<PAGE>
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
ANNUAL REPORTS
DECEMBER 31, 1999
[TRAVELERS GRAPHIC]
MANAGED ASSETS TRUST
HIGH YIELD BOND TRUST
CAPITAL APPRECIATION FUND
MONEY MARKET PORTFOLIO
THE TRAVELERS SERIES TRUST:
U.S. GOVERNMENT SECURITIES PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
UTILITIES PORTFOLIO
[TRAVELERSLIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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DEAR SHAREHOLDER:
We are pleased to provide the annual report for the Travelers Variable Product
Funds -- 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
Portfolio ("Portfolios") for the year ended December 31, 1999. This letter
briefly discusses general economic and market conditions.
A detailed comparison showing the growth of a hypothetical $10,000 invested in
each Portfolio since inception can be found in this report. Please note that all
total return figures given in this report, both cumulative and average
annualized, exclude the effect of sales charges. Past performance is not
indicative of future results. A detailed summary of performance and current
holdings for each individual Portfolio can be found in the appropriate sections
that follow. We hope you find this report to be useful and informative.
<TABLE>
<CAPTION>
The Performance of the Travelers Series Trust(1) (12/31/98-12/31/99)
- ---------------------------------------------------------------------
<S> <C>
Managed Assets Trust........................................ 14.22%
High Yield Bond Trust....................................... 4.42
Capital Appreciation Fund................................... 53.52
U.S. Government Securities.................................. (4.23)
Social Awareness Stock...................................... 15.84
Utilities Portfolio......................................... (0.08)
</TABLE>
<TABLE>
<CAPTION>
MARKET SCHEDULE OF
SUBACCOUNT COMMENTARY INVESTMENTS
---------- ---------- -----------
<S> <C> <C>
Managed Assets Trust................................... 2 7
High Yield Bond Trust.................................. 3 16
Capital Appreciation Fund.............................. 4 22
Money Market Portfolio................................. 4 24
U.S. Government Securities Portfolio................... 37 41
Social Awareness Stock Portfolio....................... 37 42
Utilities Portfolio.................................... 38 46
</TABLE>
MARKET AND ECONOMIC OVERVIEW
The year began on a volatile note for global financial markets as a potential
new threat emerged in Latin America. The devaluation of Brazil's currency, the
real, affected many U.S. corporations and investors with exposure to the Latin
American markets and negatively impacted the performance of the U.S. stock
market.
Concerns regarding the future direction of interest rates were prevalent
throughout 1999. Despite low inflation, the Federal Reserve Board ("Fed") opted
to raise interest rates three times during the year, effectively "taking back"
the interest-rate cuts imposed following the global economic crisis in 1998. The
Fed's change in monetary policy did not significantly deter the remarkable
growth of the U.S. economy. In fact, throughout the year, the U.S. Gross
Domestic Product ("GDP"), which represents the total output of goods and
services, continued to exceed expectations.
Despite the rise in interest rates, the U.S. stock market continued its stellar
performance. Evidence of stronger-than-expected economic growth prompted hopes
of a meaningful earnings recovery and at the same time, triggered concerns
regarding future rate hikes. These factors led to a rally in small cap and value
stocks. (Value stocks are securities of companies that are believed to be
undervalued in the market.) However, the trend of investing in small cap and
value stocks soon changed, as many investors took the view that a proactive
monetary policy by the Fed would preempt inflationary pressures.
- ---------------
(1) Please note that data represents past performance, which is not indicative
of future results. The 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.
1
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ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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By the end of the year, nevertheless, the small cap sector, as measured by the
Russell 2000 Index,(2) which returned 21.26% for the year, outperformed the
large cap sector, as measured by the Standard & Poor's 500 Index(3) ("S&P 500")
which returned 21.03%.
As a result of investors' focus on the direction of interest rates, the stock
and bond markets were characterized by higher levels of volatility. Investors
became increasingly concerned, especially toward the end of the year about not
only the direction of interest rates but also about future earnings growth and
the high market valuations of many stocks. In addition, the strength of the
overseas markets attracted U.S. capital, which had a somewhat negative impact on
the performance of the U.S. stock market through the third quarter of 1999.
By the end of the year however, the U.S. stock market rose sharply largely due
to the incredible performance of the technology sector. Y2K concerns decreased,
with the market's assessment of the risks associated with potential Year 2000
glitches proving to be correct.
The bond markets did not react positively to the actions of the Fed in 1999 and
experienced their worst year since 1994. The overall bond market recorded losses
in 1999 in response to the Fed's interest rate increases and concerns regarding
inflation. Bond market losses increased with the length of maturities. The yield
on the bellwether 30-year government bond increased 1.39 percentage points in
1999 to 6.48%. At the end of 1998, the 30-year bond yielded 5.09%.
In our view, the strength of the U.S. economy should continue, prompting the Fed
to raise interest rates in 2000.(4) In addition, overseas economies, many of
which are in the early stages of recovery, should continue to expand. This
global economic recovery should benefit the manufacturing sector of the U.S.
market in 2000.
We predict that earnings should continue its double-digit growth through the
first quarter of 2000. It is our belief that the recent performance of
technology and telecommunications stocks is not sustainable. However, we are
confident that most stocks are appropriately valued. Over the longer term, we
think that the fundamentals for both stocks and bonds remains favorable.
MANAGED ASSETS TRUST
Managed Assets Trust ("Trust") seeks to provide a high total investment return
through a fully managed investment policy. For the year ended December 31, 1999,
the Trust returned 14.22%. In comparison, the Lehman Government/Corporate Index
returned a negative 2.15% and the S&P 500 returned 21.03% for the same time
period. (Past performance is not indicative of future results. Please note that
Portfolio holdings are as of December 31, 1999 and are subject to change. The
Lehman Government/Corporate Index is a broad measure of the performance of
government and corporate fixed-rate debt issues.)
During 1999, the performance of the technology sector largely contributed to the
historic returns of the major U.S. stock market indexes. The markets were also
characterized by the better performance of growth stocks versus value stocks.
The Trust's holdings in the technology, consumer discretionary and utilities
sectors contributed positively to its performance during the period. Investments
in the producer durables and materials and processing industries negatively
impacted its performance.
As a general rule, the managers seek out companies with good earnings prospects
at reasonable valuations. This investment approach led them to an overweight
position in Sun Microsystems, a leading software company, which outperformed the
overall market due to continual earnings estimates upgrades by Wall Street
analysts. Oracle, a leading software company, and QUALCOMM, the wireless
communications company, rallied due in large part to investors' positive outlook
on those stocks with higher price/earnings ("P/E") ratios. (A P/E ratio is the
price of a stock divided by its earnings per share.) The Trust also benefited
from the fact that QUALCOMM and Yahoo! Inc., a global internet company, were
purchased prior to their
- ---------------
(2) The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 8% of
the total market capitalization of the Russell 3000 Index.
(3) The S&P 500 is market capitalization-weighted measure of 500 widely held
common stocks.
(4) On February 2, 2000, the Federal Reserve Board raised interest rates 0.25%
to 5.25% after this letter was written.
2
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ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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inclusion in the S&P 500 Index. In addition, America Online performed well in
1999. The Fund's managers' were fortunate to have avoided two of the bigger
disappointments in the sector: Xerox and Unisys.
Semiconductor equipment stocks such as Applied Materials and Teradyne surged in
expectation of a revival in the capital spending cycle. In the utilities sector,
the managers' emphasis on faster growing telecommunications companies (such as
Nextel Communications and Sprint PCS Group) at the expense of electric utilities
and gas distribution companies continued to help performance. A position in AES
Corp, a global leader in electric power generation, which moved up in price as
it completed a successful Y2K rollover, also contributed positively to
performance.
In the consumer discretionary sector, a number of our positions in the media and
broadcasting groups performed well. The New York Times Co. and Gannett
outperformed the overall newspaper sector and AMFM Inc. and Times Mirror Co.
continued to perform well due to the strength of the U.S. economy. The managers'
holdings in the household products group, most notably, Kimberly-Clark and
Cendant, a consumer services company who rose sharply on the heels of a $400
million investment by Liberty Media, produced good results in 1999. Sears, J.C.
Penney and Tandy, three companies not held in the Trust, continued to go down
and, therefore, contributed to relative performance.
In the consumer discretionary sector, performance was aided by underweight
positions in Avon, Gillette and Sears. Avon and Gillette frustrated investors
with lower-than-expected revenue growth. As a result, Avon was down 55.2% and
Gillette lost 17.2% for the quarter. Sears announced in early September that it
would not meet third quarter earnings and suffered a 29.6% decline for the
quarter.
Strong earnings growth in the third and fourth quarters suggests that the
earnings recovery of 1999 is well underway so far in 2000. However, the constant
presence of the Fed and investors' enthusiasm for technology stocks may prevent
a broad-based market rally from taking place in the near term.
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 year ended December 31,
1999, the High Yield Bond Trust had a total return of 4.42%. In comparison, the
Lehman Aggregate Bond Index posted a total return of a negative 0.82% for the
same period. (Past performance is not indicative of future results. Please note
that Portfolio holdings are as of December 31, 1999 and are subject to change.
The Lehman Aggregate Bond Index is a broad measure of the performance of taxable
bonds in the U.S. market with maturities of at least one year.)
During 1999, the overall bond market weakened due to the Fed's decision to raise
interest rates three times as an inflationary precaution. Within the U.S. bond
markets, spreads (i.e., the difference between yields on securities but the same
quality but different maturities) have tightened in from the wider levels.
Spreads remain wider than the market is used to seeing so the managers expect
them to narrow approximately another 20 to 25 basis points over the next year.
(A basis point is .01% or one-one hundredth of a percent of yield.)
However, in the managers' opinion, the best opportunities in the bond market may
be found through careful assessment of the issuer rather than attempting to
predict the change in spreads. High-yield bond issuance was approximately $100
billion in 1999, down almost 50% from the previous year. The managers anticipate
that supply will continue to be down in most areas of the bond market for the
foreseeable future.
During the reporting period, the Trust benefited from the remarkable performance
of the telecommunications and media sectors, through its holdings in Pegasus
Communications and Chancellor Media.
In the view of the managers, heightened market volatility should continue and
the Fed most likely will continue to raise interest rates in 2000. Despite
turbulent conditions in both the stock and the bond markets, they are committed
to their investment strategy of identifying what they believe to be attractive
long-term opportunities.
3
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCT FUNDS
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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. For the year ended December 31, 1999, the Fund returned
53.52%. In comparison, the S&P 500 returned 21.03% for the same time period.
(Past performance is not indicative of future results. Please note that
Portfolio holdings are as of December 31, 1999 and are subject to change.)
The Fund's holdings in wireless communications companies, such as Nokia and
Sprint PCS, gained significant ground during the period largely due to investor
enthusiasm, companies that stand to benefit from wireless data transmission. The
Fund's holdings in Internet infrastructure companies such as Cisco Systems and
EMC Corp. also moved higher. Strong showings from the Fund's retail and media
holdings also positively contributed to its performance during the period.
Meanwhile, the Fund's holdings in the pharmaceutical sector continued to
disappoint. The sector remains under pressure from potential governmental drug
price regulation as well as speculation that the health care industry may once
again emerge as a favorite target for political candidates in next year's
election. Fortunately, the Capital Appreciation Fund's exposure to
pharmaceutical companies has been fairly limited since the early summer.
In the opinion of the Fund's managers, the Fed will probably elect to raise
interest rates in the coming year and higher market volatility should continue.
Nevertheless and although no guarantees can be made, the managers are optimistic
about the long-term prospects of the Fund's holdings.
MONEY MARKET PORTFOLIO
The Money Market Portfolio ("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. The
Portfolio pursues this objective by investing in securities maturing in one year
or less.
For the 12-month period ended December 31, 1999, Money Market Portfolio had a
6.07% yield to maturity and an average maturity of 47 days. Money Market
Portfolio continues to invest primarily in U.S. Treasuries and government agency
securities. This investment strategy has provided Money Market Portfolio
shareholders with relative 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 the Travelers
Funds.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 20, 2000
4
<PAGE>
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PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 14.22%
Five Years Ended 12/31/99 19.47%
Ten Years Ended 12/31/99 13.05%
CUMULATIVE TOTAL RETURN
-----------------------------
4/8/83* through 12/31/99 490.37%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1989, assuming reinvestment of dividends, through
December 31, 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 LEHMAN CONSUMER PRICE INDEX
TRUST GOVERNMENT/CORPORATE -------------------- STANDARD & POOR'S
-------------- BOND INDEX 500 INDEX
-------------------- -----------------
<S> <C> <C> <C> <C>
12/89 10000 10000 10000 10000
12/90 10247 10829 10610 9690
12/91 12471 12575 10935 12636
12/92 13112 13529 11252 13598
12/93 14336 15021 11561 14964
12/94 14014 14493 11871 15161
12/95 17814 17282 12172 18485
12/96 20269 17783 12576 22727
12/97 24588 19518 12789 30309
12/98 29861 21367 12994 39019
12/99 34107 20431 13382 47227
</TABLE>
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PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 4.42%
Five Years Ended 12/31/99 11.69%
Ten Years Ended 12/31/99 9.76%
CUMULATIVE TOTAL RETURN
-----------------------------
3/19/82* through 12/31/99 430.38%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1989, assuming reinvestment of dividends, through
December 31, 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>
12/89 10000 10000 10000 10000
12/90 9088 10896 10610 10093
12/91 11460 12640 10935 12402
12/92 12967 13574 11252 13485
12/93 14784 14898 11561 15591
12/94 14597 14463 11871 15562
12/95 16855 17135 12172 18469
12/96 19560 17757 12576 20449
12/97 22800 19470 12789 23031
12/98 24295 21162 12994 23098
12/99 25369 20989 13382 24125
</TABLE>
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PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
5
<PAGE>
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PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12.31/99 53.52%
Five Years Ended 12/31/99 40.48%
Ten Years Ended 12/31/99 24.49%
CUMULATIVE TOTAL RETURN
---------------------------
3/19/82* through 12/31/99 2,567.50%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
December 31, 1989, assuming reinvestment of dividends, through
December 31, 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>
12/89 10000 10000 10000 10000
12/90 9376 9690 8052 10610
12/91 12673 12636 11760 10935
12/92 14904 13598 13924 11252
12/93 17153 14964 16553 11561
12/94 16336 15161 6869 11871
12/95 22277 18485 8823 12172
12/96 28560 22727 10279 12576
12/97 36027 30329 12578 12789
12/98 58229 39045 12258 12994
12/99 89390 47258 14863 13382
</TABLE>
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PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital 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.
6
<PAGE>
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SCHEDULES OF INVESTMENTS DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 63.4%
- -----------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 6.4%
9,900 Bed Bath & Beyond Inc. (a).................................. $ 344,025
2,600 Black & Decker Corp. ....................................... 135,850
9,400 Circuit City Stores......................................... 423,587
7,384 Colgate-Palmolive Co. ...................................... 479,960
12,800 Comcast Corp., Class A Shares............................... 643,200
6,400 Costco Cos., Inc. (a)....................................... 584,000
12,727 CVS Corp. .................................................. 508,284
4,800 Eastman Kodak Co. .......................................... 318,000
11,200 Federated Department Stores Inc. (a)........................ 566,300
11,562 Gap Inc. ................................................... 531,875
11,846 Gillette Co. ............................................... 487,907
39,795 Home Depot Inc. ............................................ 2,728,444
10,600 Interpublic Group of Cos. Inc. ............................. 611,487
12,264 Kimberly-Clark Corp. ....................................... 800,226
14,568 Kroger Co. (a).............................................. 274,971
10,100 Lowe's Cos. Inc. ........................................... 603,475
6,121 Maytag Corp. ............................................... 293,808
21,922 McDonald's Corp. ........................................... 883,730
11,961 The New York Times Co., Class A Shares...................... 587,584
9,200 Nike Inc., Class B Shares................................... 455,975
17,542 Proctor & Gamble Co. ....................................... 1,921,945
8,700 Rohm & Haas Co. ............................................ 353,981
14,362 Safeway Inc. (a)............................................ 510,748
6,758 Times Mirror Co., Class A Shares............................ 452,786
14,865 TJX Cos., Inc. ............................................. 303,803
6,400 Tricon Global Restaurants (a)............................... 247,200
7,475 Unilever NV................................................. 406,920
74,160 Wal-Mart Corp. ............................................. 5,126,310
- -----------------------------------------------------------------------------------------------------
21,586,381
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 2.4%
12,627 Anheuser-Busch Co., Inc. ................................... 894,938
9,408 Clorox Co. ................................................. 473,928
41,105 Coca-Cola Co. .............................................. 2,394,366
13,500 General Mills Inc. ......................................... 482,625
9,269 H.J. Heinz Co. ............................................. 369,022
11,260 Kellogg Co. ................................................ 346,948
2,815 Loews Corp. ................................................ 170,835
24,280 PepsiCo Inc. ............................................... 855,870
45,515 Philip Morris Co. .......................................... 1,055,379
21,926 Sara Lee Corp. ............................................. 483,742
13,800 Seagram Co. Ltd. ........................................... 620,137
- -----------------------------------------------------------------------------------------------------
8,147,790
- -----------------------------------------------------------------------------------------------------
ENTERTAINMENT/MEDIA -- 2.3%
5,300 AMFM Inc. (a)............................................... 414,725
9,700 Carnival Corp. ............................................. 463,781
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT/MEDIA -- 2.3% (CONTINUED)
13,348 CBS Corp. (a)............................................... $ 853,437
5,642 Clear Channel Communications, Inc. (a)...................... 503,548
8,611 Gannett Co. ................................................ 702,334
12,577 MediaOne Group, Inc. (a).................................... 966,070
8,354 Meredith Corp. ............................................. 348,257
24,322 Time Warner, Inc. .......................................... 1,761,824
7,870 Viacom Inc. Non-Voting, Class B Shares (a).................. 475,643
48,995 The Walt Disney Co. ........................................ 1,433,103
- -----------------------------------------------------------------------------------------------------
7,922,722
- -----------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 8.5%
6,481 Ambac Financial Group Inc. ................................. 338,227
11,683 American Express Co. ....................................... 1,942,298
4,400 American General Corp. ..................................... 333,850
29,030 American International Group Inc. .......................... 3,138,868
27,500 Amsouth Bancorporation...................................... 531,093
25,876 Bank of America Corp. ...................................... 1,298,651
19,400 The Bank of New York Co., Inc. ............................. 776,000
24,821 Bank One Corp. ............................................. 795,823
9,508 Capital One Financial Co. .................................. 458,166
31,100 Cendant Corp. (a)........................................... 826,093
14,900 Charles Schwab Corp. ....................................... 571,787
19,668 Chase Manhattan Corp. ...................................... 1,527,957
5,197 Comerica Inc. .............................................. 242,634
8,434 Countrywide Credit Industries, Inc. ........................ 212,958
21,252 Fannie Mae.................................................. 1,326,921
5,100 Fifth Third Bancorp......................................... 374,212
24,192 First Union Corp. of North Carolina......................... 793,800
21,900 Firstar Corp. .............................................. 462,637
23,423 Fleet Financial Group, Inc. ................................ 815,418
16,850 Freddie Mac................................................. 793,003
6,604 Hartford Financial Services Group Inc. ..................... 312,864
16,700 Household International Inc. ............................... 622,075
2,813 J.P. Morgan & Co. .......................................... 356,196
10,881 Lehman Brothers Holdings, Inc. ............................. 921,484
8,200 MBIA Inc. .................................................. 433,062
28,000 MBNA Corp. ................................................. 763,000
15,075 Merrill Lynch & Co., Inc. .................................. 1,258,762
16,941 Morgan Stanley Dean Witter & Co. ........................... 2,418,327
15,500 National City Corp. ........................................ 367,156
7,700 Providian Financial Corp. .................................. 701,181
12,000 Southtrust Corp. ........................................... 453,750
5,748 State Street Corp. ......................................... 419,963
8,938 Summit Bancorp.............................................. 273,726
7,611 SunTrust Banks, Inc. ....................................... 523,731
14,646 Washington Mutual, Inc. .................................... 380,796
29,100 Wells Fargo & Co. .......................................... 1,176,731
- -----------------------------------------------------------------------------------------------------
28,943,200
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE -- 5.6%
18,846 Abbott Laboratories......................................... $ 684,345
5,600 Aetna, Inc. ................................................ 312,550
12,800 Allergan, Inc. ............................................. 636,800
16,213 American Home Products Corp. ............................... 639,400
25,140 Amgen, Inc. (a)............................................. 1,509,971
12,300 Baxter International, Inc. ................................. 772,593
29,196 Bristol Myers Squibb Co. ................................... 1,874,018
6,400 Cardinal Health, Inc. ...................................... 306,400
21,700 Columbia HCA Healthcare Corp. .............................. 636,081
21 Crescendo Pharmaceutical Corp. (a).......................... 383
14,104 Eli Lilly & Co. ............................................ 937,916
27,711 Johnson & Johnson........................................... 2,580,586
20,366 Medtronic Inc. ............................................. 742,086
40,538 Merck & Co. ................................................ 2,718,579
14,759 PerkinElmer, Inc. .......................................... 615,265
54,097 Pfizer Inc. ................................................ 1,754,771
4,421 Pharmacia & Upjohn Inc. .................................... 198,945
16,468 Schering-Plough Corp. ...................................... 694,743
13,407 Warner Lambert Co. ......................................... 1,098,536
2,800 Wellpoint Health Networks Inc. (a).......................... 184,625
- -----------------------------------------------------------------------------------------------------
18,898,593
- -----------------------------------------------------------------------------------------------------
INSURANCE -- 0.4%
25,754 The Allstate Corp. ......................................... 618,096
6,409 Everest Reinsurance Holdings, Inc. ......................... 143,000
7,500 Jefferson-Pilot Corp. ...................................... 511,875
7,579 20th Century Industries..................................... 146,369
- -----------------------------------------------------------------------------------------------------
1,419,340
- -----------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 2.4%
9,370 Alcoa, Inc. ................................................ 777,710
14,500 Barrick Gold Corp. ......................................... 256,468
8,200 Briggs & Stratton Corp. .................................... 439,725
5,400 Corning Inc. ............................................... 696,262
12,727 Dayton-Hudson Corp. ........................................ 934,639
19,322 E.I. Du Pont de Nemours & Co. .............................. 1,272,836
9,884 Georgia-Pacific Corp. ...................................... 501,613
9,802 International Paper Co. .................................... 553,200
31,200 Lockheed Martin Corp. ...................................... 682,500
14,865 Masco Corp. ................................................ 377,199
6,106 Mead Corp. ................................................. 265,229
15,508 Monsanto Co. ............................................... 552,472
3,200 Nucor Corp. ................................................ 175,400
14,800 Pall Corp. ................................................. 319,125
7,663 Raytheon Co., Class B Shares................................ 203,548
2,235 Weyerhauser Co. ............................................ 160,500
- -----------------------------------------------------------------------------------------------------
8,168,426
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL/ENERGY -- 3.9%
7,800 Apache Corp. ............................................... $ 288,112
7,190 Atlantic Richfield Co. ..................................... 621,935
6,400 Baker Hughes Inc. .......................................... 134,800
1 BP Amoco PLC ADR............................................ 7
11,284 Chevron Corp. .............................................. 977,476
11,762 Conoco Inc., Class B Shares................................. 292,579
5,344 El Paso Energy Corp. ....................................... 207,414
15,588 Enron Corp. ................................................ 691,717
59,846 Exxon Corp. ................................................ 4,821,394
7,510 Halliburton Co. ............................................ 302,277
9,900 Kerr-McGee Corp. ........................................... 613,800
14,800 Peco Energy Inc. ........................................... 514,300
35,134 Royal Dutch Petroleum Co. ADR............................... 2,123,411
9,038 Schlumberger Ltd. .......................................... 508,387
9,400 Texaco Inc. ................................................ 510,537
5,300 Tosco Corp. ................................................ 144,093
1,749 Transocean Sedco Forex Inc. ................................ 58,944
9,754 Williams Cos., Inc. ........................................ 298,106
- -----------------------------------------------------------------------------------------------------
13,109,289
- -----------------------------------------------------------------------------------------------------
PRODUCER DURABLES -- 4.2%
22,743 Boeing Co. ................................................. 945,255
4,567 Caterpillar Inc. ........................................... 214,934
5,019 Dow Chemical Co. ........................................... 670,663
4,954 Emerson Electric Co. ....................................... 284,235
6,125 General Dynamics Corp. ..................................... 323,093
56,734 General Electric Co. ....................................... 8,779,586
19,236 Honeywell Inc. ............................................. 1,109,691
8,159 Ingersoll-Rand Co. ......................................... 449,254
9,900 Lear Corp. (a).............................................. 316,800
4,300 Minnesota Mining & Manufacturing Co. ....................... 420,862
5,000 Phelps Dodge Corp. ......................................... 335,625
22,700 W.R. Grace & Co. (a)........................................ 314,962
- -----------------------------------------------------------------------------------------------------
14,164,960
- -----------------------------------------------------------------------------------------------------
TECHNOLOGY -- 20.1%
