 10,125
Waste Management, Inc. . . . . . . . . . . . . . . . . . 2,300 73,888
Zurn Industries, Inc. . . . . . . . . . . . . . . . . . . 500 14,375
-----------
154,913
-----------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT . . . . . . . . . . . . . . . 861,312
-----------
MEDIA & LEISURE - 2.2%
ENTERTAINMENT - 0.5%
MGM Grand, Inc. (a) . . . . . . . . . . . . . . . . . . . 300 11,100
Viacom, Inc. Class B (non-vtg.) (a) . . . . . . . . . . . 1,200 36,000
-----------
47,100
-----------
LEISURE DURABLES & TOYS - 0.4%
Brunswick Corp. . . . . . . . . . . . . . . . . . . . . . 500 15,625
Hasbro, Inc. . . . . . . . . . . . . . . . . . . . . . . 550 15,606
Outboard Marine Corp. . . . . . . . . . . . . . . . . . . 400 7,100
-----------
38,331
-----------
LODGING & GAMING - 0.4%
ITT Corp. (a) . . . . . . . . . . . . . . . . . . . . . . 700 42,744
-----------
PUBLISHING - 0.9%
ACNielsen Corp. (a) . . . . . . . . . . . . . . . . . . . 866 16,995
Cognizant Corp. . . . . . . . . . . . . . . . . . . . . . 500 20,250
Harcourt General, Inc. . . . . . . . . . . . . . . . . . 600 28,575
McGraw-Hill, Inc. . . . . . . . . . . . . . . . . . . . . 400 23,525
-----------
89,345
-----------
TOTAL MEDIA & LEISURE . . . . . . . . . . . . . . . . . . 217,520
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 6
<PAGE>
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
NONDURABLES - 6.8%
BEVERAGES - 0.1%
PepsiCo, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 $ 11,269
-----------
FOODS - 0.9%
General Mills, Inc. . . . . . . . . . . . . . . . . . . . 581 37,838
Heinz (H.J.) Co. . . . . . . . . . . . . . . . . . . . . 200 9,225
Kellogg Co. . . . . . . . . . . . . . . . . . . . . . . . 100 8,563
Ralcorp Holdings, Inc. (a) . . . . . . . . . . . . . . . 300 4,425
Ralston Purina Co. . . . . . . . . . . . . . . . . . . . 300 24,656
-----------
84,707
-----------
HOUSEHOLD PRODUCTS - 1.1%
Dial Corp. . . . . . . . . . . . . . . . . . . . . . . . 700 10,938
Premark International, Inc. . . . . . . . . . . . . . . . 600 16,050
Rubbermaid, Inc. . . . . . . . . . . . . . . . . . . . . 1,300 38,675
Tambrands, Inc. . . . . . . . . . . . . . . . . . . . . . 400 19,950
Unilever NV ADR . . . . . . . . . . . . . . . . . . . . . 100 21,406
-----------
107,019
-----------
TOBACCO - 4.7%
Dimon, Inc. . . . . . . . . . . . . . . . . . . . . . . . 300 7,950
Gallaher Group PLC sponsored ADR . . . . . . . . . . . . 400 7,375
Philip Morris Companies, Inc. . . . . . . . . . . . . . . 7,200 319,500
RJR Nabisco Holdings Corp. . . . . . . . . . . . . . . . 3,140 103,620
Universal Corp. . . . . . . . . . . . . . . . . . . . . . 500 15,875
-----------
454,320
-----------
TOTAL NONDURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . 657,315
-----------
PRECIOUS METALS - 0.3%
Newmont Mining Corp. . . . . . . . . . . . . . . . . . . 800 31,200
-----------
RETAIL & WHOLESALE - 4.9%
APPAREL STORES - 1.2%
Footstar, Inc. (a) . . . . . . . . . . . . . . . . . . . 500 13,063
Limited, Inc. (The) . . . . . . . . . . . . . . . . . . . 1,600 32,400
Payless ShoeSource, Inc. (a) . . . . . . . . . . . . . . 500 27,344
TJX Companies, Inc. . . . . . . . . . . . . . . . . . . . 1,600 42,200
-----------
115,007
-----------
DRUG STORES - 0.2%
CVS Corp. . . . . . . . . . . . . . . . . . . . . . . . . 300 15,375
-----------
GENERAL MERCHANDISE STORES - 2.7%
Dayton Hudson Corp. . . . . . . . . . . . . . . . . . . . 500 26,594
Federated Department Stores, Inc. (a) . . . . . . . . . . 1,200 41,700
May Department Stores Co. (The) . . . . . . . . . . . . . 400 18,900
Sears, Roebuck & Co. . . . . . . . . . . . . . . . . . . 900 48,375
Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . 3,900 131,869
-----------
267,438
-----------
GROCERY STORES - 0.1%
American Stores Co. . . . . . . . . . . . . . . . . . . . 200 9,988
-----------
RETAIL & WHOLESALE, MISCELLANEOUS - 0.7%
Tandy Corp. . . . . . . . . . . . . . . . . . . . . . . . 500 28,000
Toys "R" Us, Inc. (a) . . . . . . . . . . . . . . . . . . 1,200 42,000
-----------
70,000
-----------
TOTAL RETAIL & WHOLESALE . . . . . . . . . . . . . . . . . . . . . . 477,808
-----------
SERVICES - 1.0%
PRINTING - 0.7%
Deluxe Corp. . . . . . . . . . . . . . . . . . . . . . . 800 27,300
Donnelley (R.R.) & Sons Co. . . . . . . . . . . . . . . . 700 25,638
New England Business Service, Inc. . . . . . . . . . . . 400 10,525
-----------
63,463
-----------
SERVICES - 0.3%
Block (H&R), Inc. . . . . . . . . . . . . . . . . . . . . 400 12,900
Dun & Bradstreet Corp. . . . . . . . . . . . . . . . . . 500 13,125
Jostens, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 7,913
-----------
33,938
-----------
TOTAL SERVICES . . . . . . . . . . . . . . . . . . . . . 97,401
-----------
TECHNOLOGY - 2.0%
COMPUTER SERVICES & SOFTWARE - 0.1%
Electronic Data Systems Corp. . . . . . . . . . . . . . . 300 12,300
-----------
COMPUTERS & OFFICE EQUIPMENT - 0.8%
Digital Equipment Corp. (a) . . . . . . . . . . . . . . . 300 10,631
International Business Machines Corp. . . . . . . . . . . 700 63,131
Xerox Corp. . . . . . . . . . . . . . . . . . . . . . . . 100 7,888
-----------
81,650
-----------
ELECTRONICS - 0.4%
AMP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 600 25,050
Thomas & Betts Corp. . . . . . . . . . . . . . . . . . . 300 15,769
-----------
40,819
-----------
PHOTOGRAPHIC EQUIPMENT - 0.7%
Eastman Kodak Co. . . . . . . . . . . . . . . . . . . . . 600 46,050
Polaroid Corp. . . . . . . . . . . . . . . . . . . . . . 300 16,650
-----------
62,700
-----------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . 197,469
-----------
TRANSPORTATION - 0.7%
AIR TRANSPORTATION - 0.2%
Viad Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,200 23,100
-----------
RAILROADS - 0.5%
CSX Corp. . . . . . . . . . . . . . . . . . . . . . . . . 800 44,400
-----------
TOTAL TRANSPORTATION . . . . . . . . . . . . . . . . . . . . . . . . 67,500
-----------
UTILITIES - 8.5%
ELECTRIC UTILITY - 2.9%
Allegheny Power System, Inc. . . . . . . . . . . . . . . 1,300 34,694
American Electric Power Co., Inc. . . . . . . . . . . . . 1,300 54,600
Central Maine Power Co. . . . . . . . . . . . . . . . . . 800 9,950
Consolidated Edison Co. of New York, Inc. . . . . . . . . 400 11,775
DPL, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 800 19,700
Duke Power Co. . . . . . . . . . . . . . . . . . . . . . 522 25,023
Entergy Corp. . . . . . . . . . . . . . . . . . . . . . . 1,900 52,013
Illinova Corp. . . . . . . . . . . . . . . . . . . . . . 600 13,200
Niagara Mohawk Power Corp. (a) . . . . . . . . . . . . . 1,300 11,131
PECO Energy Co. . . . . . . . . . . . . . . . . . . . . . 300 6,300
PG&E Corp. . . . . . . . . . . . . . . . . . . . . . . . 800 19,400
PacifiCorp. . . . . . . . . . . . . . . . . . . . . . . . 400 8,800
Pinnacle West Capital Corp. . . . . . . . . . . . . . . . 600 18,038
-----------
284,624
-----------
GAS - 1.1%
MCN Corp. . . . . . . . . . . . . . . . . . . . . . . . . 600 18,375
Nova Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,400 11,965
Pacific Enterprises . . . . . . . . . . . . . . . . . . . 1,200 40,350
Questar Corp. . . . . . . . . . . . . . . . . . . . . . . 1,000 40,375
-----------
111,065
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
7 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
INVESTMENTS (UNAUDITED) - CONTINUED
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
UTILITIES - continued
TELEPHONE SERVICES - 4.5%
AT&T Corp. . . . . . . . . . . . . . . . . . . . . . . . 100 $ 3,506
ALLTEL Corp. . . . . . . . . . . . . . . . . . . . . . . 700 23,406
Ameritech Corp. . . . . . . . . . . . . . . . . . . . . . 1,100 74,731
BCE, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 900 25,032
Bell Atlantic Corp. . . . . . . . . . . . . . . . . . . . 700 53,113
BellSouth Corp. . . . . . . . . . . . . . . . . . . . . . 1,200 55,650
Frontier Corp. . . . . . . . . . . . . . . . . . . . . . 500 9,969
MCI Communications Corp. . . . . . . . . . . . . . . . . 300 11,484
NYNEX Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,400 80,675
SBC Communications, Inc. . . . . . . . . . . . . . . . . 800 49,500
Sprint Corp. . . . . . . . . . . . . . . . . . . . . . . 400 21,050
Telus Corp. . . . . . . . . . . . . . . . . . . . . . . . 600 11,017
WorldCom, Inc. (a) . . . . . . . . . . . . . . . . . . . 500 16,000
-----------
435,133
-----------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . 830,822
-----------
TOTAL COMMON STOCKS
(Cost $7,645,047) . . . . . . . . . . . . . . . . . . . 8,823,182
-----------
</TABLE>
CONVERTIBLE PREFERRED STOCKS -- 0.6%
<TABLE>
<S> <C> <C>
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp.
Indexed $3.00 . . . . . . . . . . . . . . . . . . . . . 300 24,300
-----------
MEDIA & LEISURE - 0.1%
ENTERTAINMENT - 0.1%
Time Warner Financing Trust $1.24 . . . . . . . . . . . . 300 12,600
-----------
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
K mart Financing I $3.875 . . . . . . . . . . . . . . . . 200 10,975
-----------
UTILITIES - 0.1%
CELLULAR - 0.1%
AirTouch Communications, Inc.
Class B $1.74 . . . . . . . . . . . . . . . . . . . . . 400 11,400
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $50,924) . . . . . . . . . . . . . . . . . . . . . . . . . . 59,275
-----------
</TABLE>
CONVERTIBLE BONDS -- 0.1%
<TABLE>
<CAPTION>
MOODY'S RATINGS PRINCIPAL
AMOUNT
<S> <C> <C> <C>
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 5%, 10/1/03
(Cost $11,500) . . . . . . . . . . . . . Baa3 $10,000 11,925
-----------
</TABLE>
CASH EQUIVALENTS -- 8.9%
<TABLE>
<CAPTION>
MATURITY VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.93%, dated
6/30/97 due 7/1/97 . . . . . . . . . . . $ 867,143 $ 867,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $8,574,471) . . . . . . . . . . . . . . . . . . . . . . . . $ 9,761,382
===========
</TABLE>
LEGEND
(a) Non-income producing
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities, aggregated
$6,182,342 and $1,804,848, 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 $326 for the period (see Note 4 of
Notes to Financial Statements).
INCOME TAX INFORMATION
At June 30, 1997 the aggregate cost of investment securities for income tax
purposes was $8,574,471. Net unrealized appreciation aggregated $1,186,911, of
which $1,235,614 related to appreciated investment securities and $48,703
related to depreciated investment securities.
