<PAGE>
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 1999
MANAGED ASSETS TRUST
HIGH YIELD BOND TRUST
CAPITAL APPRECIATION FUND
MONEY MARKET PORTFOLIO
THE TRAVELERS TRUST:
U.S. GOVERNMENT SECURITIES PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
UTILITIES PORTFOLIO
[TravelersLife&Annuity Logo]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for The Travelers Series
Trust -- Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund,
Money Market Portfolio ("Trust" or "Fund") and the Travelers Series
Trust -- U.S. Government Securities, Social Awareness Stock and Utilities
Portfolios; ("Portfolio") for the period ended June 30, 1999.
In this letter, we briefly discuss general economic and market conditions. In
addition, more detailed comparisons showing the growth of a hypothetical $10,000
investment in each Trust or Portfolio for a 10 year period can be found in this
report. A more detailed summary of performance and current holdings for each
Trust or Portfolio can be found in the pages listed below.
<TABLE>
<CAPTION>
MARKET SCHEDULE OF
SUBACCOUNT COMMENTARY INVESTMENTS
- ---------- ---------- -----------
<S> <C> <C>
Managed Assets Trust.................................. 3 8
High Yield Bond Trust................................. 3 17
Capital Appreciation Fund............................. 4 22
Money Market Portfolio................................ 5 24
U.S. Government Securities Portfolio.................. 35 39
Social Awareness Stock Portfolio...................... 35 40
Utilities Portfolio................................... 36 43
</TABLE>
ECONOMIC UPDATE
The first half of 1999 was a period of economic growth at home and recovery
abroad. Following the events surrounding the Russian debt default in August of
1998 -- which included a decline in bond yields and a 0.75% decrease in interest
rates -- yields have increased. Investor optimism, however, was tempered by
concerns about inflation, interest rates, and continued economic growth.
EQUITY MARKET COMMENTARY
The year began on a volatile note for global financial markets as a new threat
emerged in Latin America. The devaluation of the Brazilian currency raised
concerns for U.S. companies with exposure to Latin America and took its toll on
the stock market in the middle of January. The Dow Jones Industrial Average
("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices
did recover, however, to finish higher at the end of January.
Interest rate concerns dominated market psychology during February. Despite low
inflation, interest rates moved higher amid fears of Federal Reserve Board
("Fed") tightening in response to the strong U.S. economy. In February, the
yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market
valuations became a concern as investors focused on the rise in interest rates,
the lack of a substantial earnings recovery and high price/earnings multiples.
During the month of March, market sentiment reversed and investors focused on
the reality of DJIA 10,000. After repeated assaults, the DJIA did reach 10,000
on March 16, 1999, retreated and then went on to close at 10,006 on March 29.
Economic activity remained brisk and it became obvious that first quarter Gross
Domestic Product ("GDP") growth would be above expectations. Consumer prices
rose 0.1% in February, up 1.6% from the prior year.
The Standard & Poor's ("S&P") 500 Index gained 5.0% in the first quarter of
1999. The S&P 400 Mid Cap Index fell by 6.4% while the Russell 2000 Index
declined by 5.4%. The S&P 500 Growth Index produced a 6.9% total return,
outpacing the 2.9% total return of the S&P 500 Value Index. All sectors except
consumer staples (-11%) registered respectable gains in the first quarter of
1999. The market rally was led by the energy services (22%) and technology (9%)
sectors. The financial services (7%) and Consumer Discretionary (6%) sectors
also performed well.
Despite a rise in interest rates in the second quarter, the U.S. stock market
finished firmly in positive territory. Evidence of stronger-than-expected
economic growth prompted hopes of a meaningful earnings recovery during the
quarter and, at the same time, triggered concerns about rising interest rates.
This led to a rally in small cap and value stocks.
Interest rates began to climb in the month of May as investors worried about
inflation concerns on the heels of recent economic strength. First quarter GDP
growth was revised down to 4.1% from 4.5%, but other indicators provided
evidence of
1
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SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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continued strength in the economy. The stock market sagged during May under the
burden of lofty valuations and higher rates.
The Fed took center stage in the month of June as investors anxiously awaited
its next monetary policy move. Even though inflation data released in June was
lower than consensus expectations, the bond and stock markets had clearly
anticipated a 25 basis point rate hike as a result of unexpected economic
strength. The decision to raise the federal-funds rate by 25 basis points on
June 30, 1999, therefore, came as no surprise and markets rallied when the Fed
announced that it had now switched to a neutral bias in monetary policy.
The rotation into value and small cap stocks began in the middle of April and
continued through May. This trend reversed in June, as investors became
comfortable that a proactive Fed policy would preempt inflation and keep
interest rates in check. The S&P 500 Index advanced by 7.1% in the second
quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index
rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return,
outpacing the 3.8% total return of the S&P 500 Growth Index.
All sectors within the S&P 500 except health care (-4%) registered respectable
gains in the second quarter. The economically sensitive, value-oriented
materials and processing (19%), energy services (14%) and producer durables
(14%) sectors led the market rally. The utilities (13%) and technology (10%)
sectors also performed well.
The focus in the U.S. stock market has now switched from the earnings front to
the future direction of interest rates. The early second quarter earnings
reports project a healthy growth in corporate profits from the prior year. With
the stock market now trading well above DJIA 10,000 and at unprecedented
valuation levels, any further increase in interest rates could trigger a
compression in the price/earnings multiple for the stock market.
FIXED INCOME MARKET COMMENTARY
The long anticipated slowdown in U.S. economic activity again failed to happen
during the reporting period. Global stock markets continued to rise led by
better than expected profit growth and continued merger and acquisition
activity. The risks of higher U.S. economic growth were more fairly reflected in
the yield curve in the U.S. at the end of the first quarter of 1999 than they
were at the beginning.
The stronger than expected growth caused interest rates to rise in the first
quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of
the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The
Lehman Government/Corporate Index declined about 1.2% in the first quarter of
1999. U.S. Treasuries underperformed as spreads narrowed in all sectors.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.1% annualized GDP growth rate for the first quarter of 1999.
Furthermore, the labor market continued to be extremely tight, as the
unemployment rate fell to a 29-year low of 4.2% in March. Defying the
expectations of many economists, inflation -- as measured by the Consumer Price
Index ("CPI") -- was virtually absent. Productivity gains and sagging global
demand were credited with keeping inflation under control. However, in the month
of April, the CPI rose by 0.7%, its largest monthly increase in nine years.
This, coupled with signs that many world economies were in the nascent stages of
growth and recovery, deepened fears that inflationary pressures were reaching a
breaking point. These concerns brought about an increase in the yield of the
benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April
8 and June 24 to close at 6.16%.
To counter these inflationary pressures, the Fed raised short-term interest
rates by 0.25% in late June, and subsequently adopted a neutral stance on
monetary policy. Meanwhile, during the months of May and June, the CPI remained
unchanged, generating considerable optimism that inflation had retreated.
Further reports that of rising U.S. jobless claims added to the optimism.
The unwillingness of consumer spending to slow down keeps the Fed's monetary
policy on watch. With the world economic crisis abating, we cannot rule out the
possibility of the Fed raising rates before year-end. However, in our view, the
most likely case is that the Fed's monetary policy will remain neutral through
the third quarter of 1999. By next year, we think that nominal growth should
slow below 5% and may allow room for additional short-term rates cuts. However,
if global economic growth accelerates unexpectedly and signs of inflation emerge
during the remainder of 1999, the Fed will not hesitate to raise rates again.
2
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SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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MANAGED ASSETS TRUST
Managed Assets Trust ("Trust") seeks to provide a high total investment return
through a fully managed investment policy. For the six months ended June 30,
1999, the Trust had a total return of 6.86% versus 7.43% for the 60% versus the
return of percentage for a composite of the S&P 500 and a negative 0.91% for the
40% of the Lehman Government/Corporate Index benchmark.
During the first quarter of 1999, stock selection was most favorable in the
technology, financial services and utilities sectors while relative portfolio
performance was disappointing in the consumer discretionary and consumer staples
sectors.
The team's holdings in the technology sector added value relative to the
benchmark as several successful growth stocks rebounded sharply from their early
1999 sell-off. Higher P/E growth stocks such as America Online, Sun Microsystems
and EMC Corp, which fell in February, posted gains of over 20% in March and
helped Trust performance.
In the financial services sector, the overweight positions in Merrill Lynch,
Morgan Stanley Dean Witter and Lehman Brothers performed better than the rest of
the investment banking and brokerage industry. In the utilities sector, their
positions in long-distance and cellular telephone companies such as Sprint PCS,
Nextel Communications and MCI Worldcom performed better than the regional
telephone companies and the electric utilities group.
The performance of Managed Assets Trust was hurt in the consumer discretionary
sector as a result of a small overweight position in Rite Aid Corp., a discount
drug retailer, which warned of an earnings shortfall in mid-March and still
disappointed relative to lower expectations. The managers were also hurt by
their overweight position in Suiza Foods, a leading producer of dairy products
in the consumer staples sector, where the threat of rising milk prices cast
doubts on the near term earnings outlook. (Please note as of June 30, 1999 some
of the securities discussed in this report may no longer be held in the Trust.
In addition, the views discussed in this report are exclusively those of the
Portfolio's management and are not meant as investment advice.)
Market conditions changed in the second quarter of 1999 as successful stocks
with high P/E ratios declined and out-of-favor, value-oriented stocks came
surging back. As a general rule, the managers tend to exclude those stocks which
lack earnings visibility and we, therefore, underperformed our benchmark. Stock
selection was least favorable in the technology, health care and consumer
cyclicals sectors and favorable in the materials and processing sector.
In the technology sector, this philosophy led the managers to underweight
positions in Computer Associates and Hewlett Packard which rose in the second
quarter rally in value stocks. Their overweight position in high growth stocks
such as America Online lost ground as investors expressed concerns about high
valuation levels.
In the health care sector, McKesson HBOC, a medical services company, hurt
performance as investors punished the stock for a negative restatement of
earnings and concerns about prior accounting irregularities. The trust's
positions in high growth companies like Pfizer, Watson Pharmaceuticals and
Guidant Corp. lost ground. In the consumer cyclicals sector, a similar theme
repeated itself as its position in Costco lost ground and inexpensive stocks
with previous earnings woes such as Eastman Kodak rose sharply.
The materials and processing sector produced the best relative performance. A
number of overweight positions such as Lyondell Chemicals, Alcoa and W.R. Grace
produced strong gains in anticipation of increased demand and higher commodity
prices from a strong economy.
In their disciplined approach to stock selection, the manager's screen their
research universe of over 1,000 large cap securities for companies that they
believe offer improving earnings fundamentals at discounted stock valuations. A
small sample of their current holdings is presented here to illustrate their
investment approach. In the technology sector, a recent emphasis in lower P/E
growth stocks such as Compuware and BMCS Software has paid off well. The
managers are also positioned to benefit from a continued rally in value stocks
through their positions in materials stocks such as Alcoa, Georgia Pacific and
W.R. Grace.
HIGH YIELD BOND TRUST
The High Yield Bond Trust ("Trust") seeks generous income. The assets of the
Trust will be invested in bonds which, as a class, sell at discounts from par
value and are typically higher-risk securities. For the six months ended June
30, 1999, the
3
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SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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High Yield Bond Trust had a total return of 4.31%. In comparison, the Lehman
Aggregate Bond Index posted a total return of a negative 1.37% for the same
period.
In the first quarter of 1999, the high yield bond market's average annual return
was roughly 1.77%. The high yield average for the first quarter did better than
the roughly negative 3.26% return for 10-year U.S. Treasuries but not as well as
the 4.98% return for the S&P 500 Index as investor confidence grew. According to
the managers, the combination of low inflation and low rates as well as investor
perceptions that economic growth would continue caused demand for high yield
bonds in the first quarter to rise. In the second quarter of 1999, the high
yield bond market returned approximately 0.65% and outperformed the 10-year U.S.
Treasury bond (-4.74%) but lost ground to the U.S. stock market as measured by
the S&P 500 Index (approximately 7.05%) as investors became concerned about
rising rates and increased new issuance.
The Fund's second quarter 1999 underperformance versus its benchmark was due to
its underweighting in cyclical sectors that had rebounded because of an
improving economy, negative earnings surprises on the part of Special Devices
and Advantica Restaurants, the Global Crossing merger hitting a snag and general
weakness in the textile sector.
The weakening of the bond market has spilled into the third quarter of 1999 as
rising interest rates negatively impact the bond market. On the demand side,
while flows into high yield bond funds remain anemic, structured products
continue to drive demand for high yield bonds. The managers expect a
continuation of market volatility and low liquidity in the high yield bond
market as investors are still unclear about the future direction of Fed monetary
policy. Despite more turbulent market conditions, they are committed to our
strategy of identifying what we believe are valuable long-term opportunities.
CAPITAL APPRECIATION FUND
The Capital Appreciation Fund ("Fund") seeks growth of capital through the use
of common stocks. Income is not an objective. The Fund invests principally in
common stocks of small to large companies that are expected to experience wide
fluctuations in price in both rising and declining. For the six months ended
June 30, 1999, the Capital Appreciation Fund posted a total return of 16.03%. In
comparison, the Russell 2000 Index returned 9.28% for the same period.
Although stocks finished the first six months of 1999 in positive ground,
continuing volatility characterized the period. In the first quarter of 1999,
strong corporate earnings and continued economic strength provided support for
many equities; however, higher interest rates pressured stocks in the second
quarter. While May was a difficult month for most issues, particularly growth
stocks, the market rebounded broadly following the Federal Reserve's 25 basis
point rate hike and concurrent announcement that it had adopted a neutral stance
toward future monetary policy.
Against this backdrop, the Capital Appreciation Fund outperformed its benchmark,
the S&P 500 Index. Overall, the managers enjoyed strong performance from their
holdings in a diverse mix of industries, such as technology, cable,
telecommunications, and retail. Nokia, the wireless communications hardware
manufacturer, performed particularly well, benefiting from positive sentiment
surrounding the potential offered by wireless voice and data transmission. Cisco
Systems also moved higher after making several strategic acquisitions that will
protect its position as the dominant supplier of Internet infrastructure
equipment.
Meanwhile, the Fund's pharmaceutical holdings declined on fears of potential
governmental drug price regulation. Additional pressure fell on Pfizer when FDA
placed restrictive labels on its new antibiotic. Although the managers remain
positive on the long-term prospects of many of the drug companies, they elected
to selectively trim the positions because several potential blockbuster
compounds will not hit the market for at least 18 months. As a result, many of
the best companies in the sector could trade sideways for the next year or so.
According to the Fund's investment team, volatility and uncertainty may continue
in the second half of the year as investors wrestle with the possibility of
additional Federal Reserve rate-hikes.
If these hikes materialize, then many companies should find the business
environment more inhospitable and stocks could be in for a challenging period.
Nevertheless, the managers are optimistic about the long-term prospects of their
holdings because each possesses an open-ended, organic growth story that they
believe the market ultimately should reward. (Of course, past performance is not
indicative of future results).
4
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SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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MONEY MARKET PORTFOLIO
The Money Market Portfolio 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. Money Market Portfolio
pursues this objective by investing in securities maturing in one year or less.
For the six-months ended June 30, 1999, Money Market Portfolio generated an
effective yield of 2.21% and as of June 30, 1999, had an average maturity of 30
days. Money Market Portfolio continues to invest primarily in U.S. Treasuries
and government agency securities. This investment strategy has provided Money
Market Portfolio with safety, liquidity and stability.
You should be aware that your investment in the Money Market Portfolio is
neither insured nor guaranteed by the U.S. Government. Moreover, no assurance
can be given that the Fund will be able to maintain a stable net asset value of
$1.00 per share.
In closing, we would like to thank you for your investment in Managed Asset
Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market
Portfolio. We look forward to continuing to help you pursue your financial
goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 30, 1999
5
<PAGE>
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PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 6.86%
Year Ended 6/30/99 15.10%
Five Years Ended 6/30/99 18.39%
Ten Years Ended 6/30/99 13.51%
CUMULATIVE TOTAL RETURN
----------------------------------------------
4/8/83* through 6/30/99 452.36%
+ 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 June
30, 1989, assuming reinvestment of dividends, through June 30,
1999. The Lehman Government/Corporate Bond Index is a weighted
composite of the Lehman Government Bond Index, which is a
broad-based index of all public debt obligations of the U.S.
Government and its agencies and has an average maturity of nine
years and the Lehman Corporate Bond Index, which is comprised of
all public fixed-rate non-convertible investment-grade domestic
corporate debt, excluding collateralized mortgage obligations. The
Consumer Price Index is a measure of the average change in prices
over time in a fixed market basket of goods and services. The
Standard & Poor's 500 Index is an unmanaged index composed of 500
widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange and over-the-counter market.
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST LEHMAN CONSUMER PRICE INDEX
-------------------- GOVERNMENT/CORPORATION -------------------- STANDARD & POOR'S
BOND INDEX 500 INDEX
---------------------- -----------------
<S> <C> <C> <C> <C>
6/89 10000.00 10000.00 10000.00 10000.00
12/89 11127.00 10458.00 10161.00 11297.00
12/90 11402.00 11325.00 10781.00 10946.00
12/91 13877.00 13151.00 11111.00 14274.00
12/92 14950.00 14148.00 11433.00 15361.00
12/93 15958.00 15709.00 11747.00 16905.00
12/94 15594.00 15157.00 12062.00 17128.00
12/95 19822.00 18074.00 12368.00 20883.00
12/96 22554.00 18598.00 12778.00 25675.00
12/97 27360.00 20412.00 12995.00 34240.00
12/98 33227.00 22346.00 13204.00 44080.00
6/99 35508.00 21836.00 13388.00 49537.00
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 4.31%
Year Ended 6/30/99 5.71%
Five Years Ended 6/30/99 12.04%
Ten Years Ended 6/30/99 9.10%
CUMULATIVE TOTAL RETURN
----------------------------------------------
3/19/82* THROUGH 6/30/99 429.04%
+ 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 June
30, 1989, assuming reinvestment of dividends, through June 30,
1999. 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 AGGREGATE FIRST BOSTON HIGH
HIGH YIELD BOND TRUST BOND INDEX CONSUMER PRICE INDEX YIELD INDEX TOP TIER
--------------------- ---------------- -------------------- --------------------
<S> <C> <C> <C> <C>
6/89 10000 10000 10000 10000
12/89 9427 10489 10161 11319
12/90 8567 11429 10781 11424
12/91 10803 13258 11111 14038
12/92 12225 14238 11433 15264
12/93 13937 15627 11747 17648
12/94 13761 15171 12062 17614
12/95 15890 17973 12368 20905
12/96 18440 18625 12778 23146
12/97 21494 20422 12995 25923
12/98 22904 22197 13204 26144
6/99 23891 21893 13388 26685
</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.
6
<PAGE>
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PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 16.03%
Year Ended 6/30/99 44.27%
Five Years Ended 6/30/99 34.19%
Ten Years Ended 6/30/99 21.62%
CUMULATIVE TOTAL RETURN
----------------------------------------------
3/19/82* through 6/30/99 1,916.07%
+ 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 June
30, 1989, assuming reinvestment of dividends, through June 30,
1999. 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>
CAPITAL APPRECIATION STANDARD & POOR'S
FUND 500 INDEX RUSSELL 2000 INDEX CONSUMER PRICE INDEX
-------------------- ----------------- ------------------ --------------------
<S> <C> <C> <C> <C>
6/89 10000 10000 10000 10000
12/89 10479 11297 10148 10161
12/90 9825 10946 8171 10781
12/91 13280 14274 11934 11111
12/92 15617 15361 14130 11433
12/93 17974 16905 16798 11747
12/94 17118 17128 6970 12062
12/95 23343 20883 8954 12368
12/96 29927 25675 10431 12778
12/97 37751 34263 12764 12995
12/98 61017 44110 12440 13204
6/99 70795 49570 13594 13388
</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.
7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 62.4%
- -----------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 6.4%
4,092 Colgate-Palmolive Co. ...................................... $ 404,085
21,900 Comcast Corp., Class A Shares (a)........................... 841,781
7,100 Costco Cos., Inc. .......................................... 568,444
14,127 CVS Corp. .................................................. 716,945
5,400 Eastman Kodak Co. .......................................... 365,850
11,594 Fruit of the Loom Inc., Class A Shares (a).................. 113,042
12,862 Gap Inc. ................................................... 647,948
13,146 Gillette Co. ............................................... 538,986
25,330 Home Depot Inc. ............................................ 1,632,202
3,410 J.C. Penney Co. Inc. ....................................... 165,598
29,284 KMart Corp. (a)............................................. 481,356
13,664 Kimberly-Clark Corp. ....................................... 778,848
16,168 Kroger Co. ................................................. 451,694
4,725 May Department Stores Co. .................................. 193,134
6,721 Maytag Corp. ............................................... 468,370
30,222 McDonalds Corp. ............................................ 1,248,546
13,361 New York Times Co., Class A Shares.......................... 491,852
10,200 Nike Inc., Class B Shares................................... 645,788
19,542 Proctor & Gamble Co. ....................................... 1,744,124
9,700 Rohm & Haas Co. ............................................ 415,888
11,762 Safeway Inc. (a)............................................ 582,219
18,026 Staples Inc. (a)............................................ 557,679
7,558 Times Mirror Co., Class A Shares............................ 447,812
16,565 TJX Cos., Inc. ............................................. 551,822
7,200 Tricon Global Restaurants................................... 389,700
8,275 Unilever NV................................................. 577,181
82,560 Wal-Mart Corp. ............................................. 3,983,520
- -----------------------------------------------------------------------------------------------------
20,004,414
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.2%
14,027 Anhueser-Busch Co., Inc. ................................... 995,040
6,500 Campbell Soup Co. .......................................... 301,438
5,204 Clorox Co. ................................................. 555,852
34,205 Coca-Cola Co. .............................................. 2,137,813
7,500 General Mills Inc. ......................................... 602,813
10,269 H.J. Heinz Co. ............................................. 514,734
5,260 Kellogg Co. ................................................ 173,580
3,215 Loews Corp. ................................................ 254,387
26,980 PepsiCo Inc. ............................................... 1,043,789
50,615 Philip Morris Cos., Inc. ................................... 2,034,090
15,026 Sara Lee Corp. ............................................. 340,902
12,000 Seagram Co. Ltd. ........................................... 604,500
12,479 Suiza Foods Corp. (a)....................................... 522,558
- -----------------------------------------------------------------------------------------------------
10,081,496
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT/MEDIA -- 1.9%
17,148 CBS Corp. .................................................. $ 744,866
10,800 Carnival Corp. ............................................. 523,800
9,111 Gannett Co. ................................................ 650,298
13,977 MediaOne Group, Inc. (a).................................... 1,039,539
9,354 Meredith Corp. ............................................. 323,882
23,722 Time Warner, Inc. .......................................... 1,743,567
8,770 Viacom Inc. Non-Voting, Class B Shares ..................... 385,880
20,295 The Walt Disney Co. ........................................ 625,340
- -----------------------------------------------------------------------------------------------------
6,037,172
- -----------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.7%
4,581 Ambac Financial Group, Inc. ................................ 261,689
11,683 American Express Co. ....................................... 1,520,250
23,384 American International Group, Inc. ......................... 2,737,389
15,300 Amsouth Bancorp. ........................................... 354,769
9,221 Bank One Corp. ............................................. 549,226
21,600 Bank of New York Co., Inc. ................................. 792,450
285,776 BankAmerica Corp. (a)....................................... 2,109,640
10,619 BankBoston Corp. ........................................... 542,896
10,608 Capital One Financial Co. .................................. 590,733
34,600 Cendant Corp. (a)........................................... 709,300
8,300 Charles Schwab Corp. ....................................... 911,963
20,268 Chase Manhattan Corp. ...................................... 1,755,716
5,797 Comerica Inc. .............................................. 344,559
9,434 Countrywide Credit Industries, Inc. ........................ 403,304
21,352 Fannie Mae.................................................. 1,459,943
24,400 Firstar Corp. .............................................. 683,200
17,792 First Union Corp. (N.C.).................................... 836,224
5,700 Fifth Third Bancorp. ....................................... 379,406
13,446 Fleet Financial Group, Inc. ................................ 596,666
16,650 Freddie Mac................................................. 965,700
7,404 Hartford Financial Services Group, Inc. .................... 431,746
15,000 Household International Inc. ............................... 710,625
3,213 J.P. Morgan & Co. .......................................... 451,427
12,081 Lehman Brothers Holdings, Inc. ............................. 752,042
25,400 MBNA Corp. ................................................. 777,875
5,500 Marshall & Ilsley Corp. .................................... 354,063
16,775 Merrill Lynch & Co., Inc. .................................. 1,340,952
17,141 Morgan Stanley Dean Witter & Co. ........................... 1,756,952
8,600 National City Corp. ........................................ 563,300
8,100 Providian Financial Corp. .................................. 757,350
13,400 Southtrust Corp. ........................................... 514,225
5,748 State Street Corp. ......................................... 490,736
9,938 Summit Bancorp. ............................................ 415,533
8,411 Suntrust Banks Inc. ........................................ 584,039
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 9.7% (CONTINUED)
8,246 Washington Mutual Inc. ..................................... $ 291,702
32,400 Wells Fargo & Co. .......................................... 1,385,100
- -----------------------------------------------------------------------------------------------------
30,082,690
- -----------------------------------------------------------------------------------------------------
HEALTH CARE -- 6.7%
20,946 Abbott Laboratories......................................... 953,043
6,200 Aetna, Inc. ................................................ 554,513
7,100 Allergan, Inc. ............................................. 788,100
25,013 American Home Products Corp. ............................... 1,438,247
14,020 Amgen, Inc. (a)............................................. 853,467
8,100 Baxter International, Inc. ................................. 491,062
26,696 Bristol Myers Squibb Co. ................................... 1,880,400
21 Crescendo Pharmaceutical Corp. (a).......................... 362
17,304 Eli Lilly & Co. ............................................ 1,239,399
11,904 Guidant Corp. (a)........................................... 612,312
22,311 Healthsouth Corp. (a)....................................... 333,271
26,411 Johnson & Johnson........................................... 2,588,278
4,446 McKesson HBOC Inc. ......................................... 142,828
10,533 Medtronic Inc. ............................................. 820,257
38,838 Merck & Co. ................................................ 2,874,012
21,299 Pfizer Inc. ................................................ 2,337,565
6,721 Pharmacia & Upjohn, Inc. ................................... 381,837
20,168 Schering-Plough Corp. ...................................... 1,068,904
14,907 Warner-Lambert Co. ......................................... 1,034,173
3,200 Wellpoint Heath Networks, Inc. (a).......................... 271,600
- -----------------------------------------------------------------------------------------------------
20,663,630
- -----------------------------------------------------------------------------------------------------
INSURANCE -- 0.4%
8,379 20th Century Industries..................................... 158,154
20,854 Allstate Corp. ............................................. 748,137
7,209 Everest Reinsurance Holdings, Inc. ......................... 235,194
4,092 Mercury General Corp. ...................................... 139,128
- -----------------------------------------------------------------------------------------------------
1,280,613
- -----------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 2.3%
18,470 Alcoa, Inc. ................................................ 1,142,831
20,167 Bethlehem Steel Corp. (a)................................... 155,034
14,127 Dayton-Hudson Corp. ........................................ 918,255
13,738 E.I. Du Pont de Nemours & Co. .............................. 938,477
12,084 Georgia-Pacific Corp. ...................................... 572,480
3,311 Georgia-Pacific (Timber Group).............................. 83,603
12,702 International Paper Co. .................................... 641,451
31,988 Lyondell Chemical Co. ...................................... 659,753
16,565 Masco Corp. ................................................ 478,314
12,406 Mead Corp. ................................................. 517,951
11,808 Monsanto Co. ............................................... 465,678
602 Raytheon Co., Class A Shares................................ 41,463
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
MATERIALS & PROCESSING -- 2.3% (CONTINUED)
5,163 Raytheon Co., Class B Shares................................ $ 363,463
2,435 Weyerhauser Co. ............................................ 167,406
- -----------------------------------------------------------------------------------------------------
7,146,159
- -----------------------------------------------------------------------------------------------------
OIL/ENERGY -- 3.7%
13,900 Apache Corp. ............................................... 542,100
7,990 Atlantic Richfield Co. ..................................... 667,670
8,084 Chevron Corp. .............................................. 769,496
3,994 Enron Corp. ................................................ 326,510
41,617 Exxon Corp. ................................................ 3,209,711
3,410 Halliburton Co. ............................................ 154,303
12,242 Mobil Corp. ................................................ 1,211,958
29,334 Royal Dutch Petroleum Co. ADR............................... 1,767,374
14,038 Schlumberger LTD............................................ 894,045
11,400 Texaco Inc. ................................................ 712,500
13,834 Unocal Corp. ............................................... 548,172
10,854 Williams Cos., Inc. ........................................ 461,973
- -----------------------------------------------------------------------------------------------------
11,265,812
- -----------------------------------------------------------------------------------------------------
PRODUCER DURABLES -- 5.3%
26,043 Boeing Co. ................................................. 1,150,775
5,067 Caterpillar Inc. ........................................... 304,020
7,209 Cordant Technologies Inc. .................................. 325,757
14,503 Crane Co. .................................................. 455,938
7,696 Deere & Co. ................................................ 304,954
4,919 Dow Chemical Co. ........................................... 624,098
19,488 Edison International........................................ 521,304
5,554 Emerson Electric Co. ....................................... 349,208
16,127 Entergy Corp. .............................................. 503,969
6,275 General Dynamics Corp. ..................................... 460,663
58,334 General Electric Co. ....................................... 6,482,366
11,800 General Instrument Corp. (a)................................ 501,500
4,286 Honeywell Inc. ............................................. 496,640
9,059 Ingersoll-Rand Co. ......................................... 585,438
8,865 Kaufman & Broad Home Corp. ................................. 220,517
6,600 Lear Corp. (a).............................................. 328,350
4,700 Minnesota Mining & Manufacturing Co. ....................... 408,606
3,100 Phelps Dodge Corp. ......................................... 192,006
10,231 Pulte Corp. ................................................ 235,952
7,113 Sealed Air Corp. (a)........................................ 461,456
10,500 Solectron Corp. (a)......................................... 700,219
7,696 Waste Management Inc. ...................................... 413,660
25,200 W.R. Grace & Co. (a)........................................ 463,050
- -----------------------------------------------------------------------------------------------------
16,490,446
- -----------------------------------------------------------------------------------------------------
TECHNOLOGY -- 14.5%
24,668 America Online Inc. ........................................ 2,725,814
13,963 Applied Materials Inc. (a).................................. 1,031,517
13,600 BMC Software, Inc. ......................................... 734,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 14.5% (CONTINUED)
10,518 Ceridian Corp. ............................................. $ 343,807
58,964 Cisco Systems Inc. (a)...................................... 3,803,178
15,482 Compaq Computer Corp. ...................................... 366,730
8,800 Computer Associates International, Inc. .................... 484,000
6,644 Computer Sciences Corp. (a)................................. 459,682
24,934 Compuware Corp. ............................................ 793,213
43,184 Dell Computer Corp. (a)..................................... 1,597,808
12,959 EG&G Inc. .................................................. 461,664
16,358 EMC Corp. (a)............................................... 899,690
2,242 Gateway 2000 Inc. (a)....................................... 132,278
17,400 Hewlett Packard Co. ........................................ 1,748,700
56,526 Intel Corp. ................................................ 3,363,297
34,288 International Business Machines Corp. ...................... 4,431,724
55,145 Lucent Technologies Inc. ................................... 3,718,841
91,434 Microsoft Corp. (a)......................................... 8,246,204
6,500 Micron Technology Inc. ..................................... 262,031
7,990 Motorola Inc. .............................................. 757,053
8,200 Nortel Networks Corp. ...................................... 711,863
39,015 Oracle Corp. (a)............................................ 1,448,432
20,500 Sun Microsystems Inc. (a)................................... 1,411,938
7,251 Symbol Technologies, Inc. .................................. 267,381
17,344 Sysco Corp. ................................................ 517,068
5,458 Tellabs Inc. (a)............................................ 368,756
5,667 Texas Instruments Inc. ..................................... 821,715
14,323 Tyco International Ltd. .................................... 1,357,104
14,222 United Technologies Corp. .................................. 1,019,540
11,576 Xerox Corp. ................................................ 683,708
- -----------------------------------------------------------------------------------------------------
44,969,136
- -----------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.7%
2,474 AMR Corp. .................................................. 168,851
6,627 CSX Corp. .................................................. 300,286
7,700 Delta Airlines Inc. ........................................ 443,713
11,200 FDX Corp. .................................................. 607,600
22,117 Ford Motor Co. ............................................. 1,248,228
17,042 General Motors Corp. ....................................... 1,124,772
10,923 Navistar International Corp. ............................... 546,150
13,400 Ryder Systems Inc. ......................................... 348,400
6,800 TRW Inc. ................................................... 373,150
2,729 Union Pacific Corp. ........................................ 159,135
- -----------------------------------------------------------------------------------------------------
5,320,285
- -----------------------------------------------------------------------------------------------------
UTILITIES -- 6.6%
61,445 AT&T Corp. ................................................. 3,429,399
8,769 Alltell Corp. .............................................. 626,984
14,323 Ameritech Corp. ............................................ 1,052,740
22,614 Bell Atlantic Corp. ........................................ 1,478,390
19,418 Bellsouth Corp. ............................................ 910,219
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 6.6% (CONTINUED)
16,563 Central & South West Corp. ................................. $ 387,160
13,700 Centurytel Inc. ............................................ 544,575
11,242 Clear Channel Communications Inc. (a)....................... 774,995
9,325 FPL Group Inc. ............................................. 509,378
10,673 GTE Corp. .................................................. 808,480
37,235 MCI WorldCom, Inc. (a)...................................... 3,211,519
14,400 Nextel Communications, Inc. (a)............................. 722,700
12,100 Pennsylvania Power & Light Resources Inc. .................. 372,075
31,097 SBC Communications Inc. .................................... 1,803,626
5,944 Sonat Inc. ................................................. 196,895
8,673 Southern Co. ............................................... 229,835
21,106 Sprint Corp. ............................................... 1,114,661
18,376 Sprint Corp. PCS Group...................................... 1,049,729
12,081 Texas Utilities Co. ........................................ 498,341
15,023 U.S. West Communications Group.............................. 882,475
- -----------------------------------------------------------------------------------------------------
20,604,176
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $133,003,875)................... 193,946,029
=====================================================================================================
CONVERTIBLE PREFERRED STOCK -- 1.7%
- -----------------------------------------------------------------------------------------------------
FINANCIAL -- 0.9%
2,000 Canadian National Railway 5.250%............................ 107,000
6,000 Equity Office Properties Trust, 5.250%...................... 256,500
8,000 Equity Residential Properties, 2.150%....................... 224,000
18,564 Equity Residential Properties, 7.250%....................... 426,972
2,000 Finova Finance, 5.500%...................................... 138,000
12,000 General Growth Properties, 7.250%........................... 288,000
8,000 National Australia Bank, 7.7875%............................ 243,000
3,220 New Plan Excel Realty Insurance, 8.500%..................... 85,330
6,000 Newell Financial Trust, 5.250%.............................. 335,250
9,000 Reckson Associates Realty Services, 7.625%.................. 205,313
5,000 Tosco Financial Trust, 5.750%............................... 243,750
2,245 Union Pacific Capital Trust, 6.250%......................... 116,740
- -----------------------------------------------------------------------------------------------------
2,669,855
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.8%
4,000 Amcor Ltd., 7.250%.......................................... 195,750
10,000 Calenergy Capital II, 6.250% (b)............................ 502,500
2,230 El Paso Energy Capital, 4.750%.............................. 110,385
12,000 International Paper Co., 5.250%............................. 633,000
10,990 News Corp. Ltd., 5.000%..................................... 1,103,121
- -----------------------------------------------------------------------------------------------------
2,544,756
- -----------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $4,929,014)...... 5,214,611
=====================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES -- 8.1%
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL -- 3.1%
$5,000,000 Baa2* Nationwide Health Properties, Inc. Notes, 6.900% due
10/31/37.................................................... $ 4,762,500
2,500,000 Baa1* Simon Debartolo, Company Guaranteed, 6.750% due 7/15/04..... 2,418,750
2,500,000 Baa2* Spieker Properties Inc., Notes, 8.000% due 7/19/05.......... 2,553,125
- ------------------------------------------------------------------------------------------------------------------
9,734,375
- ------------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 2.4%
2,500,000 Baa* Prologics Trust, Sr. Notes, 7.050% due 7/15/06.............. 2,321,875
5,000,000 A Xerox Corp., Notes, 6.250% due 11/15/26..................... 4,968,750
- ------------------------------------------------------------------------------------------------------------------
7,290,625
- ------------------------------------------------------------------------------------------------------------------
TELEPHONE -- 1.6%
5,000,000 AAA Bellsouth Capital Funding, Debentures, 6.040% due
11/15/26.................................................... 5,012,500
- ------------------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.0%
3,000,000 Baa2* CSX Corp., Debentures, 6.950% due 5/1/00.................... 3,037,500
- ------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $25,523,535)....... 25,075,000
==================================================================================================================
CONVERTIBLE CORPORATE BONDS -- 2.7%
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL -- 0.6%
Bell Atlantic Corp., Bonds:
297,000 A+ 5.750% due 4/1/03........................................... 306,088
500,000 A1* 4.250% due 9/15/05.......................................... 511,900
400,000 BBB- Elan International Finance Ltd., Company Guaranteed, zero
coupon due 12/12/18....................................... 206,000
300,000 AAA Finlayson Global Corp., Private Placement, zero coupon due
2/19/04..................................................... 469,499
300,000 BBB Hellenic Finance, 2.000% due 7/15/03........................ 307,650
300,000 Baa* Security Capital U.S. Real Estate Inc., 2.000% due
5/22/03..................................................... 230,813
- ------------------------------------------------------------------------------------------------------------------
2,031,950
- ------------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 1.9%
146,000 BBB- Athena Neurosciences Inc., Notes 4.750% due 11/15/04........ 154,213
321,000 A- Diamond Offshore Drilling Inc., Sub. Notes, 3.750% due
2/15/07..................................................... 318,191
300,000 Aa2* GVC Corp. Ltd., Bonds, zero coupon due 5/21/02 (b).......... 330,750
300,000 NR Genzyme Corp., Sub. Notes, 5.250% due 6/1/05................ 419,625
300,000 BBB- Inco Ltd., Debentures, 7.750% due 3/15/16................... 277,500
300,000 AA- Indian Petrochemicals Corp. Ltd., Bonds, 2.500% due 3/11/02
(b)......................................................... 304,500
600,000 BBB Ingram Micro Inc., Debenture, zero coupon due 6/9/18........ 200,250
300,000 BB+ Interim Services Inc., Sub. Notes, 4.500% due 6/1/05........ 255,375
121,000 NR Interpublic Group of Cos., Inc., Sub. Notes, 1.800% due
9/16/04..................................................... 110,413
570,000 A- Koninklijke Ahold, Sub. Notes, 3.000% due 9/30/03........... 334,227
431,000 BBB- Lennar Corp., Debenture, zero coupon due 7/29/18............ 189,640
1,000,000 B2* Marriott International Inc., Debenture, zero coupon due
3/25/11..................................................... 712,500
300,000 NR Nabors Industries, 5.000% due 5/15/06....................... 401,625
120,000 A- Omnicom Group Inc., Sub. Debenture, 2.250% due 1/6/13....... 198,000
200,000 BBB- Rite Aid Corp., Sub. Notes, 5.250% due 9/15/02.............. 200,625
500,000 BBB Scholastic Corp., Sub. Notes, 5.000% due 8/15/05............ 484,375
662,400 BBB Solectron Corp., Private Placement, zero coupon due
1/27/19..................................................... 385,020
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 200,000 Aa1* Taiwan Semiconductor Manufacturing Co., zero coupon due 7/3/02 (b). $ 263,500
98,000 A+ Telefonica Europa, Company Guaranteed, 4.000% due 7/15/02...... 159,740
100,000 A- Thermo Electron Corp., Sub. Debenture, 4.250% due 1/1/03....... 90,250
100,000 A- Thermo Instruments Inc., Company Guaranteed, 4.000% due 1/15/05... 82,000
- -------------------------------------------------------------------------------------------------------------------------
5,872,319
- -------------------------------------------------------------------------------------------------------------------------
UTILITY - ELECTRIC -- 0.2%
600,000 A- Potomac Electric Power, 5.000% due 9/1/02...................... 590,250
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $7,764,728)......... 8,494,519
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.3%
787,543 Wilmington Trust 9.250% due 1/2/07 (Cost -- $787,272)......... 789,087
=========================================================================================================================
U.S. GOVERNMENT OBLIGATIONS -- 14.0%
1,000,000 U.S. Treasury Note, 6.500% due 10/15/06....................... 1,032,620
15,227,000 U.S. Treasury Note, 3.625% due 1/15/08........................ 14,803,385
3,100,000 U.S. Treasury Bond, 7.125% due 2/15/23........................ 3,436,381
2,500,000 U.S. Treasury Strips 0.00% due 5/15/21........................ 6,396,750
15,011,100 U.S. Treasury Inflation Index, 3.875% due 4/15/29............. 14,804,697
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS(Cost -- $41,130,809)........ 40,473,833
=========================================================================================================================
U.S. GOVERNMENT AGENCIES -- 3.1%
Federal Home Loan Mortgage Corp. (FHLMC):
2,424,573 8.000% due 9/1/04............................................. 2,498,814
119,820 8.500% due 9/1/02............................................. 123,116
Federal National Mortgage Mortgage Association (FNMA):
3,042,445 Dwarf, 6.000% due 1/1/13...................................... 2,938,789
145,246 5.500% due 5/1/28............................................. 132,219
927,340 5.500% due 6/1/28............................................. 844,168
1,101,203 5.500% due 8/1/28............................................. 1,002,436
1,037,447 6.000% due 3/1/28............................................. 975,202
423,525 6.000% due 6/1/28............................................. 398,114
187,565 6.000% due 4/1/28............................................. 176,311
480,386 6.000% due 5/1/28............................................. 451,564
450,073 6.000% due 7/1/28............................................. 423,070
1,253,182 6.000% due 8/1/28............................................. 1,177,992
959,264 6.500% due 12/1/27............................................ 926,583
92,126 8.050% due 3/1/05............................................. 95,552
Government National Mortgage Association (GNMA):
169,319 7.500% due 5/15/23 (c)........................................ 171,118
123,170 9.000% due 12/15/16 (c)....................................... 130,791
131,165 9.000% due 11/15/19 (c)....................................... 139,280
101,026 9.500% due 3/15/20 (c)........................................ 108,888
109,238 9.500% due 1/15/20 (c)........................................ 117,738
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $13,151,833).......... 12,831,745
=========================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
SHORT TERM U.S. GOVERNMENT INSTRUMENTS -- 0.1%
$ 300,000 U.S. Treasury Bill, 4.500% due 9/17/99 (Cost -- $297,113)... $ 297,113
==================================================================================================================
SUB-TOTAL INVESTMENTS (Cost -- $226,588,179)................ 287,121,937
==================================================================================================================
REPURCHASE AGREEMENT -- 7.6%
23,630,000 Morgan Stanley Dean Witter & Co., 4.770% due 7/1/99;
Proceeds at maturity -- $23,633,131; (Fully collateralized
by U.S. Treasury Notes, 6.250% due 5/31/01; Market
value -- $24,182,233) (Cost -- $23,630,000)................. 23,630,000
==================================================================================================================
TOTAL INVESTMENTS -- 100% (Cost -- $250,218,179**).......... $310,751,937
==================================================================================================================
</TABLE>
(a) Non-income producing security.
(b) 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.
(c) Date shown represents the last in range of maturity dates of mortgage
certificates owned.
+ All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors Service
Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 21 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES -- 90.6%
- ---------------------------------------------------------------------------------------------------
CHEMICALS -- 1.0%
$ 275,000 B+ Lyndell Chemical Co., Sr. Sub. Notes, 10.875% due 5/1/09.... $ 286,688
- ---------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 2.0%
550,000 B- Tropical Sportswear International Corp., Company Guaranteed,
11.000% due 6/15/08....................................... 573,375
- ---------------------------------------------------------------------------------------------------
ENERGY -- 3.3%
200,000 B Comstock Resourses Inc., Sr. Notes, 11.250% due 5/1/07...... 204,500
310,000 B- International Utility Structures Inc., Sr. Sub. Notes,
10.750% due 2/1/08........................................ 312,325
125,000 B+ Parker Drilling Co., Company Guaranteed, 9.750% due
11/15/06.................................................. 116,250
75,000 B+ Pogo Producing Co., Sr. Sub. Notes, 10.375% due 2/15/09..... 78,000
250,000 BB+ Tuscon Electric Power Co., Collateral Trust, 7.500% due
8/1/08.................................................... 250,625
- ---------------------------------------------------------------------------------------------------
961,700
- ---------------------------------------------------------------------------------------------------
FOOD AND DRUG -- 3.3%
100,000 B Archibald Candy Corp., Company Guaranteed, 10.250% due
7/14/04................................................... 101,250
385,000 B- Duane Reade Inc., Company Guaranteed, 9.250% due 2/15/08.... 385,963
475,000 B- Triarc Consumer Beverage, Sr. Sub. Notes, 10.250% due
2/15/09................................................... 459,563
- ---------------------------------------------------------------------------------------------------
946,776
- ---------------------------------------------------------------------------------------------------
GAMING/LEISURE -- 8.9%
330,000 B+ Bally Total Fitness Holdings Corp., Sr. Sub. Notes, 9.875%
due 10/15/07.............................................. 320,100
120,000 B+ Bally Total Fitness Holdings Corp., Sr. Sub. Notes, 9.875%
due 10/15/07.............................................. 116,400
300,000 BB+ Harrahs Operating Co. Inc., Company Guaranteed, 7.875% due
12/15/05.................................................. 291,000
350,000 B Isle Of Capri Casinos, Sr. Sub. Notes, 8.750% due 4/15/09... 329,000
425,000 BB+ Park Place Entertainment, Sr. Sub. Notes, 7.875% due
12/15/05.................................................. 404,813
450,000 B+ Prime Hospitality Corp., Sr. Sub. Notes, 9.750% due
4/1/07.................................................... 444,375
315,000 B+ Regal Cinemas Inc., Sr. Notes, 9.500% due 6/1/08............ 295,313
360,000 B Station Casinos Inc., Sr. Sub. Notes, 10.125% due 3/15/06... 373,500
- ---------------------------------------------------------------------------------------------------
2,574,501
- ---------------------------------------------------------------------------------------------------
HEALTH CARE -- 2.3%
350,000 B- Production Resource Group, Sr. Sub. Notes, 11.500% due
1/15/08................................................... 353,500
275,000 B+ Unilab Corp., Sr. Notes, 11.000% due 4/1/06................. 302,500
- ---------------------------------------------------------------------------------------------------
656,000
- ---------------------------------------------------------------------------------------------------
HOUSING -- 2.2%
50,000 B Atrium Cos. Inc., Sr. Sub. Notes, 10.500% due 5/1/09........ 49,250
310,000 B+ Beazer Homes USA Inc., Company Guaranteed, 8.875% due
4/1/08.................................................... 297,600
450,000 B Falcon Building Corp., Sr. Notes, 10.250% 6/15/02........... 299,250
- ---------------------------------------------------------------------------------------------------
646,100
- ---------------------------------------------------------------------------------------------------
INFORMATION/TECHNOLOGY -- 6.4%
50,000 B- Anteon Corp., Sr. Sub. Notes, 12.000% due 5/15/99........... 49,750
275,000 B- Intergrated Circuit Systems, Sr. Sub. Notes, 11.500% due
5/15/09................................................... 275,688
425,000 B- PSINet Inc., Sr. Notes, 10.000% due 2/15/05................. 426,063
160,000 BB- Unisys Corp., Sr. Notes, 12.000% due 4/15/03................ 174,800
175,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08.................. 183,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 500,000 B- Viasystems Group, Sr. Sub. Notes, 9.750% due 6/1/07......... $ 438,750
275,000 B- Viatel Inc., Sr. Notes, 11.500% due 3/15/09................. 285,313
- --------------------------------------------------------------------------------------------------
1,834,114
- --------------------------------------------------------------------------------------------------
MANUFACTURING -- 12.1%
220,000 B- Advance Holding Corp., step bond to yield 12.645% due
4/15/09................................................... 124,300
350,000 B Advanced Glassfiber Yarn, Sr. Sub. Notes, 9.875 due
1/15/09................................................... 341,250
475,000 B American Axle & Manufacturing Inc., 9.750% due 3/1/09....... 476,188
550,000 B+ Avondale Mills Inc., 10.250% due 5/1/06..................... 541,750
250,000 B BGF Industries Inc., Sr. Sub. Notes, 10.250% due 1/15/09.... 228,750
200,000 B- Cherokee International, Sr. Sub. Notes, 10.250% due
5/1/09.................................................... 200,500
450,000 B- Fisher Scientific International Inc., Sr. Sub. Notes, 9.000%
due 2/1/08................................................ 427,500
250,000 BB- Imax Corp., Sr. Notes, 7.875% due 12/1/05................... 235,625
300,000 B- Roller Bearing Co., Company Guaranteed, 9.625% due
6/15/07................................................... 285,000
275,000 B- Special Devices Inc., Sr. Sub. Notes, 11.375% due 12/15/08
(a)....................................................... 246,125
400,000 B- Transdigm Inc., Sr. Sub. Notes, 10.375% due 12/1/08......... 394,000
- --------------------------------------------------------------------------------------------------
3,500,988
- --------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 12.3%
525,000 B Chancellor Media Corp., Sr. Sub. Notes, 9.000% due
10/1/08................................................... 536,813
500,000 B Jacor Communication Co., Company Guaranteed, 9.750% due
12/15/06.................................................. 541,250
525,000 CCC+ J Crew Operating Corp., Sr. Sub. Notes, 10.375% due
10/15/07.................................................. 514,500
340,000 CCC+ Paxson Communication Corp., Sr. Sub. Notes, 11.625% due
10/1/02................................................... 353,600
Pegasus Media & Communication Corp.:
500,000 B- Notes, 12.500% due 7/1/05................................... 550,000
250,000 B- Sr. Notes, 9.625% due 10/15/05.............................. 245,625
455,000 B- SFX Entertainment Inc., Company Guaranteed, 9.125% due
2/1/08.................................................... 445,900
550,000 B United International Holdings Inc., step bond to yield
10.767% due 2/15/08....................................... 365,750
- --------------------------------------------------------------------------------------------------
3,553,438
- --------------------------------------------------------------------------------------------------
METALS/MINERALS -- 5.3%
500,000 B- Diamond Holdings PLC, Company Guaranteed, 9.125% due
2/1/08.................................................... 502,500
300,000 BB Great Central Mines Ltd., Sr. Notes, 8.875% due 4/1/08...... 285,000
120,000 CCC+ Kaiser Aluminum & Chemicals, Sr. Sub. Notes, 12.750% due
2/1/03.................................................... 125,400
600,000 CCC+ Republic Engineer Steel, 1st Mortgage, 9.875% due
12/15/01.................................................. 625,500
- --------------------------------------------------------------------------------------------------
1,538,400
- --------------------------------------------------------------------------------------------------
PAPER -- 3.0%
385,000 B+ Phoenix Color Corp., Sr. Sub. Notes, 10.375% due 2/1/09..... 377,300
500,000 B- Russell Stanley Holdings Inc., Sr. Sub. Notes, 10.875% due
2/15/09................................................... 488,750
- --------------------------------------------------------------------------------------------------
866,050
- --------------------------------------------------------------------------------------------------
RETAIL -- 6.0%
410,000 B- Advance Stores Co. Inc., Sr. Sub. Notes, 10.250% due 4/15/09
(a)....................................................... 394,625
425,000 B Advantica Restaurant Group, Sr. Notes, 11.250% due
1/15/03................................................... 406,938
425,000 B+ Ames Department Stores, Sr. Notes, 10.000% due 4/15/06...... 416,500
500,000 BB KMart Corp., Medium Term Notes, 7.900% due 12/14/00......... 509,375
- --------------------------------------------------------------------------------------------------
1,727,438
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SERVICES -- 4.3%
$ 530,000 B AFC Enterprises, Sr. Sub. Notes, 10.250% due 5/15/07........ $ 541,925
250,000 B+ Equimar Shipholdings Ltd., Company Guaranteed, 9.875% due
7/1/07.................................................... 162,500
236,896 B FRD Acquisition, Sr. Notes, 12.500% due 7/15/04............. 217,944
325,000 B- Williams Scotsman Inc., Company Guaranteed, 9.875% due
6/1/07.................................................... 323,375
- --------------------------------------------------------------------------------------------------
1,245,744
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 12.6%
350,000 B+ Bresnan Communications Co., Sr. Discount Notes, 9.250% due
2/1/09.................................................... 228,375
150,000 B Caprock Communications, Sr. Notes, 11.250% due 5/1/09....... 152,250
300,000 CCC+ Centennial Cellular Corp., Sr. Sub. Notes, 10.750% due
12/15/08 (a).............................................. 310,500
900,000 B+ Charter Communications Holdings, Sr. Discount Notes, 9.920%
due 4/1/11................................................ 560,250
250,000 B- Classic Communications Ins., Sr. Discount Notes, 13.250% due
8/1/09.................................................... 166,875
325,000 CCC+ Intermedia Communication Inc., Sr. Discount Notes, 12.250%
due 3/1/09................................................ 186,875
275,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/99............... 258,500
300,000 BB+ Qwest Communication Corp., step bond to yield 7.608% due
2/1/08.................................................... 224,250
600,000 B+ Telewest Communication, Sr. Discount Notes, 9.250% due
4/15/09................................................... 496,126
485,000 B- T/SF Communications Corp., Company Guaranteed, 10.375% due
11/1/07................................................... 488,638
800,000 B- NTL Inc., step bond to yield 9.750% due 4/1/08.............. 549,000
- --------------------------------------------------------------------------------------------------
3,621,639
- --------------------------------------------------------------------------------------------------
TEXTILES -- 3.8%
535,000 B+ Delta Mills Inc., Company Guaranteed, 9.625% due 9/1/07..... 505,575
300,000 B- Panolam Industries International, Sr. Sub. Notes, 11.500%
due 2/15/09............................................... 309,000
275,000 B- Supreme International, Company Guaranteed, 12.250% due
4/1/06.................................................... 279,813
- --------------------------------------------------------------------------------------------------
1,094,388
- --------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.8%
325,000 B- Atlas Air Inc., Sr. Notes, 10.750% due 8/1/05............... 333,938
200,000 B- Pacer International Inc., Sr. Sub. Notes, 11.750% due
6/1/07.................................................... 194,500
- --------------------------------------------------------------------------------------------------
528,438
- --------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $26,585,020)....... 26,155,777
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
<C> <C> <C>
STOCK -- 4.6%
- --------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 0.2%
750 Classic Communications...................................... 12,503
5,625 Park Place Entertainment.................................... 54,670
9 Paxson Communications Corp., Preferred, Payment-in-kind,
Exchangable 12.500%....................................... 880
- --------------------------------------------------------------------------------------------------
68,053
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <C> <C>
TECHNOLOGY -- 2.0%
4,500 Eagle-Picher Holdings, Preferred, 11.750% Expire 3/1/08..... $ 238,500
2,000 R&B Falcon Corp., Preferred, 13.875% Expire 5/1/09.......... 206,000
71 Source Media Inc., Preferred, Payment-in-kind, Exchangable
13.500%................................................... 1,385
9,000 Viasystems Group Inc., Preferred, Series B.................. 119,250
- --------------------------------------------------------------------------------------------------
565,135
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.4%
479 Capstar Communication, Preferred, 12.625%................... 57,480
5,900 Global Crossing Holding Ltd., Preferred, 10.500% (a)........ 625,400
- --------------------------------------------------------------------------------------------------
682,880
- --------------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $1,282,698)............................ 1,316,068
- --------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $27,867,718)................. 27,471,845
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
<C> <C> <C>
REPURCHASE AGREEMENT -- 4.8%
$1,394,000 CS First Boston Corp., 4.800% due 7/1/99; Proceeds at
Maturity -- $1,394,186; (Fully collateralized by U.S.