43,236 America Online Inc. (a)..................................... 3,261,615
6,400 Analog Devices Inc. (a)..................................... 595,200
10,063 Applied Materials Inc. (a).................................. 1,274,856
8,200 Automatic Data Processing, Inc. ............................ 441,775
10,500 BMC Software, Inc. (a)...................................... 839,343
55,964 Cisco Systems Inc. (a)...................................... 5,995,143
27,682 Compaq Computer Corp. ...................................... 749,144
9,000 Computer Associates International, Inc. .................... 629,437
17,834 Compuware Corp. ............................................ 664,316
38,884 Dell Computer Corp. (a)..................................... 1,983,084
11,800 Electronic Data Systems Corp. .............................. 789,862
14,758 EMC Corp. (a)............................................... 1,612,311
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 20.1% (CONTINUED)
4,084 Gateway Inc. (a)............................................ $ 294,303
13,600 Global Crossing Ltd. (a).................................... 680,000
18,200 Hewlett Packard Co. ........................................ 2,073,662
59,786 Intel Corp. ................................................ 4,921,135
31,388 International Business Machines Corp. ...................... 3,389,904
6,100 Lexmark International Group, Inc. (a)....................... 552,050
53,945 Lucent Technologies Inc. ................................... 4,035,760
90,934 Microsoft Corp. (a)......................................... 10,616,544
5,900 Micron Technology Inc. (a).................................. 458,725
11,890 Motorola, Inc. ............................................. 1,750,802
22,000 Nortel Networks Corp. ...................................... 2,222,000
29,215 Oracle Corp. (a)............................................ 3,273,905
14,800 QUALCOMM Inc. (a)........................................... 2,608,500
2,600 SafeGuard Scientifics, Inc. (a)............................. 421,362
8,900 Seagate Technology Inc. (a)................................. 414,406
5,100 Solectron Corp. ............................................ 485,137
32,800 Sun Microsystems Inc. (a)................................... 2,539,950
15,544 Sysco Corp. ................................................ 614,959
4,858 Tellabs Inc. (a)............................................ 311,822
9,700 Teradyne Inc. (a)........................................... 640,200
15,034 Texas Instruments Inc. ..................................... 1,456,418
10,300 3com Corp. (a).............................................. 484,100
49,346 Tyco International Ltd. .................................... 1,918,325
7,922 United Technologies Corp. .................................. 514,930
10,800 Xilinx Inc. (a)............................................. 491,062
4,755 Yahoo! Inc. (a)............................................. 2,057,429
- -----------------------------------------------------------------------------------------------------
68,063,476
- -----------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.3%
2,274 AMR Corp. (a)............................................... 152,358
6,900 Delta Airlines Inc. ........................................ 343,706
10,100 FDX Corp. (a)............................................... 413,468
19,917 Ford Motor Co. ............................................. 1,064,314
15,342 General Motors Corp. ....................................... 1,115,171
9,823 Navistar International Corp. ............................... 465,364
9,500 TRW Inc. ................................................... 493,406
7,529 Union Pacific Corp. ........................................ 328,452
- -----------------------------------------------------------------------------------------------------
4,376,239
- -----------------------------------------------------------------------------------------------------
UTILITIES -- 5.9%
7,700 AES Corp. (a)............................................... 575,575
7,869 Alltell Corp. .............................................. 650,667
55,245 AT&T Corp. ................................................. 2,803,683
20,314 Bell Atlantic Corp. ........................................ 1,250,580
19,318 BellSouth Corp. ............................................ 904,323
14,863 Central & South West Corp. ................................. 297,260
16,400 CenturyTel Inc. ............................................ 776,950
17,488 Edison International........................................ 457,967
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 5.9% (CONTINUED)
8,325 FPL Group Inc. ............................................. $ 356,414
11,273 GTE Corp. .................................................. 795,451
51,952 MCI WorldCom, Inc. (a)...................................... 2,756,729
13,000 Nextel Communications, Inc. (a)............................. 1,340,625
3,100 Praxair Inc. ............................................... 155,969
59,546 SBC Communications Inc. .................................... 2,902,870
7,773 Southern Co. ............................................... 182,665
21,106 Sprint Corp. ............................................... 1,420,697
14,076 Sprint Corp. (PCS Group) (a)................................ 1,442,862
10,881 Texas Utilities Co. ........................................ 386,955
9,223 U.S. West Communications Group.............................. 664,060
- -----------------------------------------------------------------------------------------------------
20,122,302
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $145,209,909)................... 214,922,718
- -----------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 1.6%
- -----------------------------------------------------------------------------------------------------
FINANCIAL -- 1.0%
6,000 AES Trust III, 6.750%....................................... 369,750
6,000 Calpine Capital Trust, 5.750%............................... 393,750
2,000 Canadian National Railway, 5.250%........................... 84,000
6,000 Equity Office Properties Trust, 5.250%...................... 237,000
8,000 Equity Residential Properties Trust, 2.150%................. 208,500
18,564 Equity Residential Properties Trust, 7.250%................. 363,158
2,000 Finova Finance Trust, 5.500%................................ 100,000
12,000 General Growth Properties, 7.250%........................... 240,000
8,000 National Australia Bank Ltd., 7.787%........................ 221,000
5,924 New Field Financial Trust, 6.500%........................... 276,947
3,220 New Plan Excel Realty Insurance, 8.500%..................... 68,425
6,000 Newell Financial Trust, 5.250%.............................. 228,750
9,000 Reckson Associates Realty Services, 7.625%.................. 178,875
5,000 Tosco Financial Trust, 5.750%............................... 238,125
2,245 Union Pacific Capital Trust, 6.250%......................... 93,448
- -----------------------------------------------------------------------------------------------------
3,301,728
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.6%
4,000 Amcor Ltd., 7.250%.......................................... 172,000
10,000 CalEnergy Capital II, 6.250%................................ 415,000
5,977 El Paso Energy Capital, 4.750%.............................. 301,091
8,123 News Corp. Ltd., 5.000%..................................... 1,162,605
- -----------------------------------------------------------------------------------------------------
2,050,696
- -----------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $5,246,667)...... 5,352,424
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS -- 11.4%
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL -- 7.0%
$ 5,000,000 Aa3* Bank One Corp., Notes, 5.625% due 2/17/04................... $ 4,693,750
5,000,000 A2* Caterpillar Financial Services Corp., 6.875% due 8/1/04..... 4,925,000
5,000,000 A1* Ford Motor Credit Co., 5.750% due 2/23/04................... 4,731,250
5,000,000 Baa2* Nationwide Health Properties, Inc., Notes, 6.900% due
10/31/37.................................................... 4,431,250
2,500,000 Baa1* Simon Debartolo, Company Guaranteed, 6.750% due 7/15/04..... 2,343,750
2,500,000 Baa2* Spieker Properties Inc., Notes, 8.000% due 7/19/05.......... 2,478,125
- ------------------------------------------------------------------------------------------------------------------
23,603,125
- ------------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 2.1%
2,500,000 Baa* Prologics Trust, Sr. Notes, 7.050% due 7/15/06.............. 2,318,750
5,000,000 A Xerox Corp., Notes, 6.250% due 11/15/26..................... 4,837,500
- ------------------------------------------------------------------------------------------------------------------
7,156,250
- ------------------------------------------------------------------------------------------------------------------
TELEPHONE -- 1.4%
5,000,000 AAA BellSouth Capital Funding, Debentures, 6.040% due
11/15/26.................................................... 4,956,250
- ------------------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.9%
3,000,000 Baa2* CSX Corp., Debentures, 6.950% due 5/1/27.................... 2,992,500
- ------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $40,120,813)................. 38,708,125
- ------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 1.6%
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL -- 0.5%
Bell Atlantic Corp., Bonds:
297,000 A+ 5.750% due 4/1/03........................................... 312,592
500,000 A1* 4.250% due 9/15/05.......................................... 615,025
400,000 BBB- Elan International Finance Ltd., Company Guaranteed,
zero coupon due 12/14/18.................................... 212,000
300,000 BBB Hellenic Finance, 2.000% due 7/15/03........................ 300,750
300,000 Baa* Security Capital U.S. Realty, Bonds, 2.000% due 5/22/03..... 222,938
- ------------------------------------------------------------------------------------------------------------------
1,663,305
- ------------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.9%
146,000 BBB- Athena Neurosciences Inc., Notes, 4.750% due 11/15/04....... 148,920
100,000 NR BEA Systems Inc., 4.000% due 12/15/06....................... 117,125
150,000 NR Clear Channel Communications, Inc., 1.500% due 12/1/02...... 154,125
201,000 A- Diamond Offshore Drilling Inc., Sub. Notes, 3.750% due
2/15/07..................................................... 204,015
300,000 Aa2* GVC Corp. Ltd., Bonds, zero coupon due 5/21/02 (b).......... 338,250
23,000 BBB- Inco Ltd., Debentures, 7.750% due 3/15/16................... 20,844
300,000 AA- Indian Petrochemicals Corp. Ltd., Bonds, 2.500% due 3/11/02
(b)......................................................... 312,000
300,000 BB+ Interim Services Inc., Sub. Notes, 4.500% due 6/1/05........ 265,500
121,000 NR Interpublic Group of Cos., Inc., Sub. Notes, 1.870% due
6/1/06...................................................... 137,486
570,000 A- Koninklijke Ahold, Sub. Notes, 3.000% due 9/30/03........... 293,737
431,000 BBB- Lennar Corp., Debenture, zero coupon due 7/29/18............ 170,784
150,000 Baa3* Liberty Media, 4.000% due 11/15/29.......................... 189,000
500,000 BBB Scholastic Corp., Sub. Notes, 5.000% due 8/15/05............ 495,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
INDUSTRIAL -- 0.9% (CONTINUED)
$ 100,000 A- Thermo Electron Corp., Sub. Debenture, 4.250% due 1/1/03.... $ 85,000
100,000 A- Thermo Instruments Inc., Company Guaranteed, 4.000% due
1/15/05..................................................... 79,125
- ------------------------------------------------------------------------------------------------------------------
3,010,911
- ------------------------------------------------------------------------------------------------------------------
UTILITY - ELECTRIC -- 0.2%
600,000 A- Potomac Electric Power, 5.000% due 9/1/02................... 586,500
- ------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $5,123,785)...... 5,260,716
- ------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.7%
5,000,000 PP&L, Inc., 7.050% due 6/25/09.............................. 4,995,125
787,543 Wilmington Trust 9.250% due 1/2/07.......................... 788,977
- ------------------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $5,787,038)........................................ 5,784,102
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 16.2%
15,616,050 U.S. Treasury Notes, 3.625% due 1/15/08..................... 14,875,538
3,100,000 U.S. Treasury Bonds, 7.125% due 2/15/23..................... 3,227,317
25,000,000 U.S. Treasury Strips, 0.000% due 5/15/21.................... 5,941,000
53,000,000 U.S. Treasury Strips, 0.000% due 8/15/25.................... 9,993,150
6,239,280 U.S. Treasury Inflation Index Bonds, 3.625% due 4/15/28..... 5,581,785
16,369,600 U.S. Treasury Inflation Index Bonds, 3.875% due 4/15/29..... 15,293,790
- ------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $56,901,114)..... 54,912,580
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 3.4%
Federal Home Loan Mortgage Corp.:
85,489 8.500% due 9/1/02........................................... 87,386
1,809,601 8.000% due 9/1/04........................................... 1,846,915
Federal National Mortgage Association:
79,066 15 Year Convertible, 8.500% due 3/1/05...................... 81,587
918,111 6.500% due 12/1/27.......................................... 865,605
1,011,313 6.000% due 3/1/28........................................... 925,980
160,218 6.000% due 4/1/28........................................... 146,699
130,393 5.500% due 5/1/28........................................... 115,399
476,904 6.000% due 5/1/28........................................... 436,663
900,584 5.500% due 6/1/28........................................... 797,017
420,841 6.000% due 6/1/28........................................... 385,332
445,735 6.000% due 7/1/28........................................... 408,125
1,093,204 5.500% due 8/1/28........................................... 967,486
1,169,303 6.000% due 8/1/28........................................... 1,070,639
2,925,876 Dwarf, 6.000% due 1/1/13.................................... 2,778,646
Government National Mortgage Association:
129,743 9.000% due 12/15/16......................................... 135,865
78,302 9.500% due 1/15/20.......................................... 83,441
100,043 9.500% due 3/15/20.......................................... 106,608
167,905 7.500% due 5/15/23.......................................... 166,121
- ------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $11,964,839)........ 11,405,514
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT TERM U.S. GOVERNMENT INSTRUMENTS -- 0.3%
$ 1,150,000 U.S. Treasury Bills, 5.200% due 1/3/00
(Cost -- $1,137,541)........................................ $ 1,137,541
- ------------------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $271,491,706)................ 337,483,720
- ------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.4%
1,275,000 Morgan Stanley Dean Witter & Co., 2.470% due 1/3/00;
Proceeds at maturity -- $1,275,262; (Fully collateralized by
U.S. Treasury Notes, 11.750% due 11/15/14; Market
value -- $1,300,710) (Cost -- $1,275,000)................... 1,275,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%(Cost -- $272,766,706**)........... $338,758,720
- ------------------------------------------------------------------------------------------------------------------
</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.
+ 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 definition of bond ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES -- 75.4%
- ---------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 0.7%
BE Aerospace Inc., Sr. Sub. Notes:
$ 125,000 B 8.000% due 3/1/08........................................... $ 108,438
100,000 B 9.500% due 11/1/08.......................................... 94,000
- ---------------------------------------------------------------------------------------------------
202,438
- ---------------------------------------------------------------------------------------------------
CHEMICALS -- 0.9%
150,000 B+ Borden Chemical and Plastics Ltd., 9.500% due 5/1/05........ 139,500
125,000 B+ Lyondell Chemical Co., Sr. Sub. Notes, 10.875% due 5/1/09... 130,000
- ---------------------------------------------------------------------------------------------------
269,500
- ---------------------------------------------------------------------------------------------------
ELECTRONICS -- 0.5%
150,000 B+ Flextronics International Ltd., Sr. Sub. Notes, 8.750% due
10/15/07.................................................. 147,000
- ---------------------------------------------------------------------------------------------------
ENERGY -- 2.3%
250,000 BB Pride International Inc., Sr. Notes, 10.000% due 6/1/09..... 255,625
175,000 BBB- PSEG Energy Holdings Inc., Sr. Notes, 10.000% due 10/1/09
(a)....................................................... 178,500
250,000 BB+ Tuscon Electric Power Co., Collateral Trust, 7.500% due
8/1/08.................................................... 235,625
- ---------------------------------------------------------------------------------------------------
669,750
- ---------------------------------------------------------------------------------------------------
FIBER OPTICS -- 1.5%
300,000 B+ Metromedia Fiber Network, Inc., Sr. Notes, 10.000% due
12/15/09.................................................. 309,000
125,000 BB- Williams Communications Group, Inc., Sr. Notes, 10.875% due
10/1/09................................................... 131,250
- ---------------------------------------------------------------------------------------------------
440,250
- ---------------------------------------------------------------------------------------------------
FOOD AND DRUG -- 2.5%
375,000 B Archibald Candy Corp., Company Guaranteed, 10.250% due
7/1/04.................................................... 364,688
385,000 B- Duane Reade Inc., Company Guaranteed, 9.250% due 2/15/08.... 377,300
- ---------------------------------------------------------------------------------------------------
741,988
- ---------------------------------------------------------------------------------------------------
FORESTRY -- 0.8%
250,000 B+ Millar Western Forest Products, Sr. Notes, 9.875% due
5/15/08................................................... 250,000
- ---------------------------------------------------------------------------------------------------
GAMING/LEISURE -- 6.0%
Bally Total Fitness Holding Corp., Sr. Sub. Notes:
330,000 B- Series B, 9.875% due 10/15/07............................... 320,925
170,000 B- Series D, 9.875% due 10/15/07............................... 165,325
250,000 BB+ Harrah's Operating Co. Inc., Company Guaranteed, 7.875% due
12/15/05.................................................. 241,250
225,000 B Isle of Capri Casinos, Inc., Company Guaranteed, 8.750% due
4/15/09................................................... 208,125
330,000 BB+ Park Place Entertainment Corp., Sr. Sub. Notes, 7.875% due
12/15/05.................................................. 316,800
175,000 B+ Prime Hospitality Corp., Sr. Sub. Notes, 9.750% due
4/1/07.................................................... 170,625
360,000 B+ Station Casinos, Inc., Sr. Sub. Notes, 10.125% due
3/15/06................................................... 369,000
- ---------------------------------------------------------------------------------------------------
1,792,050
- ---------------------------------------------------------------------------------------------------
HEALTH CARE -- 0.4%
125,000 B- Unilab Corp., Sr. Sub. Notes, 12.750% due 10/1/09 (a)....... 130,625
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HOUSING -- 3.0%
$ 175,000 B Atrium Companies Inc., Company Guaranteed, 10.500% due
5/1/09.................................................... $ 171,500
400,000 B+ Beazer Homes USA Inc., Company Guaranteed, 8.875% due
4/1/08.................................................... 376,000
475,000 B- Falcon Building Corp., Company Guaranteed, step bond to
yield
10.500% due 6/15/07....................................... 356,250
- ---------------------------------------------------------------------------------------------------
903,750
- ---------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.4%
125,000 B- International Utility Structures Inc., Sr. Sub. Notes,
10.750% due 2/1/08........................................ 104,375
- ---------------------------------------------------------------------------------------------------
INFORMATION/TECHNOLOGY -- 2.2%
275,000 B- Anteon Corp., 12.000% due 5/15/09........................... 259,187
160,000 BB+ Unisys Corp., Sr. Notes, 12.000% due 4/15/03................ 171,200
125,000 B- Verio Inc., Sr. Notes, 10.625% due 11/15/09 (a)............. 128,438
175,000 B- Viasystems Group Inc., Sr. Sub. Notes, 9.750% due 6/1/07.... 96,250
- ---------------------------------------------------------------------------------------------------
655,075
- ---------------------------------------------------------------------------------------------------
MANUFACTURING -- 6.4%
390,000 B Advanced Glass Fiber Yarn, Sr. Sub. Notes, 9.875% due
1/15/09................................................... 366,600
175,000 B American Axle & Manufacturing Holdings, Inc., 9.750% due
3/1/09.................................................... 176,750
350,000 B BGF Industries, Inc., Sr. Sub. Notes, 10.250% due 1/15/09... 313,250
425,000 NR Cherokee International, Sr. Sub. Notes, 10.500% due
5/1/09.................................................... 374,000
125,000 B- Fisher Scientific International Inc., Sr. Sub. Notes, 9.000%
due 2/1/08................................................ 120,313
325,000 B- Roller Bearing Co., Company Guaranteed, 9.625% due
6/15/07................................................... 299,000
300,000 B- Transdigm Inc., Company Guaranteed, 10.375% due 12/1/08..... 267,000
- ---------------------------------------------------------------------------------------------------
1,916,913
- ---------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 11.0%
50,900 NR AMFM Inc., Debentures, 12.625% due 10/31/06................. 58,535
Chancellor Media Corp., Sr. Sub. Notes:
400,000 B 9.000% due 10/1/08.......................................... 417,000
150,000 B+ 8.000% due 11/1/08.......................................... 150,750
250,000 BB- Imax Corp., Sr. Notes, 7.875% due 12/1/05................... 235,000
175,000 CCC+ Paxson Communications Corp., Sr. Sub. Notes, 11.625% due
10/1/02................................................... 182,656
100,000 CCC+ Pegasus Communications Corp., Sr. Notes, 9.625% due
10/15/05.................................................. 101,500
500,000 CCC+ Pegasus Media & Communications, Sr. Sub. Notes, 12.500% due
7/1/05.................................................... 537,500
385,000 B- Phoenix Color Corp., Company Guaranteed, 10.375% due
2/1/09.................................................... 371,525
350,000 B- Production Resource Group, Sr. Sub. Notes, 11.500% due
1/15/08................................................... 312,375
175,000 B- SFX Entertainment Inc., Company Guaranteed, 9.125% due
2/1/08.................................................... 165,813
325,000 B- T/SF Communications Corp., Company Guaranteed, 10.375% due
11/1/07................................................... 313,625
650,000 B- United International Holdings Inc., step bond to yield
10.750% due 2/15/08....................................... 416,000
- ---------------------------------------------------------------------------------------------------
3,262,279
- ---------------------------------------------------------------------------------------------------
METALS/MINERALS -- 2.4%
500,000 B- Diamond Holdings PLC, Company Guaranteed, 9.125% due
2/1/08.................................................... 497,500
225,000 B+ National Steel Corp., First Mortgage, 9.875% due 3/1/09..... 231,188
- ---------------------------------------------------------------------------------------------------
728,688
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
RETAIL -- 6.1%
$ 475,000 B- Advance Stores Co. Inc., Company Guaranteed, 10.250% due
4/15/08................................................... $ 413,250
450,000 B+ Ames Department Stores, Inc., Sr. Notes, 10.000% due
4/15/06................................................... 445,500
525,000 CCC+ J. Crew Operating Corp., Sr. Sub. Notes, 10.375% due
10/15/07.................................................. 448,875
500,000 BB+ Kmart Corp., Medium Term Notes, 7.900% due 12/14/00......... 500,625
- ---------------------------------------------------------------------------------------------------
1,808,250
- ---------------------------------------------------------------------------------------------------
SERVICES -- 3.8%
250,000 B- Advance Holding Corp., Debentures, step bond to yield
12.875% due 4/15/09....................................... 130,000
530,000 B AFC Enterprises, Sr. Sub. Notes, 10.250% due 5/15/07........ 535,300
236,896 B FRD Acquisition, Sr. Notes, 12.500% due 7/15/04............. 120,817
350,000 B- Williams Scotsman Inc., Company Guaranteed, 9.875% due
6/1/07.................................................... 339,500
- ---------------------------------------------------------------------------------------------------
1,125,617
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 15.1%
375,000 B+ Bresnan Communications, Sr. Discount Notes, step bond to yield
9.250% due 2/1/09......................................... 260,625
100,000 B CapRock Communications Corp., Sr. Notes, 11.500% due
5/1/09.................................................... 103,000
225,000 B- Centennial Cellular Corp., Sr. Sub. Notes, 10.750% due
12/15/08.................................................. 242,437
950,000 B+ Charter Communications Holdings, Inc., Sr. Discount Notes,
step bond to yield 9.920% due 4/1/11...................... 560,500
105,000 B- Classic Cable Inc., Company Guaranteed, 9.375% due 8/1/09... 103,950
250,000 B- Classic Communications, Inc., Sr. Discount Notes, step bond
to yield 13.250% due 8/1/09............................... 173,750
150,000 B- Exodus Communications, Inc., Sr. Notes, 10.750% due 12/15/09
(a)....................................................... 152,625
Intermedia Communications Inc.:
225,000 CCC+ Sr. Discount Notes, step bond to yield, 12.250% due
3/1/09.................................................... 136,125
150,000 B Sr. Notes, 9.500% due 3/1/09................................ 145,125
275,000 B Level 3 Communications, Inc., Sr. Notes, 9.125% due
5/1/08.................................................... 259,875
275,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/09............... 257,125
450,000 B- NTL Inc., step bond to yield 9.750% due 4/1/08.............. 313,875
Primus Telecom Group, Inc., Sr. Notes:
175,000 B- 11.250% due 1/15/09....................................... 169,312
175,000 B- 12.750% due 10/15/09 (a).................................. 181,562
250,000 B- PSINet Inc., Sr. Notes, 10.500% due 12/1/06 (a)............. 253,750
300,000 BB+ Qwest Communication Corp., step bond to yield 8.290% due
2/1/08.................................................... 229,500
Telewest Communications PLC:
425,000 B+ Step bond to yield 11.000% due 10/1/07.................... 397,375
225,000 B+ Step bond to yield 9.250% due 4/15/09 (a)................. 143,156
125,000 B- Turkcell Iletisim, Sr. Notes, 12.750% due 8/1/05 (a)........ 129,375
275,000 B- Viatel Inc., Sr. Notes, 11.500% due 3/15/09................. 275,687
- ---------------------------------------------------------------------------------------------------
4,488,729
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TEXTILES -- 6.1%
$ 550,000 B+ Avondale Mills Inc., Company Guaranteed, 10.250% due
5/1/06.................................................... $ 495,000
125,000 B+ Delta Mills Inc., Company Guaranteed, 9.625% due 9/1/07..... 87,500
225,000 B Norton, Company Guaranteed, 12.500% due 6/1/05.............. 192,375
300,000 B- Panolam Industries International, Sr. Sub. Notes, 11.500%
due 2/15/09 (a)........................................... 308,250
275,000 B- Supreme International Corp., Company Guaranteed, 12.250% due
4/1/06.................................................... 275,688
475,000 B- Tropical Sportswear International Corp., Company Guaranteed,
11.000% due 6/15/08....................................... 457,187
- ---------------------------------------------------------------------------------------------------
1,816,000
- ---------------------------------------------------------------------------------------------------
TRANSPORTATION -- 3.3%
325,000 B- Atlas Air Inc., Sr. Notes, 10.750% due 8/1/05............... 333,125
225,000 BB- Continental Airlines Inc., Sr. Notes, 9.500% due 12/15/01... 228,375
400,000 B- Pacer International Inc., Company Guaranteed, 11.750% due
6/1/07.................................................... 410,000
- ---------------------------------------------------------------------------------------------------
971,500
- ---------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $23,260,430)....... 22,424,777
- ---------------------------------------------------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 3.5%
- ---------------------------------------------------------------------------------------------------
ENERGY -- 0.8%
2,148 R&B Falcon Corp., 13.875%................................... 226,649
- ---------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.7%
4,500 Eagle-Picher Industries, 11.750% Exchangeable 3/1/08........ 207,000
- ---------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 0.0%
1 Paxson Communications Corp., Preferred, 12.500% Exchangeable
10/31/06.................................................. 109
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY -- 0.2%
9,242 Viasystems Group, Inc., 8.000%.............................. 69,318
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 1.8%
5,500 Global Crossing Holding Ltd., 10.500% (a)................... 552,062
- ---------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $1,114,943).................. 1,055,138
- ---------------------------------------------------------------------------------------------------
COMMON STOCK -- 0.2%
- ---------------------------------------------------------------------------------------------------
HOTELS -- 0.1%
2,250 Prime Hospitality Corp. .................................... 19,828
- ---------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 0.1%
750 Classic Communications, Inc................................. 27,422
- ---------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $19,140)........................ 47,250
- ---------------------------------------------------------------------------------------------------
WARRANTS(b) -- 0.2%
2,000 R&B Falcon Corp., Expires 5/1/09 (a) (Cost -- $18,868)...... 50,000
- ---------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $24,413,381)................. 23,577,165
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 20.7%
$6,167,000 CS First Boston Corp., 2.650% due 1/3/00; Proceeds at
maturity -- $6,168,362;
(Fully collateralized by U.S. Treasury Bills, zero coupon
due 6/1/00;
Market value -- $6,290,546) (Cost -- $6,167,000)............ $ 6,167,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $30,580,381**)........... $29,744,165
- --------------------------------------------------------------------------------------------------
</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.