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 8
<PAGE>
EQUITY INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
ASSETS
<S> <C> <C>
Investment in securities, at
value (including repurchase
agreements of $867,000)
(cost $8,574,471) - See
accompanying schedule . . . . . . . . . . . . . . . . $ 9,761,382
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 981
Receivable for fund shares sold . . . . . . . . . . . . 90,204
Dividends receivable . . . . . . . . . . . . . . . . . 15,088
Interest receivable . . . . . . . . . . . . . . . . . . 124
Receivable for expense reductions . . . . . . . . . . . 4,291
--------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . 9,872,070
LIABILITIES
Payable for investments purchased . . . . . . . . . . . $ 633,008
Payable for fund shares redeemed . . . . . . . . . . . 2,312,556
Other payables and accrued expenses . . . . . . . . . . 26,840
----------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . 2,972,404
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 6,899,666
==============
Net Assets consist of:
Paid in capital . . . . . . . . . . . . . . . . . . . . $ 5,430,292
Undistributed net investment income . . . . . . . . . . 60,641
Accumulated undistributed net realized gain (loss)
on investments and foreign currency transactions . . . 221,820
Net unrealized appreciation
(depreciation) on investments
and assets and liabilities in
foreign currencies . . . . . . . . . . . . . . . . . 1,186,913
--------------
NET ASSETS, for 527,538 shares outstanding . . . . . . $ 6,899,666
==============
NET ASSET VALUE, offering price and redemption
price per share ($6,899,666 / 527,538 shares) . . . . $13.08
======
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 85,463
Interest . . . . . . . . . . . . . . . . . . . . . . . 8,985
--------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . 94,448
EXPENSES
Management fee . . . . . . . . . . . . . . . . . . . . $ 27,091
Transfer agent fees . . . . . . . . . . . . . . . . . . 1,288
Accounting fees and expenses . . . . . . . . . . . . . 30,003
Non-interested trustees' compensation . . . . . . . . . 2,417
Custodian fees and expenses . . . . . . . . . . . . . . 8,535
Audit . . . . . . . . . . . . . . . . . . . . . . . . . 15,940
--------------
Total expenses before reductions . . . . . . . . . . 85,274
Expense reductions . . . . . . . . . . . . . . . . . (51,467) 33,807
-------------- --------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . 60,641
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities . . . . . . . . . . . . . . . . 227,403
Change in net unrealized
appreciation (depreciation) on:
Investment securities . . . . . . . . . . . . . . . . 874,861
Assets and liabilities in
foreign currencies . . . . . . . . . . . . . . . . 2 874,863
-------------- --------------
NET GAIN (LOSS) . . . . . . . . . . . . . . . . . . . . 1,102,266
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . $ 1,162,907
==============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
9 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . . . $ 60,641 $ 25,456
Net realized gain (loss) . . . . . . . . . . . . . . . 227,403 13,230
Change in net unrealized appreciation (depreciation) . 874,863 312,050
--------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . 1,162,907 350,736
--------------- --------------
Distributions to shareholders
From net investment income . . . . . . . . . . . . . . -- (25,784)
From net realized gain . . . . . . . . . . . . . . . . (18,485) --
--------------- --------------
Total distributions . . . . . . . . . . . . . . . . . . (18,485) (25,784)
--------------- --------------
Share transactions
Net proceeds from sales of shares . . . . . . . . . . . 5,518,509 3,249,728
Reinvestment of distributions . . . . . . . . . . . . . 18,485 25,784
Cost of shares redeemed . . . . . . . . . . . . . . . . (3,382,147) (67)
--------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS . . . . . . . . . . . . . . . 2,154,847 3,275,445
--------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . . . . 3,299,269 3,600,397
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . 3,600,397 --
--------------- --------------
End of period (including undistributed net investment
income of $60,641 and $0, respectively) . . . . . . . $ 6,899,666 $ 3,600,397
=============== ==============
OTHER INFORMATION
Shares
Sold . . . . . . . . . . . . . . . . . . . . . . . . . 466,549 322,467
Issued in reinvestment of distributions . . . . . . . . 1,594 2,286
Redeemed . . . . . . . . . . . . . . . . . . . . . . . (265,352) (6)
--------------- --------------
Net increase (decrease) . . . . . . . . . . . . . . . . 202,791 324,747
=============== ==============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period . . . . . . . . . . . $ 11.09 $ 10.00
---------- -----------
Income from Investment Operations
Net investment income . . . . . . . . . . . . . . . . . . .10(E) .08
Net realized and unrealized gain (loss) . . . . . . . . . 1.92 1.09
---------- -----------
Total from investment operations . . . . . . . . . . . . 2.02 1.17
---------- -----------
Less Distributions
From net investment income . . . . . . . . . . . . . . . -- (.08)
From net realized gain . . . . . . . . . . . . . . . . . (.03) --
---------- -----------
Total distributions . . . . . . . . . . . . . . . . . . . (.03) (.08)
---------- -----------
Net asset value, end of period . . . . . . . . . . . . . . $ 13.08 $ 11.09
========== ===========
TOTAL RETURN (B), (D) . . . . . . . . . . . . . . . . . . . 18.25% 11.69%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) . . . . . . . . . . $ 6,900 $ 3,600
Ratio of expenses to average net assets . . . . . . . . . . .95% (A),(C) .95% (A), (C)
Ratio of net investment income to average net assets . . . 1.70% (A) 2.34% (A)
Portfolio turnover rate . . . . . . . . . . . . . . . . . . 52% (A) 14% (A)
Average commission rate (F) . . . . . . . . . . . . . . . . $ .0194 $ .0168
</TABLE>
(A) Annualized (B) Total returns for periods of less than one year are not
annualized. (C) The Travelers agreed to reimburse a portion of the fund's
expenses during the period.Without this reimbursement, the fund's expense
ratio would have been higher (see Note 5 of Notes to Financial
Statements). (D) The total returns would have been lower had certain
expenses not been reduced during the periods shown (see Note 5 of Notes to
Financial Statements). (E) Net investment income per share has been
calculated based on average shares outstanding during the period. (F) A
fund is required to disclose its average commission rate per share for
security trades on which commissions are charged. 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.
SEMIANNUAL REPORT 10
<PAGE>
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
PERIODS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PAST 6 LIFE OF
MONTHS FUND
<S> <C> <C>
Large Cap Portfolio 13.39% 28.46%
S&P 500(R) 20.61% 36.90%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a
set period -- in this case, six months or 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 returns 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 RETURNS 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.
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. Average annual total returns will appear once the fund is a year old.
- - 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
<TABLE>
<CAPTION>
Large Cap Portfolio Standard & Poor's 500
<S> <C> <C>
1996/08/30 10000.00 10000.00
1996/09/30 10640.00 10477.38
1996/10/31 10790.00 10766.35
1996/11/30 11640.00 11580.18
1996/12/31 11329.54 11350.78
1997/01/31 11921.61 12059.97
1997/02/28 11749.69 12154.52
1997/03/31 11191.15 11655.09
1997/04/30 11688.76 12350.90
1997/05/31 12460.56 13102.83
1997/06/30 12846.47 13689.83
</TABLE>
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 June 30,
1997, the investment would have grown to $12,846 -- a 28.46% increase. With
reinvested dividends and capital gains, if any, a $10,000 investment in the S&P
500 would have grown to $13,690 over the same period -- a 36.90% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Philip Morris Companies, Inc. 2.0
General Electric Co. 1.7
International Business Machines Corp. 1.7
Marriott International, Inc. 1.6
American Home Products Corp. 1.6
</TABLE>
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1997(6)
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Technology 16.0
Health 12.3
Finance 11.5
Retail & Wholesale 8.0
Industrial Machinery & Equipment 7.2
</TABLE>
ASSET ALLOCATION AS OF JUNE 30, 1997*
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Stocks 87.1%
Short-term investments 12.9%
* Foreign investments 4.7%
</TABLE>
11 SEMIANNUAL REPORT
<PAGE>
LARGE CAP PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
[PHOTO]
An interview with
Thomas Sprague,
Portfolio Manager of
Large Cap Portfolio
Q. HOW DID THE FUND PERFORM, TOM?
A. For the six months that ended June 30, 1997, the fund trailed the
Standard & Poor's 500 Index, which returned 20.61%. From August 30, 1996 -- the
fund's inception date -- through June 30, 1997, the fund underperformed the
index, which had a return of 36.90%.
Q. WHAT FACTORS CONTRIBUTED TO THE DIFFERENCES IN RETURNS BETWEEN THE
FUND AND ITS INDEX?
A. The environment over the past six months, and even over the past year,
has been very favorable for the stock market. Returns across the board have
been strong due to a combination of good earnings growth and stable interest
rates, two of the primary drivers behind stock performance. One factor that
explains the difference between the fund's performance versus the S&P 500 has
been the amazing "narrowness" of the market. A select group of the largest-cap
stocks in the market -- including General Electric, Microsoft and Coca-Cola --
dramatically outperformed not only the broad market, but the large-cap universe
itself.
Q. HOW DID THIS ENVIRONMENT HURT THE FUND? DID IT HELP IN ANY WAY?
A. The fund had positions in each of the mega-cap stocks I mentioned
above, but was underweighted in them relative to the index. The reason for this
can be traced to my valuation methodology. When I'm looking at stocks, I try to
stick to my investment discipline of owning companies with good earnings
prospects, but only if the valuation is attractive. I felt that the valuations
of many of these mega-caps were excessive relative to their growth prospects.
Apparently, the market felt otherwise over the past six months. Over the
longer-term, however, it may benefit the fund to own a more diversified
portfolio of large-cap names with equivalent growth prospects and a much lower
price-to-earnings (P/E) ratio than those 50 or so mega-cap names that have
performed so well of late.
Q. WHAT OTHER FACTORS CONTRIBUTED TO PERFORMANCE?
A. Two other specific factors affecting return were the fund's positions
in technology and finance stocks. In terms of technology, as I've already
mentioned, I didn't own enough of the mega-cap names such as Microsoft and
Intel relative to the index. Additionally, the fund's stake in networking
stocks -- those that link together communications equipment -- proved
disappointing as a short-term earnings slowdown occurred in that area of the
technology market. I remain convinced, though, that the long-term outlook for
networking remains bright. The flip side was the financial services area. In
conjunction with the stable interest rate environment, many financial services
companies had strong earnings growth that enabled their relatively low P/E
ratios to expand. The fund's large exposure to this sector helped results.
Q. WHICH INDIVIDUAL STOCKS CONTRIBUTED POSITIVELY TO PERFORMANCE? WHICH
ONES DISAPPOINTED?
A. Halliburton and Schlumberger -- two companies that provide equipment
and services to energy companies involved in the exploration and production of
oil -- performed very well as business levels were strong. The fund's position
in Allstate was also a positive as the insurer addressed its hurricane risk
exposure in Florida and its earthquake risk in California while simultaneously
improving returns in its core auto insurance business. On the negative side,
several of the fund's retail-related stocks turned in poor results as this
sector continued to suffer from store overcapacity and surprisingly sluggish
sales. These stocks included PETsMART, which the fund no longer owns, as well
as Toys 'R' Us.
Q. WHAT'S YOUR OUTLOOK?
A. I believe two factors have the most influence on a stock's
performance: interest rates and earnings growth. When rates are climbing, the
market suffers. When rates are down, the market prospers. Similarly, when
earnings are up, the market is happy. When they're down, the market feels the
effects. Since I don't try to predict the direction of interest rates, I'll
continue to emphasize earnings growth and valuation as the cornerstone of my
investment approach. This will most likely lead me to the technology area,
where many sectors -- including networking, proprietary semiconductors and
information technology service providers -- currently appear poised for
long-term growth. I may also continue to favor the health care sector, where
good product development and strong pharmaceutical demand has been creating
earnings growth. Lastly, the healthy economy is producing strong earnings
growth potential in several consumer-related sectors. These may be additional
areas of focus for the fund.
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.
- - FUND FACTS
GOAL: long-term growth of capital by investing primarily in equity securities
of companies with large market capitalizations
START DATE: August 30, 1996
SIZE: as of June 30, 1997, more than $5 million
MANAGER: Thomas Sprague, since inception; joined Fidelity in 1989
SEMIANNUAL REPORT 12
<PAGE>
LARGE CAP PORTFOLIO
INVESTMENTS JUNE 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS -- 87.1%
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
AEROSPACE & DEFENSE - 2.8%
AEROSPACE & DEFENSE - 2.5%
AlliedSignal, Inc. . . . . . . . . . . . . . . . . . . . 500 $ 42,000
Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . 600 31,822
Lockheed Martin Corp. . . . . . . . . . . . . . . . . . . 400 41,425
Sundstrand Corp. . . . . . . . . . . . . . . . . . . . . 300 16,744
-----------
131,991
-----------
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. . . . . . . . . . . . . . . . . . 200 15,000
-----------
TOTAL AEROSPACE & DEFENSE . . . . . . . . . . . . . . . . . . . . . . 146,991
-----------
BASIC INDUSTRIES - 3.0%
CHEMICALS & PLASTICS - 1.1%
Monsanto Co. . . . . . . . . . . . . . . . . . . . . . . 300 12,919
Praxair, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 28,000
Union Carbide Corp. . . . . . . . . . . . . . . . . . . . 400 18,825
-----------
59,744
-----------
PACKAGING & CONTAINERS - 1.4%
Owens-Illinois, Inc. (a) . . . . . . . . . . . . . . . . 2,500 77,500
-----------
PAPER & FOREST PRODUCTS - 0.5%
Fort Howard Corp. (a) . . . . . . . . . . . . . . . . . . 500 25,313
-----------
TOTAL BASIC INDUSTRIES . . . . . . . . . . . . . . . . . . . . . . . 162,557
-----------
CONSTRUCTION & REAL ESTATE - 0.5%
BUILDING MATERIALS - 0.5%
Sherwin-Williams Co. . . . . . . . . . . . . . . . . . . 900 27,788
-----------
DURABLES - 1.5%
AUTOS, TIRES, & ACCESSORIES - 0.7%
Snap-On Tools Corp. . . . . . . . . . . . . . . . . . . . 700 27,563
Tower Automotive, Inc. (a) . . . . . . . . . . . . . . . 200 8,600
-----------
36,163
-----------
HOME FURNISHINGS - 0.8%
Leggett & Platt, Inc. . . . . . . . . . . . . . . . . . . 1,000 43,000
-----------
TOTAL DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,163
-----------
ENERGY - 6.4%
ENERGY SERVICES - 2.3%
Dresser Industries, Inc. . . . . . . . . . . . . . . . . 800 29,800
Halliburton Co. . . . . . . . . . . . . . . . . . . . . . 700 55,475
Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . 300 37,500
-----------
122,775
-----------
OIL & GAS - 4.1%
British Petroleum PLC ADR . . . . . . . . . . . . . . . . 1,010 75,624
Burlington Resources, Inc. . . . . . . . . . . . . . . . 400 17,650
Coastal Corp. (The) . . . . . . . . . . . . . . . . . . . 500 26,594
Royal Dutch Petroleum Co. . . . . . . . . . . . . . . . . 800 43,500
Texaco, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 32,625
Total SA sponsored ADR . . . . . . . . . . . . . . . . . 200 10,125
Unocal Corp. . . . . . . . . . . . . . . . . . . . . . . 300 11,644
-----------
217,762
-----------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,537
-----------
FINANCE - 11.5%
BANKS - 3.1%
Bank of New York Co., Inc. . . . . . . . . . . . . . . . 1,100 47,850
BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . 800 51,650
NationsBank Corp. . . . . . . . . . . . . . . . . . . . . 1,000 64,500
-----------
164,000
-----------
CREDIT & OTHER FINANCE - 2.0%
American Express Co. . . . . . . . . . . . . . . . . . . 800 59,600
Fleet Financial Group, Inc. . . . . . . . . . . . . . . . 200 12,650
Household International, Inc. . . . . . . . . . . . . . . 300 35,231
-----------
107,481
-----------
FEDERAL SPONSORED CREDIT - 1.6%
Federal Home Loan
Mortgage Corporation . . . . . . . . . . . . . . . . . 1,000 34,375
Federal National
Mortgage Association . . . . . . . . . . . . . . . . . 1,200 52,350
-----------
86,725
-----------
INSURANCE - 4.6%
Aetna, Inc. . . . . . . . . . . . . . . . . . . . . . . . 300 30,713
Allstate Corp. . . . . . . . . . . . . . . . . . . . . . 1,100 80,300
AMBAC, Inc. . . . . . . . . . . . . . . . . . . . . . . . 700 53,463
MBIA, Inc. . . . . . . . . . . . . . . . . . . . . . . . 300 33,844
UNUM Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,100 46,200
-----------
244,520
-----------
SAVINGS & LOANS - 0.2%
Washington Mutual, Inc. . . . . . . . . . . . . . . . . . 200 11,950
-----------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,676
-----------
HEALTH - 12.3%
DRUGS & PHARMACEUTICALS - 6.1%
American Home Products Corp. . . . . . . . . . . . . . . 1,100 84,150
Bristol-Myers Squibb Co. . . . . . . . . . . . . . . . . 800 64,800
Merck & Co., Inc. . . . . . . . . . . . . . . . . . . . . 800 82,800
Pfizer, Inc. . . . . . . . . . . . . . . . . . . . . . . 200 23,900
Schering-Plough Corp. . . . . . . . . . . . . . . . . . . 900 43,088
SmithKline Beecham PLC ADR . . . . . . . . . . . . . . . 300 27,488
-----------
326,226
-----------
MEDICAL EQUIPMENT & SUPPLIES - 3.4%
Abbott Laboratories . . . . . . . . . . . . . . . . . . . 300 20,025
Baxter International, Inc. . . . . . . . . . . . . . . . 700 36,575
Becton, Dickinson & Co. . . . . . . . . . . . . . . . . . 500 25,313
Bergen Brunswig Corp. Class A . . . . . . . . . . . . . . 1,250 34,844
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . 600 38,625
Omnicare, Inc. . . . . . . . . . . . . . . . . . . . . . 400 12,550
St. Jude Medical, Inc. (a) . . . . . . . . . . . . . . . 300 11,700
-----------
179,632
-----------
MEDICAL FACILITIES MANAGEMENT - 2.8%
Columbia/HCA Healthcare Corp. . . . . . . . . . . . . . . 700 27,519
HEALTHSOUTH Rehabilitation Corp. (a) . . . . . . . . . . 1,100 27,431
Health Management Associates, Inc.