Treasury Notes, 6.875% due 3/31/00; Market
value -- $1,422,752) (Cost -- $1,394,000)................... 1,394,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost -- $29,261,718**)................... $28,865,845
==================================================================================================
</TABLE>
+ All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors Service
Inc.
(a) 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.
** 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 82.8%
B B 9.1
Caa CCC 8.1
- -------------------------------------------------
100.0%
- -------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"C" may be modified by the addition of a plus (+) or a minus (-) sign to show
relative standings within the major rating categories.
<TABLE>
<S> <C> <C>
AAA -- Bonds rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issue
only in a small degree.
A -- Bonds rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in
higher rated categories.
BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as
and CCC predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. "BB" represents a lower degree of
speculation than "B", and "CCC" the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
C -- The rating "C" is reserved for income bonds on which no
interest is being paid.
D -- Bonds rated "D" are in default, and payment of interest
and/or repayment of principal is in arrears.
</TABLE>
Moody's Investors Service Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3
may be applied to each generic rating from "Aa" to "C", where 1 is the highest
and 3 the lowest rating within its generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment fisk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective
elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is, they are neither highly protected nor
poorly secured. Interest payment and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack
outstanding investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with
respect to principal or interest.
Ca -- Bonds rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 84.1%
- -------------------------------------------------------------------------------------------
BEVERAGE -- 1.0%
206,960 Coca-Cola Co. .............................................. $ 12,935,000
- -------------------------------------------------------------------------------------------
BROKERAGE -- 3.7%
433,700 Charles Schwab Corp. ....................................... 47,652,787
- -------------------------------------------------------------------------------------------
COMMUNICATIONS -- 0.8%
321,290 Qwest Communications International, Inc.+................... 10,622,651
- -------------------------------------------------------------------------------------------
COMPUTERS -- 18.6%
1,016,490 Cisco Systems Inc.+......................................... 65,563,605
1,167,775 Dell Computer Corp.+........................................ 43,207,675
150,000 International Business Machines Corp. ...................... 19,387,500
104,290 Intuit, Inc.+............................................... 9,399,136
691,600 Microsoft Corp. ............................................ 62,373,675
428,380 Veritas Software Corp. ..................................... 40,669,326
- -------------------------------------------------------------------------------------------
240,600,917
- -------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 1.2%
544,940 Kroger Co.+................................................. 15,224,261
- -------------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS -- 7.7%
361,405 General Electric Co. ....................................... 40,838,765
801,435 Time Warner Inc. ........................................... 58,905,472
- -------------------------------------------------------------------------------------------
99,744,237
- -------------------------------------------------------------------------------------------
DRUGS AND HEALTH CARE -- 4.7%
211,970 Eli Lilly & Co. ............................................ 15,182,351
38,700 MedImmune, Inc.+............................................ 2,621,925
271,190 Pfizer, Inc. ............................................... 29,763,102
191,865 Warner-Lambert Co. ......................................... 13,310,635
- -------------------------------------------------------------------------------------------
60,878,013
- -------------------------------------------------------------------------------------------
ELECTRONICS -- 6.7%
235,560 EMC Corp.+.................................................. 12,955,800
509,130 Texas Instruments Inc. ..................................... 73,823,850
- -------------------------------------------------------------------------------------------
86,779,650
- -------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 3.0%
265,520 Fannie Mae.................................................. 18,154,930
200,000 Morgan Stanley Dean Witter & Co. ........................... 20,500,000
- -------------------------------------------------------------------------------------------
38,654,930
- -------------------------------------------------------------------------------------------
INSURANCE -- 3.2%
348,625 American International Group, Inc. ......................... 40,810,914
- -------------------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 4.2%
695,160 Medtronic, Inc. ............................................ 54,135,585
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL -- 9.7%
200,000 Amazon.com Inc.+............................................ $ 25,025,000
530,220 Costco Cos., Inc.+.......................................... 42,450,738
406,825 Home Depot Inc. ............................................ 26,214,786
437,055 Safeway, Inc.+.............................................. 21,634,222
329,775 Staples Inc.+............................................... 10,202,414
- -------------------------------------------------------------------------------------------
125,527,160
- -------------------------------------------------------------------------------------------
SOFTWARE -- 9.7%
1,132,360 America Online, Inc.+....................................... 125,125,780
- -------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 9.9%
127,820 Global TeleSystems Group, Inc.+............................. 10,353,420
291,000 Level 3 Communications Inc.+................................ 17,478,187
366,195 MCI WorldCom, Inc.+......................................... 31,584,318
739,040 Nokia Corp. ADR............................................. 67,668,354
- -------------------------------------------------------------------------------------------
127,084,279
- -------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $620,043,930)................... 1,085,776,164
===========================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 15.9%
$204,864,000 Morgan Stanley Dean Witter Co., 4.770% due 7/1/99; Proceeds
at maturity -- $204,891,144; (Fully collateralized by U.S.
Treasury Notes, 7.250% due 5/15/16;
Market value -- $209,035,002) (Cost -- $204,864,000)........ 204,864,000
===========================================================================================
TOTAL INVESTMENTS -- 100% (Cost -- $824,907,930*)........... $1,290,640,164
===========================================================================================
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
COMMERCIAL PAPER -- 100%
$2,700,000 Allied Signal Inc. matures 9/28/99.......................... 4.80% $ 2,667,960
2,600,000 American Express Credit Corp. matures 8/26/99............... 4.78 2,580,668
2,600,000 American Home Products mature 7/28/99 to 8/6/99............. 4.78 to 4.79 2,589,116
3,000,000 Asset Securitization Corp. matures 7/22/99.................. 5.17 2,990,953
2,600,000 Becton Dickinson & Co. matures 7/9/99....................... 4.78 2,597,238
2,800,000 Boeing Capital Corp. matures 7/12/99........................ 5.00 2,795,722
2,675,000 Delaware Funding Corp. matures 7/20/99...................... 4.81 2,668,209
2,650,000 Eastman Kodak matures 7/27/99............................... 4.79 2,640,832
2,100,000 Ford Motor Credit Corp. matures 7/8/99...................... 4.77 2,098,052
1,600,000 GA Muni Gas & Electric matures 7/19/99...................... 4.80 1,596,160
2,750,000 General Mills Inc. matures 7/6/99........................... 4.85 2,748,148
5,200,000 General Motors Acceptance Corp. mature 7/23/99 to 7/30/99... 4.81 to 4.90 5,182,272
2,500,000 H.J. Heinz Co. mature 7/19/99 to 7/28/99.................... 4.83 to 4.85 2,492,129
940,000 Household Finance Corp. matures 7/1/99...................... 5.88 940,000
2,600,000 Johnson & Johnson matures 8/23/99........................... 4.77 2,581,742
2,500,000 Morgan Stanley Dean Witter & Co. matures 7/22/99............ 4.83 2,492,956
2,700,000 National Rural Utilities matures 8/20/99.................... 4.82 2,681,917
2,750,000 Occidental Petroleum matures 7/14/99........................ 4.89 2,745,144
2,400,000 Progress Capital Holdings matures 7/8/99.................... 5.04 2,397,648
1,391,000 Providian Master Trust matures 7/13/99...................... 4.88 1,388,737
2,750,000 Prudential Funding Co. matures 7/12/99...................... 4.95 2,745,841
2,500,000 Transamerica Finance Corp. matures 7/26/99.................. 4.84 2,491,597
2,750,000 Xerox Corp. matures 7/7/99.................................. 4.83 2,747,786
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $58,860,827*)............ $58,860,827
================================================================================================================
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at cost............................ $226,588,179 $27,867,718 $ 620,043,930 $58,860,827
Repurchase agreements, at cost.................. 23,630,000 1,394,000 204,864,000 --
- -------------------------------------------------------------------------------------------------------------
Investments, at value........................... $287,121,937 $27,471,845 $1,085,776,164 $58,860,827
Repurchase agreements, at value................. 23,630,000 1,394,000 204,864,000 --
Cash............................................ 72,906 -- 661 3,673
Receivable for securities sold.................. 1,888,132 152,573 -- --
Dividends and interest receivable............... 1,281,793 635,283 149,950 65
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................................... 313,994,768 29,653,701 1,290,790,775 58,864,565
=============================================================================================================
LIABILITIES:
Payable for securities purchased................ 419,938 195,020 -- --
Investment advisory fees payable................ 135,512 13,033 818,568 --
Payable to broker -- variation margin........... 31,250 -- -- --
Administration fees payable..................... 16,261 1,564 65,486 3,224
Payable to bank................................. -- 4,314 -- --
Dividends payable............................... -- -- -- 102,170
Accrued expenses................................ 66,250 8,771 102,044 81,156
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES............................... 669,211 222,702 986,098 186,550
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................................. $313,325,557 $29,430,999 $1,289,804,677 $58,678,015
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital................................. $221,761,830 $29,831,372 $ 772,810,067 $58,678,015
Undistributed (overdistributed) net investment
income....................................... 3,131,030 1,294,033 (49,528) --
Accumulated net realized gain (loss) from
security transactions, futures contracts and
foreign currencies........................... 28,010,651 (1,298,533) 51,308,369 --
Net unrealized appreciation (depreciation) of
investments, futures contracts and foreign
currencies................................... 60,422,046 (395,873) 465,735,769 --
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................................. $313,325,557 $29,430,999 $1,289,804,677 $58,678,015
=============================================================================================================
SHARES OUTSTANDING................................ 15,853,964 3,111,485 15,685,265 58,678,015
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE........................ $19.76 $9.46 $82.23 $1.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest............................................ $ 2,708,330 $1,406,229 $ 3,003,526 $1,247,688
Dividends........................................... 1,316,415 -- 1,574,111 --
Less: Foreign withholding tax....................... (24,882) -- (62,957) --
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................. 3,999,863 1,406,229 4,514,680 1,247,688
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)................... 726,136 71,630 4,122,157 82,078
Administration fees (Note 3)........................ 87,136 8,596 329,772 15,290
Audit and legal..................................... 20,000 15,000 21,000 16,000
Custody............................................. 10,000 3,900 20,000 7,515
Shareholder communications.......................... 10,000 2,000 39,000 5,233
Registration fees................................... 5,000 -- 5,000 --
Shareholder and system servicing fees............... 5,000 4,500 5,000 6,327
Pricing fees........................................ 2,500 4,500 -- --
Trustees' fees...................................... 1,870 1,870 1,870 2,290
Other............................................... 1,251 200 3,000 2,824
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES...................................... 868,893 112,196 4,546,799 137,557
- -------------------------------------------------------------------------------------------------------------
Less: Expense reimbursement......................... -- -- -- (35,623)
- -------------------------------------------------------------------------------------------------------------
NET EXPENSES........................................ 868,893 112,196 4,546,799 101,934
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS).......................... 3,130,970 1,294,033 (32,119) 1,145,754
- -------------------------------------------------------------------------------------------------------------
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*)................................... 28,079,076 337,881 51,453,371 (37)
Futures contracts................................ (804,484) -- -- --
Foreign currency transactions.................... -- -- (17,528) --
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................ 27,274,592 337,881 51,435,843 (37)
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments, Futures Contracts and Foreign
Currencies:
Beginning of period.............................. 71,272,240 48,086 365,205,909 --
End of period.................................... 60,422,046 (395,873) 465,735,769 --
- -------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION)...................................... (10,850,194) (443,959) 100,529,860 --
- -------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES.................................. 16,424,398 (106,078) 151,965,703 (37)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS................ $ 19,555,368 $1,187,955 $151,933,584 $1,145,717
=============================================================================================================
</TABLE>
* Except for Money Market Portfolio where the net realized losses are only from
the sale of short-term securities.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)................... $ 3,130,970 $ 1,294,033 $ (32,119) $ 1,145,754
Net realized gain (loss)....................... 27,274,592 337,881 51,435,843 (37)
Change in net unrealized appreciation
(depreciation).............................. (10,850,194) (443,959) 100,529,860 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 19,555,368 1,187,955 151,933,584 1,145,717
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income.......................... (5,732,184) (2,318,362) (1,059,034) (1,145,717)
Net realized gains............................. (17,063,313) -- (30,268,308) --
- -------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS............... (22,795,497) (2,318,362) (31,327,342) (1,145,717)
- -------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares............... 19,657,301 3,777,684 263,126,420 99,238,237
Net asset value of shares issued for
reinvestment of dividends................... 22,795,497 2,318,362 31,327,342 1,117,839
Cost of shares reacquired...................... (2,068,786) (3,623,081) (16,116,250) (83,747,390)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS................................ 40,384,012 2,472,965 278,337,512 16,608,686
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS........................... 37,143,883 1,342,558 398,943,754 16,608,686
NET ASSETS:
Beginning of period............................ 276,181,674 28,088,441 890,860,923 42,069,329
- -------------------------------------------------------------------------------------------------------------
END OF PERIOD*................................. $313,325,557 $29,430,999 $1,289,804,677 $ 58,678,015
=============================================================================================================
* Includes undistributed (overdistributed) net
investment income of:.......................... $3,131,030 $1,294,033 $(49,528) --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 5,681,892 $ 2,382,367 $ 1,062,648 $ 1,460,011
Net realized gain (loss)......................... 18,004,909 443,848 31,704,572 (215)
Increase (decrease) in net unrealized
appreciation.................................. 24,712,837 (1,095,487) 268,745,690 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 48,399,638 1,730,728 301,512,910 1,459,796
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income............................ (6,031,526) (1,906,452) (1,757,481) (1,459,796)
Net realized gains............................... (11,032,250) -- (15,276,070) --
- -------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS................. (17,063,776) (1,906,452) (17,033,551) (1,459,796)
- -------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares................. 17,716,235 7,689,311 206,554,463 103,475,184
Net asset value of shares issued for reinvestment
of dividends.................................. 17,063,776 1,906,452 17,033,551 1,409,254
Cost of shares reacquired........................ (13,804,479) (6,603,776) (24,907,667) (76,308,910)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 20,975,532 2,991,987 198,680,347 28,575,528
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 52,311,394 2,816,263 483,159,706 28,575,528
NET ASSETS:
Beginning of year................................ 223,870,280 25,272,178 407,701,217 13,493,801
- -------------------------------------------------------------------------------------------------------------
END OF YEAR*..................................... $276,181,674 $28,088,441 $890,860,923 $ 42,069,329
=============================================================================================================
* Includes undistributed net investment income
of:.............................................. $5,732,244 $2,318,362 $1,059,153 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund
and Money Market Portfolio (collectively, "Fund(s)") are each a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment companies. Shares of the Funds
are offered only to insurance company separate accounts that fund certain
variable annuity and variable life insurance contracts.
The significant accounting policies consistently followed by the Funds are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported and U.S. government and agency
obligations are valued at the mean between the last reported bid and asked
prices or on the basis of quotations received from reputable brokers or other
recognized sources; (c) securities for which market quotations are not available
will be valued in good faith at fair value by or under the direction of the
Board of Trustees; (d) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates value;
(e) securities, other than U.S. government agencies and obligations, 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; (f) 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; (g) gains or losses on the sale of securities are
calculated by using the specific identification method; (h) dividends and
distributions to shareholders are recorded on the ex-dividend date; (i) 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; (j) 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, 1998,
reclassifications were made to the capital accounts of the Managed Assets Trust,
High Yield Bond Trust and Capital Appreciation Fund to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, for the Managed Assets Trust, a portion of
undistributed net investment income amounting to $116 and a portion of
accumulated net realized gains amounting to $31,374 was reclassified to paid-in
capital. In addition, for the High Yield Bond Trust, a portion of accumulated
net realized loss amounting to $1,352,578 was reclassified to paid-in capital.
Net investment income, net realized gains and net assets were not affected by
this change; (k) 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 (l) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. DIVIDENDS
Money Market Portfolio declares and records a dividend of substantially all
of its net investment income on each business day. Such dividends are paid or
reinvested on the payable date.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup, Inc., acts as investment manager and
advisor to the Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT"),
Capital Appreciation Fund ("CAF") and Money Market Portfolio ("MMP"). MAT, CAF
and MMP pay TAMIC an investment management and advisory fee calculated at the
annual rate of 0.50%, 0.75% and 0.3233%, respectively of its average daily net
assets. HYBT pays TAMIC an investment management and advisory fee calculated at
an annual rate of 0.50% on the first $50,000,000, 0.40% on the next
$100,000,000, 0.30% on the next $100,000,000 and 0.25% on the amount over
$250,000,000 of its average daily net assets. This fee is calculated daily and
paid monthly.
TAMIC has a sub-advisory agreement with The Travelers Investment Management
Company, Inc. ("TIMCO"), an indirect wholly owned subsidiary of Citigroup, 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.
29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TAMIC also has a sub-advisory agreement with Janus Capital Corporation
("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the
day-to-day portfolio operations and investment decisions for CAF. As a result,
TAMIC pays Janus, as sub-advisor, 0.55% of the average daily net assets of CAF.
Travelers Insurance Company ("Travelers Insurance") acts as administrator
to the Funds. The Funds pay Travelers Insurance an administration fee calculated
at an annual rate of 0.06% of its average daily net assets. Travelers Insurance
has entered into a sub-administrative services agreement with SSBC Fund
Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance
pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% for
the average daily net assets of each Fund. This fee is calculated daily and paid
monthly.
Brokerage commissions of $6,451 were received from affiliated brokers.
One Trustee and all officers of the Funds are employees of Citigroup, Inc.,
or its subsidiaries.
4. INVESTMENTS
During the six months ended June 30, 1999, 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................................................... $97,622,533 $18,598,319 $320,374,974
- ------------------------------------------------------------------------------------------------------
Sales....................................................... 99,307,625 16,556,925 183,856,035
======================================================================================================
</TABLE>
At June 30, 1999, 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............................... $65,938,129 $ 426,188 $475,781,632
Gross unrealized depreciation............................... (5,404,371) (822,061) (10,049,398)
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $60,533,758 $(395,873) $465,732,234
=====================================================================================================
</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 the
repurchase price.
6. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Funds' basis in the contract.
The Funds enter into such contracts to hedge portions of their respective
portfolios. The Funds bear the market risk that arises from changes in the value
of the financial instruments and securities indices (futures contracts).
30
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At June 30, 1999, MAT had sold 5 financial futures contracts on the
Standard & Poor's 500 Index expiring in September 1999. The basis value of such
contracts was $1,615,413. The market value of such contracts on June 30, 1999,
was $1,727,125, resulting in an unrealized loss of $111,712.
7. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Funds,
represent investments, which are "marked-to-market" daily. When a purchased
option expires, the Funds realize a loss in the amount of the premium paid. When
the Funds enter into closing sales transactions, the Funds realize a gain or
loss depending on whether the proceeds from the closing sales transaction are
greater or less than the premium paid for the option. When the Funds exercise a
put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. When the Funds exercise a call option, the cost of the security
which the Funds purchase upon exercise will be increased by the premium
originally paid.
At June 30, 1999, the Funds had no open purchased call or put options
contracts.
8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in GNMA/FNMA transactions. Securities purchased on
a TBA basis are not settled until they are delivered to the Funds, normally 15
to 45 days later. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other securities.
At June 30, 1999, the Funds held no TBA securities.
9. CAPITAL LOSS CARRYFORWARD
At December 31, 1998, HYBT had, for Federal income tax purposes,
approximately $1,311,000 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>
1999 2000 2001 2002 2004
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Carryforward Amounts.......................... $748,000 $48,000 $134,000 $38,000 $343,000
========================================================================================================
</TABLE>
10. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in U.S. companies and the U.S. Government. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. Government.
31
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MANAGED ASSETS TRUST
Shares sold................................................. 955,211 955,576
Shares issued on reinvestment............................... 1,187,265 921,867
Shares reacquired........................................... (100,913) (747,496)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 2,041,563 1,129,947
===================================================================================================
HIGH YIELD BOND TRUST
Shares sold................................................. 370,492 772,815
Shares issued on reinvestment............................... 245,326 196,339
Shares reacquired........................................... (355,073) (673,313)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 260,745 295,841
===================================================================================================
CAPITAL APPRECIATION FUND
Shares sold................................................. 3,239,048 3,602,035
Shares issued on reinvestment............................... 400,400 292,021
Shares reacquired........................................... (201,099) (448,218)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 3,438,349 3,445,838
===================================================================================================
MONEY MARKET PORTFOLIO
Shares sold................................................. 99,238,237 103,475,184
Shares issued on reinvestment............................... 1,117,839 1,409,254
Shares reacquired........................................... (83,747,390) (76,308,910)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 16,608,686 28,575,528
===================================================================================================
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 1999(1)(2) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $19.99 $17.65 $14.98 $15.50 $12.85 $14.21
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.............. 0.22 0.41 0.48 0.46 0.49 0.46
Net realized and unrealized gain
(loss).......................... 1.11 3.27 2.70 1.50 2.83 (0.73)
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations......................... 1.33 3.68 3.18 1.96 3.32 (0.27)
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income.............. (0.39) (0.47) (0.12) (0.89) (0.50) (0.67)
Net realized gains................. (1.17) (0.87) (0.39) (1.59) (0.17) (0.42)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions.................. (1.56) (1.34) (0.51) (2.48) (0.67) (1.09)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD....... $19.76 $19.99 $17.65 $14.98 $15.50 $12.85
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................... 6.86%++ 21.44% 21.31% 13.78% 27.12% (2.24)%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S).... $313,326 $276,182 $223,870 $188,610 $171,276 $140,887
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 0.60%+ 0.60% 0.63% 0.58% 0.58% 0.61%
Net investment income.............. 2.15+ 2.30 2.91 3.51 3.49 3.59
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............. 35% 74% 90% 108% 110% 97%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 1999(1)(2) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $9.85 $9.89 $8.49 $9.00 $8.49 $9.25
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............... 0.45 0.77 0.76 0.91 0.80 0.66
Net realized and unrealized gain
(loss)........................... (0.03) (0.13) 0.65 0.41 0.41 (0.76)
- --------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations... 0.42 0.64 1.41 1.32 1.21 (0.10)
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income............... (0.81) (0.68) (0.01) (1.83) (0.70) (0.66)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........ $9.46 $9.85 $9.89 $8.49 $9.00 $8.49
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................... 4.31%++ 6.56% 16.56% 16.05% 15.47% (1.26)%
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)..... $29,431 $28,088 $25,272 $17,291 $12,902 $11,716
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)........................ 0.78%+ 0.82% 0.84% 0.97% 1.25% 1.25%
Net investment income............... 9.02+ 8.42 9.04 11.01 9.37 7.71
- --------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............... 60% 147% 137% 84% 222% 146%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(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 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% and 1.33% for the years ended
December 31, 1995 and 1994, respectively.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
33
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1999(1)(2) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $72.74 $46.32 $36.72 $33.18 $24.50 $25.87
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)..... (0.02) 0.06 0.19 0.23 0.24 0.19
Net realized and unrealized gain
(loss)........................ 11.57 28.07 9.41 8.49 8.61 (1.41)
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations....................... 11.55 28.13 9.60 8.72 8.85 (1.22)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income............ (0.07) (0.18) -- (0.41) (0.17) (0.15)
Net realized gains............... (1.99) (1.53) (0.00)* (4.77) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions................ (2.06) (1.71) (0.00)* (5.18) (0.17) (0.15)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $82.23 $72.74 $46.32 $36.72 $33.18 $24.50
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................... 16.03%++ 61.63% 26.14% 28.21% 36.37% (4.76)%
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $1,289,805 $890,861 $407,701 $224,132 $122,155 $78,494
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 0.82%+ 0.85% 0.84% 0.83% 0.85% 0.89%
Net investment income (loss)..... (0.01)+ 0.18 0.54 0.69 0.84 0.79
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............ 19% 53% 89% 84% 124% 106%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (4)........ 0.022 0.049 0.049 0.0412 0.0417 0.0278
Distributions from net investment
income........................ (0.022) (0.049) (0.049) (0.0412) (0.0417) (0.0278)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................... 2.21%++ 5.08% 5.03% 4.20% 4.17% 2.78%
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $58,678 $42,069 $13,494 $3,543 $1,417 $1,203
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)(5).................. 0.40%+ 0.65% 0.57% 0.78% 1.25% 1.25%
Net investment income............ 4.50+ 5.37 5.03 3.72 -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(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 Travelers reimbursed Money Market Portfolio for $35,623, $31,300 and
$43,376 in expenses for the six months ended June 30, 1999 and for the years
ended December 31, 1997 and December 31, 1996, respectively. If expenses
were not reimbursed, the per share decreases of net investment income would
have been $0.001, $0.002 and $0.02, respectively, and the actual expense
ratios would have been 0.54%, 1.39% and 1.71%, respectively.
(5) The ratio of expenses to average net assets for 1995 and 1994 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% and 6.40% for the years ended
December 31, 1995 and 1994, respectively.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
34
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
U.S. Government Securities Portfolio ("Portfolio") seeks to select investments
from the point of view of an investor concerned primarily with highest credit
quality, current income and total return. The assets of the Portfolio will be
invested in direct obligations of the United States, its agencies and
instrumentalities. For the six months ended June 30, 1999, the Portfolio had a
total return of negative 3.89%, which was below its Lipper, Inc. peer group
total return average of a negative 2.67%. (Lipper is an independent
fund-tracking organization.) As of June 30, 1999, the composition of assets was
roughly 58% in mortgage-backed securities and approximately 42% in U.S.
Government securities.
The first half of 1999 was a period of sustained economic growth at home and
recovery abroad. Following the events surrounding the Russian debt default in
August of 1998 -- which included a decline in bond yields and a 0.75% fall in
Fed funds -- yields have risen. Investor optimism, however, was tempered by
concerns about inflation and continued economic growth. In addition, both Russia
and Argentina remain economic hot spots and deserve close monitoring. The
reconstruction of Kosovo and peacekeeping efforts in that war-torn country will
also be an ongoing challenge.
Another issue facing the bond market is Y2K, a phrase referring to the fact that
some dates were coded into computers using only the last two digits of the year,
assuming the first two digits were "19." On or after January 1, 2000, some
computers may misread or not recognize dates and cause potential dislocations.
And while the extent of the Y2K problem is impossible to predict, it is safe to
say the immediate future promises to be interesting.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.1% annualized GDP growth rate for the first quarter. Furthermore,
the labor market continued to be tight, as the unemployment rate fell to a
29-year low of 4.2% in March. Defying the expectations of many economists,
inflation -- as measured by the Consumer Price Index ("CPI") -- was virtually
absent. Productivity gains and sagging global demand were credited with keeping
inflation under control. However, in the month of April, the CPI rose by 0.7%,
its largest monthly increase in nine years. This, coupled with signs that many
world economies were in the nascent stages of growth and recovery, deepened
fears that inflationary pressures were reaching a breaking point. These concerns
brought about an increase in the yield of the benchmark 30-year U.S. Treasury
Bond, which gained 71 basis points between April 8 and June 24 to close at
6.16%.
To counter these inflationary pressures, the Fed raised short-term interest
rates by 0.25% in late June, and subsequently adopted a neutral stance on
monetary policy. Meanwhile, during the months of May and June, the CPI remained
constant, generating considerable optimism that inflation had retreated. Further
reports of rising U.S. jobless claims added to the optimism. This sparked a rise
in demand for fixed-income investments, effectively lowering the 30-year U.S.
Treasury yield to 5.89% on July 19. However, the Fed has signaled its
willingness to raise rates if there are any signs of inflationary pressures.
The Fund seeks high current income, liquidity and security of principal. The
Fund invests primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and in related repurchase and
reverse repurchase agreements. These U.S. government securities in which the
Fund invests consist primarily of mortgage-related securities and U.S. Treasury
securities. Mortgage-related securities issued by federal agencies or
instrumentalities may be backed by the full faith and credit of the U.S.
Treasury, by the right of the issuer to borrow from the U.S. government or only
by the credit of the issuer itself.
As rates have risen, the Fund's duration has increased from 4.34 years at
December 31, 1998, to 4.94 years as of June 30, 1999. Mortgage-backed securities
continue to represent approximately 95% of current holdings with the remainder
in 10-year U.S. Treasuries. During the reporting period, the managers have
increased the average coupon of the Fund to take advantage of higher income
potential in the marketplace.
The investment team anticipates that interest rates should decline as the end of
1999 approaches. In their view, the potential for more moderate economic growth
should assuage current inflation concerns. The managers should expect a period
in which economic growth can co-exist with relatively low levels of inflation.
SOCIAL AWARENESS STOCK PORTFOLIO
The Social Awareness Stock Portfolio ("Portfolio") seeks long-term capital
appreciation by selecting investments, primarily common stocks, that meet the
social criteria established for the Portfolio. The Portfolio's social criteria
currently excludes companies that derive a significant portion of their revenues
from the production of tobacco, tobacco products, alcohol, or
35
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
military defense related services or gambling services. For the six months ended
June 30, 1999, the Portfolio returned 12.65% and outperformed the S&P 500 Index,
which posted a total return of 12.38% for the same period.
The managers have downsized representation in capital goods, communications
services, energy and technology. Their largest holdings include stocks such as
EMC Corp., Cisco Systems, Readers' Digest, Home Depot, Wal-Mart, Alcoa, Staples,
Chase Manhattan, Lowe's Companies and International Business Machines. The
investment team's strategy is to use normal stock market volatility as their
ally, by taking advantage of intermediate-term downside price corrections to
invest new investment inflows, which are running quite strong. While cautious
through the second half of 1999, the managers remain optimistic on the U.S.
economy and its major corporations for the next several years.
UTILITIES PORTFOLIO
The Utilities Portfolio ("Portfolio") seeks to provide current income by
investing in equity and debt securities of companies in the utility industries.
For the six months ended June 30, 1999, the Portfolio had a total return of
4.31%. In comparison, the Lipper Inc. peer group total return average was 5.70%.
(Lipper is an independent fund-tracking organization.)
For the first six months of 1999, the Utilities Portfolio recorded a total
investment return of approximately 4.3%, versus a virtual flat performance for
the S&P Utilities Index. These results follow 1998's full year appreciation of
18.21%. The Portfolio's investments in telecommunications related companies were
the most positive contributors to its overall performance, led by such names as
Mediaone Group (being acquired by AT&T), Nextlink Communications, Williams
Companies, MCI Worldcom and Montana Power (fiber network). At the end of the
first half, the Portfolio was invested as follows -- electric utilities 57%,
telecommunications 23%, natural gas 15%, bonds 3% and cash 2%.
The team's investment strategy seeks to identify "core" investments, those which
they expect to own long-term because they represent the best quality total
return potential. In addition, the managers seek opportunistic investments that
may offer more intermediate return potential, or may be in the early stages of
developing as future core holdings. The infrastructure sector of the economy
offers some very interesting restructuring prospects, while the
communications -- technology field continues in the midst of its revolutionary
redefinition.
In closing, we thank you for your investment in The Travelers Series Trust. We
look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 30, 1999
36
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ (3.89)%
Year Ended 6/30/99 0.92%
Five Years Ended 6/30/99 8.61%
1/24/92* through 6/30/99 7.21%
CUMULATIVE TOTAL RETURN
----------------------------------------------
1/24/92* through 6/30/99 67.84%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on January
24, 1992, assuming reinvestment of dividends, through June 30,
1999. 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 SECURITIES LEHMAN GOVERNMENT BOND
PORTFOLIO INDEX CONSUMER PRICE INDEX
-------------------------- ---------------------- --------------------
<S> <C> <C> <C>
1/24/92 10000 10000 10000
12/92 10790 10723 10275
12/93 11813 11866 10557
12/94 11147 11464 10840
12/95 13869 13567 11115
12/96 14077 13943 11484
12/97 15846 15280 11679
12/98 17463 16785 11866
6/99 16784 16404 12032
</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 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 12.65%
Year Ended 6/30/99 25.42%
Five Years Ended 6/30/99 25.50%
5/1/92* through 6/30/99 19.00%
CUMULATIVE TOTAL RETURN
----------------------------------------------
5/1/92* through 6/30/99 247.80%
+ 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, 1999.
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 STOCK STANDARD & POOR'S 500
PORTFOLIO INDEX CONSUMER PRICE INDEX
---------------------- --------------------- --------------------
<S> <C> <C> <C>
5/1/92 10000 10000 10000
12/92 10950 10673 10157
12/93 11777 11745 10436
12/94 11461 11900 10716
12/95 15285 14509 10988
12/96 18340 17838 11353
12/97 23343 23789 11545
12/98 30875 30626 11731
6/99 34780 33498 11895
</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.
37
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 4.31%
Year Ended 6/30/99 14.07%
2/4/94* through 6/30/99 16.30%
CUMULATIVE TOTAL RETURN
----------------------------------------------
2/4/94* through 6/30/99 126.15%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
February 4, 1994, assuming reinvestment of dividends, through June
30, 1999. 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 &
Utilities Poor's 500 Consumer
Portfolio Index Price Index
--------- ---------- -----------
<S> <C> <C> <C>
2/4/94 10000 10000 10000
12-94 10170 10072 10205
12-95 13149 13852 10464
12-96 14638 17031 10811
12-97 18340 22712 10995
6-98 19825 26737 11110
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
38
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS -- 29.7%
U.S. Treasury Notes:
$3,000,000 5.000% due 2/28/01.......................................... $ 2,979,000
8,660,000 8.125% due 8/15/21.......................................... 10,543,463
9,000,000 U.S. REFCO Strips, zero coupon due 10/15/13................. 3,600,000
1,000,530 U.S. Treasury Inflation Index, 3.875% due 4/15/29........... 986,773
- --------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $19,574,489)..... 18,109,236
======================================================================================
U.S. GOVERNMENT AGENCIES -- 61.2%
3,642,003 FGLMC Certificates, 7.000% due 1/1/28....................... 3,608,970
FHLMC Certificates:
3,000,000 5.705% due 3/2/09........................................... 2,820,180
3,951,971 6.500% due 3/15/28.......................................... 3,640,754
872,974 FHLMC Gold Certificates, 7.000% due 12/1/27................. 865,057
FNMA Certificates:
1,407,402 6.000% due 10/1/13.......................................... 1,359,452
3,872,520 7.000% due 6/1/24 @......................................... 3,845,462
2,877,795 6.500% due 12/1/27.......................................... 2,779,748
GNMA Certificates:
1,879,265 9.000% due 9/15/09 @........................................ 1,995,536
664,058 8.500% due 7/15/18 @........................................ 695,183
9,023,761 6.000% due 4/20/28.......................................... 7,345,532
2,009,164 6.500% due 12/15/28......................................... 1,935,067
4,476,873 7.000% due 2/15/29 @........................................ 4,422,300
2,000,000 Tennessee Valley Authority Debenture, 6.250% due 12/15/17... 1,927,500
- --------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $38,599,894)........ 37,240,741
======================================================================================
REPURCHASE AGREEMENT -- 9.1%
5,516,000 CS First Boston, 4.800% due 7/1/99; Proceeds at
maturity -- $5,516,733; (Fully collateralized by U.S.
Treasury Notes, 6.875% due 3/31/00; Market
value -- $5,627,272) (Cost -- $5,516,000)................... 5,516,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $63,690,383*)............ $60,865,977
======================================================================================
</TABLE>
@ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
* Aggregate cost for federal income tax purpose is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 91.3%
- -----------------------------------------------------------------------------------------
BASIC MATERIALS -- 3.5%
4,000 Air Products & Chemicals, Inc. ............................. $ 161,000
19,000 Alcoa Inc. ................................................. 1,175,625
15,000 Engelhard Corp. ............................................ 339,375
8,000 Praxair, Inc. .............................................. 391,500
- -----------------------------------------------------------------------------------------
2,067,500
- -----------------------------------------------------------------------------------------
CAPITAL GOODS -- 3.1%
24,500 Anixter International Inc. (a).............................. 447,125
4,500 Belden, Inc. ............................................... 107,718
15,000 Deere & Co. ................................................ 594,375
9,800 Pitney Bowes, Inc. ......................................... 629,650
- -----------------------------------------------------------------------------------------
1,778,868
- -----------------------------------------------------------------------------------------
COMMUNICATION -- 4.2%
13,800 AT&T Corp. ................................................. 770,212
8,000 Bell Atlantic Corp. ........................................ 523,000
11,836 MCI Worldcom Inc. (a)....................................... 1,020,855
5,000 Time Warner Telecom Inc. ................................... 145,000
- -----------------------------------------------------------------------------------------
2,459,067
- -----------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 22.5%
14,200 Black & Decker Corp. ....................................... 896,375
12,125 Caliber Learning Network, Inc. (a).......................... 57,594
16,991 Dollar General Corp. ....................................... 492,739
900 eTOYS Inc. ................................................. 36,675
18,800 Home Depot, Inc. ........................................... 1,211,425
50,000 Interface, Inc. ............................................ 431,250
1,000 Juniper Networks, Inc. ..................................... 149,000
21,000 Kaufman & Broad Home Corp. ................................. 522,375
6,532 Koninklijke Philips Electronics N.V. ....................... 658,916
17,000 Liz Claiborne, Inc. ........................................ 620,500
20,100 Lowe's Cos., Inc. .......................................... 1,139,419
24,500 May Department Stores Co. .................................. 1,001,437
25,000 Office Depot, Inc. ......................................... 551,562
31,200 Reader's Digest Association, Inc. .......................... 1,240,200
10,000 Ross Stores, Inc. .......................................... 503,750
37,600 Staples, Inc. (a)........................................... 1,163,250
19,500 Sylvan Learning Systems, Inc. (a)........................... 530,156
8,600 Tribune Co. ................................................ 749,275
25,000 Wal-Mart Stores, Inc. ...................................... 1,206,250
- -----------------------------------------------------------------------------------------
13,162,148
- -----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 9.3%
5,922 Albertson's, Inc. .......................................... 305,353
18,000 Brinker International, Inc. (a)............................. 489,375
17,400 Kroger Co. (a).............................................. 486,113
14,800 Newell Co. ................................................. 688,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER STAPLES -- 9.3% (CONTINUED)
25,000 Pepsi Bottling Group, Inc. ................................. $ 576,562
4,800 PepsiCo, Inc. .............................................. 185,700
19,200 Rite Aid Corp. ............................................. 472,800
22,700 Sysco Corp. ................................................ 676,744
7,480 Tricon Global Restaurants, Inc. (a)......................... 404,855
7,142 Unilever N.V. .............................................. 498,154
4,800 Walt Disney Co. ............................................ 147,900
18,000 Wendy's International, Inc. ................................ 509,625
- -----------------------------------------------------------------------------------------
5,441,381
- -----------------------------------------------------------------------------------------
ENERGY -- 1.6%
6,600 Anadarko Petroleum Corp. ................................... 242,962
6,413 BP Amoco PLC ADR............................................ 695,811
- -----------------------------------------------------------------------------------------
938,773
- -----------------------------------------------------------------------------------------
FINANCIALS -- 15.5%
21,700 ACE, Ltd. .................................................. 613,025
9,200 Allstate Corp. ............................................. 330,050
4,000 American Express Co. ....................................... 520,500
6,112 American International Group Inc. .......................... 715,486
14,400 Associates First Capital Corp. ............................. 638,100
9,962 Bank of America Corp. ...................................... 730,339
5,400 BankBoston Corp. ........................................... 276,075
13,300 Chase Manhattan Corp. ...................................... 1,152,113
450 DLJdirect................................................... 13,275
9,400 Freddie Mac................................................. 545,200
10,000 Hartford Financial Services Group, Inc. .................... 583,125
14,000 IndyMac Mortgage Holdings, Inc. ............................ 224,000
14,000 Lincoln National Corp. ..................................... 732,375
11,800 Provident Cos., Inc. ....................................... 472,000
13,300 St. Paul Cos., Inc. ........................................ 423,106
6,800 State Street Corp. ......................................... 580,550
6,000 Transamerica Corp. ......................................... 450,000
2,540 Washington Mutual, Inc. .................................... 89,852
- -----------------------------------------------------------------------------------------
9,089,171
- -----------------------------------------------------------------------------------------
HEALTH CARE -- 9.3%
16,400 Amgen Inc. (a).............................................. 998,350
11,400 C. R. Bard, Inc. ........................................... 545,063
12,000 DENTSPLY International, Inc. ............................... 336,000
20,000 HEALTHSOUTH Corp. .......................................... 298,750
6,200 Johnson & Johnson........................................... 607,600
11,600 Merck & Co., Inc. .......................................... 858,400
2,400 Pfizer, Inc. ............................................... 263,400
17,700 Schering-Plough Corp. ...................................... 938,100
7,200 Stryker Corp. .............................................. 432,900
10,000 Tenet Healthcare Corp. (a).................................. 185,625
- -----------------------------------------------------------------------------------------
5,464,188
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 15.0%
17,200 Automatic Data Processing, Inc. ............................ $ 756,800
20,700 Cisco Systems Inc. (a)...................................... 1,335,150
19,000 Compaq Computer Corp. ...................................... 450,063
15,000 Electronic Data Systems Corp. .............................. 848,438
28,000 EMC Corp. (a)............................................... 1,540,000
10,400 Intel Corp. ................................................ 618,800
8,800 International Business Machines Corp. ...................... 1,137,400
10,400 Lucent Technologies Corp. .................................. 701,350
6,200 Sun Microsystems Inc. (a)................................... 427,025
15,800 Xerox Corp. ................................................ 933,187
- -----------------------------------------------------------------------------------------
8,748,213
- -----------------------------------------------------------------------------------------
TRANSPORTATION -- 3.6%
31,700 Norfolk Southern Corp. ..................................... 954,963
14,125 Southwest Airlines Co. ..................................... 439,641
15,000 USFreightways Corp. ........................................ 694,687
- -----------------------------------------------------------------------------------------
2,089,291
- -----------------------------------------------------------------------------------------
UTILITIES -- 3.7%
9,100 AES Corp. .................................................. 528,938
11,000 Enron Corp. ................................................ 899,250
17,200 Williams Cos., Inc. ........................................ 732,075
- -----------------------------------------------------------------------------------------
2,160,263
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $35,648,026).................... 53,398,863
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 8.7%
$5,106,000 CS First Boston Corp., 4.800% due 7/1/99; Proceeds at
maturity -- $2,512,225; (Fully collateralized by U.S.
Treasury Notes, 5.375% due 1/31/00; Market
value -- $2,561,220) (Cost -- $5,106,000)................... 5,106,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $40,754,026*)............ $58,504,863
=========================================================================================
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 95.8%
- ---------------------------------------------------------------------------------------
BROADCASTING & CABLE -- 4.2%
20,000 MediaOne Group, Inc. ....................................... $ 1,487,500
- ---------------------------------------------------------------------------------------
COMMUNICATIONS - EQUIPMENT -- 0.7%
4,650 Covad Communications Group, Inc.+........................... 247,904
- ---------------------------------------------------------------------------------------
ELECTRIC - UTILITIES -- 57.4%
20,000 Allegheny Energy, Inc. ..................................... 641,250
1,000 American Electric Power Co., Inc.+.......................... 37,562
20,000 BEC Energy.................................................. 825,000
7,500 Calpine Corp. .............................................. 405,000
15,000 Cinergy Corp. .............................................. 480,000
25,000 CMS Energy Corp. ........................................... 1,046,875
30,000 DQE, Inc. .................................................. 1,203,750
11,000 Duke Energy Corp. .......................................... 598,125
21,800 Edison International........................................ 583,150
25,000 El Paso Energy Corp. ....................................... 879,687
20,000 Energy East Corp. .......................................... 520,000
29,000 FirstEnergy Corp. .......................................... 899,000
20,000 Florida Progress Corp. ..................................... 826,250
10,000 FPL Group, Inc. ............................................ 546,250
20,000 GPU, Inc. .................................................. 843,750
20,000 Illinova Corp. ............................................. 545,000
15,000 The Montana Power Co. ...................................... 1,057,500
11,000 New Century Energies, Inc. ................................. 426,937
53,000 Niagara Mohawk Holdings Inc.+............................... 851,312
20,000 NiSource Inc. .............................................. 516,250
30,000 Northeast Utilities+........................................ 530,625
20,000 Northern States Power Co. .................................. 483,750
21,000 PECO Energy Co. ............................................ 879,375
25,000 Pinnacle West Capital Corp. ................................ 1,006,250
10,000 Public Service Enterprise Group Inc. ....................... 408,750
10,000 Reliant Energy, Inc. ....................................... 276,250
15,000 SCANA Corp. ................................................ 350,625
25,000 Sierra Pacific Resources.................................... 909,375
10,000 Texas Utilities Co. ........................................ 412,500
30,000 Unicom Corp. ............................................... 1,156,875
- ---------------------------------------------------------------------------------------
20,147,023
- ---------------------------------------------------------------------------------------
NATURAL GAS -- 14.8%
16,000 Coastal Corp. .............................................. 640,000
10,000 Consolidated Natural Gas Co. ............................... 607,500
22,000 Energen Corp. .............................................. 409,750
15,000 MCN Energy Group Inc. ...................................... 311,250
15,000 MDU Resources Group, Inc. .................................. 342,188
15,000 National Fuel Gas Co. ...................................... 727,500
20,000 Sempra Energy............................................... 452,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
NATURAL GAS -- 14.8% (CONTINUED)
20,000 Southwest Gas Corp. ........................................ $ 572,500
26,000 The Williams Cos., Inc. .................................... 1,106,625
- ---------------------------------------------------------------------------------------
5,169,813
- ---------------------------------------------------------------------------------------
TELEPHONE -- 18.7%
9,450 AT&T Corp. ................................................. 527,429
10,000 Bell Atlantic Corp. ........................................ 653,750
10,000 GTE Corp. .................................................. 757,500
20,000 MCI Worldcom, Inc. ......................................... 1,725,000
8,000 NEXTLINK Communications, Inc.+.............................. 595,000
12,000 Qwest Communications International Inc.+.................... 396,750
20,000 SBC Communications Inc. .................................... 1,160,000
14,000 Sprint Corp. (Fon Group).................................... 739,375
- ---------------------------------------------------------------------------------------
6,554,804
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $25,891,120).................... 33,607,044
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
<C> <C> <S> <C>
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 1.2%
- ------------------------------------------------------------------------------------------------------
ELECTRIC - UTILITIES -- 0.6%
$200,000 A- Arizona Public Service Co., 7.250% due 8/1/23............... 190,500
- ------------------------------------------------------------------------------------------------------
TELEPHONE -- 0.6%
230,000 A- MCI Communications Corp., 7.750% due 3/23/25................ 225,112
- ------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $404,813).................... 415,612
- ------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 1.4%
500,000 U.S. Treasury Notes, 7.750% due 11/30/99
(Cost -- $499,969).......................................... 505,545
- ------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.6%
551,000 CS First Boston, 4.800% due 7/1/99; Proceeds at
maturity -- $551,073; (Fully Collateralized by U.S. Treasury
Notes, 6.875% due 3/31/00; Market value -- $562,316)
(Cost -- $551,000).......................................... 551,000
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $27,346,902**)........... $35,079,201
======================================================================================================
</TABLE>
+ Non-income producing security.
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors Service
Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 45 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"C" may be modified by the addition of a plus (+) or a minus (-) sign to show
relative standings within the major rating categories.
<TABLE>
<S> <C> <C>
AAA -- Bonds rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issue
only in a small degree.
A -- Bonds rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in
higher rated categories.
BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as
and CCC predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. "BB" represents a lower degree of
speculation than "B", and "CCC" the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
C -- The rating "C" is reserved for income bonds on which no
interest is being paid.
D -- Bonds rated "D" are in default, and payment of interest
and/or repayment of principal is in arrears.
</TABLE>
Moody's Investors Service Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may
be applied to each generic rating from "Aa" to "C", where 1 is the highest and 3
the lowest rating within its generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment 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 rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is, they are neither highly protected nor
poorly secured. Interest payment and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack
outstanding investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with
respect to principal or interest.
Ca -- Bonds rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
45
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost -- $63,690,383,
$40,754,026 and $27,346,902, respectively)........ $60,865,977 $58,504,863 $35,079,201
Cash................................................. 986 331 --
Dividends and interest receivable.................... 607,134 26,552 106,571
Receivable for securities sold....................... -- -- 646,484
Other assets......................................... 8,484 -- --
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................... 61,482,581 58,531,746 35,832,256
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable..................... 16,088 32,000 20,876
Administration fees payable.......................... 3,133 3,008 1,927
Payable to bank...................................... -- -- 20,775
Payable for securities purchased..................... -- -- 532,370
Accrued expenses..................................... 3,721 16,588 17,706
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................... 22,942 51,596 593,654
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $61,459,639 $58,480,150 $35,238,602
=============================================================================================================
NET ASSETS:
Paid-in capital...................................... $63,843,195 $40,206,222 $27,035,165
Undistributed net investment income.................. 1,781,892 188,126 436,612
Accumulated net realized gain (loss) from security
transactions...................................... (1,341,042) 334,965 34,526
Net unrealized appreciation (depreciation) of
investments....................................... (2,824,406) 17,750,837 7,732,299
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $61,459,639 $58,480,150 $35,238,602
=============================================================================================================
SHARES OUTSTANDING..................................... 5,422,040 2,044,339 2,121,529
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................. $11.34 $28.61 $16.61
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................ $ 1,931,497 $ 113,478 $ 64,754
Dividends............................................... -- 288,362 520,780
Less: Foreign withholding tax........................... -- (17,313) --
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................. 1,931,497 384,527 585,534
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)....................... 102,536 153,762 110,913
Administration fees (Note 2)............................ 18,889 14,269 10,238
Audit and legal......................................... 15,500 15,500 15,500
Shareholder and system servicing fees................... 4,500 4,500 4,500
Custody................................................. 2,000 2,000 1,500
Shareholder communications.............................. 2,000 2,500 1,900
Trustees' fees.......................................... 1,870 1,870 1,870
Registration fees....................................... -- 1,000 500
Pricing service fees.................................... 350 -- --
Other................................................... 1,960 1,000 2,001
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................... 149,605 196,401 148,922
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................... 1,781,892 188,126 436,612
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE
3):
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales.................................. 35,718,570 2,371,803 2,035,717
Cost of securities sold.............................. 36,715,339 2,025,896 2,001,194
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)................................ (996,769) 345,907 34,523
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period.................................. 471,702 12,473,196 6,697,308
End of period........................................ (2,824,406) 17,750,837 7,732,299
- -------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION).... (3,296,108) 5,277,641 1,034,991
- -------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS............................ (4,292,877) 5,623,548 1,069,514
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... $(2,510,985) $5,811,674 $1,506,126
=============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE
30, 1999
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 1,781,892 $ 188,126 $ 436,612
Net realized gain (loss)......................... (996,769) 345,907 34,523
Change in net unrealized appreciation
(depreciation)................................ (3,296,108) 5,277,641 1,034,991
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.................................... (2,510,985) 5,811,674 1,506,126
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ (5,474) (185,510) (791,288)
Net realized gains............................... -- (952,059) (1,799,094)
- -------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (5,474) (1,137,569) (2,590,382)
- -------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares................. 8,151,550 13,417,635 4,587,273
Net asset value of shares issued for reinvestment
of dividends.................................. 5,474 1,137,569 2,590,382
Cost of shares reacquired........................ (10,634,936) (231,412) (3,763,847)
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. (2,477,912) 14,323,792 3,413,808
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS.................. (4,994,371) 18,997,897 2,329,552
NET ASSETS:
Beginning of period.............................. 66,454,010 39,482,253 32,909,050
- -------------------------------------------------------------------------------------------------------
END OF PERIOD*................................... $ 61,459,639 $58,480,150 $35,238,602
=======================================================================================================
* Includes undistributed net investment income
of:........................................... $1,781,892 $188,126 $436,612
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER
31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............................ $ 2,553,087 $ 185,510 $ 793,468
Net realized gain................................ 3,015,324 952,131 1,796,917
Increase (decrease) in net unrealized
appreciation.................................. (1,235,350) 7,147,456 1,908,703
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 4,333,061 8,285,097 4,499,088
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ (2,585,952) (156,005) (643,885)
Net realized gains............................... (2,807,849) (535,723) (609,017)
- -------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (5,393,801) (691,728) (1,252,902)
- -------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares................. 37,655,108 12,345,818 10,648,592
Net asset value of shares issued for reinvestment
of dividends.................................. 5,393,801 691,728 1,252,902
Cost of shares reacquired........................ (10,813,602) (2,161,874) (3,651,686)
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS.................................. 32,235,307 10,875,672 8,249,808
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS............................. 31,174,567 18,469,041 11,495,994
NET ASSETS:
Beginning of year................................ 35,279,443 21,013,212 21,413,056
- -------------------------------------------------------------------------------------------------------
END OF YEAR*..................................... $ 66,454,010 $39,482,253 $32,909,050
=======================================================================================================
* Includes undistributed net investment income
of:........................................... $5,474 $185,510 $791,288
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The U.S. Government Securities, Social Awareness Stock and Utilities
Portfolios (collectively, "Portfolio(s)") are separate investment portfolios of
The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company and consists of these
portfolios and 16 other separate investment portfolios: Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated
Stock, Large Cap, Equity Income, Disciplined Mid Cap Stock, Convertible Bond,
Strategic Stock, Disciplined Small Cap Stock, MFS Mid Cap Growth, MFS Research,
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 shareholder 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 for which market quotations are not
available will be valued in good faith at fair value by or under the direction
of the Board of Trustees; (d) securities maturing within 60 days are valued at
cost plus accreted discount, or minus amortized premium, which approximates
value; (e) securities, other than U.S. government agencies and obligations, 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; (f) 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; (g) gains or losses on the sale of securities are calculated by using the
specific identification method; (h) dividends and distributions to shareholders
are recorded on the ex-dividend date; (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;
(j) 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, 1998, reclassifications were made to the
capital accounts of the U.S. Government Securities Portfolio, Social Awareness
Stock Portfolio and Utilities Portfolio to reflect permanent book/tax
differences and income and gains available for distribution under income tax
regulations. Accordingly, for the Social Awareness Stock Portfolio, a portion of
undistributed net investment income amounting to $44 and a portion of
accumulated net realized gains amounting to $23 was reclassified to paid-in
capital. In addition, for the Utilities Portfolio, a portion of undistributed
net investment income amounting to $45 and a portion of accumulated net realized
gains amounting to $115 was reclassified to paid-in capital. Net investment
income, net realized gains and net assets for each Portfolio were not affected
by these changes; and (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. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup, 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.
SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management
Corp., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH") and an
indirect wholly owned subsidiary of Citigroup, Inc., acts as investment manager
and advisor to the Social Awareness Stock ("SAS") and Utilities ("Utilities")
Portfolios. SAS pays SSBC 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 SSBC 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
<PAGE>
- --------------------------------------------------------------------------------
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 SSBC.
Travelers Insurance pays SSBC, 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 Citigroup, Inc.,
or its subsidiaries.
3. INVESTMENTS
During the six months ended June 30, 1999, 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................................................... $38,881,925 $13,093,687 $4,641,969
- ----------------------------------------------------------------------------------------------------
Sales....................................................... 35,718,570 2,371,803 2,035,717
====================================================================================================
</TABLE>
At June 30, 1999, 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............................... $ 116,631 $18,600,278 $8,162,760
Gross unrealized depreciation............................... (2,941,037) (849,441) (430,461)
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $(2,824,406) $17,750,837 $7,732,299
====================================================================================================
</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 the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Portfolios record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Portfolio's basis in the contract.
The Portfolios enter into such contracts to hedge portions of their
respective portfolios. The Portfolios bear the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts).
At June 30, 1999, the Portfolios had no open futures contracts.
51
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Portfolios,
represent investments, which are "marked-to-market" daily. When a purchased
option expires, the Portfolios will realize a loss in the amount of the premium
paid. When the Portfolios enter into closing sales transactions, the Portfolios
will realize a gain or loss depending on whether the proceeds from the closing
sales transactions are greater or less than the premium paid for the option.
When the Portfolios exercise a put option, they will realize a gain or loss from
the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Portfolios exercise a call
option, the cost of the security which the Portfolios purchase upon exercise
will be increased by the premium originally paid.
At June 30, 1999, the Portfolios had no open purchased call or put options
contracts.
7. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Portfolios may trade securities on a "to-be-announced" ("TBA") basis.
In a TBA transaction, the Portfolios commit to purchasing or selling securities
for which specific information is not yet known at the time of the trade,
particularly the face amount and maturity date in GNMA/FNMA transactions.
Securities purchased on a TBA basis are not settled until they are delivered to
the Portfolios, normally 15 to 45 days later. These transactions are subject to
market fluctuations and their current value is determined in the same manner as
for other securities.
At June 30, 1999, the Portfolios held no TBA securities.
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, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold................................................. 702,052 3,036,112
Shares issued on reinvestment............................... 489 457,035
Shares reacquired........................................... (912,591) (888,165)
- ----------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (210,050) 2,604,982
==============================================================================================
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold................................................. 488,206 542,975
Shares issued on reinvestment............................... 40,998 29,867
Shares reacquired........................................... (8,340) (96,777)
- ----------------------------------------------------------------------------------------------
Net Increase................................................ 520,864 476,065
==============================================================================================
UTILITIES PORTFOLIO
Shares sold................................................. 270,208 663,583
Shares issued on reinvestment............................... 154,824 80,676
Shares reacquired........................................... (218,804) (229,307)
- ----------------------------------------------------------------------------------------------
Net Increase................................................ 206,228 514,952
==============================================================================================
</TABLE>
52
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $11.80 $11.65 $10.86 $12.43 $10.58 $11.63
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................... 0.32 0.49 0.58 0.68 0.65 0.60
Net realized and unrealized gain
(loss)............................... (0.78) 0.70 0.79 (0.52) 1.80 (1.23)
- -----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations....... (0.46) 1.19 1.37 0.16 2.45 (0.63)
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income................... (0.00)* (0.50) (0.58) (1.55) (0.60) (0.39)
Net realized gains...................... -- (0.54) -- (0.18) -- (0.03)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions....................... (0.00)* (1.04) (0.58) (1.73) (0.60) (0.42)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............ $11.34 $11.80 $11.65 $10.86 $12.43 $10.58
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............................. (3.89)%++ 10.20% 12.62% 1.46% 24.42% (5.64)%
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)......... $61,460 $66,454 $35,279 $26,009 $28,192 $24,522
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 0.48%+ 0.45% 0.49% 0.62% 0.56% 0.71%
Net investment income................... 5.66+ 5.31 6.10 5.68 5.80 5.56
- -----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................... 59% 349% 208% 501% 214% 16%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $25.92 $20.06 $15.76 $14.32 $11.05 $11.64
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (4)............... 0.07 0.10 0.15 0.31 0.12 0.16
Net realized and unrealized gain
(loss)............................... 3.19 6.30 4.15 2.42 3.47 (0.45)
- -----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations....... 3.26 6.40 4.30 2.73 3.59 (0.29)
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (3):
Net investment income................... (0.09) (0.12) -- (0.43) (0.14) (0.24)
Net realized gains...................... (0.48) (0.42) -- (0.86) (0.18) (0.06)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions....................... (0.57) (0.54) -- (1.29) (0.32) (0.30)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............ $28.61 $25.92 $20.06 $15.76 $14.32 $11.05
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............................. 12.65%++ 32.27% 27.28% 19.98% 33.37% (2.69)%
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)......... $58,480 $39,482 $21,013 $11,040 $7,055 $3,879
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)(5)......................... 0.82%+ 0.84% 0.98% 1.25% 1.25% 1.25%
Net investment income................... 0.79+ 0.63 0.97 0.43 0.99 1.43
- -----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................... 5% 14% 19% 26% 73% 137%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(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) For the year ended December 31, 1996, The Travelers reimbursed the Social
Awareness Stock Portfolio for $25,093 in expenses. If such fees were not
waived and expenses not reimbursed, the per share decrease of net investment
income would have been $0.06 and the actual expense ratio would have been
1.69%.
(5) The ratios of expenses to average net assets for the years ended December
31, 1995 and 1994 reflect an expense reimbursement by The Travelers in
connection with voluntary expense limitations. Without the expense
reimbursements, the ratios of expenses to average net assets would have been
1.75% and 3.34%, respectively.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
53
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO 1999(1)(2) 1998 1997 1996 1995 1994(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $17.18 $15.29 $12.22 $12.85 $10.17 $10.00
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income.................... 0.20 0.37 0.46 0.47 0.48 0.35
Net realized and unrealized gain
(loss)................................ 0.55 2.33 2.63 0.47 2.44 (0.18)
- ------------------------------------------------------------------------------------------------------------------------
Total Income From Operations............... 0.75 2.70 3.09 0.94 2.92 0.17
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM (4):
Net investment income.................... (0.40) (0.42) (0.01) (0.84) (0.24) --
Net realized gains....................... (0.92) (0.39) (0.01) (0.73) --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions........................ (1.32) (0.81) (0.02) (1.57) (0.24) --
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............. $16.61 $17.18 $15.29 $12.22 $12.85 $10.17
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................... 4.31%++ 18.21% 25.29% 7.47% 29.29% 1.70%++
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S).......... $35,239 $32,909 $21,413 $18,214 $15,340 $5,757
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (5)............................. 0.87%+ 0.80% 1.06% 1.07% 1.25% 1.25%+
Net investment income.................... 2.54+ 3.06 3.58 3.88 4.29 3.86+
- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.................... 6% 51% 68% 39% 25% 32%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from February 4, 1994 (commencement of operations) to
December 31, 1994.
(4) 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.
(5) 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.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
54
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<PAGE>
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<PAGE>
Investment Advisers
--------------------
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY
MARKET PORTFOLIO AND
THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK PORTFOLIO AND UTILITIES
PORTFOLIO
SSBC FUND MANAGEMENT INC.
New York, New York
Independent Auditors
---------------------
KPMG LLP
New York, New York
Custodian
----------
PNC BANK, N.A.
This report is prepared for the general information of contract owners and is
not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Money Market Portfolio, The Travelers Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio or Utilities
Portfolio. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity and Variable
Universal Life Insurance products offered by The Travelers Insurance Company or
Travelers Life & Annuity Company and the Prospectuses for the underlying funds,
which collectively contain all pertinent information, including the applicable
sales commissions.
Printed in U.S.A. VG-181 (Semi-Annual)(8-99)
<PAGE>
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
June 30, 1999
The Travelers Series Trust:
Travelers Quality Bond Portfolio
Lazard International Stock Portfolio
MFS Emerging Growth Portfolio
Federated High Yield Portfolio
Federated Stock Portfolio
Disciplined Mid Cap Stock Portfolio
[TravelersLife&Annuity
A member of citigroup LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<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 Portfolio,
Lazard International Stock Portfolio, MFS Emerging Growth Portfolio, Federated
High Yield Portfolio, Federated Stock Portfolio and Disciplined Mid Cap Stock
Portfolio ("Portfolios") for the period ended June 30, 1999. In this letter, we
briefly discuss general economic and market conditions and outline each
Portfolio's investment strategy. A market commentary and detailed summary of
performance and current holdings for each Portfolio or Fund can be found on the
pages listed below.
<TABLE>
<CAPTION>
MARKET SCHEDULE OF
SUBACCOUNT COMMENTARY INVESTMENTS
- ---------- ---------- -----------
<S> <C> <C>
Travelers Quality Bond Portfolio...................... 3 11
Lazard International Stock Portfolio.................. 3 13
MFS Emerging Growth Portfolio......................... 4 16
Federated High Yield Portfolio........................ 4 28
Federated Stock Portfolio............................. 5 38
Disciplined Mid Cap Stock Portfolio................... 6 42
</TABLE>
ECONOMIC UPDATE
The first half of 1999 was a period of economic growth at home and recovery
abroad. Following the events surrounding the Russian debt default in August of
1998 -- which included a dive in bond yields and a 0.75% decrease in interest
rates -- yields have recovered quite well. Investor optimism, however, was
tempered by concerns about inflation, interest rates, and continued economic
growth.
EQUITY MARKET COMMENTARY
The year began on a volatile note for global financial markets as a new threat
emerged in Latin America. The devaluation of the Brazilian currency raised
concerns for U.S. companies with exposure to Latin America and took its toll on
the stock market in the middle of January. The Dow Jones Industrial Average
("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices
did recover, however, to finish higher at the end of January.
Interest rate concerns dominated market psychology during February. Despite low
inflation, interest rates moved higher amid fears of Federal Reserve Board
("Fed") tightening in response to the strong U.S. economy. In February, the
yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market
valuations became a concern as investors focused on the rise in interest rates,
the lack of a substantial earnings recovery and high price/earnings multiples.
During the month of March, market sentiment reversed and investors focused on
the reality of DJIA 10,000. After repeated assaults, the DJIA did reach 10,000
on March 16, 1999, retreated and then went on to close at 10,006 on March 29.
Economic activity remained brisk and it became obvious that first quarter Gross
Domestic Product ("GDP") growth would be above expectations. Consumer prices
rose 0.1% in February up 1.6% from the prior year.
The Standard & Poor's ("S&P") 500 Index gained 5.0% in the first quarter of
1999. The S&P 400 Mid Cap Index fell by 6.4% while the Russell 2000 Index
declined by 5.4%. The S&P 500 Growth Index produced a 6.9% total return,
outpacing the 2.9% total return of the S&P 500 Value Index. All sectors except
consumer staples (-11%) registered respectable gains in the first quarter of
1999. The market rally was led by the energy services (22%) and technology (9%)
sectors. The financial services (7%) and consumer discretionary (6%) sectors
also performed well.
Despite a rise in interest rates in the second quarter, the U.S. stock market
finished firmly in positive territory. Evidence of stronger-than-expected
economic growth prompted hopes of a meaningful earnings recovery during the
quarter and, at the same time, triggered concerns about rising interest rates.
This led to a rally in small cap and value stocks.
Interest rates began to climb in the month of May as investors worried about
inflation concerns on the heels of recent economic strength. First quarter GDP
growth was revised down to 4.1% from 4.5%, but other indicators provided
evidence of continued strength in the economy. The stock market sagged during
May under the burden of lofty valuations and higher rates.
1
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
The Fed took center stage in the month of June as investors anxiously awaited
its next monetary policy move. Even though inflation data released in June was
lower than consensus expectations, the bond and stock markets had clearly
anticipated a 25 basis point rate hike as a result of unexpected economic
strength. The decision to raise the federal-funds rate by 25 basis points on
June 30, 1999, therefore, came as no surprise and markets rallied when the Fed
announced that it had now switched to a neutral bias in monetary policy.
The rotation into value and small cap stocks began in the middle of April and
continued through May. This trend reversed in June, as investors became
comfortable that a proactive Fed policy would pre-empt inflation and keep
interest rates in check. The S&P 500 Index advanced by 7.1% in the second
quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index
rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return,
outpacing the 3.8% total return of the S&P 500 Growth Index.
All sectors within the S&P 500 except health care (-4%) registered respectable
gains in the second quarter. The economically sensitive, value-oriented
materials and processing (19%), energy services (14%) and producer durables
(14%) sectors led the market rally. The utilities (13%) and technology (10%)
sectors also performed well.
The focus in the U.S. stock market has now switched from the earnings front to
the future direction of interest rates. The early second quarter earnings
reports project a healthy growth in corporate profits from the prior year. With
the stock market now trading well above DJIA 10,000 and at unprecedented
valuation levels, any further increase in interest rates could trigger a
compression in the price/earnings multiple for the stock market.
FIXED INCOME MARKET COMMENTARY
The long anticipated slowdown in U.S. economic activity again failed to happen
during the reporting period. Global stock markets continued to rise led by
better than expected profit growth and continued merger and acquisition
activity. The risks of higher U.S. economic growth were more fairly reflected in
the yield curve in the U.S. at the end of the first quarter of 1999 than they
were at the beginning.
The stronger than expected growth caused interest rates to rise in the first
quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of
the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The
Lehman Government/Corporate Index declined about 1.2% in the first quarter of
1999. U.S. Treasuries underperformed as spreads narrowed in all sectors.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.1% annualized GDP growth rate for the first quarter of 1999.
Furthermore, the labor market continued to be extremely tight, as the
unemployment rate fell to a 29-year low of 4.2% in March. Defying the
expectations of many economists, inflation -- as measured by the Consumer Price
Index ("CPI") -- was virtually absent. Productivity gains and sagging global
demand were credited with keeping inflation under control. However, in the month
of April, the CPI rose by 0.7%, its largest monthly increase in nine years.
This, coupled with signs that many world economies were in the nascent stages of
growth and recovery, deepened fears that inflationary pressures were reaching a
breaking point. These concerns brought about an increase in the yield of the
benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April
8 and June 24 to close at 6.16%.
To counter these inflationary pressures, the Fed raised short-term interest
rates by 0.25% in late June, and subsequently adopted a neutral stance on
monetary policy. Meanwhile, during the months of May and June, the CPI remained
unchanged, generating considerable optimism that inflation had retreated.
Further reports that of rising U.S. jobless claims added to the optimism.
The unwillingness of consumer spending to slow down keeps the Fed's monetary
policy on watch. With the world economic crisis abating, we cannot rule out the
possibility of the Fed raising rates before year-end. However, in our view, the
most likely case is that the Fed's monetary policy will remain neutral through
the third quarter of 1999. By next year, we think that nominal growth should
slow below 5% and may allow room for additional short-term rates cuts. However,
if global economic growth accelerates unexpectedly and signs of inflation emerge
during the remainder of 1999, the Fed will not hesitate to raise rates again.
2
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
TRAVELERS QUALITY BOND PORTFOLIO
The Travelers Quality Bond Portfolio seeks current income, moderate capital
volatility and total return. For the six months ended June 30, 1999, the
Portfolio posted a 0.06% total return versus the Lehman Government/Corporate
Bond Index of negative 2.28%. (The Lehman Government/Corporate Bond Index is a
combination of publicly issued intermediate- and long-term U.S. government bonds
and corporate bonds.) Rates rose during the second quarter of 1999. The Salomon
Corporate Bond Index widened 12 basis points, with the 5-year U.S. Treasury bond
ending up at 5.65%, up from 5.10%.
In the view of the investment team, the rise in interest rates reflected
continued market concern over strong U.S. economic growth. The market continues
to price in the possibility of additional tightening by the Fed which is
possible later this year if continued growth exceeds the Fed's estimates for GDP
capacity. Current domestic economic statistics generally favor continued growth.
In addition to monitoring market sentiment regarding the Fed's bias, the
Portfolio's management team is closely watching price indices for signs of
inflation and will continue to monitor the progress of global economic recovery.
Strong corporate issuance has resulted in wider spreads and the Portfolio will
remain overweighted in corporate bonds over the near term. Moreover, the
Portfolio's management team continues to favor the energy sector and cyclical
bonds.
LAZARD INTERNATIONAL STOCK PORTFOLIO
The Lazard International Equity Portfolio seeks capital appreciation through
investing primarily in the stocks of non-U.S. companies (i.e., incorporated or
organized outside the U.S.). The Portfolio had a total return of 4.66% for the
six months ended June 30, 1999, the MSCI EAFE Index posted 3.97%. (The MSCI EAFE
Index consists of the equity total returns for Europe, Australia, New Zealand
and the Far East.)
The last twelve months have been volatile for equity markets around the world.
The Lazard International Stock Portfolio has been effected by record high stock
markets as well as financial crises, unprecedented corporate consolidation, the
beginning phases of the European Monetary Union (EMU) and even the fall and rise
of the Brazilian market. Mergers, acquisitions, and restructuring drove equity
markets to all time highs last summer before a sense of deja vu struck as an
emerging market financial crisis sent markets tumbling with indiscriminate
selling. The last several months have seen positive economic hopes and concerns
influence stock price movements and corporate actions to improve financial
productivity amidst heightening global competition.
The Lazard International Stock Portfolio did not undergo any significant changes
over the last twelve months. The investment philosophy remains based on value
creation through bottom-up stock selection. This style enables Lazard to add
value by evaluating companies the same way managements measure their own
performance, by focusing on financial productivity and the long-term
sustainability of returns.
Lazard's investment team continues to find value opportunities in the
international arena. Several strategic purchases have been made over the last
twelve months including NTT Mobile Communications (Japan). At the time of
purchase, NTT Mobile Communications had the most inexpensive cellular business
globally, yet controlled a premier brand with dominant market share making it an
attractive investment. Smithkline Beecham (UK), a particularly strong
pharmaceutical company in the vaccine areas, also has a promising drug pipeline
that was purchased in the fourth quarter of 1998. In addition, Endesa, Spain's
dominant electric utility, was recently purchased. Other purchases included:
Sankyo (Japan), Kao (Japan), Roche Holdings (Switzerland) and ING (Netherlands).
Sales over the last year included Credit Suisse (Switzerland) and Wharf Holdings
(Hong Kong). In addition, due to the deterioration of fundamentals, Lazard sold
Fiat (Italy) and Dresdner Bank (Germany). Swisscom (Switzerland) was also
removed from the Portfolio when it reached its target valuation.
Despite the recent broadening of the market, and its benefit to diversified
portfolios, the latest rotation of the market cycle should be carefully weighed.
The vast changes that have taken place in the market over the past twenty-five
years have forced the best managers to demand more than absolute valuations for
their clients. Presaged by the volume of Merger & Acquisition activity over the
past several years, during which large companies acquired undervalued smaller
companies with a strong concentration on real financial productivity, the
current environment has become newly competitive. Therefore, smaller companies
must continue to streamline their operations to ensure an attractive level of
capital efficiency. Similarly, portfolios with broad diversification should
benefit in the new environment, as long as they take into account the financial
3
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
productivity of their value purchases. The rebound is unlikely to mimic the
performance of the spring, but will most likely be stock by stock. The managers
think that a thorough investigation of the companies themselves will be
essential.
MFS EMERGING GROWTH PORTFOLIO
The MFS Emerging Growth Portfolio seeks to provide long-term growth of capital.
For the six-months ended June 30, 1999, the Portfolio provided a total return of
12.57%. This compares to a 9.28% return for the Russell 2000 Index and a 12.38%
return for the S&P 500 Index for the same period. (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 S&P 500
Index is a capitalization-weighted measure of 500 widely held common stocks.)
The Portfolio's performance was impacted by three important factors. First, the
Portfolio has holdings in small, mid-sized, and large companies. Until early
April, when the market began to broaden, its best-performing segment was made up
of a narrow group of about 50 of the largest-company growth stocks in the S&P
500 Index, as well as some Internet stocks. As a result, prices of the
large-company stocks, relative to their earnings, reached excessive levels. Now,
investors have moved into a broader range of stocks that are selling at cheaper
prices relative to their earnings. The managers think the broadening of the
market should continue, and that should be a positive for the Portfolio because
it invests in companies of all market capitalizations.
Secondly, the Portfolio was affected by the fact that the managers have not
invested in many of the Internet stocks. While they have been reluctant to own
Internet companies that have unproven business models, they do own established
companies such as Cisco Systems, which provides systems to support Internet
traffic, and Oracle, which is the Internet database of choice. Many of the
Internet stocks, including new companies that have shown no profit, performed
very well in the early part of the year. However, when investors became nervous
over their valuations, they rushed out of them. The team's investments in stocks
with proven business models helped to protect the Portfolio somewhat from a
decline in Internet stock speculation.
The third factor has been the Portfolio's exposure to computer software
companies. Many software companies have faced uncertainty over the Year 2000
("Y2K") computer issue. Earlier this year, it looked like many businesses would
reduce their spending on computer software and systems to give themselves time
to ensure their existing systems were Y2K ready. Although it now looks like
spending will not be cut as much as people feared, the stocks have been
impacted. The manager thinks that the Y2K issue should be resolved by next
spring. At that time, companies such as BMC Software and Computer Associates,
which are dominant in their markets, should be among the best positioned in what
they expect to be a very rapidly growing industry.
Technology continues to be the Portfolio's largest sector. Companies are still
increasing earnings growth by aggressively downsizing, restructuring and
outsourcing many business functions. Technology allows these companies to be
more productive without necessarily hiring more people. The team believes these
trends will continue both domestically and internationally, benefiting holdings
such as Microsoft and Compuware.
Several of the Portfolio's telecommunications and media holdings also have
performed well. MCI WorldCom is a dominant player in telecommunications and the
backbone of worldwide cellular traffic. MediaOne, which is being acquired by
AT&T, has been a big beneficiary of the growth of cable, both for entertainment
and for Internet access. Also, after several years of not being able to increase
prices, health maintenance organizations such as United HealthCare have been
raising their rates, which should make them more profitable.
Please note that the opinions expressed in this report are those of the
portfolio managers and are current only through the end of the period of the
report as stated on the cover. The managers' views are subject to change at any
time based on market and other conditions, and no forecasts can be guaranteed.
FEDERATED HIGH YIELD PORTFOLIO
The Federated High Yield Portfolio seeks high current income by investing
primarily in a professionally managed, diversified portfolio of bonds. The
Portfolio posted a total return of 3.46% for the six months ended June 30, 1999.
In comparison, the Lehman Brothers High Yield Bond Index returned 2.20% for the
six months versus a negative 1.37% for the Lehman Aggregate Index, a measure of
high quality bond performance. (The Lehman Aggregate Bond Index is an unmanaged
index
4
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
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.)
High yield bonds delivered excellent relative returns for the six months ending
June 30, 1999. These returns were driven by continued strong domestic economic
growth coupled with stable to improving foreign economies. Reflecting the strong
domestic economic situation, the yield spread between the CS First Boston High
Yield Index and a comparable U.S. Treasury security narrowed 83 basis points
during the period. Given the bright economic outlook, the basic material sectors
such as forest products, metals and mining were standouts while health care was
a noticeable laggard as concerns about government reimbursements in the long
term care segment negatively impacted the sector.
In general, credit risk was rewarded as illustrated by the performance of the
Lehman CCC Index, which returned 8.58%, while the BB and B indices returned 0.4%
and 2.09% respectively. While relative returns were attractive, absolute returns
were negatively impacted by rising interest rates in the high quality fixed
income markets. Early in the period, the rise in interest rates was absorbed by
spread tightening. However, from mid-May through the end of June, high yield
bonds fell in price along with high quality bonds as rates continued to rise in
anticipation of Fed tightening moves to protect against inflation.
The Federated High Yield Portfolio outperformed both the Lehman High Yield Bond
Index and the Lipper high current yield fund average for the period. Several
factors led to the Portfolio's outperformance. First, the Portfolio was
overweight in the telecommunication sector which outperformed the overall
market. Also, within the telecommunications sector, the Portfolio had no
exposure to the satellite segment as disappointments at Iridium, a satellite
phone company, dragged the sector lower. In addition, the Portfolio was also
underweight in health care which substantially underperformed and had little
exposure to the long-term care segment within health care which led to the
sector's problems. Specific holdings in Fox/Liberty and Metronet outperformed as
stronger credits took operating control of both companies. Triton PCS,
Telesystems International and Teligent, three aggressive telecommunications
issuers, outperformed as lower quality issues surged.
On the negative side, the Portfolio was underweight in the basic material
sectors which outperformed given the strong economy. Also, positions in Jitney
Jungle, a southern supermarket chain, Paging Network, the largest U.S. paging
company and Stena Lines, a major European ferry operator, underperformed because
of disappointing financial performance. Quality weightings both helped and hurt
the Portfolio as the underweight in BB-rated securities helped performance while
the underweight in the more aggressive CCC and non-rated sectors hurt
performance especially versus the Lipper average.
For the balance of 1999, the managers believe that high yield bonds offer
attractive relative returns given strong domestic economic growth and stable to
improving international economies. That in turn should lead to additional spread
tightening between high yield bonds and Treasuries. Absolute returns will be
influenced by the direction of interest rates. The June 30, 1999 hike in the
federal-funds rate by the Federal Reserve Board signals its concern about strong
economic growth leading to inflationary pressures and its willingness to raise
rates to head off inflation.
From a portfolio perspective, the Portfolio's Managers continue to be overweight
in the telecommunications sector given the powerful secular growth
characteristics of the sector. They remain biased to modestly decreasing
interest rate risk and increasing credit risk given the strong economic
conditions while also looking to increase exposure to basic materials. This bias
will be carefully implemented given the rising trend in default rates.
FEDERATED STOCK PORTFOLIO
The Federated Stock Portfolio seeks to provide growth of income and capital by
investing principally in a professionally managed and diversified portfolio of
common stock of high quality companies. These companies generally are leaders in
their industries and are characterized by sound management teams and the ability
to finance future growth. For the six months ended June 30, 1999, the Portfolio
had a total return of 13.08% versus the 11.88% and 12.38% total returns for the
Lipper growth and income funds average index and the S&P 500, respectively.
The six-month period ended June 30, 1999 was a strong continuation of the bull
market with the S&P 500 Index returning 12.38%. The period started as 1998 had
finished: strong market returns during the first quarter were provided by a
handful of large capitalization growth stocks. However, market conditions
shifted dramatically in April. Sparked by surprisingly strong first quarter 1999
earnings, a revival in oil prices and signs of a global economic recovery,
market leadership rotated to a
5
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
broader group of cyclical, commodity and smaller capitalization stocks. After
three years of returns being dominated by a limited list of large capitalization
growth stocks, the perceived revival of global economic activity benefited areas
of the market that had not been the "safe havens" from the global economic
turmoil of the past two years and whose earnings should benefit with a marked
increase in global growth. Due to this dramatic improvement in market breadth,
the second quarter 1999 provided the average active equity manager their best
performance relative to the S&P 500 Index in quite some time.
Aiding performance relative to the S&P 500 for the half was favorable security
performance in health care (United Healthcare, up 44% and Healthsouth, up 41%),
retail trade and publishing, (Dillards, up 31% and News Corp., up 26%) and
technology sectors (Sun Microsystems, up 61% and First Data, up 54%) as well as
an underweight position in the poor performing consumer staples sector. Somewhat
offsetting these positive influences was underweight positions in the technology
and communication services sectors as well as unfavorable relative security
performance in the telecommunications services (U.S. West, down 5%),
transportation (Ryder Systems, down 1%) and insurance and finance sectors
(Loews, down 19% and CIT Group, down 7%).
The top six performing stocks in the Portfolio for the period were ENSCO
International, up 87%, Sun Microsystems, up 61%, First Data, up 54%, Allied
Signal, up 46% Morgan Stanley, up 45% and United Healthcare, up 44%. The bottom
five performing stocks were Storage Technology, down 36%, Philip Morris, down
25%, Loews, down 19%, Unilever, down 18% and Tenneco, down 18%.
The stock market outlook of the managers remains basically unchanged -- the
market appears overvalued by all traditional measures, but no visible catalyst
is positioned to change this. Money flows and investor sentiment remain quite
strong. Relative to interest rates, the markets are extremely overvalued -- the
dividend discount models maintained by the Federal Reserve Board and leading
market strategists show that the S&P 500 is now more than 30% overvalued given
the increase in interest rates during 1999.
To offset this overvaluation relative to interest rates, the equity markets are
betting on continued earnings strength and muted inflation. Real interest rates
are extremely high as the bond market believes that inflation is around the
corner. However, the equity markets, fueled by the Fed's late June neutral
stance towards monetary policy, believe that technology and continued growth in
productivity will keep inflation at bay. The market's April rotation toward
cyclical and small capitalization stocks is both encouraging and frightening at
the same time. On the plus side, an improvement in market breadth and the
revival of some of the market's worst performing sectors indicates that the
global economy is recovering and that a new overall market base is building onto
which future market advances can move from.
On the negative side, the rotation indicates that the low interest rates that
have helped drive the performance of large growth stocks are no longer accepted
as the norm and that one of the market's major underpinnings, low inflation, may
be in question. The managers believe that the valuation disparities between
ultra-large growth stocks and the rest of the market, combined with a strong
near-term earnings outlook, can fuel a continuation of the market's rotation
towards a broader array of value and smaller capitalization stocks.
DISCIPLINED MID CAP STOCK PORTFOLIO
The Disciplined Mid Cap Stock Portfolio seeks growth of capital by investing
primarily in a broadly diversified portfolio of U.S. common stocks. For the six
months ended June 30, 1999, the Portfolio posted a total return of 4.24%,
comparing unfavorably to the 13.47% total return of the Lipper, Inc. peer group
average. In addition, the Fund's performance lagged the 6.87% total return of
S&P 400 Index.
The Disciplined Mid Cap Stock Portfolio is managed 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, the team manages the Portfolio to mirror the overall risk, sector
weightings and growth/value style characteristics of the Standard & Poor's 400
Stock Index.
6
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
During the first quarter of 1999, stock selection in the consumer discretionary,
transportation and utilities sectors had a positive impact on relative portfolio
performance but proved to be adverse in the consumer staples and energy services
sectors.
In the consumer discretionary sector, Portfolio performance was helped by our
emphasis on both strong earnings fundamentals and low valuation. In the
transportation sector, emphasis on Alaska Air Group, with higher growth
prospects, and Navistar International, which rose on takeover speculation from
Volvo's interest in the company, helped performance. The Portfolio also
benefited from avoiding earnings disappointments from SPX Corp and Meritor
Automotive. In the utilities sector over the last several months, the managers
have been emphasizing long-distance and cellular telephone companies such as
Winstar Communications, Qwest Communication and Century Telephone at the expense
of the local/regional telephone companies and the electric utilities group.
(Please note as of June 30, 1999, some of the securities discussed in this
report may no longer be held in the portfolio. In addition, the views discussed
in this report are exclusively those of the portfolio's management and are not
meant as investment advice.)
In the consumer staples sector, the Portfolio was hurt by its overweight
position in Suiza Foods, a leading producer of dairy products, where the threat
of rising milk prices cast doubts on the near term earnings outlook.
In the technology sector, a shortfall in relative performance came largely from
being underweight stocks with poor recent earnings which bounced strongly in the
second quarter. In the health care sector, biotech and drug stocks like Biogen,
Forest Laboratories and Genzyme lost ground during the sell-off in growth
stocks. Stocks such as Oxford Health Plans and ICN Pharmaceuticals, which had
experienced large price declines in 1998 due to earnings problems, rebounded
sharply in the second quarter. A similar theme was observed in the consumer
discretionary sector where several down-and-out stocks like Callaway Golf and
Fastenal bounced back sharply in April and May.
In closing, thank you for your investment in The Travelers Series Trust. We look
forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
August 3, 1999
7
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- TRAVELERS QUALITY BOND PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 0.06%
Year Ended 6/30/99 5.29%
8/30/96* through 6/30/99 6.78%
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/30/96* through 6/30/99 20.44%
+ 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 August
30, 1996, assuming reinvestment of dividends, through June 30,
1999. The Lehman Government/ Corporate Bond Index is a weighted
composite of the Lehman Government Bond Index, which is a broad-
based index of all public debt obligations of the U.S. Government
and its agencies and has an average maturity of nine years and the
Lehman Corporate Bond Index, which is comprised of all public
fixed-rate non-convertible investment-grade domestic corporate
debt, excluding collateralized mortgage obligations.
[Travelers Quality Performance Graph]
<TABLE>
<CAPTION>
TRAVELERS QUALITY BOND PORTFOLIO LEHMAN GOVT/CORP. BOND INDEX
-------------------------------- ----------------------------
<S> <C> <C>
8/30/96 10000 10000
12/96 10356 10489
6/97 10602 10776
12/97 11095 11512
6/98 11439 11992
12/98 12036 12603
6/30/99 12044 12316
</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 -- LAZARD INTERNATIONAL STOCK PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 4.66%
Year Ended 6/30/99 2.04%
8/1/96* through 6/30/99 11.64%
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/1/96* through 6/30/99 37.82%
+ 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 August
1, 1996, assuming reinvestment of dividends, through June 30, 1999.
The Morgan Stanley Capital International ("MSCI") EAFE-GDP Weighted
Index is a composite portfolio consisting of equity total returns
for the countries of Europe, Australia, New Zealand and the Far
East, weighted based on each country's gross domestic product.
[Lazard Int. Performance Graph]
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK
PORTFOLIO MSCI EAFE
-------------------------- ---------
<S> <C> <C>
8/1/96 10000.00 10000.00
12/96 10780.00 10533.00
6/97 11859.00 11815.00
12/97 11696.00 11180.00
6/98 13507.00 13649.00
12/98 13168.00 14149.00
6/30/99 13782.00 14711.00
</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.
8
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MFS EMERGING GROWTH PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 12.57%
Year Ended 6/30/99 24.52%
8/30/96* through 6/30/99 26.40%
CUMULATIVE TOTAL RETURN
---------------------------------------------
8/30/96* through 6/30/99 94.17%
+ 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 August
30, 1996, assuming reinvestment of dividends, through June 30,
1999. 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
capitalized 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.
[MFS Emerging Growth Portfolio Performance Graph]
<TABLE>
<CAPTION>
MFS EMERGING GROWTH STANDARD & POOR'S 500
PORTFOLIO INDEX RUSSELL 2000 INDEX
------------------- --------------------- ------------------
<S> <C> <C> <C>
8/30/96 10000.00 10000.00 10000.00
12/96 10600.00 11441.00 10931.00
6/97 11726.00 13798.00 12046.00
12/97 12843.00 15258.00 13376.00
6/98 15593.00 17961.00 14035.00
12/98 17250.00 19642.00 13036.00
6/30/99 19417.00 22074.00 14246.00
</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 -- FEDERATED HIGH YIELD PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 3.46%
Year Ended 6/30/99 3.31%
8/30/96* through 6/30/99 10.96%
CUMULATIVE TOTAL RETURN
---------------------------------------------
8/30/96* through 6/30/99 34.27%
+ 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 August
30, 1996, assuming reinvestment of dividends, through June 30,
1999. 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 Lehman High Yield Bond Index is composed of fixed
rate noninvestment grade debt with at least one year remaining to
maturity that are dollar-denominated, nonconvertible and have an
outstanding par value of at least $100 million.
[Federated High Yield Portfolio Performance Graph]
<TABLE>
<CAPTION>
FEDERATED HIGH YIELD LEHMAN HIGH YIELD BOND LEHMAN AGGREGATE BOND
PORTFOLIO INDEX INDEX
-------------------- ---------------------- ---------------------
<S> <C> <C> <C>
8/30/96 10000.00 10000.00 10000.00
12/96 10761.00 10599.00 10480.00
6/97 11484.00 11216.00 10804.00
12/97 12394.00 11952.00 11491.00
6/98 12997.00 12489.00 11943.00
12/98 12978.00 12161.00 12490.00
6/30/99 13427.00 12429.00 12319.00
</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.
9
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- FEDERATED STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 13.08%
Year Ended 6/30/99 17.38%
8/30/96* through 6/30/99 27.76%
CUMULATIVE TOTAL RETURN
---------------------------------------------
8/30/96* through 6/30/99 100.16%
+ 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 August
30, 1996, assuming reinvestment of dividends, through June 30,
1999. 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.
[Federated Stock Performance Graph]
<TABLE>
<CAPTION>
FEDERATED STOCK PORTFOLIO STANDARD & POOR'S 500 INDEX
------------------------- ---------------------------
<S> <C> <C>
8/30/96 10000.00 10000.00
12/96 11261.00 11441.00
6/97 13482.00 13798.00
12/97 15023.00 15258.00
6/98 17051.00 17961.00
12/98 17701.00 19642.00
6/30/99 20016.00 22074.00
</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 -- DISCIPLINED MID CAP STOCK PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 4.24%
Year Ended 6/30/99 11.80%
4/1/97* through 6/30/99 24.55%
CUMULATIVE TOTAL RETURN
---------------------------------------------
4/1/97* through 6/30/99 63.76%
+ 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 April
1, 1997, assuming reinvestment of dividends, through June 30, 1999.
The Standard & Poor's 400 Index is an unmanaged index composed of
400 widely held mid cap common stocks listed on the New York Stock
Exchange, American Stock Exchange and the over-the-counter market.
[Disciplined Mid Cap Stock Performance Graph]
<TABLE>
<CAPTION>
DISCIPLINED MID CAP STOCK
PORTFOLIO STANDARD & POOR'S 400 INDEX
------------------------- ---------------------------
<S> <C> <C>
4/1/97 10000.00 10489.00
6/97 10360.00 10776.00
12/97 13438.00 11512.00
6/98 14647.00 11992.00
12/98 15710.00 12603.00
6/30/99 16376.00 13469.00
</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.
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 14.8%
U.S. Treasury Notes:
$2,000,000 AAA 5.750% due 11/30/02....................................... $ 2,002,200
1,200,000 AAA 7.250% due 8/15/04........................................ 1,272,804
2,600,000 AAA 6.875% due 5/15/06........................................ 2,738,268
2,000,000 AAA 5.500% due 5/15/09........................................ 1,958,160
- ------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost -- $7,934,100)........................................ 7,971,432
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES -- 67.9%
- ------------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 2.3%
1,200,000 A General Motors Acceptance Corp., 6.850% due 6/17/04......... 1,216,500
- ------------------------------------------------------------------------------------------------------
BANKING -- 5.2%
1,000,000 BBB+ BanPonce Financial, Medium Term Note, 7.300% due 6/5/02..... 1,015,000
1,800,000 BBB- Capital One Bank, Sr. Notes, 6.570% due 1/27/03............. 1,770,750
- ------------------------------------------------------------------------------------------------------
2,785,750
- ------------------------------------------------------------------------------------------------------
CABLE TV -- 1.8%
1,000,000 BBB- TCI Communications Inc., Debenture, 6.375% due 5/1/03....... 992,500
- ------------------------------------------------------------------------------------------------------
ELECTRIC -- 6.2%
2,300,000 BBB+ Appalachian Power Co., Sr. Notes, 6.600% due 5/1/09......... 2,212,545
CMS Energy Corp., Sr. Notes:
500,000 BB 6.750% due 11/15/04....................................... 476,875
650,000 BB 7.625% due 11/15/04....................................... 640,250
- ------------------------------------------------------------------------------------------------------
3,329,670
- ------------------------------------------------------------------------------------------------------
HEALTH CARE -- 2.5%
1,400,000 BBB Columbia HCA Healthcare, Medium Term Notes, 6.630% due
7/15/45..................................................... 1,324,750
- ------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 12.0%
1,700,000 BBB AT&T Capital Corp., 6.875% due 1/16/01...................... 1,706,375
1,000,000 BBB+ Comdisco Inc., 6.130% due 8/1/01............................ 996,250
1,500,000 A- Finova Capital Corp., Debenture, 6.250% due 11/1/02......... 1,483,125
Orix Credit Alliance:
700,000 NR 6.400% due 11/22/99....................................... 700,000
1,600,000 BBB+ 6.780% due 5/15/01........................................ 1,586,000
- ------------------------------------------------------------------------------------------------------
6,471,750
- ------------------------------------------------------------------------------------------------------
INTEGRATED OIL -- 7.1%
1,750,000 A Atlantic Richfield, 5.900% due 4/15/09...................... 1,653,750
1,000,000 BBB Noram Energy Corp., Debenture, 7.500% due 8/1/00............ 1,011,250
1,150,000 BBB Occidental Petroleum, Sr. Notes, 7.650% due 2/15/06......... 1,162,938
- ------------------------------------------------------------------------------------------------------
3,827,938
- ------------------------------------------------------------------------------------------------------
RAILROADS -- 2.1%
1,100,000 BBB+ Norfolk Southern, Debenture, 6.875% due 5/1/01.............. 1,112,375
- ------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 3.4%
1,600,000 BBB CarrAmerica Realty Corp., Company Guaranteed, 6.625% due
10/1/00..................................................... 1,581,488
250,000 BBB Nationwide Health Properties, Inc., Medium Term Notes,
6.900% due 10/1/37.......................................... 238,125
- ------------------------------------------------------------------------------------------------------
1,819,613
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
RETAIL -- 4.1%
$ 500,000 A- Dayton Hudson Corp., 6.800% due 10/1/01..................... $ 505,625
1,700,000 BB+ Saks Inc., Company Guaranteed, 7.500% due 12/1/10........... 1,700,000
- ------------------------------------------------------------------------------------------------------
2,205,625
- ------------------------------------------------------------------------------------------------------
SOVEREIGN AGENCY -- 10.9%
1,250,000 Aaa* Fannie Mae, 5.625% due 5/14/04.............................. 1,225,200
4,700,000 Aaa* Freddie Mac, 6.300% due 6/1/04.............................. 4,672,316
- ------------------------------------------------------------------------------------------------------
5,897,516
- ------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 1.0%
545,000 BBB+ MCI Worldcom Inc., Sr. Notes, 6.400% due 8/15/05............ 532,056
- ------------------------------------------------------------------------------------------------------
TOBACCO -- 0.9%
500,000 BBB Nabisco Inc., Debenture, 6.700% due 6/15/02................. 498,750
- ------------------------------------------------------------------------------------------------------
UTILITIES -- 2.8%
1,500,000 BBB Marlin Water Trust, Sr. Notes, 7.090% due 12/15/01 (a)...... 1,485,000
- ------------------------------------------------------------------------------------------------------
YANKEE -- 5.6%
2,400,000 A HSBC Holding PLC, 7.500% due 7/15/09........................ 2,389,248
175,000 BBB Noranda Forest, Debenture, 8.875% due 10/15/99.............. 176,313
500,000 AA- Telecom Corp. of New Zealand, 6.250% due 2/10/03............ 495,992
- ------------------------------------------------------------------------------------------------------
3,061,553
- ------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $36,968,317)......... 36,561,346
- ------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $44,902,417)................. 44,532,778
- ------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 17.3%
2,333,000 Morgan Stanley Dean Witter & Co., 4.770% due 7/1/99;
Proceeds at maturity -- $2,333,309; (Fully collateralized by
U.S. Treasury Notes, 6.250% due 10/31/01; Market
value -- $2,380,066)........................................ 2,333,000
7,000,000 Chase Securities, Inc., 4.800% due 7/1/99; Proceeds at
maturity -- $7,000,933; (Fully collateralized by U.S.
Treasury Notes, 7.125% due 2/15/23; Market
value -- $7,140,000)........................................ 7,000,000
- ------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $9,333,000)............ 9,333,000
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $54,235,417**)........... $53,865,778
- ------------------------------------------------------------------------------------------------------
</TABLE>
+ All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors Service,
Inc.
(a) 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 48 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
STOCK -- 94.2%
- ------------------------------------------------------------------------------------------
AUSTRALIA -- 2.3%
127,206 Broken Hill Proprietary Co. Ltd. ........................... $ 1,473,461
57,600 Westpac Banking Corp. Ltd. ................................. 373,630
- ------------------------------------------------------------------------------------------
1,847,091
- ------------------------------------------------------------------------------------------
DENMARK -- 0.9%
11,180 Unidanmark A/S, Class A Shares.............................. 746,162
- ------------------------------------------------------------------------------------------
FINLAND -- 1.0%
59,100 Merita PLC, Class A Shares.................................. 335,834
1 The Rauma Group Oyj......................................... 12
14,500 UPM-Kymmene Oyj............................................. 415,717
- ------------------------------------------------------------------------------------------
751,563
- ------------------------------------------------------------------------------------------
FRANCE -- 13.5%
7,760 Alcatel..................................................... 1,092,394
9,830 Axa-Uap..................................................... 1,199,287
17,600 Banque Nationale de Paris................................... 1,466,591
7,280 Compagnie de Saint Gobain................................... 1,159,965
11,000 Compagnie Generale des Establissements Michelin, Class B 450,028
Shares (a)..................................................
22,550 Rhone-Poulenc SA............................................ 1,030,465
9,380 Elf Aquitaine SA............................................ 1,376,552
5,130 Suez Lyonnaise des Eaux..................................... 925,320
23,754 Vivendi..................................................... 1,924,279
- ------------------------------------------------------------------------------------------
10,624,881
- ------------------------------------------------------------------------------------------
GERMANY -- 8.9%
3,261 Allianz AG (a).............................................. 911,392
10,228 DaimlerChrysler AG.......................................... 893,427
7,900 Deutsche Telecom AG......................................... 332,001
7,900 Deutche Telecom Rights (b).................................. 1,548
25,400 Hoechst AG.................................................. 1,144,722
19,134 Metro AG (a)................................................ 1,217,520
15,800 Siemens AG.................................................. 1,218,831
26,250 Thyssen AG.................................................. 575,272
13,000 Veba AG..................................................... 766,875
- ------------------------------------------------------------------------------------------
7,061,588
- ------------------------------------------------------------------------------------------
HONG KONG -- 1.3%
27,073 HSBC Holdings PLC........................................... 987,467
- ------------------------------------------------------------------------------------------
ITALY -- 4.0%
176,700 ENI S.p.A. (a).............................................. 1,042,360
57,800 Istituto Bancario San Paolo imi S.p.A. ..................... 788,390
240,800 Telecom Italia S.p.A. di Risp NC (c)........................ 1,309,978
- ------------------------------------------------------------------------------------------
3,140,728
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
JAPAN -- 21.3%
61,000 Asahi Breweries Ltd. ....................................... $ 758,972
41,000 Canon, Inc. ................................................ 1,178,784
52,000 Fuji Bank Ltd. (a).......................................... 362,591
100,000 Industrial Bank of Japan Ltd. .............................. 793,126
1,070 Japan Tobacco, Inc. ........................................ 1,184,567
35,000 Kao Corp. .................................................. 983,146
6,100 Nintendo Co. Ltd. .......................................... 857,246
800 Nippon Telegraph & Telephone Corp. ......................... 931,923
232,000 Nissan Motor Co. Ltd. ...................................... 1,107,865
1,250 NTT Mobile Communication Network, Inc. ..................... 1,693,655
15,200 Orix Corp. ................................................. 1,356,246
13,600 Promise Co., Ltd. .......................................... 803,371
20,000 Ricoh Co., Ltd. (a)......................................... 275,281
32,000 Sankyo Co. Ltd. ............................................ 806,345
11,900 Sony Corp. ................................................. 1,283,006
273,000 Sumitomo Trust & Banking Co. (a)............................ 1,312,673
12,000 TDK Corp. .................................................. 1,097,488
- ------------------------------------------------------------------------------------------
16,786,285
- ------------------------------------------------------------------------------------------
MALAYSIA -- 0.3%
60,000 Genting Berhad.............................................. 220,404
- ------------------------------------------------------------------------------------------
NETHERLANDS -- 4.3%
21,000 Heineken N.V. .............................................. 1,075,285
19,700 ING Groep N.V. ............................................. 1,066,622
12,512 Koninklijke Philips Electronics N.V. ....................... 1,234,232
- ------------------------------------------------------------------------------------------
3,376,139
- ------------------------------------------------------------------------------------------
SINGAPORE -- 1.8%
54,000 Oversea-Chinese Banking Corp. Ltd. ......................... 450,396
134,000 United Overseas Bank Ltd. .................................. 936,623
- ------------------------------------------------------------------------------------------
1,387,019
- ------------------------------------------------------------------------------------------
SPAIN -- 5.1%
57,300 Argentaria, Caja Postal y Banco Hipotecario de Espana, 1,305,375
S.A. .......................................................
40,400 Endesa S.A. ................................................ 861,622
38,875 Telefonica S.A. ............................................ 1,872,699
- ------------------------------------------------------------------------------------------
4,039,696
- ------------------------------------------------------------------------------------------
SWEDEN -- 6.3%
68,000 ABB AB, Class A Shares...................................... 903,787
28,628 Astrazeneca Group PLC....................................... 1,114,536
48,000 Electrolux AB, Class B Shares............................... 1,004,940
56,900 Nordbanken Holding AB....................................... 332,619
75,900 Svenska Handelsbanken, Class A Shares (a)................... 910,586
24,700 Volvo AB, Class B Shares (a)................................ 716,131
- ------------------------------------------------------------------------------------------
4,982,599
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
SWITZERLAND -- 3.5%
330 Nestle SA................................................... $ 594,577
95 Roche Holding AG............................................ 976,521
536 Swatch Group AG, Class B Shares............................. 360,643
1,510 Zurich Allied AG............................................ 858,639
- ------------------------------------------------------------------------------------------
2,790,380
- ------------------------------------------------------------------------------------------
UNITED KINGDOM -- 19.7%
54,500 Allied Zurich AG............................................ 680,820
234,100 British Aerospace PLC....................................... 1,530,469
112,600 British American Tobacco PLC................................ 1,050,744
23,600 British Energy PLC.......................................... 202,742
62,100 British Petroleum Co. PLC................................... 1,112,005
66,996 Cadbury Schweppes PLC....................................... 427,701
104,174 Diageo PLC.................................................. 1,085,420
65,900 Granada Group PLC........................................... 1,229,912
75,500 Great Universal Stores PLC.................................. 844,377
93,200 Imperial Chemical Industries PLC............................ 921,129
74,600 National Westminster Bank PLC............................... 1,580,429
74,900 Prudential Corp. PLC........................................ 1,108,624
126,400 Royal Sun Alliance Insurance Group PLC...................... 1,136,683
276,200 Siebe PLC................................................... 1,308,293
52,700 Smithkline Beecham PLC...................................... 684,087
73,811 Unilever PLC................................................ 668,418
- ------------------------------------------------------------------------------------------
15,571,853
- ------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $68,390,334)........................... 74,313,855
- ------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 5.8%
$ 4,600,000 CIBC Wood Gundy Securities Inc., 4.650% due 7/1/99; Proceeds
at maturity -- $4,600,594;
(Fully collateralized by U.S. Treasury Notes, 5.375% due
6/30/00;
Market value -- $4,692,653) (Cost -- $4,600,000)............ 4,600,000
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $72,990,334**)........... $78,913,855
- ------------------------------------------------------------------------------------------
</TABLE>
(a) All or a portion of this security is on loan (See Note 9).
(b) Non-income producing security.
(c) Risp NC -- Risparmio Non-Convertible (non-convertible saving shares).