(b) Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 21 for definition of bond ratings.
SUMMARY OF BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
STANDARD & % OF TOTAL CORPORATE
MOODY'S AND/OR POOR'S BONDS & NOTES
<S> <C> <C> <C>
- -------------------------------------------------
Baa BBB 0.8%
Ba BB 11.4
B B 79.6
Caa CCC 6.3
NR NR 1.9
- -------------------------------------------------
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 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>
21
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 87.9%
- -------------------------------------------------------------------------------------------
BEVERAGE -- 1.3%
413,920 Coca-Cola Co. .............................................. $ 24,110,840
- -------------------------------------------------------------------------------------------
COMPUTERS -- 17.0%
707,095 Apple Computer Inc. (a)..................................... 72,698,205
1,358,010 Dell Computer Corp. (a)..................................... 69,258,510
1,285,140 VERITAS Software Corp. (a).................................. 183,935,663
- -------------------------------------------------------------------------------------------
325,892,378
- -------------------------------------------------------------------------------------------
COMMUNICATIONS -- 1.6%
300,000 Nextel Communications Inc., Class A Shares (a).............. 30,937,500
- -------------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS -- 7.6%
438,250 General Electric Co. ....................................... 67,819,187
1,080,580 Time Warner Inc. ........................................... 78,274,514
- -------------------------------------------------------------------------------------------
146,093,701
- -------------------------------------------------------------------------------------------
DRUGS AND HEALTH CARE -- 3.6%
238,700 MedImmune, Inc. (a)......................................... 39,594,363
897,475 Pfizer Inc. ................................................ 29,111,845
- -------------------------------------------------------------------------------------------
68,706,208
- -------------------------------------------------------------------------------------------
ELECTRONICS -- 6.8%
281,295 EMC Corp. (a)............................................... 30,731,479
1,018,260 Texas Instruments Inc. ..................................... 98,643,937
- -------------------------------------------------------------------------------------------
129,375,416
- -------------------------------------------------------------------------------------------
ENTERTAINMENT -- 0.0%
84 Acclaim Entertainment, Inc. (a)............................. 170
- -------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.0%
1,447,840 The Charles Schwab Corp. ................................... 55,560,860
265,520 Fannie Mae.................................................. 16,578,405
700,000 Morgan Stanley Dean Witter & Co. ........................... 99,925,000
- -------------------------------------------------------------------------------------------
172,064,265
- -------------------------------------------------------------------------------------------
INSURANCE -- 2.8%
504,866 American International Group................................ 54,588,663
- -------------------------------------------------------------------------------------------
RETAIL -- 4.9%
400,000 Amazon.com, Inc. (a)........................................ 30,450,000
181,880 Costco Wholesale Corp. (a).................................. 16,596,550
689,197 The Home Depot, Inc. ....................................... 47,253,104
- -------------------------------------------------------------------------------------------
94,299,654
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
SOFTWARE -- 18.2%
1,857,200 America Online, Inc. (a).................................... $ 140,102,525
1,016,490 Cisco Systems, Inc. (a)..................................... 108,891,491
312,870 Intuit Inc. (a)............................................. 18,752,646
691,600 Microsoft Corp. (a)......................................... 80,744,300
- -------------------------------------------------------------------------------------------
348,490,962
- -------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 15.1%
295,600 Level 3 Communications, Inc. (a)............................ 24,202,250
739,040 Nokia Corp. ADR............................................. 140,417,600
746,150 Sprint Corp. (PCS Group) (a)................................ 76,480,375
988,275 Vodafone Software Corp. .................................... 48,919,612
- -------------------------------------------------------------------------------------------
290,019,837
- -------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $779,627,099)................... 1,684,579,594
- -------------------------------------------------------------------------------------------
FOREIGN STOCK -- 0.6%
UNITED KINGDOM -- 0.6%
2,251,260 Vodafone AirTouch PLC (Cost -- $10,306,623)................. 11,093,487
- -------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $789,933,722)................ 1,695,673,081
- -------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 11.5%
$220,003,000 Morgan Stanley Dean Witter & Co., 2.470% due 1/3/00;
Proceeds at maturity -- $220,048,284; (Fully collateralized
by U.S. Treasury Notes, 8.750% due 5/15/17; Market
value -- $241,320,000) (Cost -- $220,003,000)............... 220,003,000
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $1,009,936,722*)......... $1,915,676,081
- -------------------------------------------------------------------------------------------
</TABLE>
(a) 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 (CONTINUED) DECEMBER 31, 1999
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
COMMERCIAL PAPER -- 83.9%
$4,500,000 Allied Signal Inc. mature 1/27/00 to 2/15/00................ 5.95% to 6.26% $ 4,477,336
4,700,000 American Home Products Corp. matures 1/24/00................ 5.27 4,684,235
4,000,000 AT&T Corp. matures 1/21/00.................................. 6.33 3,986,000
4,000,000 Bell Atlantic Financial Corp. matures 1/20/00............... 5.95 3,987,544
4,000,000 BHF Finance Corp. matures 1/06/00........................... 6.37 3,996,483
3,900,000 Caisse Des Depots matures 2/28/00........................... 6.01 3,862,740
3,900,000 Deere & Co. matures 1/13/00................................. 5.99 3,892,265
1,500,000 DE Funding Corp. matures 1/20/00............................ 6.00 1,495,290
3,500,000 Equitable Life Assurance Society matures 2/10/00............ 5.91 3,477,522
4,400,000 Ford Motor Credit Corp. matures 2/3/00...................... 5.61 4,377,494
3,525,000 General Dynamic Corp. matures 2/29/00....................... 6.10 3,490,511
4,400,000 General Electric Capital Corp. matures 3/21/00.............. 5.83 4,343,778
3,500,000 General Motors Acceptance Corp. matures 2/22/00............. 6.02 3,469,919
4,500,000 Goldman Sachs & Co. matures 1/31/00......................... 6.55 4,475,625
4,400,000 Harvard University matures 1/6/00........................... 5.36 4,396,731
4,500,000 Hewlett-Packard Co. matures 1/10/00......................... 6.37 4,492,856
4,000,000 Marsh & McLennan Co. Inc. matures 1/12/00................... 6.53 3,992,056
4,000,000 Merrill Lynch & Co. matures 1/31/00......................... 6.06 3,980,166
3,100,000 Morgan Stanley Dean Witter & Co. matures 2/24/00............ 6.04 3,072,519
3,500,000 Newell Co. matures 1/28/00.................................. 5.96 3,484,513
4,700,000 Paccar Financial Corp. matures 1/27/00...................... 5.17 4,682,519
3,000,000 Potomac Electric Power Co. matures 2/10/00.................. 5.88 2,980,833
4,000,000 Providian Master Trust matures 1/18/00...................... 6.64 3,987,533
4,000,000 Prudential Funding Corp. matures 2/15/00.................... 6.12 3,969,700
4,400,000 Textron Inc. mature 1/5/00 to 1/14/00....................... 5.94 to 5.96 4,391,948
3,500,000 Transamerica Finance Corp. matures 2/7/00................... 6.01 3,478,597
- -------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -- $100,926,713)............... 100,926,713
- -------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 16.1%
19,350,000 Merrill Lynch & Co., 2.47% due 1/3/00; Proceeds at
maturity -- $19,353,981; (Fully collateralized by U.S.
Treasury Notes, 6.00% due 2/15/26; Market
value -- $19,737,000) (Cost -- $19,350,000)................. 19,350,000
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $120,276,713*)........... $120,276,713
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 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........................... $271,491,706 $24,413,381 $ 789,933,722 $100,926,713
Repurchase agreements, at cost................. 1,275,000 6,167,000 220,003,000 19,350,000
- -------------------------------------------------------------------------------------------------------------
Investments, at value.......................... $337,483,720 $23,577,165 $1,695,673,081 $100,926,713
Repurchase agreements, at value................ 1,275,000 6,167,000 220,003,000 19,350,000
Cash........................................... 511 285 725 241
Dividends and interest receivable.............. 1,684,094 547,123 374,795 794
Receivable for Fund shares sold................ -- 75,585 414,571 --
Receivable from affiliate...................... -- -- -- 24,174
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................... 340,443,325 30,367,158 1,916,466,172 120,301,922
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable............... 141,090 12,851 1,154,525 49,921
Payable for securities purchased............... 397,377 -- -- --
Payable for Fund shares purchased.............. 353,992 21,964 -- --
Payable to broker -- variation margin.......... 29,750 -- -- --
Administration fees payable.................... 16,931 1,542 91,885 5,230
Dividends payable.............................. -- -- -- 254,987
Accrued expenses............................... 66,231 14,209 58,591 21,900
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.............................. 1,005,371 50,566 1,305,001 332,038
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $339,437,954 $30,316,592 $1,915,161,171 $119,969,884
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital................................ $226,041,766 $29,927,371 $ 942,600,893 $119,969,884
Undistributed net investment income............ 6,657,380 2,577,214 752,718 --
Accumulated net realized gain (loss) from
security transactions, futures contracts and
foreign currencies.......................... 41,188,231 (1,351,777) 66,058,697 --
Net unrealized appreciation (depreciation) of
investments, futures contracts and foreign
currencies.................................. 65,550,577 (836,216) 905,748,863 --
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $339,437,954 $30,316,592 $1,915,161,171 $119,969,884
- -------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING............................... 16,072,930 3,201,194 17,602,914 119,969,884
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE....................... $21.12 $9.47 $108.80 $1.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest............................................ $ 5,886,779 $ 2,751,558 $ 8,307,630 $3,470,117
Dividends........................................... 2,609,044 68,899 3,283,595 --
Less: Foreign withholding tax....................... (30,410) -- (69,723) --
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................. 8,465,413 2,820,457 11,521,502 3,470,117
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)................... 1,529,826 146,012 9,612,677 209,527
Administration fees (Note 3)........................ 183,579 17,521 769,014 39,063
Audit and legal..................................... 36,500 28,519 33,000 27,375
Shareholder communications.......................... 32,000 9,868 124,000 18,400
Custody............................................. 19,511 7,755 46,000 9,800
Shareholder and system servicing fees............... 13,000 12,704 13,000 14,200
Pricing fees........................................ 6,000 8,204 -- --
Trustees' fees...................................... 4,000 3,875 4,000 3,849
Other............................................... 4,072 968 4,065 3,363
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES...................................... 1,828,488 235,426 10,605,756 325,577
Less: Expense reimbursement......................... -- -- -- (85,612)
- -------------------------------------------------------------------------------------------------------------
NET EXPENSES........................................ 1,828,488 235,426 10,605,756 239,965
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................. 6,636,925 2,585,031 915,746 3,230,152
- -------------------------------------------------------------------------------------------------------------
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*)................................... 41,694,154 (471,819) 66,070,067 (256)
Futures contracts................................ (1,221,587) -- -- --
Foreign currency transactions.................... -- 433 (29,515) --
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................ 40,472,567 (471,386) 66,040,552 (256)
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments, Futures Contracts and Foreign
Currencies:......................................... --
Beginning of year................................ 71,272,240 48,086 365,205,909 --
End of year...................................... 65,550,577 (836,216) 905,748,863 --
- -------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION)...................................... (5,721,663) (884,302) 540,542,954 --
- -------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES.................................. 34,750,904 (1,355,688) 606,583,506 (256)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS................ $41,387,829 $ 1,229,343 $607,499,252 $3,229,896
- -------------------------------------------------------------------------------------------------------------
</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 FOR THE YEAR ENDED DECEMBER 31, 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.......................... $ 6,636,925 $ 2,585,031 $ 915,746 $ 3,230,152
Net realized gain (loss)....................... 40,472,567 (471,386) 66,040,552 (256)
Change in net unrealized appreciation
(depreciation).............................. (5,721,663) (884,302) 540,542,954 --
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 41,387,829 1,229,343 607,499,252 3,229,896
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income.......................... (5,732,184) (2,318,362) (1,059,153) (3,229,896)
Net realized gains............................. (17,063,313) -- (30,268,189) --
- -------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS................................ (22,795,497) (2,318,362) (31,327,342) (3,229,896)
- -------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares............... 33,514,225 7,595,331 470,330,702 388,474,577
Net asset value of shares issued for
reinvestment of dividends................... 22,795,497 2,318,362 31,327,342 3,049,209
Cost of shares reacquired...................... (11,645,774) (6,596,523) (53,529,706) (313,623,231)
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS................................ 44,663,948 3,317,170 448,128,338 77,900,555
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS........................... 63,256,280 2,228,151 1,024,300,248 77,900,555
NET ASSETS:
Beginning of year.............................. 276,181,674 28,088,441 890,860,923 42,069,329
- -------------------------------------------------------------------------------------------------------------
END OF YEAR*................................... $339,437,954 $30,316,592 $1,915,161,171 $119,969,884
- -------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:............................................ $6,657,380 $2,577,214 $752,718 --
- -------------------------------------------------------------------------------------------------------------
</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
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, 1999,
reclassifications were made to the capital accounts of the Managed Assets Trust,
High Yield Bond Trust and Capital Appreciation Fund to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, for the High Yield Bond Trust, a portion of
accumulated net realized loss amounting to $748,206 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 (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 SSB Citi Fund
Management LLC ("SSBC"), formerly known as SSBC Fund Management Inc., 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.
Effective October 1999, Smith Barney Private Trust Company ("Private
Trust"), another subsidiary of Citigroup, became the Trust's transfer agent and
PFPC Global Fund Services ("PFPC") became the Trust's sub-transfer agent.
Private Trust receives account fees and asset-based fees that vary according to
the account size and type of account. PFPC is responsible for shareholder
recordkeeping and financial processing for all shareholder accounts and is paid
by Private Trust. During the period October 1, 1999 through December 31, 1999,
MAT, HYBT, CAF and MMP each paid transfer agent fees of $1,250 to Private Trust.
Brokerage commissions of $11,797 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 year ended December 31, 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................................................... $178,872,424 $29,315,601 $710,021,790
- -------------------------------------------------------------------------------------------------------
Sales....................................................... 149,297,456 30,074,602 418,229,757
- -------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 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............................... $ 77,470,903 $ 369,766 $909,337,079
Gross unrealized depreciation............................... (11,478,889) (1,205,982) (3,597,720)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $ 65,992,014 $ (836,216) $905,739,359
- -------------------------------------------------------------------------------------------------------
</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.
30
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
When the contract is closed, the Funds record a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transactions
and the Funds' basis in the contract.
The Funds enter into such contracts to hedge portions of their respective
portfolios. The Funds bear the market risk that arises from changes in the value
of the financial instruments and securities indices (futures contracts).
At December 31, 1999, MAT had sold one financial futures contract on the
Standard & Poor's 500 Index expiring in March 2000. The basis value of the
contract was $12,545,313. The market value of the contract on December 31, 1999,
was $12,986,750, resulting in an unrealized loss of $441,437.
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 December 31, 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 December 31, 1999, the Funds held no TBA securities.
9. CAPITAL LOSS CARRYFORWARD
At December 31, 1999, HYBT had, for Federal income tax purposes,
approximately $705,000 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>
2000 2001 2002 2004 2007
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Carryforward Amounts.......................... $48,000 $135,000 $38,000 $342,000 $142,000
- --------------------------------------------------------------------------------------------------------
</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 (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>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MANAGED ASSETS TRUST
Shares sold................................................. 1,654,617 955,576
Shares issued on reinvestment............................... 1,187,265 921,867
Shares reacquired........................................... (581,353) (747,496)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 2,260,529 1,129,947
- ---------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
Shares sold................................................. 776,247 772,815
Shares issued on reinvestment............................... 245,327 196,339
Shares reacquired........................................... (671,120) (673,313)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 350,454 295,841
- ---------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
Shares sold................................................. 5,582,389 3,602,035
Shares issued on reinvestment............................... 400,399 292,021
Shares reacquired........................................... (626,790) (448,218)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 5,355,998 3,445,838
- ---------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Shares sold................................................. 388,474,577 103,475,184
Shares issued on reinvestment............................... 3,049,209 1,409,254
Shares reacquired........................................... (313,623,231) (76,308,910)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 77,900,555 28,575,528
- ---------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............. $19.99 $17.65 $14.98 $15.50 $12.85
- ---------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income........................ 0.39 0.41 0.48 0.46 0.49
Net realized and unrealized gain............. 2.30 3.27 2.70 1.50 2.83
- ---------------------------------------------------------------------------------------------------------------
Total Income From Operations................... 2.69 3.68 3.18 1.96 3.32
- ---------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(1):
Net investment income........................ (0.39) (0.47) (0.12) (0.89) (0.50)
Net realized gains........................... (1.17) (0.87) (0.39) (1.59) (0.17)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions............................ (1.56) (1.34) (0.51) (2.48) (0.67)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $21.12 $19.99 $17.65 $14.98 $15.50
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN................................... 14.22% 21.44% 21.31% 13.78% 27.12%
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................ $339,438 $276,182 $223,870 $188,610 $171,276
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2).................................. 0.60% 0.60% 0.63% 0.58% 0.58%
Net investment income........................ 2.17 2.30 2.91 3.51 3.49
- ---------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 51% 74% 90% 108% 110%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.............. $9.85 $9.89 $8.49 $9.00 $8.49
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income......................... 0.81 0.77 0.76 0.91 0.80
Net realized and unrealized gain (loss)....... (0.38) (0.13) 0.65 0.41 0.41
- ---------------------------------------------------------------------------------------------------------------
Total Income From Operations.................... 0.43 0.64 1.41 1.32 1.21
- ---------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(1):
Net investment income......................... (0.81) (0.68) (0.01) (1.83) (0.70)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................... $9.47 $9.85 $9.89 $8.49 $9.00
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................... 4.42% 6.56% 16.56% 16.05% 15.47%
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................. $30,317 $28,088 $25,272 $17,291 $12,902
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)(3)................................ 0.81% 0.82% 0.84% 0.97% 1.25%
Net investment income......................... 8.85 8.42 9.04 11.01 9.37
- ---------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......................... 112% 147% 137% 84% 222%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
(3) 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 ratio of expenses to
average net assets would have been 1.28% for the year ended December 31,
1995.
33
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............ $72.74 $46.32 $36.72 $33.18 $24.50
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income....................... 0.04 0.06 0.19 0.23 0.24
Net realized and unrealized gain............ 38.08 28.07 9.41 8.49 8.61
- ------------------------------------------------------------------------------------------------------------------
Total Income From Operations.................. 38.12 28.13 9.60 8.72 8.85
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(1):
Net investment income....................... (0.07) (0.18) -- (0.41) (0.17)
Net realized gains.......................... (1.99) (1.53) (0.00)* (4.77) --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions........................... (2.06) (1.71) (0.00)* (5.18) (0.17)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $108.80 $72.74 $46.32 $36.72 $33.18
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................. 53.52% 61.63% 26.14% 28.21% 36.37%
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............... $1,915,161 $890,861 $407,701 $224,132 $122,155
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)................................. 0.83% 0.85% 0.84% 0.83% 0.85%
Net investment income....................... 0.07 0.18 0.54 0.69 0.84
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE....................... 37% 53% 89% 84% 124%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............ $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------
Net investment income(3).................... 0.049 0.049 0.049 0.0412 0.0417
Distributions from net investment income.... (0.049) (0.049) (0.049) (0.0412) (0.0417)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................. 4.96% 5.08% 5.03% 4.20% 4.17%
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............... $119,970 $42,069 $13,494 $3,543 $1,417
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)(3)(4)........................... 0.37% 0.65% 0.57% 0.78% 1.25%
Net investment income....................... 4.96 5.37 5.03 3.72 --
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25% and 0.40% for Capital Appreciation
Fund and Money Market Portfolio, respectively.
(3) Travelers Insurance reimbursed Money Market Portfolio for $85,612, $31,300
and $43,376 in expenses for the years ended December 31, 1999, 1997 and
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 0.50%, 1.39% and
1.71%, respectively.
(4) The ratio of expenses to average net assets for 1995 reflects an expense
reimbursement by The Travelers in connection with voluntary expense
limitations. Without the expense reimbursement, the ratio of expenses to
average net assets would have been 7.37% for the year ended December 31,
1995.
* Amount represents less than $0.01 per share.
34
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND AND MONEY
MARKET PORTFOLIO:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Managed Assets Trust, High Yield Bond Trust,
Capital Appreciation Fund and Money Market Portfolio as of December 31, 1999,
and the related statements of operations for the year then ended, statements of
changes in net assets for each of the years in the two-year period then ended,
and financial highlights for each of the years in the three-year period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the years in the two-year period
ended December 31, 1996 were audited by other auditors whose report thereon,
dated February 24, 1997, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. As to securities
purchased but not yet received, we performed other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money
Market Portfolio as of December 31, 1999, their results of their operations for
the year then ended, changes in their net assets for each of the years in the
two-year period then ended, and their financial highlights for each of the years
in the three-year period then ended, in conformity with generally accepted
accounting principles.
[KPMG Peat Marwick LLP
Signature]
New York, New York
February 11, 2000
35
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Trust or Fund hereby designates for the fiscal year
ended December 31, 1999:
- Percentages of ordinary dividends paid as qualifying for the corporate
dividends received deduction:
<TABLE>
<S> <C>
Managed Assets Trust.............................. 32.10%
High Yield Bond Trust............................. 2.01
Capital Appreciation Fund......................... 100.00
</TABLE>
- Total long-term capital gain distributions paid:
<TABLE>
<S> <C>
Managed Assets Trust.............................. $15,558,157
Capital Appreciation Fund......................... 30,268,189
</TABLE>
A total of 17.05% of the ordinary dividends paid by the Managed Assets Trust
from net investment income are derived from Federal obligations and may be
exempt from taxation at the state level.
36
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
The 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 year ended December 31, 1999, the
Portfolio had a return of a negative 4.23%. In comparison, the Lehman Government
Bond Index returned a negative 2.23% for the same time period. (Past performance
is not indicative of future results. The Lehman Government Bond Index is a broad
measure of the performance of U.S. government bonds.)
1999 was a year that saw 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 the federal
funds rate -- yields have risen. Investor optimism, however, was tempered by
concerns about inflation and continued economic growth. Yet both Russia and
Argentina remain economic hot spots and deserve close monitoring. Moreover, the
reconstruction of Kosovo and peacekeeping efforts in that war-torn country will
also be an ongoing challenge.
The period was marked by continued strong U.S. economic growth, historically low
inflation and low unemployment. Diminishing liquidity in the bond market was
precipitated by the global financial crisis that reached its climax in October
1998. Meanwhile, the Fed reversed its three short-term interest rate movements,
with 25-basis-point (i.e., 100 basis points are equal to one percent) increases
implemented on June 30, August 24 and November 16, 1999, respectively.
A robust U.S. economy and three Fed interest rate hikes negatively impacted bond
investors in 1999, the worst year for fixed income investing since 1994. The
30-year U.S. Treasury bond suffered its worst decline in total return on record.
In the view of the Portfolio's manager, this poor performance from U.S.
Treasuries reflected the reversal of the "flight to quality" that developed
during the global financial turmoil at the end of 1998.
In the manager's view, the worst may be over. Many bond investment professionals
expect that yields for 30-year U.S. Treasuries should trade between 6% and 6.7%
in the next 12 months. These yields can provide investors with a comfortable
cushion against declines in the bonds' prices. Of course, inflation is what
actually drives bond market returns. Concerns persist over the acceleration in
inflation in the Consumer Price Index ("CPI"), which climbed in 1999 as oil
prices doubled.
During the period, the Portfolio's income orientation helped returns due to
emphasis on mortgage-backed securities and U.S. Treasury strips throughout the
year. This strategy was implemented in an attempt to mirror the 5-10-year U.S.