Class A (a) . . . . . . . . . . . . . . . . . . . . . . 700 19,950
Humana, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 11,563
Oxford Health Plans, Inc. . . . . . . . . . . . . . . . . 100 7,175
Tenet Healthcare Corp. (a) . . . . . . . . . . . . . . . 1,200 35,475
Vencor, Inc. (a) . . . . . . . . . . . . . . . . . . . . 500 21,125
-----------
150,238
-----------
TOTAL HEALTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,096
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 7.2%
ELECTRICAL EQUIPMENT - 2.3%
General Electric Co. . . . . . . . . . . . . . . . . . . 1,400 91,525
Westinghouse Electric Corp. . . . . . . . . . . . . . . . 1,300 30,063
-----------
121,588
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 3.9%
Case Corp. . . . . . . . . . . . . . . . . . . . . . . . 600 41,325
Caterpillar, Inc. . . . . . . . . . . . . . . . . . . . . 300 32,213
</TABLE>
See accompanying notes which are an integral part of the financial statements.
13 SEMIANNUAL REPORT
<PAGE>
LARGE CAP PORTFOLIO
INVESTMENTS (UNAUDITED) - CONTINUED
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
Ingersoll-Rand Co. . . . . . . . . . . . . . . . . . . . 500 $ 30,875
Stanley Works . . . . . . . . . . . . . . . . . . . . . . 500 20,000
Tyco International Ltd. . . . . . . . . . . . . . . . . . 1,200 83,475
-----------
207,888
-----------
POLLUTION CONTROL - 1.0%
Browning-Ferris Industries, Inc. . . . . . . . . . . . . 700 23,275
USA Waste Services, Inc. . . . . . . . . . . . . . . . . 400 15,450
Waste Management, Inc. . . . . . . . . . . . . . . . . . 400 12,850
-----------
51,575
-----------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT . . . . . . . . . . . . . . . 381,051
-----------
MEDIA & LEISURE - 4.9%
ENTERTAINMENT - 0.9%
Carnival Cruise Lines, Inc. Class A . . . . . . . . . . . 600 24,750
MGM Grand, Inc. (a) . . . . . . . . . . . . . . . . . . . 600 22,200
-----------
46,950
-----------
LODGING & GAMING - 3.3%
HFS, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . 800 46,400
La Quinta Motor Inns, Inc. . . . . . . . . . . . . . . . 1,200 26,250
Marriott International, Inc. . . . . . . . . . . . . . . 1,400 85,925
Mirage Resorts, Inc. (a) . . . . . . . . . . . . . . . . 600 15,150
-----------
173,725
-----------
PUBLISHING - 0.2%
Times Mirror Co. Class A . . . . . . . . . . . . . . . . 200 11,050
-----------
RESTAURANTS - 0.5%
Rainforest Cafe, Inc. (a) . . . . . . . . . . . . . . . . 1,100 27,913
-----------
TOTAL MEDIA & LEISURE . . . . . . . . . . . . . . . . . . . . . . . . 259,638
-----------
NONDURABLES - 6.8%
AGRICULTURE - 0.3%
Pioneer Hi-Bred International, Inc. . . . . . . . . . . . 200 16,000
-----------
BEVERAGES - 1.2%
Coca-Cola Co. (The) . . . . . . . . . . . . . . . . . . . 100 6,750
PepsiCo, Inc. . . . . . . . . . . . . . . . . . . . . . . 1,500 56,344
-----------
63,094
-----------
FOODS - 1.5%
CPC International, Inc. . . . . . . . . . . . . . . . . . 200 18,463
ConAgra, Inc. . . . . . . . . . . . . . . . . . . . . . . 200 12,825
Hershey Foods Corp. . . . . . . . . . . . . . . . . . . . 200 11,063
Ralston Purina Co. . . . . . . . . . . . . . . . . . . . 200 16,438
Sara Lee Corp. . . . . . . . . . . . . . . . . . . . . . 500 20,813
-----------
79,602
-----------
HOUSEHOLD PRODUCTS - 1.3%
Clorox Co. . . . . . . . . . . . . . . . . . . . . . . . 200 26,400
Procter & Gamble Co. . . . . . . . . . . . . . . . . . . 300 42,375
-----------
68,775
-----------
TOBACCO - 2.5%
Philip Morris Companies, Inc. . . . . . . . . . . . . . . 2,400 106,500
RJR Nabisco Holdings Corp. . . . . . . . . . . . . . . . 800 26,400
-----------
132,900
-----------
TOTAL NONDURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . 360,371
-----------
RETAIL & WHOLESALE - 8.0%
APPAREL STORES - 0.8%
Payless ShoeSource, Inc. (a) . . . . . . . . . . . . . . 500 27,344
TJX Companies, Inc. . . . . . . . . . . . . . . . . . . . 600 15,825
-----------
43,169
-----------
DRUG STORES - 0.8%
Rite Aid Corp. . . . . . . . . . . . . . . . . . . . . . 800 39,900
-----------
GENERAL MERCHANDISE STORES - 2.0%
Consolidated Stores Corp. (a) . . . . . . . . . . . . . . 500 17,375
Sears, Roebuck & Co. . . . . . . . . . . . . . . . . . . 1,100 59,125
Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . 900 30,431
-----------
106,931
-----------
GROCERY STORES - 1.8%
American Stores Co. . . . . . . . . . . . . . . . . . . . 500 24,688
Kroger Co. (The) (a) . . . . . . . . . . . . . . . . . . 900 26,100
Safeway, Inc. (a) . . . . . . . . . . . . . . . . . . . . 1,000 46,125
-----------
96,913
-----------
RETAIL & WHOLESALE, MISCELLANEOUS - 2.6%
Circuit City Stores, Inc. -
Circuit City Group . . . . . . . . . . . . . . . . . . 1,000 35,563
Lowe's Companies, Inc. . . . . . . . . . . . . . . . . . 600 22,275
Toys "R" Us, Inc. (a) . . . . . . . . . . . . . . . . . . 1,900 66,500
Viking Office Products, Inc. (a) . . . . . . . . . . . . 700 13,300
-----------
137,638
-----------
TOTAL RETAIL & WHOLESALE . . . . . . . . . . . . . . . . . . . . . . 424,551
-----------
SERVICES - 2.9%
ADVERTISING - 0.5%
Omnicom Group, Inc. . . . . . . . . . . . . . . . . . . . 400 24,650
-----------
SERVICES - 2.4%
AccuStaff, Inc. (a) . . . . . . . . . . . . . . . . . . . 1,300 30,794
CDI Corp. (a) . . . . . . . . . . . . . . . . . . . . . . 700 29,181
Service Corp. International . . . . . . . . . . . . . . . 600 19,725
Sitel Corp. (a) . . . . . . . . . . . . . . . . . . . . . 2,400 49,500
-----------
129,200
-----------
TOTAL SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,850
-----------
TECHNOLOGY - 16.0%
COMMUNICATIONS EQUIPMENT - 2.1%
Alcatel Alsthom Compagnie Generale
d'Electricite SA sponsored ADR . . . . . . . . . . . . 1,300 32,825
Ascend Communications, Inc. (a) . . . . . . . . . . . . . 700 27,563
Aspect Telecommunications Corp. (a) . . . . . . . . . . . 1,100 24,475
Cisco Systems, Inc. (a) . . . . . . . . . . . . . . . . . 300 20,138
Network General Corp. (a) . . . . . . . . . . . . . . . . 500 7,438
-----------
112,439
-----------
COMPUTER SERVICES & SOFTWARE - 3.4%
Analysts International Corp. . . . . . . . . . . . . . . 400 13,400
Automatic Data Processing, Inc. . . . . . . . . . . . . . 500 23,500
CUC International, Inc. (a) . . . . . . . . . . . . . . . 1,750 45,172
Equifax, Inc. . . . . . . . . . . . . . . . . . . . . . . 700 26,031
Microsoft Corp. (a) . . . . . . . . . . . . . . . . . . . 200 25,275
Oracle Systems Corp. (a) . . . . . . . . . . . . . . . . 500 25,188
SunGard Data Systems, Inc. (a) . . . . . . . . . . . . . 500 23,250
-----------
181,816
-----------
COMPUTERS & OFFICE EQUIPMENT - 5.5%
Adaptec, Inc. (a) . . . . . . . . . . . . . . . . . . . . 1,600 55,600
Comdisco, Inc. . . . . . . . . . . . . . . . . . . . . . 1,200 31,200
Compaq Computer Corp. . . . . . . . . . . . . . . . . . . 300 29,775
EMC Corp. (a) . . . . . . . . . . . . . . . . . . . . . . 300 11,700
Fore Systems, Inc. (a) . . . . . . . . . . . . . . . . . 2,300 31,338
International Business Machines Corp. . . . . . . . . . . 1,000 90,188
Pitney Bowes, Inc. . . . . . . . . . . . . . . . . . . . 600 41,700
-----------
291,501
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 14
<PAGE>
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
TECHNOLOGY - CONTINUED
ELECTRONIC INSTRUMENTS - 0.5%
Applied Materials, Inc. . . . . . . . . . . . . . . . . . 400 $ 28,325
-----------
ELECTRONICS - 4.5%
Altera Corp. (a) . . . . . . . . . . . . . . . . . . . . 300 15,150
Analog Devices, Inc. (a) . . . . . . . . . . . . . . . . 1,167 30,990
Intel Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 28,363
Linear Technology Corp. . . . . . . . . . . . . . . . . . 700 36,225
Maxim Integrated Products, Inc. (a) . . . . . . . . . . . 400 22,750
Micron Technology, Inc. . . . . . . . . . . . . . . . . . 700 27,956
Motorola, Inc. . . . . . . . . . . . . . . . . . . . . . 700 53,200
Texas Instruments, Inc. . . . . . . . . . . . . . . . . . 300 25,219
-----------
239,853
-----------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . 853,934
-----------
TRANSPORTATION - 0.7%
RAILROADS - 0.7%
CSX Corp. . . . . . . . . . . . . . . . . . . . . . . . . 700 38,850
-----------
UTILITIES - 2.6%
TELEPHONE SERVICES - 2.6%
Cincinnati Bell, Inc. . . . . . . . . . . . . . . . . . . 800 25,200
LCI International, Inc. (a) . . . . . . . . . . . . . . . 600 13,125
SBC Communications, Inc. . . . . . . . . . . . . . . . . 900 55,688
WorldCom, Inc. (a) . . . . . . . . . . . . . . . . . . . 1,400 44,800
-----------
138,813
-----------
TOTAL COMMON STOCKS
(Cost $3,821,809) . . . . . . . . . . . . . . . . . . . . . . . . . 4,638,866
---------------
</TABLE>
CASH EQUIVALENTS -- 12.9%
<TABLE>
<CAPTION>
MATURITY
AMOUNT
<S> <C> <C>
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.93%, dated
6/30/97 due 7/1/97 . . . . . . . . . . . . . . . . . . $ 687,113 687,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,508,809) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,325,866
================
</TABLE>
LEGEND
(a) Non-income producing
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities, aggregated
$2,168,122 and $1,237,748, 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 $141 for the period (see Note 4 of
Notes to Financial Statements).
INCOME TAX INFORMATION
At June 30, 1997 the aggregate cost of investment securities for income tax
purposes was $4,508,809. Net unrealized appreciation aggregated $817,057, of
which $860,679 related to appreciated investment securities and $43,622 related
to depreciated investment securities.
See accompanying notes which are an integral part of the financial statements.