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 90.7%
- ----------------------------------------------------------------------------------------
ADVERTISING -- 0.1%
200 Lamar Advertising Co. (a)................................... $ 8,187
2,200 Omnicom Group Inc. ......................................... 176,000
1,500 Telefonica Publicidad....................................... 29,933
- ----------------------------------------------------------------------------------------
214,120
- ----------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.1%
100 EchoStar Communications Corp. .............................. 15,344
4,800 General Motors, Class H Shares (a).......................... 270,000
600 Whittaker Corp. (a)......................................... 16,800
- ----------------------------------------------------------------------------------------
302,144
- ----------------------------------------------------------------------------------------
AIR TRANSPORT -- 0.0%
300 Airborne Freight Corp. ..................................... 8,306
- ----------------------------------------------------------------------------------------
AUTO PARTS -- 0.0%
200 Dura Automotive Systems, Inc. (a)........................... 6,650
- ----------------------------------------------------------------------------------------
AUTO PARTS - ORIGINAL EQUIPMENT -- 0.0%
500 Gentex Corp. (a)............................................ 14,000
- ----------------------------------------------------------------------------------------
AUTO RELATED -- 0.4%
10,200 Eaton Corp. ................................................ 938,400
500 SPX Corp. (a)............................................... 41,750
- ----------------------------------------------------------------------------------------
980,150
- ----------------------------------------------------------------------------------------
AUTO TRUCKS & PARTS -- 0.1%
3,800 Dana Corp. ................................................. 175,038
900 New Holland N.V. ........................................... 15,412
- ----------------------------------------------------------------------------------------
190,450
- ----------------------------------------------------------------------------------------
AVIATION COMPONENTS -- 0.0%
300 Gulfstream Aerospace Corp. ................................. 20,269
- ----------------------------------------------------------------------------------------
BANKS -- 0.0%
300 First Tennessee National Corp. ............................. 11,493
- ----------------------------------------------------------------------------------------
BANKS - COMMERCIAL -- 0.0%
700 U.S. Trust Corp. ........................................... 64,750
- ----------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 0.0%
400 Atwood Oceanics, Inc. (a)................................... 12,500
800 Veritas DGC, Inc. (a)....................................... 14,650
- ----------------------------------------------------------------------------------------
27,150
- ----------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.1%
1,800 Biogen, Inc. (a)............................................ 115,762
- ----------------------------------------------------------------------------------------
BROADCAST MEDIA -- 0.2%
11,800 Cox Communications, Inc., Class A Shares (a)................ 434,387
300 Hispanic Broadcasting Corp. ................................ 22,763
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
BROADCAST MEDIA -- 0.2% (CONTINUED)
300 TV Guide Inc., Class A Shares (a). $ 10,987
400 Univision Communications, Inc. (a).......................... 26,400
- ----------------------------------------------------------------------------------------
494,537
- ----------------------------------------------------------------------------------------
BROADCASTING - TV & CABLE -- 2.9%
11,800 Cablevision Systems Corp., Class A Shares (a)............... 826,000
29,800 CBS Corp. (a)............................................... 1,294,437
3,800 Century Communications Corp., Class A Shares (a)............ 174,800
43,241 Clear Channel Communications, Inc. (a)...................... 2,980,907
11,700 Cox Radio, Inc., Class A Shares (a)......................... 634,725
6,900 Gemstar International Group Ltd. (a)........................ 450,225
11,700 Infinity Broadcasting Co. .................................. 348,075
400 Outdoor Systems Inc. (a).................................... 14,600
- ----------------------------------------------------------------------------------------
6,723,769
- ----------------------------------------------------------------------------------------
BROKERAGE -- 0.0%
200 PaineWebber Group, Inc. .................................... 9,350
- ----------------------------------------------------------------------------------------
BUILDING MATERIALS -- 0.0%
400 Sherwin-Williams Co. ....................................... 11,100
- ----------------------------------------------------------------------------------------
BUSINESS SERVICES -- 0.2%
500 CheckFree Holdings Corp. (a)................................ 13,781
450 Clarify Inc. ............................................... 18,563
1,400 Computer Horizons Corp. (a)................................. 19,337
100 Critical Path Inc. ......................................... 5,531
11,500 IMR Global Corp. ........................................... 221,375
2,500 Keane, Inc. (a)............................................. 56,562
300 Pegasus Systems Inc. (a).................................... 11,231
- ----------------------------------------------------------------------------------------
346,380
- ----------------------------------------------------------------------------------------
CABLE TELEVISION - EQUIPMENT -- 1.6%
95,600 Comcast Corp., Class A Shares............................... 3,674,625
- ----------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 0.1%
200 Abacus Direct Corp. (a)..................................... 18,300
300 Affiliated Computer Services, Inc., Class A Shares (a)...... 15,188
1,700 Ceridian Corp. (a).......................................... 55,568
400 Dial Corp. ................................................. 14,875
600 Interim Services Inc. (a)................................... 12,375
500 Quanta Services Inc. (a).................................... 22,000
- ----------------------------------------------------------------------------------------
138,306
- ----------------------------------------------------------------------------------------
COMMUNICATIONS -- 0.3%
21,500 Metromedia Fiber Network, Inc., Class A Shares (a).......... 772,656
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS - EQUIPMENT -- 2.0%
3,800 DSP Communications, Inc. (a)................................ $ 109,725
11,900 General Instrument Corp. (a)................................ 505,750
58,300 Tellabs, Inc. (a)........................................... 3,938,893
- ----------------------------------------------------------------------------------------
4,554,368
- ----------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 19.2%
200 Adobe Systems Inc. ......................................... 16,431
6,900 The BISYS Group, Inc. (a)................................... 403,650
25,102 BMC Software, Inc. (a)...................................... 1,355,508
54,910 Cadence Design Systems, Inc. (a)............................ 700,102
209,854 Cisco Systems Inc. (a)...................................... 13,535,642
40,302 Computer Associates International Inc. ..................... 2,216,610
60,900 Compuware Corp. (a)......................................... 1,937,381
200 Informatica Corp. .......................................... 7,125
132,200 Microsoft Corp. (a)......................................... 11,922,787
326,150 Oracle Corp. (a)............................................ 12,108,318
400 Synopsys, Inc. (a).......................................... 22,075
300 Verity Inc. (a)............................................. 16,256
- ----------------------------------------------------------------------------------------
44,241,885
- ----------------------------------------------------------------------------------------
COMPUTER SOFTWARE SERVICES -- 0.0%
400 Business Objects S.A. (a)................................... 14,600
280 CSG Systems International, Inc. (a)......................... 7,332
- ----------------------------------------------------------------------------------------
21,932
- ----------------------------------------------------------------------------------------
COMPUTERS -- 0.6%
300 NCR Corp. (a)............................................... 14,643
20,300 Sun Microsystems Inc. (a)................................... 1,398,162
- ----------------------------------------------------------------------------------------
1,412,805
- ----------------------------------------------------------------------------------------
COMPUTERS SERVICES -- 2.1%
300 Ariba, Inc. (a)............................................. 29,175
19,200 Equant NV................................................... 1,807,200
57,200 First Data Corp. ........................................... 2,799,225
3,300 SunGard Data Systems Inc. (a)............................... 113,850
- ----------------------------------------------------------------------------------------
4,749,450
- ----------------------------------------------------------------------------------------
COMPUTERS - EQUIPMENT -- 0.0%
800 Maxtor Corp. (a)............................................ 4,025
500 Seagate Technology Inc. (a)................................. 12,812
- ----------------------------------------------------------------------------------------
16,837
- ----------------------------------------------------------------------------------------
COMPUTERS - SYSTEMS -- 0.0%
500 Novell Inc. (a)............................................. 13,250
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
CONGLOMERATES -- 5.9%
5,100 Allied Signal Inc. ......................................... $ 321,300
310 Conexant Systems, Inc. (a).................................. 17,999
300 Martin Marietta Materials, Inc. ............................ 17,700
139,581 Tyco International Ltd. .................................... 13,225,299
- ----------------------------------------------------------------------------------------
13,582,298
- ----------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 0.0%
8,400 Carson, Inc. (a)............................................ 27,825
- ----------------------------------------------------------------------------------------
CONSUMER SERVICES -- 2.2%
244,134 Cendant Corp. (a)........................................... 5,004,747
500 Source Media Inc. .......................................... 8,500
- ----------------------------------------------------------------------------------------
5,013,247
- ----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.7%
400 Ace Ltd. ................................................... 11,300
8,100 Honeywell Inc. ............................................. 938,587
300 Level One Communications, Inc. (a).......................... 14,681
7,400 Linear Technology Corp. .................................... 497,650
200 Micrel, Inc. (a)............................................ 14,800
- ----------------------------------------------------------------------------------------
1,477,018
- ----------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 0.4%
27,040 ARM Holdings PLC ADR (a).................................... 943,020
200 GlobeSpan, Inc. ............................................ 7,950
- ----------------------------------------------------------------------------------------
950,970
- ----------------------------------------------------------------------------------------
ELECTRONICS -- 6.5%
65,000 Altera Corp. (a)............................................ 2,392,812
4,200 ASM Lithography Holding N.V. (a)............................ 249,375
400 ATMI, Inc. ................................................. 11,900
300 Electro Scientific Industries Inc. (a)...................... 12,534
4,000 EMC Corp. (a)............................................... 220,000
240 Flextronics International Ltd. (a).......................... 13,320
87,000 Hitachi Ltd. ............................................... 815,804
8,228 Koninklijke Philips Electronics............................. 829,999
300 Microchip Technology Inc. (a)............................... 14,212
19,900 Nokia Corp. ADR............................................. 1,822,093
1,700 Oak Industries Inc. (a)..................................... 74,268
470 Photronics Inc. (a)......................................... 11,515
1,400 Sanmina Corp. (a)........................................... 106,225
200 SCI Systems, Inc. (a)....................................... 9,500
300 SIPEX Corp. (a)............................................. 6,150
10,300 Solectron Corp. (a)......................................... 686,881
15,600 Teradyne, Inc. (a).......................................... 1,119,300
27,600 Texas Instruments Inc. ..................................... 4,002,000
43,600 Xilinx, Inc. (a)............................................ 2,496,100
- ----------------------------------------------------------------------------------------
14,893,988
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS & ELECTRICAL -- 0.0%
280 Jabil Circuit Inc. (a)...................................... $ 12,635
- ----------------------------------------------------------------------------------------
ELECTRONICS - INSTRUMENTATION -- 0.0%
200 C.R. Bard, Inc. ............................................ 9,562
- ----------------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTOR -- 1.5%
31,700 Adaptec, Inc. (a)........................................... 1,119,406
30,400 Analog Devices, Inc. (a).................................... 1,525,700
5,100 Atmel Corp. (a)............................................. 133,556
400 Burr-Brown Corp. (a)........................................ 14,650
230 Etec Systems, Inc. (a)...................................... 7,647
800 Galileo Technology Ltd. (a)................................. 36,250
7,300 LSI Logic Corp. (a)......................................... 336,712
210 Maxim Integrated Products, Inc. (a)......................... 13,965
6,100 Micron Technology Inc. (a).................................. 245,906
- ----------------------------------------------------------------------------------------
3,433,792
- ----------------------------------------------------------------------------------------
ENTERTAINMENT -- 2.1%
131,200 AT & T Corp., Liberty Media Group........................... 4,821,600
300 International Speedway Corp., Class A Shares................ 14,250
400 Penske Motorsports Inc. (a)................................. 19,850
400 Premier Parks Inc. (a)...................................... 14,700
300 Speedway Motorsports Inc. (a)............................... 11,793
600 USA Networks Inc. (a)....................................... 24,075
400 Westwood One Inc. (a)....................................... 14,275
- ----------------------------------------------------------------------------------------
4,920,543
- ----------------------------------------------------------------------------------------
ENTERTAINMENT - GAMING -- 0.0%
600 Harrah's Entertainment Inc. (a)............................. 13,200
- ----------------------------------------------------------------------------------------
FINANCE COMPANIES - CONSUMER CREDIT -- 0.0%
1,500 Finet.com, Inc. ............................................ 8,343
- ----------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.2%
203 Building One Services Corp. (a)............................. 2,816
300 The CIT Group, Inc. ........................................ 8,662
400 Concord EFS, Inc. (a)....................................... 16,925
400 Hambrecht & Quist Inc. (a).................................. 14,850
5,900 Kansas City Southern Industries, Inc. ...................... 376,493
400 Waddell & Reed Financial, Inc., Class A Shares.............. 10,975
- ----------------------------------------------------------------------------------------
430,721
- ----------------------------------------------------------------------------------------
FURNITURE & APPLIANCES -- 0.0%
500 DII Group, Inc. (a)......................................... 18,656
- ----------------------------------------------------------------------------------------
HEALTH & PERSONAL CARE -- 0.0%
200 Pacificare Health System Inc. (a)........................... 14,387
- ----------------------------------------------------------------------------------------
HEALTH CARE - DRUGS -- 0.0%
400 Biomatrix, Inc. (a)......................................... 8,650
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH EQUIPMENT & SERVICES -- 0.9%
1,000 Mid Atlantic Medical Services, Inc. (a)..................... $ 9,875
32,900 United Healthcare Corp. .................................... 2,060,362
- ----------------------------------------------------------------------------------------
2,070,237
- ----------------------------------------------------------------------------------------
HOSPITAL -- 0.0%
300 Province Healthcare Co. (a)................................. 5,850
- ----------------------------------------------------------------------------------------
HOTELS - MOTELS -- 0.0%
300 Four Seasons Hotels Inc. ................................... 13,218
657 Promus Hotel Corp. (a)...................................... 20,367
- ----------------------------------------------------------------------------------------
33,585
- ----------------------------------------------------------------------------------------
HOUSING & HOME FURNISHINGS-- 0.0%
400 Sotheby's Holdings, Class A Shares.......................... 15,250
- ----------------------------------------------------------------------------------------
INTERNET CONTENT -- 0.0%
2,800 Internet Comerce Corp. ..................................... 36,400
- ----------------------------------------------------------------------------------------
INTERNET SOFTWARE -- 0.0%
300 Software.com, Inc. (a)...................................... 6,956
- ----------------------------------------------------------------------------------------
INVESTMENT COMPANY -- 0.0%
320 Affiliated Managers Group, Inc. (a)......................... 9,660
- ----------------------------------------------------------------------------------------
MACHINE TOOLS -- 0.0%
600 The Timken Co. ............................................. 11,700
- ----------------------------------------------------------------------------------------
MACHINERY -- 0.2%
5,500 Caterpillar Inc. ........................................... 330,000
1,600 Deere & Co. ................................................ 63,400
- ----------------------------------------------------------------------------------------
393,400
- ----------------------------------------------------------------------------------------
MACHINERY - CONSTRUCTION -- 0.0%
1,700 Case Corp. ................................................. 81,812
- ----------------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED -- 0.5%
14,200 Applied Materials, Inc. (a)................................. 1,049,025
- ----------------------------------------------------------------------------------------
MACHINERY & MACHINE TOOLS -- 0.3%
6,500 Illinois Tool Works, Inc. .................................. 533,000
300 Navistar International Corp. (a)............................ 15,000
400 Parker-Hannifin Corp. ...................................... 18,300
4,650 SI Handling Systems, Inc. .................................. 48,825
3,300 Smith International Inc. (a)................................ 143,343
- ----------------------------------------------------------------------------------------
758,568
- ----------------------------------------------------------------------------------------
MAJOR COMPANIES - ELECTRONICS -- 0.0%
1,600 Global Industries Ltd. (a).................................. 20,500
- ----------------------------------------------------------------------------------------
MANUFACTURING -- 0.0%
700 Owens-Illinois Inc. (a)..................................... 22,881
- ----------------------------------------------------------------------------------------
MANUFACTURING - COMMUNICATIONS -- 0.6%
9,300 Mannesmann AG............................................... 1,390,707
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING - SHIPBUILDING -- 0.0%
100 Newport News Shipbuilding, Inc. ............................ $ 2,950
- ----------------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.0%
100 Cyberonics Inc. ............................................ 1,250
- ----------------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES -- 0.4%
20,800 Boston Scientific Corp. (a)................................. 913,900
500 IDEXX Laboratories, Inc. (a)................................ 11,656
800 Respironics Inc. (a)........................................ 12,100
- ----------------------------------------------------------------------------------------
937,656
- ----------------------------------------------------------------------------------------
MEDICAL SERVICES -- 0.0%
1,400 HEALTHSOUTH Corp. (a)....................................... 20,912
900 King Pharmaceuticals, Inc. (a).............................. 23,287
573 Lifepoint Hospitals Inc. (a)................................ 7,699
300 Professional Detailing Inc. (a)............................. 7,050
400 Transkaryotic Therapies, Inc. .............................. 13,200
573 Triad Hospitals Inc. ....................................... 7,735
100 Wellpoint Health Networks, Inc. (a)......................... 8,487
- ----------------------------------------------------------------------------------------
88,370
- ----------------------------------------------------------------------------------------
MINERALS -- 0.0%
1,000 Cyprus Amax Minerals Co. ................................... 15,187
- ----------------------------------------------------------------------------------------
MISCELLANEOUS -- 0.1%
450 Fiserv, Inc. (a)............................................ 14,090
3,400 Galileo International, Inc. ................................ 181,687
- ----------------------------------------------------------------------------------------
195,777
- ----------------------------------------------------------------------------------------
NATURAL GAS -- 0.9%
49,400 The Williams Cos., Inc. .................................... 2,102,587
- ----------------------------------------------------------------------------------------
OIL - DOMESTIC -- 0.0%
500 Cal Dive International, Inc. (a)............................ 14,937
- ----------------------------------------------------------------------------------------
OIL - DRILLING & SERVICES -- 1.0%
48,900 Halliburton Co. ............................................ 2,212,725
- ----------------------------------------------------------------------------------------
OIL - EXPLORATION & PRODUCTION -- 0.4%
12,000 Apache Corp. ............................................... 468,000
21,100 ENSCO International Inc. ................................... 420,681
- ----------------------------------------------------------------------------------------
888,681
- ----------------------------------------------------------------------------------------
OIL - SUPPLIES & CONSTRUCTION -- 0.2%
11,100 Baker Hughes, Inc. ......................................... 371,850
1,000 Rowan Cos., Inc. (a)........................................ 18,437
- ----------------------------------------------------------------------------------------
390,287
- ----------------------------------------------------------------------------------------
OIL & GAS -- 0.0%
5,500 Global Marine, Inc. (a)..................................... 84,906
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
OIL & GAS DRILLING -- 0.1%
9,600 Santa Fe International Corp. ............................... $ 220,800
1,000 Varco International, Inc. (a)............................... 10,937
- ----------------------------------------------------------------------------------------
231,737
- ----------------------------------------------------------------------------------------
OIL & GAS PRODUCTS -- 0.3%
4,300 Nabors Industries, Inc. (a)................................. 105,081
25,300 Noble Drilling Corp. (a).................................... 498,093
- ----------------------------------------------------------------------------------------
603,174
- ----------------------------------------------------------------------------------------
OIL PRODUCTION - DOMESTIC -- 0.0%
500 BJ Services Co. (a)......................................... 14,718
- ----------------------------------------------------------------------------------------
PACKAGING & BOTTLING -- 0.0%
300 Sealed Air Corp. (a)........................................ 19,462
- ----------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.6%
21,100 Weyerhaeuser Co. ........................................... 1,450,625
- ----------------------------------------------------------------------------------------
PAPER PRODUCTS -- 0.6%
1,900 Bowater, Inc. .............................................. 89,775
20,800 International Paper Co. .................................... 1,050,400
7,300 Mead Corp. ................................................. 304,775
600 Smurfit Stone Container Corp. .............................. 12,337
- ----------------------------------------------------------------------------------------
1,457,287
- ----------------------------------------------------------------------------------------
PHARMACEUTICAL -- 0.4%
300 Alpharma Inc., Class A Shares............................... 10,668
200 Andrx Corp. (a)............................................. 15,425
900 Enzon, Inc. (a)............................................. 18,618
100 Icon PLC ADR (a)............................................ 1,962
800 Liposome Co. Inc. (a)....................................... 15,300
500 Millennium Pharmaceuticals, Inc. (a)........................ 18,000
300 QLT PhotoTherapeutics Inc. ................................. 16,500
9,600 Sepracor Inc. (a)........................................... 780,000
- ----------------------------------------------------------------------------------------
876,473
- ----------------------------------------------------------------------------------------
PRINT, PUBLISHING & BROADCAST -- 0.1%
4,100 Grupo Televisa S.A. (a)..................................... 183,731
- ----------------------------------------------------------------------------------------
PUBLISHING - NEWSPAPER -- 0.0%
400 Big Flower Holdings, Inc. (a)............................... 12,750
- ----------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 0.0%
400 Starwood Hotels & Resorts Worldwide, Inc. .................. 12,225
- ----------------------------------------------------------------------------------------
RESTAURANT -- 0.0%
500 Applebee's International, Inc. ............................. 15,062
400 Brinker International, Inc. (a)............................. 10,875
300 CEC Entertainment Inc. (a).................................. 12,675
220 CKE Restaurants, Inc. ...................................... 3,575
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
RESTAURANT -- 0.0% (CONTINUED)
400 IHOP Corp. (a). $ 9,625
200 Papa John's International, Inc. (a)......................... 8,937
- ----------------------------------------------------------------------------------------
60,749
- ----------------------------------------------------------------------------------------
RETAIL -- 0.3%
6,400 Abercrombie & Fitch Co., Class A Shares (a)................. 307,200
300 AnnTaylor Stores Corp. (a).................................. 13,500
325 Bebe Stores, Inc. (a)....................................... 11,050
6,900 Gap, Inc. .................................................. 347,587
945 Intimate Brands, Inc. ...................................... 44,769
300 Linens 'N Things Inc. (a)................................... 13,125
410 Talbots, Inc. .............................................. 15,631
- ----------------------------------------------------------------------------------------
752,862
- ----------------------------------------------------------------------------------------
RETAIL - DEPARTMENT STORES -- 0.0%
250 Consolidated Stores Corp. (a)............................... 6,750
- ----------------------------------------------------------------------------------------
RETAIL - SPECIALTY -- 1.9%
1,400 AutoNation, Inc. (a)........................................ 24,937
6,600 Best Buy Co., Inc. (a)...................................... 445,500
500 Boise Cascade Office Products Corp. (a)..................... 5,875
1,200 CompUSA, Inc. (a)........................................... 8,925
300 CSK Auto Corp (a)........................................... 8,100
600 General Nutrition Cos., Inc., Class A Shares (a)............ 13,987
400 Group 1 Automotive Inc. .................................... 8,450
200 Henry Schein Inc. .......................................... 6,337
300 Insight Enterprises, Inc. .................................. 7,425
17,400 Micro Warehouse Inc. (a).................................... 311,025
147,250 Office Depot Inc. (a)....................................... 3,248,703
8,200 Staples Inc. (a)............................................ 253,687
200 Tiffany & Co. .............................................. 19,300
200 Tommy Hilfiger Corp. (a).................................... 14,700
- ----------------------------------------------------------------------------------------
4,376,951
- ----------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.0%
400 PMC-Sierra, Inc. (a)........................................ 23,575
- ----------------------------------------------------------------------------------------
SOFTWARE -- 0.1%
200 Aspen Technology, Inc. (a).................................. 2,350
300 Aware, Inc. (a)............................................. 13,837
1,000 Inktomi Corp. (a)........................................... 130,562
700 Metamor Worldwide, Inc. (a)................................. 16,844
- ----------------------------------------------------------------------------------------
163,593
- ----------------------------------------------------------------------------------------
SPORTING GOODS -- 0.0%
1,000 Callaway Golf Co. .......................................... 14,626
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 0.6%
300 Applied Micro Circuits Corp. (a)............................ $ 24,675
400 Credence Systems Corp. (a).................................. 14,850
300 Electronics for Imaging, Inc. (a)........................... 15,412
300 Harmonic Inc. (a)........................................... 17,231
18,450 Learning Tree International, Inc. (a)....................... 201,796
300 MIPS Technology Inc. ....................................... 14,381
5,700 Uniphase Corp. (a).......................................... 946,200
700 U.S. Satellite Broadcasting Co. (a)......................... 12,597
1,800 Vantive Corp. .............................................. 20,587
2,400 Waters Corp. (a)............................................ 127,500
- ----------------------------------------------------------------------------------------
1,395,229
- ----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 17.9%
7,500 ADC Telecommunications, Inc. (a)............................ 341,718
700 Amdocs Ltd. (a)............................................. 15,925
300 Centennial Cellular Corp., Class A Shares (a)............... 10,687
700 CommNet Cellular Inc. (a)................................... 18,375
200 Copper Mountain Networks, Inc. (a).......................... 15,450
56,900 Ericsson LM Telephone ADR................................... 1,874,143
61,300 Global TeleSystems Group, Inc. (a).......................... 4,965,300
9,100 Intermedia Communications, Inc. (a)......................... 273,000
700 ITC DeltaCom, Inc. (a)...................................... 19,600
300 L-3 Communications Holdings Inc. (a)........................ 14,493
33,000 Lucent Technologies Inc. ................................... 2,225,437
3,500 Manugistics Group, Inc. (a)................................. 50,750
62,200 MediaOne Group, Inc. (a).................................... 4,626,125
44,900 Motorola, Inc. ............................................. 4,254,275
19,300 Nextel Communications Inc. (a).............................. 968,618
42,000 Nortel Networks Corp. ...................................... 3,167,419
14,900 NTL Inc. (a)................................................ 1,284,193
1,200 Omnipoint Corp. ............................................ 34,725
500 Power Wave Technologies, Inc. .............................. 16,125
1,000 Premiere Technologies Inc. ................................. 11,500
46,600 QUALCOMM, Inc. (a).......................................... 6,687,100
200 Redback Networks (a)........................................ 25,112
210 RF Micro Devices Inc. (a)................................... 15,671
5,300 SK Telecom Co. LTD ADR...................................... 90,100
64,500 Sprint Corp. ............................................... 3,406,406
58,500 Sprint Corp. (PCS).......................................... 3,341,812
6,900 ST Micoelectronics N.V. .................................... 478,687
8,100 Talk.com Inc. .............................................. 91,125
2,400 Tekelec (a)................................................. 29,250
21,800 Telecomuncacoes Brasileiras S.A. ADR (a).................... 1,362
700 Time Warner Telecom Inc. ................................... 20,300
13,800 Vodafone AirTouch PLC....................................... 2,718,600
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 17.9% (CONTINUED)
<C> <S> <C>
400 VoiceStream Wireless Corp. (a). $ 11,375
400 Western Wireless Corp., Class A Shares (a).................. 10,800
- ----------------------------------------------------------------------------------------
41,115,558
- ----------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 0.2%
10,200 Scientific-Atlanta, Inc. ................................... 367,200
- ----------------------------------------------------------------------------------------
TELEPHONE -- 1.3%
8,700 ALLTEL Corp................................................. 622,050
19,200 CenturyTel, Inc............................................. 763,200
18,100 Cinncinnati Bell Inc........................................ 451,368
13,150 Covad Communications Group, Inc............................. 701,060
800 Hyperion Telecommunications, Inc., Class A Shares (a)....... 15,050
5,800 Rhythms NetConnections Inc.................................. 338,575
1,900 WinStar Communications, Inc. (a)............................ 92,625
- ----------------------------------------------------------------------------------------
2,983,928
- ----------------------------------------------------------------------------------------
TELEPHONE - COMMUNICATIONS -- 6.4%
700 ACT Networks, Inc. (a)...................................... 11,943
54,200 Frontier Corp............................................... 3,197,800
130,831 MCI Worldcom, Inc. (a)...................................... 11,284,173
220 Optical Coating Laboratory Inc.............................. 18,397
2,500 Viatel Inc.................................................. 140,312
- ----------------------------------------------------------------------------------------
14,652,625
- ----------------------------------------------------------------------------------------
TELEVISION -- 1.8%
300 Hearst-Argyle Television, Inc. (a).......................... 7,200
127,000 Qwest Communications International Inc. (a)................. 4,198,937
320 TCA Cable TV, Inc........................................... 17,760
- ----------------------------------------------------------------------------------------
4,223,897
- ----------------------------------------------------------------------------------------
TEXTILES - APPAREL MANUFACTURING -- 0.0%
600 Lands' End, Inc. (a)........................................ 29,100
450 Quiksilver Inc.............................................. 11,728
- ----------------------------------------------------------------------------------------
40,828
- ----------------------------------------------------------------------------------------
TRANSPORTATION -- 2.6%
300 Atlas Air, Inc. (a)......................................... 9,675
330 SkyWest Inc................................................. 8,229
81,200 Time Warner, Inc............................................ 5,968,200
- ----------------------------------------------------------------------------------------
5,986,104
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 0.5%
11,900 AES Corp. (a)............................................... $ 691,687
13,300 Diamond Offshore Drilling, Inc.............................. 377,387
- ----------------------------------------------------------------------------------------
1,069,074
- ----------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $153,973,210).......................... 208,889,804
- ----------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS -- 9.3%
$13,800,000 Federal Home Loan Mortgage Discount Note, 4.600% due
7/1/99...................................................... 13,800,000
7,600,000 Federal Home Loan Mortgage Discount Note, 5.030% due
7/8/99...................................................... 7,592,566
- ----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $21,392,566)..... 21,392,566
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $175,365,776*)........... $230,282,370
- ----------------------------------------------------------------------------------------
</TABLE>
(a) 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, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS & NOTES -- 95.6%
- ---------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE -- 0.4%
$ 175,000 B- Anteon Corp., Sr. Sub. Notes 12.000% due 5/15/09 (a)........ $ 174,125
- ---------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 3.6%
200,000 B- Accuride Corp., Sr. Sub. Notes, 9.250% due 2/1/08........... 192,000
200,000 B- Aftermarket Technology Corp., Sr. Sub. Notes, 12.000% due
8/1/04.................................................... 210,500
225,000 B American Axle & Manufacturing Inc., Company Guaranteed
Notes, 9.750% due 3/1/09.................................. 225,563
200,000 B Collins Aikman Products Co., Company Guaranteed, 11.500% due
4/15/06................................................... 204,000
150,000 B- HDA Parts System Inc., Sr. Sub. Notes, 12.000% due 8/1/05
(a)....................................................... 151,500
200,000 B- J.L. French Auto Casting, Sr. Sub. Notes, 11.500% due
6/1/09.................................................... 202,500
Lear Corp., Sub. Notes:
100,000 BB- 9.500% due 7/15/06........................................ 108,125
250,000 BB- 8.110% due 5/15/09 (a).................................... 239,375
200,000 B Motor Coach Industries Ltd., Company Guaranteed Notes,
11.250% due 5/1/09 (a).................................... 200,000
- ---------------------------------------------------------------------------------------------------
1,733,563
- ---------------------------------------------------------------------------------------------------
BANKING -- 0.7%
350,000 BB+ GS Escrow Corp., Sr. Sub. Notes, 7.125% due 8/1/05.......... 338,626
- ---------------------------------------------------------------------------------------------------
BEVERAGE & TOBACCO -- 0.7%
100,000 B+ Canandaigua Brand Inc., Company Guaranteed Notes, 8.500% due
3/1/09.................................................... 97,250
125,000 BB+ Dimon Inc., Sr. Notes, 8.875% due 6/1/06.................... 114,532
100,000 B National Wine & Spirits Holdings Corp., Sr. Notes, 10.125%
due 1/15/09 (a)........................................... 103,000
- ---------------------------------------------------------------------------------------------------
314,782
- ---------------------------------------------------------------------------------------------------
BROADCASTING, RADIO, CABLE & TV -- 7.0%
250,000 B- ACME Television LLC Financial Corp., Sr. Discount Notes,
11.028% due 9/30/04....................................... 205,625
225,000 B3* Big City Radio Inc., Company Guaranteed Notes, 13.012% due
3/15/05................................................... 160,875
100,000 B- Capstar Broadcasting Corp., Sr. Sub. Notes, 9.250% due
7/1/07.................................................... 103,500
Chancellor Media Corp.:
50,000 B Company Guaranteed Notes, 10.500% due 1/15/07............... 54,500
100,000 B Sr. Sub. Notes, 9.375% due 10/1/04........................ 103,000
650,000 B Sr. Sub. Notes, 8.125% due 12/15/07....................... 633,750
425,000 B Sr. Sub. Notes, 9.000% due 10/1/08........................ 434,562
200,000 CCC+ Cumulus Media Inc., Company Guaranteed Notes, 10.375% due
7/1/08.................................................... 211,000
500,000 B Fox/Liberty Networks LLC Inc., Sr. Discount Notes, 9.750%
due 8/15/07............................................... 397,500
125,000 B Lamar Advertising Co., Company Guaranteed Notes, 8.625% due
9/15/07................................................... 125,625
350,000 B Outdoor Systems Inc., Sr. Sub. Notes, 8.875% due 6/15/07.... 364,876
Sinclair Broadcast Group Inc., Sr. Sub. Notes:
50,000 B 10.000% due 9/30/04....................................... 48,875
100,000 B 9.000% due 7/15/07........................................ 104,500
425,000 B 8.750% due 12/15/07....................................... 417,563
- ---------------------------------------------------------------------------------------------------
3,365,751
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
BUILDING & DEVELOPMENT -- 1.3%
$ 100,000 B American Builders & Contractors, Sr. Sub. Notes, 10.625% due
5/15/07................................................... $ 94,250
100,000 BB Building Materials Corp., Sr. Notes, 8.000% due 10/15/07.... 95,875
200,000 B- Falcon Building Products, Inc., Company Guaranteed Notes,
step bond to yield 12.615% due 6/15/07.................... 133,000
150,000 B- Formica Corp., Sr. Sub. Notes, 10.875% due 3/1/09 (a)....... 147,000
50,000 B- Juno Lighting Inc., Sr. Sub. Notes, 11.875% due 7/1/09
(a)....................................................... 50,500
125,000 B NCI Building Systems Inc., 9.125% due 5/1/09 (a)............ 125,000
- ---------------------------------------------------------------------------------------------------
645,625
- ---------------------------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES -- 2.0%
150,000 BB- Avis Rent a Car Inc., Sr. Sub. Notes, 11.000% due 5/1/09
(a)....................................................... 150,563
175,000 B- Dialog Corp. PLC, Sr. Sub. Notes, 11.000% due 11/15/07...... 162,750
Fisher Scientific International Inc., Sr. Sub. Notes:
150,000 B- 9.000% due 2/1/07......................................... 142,500
275,000 B- 9.000% due 2/1/08......................................... 261,250
33,000 B United Stationers Inc., Sr. Sub. Notes, 12.750% due
5/1/05.................................................... 36,630
300,000 CCC+ U.S. Office Products Co., Company Guaranteed Notes, 9.750%
due 6/15/08............................................... 193,500
- ---------------------------------------------------------------------------------------------------
947,193
- ---------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 10.4%
350,000 B+ Charter Communications Holdings LLC, Sr. Discount Notes,
step bond to yield, 9.649% due 4/1/11 (a)................. 217,875
CSC Holdings Inc., Sr. Sub. Notes:
300,000 BB- 9.250% due 11/1/05........................................ 320,250
250,000 BB- 9.875% due 2/15/13........................................ 270,625
125,000 B- Diamond Cable Communications PLC, Sr. Discount Notes, step
bond to yield 9.900% due 2/15/07.......................... 96,875
150,000 B- Diamond Holdings PLC, Company Guaranteed Notes, 9.125% due
2/1/08.................................................... 150,750
100,000 NR Diva Systems Corp., Sr. Discount Notes, step bond to yield
12.020% due 3/15/04 (b)................................... 33,875
450,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 (a)........ 460,125
Lenfest Communications, Inc.:
150,000 BB+ Sr. Notes, 8.375% due 11/1/05............................. 156,750
100,000 BB- Sr. Sub. Notes, 8.250% due 2/15/08........................ 105,500
NTL Inc., Sr. Notes, step bond to yield:
375,000 B- 10.564% due 2/1/06........................................ 318,750
850,000 B- 10.885% due 4/1/08........................................ 583,313
475,000 B- 10.564% due 10/1/08....................................... 324,187
425,000 B- Pegasus Communications Corp., Sr. Notes, 9.625% due
10/15/05.................................................. 417,563
200,000 B- RCN Corp., Sr. Discount Notes, step bond to yield 12.698%
due 10/15/07.............................................. 134,500
350,000 BB+ Rogers Cable Systems Inc., Sr. Notes, 10.000% due 3/15/05... 378,000
Telewest Communications PLC, Sr. Notes:
50,000 B+ 11.250% due 11/1/08 (a)................................... 57,000
675,000 B+ Step bond to yield 10.758% due 10/1/07.................... 602,438
275,000 B UIH Australia Inc., Sr. Discount Notes, step bond to yield
14.353% due 5/15/06....................................... 184,937
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CABLE TELEVISION -- 10.4% (CONTINUED)
$ 275,000 B United International Holdings, Sr. Discount Notes, step bond to yield
10.647% due 2/15/08............................................ $ 182,875
- ------------------------------------------------------------------------------------------------------------
4,996,188
- ------------------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS -- 4.1%
Buckeye Cellulose Corp., Sr. Sub. Notes:
75,000 BB- 8.500% due 12/15/05........................................... 75,750
100,000 BB- 9.250% due 9/15/08............................................ 105,375
250,000 B2* Huntsman Corp., Sr. Sub. Notes, 9.500% due 7/1/07............... 240,000
175,000 B+ Huntsman ICI Chemicals, Sr. Sub. Notes, 10.125% due 7/1/09 (a)... 175,875
225,000 BB- ISP Holdings Inc., Sr. Notes, 9.000% due 10/15/03............... 226,125
350,000 B+ Lyondell Chemical Co., Sr. Sub. Notes, 10.875% due 5/1/09 (a)... 364,876
Polymer Group, Inc., Company Guaranteed Notes:
225,000 B 9.000% due 7/1/07............................................. 220,500
300,000 B 8.750% due 3/1/08............................................. 291,000
Sterling Chemicals Inc., Sr. Sub. Notes:
150,000 B 11.750% due 8/15/06........................................... 115,500
50,000 B Step bond to yield 12.485% due 8/15/08........................ 17,500
150,000 B Texas Petrochemical Corp., Sr. Sub. Notes, 11.125% due 7/1/06... 136,125
- ------------------------------------------------------------------------------------------------------------
1,968,626
- ------------------------------------------------------------------------------------------------------------
CLOTHING & TEXTILES -- 1.3%
150,000 B- Collins & Aikman Corp., Sr. Sub. Notes, 10.000% due 1/15/07..... 151,500
150,000 B- Gear For Sports Inc., Sr. Sub. Notes, 9.625% due 3/1/07......... 132,000
50,000 B- Glenoit Corp., Company Guaranteed Notes, 11.000% due 4/15/07.... 44,000
Pillowtex Corp., Company Guaranteed Notes:
150,000 B+ 10.000% due 11/15/06.......................................... 151,875
175,000 B+ 9.000% due 12/15/07........................................... 168,875
- ------------------------------------------------------------------------------------------------------------
648,250
- ------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 0.2%
100,000 B+ Coinmach Corp., Sr. Notes, 11.750% due 11/15/05................. 109,000
- ------------------------------------------------------------------------------------------------------------
CONGLOMERATES -- 0.5%
250,000 B- Eagle Picher Industries, Inc., Sr. Sub. Notes, 9.375% due 3/1/08... 244,063
- ------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 4.7%
200,000 B- Albecca Inc., Company Guaranteed Notes, 10.750% due 8/15/08..... 168,000
100,000 B+ American Safety Razor Co., Sr. Sub. Notes, 9.875% due 8/1/05.... 101,000
175,000 B- Amscan Holdings Inc., Sr. Sub. Notes, 9.875% due 12/15/07....... 145,687
150,000 B- The Boyds Collection, Ltd., Sr. Sub. Notes, 9.000% due 5/15/08 (a)... 147,750
275,000 B- Chattem Inc., Company Guaranteed Notes, 8.875% due 4/1/08....... 272,250
50,000 CCC+ Diamond Brands Operating, Company Guaranteed Notes, 10.125% due
4/15/08....................................................... 44,937
100,000 B+ NBTY Inc., Sr Sub Notes, 8.625% due 9/15/07..................... 88,625
250,000 B Playtex Family Products Corp., Sr. Sub. Notes, 9.000% due 12/15/03... 254,375
500,000 B- Revlon Consumer Products., Sr. Sub. Notes, 8.625% due 2/1/08.... 467,500
125,000 B- Sealy Mattress Co., Sr. Sub. Notes, 9.875% due 12/15/07......... 125,468
100,000 B- Simmons Co., Sr. Sub. Notes, 10.250% due 3/15/09 (a)............ 102,000
100,000 B- True Temper Sports Inc., Sr. Sub. Notes, 10.875% due 12/1/08 (a)... 85,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONSUMER PRODUCTS -- 4.7% (CONTINUED)
$ 100,000 B- United Industries Corp., Sr. Sub. Notes, 9.875% due 4/1/09 (a). $ 95,000
150,000 B- Volume Service America, Sr. Sub. Notes, 11.250% due 3/1/09
(a)........................................................ 175,125
- ------------------------------------------------------------------------------------------------------
2,273,217
- ------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 1.2%
425,000 B Crown Castle International Corp., Sr. Discount Notes, step bond
to yield 10.068% due 5/15/11............................... 248,625
175,000 B Sitel Corp., Company Guaranteed Notes, 9.250% due 3/15/06.... 167,343
150,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09 (a)............ 150,375
- ------------------------------------------------------------------------------------------------------
566,343
- ------------------------------------------------------------------------------------------------------
CONTAINERS -- 0.5%
100,000 B- Russell-Stanley Holdings Inc., Sr. Sub. Notes, 10.875% due
2/15/09 (a)................................................ 97,750
150,000 B- Tekni-Plex Inc., Sr. Sub. Notes, 9.250% due 3/1/08........... 145,500
- ------------------------------------------------------------------------------------------------------
243,250
- ------------------------------------------------------------------------------------------------------
ECOLOGICAL SERVICES & EQUIPMENT -- 1.4%
700,000 BB- Allied Waste North America, Company Guaranteed Notes, 7.625%
due 1/1/06................................................. 652,750
- ------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.8%
100,000 BB CMS Energy Corp., Sr. Notes, 7.500% due 1/15/09.............. 95,250
250,000 BB+ El Paso Electric Co., 1st Mortgage, 9.400% due 5/1/11........ 286,562
- ------------------------------------------------------------------------------------------------------
381,812
- ------------------------------------------------------------------------------------------------------
ELECTRONICS -- 1.3%
75,000 B- Cherokee International, Sr. Sub. Notes, 10.500% due 5/1/09
(a)........................................................ 75,187
475,000 B- Telecomm Techniques Co., Company Guaranteed Notes, 9.750% due
5/15/08.................................................... 477,375
100,000 B- Viasystems Inc., Sr. Sub. Notes, 9.750% due 6/1/07........... 87,750
- ------------------------------------------------------------------------------------------------------
640,312
- ------------------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.5%
250,000 B Agrilink Foods Inc., Sr. Sub. Notes, 11.875% due 11/1/08 (a)... 258,750
100,000 B+ Aurora Foods Inc., Sr. Sub. Notes, 8.750% due 7/1/08......... 104,250
300,000 CCC+ Eagle Family Foods, Company Guaranteed, 8.750% due 1/15/08... 274,500
350,000 B- International Home Foods, Inc., Company Guaranteed Notes,
10.375% due 11/1/06........................................ 378,438
175,000 B- Triarc Consumer Products Group, Sr. Notes, 10.250% due 2/15/09
(a)........................................................ 169,312
- ------------------------------------------------------------------------------------------------------
1,185,250
- ------------------------------------------------------------------------------------------------------
FOOD SERVICES -- 1.7%
150,000 B Advantica Restaurant Group Inc., Sr. Notes, 11.125% due
1/15/08.................................................... 143,625
375,000 B- Ameriserve Food Distribution Inc., Company Guarantee, 10.125%
due 7/15/07................................................ 318,750
100,000 B- Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08............ 95,750
200,000 B- Dominos Inc., Sr. Sub. Notes, 10.375% due 1/15/09............ 204,000
100,000 B- Nebco Evans Holding Co., Sr. Discount Notes, step bond to yield
10.820% due 7/15/07........................................ 50,000
- ------------------------------------------------------------------------------------------------------
812,125
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
FOREST PRODUCTS -- 0.7%
$ 175,000 B Packaging Corp. of America, Sr. Sub. Notes, 9.625% due
4/1/09.................................................... $ 176,750
175,000 B- Stone Container Corp., Sr. Sub. Debentures, 10.750% due
4/1/02.................................................... 175,656
- ---------------------------------------------------------------------------------------------------
352,406
- ---------------------------------------------------------------------------------------------------
HEALTH CARE -- 3.7%
250,000 B- Alliance Imaging Inc., Sr. Sub. Notes, Callable 12/15/01,
9.625% due 12/15/05....................................... 248,437
250,000 B- Dade International Inc., Sr. Sub. Notes, 11.125% due
5/1/06.................................................... 270,937
100,000 B- Everest Healthcare Services, Company Guaranteed, 9.750% due
5/1/08.................................................... 101,625
225,000 CCC+ Genesis Health Ventures, Inc., Sr. Sub. Notes: 9.875% due
1/15/09................................................... 184,750
125,000 B- Kinetic Concepts, Inc., Company Guaranteed, 9.625% due
11/1/07................................................... 115,312
Tenet Healthcare Corp., Sr. Notes:
300,000 BB+ 8.000% due 1/15/05........................................ 294,000
100,000 BB+ 7.625% due 6/1/08......................................... 93,500
400,000 BB+ 8.125% due 12/1/08........................................ 386,001
100,000 B- Triad Hospitals Holdings, Sr. Sub. Notes, 11.000% due
5/15/09 (a)............................................... 102,000
- ---------------------------------------------------------------------------------------------------
1,796,562
- ---------------------------------------------------------------------------------------------------
HOTELS/MOTELS -- 1.8%
250,000 B- Florida Panthers Holdings, Company Guaranteed Notes, 9.875%
due 4/15/09............................................... 240,000
HMH Properties Inc.:
300,000 BB Sr. Notes, 8.450% due 12/1/08............................. 285,000
350,000 BB Sr. Sub. Notes, 7.875% due 8/1/08......................... 322,000
- ---------------------------------------------------------------------------------------------------
847,000
- ---------------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS & EQUIPMENT -- 3.6%
225,000 B- Amphenol Corp., Sr. Sub. Notes, Callable 5/15/02, 9.875% due
5/15/07................................................... 230,343
150,000 B- Continental Global Group, Sr. Notes, 11.000% due 4/1/07..... 133,312
150,000 B Euramax International PLC, Sr. Sub. Notes, 11.250% due
10/1/06................................................... 156,000
175,000 B+ Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09 (a)........ 176,093
100,000 B- International Utility Structures, Sr. Sub. Notes, 10.750%
due 2/1/08................................................ 100,750
175,000 B- ISG Resources Inc., Sr. Sub. Notes, 10.000% due 4/15/08..... 179,593
50,000 B Johnstown America Industries, Company Guaranteed, 11.750%
due 8/15/05............................................... 53,375
225,000 B- MMI Products Inc., Sr. Sub. Notes, 11.250% due 4/15/07...... 232,312
150,000 B- Neenah Corp., 11.125% due 5/1/07............................ 148,687
325,000 B Wesco Distribution Inc., Company Guaranteed Notes, 9.125%
due 6/1/08................................................ 316,063
- ---------------------------------------------------------------------------------------------------
1,726,528
- ---------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT -- 2.9%
308,000 CCC AMF Bowling Worldwide Inc., Sr. Sub. Discount Notes, step
bond to yield 13.034% due 3/15/01......................... 190,960
100,000 B Loews Cineplex Entertainment, Sr. Sub. Notes, 8.875% due
8/1/08.................................................... 97,250
Premier Parks Inc.:
825,000 B- Sr. Discount Notes, step bond to yield 10.000% due 4/1/08. 561,001
150,000 B- Sr. Notes, 10.089% due 6/15/07............................ 152,250
425,000 B Regal Cinemas Inc., Sr. Sub. Notes, 9.500% due 6/1/08....... 398,438
- ---------------------------------------------------------------------------------------------------
1,399,899
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MACHINERY & EQUIPMENT -- 2.9%
$ 35,000 B- Alvey Systems Inc., Sr. Sub. Notes, 11.325% due 1/31/03..... $ 35,262
150,000 B+ Clark Material Holdings Corp., Company Guaranteed Notes,
10.750% due 11/15/06...................................... 133,500
50,000 B Columbus McKinnon Corp., Company Guaranteed Notes, 8.500%
due 4/1/08................................................ 48,750
175,000 B- Fairchild Corp., Company Guaranteed Notes, 10.750% due
4/15/09 (a)............................................... 172,375
National Equipment Services Inc., Sr. Sub. Notes:
100,000 B Series A, 10.000% due 11/30/04............................ 102,000
250,000 B Series D, 10.000% due 11/30/04............................ 255,000
200,000 B Nationsrent Inc., Company Guaranteed, 10.375% due
12/15/08.................................................. 198,500
United Rentals Inc., Sr. Sub. Notes:
250,000 BB- 9.250% due 1/15/09........................................ 248,750
200,000 BB- 9.000% due 4/1/09 (a)..................................... 198,000
- ---------------------------------------------------------------------------------------------------
1,392,137
- ---------------------------------------------------------------------------------------------------
METALS & MINING -- 1.0%
250,000 B AEI Holdings Co. Inc., 10.500% due 12/15/05 (a)............. 245,000
150,000 B- AEI Resources Inc., Sr. Sub. Notes, 11.500% due 12/15/06
(a)....................................................... 148,125
125,000 BB- Murrin Murrin Holding Property, Sr. Notes, 9.375% due
8/31/07................................................... 110,312
- ---------------------------------------------------------------------------------------------------
503,437
- ---------------------------------------------------------------------------------------------------
OIL & GAS -- 3.6%
200,000 B- Chiles Offshore Corp.. LLC/FIN, Company Guaranteed Notes,
10.000% due 5/1/08........................................ 166,000
100,000 B Comstock Resources Inc., Sr. Notes, 11.250% due 5/1/07
(a)....................................................... 102,250
200,000 CCC Continental Resources, Inc., Notes, 10.250% due 8/1/08...... 150,000
250,000 D Dailey International Inc., Company Guaranteed Notes, 9.500%
due 5/15/08............................................... 162,500
200,000 B Houston Exploration Co., Sr. Sub. Notes, 8.625% due
1/1/08.................................................... 195,000
175,000 B+ Nuevo Energy Co., Company Guaranteed Notes, 8.875% due
6/1/08.................................................... 168,437
125,000 B+ Pogo Producing Co., Sr. Sub. Notes, 10.375% due 2/15/09..... 130,000
275,000 BB Pride International Inc., Sr. Notes, 9.375% due 5/1/07...... 273,625
150,000 B+ R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06 (a)........ 153,562
100,000 BB- RBF Finance Co., Company Guaranteed Notes, 11.375% due
3/15/09 (a)............................................... 103,500
225,000 B Universal Compress Inc., Sr. Discount Notes, 9.822% due
2/15/08................................................... 146,250
- ---------------------------------------------------------------------------------------------------
1,751,124
- ---------------------------------------------------------------------------------------------------
PUBLISHING & PRINTING -- 1.6%
125,000 B Cadmus Communications Corp., Sr. Sub. Notes, 9.750% due
6/1/09.................................................... 125,468
300,000 B+ Garden State Newspapers, Sr. Sub. Notes, 8.750% due
10/1/09................................................... 285,000
Hollinger International Publishing Inc.:
175,000 BB- 9.250% due 3/15/07........................................ 178,937
50,000 BB- Company Guaranteed Notes, 9.250% due 2/1/06............... 51,125
150,000 B Ziff-Davis Inc., Sr. Sub. Notes, 8.500% due 5/1/08.......... 140,250
- ---------------------------------------------------------------------------------------------------
780,780
- ---------------------------------------------------------------------------------------------------
RETAIL -- 0.1%
150,000 B- Jitney-Jungle Stores of America, Inc., Company Guaranteed
Notes, 10.375% due 9/15/07................................ 69,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
STEEL -- 0.7%
$ 250,000 B Metals USA Inc., Company Guaranteed Notes, 8.625% due
2/15/08................................................... $ 245,312
100,000 BBB Ryerson Tull Inc., Notes, 8.500% due 7/15/01................ 102,000
- ---------------------------------------------------------------------------------------------------
347,312
- ---------------------------------------------------------------------------------------------------
SURFACE TRANSPORTATION -- 2.5%
250,000 BB- Allied Holdings Inc., Sr. Notes, Callable 10/1/02, 8.625%
due 10/1/07............................................... 244,062
200,000 B+ Gearbull Holding Ltd., Sr. Notes, 11.250% due 12/1/04....... 204,000
100,000 BB+ The Holt Group, Sr. Notes, 9.750% due 1/15/06 (a)........... 70,000
100,000 B Railworks Corp., Sr. Sub. Notes, 11.500% due 4/15/09 (a).... 99,000
Stena AB, Sr. Notes:
275,000 BB 10.500% due 12/15/05...................................... 276,719
250,000 BB 8.750% due 6/15/07........................................ 231,563
100,000 B Stena Line AB, Sr. Notes, 10.625% due 6/1/08................ 75,000
- ---------------------------------------------------------------------------------------------------
1,200,344
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR -- 23.0%
200,000 CCC American Cellular Corp., Sr. Notes, Callable 5/15/06,
10.500% due 5/15/08 (a)................................... 204,000
Call Net Enterprises Inc., Sr. Discount Notes:
375,000 BB- 8.902% due 8/15/07........................................ 255,000
375,000 BB- Step bond to yield 10.148% due 8/15/03.................... 207,187
175,000 BB- Step bond to yield 8.902% due 5/15/04..................... 97,125
200,000 CCC+ Centennial Cellular Corp., Sr. Notes, 10.750%, 12/15/08..... 207,000
300,000 CCC+ Dolphin Telecom, PLC, Sr. Discount Notes, step bond to yield
13.419% due 5/15/09 (a)................................... 148,500
100,000 NR E. Spire Communications, Sr. Discount Notes, 10.798% due
4/1/06.................................................... 63,000
500,000 B Hermes Europe Railtel BV, Sr. Notes, 11.500% due 8/15/07.... 525,000
275,000 B3* ICG Holdings Inc., Company Guaranteed, step bond to yield
10.034% due 5/1/07........................................ 220,000
Intermedia Communications Inc., Sr. Discount Notes:
175,000 B 8.600% due 6/1/08......................................... 162,750
450,000 B Step bond to yield 10.425% due 9/15/05.................... 321,750
225,000 B Step bond to yield 10.183% due 5/15/06.................... 186,187
250,000 CCC+ Step bond to yield 11.805% due 3/1/09..................... 143,750
225,000 CCC+ IXC Communications Inc., Sr. Sub. Notes, 9.000% due
4/15/08................................................... 214,875
Level 3 Communications, Inc., Sr. Notes:
925,000 B 9.125% due 5/1/08......................................... 913,438
525,000 B Step bond to yield 11.085% due 12/1/08.................... 324,187
725,000 B+ McLeod USA Inc., Sr. Discount Notes, step bond to yield
9.608% due 3/1/07......................................... 552,813
Metronet Communications:
50,000 B Sr. Notes, 12.000% due 8/15/07............................ 57,625
100,000 B Sr. Notes, 10.625% due 11/1/08 (a)........................ 112,500
150,000 B Sr. Sub. Notes, step bond to yield 12.990% due 11/1/07.... 120,562
525,000 B Sr. Sub. Notes, step bond to yield 9.981% due 6/15/08..... 391,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TELECOMMUNICATIONS & CELLULAR -- 23.0% (CONTINUED)
$ 375,000 B- Millicom International Cellular SA, Sr. Sub. Discount Notes, step bond to yield
12.053% due 6/1/06................................................. $ 277,500
Nextel Communications:
825,000 B- Sr. Discount Notes, 10.748% due 9/15/07............................ 604,312
525,000 B- Sr. Sub. Notes, step bond to yield 10.003% due 2/15/08............. 363,562
75,000 B- Nextel International Inc., Sr. Discount Notes, 12.125% due 4/15/08... 37,687
125,000 CCC+ Nextel Partners Inc., Sr. Discount Notes, step bond to yield
13.410% due 2/1/09 (a)............................................. 70,937
NEXTLINK Communications, Inc., Sr. Notes:
100,000 B 9.625% due 10/1/07................................................. 97,500
1,050,000 B 12.197% due 10/1/07................................................ 614,250
250,000 BB- Orange PLC, Sr. Notes, 8.000% due 8/1/08............................. 239,375
225,000 B Paging Network, Inc., Sr. Sub. Notes, 10.000% due 10/15/08........... 164,250
100,000 NR Pathnet Inc., Sr. Notes, 12.250% due 4/15/08......................... 58,000
PSInet Inc., Sr. Notes:
350,000 B- 10.000% due 2/15/05................................................ 350,875
100,000 B- 11.500% due 11/1/08................................................ 105,000
700,000 BB+ Qwest Communications International Inc., Sr. Discount Notes, step bond to yield
8.378% due 10/15/07................................................ 539,000
275,000 BB- Rogers Cantel Inc., Sr. Sub. Notes, 8.800% due 10/1/07............... 278,437
100,000 B- Tele1 Europe AB, 13.000% due 5/15/09................................. 104,250
425,000 CCC+ Telesystem International Wireless, Sr. Discount Notes, step bond to yield
12.970% due 6/30/07................................................ 225,250
Teligent Inc.:
175,000 CCC Sr. Discount Notes, 13.776% due 3/1/08............................. 108,062
350,000 CCC Sr. Notes, 11.500% due 12/1/07..................................... 359,625
225,000 B3* Tritel PCS Inc., Sr. Discount Notes, step bond to yield 12.259% due 5/15/09
(a)................................................................ 122,625
425,000 B3* Triton PCS Inc., Company Guaranteed Notes, step bond to yield
13.043% due 5/1/08................................................. 275,187
150,000 NR US Xchange LLC, Sr. Notes, 15.000% due 7/1/08........................ 155,250
100,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08........................... 105,000
Viatel Inc.:
275,000 Caa1* Sr. Discount Notes, 12.774% due 4/15/08............................ 176,687
100,000 Caa1* Sr. Notes, 11.250% due 4/15/08 (a)................................. 100,750
100,000 Caa1* Sr. Notes, 11.500% due 3/15/09..................................... 103,750
- ----------------------------------------------------------------------------------------------------------------------
11,065,495
- ----------------------------------------------------------------------------------------------------------------------
UTILITIES -- 1.2%
250,000 BB Caithness Coso Funding Corp., Secured Notes, 9.050% due 12/15/09 (a)... 245,625
450,000 BBB- Niagara Mohawk Power Corp., Sr. Discount Notes, step bond to yield
8.075% due 7/1/10.................................................. 355,500
- ----------------------------------------------------------------------------------------------------------------------
601,125
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $47,527,265).................. 46,074,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PREFERRED STOCK -- 2.4%
- ---------------------------------------------------------------------------------------------------
BROADCASTING, RADIO, CABLE & TV -- 0.9%
1,000 Benedek Communications Corp., 11.500% Payment-in-Kind....... $ 95,000
632 Capstar Broadcasting Partners, Sr. Preferred, 12.000%....... 74,389
299 Capstar Communications Corp., Preferred 12.625%............. 35,880
1,127 Cumulus Media Inc., Fixed, 13.750%.......................... 118,102
1,029 Sinclair Capital, 11.625%................................... 108,824
- ---------------------------------------------------------------------------------------------------
432,195
- ---------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 0.1%
63 Pegasus Communications, Payment-in-Kind, 12.750%............ 67,170
- ---------------------------------------------------------------------------------------------------
FOOD SERVICES -- 0.1%
1,144 Nebco Evans Holding Co., Payment-in-Kind, 11.250%........... 44,616
- ---------------------------------------------------------------------------------------------------
OIL & GAS DRILLING -- $0.2%
750 R&B Falcon Corp., Payment-in-kind, 13.875%.................. 77,250
- ---------------------------------------------------------------------------------------------------
PUBLISHING & PRINTING -- 0.9%
1,500 Primedia Inc., 8.625%....................................... 144,000
2,850 Primedia Inc., 9.200%....................................... 277,163
- ---------------------------------------------------------------------------------------------------
421,163
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR -- 0.2%
850 Nextel Communications, Payment-in-Kind, 11.125%............. 89,675
- ---------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $1,191,368).................. 1,132,069
- ---------------------------------------------------------------------------------------------------
WARRANTS (c) -- 0.0%
- ---------------------------------------------------------------------------------------------------
BROADCAST MEDIA -- 0.0%
100 UIH Australia Pacific Inc., Expire 5/15/06.................. 200
- ---------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 0.0%
300 Diva Systems Corp., Expire 3/1/08........................... 3,600
50 Pegasus Communication Corp., Expire 1/1/07.................. 3,000
- ---------------------------------------------------------------------------------------------------
6,600
- ---------------------------------------------------------------------------------------------------
CHEMICALS -- 0.0%
100 Sterling Chemicals Holdings Inc., Expire 8/15/08............ 1,500
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR -- 0.0%
3 Metronet Communications Corp., Class B, Expire 8/15/07...... 412
100 Pathnet Inc., Expire 5/15/08................................ 1,000
- ---------------------------------------------------------------------------------------------------
1,412
- ---------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $23,300)............................ 9,712
- ---------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost-- $48,741,933).................. 47,215,781
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 2.0%
$ 978,000 Chase Securities Inc., 4.800% due 7/1/99; Proceeds at
maturity -- $978,128;
(Fully collateralized by U.S. Treasury Notes, 6.125% due
8/15/07;
Market value -- $999,375) (Cost -- $978,000)................ $ 978,000
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $49,719,933**)........... $48,193,781
- ---------------------------------------------------------------------------------------------------
</TABLE>
+ All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors Service,
Inc.