Treasury benchmark. In addition, a duration of 5.25 - 5.375 years in the
Portfolio has been maintained.
Within the U.S. Government Securities Portfolio, the manager has sought to
maximize income during the period through mortgage-backed securities, buying
coupon at or near par and avoiding any potential prepayment risk. (Coupon is the
periodic interest payment made to the bondholders during the life of the bond.
Prepayment risk refers to payments made in excess of scheduled mortgage
principal repayments.)
During the period under review, the Portfolio's strategy included slowly buying
U.S. Treasuries and extending maturities as interest rates rose. In the
manager's view, yields over the near term have already seen their highs, and in
the coming months he plans to increase the Portfolio's U.S. Treasury exposure
and reduce its mortgage-backed securities holdings because of expectations that
rates should continue to decline.
In the opinion of the manager, the trend of lower interest rates has not ended
but periods of lower rates from current levels may be less frequent and shorter
in duration. Income most likely will be the primary component of Portfolio
performance going forward. The manager's efforts will be on focusing on
minimizing price volatility and maximizing income opportunities and maintaining
liquidity.
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
37
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
military defense related services or gambling services. For the year ended
December 31, 1999, the Portfolio returned 15.84%, underperforming the S&P 500,
which posted a total return of 21.03%. (Past performance is not indicative of
future results.)
Consistent with its investment objective, the Portfolio began the reporting
period with holdings in the technology, consumer products, financial services,
healthcare, communications and energy sectors. At this time, the Portfolio also
had approximately 6% in liquid reserves.
As of December 31, 1999, the Portfolio consisted of 86 individual investments.
The Portfolio is overweighted versus its benchmark in basic materials, consumer
cyclical, transportation and utilities. Moreover, the Portfolio was slightly
underweight in the capital goods, communication services, energy and technology
sectors. The manager remains optimistic regarding the future of the U.S. economy
and several of its major corporations over the long term.
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 year ended December 31, 1999, the Portfolio returned a negative 0.08%.
In comparison, the Standard & Poor's Utility Index ("S&P Utility Index")
returned a negative 8.88% for the same time period. In a difficult market for
both utilities stocks and bonds, the Utilities Portfolio continued to generate
competitive performance. (Past performance is not indicative of future results.
Please note that Portfolio holdings as of December 31, 1999 and are subject to
change.)
The Utilities Portfolio began the reporting period with total assets of $32.9
million and ended the year with $31.4 million in assets under management. As of
December 31, 1999, the Portfolio had 57% of its investments in electric
utilities, approximately 24% in telecommunications related companies and 14% in
natural gas utilities.
The Portfolio's holdings in NEXTLINK Communications, MediaOne Group, Calpine
Corp., The Montana Power Co., Sprint, Qwest Communications and MCI Worldcom
largely contributed to the Portfolio's relative positive performance. Holdings
in the traditional electric and gas utilities sectors adversely affected the
Portfolio during 1999.
Thank you for your investment in The Travelers Series Trust. We look forward to
continuing to help you pursue your financial goals in the new century.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 20, 2000
38
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 (4.23)%
Five Years Ended 12/31/99 8.45%
1/24/92* through 12/31/99 6.69%
CUMULATIVE TOTAL RETURN
1/24/92* through 12/31/99 67.24%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on January
24, 1992, assuming reinvestment of dividends, through December 31,
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
PORTFOLIO LEHMAN GOV'T BOND 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
12/99 16739 16411 12220
</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 12/31/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 15.84%
Five Years Ended 12/31/99 25.56%
5/1/92* through 12/31/99 18.07%
CUMULATIVE TOTAL RETURN
5/1/92* through 12/31/99 257.65%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on May 1,
1992, assuming reinvestment of dividends, through December 31,
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>
STANDARD & POOR'S 500
SOCIAL AWARENESS 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 18339 17838 11353
12/97 23343 23789 11545
12/98 30875 30626 11731
12/99 35765 37067 12080
</TABLE>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
39
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 (0.08)%
Five Years Ended 12/31/99 16.33%
2/4/94* through 12/31/99 13.98%
CUMULATIVE TOTAL RETURN
----------------------------
2/4/94* through 12/31/99 116.62%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
February 4, 1994, assuming reinvestment of dividends, through
December 31, 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 & POOR'S 500
UTILITIES PORTFOLIO INDEX CONSUMER 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
12/98 21680 29240 11171
12/99 21662 35390 11504
</TABLE>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
40
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1999
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS -- 35.5%
U.S. Treasury Notes:
$6,000,000 6.875% due 5/15/06.......................................... $ 6,105,720
2,000,000 5.500% due 5/15/09.......................................... 1,865,140
2,000,000 6.125% due 8/15/29.......................................... 1,906,820
7,000,000 U.S. Treasury Bonds, 7.250% due 5/15/16....................... 7,321,440
9,000,000 U.S. REFCO Strips, zero coupon due 10/15/13................... 3,435,750
1,023,630 U.S. Treasury Inflation Index Bonds, 3.875% due 4/15/29....... 956,357
- ----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $22,833,854)....... 21,591,227
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 63.2%
Federal Home Loan Mortgage Corp. Certificates:
3,000,000 5.705% due 3/2/09........................................... 2,730,780
7,223,094 6.500% due 3/15/28 @........................................ 6,781,745
3,000,000 Gold Certificates, 8.000% due 10/1/29......................... 3,030,930
Federal National Mortgage Association Certificates:
2,730,892 7.000% due 6/1/24 @......................................... 2,641,263
2,754,336 6.500% due 8/1/29 @......................................... 2,596,815
Government National Mortgage Association Certificates:
1,652,887 9.000% due 9/15/09 @........................................ 1,730,870
617,346 8.500% due 7/15/18 @........................................ 635,286
1,967,042 6.500% due 12/15/28......................................... 1,847,780
8,157,222 6.000% due 2/20/29 @........................................ 6,443,506
3,364,126 7.000% due 5/15/29 @........................................ 3,250,587
2,992,161 7.500% due 9/15/29.......................................... 2,960,354
2,000,000 TBA Certificates, 6.500% due 12/17/28......................... 1,877,500
2,000,000 Tennessee Valley Authority Debenture, 6.250% due 12/15/17..... 1,808,300
- ----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES(Cost -- $40,352,180)........... 38,335,716
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.3%
762,000 CS First Boston, 2.650% due 1/3/00; Proceeds at
maturity -- $762,166; (Fully collateralized by U.S. Treasury
Notes, 5.430% due 6/1/00; Market value -- $778,010)
(Cost -- $762,000).......................................... 762,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%(Cost -- $63,948,034*)............. $60,688,943
- --------------------------------------------------------------------------------------
</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.
41
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 92.5%
- -----------------------------------------------------------------------------------------
BASIC MATERIALS -- 5.8%
19,000 Alcoa Inc. ................................................. $ 1,577,000
25,000 Engelhard Corp. ............................................ 471,875
20,000 Nucor Corp. ................................................ 1,096,250
16,000 Praxair, Inc. .............................................. 805,000
- -----------------------------------------------------------------------------------------
3,950,125
- -----------------------------------------------------------------------------------------
CAPITAL GOODS -- 3.0%
24,500 Anixter International Inc. (a).............................. 505,313
25,500 Deere & Co. ................................................ 1,106,062
9,800 Pitney Bowes, Inc. ......................................... 473,463
- -----------------------------------------------------------------------------------------
2,084,838
- -----------------------------------------------------------------------------------------
COMMUNICATION -- 4.6%
13,800 AT&T Corp. ................................................. 700,350
20,500 Bell Atlantic Corp. ........................................ 1,262,030
17,754 MCI WorldCom, Inc. (a)...................................... 942,072
5,000 Time Warner Telecom Inc. (a)................................ 249,688
- -----------------------------------------------------------------------------------------
3,154,140
- -----------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 20.5%
19,200 Black & Decker Corp. ....................................... 1,003,200
16,991 Dollar General Corp. ....................................... 386,545
4,900 eTOYS Inc. (a).............................................. 128,625
28,200 Home Depot, Inc. ........................................... 1,933,462
50,000 Interface, Inc. ............................................ 287,500
31,000 Kaufman & Broad Home Corp. ................................. 749,813
8,632 Koninklijke Philips Electronics N.V. -- ADR................. 1,165,320
27,500 Liz Claiborne, Inc. ........................................ 1,034,687
20,100 Lowe's Cos., Inc. .......................................... 1,200,974
24,500 May Department Stores Co. .................................. 790,125
33,000 Office Depot, Inc. (a)...................................... 360,938
31,200 Reader's Digest Association, Inc. .......................... 912,600
20,000 Ross Stores, Inc. .......................................... 358,750
37,600 Staples, Inc. (a)........................................... 780,200
22,200 Tribune Co. ................................................ 1,222,387
25,000 Wal-Mart Stores, Inc. ...................................... 1,728,124
- -----------------------------------------------------------------------------------------
14,043,250
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER STAPLES -- 7.7%
5,922 Albertson's, Inc. .......................................... $ 190,985
18,000 Brinker International, Inc. (a)............................. 432,000
18,000 Kimberly-Clark Corp. ....................................... 1,174,500
27,400 Kroger Co. (a).............................................. 517,175
14,800 Newell Co. ................................................. 429,200
25,000 Pepsi Bottling Group, Inc. ................................. 414,063
4,800 PepsiCo, Inc. .............................................. 169,200
22,700 Sysco Corp. ................................................ 898,069
7,480 Tricon Global Restaurants, Inc. (a)......................... 288,915
7,142 Unilever N.V. -- ADR........................................ 388,793
18,000 Wendy's International, Inc. ................................ 371,250
- -----------------------------------------------------------------------------------------
5,274,150
- -----------------------------------------------------------------------------------------
ENERGY -- 2.8%
6,600 Anadarko Petroleum Corp. ................................... 225,225
22,826 BP Amoco PLC -- ADR......................................... 1,353,866
5,000 Royal Dutch Petro -- ADR.................................... 302,188
- -----------------------------------------------------------------------------------------
1,881,279
- -----------------------------------------------------------------------------------------
FINANCIALS -- 12.4%
26,700 ACE, Ltd. .................................................. 445,556
4,333 Aegon N.V. -- ADR........................................... 413,806
17,200 Allstate Corp. ............................................. 412,800
4,000 American Express Co. ....................................... 665,000
7,640 American International Group Inc. .......................... 826,075
14,400 Associates First Capital Corp. ............................. 395,100
9,962 Bank of America Corp. ...................................... 499,968
13,300 Chase Manhattan Corp. ...................................... 1,033,243
450 DLJdirect (a)............................................... 6,103
6,395 Fleet Boston Financial Corp. ............................... 222,626
9,400 Freddie Mac................................................. 442,388
10,000 Hartford Financial Services Group, Inc. .................... 473,750
14,000 Lincoln National Corp. ..................................... 560,000
5,000 Marsh & Mclennan Cos. ...................................... 478,438
15,000 PNC Bank Corp. ............................................. 667,500
13,300 St. Paul Cos., Inc. ........................................ 448,044
6,800 State Street Corp. ......................................... 496,825
- -----------------------------------------------------------------------------------------
8,487,222
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE -- 9.7%
32,800 Amgen Inc. (a).............................................. $ 1,970,050
11,400 C. R. Bard, Inc. ........................................... 604,200
12,000 DENTSPLY International, Inc. ............................... 283,500
20,000 HEALTHSOUTH Corp. (a)....................................... 107,500
12,700 Johnson & Johnson........................................... 1,182,688
11,600 Merck & Co., Inc. .......................................... 777,925
17,700 Schering-Plough Corp. ...................................... 746,719
7,200 Stryker Corp. .............................................. 501,300
20,000 Tenet Healthcare Corp. (a).................................. 470,000
- -----------------------------------------------------------------------------------------
6,643,882
- -----------------------------------------------------------------------------------------
TECHNOLOGY -- 18.7%
12,000 America Online Inc. (a)..................................... 905,250
17,200 Automatic Data Processing, Inc. ............................ 926,650
12,000 Cisco Systems Inc. (a)...................................... 1,285,500
19,000 Compaq Computer Corp. ...................................... 514,188
15,000 Electronic Data Systems Corp. .............................. 1,004,063
23,000 EMC Corp. (a)............................................... 2,512,750
10,400 Intel Corp. ................................................ 856,050
8,800 International Business Machines Corp. ...................... 950,400
14,400 Lucent Technologies Corp. .................................. 1,077,300
10,000 N2H2 Inc. (a)............................................... 235,000
10,000 Oracle Corp. (a)............................................ 1,120,625
12,400 Sun Microsystems Inc. (a)................................... 960,225
19,800 Xerox Corp. ................................................ 449,213
- -----------------------------------------------------------------------------------------
12,797,214
- -----------------------------------------------------------------------------------------
TRANSPORTATION -- 2.6%
26,187 Southwest Airlines.......................................... 423,902
2,100 United Parcel Services -- Class B Shares.................... 144,900
25,000 USFreightways Corp. ........................................ 1,196,874
- -----------------------------------------------------------------------------------------
1,765,676
- -----------------------------------------------------------------------------------------
UTILITIES -- 4.7%
17,100 AES Corp. (a)............................................... 1,278,225
27,000 Enron Corp. ................................................ 1,198,125
24,200 Williams Cos., Inc. ........................................ 739,613
- -----------------------------------------------------------------------------------------
3,215,963
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $43,977,464).................... 63,297,739
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 7.5%
$5,123,000 CS First Boston Corp., 2.650% due 1/3/00; Proceeds at
maturity -- $5,124,131; (Fully collateralized by U.S.
Treasury Bills, 5.325% due 6/1/00; Market
value -- $5,226,158) (Cost -- $5,123,000)................... 5,123,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $49,100,464*)............ $68,420,739
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1999
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 98.7%
- ---------------------------------------------------------------------------------------
BROADCASTING & CABLE -- 4.9%
20,000 MediaOne Group, Inc.+....................................... $ 1,536,250
- ---------------------------------------------------------------------------------------
ELECTRIC - UTILITY -- 56.6%
20,000 Allengheny Energy, Inc. .................................... 538,750
15,000 Calpine Corp.+.............................................. 960,000
15,000 Cinergy Corp. .............................................. 361,875
25,000 CMS Energy Corp. ........................................... 779,688
30,000 DQE, Inc. .................................................. 1,038,750
11,000 Duke Energy Corp. .......................................... 551,375
21,800 Edison International........................................ 570,887
25,000 El Paso Energy, Corp. ...................................... 970,312
20,000 Energy East Corp. .......................................... 416,250
29,000 FirstEnergy Group........................................... 657,938
20,000 Florida Progress Corp. ..................................... 846,250
10,000 FPL Group, Inc. ............................................ 428,125
20,000 GPU, Inc. .................................................. 598,750
20,000 Illinova Corp. ............................................. 695,000
30,000 Montana Power Co. .......................................... 1,081,875
11,000 New Century Energies, Inc. ................................. 334,125
53,000 Niagara Mohawk Power Co.+................................... 738,688
20,000 Nisource, Inc. ............................................. 357,500
30,000 Northeast Utilities......................................... 616,875
20,000 Northern States Power Co. .................................. 390,000
14,766 NSTAR....................................................... 598,023
21,000 PECO Energy Co. ............................................ 729,750
25,000 Pinnacle West Capital Corp. ................................ 764,062
10,000 Public Service Enterprise Group, Inc. ...................... 348,125
15,000 SCANA Corp. ................................................ 403,125
36,000 Sierra Pacific Resources.................................... 623,250
10,000 Texas Utilities Co. ........................................ 355,625
30,000 Unicom Corp. ............................................... 1,005,000
- ---------------------------------------------------------------------------------------
17,759,973
- ---------------------------------------------------------------------------------------
NATURAL GAS -- 13.6%
16,000 Coastal Corp. .............................................. 567,000
10,000 Consolidated Natural Gas Co. ............................... 649,375
22,000 Energen Corp. .............................................. 397,375
15,000 MCN Energy Group, Inc. ..................................... 356,250
15,000 National Fuel Gas Co. ...................................... 697,500
20,000 Sempra Energy............................................... 347,500
20,000 Southwest Gas Corp. ........................................ 460,000
26,000 The Williams Cos., Inc. .................................... 794,625
- ---------------------------------------------------------------------------------------
4,269,625
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
TELEPHONE -- 23.6%
9,450 AT&T Corp. ................................................. $ 479,587
10,000 Bell Atlantic Corp. ........................................ 615,625
4,650 Covad Communications+....................................... 260,109
10,000 GTE Corp. .................................................. 705,625
30,000 MCI Worldcom, Inc.+......................................... 1,591,875
16,000 NEXTLINK Communications Inc.+............................... 1,329,000
12,000 Qwest Communications International Inc.+.................... 516,000
20,000 SBC Communications Inc. .................................... 975,000
14,000 Sprint Corp. (FON Group).................................... 942,375
- ---------------------------------------------------------------------------------------
7,415,196
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $25,030,185).................... 30,981,044
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
<C> <C> <S> <C>
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 1.3%
- ------------------------------------------------------------------------------------------------------
ELECTRIC - UTILITY -- 0.6%
$200,000 A- Arizona Public Service Co., 7.250% due 8/1/23............... 178,750
- ------------------------------------------------------------------------------------------------------
TELEPHONE -- 0.7%
230,000 A- MCI Communication Corp. 7.750% due 3/23/25.................. 218,213
- ------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $404,980).................... 396,963
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%(Cost -- $25,435,165**)............ $31,378,007
- ------------------------------------------------------------------------------------------------------
</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 48 for definitions of ratings.
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
"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>
48
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost -- $63,948,034
$49,100,464, and $25,435,165, respectively)....... $60,688,943 $68,420,739 $31,378,007
Cash................................................. 448,215 408 --
Dividends and interest receivable.................... 531,355 43,466 83,004
Receivable for securities sold....................... -- 222,221 269,579
Receivable for Fund shares sold...................... -- -- 14,323
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................... 61,668,513 68,686,834 31,744,913
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable..................... 17,453 42,546 17,460
Administration fees payable.......................... 3,171 10,337 1,612
Payable to bank...................................... -- -- 283,578
Payable for Fund shares purchased.................... 15,721 45,276 --
Payable for securities purchased..................... -- 327,045 --
Accrued expenses..................................... 9,477 22,913 29,183
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................... 45,822 448,117 331,833
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $61,622,691 $68,238,717 $31,413,080
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital...................................... $64,156,331 $47,783,697 $24,677,585
Undistributed net investment income.................. 3,702,189 378,042 823,546
Accumulated net realized gain (loss) from security
transactions...................................... (2,976,738) 756,703 (30,893)
Net unrealized appreciation (depreciation) of
investments....................................... (3,259,091) 19,320,275 5,942,842
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $61,622,691 $68,238,717 $31,413,080
- -------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING..................................... 5,451,398 2,319,103 1,974,463
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................. $11.30 $29.42 $15.91
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................ $ 4,068,794 $ 271,084 $ 108,892
Dividends............................................... -- 566,041 1,015,481
Less: Foreign withholding tax........................... -- (18,941) --
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................. 4,068,794 818,184 1,124,373
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)....................... 205,660 348,890 222,001
Administration fees (Note 2)............................ 37,886 32,806 20,492
Audit and legal......................................... 26,000 29,500 29,469
Shareholder and system servicing fees................... 15,000 13,000 13,000
Shareholder communications.............................. 6,000 5,500 7,196
Custody................................................. 4,300 3,516 3,000
Trustees' fees.......................................... 4,000 4,000 4,000
Pricing service fees.................................... 800 -- 500
Other................................................... 2,500 1,006 990
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................... 302,146 438,218 300,648
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................... 3,766,648 379,966 823,725
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE
3):
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales.................................. 98,750,626 6,690,168 3,331,237
Cost of securities sold.............................. 101,447,550 5,924,447 3,362,130
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)................................ (2,696,924) 765,721 (30,893)
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of year.................................... 471,702 12,473,196 6,697,308
End of year.......................................... (3,259,091) 19,320,275 5,942,842
- -------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION).... (3,730,793) 6,847,079 (754,466)
- -------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS............................ (6,427,717) 7,612,800 (785,359)
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... $ (2,661,069) $ 7,992,766 $ 38,366
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 3,766,648 $ 379,966 $ 823,725
Net realized gain (loss)......................... (2,696,924) 765,721 (30,893)
Change in net unrealized appreciation
(depreciation)................................ (3,730,793) 6,847,079 (754,466)
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.................................... (2,661,069) 7,992,766 38,366
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ (5,416) (185,510) (791,288)
Net realized gains............................... -- (952,059) (1,799,094)
- -------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (5,416) (1,137,569) (2,590,382)
- -------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares................. 14,321,630 22,265,700 6,945,662
Net asset value of shares issued for reinvestment
of dividends.................................. 5,416 1,137,569 2,590,382
Cost of shares reacquired........................ (16,491,880) (1,502,002) (8,479,998)
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS....................... (2,164,834) 21,901,267 1,056,046
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS.................. (4,831,319) 28,756,464 (1,495,970)
NET ASSETS:
Beginning of year................................ 66,454,010 39,482,253 32,909,050
- -------------------------------------------------------------------------------------------------------
END OF YEAR*..................................... $ 61,622,691 $68,238,717 $31,413,080
- -------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:........................................... $3,702,189 $378,042 $823,546
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<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.
52
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 17 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,
NWQ Large Cap, Jurika & Vogles Core Equity, 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, 1999, 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 Utilities Portfolio, a portion of
undistributed net investment income amounting to $173 and accumulated net
realized losses amounting to $3 was reclassified to paid-in capital. In
addition, for the U.S. Government Securities a portion of undistributed net
investment income amounting to $58 was reclassed 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.
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund
Management Inc., 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.
53
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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.
Effective October 1999, Smith Barney Private Trust Company ("Private
Trust"), another subsidiary of Citigroup, became the Fund's transfer agent and
PFPC Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through December 31, 1999, USGS, SAS, and Utilities, the
Fund each paid transfer agent fees of $1,250 to Private Trust.
One Trustee and all officers of the Trust are employees of Citigroup, Inc.,
or its subsidiaries.
3. INVESTMENTS
During the year ended December 31, 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................................................... $110,985,481 $25,321,676 $4,641,969
- -----------------------------------------------------------------------------------------------------
Sales....................................................... 98,750,626 6,690,168 3,331,237
- -----------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 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............................... $ 82,220 $22,104,593 $ 7,857,308
Gross unrealized depreciation............................... (3,341,311) (2,784,318) (1,914,466)
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $(3,259,091) $19,320,275 $ 5,942,842
- -----------------------------------------------------------------------------------------------------
</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 December 31, 1999, the Portfolios had no open futures contracts.
54
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 December 31, 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.
As of December 31, 1999, USGS had purchased a TBA security with total cost
of $1,919,163, respectively.
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>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold................................................. 1,246,566 3,036,112
Shares issued on reinvestment............................... 484 457,035
Shares reacquired........................................... (1,427,742) (888,165)
- ----------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (180,692) 2,604,982
- ----------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold................................................. 808,161 542,975
Shares issued on reinvestment............................... 40,998 29,867
Shares reacquired........................................... (53,531) (96,777)
- ----------------------------------------------------------------------------------------------------
Net Increase................................................ 795,628 476,065
- ----------------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO
Shares sold................................................. 414,864 663,583
Shares issued on reinvestment............................... 154,823 80,676
Shares reacquired........................................... (510,525) (229,307)
- ----------------------------------------------------------------------------------------------------
Net Increase................................................ 59,162 514,952
- ----------------------------------------------------------------------------------------------------
</TABLE>
9. CAPITAL LOSS CARRYFORWARDS
At December 31, 1999, the USGS had, for Federal income tax purposes,
capital loss carryforwards available to offset future realized gains. To the
extent that these carryforward losses can be used to offset net realized capital
gains, such gains, if any, will not be distributed. The amount of $2,847,000
expires December 31, 2007.
55
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1999(1) 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................. $11.80 $11.65 $10.86 $12.43 $10.58
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............................. 0.68 0.49 0.58 0.68 0.65
Net realized and unrealized gain (loss)........... (1.18) 0.70 0.79 (0.52) 1.80
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................. (0.50) 1.19 1.37 0.16 2.45
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(2):
Net investment income............................. (0.00)* (0.50) (0.58) (1.55) (0.60)
Net realized gains................................ -- (0.54) -- (0.18) --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions................................. -- (1.04) (0.58) (1.73) (0.60)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................ $11.30 $11.80 $11.65 $10.86 $12.43
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ (4.23)% 10.20% 12.62% 1.46% 24.42%
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)..................... $61,623 $66,454 $35,279 $26,009 $28,192
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)....................................... 0.48% 0.45% 0.49% 0.62% 0.56%
Net investment income............................. 5.97 5.31 6.10 5.68 5.80
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 164% 349% 208% 501% 214%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 1999(1) 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................. $25.92 $20.06 $15.76 $14.32 $11.05
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4).......................... 0.13 0.10 0.15 0.31 0.12
Net realized and unrealized gain.................. 3.93 6.30 4.15 2.42 3.47
- -----------------------------------------------------------------------------------------------------------------
Total Income From Operations........................ 4.06 6.40 4.30 2.73 3.59
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(2):
Net investment income............................. (0.09) (0.12) -- (0.43) (0.14)
Net realized gains................................ (0.47) (0.42) -- (0.86) (0.18)
- -----------------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.56) (0.54) -- (1.29) (0.32)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................ $29.42 $25.92 $20.06 $15.76 $14.32
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ 15.84% 32.27% 27.28% 19.98% 33.37%
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)..................... $68,239 $39,482 $21,013 $11,040 $7,055
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5).................................... 0.80% 0.84% 0.98% 1.25% 1.25%
Net investment income............................. 0.69 0.63 0.97 0.43 0.99
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 12% 14% 19% 26% 73%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(3) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
(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 ratio of expenses to average net assets for the year ended December 31,
1995 reflects an expense reimbursement by The Travelers in connection with
voluntary expense limitations. Without the expense reimbursement, the ratio
of expenses to average net assets would have been 1.75%.