15 SEMIANNUAL REPORT
<PAGE>
LARGE CAP PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
ASSETS
<S> <C> <C>
Investment in securities, at
value (including repurchase agreements of $687,000)
(cost $4,508,809) -- See accompanying schedule . . . $ 5,325,866
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 236
Receivable for investments sold . . . . . . . . . . . . 348,779
Receivable for fund shares sold . . . . . . . . . . . . 46,252
Dividends receivable . . . . . . . . . . . . . . . . . 4,571
Receivable for expense reductions . . . . . . . . . . . 5,473
---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . 5,731,177
LIABILITIES
Payable for investments purchased . . . . . . . . . . . $ 652,561
Other payables and accrued expenses . . . . . . . . . . 24,055
---------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . 676,616
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 5,054,561
===============
Net Assets consist of:
Paid in capital . . . . . . . . . . . . . . . . . . . . $ 4,187,828
Undistributed net investment income . . . . . . . . . . 11,643
Accumulated undistributed net
realized gain (loss) on investments . . . . . . . . . 38,033
Net unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . 817,057
---------------
NET ASSETS, for 399,540 shares outstanding . . . . . . $ 5,054,561
===============
NET ASSET VALUE, offering price
and redemption price per share
($5,054,561 / 399,540 shares) . . . . . . . . . . . . $12.65
======
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 22,313
Interest . . . . . . . . . . . . . . . . . . . . . . . 7,796
--------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . 30,109
EXPENSES
Management fee . . . . . . . . . . . . . . . . . . . . $ 14,749
Transfer agent fees . . . . . . . . . . . . . . . . . . 857
Accounting fees and expenses . . . . . . . . . . . . . 30,000
Non-interested trustees' compensation . . . . . . . . . 2,417
Custodian fees and expenses . . . . . . . . . . . . . . 5,367
Audit . . . . . . . . . . . . . . . . . . . . . . . . . 15,939
-------------
Total expenses before reductions . . . . . . . . . . 69,329
Expense reductions . . . . . . . . . . . . . . . . . (50,863) 18,466
------------- --------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . 11,643
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities . . . . . . . . . . . . . . . . 38,497
Change in net unrealized
appreciation (depreciation) on
investment securities . . . . . . . . . . . . . . . . 471,589
--------------
NET GAIN (LOSS) . . . . . . . . . . . . . . . . . . . . 510,086
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . $ 521,729
==============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . . $ 11,643 $ 10,604
Net realized gain (loss) . . . . . . . . . . . . . . 38,497 44,241
Change in net unrealized appreciation
(depreciation) . . . . . . . . . . . . . . . . . . 471,589 345,468
-------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . 521,729 400,313
-------------- ------------
Distributions to shareholders
From net investment income . . . . . . . . . . . . . -- (12,039)
From net realized gain . . . . . . . . . . . . . . . (43,270) --
-------------- ------------
Total distributions . . . . . . . . . . . . . . . . . (43,270) (12,039)
-------------- ------------
Share transactions
Net proceeds from sales of shares . . . . . . . . . . 1,151,086 3,011,171
Reinvestment of distributions . . . . . . . . . . . . 43,270 12,039
Cost of shares redeemed . . . . . . . . . . . . . . . (29,738) --
-------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS . . . . . . . . . . . . . . 1,164,618 3,023,210
-------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . 1,643,077 3,411,484
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . 3,411,484 --
-------------- ------------
End of period (including undistributed net investment
income of $11,643 and $0, respectively) . . . . . . $ 5,054,561 $ 3,411,484
============== ============
OTHER INFORMATION
Shares
Sold . . . . . . . . . . . . . . . . . . . . . . . . 96,293 301,006
Issued in reinvestment of distributions . . . . . . . 3,705 1,054
Redeemed . . . . . . . . . . . . . . . . . . . . . . (2,518) --
-------------- ------------
Net increase (decrease) . . . . . . . . . . . . . . . 97,480 302,060
============== ============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1996
<S> <C> <C>
Net asset value, beginning of period . . . . . . . . . $ 11.29 $ 10.00
---------- ----------
Income from Investment Operations
Net investment income . . . . . . . . . . . . . . . . .03 (E) .04
Net realized and unrealized gain (loss) . . . . . . . 1.47 1.29
---------- ----------
Total from investment operations . . . . . . . . . . 1.50 1.33
---------- ----------
Less Distributions
From net investment income . . . . . . . . . . . . . -- (.04)
From net realized gain . . . . . . . . . . . . . . . (.14) --
---------- ----------
Total distributions . . . . . . . . . . . . . . . . . (.14) (.04)
---------- ----------
Net asset value, end of period . . . . . . . . . . . . $ 12.65 $ 11.29
========== ==========
TOTAL RETURN (B), (D) . . . . . . . . . . . . . . . . . 13.39% 13.30%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) . . . . . . . . $ 5,055 $ 3,411
Ratio of expenses to average net assets . . . . . . . . .95% (A), (C) .95% (A), (C)
Ratio of net investment income to average net assets . .60% (A) .98% (A)
Portfolio turnover rate . . . . . . . . . . . . . . . . 68% (A 57% (A)
Average commission rate (F) . . . . . . . . . . . . . . $ .0169 $ .0214
</TABLE>
(A) Annualized (B) Total returns for periods of less than one year are not
annualized. (C) The Travelers agreed to reimburse a portion of the
fund's expenses during the period. Without this reimbursement, the
fund's expense ratio would have been higher (see Note 5 of Notes to
Financial Statements). (D) The total returns would have been lower had
certain expenses not been reduced during the periods shown (see Note 5
of Notes to Financial Statements). (E) Net investment income per share
has been calculated based on average shares outstanding during the
period. (F) A fund is required to disclose its average commission rate
per share for security trades on which commissions are charged. 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 SEMIANNUAL REPORT
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Equity Income Portfolio and Large Cap Portfolio (the funds) are funds of The
Travelers Series Trust (the trust). 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. Each
fund is authorized to issue an unlimited number of shares. 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 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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the funds are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the prevailing rates of exchange at period end. Income receipts and expense
payments are translated into U.S. dollars at the prevailing exchange rate on
the respective dates of the transactions. Purchases and sales of securities are
translated into U.S. dollars at the contractual currency exchange rates
established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent net
gains and losses from sales and maturities of forward currency contracts,
disposition of foreign currencies, and the difference between the amount of net
investment income accrued and the U.S. dollar amount actually received. The
effects of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter M of
the Internal Revenue Code, each fund is not 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. Undistributed net
investment income and accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions 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.
FOREIGN CURRENCY CONTRACTS. Certain funds use foreign currency contracts to
facilitate transactions in foreign-denominated securities. Losses may arise
from changes in the value of the foreign currency or if the counterparties do
not perform under the contracts' terms. The U.S. dollar value of foreign
currency contracts is determined using contractual currency exchange rates
established at the time of each trade. The cost of the foreign currency
contracts is included in the cost basis of the associated investment.
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 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.
SEMIANNUAL REPORT 18
<PAGE>
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 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, Inc. (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 Company, Inc. (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 fund's operating expenses
above an annual rate of .95% of average net assets. For the period, the
reimbursement reduced expenses by $51,467 and $50,863 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 SEMIANNUAL REPORT
<PAGE>
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, Massachusetts
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 Portfolio
or Large Cap Portfolio. 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.
<PAGE>
[LOGO]
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 1997
THE TRAVELERS SERIES TRUST:
LARGE CAP PORTFOLIO
EQUITY INCOME PORTFOLIO
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
EQUITY INCOME PORTFOLIO
PERFORMANCE 3 How the fund has done over time.
FUND TALK 4 The manager's review of fund performance,
strategy and outlook.
INVESTMENTS 5 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.
</TABLE>
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.
SEMIANNUAL REPORT 2
<PAGE>
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).
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
PERIODS ENDED JUNE 30, 1997 PAST 6 LIFE OF
MONTHS FUND
<S> <C> <C>
Equity-Income Portfolio 18.25% 32.07%
S&P 500(R) 20.61% 36.90%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a
set period -- in this case, six months or 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 returns 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 RETURNS 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.
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. Average annual total returns will appear once the fund is a year old.
- - 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
<TABLE>
<CAPTION>
EQUITY
INCOME STANDARD &
PORTFOLIO POOR'S 500
<S> <C> <C>
1996/08/30 10000.00 10000.00
1996/09/30 10360.00 10477.38
1996/10/31 10720.00 10766.35
1996/11/30 11370.00 11580.18
1996/12/31 11168.65 11350.78
1997/01/31 11662.13 12059.97
1997/02/28 11843.74 12154.52
1997/03/31 11379.28 11655.09
1997/04/30 11803.35 12350.90
1997/05/31 12621.21 13102.83
1997/06/30 13206.83 13689.83
</TABLE>
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
June 30, 1997, the investment would have grown to $13,207 -- a 32.07% increase.
With reinvested dividends and capital gains, if any, a $10,000 investment in
the S&P 500 would have grown to $13,690 over the same period -- a 36.90%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
General Electric Co. 3.8
Philip Morris Companies, Inc. 3.3
American Express Co. 2.3
Federal National Mortgage Association 2.1
Allstate Corp. 1.6
</TABLE>
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Finance 23.3
Energy 9.9
Industrial Machinery & Equipment 8.8
Utilities 8.6
Nondurables 6.8
</TABLE>
ASSET ALLOCATION AS OF JUNE 30, 1997*
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Stocks 90.4%
Convertible securities 0.7%
Short-term investments 8.9%
*Foreign investments 6.9%
</TABLE>
3 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
[PHOTO]
An interview with
Stephen Petersen,
Portfolio Manager of
Equity Income Portfolio
Q. HOW DID THE FUND PERFORM, STEVE?
A. For the six-month period ending June 30, 1997, the fund underperformed
the Standard & Poor's 500 Index, which returned 20.61%. Since its inception on
August 30, 1996, the fund trailed the S&P 500, which returned 36.90%.
Q. WHY DID THE FUND SOMEWHAT UNDERPERFORM THE S&P INDEX OVER THE PAST SIX
MONTHS?
A. When you compare the performance of most actively managed diversified
funds, like this one, against the S&P 500 index's performance over the period,
very few beat the index. In fact, in the first quarter of 1997, less than 9% of
all fund managers did so. That's because the index was heavily weighted in a
small number of very large-capitalization stocks, and those stocks were the top
performers over the period. Diversified funds, by definition, own stocks of
several different cap sizes, not just large-cap stocks. In addition, many of
the top stocks that contributed to the S&P 500 index's performance, such as
technology giants Intel and Microsoft, don't pay dividends, and are therefore
not the kind of stocks this fund tends to own. In short, the fund didn't
underperform because of poor investment decisions. In fact, most of its
heaviest weighted stocks performed relatively well. It's just that some of the
very large-cap stocks it didn't own performed better.
Q. HOW DOES THE FUND DEFINE TYPICAL EQUITY-INCOME STOCKS?
A. In general, they are fairly large market cap companies that pay higher
dividend yields than the market. The fund also looks for companies that have
been out of favor or those that have been relatively weak performers and where
there's now potential for a turnaround in one form or another. By using this
combination of established companies and up-and-coming companies, I try to
maximize the fund's total returns.
Q. WHAT WERE THE FUND'S STRONGEST-PERFORMING STOCKS OVER THE PERIOD?
A. General Electric, the fund's largest holding, showed consistently
strong earnings growth and performed better than initial expectations. It also
benefited from solid cash flow and a sound management team. Another top five
holding, Philip Morris, continued to look very strong. Over the period, many of
its earnings came from its food business and its tobacco business outside the
U.S. In other words, Philip Morris' major growth was outside areas of the
company affected by the litigation against the tobacco industry. In addition,
financial stock Fannie Mae -- the Federal National Mortgage Association -- which
buys mortgages, packages them, creates securities and then sells them back to
the marketplace, turned in a strong performance over the period. American
Express, another financial stock, also looked attractive. It traded at a
discount to the overall market and showed signs of good earnings growth.
Q. AT THE END OF THE PERIOD, FINANCIAL STOCKS MADE UP ABOUT 23% OF THE
FUND. WHY DID THEY LOOK GOOD?
A. Financial stocks, which tend to do well when interest rates are low,
benefited from the favorable interest rate environment over the period. Over
the past six months, many banks generated more capital than they needed to run
their businesses, and they invested it by buying back their own stock. In
addition, both acquiring and acquired financial companies benefited from recent
mergers. Over the period, banks also profited from solid loan growth as the
U.S. economy continued to remain relatively strong.
Q. STEVE, HOW DOES THE FUND LOOK GOING FORWARD?
A. Generally, I will be sticking with large-cap, steady earnings-growth
companies with attractive fundamentals and valuations. In addition, I will
continue to look for attractive, overlooked, oversold or misunderstood types of
companies, which I think show some interesting possibilities going forward.
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.
- - 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 June 30, 1997, more than $6 million
MANAGER: Stephen Petersen, since inception, joined Fidelity in 1980
SEMIANNUAL REPORT 4
<PAGE>
EQUITY INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS -- 90.4%
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
AEROSPACE & DEFENSE - 5.8%
AEROSPACE & DEFENSE - 4.4%