(a) 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.
(b) Security has been issued with attached warrants.
(c) Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 48 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 95.5%
- -------------------------------------------------------------------------------------
AEROSPACE -- 2.2%
9,000 Allied Signal Inc. ......................................... $ 567,000
6,700 Northrop Grumman Corp. ..................................... 444,293
- -------------------------------------------------------------------------------------
1,011,293
- -------------------------------------------------------------------------------------
AIRLINES -- 0.5%
8,157 KLM Royal Dutch Airlines.................................... 232,985
- -------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT -- 1.0%
18,700 Cooper Tire & Rubber Co. ................................... 441,787
- -------------------------------------------------------------------------------------
AUTOMOTIVE -- 1.2%
4,612 Delphi Automotive Systems Corp. ............................ 85,610
7,300 General Motors Corp. ....................................... 481,800
- -------------------------------------------------------------------------------------
567,410
- -------------------------------------------------------------------------------------
CONSUMER DURABLES -- 1.7%
5,200 Eastman Kodak Co. .......................................... 352,300
15,450 Hasbro, Inc. ............................................... 431,634
- -------------------------------------------------------------------------------------
783,934
- -------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 1.3%
10,700 Kimberly-Clark Corp. ....................................... 609,900
- -------------------------------------------------------------------------------------
CONTAINERS -- 0.8%
12,700 Crown Cork & Seal Co., Inc. ................................ 361,950
- -------------------------------------------------------------------------------------
ELECTRIC - UTILITIES -- 5.0%
16,900 Entergy Corp. .............................................. 528,125
7,700 FPL Group, Inc. ............................................ 420,612
16,100 PG&E Corp. ................................................. 523,250
10,400 Public Services Enterprise Group, Inc. ..................... 425,100
14,200 Reliant Energy Inc. ........................................ 392,275
- -------------------------------------------------------------------------------------
2,289,362
- -------------------------------------------------------------------------------------
ELECTRONICS -- 1.4%
6,440 Koninklijke Philips Electric NV............................. 649,636
- -------------------------------------------------------------------------------------
ENTERTAINMENT -- 2.1%
13,500 King World Productions, Inc. (a)............................ 469,968
11,600 Viacom Inc., Class A Shares (a)............................. 511,850
- -------------------------------------------------------------------------------------
981,818
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 8.9%
34,000 ABB AB-Sponsored ADR (a).................................... $ 463,250
8,500 Bank of America Corp. ...................................... 623,157
7,800 Bank One Co. ............................................... 464,587
10,815 Bear, Stearns & Cos. Inc. .................................. 505,601
23,200 The CIT Group, Inc. ........................................ 669,900
6,400 MBIA, Inc. ................................................. 414,400
5,000 Morgan Stanley Dean Witter & Co. ........................... 512,500
12,100 Washington Mutual, Inc. .................................... 428,037
- -------------------------------------------------------------------------------------
4,081,432
- -------------------------------------------------------------------------------------
FOOD -- 3.3%
22,840 Archer-Daniels-Midland Co. ................................. 352,592
13,200 Nabisco Group Holdings Corp. ............................... 258,225
19,100 Sara Lee Corp. ............................................. 433,331
6,596 Unilever NV................................................. 460,071
- -------------------------------------------------------------------------------------
1,504,219
- -------------------------------------------------------------------------------------
HEALTH CARE -- 10.3%
11,500 Abbott Labs, Inc. .......................................... 523,250
7,300 Baxter International Inc. .................................. 442,563
44,200 Beverly Enterprises, Inc. (a)............................... 356,362
11,600 Bristol-Myers Squibb & Co. ................................. 817,075
36,300 Healthsouth Corp. (a)....................................... 542,231
6,800 Merck & Co., Inc. .......................................... 503,200
14,200 Pharmacia & Upjohn, Inc. ................................... 806,739
11,900 United Healthcare Corp. .................................... 745,238
- -------------------------------------------------------------------------------------
4,736,658
- -------------------------------------------------------------------------------------
INSURANCE -- 10.4%
6,600 Allmerica Financial Corp. .................................. 401,362
15,200 Allstate Corp. ............................................. 545,300
10,600 Cigna Corp. ................................................ 943,400
36,700 Conseco, Inc. .............................................. 1,117,058
6,100 Hartford Financial Services Groups, Inc. ................... 355,707
9,000 Lincoln National Corp. ..................................... 470,812
7,000 Loews Corp. ................................................ 553,875
5,400 Marsh & McLennan, Inc. ..................................... 407,700
- -------------------------------------------------------------------------------------
4,795,214
- -------------------------------------------------------------------------------------
MACHINERY -- 2.0%
7,500 Deere & Co. ................................................ 297,188
9,400 Ingersoll-Rand Co. ......................................... 607,475
- -------------------------------------------------------------------------------------
904,663
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING -- 4.6%
8,500 Johnson Controls, Inc. ..................................... $ 589,157
10,600 Parker-Hannifin Corp. ...................................... 484,950
18,600 Tenneco Inc. ............................................... 444,075
6,167 Tyco International Ltd. .................................... 584,324
- -------------------------------------------------------------------------------------
2,102,506
- -------------------------------------------------------------------------------------
OIL & GAS -- 6.9%
3,100 Atlantic Richfield Co. ..................................... 259,043
3,900 Chevron Corp. .............................................. 371,231
19,900 Ensco International, Inc. .................................. 396,756
5,800 Exxon Corp. ................................................ 447,325
8,100 Royal Dutch Petroleum Co. ADR............................... 488,025
12,900 Sunoco, Inc. ............................................... 389,418
6,300 Texaco Inc. ................................................ 393,750
13,300 USX Marathon Group, Inc. ................................... 433,082
- -------------------------------------------------------------------------------------
3,178,630
- -------------------------------------------------------------------------------------
PUBLISHING -- 1.3%
19,600 News Corp Ltd., ADR......................................... 618,625
- -------------------------------------------------------------------------------------
RESTAURANTS -- 0.9%
7,300 Tricon Global Restaurants, Inc. (a)......................... 395,112
- -------------------------------------------------------------------------------------
RETAIL TRADE -- 3.5%
15,600 Dillard, Inc. Class A Shares................................ 547,950
24,300 K-Mart Corp. (a)............................................ 399,431
13,400 Wal-Mart Stores, Inc. ...................................... 646,550
- -------------------------------------------------------------------------------------
1,593,931
- -------------------------------------------------------------------------------------
SERVICES -- 5.8%
7,200 Computer Sciences Corp. (a)................................. 498,150
12,200 Electronic Data Systems Corp. .............................. 690,063
14,500 First Data Corp. ........................................... 709,594
8,300 Galileo International Inc. ................................. 443,531
6,900 H&R Block, Inc. ............................................ 345,000
- -------------------------------------------------------------------------------------
2,686,338
- -------------------------------------------------------------------------------------
STEEL & IRON -- 0.7%
49,600 LTV Corp. .................................................. 331,700
- -------------------------------------------------------------------------------------
TECHNOLOGY -- 10.4%
7,000 International Business Machines Corp. ...................... 904,750
14,400 Lexmark International Group, Inc., Class A Shares (a)....... 951,301
5,400 Raytheon Co., Class A Shares (a)............................ 371,925
12,300 Seagate Technology Inc. (a)................................. 315,187
14,600 Storage Technology Corp. (a)................................ 332,150
27,600 Sun Microsystems Inc. (a)................................... 1,900,950
- -------------------------------------------------------------------------------------
4,776,263
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS -- 5.0%
10,500 AT&T Corp. ................................................. $ 586,031
8,100 Bell Atlantic Corp. ........................................ 529,537
3,200 Bellsouth Corp. ............................................ 150,000
6,400 GTE Corp. .................................................. 484,800
9,800 U.S. West, Inc. ............................................ 575,750
- -------------------------------------------------------------------------------------
2,326,118
- -------------------------------------------------------------------------------------
TOBACCO -- 2.3%
9,900 Philip Morris Cos., Inc. ................................... 397,856
4,400 RJ Reynolds Tobacco Holdings (a)............................ 138,600
17,800 UST Inc. ................................................... 520,650
- -------------------------------------------------------------------------------------
1,057,106
- -------------------------------------------------------------------------------------
TRANSPORTATION -- 0.8%
13,300 Ryder System, Inc. ......................................... 345,800
- -------------------------------------------------------------------------------------
WASTE MANAGEMENT -- 1.4%
11,890 Waste Management, Inc. ..................................... 639,087
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $36,295,578).................... 44,003,477
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 4.5%
$2,097,000 Chase Securities Inc., 4.761% due 7/1/99; Proceeds at
maturity -- $2,097,277;
(Fully collateralized by U.S. Treasury Notes, 7.125% due
1/15/23;
Market value -- $2,148,750) (Cost -- $2,097,000)............ 2,097,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $38,392,578*)............ $46,100,477
- --------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 96.5%
- ---------------------------------------------------------------------------------------
AUTOS & TRANSPORTATION -- 3.9%
3,828 Airborne Freight Corp. ..................................... $ 105,987
2,104 Alaska Air Group Inc.+ ..................................... 87,842
2,623 Arvin Industries, Inc. ..................................... 99,346
1,884 Borg-Warner Automotive, Inc. ............................... 103,620
3,094 CNF Transportation, Inc. ................................... 118,732
4,593 Clayton Homes Inc. ......................................... 52,533
1,018 Federal-Mogul Corp. ........................................ 52,936
3,753 GATX Corp. ................................................. 142,848
3,220 J. B. Hunt Transportation Services, Inc. ................... 52,325
4,215 Lear Corp.+................................................. 209,696
2,669 Modine Manufacturing Co. ................................... 86,910
3,349 Trinity Industries, Inc. ................................... 112,192
- ---------------------------------------------------------------------------------------
1,224,967
- ---------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 19.3%
4,814 Abercrombie & Fitch Co., Class A Shares+.................... 231,072
2,669 Apollo Group, Inc., Class A Shares.......................... 70,896
2,209 Barnes & Noble Inc. ........................................ 60,471
4,658 Bed Bath & Beyond Inc.+..................................... 179,333
4,600 BJ's Wholesale Club, Inc.................................... 138,287
3,800 Bob Evans Farms, Inc. ...................................... 75,525
4,899 Brinker International Inc.+ ................................ 133,191
8,100 Callaway Golf Co. .......................................... 118,462
66 CBRL Group, Inc. ........................................... 1,142
223 Central Newspapers, Inc., Class A Shares.................... 8,391
5,255 Cintas Corp. ............................................... 353,071
5,600 Convergys Corp.+ ........................................... 107,800
3,416 Dial Corp. ................................................. 127,032
1,794 Dollar Tree Stores Inc. .................................... 78,936
10,568 Family Dollar Stores, Inc. ................................. 253,632
3,655 Furniture Brands International, Inc.+ ...................... 101,883
2,528 Hannaford Brothers Co. ..................................... 135,248
5,210 Harley Davidson Inc. ....................................... 283,293
998 Hillenbrand Industries, Inc. ............................... 43,163
3,000 Houghton Mifflin Co. ....................................... 141,187
3,330 Jones Apparel Group, Inc. .................................. 114,260
2,300 Lands' End, Inc. ........................................... 111,550
8,888 Leggett & Platt, Inc. ...................................... 247,198
6,800 Mandalay Resort Group....................................... 143,650
2,100 Media General Inc. ......................................... 107,100
7,700 Modis Professional Services, Inc.+ ......................... 105,875
3,700 Mohawk Industries, Inc. .................................... 112,387
3,665 OfficeMax, Inc.+............................................ 43,980
2,495 Outback Steakhouse, Inc. ................................... 98,084
3,442 Premark International Inc. ................................. 129,075
2,953 Promus Hotel Corp. ......................................... 91,543
3,600 Readers Digest Association Inc., Class A Shares............. 143,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER DISCRETIONARY -- 19.3% (CONTINUED)
5,866 Reynolds & Reynolds Co., Class A Shares..................... $ 136,751
3,090 Robert Half International, Inc.+............................ 80,340
3,353 Ross Stores, Inc. .......................................... 168,907
6,596 Saks, Inc.+ ................................................ 190,459
8,532 Shaw Industries Inc. ....................................... 140,778
3,330 Sotheby's Holding Inc....................................... 126,956
6,046 Starbucks Corp.+............................................ 227,102
3,500 Snyder Communications, Inc. ................................ 114,625
1,760 TCA Cable TV, Inc. ......................................... 97,680
1,258 Tiffany & Co. .............................................. 121,397
3,349 U.S. Foodservice+........................................... 142,752
3,500 Univision Communications, Inc. ............................. 231,000
285 Washington Post Co., Class B Shares......................... 153,259
3,500 Westpoint Stevens Inc. ..................................... 104,343
- ---------------------------------------------------------------------------------------
6,126,166
- ---------------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.2%
4,889 Flowers Industries Inc. .................................... 106,030
3,800 Hormel Foods Corp. ......................................... 152,950
5,774 IBP, Inc. .................................................. 137,132
253 International Multifoods Corp. ............................. 5,708
4,687 Interstate Bakeries Corp. .................................. 105,164
3,700 R.J. Reynolds Tobacco Holdings, Inc. ....................... 116,550
3,385 Suiza Foods Corp.+ ......................................... 141,746
9,967 Tyson Foods Inc., Class A Shares............................ 224,257
1,047 Universal Corp. ............................................ 29,774
- ---------------------------------------------------------------------------------------
1,019,311
- ---------------------------------------------------------------------------------------
FINANCE -- 11.0%
4,097 AG Edwards, Inc. ........................................... 132,128
2,046 Ambac Financial Group, Inc. ................................ 116,877
3,361 American Financial, Inc. ................................... 114,484
1,661 AmSouth Bancorp............................................. 38,514
3,483 Associated Banc-Corp........................................ 144,544
2,565 Capital One Financial Corp. ................................ 142,838
6,537 Charter One Financial, Inc. ................................ 181,811
3,330 City National Corp. ........................................ 124,666
1,341 Countrywide Credit Industries, Inc. ........................ 57,327
3,438 Dime Bancorp, Inc. ......................................... 69,189
2,670 The FINOVA Group Inc. ...................................... 140,508
8,153 First Security Corp. ....................................... 222,169
4,271 First Tennessee National Corp. ............................. 163,632
1,453 First Virginia Banks, Inc. ................................. 71,378
4,103 Greenpoint Financial Corp. ................................. 134,630
1,107 Hartford Life, Inc., Class A Shares......................... 58,255
9,962 Hibernia Corp., Class A Shares.............................. 156,278
4,688 Marshall & Ilsley Corp. .................................... 301,790
3,665 Mercantile Bankshares Corp. ................................ 129,649
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
FINANCE -- 11.0% (CONTINUED)
6,312 North Fork Bancorporation, Inc. ............................ $ 134,524
1,389 Old Kent Financial Corp. ................................... 58,170
4,291 Old Republic International Corp. ........................... 74,287
2,274 The PMI Group Inc. ......................................... 142,835
3,330 Protective Life Corp. ...................................... 109,890
1,832 Reliastar Financial Corp. .................................. 80,150
8,032 Sovereign Bancorp., Inc. ................................... 97,388
4,467 T.Rowe Price Associates, Inc. .............................. 171,421
943 Wilmington Trust Corp. ..................................... 54,104
1,100 Zions Bancorp............................................... 69,850
- ---------------------------------------------------------------------------------------
3,493,286
- ---------------------------------------------------------------------------------------
HEALTH CARE -- 8.9%
2,100 Beckman Instruments......................................... 102,112
6,032 Bergen Brunswig Corp., Class A Shares....................... 104,052
6,044 Biogen, Inc.+............................................... 388,704
2,209 Centocor Inc.+ ............................................. 102,994
6,872 Chiron Corp.+............................................... 142,594
1,446 Covance Inc.+ .............................................. 34,613
3,655 Forest Labs Inc., Class A Shares+........................... 169,043
3,442 Genzyme Corp. -- General Division+.......................... 166,937
616 Genzyme Surgical Products................................... 2,714
230 HCR Manor Care, Inc. ....................................... 5,563
12,100 Health Managment Associates, Inc. Class A Shares+........... 136,125
4,244 Lincare Holdings, Inc.+..................................... 106,100
2,700 Medimmune, Inc. ............................................ 182,925
3,714 Mylan Laboratories.......................................... 98,421
2,670 Omnicare, Inc. ............................................. 33,708
2,900 Oxford Health Plans, Inc.+.................................. 45,131
1,474 Pacificare Health System Inc.+ ............................. 106,035
3,231 Quintiles Transnational Corp.+.............................. 135,702
998 Sepracor Inc................................................ 81,087
5,500 Steris Corp................................................. 106,562
3,276 Stryker Corp. .............................................. 196,969
3,655 Trigon Healthcare, Inc...................................... 132,950
3,100 VISX, Inc. ................................................. 245,481
- ---------------------------------------------------------------------------------------
2,826,522
- ---------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 6.2%
6,258 Albemarle Corp. ............................................ 144,716
5,314 Consolidated Papers, Inc. .................................. 142,149
5,889 Crompton & Knowles Corp. ................................... 115,203
4,200 Georgia-Pacific Group....................................... 106,050
5,000 IMC Global Inc. ............................................ 88,125
4,100 Lubrizol Corp. ............................................. 111,725
6,007 Lyondell Petrochemical Co. ................................. 123,895
2,528 Masco Corp. ................................................ 72,996
1,270 Minerals Technologies Inc. ................................. 70,881
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
MATERIALS & PROCESSING -- 6.2% (CONTINUED)
5,812 Ryerson Tull, Inc. ......................................... $ 131,133
8,761 Solutia, Inc. .............................................. 186,718
2,987 Sonoco Products Co. ........................................ 89,423
2,690 Southdown, Inc. ............................................ 172,832
5,706 Vulcan Materials Co. ....................................... 275,314
7,423 Wassau-Mosinee Paper Mills Inc. ............................ 133,614
- ---------------------------------------------------------------------------------------
1,964,774
- ---------------------------------------------------------------------------------------
OTHER ENERGY -- 4.8%
9,041 Ensco International, Inc. .................................. 180,254
4,747 Global Marine, Inc.+........................................ 73,281
1,410 Murphy Oil Corp. ........................................... 68,825
7,362 Noble Drilling Corp......................................... 144,939
3,700 Noble Affiliates Inc. ...................................... 104,293
5,707 OCE Energy Corp. ........................................... 135,541
5,302 Tidewater, Inc. ............................................ 161,711
5,380 Transocean Offshore Inc. ................................... 141,225
5,283 Varco International, Inc.+.................................. 57,782
4,847 Tosco Corp. ................................................ 125,719
4,888 Ultramar Diamond Shamrock Corp. ............................ 106,619
4,754 Valero Energy Corp. ........................................ 101,915
3,500 Weatherford International, Inc. ............................ 128,187
- ---------------------------------------------------------------------------------------
1,530,291
- ---------------------------------------------------------------------------------------
PRODUCER DURABLES -- 5.3%
4,766 Allied Waste Industries, Inc. .............................. 94,128
1,300 American Standard Co. ...................................... 62,400
12,114 American Power Conversion Corp.+............................ 243,794
3,160 Cordant Technologies, Inc. ................................. 142,792
1,019 Crane Co. .................................................. 32,034
2,332 Gulfstream Aerospace Corp.+ ................................ 157,555
2,100 Litton Industries, Inc.+.................................... 150,675
4,410 Molex Inc. ................................................. 163,170
2,623 Pentair, Inc. .............................................. 120,002
2,484 Precision Castparts Corp. .................................. 105,570
2,331 Tecumseh Products Co., Class A Shares....................... 141,171
2,623 Teleflex Inc. .............................................. 113,936
1,453 Thomas & Betts Corp. ....................................... 68,654
1 United Technologies Corp. .................................. 66
1,900 York International Corp. ................................... 81,343
- ---------------------------------------------------------------------------------------
1,677,290
- ---------------------------------------------------------------------------------------
TECHNOLOGY -- 24.5%
4,041 ADC Telecommunications, Inc.+............................... 184,118
6,570 Altera Corp.+............................................... 241,858
5,539 Analog Devices, Inc.+ ...................................... 277,988
3,650 Atmel Corp.+ ............................................... 95,584
7,271 Cadence Design Systems, Inc.+............................... 92,705
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 24.5% (CONTINUED)
2,500 Cambridge Technology Partners Inc. ......................... $ 43,906
4,014 Citrix Systems, Inc. ....................................... 226,791
5,047 Comdisco, Inc. ............................................. 129,329
4,000 Compuware Corp.+............................................ 127,250
2,700 COMSAT Corp. ............................................... 87,750
3,716 Comverse Technology, Inc. .................................. 280,558
5,672 Concord Efs. Inc. .......................................... 239,996
7,706 E*Trade Group, Inc. ........................................ 307,758
2,675 Fiserv, Inc................................................. 83,760
1,687 General Instrument Corp.+................................... 71,697
1,100 Heftel Broadcasting Corp., Class A Shares................... 83,463
2,600 Investment Technology Group, Inc. .......................... 84,175
2,884 Intuit, Inc.+............................................... 259,921
1,800 Jabil Circuit Inc. ......................................... 81,225
3,289 Legato Systems, Inc.+....................................... 189,939
6,168 Lexmark International Group, Inc., Class A Shares+.......... 407,473
5,234 Linear Technology Corp. .................................... 351,986
3,668 Maxim Integrated Products, Inc.+............................ 243,922
4,458 NCR Corp.+.................................................. 217,606
4,764 QUALCOMM, Inc. ............................................. 683,634
4,517 Quantum Corp. .............................................. 108,972
5,101 Rational Software Corp. .................................... 168,014
3,100 Sanmina Corp. .............................................. 235,212
4,660 Siebel Systems Inc.+ ....................................... 309,308
4,000 Sterling Commerce, Inc.+.................................... 146,000
4,921 SunGard Data Systems Inc. .................................. 169,775
2,989 Symbol Technologies, Inc. .................................. 110,219
1,903 Synopsys, Inc.+............................................. 105,021
4,500 Tech Data Corp.+............................................ 172,125
2,557 Teradyne, Inc.+ ............................................ 183,464
2,100 Veritas Software Corp. ..................................... 199,368
9,125 Vishay Intertechnology Inc. ................................ 191,625
4,300 Vitesse Semiconductors Corp.+............................... 289,981
4,874 Xilinx Inc. ................................................ 279,036
- ---------------------------------------------------------------------------------------
7,762,512
- ---------------------------------------------------------------------------------------
TELECOMMUNICATION -- 0.7%
1,536 ALLTEL Corp. ............................................... 109,824
1,064 Centurytel, Inc. ........................................... 42,294
1,796 Qwest Communications International Inc...................... 59,380
- ---------------------------------------------------------------------------------------
211,498
- ---------------------------------------------------------------------------------------
UTILITIES -- 8.7%
4,422 Aliant Communications, Inc. ................................ 204,241
2,266 Constellation Energy Group.................................. 67,130
1,405 Dominion Resources, Inc. ................................... 60,854
4,601 El Paso Energy Corp. ....................................... 161,897
4,200 Energy East Corp. .......................................... 109,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 8.7% (CONTINUED)
3,744 FirstEnergy Corp. .......................................... $ 116,064
3,799 Keyspan Energy Corp. ....................................... 100,198
2,266 MCN Energy Group, Inc. ..................................... 47,019
4,409 MidAmerican Energy Holdings Co. ............................ 152,661
6,145 Minnesota Power Inc. ....................................... 122,131
3,768 The Montana Power Co. ...................................... 265,644
2,301 National Fuel Gas Co. ...................................... 111,598
3,369 New England Electric System................................. 168,871
5,652 Nisource, Inc. ............................................. 145,892
3,879 Northeast Utilities......................................... 68,609
4,826 Pinnacle West Capital Corp. ................................ 194,246
6,300 Public Service Co. of New Mexico............................ 125,212
6,849 SCANA Corp. ................................................ 160,095
7,949 TECO Energy, Inc. .......................................... 180,839
1,750 WinStar Communications, Inc.+............................... 85,312
4,927 Wisconsin Energy Corp. ..................................... 123,544
- ---------------------------------------------------------------------------------------
2,771,257
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $27,863,923).................... 30,607,874
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATION -- 0.5%
$160,000 U.S. Treasury Bill, 4.500% due 9/16/99
(Cost -- $158,460)(a)....................................... 158,460
- ---------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $28,022,383)................. 30,766,334
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.0%
947,000 Morgan Stanley Dean Witter & Co., 4.770% due 7/1/99;
Proceeds at maturity -- $947,125; (Fully collateralized by
U.S. Treasury Notes, 7.500% due 11/15/01; Market
value -- $966,625) (Cost -- $947,000)....................... 947,000
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $28,969,383*)............ $31,713,334
- ---------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
(a) Security has been segregated by custodian for open futures contracts.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("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.
D -- Bonds rated "D" are in default, and payment of interest
and/or repayment of principal is in arrears.
</TABLE>
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3
may be applied to each generic rating from "Aa" to "Caa", where 1 is the highest
and 3 the lowest rating within its generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment 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 rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered 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 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 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.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with
respect to principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
48
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
<TABLE>
<CAPTION>
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED
QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP
BOND STOCK GROWTH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at cost.................... $44,902,417 $68,390,334 $175,365,776 $48,741,933 $36,295,578 $28,022,383
Repurchase agreements, at cost.......... 9,333,000 4,600,000 -- 978,000 2,097,000 947,000
- ---------------------------------------------------------------------------------------------------------------------------------
Investments, at value................... $44,532,778 $74,313,855 $230,282,370 $47,215,781 $44,003,477 $30,766,334
Repurchase agreements, at value......... 9,333,000 4,600,000 -- 978,000 2,097,000 947,000
Cash.................................... 666 262,781 18,878 168,327 233 --
Dividends and interest receivable....... 585,363 274,781 75,837 817,970 50,120 16,831
Collateral for securities on loan (Note
9).................................... -- 3,894,016 -- -- -- --
Receivable for securities sold.......... -- 672,399 3,030,314 -- 70,580 508,194
Receivable for open forward foreign
currency contracts (Note 7)........... -- 12 -- -- -- --
Receivable from broker -- variation
margin................................ -- -- -- -- -- 2,100
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................ 54,451,807 84,017,844 233,407,399 49,180,078 46,221,410 32,240,459
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased........ 3,198,618 1,660,230 5,493,277 395,945 -- 145,712
Investment advisory fees payable........ 14,643 55,602 145,378 28,422 25,168 4,673
Administration fees payable............. 2,895 4,077 11,630 2,624 2,416 388
Payable to bank......................... -- -- -- -- -- 72,261
Payable for Fund shares purchased....... -- -- -- -- 140,722 --
Payable for securities on loan (Note
9).................................... -- 3,894,016 -- -- -- --
Payable for open forward foreign
currency contracts (Note 7)........... -- 1,529 -- -- -- --
Accrued expenses........................ 23,844 42,710 80,161 20,748 18,869 13,078
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES....................... 3,240,000 5,658,164 5,730,446 447,739 187,175 236,112
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.......................... $51,211,807 $78,359,680 $227,676,953 $48,732,339 $46,034,235 $32,004,347
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital......................... $51,085,154 $71,623,510 $162,856,722 $48,397,917 $37,218,378 $28,582,153
Undistributed (overdistributed) net
investment income..................... 1,234,737 633,440 (285,769) 1,999,281 237,167 41,902
Accumulated net realized gain (loss) on
security transactions, foreign
currencies and futures contracts...... (738,445) 182,877 10,189,568 (138,707) 870,791 626,775
Net unrealized appreciation
(depreciation) of investments, foreign
currencies and futures contracts...... (369,639) 5,919,853 54,916,432 (1,526,152) 7,707,899 2,753,517
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.......................... $51,211,807 $78,359,680 $227,676,953 $48,732,339 $46,034,235 $32,004,347
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING........................ 4,783,018 5,824,859 11,991,397 4,243,683 2,624,117 2,231,837
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE................ $10.71 $13.45 $18.99 $11.48 $17.54 $14.34
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED
QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP
BOND STOCK GROWTH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest................................... $ 1,359,231 $ 70,190 $ 382,243 $ 2,125,406 $ 32,991 $ 33,381
Dividends.................................. -- 1,237,868 209,707 66,770 381,191 120,412
Less: Foreign withholding tax.............. -- (154,324) (1,540) -- (11,394) --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME.................... 1,359,231 1,153,734 590,410 2,192,176 402,788 153,793
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2).......... 72,855 265,650 729,919 147,972 125,163 82,268
Audit and legal............................ 15,000 16,000 16,000 16,000 16,000 15,500
Administration fees (Note 2)............... 13,335 19,320 58,394 13,659 12,016 7,052
Pricing service fees....................... 9,000 3,900 4,000 1,000 -- --
Shareholder and system servicing fees...... 4,500 4,500 4,500 4,500 4,500 4,500
Shareholder communications................. 3,500 5,250 20,000 3,750 3,400 1,800
Custody.................................... 2,850 30,000 40,000 3,000 3,000 12,000
Trustees' fees............................. 1,870 1,870 1,870 1,875 1,875 1,870
Registration fees.......................... 1,400 3,000 496 1,000 1,000 1,500
Other...................................... 184 1,000 1,000 139 1,032 600
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................. 124,494 350,490 876,179 192,895 167,986 127,090
Less: Expense reimbursement (Note 2)....... -- -- -- -- -- (15,288)
- ---------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES............................... 124,494 350,490 876,179 192,895 167,986 111,802
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)................. 1,234,737 803,244 (285,769) 1,999,281 234,802 41,991
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCIES AND FUTURES
CONTRACTS (NOTES 3, 5 AND 7):
Realized Gain (Loss) From:
Security transactions (excluding
short-term securities).................. (738,445) 649,153 12,232,892 (138,351) 874,880 639,558
Foreign currency transactions............ -- (249,873) -- -- -- --
Futures contracts........................ -- -- -- -- -- 113,888
- ---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)................... (738,445) 399,280 12,232,892 (138,351) 874,880 753,446
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments, Foreign
Currencies and Futures Contracts:
Beginning of period...................... 123,381 3,756,578 43,126,733 (1,119,433) 3,742,899 1,987,289
End of period............................ (369,639) 5,919,853 54,916,432 (1,526,152) 7,707,899 2,753,517
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION)........................... (493,020) 2,163,275 11,789,699 (406,719) 3,965,000 766,228
- ---------------------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FOREIGN
CURRENCIES AND FUTURES CONTRACTS........... (1,231,465) 2,562,555 24,022,591 (545,070) 4,839,880 1,519,674
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS....... $ 3,272 $3,365,799 $23,736,822 $ 1,454,211 $5,074,682 $1,561,665
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE
30, 1999
<TABLE>
<CAPTION>
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED
QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP
BOND STOCK GROWTH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)........ $ 1,234,737 $ 803,244 $ (285,769) $ 1,999,281 $ 234,802 $ 41,991
Net realized gain (loss)............ (738,445) 399,280 12,232,892 (138,351) 874,880 753,446
Change in net unrealized
appreciation (depreciation)...... (493,020) 2,163,275 11,789,699 (406,719) 3,965,000 766,228
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS....................... 3,272 3,365,799 23,736,822 1,454,211 5,074,682 1,561,665
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............... (854) (165,129) -- -- -- (51,243)
Net realized gains.................. (264,169) (9,680) -- (59,413) (422,750) (1,191,443)
- ---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS.... (265,023) (174,809) -- (59,413) (422,750) (1,242,686)
- ---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares.... 18,330,639 31,599,968 36,355,191 9,668,359 6,326,672 11,819,045
Net asset value of shares issued for
reinvestment of dividends........ 265,023 174,809 -- 59,413 422,750 1,242,686
Cost of shares reacquired........... (2,629,499) (9,614,388) (2,474,184) (3,378,975) (787,246) (836,183)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS............... 15,966,163 22,160,389 33,881,007 6,348,797 5,962,176 12,225,548
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS................ 15,704,412 25,351,379 57,617,829 7,743,595 10,614,108 12,544,527
NET ASSETS:
Beginning of period................. 35,507,395 53,008,301 170,059,124 40,988,744 35,420,127 19,459,820
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD*...................... $51,211,807 $78,359,680 $227,676,953 $48,732,339 $46,034,235 $32,004,347
- ---------------------------------------------------------------------------------------------------------------------------------
* Includes undistributed
(overdistributed) net investment
income of: $1,234,737 $633,440 $(285,769) $1,999,281 $237,167 $41,902
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER
31, 1998
<TABLE>
<CAPTION>
TRAVELERS LAZARD MFS DISCIPLINED
QUALITY INTERNATIONAL EMERGING FEDERATED FEDERATED MID CAP
BOND STOCK GROWTH HIGH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............ $ 1,170,333 $ 234,373 $ (529,699) $ 2,463,131 $ 284,606 $ 51,517
Net realized gain (loss)................ 505,011 188,777 (1,225,490) 196,895 1,324,694 1,087,428
Change in net unrealized appreciation
(depreciation)....................... 60,551 3,143,385 37,341,898 (1,637,517) 2,382,644 1,433,700
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................... 1,735,895 3,566,535 35,586,709 1,022,509 3,991,944 2,572,645
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................... (1,166,254) (172,299) -- (2,424,991) (283,680) --
Net realized gains...................... (301,730) (430,710) -- (203,459) (1,053,266) (169,722)
- ---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS........ (1,467,984) (603,009) -- (2,628,450) (1,336,946) (169,722)
- ---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares........ 25,413,325 56,682,700 74,091,479 29,338,305 23,019,020 11,121,611
Net asset value of shares issued for
reinvestment of dividends............ 1,467,984 603,009 -- 2,628,450 1,336,946 169,722
Cost of shares reacquired............... (1,109,975) (21,469,988) (9,966,117) (3,421,555) (3,690,826) (403,490)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS......................... 25,771,334 35,815,721 64,125,362 28,545,200 20,665,140 10,887,843
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS.................... 26,039,245 38,779,247 99,712,071 26,939,259 23,320,138 13,290,766
NET ASSETS:
Beginning of year....................... 9,468,150 14,229,054 70,347,053 14,049,485 12,099,989 6,169,054
- ---------------------------------------------------------------------------------------------------------------------------------
END OF YEAR*............................ $35,507,395 $ 53,008,301 $170,059,124 $40,988,744 $35,420,127 $19,459,820
- ---------------------------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment
income of: $854 $475 -- -- $2,365 $51,154
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<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 and Disciplined Mid Cap Stock
Portfolio ("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 fourteen
other separate investment portfolios: U.S. Government Securities, Social
Awareness Stock, Utilities, Large Cap, Equity Income, Convertible Bond, MFS
Research, MFS Mid Cap Growth, Disciplined Small Cap Stock, Strategic Stock, Zero
Coupon Bond Fund Portfolio Series 2000, Zero Coupon Bond Fund Portfolio Series
2005, NWQ Large Cap and Jurika & Voyles Core Equity 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
shareholder 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
for which market quotations are not available will be valued in good faith at
fair value by or under the direction of the Board of Trustees; (d) securities
maturing within 60 days are valued at cost plus accreted discount or minus
amortized premium, which approximates value; (e) 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; (f) 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 a Portfolio
determines the existence of a dividend declaration after exercising reasonable
due diligence; (g) gains or losses on the sale of securities are calculated by
using the specific identification method; (h) dividends and distributions to
shareholders are recorded on the ex-dividend date; (i) 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; (j) 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; (k) 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, 1998,
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 $9 and $318,844 was reclassified to paid-in
capital for Lazard International Stock and MFS Emerging Growth, respectively.
Net investment income, net realized gains and net assets for each Portfolio were
not affected by these changes; and (l) 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 and MFS Emerging Growth
Portfolios 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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup, Inc., acts as investment adviser to the
Travelers Quality Bond ("TQB"), Lazard International Stock ("LIS"), MFS Emerging
Growth ("MEG"), Federated High Yield ("FHY"), Federated Stock ("FSP") and
Disciplined Mid Cap Stock ("DMCS")
53
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Portfolios. TQB, LIS, MEG, FHY, FSP and DMCS each pay TAMIC an investment
advisory fee calculated at the annual rate of 0.3233%, 0.825%, 0.75%, 0.65%,
0.625% 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 Travelers Investment Management 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 DMCS, respectively. Federated is responsible for the day-to-
day portfolio operations and investment decisions for FHY and FSP. As a result,
the following fees are paid and calculated at an annual rate:
- TAMIC pays Lazard 0.475% of LIS's average daily net assets.
- TAMIC pays MFS 0.375% of MEG's average daily net assets.
- TAMIC pays Federated 0.40% and 0.375% of the average daily net
assets of FHY and FSP, respectively.
- DMCS pays TIMCO 0.35% of DMCS'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 service agreement with SSBC Fund
Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. Travelers Insurance pays SSBC,
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, 1999, Travelers Insurance reimbursed
expenses in the amount of $15,288 for DMCS.
One Trustee and all officers of the Trust are employees of Citigroup Inc.,
or its subsidiaries.
3. INVESTMENTS
During the six months ended June 30, 1999, the aggregate costs of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities), were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Travelers Quality Bond Portfolio............................ $115,676,818 $100,336,231
Lazard International Stock Portfolio........................ 26,635,431 6,640,708
MFS Emerging Growth Portfolio............................... 161,201,474 143,312,962
Federated High Yield Portfolio.............................. 14,553,763 3,745,372
Federated Stock Portfolio................................... 8,081,112 3,049,747
Disciplined Mid Cap Stock Portfolio......................... 29,192,247 8,430,765
- -----------------------------------------------------------------------------------------
</TABLE>
At June 30, 1999, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Travelers Quality Bond Portfolio............................ $ 93,750 $ (463,389) $ (369,639)
Lazard International Stock Portfolio........................ 7,790,911 (1,867,390) 5,923,521
MFS Emerging Growth Portfolio............................... 59,175,939 (4,259,345) 54,916,594
Federated High Yield Portfolio.............................. 1,238,075 (2,764,227) (1,526,152)
Federated Stock Portfolio................................... 9,052,447 (1,344,548) 7,707,899
Disciplined Mid Cap Stock Portfolio......................... 3,938,337 (1,194,386) 2,743,951
- ----------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 the repurchase price.
5. FUTURES CONTRACTS
The LIS, MEG and DMCS 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-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 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 Portfolio's basis in the contract.
The Portfolios enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 1999, DMCS had the following open futures contracts:
<TABLE>
<CAPTION>
EXPIRATION # OF BASIS MARKET UNREALIZED
MONTH/YEAR CONTRACTS VALUE VALUE GAIN
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS TO BUY:
Mid Cap 400 Index...................... 6/99 2 $411,821 $419,350 $7,529
Mid Cap 400 Index...................... 9/99 1 207,637 209,675 2,038
- --------------------------------------------------------------------------------------------------------
$9,567
- --------------------------------------------------------------------------------------------------------
</TABLE>
6. OPTIONS CONTRACTS
The LIS, MEG, FHY and DMCS 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 Portfolios 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.
At June 30, 1999, the Portfolios had no open purchased put or call 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. When the Portfolios enter into a closing purchase transaction,
the Portfolios realize a gain or loss depending upon whether the cost of the
closing transaction is greater or less than the premium originally received,
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.
55
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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, 1999, the Portfolios did not write any
options.
7. FORWARD FOREIGN CURRENCY CONTRACTS
LIS and MFS may enter into forward foreign currency contracts.
At June 30, 1999, LIS had open forward foreign currency contracts as
described below. The Portfolio bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO BUY:
British Pound.................................... 123,538 $194,732 7/1/99 $ (1,470)
Japanese Yen..................................... 3,433,992 28,375 7/1/99 (48)
Japanese Yen..................................... 3,798,989 31,391 7/1/99 2
Japanese Yen..................................... 11,537,328 95,332 7/1/99 6
- --------------------------------------------------------------------------------------------------------
(1,510)
- --------------------------------------------------------------------------------------------------------
TO SELL:
Japanese Yen..................................... 21,416,527 176,964 7/1/99 (11)
Japanese Yen..................................... 14,109,602 116,604 7/2/99 4
- --------------------------------------------------------------------------------------------------------
(7)
- --------------------------------------------------------------------------------------------------------
Net Unrealized Loss on Forward Foreign Currency
Contracts...................................... $ (1,517)
- --------------------------------------------------------------------------------------------------------
</TABLE>
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. LENDING OF PORTFOLIO SECURITIES
The Portfolios have an agreement with their custodian whereby the custodian
may lend securities owned by a Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolios on securities lending are recorded
as interest income. Loans of securities by the Portfolios are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Portfolios maintain exposure for the
risk of any losses in the investments of amounts received as collateral.
56
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At June 30, 1999, LIS loaned common stocks having a value of approximately
$3,678,020 and holds the following collateral for loaned securities:
<TABLE>
<CAPTION>
SECURITY DESCRIPTION VALUE
- ------------------------------------------------------------------------
<S> <C>
TIME DEPOSITS:
Abbey National London, 6.500% due 7/1/99.................. $ 165,461
Banca Commerciale Italiano, Singapore, 5.630% due
7/1/99................................................. 165,461
Bank of Austria, 6.000% due 7/1/99........................ 38,733
Bank of Nova Scotia London, 6.500% due 7/1/99............. 165,461
Banque Bruxelles Lambert London, 6.630% due 7/1/99........ 165,461
Bayerische Landesbank, Munich, 6.120% due 7/1/99.......... 165,461
Credit Agricole Indosuez Singapore, 6.000% due 7/1/99..... 165,461
Credit Commerciale de France Brussels, 6.130% due
7/1/99................................................. 165,461
Deutsche Bank London, 6.000% due 7/1/99................... 165,461
Fifth Third Bank, G.C., 5.600% due 7/1/99................. 60,168
Halifax PLC, 5.680% due 7/1/99............................ 165,460
Kreditbank, Brussels, 6.630% due 7/1/99................... 165,461
Nordeutsche Landesbank Singapore, 5.630% due 7/1/99....... 165,461
Rabobank, London, 6.000% due 7/1/99....................... 165,461
Societe Generale, 5.750% due 7/1/99....................... 165,461
Svenska London, 6.000% due 7/1/99......................... 165,461
Toronto Dominion, London, 6.000% due 7/1/99............... 165,461
Union Bank of Switzerland, G.C., 6.250% due 7/1/99........ 165,461
Westdeutsche Landesbank, Singapore, 6.250% due 7/1/99..... 165,460
COMMERCIAL PAPER:
Associates First Capital, 5.800% due 7/1/99............... 165,434
Ford Motor Credit Corp., 6.000% due 7/1/99................ 165,434
GE Capital International, 5.750% due 7/1/99............... 165,439
Sheffield Receivable Corp., 5.880% due 7/1/99............. 165,434
Tulip Funding, 5.880% due 7/1/99.......................... 165,434
REPURCHASE AGREEMENTS:
Banc of America Securities LLC, 6.050% due 7/1/99......... 155,105
- ------------------------------------------------------------------------
Total....................................................... $3,894,016
- ------------------------------------------------------------------------
</TABLE>
Income earned by LIS from securities loaned for the six months ended June
30, 1999 was $7,022.
10. 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, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS QUALITY BOND PORTFOLIO
Shares sold.............................................. 1,700,102 2,353,028
Shares issued on reinvestment............................ 24,905 136,485
Shares reacquired........................................ (243,079) (102,056)
- ----------------------------------------------------------------------------------------------------
Net Increase............................................. 1,481,928 2,387,457
- ----------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL STOCK PORTFOLIO
Shares sold.............................................. 2,432,689 4,545,655
Shares issued on reinvestment............................ 12,930 46,711
Shares reacquired........................................ (734,808) (1,708,356)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 1,710,811 2,884,010
- -----------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
Shares sold.............................................. 2,051,591 5,189,246
Shares issued on reinvestment............................ -- --
Shares reacquired........................................ (141,280) (709,159)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 1,910,311 4,480,087
- -----------------------------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
Shares sold.............................................. 841,020 2,511,163
Shares issued on reinvestment............................ 5,180 236,428
Shares reacquired........................................ (292,211) (296,346)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 553,989 2,451,245
- -----------------------------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
Shares sold.............................................. 385,046 1,542,339
Shares issued on reinvestment............................ 24,736 85,478
Shares reacquired........................................ (47,994) (240,375)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 361,788 1,387,442
- -----------------------------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
Shares sold.............................................. 844,922 883,471
Shares issued on reinvestment............................ 89,338 12,780
Shares reacquired........................................ (59,369) (34,061)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 874,891 862,190
- -----------------------------------------------------------------------------------------------------
</TABLE>
11. CAPITAL LOSS CARRYFORWARD
At December 31, 1998, MFS Emerging Growth Portfolio had, for Federal income
tax purposes, approximately $882,000 of capital loss carryforward, expiring in
December 2006, 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.