* Amount represents less than $0.01 per share.
56
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO 1999(1) 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................. $17.18 $15.29 $12.22 $12.85 $10.17
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............................. 0.41 0.37 0.46 0.47 0.48
Net realized and unrealized gain (loss)........... (0.36) 2.33 2.63 0.47 2.44
- -----------------------------------------------------------------------------------------------------------------
Total Income From Operations........................ 0.05 2.70 3.09 0.94 2.92
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(2):
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 YEAR........................ $15.91 $17.18 $15.29 $12.22 $12.85
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ (0.08)% 18.21% 25.29% 7.47% 29.29%
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)..................... $31,413 $32,909 $21,413 $18,214 $15,340
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)....................................... 0.88% 0.80% 1.06% 1.07% 1.25%
Net investment income............................. 2.41 3.06 3.58 3.88 4.29
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 10% 51% 68% 39% 25%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(3) The ratio of expenses to average net assets for the year ended December 31,
1995 reflects expense reimbursements by The Travelers in connection with
voluntary expense limitations. Without the expense reimbursement, the ratio
of expenses to average net assets would have been 1.27%.
57
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE TRAVELERS SERIES TRUST:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the U.S. Government Securities Portfolio,
Social Awareness Stock Portfolio and Utilities Portfolio of The Travelers Series
Trust as of December 31, 1999, and the related statements of operations for the
year then ended, statements of changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the years in the two-year period ended December 31, 1996, were audited by other
auditors whose report thereon, dated February 24, 1997, expressed an unqualified
opinion on those financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and
Utilities Portfolio of The Travelers Series Trust as of December 31, 1999, the
results of their operations for the year then ended, changes in their net assets
for each of the years in the two-year period then ended and their financial
highlights for the each of the years in the three-year period then ended, in
conformity with generally accepted accounting principles.
[KPMG Peat Marwick LLP
Signature]
New York, New York
February 11, 2000
58
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Trust hereby designates for the fiscal year ended
December 31, 1999:
- Percentages of ordinary dividends paid as qualifying for the corporate
dividends received deduction:
<TABLE>
<S> <C>
Social Awareness Stock Portfolio.................. 90.38%
Utilities Portfolio............................... 67.85
</TABLE>
- Total long-term capital gain distributions paid:
<TABLE>
<S> <C>
Social Awareness Stock Portfolio.................. $ 826,008
Utilities Portfolio............................... 1,355,703
</TABLE>
The following percentages of ordinary dividends paid from net investment income
are derived from Federal obligations and may be exempt from taxation at the
state level.
<TABLE>
<S> <C>
Utilities Portfolio.................................... 2.02%
U.S. Government Securities Portfolio................... 33.53
</TABLE>
59
<PAGE>
(This page intentionally left blank)
<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
SSB CITI FUND MANAGEMENT LLC
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 (Annual)(2-00)<PAGE>
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
ANNUAL REPORTS
DECEMBER 31, 1999
[PHOTO]
THE TRAVELERS SERIES TRUST:
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 1999
[PHOTO]
The Travelers Series Trust:
Zero Coupon Bond Fund Portfolio Series 2000
Zero Coupon Bond Fund Portfolio Series 2005
[TRAVELERSLIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
THE TRAVELERS SERIES TRUST: ZERO COUPON BOND FUND PORTFOLIOS:
SERIES 2000 AND 2005
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the annual report for the Travelers Series Trust: Zero
Coupon Bond Fund Portfolios: Series 2000 and 2005 ("Portfolios") for the year
ended December 31, 1999. This letter briefly discusses general economic and
market conditions.
In addition, a detailed comparison showing the growth of a hypothetical $10,000
invested in each Portfolio since inception can be found in this report. All
total return figures given in this report, both cumulative and average
annualized, exclude the effect of sales charges. Past performance is not
indicative of future results. A detailed summary of performance and current
holdings for each individual Portfolio can be found in the appropriate sections
that follow. We hope you find this report useful and informative.
MARKET AND ECONOMIC OVERVIEW
The year began on a volatile note for global financial markets as a potential
new threat emerged in Latin America. The devaluation of Brazil's currency, the
real, affected many U.S. corporations and investors with exposure to the Latin
American markets and negatively impacted the performance of the U.S. stock
market.
Concerns regarding the future direction of interest rates were prevalent
throughout 1999. Despite low inflation, the Federal Reserve Board ("Fed") opted
to raise interest rates three times during the year, effectively "taking back"
the interest-rate cuts imposed following the global economic crisis in 1998. The
Fed's change in monetary policy did not significantly deter the remarkable
growth of the U.S. economy. In fact, throughout the year, the U.S. Gross
Domestic Product ("GDP"), which represents the total output of goods and
services, continued to exceed expectations.
Despite the rise in interest rates, the U.S. stock market continued its stellar
performance. Evidence of stronger-than-expected economic growth prompted hopes
of a meaningful earnings recovery and at the same time, triggered concerns
regarding future rate hikes. These factors led to a rally in small cap and value
stocks. (Value stocks are securities of companies that are believed to be
undervalued in the market.) However, the trend of investing in small cap and
value stocks soon changed, as many investors took the view that a proactive
monetary policy by the Fed would preempt inflationary pressures.
By the end of the year, nevertheless, the small cap sector, as measured by the
Russell 2000 Index,(1) which returned 21.26% for the year, outperformed the
large cap sector, as measured by the Standard & Poor's 500 Index(2) ("S&P 500")
which returned 21.03%.
As a result of investors' focus on the direction of interest rates, the stock
and bond markets were characterized by higher levels of volatility. Investors
became increasingly concerned, especially toward the end of the year, about not
only the direction of interest rates but also about future earnings growth and
the high market valuations of many stocks. In addition, the strength of the
overseas markets attracted U.S. capital, which had a somewhat negative impact on
the performance of the U.S. stock market through the third quarter of 1999.
By the end of the year however, the U.S. stock market rose sharply largely due
to the incredible performance of the technology sector. Y2K concerns decreased,
with the market's assessment of the risks associated with potential Year 2000
glitches proving to be correct.
The bond markets did not react positively to the actions of the Fed in 1999 and
experienced their worst year since 1994. The overall bond market recorded losses
in 1999 in response to the Fed's interest rate increases and concerns regarding
inflation. Bond market losses increased with the length of maturities. The yield
on the bellwether 30-year government bond increased 1.39 percentage points in
1999 to 6.48%. At the end of 1998, the 30-year bond yielded 5.09%.
- ---------------
1 The Russell 2000 measures the performance of the 2,000 smallest companies in
the Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index.
2 The S&P 500 Index is market capitalization-weighted measure of 500 widely held
common stocks.
1
<PAGE>
In our view, the strength of the U.S. economy should continue, prompting the Fed
to raise interest rates in 2000.(3) In addition, overseas economies, many of
which are in the early stages of recovery, should continue to expand. This
global economic recovery should benefit the manufacturing sector of the U.S.
market in 2000.
We predict that earnings should continue its double-digit growth through the
first quarter of 2000. It is our belief that the recent performance of
technology and telecommunications stocks is not sustainable. However, we are
confident that most stocks are appropriately valued. Over the longer term, we
think that the fundamentals for both stocks and bonds remains favorable.
PORTFOLIO PERFORMANCE
The two Zero Coupon Bond Fund Portfolios began operations on October 11, 1995.
These Portfolios were set up as an option for the Travelers Single Premium
Variable Universal Life Product offered by The Travelers Insurance Company and
the Travelers Life and Annuity Company. The 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 3.31% for
the year ended December 31, 1999 versus the Merrill Lynch Zero 2000 Coupon
Five-Year Index return of 3.36% 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
5.42% for the year ended December 31, 1999 versus the Merrill Lynch Zero 2005
Coupon Ten-Year Index total return of a negative 5.75% for the same period.
Our sincere thanks for investing in The Travelers Series Trust: Zero Coupon Bond
Fund Portfolios. We look forward to serving your investment needs in the new
century.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 20, 2000
- ---------------
3 On February 2, 2000, after this letter was written, the Fed raised interest
rates 0.25% to 5.25%.
2
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 3.31%
10/11/95* through 12/31/99 5.67%
CUMULATIVE TOTAL RETURN
-----------------------
10/11/95* through 12/31/99 26.25%
* Commencement of operations.
</TABLE>
This chart assumes an initial investment of $10,000 made on October
11, 1995, assuming reinvestment of dividends, through December 31,
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 10000.00 10000.00
12/31/95 10310.00 10405.00
12/31/96 10596.00 10648.00
12/31/97 11359.00 11226.00
12/31/98 12220.00 12030.00
12/31/99 12625.00 12435.00
</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 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>
Year Ended 12/31/99 (5.42)%
10/11/95 through 12/31/99 5.50 %
CUMULATIVE TOTAL RETURN
-----------------------
10/11/95* through 12/31/99 25.40 %
* Commencement of operations.
</TABLE>
This chart assumes an initial investment of $10,000 made on October
11, 1995, assuming reinvestment of dividends, through December 31,
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
12/31/97 11810 11101
12/31/98 13258 12542
12/31/99 12540 11820
</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 DECEMBER 31, 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 -- 52.4%
$587,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
11/15/00.................................................. $ 557,955
167,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
5/15/01................................................... 153,744
300,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
8/15/01................................................... 271,881
74,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
11/15/02.................................................. 62,053
47,000 AAA U.S. Treasury Notes, Stripped Principal Payment only, due
2/15/03................................................... 38,633
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost -- $1,082,454) 1,084,266
- -----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.6%
33,648 AAA Federal Home Loan Mortgage Corp., zero coupon bond to yield
6.940% due 9/15/18 (Cost -- $32,563)...................... 32,351
- -----------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 11.6%
- -----------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.9%
65,000 AAA Exxon Capital Ventures, Inc., zero coupon guaranteed notes
to yield 6.480% due 2/15/01............................... 60,450
- -----------------------------------------------------------------------------------------------
FOODS -- 2.9%
70,000 AA- Archer-Daniels Midland Co., Debentures, zero coupon bond to
yield 6.380% due 5/1/02................................... 59,588
- -----------------------------------------------------------------------------------------------
HOSPITAL SUPPLIES & SERVICES -- 3.0%
65,000 BB+ Hospital Corp. of America, Debentures, zero coupon bond to
yield 5.630% due 6/1/00................................... 61,100
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.8%
56,000 AA- Tele-Communications Inc., Amortizing Note, 9.650% due
10/1/03................................................... 58,380
- -----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $244,031) 239,518
- -----------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES -- 8.4%
- -----------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.4%
65,000 A+ American Express Co., Bonds, zero coupon bond to yield
6.090% due 12/12/00....................................... 61,025
50,000 A+ IBM International Finance NV, Bonds, 6.250% due 10/10/00.... 50,021
- -----------------------------------------------------------------------------------------------
111,046
- -----------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT -- 3.0%
64,000 AA+ Kingdom of Sweden, Notes, zero coupon notes to yield 5.700%
due 7/31/00............................................... 61,604
- -----------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (Cost -- $173,237) 172,650
- -----------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $1,532,285) 1,528,785
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 26.0%
300,000 Chase Manhattan Bank, 2.000% due 1/3/00; Proceeds at
maturity -- $300,049; (Fully collateralized by U.S.
Treasury Notes, 11.625% due 11/15/02;
Market value -- $309,488) (Cost -- $300,000).............. 300,000
239,000 CS First Boston Bank, 2.650% due 1/3/00; Proceeds at
maturity -- $239,052; (Fully collateralized by U.S.
Treasury Bill, due 6/1/00;
Market value -- $244,350) (Cost -- $239,000).............. 239,000
- -----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $539,000) 539,000
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $2,071,285*) $2,067,785
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service.
* 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 (CONTINUED) DECEMBER 31, 1999
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 77.7%
$ 970,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
11/15/05............................................... $ 663,519
1,350,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
2/15/06................................................ 906,930
450,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
5/15/07................................................ 277,745
910,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due
2/15/09................................................ 496,368
- -------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost -- $2,388,564) 2,344,562
- -------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 7.8%
- -------------------------------------------------------------------------------------------------
FINANCE -- 2.0%
80,000 A+ Grand Metro Investment, Notes, zero coupon note to yield
6.460% due 1/6/04...................................... 60,000
- -------------------------------------------------------------------------------------------------
FOODS -- 3.9%
70,000 AA- Archer-Daniels Midland Co., zero coupon bond to yield 6.380%
due 5/1/02............................................. 59,588
80,000 A+ General Mills, zero coupon bond to yield 6.540% due
8/15/04................................................ 58,200
- -------------------------------------------------------------------------------------------------
117,788
- -------------------------------------------------------------------------------------------------
INSURANCE -- 1.9%
80,000 AAA American International Group, zero coupon bond to yield
6.360% due 8/15/04..................................... 58,100
- -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $240,099) 235,888
- -------------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES -- 4.1%
- -------------------------------------------------------------------------------------------------
BANKING -- 2.1%
75,000 A Chemical New York NV Corp., zero coupon bond to yield 6.620%
due 2/16/02............................................ 64,195
- -------------------------------------------------------------------------------------------------
FINANCE -- 2.0%
80,000 AAA Exxon Capital Corp., zero coupon note to yield 6.320% due
11/15/04............................................... 58,900
- -------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (Cost -- $123,861) 123,095
- -------------------------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS -- 6.6%
100,000 General Electric Capital Corp., 6.400% due 2/2/00........... 99,431
100,000 Paccar Financial Corp., 6.400% due 1/20/00.................. 99,662
- -------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INSTRUMENTS (Cost -- $199,093) 199,093
- -------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $2,951,617) 2,902,638
- -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.8%
113,000 CS First Boston Bank, 2.650% due 1/3/00; Proceeds at
maturity -- $113,025; (Fully collateralized by U.S.
Treasury Bill, due 6/1/00;
Market value -- $115,333) (Cost -- $113,000).............. 113,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $3,064,617*) $3,015,638
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service.
* 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 DECEMBER 31, 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 -- $1,532,285 and $2,951,617,
respectively).......................................... $1,528,785 $2,902,638
Repurchase agreements, at value (Cost -- $539,000 and
$113,000, respectively)................................ 539,000 113,000
Cash...................................................... 64 568
Dividends and interest receivable......................... 2,100 8
Receivable from affiliate................................. 1,690 1,842
- ---------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 2,071,639 3,018,056
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased......................... 366 609
Accrued expenses.......................................... 12,270 16,944
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 12,636 17,553
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $2,059,003 $3,000,503
- ---------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital........................................... $1,956,013 $2,895,106
Undistributed net investment income....................... 111,369 174,362
Accumulated net realized loss from security
transactions........................................... (4,879) (19,986)
Net unrealized depreciation of investments................ (3,500) (48,979)
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $2,059,003 $3,000,503
- ---------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 194,221 281,688
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................. $10.60 $10.65
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $114,383 $ 179,014
- ------------------------------------------------------------------------------------------
EXPENSES:
Audit and legal........................................... 26,000 26,000
Shareholder and system servicing fees..................... 13,000 13,000
Shareholder communications................................ 6,300 9,600
Trustees' fees............................................ 4,000 4,000
Investment advisory fees (Note 2)......................... 1,979 3,062
Custody................................................... 1,200 600
Administration fees (Note 2).............................. 1,190 1,842
Pricing service fees...................................... 900 900
Other..................................................... 800 800
- ------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 55,369 59,804
Less: Expense reimbursement (Note 2)...................... (52,355) (55,152)
- ------------------------------------------------------------------------------------------
NET EXPENSES.............................................. 3,014 4,652
- ------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 111,369 174,362
- ------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions (excluding
short-term securities):
Proceeds from sales.................................... -- 532,489
Cost of securities sold................................ -- 544,780
- ------------------------------------------------------------------------------------------
NET REALIZED LOSS......................................... -- (12,291)
- ------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of year...................................... 43,378 286,936
End of year............................................ (3,500) (48,979)
- ------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED DEPRECIATION................... (46,878) (335,915)
- ------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS..................................... (46,878) (348,206)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... $ 64,491 $(173,844)
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 111,369 $ 174,362
Net realized loss......................................... -- (12,291)
Increase in net unrealized depreciation................... (46,878) (335,915)
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 64,491 (173,844)
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... -- --
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... -- --
- ---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares.......................... 68,250 278,000
Net asset value of shares issued for reinvestment of
dividends.............................................. -- --
Cost of shares reacquired................................. (26,391) (274,060)
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 41,859 3,940
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... 106,350 (169,904)
NET ASSETS:
Beginning of year......................................... 1,952,653 3,170,407
- ---------------------------------------------------------------------------------------
END OF YEAR*.............................................. $2,059,003 $3,000,503
- ---------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $111,369 $174,362
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER
31, 1998
<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
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; 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 SSB Citi
Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management 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 each Portfolio. This fee
is calculated daily and paid monthly.
Effective October 1999, Smith Barney Private Trust ("Private Trust"),
another subsidiary of Citigroup, became the Trust's transfer agent and PFPC
Global Fund Services ("PFPC") became the Trust's sub-transfer agent. Private
Trust receives account fees and asset-based fees that vary according to the
account size and type of account. PFPC is responsible for shareholder
recordkeeping and financial processing for all shareholder accounts. During the
period October 1, 1999 through December 31, 1999, each fund, Series 2000 and
Series 2005, paid transfer agent fees of $1,250, respectively to Private Trust.
For the year ended December 31, 1999, Travelers Insurance has agreed to
reimburse Series 2000 and Series 2005 for expenses in the amount of $52,355 and
$55,152, respectively.
11
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
During the year ended December 31, 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................................................... -- $653,121
Sales....................................................... $242,000 532,489
- ----------------------------------------------------------------------------------
</TABLE>
At December 31, 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............................... $ 3,008 $ 12,901
Gross unrealized depreciation............................... (6,508) (61,880)
- ---------------------------------------------------------------------------------
Net unrealized depreciation................................. $(3,500) $(48,979)
- ---------------------------------------------------------------------------------
</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 December 31, 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 (CONTINUED)
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1999, Series 2000 and Series 2005 had, for Federal income
tax purposes, approximately $4,400 and $200, 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>
2005
- ------------------------------------------------------------------------------
<S> <C>
Series 2000......................................................... $4,400
Series 2005......................................................... 200
- ------------------------------------------------------------------------------
</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>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
SERIES 2000
Shares sold................................................. 6,519 14,571
Shares issued on reinvestment............................... -- 10,423
Shares reacquired........................................... (2,538) (8,892)
- ----------------------------------------------------------------------------------------------------
Net Increase................................................ 3,981 16,102
- ----------------------------------------------------------------------------------------------------
SERIES 2005
Shares sold................................................. 25,360 63,382
Shares issued on reinvestment............................... -- 13,336
Shares reacquired........................................... (25,163) (19,053)
- ----------------------------------------------------------------------------------------------------
Net Increase................................................ 197 57,665
- ----------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000 1999 1998 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.............. $10.26 $10.09 $9.96 $10.31 $10.00
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2)...................... 0.57 0.59 0.59 0.50 0.13
Net realized and unrealized gain (loss)....... (0.23) 0.17 0.13 (0.22) 0.18
- ---------------------------------------------------------------------------------------------------------------
Total Income From Operations.................... 0.34 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 YEAR.................... $10.60 $10.26 $10.09 $9.96 $10.31
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................... 3.31% 7.58% 7.20% 2.76% 3.10%++
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................. $2,059 $1,953 $1,757 $1,565 $1,029
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)(3)................................ 0.15% 0.15% 0.15% 0.15% 0.15%+
Net investment income......................... 5.61 5.74 5.88 5.74 5.61+
- ---------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......................... 0% 0% 29% 33% 34%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from October 11, 1995 (commencement of operations) to
December 31, 1995.
(2) For the years ended December 31, 1999, 1998, 1997, 1996 and the period ended
December 31, 1995, Travelers Insurance reimbursed the Portfolio for $52,335,
$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 $0.27 2.79%
1998 0.19 2.09
1997 0.16 1.80
1996 0.20 2.49
1995 0.14 6.51+
</TABLE>
(3) 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:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005 1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........ $11.26 $10.53 $9.97 $10.48 $10.00
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2)................ 0.62 0.55 0.60 0.48 0.13
Net realized and unrealized gain
(loss)............................... (1.23) 0.74 0.56 (0.38) 0.35
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations....... (0.61) 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 YEAR.............. $10.65 $11.26 $10.53 $9.97 $10.48
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............................. (5.42)% 12.26% 11.63% 0.90% 4.80%++
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)........... $3,001 $3,170 $2,357 $2,054 $1,050
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)(3).......................... 0.15% 0.15% 0.15% 0.15% 0.15%+
Net investment income................... 5.68 5.63 6.11 6.14 5.89+
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................... 18 % 3% 9% 17% 23%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from October 11, 1995 (commencement of operations) to
December 31, 1995.
(2) For the years ended December 31, 1999, 1998, 1997, 1996 and the period ended
December 31, 1995, Travelers Insurance reimbursed the Portfolio for $55,152,
$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 $0.20 1.95%
1998 0.14 1.61
1997 0.13 1.52
1996 0.15 2.17
1995 0.14 6.48+
</TABLE>
(3) 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>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE TRAVELERS SERIES TRUST:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Zero Coupon Bond Fund Portfolio Series 2000
and the Zero Coupon Bond Fund Portfolio Series 2005 of the Travelers Series
Trust as of December 31, 1999, the related statements of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the three-year period then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended December 31,
1996 and the period from October 11, 1995 (commencement of operations) to
December 31, 1995 were audited by other auditors whose report thereon, dated
February 24, 1997, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Zero Coupon Bond Fund Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio
Series 2005 of the Travelers Series Trust as of December 31, 1999, the results
of their operations for the year then ended, and the changes in their net assets
for each of the years in the two-year period then ended and financial highlights
for each of the years in the three-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 11, 2000
16
<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 (Annual) (2-00) Printed in U.S.A.
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the annual report for 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 for the year ended December
31, 1999. This letter briefly discusses general economic and market conditions.
In addition, a detailed comparison showing the growth of a hypothetical $10,000
invested in each Portfolio since inception can be found in this report. All
total return figures given in this report, both cumulative and average
annualized, exclude the effect of sales charges. Past performance is not
indicative of future results. A detailed summary of performance and current
holdings for each individual Portfolio can be found in the appropriate sections
that follow. We hope you find this report to be useful and informative.
<TABLE>
<CAPTION>
The Performance of the Travelers Series Trust(1) (12/31/98-12/31/99)
- ---------------------------------------------------------------------
<S> <C>
Travelers Quality Bond Portfolio............................ 1.09%
Lazard International Stock Portfolio........................ 21.78
MFS Emerging Growth Portfolio............................... 76.76
Federated High Yield Stock Portfolio........................ 3.10
Federated Stock Portfolio................................... 5.34
Disciplined Mid Cap Stock Portfolio......................... 13.47
</TABLE>
MARKET AND ECONOMIC OVERVIEW
The year began on a volatile note for global financial markets as a potential
new threat emerged in Latin America. The devaluation of Brazil's currency, the
real, affected many U.S. corporations and investors with exposure to the Latin
American markets and negatively impacted the performance of the U.S. stock
market.
Concerns regarding the future direction of interest rates were prevalent
throughout 1999. Despite low inflation, the Federal Reserve Board ("Fed") opted
to raise interest rates three times during the year, effectively "taking back"
the interest-rate cuts imposed following the global economic crisis in 1998. The
Fed's change in monetary policy did not significantly deter the remarkable
growth of the U.S. economy. In fact, throughout the year, the U.S. Gross
Domestic Product ("GDP"), which represents the total output of goods and
services, continued to exceed expectations.
Despite the rise in interest rates, the U.S. stock market continued its stellar
performance. Evidence of stronger-than-expected economic growth prompted hopes
of a meaningful earnings recovery and at the same time, triggered concerns
regarding future rate hikes. These factors led to a rally in small cap and value
stocks. (Value stocks are securities of companies that are believed to be
undervalued in the market.) However, the trend of investing in small cap and
value stocks soon changed, as many investors took the view that a proactive
monetary policy by the Fed would preempt inflationary pressures.
By the end of the year, nevertheless, the small cap sector, as measured by the
Russell 2000 Index(2), which returned 21.26% for the year, outperformed the
large cap sector, as measured by the Standard & Poor's 500 Index(3) ("S&P 500")
which returned 21.03%.
- ---------------
(1) Please note that data represents past performance, which is not indicative
of future results. The 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.