AlliedSignal, Inc. . . . . . . . . . . . . . . . . . . . 1,100 $ 92,400
Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . 1,142 60,483
GenCorp, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 11,563
Gulfstream Aerospace Corp. . . . . . . . . . . . . . . . 300 8,625
Lockheed Martin Corp. . . . . . . . . . . . . . . . . . . 1,200 124,275
Rockwell International Corp. . . . . . . . . . . . . . . 100 5,900
Textron, Inc. . . . . . . . . . . . . . . . . . . . . . . 600 39,825
Thiokol Corp. . . . . . . . . . . . . . . . . . . . . . . 100 7,000
United Technologies Corp. . . . . . . . . . . . . . . . . 1,000 83,000
-----------
433,071
-----------
DEFENSE ELECTRONICS - 1.3%
Northrop Grumman Corp. . . . . . . . . . . . . . . . . . 400 35,125
Raytheon Co. . . . . . . . . . . . . . . . . . . . . . . 1,700 86,700
-----------
121,825
-----------
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc. . . . . . . . . . . . . . 440 8,553
-----------
TOTAL AEROSPACE & DEFENSE . . . . . . . . . . . . . . . . . . . . . . 563,449
-----------
BASIC INDUSTRIES - 6.6%
CHEMICALS & PLASTICS - 2.7%
Air Products & Chemicals, Inc. . . . . . . . . . . . . . 200 16,250
du Pont (E.I.) de Nemours & Co. . . . . . . . . . . . . . 1,000 62,875
Great Lakes Chemical Corp. . . . . . . . . . . . . . . . 400 20,950
Hercules, Inc. . . . . . . . . . . . . . . . . . . . . . 300 14,363
Millennium Chemicals, Inc. . . . . . . . . . . . . . . . 700 15,925
Nalco Chemical Co. . . . . . . . . . . . . . . . . . . . 600 23,175
Olin Corp. . . . . . . . . . . . . . . . . . . . . . . . 300 11,719
Union Carbide Corp. . . . . . . . . . . . . . . . . . . . 1,300 61,181
Witco Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,000 37,938
-----------
264,376
-----------
IRON & STEEL - 0.4%
Allegheny Teledyne, Inc. . . . . . . . . . . . . . . . . 400 10,800
Inland Steel Industries, Inc. . . . . . . . . . . . . . . 800 20,900
Lukens, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 5,644
-----------
37,344
-----------
METALS & MINING - 1.8%
Alcan Aluminium Ltd. . . . . . . . . . . . . . . . . . . 500 17,057
Alumax, Inc. (a) . . . . . . . . . . . . . . . . . . . . 1,111 42,149
Aluminum Co. of America . . . . . . . . . . . . . . . . . 900 67,838
Harsco Corp. . . . . . . . . . . . . . . . . . . . . . . 700 28,350
Kaiser Aluminum Corp. (a) . . . . . . . . . . . . . . . . 600 7,350
Phelps Dodge Corp. . . . . . . . . . . . . . . . . . . . 100 8,519
-----------
171,263
-----------
PAPER & FOREST PRODUCTS - 1.7%
Boise Cascade Corp. . . . . . . . . . . . . . . . . . . . 500 17,656
Champion International Corp. . . . . . . . . . . . . . . 600 33,150
Georgia-Pacific Corp. . . . . . . . . . . . . . . . . . . 200 17,075
Kimberly-Clark Corp. . . . . . . . . . . . . . . . . . . 800 39,800
Weyerhaeuser Co. . . . . . . . . . . . . . . . . . . . . 1,200 62,400
-----------
170,081
-----------
TOTAL BASIC INDUSTRIES . . . . . . . . . . . . . . . . . . . . . . . 643,064
-----------
CONSTRUCTION & REAL ESTATE - 1.1%
BUILDING MATERIALS - 0.5%
American Standard Companies, Inc. (a) . . . . . . . . . . 600 26,850
Masco Corp. . . . . . . . . . . . . . . . . . . . . . . . 500 20,875
-----------
47,725
-----------
CONSTRUCTION - 0.1%
Lennar Corp. . . . . . . . . . . . . . . . . . . . . . . 300 9,581
-----------
ENGINEERING - 0.1%
EG & G, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 11,250
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Equity Residential Properties Trust (SBI) . . . . . . . . 700 33,250
-----------
TOTAL CONSTRUCTION & REAL ESTATE . . . . . . . . . . . . . . . . . . 101,806
-----------
DURABLES - 5.0%
AUTOS, TIRES, & ACCESSORIES - 2.9%
Chrysler Corp. . . . . . . . . . . . . . . . . . . . . . 2,600 85,313
Cummins Engine Co., Inc. . . . . . . . . . . . . . . . . 200 14,113
Dana Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 7,600
Eaton Corp. . . . . . . . . . . . . . . . . . . . . . . . 500 43,656
General Motors Corp. . . . . . . . . . . . . . . . . . . 1,100 61,256
Johnson Controls, Inc. . . . . . . . . . . . . . . . . . 700 28,744
Modine Manufacturing Co. . . . . . . . . . . . . . . . . 500 14,875
Snap-On Tools Corp. . . . . . . . . . . . . . . . . . . . 750 29,531
-----------
285,088
-----------
CONSUMER DURABLES - 0.8%
Minnesota Mining & Manufacturing Co. . . . . . . . . . . 700 71,400
-----------
CONSUMER ELECTRONICS - 0.7%
Maytag Co. . . . . . . . . . . . . . . . . . . . . . . . 1,100 28,738
Sunbeam-Oster, Inc. . . . . . . . . . . . . . . . . . . . 400 15,100
Whirlpool Corp. . . . . . . . . . . . . . . . . . . . . . 500 27,281
-----------
71,119
-----------
TEXTILES & APPAREL - 0.6%
Dexter Corp. . . . . . . . . . . . . . . . . . . . . . . 500 16,000
Kellwood Co. . . . . . . . . . . . . . . . . . . . . . . 800 22,200
Unifi, Inc. . . . . . . . . . . . . . . . . . . . . . . . 600 22,425
-----------
60,625
-----------
TOTAL DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,232
-----------
ENERGY - 9.6%
ENERGY SERVICES - 2.1%
Baker Hughes, Inc. . . . . . . . . . . . . . . . . . . . 300 11,606
Dresser Industries, Inc. . . . . . . . . . . . . . . . . 1,200 44,700
Halliburton Co. . . . . . . . . . . . . . . . . . . . . . 500 39,625
Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . 900 112,500
-----------
208,431
-----------
OIL & GAS - 7.5%
Amerada Hess Corp. . . . . . . . . . . . . . . . . . . . 400 22,225
Amoco Corp. . . . . . . . . . . . . . . . . . . . . . . . 600 52,163
Atlantic Richfield Co. . . . . . . . . . . . . . . . . . 1,200 84,600
British Petroleum PLC ADR . . . . . . . . . . . . . . . . 2,132 159,634
Burlington Resources, Inc. . . . . . . . . . . . . . . . 400 17,650
Exxon Corp. . . . . . . . . . . . . . . . . . . . . . . . 400 24,600
Mobil Corp. . . . . . . . . . . . . . . . . . . . . . . . 700 48,913
Occidental Petroleum Corp. . . . . . . . . . . . . . . . 1,000 25,063
Phillips Petroleum Co. . . . . . . . . . . . . . . . . . 500 21,875
Royal Dutch Petroleum Co. . . . . . . . . . . . . . . . . 2,400 130,500
Santa Fe Energy Resources, Inc. (a) . . . . . . . . . . . 600 8,813
Total SA sponsored ADR . . . . . . . . . . . . . . . . . 900 45,563
USX-Marathon Group . . . . . . . . . . . . . . . . . . . 1,600 46,200
Unocal Corp. . . . . . . . . . . . . . . . . . . . . . . 1,125 43,664
-----------
731,463
-----------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939,894
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
5 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
INVESTMENTS (UNAUDITED) - CONTINUED
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
FINANCE - 23.3%
BANKS - 8.3%
Bank of New York Co., Inc. . . . . . . . . . . . . . . . 3,100 $ 134,850
Bank of Nova Scotia . . . . . . . . . . . . . . . . . . . 200 8,764
BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . 2,100 135,581
BankBoston Corp. . . . . . . . . . . . . . . . . . . . . 500 36,031
Chase Manhattan Corp. . . . . . . . . . . . . . . . . . . 500 48,531
Citicorp . . . . . . . . . . . . . . . . . . . . . . . . 300 36,169
Comerica, Inc. . . . . . . . . . . . . . . . . . . . . . 700 47,600
First Bank System, Inc. . . . . . . . . . . . . . . . . . 700 59,763
National Bank of Canada . . . . . . . . . . . . . . . . . 2,200 27,567
NationsBank Corp. . . . . . . . . . . . . . . . . . . . . 2,100 135,450
Norwest Corp. . . . . . . . . . . . . . . . . . . . . . . 800 45,000
Royal Bank of Canada . . . . . . . . . . . . . . . . . . 900 40,774
Wells Fargo & Co. . . . . . . . . . . . . . . . . . . . . 200 53,900
-----------
809,980
-----------
CREDIT & OTHER FINANCE - 5.2%
American Express Co. . . . . . . . . . . . . . . . . . . 3,000 223,500
Beneficial Corp. . . . . . . . . . . . . . . . . . . . . 400 28,425
Edper Group Ltd. (The)
Class A (ltd. vtg.) . . . . . . . . . . . . . . . . . . 1,000 16,695
First Chicago NBD Corp. . . . . . . . . . . . . . . . . . 1,900 114,950
Fleet Financial Group, Inc. . . . . . . . . . . . . . . . 700 44,275
Household International, Inc. . . . . . . . . . . . . . . 500 58,719
Transamerica Corp. . . . . . . . . . . . . . . . . . . . 200 18,713
-----------
505,277
-----------
FEDERAL SPONSORED CREDIT - 2.1%
Federal National Mortgage Association . . . . . . . . . . 4,800 209,400
-----------
INSURANCE - 6.1%
Aetna, Inc. . . . . . . . . . . . . . . . . . . . . . . . 400 40,950
Allstate Corp. . . . . . . . . . . . . . . . . . . . . . 2,200 160,600
American Bankers Insurance Group, Inc. . . . . . . . . . 600 37,950
American Financial Group, Inc. . . . . . . . . . . . . . 700 29,706
Brascan Ltd. Class A . . . . . . . . . . . . . . . . . . 1,400 34,629
CIGNA Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 35,500
Fremont General Corp. . . . . . . . . . . . . . . . . . . 1,000 40,250
General Re Corp. . . . . . . . . . . . . . . . . . . . . 200 36,400
Hartford Financial Services Group, Inc. . . . . . . . . . 900 74,475
Highlands Insurance Group, Inc. (a) . . . . . . . . . . . 400 8,050
Marsh & McLennan Companies, Inc. . . . . . . . . . . . . 200 14,275
Provident Companies, Inc. . . . . . . . . . . . . . . . . 300 16,050
Providian Financial Corp. (a) . . . . . . . . . . . . . . 200 6,425
Reliastar Financial Corp. . . . . . . . . . . . . . . . . 800 58,500
-----------
593,760
-----------
SAVINGS & LOANS - 1.2%
Great Western Financial Corp. . . . . . . . . . . . . . . 900 48,375
Washington Mutual, Inc. . . . . . . . . . . . . . . . . . 1,200 71,700
-----------
120,075
-----------
SECURITIES INDUSTRY - 0.4%
Bear Stearns Companies, Inc. . . . . . . . . . . . . . . 420 14,359
Lehman Brothers Holdings, Inc. . . . . . . . . . . . . . 600 24,300
-----------
38,659
-----------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,277,151
-----------
HEALTH - 3.1%
DRUGS & PHARMACEUTICALS - 2.3%
American Home Products Corp. . . . . . . . . . . . . . . 400 30,600
Bristol-Myers Squibb Co. . . . . . . . . . . . . . . . . 1,200 97,200
Pharmacia & Upjohn, Inc. . . . . . . . . . . . . . . . . 600 20,850
Pfizer, Inc. . . . . . . . . . . . . . . . . . . . . . . 100 11,950
Schering-Plough Corp. . . . . . . . . . . . . . . . . . . 1,400 67,025
-----------
227,625
-----------
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Allegiance Corp. . . . . . . . . . . . . . . . . . . . . 560 15,260
Bausch & Lomb, Inc. . . . . . . . . . . . . . . . . . . . 300 14,138
Baxter International, Inc. . . . . . . . . . . . . . . . 100 5,225
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . 300 19,313
-----------
53,936
-----------
MEDICAL FACILITIES MANAGEMENT - 0.2%
Foundation Health Systems, Inc.
Class A (a) . . . . . . . . . . . . . . . . . . . . . . 590 17,884
-----------
TOTAL HEALTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,445
-----------
HOLDING COMPANIES - 0.7%
CINergy Corp. . . . . . . . . . . . . . . . . . . . . . . 700 24,369
Norfolk Southern Corp. . . . . . . . . . . . . . . . . . 400 40,300
U.S. Industries, Inc. (a) . . . . . . . . . . . . . . . . 200 7,125
-----------
71,794
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 8.8%
ELECTRICAL EQUIPMENT - 4.5%
Emerson Electric Co. . . . . . . . . . . . . . . . . . . 300 16,519
General Electric Co. . . . . . . . . . . . . . . . . . . 5,600 366,100
Westinghouse Electric Corp. . . . . . . . . . . . . . . . 2,608 60,310
-----------
442,929
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 2.7%
Caterpillar, Inc. . . . . . . . . . . . . . . . . . . . . 300 32,213
Cooper Industries, Inc. . . . . . . . . . . . . . . . . . 600 29,850
Harnischfeger Industries, Inc. . . . . . . . . . . . . . 400 16,600
Ingersoll-Rand Co. . . . . . . . . . . . . . . . . . . . 600 37,050
Keystone International, Inc. . . . . . . . . . . . . . . 900 31,219
Parker-Hannifin Corp. . . . . . . . . . . . . . . . . . . 600 36,413
Stewart & Stevenson Services, Inc. . . . . . . . . . . . 400 10,562
Tyco International Ltd. . . . . . . . . . . . . . . . . . 1,000 69,563
-----------
263,470
-----------
POLLUTION CONTROL - 1.6%
Browning-Ferris Industries, Inc. . . . . . . . . . . . . 1,700 56,525
Safety Kleen Corp. . . . . . . . . . . . . . . . . . . . 600 10,125
Waste Management, Inc. . . . . . . . . . . . . . . . . . 2,300 73,888
Zurn Industries, Inc. . . . . . . . . . . . . . . . . . . 500 14,375
-----------
154,913
-----------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT . . . . . . . . . . . . . . . 861,312
-----------
MEDIA & LEISURE - 2.2%
ENTERTAINMENT - 0.5%
MGM Grand, Inc. (a) . . . . . . . . . . . . . . . . . . . 300 11,100
Viacom, Inc. Class B (non-vtg.) (a) . . . . . . . . . . . 1,200 36,000
-----------
47,100
-----------
LEISURE DURABLES & TOYS - 0.4%
Brunswick Corp. . . . . . . . . . . . . . . . . . . . . . 500 15,625
Hasbro, Inc. . . . . . . . . . . . . . . . . . . . . . . 550 15,606
Outboard Marine Corp. . . . . . . . . . . . . . . . . . . 400 7,100
-----------
38,331
-----------
LODGING & GAMING - 0.4%
ITT Corp. (a) . . . . . . . . . . . . . . . . . . . . . . 700 42,744
-----------
PUBLISHING - 0.9%
ACNielsen Corp. (a) . . . . . . . . . . . . . . . . . . . 866 16,995
Cognizant Corp. . . . . . . . . . . . . . . . . . . . . . 500 20,250
Harcourt General, Inc. . . . . . . . . . . . . . . . . . 600 28,575
McGraw-Hill, Inc. . . . . . . . . . . . . . . . . . . . . 400 23,525
-----------
89,345
-----------
TOTAL MEDIA & LEISURE . . . . . . . . . . . . . . . . . . 217,520
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 6
<PAGE>
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
NONDURABLES - 6.8%
BEVERAGES - 0.1%
PepsiCo, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 $ 11,269
-----------
FOODS - 0.9%
General Mills, Inc. . . . . . . . . . . . . . . . . . . . 581 37,838
Heinz (H.J.) Co. . . . . . . . . . . . . . . . . . . . . 200 9,225
Kellogg Co. . . . . . . . . . . . . . . . . . . . . . . . 100 8,563
Ralcorp Holdings, Inc. (a) . . . . . . . . . . . . . . . 300 4,425
Ralston Purina Co. . . . . . . . . . . . . . . . . . . . 300 24,656
-----------
84,707
-----------
HOUSEHOLD PRODUCTS - 1.1%
Dial Corp. . . . . . . . . . . . . . . . . . . . . . . . 700 10,938
Premark International, Inc. . . . . . . . . . . . . . . . 600 16,050
Rubbermaid, Inc. . . . . . . . . . . . . . . . . . . . . 1,300 38,675
Tambrands, Inc. . . . . . . . . . . . . . . . . . . . . . 400 19,950
Unilever NV ADR . . . . . . . . . . . . . . . . . . . . . 100 21,406
-----------
107,019
-----------
TOBACCO - 4.7%
Dimon, Inc. . . . . . . . . . . . . . . . . . . . . . . . 300 7,950
Gallaher Group PLC sponsored ADR . . . . . . . . . . . . 400 7,375
Philip Morris Companies, Inc. . . . . . . . . . . . . . . 7,200 319,500
RJR Nabisco Holdings Corp. . . . . . . . . . . . . . . . 3,140 103,620
Universal Corp. . . . . . . . . . . . . . . . . . . . . . 500 15,875
-----------
454,320
-----------
TOTAL NONDURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . 657,315
-----------
PRECIOUS METALS - 0.3%
Newmont Mining Corp. . . . . . . . . . . . . . . . . . . 800 31,200
-----------
RETAIL & WHOLESALE - 4.9%
APPAREL STORES - 1.2%
Footstar, Inc. (a) . . . . . . . . . . . . . . . . . . . 500 13,063
Limited, Inc. (The) . . . . . . . . . . . . . . . . . . . 1,600 32,400
Payless ShoeSource, Inc. (a) . . . . . . . . . . . . . . 500 27,344
TJX Companies, Inc. . . . . . . . . . . . . . . . . . . . 1,600 42,200
-----------
115,007
-----------
DRUG STORES - 0.2%
CVS Corp. . . . . . . . . . . . . . . . . . . . . . . . . 300 15,375
-----------
GENERAL MERCHANDISE STORES - 2.7%
Dayton Hudson Corp. . . . . . . . . . . . . . . . . . . . 500 26,594
Federated Department Stores, Inc. (a) . . . . . . . . . . 1,200 41,700
May Department Stores Co. (The) . . . . . . . . . . . . . 400 18,900
Sears, Roebuck & Co. . . . . . . . . . . . . . . . . . . 900 48,375
Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . 3,900 131,869
-----------
267,438
-----------
GROCERY STORES - 0.1%
American Stores Co. . . . . . . . . . . . . . . . . . . . 200 9,988