58
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
TRAVELERS QUALITY BOND PORTFOLIO 1999(1)(2) 1998 1997 1996(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $10.76 $10.36 $10.10 $10.00
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4)........................... 0.30 0.37 0.43 0.19
Net realized and unrealized gain (loss)............ (0.29) 0.51 0.29 0.16
- --------------------------------------------------------------------------------------------------------
Total Income From Operations......................... 0.01 0.88 0.72 0.35
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.00)* (0.37) (0.43) (0.19)
Net realized gain.................................. (0.06) (0.11) (0.03) (0.06)
- --------------------------------------------------------------------------------------------------------
Total Distributions.................................. (0.06) (0.48) (0.46) (0.25)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD....................... $10.71 $10.76 $10.36 $10.10
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 0.06%++ 8.49% 7.14% 3.56%++
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S).................... $51,212 $35,507 $9,468 $5,273
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)..................................... 0.56%+ 0.63% 0.75% 0.75%+
Net investment income.............................. 5.54+ 5.51 5.80 5.62+
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 317% 364% 295% 35%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived part or all of its fees for the year ended
December 31, 1997 and the period ended December 31, 1996. In addition,
Travelers Insurance has reimbursed the Portfolio for $10,901 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 actual 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 1.13%
1996 0.03 1.76+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.75%.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
59
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK PORTFOLIO 1999(1)(2) 1998(2) 1997 1996(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $12.88 $11.57 $10.78 $10.00
- --------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4)................................. 0.16 0.10 0.05 0.02
Net realized and unrealized gain......................... 0.44 1.37 0.87 0.76
- --------------------------------------------------------------------------------------------------------
Total Income From Operations............................... 0.60 1.47 0.92 0.78
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................................... (0.03) (0.04) (0.09) --
Net realized gain........................................ (0.00)* (0.12) (0.04) --
- --------------------------------------------------------------------------------------------------------
Total Distributions........................................ (0.03) (0.16) (0.13) --
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............................. $13.45 $12.88 $11.57 $10.78
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN............................................... 4.66%++ 12.59% 8.50% 7.80%++
- ---------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S).......................... $78,360 $53,008 $14,229 $4,322
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)........................................... 1.09%+ 1.25% 1.25% 1.25%+
Net investment income.................................... 2.49+ 0.78 0.66 0.42+
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.................................... 11% 44% 22% 9%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 1, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived part or all of its fees the year ended
December 31, 1997 and the period ended December 31, 1996. In addition,
Travelers Insurance has reimbursed 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 actual 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 1.76%
1996 0.07 2.87+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.25%.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
60
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
MFS EMERGING GROWTH PORTFOLIO 1999(1)(2) 1998(2) 1997 1996(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $16.87 $12.56 $10.55 $10.00
- ------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income (loss)(4)....................... (0.02) (0.07) (0.03) 0.03
Net realized and unrealized gain...................... 2.14 4.38 2.26 0.57
- ------------------------------------------------------------------------------------------------------
Total Income From Operations............................ 2.12 4.31 2.23 0.60
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income................................. -- -- -- (0.03)
Net realized gain..................................... -- -- (0.21) (0.01)
Capital............................................... -- -- (0.01) (0.01)
- ------------------------------------------------------------------------------------------------------
Total Distributions..................................... -- -- (0.22) (0.05)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $18.99 $16.87 $12.56 $10.55
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN............................................ 12.57%++ 34.32% 21.15% 6.00%++
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....................... $227,677 $170,059 $70,347 $12,924
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)........................................ 0.90%+ 0.89% 0.95% 0.95%+
Net investment income (loss).......................... (0.29)+ (0.47) (0.40) 0.55+
- ------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................. 79% 77% 94% 49%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived part or all of its fees for the year ended
December 31, 1997 and the period ended December 31, 1996. In addition,
Travelers Insurance has reimbursed 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 actual 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 1.05%
1996 0.06 2.09+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
61
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
FEDERATED HIGH YIELD PORTFOLIO 1999(1)(2) 1998 1997 1996(3)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $11.11 $11.34 $10.42 $10.00
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).......................... 0.50 0.71 0.60 0.31
Net realized and unrealized gain (loss)........... (0.12) (0.18) 1.01 0.46
- -------------------------------------------------------------------------------------------------------
Total Income From Operations........................ 0.38 0.53 1.61 0.77
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................. -- (0.71) (0.60) (0.31)
Net realized gain................................. (0.01) (0.05) (0.09) (0.04)
- -------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.01) (0.76) (0.69) (0.35)
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD...................... $11.48 $11.11 $11.34 $10.42
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ 3.46%++ 4.71% 15.45% 7.61%++
- -------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)................... $48,732 $40,989 $14,049 $5,381
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5).................................... 0.85%+ 0.90% 0.95% 0.95%+
Net investment income............................. 8.77+ 8.60 8.82 8.78+
- -------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 9% 31% 43% 23%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived part or all of its fees for the year ended
December 31, 1997 and the period ended December 31, 1996. In addition,
Travelers Insurance has reimbursed 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 actual 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 1.14%
1996 0.04 2.19+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
62
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
FEDERATED STOCK PORTFOLIO 1999(1)(2) 1998 1997 1996(3)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $15.66 $13.83 $11.10 $10.00
- -------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4).......................... 0.10 0.13 0.10 0.06
Net realized and unrealized gain.................. 1.94 2.33 3.60 1.20
- -------------------------------------------------------------------------------------------------------
Total Income From Operations........................ 2.04 2.46 3.70 1.26
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................. -- (0.13) (0.10) (0.06)
Net realized gain................................. (0.16) (0.50) (0.87) (0.09)
Capital........................................... -- -- -- (0.01)
- -------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.16) (0.63) (0.97) (0.16)
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD...................... $17.54 $15.66 $13.83 $11.10
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ 13.08%++ 17.84% 33.41% 12.61%++
- -------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)................... $46,034 $35,420 $12,100 $3,380
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5).................................... 0.84%+ 0.91% 0.95% 0.95%+
Net investment income............................. 1.17+ 1.14 1.11 1.55+
- -------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 8% 31% 74% 11%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived part or all of its fees for the year ended
December 31, 1997 and the period ended December 31, 1996. In addition,
Travelers Insurance has reimbursed 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 actual 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 1.16%
1996 0.08 3.03+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
63
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
DISCIPLINED MID CAP STOCK PORTFOLIO 1999(1)(2) 1998 1997(3)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $14.34 $12.47 $10.00
- --------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4).................................. 0.01 0.04 0.06
Net realized and unrealized gain.......................... 0.58 2.05 3.37
- --------------------------------------------------------------------------------------------------
Total Income From Operations................................ 0.59 2.09 3.43
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.02) -- (0.06)
Net realized gain......................................... (0.57) (0.22) (0.90)
- --------------------------------------------------------------------------------------------------
Total Distributions......................................... (0.59) (0.22) (0.96)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $14.34 $14.34 $12.47
- --------------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 4.24%++ 16.91% 34.38%++
- --------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $32,004 $19,460 $6,169
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................................ 0.95%+ 0.95% 0.95%+
Net investment income..................................... 0.35+ 0.48 0.85+
- --------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 37% 109% 74%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from April 1, 1997 (commencement of operations) to December
31, 1997.
(4) Travelers Insurance has waived all or a portion of its fees for the year
ended December 31, 1998 and the period ended December 31, 1997. In addition,
Travelers Insurance has reimbursed the Portfolio for $15,288 and $3,564 of
the Portfolio's expenses for the six months ended June 30, 1999 and for the
period ended December 31, 1997. If such fees were not waived or reimbursed,
the per share decrease in net investment income and the actual 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>
1999 $0.01 1.07%+
1998 0.02 1.22
1997 0.08 1.82+
</TABLE>
(5) As a result of voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
64
<PAGE>
Investment Advisers
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
Independent Auditors
KPMG LLP
New York, New York
Custodians
PNC BANK, N.A.
THE CHASE MANHATTAN BANK, N.A.
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Series Trust: Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated
Stock and Disciplined Mid Cap Stock Portfolios. It should not be used in
connection with any offer except in conjunction with the Prospectuses for the
Variable Annuity and Variable Universal Life Insurance products offered by The
Travelers Insurance Company or Travelers Life & Annuity Company, and the
Prospectuses for the underlying funds, which collectively contain all pertinent
information, including the applicable sales commissions.
Series Trust (Semi-Annual) (8-99) Printed in U.S.A.
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
June 30, 1999
THE TRAVELERS SERIES TRUST:
CONVERTIBLE BOND PORTFOLIO
STRATEGIC STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
[Travelers LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PG$PCN>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for The Travelers Series
Trust -- Convertible Bond Portfolio, Strategic Stock Portfolio, Disciplined
Small Cap Stock Portfolio, MFS Mid Cap Growth Portfolio and MFS Research
Portfolio ("Portfolios") for the period ended June 30, 1999. A more detailed
summary of performance and current holdings for each Trust or Portfolio can be
found in the pages listed below.
<TABLE>
<CAPTION>
MARKET SCHEDULE OF
SUBACCOUNT COMMENTARY INVESTMENTS
- ---------- ---------- -----------
<S> <C> <C>
Convertible Bond Portfolio............................ 3 10
Strategic Stock Portfolio............................. 3 14
Disciplined Small Cap Stock Portfolio................. 3 16
MFS Mid Cap Growth Portfolio.......................... 4 25
MFS Research Portfolio................................ 5 29
</TABLE>
ECONOMIC UPDATE
The first half of 1999 was a period of economic growth at home and recovery
abroad. Following the events surrounding the Russian debt default in August of
1998 -- which included a dive in bond yields and a 0.75% decrease in interest
rates -- yields have increased. Investor optimism, however, was tempered by
concerns about inflation, interest rates, and continued economic growth.
EQUITY MARKET COMMENTARY
The year began on a volatile note for global financial markets as a new threat
emerged in Latin America. The devaluation of the Brazilian currency raised
concerns for U.S. companies with exposure to Latin America and took its toll on
the stock market in the middle of January. The Dow Jones Industrial Average
("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices
did recover, however, to finish higher at the end of January.
Interest rate concerns dominated market psychology during February. Despite low
inflation, interest rates moved higher amid fears of Federal Reserve Board
("Fed") tightening in response to the strong U.S. economy. In February, the
yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market
valuations became a concern as investors focused on the rise in interest rates,
the lack of a substantial earnings recovery and high price/earnings multiples.
During the month of March, market sentiment reversed and investors focused on
the reality of DJIA 10,000. After repeated assaults, the DJIA did breach 10,000
on March 16, retreated and then went on to close at 10,006 on March 29. Economic
activity remained brisk and it became obvious that first quarter Gross Domestic
Product ("GDP") growth would be above expectations. Consumer prices rose 0.1% in
February and 1.6% from a year ago.
The S&P 500 Index gained 5.0% in the first quarter of 1991. The S&P 400 Mid Cap
Index fell by 6.4% while the Russell 2000 Index declined by 5.4%. The S&P 500
Growth Index produced a 6.9% total return, outpacing the 2.9% total return of
the S&P 500 Value Index. All sectors except consumer staples (-11%) registered
respectable gains in the first quarter of 1999. The market rally was led by the
energy services (22%) and technology (9%) sectors. The financial services (7%)
and consumer discretionary (6%) sectors also performed well.
Despite a rise in interest rates in the second quarter, the U.S. stock market
finished firmly in positive territory. Evidence of stronger-than-expected
economic growth prompted hopes of a meaningful earnings recovery during the
quarter and, at the same time, triggered concerns about rising interest rates.
This led to a rally in small cap and value stocks.
Interest rates began to climb in the month of May as investors worried about
inflation concerns on the heels of recent economic strength. First quarter GDP
growth was revised down to 4.3% from 4.5%, but other indicators provided
evidence of continued strength in the economy. The stock market sagged during
May under the burden of lofty valuations and higher rates.
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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The Fed took center stage in the month of June as investors anxiously awaited
its next monetary policy move. Even though inflation data released in June was
lower than consensus expectations, the bond and stock markets had clearly
anticipated a 25 basis point rate hike as a result of unexpected economic
strength. The decision to raise the federal-funds rate by 25 basis points on
June 30, 1999 therefore, came as no surprise and markets rallied when the Fed
announced that it had now switched to a neutral bias in monetary policy.
The rotation into value and small cap stocks began in the middle of April and
continued through May. This trend reversed in June, as investors became
comfortable that a proactive Fed policy would pre-empt inflation and keep
interest rates in check. The S&P 500 Index advanced by 7.1% in the second
quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index
rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return,
outpacing the 3.8% total return of the S&P 500 Growth Index.
All sectors within the S&P 500 except health care (-4%) registered respectable
gains in the second quarter. The economically sensitive, value-oriented
materials and processing (19%), energy services (14%) and producer durables
(14%) sectors led the market rally. The utilities (13%) and technology (10%)
sectors also performed well.
The focus in the U.S. stock market has now switched from the earnings front to
the future direction of interest rates. The early second quarter earnings
reports project a healthy growth in corporate profits from the prior year. With
the stock market now trading well above DJIA 10,000 and at unprecedented
valuation levels, any further increase in interest rates could trigger a
compression in the price/earnings multiple for the stock market.
FIXED INCOME MARKET COMMENTARY
The long anticipated slowdown in U.S. economic activity again failed to happen
during the reporting period. Global stock markets continued to rise led by
better than expected profit growth and continued merger and acquisition
activity. The risks of higher U.S. economic growth were more fairly reflected in
the yield curve in the U.S. at the end of the first quarter of 1999 than they
were at the beginning.
The stronger than expected growth caused interest rates to rise in the first
quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of
the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The
Lehman Government/Corporate Index declined about 1.2% in the first quarter of
1999. U.S. Treasuries underperformed as spreads narrowed in all sectors.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.3% annualized GDP growth rate for the first quarter of 1999.
Furthermore, the labor market continued to be extremely tight, as the
unemployment rate fell to a 29-year low of 4.2% in March. Defying the
expectations of many economists, inflation -- as measured by the Consumer Price
Index ("CPI") -- was virtually absent. Productivity gains and sagging global
demand were credited with keeping inflation under control. However, in the month
of April, the CPI rose by 0.7%, its largest monthly increase in nine years.
This, coupled with signs that many world economies were in the nascent stages of
growth and recovery, deepened fears that inflationary pressures were reaching a
breaking point. These concerns brought about an increase in the yield of the
benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April
8 and June 24 to close at 6.16%.
To counter these inflationary pressures, the Fed raised short-term interest
rates by 0.25% at the end of June, and subsequently adopted a neutral stance on
monetary policy. Meanwhile, during the months of May and June, the CPI remained
unchanged, generating considerable optimism that inflation had retreated.
Further reports that of rising U.S. jobless claims added to the optimism.
The unwillingness of consumer spending to slow down keeps the Fed's monetary
policy on watch. With the world economic crisis abating, we cannot rule out the
possibility of the Fed raising rates before year-end. However, in our view, the
most likely case is that the Fed's monetary policy will remain neutral through
the third quarter of 1999. By next year we think that nominal growth should slow
below 5% and may allow room for additional short-term rates cuts. However, if
global economic growth accelerates unexpectedly and signs of inflation emerge
during the remainder of 1999, the Fed will not hesitate to raise rates again.
2
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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CONVERTIBLE BOND PORTFOLIO
For the six months ended June 30, 1999, the Convertible Bond Portfolio
("Portfolio") posted a total return of 7.83%. The investment objective of the
Portfolio is to seek current income and capital appreciation by investing in
convertible securities and in combinations of nonconvertible fixed-income
securities and warrants or call options that together resemble convertible
securities. (Convertible securities are bonds or preferred stocks that can be
converted into a preset number of shares of common stocks after a predetermined
date.) The Portfolio's Investment Adviser is the Travelers Asset Management
International Corporation, an indirect wholly owned subsidiary of Travelers
Group Inc.
The convertible bond market has improved, and in our opinion is now more fairly
valued. The market (as measured by the Merrill Lynch Investment Grade
Convertible Bond Index) was up 7.58% for the second quarter of 1999. This
compares favorably with the S&P 500's second quarter return of 7.04%.
Focus on total return and yield style sectors hurt the Portfolio's performance
during the first and second quarters of 1999. Additionally, the Portfolio is
underweighted in technology which has been by far the best performing sector so
far this year. However, the Portfolio's overweight in real estate investment
trusts ("REITs") and energy stocks positively affected the Portfolio during the
second quarter of 1999.
STRATEGIC STOCK PORTFOLIO
For the six months ended June 30, 1999, the Strategic Stock Portfolio
("Portfolio") produced a total return of 12.37% compared to a 19.49% return for
the DJIA.
The Portfolio invests in stocks with a relatively high yield. The ten highest
dividend yielding stocks from the DJIA are identified each month. To supplement
the original ten Dow Jones stocks, another fifteen stocks are selected from the
S&P Industrials index based on dividend yield and subject to a high standard of
quality ranking by Standard and Poors. The list of twenty-five stocks is
recreated each month for the investment of new deposits. In order to improve the
diversification benefits of the Portfolio, the number of holdings were increased
from twenty to twenty five during the quarter.
For the first time in nearly two years, small-company stocks outperformed
large-company stocks in the second quarter of 1999. Both major small-company
stock market benchmarks -- the Russell 2000 and S&P 600 Indexes -- recorded
gains of 15% (all returns exclude dividends). Meanwhile, the two major
large-company stock market indexes -- the Dow Jones Industrial Average and S&P
500 Index -- registered gains of 12.11% and 6.71%, respectively.
DISCIPLINED SMALL CAP STOCK PORTFOLIO
For the six months ending June 30, 1999, the Disciplined Small Cap Stock
Portfolio ("Portfolio") produced a total return of 7.78% compared with the
Russell 2000 Index return of 9.28%. The Portfolio's total return compared
favorably with the average return achieved by variable annuity stock funds in
the Lipper small cap stock category.
The Portfolio is managed to provide diversified exposure to the
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.
The U.S. stock market finished the first half of 1999 firmly in positive
territory despite a rise in interest rates. Evidence of stronger-than-expected
economic growth prompted hopes of a meaningful earnings recovery during the
quarter and, at the same time, triggered concerns about rising interest rates.
Both implications led to a furious rally in small cap and value stocks.
The rotation into small cap and value stocks began in the middle of April and
continued through May. This trend reversed in June, as investors became more
comfortable that a proactive Fed policy would preempt inflation and keep
interest rates in check.
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
Small cap stocks were well ahead of large cap stocks in the second quarter but
still finished the first half of 1999 with a small deficit. The Russell 2000
Index return of 9.3% lagged the S&P 500 Index of 12.4% by over 300 basis points.
Growth stocks performed better than value stocks in the small cap universe
during the first six months of 1999.
The managers' stock selection was most favorable in the technology and health
care sectors in the first quarter of 1999. Internet stocks such as Excite and
Lycos and telecommunications stocks such as Comverse Technology and Dycom
Industries paid off handsomely. Among the disappointing stocks were Keane Inc.,
which was hurt by Y2K related concerns, and Safeskin, which was severely
penalized for earnings and revenue shortfalls during the first quarter of 1999.
Stock selection for the second quarter was adverse in the technology and
consumer discretionary sectors and favorable in the health care sector. The
shortfall in relative performance in the technology sector came about late in
the quarter as the managers were unable to shift into several growth stocks
which stormed back in June. Internet stocks produced a high level of volatility
after soaring in April and then retreating to prior quarter-end prices by the
end of June.
In the consumer services sector, the P/E contraction experienced in April and
May for several growth stocks overwhelmed the rebound in those stocks in June
causing an adverse impact on performance. The health care sector produced gains
in relative performance from the portfolio's bio-tech and drug holdings.
The stock selection of managers and risk control methods have performed well
over the last six months in the midst of increased volatility. The key to the
performance of the small cap sector in the coming months lies in the direction
of the economy. A strong economy improves the odds of an earnings recovery which
should bode well for small cap stocks. Aggressive Fed tightening could, however,
derail a small cap rally.
MFS MID CAP GROWTH PORTFOLIO
For the six months ended June 30, 1999, the Mid Cap Growth Portfolio
("Portfolio") provided a total return of 13.31% which compares to a 9.28% return
for the Russell 2000 and a 10.34% return for the Russell Midcap, both of which
are unmanaged indices. (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.)
Until early April, a narrow band of about 50 large-company stocks beat the rest
of the stock market by a wide margin, partly because investors were seeking less
volatility at a time of global market turmoil. That situation has changed over
the past couple of months. Investors, apparently tired of paying excessively
high prices for a few big companies with relatively slow growth rates, have
found more attractive prices in mid-cap and small-company stocks.
The Portfolio's relative performance can be largely attributed to strong stock
selection in the technology, leisure and healthcare sectors. Gemstar, the
Portfolio's top leisure holding, contributed significantly to the absolute
return, gaining 73% in the quarter. The security continues to benefit from
healthy growth and is up 127% year-to-date.
Semi-conductor and Internet-related holdings led the technology sector's
relative out-performance in the quarter. Leaders in the overweighted
semi-conductor segment include Teradyne and KLA-Tencor. Edify, a leading
provider of Internet self-service software, announced an acquisition by Security
First in May, resulting in a 145% return over the last quarter. VeriSign, an
Internet-related Business Services holding, is the leading provider of encrypted
digital Internet IDs.
Within the technology sector, software holdings are underweight in the Russell
2000 Index, as these companies are currently experiencing lock-down impacts
resulting from Y2K concerns. The Portfolio also benefited from holdings in the
overweighted healthcare sector. Total Renal Care, the portfolio's largest
healthcare holding, rebounded from a first quarter earnings disappointment to
return nearly 50% in the second quarter. Another leading healthcare performer
continues to be Cytyc, up 40% for the quarter.
A few sectors experienced weighting shifts during the last six months. Buyout
activity in retailing, including the acquisition of Fred Meyer by Kroger in
June, prompted a decrease in the overall sector weight. The energy sector weight
was increased to roughly 8.5%, with new names in the gas segment including
Newfield Exploration and Houston Exploration.
4
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO
For the six months ended June 30, 1999, the MFS Research Portfolio ("Portfolio")
provided a total return of 8.71%. This compares to a 12.38% return for the
Standard & Poor's 500 Composite Index ("S&P 500"), a popular, unmanaged index of
common stock total return performance, for the same period.
The Portfolio relies on MFS(R) Original Research(SM) to incorporate the best
ideas of its more than 30 equity analysts, who cover small-, mid-, and large-cap
companies; therefore, the Portfolio is broadly diversified. However, the equity
market has, until recently, been very narrow, with 25 to 50 large-growth stocks
outperforming the rest of the stocks in the S&P 500. This Portfolio is not
designed to outperform in a market favoring a small group of stocks. As the
market continues to broaden, the managers expect that the Portfolio may benefit.
The Portfolio currently has a light position, relative to the S&P 500, in
large-cap growth stocks and heavy positions in small-and mid-cap stocks, whose
long-term opportunities the managers think are more attractive. Small- and
mid-cap stocks are selling at more inexpensive prices relative to earnings than
large-cap growth stocks. Stocks with lower prices relative to earnings are less
vulnerable to negative events such as earnings disappointments or a broad market
downturn. The managers think the companies in the Portfolio will see higher
growth rates than many of the large-cap stocks. At the same time, they are
avoiding Internet stocks or other companies trading at what they see as
unsustainably high prices relative to their earnings.
Three industry sectors have helped performance: financial services, leisure, and
technology. The Portfolio's gains in financial services largely came from
brokerage and investment banking stocks. Specifically, the Portfolio had large
holdings in Morgan Stanley Dean Witter and Merrill Lynch, both of which are well
managed and experienced in the markets they serve. Companies around the world
are using firms like Morgan Stanley and Merrill Lynch to help arrange and
facilitate mergers.
Most of the Portfolio's leisure stocks are in the restaurant industry. For the
past dozen years restaurants, particularly the national chains, generally have
been poor investments because the number of new ones has exceeded demand.
However, in the past year or so restaurants such as McDonald's and Wendy's have
stopped adding domestic capacity. Now, the U.S. economy is strong, and people
are eating out more often. The result is greater demand at existing restaurants
and higher profits.
The leading contributors to technology performance were semiconductor companies
such as LSI Logic and Analog Devices. The semiconductor industry was hurt in
1998 by the Asian economic slowdown and the fact that it had built up its
manufacturing capability to a point at which there was too much supply in some
market segments, so prices came down. Now, demand is beginning to catch up with
supply and Asia seems to be recovering, both of which helped semiconductor
companies.
The continuing strength of the U.S. economy has supported companies whose
businesses can benefit from strengthening economic cycles. For example, the
Portfolio has benefited from its paper holdings such as Abitibi-Consolidated and
Bowater that are, respectively, the number-one and number-two newsprint
producers worldwide. Bowater recently acquired a competitor, Avenor, which
should give Bowater greater market share as well as the cost-savings benefits
that can come from consolidation. Both Bowater and Abitibi are global in scope
and are benefiting from favorable supply/demand conditions, which should result
in price increases.
A few of the Portfolio's retailing holdings have underperformed. Although the
retailing environment has been very good and Dayton Hudson, the department store
chain, has performed well, the Portfolio was hurt by two stocks, Rite Aid and
CompUSA. The managers have had a significant position in Rite Aid because they
believe that as the population ages people will use more prescription medicines.
However, Rite Aid opened too many stores in a short period of time and
underestimated the costs of closing old stores. The company also had inventory
and accounting problems. Over the long term, however, the Portfolio's team
believes Rite Aid will continue to benefit from increasing prescription sales.
CompUSA, meanwhile, is losing computer and software sales to companies that sell
over the telephone or on the Internet. Also, some business customers, who tend
to buy more expensive equipment, are cutting orders to prepare for any Year 2000
(Y2K) computer problems. By the end of this year, the investment team thinks the
Y2K issue will largely be resolved, and the company should perform better.
5
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
Looking ahead, the managers see a continuation of a low-inflation,
low-interest-rate environment that would mean steady economic growth and a
strong consumer sector. However, they expect the U.S. economy to slow from its
rapid pace of the past few quarters and the S&P 500's average growth rate to
fall to single digits this year. Given that earnings growth is falling while
stock prices are rising, the Portfolio's investment team does not believe prices
of many companies, particularly the big ones, are attractive. Therefore, the
Portfolio is avoiding companies with declining earnings and, instead, is
focusing on companies with at least flat to accelerating growth. For example,
Gillette had troubles in Asia and missed its earnings estimates for a couple of
quarters. Now, with Asia turning around, the managers think the company should
grow at 11% this year and 15% next year, and may represent a good opportunity
for the Portfolio.
In closing, we thank you for your investment in The Travelers Series Trust. We
look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 26, 1999
6
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- CONVERTIBLE BOND PORTFOLIO AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 7.83%
Year Ended 6/30/99 7.60%
5/1/98* through 6/30/99 7.59%
CUMULATIVE TOTAL RETURN
--------------------------------------------
5/1/98* through 6/30/99 8.89%
* 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 at
inception on May 1, 1998, assuming reinvestment of dividends,
through June 30, 1999. The Merrill Lynch Investment Grade
Convertible Bond Index is comprised of 115 investment grade
convertible bond issues. The index excludes those issues that have
mandatory conversion features. (Investment grade bonds are those
rated in one of the four highest rating categories by any
nationally recognized statistical rating organization.)
<TABLE>
<CAPTION>
MERRILL LYNCH INVESTMENT GRADE
CONVERTIBLE BOND PORTFOLIO CONVERTIBLE BOND INDEX
-------------------------- ------------------------------
<S> <C> <C>
5/1/98 10000 10000
5/98 10000 9857
6/98 10120 9983
7/98 10060 9861
8/98 9390 9007
9/98 9570 9207
10/98 9630 9559
11/98 9910 10024
12/98 10098 10528
1/99 10252 10729
2/99 10037 10537
3/99 10190 10577
4/99 10508 10832
5/99 10559 10673
6/30/99 10889 11208
</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 -- STRATEGIC STOCK PORTFOLIO AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 12.37%
Year Ended 6/30/99 11.04%
5/1/98* through 6/30/99 6.49%
CUMULATIVE TOTAL RETURN
-------------------------------------------
5/1/98* through 6/30/99 7.60%
* 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 $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through June 30, 1999. The Dow Jones Industrial Average ("DJIA") is
a price weighted average based on the price only performance of 30
blue chip stocks.
<TABLE>
<CAPTION>
STRATEGIC STOCK PORTFOLIO DOW JONES INDUSTRIAL AVERAGE
------------------------- ----------------------------
<S> <C> <C>
5/1/98 10000 10000
5/98 9830 9833
6/98 9690 9904
7/98 9530 9842
8/98 8440 8367
9/98 8780 8718
10/98 9180 9566
11/98 9550 10164
12/98 9576 10250
1/99 9515 10463
2/99 9292 10419
3/99 9333 10972
4/99 10456 12113
5/99 10497 11872
6/30/99 10760 12350
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
7
<PG$PCN>
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PERFORMANCE COMPARISON -- DISCIPLINED SMALL CAP STOCK PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 7.78%
Year Ended 6/30/99 0.50%
5/1/98* through 6/30/99 (3.55)%
CUMULATIVE TOTAL RETURN
-------------------------------------------
5/1/98* through 6/30/99 (4.12)%
* 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 at
inception on May 1, 1998, assuming reinvestment of dividends,
through June 30, 1999. The Russell 2000 Index is a capitalization
weighted total return index which is comprised of 2,000 of the
smallest capitalized U.S. domiciled companies with less than
average growth orientation whose common stock is traded in the
United States on the New York Stock Exchange, American Stock
Exchange and NASDAQ.
<TABLE>
<CAPTION>
DISCIPLINED SMALL CAP STOCK
PORTFOLIO RUSSELL 2000 INDEX
--------------------------- ------------------
<S> <C> <C>
5/1/98 10000 10000
5/98 9400 9461
6/98 9540 9481
7/98 8770 8713
8/98 7110 7021
9/98 7510 7571
10/98 7780 7879
11/98 8240 8292
12/98 8896 8806
1/99 8966 8923
2/99 8254 8200
3/99 8385 8328
4/99 9016 9074
5/99 9137 9207
6/31/99 9588 9623
</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 -- MFS MID CAP GROWTH PORTFOLIO AS OF 6/30/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 13.31%
Year Ended 6/30/99 16.20%
3/23/98* through 6/30/99 10.76%
CUMULATIVE TOTAL RETURN
--------------------------------------------
3/23/98* through 6/30/99 13.87%
* 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 $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through June 30, 1999. The Russell Midcap Index contains the lowest
800 companies in the Russell 1000 Index as ranked by total market
capitalization. The Russell Midcap Index accurately captures the
medium-sized universe of securities and represents approximately
34.9% of the Russell 1000 total market capitalization.
<TABLE>
<CAPTION>
MFS MID CAP GROWTH PORTFOLIO RUSSELL MIDCAP INDEX
---------------------------- --------------------
<S> <C> <C>
3/23/98 10000 10000
4/98 10110 10025
5/98 9710 9715
6/98 9800 9850
7/98 9230 9380
8/98 7230 7880
9/98 8200 8389
10/98 8990 8962
11/98 9330 9385
12/98 10050 9935
1/99 10390 9918
2/99 9630 9588
3/99 9900 9888
4/99 10250 10619
5/99 10500 10588
6/30/99 11387 10962
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
8
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MFS RESEARCH PORTFOLIO AS OF 6/30/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Six Months Ended 6/30/99+ 8.71%
Year Ended 6/30/99 12.39%
3/23/98* through 6/30/99 11.61%
CUMULATIVE TOTAL RETURN
--------------------------------------------
3/23/98* through 6/30/99 14.98%
* 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 $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through June 30, 1999. The S&P 500 Stock Index is an unmanaged
index composed of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange and over-the-counter
market.
<TABLE>
<CAPTION>
MFS RESEARCH PORTFOLIO S&P 500 STOCK INDEX
---------------------- -------------------
<S> <C> <C>
3/23/98 10000 10000
4/98 10050 10102
5/98 9860 9928
6/98 10230 10331
7/98 10000 10222
8/98 8360 8745
9/98 8760 9305
10/98 9300 10061
11/98 9890 10671
12/98 10577 11285
1/99 10877 11757
2/99 10506 11391
3/99 10697 11847
4/99 10927 12305
5/99 10777 12015
6/30/99 11498 12682
</TABLE>
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
9
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCK -- 31.3%
- --------------------------------------------------------------------------------------------
BANKING -- 3.4%
8,000 National Australia Bank, Exchange 7.875%.................... $ 243,000
- --------------------------------------------------------------------------------------------
ENERGY -- 4.2%
Calenergy Capital Trust:
3,070 Exchange 6.500%........................................... 148,128
3,150 Exchange 6.250%........................................... 158,288
- --------------------------------------------------------------------------------------------
306,416
- --------------------------------------------------------------------------------------------
FINANCE -- 4.1%
3,530 AES Trust II, Exchange 5.500%............................... 203,858
2,200 Fleetwood Capital Trust, Exchange 6.000%.................... 89,100
- --------------------------------------------------------------------------------------------
292,958
- --------------------------------------------------------------------------------------------
MISCELLANEOUS -- 3.1%
4,245 Union Pacific Cap Trust, Exchange 6.250%.................... 220,740
- --------------------------------------------------------------------------------------------
MULTIMEDIA -- 0.10%
100 News Corp. Ltd., Exchange 5.000%............................ 10,038
- --------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS AND PRINTING -- 2.9%
4,000 International Paper Capital Trust, Exchange 5.250%.......... 211,000
- --------------------------------------------------------------------------------------------
PUBLISHING -- 1.1%
637 Tribune Co., Exchange 2.000%................................ 79,784
- --------------------------------------------------------------------------------------------
REAL ESTATE -- 10.9%
4,215 Equity Office PPTYS Trust, Exchange 5.250%.................. 179,664
8,541 Equity Residential Properties, Exchange 7.250%.............. 196,443
4,000 General Growth Properties, Exchange 7.250%.................. 96,000
13,900 Reckson Associates Realty, Exchange 7.625%.................. 317,094
- --------------------------------------------------------------------------------------------
789,201
- --------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.5%
2,000 Canadian National Railway, Exchange 5.250%.................. 107,000
- --------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $2,221,381)...... 2,260,137
- --------------------------------------------------------------------------------------------
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------
CONVERTIBLE BONDS AND NOTES -- 61.4%
- --------------------------------------------------------------------------------------------
ADVERTISING -- 2.9%
$ 60,000 A- Omnicom Group Inc., 2.250% due 1/6/13....................... 99,000
121,000 NR Interpublic Group Cos. Inc., 1.800% due 9/16/04 (b)......... 110,413
- --------------------------------------------------------------------------------------------
209,413
- --------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
BUILDING AND CONSTRUCTION -- 1.3%
$216,000 BBB- Lennar Corp., zero coupon due 7/29/18....................... $ 95,040
- --------------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 7.6%
Bea Systems Inc.:
100,000 NR 4.000% due 6/15/05 (b).................................... 111,375
200,000 NR 4.000% due 6/15/05........................................ 235,260
100,000 Aa2* GVC Corp. Ltd., zero coupon due 5/21/02 (b)................. 110,250
100,000 B- Mindspring Enterprises, 5.000% due 4/15/06.................. 94,375
- --------------------------------------------------------------------------------------------
551,260
- --------------------------------------------------------------------------------------------
ELECTRONIC -- 4%
100,000 A2* Potomac Electric Power Co., 5.000% due 9/1/02............... 98,375
331,200 BBB Solectron Corp., zero coupon due 1/27/19 (b)................ 192,510
- --------------------------------------------------------------------------------------------
290,885
- --------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.6%
Financial Federal Corp:
100,000 NR 4.500% due 5/1/05 (b)..................................... 91,500
100,000 NR 4.500% due 5/1/05......................................... 91,500
600,000 BBB- Elan International Financial, zero coupon due 12/14/18
(b)....................................................... 309,000
200,000 Baa1* Hellenic Finance, 2.000% due 7/15/03........................ 205,100
- --------------------------------------------------------------------------------------------
697,100
- --------------------------------------------------------------------------------------------
HEALTHCARE -- 5.7%
100,000 NR Genzyme Corp., 5.250% due 6/1/05 (b)........................ 139,875
100,000 BBB Rite Aid Corp., 5.250% due 9/15/02.......................... 100,313
100,000 BB- Tenet Healthcare Corp., 6.000% due 12/1/05.................. 81,625
100,000 A Thermo Instrument System, 4.500% due 10/15/03 (b)........... 89,250
- --------------------------------------------------------------------------------------------
411,063
- --------------------------------------------------------------------------------------------
HUMAN RESOURCES -- 1.2%
100,000 BB+ Interim Services Inc., 4.500% due 6/1/05.................... 85,125
- --------------------------------------------------------------------------------------------
MISCELLANEOUS -- 6.4%
107,000 A- Diamond Offshore Drilling, 3.750% due 2/15/07............... 106,064
190,000 A- Koninklijke Ahold NV, 3.000% due 9/30/03.................... 111,409
100,000 A- Thermo Electron Corp., 4.250% due 1/1/03 (b)................ 90,250
100,000 AAA Finlayson Global, zero coupon due 2/19/04 (b)............... 156,500
- --------------------------------------------------------------------------------------------
464,223
- --------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE -- 3.4%
300,000 A+ Loews Corp., 3.125% due 9/15/07............................. 242,625
- --------------------------------------------------------------------------------------------
OIL AND NATURAL GAS -- 5.7%
100,000 A Baker Hughes Inc., zero coupon due 5/5/08................... 76,500
100,000 B- Parker Drilling Corp., 5.500% due 8/1/04.................... 66,375
200,000 Baa1* Nabors Industries, 5.000% due 5/15/06....................... 267,749
- --------------------------------------------------------------------------------------------
410,624
- --------------------------------------------------------------------------------------------
REAL ESTATE -- 1.1%
100,000 NR Security Cap U.S. Realty, 2.000% due 5/22/03 (b)............ 76,938
- --------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL -- 1.4%
$300,000 BBB Ingram Micro Inc., zero coupon due 6/9/18 (b)............... $ 100,125
- --------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 11.1%
500,000 NR Aspect Telecommunications, zero coupon due 8/10/18 (b)...... 109,375
Bell Atlantic Financial Service:
99,000 A+ 5.750% due 4/1/03 (b)..................................... 102,029
300,000 A+ 4.250% due 9/15/05 (b).................................... 307,139
198,000 A+ DSC Communications Corp., 7.000% due 8/1/04................. 204,929
100,000 B Total Renal Care Holdings, 7.000% due 5/15/09 (b)........... 81,625
- --------------------------------------------------------------------------------------------
805,097
- --------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS AND NOTES (Cost -- $4,265,411)...... 4,439,518
- --------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $6,486,792).................. 6,699,655
- --------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 7.3%
531,000 Chase Securities Inc., 4.800% due 7/1/99; Proceeds at
maturity -- $531,069; (Fully collateralized by U.S. Treasury
Notes, 7.125% due 2/15/23; Market value -- $543,200)
(Cost -- $531,000).......................................... 531,000
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $7,017,792**)............ $7,230,655
- --------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's")
with the exception of those identified by an asterisk(*) , which are rated
by Moody's Investor Service, Inc. ("Moody's").
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 13 for a definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PG$PCN>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's -- Ratings from "AAA" 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 S&P to
a debt obligation. 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 differs from the highest rated
issues 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 debt in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in
higher rated categories.
BB, B 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 "Aaa" to "Caa", where 1 is the highest and 3 the lowest rating within its
generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment 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 these bonds.
Aa -- Bonds rated "Aa" are judged to be of the 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 that make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is they are neither highly protected nor
poorly secured. Interest payment and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack
outstanding investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby may not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payment or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with
respect to principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
13
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
STRATEGIC STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 87.7%
- ---------------------------------------------------------------------------------------
AEROSPACE -- 2.3%
4,796 Rockwell International Corp. ............................... $ 291,357
- ---------------------------------------------------------------------------------------
AUTO TRUCKS AND PARTS -- 0.9%
2,100 Ford Motor Co. ............................................. 118,518
- ---------------------------------------------------------------------------------------
AUTOMOTIVE -- 3.7%
4,175 Delphi Automotive Systems Corp. ............................ 77,493
5,973 General Motors Corp. ....................................... 394,218
- ---------------------------------------------------------------------------------------
471,711
- ---------------------------------------------------------------------------------------
BANKS - MONEY CENTER -- 4.9%
4,382 J.P. Morgan & Co. Inc. ..................................... 615,671
- ---------------------------------------------------------------------------------------
BEVERAGES - SOFT DRINKS -- 1.5%
4,898 PepsiCo, Inc. .............................................. 189,492
- ---------------------------------------------------------------------------------------
CHEMICALS -- 1.5%
3,949 Union Carbide Corp. ........................................ 192,513
- ---------------------------------------------------------------------------------------
COMMUNICATIONS - EQUIPMENT -- 1.4%
4,459 Harris Corp. ............................................... 174,737
- ---------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 0.2%
300 Microsoft Corp. ............................................ 27,057
- ---------------------------------------------------------------------------------------
CONGLOMERATES -- 3.9%
4,277 Honeywell Inc. ............................................. 495,597
- ---------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 7.8%
6,811 Eastman Kodak Co. .......................................... 461,445
6,130 Minnesota Mining and Manufacturing Co. ..................... 532,926
- ---------------------------------------------------------------------------------------
994,371
- ---------------------------------------------------------------------------------------
DRUGS AND HEALTHCARE -- 4.6%
8,202 Bristol-Myers Squibb Co. ................................... 577,729
- ---------------------------------------------------------------------------------------
ELECTRONICS -- 2.1%
4,400 Intel Corp. ................................................ 261,800
- ---------------------------------------------------------------------------------------
ENGINEERING AND CONSTRUCTION -- 3.9%
12,283 Fluor Corp. ................................................ 497,462
- ---------------------------------------------------------------------------------------
FOOD PROCESSING -- 3.5%
8,738 H.J. Heinz & Co. ........................................... 437,993
- ---------------------------------------------------------------------------------------
MACHINERY -- 2.9%
6,155 Caterpillar Inc. ........................................... 369,300
- ---------------------------------------------------------------------------------------
MANUFACTURER CONSUMER AND INDUSTRIAL -- 3.9%
11,232 International Flavors & Fragrances Inc. .................... 498,420
- ---------------------------------------------------------------------------------------
OIL AND GAS -- 4.5%
5,942 Chevron Corp. .............................................. 565,605
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
STRATEGIC STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OIL AND GAS PRODUCTS -- 5.7%
5,214 E.I. du Pont de Nemours & Co. .............................. $ 356,181
3,708 Mobil Corp. ................................................ 367,092
- ---------------------------------------------------------------------------------------
723,273
- ---------------------------------------------------------------------------------------
OIL - SUPPLIES AND CONSTRUCTION -- 0.7%
2,500 Baker Hughes Inc. .......................................... 83,750
- ---------------------------------------------------------------------------------------
OIL PRODUCTION - DOMESTIC -- 2.4%
4,001 Exxon Corp. ................................................ 308,578
- ---------------------------------------------------------------------------------------
PAPER PRODUCTS -- 4.2%
10,503 International Paper Co. .................................... 530,401
- ---------------------------------------------------------------------------------------
RETAIL -- 0.8%
600 Sears, Roebuck & Co. ....................................... 26,737
1,600 Tandy Corp. ................................................ 78,200
- ---------------------------------------------------------------------------------------
104,937
- ---------------------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL -- 3.1%
8,741 The Limited, Inc. .......................................... 396,622
- ---------------------------------------------------------------------------------------
RETAIL - DEPARTMENT STORES -- 3.8%
11,885 May Department Stores Co. .................................. 485,800
- ---------------------------------------------------------------------------------------
SEMICONDUCTOR - EQUIPMENT -- 1.1%
2,398 Conexant Systems, Inc. (a) ................................. 139,234
- ---------------------------------------------------------------------------------------
TELEPHONE -- 2.3%
5,283 AT&T Corp. ................................................. 294,857
- ---------------------------------------------------------------------------------------
TIRE AND RUBBER GOODS -- 2.6%
5,500 Goodyear Tire & Rubber Co. ................................. 323,469
- ---------------------------------------------------------------------------------------
TOBACCO -- 3.7%
11,759 Philip Morris Cos. Inc. .................................... 472,565
- ---------------------------------------------------------------------------------------
TRANSPORTATION -- 3.8%
15,985 Norfolk Southern Corp. ..................................... 481,548
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $9,959,401)..................... 11,124,367
- ---------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 12.3%
$1,554,000 Chase Manhattan Bank, 4.800% due 7/1/99; Proceeds at
maturity -- $1,554,207; (Fully collateralized by U.S.