(2) The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 8% of
the total market capitalization of the Russell 3000 Index.
(3) The S&P 500 Index is market capitalization-weighted measure of 500 widely
held common stocks.
1
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
As a result of investors' focus on the direction of interest rates, the stock
and bond markets were characterized by higher levels of volatility. Investors
became increasingly concerned, especially toward the end of the year, about not
only the direction of interest rates but also about future earnings growth and
the high market valuations of many stocks. In addition, the strength of the
overseas markets attracted U.S. capital, which had a somewhat negative impact on
the performance of the U.S. stock market through the third quarter of 1999.
By the end of the year however, the U.S. stock market rose sharply largely due
to the incredible performance of the technology sector. Y2K concerns decreased,
with the market's assessment of the risks associated with potential Year 2000
glitches proving to be correct.
The bond markets did not react positively to the actions of the Fed in 1999 and
experienced their worst year since 1994. The overall bond market recorded losses
in 1999 in response to the Fed's interest rate increases and concerns regarding
inflation. Bond market losses increased with the length of maturities. The yield
on the bellwether 30-year government bond increased 1.39 percentage points in
1999 to 6.48%. At the end of 1998, the 30-year bond yielded 5.09%.
In our view, the strength of the U.S. economy should continue, prompting the Fed
to raise interest rates in 2000.(4) In addition, overseas economies, many of
which are in the early stages of recovery, should continue to expand. This
global economic recovery should benefit the manufacturing sector of the U.S.
market in 2000.
We predict that earnings should continue its double-digit growth through the
first quarter of 2000. It is our belief that the recent performance of
technology and telecommunications stocks is not sustainable. However, we are
confident that most stocks are appropriately valued. Over the longer term, we
think that the fundamentals for both stocks and bonds remains favorable.
TRAVELERS QUALITY BOND PORTFOLIO
The Travelers Quality Bond Portfolio ("Portfolio") seeks current income,
moderate capital volatility and total return. For the year ended December 31,
1999, the Portfolio returned 1.09%. In comparison, the Lehman
Government/Corporate Bond Index returned a negative 2.15% for the same time
period. (Past performance is not indicative of future results. The Lehman
Government/Corporate Bond Index is a combination of publicly issued
intermediate- and long-term U.S. government bonds and corporate bonds.)
The bond market went down due to the Fed's three interest rate increases
implemented in 1999. However, the Fed's change in monetary policy did not
negatively impact the performance of stocks which in turn did not generate much
investor interest in the lackluster performance of the bond market. This lack of
interest, in the manager's view, indicates that interest rates may likely
increase in the coming year. With this in mind, the Portfolio had a slightly
short duration, remaining very close to neutral due to the negative sentiment
that has been priced into the markets. (Duration measures a bond's sensitivity
to interest rates.) The risk to an upward rate surprise is in the potential for
the market to view the Fed as being behind the curve with respect to controlling
inflation. Additionally, a weakening of the U.S. dollar may also contribute to
the increase in interest rates.
Spreads have tightened in the last few months but remain at historic highs.
Looking forward, the manager expects a slow rise in interest rates by the Fed to
counter any inflationary pressures.
- ---------------
(4) On February 2, 2000, after this letter was written, the Federal Reserve
Board raised interest rates 0.25% to 5.25%.
2
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
The Lazard International Stock Portfolio ("Portfolio") seeks capital
appreciation through investing primarily in the stocks of non-U.S. companies
(i.e., incorporated or organized outside the U.S.). For the year ended December
31, 1999, the Portfolio returned 21.78%. In comparison, the MSCI EAFE Index
returned 26.96% for the same time period. (Past performance is not indicative of
future results. Please note that Portfolio holdings are as of December 31, 1999
and are subject to change. The MSCI EAFE Index consists of the equity total
returns for Europe, Australia, New Zealand and the Far East.)
The Portfolio's performance was due in large part to its holdings in the
technology sectors. Telefonica and Portugal Telecom, two recently listed
companies, were well-received by investors following their Initial Public
Offerings ("IPOs") this past year. Another holding, Alcatel, a
telecommunications company, made several acquisitions to further upgrade its
data networking equipment capabilities in 1999 and its stock price rose. The
Portfolio's investment in NTT Mobile Communications, a leading Japanese wireless
communications company, performed remarkably well during the period largely due
to the success of "i-mode," the first widely used Wireless Application Protocol
(WAP) mobile phone that provides access to the Internet.
The Portfolio also benefited from investments in companies not traditionally
linked to technology. Philips Electronics and Siemens are transforming their
enterprises into technology-focused businesses. In Japan, Sony is shedding
unprofitable areas such as semiconductor production, and refocusing on its
traditional electronics business to keep pace with the evolution of the Internet
and other networked devices.
The Portfolio continued to invest in companies with strong global brands during
the reporting period. Valuations of many branded companies are now at historic
lows, yet the managers believe their financial productivity remains outstanding.
And while no guarantees can be given, companies such as Cadbury-Schweppes,
Heineken, Diageo, and Unilever, should perform well in the year ahead given
their strong track records and their fair valuations.
MFS EMERGING GROWTH PORTFOLIO
The MFS Emerging Growth Portfolio ("Portfolio") seeks to provide long-term
growth of capital. For the year ended December 31, 1999, the Portfolio returned
76.76%. In comparison the Russell 2000 Index returned 21.26% and the S&P 500
returned 21.03% for the same time period. (Past performance is not indicative of
future results. Please note that Portfolio holdings are as of December 31, 1999
and are subject to change.)
In 1999, the managers believed it was essential for the Portfolio to invest in
high growth companies that they believed had solid potential to generate
positive earnings surprises. The Portfolio's overweight in the
telecommunications, technology and telecommunications sectors relative to the
Index largely contributed to the Portfolio's solid performance during the
period.
The Portfolio's telecommunications investments in the United States, Japan, and
Europe have benefitted from a global shift toward wireless communication of both
voice and data. Cellular companies the managers owned include:
- NTT Mobile, the number one cellular carrier in Japan;
- Bouygues, one of the largest French cellular operators;
- Sonera, owner of the largest cellular business in Finland; and
- VoiceStream Wireless Corp. (which recently acquired Omnipoint), one of
the few remaining U.S. wireless entities not yet owned by a large
telecommunications company.
Although the managers believe each of these companies can continue to do well on
its own, they expect that some of them will eventually be taken over by larger
companies trying to achieve global cellular coverage. Should that occur, the
Portfolio will benefit from takeover-related runups in stock prices.
3
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
In the area of technology (with a telecommunications focus), a holding that
contributed strongly to performance this year was Qualcomm. This company owns
the patents for the CDMA technology standard used for wireless communications in
a large part of the world: North and South America, much of Asia, and
potentially all of China. Qualcomm gets a royalty on the infrastructure chips
and every handset sold in those markets. This is a company the managers have
followed for several years, and the stock price had been flat, partly because
Qualcomm had a long-standing lawsuit with Ericsson, an equipment manufacturer,
over technology standards. The managers began to buy into Qualcomm early in the
year, believing the lawsuit would be settled in its favor. When that happened
and when global wireless growth turned out to be greater than expected, the
stock price rose considerably.
Management's estimates put wireless penetration in the United States at about
30% of phone users, with the potential to rise to 50% - 60% as it is in Europe.
Another driver of increased wireless business will be, they believe, the use of
wireless devices to access data over the Internet. It appears to the managers
that these factors point to strong demand for Qualcomm's products over the next
several years. According to the managers, the positive thing about Qualcomm is
that a large part of its revenue comes from licensing an intellectual property.
That part of the business has few costs, high profits, and high barriers to
entry for potential competition.
In the biotechnology area, a company that contributed strongly to the Portfolio'
performance was MedImmune. This pharmaceutical company developed and sells
Synagis and Respigam, two drugs that appear to be the gold standard of care for
babies and premature infants who get pneumonia. According to the managers'
research, these drugs should have no competition in the foreseeable future and
the worldwide market is projected to be around $2.5 billion. MedImmune sales in
1999 were under $200 million, so the managers see the potential for strong
earnings growth over the next couple of years. In addition, there appears to be
the potential for MedImmune to apply these drugs to treating the lung-impaired
elderly.
Another factor in the Portfolio's performance was the managers' belief, early in
the year, that some of the sectors with steady but perhaps unspectacular
earnings growth were moving out of favor -- particularly supermarkets,
drugstores, and office supply superstores. This led the investment team to cut
back or eliminate their positions in companies that turned out to be poor
performers for the year, including drugstore chains CVS and Rite Aid,
supermarkets Kroger and Safeway and office superstores Staples and Office Depot.
Although many of these companies still possess good fundamentals, the managers
believe that the market perceived that they were vulnerable to competition from
Internet vendors and mega-companies like Wal-Mart. In addition, Rite Aid
developed problems with accounting irregularities. So overall, the investment
team thinks their performance was helped by many of their selling decisions.
These decisions enabled them to redeploy resources from areas of slowing
earnings growth into what they believed would be high-earnings-growth companies
in areas such as telecommunications, technology and biotechnology.
Looking ahead to 2000, the managers believe that the challenge will be to
continue to pick winning stocks in a difficult environment of rising interest
rates and high stock valuations. The team plans to invest in stocks of companies
that can generate positive earnings surprises because in today's market it
appears that stock prices can be dramatically impacted by even a small earnings
shortfall.
FEDERATED HIGH YIELD PORTFOLIO
Federated High Yield Portfolio ("Portfolio") seeks high current income by
investing primarily in lower-quality fixed-income securities. For the year ended
December 31, 1999, the Portfolio returned 3.10%. In comparison, the Lehman
Brothers High Yield Bond Index returned 2.39% and the Lehman Aggregate Bond
Index returned a negative 0.82% for the same time period. (Past performance is
not indicative of future results. Please note that Portfolio holdings are as of
December 31, 1999 and are subject to change. The Lehman Brothers High Yield Bond
Index is composed of fixed rate non-investment 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. The Lehman Aggregate Bond 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.)
4
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
High-yield bonds generated attractive relative returns in 1999, although
absolute returns were tempered by the general rise in interest rates and
increasing default rates. In fact, strong economic growth and resilience of
emerging market economies were the primary drivers in the roughly 175 basis
point rise in the yield on 10-year Treasuries which hampered the performance of
most fixed income securities. (A basis point is 0.01% or one-hundredth of a
percent of yield.) Default rates, which reached their highest level since 1991,
also negatively impacted returns for high yield securities. The rise in default
rates, despite a strong economy, was the result of 1998's decline in energy
prices which impacted many energy companies in early 1999 and the high level of
issuance over the last few years.
The Portfolio's overweight in the B-rated sector positively contributed to
performance outperforming the more interest rate-sensitive BB-rated sector and
the more credit-impacted CCC-rated sector. The Portfolio's holdings in the
telecommunications and cable television sectors also continued to deliver strong
returns. In addition, the Portfolio's holdings in Triton PCS and Telesystems
International also contributed to performance.
The Portfolio's holdings in the health care and textiles industries adversely
affected performance during the reporting period. Also, investments in Jitney
Jungle Stores (a food and drug retailer), Paging Network (a wireless messaging
and information delivery services company), Genesis Health (a specialty medical
service company) and Pillowtex (a home textile manufacturer) underperformed in
1999.
In the managers' view, strong economic growth worldwide coupled with competitive
yield spreads should lead to good relative performance for high yield bonds.
However, possible Fed rate increases to slow the U.S. economy may also moderate
absolute returns. Default rates, which increased in 1999 to their highest level
in eight years, should remain above average for the next few quarters. However,
given the high percentage of securities currently trading at distressed levels,
the performance impact of these defaults have, to some degree, already been
felt.
Going forward, the managers continue to favor the telecommunications sector as
strong operating gains and consolidation activity provide opportunities for
strong relative returns. The managers also think that cable TV plant upgrades in
both the U.S. and western Europe may lead to strong performance by fund holdings
in companies such as UPC/United Pan European (a broadband communications
company), NTL (a company specializing in Intranet and small business financial
applications) and Charter Communications (a cable television operator).
FEDERATED STOCK PORTFOLIO
The Federated Stock Portfolio ("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 believed to be leaders in their industries and have sound management teams
and the ability to finance future growth. For the year ended December 31, 1999,
the Portfolio returned 5.34%. In comparison, the S&P 500 returned 21.03% for the
same time period. (Past performance is not indicative of future results.)
The performance of the Portfolio was negatively impacted by an underweight in
the technology sector in addition to disappointing performances from a number of
holdings in the capital goods and financial sectors. In those sectors, the
managers' investment style of emphasizing value stocks led to owning shares of
value "second-tier" companies which did not perform as well as their
larger-sized counterparts. (Value investing consists of identifying securities
of companies that are believed to be undervalued in the market.) However, the
Portfolio's emphasis on value stocks has continued to provide solid returns over
the long term and the managers are committed to identifying companies with
inexpensive valuations and strong prospects for future growth.
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 bullish investor sentiment remain
quite strong. Relative to interest rates, the stock markets appear to be
extremely overvalued, especially in the technology and Internet sectors. Yet,
the valuations of many companies outside the technology and Internet sectors
appear to be reasonable and sustainable given the strong global economy in a
period of low inflation.
5
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
The Disciplined Mid Cap Stock Portfolio ("Portfolio") seeks growth of capital by
investing primarily in a broadly diversified portfolio of U.S. common stocks.
For the year ended December 31, 1999, the Portfolio returned 13.47%. In
comparison, the Standard & Poor's Midcap 400 Index ("S&P Midcap 400") returned
14.72% for the same time period. (Past performance is not indicative of future
results. Please note that Portfolio holdings are as of December 31, 1999 and are
subject to change. The S&P Midcap 400 is an unmanaged index comprised of mid-and
small-cap stocks.)
The Portfolio is managed to provide diversified exposure to the mid- and
small-capitalization sectors of the 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 Portfolio is
managed to mirror the overall risk, sector weightings and growth and value style
characteristics of the S&P Midcap 400.
During the third quarter of 1999, the Portfolio benefited from its holdings in
the technology and consumer discretionary sectors. In the technology sector, the
manager benefited from his picks in several different industry groups. Within
the semiconductor industry, Comverse Technology, Vitesse Semiconductors, Cypress
Semiconductor and QLogic performed well as the promise of the Internet and
higher capital spending spurred investor interest. Growth stocks such as Legato
Systems and Qualcomm moved sharply higher as their price-to-earnings ratios were
restored following a sell-off in growth stocks in the second quarter of 1999. (A
price-to-earnings ratio (P/E) is the price of a stock divided by its earnings
per share.)
The manager's positions in software stocks such as Rational Software, Citrix
Systems and Siebel Systems generated high returns as these companies offered
customers Web-based business solutions. Electronic component companies such as
Analog Devices and Sanmina outperformed their industry group while semiconductor
equipment makers such as Teradyne posted strong gains. The manager also
benefited from avoiding disappointing performers such as Comsat and Diebold.
In the utilities sector, the Portfolio's holdings in fast-growing
telecommunications companies such as Qwest, WinStar Communications and Century
Tel all performed well. Calpine Corp., a leader in the electric power generation
industry, continued its robust growth through acquisitions while Scana and The
Montana Power Co. increased their P/E multiples through leadership positions.
In the consumer discretionary sector, Premark International, was acquired for a
50% premium over its stock price by Illinois Tools. In addition, Hannaford
Brothers was acquired by Food Lion in a stock swap that led Hannaford's stock to
rise by 15%. These acquisitions contributed significantly to the Portfolio's
holdings in this sector.
In the producer durables sector, American Power Conversion and Molex
significantly contributed to the Portfolio's performance. American Power
Conversion was chosen by Microsoft to leverage its uninterruptable power supply
management into its Windows 2000 operating system. Molex, a manufacturer of
diversified electronics components, benefited from the recovery of the global
economy that has led to the increased demand for consumer electronics.
The Portfolio's performance was adversely affected by an earnings disappointment
from Sterling Commerce and weakness in the stock price of Rational Software. The
Portfolio's positions in Greenpoint Financial, a bank holding company, and
Allmerica Financial, an insurance holding company, hurt performance in the
financial services sector as interest rate concerns hit these stocks
particularly hard. During September 1999, many Wall Street analysts trimmed
fiscal year 2000 earnings estimates down for WinStar Communications. The stock
price of the company declined sharply and negatively impacted performance in the
Portfolio's utilities sector.
The disciplined approach to stock selection by screening a universe of more than
800 mid-cap securities for companies that offer improving earnings fundamentals
at discounted stock valuations should, in the view of the manager, continue to
benefit the performance of the Portfolio.
6
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
Strong earnings growth in the third and fourth quarters suggests that the
earnings recovery of 1999 is well underway. However, the constant presence of
the Fed and investors' enthusiasm for technology stocks may prevent a
broad-based market rally from materializing in the near future.
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 in the new
century.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 20, 2000
7
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- TRAVELERS QUALITY BOND PORTFOLIO AS OF 12/31/99
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
<S> <C>
Year Ended 12/31/99 1.09%
8/30/96* through 12/31/99 6.06%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 12/31/99 21.68%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on August
30, 1996, assuming reinvestment of dividends, through December 31,
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 Bond Portfolio 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
12/97 11095 11512
12/98 12036 12603
12/31/99 12168 12332
</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 12/31/99
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
<S> <C>
Year Ended 12/31/99 21.78%
8/1/96* through 12/31/99 14.82%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/1/96* through 12/31/99 60.36%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on August
1, 1996, assuming reinvestment of dividends, through December 31,
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 International Stock Portfolio Performance Graph]
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK
PORTFOLIO MSCI EAFE-GDP WEIGHTED INDEX
-------------------------- ----------------------------
<S> <C> <C>
8/1/96 10000.00 10000.00
12/96 10780.00 10533.00
12/97 11696.00 11180.00
12/98 13168.00 14149.00
12/31/99 16036.00 17965.00
</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 12/31/99
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 76.76%
8/30/96* through 12/31/99 39.67%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 12/31/99 204.91%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on August
30, 1996, assuming reinvestment of dividends, through December 31,
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
12/97 12843.00 15258.00 13376.00
12/98 17250.00 19642.00 13036.00
12/31/99 30491.00 23773.00 15806.00
</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 12/31/99
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 3.10%
8/30/96* through 12/31/99 9.12%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 12/31/99 33.80%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on August
30, 1996, assuming reinvestment of dividends, through December 31,
1999. The Lehman Brothers Aggregate Bond Index, an unmanaged index,
is composed of the Lehman Brothers 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 non-investment 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 BROTHERS HIGH LEHMAN BROTHERS
PORTFOLIO YIELD BOND INDEX AGGREGATE BOND INDEX
-------------------- -------------------- --------------------
<S> <C> <C> <C>
8/30/96 10000.00 10000.00 10000.00
12/96 10761.00 10599.00 10480.00
12/97 12394.00 11952.00 11491.00
12/98 12978.00 12161.00 12490.00
12/31/99 13380.00 12452.00 12388.00
</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 12/31/99 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 5.34%
8/30/96* through 12/31/99 20.53%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 12/31/99 86.46%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on August
30, 1996, assuming reinvestment of dividends, through December 31,
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 Portfolio 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
12/97 15021.00 15258.00
12/98 17700.00 19642.00
12/31/99 18646.00 23773.00
</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 12/31/99
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Year Ended 12/31/99 13.47%
4/1/97* through 12/31/99 23.39%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
4/1/97* through 12/31/99 78.26%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on April
1, 1997, assuming reinvestment of dividends, through December 31,
1999. The Standard & Poor's Midcap 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 MidCap Stock Portfolio Performance Graph]
<TABLE>
<CAPTION>
DISCIPLINED MID CAP STOCK STANDARD & POOR'S MIDCAP 400
PORTFOLIO INDEX
------------------------- ----------------------------
<S> <C> <C>
4/1/97 10000.00 10489.00
12/97 13438.00 11512.00
12/98 15710.00 12603.00
12/31/99 17826.00 14459.00
</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 DECEMBER 31, 1999
- --------------------------------------------------------------------------------
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 34.5%
U.S. Treasury Notes:
$2,300,000 AAA 6.125% due 12/31/01......................................... $ 2,295,078
2,400,000 AAA 5.750% due 4/30/03.......................................... 2,357,184
5,800,000 AAA 5.875% due 11/15/04......................................... 5,688,060
2,600,000 AAA 6.875% due 5/15/06.......................................... 2,645,812
5,700,000 AAA 6.250% due 2/15/07.......................................... 5,612,904
1,600,000 AAA 6.000% due 8/15/09.......................................... 1,551,072
- ----------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(Cost -- $20,536,594)..................................... 20,150,110
- ----------------------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES -- 62.7%
- ----------------------------------------------------------------------------------------------------
BANKING -- 2.6%
1,000,000 BBB+ BanPonce Financial, Medium Term Notes, 7.300% due 6/5/02.... 998,750
550,000 BBB+ MBNA America Bank, Notes, 6.000% due 12/26/00............... 545,188
- ----------------------------------------------------------------------------------------------------
1,543,938
- ----------------------------------------------------------------------------------------------------
ELECTRIC -- 6.1%
CMS Energy Corp., Sr. Notes:
500,000 BB 6.750% due 1/15/04........................................ 465,000
650,000 BB 7.625% due 11/15/04....................................... 619,125
2,572,000 BBB Utilicorp United Corp., Sr. Notes, 6.875% due 10/1/04....... 2,465,906
- ----------------------------------------------------------------------------------------------------
3,550,031
- ----------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 21.6%
2,650,000 A+ AT&T Capital Corp., Medium Term Notes, 6.250% due 5/15/01... 2,626,813
2,500,000 BBB+ Comdisco Inc., Medium Term Notes, 7.250% due 9/20/01........ 2,486,650
1,500,000 A- Finova Capital Corp., Notes, 6.250% due 11/1/02............. 1,456,875
1,600,000 BBB+ Orix Credit Alliance, Notes, 6.780% due 5/15/01............. 1,574,000
2,600,000 BBB Osprey Trust, Secured Notes, 8.310% due 1/15/03 (a)......... 2,574,000
1,900,000 AAA USAA Capital Corp., Notes, 7.050% due 11/8/06............... 1,857,250
- ----------------------------------------------------------------------------------------------------
12,575,588
- ----------------------------------------------------------------------------------------------------
FOOD -- 0.8%
500,000 BBB Nabisco Inc., Debentures, 6.700% due 6/15/02................ 490,000
- ----------------------------------------------------------------------------------------------------
HEALTH CARE -- 2.3%
1,400,000 Ba2 Columbia HCA Healthcare, Medium Term Notes, 6.630% due
7/15/45................................................... 1,319,500
- ----------------------------------------------------------------------------------------------------
HOTELS -- 8.3%
2,500,000 BBB+ Marriott International, Notes, 7.875% due 9/15/09........... 2,471,875
2,400,000 BBB- Park Place Entertainment, Notes, 7.950% due 8/1/03.......... 2,358,000
- ----------------------------------------------------------------------------------------------------
4,829,875
- ----------------------------------------------------------------------------------------------------
INTEGRATED OIL -- 4.5%
2,600,000 BBB Noram Energy Corp., Debentures, 7.500% due 8/1/00........... 2,606,500
- ----------------------------------------------------------------------------------------------------
RAILROADS -- 3.0%
1,100,000 BBB+ Norfolk Southern, Debentures, 6.875% due 5/1/01............. 1,095,875
650,000 BBB- Union Pacific Corp., Medium Term Notes, 9.650% due 6/1/00... 657,312
- ----------------------------------------------------------------------------------------------------
1,753,187
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REAL ESTATE INVESTMENT TRUST -- 4.3%
$2,300,000 BBB Carramerica Realty, Company Guaranteed, 6.625% due
10/1/00................................................... $ 2,273,665
250,000 BBB Nationwide Health Properties Inc., Medium Term Notes, 6.900%
due 10/1/37............................................... 221,562
- ----------------------------------------------------------------------------------------------------
2,495,227
- ----------------------------------------------------------------------------------------------------
RETAIL -- 3.5%
500,000 A- Dayton Hudson Corp., Notes, 6.800% due 10/1/01.............. 497,500
1,700,000 BB+ Saks Inc., Company Guaranteed, 7.500% due 12/1/10........... 1,542,750
- ----------------------------------------------------------------------------------------------------
2,040,250
- ----------------------------------------------------------------------------------------------------
UTILITIES -- 2.3%
1,300,000 BB+ Cilcorp Inc., Bonds, 9.375% due 10/15/29.................... 1,351,311
- ----------------------------------------------------------------------------------------------------
YANKEE -- 3.4%
2,050,000 AA- Telecom New Zealand, Sub. Notes, 6.250% due 2/10/03......... 2,008,227
- ----------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $37,172,148)......... 36,563,634
- ----------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $57,708,742)................. 56,713,744
- ----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.8%
1,623,000 Chase Securities Inc., 2.000% due 1/3/00; Proceeds at
maturity -- $1,623,271; (Fully collateralized by U.S.