-----------
RETAIL & WHOLESALE, MISCELLANEOUS - 0.7%
Tandy Corp. . . . . . . . . . . . . . . . . . . . . . . . 500 28,000
Toys "R" Us, Inc. (a) . . . . . . . . . . . . . . . . . . 1,200 42,000
-----------
70,000
-----------
TOTAL RETAIL & WHOLESALE . . . . . . . . . . . . . . . . . . . . . . 477,808
-----------
SERVICES - 1.0%
PRINTING - 0.7%
Deluxe Corp. . . . . . . . . . . . . . . . . . . . . . . 800 27,300
Donnelley (R.R.) & Sons Co. . . . . . . . . . . . . . . . 700 25,638
New England Business Service, Inc. . . . . . . . . . . . 400 10,525
-----------
63,463
-----------
SERVICES - 0.3%
Block (H&R), Inc. . . . . . . . . . . . . . . . . . . . . 400 12,900
Dun & Bradstreet Corp. . . . . . . . . . . . . . . . . . 500 13,125
Jostens, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 7,913
-----------
33,938
-----------
TOTAL SERVICES . . . . . . . . . . . . . . . . . . . . . 97,401
-----------
TECHNOLOGY - 2.0%
COMPUTER SERVICES & SOFTWARE - 0.1%
Electronic Data Systems Corp. . . . . . . . . . . . . . . 300 12,300
-----------
COMPUTERS & OFFICE EQUIPMENT - 0.8%
Digital Equipment Corp. (a) . . . . . . . . . . . . . . . 300 10,631
International Business Machines Corp. . . . . . . . . . . 700 63,131
Xerox Corp. . . . . . . . . . . . . . . . . . . . . . . . 100 7,888
-----------
81,650
-----------
ELECTRONICS - 0.4%
AMP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 600 25,050
Thomas & Betts Corp. . . . . . . . . . . . . . . . . . . 300 15,769
-----------
40,819
-----------
PHOTOGRAPHIC EQUIPMENT - 0.7%
Eastman Kodak Co. . . . . . . . . . . . . . . . . . . . . 600 46,050
Polaroid Corp. . . . . . . . . . . . . . . . . . . . . . 300 16,650
-----------
62,700
-----------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . 197,469
-----------
TRANSPORTATION - 0.7%
AIR TRANSPORTATION - 0.2%
Viad Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,200 23,100
-----------
RAILROADS - 0.5%
CSX Corp. . . . . . . . . . . . . . . . . . . . . . . . . 800 44,400
-----------
TOTAL TRANSPORTATION . . . . . . . . . . . . . . . . . . . . . . . . 67,500
-----------
UTILITIES - 8.5%
ELECTRIC UTILITY - 2.9%
Allegheny Power System, Inc. . . . . . . . . . . . . . . 1,300 34,694
American Electric Power Co., Inc. . . . . . . . . . . . . 1,300 54,600
Central Maine Power Co. . . . . . . . . . . . . . . . . . 800 9,950
Consolidated Edison Co. of New York, Inc. . . . . . . . . 400 11,775
DPL, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 800 19,700
Duke Power Co. . . . . . . . . . . . . . . . . . . . . . 522 25,023
Entergy Corp. . . . . . . . . . . . . . . . . . . . . . . 1,900 52,013
Illinova Corp. . . . . . . . . . . . . . . . . . . . . . 600 13,200
Niagara Mohawk Power Corp. (a) . . . . . . . . . . . . . 1,300 11,131
PECO Energy Co. . . . . . . . . . . . . . . . . . . . . . 300 6,300
PG&E Corp. . . . . . . . . . . . . . . . . . . . . . . . 800 19,400
PacifiCorp. . . . . . . . . . . . . . . . . . . . . . . . 400 8,800
Pinnacle West Capital Corp. . . . . . . . . . . . . . . . 600 18,038
-----------
284,624
-----------
GAS - 1.1%
MCN Corp. . . . . . . . . . . . . . . . . . . . . . . . . 600 18,375
Nova Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,400 11,965
Pacific Enterprises . . . . . . . . . . . . . . . . . . . 1,200 40,350
Questar Corp. . . . . . . . . . . . . . . . . . . . . . . 1,000 40,375
-----------
111,065
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
7 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
INVESTMENTS (UNAUDITED) - CONTINUED
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
UTILITIES - continued
TELEPHONE SERVICES - 4.5%
AT&T Corp. . . . . . . . . . . . . . . . . . . . . . . . 100 $ 3,506
ALLTEL Corp. . . . . . . . . . . . . . . . . . . . . . . 700 23,406
Ameritech Corp. . . . . . . . . . . . . . . . . . . . . . 1,100 74,731
BCE, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 900 25,032
Bell Atlantic Corp. . . . . . . . . . . . . . . . . . . . 700 53,113
BellSouth Corp. . . . . . . . . . . . . . . . . . . . . . 1,200 55,650
Frontier Corp. . . . . . . . . . . . . . . . . . . . . . 500 9,969
MCI Communications Corp. . . . . . . . . . . . . . . . . 300 11,484
NYNEX Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,400 80,675
SBC Communications, Inc. . . . . . . . . . . . . . . . . 800 49,500
Sprint Corp. . . . . . . . . . . . . . . . . . . . . . . 400 21,050
Telus Corp. . . . . . . . . . . . . . . . . . . . . . . . 600 11,017
WorldCom, Inc. (a) . . . . . . . . . . . . . . . . . . . 500 16,000
-----------
435,133
-----------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . 830,822
-----------
TOTAL COMMON STOCKS
(Cost $7,645,047) . . . . . . . . . . . . . . . . . . . 8,823,182
-----------
</TABLE>
CONVERTIBLE PREFERRED STOCKS -- 0.6%
<TABLE>
<S> <C> <C>
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp.
Indexed $3.00 . . . . . . . . . . . . . . . . . . . . . 300 24,300
-----------
MEDIA & LEISURE - 0.1%
ENTERTAINMENT - 0.1%
Time Warner Financing Trust $1.24 . . . . . . . . . . . . 300 12,600
-----------
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
K mart Financing I $3.875 . . . . . . . . . . . . . . . . 200 10,975
-----------
UTILITIES - 0.1%
CELLULAR - 0.1%
AirTouch Communications, Inc.
Class B $1.74 . . . . . . . . . . . . . . . . . . . . . 400 11,400
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $50,924) . . . . . . . . . . . . . . . . . . . . . . . . . . 59,275
-----------
</TABLE>
CONVERTIBLE BONDS -- 0.1%
<TABLE>
<CAPTION>
MOODY'S RATINGS PRINCIPAL
AMOUNT
<S> <C> <C> <C>
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 5%, 10/1/03
(Cost $11,500) . . . . . . . . . . . . . Baa3 $10,000 11,925
-----------
</TABLE>
CASH EQUIVALENTS -- 8.9%
<TABLE>
<CAPTION>
MATURITY VALUE
AMOUNT (NOTE 1)
<S> <C> <C>
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.93%, dated
6/30/97 due 7/1/97 . . . . . . . . . . . $ 867,143 $ 867,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $8,574,471) . . . . . . . . . . . . . . . . . . . . . . . . $ 9,761,382
===========
</TABLE>
LEGEND
(a) Non-income producing
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities, aggregated
$6,182,342 and $1,804,848, 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 $326 for the period (see Note 4 of
Notes to Financial Statements).
INCOME TAX INFORMATION
At June 30, 1997 the aggregate cost of investment securities for income tax
purposes was $8,574,471. Net unrealized appreciation aggregated $1,186,911, of
which $1,235,614 related to appreciated investment securities and $48,703
related to depreciated investment securities.
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 8
<PAGE>
EQUITY INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
ASSETS
<S> <C> <C>
Investment in securities, at
value (including repurchase
agreements of $867,000)
(cost $8,574,471) - See
accompanying schedule . . . . . . . . . . . . . . . . $ 9,761,382
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 981
Receivable for fund shares sold . . . . . . . . . . . . 90,204
Dividends receivable . . . . . . . . . . . . . . . . . 15,088
Interest receivable . . . . . . . . . . . . . . . . . . 124
Receivable for expense reductions . . . . . . . . . . . 4,291
--------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . 9,872,070
LIABILITIES
Payable for investments purchased . . . . . . . . . . . $ 633,008
Payable for fund shares redeemed . . . . . . . . . . . 2,312,556
Other payables and accrued expenses . . . . . . . . . . 26,840
----------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . 2,972,404
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 6,899,666
==============
Net Assets consist of:
Paid in capital . . . . . . . . . . . . . . . . . . . . $ 5,430,292
Undistributed net investment income . . . . . . . . . . 60,641
Accumulated undistributed net realized gain (loss)
on investments and foreign currency transactions . . . 221,820
Net unrealized appreciation
(depreciation) on investments
and assets and liabilities in
foreign currencies . . . . . . . . . . . . . . . . . 1,186,913
--------------
NET ASSETS, for 527,538 shares outstanding . . . . . . $ 6,899,666
==============
NET ASSET VALUE, offering price and redemption
price per share ($6,899,666 / 527,538 shares) . . . . $13.08
======
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 85,463
Interest . . . . . . . . . . . . . . . . . . . . . . . 8,985
--------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . 94,448
EXPENSES
Management fee . . . . . . . . . . . . . . . . . . . . $ 27,091
Transfer agent fees . . . . . . . . . . . . . . . . . . 1,288
Accounting fees and expenses . . . . . . . . . . . . . 30,003
Non-interested trustees' compensation . . . . . . . . . 2,417
Custodian fees and expenses . . . . . . . . . . . . . . 8,535
Audit . . . . . . . . . . . . . . . . . . . . . . . . . 15,940
--------------
Total expenses before reductions . . . . . . . . . . 85,274
Expense reductions . . . . . . . . . . . . . . . . . (51,467) 33,807
-------------- --------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . 60,641
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities . . . . . . . . . . . . . . . . 227,403
Change in net unrealized
appreciation (depreciation) on:
Investment securities . . . . . . . . . . . . . . . . 874,861
Assets and liabilities in
foreign currencies . . . . . . . . . . . . . . . . 2 874,863
-------------- --------------
NET GAIN (LOSS) . . . . . . . . . . . . . . . . . . . . 1,102,266
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . $ 1,162,907
==============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
9 SEMIANNUAL REPORT
<PAGE>
EQUITY INCOME PORTFOLIO
FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . . . $ 60,641 $ 25,456
Net realized gain (loss) . . . . . . . . . . . . . . . 227,403 13,230
Change in net unrealized appreciation (depreciation) . 874,863 312,050
--------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . 1,162,907 350,736
--------------- --------------
Distributions to shareholders
From net investment income . . . . . . . . . . . . . . -- (25,784)
From net realized gain . . . . . . . . . . . . . . . . (18,485) --
--------------- --------------
Total distributions . . . . . . . . . . . . . . . . . . (18,485) (25,784)
--------------- --------------
Share transactions
Net proceeds from sales of shares . . . . . . . . . . . 5,518,509 3,249,728
Reinvestment of distributions . . . . . . . . . . . . . 18,485 25,784
Cost of shares redeemed . . . . . . . . . . . . . . . . (3,382,147) (67)
--------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS . . . . . . . . . . . . . . . 2,154,847 3,275,445
--------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . . . . 3,299,269 3,600,397
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . 3,600,397 --
--------------- --------------
End of period (including undistributed net investment
income of $60,641 and $0, respectively) . . . . . . . $ 6,899,666 $ 3,600,397
=============== ==============
OTHER INFORMATION
Shares
Sold . . . . . . . . . . . . . . . . . . . . . . . . . 466,549 322,467
Issued in reinvestment of distributions . . . . . . . . 1,594 2,286
Redeemed . . . . . . . . . . . . . . . . . . . . . . . (265,352) (6)
--------------- --------------
Net increase (decrease) . . . . . . . . . . . . . . . . 202,791 324,747
=============== ==============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period . . . . . . . . . . . $ 11.09 $ 10.00
---------- -----------
Income from Investment Operations
Net investment income . . . . . . . . . . . . . . . . . . .10(E) .08
Net realized and unrealized gain (loss) . . . . . . . . . 1.92 1.09
---------- -----------
Total from investment operations . . . . . . . . . . . . 2.02 1.17
---------- -----------
Less Distributions
From net investment income . . . . . . . . . . . . . . . -- (.08)
From net realized gain . . . . . . . . . . . . . . . . . (.03) --
---------- -----------
Total distributions . . . . . . . . . . . . . . . . . . . (.03) (.08)
---------- -----------
Net asset value, end of period . . . . . . . . . . . . . . $ 13.08 $ 11.09
========== ===========
TOTAL RETURN (B), (D) . . . . . . . . . . . . . . . . . . . 18.25% 11.69%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) . . . . . . . . . . $ 6,900 $ 3,600
Ratio of expenses to average net assets . . . . . . . . . . .95% (A),(C) .95% (A), (C)
Ratio of net investment income to average net assets . . . 1.70% (A) 2.34% (A)
Portfolio turnover rate . . . . . . . . . . . . . . . . . . 52% (A) 14% (A)
Average commission rate (F) . . . . . . . . . . . . . . . . $ .0194 $ .0168
</TABLE>
(A) Annualized (B) Total returns for periods of less than one year are not
annualized. (C) The Travelers agreed to reimburse a portion of the fund's
expenses during the period.Without this reimbursement, the fund's expense
ratio would have been higher (see Note 5 of Notes to Financial
Statements). (D) The total returns would have been lower had certain
expenses not been reduced during the periods shown (see Note 5 of Notes to
Financial Statements). (E) Net investment income per share has been
calculated based on average shares outstanding during the period. (F) A
fund is required to disclose its average commission rate per share for
security trades on which commissions are charged. 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.
SEMIANNUAL REPORT 10
<PAGE>
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
PERIODS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PAST 6 LIFE OF
MONTHS FUND
<S> <C> <C>
Large Cap Portfolio 13.39% 28.46%
S&P 500(R) 20.61% 36.90%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a
set period -- in this case, six months or 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 returns 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 RETURNS 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.
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. Average annual total returns will appear once the fund is a year old.
- - 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
<TABLE>
<CAPTION>
Large Cap Portfolio Standard & Poor's 500
<S> <C> <C>
1996/08/30 10000.00 10000.00
1996/09/30 10640.00 10477.38
1996/10/31 10790.00 10766.35
1996/11/30 11640.00 11580.18
1996/12/31 11329.54 11350.78
1997/01/31 11921.61 12059.97
1997/02/28 11749.69 12154.52
1997/03/31 11191.15 11655.09
1997/04/30 11688.76 12350.90
1997/05/31 12460.56 13102.83
1997/06/30 12846.47 13689.83
</TABLE>
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 June 30,
1997, the investment would have grown to $12,846 -- a 28.46% increase. With
reinvested dividends and capital gains, if any, a $10,000 investment in the S&P
500 would have grown to $13,690 over the same period -- a 36.90% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Philip Morris Companies, Inc. 2.0
General Electric Co. 1.7
International Business Machines Corp. 1.7
Marriott International, Inc. 1.6
American Home Products Corp. 1.6
</TABLE>
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1997(6)
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Technology 16.0
Health 12.3
Finance 11.5
Retail & Wholesale 8.0
Industrial Machinery & Equipment 7.2
</TABLE>
ASSET ALLOCATION AS OF JUNE 30, 1997*
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENTS
<S> <C>
Stocks 87.1%
Short-term investments 12.9%
* Foreign investments 4.7%
</TABLE>
11 SEMIANNUAL REPORT
<PAGE>
LARGE CAP PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
[PHOTO]
An interview with
Thomas Sprague,
Portfolio Manager of
Large Cap Portfolio
Q. HOW DID THE FUND PERFORM, TOM?
A. For the six months that ended June 30, 1997, the fund trailed the
Standard & Poor's 500 Index, which returned 20.61%. From August 30, 1996 -- the
fund's inception date -- through June 30, 1997, the fund underperformed the
index, which had a return of 36.90%.