Treasury Notes, 7.125% due 2/15/23; Market
value -- $1,590,400) (Cost -- $1,554,000)................... 1,554,000
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $11,513,401*)............ $12,678,367
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purpose is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 94.2%
- -----------------------------------------------------------------------------------
ADVERTISING -- 0.8%
1,661 ADVO, Inc. (a).............................................. $ 34,465
1 Outdoor Systems, Inc. (a)................................... 18
1,065 Snyder Communications, Inc. (a) ............................ 34,878
- -----------------------------------------------------------------------------------
69,361
- -----------------------------------------------------------------------------------
AEROSPACE -- 0.9%
1,115 Cordant Technologies, Inc. ................................. 50,385
1,533 Primex Technologies, Inc. .................................. 33,056
- -----------------------------------------------------------------------------------
83,441
- -----------------------------------------------------------------------------------
AIR TRANSPORT -- 0.5%
1,545 Airborne Freight Corp. ..................................... 42,777
- -----------------------------------------------------------------------------------
AUTO PARTS -- 0.6%
930 Borg-Warner Automotive, Inc. ............................... 51,150
- -----------------------------------------------------------------------------------
AUTO PARTS - ORIGINAL EQUIPMENT -- 0.8%
1,803 Arvin Industries, Inc. ..................................... 68,289
- -----------------------------------------------------------------------------------
AUTO RELATED -- 0.9%
6 Ogden Corp. ................................................ 161
930 SPX Corp. (a)............................................... 77,655
- -----------------------------------------------------------------------------------
77,816
- -----------------------------------------------------------------------------------
AUTOMOTIVE -- 0.1%
180 Navistar International Corp. (a)............................ 9,000
- -----------------------------------------------------------------------------------
BANKS -- 1.9%
759 Centura Banks, Inc. ........................................ 42,788
1,184 Mercantile Bankshares Corp. ................................ 41,884
1,679 United Bankshares, Inc. .................................... 44,494
1,052 Westamerica Bancorporation.................................. 38,398
- -----------------------------------------------------------------------------------
167,564
- -----------------------------------------------------------------------------------
BANKS - COMMERCIAL -- 2.5%
1,114 Associated Banc-Corp. ...................................... 46,231
1,698 Brenton Banks, Inc. ........................................ 26,319
787 CCB Financial Corp. ........................................ 41,613
1,013 City National Corp. ........................................ 37,924
1,052 GBC Bancorp................................................. 21,303
3,035 Republic Bancorp Inc. ...................................... 46,094
- -----------------------------------------------------------------------------------
219,484
- -----------------------------------------------------------------------------------
BANKS - THRIFT INSTITUTIONS -- 1.1%
655 Astoria Financial Corp. .................................... 28,780
1,490 Dime Bancorp, Inc. ......................................... 29,986
1,533 Flagstar Bancorp, Inc. ..................................... 38,708
- -----------------------------------------------------------------------------------
97,474
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
BEVERAGES - ALCOHOLIC -- 0.5%
849 Canandaigua Brands, Inc., Class A Shares (a)................ $ 44,520
- -----------------------------------------------------------------------------------
BROADCASTING - TV, CABLE & RADIO -- 0.5%
823 Cox Radio, Inc., Class A Shares (a)......................... 44,648
- -----------------------------------------------------------------------------------
BUILDING MATERIALS -- 2.0%
1,221 Centex Construction Products, Inc........................... 41,666
870 Dycom Industries, Inc. (a).................................. 48,720
983 Lone Star Industries, Inc. ................................. 36,923
983 Simpson Manufacturing Co., Inc. (a)......................... 46,692
- -----------------------------------------------------------------------------------
174,001
- -----------------------------------------------------------------------------------
CHEMICALS -- 1.3%
1,771 Crompton & Knowles Corp. ................................... 34,645
1,184 Dexter Corp. ............................................... 48,322
1,332 Solutia, Inc. .............................................. 28,388
- -----------------------------------------------------------------------------------
111,355
- -----------------------------------------------------------------------------------
CHEMICALS - SPECIALTY -- 0.3%
785 OM Group, Inc. ............................................. 27,083
- -----------------------------------------------------------------------------------
CLOTHING - RETAIL -- 0.3%
2,340 The Cato Corp. ............................................. 27,202
- -----------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 2.7%
691 Abacus Direct Corp. (a)..................................... 63,226
1,664 Data Processing Resources Corp. (a)......................... 39,312
1,399 International Network Services (a).......................... 56,484
539 Lason, Inc. (a)............................................. 26,747
500 Priceline.com, Inc. (a)..................................... 57,781
- -----------------------------------------------------------------------------------
243,550
- -----------------------------------------------------------------------------------
COMMUNICATIONS - EQUIPMENT -- 0.6%
1,753 DSP Communications, Inc. (a)................................ 50,618
- -----------------------------------------------------------------------------------
COMPUTERS -- 4.2%
1,153 Comverse Technology, Inc. (a)............................... 87,052
2,572 E*Trade Group, Inc. (a)..................................... 102,719
1,383 National Computer Systems, Inc.............................. 46,677
1,607 Progress Software Corp. (a)................................. 45,397
1,915 Protein Design Labs, Inc. (a)............................... 42,489
1,490 Xircom, Inc. (a)............................................ 44,794
- -----------------------------------------------------------------------------------
369,128
- -----------------------------------------------------------------------------------
COMPUTERS SERVICES -- 1.7%
1,383 Complete Business Solutions, Inc. (a)....................... 24,807
1,686 Mastech Corp. (a)........................................... 31,402
1,686 Network Appliance, Inc. (a)................................. 94,206
- -----------------------------------------------------------------------------------
150,415
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE -- 3.4%
1,400 AVT Corp. (a)............................................... $ 53,025
2,150 Genesys Telecommunications Laboratories, Inc. (a)........... 53,750
1,246 Legato Systems, Inc. (a).................................... 71,957
1,700 Mercury Interactive Corp. (a)............................... 60,137
5,600 Sybase, Inc. (a)............................................ 61,600
- -----------------------------------------------------------------------------------
300,469
- -----------------------------------------------------------------------------------
CONSTRUCTION -- 0.9%
1,145 Centex Corp. ............................................... 43,009
2,301 D.R. Horton, Inc. .......................................... 38,254
- -----------------------------------------------------------------------------------
81,263
- -----------------------------------------------------------------------------------
CONSTRUCTION PLANT AND EQUIPMENT -- 0.6%
1,322 Jacobs Engineering Group Inc. (a)........................... 50,236
- -----------------------------------------------------------------------------------
CONSUMER/BUSINESS SERVICES -- 0.3%
1,100 The Metzler Group, Inc. (a)................................. 30,387
- -----------------------------------------------------------------------------------
CONSUMER DURABLES -- 0.8%
557 Cort Business Services Corp. (a)............................ 13,333
2,417 Tower Automotive, Inc. (a).................................. 61,482
- -----------------------------------------------------------------------------------
74,815
- -----------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 0.3%
1,295 United Stationers Supply Co. (a)............................ 28,490
- -----------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 0.7%
1,341 Fossil, Inc. (a)............................................ 64,870
- -----------------------------------------------------------------------------------
CONSUMER SERVICES -- 0.1%
1,065 CareMatrix Corp. (a)........................................ 13,245
- -----------------------------------------------------------------------------------
EDUCATION -- 0.4%
1,686 Education Management Corp. (a).............................. 34,984
- -----------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 1.1%
1,025 Calpine Corp. (a)........................................... 55,350
4,928 El Paso Electric Co. ....................................... 44,044
- -----------------------------------------------------------------------------------
99,394
- -----------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.3%
1,980 Park Electrochemical Corp. ................................. 56,925
1,837 C&D Technologies, Inc....................................... 56,258
- -----------------------------------------------------------------------------------
113,183
- -----------------------------------------------------------------------------------
ELECTRONICS -- 2.8%
1,600 Brooks Automation, Inc. (a)................................. 43,300
1,870 DII Group, Inc. (a)......................................... 69,774
1,702 Esterline Technologies Corp. (a)............................ 24,466
3,730 Mentor Graphics Corp. (a)................................... 47,790
1,133 Semtech Corp. (a)........................................... 59,057
- -----------------------------------------------------------------------------------
244,387
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS - SEMICONDUCTOR -- 0.6%
1,700 Unitrode Corp. (a).......................................... $ 48,768
- -----------------------------------------------------------------------------------
ENTERTAINMENT -- 0.6%
3,960 Aztar Corp. (a)............................................. 36,382
1,750 Florida Panthers Holdings, Inc. (a)......................... 18,703
- -----------------------------------------------------------------------------------
55,085
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.8%
2,243 Doral Financial Corp. ...................................... 38,691
2,108 Eaton Vance Corp. .......................................... 72,594
1,837 Enhance Financial Services Group, Inc. ..................... 36,280
2,662 National Commerce Bancorporation............................ 58,231
470 SEI Investments Co. ........................................ 41,477
- -----------------------------------------------------------------------------------
247,273
- -----------------------------------------------------------------------------------
FOOD PROCESSING -- 0.5%
1,607 Pilgrim's Pride Corp., Class B shares....................... 48,210
- -----------------------------------------------------------------------------------
FOOD WHOLESALERS -- 0.4%
2,032 Bob Evans Farms, Inc. ...................................... 40,386
- -----------------------------------------------------------------------------------
FOODS -- 0.8%
1,410 Earth Grains Co. ........................................... 36,395
1,383 IBP, Inc. .................................................. 32,846
- -----------------------------------------------------------------------------------
69,241
- -----------------------------------------------------------------------------------
FOODS AND BEVERAGES -- 0.6%
1,750 Foodmaker, Inc. (a)......................................... 49,656
- -----------------------------------------------------------------------------------
FOREST PRODUCTS -- 0.6%
1 Pope & Talbot, Inc. ........................................ 12
1,280 Potlatch Corp. ............................................. 56,240
- -----------------------------------------------------------------------------------
56,252
- -----------------------------------------------------------------------------------
HEALTHCARE -- 1.2%
1,145 Medicis Pharmaceutical Corp., Class A shares (a)............ 29,054
1,573 Res-Care, Inc. (a).......................................... 35,785
1,145 Trigon Healthcare, Inc. (a)................................. 41,649
- -----------------------------------------------------------------------------------
106,488
- -----------------------------------------------------------------------------------
HEALTHCARE PRODUCTS -- 0.7%
1,276 Xomed Surgical Products, Inc. (a)........................... 62,125
- -----------------------------------------------------------------------------------
HEALTHCARE SERVICES -- 0.7%
1,200 InfoCure Corp. (a).......................................... 63,525
- -----------------------------------------------------------------------------------
HOME BUILDING -- 1.2%
1,875 Lennar Corp. ............................................... 45,000
1,196 NVR, Inc. (a)............................................... 62,416
- -----------------------------------------------------------------------------------
107,416
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
HOSPITAL SUPPLY -- 0.5%
1,500 Datascope Corp. (a)......................................... $ 48,187
- -----------------------------------------------------------------------------------
HOUSEHOLD FURNISHINGS AND APPLIANCES -- 1.1%
1,273 Ethan Allen Interiors, Inc. ................................ 48,055
1,382 Haverty Furniture Companies, Inc. .......................... 48,715
- -----------------------------------------------------------------------------------
96,770
- -----------------------------------------------------------------------------------
INDUSTRIALS -- 0.4%
1,013 Everest Reinsurance Holdings, Inc. ......................... 33,049
- -----------------------------------------------------------------------------------
INSURANCE -- 2.2%
1,549 Fidelity National Financial, Inc. .......................... 32,529
655 Financial Security Assurance Holdings, Ltd. ................ 34,060
1,837 First American Financial Corp. ............................. 32,836
1,383 HCC Insurance Holdings, Inc. ............................... 31,376
1,008 Medical Assurance, Inc. (a)................................. 28,476
794 Radian Group Inc. .......................................... 38,757
- -----------------------------------------------------------------------------------
198,034
- -----------------------------------------------------------------------------------
INTERNET -- 4.1%
812 CMGI Inc. (a)............................................... 92,669
1,533 CSG Systems International, Inc. (a)......................... 40,146
690 Doubleclick Inc. (a)........................................ 63,307
860 Infoseek Corp. (a).......................................... 41,226
406 Lycos, Inc. (a)............................................. 37,301
1,100 Xoom.com, Inc. (a).......................................... 57,750
1,477 USWeb Corp. (a)............................................. 32,770
- -----------------------------------------------------------------------------------
365,169
- -----------------------------------------------------------------------------------
INVESTMENT COMPANY -- 0.4%
1,276 EVEREN Capital Corp. ....................................... 38,040
- -----------------------------------------------------------------------------------
LEISURE TIME -- 0.5%
983 Coach USA, Inc. (a)......................................... 41,225
- -----------------------------------------------------------------------------------
MACHINERY -- 0.7%
1,601 Astec Industries, Inc. (a).................................. 65,240
- -----------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED -- 0.5%
798 Briggs & Stratton Corp. .................................... 46,084
- -----------------------------------------------------------------------------------
MANUFACTURING -- 1.1%
1,505 AptarGroup, Inc. ........................................... 45,150
1,672 MotivePower Industries, Inc. (a)............................ 29,678
1,314 Tredegar Industries, Inc. .................................. 28,579
- -----------------------------------------------------------------------------------
103,407
- -----------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.5%
1,800 Gliatech Inc. (a)........................................... 45,900
- -----------------------------------------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES -- 0.5%
1,400 Conmed Corp. (a)............................................ 42,875
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL SERVICES -- 0.8%
1,700 King Pharmaceuticals Inc. (a)............................... $ 43,987
1,183 Renal Care Group, Inc. (a).................................. 30,610
- -----------------------------------------------------------------------------------
74,597
- -----------------------------------------------------------------------------------
MISCELLANEOUS -- 1.0%
889 Health Care Properties Investors, Inc. ..................... 25,669
1,533 Zale Corp. (a).............................................. 61,320
- -----------------------------------------------------------------------------------
86,989
- -----------------------------------------------------------------------------------
NATURAL GAS - DIVERSIFIED -- 0.5%
1,609 Newfield Exploration Co. (a)................................ 45,755
- -----------------------------------------------------------------------------------
OFFICE EQUIPMENT SERVICES -- 0.3%
1,634 Daisytek International Corp. (a)............................ 26,654
- -----------------------------------------------------------------------------------
OIL AND GAS PRODUCTS -- 0.5%
2,983 Marine Drilling Cos., Inc. (a).............................. 40,829
- -----------------------------------------------------------------------------------
OIL INTEGRATED - DOMESTIC -- 0.6%
1,490 Barrett Resources Corp. (a)................................. 57,178
- -----------------------------------------------------------------------------------
OIL INTEGRATED - INTERNATIONAL -- 0.5%
983 Murphy Oil Corp. ........................................... 47,982
- -----------------------------------------------------------------------------------
OIL - DOMESTIC -- 0.6%
1,800 Cal Dive International, Inc. (a)............................ 53,775
- -----------------------------------------------------------------------------------
PHARMACEUTICAL -- 1.7%
926 Alpharma, Inc., Class A Shares.............................. 32,930
961 IDEC Pharmaceuticals Corp. (a).............................. 74,057
1,915 Roberts Pharmaceutical Corp. (a)............................ 46,438
- -----------------------------------------------------------------------------------
153,425
- -----------------------------------------------------------------------------------
PRINT, PUBLISH AND BROADCAST -- 0.5%
676 Adelphia Communications Corp. (a)........................... 43,010
- -----------------------------------------------------------------------------------
PRINTING -- 1.0%
999 Consolidated Graphics, Inc. (a)............................. 49,950
2,237 Mail-Well, Inc. (a)......................................... 36,211
- -----------------------------------------------------------------------------------
86,161
- -----------------------------------------------------------------------------------
PUBLISHING - NEWSPAPER -- 0.6%
1,533 The McClatchy Co., Class A Shares........................... 50,780
- -----------------------------------------------------------------------------------
REAL ESTATE -- 2.2%
1,052 Arden Realty, Inc. ......................................... 25,905
1,278 First Industrial Realty Trust, Inc. ........................ 35,065
1,533 General Growth Properties, Inc. ............................ 54,421
2,264 Reckson Associates Realty Corp. ............................ 53,204
1,915 Vistana, Inc. (a)........................................... 30,161
- -----------------------------------------------------------------------------------
198,756
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUST -- 4.2%
1,317 Avalonbay Communities, Inc. ................................ $ 48,724
983 Cousins Properties, Inc. ................................... 33,237
1,276 EastGroup Properties, Inc. ................................. 25,599
1,941 Glenborough Realty Trust, Inc. ............................. 33,967
1,843 Liberty Property Trust...................................... 45,844
918 Mid-America Apartment Communities, Inc. .................... 21,228
1,811 Nationwide Health Properties, Inc. ......................... 34,522
1,533 Parkway Properties, Inc. ................................... 50,780
2,301 Prime Retail, Inc........................................... 19,989
1,115 Regency Realty Corp......................................... 24,460
918 Spieker Properties, Inc..................................... 35,687
- -----------------------------------------------------------------------------------
374,037
- -----------------------------------------------------------------------------------
RESTAURANT -- 1.1%
4,200 Lone Star Steakhouse & Saloon, Inc. (a)..................... 40,818
1,820 Sonic Corp. (a)............................................. 59,377
- -----------------------------------------------------------------------------------
100,195
- -----------------------------------------------------------------------------------
RETAIL -- 2.1%
1,276 AnnTaylor Stores Corp. (a).................................. 57,420
1,280 Cost Plus, Inc. (a)......................................... 58,240
2,009 Pacific Sunwear of Calif., Inc. (a)......................... 48,957
1,729 Trans World Entertainment Corp. (a)......................... 19,451
- -----------------------------------------------------------------------------------
184,068
- -----------------------------------------------------------------------------------
RETAIL - SPECIALTY APPAREL -- 0.3%
816 Jones Apparel Group, Inc. (a)............................... 27,999
- -----------------------------------------------------------------------------------
RETAIL - MAIL ORDER/GENERAL -- 0.7%
2,435 Family Dollar Stores, Inc................................... 58,440
- -----------------------------------------------------------------------------------
RETAIL - SPECIALTY -- 1.2%
1,703 Action Performance Co., Inc. (a)............................ 56,199
1,504 Guitar Center, Inc. (a)..................................... 15,698
1,452 The Men's Wearhouse, Inc. (a)............................... 37,026
- -----------------------------------------------------------------------------------
108,923
- -----------------------------------------------------------------------------------
SAVINGS AND LOAN ASSOCIATION -- 0.8%
1,623 FirstFed Financial Corp. (a)................................ 31,242
2,108 Peoples Heritage Financial Group, Inc....................... 39,656
- -----------------------------------------------------------------------------------
70,898
- -----------------------------------------------------------------------------------
SOFTWARE -- 0.4%
900 New Era of Networks, Inc. (a)............................... 39,543
- -----------------------------------------------------------------------------------
STEEL -- 1.1%
2,085 AK Steel Holding Corp....................................... 46,912
1,196 Reliance Steel & Aluminum Co................................ 46,644
- -----------------------------------------------------------------------------------
93,556
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 0.6%
1,989 Mettler-Toledo International Inc. (a)....................... $ 49,352
- -----------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.8%
1,206 Commonwealth Telephone Enterprises, Inc. (a)................ 48,767
889 COMSAT Corp................................................. 28,892
936 NTL Inc. (a)................................................ 80,671
1,400 Orckit Communication Ltd. (a)............................... 34,650
1,870 Polycom, Inc. (a)........................................... 72,930
2,065 Skytel Communications, Inc. (a)............................. 43,235
1,971 Voice Stream Wireless Corp. (a)............................. 56,050
2,301 Western Wireless Corp. Class A Shares (a)................... 62,127
- -----------------------------------------------------------------------------------
427,322
- -----------------------------------------------------------------------------------
TELEPHONE -- 0.6%
2,200 Chico's Fas, Inc. (a)....................................... 51,700
- -----------------------------------------------------------------------------------
TRANSPORTATION -- 1.7%
1,050 Alaska Air Group, Inc. (a).................................. 43,837
1,490 SkyWest, Inc................................................ 37,156
1,533 US Freightways Corp......................................... 70,997
- -----------------------------------------------------------------------------------
151,990
- -----------------------------------------------------------------------------------
TRANSPORTATION - MISCELLANEOUS -- 0.4%
928 Avondale Industries, Inc. (a)............................... 36,192
- -----------------------------------------------------------------------------------
UTILITIES -- 1.9%
1,201 Connecticut Energy Corp..................................... 46,313
1,890 MDU Resources Group, Inc.................................... 43,115
850 New Jersey Resources Corp................................... 31,821
1,837 NorthWestern Corp........................................... 44,432
- -----------------------------------------------------------------------------------
165,681
- -----------------------------------------------------------------------------------
UTILITIES - GAS -- 0.8%
1,276 Southwest Gas Corp.......................................... 36,525
1,490 UGI Corp.................................................... 30,079
- -----------------------------------------------------------------------------------
66,604
- -----------------------------------------------------------------------------------
WHOLESALE DISTRIBUTOR -- 0.6%
1,403 Bindley Western Industries, Inc............................. 32,349
704 Priority Healthcare Corp. (a)............................... 24,288
- -----------------------------------------------------------------------------------
56,637
- -----------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $7,827,257)..................... 8,372,032
- -----------------------------------------------------------------------------------
WARRANT -- 0.3%
2,925 Equity Inns, Inc. (Cost -- $33,681)......................... 27,056
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURIES -- 0.5%
$ 40,000 U.S. Treasury Bill due 9/16/99 (Cost -- $39,615 )........... $ 39,615
- -----------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $7,900,553).................. 8,438,703
- -----------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.0%
441,000 Chase Manhattan Bank, 4.800% due 7/1/99; Proceeds at
maturity -- 441,059; (Fully collateralized by U.S. Treasury
Notes, 7.125% due 2/15/23; Market value -- $453,600)
(Cost -- $441,000).......................................... 441,000
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $8,341,553*)............. $8,879,703
- -----------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 91.2%
- --------------------------------------------------------------------------------------
ADVERTISING -- 0.0%
50 Flycast Communications Corp. (a)............................ $ 956
- --------------------------------------------------------------------------------------
AUTO PARTS -- 0.3%
2,290 Federal-Mogul Corp. ........................................ 119,080
- --------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 0.5%
9,700 Houston Exploration Co. (a)................................. 183,693
- --------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.6%
10,900 Cytyc Corp. (a)............................................. 212,550
- --------------------------------------------------------------------------------------
BROADCASTING -- 0.0%
100 Radio One Inc. (a).......................................... 4,650
- --------------------------------------------------------------------------------------
BROADCASTING - TV, CABLE AND RADIO -- 5.5%
25,420 Gemstar International Group Ltd. (a)........................ 1,658,655
8,200 Hearst-Argyle Television, Inc. (a).......................... 196,800
1,700 Sinclair Broadcast Group Inc., Class A Shares (a)........... 27,838
- --------------------------------------------------------------------------------------
1,883,293
- --------------------------------------------------------------------------------------
BROKERAGE -- 3.1%
32,970 A.G. Edwards, Inc. ......................................... 1,063,282
- --------------------------------------------------------------------------------------
BUSINESS SERVICES -- 21.3%
5,880 Affiliated Computer Services, Inc., Class A Shares (a)...... 297,675
1,900 CheckFree Holdings Corp. (a)................................ 52,369
100 Critical Path Inc. (a)...................................... 5,532
2,600 CSG Systems International, Inc. (a)......................... 68,087
9,890 DST Systems, Inc. (a)....................................... 621,833
14,845 Fiserv, Inc. (a)............................................ 464,834
3,340 Gartner Group, Inc. (a)..................................... 68,470
5,900 Great Atlantic & Pacific Tea Co., Inc. ..................... 199,493
14,400 IMRglobal Corp. (a)......................................... 277,200
7,490 Learning Tree International, Inc. (a)....................... 81,922
100 Net Perceptions Inc. (a).................................... 2,181
20,700 Network Solutions Inc. (a).................................. 1,637,888
4,400 Novellus Systems, Inc. (a).................................. 300,300
20,120 Policy Management Systems Corp. (a)......................... 603,600
38,340 SportsLine USA, Inc. (a).................................... 1,375,447
11,700 SunGard Data Systems Inc. (a)............................... 403,650
26,970 Technology Solutions Co. (a)................................ 291,622
4,050 The BISYS Group Inc. (a).................................... 236,925
100 USinternetworking Inc. (a).................................. 4,200
4,100 VeriSign Inc. (a)........................................... 353,625
- --------------------------------------------------------------------------------------
7,346,853
- --------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 0.8%
40 Sylvan Learning Systems, Inc. (a)........................... 1,087
7,200 The Dial Corp. ............................................. 267,750
- --------------------------------------------------------------------------------------
268,837
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE -- 6.8%
14,860 Aspen Technology, Inc. (a).................................. $ 174,605
50 Ariba Inc. (a).............................................. 4,862
1,530 BMC Software, Inc. (a)...................................... 82,620
19,100 Cadence Design Systems, Inc. (a)............................ 243,525
15,500 Citrix Systems, Inc. (a).................................... 875,750
14,300 Edify Corp. (a)............................................. 191,262
50 Informatica Corp. (a)....................................... 1,781
5,030 Intuit, Inc. (a)............................................ 453,329
50 Marimba (a)................................................. 2,635
2,500 Online Resources & Communication Corp. (a).................. 33,906
4,450 Synopsys, Inc. (a).......................................... 245,585
2,760 Vantive Corp. (a)........................................... 31,567
- --------------------------------------------------------------------------------------
2,341,427
- --------------------------------------------------------------------------------------
CONSUMER SERVICES -- 1.1%
12,420 BJ's Wholesale Club, Inc. (a)............................... 373,377
50 Mapquest.com Inc. (a)....................................... 816
- --------------------------------------------------------------------------------------
374,193
- --------------------------------------------------------------------------------------
DISTRIBUTION -- 0.0%
100 Valley Media Inc. (a)....................................... 1,487
- --------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.7%
38,130 Cable Design Technologies (a)............................... 588,631
- --------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 0.0%
50 GlobeSpan Inc. (a).......................................... 1,987
- --------------------------------------------------------------------------------------
ELECTRONICS -- 10.9%
15,000 Applied Science & Technology (a)............................ 337,500
10,500 KLA-Tencor Corp. (a)........................................ 681,187
14,100 Kulicke & Soffa Industries, Inc. (a)........................ 378,057
25,470 Lo-Jack Corp. (a)........................................... 213,311
12,600 Teradyne, Inc. (a).......................................... 904,050
41,000 Security Dynamics Technologies Inc. (a)..................... 871,250
18,440 SIPEX Corp. (a)............................................. 378,020
- --------------------------------------------------------------------------------------
3,763,375
- --------------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTOR -- 2.1%
9,900 Analog Devices, Inc. ....................................... 496,857
11,500 MKS Instruments Inc. (a).................................... 214,187
- --------------------------------------------------------------------------------------
711,044
- --------------------------------------------------------------------------------------
ENERGY -- 0.1%
2,900 CONSOL Energy Inc. (a)...................................... 34,800
- --------------------------------------------------------------------------------------
FOODS -- 0.7%
6,100 Suiza Foods Corp. (a)....................................... 255,438
- --------------------------------------------------------------------------------------
FOODS AND BEVERAGES -- 1.0%
11,300 Keebler Foods Co. (a)....................................... 343,238
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH EQUIPMENT AND SERVICES -- 0.1%
3,700 Omnicare, Inc. ............................................. $ 46,712
- --------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.3%
3,380 McCormick & Co., Inc. ...................................... 106,682
- --------------------------------------------------------------------------------------
INTERNET CONTENT -- 1.0%
7,700 Security First Technologies (a)............................. 347,462
- --------------------------------------------------------------------------------------
INTERNET SOFTWARE -- 0.0%
50 Software.com Inc. (a)....................................... 1,160
- --------------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 3.5%
54,800 STERIS Corp. (a)............................................ 1,061,750
7,000 Ventana Medical Systems (a)................................. 133,875
- --------------------------------------------------------------------------------------
1,195,625
- --------------------------------------------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES -- 3.5%
48,370 IDEXX Laboratories, Inc. (a)................................ 1,127,625
5,800 LaserSight Inc. (a)......................................... 94,250
- --------------------------------------------------------------------------------------
1,221,875
- --------------------------------------------------------------------------------------
MEDICAL SERVICES -- 8.3%
19,900 Concentra Managed Care Inc. (a)............................. 294,768
40,490 Health Management Associates, Inc., Class A Shares (a)...... 455,512
18,120 Lincare Holdings, Inc. (a).................................. 453,000
25,740 PSS World Medical, Inc. (a)................................. 287,966
89,100 Total Renal Care Holdings, Inc. (a)......................... 1,386,618
- --------------------------------------------------------------------------------------
2,877,864
- --------------------------------------------------------------------------------------
MULTI-LINE INSURANCE -- 0.2%
1,184 XL Capital Ltd., Class A Shares............................. 66,896
- --------------------------------------------------------------------------------------
NATURAL GAS - DIVERSIFIED -- 1.9%
22,800 Newfield Exploration Co. (a)................................ 648,375
- --------------------------------------------------------------------------------------
OIL DRILLING AND SERVICES -- 5.2%
12,580 Cooper Cameron Corp. (a).................................... 466,246
8,150 Diamond Offshore Drilling, Inc. ............................ 231,256
14,240 Global Industries Ltd. (a).................................. 182,450
25,520 Noble Drilling Corp. (a).................................... 502,425
16,300 Transocean Offshore Inc. ................................... 427,875
- --------------------------------------------------------------------------------------
1,810,252
- --------------------------------------------------------------------------------------
PHARMACEUTICAL -- 3.3%
2,430 Cytoclonal Pharmaceuticals Inc. (a)......................... 15,339
4,840 Sepracor Inc. (a)........................................... 393,250
11,300 United Therapeutics Corp. (a)............................... 134,187
14,360 Quintiles Transnational Corp. (a)........................... 603,120
- --------------------------------------------------------------------------------------
1,145,896
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
PUBLISHING - NEWSPAPER -- 1.9%
4,200 Meredith Corp............................................... $ 145,425
10,070 Scholastic Corp. (a)........................................ 509,793
100 Ziff-Davis Inc. -- ZDNET (a)................................ 2,600
- --------------------------------------------------------------------------------------
657,818
- --------------------------------------------------------------------------------------
RETAIL - SPECIALTY -- 1.9%
43,300 CompUSA, Inc. (a)........................................... 322,043
30,660 Gymboree Corp. (a).......................................... 321,930
- --------------------------------------------------------------------------------------
643,973
- --------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.2%
36,540 Aerial Communications, Inc. (a)............................. 493,290
50 Copper Mountain Networks Inc. (a)........................... 3,862
50 Inet Technologies Inc. (a).................................. 1,200
20,100 Intermedia Communications, Inc. (a)......................... 603,000
100 Time Warner Telecom -- Class A (a).......................... 2,900
50 Redback Networks (a)........................................ 6,278
- --------------------------------------------------------------------------------------
1,110,530
- --------------------------------------------------------------------------------------
UTILITIES - GAS -- 0.4%
3,400 Camco International Corp. .................................. 126,012
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $28,267,670).................... 31,505,946
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE BONDS -- 0.7%
Concentra Managed Care:
$ 47,000 6.000% due 12/15/01....................................... 44,885
205,000 4.500% due 3/15/03........................................ 193,725
- --------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (Cost -- $169,883).................. 238,610
- --------------------------------------------------------------------------------------
SHORT-TERM SECURITY -- 8.1%
2,800,000 Federal Home Loan Mortgage Corp., 4.600% due 7/1/99
(Cost -- $2,800,000)........................................ 2,800,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $31,237,553*)............ $34,544,556
- --------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purpose is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 90.2%
- --------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 4.1%
13,800 Gulfstream Aerospace Corp. (a).............................. $ 932,362
1,790 Newport News Shipbuilding Inc. ............................. 52,805
8,500 Raytheon Co. ............................................... 598,188
28,020 United Technologies Corp. .................................. 2,008,684
- --------------------------------------------------------------------------------------
3,592,039
- --------------------------------------------------------------------------------------
AUTOMOTIVE -- 1.0%
15,510 Federal-Mogul Corp. ........................................ 806,520
1,200 SPX Corp. .................................................. 100,200
- --------------------------------------------------------------------------------------
906,720
- --------------------------------------------------------------------------------------
BANKS AND CREDIT COMPANIES -- 6.0%
19,158 Associates First Capital Corp. ............................. 848,939
6,200 Bank of America Corp. ...................................... 454,537
18,680 Bank of New York Co., Inc. ................................. 685,323
15,700 PNC Bank Corp. ............................................. 904,713
2,100 Providian Financial Corp. .................................. 196,350
5,820 The Chase Manhattan Corp. .................................. 504,157
9,270 The CIT Group, Inc. ........................................ 267,671
11,750 U.S. Bancorp................................................ 399,500
24,550 Wells Fargo Co. ............................................ 1,049,512
- --------------------------------------------------------------------------------------
5,310,702
- --------------------------------------------------------------------------------------
BASIC MATERIALS -- 0.5%
12,700 Owens-Illinois, Inc. (a).................................... 415,131
- --------------------------------------------------------------------------------------
BROADCAST AND CABLE TV -- 3.5%
9,360 CBS Corp. .................................................. 406,575
8,200 Comcast Corp. .............................................. 315,188
20,100 Infinity Broadcasting Corp. (a)............................. 597,975
6,110 MediaOne Group, Inc. (a).................................... 454,431
17,650 Time Warner Inc. ........................................... 1,297,275
- --------------------------------------------------------------------------------------
3,071,444
- --------------------------------------------------------------------------------------
BROKERS AND ASSET MANAGERS -- 0.8%
1,900 Charles Schwab Corp. ....................................... 208,763
800 Goldman Sachs Group, Inc. .................................. 57,800
4,300 Morgan Stanley Dean Witter & Co. ........................... 440,750
- --------------------------------------------------------------------------------------
707,313
- --------------------------------------------------------------------------------------
BUSINESS SERVICES -- 0.7%
9,200 First Data Corp. ........................................... 450,225
1,900 Modis Professional Services, Inc. (a)....................... 26,125
2,100 VeriSign, Inc. (a).......................................... 181,125
- --------------------------------------------------------------------------------------
657,475
- --------------------------------------------------------------------------------------
CHEMICALS -- 0.2%
7,650 Cambrex Corp. .............................................. 200,812
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE SYSTEMS -- 14.0%
300 BackWeb Technologies Ltd. (a)............................... $ 8,212
23,810 BMC Software, Inc. (a)...................................... 1,285,740
6,950 Cadence Design Systems, Inc. (a)............................ 88,613
2,300 Citrix Systems, Inc. (a).................................... 129,950
7,840 Computer Associates International, Inc. .................... 431,200
21,320 Compuware Corp. (a)......................................... 678,243
10,780 EMC Corp. .................................................. 592,900
4,400 Hewlett-Packard Co. (a)..................................... 442,200
100 Intuit Inc. (a)............................................. 9,012
46,740 Microsoft Corp. (a)......................................... 4,215,364
52,915 Oracle Corp. (a)............................................ 1,964,469
700 Phone.com, Inc. (a)......................................... 39,200
100 Software.com, Inc. (a)...................................... 2,319
19,280 Sun Microsystems, Inc. (a).................................. 1,327,910
7,700 Synopsys, Inc. (a).......................................... 424,944
13,460 Xerox Corp. ................................................ 794,981
- --------------------------------------------------------------------------------------
12,435,257
- --------------------------------------------------------------------------------------
CONGLOMERATES -- 3.1%
28,540 Tyco International Ltd. .................................... 2,704,165
- --------------------------------------------------------------------------------------
CONSUMER STAPLES/HOUSEHOLD AND PERSONAL CARE -- 5.1%
4,900 Colgate-Palmolive Co. ...................................... 483,875
17,700 Gillette Co. ............................................... 728,570
14,400 Newell Rubbermaid Inc. ..................................... 669,600
7,680 The Clorox Co. ............................................. 820,320
18,680 The Dial Corp. ............................................. 694,662
12,670 The Procter & Gamble Co. ................................... 1,130,798
- --------------------------------------------------------------------------------------
4,527,825
- --------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.8%
15,200 Danaher Corp. .............................................. 883,500
5,800 Honeywell Inc. ............................................. 672,075
- --------------------------------------------------------------------------------------
1,555,575
- --------------------------------------------------------------------------------------
ELECTRONICS -- 4.0%
39,220 Analog Devices, Inc. (a).................................... 1,968,354
33,300 LSI Logic Corp. (a)......................................... 1,535,962
- --------------------------------------------------------------------------------------
3,504,316
- --------------------------------------------------------------------------------------
ENTERTAINMENT -- 1.3%
36,800 Walt Disney Co. ............................................ 1,133,900
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
FOOD AND BEVERAGE PRODUCTS -- 3.0%
9,600 Anheuser-Busch Cos., Inc. .................................. $ 681,000
2,100 Bestfoods................................................... 103,950
8,600 Coca-Cola Co. .............................................. 537,500
9,300 Nabisco Holdings Corp. ..................................... 402,225
29,530 Ralston-Ralston Purina Group................................ 898,820
- --------------------------------------------------------------------------------------
2,623,495
- --------------------------------------------------------------------------------------
FOREST AND PAPER PRODUCTS -- 0.8%
7,400 Abitibi-Consolidated Inc. .................................. 84,175
7,800 Bowater Inc. ............................................... 368,550
12,353 Smurfit-Stone Container Corp. (a)........................... 254,008
- --------------------------------------------------------------------------------------
706,733
- --------------------------------------------------------------------------------------
GAMING AND LODGING -- 0.5%
9,900 Carnival Corp. ............................................. 480,150
- --------------------------------------------------------------------------------------
HEALTH MAINTENANCE ORGANIZATIONS -- 1.0%
13,540 United HealthCare Corp. .................................... 847,943
- --------------------------------------------------------------------------------------
INSURANCE -- 6.4%
6,100 American International Group, Inc. ......................... 714,081
12,950 CIGNA Corp. ................................................ 1,152,550
10,980 Conseco, Inc. .............................................. 334,204
12,570 Equitable Cos. Inc. ........................................ 842,190
13,600 Hartford Financial Services Group, Inc. .................... 793,050
17,420 Lincoln National Corp. ..................................... 911,284
6,370 Nationwide Financial Services, Inc. ........................ 288,242
13,530 ReliaStar Financial Corp. .................................. 591,938
- --------------------------------------------------------------------------------------
5,627,539
- --------------------------------------------------------------------------------------
INTEGRATED OILS -- 3.5%
1,100 Atlantic Richfield Co. ..................................... 91,919
11,312 BP Amoco PLC -- ADR......................................... 1,227,352
14,900 Conoco Inc. ................................................ 415,337
13,110 Mobil Corp. ................................................ 1,297,890
1,700 Total Fina SA -- ADR........................................ 109,544
- --------------------------------------------------------------------------------------
3,142,042
- --------------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 2.1%
20,650 Guidant Corp. .............................................. 1,062,184
9,900 Medtronic, Inc. ............................................ 770,963
700 VISX, Inc. (a).............................................. 55,431
- --------------------------------------------------------------------------------------
1,888,578
- --------------------------------------------------------------------------------------
MEDICAL SERVICES -- 1.6%
12,505 Cardinal Health, Inc. ...................................... 801,883
44,130 HEALTHSOUTH Corp. (a)....................................... 659,192
- --------------------------------------------------------------------------------------
1,461,075
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICAL -- 4.6%
26,320 American Home Products Corp. ............................... $ 1,513,400
19,900 Bristol-Myers Squibb Co. ................................... 1,401,706
20,360 Pharmacia & Upjohn, Inc. ................................... 1,156,703
- --------------------------------------------------------------------------------------
4,071,809
- --------------------------------------------------------------------------------------
PRINT/PUBLISHING -- 0.4%
5,600 Gannett Co., Inc. .......................................... 399,700
- --------------------------------------------------------------------------------------
RETAIL/FOOD AND DRUG STORES -- 4.1%
21,000 CVS Corp. .................................................. 1,065,750
35,400 Kroger Co. ................................................. 992,899
26,970 Rite Aid Corp. ............................................. 664,136
18,980 Safeway Inc. (a)............................................ 939,510
- --------------------------------------------------------------------------------------
3,662,295
- --------------------------------------------------------------------------------------
RETAIL/STORES -- 2.5%
16,800 CompUSA Inc. (a)............................................ 124,950
10,920 Dayton-Hudson Corp. ........................................ 709,800
21,605 Office Depot, Inc. (a)...................................... 476,660
12,950 TJX Cos., Inc. ............................................. 431,397
9,200 Wal-Mart Stores, Inc. ...................................... 443,900
- --------------------------------------------------------------------------------------
2,186,707
- --------------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
100 CKE Restaurants, Inc. ...................................... 1,625
31,420 McDonald's Corp. ........................................... 1,298,039
- --------------------------------------------------------------------------------------
1,299,664
- --------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.9%
27,300 Cisco Systems, Inc. (a)..................................... 1,760,850
16,700 Motorola, Inc. ............................................. 1,582,325
3,600 Telefonaktiebolaget LM Ericsson -- ADR...................... 118,575
200 Tellabs, Inc. (a)........................................... 13,513
- --------------------------------------------------------------------------------------
3,475,263
- --------------------------------------------------------------------------------------
UTILITIES - ELECTRIC POWER -- 1.0%
9,900 CMS Energy Corp. ........................................... 414,563
12,940 MidAmerican Energy Holdings (a)............................. 448,047
- --------------------------------------------------------------------------------------
862,610
- --------------------------------------------------------------------------------------
UTILITIES - GAS -- 0.3%
5,260 Columbia Energy Group....................................... 329,736
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - TELEPHONE SERVICES -- 6.9%
24,520 Bell Atlantic Corp. ........................................ $ 1,602,995
24,747 MCI WorldCom, Inc. (a)...................................... 2,134,429
13,700 Sprint Corp. ............................................... 723,531
29,100 Sprint Corp. (PCS Group).................................... 1,662,337
- --------------------------------------------------------------------------------------
6,123,292
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $72,321,408).................... 79,911,305
- --------------------------------------------------------------------------------------
FOREIGN STOCK -- 4.1%
- --------------------------------------------------------------------------------------
GERMANY -- 0.8%
4,560 Mannesmann AG............................................... 681,895
- --------------------------------------------------------------------------------------
UNITED KINGDOM -- 0.7%
16,300 AstraZeneca Group PLC....................................... 631,547
- --------------------------------------------------------------------------------------
SPAIN -- 0.5%
21,600 Repsol - YPF, SA............................................ 441,066
- --------------------------------------------------------------------------------------
SWEDEN -- 1.2%
32,400 Telefonaktiebolaget LM Ericsson, Class B Shares............. 1,038,471
- --------------------------------------------------------------------------------------
SWITZERLAND -- 0.9%
2,790 UBS -- AG................................................... 832,728
- --------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $3,385,613).................... 3,625,707
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
<C> <S> <C>
- --------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.7%
Federal Home Loan Mortgage Corp.:
$3,200,000 4.84% due 7/1/99.......................................... 3,200,000
1,845,000 4.60% due 7/9/99.......................................... 1,843,016
- --------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $5,043,016)........... 5,043,016
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $80,750,037*)............ $88,580,028
- --------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
<TABLE>
<CAPTION>
DISCIPLINED MFS
CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS
BOND STOCK STOCK GROWTH RESEARCH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments -- Cost............................ $6,486,792 $ 9,959,401 $7,900,553 $31,237,553 $80,750,037
Repurchase agreements -- Cost.................. 531,000 1,554,000 441,000 -- --
- ----------------------------------------------------------------------------------------------------------------------
Investments, at Value.......................... $6,699,655 $11,124,367 $8,438,703 $34,544,556 $88,580,028
Repurchase agreements, at Value................ 531,000 1,554,000 441,000 -- --
Cash........................................... 958 431 860 27,178 --
Dividends and interest receivable.............. 46,256 25,866 9,342 9,313 34,035
Receivable for securities sold................. 220,133 -- 70,145 10,818 661,535
Receivable from broker -- variation margin..... -- -- 1,400 -- --
Receivable from affiliate...................... 14,311 7,600 26,126 20,396 22,538
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................... 7,512,313 12,712,264 8,987,576 34,612,261 89,298,136
======================================================================================================================
LIABILITIES:
Payable for securities purchased............... -- -- 122,458 152,585 664,613
Payable to bank................................ -- -- -- -- 59,914
Investment advisory fees payable............... 3,928 6,609 6,025 21,793 57,726
Administration fees payable.................... 393 661 453 1,634 4,329
Payable for open forward foreign currency
contracts (Note 9)........................... -- -- -- -- 844
Accrued expenses............................... 16,261 18,034 24,736 20,711 20,304
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.............................. 20,582 25,304 153,672 196,273 807,730
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $7,491,731 $12,686,960 $8,833,904 $34,415,538 $88,490,406
======================================================================================================================
NET ASSETS:
Paid-in capital................................ $7,022,881 $11,432,832 $8,300,863 $29,688,905 $78,858,644
Undistributed (overdistributed) net investment
income....................................... 139,575 90,769 15,095 (34,065) 15,921
Accumulated net realized gain (loss) from
security transactions, futures contracts and
foreign currencies........................... 116,412 (1,607) (32,407) 1,453,695 1,786,522
Net unrealized appreciation of investments,
futures contracts and foreign currencies..... 212,863 1,164,966 550,353 3,307,003 7,829,319
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $7,491,731 $12,686,960 $8,833,904 $34,415,538 $88,490,406
======================================================================================================================
SHARES OUTSTANDING............................... 705,166 1,193,655 924,476 3,033,924 7,707,889
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE....................... $10.62 $10.63 $9.56 $11.34 $11.48
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
DISCIPLINED MFS
CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS
BOND STOCK STOCK GROWTH RESEARCH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest............................................. $ 109,267 $ 22,819 $ 10,835 $ 55,512 $ 83,491
Dividends............................................ 54,360 112,952 35,690 14,879 229,242
Less: Foreign witholding tax......................... -- -- (15) -- (4,679)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME.............................. 163,627 135,771 46,510 70,391 308,054
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2).................... 18,039 29,876 26,372 83,053 234,356
Audit and legal...................................... 9,000 9,000 7,000 10,000 15,500
Shareholder and system servicing fees................ 4,500 4,500 4,500 4,500 4,500
Trustees' fees....................................... 1,870 1,870 1,870 1,870 1,870
Administration fees (Note 2)......................... 1,804 2,988 1,978 6,229 17,577
Shareholder communications........................... 1,350 2,000 1,300 3,700 8,000
Custody.............................................. 1,000 1,700 14,100 13,000 27,500
Registration fees.................................... 500 -- 986 1,000 5,000
Pricing service fees................................. -- 105 345 -- 180
Other................................................ 300 563 805 1,500 1,000
- -------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES....................................... 38,363 52,602 59,256 124,852 315,483
Less: Expense reimbursements......................... (14,311) (7,600) (26,126) (20,396) (22,538)
- -------------------------------------------------------------------------------------------------------------------------
NET EXPENSES......................................... 24,052 45,002 33,130 104,456 292,945
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)........................... 139,575 90,769 13,380 (34,065) 15,109
- -------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 3, 6
AND 9):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities)..................................... 116,417 (2) 453,759 1,597,595 2,456,753
Futures contracts.................................. -- -- 2,740 -- --
Foreign currencies................................. -- -- -- -- 830
- -------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................. 116,417 (2) 456,499 1,597,595 2,457,583
- -------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments, Futures Contracts and Foreign
Currencies:
Beginning of period................................ (32,859) (15,341) 347,835 1,054,708 4,168,831
End of period...................................... 212,863 1,164,966 550,353 3,307,003 7,829,319
- -------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION.............. 245,722 1,180,307 202,518 2,252,295 3,660,488
- -------------------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCIES............................... 362,139 1,180,305 659,017 3,849,890 6,118,071
- -------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS................. $501,714 $1,271,074 $672,397 $3,815,825 $6,133,180
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE
30, 1999
<TABLE>
<CAPTION>
DISCIPLINED MFS
CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS
BOND STOCK STOCK GROWTH RESEARCH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)................. $ 139,575 $ 90,769 $ 13,380 $ (34,065) $ 15,109
Net realized gain (loss)..................... 116,417 (2) 456,499 1,597,595 2,457,583
Increase in net unrealized appreciation...... 245,722 1,180,307 202,518 2,252,295 3,660,488
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS....... 501,714 1,271,074 672,397 3,815,825 6,133,180
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................ -- (60) -- -- --
Net realized gains........................... (8,610) -- -- (130,585) --
- ----------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................... (8,610) (60) -- (130,585) --
- ----------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 15):
Net proceeds from sale of shares............. 2,577,203 5,338,917 3,314,283 17,370,648 44,554,495
Net asset value of shares issued for
reinvestment of dividends.................. 8,610 60 -- 130,585 --
Cost of shares reacquired.................... (204,396) (809,798) (314,994) (4,748) (67,710)
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS.................... 2,381,417 4,529,179 2,999,289 17,496,485 44,486,785
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS......................... 2,874,521 5,800,193 3,671,686 21,181,725 50,619,965
NET ASSETS:
Beginning of period.......................... 4,617,210 6,886,767 5,162,218 13,233,813 37,870,441
- ----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD*............................... $7,491,731 $12,686,960 $8,833,904 $34,415,538 $88,490,406
- ----------------------------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net
investment income of: $139,575 $90,769 $15,095 $(34,065) $15,921
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DISCIPLINED MFS
CONVERTIBLE STRATEGIC SMALL CAP MID CAP MFS
BOND STOCK STOCK GROWTH RESEARCH
PORTFOLIO (a) PORTFOLIO (a) PORTFOLIO (a) PORTFOLIO (b) PORTFOLIO (b)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................. $ 101,428 $ 82,044 $ 14,466 $ (13,081) $ 46,892
Net realized gain (loss)...................... 16,179 (1,605) (489,073) (234) (659,463)
Increase in net unrealized appreciation
(depreciation).............................. (32,859) (15,341) 347,835 1,054,708 4,168,831
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.................................. 84,748 65,098 (126,772) 1,041,393 3,556,260
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................... (101,365) (81,984) (12,584) -- (57,678)
Net realized gains............................ (7,637) -- -- -- --
Capital....................................... -- -- (2,412) -- (1,158)
- -------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS................................ (109,002) (81,984) (14,996) -- (58,836)
- -------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 15):
Net proceeds from sale of shares.............. 4,632,057 9,903,403 5,417,586 12,312,206 35,252,585
Net asset value of shares issued for
reinvestment of dividends................... 109,002 81,984 14,996 -- 58,836
Cost of shares reacquired..................... (99,595) (3,081,734) (128,596) (119,786) (938,404)
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS................................ 4,641,464 6,903,653 5,303,986 12,192,420 34,373,017
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS.......................... 4,617,210 6,886,767 5,162,218 13,233,813 37,870,441
NET ASSETS:
Beginning of period........................... -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD*................................ $4,617,210 $6,886,767 $5,162,218 $13,233,813 $37,870,441
- -------------------------------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net
investment income of: -- $60 $1,715 -- $(10,432)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period May 1, 1998 (commencement of operations) to December 31,
1998.
(b) For the period March 23, 1998 (commencement of operations) to December 31,
1998.
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Convertible Bond, Strategic Stock, Disciplined Small Cap Stock, MFS Mid
Cap Growth and MFS Research Portfolios ("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 fifteen other separate investment portfolios: Travelers Quality
Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield,
Federated Stock, Disciplined Mid Cap Stock, U.S. Government Securities, Social
Awareness Stock, Utilities, Large Cap, Equity Income, Zero Coupon Bond Fund
Portfolio Series 2000, Zero Coupon Bond Fund Portfolio Series 2005, NWQ Large
Cap and Jurika & Voyles Core Equity 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 or minus
amortized premium, which approximates value; (d) securities, other than U.S.
government agencies, 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; (j) 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, 1998,
reclassifications were made to the capital accounts of the Convertible Bond
Portfolio, Disciplined Small Cap Stock Portfolio, MFS Mid Cap Growth Portfolio
and MFS Research Portfolio to reflect permanent book/tax differences and income
and gains available for distributions under income tax regulations. Net
investment income, net realized gains and net assets were not affected by this
change; 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.
In addition, the MFS Mid Cap Growth and MFS Research Portfolios 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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc., acts as investment adviser to the
Convertible Bond ("CB"), Disciplined Small Cap Stock ("DSCS"), MFS Mid Cap
Growth ("MMCG"), MFS Research ("MRP"), and Strategic Stock ("SSP") Portfolios.
CB, DSCS, MMCG, MRP, and SSP each pay TAMIC an investment advisory fee
calculated at annual rates of 0.60%, 0.80%, 0.80%, 0.80% and 0.60%,
respectively. This fee is calculated daily and paid monthly.
38
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TAMIC has entered into sub-advisory agreements with Massachusetts Financial
Services ("MFS"), and Travelers Investment Management Co., Inc. ("TIMCO").
Pursuant to each sub-advisory agreement, MFS is responsible for the day-to-day
portfolio operations and investment decisions for MMCG and MRP and TIMCO is
responsible for the day-to-day portfolio operations and investment decisions for
DSCS and SSP. As a result, the following fees are paid and calculated at an
annual rate:
- TAMIC pays MFS 0.375% of MMCG and MRP's average daily net assets.
- TAMIC pays TIMCO 0.40% and 0.20% of the average daily net assets of
DSCS and SSP, respectively.
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 service agreement with SSBC Fund
Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance
pays SSBC, 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, 1999, Travelers Insurance reimbursed
expenses in the amounts of $14,311, $7,600, $26,126, $20,396 and $22,538 for CB,
SSP, DSCS, MMCG and MRP, respectively.
For the six months ended June 30, 1999, DSCS paid Salomon Smith Barney
Inc., another subsidiary of SSBH, brokerage commissions of $544.
One Trustee and all officers of the Trust are employees of Citigroup 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, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Bond Portfolio.................................. $ 3,226,110 $ 659,232
Strategic Stock Portfolio................................... 3,863,944 19
Disciplined Small Cap Stock Portfolio....................... 6,126,149 3,143,680
MFS Mid Cap Growth Portfolio................................ 30,815,296 15,306,464
MFS Research Portfolio...................................... 72,559,267 30,422,091
- ---------------------------------------------------------------------------------------
</TABLE>
At June 30, 1999, 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>
Convertible Bond Portfolio.................................. $ 457,479 $ (244,616) $ 212,863
Strategic Stock Portfolio................................... 1,292,285 (127,319) 1,164,966
Disciplined Small Cap Stock Portfolio....................... 939,234 (401,084) 538,150
MFS Mid Cap Growth Portfolio................................ 4,520,892 (1,213,889) 3,307,003
MFS Research Portfolio...................................... 8,961,028 (1,131,037) 7,829,991
- -----------------------------------------------------------------------------------------------------------
</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 the repurchase price.
5. REVERSE REPURCHASE AGREEMENTS
The Portfolios may from time to time enter into reverse repurchase
agreements.
A reverse repurchase agreement involves a sale by the Portfolio of
securities that it holds with an agreement by the Portfolio to repurchase the
same securities at an agreed upon price and date. A reverse repurchase agreement
involves risk
39
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
that the market value of the securities sold by the Portfolio may decline below
the repurchase price of the securities. The Portfolio will establish a
segregated account with its custodian, in which the Portfolio will maintain
cash, U.S. government securities or other liquid high-grade debt obligations
equal in value to its obligations with respect to the reverse repurchase
agreements.
At June 30, 1999, the Portfolios had no open reverse repurchase agreements.
6. FUTURES CONTRACTS
The 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-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 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 enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 1999, DSCS had purchased 2 financial futures contracts on the
Mid Cap 400 Index expiring in September 1999. The basis value of such contracts
was $407,147. The market value of such contracts on June 30, 1999 was $419,350,
resulting in an unrealized gain of $12,203.
7. OPTIONS CONTRACTS
The 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.
At June 30, 1999, the Portfolios had no open purchased put or call 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. When the Portfolios enter into a closing purchase transaction,
the Portfolios realize a gain or loss depending upon whether the cost of the
closing transaction is greater or less than the premium originally received,
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, 1999, the Portfolios did not write any
options.
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
40
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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. FORWARD FOREIGN CURRENCY CONTRACTS
MMCG and MRP may enter into forward foreign currency contracts.
At June 30, 1999, MRP had open forward foreign currency contracts as
described below. The Portfolio bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized loss on the contracts reflected
in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE LOSS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO BUY:
British Pound......................................... 40,728 $64,800 7/1/99 $(494)
British Pound......................................... 12,657 19,952 7/1/99 (97)
British Pound......................................... 22,868 36,048 7/2/99 (253)
- -------------------------------------------------------------------------------------------------------
Net Unrealized Loss on Forward
Foreign Currency Contracts.......................... $(844)
- -------------------------------------------------------------------------------------------------------
</TABLE>
10. SECURITIES TRADED ON A WHEN-ISSUED BASIS
The Portfolios may from time to time purchase securities on a when-issued
basis.
In a when-issued transaction, the Portfolio commits to purchasing
securities for which specific information is not yet known at the time of the
trade. Securities purchased on a TBA basis are not settled until they are
delivered to the Portfolio. Beginning on the date the Portfolio enters into the
when-issued transaction, the custodian maintains cash, U.S. government
securities or other liquid high grade debt obligations in a segregated account
equal in value to the purchase price of the when-issued security. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
At June 30, 1999, there were no when-issued securities held by the
Portfolios.
11. MORTGAGE DOLLAR ROLL TRANSACTIONS
The Portfolios have the ability to participate in mortgage dollar rolls.
A mortgage dollar roll transaction involves a sale by the Portfolio of
securities that it holds with an agreement by the Portfolio to purchase similar
securities at an agreed upon price and date. The securities repurchased will
bear the same interest as those sold, but generally will be collateralized by
pools of mortgages with different prepayment histories than those securities
sold. Proceeds of the sale will be invested and the income from these
investments, together with any additional income from the Portfolio exceeding
the yield on the securities sold.
At June 30, 1999, there were no mortgage dollar roll transactions held by
the Portfolios.
12. SHORT SALES AGAINST THE BOX
The Portfolios have the ability to engage in short sales against the box.
A short sale against the box is a short sale of common stock such that,
when the short position is open, the Portfolio involved owns an equal amount of
the stock or preferred stock or debt securities (convertible or exchangeable)
without payment of further consideration, into an equal number of shares of
common stock sold short. The proceeds of the sale will be held by the broker
until the settlement date, when the Portfolio delivers the stock or the
convertible or exchangeable securities to close out its short position. Although
prior to delivery a Portfolio will have to pay an amount equal to any dividends
paid on the common stock sold short, the Portfolio will receive the dividends
from the stock or the preferred stock or the interest from the stock or
convertible or exchangeable debt securities plus a portion of the interest
earned from the proceeds of the short sale. The Portfolio will deposit in a
segregated account with the Portfolio's custodian, the common stock or
convertible preferred stock or debt securities in connection with short sales
against the box.
At June 30, 1999, there were no open short sales against the box.
41
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
13. CAPITAL LOSS CARRYFORWARD
At December 31, 1998, DSCS and MRP had, for Federal tax purposes, $455,000
and $308,000, respectively, of capital loss carryforwards available to offset
future capital gains through 2006. 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.
14. LENDING OF SECURITIES
The Portfolios have an agreement with their custodian whereby the custodian
may lend securities owned by the Portfolios to brokers, dealers and other
financial organizations. Fees earned by the Portfolios on securities lending are
recorded as interest income. Loans of securities by the Portfolios are
collateralized by cash, U.S. government securities or high quality money market
instruments that are maintained at all times in an amount at least equal to the
current market value of the loaned securities, plus a margin which may vary
depending on the type of securities loaned. The custodian establishes and
maintains the collateral in a segregated account. The Portfolios maintain
exposure for the risk of any losses in the investment of amounts received as
collateral.
At June 30, 1999, there were no loaned securities held by the Portfolios.
15. 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, 1999 DECEMBER 31, 1998(a)(b)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND PORTFOLIO:
Shares sold............................................. 256,334 467,540
Shares issued for reinvestment.......................... 825 11,055
Shares reacquired....................................... (20,291) (10,297)
- ----------------------------------------------------------------------------------------------------------
Net Increase............................................ 236,868 468,298
- ----------------------------------------------------------------------------------------------------------
STRATEGIC STOCK PORTFOLIO:
Shares sold............................................. 547,348 1,041,160
Shares issued for reinvestment.......................... 6 8,666
Shares reacquired....................................... (81,631) (321,894)
- ----------------------------------------------------------------------------------------------------------
Net Increase............................................ 465,723 727,932
- ----------------------------------------------------------------------------------------------------------
DISCIPLINED SMALL CAP STOCK PORTFOLIO:
Shares sold............................................. 377,582 597,608
Shares issued for reinvestment.......................... -- 1,691
Shares reacquired....................................... (35,300) (17,105)
- ----------------------------------------------------------------------------------------------------------
Net Increase............................................ 342,282 582,194
- ----------------------------------------------------------------------------------------------------------
MFS MID CAP GROWTH PORTFOLIO:
Shares sold............................................. 1,705,902 1,328,144
Shares issued for reinvestment.......................... 12,273 --
Shares reacquired....................................... (480) (11,915)
- ----------------------------------------------------------------------------------------------------------
Net Increase............................................ 1,717,695 1,316,229
- ----------------------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO:
Shares sold............................................. 4,127,330 3,675,328
Shares issued for reinvestment.......................... -- 5,571
Shares reacquired....................................... (6,442) (93,898)
- ----------------------------------------------------------------------------------------------------------
Net Increase............................................ 4,120,888 3,587,001
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the Convertible Bond Portfolio, the Strategic Stock Portfolio and the
Disciplined Small Cap Stock Portfolio, transactions are for the period from
May 1, 1998 (commencement of operations) to December 31, 1998.
(b) For the MFS Mid Cap Growth Portfolio and the MFS Research Portfolio,
transactions are for the period from March 23, 1998 (commencement of
operations) to December 31, 1998.
42
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
CONVERTIBLE BOND PORTFOLIO 1999(1)(2) 1998(3)
- ------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.86 $10.00
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.23 0.22
Net realized and unrealized gain (loss)................... 0.54 (0.12)
- ------------------------------------------------------------------------------------
Total Income From Operations................................ 0.77 0.10
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.22)
Net realized gains........................................ (0.01) (0.02)
- ------------------------------------------------------------------------------------
Total Distribution.......................................... (0.01) (0.24)
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $10.62 $ 9.86
- ------------------------------------------------------------------------------------
TOTAL RETURN++.............................................. 7.83% 0.98%
- ------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $7,492 $4,617
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4)............................................... 0.80% 0.80%
Net investment income..................................... 4.63 4.31
- ------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 13% 7%
- ------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
(4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $14,311 and $24,996 for the six months ended June 30, 1999
and the period ended December 31, 1998, respectively. If such expenses were
not reimbursed, the per share decrease in net investment income and the
actual expense ratios would have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT
- -------------------------- ----------------------------
1999 1998 1999 1998
- ----- ----- ------ ------
<S> <C> <C> <C>
$0.02 $0.05 1.27%+ 1.86%+
</TABLE>
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
43
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
STRATEGIC STOCK PORTFOLIO 1999(1)(2) 1998(3)
- -------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $9.46 $10.00
- -------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.09 0.12
Net realized and unrealized gain (loss)................... 1.08 (0.54)
- -------------------------------------------------------------------------------------
Total Income (Loss) From Operations......................... 1.17 (0.42)
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.00)* (0.12)
Net realized gains........................................ -- --
- -------------------------------------------------------------------------------------
Total Distributions......................................... (0.00)* (0.12)
- -------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $10.63 $ 9.46
- -------------------------------------------------------------------------------------
TOTAL RETURN++.............................................. 12.37% (4.24)%
- -------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $12,687 $6,887
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4)............................................... 0.90% 0.90%
Net investment income..................................... 1.82 2.42
- -------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... -- 1%
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISCIPLINED SMALL CAP STOCK PORTFOLIO 1999(1)(2) 1998(3)
- -------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $8.87 $10.00
- -------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.01 0.03
Net realized and unrealized gain (loss)................... 0.68 (1.13)
- -------------------------------------------------------------------------------------
Total Income (Loss) From Operations......................... 0.69 (1.10)
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.03)
Capital................................................... -- (0.00)*
- -------------------------------------------------------------------------------------
Total Distributions......................................... -- (0.03)
- -------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $9.56 $ 8.87
- -------------------------------------------------------------------------------------
TOTAL RETURN++.............................................. 7.78% (11.04)%
- -------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $ 8,834 $5,162
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4)............................................... 1.00% 1.00%
Net investment income..................................... 0.40 0.64
- -------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 47% 89%
- -------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
methods.