Treasury Notes, 11.625% due 11/15/02;
Market value -- $1,656,331) (Cost -- $1,623,000).......... 1,623,000
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $59,331,742**)........... $58,336,744
- ----------------------------------------------------------------------------------------------------
</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 46 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
STOCK -- 93.9%
- ------------------------------------------------------------------------------------------
AUSTRALIA -- 1.8%
158,106 Broken Hill Proprietary Co. Ltd. ........................... $ 2,068,335
- ------------------------------------------------------------------------------------------
DENMARK -- 1.7%
26,800 Tele Danmark A/S............................................ 1,992,794
- ------------------------------------------------------------------------------------------
FINLAND -- 1.5%
92,200 Merita PLC.................................................. 543,412
1 The Rauma Group Oyj (a)..................................... 14
31,300 UPM-Kymmene Oyj............................................. 1,261,385
- ------------------------------------------------------------------------------------------
1,804,811
- ------------------------------------------------------------------------------------------
FRANCE -- 14.1%
13,060 Alcatel..................................................... 3,000,001
29,650 Aventis SA.................................................. 1,723,628
25,731 Aventis SA (a)(b)........................................... 1,482,871
11,030 Axa......................................................... 1,537,995
20,100 Banque Nationale de Paris................................... 1,854,960
6,580 Compagnie de Saint-Gobain................................... 1,237,695
13,200 Compagnie Generale des Establissements Michelin, Class B 518,659
Shares......................................................
7,230 Suez Lyonnaise des Eaux SA.................................. 1,158,915
17,451 Total Fina SA, Class B Shares............................... 2,329,591
18,754 Vivendi..................................................... 1,693,898
- ------------------------------------------------------------------------------------------
16,538,213
- ------------------------------------------------------------------------------------------
GERMANY -- 9.9%
4,684 Allianz AG.................................................. 1,573,824
1 Celanese AG (a)............................................. 13
16,928 DaimlerChrysler AG.......................................... 1,328,576
60,800 Deutsche Lufthansa AG....................................... 1,439,510
12,706 Deutsche Telecom AG......................................... 894,166
24,734 Metro AG (b)................................................ 1,353,124
20,800 Siemens AG.................................................. 2,661,401
35,650 Thyssen Krupp AG............................................ 1,104,454
24,800 Veba AG..................................................... 1,211,815
- ------------------------------------------------------------------------------------------
11,566,883
- ------------------------------------------------------------------------------------------
HONG KONG -- 1.6%
133,219 HSBC Holdings PLC........................................... 1,867,996
- ------------------------------------------------------------------------------------------
ITALY -- 2.4%
231,200 ENI S.p.A................................................... 1,267,854
66,800 San Paolo -- IMI S.p.A. .................................... 905,463
107,000 Telecom Italia S.p.A. di Risp NC (c)........................ 652,634
- ------------------------------------------------------------------------------------------
2,825,951
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
JAPAN -- 23.2%
100,000 ASAHI BREWERIES, Ltd. ...................................... $ 1,090,413
62,000 Canon, Inc. ................................................ 2,455,087
112,000 The Fuji Bank, Ltd. (b)..................................... 1,084,717
117,000 The Industrial Bank of Japan, Ltd. ......................... 1,124,012
105 JAPAN TOBACCO Inc. ......................................... 800,839
55,000 Kao Corp. .................................................. 1,563,689
5,500 Nintendo Co. Ltd. .......................................... 910,855
91 Nippon Telegraph & Telephone Corp. ......................... 1,553,204
281,000 Nissan Motor Co., Ltd. (a).................................. 1,101,746
90 NTT Mobile Communications Network, Inc. .................... 3,449,723
13,000 ORIX CORP. ................................................. 2,918,756
12,700 Promise Co., Ltd. .......................................... 644,104
39,000 Sankyo Co., Ltd. ........................................... 798,791
14,100 SONY CORP. ................................................. 4,166,878
240,000 The Sumitomo Trust & Banking Co., Ltd. ..................... 1,615,137
14,000 TDK Corp. .................................................. 1,926,656
- ------------------------------------------------------------------------------------------
27,204,607
- ------------------------------------------------------------------------------------------
NETHERLANDS -- 4.0%
25,000 Heineken N.V. .............................................. 1,219,573
30,000 ING Groep N.V. ............................................. 1,811,679
12,412 Koninklijke Philips Electronics N.V. ....................... 1,688,180
- ------------------------------------------------------------------------------------------
4,719,432
- ------------------------------------------------------------------------------------------
PORTUGAL -- 1.0%
106,500 Portugal Telecom SA......................................... 1,168,478
- ------------------------------------------------------------------------------------------
SINGAPORE -- 2.5%
162,700 Overseas-Chinese Banking Corp. Ltd. ........................ 1,494,183
162,624 United Overseas Bank Ltd. .................................. 1,434,918
- ------------------------------------------------------------------------------------------
2,929,101
- ------------------------------------------------------------------------------------------
SPAIN -- 4.8%
85,200 Endesa S.A. ................................................ 1,691,880
156,990 Telefonica S.A. ............................................ 3,922,542
- ------------------------------------------------------------------------------------------
5,614,422
- ------------------------------------------------------------------------------------------
SWEDEN -- 2.9%
64,000 Electrolux AB, Class B Shares............................... 1,613,344
56,900 Nordbanken Holding AB (b)................................... 335,132
80,100 Svenska Handelsbanken AB, Class A Shares.................... 1,009,600
17,400 Volvo AB, Class B Shares.................................... 450,925
- ------------------------------------------------------------------------------------------
3,409,001
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
SWITZERLAND -- 3.6%
13,875 ABB Ltd. ................................................... $ 1,696,056
113 Roche Holding AG............................................ 1,340,510
1,970 Zurich Allied AG............................................ 1,122,746
- ------------------------------------------------------------------------------------------
4,159,312
- ------------------------------------------------------------------------------------------
UNITED KINGDOM -- 18.9%
64,900 Allied Zurich PLC........................................... 769,002
38,028 AstraZeneca Group PLC....................................... 1,576,460
183,200 BP Amoco PLC................................................ 1,843,949
223,200 British Aerospace PLC....................................... 1,475,485
134,400 British American Tobacco PLC................................ 751,235
114,033 British Energy PLC.......................................... 655,803
119,196 Cadbury Schweppes PLC....................................... 699,444
127,674 Diageo PLC.................................................. 1,025,374
34,800 GKN PLC..................................................... 564,589
166,800 Granada Group PLC........................................... 1,680,225
130,000 Great Universal Stores PLC.................................. 720,870
118,500 Halifax PLC................................................. 1,313,245
117,200 Imperial Chemical Industries PLC............................ 1,241,133
233,100 Invensys PLC................................................ 1,260,590
51,000 National Westminster Bank PLC............................... 1,097,456
64,700 Prudential PLC.............................................. 1,269,016
145,700 Reed International PLC...................................... 1,085,470
143,600 Royal & Sun Alliance Insurance Group PLC.................... 1,072,143
62,500 SmithKline Beecham PLC...................................... 794,038
149,700 Tesco PLC................................................... 456,137
115,011 Unilever PLC................................................ 802,991
- ------------------------------------------------------------------------------------------
22,154,655
- ------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $92,201,316)........................... 110,023,991
- ------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 6.1%
$7,100,000 CIBC Wood Gundy Securities Inc., 2.250% due 1/3/00; Proceeds
at maturity -- $7,101,331;
(Fully collateralized by U.S. Treasury Notes, 5.750% due
11/15/00;
Market value -- $7,242,224) (Cost -- $7,100,000).......... 7,100,000
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $99,301,316*)............ $117,123,991
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) All or a portion of this security is on loan (See Note 9).
(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 (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 85.0%
- ----------------------------------------------------------------------------------------
ADVERTISING -- 0.2%
200 Lamar Advertising Co. ...................................... $ 12,112
9,600 Omnicom Group, Inc. ........................................ 960,000
- ----------------------------------------------------------------------------------------
972,112
- ----------------------------------------------------------------------------------------
AIRLINES -- 0.0%
300 Atlas Air, Inc. ............................................ 8,231
- ----------------------------------------------------------------------------------------
BANKS & CREDIT COS. -- 0.0%
300 First Tennessee National Corp............................... 8,550
- ----------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.3%
7,100 Biotech HOLDRs Trust (a).................................... 1,018,850
15,700 Chiron Corp. (a)............................................ 665,288
900 Enzon, Inc. (a)............................................. 39,037
24,200 Genentech, Inc. (a)......................................... 3,254,900
2,700 Human Genome Sciences, Inc. (a)............................. 412,088
600 ImClone Systems Inc. (a).................................... 23,775
400 Transkaryotic Therapies, Inc. (a)........................... 15,400
- ----------------------------------------------------------------------------------------
5,429,338
- ----------------------------------------------------------------------------------------
BUSINESS MACHINES -- 1.8%
300 Insight Enterprises, Inc. .................................. 12,187
94,100 Sun Microsystems, Inc. ..................................... 7,286,869
- ----------------------------------------------------------------------------------------
7,299,056
- ----------------------------------------------------------------------------------------
BUSINESS SERVICES -- 1.6%
300 Affiliated Computer Services, Inc., Class A Shares.......... 13,800
350 Breakaway Solutions, Inc. (a)............................... 25,550
500 CheckFree Holdings Corp. (a)................................ 52,250
6,000 Computer Sciences Corp. (a)................................. 567,750
121,500 Compuware Corp. ............................................ 4,525,875
600 Concord EFS, Inc. (a)....................................... 15,450
9,880 CSG Systems International, Inc. ............................ 393,965
150 eBenX Inc. (a).............................................. 6,787
4,500 First Data Corp. ........................................... 221,906
2,800 FutureLink Corp. (a)........................................ 72,800
18,450 Learning Tree International, Inc. .......................... 516,600
300 Pegasus Systems, Inc. (a)................................... 18,094
300 Professional Detailing, Inc. ............................... 8,981
500 Quanta Services, Inc. (a)................................... 14,125
210 SonicWall, Inc. (a)......................................... 8,452
500 USWeb Corp. (a)............................................. 22,219
- ----------------------------------------------------------------------------------------
6,484,604
- ----------------------------------------------------------------------------------------
CELLULAR PHONES -- 5.2%
300 Centennial Cellular Corp. (a)............................... 24,862
700 CommNet Cellular, Inc. (a).................................. 22,487
42,800 Omnipoint Corp. (a)......................................... 5,162,750
7,300 Powertel, Inc. (a).......................................... 732,738
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
CELLULAR PHONES -- 5.2% (CONTINUED)
700 Price Communications Corp. (a).............................. $ 19,469
55,400 Sprint Corp. (PCS) (a)...................................... 5,678,500
440 Tritel, Inc. (a)............................................ 13,942
300 United States Cellular Corp. (a)............................ 30,281
49,200 VoiceStream Wireless Corp. (a).............................. 7,001,775
41,000 Western Wireless Corp., Class A Shares (a).................. 2,736,750
- ----------------------------------------------------------------------------------------
21,423,554
- ----------------------------------------------------------------------------------------
COMMUNICATION SERVICES -- 5.6%
83,900 AT&T Corp. -- Liberty Media Corp. (a)....................... 4,761,325
650 Classic Communications, Inc., Class A Shares (a)............ 23,766
31,700 Comcast Corp. (a)........................................... 1,592,925
1,747 Cox Communications, Inc. (a)................................ 89,971
3,300 Emmis Communications Corp. (a).............................. 411,314
25,900 Grupo Televisa S.A. ADR (a)................................. 1,767,675
4,800 Infinity Broadcasting Corp. (a)............................. 173,700
152,896 MCI WorldCom, Inc. ......................................... 8,113,071
8,300 Metricom, Inc. (a).......................................... 652,588
22,600 Metromedia Fiber Network, Inc., Class A Shares.............. 1,083,388
2,200 Microcell Telecommunications, Inc. (a)...................... 72,325
36,400 Qwest Communications International, Inc. ................... 1,565,200
1,500 Radio One, Inc. (a)......................................... 138,000
5,800 Spanish Broadcasting System, Inc. (a)....................... 233,450
23,100 Telefonos de Mexico SA...................................... 2,598,750
1,300 TeleTech Holdings, Inc. (a)................................. 43,814
600 TV Guide, Inc., Class A Shares (a).......................... 25,800
1,100 Unisys Corp. (a)............................................ 35,131
400 Westwood One, Inc. (a)...................................... 30,400
- ----------------------------------------------------------------------------------------
23,412,593
- ----------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 1.6%
8,300 Adobe Systems, Inc. ........................................ 558,175
1,850 Agile Software Corp. (a).................................... 401,884
3,100 Business Objects S.A. ADR (a)............................... 414,238
150 GRIC Communications, Inc. (a)............................... 3,806
1,100 Harbinger Corp. (a)......................................... 34,994
15,900 i2 Technologies, Inc. (a)................................... 3,100,500
60 iManage, Inc. (a)........................................... 1,927
2,500 IMRglobal Corp. (a)......................................... 31,406
950 Internap Network Services Corp. (a)......................... 164,350
5,400 J.D. Edwards & Co. (a)...................................... 161,325
700 Keane, Inc. (a)............................................. 22,225
1,700 Mercury Interactive Corp. (a)............................... 183,494
290 Metasolv Software, Inc. (a)................................. 23,707
325 NetIQ Corp. (a)............................................. 16,920
13,900 Open Market, Inc. (a)....................................... 627,238
1,485 PeopleSoft, Inc. (a)........................................ 31,649
410 Quintus Corp. (a)........................................... 18,809
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE -- 1.6% (CONTINUED)
1,900 SAP AG ADR.................................................. $ 98,919
8,200 Symantec Corp. (a).......................................... 480,725
1,600 Tecnomatix Technologies Ltd. (a)............................ 46,000
320 VA Linux Systems, Inc. (a).................................. 66,120
- ----------------------------------------------------------------------------------------
6,488,411
- ----------------------------------------------------------------------------------------
COMPUTER SOFTWARE - PERSONAL COMPUTER -- 4.4%
190 Immersion Corp. (a)......................................... 7,291
8,400 Macromedia, Inc. ........................................... 614,250
149,600 Microsoft Corp. ............................................ 17,465,800
2,600 Network Associates, Inc. ................................... 69,388
125 SmartDisk Corp. (a)......................................... 4,094
- ----------------------------------------------------------------------------------------
18,160,823
- ----------------------------------------------------------------------------------------
COMPUTER SOFTWARE - SYSTEMS -- 15.5%
225 Alteon Websystems, Inc. (a)................................. 19,744
3,975 Ancor Communications, Inc. (a).............................. 269,803
200 Aspen Technology, Inc. ..................................... 5,287
146,902 BMC Software, Inc. ......................................... 11,742,979
1,400 Brio Technology, Inc. (a)................................... 58,800
54,910 Cadence Design System, Inc. ................................ 1,317,840
450 Clarify, Inc. .............................................. 56,700
90,702 Computer Associates International, Inc. .................... 6,343,471
3,800 EMC Corp. of Massachusetts.................................. 415,150
2,800 Internet Commerce Corp., Class A Shares (a)................. 87,150
300 Keynote Systems, Inc. (a)................................... 22,125
3,500 Manugistics Group, Inc. (a)................................. 113,094
1,100 MicroStrategy, Inc. (a)..................................... 231,000
80 OnDisplay, Inc. (a)......................................... 7,270
326,150 Oracle Corp. ............................................... 36,549,184
75 Predictive Systems, Inc. (a)................................ 4,912
2,200 RealNetworks, Inc. (a)...................................... 264,688
15,500 Siebel Systems, Inc. ....................................... 1,302,000
400 Synopsys, Inc. ............................................. 26,700
38,900 Veritas Software Corp. (a).................................. 5,567,563
- ----------------------------------------------------------------------------------------
64,405,460
- ----------------------------------------------------------------------------------------
CONSUMER GOODS & SERVICES -- 2.3%
8,400 Carson, Inc. ............................................... 27,300
63,230 Cendant Corp. (a)........................................... 1,679,547
203,862 Tyco International, Ltd. ................................... 7,925,135
700 United Stationers, Inc. (a)................................. 19,994
- ----------------------------------------------------------------------------------------
9,651,976
- ----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 3.3%
29,440 ARM Holdings PLC ADR (a).................................... 5,637,760
240 Caliper Technologies Corp. (a).............................. 16,020
39,000 Calpine Corp. (a)........................................... 2,496,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT -- 3.3% (CONTINUED)
27,200 CIENA Corp. (a)............................................. $ 1,564,000
210 Cobalt Networks, Inc. (a)................................... 22,759
34,120 Conexant Systems, Inc. (a).................................. 2,264,715
400 Credence Systems Corp. (a).................................. 34,600
2,300 E-Tek Dynamics, Inc. (a).................................... 309,638
300 Electro Scientific Industries, Inc. (a)..................... 21,900
280 Jabil Circuits, Inc. ....................................... 20,440
7,800 Lam Research Corp. (a)...................................... 870,188
1,200 LTX Corp. (a)............................................... 26,850
800 Maxtor Corp. (a)............................................ 5,800
400 Micrel, Inc. ............................................... 22,775
7,400 National Semiconductor Corp. (a)............................ 316,813
220 Optical Coating Laboratory, Inc. ........................... 65,120
2,400 Tekelec (a)................................................. 54,000
- ----------------------------------------------------------------------------------------
13,749,378
- ----------------------------------------------------------------------------------------
ELECTRONICS -- 18.6%
100,800 Altera Corp. ............................................... 4,995,900
21,100 Analog Devices, Inc. ....................................... 1,962,300
28,200 Applied Materials, Inc. (a)................................. 3,572,588
600 Applied Micro Circuits Corp. ............................... 76,350
11,600 ASM Lithography Holding N.V. (a)............................ 1,319,500
7,400 Atmel Corp. ................................................ 218,763
400 ATMI, Inc. (a).............................................. 13,225
600 Burr-Brown Corp. ........................................... 21,675
480 Flextronics International Ltd. ............................. 22,080
80,050 JDS Uniphase Corp. (a)...................................... 12,913,066
420 Maxim Integrated Products, Inc. ............................ 19,819
300 Microchip Technology, Inc. ................................. 20,531
3,600 Novellus Systems, Inc. (a).................................. 441,113
470 Phototronics, Inc. ......................................... 13,454
200 Qlogic Corp. (a)............................................ 31,975
221,600 QUALCOMM Inc. (a)........................................... 39,057,000
130 Sage, Inc. (a).............................................. 2,519
200 Sanmina Corp. .............................................. 19,975
5,300 SDL, Inc. (a)............................................... 1,155,400
500 Seagate Technology, Inc. (a)................................ 23,281
2,600 SIPEX Corp. ................................................ 63,862
1,400 Solectron Corp. (a)......................................... 133,175
18,600 Sony Corp. ADR.............................................. 5,296,350
4,900 STMicroelectronics N.V. .................................... 742,044
425 Sycamore Networks, Inc. (a)................................. 130,900
18,800 Teradyne, Inc. ............................................. 1,240,800
11,600 Texas Instruments, Inc. (a)................................. 1,123,750
220 Virata Corp. (a)............................................ 6,572
53,400 Xilinx, Inc. ............................................... 2,428,031
- ----------------------------------------------------------------------------------------
77,065,998
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT -- 2.2%
52,200 CBS Corp. (a)............................................... $ 3,337,538
47,341 Clear Channel Communications (a)............................ 4,225,184
11,700 Cox Radio, Inc., Class A Shares............................. 1,167,075
300 Hearst-Argyle TV, Inc. ..................................... 7,987
716 International Speedway Corp., Class A Shares................ 36,068
6,600 Time Warner, Inc. .......................................... 478,088
400 Univision Communications, Inc., Class A Shares.............. 40,875
- ----------------------------------------------------------------------------------------
9,292,815
- ----------------------------------------------------------------------------------------
FINANCIAL INSTITUTIONS -- 1.0%
9,800 American Express Co. ....................................... 1,629,250
9,300 Lehman Brothers Holdings, Inc. ............................. 787,594
12,700 Morgan Stanley Dean Witter & Co. ........................... 1,812,925
400 Waddell & Reed Financial, Inc., Class A Shares.............. 10,850
- ----------------------------------------------------------------------------------------
4,240,619
- ----------------------------------------------------------------------------------------
HOTELS -- 0.0%
300 Four Seasons Hotels Inc. ................................... 15,975
600 Harrah's Entertainment, Inc. (a)............................ 15,862
742 Hilton Hotels Corp. ........................................ 7,142
400 Starwood Hotels & Resorts Worldwide, Inc. .................. 9,400
- ----------------------------------------------------------------------------------------
48,379
- ----------------------------------------------------------------------------------------
INTERNET -- 1.6%
12,000 America Online, Inc. (a).................................... 905,250
1,200 BEA Systems, Inc. (a)....................................... 83,925
420 CacheFlow, Inc. (a)......................................... 54,889
200 China.com Corp. (a)......................................... 15,725
1,800 CMGI, Inc. (a).............................................. 498,376
260 Deltathree.com, Inc. (a).................................... 6,695
350 Digital Impact, Inc. (a).................................... 17,544
450 Digital Insight Corp. (a)................................... 16,369
210 DoubleClick Inc. (a)........................................ 53,143
700 eSpeed, Inc. (a)............................................ 24,894
370 Expedia, Inc., Class A Shares (a)........................... 12,950
250 Fogdog, Inc. (a)............................................ 2,375
325 Foundry Networks, Inc. (a).................................. 98,048
120 FreeMarkets, Inc. (a)....................................... 40,957
250 Harris Interactive, Inc. (a)................................ 3,266
230 Lifeminders.com, Inc. (a)................................... 13,282
3,600 Lycos, Inc. (a)............................................. 286,426
670 McAfee.com Corp. (a)........................................ 30,150
290 Mediaplex, Inc. (a)......................................... 18,197
440 MedicaLogic, Inc. (a)....................................... 9,240
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
INTERNET -- 1.6% (CONTINUED)
700 Tickets.com, Inc. (a)....................................... $ 10,019
23,700 VeriSign, Inc. (a).......................................... 4,525,219
30 Webvan Group Inc. (a)....................................... 495
- ----------------------------------------------------------------------------------------
6,727,434
- ----------------------------------------------------------------------------------------
MACHINERY -- 0.0%
4,650 SI Handling Systems, Inc. .................................. 44,320
- ----------------------------------------------------------------------------------------
MEDICAL & HEALTH PRODUCTS -- 2.3%
200 Andrx Corp. ................................................ 8,462
3,800 IDEC Pharmaceuticals Corp. ................................. 373,350
16,200 Immunex Corp. .............................................. 1,773,900
1,405 Johnson & Johnson........................................... 130,841
1,350 King Pharmaceuticals, Inc. ................................. 75,684
32,100 MedImmune, Inc. (a)......................................... 5,324,588
10,700 Sepracor, Inc. ............................................. 1,061,306
8,800 Teva Pharmaceutical Industries Ltd. ADR..................... 630,850
- ----------------------------------------------------------------------------------------
9,378,981
- ----------------------------------------------------------------------------------------
MEDICAL & HEALTH SERVICES -- 0.1%
700 Allscripts Inc. (a)......................................... 30,800
100 Cyberonics, Inc. ........................................... 1,594
6,700 United HealthCare Corp. .................................... 355,938
- ----------------------------------------------------------------------------------------
388,332
- ----------------------------------------------------------------------------------------
OIL SERVICES -- 0.1%
400 Atwood Oceanics, Inc. (a)................................... 15,450
12,200 Noble Drilling Corp. (a).................................... 399,550
- ----------------------------------------------------------------------------------------
415,000
- ----------------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 0.0%
300 Electronics for Imaging, Inc. .............................. 17,437
- ----------------------------------------------------------------------------------------
RESTAURANTS & LODGING -- 0.0%
400 Brinker International, Inc. ................................ 9,600
450 CEC Entertainment, Inc. .................................... 12,769
200 Papa John's International, Inc. ............................ 5,212