Q. WHAT FACTORS CONTRIBUTED TO THE DIFFERENCES IN RETURNS BETWEEN THE
FUND AND ITS INDEX?
A. The environment over the past six months, and even over the past year,
has been very favorable for the stock market. Returns across the board have
been strong due to a combination of good earnings growth and stable interest
rates, two of the primary drivers behind stock performance. One factor that
explains the difference between the fund's performance versus the S&P 500 has
been the amazing "narrowness" of the market. A select group of the largest-cap
stocks in the market -- including General Electric, Microsoft and Coca-Cola --
dramatically outperformed not only the broad market, but the large-cap universe
itself.
Q. HOW DID THIS ENVIRONMENT HURT THE FUND? DID IT HELP IN ANY WAY?
A. The fund had positions in each of the mega-cap stocks I mentioned
above, but was underweighted in them relative to the index. The reason for this
can be traced to my valuation methodology. When I'm looking at stocks, I try to
stick to my investment discipline of owning companies with good earnings
prospects, but only if the valuation is attractive. I felt that the valuations
of many of these mega-caps were excessive relative to their growth prospects.
Apparently, the market felt otherwise over the past six months. Over the
longer-term, however, it may benefit the fund to own a more diversified
portfolio of large-cap names with equivalent growth prospects and a much lower
price-to-earnings (P/E) ratio than those 50 or so mega-cap names that have
performed so well of late.
Q. WHAT OTHER FACTORS CONTRIBUTED TO PERFORMANCE?
A. Two other specific factors affecting return were the fund's positions
in technology and finance stocks. In terms of technology, as I've already
mentioned, I didn't own enough of the mega-cap names such as Microsoft and
Intel relative to the index. Additionally, the fund's stake in networking
stocks -- those that link together communications equipment -- proved
disappointing as a short-term earnings slowdown occurred in that area of the
technology market. I remain convinced, though, that the long-term outlook for
networking remains bright. The flip side was the financial services area. In
conjunction with the stable interest rate environment, many financial services
companies had strong earnings growth that enabled their relatively low P/E
ratios to expand. The fund's large exposure to this sector helped results.
Q. WHICH INDIVIDUAL STOCKS CONTRIBUTED POSITIVELY TO PERFORMANCE? WHICH
ONES DISAPPOINTED?
A. Halliburton and Schlumberger -- two companies that provide equipment
and services to energy companies involved in the exploration and production of
oil -- performed very well as business levels were strong. The fund's position
in Allstate was also a positive as the insurer addressed its hurricane risk
exposure in Florida and its earthquake risk in California while simultaneously
improving returns in its core auto insurance business. On the negative side,
several of the fund's retail-related stocks turned in poor results as this
sector continued to suffer from store overcapacity and surprisingly sluggish
sales. These stocks included PETsMART, which the fund no longer owns, as well
as Toys 'R' Us.
Q. WHAT'S YOUR OUTLOOK?
A. I believe two factors have the most influence on a stock's
performance: interest rates and earnings growth. When rates are climbing, the
market suffers. When rates are down, the market prospers. Similarly, when
earnings are up, the market is happy. When they're down, the market feels the
effects. Since I don't try to predict the direction of interest rates, I'll
continue to emphasize earnings growth and valuation as the cornerstone of my
investment approach. This will most likely lead me to the technology area,
where many sectors -- including networking, proprietary semiconductors and
information technology service providers -- currently appear poised for
long-term growth. I may also continue to favor the health care sector, where
good product development and strong pharmaceutical demand has been creating
earnings growth. Lastly, the healthy economy is producing strong earnings
growth potential in several consumer-related sectors. These may be additional
areas of focus for the fund.
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.
- - FUND FACTS
GOAL: long-term growth of capital by investing primarily in equity securities
of companies with large market capitalizations
START DATE: August 30, 1996
SIZE: as of June 30, 1997, more than $5 million
MANAGER: Thomas Sprague, since inception; joined Fidelity in 1989
SEMIANNUAL REPORT 12
<PAGE>
LARGE CAP PORTFOLIO
INVESTMENTS JUNE 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS -- 87.1%
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
AEROSPACE & DEFENSE - 2.8%
AEROSPACE & DEFENSE - 2.5%
AlliedSignal, Inc. . . . . . . . . . . . . . . . . . . . 500 $ 42,000
Boeing Co. . . . . . . . . . . . . . . . . . . . . . . . 600 31,822
Lockheed Martin Corp. . . . . . . . . . . . . . . . . . . 400 41,425
Sundstrand Corp. . . . . . . . . . . . . . . . . . . . . 300 16,744
-----------
131,991
-----------
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. . . . . . . . . . . . . . . . . . 200 15,000
-----------
TOTAL AEROSPACE & DEFENSE . . . . . . . . . . . . . . . . . . . . . . 146,991
-----------
BASIC INDUSTRIES - 3.0%
CHEMICALS & PLASTICS - 1.1%
Monsanto Co. . . . . . . . . . . . . . . . . . . . . . . 300 12,919
Praxair, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 28,000
Union Carbide Corp. . . . . . . . . . . . . . . . . . . . 400 18,825
-----------
59,744
-----------
PACKAGING & CONTAINERS - 1.4%
Owens-Illinois, Inc. (a) . . . . . . . . . . . . . . . . 2,500 77,500
-----------
PAPER & FOREST PRODUCTS - 0.5%
Fort Howard Corp. (a) . . . . . . . . . . . . . . . . . . 500 25,313
-----------
TOTAL BASIC INDUSTRIES . . . . . . . . . . . . . . . . . . . . . . . 162,557
-----------
CONSTRUCTION & REAL ESTATE - 0.5%
BUILDING MATERIALS - 0.5%
Sherwin-Williams Co. . . . . . . . . . . . . . . . . . . 900 27,788
-----------
DURABLES - 1.5%
AUTOS, TIRES, & ACCESSORIES - 0.7%
Snap-On Tools Corp. . . . . . . . . . . . . . . . . . . . 700 27,563
Tower Automotive, Inc. (a) . . . . . . . . . . . . . . . 200 8,600
-----------
36,163
-----------
HOME FURNISHINGS - 0.8%
Leggett & Platt, Inc. . . . . . . . . . . . . . . . . . . 1,000 43,000
-----------
TOTAL DURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,163
-----------
ENERGY - 6.4%
ENERGY SERVICES - 2.3%
Dresser Industries, Inc. . . . . . . . . . . . . . . . . 800 29,800
Halliburton Co. . . . . . . . . . . . . . . . . . . . . . 700 55,475
Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . 300 37,500
-----------
122,775
-----------
OIL & GAS - 4.1%
British Petroleum PLC ADR . . . . . . . . . . . . . . . . 1,010 75,624
Burlington Resources, Inc. . . . . . . . . . . . . . . . 400 17,650
Coastal Corp. (The) . . . . . . . . . . . . . . . . . . . 500 26,594
Royal Dutch Petroleum Co. . . . . . . . . . . . . . . . . 800 43,500
Texaco, Inc. . . . . . . . . . . . . . . . . . . . . . . 300 32,625
Total SA sponsored ADR . . . . . . . . . . . . . . . . . 200 10,125
Unocal Corp. . . . . . . . . . . . . . . . . . . . . . . 300 11,644
-----------
217,762
-----------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,537
-----------
FINANCE - 11.5%
BANKS - 3.1%
Bank of New York Co., Inc. . . . . . . . . . . . . . . . 1,100 47,850
BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . 800 51,650
NationsBank Corp. . . . . . . . . . . . . . . . . . . . . 1,000 64,500
-----------
164,000
-----------
CREDIT & OTHER FINANCE - 2.0%
American Express Co. . . . . . . . . . . . . . . . . . . 800 59,600
Fleet Financial Group, Inc. . . . . . . . . . . . . . . . 200 12,650
Household International, Inc. . . . . . . . . . . . . . . 300 35,231
-----------
107,481
-----------
FEDERAL SPONSORED CREDIT - 1.6%
Federal Home Loan
Mortgage Corporation . . . . . . . . . . . . . . . . . 1,000 34,375
Federal National
Mortgage Association . . . . . . . . . . . . . . . . . 1,200 52,350
-----------
86,725
-----------
INSURANCE - 4.6%
Aetna, Inc. . . . . . . . . . . . . . . . . . . . . . . . 300 30,713
Allstate Corp. . . . . . . . . . . . . . . . . . . . . . 1,100 80,300
AMBAC, Inc. . . . . . . . . . . . . . . . . . . . . . . . 700 53,463
MBIA, Inc. . . . . . . . . . . . . . . . . . . . . . . . 300 33,844
UNUM Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,100 46,200
-----------
244,520
-----------
SAVINGS & LOANS - 0.2%
Washington Mutual, Inc. . . . . . . . . . . . . . . . . . 200 11,950
-----------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,676
-----------
HEALTH - 12.3%
DRUGS & PHARMACEUTICALS - 6.1%
American Home Products Corp. . . . . . . . . . . . . . . 1,100 84,150
Bristol-Myers Squibb Co. . . . . . . . . . . . . . . . . 800 64,800
Merck & Co., Inc. . . . . . . . . . . . . . . . . . . . . 800 82,800
Pfizer, Inc. . . . . . . . . . . . . . . . . . . . . . . 200 23,900
Schering-Plough Corp. . . . . . . . . . . . . . . . . . . 900 43,088
SmithKline Beecham PLC ADR . . . . . . . . . . . . . . . 300 27,488
-----------
326,226
-----------
MEDICAL EQUIPMENT & SUPPLIES - 3.4%
Abbott Laboratories . . . . . . . . . . . . . . . . . . . 300 20,025
Baxter International, Inc. . . . . . . . . . . . . . . . 700 36,575
Becton, Dickinson & Co. . . . . . . . . . . . . . . . . . 500 25,313
Bergen Brunswig Corp. Class A . . . . . . . . . . . . . . 1,250 34,844
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . 600 38,625
Omnicare, Inc. . . . . . . . . . . . . . . . . . . . . . 400 12,550
St. Jude Medical, Inc. (a) . . . . . . . . . . . . . . . 300 11,700
-----------
179,632
-----------
MEDICAL FACILITIES MANAGEMENT - 2.8%
Columbia/HCA Healthcare Corp. . . . . . . . . . . . . . . 700 27,519
HEALTHSOUTH Rehabilitation Corp. (a) . . . . . . . . . . 1,100 27,431
Health Management Associates, Inc.
Class A (a) . . . . . . . . . . . . . . . . . . . . . . 700 19,950
Humana, Inc. . . . . . . . . . . . . . . . . . . . . . . 500 11,563
Oxford Health Plans, Inc. . . . . . . . . . . . . . . . . 100 7,175
Tenet Healthcare Corp. (a) . . . . . . . . . . . . . . . 1,200 35,475
Vencor, Inc. (a) . . . . . . . . . . . . . . . . . . . . 500 21,125
-----------
150,238
-----------
TOTAL HEALTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,096
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 7.2%
ELECTRICAL EQUIPMENT - 2.3%
General Electric Co. . . . . . . . . . . . . . . . . . . 1,400 91,525
Westinghouse Electric Corp. . . . . . . . . . . . . . . . 1,300 30,063
-----------
121,588
-----------
INDUSTRIAL MACHINERY & EQUIPMENT - 3.9%
Case Corp. . . . . . . . . . . . . . . . . . . . . . . . 600 41,325
Caterpillar, Inc. . . . . . . . . . . . . . . . . . . . . 300 32,213
</TABLE>
See accompanying notes which are an integral part of the financial statements.