(3) For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
(4) Travelers Insurance has agreed to reimburse the Strategic Stock Portfolio
for expenses in the amounts of $7,600 and $21,016 for the six months ended
June 30, 1999 and the period ended December 31, 1998, respectively. In
addition, Travelers Insurance also agreed to reimburse the Disciplined Small
Cap Stock Portfolio for expenses in the amounts of $26,126 and $45,146 for
the six months ended June 30, 1999 and the period ended December 31, 1998,
respectively. If such expenses were not reimbursed, the per share decrease
in net investment income and the actual expense ratios would have been as
follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT
-------------------------- ----------------------------
1999 1998 1999 1998
----- ----- ------ ------
<S> <C> <C> <C> <C>
Strategic Stock Portfolio $0.01 $0.03 1.05%+ 1.51%+
Disciplined Small Cap Stock Portfolio 0.03 0.08 1.79+ 2.98+
</TABLE>
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
44
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
MFS MID CAP GROWTH PORTFOLIO 1999(1)(2) 1998(2)(3)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.05 $10.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4).................................... (0.02) (0.02)
Net realized and unrealized gain.......................... 1.35 0.07
- ----------------------------------------------------------------------------------------
Total Income From Operations................................ 1.33 0.05
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains........................................ (0.04) --
- ----------------------------------------------------------------------------------------
Total Distributions......................................... (0.04) --
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $11.34 $10.05
- ----------------------------------------------------------------------------------------
TOTAL RETURN++.............................................. 13.31% 0.50%
- ----------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $34,416 $13,234
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4)............................................... 1.00% 1.00%
Net investment loss....................................... (0.33) (0.25)
- ----------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 79% 100%
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MFS RESEARCH PORTFOLIO 1999(1)(2) 1998(3)
- -------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.56 $10.00
- -------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4).................................. 0.00* 0.01
Net realized and unrealized gain.......................... 0.92 0.57
- -------------------------------------------------------------------------------------
Total Income From Operations................................ 0.92 0.58
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.02)
Capital................................................... -- (0.00)*
- -------------------------------------------------------------------------------------
Total Distributions......................................... -- (0.02)
- -------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $11.48 $10.56
- -------------------------------------------------------------------------------------
TOTAL RETURN++.............................................. 8.71% 5.77%
- -------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $88,490 $37,870
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4)............................................... 1.00% 1.00%
Net investment income..................................... 0.05 0.42
- -------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 54% 54%
- -------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the average shares method.
(3) For the period from March 23, 1998 (commencement of operations) to December
31, 1998.
(4) Travelers Insurance has agreed to reimburse the MFS Mid Cap Growth Portfolio
for the expenses in the amounts of $20,396 and $32,634 for the six months
ended June 30, 1999 and the period ended December 31, 1998, respectively. In
addition, Travelers Insurance also agreed to reimburse the MFS Research
Portfolio for expenses in the amounts of $22,538 and $41,049 for the six
months ended June 30, 1999 and for the period ended December 31, 1998,
respectively. If such expenses were not reimbursed, the per share decrease
in net investment income and the actual expense ratios would have been as
follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE RATIOS WITHOUT
IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT
-------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
MFS Mid Cap Growth Portfolio $0.01 $0.04 1.19%+ 1.62%+
MFS Research Portfolio 0.00* 0.01 1.07+ 1.37+
</TABLE>
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
45
<PG$PCN>
Investment Advisers
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
Independent Auditors
KPMG LLP
New York, New York
Custodians
PNC 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 Convertible
Bond, Strategic Stock, Disciplined Small Cap Stock, MFS Mid Cap Growth and MFS
Research Portfolios. 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 or
The Travelers Life & Annuity Company and the Prospectuses for the underlying
funds, which collectively contain all pertinent information, including the
applicable sales commissions.
Series Trust (Semi-Annual) (8-99) Printed in U.S.A.
<PG$PCN>
<PAGE>
TRAVELERS SERIES TRUST: ZERO COUPON BOND FUND PORTFOLIOS: SERIES 2000 AND 2005
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for The Travelers Series Trust:
Zero-Coupon Bond Fund Portfolios: Series 2000 and 2005 ("Portfolio(s)") for the
period ended June 30, 1999. We hope you find this report to be useful and
informative.
In this letter, we briefly discuss general economic and market conditions. In
addition, more detailed comparisons showing the growth of a hypothetical $10,000
investment in each Portfolio since inception 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 first half of 1999 was a period of economic growth at home and recovery
abroad. Following the events surrounding the Russian debt default in August of
1998 -- which included a decline in bond yields and a 0.75% decrease in interest
rates -- yields have risen. Investor optimism, however, was tempered by concerns
about inflation, interest rates and continued economic growth.
FIXED INCOME MARKET COMMENTARY
The long anticipated slowdown in U.S. economic activity again failed to happen
during the reporting period. Global stock markets continued to rise led by
better than expected profit growth and continued merger and acquisition
activity. The risks of higher U.S. economic growth were more fairly reflected in
the yield curve in the U.S. at the end of the first quarter of 1999 than they
were at the beginning.
The stronger than expected growth caused interest rates to rise in the first
quarter of 1999. The 30-year U.S. Treasury bond had its third worst quarter of
the 1990s. In fact, only the first quarters of 1994 and 1996 were worse. The
Lehman Government/Corporate Index declined about 1.2% in the first quarter of
1999. U.S. Treasuries underperformed as spreads narrowed in all sectors.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.3% annualized Gross Domestic Product growth rate for the first
quarter of 1999. Furthermore, the labor market continued to be extremely tight,
as the unemployment rate fell to a 29-year low of 4.2% in March. Defying the
expectations of many economists, inflation -- as measured by the Consumer Price
Index ("CPI") -- was virtually absent. Productivity gains and sagging global
demand were credited with keeping inflation under control. However, in the month
of April, the CPI rose by 0.7%, its largest monthly increase in nine years.
This, coupled with signs that many world economies were in the nascent stages of
growth and recovery, deepened fears that inflationary pressures were reaching a
breaking point. These concerns brought about an increase in the yield of the
benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April
8 and June 24 to close at 6.16%.
To counter these inflationary pressures, the Federal Reserve Board ("Fed")
raised short-term interest rates by 0.25% in late June, and subsequently adopted
a neutral stance on monetary policy. Meanwhile, during the months of May and
June, the CPI remained constant, generating considerable optimism that inflation
had retreated. Further reports that of rising U.S. jobless claims added to the
optimism.
The unwillingness of consumer spending to slow down keeps the Fed's monetary
policy on watch. With the world economic crisis abating, we cannot rule out the
possibility of the Fed raising rates before year-end. However, in our view, the
most likely case is that the Fed's monetary policy will remain neutral through
the third quarter of 1999. By next year we think that nominal growth should slow
below 5% and may allow room for additional short-term rates cuts. However, if
global economic growth accelerates unexpectedly and signs of inflation emerge
during the remainder of 1999, the Fed will not hesitate to raise rates again.
Valuations on the vast majority of stocks appear to us to be reasonable. And
while the outlook for corporate earnings has improved, the continued popularity
of Internet stocks increases our concerns for the overall equity market. In our
opinion, as new issuance brings more competition to the Internet economy, risks
will increase and profits will decrease. The longer that Internet stocks remain
widely popular, the more damaging the ultimate correction may be.
1
<PAGE>
ZERO COUPON BOND FUND PORTFOLIO PERFORMANCE
The two 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 Co. and the
Travelers Life and Annuity Co. The two Portfolios have target maturity dates of
December 2000 and December 2005, respectively. The Portfolios invest primarily
in U.S. Treasury bonds that have 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.
Each Fund is managed (immunized) to have a duration equal to a zero-coupon bond
due on its maturity date. (Duration is a measure of a fund's volatility relative
to a given change in interest rates.) To boost its yield potential, we have
added zero-coupon corporate bonds. Because these are generally hard to find, we
buy a range of maturities and use U.S. Treasury strips to bring total duration
in line. U.S. Treasury strip positions are used to adjust each Fund's durations.
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
The Zero-Coupon Bond Fund Portfolio Series 2000 had a total return of 1.17% for
the six months ended June 30, 1999 versus the Merrill Lynch Zero Coupon's
Five-Year Index total return of 1.13% for the same period.
ZERO-COUPON BOND FUND PORTFOLIO SERIES 2005
The Zero-Coupon Bond Fund Portfolio Series 2005 had a total return of a negative
4.62% for the six months ended June 30, 1999 versus the Merrill Lynch Zero
Coupon's Ten-Year Index total return of a negative 5.09% for the same period.
In closing, thank you for investing in The Travelers Series Trust: Zero-Coupon
Bond Fund Portfolios. We look forward to helping you pursue your financial goals
in the future.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 28, 1999
2
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ 1.17%
Year Ended 6/30/99 5.23%
10/11/95* through 6/30/99 5.87%
CUMULATIVE TOTAL RETURN
-----------------------
10/11/95* through 6/30/99 23.63%
+ 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 October
11, 1995, assuming reinvestment of dividends, through June 30,
1999. The Merrill Lynch Zero Coupon 5-Year Index is comprised of
U.S. government stripped securities which have a maturity not
greater than five years.
[Performance graph - Series 2000]
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO MERRILL LYNCH ZERO COUPON 5-YEAR
SERIES 2000 INDEX
------------------------------- --------------------------------
<S> <C> <C>
10/11/95 10000 10000
12/31/95 10252 10405
12/31/96 10596 10648
6/30/97 10841 10924
12/31/97 11359 11226
6/30/98 11748 11595
12/31/98 12220 12030
6/30/99 12363 12166
</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 sub-account 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 2005
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/99+ (4.62)%
Year Ended 6/30/99 2.32%
10/11/95 through 6/30/99 6.51%
CUMULATIVE TOTAL RETURN
-----------------------
10/11/95* through 6/30/99 26.46%
+ 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 October
11, 1995, assuming reinvestment of dividends, through June 30,
1999. The Merrill Lynch Zero Coupon 10-Year Index is comprised of
U.S. government stripped securities which have a maturity not
greater than ten years.
[Performance graph - Series 2005]
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO MERRILL LYNCH ZERO COUPON 10-
SERIES 2005 YEAR INDEX
------------------------------- -----------------------------
<S> <C> <C>
10/11/95 10000 10000
12/31/95 10480 10687
12/31/96 10580 10584
6/30/97 10802 10829
12/31/97 11810 11101
6/30/98 12358 11642
12/31/98 13258 12542
6/30/99 12646 11903
</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 sub-account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
3
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 54.6%
$587,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
11/15/00.................................................. $ 545,898
167,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
5/15/01................................................... 150,758
74,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
11/15/02.................................................. 61,344
47,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
2/15/03................................................... 38,230
300,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
8/15/01................................................... 267,009
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost -- $1,050,363) 1,063,239
- -----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.4%
49,336 AAA Federal Home Loan Mortgage Corp., zero coupon bond to yield
7.170% due 9/15/18 (Cost -- $46,846)...................... 47,025
- -----------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 12.8%
- -----------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 3.0%
65,000 AAA Exxon Capital Ventures, Inc., zero coupon guaranteed notes
to yield 6.520% due 2/15/01............................... 59,150
- -----------------------------------------------------------------------------------------------
FOODS -- 3.0%
70,000 AA- Archer-Daniels Midland Co., Debentures, zero coupon bond to
yield 6.300% due 5/1/02................................... 58,625
- -----------------------------------------------------------------------------------------------
HOSPITAL SUPPLIES & SERVICES -- 2.9%
65,000 BBB Hospital Corp. of America, Debentures, zero coupon bond to
yield 5.790% due 6/1/00................................... 57,200
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.9%
70,000 BBB- Tele-Communications Inc., amortizing note, 9.650% due
10/1/03................................................... 74,725
- -----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $253,358) 249,700
- -----------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES -- 8.7%
- -----------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.6%
65,000 A+ American Express Co., Bonds, zero coupon bond to yield
6.110% due 12/12/00....................................... 59,413
50,000 A+ IBM International Finance NV, Bonds, 6.250% due 10/10/00.... 50,122
- -----------------------------------------------------------------------------------------------
109,535
- -----------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT -- 3.1%
64,000 AA+ Kingdom of Sweden, Notes, zero coupon notes to yield 6.395%
due 7/31/00............................................... 60,109
- -----------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (Cost -- $169,615) 169,644
- -----------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $1,520,182) 1,529,608
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 21.5%
419,000 CS First Boston Corp., 4.800% due 7/1/99; Proceeds at
maturity -- $419,054; (Fully collateralized by U.S. Treasury
Note, 6.875% due 3/31/00; Market value -- $427,648)
(Cost -- $419,000).......................................... 419,000
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $1,939,182**) $1,948,608
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 6 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 88.1%
$ 450,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
5/15/03..................................................... $ 360,761
970,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
11/15/05.................................................... 668,417
1,600,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
2/15/06..................................................... 1,084,320
910,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
2/15/09..................................................... 510,364
- -------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost -- $2,574,177) 2,623,862
- -------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 7.8%
- -------------------------------------------------------------------------------------------------
FINANCE -- 2.0%
80,000 A+ Grand Metro Investment, Notes, zero coupon note to yield
6.530% due 1/6/04........................................... 60,000
- -------------------------------------------------------------------------------------------------
FOODS -- 3.9%
70,000 AA- Archer-Daniels Midland Co., zero coupon bond to yield 6.300%
due 5/1/02.................................................. 58,625
80,000 A+ General Mills, zero coupon bond to yield 6.560% due
8/15/04..................................................... 57,900
- -------------------------------------------------------------------------------------------------
116,525
- -------------------------------------------------------------------------------------------------
INSURANCE -- 1.9%
80,000 AAA American International Group, zero coupon bond to yield
6.380% due 8/15/04.......................................... 57,800
- -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $232,450) 234,325
- -------------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES -- 4.1%
- -------------------------------------------------------------------------------------------------
BANKING -- 2.1%
75,000 A Chemical New York NV Corp., zero coupon bond to yield 6.610%
due 2/16/02................................................. 62,514
- -------------------------------------------------------------------------------------------------
FINANCE -- 2.0%
80,000 AAA Exxon Capital Corp., zero coupon note to yield 6.350% due
11/15/04.................................................... 58,350
- -------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (Cost -- $119,877) 120,864
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $2,926,504**) $2,979,051
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 6 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("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 to a debt obligation. 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 issues
only in 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 Investors Service, Inc. ("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 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 these bonds.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations, i.e., 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. 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>
6
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $1,520,182 and $2,926,504,
respectively).......................................... $1,529,608 $2,979,051
Repurchase agreement, at value (Cost -- $419,000)......... 419,000 --
Cash...................................................... 513 83,731
Dividends and interest receivable......................... 3,994 --
Receivable from affiliate................................. 26,316 26,218
- ---------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 1,979,431 3,089,000
- ---------------------------------------------------------------------------------------
LIABILITIES:
Accrued expenses.......................................... 7,844 10,302
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 7,844 10,302
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $1,971,587 $3,078,698
- ---------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital........................................... $1,911,782 $2,948,056
Undistributed net investment income....................... 55,258 85,790
Accumulated net realized loss from security
transactions........................................... (4,879) (7,695)
Net unrealized appreciation of investments................ 9,426 52,547
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $1,971,587 $3,078,698
- ---------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 190,008 286,612
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................. $10.38 $10.74
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $ 56,709 $ 88,100
- ------------------------------------------------------------------------------------------
EXPENSES:
Audit and legal........................................... 15,000 15,000
Shareholder and system servicing fees..................... 4,800 4,500
Shareholder communications................................ 3,250 4,000
Trustees' fees............................................ 1,850 1,850
Management fees (Note 2).................................. 970 1,540
Custody................................................... 650 200
Administration fees (Note 2).............................. 582 930
Pricing service fees...................................... 450 450
Other..................................................... 500 500
- ------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 28,052 28,970
Less: Expense reimbursement (Note 2)...................... (26,601) (26,660)
- ------------------------------------------------------------------------------------------
NET EXPENSES.............................................. 1,451 2,310
- ------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 55,258 85,790
- ------------------------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Change in Net Unrealized Appreciation of Investments:
Beginning of period.................................... 43,378 286,936
End of period.......................................... 9,426 52,547
- ------------------------------------------------------------------------------------------
DECREASE IN NET UNREALIZED APPRECIATION................... (33,952) (234,389)
- ------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS..................................... (33,952) (234,389)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... $ 21,306 $(148,599)
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
</TABLE>
<TABLE>
<CAPTION>
ZERO ZERO
COUPON COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 55,258 $ 85,790
Decrease in net unrealized appreciation................... (33,952) (234,389)
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 21,306 (148,599)
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... -- --
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... -- --
- ---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sales of shares......................... 11,094 191,957
Net asset value of shares issued for reinvestment of
dividends.............................................. -- --
Cost of shares reacquired................................. (13,466) (135,067)
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... (2,372) 56,890
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... 18,934 (91,709)
NET ASSETS:
Beginning of period....................................... 1,952,653 3,170,407
- ---------------------------------------------------------------------------------------
END OF PERIOD*............................................ $1,971,587 $3,078,698
- ---------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $55,258 $85,790
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998
</TABLE>
<TABLE>
<CAPTION>
ZERO ZERO
COUPON COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 105,564 $ 146,941
Net realized gain......................................... 831 2,812
Increase in net unrealized appreciation................... 28,647 157,294
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 135,042 307,047
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (106,950) (150,107)
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (106,950) (150,107)
- ---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sales of shares......................... 154,905 713,026
Net asset value of shares issued for reinvestment of
dividends.............................................. 106,950 150,107
Cost of shares reacquired................................. (93,882) (207,036)
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 167,973 656,097
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 196,065 813,037
NET ASSETS:
Beginning of year......................................... 1,756,588 2,357,370
- ---------------------------------------------------------------------------------------
END OF YEAR............................................... $1,952,653 $3,170,407
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Zero Coupon Bond Fund Portfolio Series 2000 ("Series 2000") and Zero
Coupon Bond Fund Portfolio Series 2005 ("Series 2005"), (collectively,
"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 eighteen
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, Disciplined Mid Cap Stock, Convertible Bond, MFS Research, MFS Mid Cap
Growth, Disciplined Small Cap Stock, Strategic Stock, NWQ Large Cap and Jurika &
Voyles Core Equity 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 shareholder 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, 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, 1998, 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 $431 and $1,047, were
reclassified to paid-in capital for 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 Corp. ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc., acts as investment manager and
adviser 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 Co. ("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 service agreement with SSBC Fund
Management Inc. ("SSBC"), formerly known as Mutual Management Corp. Travelers
Insurance pays SSBC, 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, 1999, Travelers Insurance has agreed to
reimburse Series 2000 and Series 2005 for expenses in the amount of $26,601 and
$26,660, respectively.
11
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS
During the six months ended June 30, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
SERIES SERIES
2000 2005
- --------------------------------------------------------------------------------
<S> <C> <C>
Purchases................................................... -- $369,477
Sales....................................................... -- --
- --------------------------------------------------------------------------------
</TABLE>
At June 30, 1999, the aggregate unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
SERIES SERIES
2000 2005
- ---------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized appreciation............................... $14,108 $ 76,855
Gross unrealized depreciation............................... (4,682) (24,308)
- ---------------------------------------------------------------------------------
Net unrealized appreciation................................. $ 9,426 $ 52,547
- ---------------------------------------------------------------------------------
</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 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-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 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 enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 1999, 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.
12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1998, Series 2000 and Series 2005 had, for Federal income
tax purposes, approximately $4,000 and $6,000, 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>
2004 2005
- ------------------------------------------------------------------------------
<S> <C> <C>
Series 2000................................................. -- $4,000
Series 2005................................................. $1,000 5,000
- ------------------------------------------------------------------------------
</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, 1999 DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
SERIES 2000
Shares sold................................................. 1,074 14,571
Shares issued on reinvestment............................... -- 10,423
Shares reacquired........................................... (1,306) (8,892)
- ----------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (232) 16,102
- ----------------------------------------------------------------------------------------------------
SERIES 2005
Shares sold................................................. 17,337 63,382
Shares issued on reinvestment............................... -- 13,336
Shares reacquired........................................... (12,216) (19,053)
- ----------------------------------------------------------------------------------------------------
Net Increase................................................ 5,121 57,665
- ----------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000 1999(1)(2) 1998 1997 1996 1995(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $10.26 $10.09 $9.96 $10.31 $10.00
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (4)..................... 0.29 0.59 0.59 0.50 0.13
Net realized and unrealized gain (loss)....... (0.17) 0.17 0.13 (0.22) 0.18
- -----------------------------------------------------------------------------------------------------------------
Total Income From Operations.................... 0.12 0.76 0.72 0.28 0.31
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income......................... -- (0.59) (0.59) (0.63) --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions............................. -- (0.59) (0.59) (0.63) --
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................. $10.38 $10.26 $10.09 $9.96 $10.31
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................... 1.17%++ 7.58% 7.20% 2.76% 3.10%++
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............... $1,972 $1,953 $1,757 $1,565 $1,029
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)(5)............................... 0.15%+ 0.15% 0.15% 0.15% 0.15%+
Net investment income......................... 5.70+ 5.74 5.88 5.74 5.61+
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......................... 0% 0% 29% 33% 34%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the average shares method.
(3) For the period from October 11, 1995 (commencement of operations) to
December 31, 1995.
(4) For the six months ended June 30, 1999, the years ended December 31, 1998,
1997, 1996 and the period ended December 31, 1995, Travelers Insurance
reimbursed the Portfolio for $26,601, $35,705, $27,177, $31,032 and $14,257
in expenses, respectively. If such expenses were not reimbursed, the per
share decrease of net investment income and actual expense ratios would have
been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS
PER SHARE DECREASES WITHOUT EXPENSE
TO NET INVESTMENT INCOME REIMBURSEMENT
------------------------ ---------------
<S> <C> <C>
1999 $0.14 2.89%+
1998 0.19 2.09
1997 0.16 1.80
1996 0.20 2.49
1995 0.14 6.51+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.15%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
14
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005 1999(1)(2) 1998 1997 1996 1995(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $11.26 $10.53 $9.97 $10.48 $10.00
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (4)............... 0.30 0.55 0.60 0.48 0.13
Net realized and unrealized gain
(loss)............................... (0.82) 0.74 0.56 (0.38) 0.35
- ------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations....... (0.52) 1.29 1.16 0.10 0.48
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income................... -- (0.56) (0.60) (0.61) --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions....................... -- (0.56) (0.60) (0.61) --
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............ $10.74 $11.26 $10.53 $9.97 $10.48
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............................. (4.62)%++ 12.26% 11.63% 0.90% 4.80%++
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)......... $3,079 $3,170 $2,357 $2,054 $1,050
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (4)(5)......................... 0.15%+ 0.15% 0.15% 0.15% 0.15%+
Net investment income................... 5.55+ 5.63 6.11 6.14 5.89+
- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................... 0% 3% 9% 17% 23%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the average shares method.
(3) For the period from October 11, 1995 (commencement of operations) to
December 31, 1995.
(4) For the six months ended June 30, 1999, the years ended December 31, 1998,
1997, 1996 and the period ended December 31, 1995, Travelers Insurance
reimbursed the Portfolio for $26,660, $38,063, $28,361, $30,922 and $14,256
in expenses, respectively. If such expenses were not reimbursed, the per
share decrease of net investment income and actual expense ratios would have
been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS
PER SHARE DECREASES WITHOUT EXPENSE
TO NET INVESTMENT INCOME REIMBURSEMENT
------------------------ -------------------
<S> <C> <C>
1999 $0.09 1.88%+
1998 0.14 1.61
1997 0.13 1.52
1996 0.15 2.17
1995 0.14 6.48+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.15%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
15
<PAGE>
This page intentionally left blank.
<PAGE>
Investment Adviser
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
Independent Auditors
KPMG 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 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) (8-99) Printed in U.S.A.
<PAGE>
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for The Travelers Series
Trust -- NWQ Large Cap Portfolio and the Jurika & Voyles Core Equity Portfolio
("Portfolios") for the period ended June 30, 1999. We hope you find this report
to be useful and informative. A more detailed summary of performance and current
holdings for each Portfolio can be found in the pages that follow.
ECONOMIC UPDATE
The first half of 1999 was a period of economic growth at home and recovery
abroad. Following the events surrounding the Russian debt default in August of
1998 -- which included a dive in bond yields and a 0.75% decrease in interest
rates -- yields have risen. Investor optimism, however, was tempered by concerns
about inflation, interest rates, and continued economic growth.
EQUITY MARKET COMMENTARY
The year began on a volatile note for global financial markets as a new threat
emerged in Latin America. The devaluation of the Brazilian currency raised
concerns for U.S. companies with exposure to Latin America and took its toll on
the stock market in the middle of January. The Dow Jones Industrial Average
("DJIA") swung from intra-day levels of above 9700 to below 9000. Stock prices
did recover, however, to finish higher at the end of January.
Interest rate concerns dominated market psychology during February. Despite low
inflation, interest rates moved higher amid fears of Federal Reserve Board
("Fed") tightening in response to the strong U.S. economy. In February, the
yield on the 30-year Treasury bond moved from 5.18% to 5.55%. Stock market
valuations became a concern as investors focused on the rise in interest rates,
the lack of a substantial earnings recovery and high price/earnings multiples.
During the month of March, market sentiment reversed and investors focused on
the reality of DJIA reaching 10,000. After repeated assaults, the DJIA did
breach 10,000 on March 16, 1999, retreated and then went on to close at 10,006
on March 29. Economic activity remained brisk and it became obvious that first
quarter Gross Domestic Product ("GDP") growth would be above expectations.
Consumer prices rose 0.1% in February and 1.6% from a year ago.
The S&P 500 Index gained 5.0% in the first quarter of 1991. The S&P 400 Mid Cap
Index fell by 6.4% while the Russell 2000 Index declined by 5.4%. The S&P 500
Growth Index produced a 6.9% total return, outpacing the 2.9% total return of
the S&P 500 Value Index. All sectors except consumer staples (-11%) registered
respectable gains in the first quarter of 1999. The market rally was led by the
energy services (22%) and technology (9%) sectors. The financial services (7%)
and Consumer Discretionary (6%) sectors also performed well.
Despite a rise in interest rates in the second quarter, the U.S. stock market
finished firmly in positive territory. Evidence of stronger-than-expected
economic growth prompted hopes of a meaningful earnings recovery during the
quarter and, at the same time, triggered concerns about rising interest rates.
This led to a rally in small cap and value stocks.
Interest rates began to climb in the month of May as investors worried about
inflation concerns on the heels of recent economic strength. First quarter GDP
growth was revised down to 4.1% from 4.5%, but other indicators provided
evidence of continued strength in the economy. The stock market sagged during
May under the burden of lofty valuations and higher rates.
The Fed took center stage in the month of June as investors anxiously awaited
its next monetary policy move. Even though inflation data released in June was
lower than consensus expectations, the bond and stock markets had clearly
anticipated a 25 basis point rate hike as a result of unexpected economic
strength. The decision to raise the federal-funds rate by 25 basis points on
June 30, 1999 therefore, came as no surprise and markets rallied when the Fed
announced that it had now switched to a neutral bias in its monetary policy.
The rotation into value and small cap stocks began in the middle of April and
continued through May. This trend reversed in June, as investors became
comfortable that a proactive Fed policy would preempt inflation and keep
interest rates in check. The S&P 500 Index advanced by 7.1% in the second
quarter. The S&P 400 Mid Cap Index gained 14.2% while the Russell 2000 Index
rose sharply by 15.6%. The S&P 500 Value Index produced a 10.8% total return,
outpacing the 3.8% total return of the S&P 500 Growth Index.
1
<PAGE>
All sectors within the S&P 500 except health care (-4%) registered respectable
gains in the second quarter. The economically sensitive, value-oriented
materials and processing (19%), energy services (14%) and producer durables
(14%) sectors led the market rally. The utilities (13%) and technology (10%)
sectors also performed well.
The focus in the U.S. stock market has now switched from the earnings front to
the future direction of interest rates. The early second quarter earnings
reports project a healthy growth in corporate profits from the prior year. With
the stock market now trading well above DJIA 10,000 and at unprecedented
valuation levels, any further increase in interest rates could trigger a
compression in the price/earnings multiple for the stock market.
NWQ LARGE CAP PORTFOLIO
For the six months ended June 30, 1999, the NWQ Large Cap Portfolio
("Portfolio") had a total return of 14.90%. During the same time period,
Standard & Poor's 500 ("S&P 500"), an unmanaged index of common stocks, posted a
total return of 12.38%.
Almost two years after the collapse of Thailand's currency sparked a tidal wave
of economic chaos across Asia, Russia and much of Latin America, there are signs
that the crisis is waning. There have been 156 interest-rate reductions by
central banks around the world since last October. Financial markets have posted
strong rallies in many countries. There is still a long way to go before one can
claim that the world economy has fully recovered, but the signs of growth have
been encouraging. The managers believe that there will be bumps along the road,
and the worldwide recovery may take much longer than investors currently
believe, leaving room for lofty expectations to be deflated. Nevertheless,
conditions have improved markedly in the past few months and may have positive
long-term implications for the U.S. economy and its financial markets.
A recent magazine cover featured a copy of "Security Analysis," Graham & Dodd's
classic work on value investing, smoldering in ashes. The title read, "Can Value
Investing Survive?" The managers were reminded of another headline from 1948:
"Dewey Defeats Truman." After chasing Internet and growth stocks to valuation
levels unrivaled in history, investors suddenly discovered that having a dot-com
in one's name does not provide a guaranteed financial reward.
In the last few weeks the bubble appears to have lost some altitude, with many
Internet stocks falling 40% to 60% from their highs. At the same time, many
industrial, capital goods, energy and financial stocks, the poor orphans of the
market in 1998, posted strong gains. Numerous market analysts have been posing
the same question of late. Is the turn toward value (or cyclical) stocks for
real, or a mere flash in the pan? The managers view the recent change in market
sentiment toward industrial stocks as the first step in the long overdue process
of rationalizing extreme market valuations that were created over the past year.
Granted, the Internet is growing more rapidly than anything the investment team
has seen in many years, but they question whether America Online is really worth
more than the entire domestic airline, aluminum and paper industries combined?
The past three months have witnessed some unwinding of this situation, but there
is still a long way to go. As long as the Fed does not get so afraid of a strong
U.S. economy that it raises rates significantly, the return of value (and more
rational pricing in the stock market) appears to be in the first inning. With
respect to the Fed, Mr. Greenspan did indeed raise interest rates by 25 basis
points at the end of June. The market had clearly discounted this already from
his earlier Congressional testimony. In fact, the bond market had discounted
quite a bit more. The managers doubt the Fed will become aggressive with Asia's
recovery still in its infancy and the weak Euro raising fears about more
currency problems in the world. A single 25 basis point rate increase should not
derail the U.S. economy, nor the fledgling worldwide rebound. While the overall
stock market remains richly valued, the managers believe that the "value" sector
should enjoy a gradually improving climate going forward.
JURIKA & VOYLES CORE EQUITY PORTFOLIO
For the six months ended June 30, 1999, the Jurika & Voyles Core Equity
Portfolio ("Portfolio") returned 7.01% which compares to a 12.38% return for S&P
500 during the same time period.
Performance of the Portfolio was strong over the second quarter of 1999. The
emphasis of the portfolio on medium- to large-, but not mega, capitalization
companies positioned the Portfolio well for the increasing depth of the stock
market's performance. The low valuation emphasis of the Portfolio also benefited
performance.
Although the managers are pleased with the market's rotation to the smaller and
lower valued stocks, they believe that the rotation to lower quality, highly
leveraged companies is not sustainable. Given the high current level of
valuations, the high level of profit margins and the maturity of the current
economic cycle, the managers believe that this is a high-risk environment where
it is important to focus on quality and value.
2
<PAGE>
According to the managers, the current environment is very positive for their
investment style. The Portfolio continues to comprise companies with strong
business models -- sustainable returns, strong cash flow generation and strong
financial positions -- which sell at material discounts to their intrinsic
values.
The managers are finding good opportunities in the energy and technology
sectors. They believed that the level of energy prices in the first quarter of
1999 was unsustainably low and that many energy stocks were undervalued based on
asset values and the normalized earnings power which the companies would earn
over the coming energy price cycle. The investment team is also enthusiastic
about the prospects of companies that are at the leading edge of providing
energy products and services in the progressively deregulated global
environment. The managers continue to be believers in the strong outlook for
technology spending. The pressure on companies to control costs is only
increasing, driving spending on technology to improve efficiency. The outlook
for companies exposed to data storage is particularly positive. Also, the
investment team funds the business models of transaction-based technology
companies to be very attractive.
In closing, we thank you for your investment in The Travelers Series Trust. We
look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 28, 1999
3
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 1999
NWQ LARGE CAP PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
STOCK -- 90.8%
- -----------------------------------------------------------------------------------------
AEROSPACE -- 2.6%
2,800 Lockheed Martin Corp. ...................................... $ 104,300
3,600 Textron, Inc. .............................................. 296,325
- -----------------------------------------------------------------------------------------
400,625
- -----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 10.9%
5,600 Federated Department Stores, Inc. (a)....................... 296,450
7,400 Fortune Brands, Inc. ....................................... 306,175
5,500 MediaOne Group, Inc. (a).................................... 409,063
3,000 Time Warner Inc. ........................................... 220,500
8,000 Waste Management, Inc. ..................................... 430,000
- -----------------------------------------------------------------------------------------
1,662,188
- -----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 10.7%
4,500 Loews Corp. ................................................ 356,062
14,000 Nabisco Group Holdings Corp. ............................... 273,875
14,500 Philip Morris Cos., Inc. ................................... 582,719
4,666 R.J. Reynolds Tobacco Holdings, Inc. (a).................... 146,979
3,807 Unilever NV................................................. 265,538
- -----------------------------------------------------------------------------------------
1,625,173
- -----------------------------------------------------------------------------------------
DURABLES -- 0.8%
1,729 United Technologies Corp. .................................. 123,948
- -----------------------------------------------------------------------------------------
ENERGY -- 7.1%
7,100 Coastal Corp. .............................................. 284,000
10,800 Halliburton Co. ............................................ 488,700
5,600 Transocean Offshore Inc. ................................... 147,000
4,400 Weatherford International, Inc. (a)......................... 161,150
- -----------------------------------------------------------------------------------------
1,080,850
- -----------------------------------------------------------------------------------------
FINANCE -- 33.0%
3,100 American International Group, Inc. ......................... 362,894
4,000 Bank of America Corp. ...................................... 293,250
8,100 Bank of New York Co., Inc. ................................. 297,168
5,000 Bank One, Corp. ............................................ 297,813
7,350 Bear Stearns Cos., Inc. .................................... 343,613
6,600 Chase Manhattan Corp. ...................................... 571,725
3,200 Citigroup Inc. ............................................. 152,000
8,400 Fannie Mae.................................................. 574,350
10,000 First Union Corp. .......................................... 470,000
5,300 Fleet Financial Group, Inc. ................................ 235,187
5,400 Hartford Financial Services Group, Inc. .................... 314,887
5,300 Provident Cos., Inc. ....................................... 212,000
12,000 The Allstate Corp. ......................................... 430,500
11,300 Wells Fargo & Co. .......................................... 483,075
- -----------------------------------------------------------------------------------------
5,038,462
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
NWQ LARGE CAP PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH -- 7.1%
4,400 Aetna Inc. ................................................. $ 393,525
4,300 CIGNA Corp. ................................................ 382,700
13,600 Columbia/HCA Healthcare Corp. .............................. 310,250
- -----------------------------------------------------------------------------------------
1,086,475
- -----------------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 3.5%
6,100 Air Products and Chemicals, Inc. ........................... 245,525
2,000 E.I. du Pont de Nemours and Co. ............................ 136,625
3,000 Praxair, Inc. .............................................. 146,813
- -----------------------------------------------------------------------------------------
528,963
- -----------------------------------------------------------------------------------------
PRODUCER DURABLES -- 5.0%
3,400 Case Corp. ................................................. 163,625
2,000 Deere & Co. ................................................ 79,250
3,900 Ingersoll-Rand Co. ......................................... 252,037
5,000 W.W. Grainger, Inc. ........................................ 269,063
- -----------------------------------------------------------------------------------------
763,975
- -----------------------------------------------------------------------------------------
TECHNOLOGY -- 7.4%
3,600 Hewlett-Packard Co. ........................................ 361,800
3,200 Honeywell Inc. ............................................. 370,800
1,700 Texas Instruments Inc. ..................................... 246,500
2,600 Xerox Corp. ................................................ 153,562
- -----------------------------------------------------------------------------------------
1,132,662
- -----------------------------------------------------------------------------------------
TRANSPORTATION -- 2.7%
10,000 Delphi Automotive Systems Corp. ............................ 185,625
4,000 Delta Air Lines, Inc. ...................................... 230,500
- -----------------------------------------------------------------------------------------
416,125
- -----------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $12,483,901)........................... 13,859,446
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 9.2%
$1,410,000 Chase Securities Inc., 4.800% due 7/1/99; Proceeds at
maturity -- $1,410,188; (Fully collateralized by U.S.
Treasury Notes, 7.125% due 2/15/23; Market value --
$1,439,200) (Cost -- $1,410,000)............................ 1,410,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $13,893,901*)............ $15,269,446
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
STOCK -- 94.6%
- -------------------------------------------------------------------------------------
AIRLINES -- 2.0%
5,050 Southwest Airlines Co. ..................................... $ 157,182
- -------------------------------------------------------------------------------------
BANKS -- 3.2%
2,800 First Union Corp. .......................................... 131,600
3,400 Washington Mutual, Inc. .................................... 120,275
- -------------------------------------------------------------------------------------
251,875
- -------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 1.6%
2,350 Vastar Resources, Inc. ..................................... 123,228
- -------------------------------------------------------------------------------------
BUILDING MATERIALS -- 0.9%
2,500 Masco Corp. ................................................ 72,187
- -------------------------------------------------------------------------------------
CAPITAL GOODS -- 1.0%
2,100 Valassis Communications, Inc. (a)........................... 76,912
- -------------------------------------------------------------------------------------
CHEMICALS - SPECIALTY -- 1.5%
3,500 OM Group, Inc. ............................................. 120,750
- -------------------------------------------------------------------------------------
COMPUTER SERVICES -- 6.0%
5,150 First Data Corp. ........................................... 252,028
1,500 Galileo International, Inc. ................................ 80,157
2,000 SABRE Group Holdings, Inc. (a).............................. 137,500
- -------------------------------------------------------------------------------------
469,685
- -------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 7.6%
2,300 Electronic Arts Inc. (a).................................... 124,775
2,700 i2 Technologies, Inc. ...................................... 116,100
9,700 Parametric Technology Corp. (a)............................. 134,588
4,000 Synopsys, Inc. (a).......................................... 220,750
- -------------------------------------------------------------------------------------
596,213
- -------------------------------------------------------------------------------------
COMPUTERS -- 1.1%
2,700 Cognex Corp. (a)............................................ 85,218
- -------------------------------------------------------------------------------------
COMPUTER - EQUIPMENT -- 3.3%
6,100 Quantum Corp. (a)........................................... 147,163
4,400 Seagate Technology, Inc. (a)................................ 112,750
- -------------------------------------------------------------------------------------
259,913
- -------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 3.3%
5,600 Newell Rubbermaid Inc. ..................................... 260,400
- -------------------------------------------------------------------------------------
DRUG DELIVERY/TESTING -- 1.0%
2,800 Elan Corp. PLC ADR (a)...................................... 77,700
- -------------------------------------------------------------------------------------
DRUG STORES -- 2.5%
3,843 Albertson's, Inc. .......................................... 198,155
- -------------------------------------------------------------------------------------
EDUCATION -- 1.4%
2,100 McGraw-Hill Cos., Inc. ..................................... 113,268
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS -- 5.0%
1,000 Circuit City Stores-Circuit City Group...................... $ 93,000
1,400 Motorola, Inc. ............................................. 132,650
4,400 Transaction Systems Architects, Inc., Class A Shares (a).... 171,600
- -------------------------------------------------------------------------------------
397,250
- -------------------------------------------------------------------------------------
ENERGY -- 1.4%
2,600 Suncor Energy, Inc. ........................................ 106,925
- -------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 1.9%
5,050 CIT Group, Inc. ............................................ 145,818
- -------------------------------------------------------------------------------------
FOOD PROCESSING -- 0.7%
1,100 Hannaford Brothers Co. ..................................... 58,850
- -------------------------------------------------------------------------------------
FOOD WHOLESALERS -- 3.0%
1,900 Hormel Foods Corp. ......................................... 76,475
5,400 SYSCO Corp. ................................................ 160,988
- -------------------------------------------------------------------------------------
237,463
- -------------------------------------------------------------------------------------
HOLDING COMPANIES - DIVERSIFIED -- 2.0%
3,900 Provident Co., Inc. ........................................ 156,000
- -------------------------------------------------------------------------------------
HOSPITAL -- 0.8%
1,600 Avalonbay Communities, Inc. ................................ 59,200
- -------------------------------------------------------------------------------------
INSURANCE -- 6.9%
2,100 CIGNA Corp. ................................................ 186,900
2,100 Everest Reinsurance Holdings, Inc. ......................... 68,512
3,100 Fremont General Corp. ...................................... 58,512
960 Radian Group Inc. .......................................... 46,857
4,100 ReliaStar Financial Corp. .................................. 179,375
- -------------------------------------------------------------------------------------
540,156
- -------------------------------------------------------------------------------------
MACHINERY -- 0.9%
1,800 Deere & Co.................................................. 71,325
- -------------------------------------------------------------------------------------
MANUFACTURING -- 2.4%
4,200 Parker-Hannifin Corp. ...................................... 192,150
- -------------------------------------------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES -- 5.0%
4,600 Baxter International Inc. .................................. 278,875
4,600 Mylan Laboratories.......................................... 121,900
- -------------------------------------------------------------------------------------
400,775
- -------------------------------------------------------------------------------------
NATURAL GAS -- 2.1%
2,600 Texaco Inc. ................................................ 162,500
- -------------------------------------------------------------------------------------
OIL AND GAS -- 1.3%
2,700 Weatherford International, Inc. ............................ 98,887
- -------------------------------------------------------------------------------------
OIL AND GAS DRILLING -- 1.3%
4,400 Santa Fe International Corp. ............................... 101,200
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1999
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
OIL - EXPLORATION AND PRODUCTION -- 1.7%
3,500 Apache Corp. ............................................... $ 136,500
- -------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 3.7%
1,600 Equity Residential Properties Trust......................... 72,100
4,900 ProLogis Trust.............................................. 99,225
2,100 Public Storage, Inc. ....................................... 58,800
1,500 Spieker Properties, Inc. ................................... 58,312
- -------------------------------------------------------------------------------------
288,437
- -------------------------------------------------------------------------------------
TECHNOLOGY RELATED -- 2.4%
3,200 Xerox Corp. ................................................ 189,000
- -------------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 1.8%
4,150 ECI Telecom Ltd. ........................................... 137,728
- -------------------------------------------------------------------------------------
TELEPHONE -- 2.5%
3,400 SBC Communications, Inc. ................................... 197,200
- -------------------------------------------------------------------------------------
TOYS -- 1.4%
4,200 Mattel, Inc. ............................................... 111,039
- -------------------------------------------------------------------------------------
TRANSPORT - AIR FREIGHT -- 1.4%
2,000 FDX Corp. (a)............................................... 108,500
- -------------------------------------------------------------------------------------
UTILITIES -- 3.6%
4,900 AES Corp. .................................................. 284,814
- -------------------------------------------------------------------------------------
UTILITIES - GAS -- 1.9%
1,850 Enron Corp. ................................................ 151,237
- -------------------------------------------------------------------------------------
WASTE MANAGEMENT -- 3.1%
9,700 Republic Services, Inc. (a)................................. 240,075
- -------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $6,589,640)............................ 7,435,715
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 5.4%
$422,000 Chase Securities Inc., 4.800% due 7/1/99: Proceeds at
maturity -- $422,056; (Fully collateralized by U.S. Treasury
Notes, 7.125% due 7/1/99; Market value -- $431,200) (Cost --
$422,000)................................................... 422,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $7,011,640*)............. $7,857,715
- --------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1999
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments -- Cost....................................... $13,893,901 $7,011,640
- ----------------------------------------------------------------------------------------
Investments, at value..................................... $15,269,446 $7,857,715
Cash...................................................... 2,665 548
Dividends and interest receivable......................... 19,316 7,824
Receivable for securities sold............................ 16,712 104,175
Receivable from affiliate................................. 10,950 13,561
- ----------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 15,319,089 7,983,823
- ----------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable.......................... 9,845 5,230
Administration fees payable............................... 788 418
Accrued expenses.......................................... 17,405 17,807
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 28,038 23,455
- ----------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $15,291,051 $7,960,368
- ----------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital........................................... $13,760,945 $7,256,186
Undistributed net investment income....................... 68,678 23,931
Accumulated net realized gain (loss) from security
transactions............................................ 85,883 (165,824)
Net unrealized appreciation of investments................ 1,375,545 846,075
- ----------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $15,291,051 $7,960,368
- ----------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 1,406,750 724,324
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................. $10.87 $10.99
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 95,533 $ 39,638
Interest.................................................. 32,727 17,708
Less: Foreign withholding tax............................. (3,352) --
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 124,908 57,346
- ----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)......................... 42,046 25,339
Audit and legal........................................... 10,000 8,500
Shareholder and system servicing fees..................... 4,500 4,500
Administration fees (Note 2).............................. 3,364 2,027
Shareholder communications................................ 3,000 2,500
Trustees' fees............................................ 1,870 1,870
Custody................................................... 1,150 1,300
Registration fees......................................... 850 800
Pricing service fees...................................... -- 300
Other..................................................... 400 260
- ----------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 67,180 47,396
Less: Expense reimbursements (Note 2)..................... (10,950) (13,561)
- ----------------------------------------------------------------------------------------
NET EXPENSES.............................................. 56,230 33,835
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 68,678 23,511
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions (excluding
short-term securities):
Proceeds from sales.................................... 1,310,747 1,891,156
Cost of securities sold................................ 1,216,289 1,988,247
- ----------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).................................. 94,458 (97,091)
- ----------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of period.................................... (114,750) 268,395
End of period.......................................... 1,375,545 846,075
- ----------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................... 1,490,295 577,680
- ----------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS..................................... 1,584,753 480,589
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $1,653,431 $504,100
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED
JUNE 30, 1999
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 68,678 $ 23,511
Net realized gain (loss).................................. 94,458 (97,091)
Increase in net unrealized appreciation................... 1,490,295 577,680
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 1,653,431 504,100
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares.......................... 5,308,252 1,326,395
Net asset value of shares issued for reinvestment of
dividends.............................................. -- --
Cost of shares reacquired................................. (133,488) (39,130)
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 5,174,764 1,287,265
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 6,828,195 1,791,365
NET ASSETS:
Beginning of period....................................... 8,462,856 6,169,003
- ----------------------------------------------------------------------------------------
END OF PERIOD*............................................ $15,291,051 $7,960,368
- ----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $68,678 $23,931
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 1998(a)
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 39,888 $ 22,433
Net realized loss......................................... (8,575) (68,818)
Increase in net unrealized appreciation (depreciation).... (114,750) 268,395
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... (83,437) 222,010
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (39,888) (21,928)
Capital................................................... (1,153) (1,047)
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (41,041) (22,975)
- ---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares.......................... 8,565,903 5,954,492
Net asset value of shares issued for reinvestment of
dividends.............................................. 41,041 22,975
Cost of shares reacquired................................. (19,610) (7,499)
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 8,587,334 5,969,968
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 8,462,856 6,169,003
NET ASSETS:
Beginning of period....................................... -- --
- ---------------------------------------------------------------------------------------
END OF PERIOD*............................................ $8,462,856 $6,169,003
- ---------------------------------------------------------------------------------------
* Includes undistributed net investment income of: -- $420
- ---------------------------------------------------------------------------------------
</TABLE>
(a) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The NWQ Large Cap and Jurika & Voyles Core Equity Portfolios,
("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 eighteen
other separate investment portfolios: Travelers Quality Bond, Lazard
International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock,
Disciplined Mid Cap Stock, U.S. Government Securities, Social Awareness Stock,
Utilities, Large Cap, Equity Income, Convertible Bond, MFS Research, MFS Mid Cap
Growth, Disciplined Small Cap Stock, Strategic Stock, 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 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; (j) 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, 1998,
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. Net investment income, net realized gains and net
assets for each Portfolio were not affected by these changes; 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.
In addition, the NWQ Large Cap and Jurika & Voyles Core Equity Portfolios
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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc., acts as investment adviser to the NWQ
Large Cap ("NWQ") and Jurika & Voyles Core Equity ("JV") Portfolios. NWQ and JV
each pay TAMIC an investment advisory fee calculated at the annual rate of 0.75%
of the average daily net assets. This fee is calculated daily and paid monthly.
TAMIC has entered into sub-advisory agreements with NWQ Investment
Management Co. ("NWQIM") and Jurika & Voyles L.P. ("JVLP"). Pursuant to each
sub-advisory agreement, NWQIM and JVLP are responsible for the day-to-day
13
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
portfolio operations and investment decisions for NWQ and JV, respectively. As a
result, the following fees are paid and calculated at an annual rate:
- TAMIC pays NWQIM 0.375% of NWQ's average daily net assets.
- TAMIC pays JVLP 0.375% of JV'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 service agreement with SSBC Fund
Management Inc., ("SSBC") formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance
pays SSBC, 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, 1999, Travelers Insurance reimbursed
expenses in the amounts of $10,950 and $13,561 for NWQ and JV, respectively.
For the six months ended June 30, 1999, NWQ and JV paid Salomon Smith
Barney Inc., another subsidiary of SSBH, brokerage commissions of $318 and $120,
respectively.
One Trustee and all officers of the Trust are employees of Citigroup 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, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- -------------------------------------------------------------------------------------
<S> <C> <C>
NWQ Large Cap Portfolio..................................... $6,838,422 $1,310,747
Jurika & Voyles Core Equity Portfolio....................... 3,383,786 1,891,156
- -------------------------------------------------------------------------------------
</TABLE>
At June 30, 1999, 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>
NWQ Large Cap Portfolio..................................... $1,743,635 $(368,090) $1,375,545
Jurika & Voyles Core Equity Portfolio....................... 1,044,324 (198,249) 846,075
- ----------------------------------------------------------------------------------------------------------
</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 the repurchase price.
5. FUTURES CONTRACTS
The NWQ and JV 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-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 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 Portfolio's basis in the contract.
14
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Portfolios enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 1999, the Portfolios had no open futures contracts.
6. OPTIONS CONTRACTS
The NWQ and JV 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 Portfolios 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.
At June 30, 1999, the Portfolios had no open purchased put or call 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. When the Portfolios enter into a closing purchase transaction,
the Portfolios realize a gain or loss depending upon whether the cost of the
closing transaction is greater or less than the premium originally received,
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, 1999, the Portfolios did not write any
options.
7. 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.
8. LENDING OF PORTFOLIO SECURITIES
The Portfolios have an agreement with their custodian whereby the custodian
may lend securities owned by a Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolios on securities lending are recorded
as interest income. Loans of securities by the Portfolios are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Portfolios maintain exposure for the
risk of any losses in the investments of amounts received as collateral.
At June 30, 1999, the Portfolios had no securities on loan.
15
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. CAPITAL LOSS CARRYFORWARD
At December 31, 1998, JV had, for Federal tax purposes, $69,000 of capital
loss carryforwards available to offset future capital gains through 2006. 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.
10. 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, 1999 DECEMBER 31, 1998(a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
NWQ LARGE CAP PORTFOLIO:
Shares sold............................................... 524,841 892,819
Shares issued on reinvestment............................. -- 4,338
Shares reacquired......................................... (12,883) (2,365)
- ------------------------------------------------------------------------------------------------------
Net Increase.............................................. 511,958 894,792
- ------------------------------------------------------------------------------------------------------
JURIKA & VOYLES CORE EQUITY PORTFOLIO:
Shares sold............................................... 127,681 599,062
Shares issued on reinvestment............................. -- 2,237
Shares reacquired......................................... (3,880) (776)
- ------------------------------------------------------------------------------------------------------
Net Increase.............................................. 123,801 600,523
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
16
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
NWQ LARGE CAP PORTFOLIO 1999(1)(2) 1998(3)
- ----------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $9.46 $10.00
- ----------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.06 0.05
Net realized and unrealized gain (loss)................... 1.35 (0.54)
- ----------------------------------------------------------------------------------
Total Gain (Loss) From Operations........................... 1.41 (0.49)
- ----------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.05)
Capital................................................... -- (0.00)*
- ----------------------------------------------------------------------------------
Total Distributions......................................... -- (0.05)
- ----------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $10.87 $9.46
- ----------------------------------------------------------------------------------
TOTAL RETURN++.............................................. 14.90% (4.94)%
- ----------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $15,291 $8,463
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4)(5)............................................ 1.00% 0.99%
Net investment income..................................... 1.22 1.47
- ----------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 13% 2%
- ----------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
(4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $10,950 and $17,700 for the six months ended June 30, 1999
and the period ended December 31, 1998, respectively. If such expenses were
not reimbursed, the per share decrease in net investment income and the
actual expense ratios would have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASE EXPENSE RATIO WITHOUT
IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT
- ------------------------ ----------------------
1999 1998 1999 1998
- ------ ------ ------ ------
<S> <C> <C> <C>
$0.01 $0.02 1.19%+ 1.64%+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01.
++ 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 year ended
December 31, except where noted:
<TABLE>
<CAPTION>
JURIKA & VOYLES CORE EQUITY PORTFOLIO 1999(1)(2) 1998(3)
- ----------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.27 $10.00
- ----------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4).................................. 0.04 0.04
Net realized and unrealized gain.......................... 0.68 0.27
- ----------------------------------------------------------------------------------
Total Income From Operations................................ 0.72 0.31
- ----------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.04)
Capital................................................... -- (0.00)*
- ----------------------------------------------------------------------------------
Total Distributions......................................... -- (0.04)
- ----------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $10.99 $10.27
- ----------------------------------------------------------------------------------
TOTAL RETURN++.............................................. 7.01% 3.08%
- ----------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $7,960 $6,169
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4)(5)............................................ 1.00% 0.99%
Net investment income..................................... 0.69 1.01
- ----------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 31% 26%
- ----------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
(4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $13,561 and $20,200 for the six months ended June 30, 1999
and the period ended December 31, 1998, respectively. If such expenses were
not reimbursed, the per share decrease in net investment income and the
actual expense ratios would have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASE EXPENSE RATIO WITHOUT
IN NET INVESTMENT INCOME EXPENSE REIMBURSEMENT
- ------------------------ ----------------------
1999 1998 1999 1998
- ------ ------ ------ ------
<S> <C> <C> <C>
$0.02 $0.03 1.40%+ 1.89%+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
18
<PAGE>
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<PAGE>
Investment Advisers
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
Independent Auditors
KPMG 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: NWQ Large Cap and Jurika &
Voyles Core Equity Portfolios. 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 or Travelers Life & Annuity Company and the Prospectuses for the
underlying funds, which collectively contain all pertinent information,
including the applicable sales commissions.
Series Trust (Semi-Annual) (8-99) Printed in U.S.A.