13 SEMIANNUAL REPORT
<PAGE>
LARGE CAP PORTFOLIO
INVESTMENTS (UNAUDITED) - CONTINUED
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
Ingersoll-Rand Co. . . . . . . . . . . . . . . . . . . . 500 $ 30,875
Stanley Works . . . . . . . . . . . . . . . . . . . . . . 500 20,000
Tyco International Ltd. . . . . . . . . . . . . . . . . . 1,200 83,475
-----------
207,888
-----------
POLLUTION CONTROL - 1.0%
Browning-Ferris Industries, Inc. . . . . . . . . . . . . 700 23,275
USA Waste Services, Inc. . . . . . . . . . . . . . . . . 400 15,450
Waste Management, Inc. . . . . . . . . . . . . . . . . . 400 12,850
-----------
51,575
-----------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT . . . . . . . . . . . . . . . 381,051
-----------
MEDIA & LEISURE - 4.9%
ENTERTAINMENT - 0.9%
Carnival Cruise Lines, Inc. Class A . . . . . . . . . . . 600 24,750
MGM Grand, Inc. (a) . . . . . . . . . . . . . . . . . . . 600 22,200
-----------
46,950
-----------
LODGING & GAMING - 3.3%
HFS, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . 800 46,400
La Quinta Motor Inns, Inc. . . . . . . . . . . . . . . . 1,200 26,250
Marriott International, Inc. . . . . . . . . . . . . . . 1,400 85,925
Mirage Resorts, Inc. (a) . . . . . . . . . . . . . . . . 600 15,150
-----------
173,725
-----------
PUBLISHING - 0.2%
Times Mirror Co. Class A . . . . . . . . . . . . . . . . 200 11,050
-----------
RESTAURANTS - 0.5%
Rainforest Cafe, Inc. (a) . . . . . . . . . . . . . . . . 1,100 27,913
-----------
TOTAL MEDIA & LEISURE . . . . . . . . . . . . . . . . . . . . . . . . 259,638
-----------
NONDURABLES - 6.8%
AGRICULTURE - 0.3%
Pioneer Hi-Bred International, Inc. . . . . . . . . . . . 200 16,000
-----------
BEVERAGES - 1.2%
Coca-Cola Co. (The) . . . . . . . . . . . . . . . . . . . 100 6,750
PepsiCo, Inc. . . . . . . . . . . . . . . . . . . . . . . 1,500 56,344
-----------
63,094
-----------
FOODS - 1.5%
CPC International, Inc. . . . . . . . . . . . . . . . . . 200 18,463
ConAgra, Inc. . . . . . . . . . . . . . . . . . . . . . . 200 12,825
Hershey Foods Corp. . . . . . . . . . . . . . . . . . . . 200 11,063
Ralston Purina Co. . . . . . . . . . . . . . . . . . . . 200 16,438
Sara Lee Corp. . . . . . . . . . . . . . . . . . . . . . 500 20,813
-----------
79,602
-----------
HOUSEHOLD PRODUCTS - 1.3%
Clorox Co. . . . . . . . . . . . . . . . . . . . . . . . 200 26,400
Procter & Gamble Co. . . . . . . . . . . . . . . . . . . 300 42,375
-----------
68,775
-----------
TOBACCO - 2.5%
Philip Morris Companies, Inc. . . . . . . . . . . . . . . 2,400 106,500
RJR Nabisco Holdings Corp. . . . . . . . . . . . . . . . 800 26,400
-----------
132,900
-----------
TOTAL NONDURABLES . . . . . . . . . . . . . . . . . . . . . . . . . . 360,371
-----------
RETAIL & WHOLESALE - 8.0%
APPAREL STORES - 0.8%
Payless ShoeSource, Inc. (a) . . . . . . . . . . . . . . 500 27,344
TJX Companies, Inc. . . . . . . . . . . . . . . . . . . . 600 15,825
-----------
43,169
-----------
DRUG STORES - 0.8%
Rite Aid Corp. . . . . . . . . . . . . . . . . . . . . . 800 39,900
-----------
GENERAL MERCHANDISE STORES - 2.0%
Consolidated Stores Corp. (a) . . . . . . . . . . . . . . 500 17,375
Sears, Roebuck & Co. . . . . . . . . . . . . . . . . . . 1,100 59,125
Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . 900 30,431
-----------
106,931
-----------
GROCERY STORES - 1.8%
American Stores Co. . . . . . . . . . . . . . . . . . . . 500 24,688
Kroger Co. (The) (a) . . . . . . . . . . . . . . . . . . 900 26,100
Safeway, Inc. (a) . . . . . . . . . . . . . . . . . . . . 1,000 46,125
-----------
96,913
-----------
RETAIL & WHOLESALE, MISCELLANEOUS - 2.6%
Circuit City Stores, Inc. -
Circuit City Group . . . . . . . . . . . . . . . . . . 1,000 35,563
Lowe's Companies, Inc. . . . . . . . . . . . . . . . . . 600 22,275
Toys "R" Us, Inc. (a) . . . . . . . . . . . . . . . . . . 1,900 66,500
Viking Office Products, Inc. (a) . . . . . . . . . . . . 700 13,300
-----------
137,638
-----------
TOTAL RETAIL & WHOLESALE . . . . . . . . . . . . . . . . . . . . . . 424,551
-----------
SERVICES - 2.9%
ADVERTISING - 0.5%
Omnicom Group, Inc. . . . . . . . . . . . . . . . . . . . 400 24,650
-----------
SERVICES - 2.4%
AccuStaff, Inc. (a) . . . . . . . . . . . . . . . . . . . 1,300 30,794
CDI Corp. (a) . . . . . . . . . . . . . . . . . . . . . . 700 29,181
Service Corp. International . . . . . . . . . . . . . . . 600 19,725
Sitel Corp. (a) . . . . . . . . . . . . . . . . . . . . . 2,400 49,500
-----------
129,200
-----------
TOTAL SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,850
-----------
TECHNOLOGY - 16.0%
COMMUNICATIONS EQUIPMENT - 2.1%
Alcatel Alsthom Compagnie Generale
d'Electricite SA sponsored ADR . . . . . . . . . . . . 1,300 32,825
Ascend Communications, Inc. (a) . . . . . . . . . . . . . 700 27,563
Aspect Telecommunications Corp. (a) . . . . . . . . . . . 1,100 24,475
Cisco Systems, Inc. (a) . . . . . . . . . . . . . . . . . 300 20,138
Network General Corp. (a) . . . . . . . . . . . . . . . . 500 7,438
-----------
112,439
-----------
COMPUTER SERVICES & SOFTWARE - 3.4%
Analysts International Corp. . . . . . . . . . . . . . . 400 13,400
Automatic Data Processing, Inc. . . . . . . . . . . . . . 500 23,500
CUC International, Inc. (a) . . . . . . . . . . . . . . . 1,750 45,172
Equifax, Inc. . . . . . . . . . . . . . . . . . . . . . . 700 26,031
Microsoft Corp. (a) . . . . . . . . . . . . . . . . . . . 200 25,275
Oracle Systems Corp. (a) . . . . . . . . . . . . . . . . 500 25,188
SunGard Data Systems, Inc. (a) . . . . . . . . . . . . . 500 23,250
-----------
181,816
-----------
COMPUTERS & OFFICE EQUIPMENT - 5.5%
Adaptec, Inc. (a) . . . . . . . . . . . . . . . . . . . . 1,600 55,600
Comdisco, Inc. . . . . . . . . . . . . . . . . . . . . . 1,200 31,200
Compaq Computer Corp. . . . . . . . . . . . . . . . . . . 300 29,775
EMC Corp. (a) . . . . . . . . . . . . . . . . . . . . . . 300 11,700
Fore Systems, Inc. (a) . . . . . . . . . . . . . . . . . 2,300 31,338
International Business Machines Corp. . . . . . . . . . . 1,000 90,188
Pitney Bowes, Inc. . . . . . . . . . . . . . . . . . . . 600 41,700
-----------
291,501
-----------
</TABLE>
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 14
<PAGE>
COMMON STOCKS - CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
TECHNOLOGY - CONTINUED
ELECTRONIC INSTRUMENTS - 0.5%
Applied Materials, Inc. . . . . . . . . . . . . . . . . . 400 $ 28,325
-----------
ELECTRONICS - 4.5%
Altera Corp. (a) . . . . . . . . . . . . . . . . . . . . 300 15,150
Analog Devices, Inc. (a) . . . . . . . . . . . . . . . . 1,167 30,990
Intel Corp. . . . . . . . . . . . . . . . . . . . . . . . 200 28,363
Linear Technology Corp. . . . . . . . . . . . . . . . . . 700 36,225
Maxim Integrated Products, Inc. (a) . . . . . . . . . . . 400 22,750
Micron Technology, Inc. . . . . . . . . . . . . . . . . . 700 27,956
Motorola, Inc. . . . . . . . . . . . . . . . . . . . . . 700 53,200
Texas Instruments, Inc. . . . . . . . . . . . . . . . . . 300 25,219
-----------
239,853
-----------
TOTAL TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . 853,934
-----------
TRANSPORTATION - 0.7%
RAILROADS - 0.7%
CSX Corp. . . . . . . . . . . . . . . . . . . . . . . . . 700 38,850
-----------
UTILITIES - 2.6%
TELEPHONE SERVICES - 2.6%
Cincinnati Bell, Inc. . . . . . . . . . . . . . . . . . . 800 25,200
LCI International, Inc. (a) . . . . . . . . . . . . . . . 600 13,125
SBC Communications, Inc. . . . . . . . . . . . . . . . . 900 55,688
WorldCom, Inc. (a) . . . . . . . . . . . . . . . . . . . 1,400 44,800
-----------
138,813
-----------
TOTAL COMMON STOCKS
(Cost $3,821,809) . . . . . . . . . . . . . . . . . . . . . . . . . 4,638,866
---------------
</TABLE>
CASH EQUIVALENTS -- 12.9%
<TABLE>
<CAPTION>
MATURITY
AMOUNT
<S> <C> <C>
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.93%, dated
6/30/97 due 7/1/97 . . . . . . . . . . . . . . . . . . $ 687,113 687,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,508,809) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,325,866
================
</TABLE>
LEGEND
(a) Non-income producing
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities, aggregated
$2,168,122 and $1,237,748, 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 $141 for the period (see Note 4 of
Notes to Financial Statements).
INCOME TAX INFORMATION
At June 30, 1997 the aggregate cost of investment securities for income tax
purposes was $4,508,809. Net unrealized appreciation aggregated $817,057, of
which $860,679 related to appreciated investment securities and $43,622 related
to depreciated investment securities.
See accompanying notes which are an integral part of the financial statements.
15 SEMIANNUAL REPORT
<PAGE>
LARGE CAP PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
ASSETS
<S> <C> <C>
Investment in securities, at
value (including repurchase agreements of $687,000)
(cost $4,508,809) -- See accompanying schedule . . . $ 5,325,866
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 236
Receivable for investments sold . . . . . . . . . . . . 348,779
Receivable for fund shares sold . . . . . . . . . . . . 46,252
Dividends receivable . . . . . . . . . . . . . . . . . 4,571
Receivable for expense reductions . . . . . . . . . . . 5,473
---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . 5,731,177
LIABILITIES
Payable for investments purchased . . . . . . . . . . . $ 652,561
Other payables and accrued expenses . . . . . . . . . . 24,055
---------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . 676,616
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 5,054,561
===============
Net Assets consist of:
Paid in capital . . . . . . . . . . . . . . . . . . . . $ 4,187,828
Undistributed net investment income . . . . . . . . . . 11,643
Accumulated undistributed net
realized gain (loss) on investments . . . . . . . . . 38,033
Net unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . 817,057
---------------
NET ASSETS, for 399,540 shares outstanding . . . . . . $ 5,054,561
===============
NET ASSET VALUE, offering price
and redemption price per share
($5,054,561 / 399,540 shares) . . . . . . . . . . . . $12.65
======
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 22,313
Interest . . . . . . . . . . . . . . . . . . . . . . . 7,796
--------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . 30,109
EXPENSES
Management fee . . . . . . . . . . . . . . . . . . . . $ 14,749
Transfer agent fees . . . . . . . . . . . . . . . . . . 857
Accounting fees and expenses . . . . . . . . . . . . . 30,000
Non-interested trustees' compensation . . . . . . . . . 2,417
Custodian fees and expenses . . . . . . . . . . . . . . 5,367
Audit . . . . . . . . . . . . . . . . . . . . . . . . . 15,939
-------------
Total expenses before reductions . . . . . . . . . . 69,329
Expense reductions . . . . . . . . . . . . . . . . . (50,863) 18,466
------------- --------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . 11,643
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities . . . . . . . . . . . . . . . . 38,497
Change in net unrealized
appreciation (depreciation) on
investment securities . . . . . . . . . . . . . . . . 471,589
--------------
NET GAIN (LOSS) . . . . . . . . . . . . . . . . . . . . 510,086
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . $ 521,729
==============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
SEMIANNUAL REPORT 16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . . $ 11,643 $ 10,604
Net realized gain (loss) . . . . . . . . . . . . . . 38,497 44,241
Change in net unrealized appreciation
(depreciation) . . . . . . . . . . . . . . . . . . 471,589 345,468
-------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . 521,729 400,313
-------------- ------------
Distributions to shareholders
From net investment income . . . . . . . . . . . . . -- (12,039)
From net realized gain . . . . . . . . . . . . . . . (43,270) --
-------------- ------------
Total distributions . . . . . . . . . . . . . . . . . (43,270) (12,039)
-------------- ------------
Share transactions
Net proceeds from sales of shares . . . . . . . . . . 1,151,086 3,011,171
Reinvestment of distributions . . . . . . . . . . . . 43,270 12,039
Cost of shares redeemed . . . . . . . . . . . . . . . (29,738) --
-------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS . . . . . . . . . . . . . . 1,164,618 3,023,210
-------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . 1,643,077 3,411,484
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . 3,411,484 --
-------------- ------------
End of period (including undistributed net investment
income of $11,643 and $0, respectively) . . . . . . $ 5,054,561 $ 3,411,484
============== ============
OTHER INFORMATION
Shares
Sold . . . . . . . . . . . . . . . . . . . . . . . . 96,293 301,006
Issued in reinvestment of distributions . . . . . . . 3,705 1,054
Redeemed . . . . . . . . . . . . . . . . . . . . . . (2,518) --
-------------- ------------
Net increase (decrease) . . . . . . . . . . . . . . . 97,480 302,060
============== ============
</TABLE>
See accompanying notes which are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AUGUST 30, 1996
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1996
<S> <C> <C>
Net asset value, beginning of period . . . . . . . . . $ 11.29 $ 10.00
---------- ----------
Income from Investment Operations
Net investment income . . . . . . . . . . . . . . . . .03 (E) .04
Net realized and unrealized gain (loss) . . . . . . . 1.47 1.29
---------- ----------
Total from investment operations . . . . . . . . . . 1.50 1.33
---------- ----------
Less Distributions
From net investment income . . . . . . . . . . . . . -- (.04)
From net realized gain . . . . . . . . . . . . . . . (.14) --
---------- ----------
Total distributions . . . . . . . . . . . . . . . . . (.14) (.04)
---------- ----------
Net asset value, end of period . . . . . . . . . . . . $ 12.65 $ 11.29
========== ==========
TOTAL RETURN (B), (D) . . . . . . . . . . . . . . . . . 13.39% 13.30%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) . . . . . . . . $ 5,055 $ 3,411
Ratio of expenses to average net assets . . . . . . . . .95% (A), (C) .95% (A), (C)
Ratio of net investment income to average net assets . .60% (A) .98% (A)
Portfolio turnover rate . . . . . . . . . . . . . . . . 68% (A 57% (A)
Average commission rate (F) . . . . . . . . . . . . . . $ .0169 $ .0214
</TABLE>
(A) Annualized (B) Total returns for periods of less than one year are not
annualized. (C) The Travelers agreed to reimburse a portion of the
fund's expenses during the period. Without this reimbursement, the
fund's expense ratio would have been higher (see Note 5 of Notes to
Financial Statements). (D) The total returns would have been lower had
certain expenses not been reduced during the periods shown (see Note 5
of Notes to Financial Statements). (E) Net investment income per share
has been calculated based on average shares outstanding during the
period. (F) A fund is required to disclose its average commission rate
per share for security trades on which commissions are charged. 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 SEMIANNUAL REPORT
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Equity Income Portfolio and Large Cap Portfolio (the funds) are funds of The
Travelers Series Trust (the trust). 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. Each
fund is authorized to issue an unlimited number of shares. 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 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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the funds are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the prevailing rates of exchange at period end. Income receipts and expense
payments are translated into U.S. dollars at the prevailing exchange rate on
the respective dates of the transactions. Purchases and sales of securities are
translated into U.S. dollars at the contractual currency exchange rates
established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent net
gains and losses from sales and maturities of forward currency contracts,
disposition of foreign currencies, and the difference between the amount of net
investment income accrued and the U.S. dollar amount actually received. The
effects of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter M of
the Internal Revenue Code, each fund is not 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. Undistributed net
investment income and accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions 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.
FOREIGN CURRENCY CONTRACTS. Certain funds use foreign currency contracts to
facilitate transactions in foreign-denominated securities. Losses may arise
from changes in the value of the foreign currency or if the counterparties do
not perform under the contracts' terms. The U.S. dollar value of foreign
currency contracts is determined using contractual currency exchange rates
established at the time of each trade. The cost of the foreign currency
contracts is included in the cost basis of the associated investment.
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 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.
SEMIANNUAL REPORT 18
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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 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, Inc. (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 Company, Inc. (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 fund's operating expenses
above an annual rate of .95% of average net assets. For the period, the
reimbursement reduced expenses by $51,467 and $50,863 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 SEMIANNUAL REPORT
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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, Massachusetts
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 Portfolio
or Large Cap Portfolio. 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.
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