- ----------------------------------------------------------------------------------------
27,581
- ----------------------------------------------------------------------------------------
SHIPBUILDING -- 0.0%
100 Newport News Shipbuilding, Inc. ............................ 2,750
- ----------------------------------------------------------------------------------------
SPECIAL PRODUCTS & SERVICES -- 0.3%
1,000 Callaway Golf Co. .......................................... 17,687
9,100 Corning, Inc. (a)........................................... 1,173,331
1,500 Digimarc Corp. (a).......................................... 75,000
120 Phelps Dodge Corp. ......................................... 8,055
600 Smurfit-Stone Container Corp. (a)........................... 14,700
- ----------------------------------------------------------------------------------------
1,288,773
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
STORES -- 1.7%
1,400 AutoNation, Inc. (a)........................................ $ 12,950
450 Cost Plus, Inc. (a)......................................... 16,031
38,550 Home Depot, Inc. ........................................... 2,643,084
26,050 Office Depot, Inc. ......................................... 284,922
57,000 Wal-Mart Stores, Inc. (a)................................... 3,940,125
- ----------------------------------------------------------------------------------------
6,897,112
- ----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 12.4%
800 Adelphia Business Solutions, Inc. (a)....................... 38,400
1,331 Amdocs Ltd. ................................................ 45,919
300 Aware, Inc. (a)............................................. 10,912
6,600 BCE, Inc. .................................................. 595,238
209,854 Cisco Systems, Inc. ........................................ 22,480,610
2,200 CommScope, Inc. (a)......................................... 88,688
14,500 Echostar Communications Corp., Class A Shares............... 1,413,750
17,200 Global Crossing Ltd. ....................................... 860,000
9,200 Global TeleSystems Group, Inc. (a).......................... 318,550
130 iBasis, Inc. (a)............................................ 3,737
700 ITC DeltaCom, Inc. (a)...................................... 19,337
4,370 Jazztel PLC ADR (a)......................................... 284,596
1,980 Korea Thrunet Co., Ltd. (a)................................. 134,392
300 L-3 Communications Holding, Inc. ........................... 12,487
9,400 Level 3 Communications, Inc. (a)............................ 769,625
2,200 Lucent Technologies, Inc. .................................. 164,588
300 MIPS Technologies, Inc. .................................... 15,600
1,710 Next Level Communications, Inc. (a)......................... 128,036
45,600 Nextel Communications Inc. (a).............................. 4,702,500
38,500 Nokia Corp. ADR, Class A Shares............................. 7,315,000
103,000 Nortel Networks Corp. ...................................... 10,403,000
5,400 NTL, Inc. (a)............................................... 673,650
7,500 PairGain Technologies, Inc. (a)............................. 106,406
8,100 Talk.com, Inc. (a).......................................... 143,775
5,400 Telephone and Data Systems, Inc. (a)........................ 680,400
700 Time Warner Telecom, Inc., Class A Shares (a)............... 34,956
600 USA Networks, Inc. ......................................... 33,150
- ----------------------------------------------------------------------------------------
51,477,302
- ----------------------------------------------------------------------------------------
WIRELESS EQUIPMENT -- 1.9%
600 American Tower Corp. ....................................... 18,337
54,700 Ericsson ADR................................................ 3,593,106
29,100 Motorola, Inc. ............................................. 4,284,975
500 Powerwave Technologies, Inc. (a)............................ 29,187
230 Wireless Facilities, Inc. (a)............................... 10,034
- ----------------------------------------------------------------------------------------
7,935,639
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $183,486,029)................... 352,742,558
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN STOCK -- 12.1%
- ----------------------------------------------------------------------------------------
FINLAND -- 1.8%
200 F-Secure Oyj (a)............................................ $ 5,843
110,700 Sonera Oyj.................................................. 7,589,601
- ----------------------------------------------------------------------------------------
7,595,444
- ----------------------------------------------------------------------------------------
FRANCE -- 1.2%
7,565 Bouygues SA................................................. 4,809,296
1,400 Thomson Multimedia (a)...................................... 75,461
- ----------------------------------------------------------------------------------------
4,884,757
- ----------------------------------------------------------------------------------------
GERMANY -- 1.2%
19,100 Mannesmann AG............................................... 4,626,057
4,100 MobilCom AG (a)............................................. 351,112
- ----------------------------------------------------------------------------------------
4,977,169
- ----------------------------------------------------------------------------------------
HONG KONG -- 0.6%
290,000 China Telecom (Hong Kong) Ltd. (a).......................... 1,813,082
55,000 Hutchison Whampoa Ltd. ..................................... 799,511
- ----------------------------------------------------------------------------------------
2,612,593
- ----------------------------------------------------------------------------------------
ITALY -- 0.6%
404,100 Olivetti S.p.A. (a)......................................... 1,175,382
84,500 Telecom Italia Mobile....................................... 941,661
39,000 Telecom Italia S.p.A. ...................................... 548,129
- ----------------------------------------------------------------------------------------
2,665,172
- ----------------------------------------------------------------------------------------
JAPAN -- 5.6%
43,000 Canon, Inc. ................................................ 1,702,722
285 DDI Corp. .................................................. 3,891,544
2,200 Fast Retailing Co. Ltd. .................................... 892,617
700 Hikari Tsushin, Inc. ....................................... 1,399,591
22,100 Kyocera Corp. .............................................. 5,711,987
2,000 Murata Manufacturing Co., Ltd. ............................. 468,156
54 Nippon Telegraph & Telephone Corp. (NTT).................... 921,682
109 NTT Mobile Communications Network, Inc. (NTT DoCoMo)........ 4,177,997
1,200 Rohm Co., Ltd. ............................................. 491,564
1,100 Softbank Corp. ............................................. 1,049,254
3,800 Sony Corp. ................................................. 1,122,989
26,000 Toyota Motor Corp. ......................................... 1,255,242
- ----------------------------------------------------------------------------------------
23,085,345
- ----------------------------------------------------------------------------------------
NETHERLANDS -- 0.6%
24,500 Koninklijke KPN NV.......................................... 2,391,845
- ----------------------------------------------------------------------------------------
PORTUGAL -- 0.0%
970 PT Multimedia -- Servicos de Telecomunicacoes e Multimedia
SGPS SA (a)................................................. 55,186
- ----------------------------------------------------------------------------------------
SPAIN -- 0.1%
1,500 Telefonica Publicidad e Informacion, SA (a)................. 72,917
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM -- 0.4%
5,400 ARM Holdings PLC (a)........................................ $ 360,894
26,100 Colt Telecom Group PLC (a).................................. 1,346,165
16,510 Thus PLC (a)................................................ 103,410
- ----------------------------------------------------------------------------------------
1,810,469
- ----------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $33,781,627)................... 50,150,897
- ----------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 2.9%
$4,100,000 Federal Home Loan Mortgage Discount Note, 1.500% due
1/3/00...................................................... 4,099,658
8,000,000 Federal Home Loan Mortgage Discount Note, 5.600% due
1/11/00..................................................... 7,987,556
- ----------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $12,087,214).......... 12,087,214
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $229,354,870*)........... $414,980,669
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS & NOTES -- 92.8%
- ---------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE -- 0.3%
$ 175,000 B- Anteon Corp., Sr. Sub. Notes, 12.000% due 5/15/09 (a)....... $ 164,938
- ---------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 3.3%
125,000 B- Accuride Corp., Sr. Sub. Notes, 9.250% due 2/1/08........... 115,625
200,000 B- Aftermarket Tech., Sr. Sub. Notes, 12.000% due 8/1/04....... 200,000
225,000 B American Axle & Manufacturing Inc., Company Guaranteed
Notes, 9.750% due 3/1/09.................................. 227,250
200,000 B Collins Aikman Products Co., Guaranteed Sr. Sub. Notes,
11.500% due 4/15/06....................................... 198,000
150,000 B- HDA Parts System Inc., Sr. Sub. Notes, 12.000% due 8/1/05
(a)....................................................... 139,125
200,000 B- J.L. French Auto Casting, Sr. Sub. Notes, 11.500% due 6/1/09
(a)....................................................... 202,000
Lear Corp., Sub. Notes:
100,000 BB- 9.500% due 7/15/06........................................ 102,000
250,000 BB+ 8.110% due 5/15/09 (a).................................... 237,188
200,000 B Transport Manufacturing Industry International Inc., Company
Guaranteed Notes, 11.250% due 5/1/09...................... 205,000
- ---------------------------------------------------------------------------------------------------
1,626,188
- ---------------------------------------------------------------------------------------------------
BANKING -- 0.6%
350,000 BB+ GS Escrow Corp., Sr. Sub. Notes, 7.125% due 8/1/05.......... 318,063
- ---------------------------------------------------------------------------------------------------
BEVERAGE & TOBACCO -- 0.3%
75,000 BB+ Dimon Inc., Sr. Notes, 8.875% due 6/1/06.................... 67,125
100,000 B National Wine & Spirits, Sr. Notes, 10.125% due 1/15/09
(a)....................................................... 101,000
- ---------------------------------------------------------------------------------------------------
168,125
- ---------------------------------------------------------------------------------------------------
BROADCASTING - RADIO, CABLE & TV -- 6.3%
250,000 B- ACME Television LLC Financial Corp., Sr. Discount Notes,
step bond to yield 11.028% due 9/30/04.................... 225,625
31,700 B AMFM Operating Inc., 12.625% due 10/31/06................... 36,455
225,000 NR Big City Radio Inc., Company Guaranteed Notes, step bond to
yield 10.890% due 3/15/05................................. 149,791
100,000 B Capstar Broadcasting, Radio, Cable & TV Partners, Sr. Sub.
Notes,
9.250% due 7/1/07......................................... 101,375
Chancellor Media Corp.:
50,000 B Company Guaranteed Notes, 10.500% due 1/15/07............... 54,313
Sr. Sub. Notes:
100,000 B 9.375% due 10/1/04.......................................... 103,375
650,000 B 8.125% due 12/15/07......................................... 651,625
425,000 B 9.000% due 10/1/08.......................................... 443,063
100,000 B- Cumulus Media Inc., Company Guaranteed Notes, 10.375% due
7/1/08.................................................... 104,000
500,000 BBB- Fox/Liberty Networks LLC Inc., Sr. Discount Notes, step bond
to yield 9.750% due 8/15/07............................... 401,250
125,000 B Lamar Advertising Co., Company Guaranteed Notes, 8.625% due
9/15/07................................................... 124,063
225,000 B+ Orion Networks, Sr. Notes, 11.250% due 1/15/07.............. 169,311
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
BROADCASTING - RADIO, CABLE & TV -- 6.3% (CONTINUED)
Sinclair Broadcast Group, Sr. Sub. Notes:
$ 100,000 B 10.000% due 9/30/05......................................... $ 100,000
425,000 B 8.750% due 12/15/07......................................... 399,500
- ---------------------------------------------------------------------------------------------------
3,063,746
- ---------------------------------------------------------------------------------------------------
BUILDING & DEVELOPMENT -- 1.3%
100,000 B American Builders & Contractors, Sr. Sub. Notes, 10.625% due
5/15/07................................................... 90,000
100,000 BB Building Materials Corp., Sr. Notes, 8.000% due 10/15/07.... 93,000
200,000 BBB- Falcon Building, Company Guaranteed Notes, step bond to
yield
12.615% due 6/15/07....................................... 150,000
150,000 B- Formica Corp., Sr. Sub. Notes, 10.875% due 3/1/09 (a)....... 137,250
50,000 B- Juno Lighting Inc., Sr. Sub. Notes, 11.875% due 7/1/09
(a)....................................................... 46,125
125,000 B NCI Building Systems Inc., 9.250% due 5/1/09................ 118,750
- ---------------------------------------------------------------------------------------------------
635,125
- ---------------------------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES -- 2.4%
150,000 BB- Avis Rent a Car Inc., Sr. Sub. Notes, 11.000% due 5/1/09
(a)....................................................... 158,625
175,000 B Buhrmann US Inc., Sr. Sub. Notes, 12.250% due 11/1/09 (a)... 182,000
175,000 B- Dialog Corp. PLC, Sr. Sub. Notes, 11.000% due 11/15/07...... 91,438
525,000 B- Fisher Scientific International Inc., Sr. Sub. Notes,
9.000% due 2/1/08......................................... 505,313
33,000 B United Stationer Supply, Sr. Sub. Notes, 12.750% due
5/1/05.................................................... 35,558
400,000 CCC+ US Office Products Co., Company Guaranteed Notes, 9.750% due
6/15/08................................................... 214,000
- ---------------------------------------------------------------------------------------------------
1,186,934
- ---------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 11.6%
350,000 B+ Charter Communications Holdings LLC, Sr. Discount Notes,
zero coupon due 4/1/11 (a)................................ 206,500
CSC Holdings Inc., Sr. Sub. Notes:
300,000 BB- 9.250% due 11/1/05........................................ 309,750
250,000 BB- 9.875% due 2/15/13........................................ 262,500
125,000 B- Diamond Cable Communications PLC, Sr. Discount Notes, step
bond to yield
9.900% due 2/15/07........................................ 101,250
150,000 B- Diamond Holdings PLC, Company Guaranteed Notes, 9.125% due
2/1/08.................................................... 149,250
100,000 NR Diva Systems Corp., Sr. Discount Notes, step bond to yield
12.085% due 3/1/08 (b).................................... 29,500
500,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 (a)........ 502,500
100,000 BB- Lenfest Communications, Sr. Sub. Notes, 8.250% due
2/15/08................................................... 101,125
NTL Inc., Sr. Notes, step bond to yield:
375,000 B- 10.564% due 2/1/06........................................ 339,375
850,000 B- 10.885% due 4/1/08........................................ 592,875
475,000 B- 11.703% due 10/1/08....................................... 336,063
425,000 CCC+ Pegasus Communications, Sr. Notes, 9.625% due 10/15/05...... 431,375
350,000 B- RCN Corp., Sr. Discount Notes, step bond to yield 12.152%
due 10/15/07.............................................. 251,125
350,000 BB+ Rogers Cable Systems Inc., Sr. Notes, 10.000% due 3/15/05... 379,750
Telewest Communications PLC, Sr. Notes:
675,000 B+ 11.250% due 11/1/08 (a)..................................... 631,125
50,000 B+ Step bond to yield 10.758% due 10/1/07...................... 54,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CABLE TELEVISION -- 11.6% (CONTINUED)
$ 275,000 B UIH Australia Inc., Sr. Discount Notes, step bond to yield
14.353% due 5/15/06....................................... $ 232,375
575,000 B- United International Holdings, Sr. Discount Notes, step bond
to yield
11.736% due 2/15/08....................................... 368,000
United Pan-Europe Communications Co., Sr. Discount Notes,
step bond to yield:
275,000 B 12.500% due 8/1/09 (a).................................... 158,125
400,000 B 13.375% due 11/1/09 (a)................................... 230,000
- ---------------------------------------------------------------------------------------------------
5,667,313
- ---------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS -- 4.8%
Buckeye Cellulose Corp., Sr. Sub. Notes:
75,000 BB- 8.500% due 12/15/05....................................... 73,500
100,000 BB- 9.250% due 9/15/08........................................ 102,125
100,000 B+ General Chemical Industry Products, Sr. Sub. Notes, 10.625%
due 5/1/09................................................ 99,000
100,000 BB- Georgia Gulf Corp., Sr. Sub. Notes, 10.375% due 11/1/07
(a)....................................................... 104,750
250,000 NR Huntsman Corp., Sr. Sub. Notes, 9.500% due 7/1/07 (a)....... 238,750
175,000 B+ Huntsman ICI Chemicals, Sr. Sub. Notes, 10.125% due 7/1/09
(a)....................................................... 181,125
225,000 BB- ISP Holdings Inc., Sr. Notes, 9.000% due 10/15/03........... 221,625
500,000 B+ Lyondell Chemical Co., Sub. Notes, 10.875% due 5/1/09 (a)... 520,000
Polymer Group, 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:
200,000 B 11.750% due 8/15/06....................................... 150,000
50,000 B Step bond to yield 12.485% due 8/15/08.................... 13,750
150,000 B Texas Petrochemical Corp., Sr. Sub. Notes, 11.125% due
7/1/06.................................................... 130,500
- ---------------------------------------------------------------------------------------------------
2,346,625
- ---------------------------------------------------------------------------------------------------
CLOTHING & TEXTILES -- 0.8%
150,000 B- Collins Aikman Floorcovering Inc., Sr. Sub. Notes, 10.000%
due 1/15/07............................................... 147,375
150,000 B- Gear For Sports Inc., Sr. Sub. Notes, 9.625% due 3/1/07..... 90,750
50,000 CCC+ Glenoit Corp., Company Guaranteed Notes, 11.000% due
4/15/07................................................... 13,000
Pillowtex Corp., Company Guaranteed Notes:
150,000 CC 10.000% due 11/15/06...................................... 64,875
175,000 CC 9.000% due 12/15/07....................................... 75,250
- ---------------------------------------------------------------------------------------------------
391,250
- ---------------------------------------------------------------------------------------------------
CONGLOMERATES -- 0.5%
250,000 B- Eagle Picher Industry Inc., Sr. Sub. Notes, 9.375% due
3/1/08.................................................... 222,500
- ---------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 3.8%
200,000 B- Albecca Inc., Company Guaranteed Notes, 10.750% due
8/15/08................................................... 138,000
175,000 B- Amscan Holdings Inc., Sr. Sub. Notes, 9.875% due 12/15/07... 147,875
150,000 B- Boyds Collection Ltd., Sr. Sub. Notes, 9.000% due 5/15/08... 142,500
275,000 B- Chattem Inc., Company Guaranteed Notes, 8.875% due 4/1/08... 259,188
50,000 CCC+ Diamond Brands Operating, Company Guaranteed Notes, 10.125%
due 4/15/08............................................... 39,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONSUMER PRODUCTS -- 3.8% (CONTINUED)
$ 100,000 B+ NBTY Inc., Sr. Sub. Notes, 8.625% due 9/15/07............... $ 92,250
250,000 B Playtex Family Products Corp., Sr. Sub. Notes, 9.000% due
12/15/03.................................................. 247,500
600,000 CCC+ Revlon Consumer Products, Sr. Sub. Notes, 8.625% due
2/1/08.................................................... 306,000
125,000 B- Sealy Mattress Co., Sr. Sub. Notes, 9.875% due 12/15/07..... 123,750
150,000 B- True Temper Sports Inc., Sr. Sub. Notes, 10.875% due
12/1/08................................................... 142,688
100,000 B- United Industries Corp., Sr. Sub. Notes, 9.875% due 4/1/09
(a)....................................................... 91,500
150,000 B- Volume Service America, Sr. Sub. Notes, 11.250% due 3/1/09
(a)....................................................... 148,500
- ---------------------------------------------------------------------------------------------------
1,879,251
- ---------------------------------------------------------------------------------------------------
CONTAINER & GLASS PRODUCTS -- 0.5%
100,000 B- Russell-Stanley Holdings Inc., Sr. Sub. Notes, 10.875% due
2/15/09 (a)............................................... 89,000
150,000 B- Tekni-Plex Inc., Sr. Sub. Notes, 9.250% due 3/1/08.......... 152,250
- ---------------------------------------------------------------------------------------------------
241,250
- ---------------------------------------------------------------------------------------------------
ECOLOGICAL SERVICES & EQUIPMENT -- 2.2%
Allied Waste North America:
700,000 BB- Company Guaranteed Notes, 7.625% due 1/1/06............... 637,000
500,000 B+ Sr. Sub. Notes, 10.000% due 8/1/09........................ 447,500
- ---------------------------------------------------------------------------------------------------
1,084,500
- ---------------------------------------------------------------------------------------------------
ELECTRONICS -- 1.3%
150,000 B SCG Holdings & Semiconductor Co., Sr. Sub. Notes, 12.000%
due 8/1/09................................................ 159,375
475,000 B- Telecomm Techniques Co., Company Guaranteed Notes, 9.750%
due 5/15/08............................................... 437,000
100,000 B- Viasystems Inc., Sr. Sub. Notes, 9.750% due 6/1/07.......... 55,000
- ---------------------------------------------------------------------------------------------------
651,375
- ---------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS -- 0.0%
150,000 D Jitney-Jungle Stores, Company Guaranteed Notes, 10.375% due
9/15/07................................................... 3,000
- ---------------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.4%
250,000 B- Agrilink Foods Inc., Sr. Sub. Notes, 11.875% due 11/1/08
(a)....................................................... 247,500
100,000 B+ Aurora Foods Inc., Sr. Sub. Notes, 9.875% due 2/15/07....... 102,000
300,000 CCC+ Eagle Family Foods, Company Guaranteed, 8.750% due
1/15/08................................................... 229,500
350,000 B- International Home Foods, Company Guaranteed Notes, 10.375%
due 11/1/06............................................... 362,250
225,000 B- Triarc Consumers, Sr. Notes, 10.250% due 2/15/09 (a)........ 215,438
- ---------------------------------------------------------------------------------------------------
1,156,688
- ---------------------------------------------------------------------------------------------------
FOOD SERVICES -- 1.1%
150,000 B Advantica Restaurant Group, Sr. Notes, 11.250% due
1/15/08................................................... 114,000
375,000 CCC+ Ameriserve Food Distribution Inc., Company Guaranteed,
10.125% due 7/15/07....................................... 135,000
100,000 B- Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08........... 92,000
200,000 B- Dominos Inc., Sr. Sub. Notes, 10.375% due 1/15/09........... 193,500
100,000 CCC+ Nebco Evans Holding Co., Sr. Discount Notes, step bond to
yield 10.820% due 7/15/07................................. 13,000
- ---------------------------------------------------------------------------------------------------
547,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 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.................................................... $ 180,469
175,000 B- Stone Container Corp., Sr. Sub. Debentures, 12.250% due
4/1/02 (b)................................................ 175,875
- ---------------------------------------------------------------------------------------------------
356,344
- ---------------------------------------------------------------------------------------------------
HEALTH CARE -- 4.0%
250,000 BB+ Columbia/HCA Healthcare, Discount Notes, 6.910% due
6/15/05................................................... 226,563
250,000 B- Dade International Inc., Sr. Sub. Notes, 11.125% due
5/1/06.................................................... 245,000
100,000 B- Everest Healthcare Services, Company Guaranteed, 9.750% due
5/1/08.................................................... 93,125
Genesis Health Ventures, Sr. Sub. Notes:
100,000 CCC+ 9.250% due 10/1/06........................................ 41,000
125,000 CCC+ 9.875% due 1/15/09........................................ 51,250
125,000 B- Hanger Orthopedic Group, Sr. Sub. Notes, 11.250% due
6/15/09................................................... 129,375
275,000 CCC+ Kinetic Concepts, Company Guaranteed, 9.625% due 11/1/07.... 207,625
Tenet Healthcare Corp., Sr. Notes:
300,000 BB+ 8.000% due 1/15/05........................................ 289,500
100,000 BB+ 7.625% due 6/1/08......................................... 90,250
550,000 BB- 8.125% due 12/1/08........................................ 513,563
50,000 B- Unilab Financial Corp., Sr. Sub. Notes, 12.750% due 10/1/09
(a)....................................................... 52,250
- ---------------------------------------------------------------------------------------------------
1,939,501
- ---------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & CASINOS -- 1.9%
325,000 B- Florida Panthers Holdings, Company Guaranteed Notes, 9.875%
due 4/15/09............................................... 316,063
HMH Properties Inc.:
300,000 BB Sr. Notes, 8.450% due 12/1/08............................. 279,000
350,000 BB Sr. Sub. Notes, 7.875% due 8/1/08......................... 313,250
- ---------------------------------------------------------------------------------------------------
908,313
- ---------------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS & EQUIPMENT -- 3.3%
225,000 B- Amphenol Corp., Sr. Sub. Notes, Callable 5/15/02, 9.875% due
5/15/07................................................... 230,625
125,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09 (a)......... 131,875
150,000 B- Continental Global Group, Sr. Notes, 11.000% due 4/1/07..... 79,500
150,000 B Euramax International PLC, Sr. Sub. Notes, 11.250% due
10/1/06................................................... 151,875
100,000 B+ Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09 (a)........ 84,000
100,000 B- International Utility Structures, Sr. Sub. Notes, 10.750%
due 2/1/08................................................ 83,500
175,000 B- ISG Resources Inc., Sr. Sub. Notes, 10.000% due 4/15/08..... 148,750
Johnstown America Industries, Company Guaranteed:
75,000 B 11.750% due 8/15/05....................................... 76,313
50,000 B Series C, 11.750% due 8/15/05............................. 50,875
150,000 B- MMI Products Inc., Sr. Sub. Notes, 11.250% due 4/15/07...... 155,625
100,000 B- Neenah Corp., Sr. Sub. Notes, 11.125% due 5/1/07............ 93,000
325,000 B Wesco Distribution Inc., Company Guaranteed Notes, 9.125%
due 6/1/08................................................ 305,500
- ---------------------------------------------------------------------------------------------------
1,591,438
- ---------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT -- 2.3%
308,000 CCC+ AMF Bowling Worldwide Inc., Sr. Sub. Discount Notes, step
bond to yield 13.034% due 3/15/06......................... 107,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
LEISURE & ENTERTAINMENT -- 2.3% (CONTINUED)
Premier Parks Inc.:
$ 150,000 B- Sr. Discount Notes, 9.750% due 6/15/07.................... $ 150,000
825,000 B- Sr. Notes, step bond to yield 10.089% due 4/1/08.......... 561,000
425,000 B- Regal Cinemas Inc., Sr. Sub. Notes, 9.500% due 6/1/08....... 330,438
- ---------------------------------------------------------------------------------------------------
1,149,238
- ---------------------------------------------------------------------------------------------------
MACHINERY & EQUIPMENT -- 2.5%
35,000 B- Alvey Systems Inc., Sr. Sub. Notes, 11.375% due 1/31/03..... 36,225
150,000 CCC Clark Material Handling, Company Guaranteed Notes, 10.750%
due 11/15/06.............................................. 48,000
175,000 B- Fairchild Corp., Company Guaranteed Notes, 10.750% due
4/15/09................................................... 149,844
200,000 B National Equipment Services Inc., Sr. Sub. Notes,
10.000% due 11/30/04........................................ 201,000
200,000 B Nationsrent Inc., Company Guaranteed, 10.375% due
12/15/08.................................................. 197,500
United Rentals Inc., Sr. Sub. Notes:
250,000 BB- 9.250% due 1/15/09........................................ 241,250
250,000 BB- 9.000% due 4/1/09......................................... 236,250
125,000 B Woods Equipment Co., Company Guaranteed Notes, 12.000% due
7/15/09................................................... 115,000
- ---------------------------------------------------------------------------------------------------
1,225,069
- ---------------------------------------------------------------------------------------------------
METALS & MINING -- 0.8%
250,000 CCC- AEI Holdings Company Inc., Company Guaranteed Notes,
10.500% due 12/15/05 (a).................................. 177,500
150,000 CC AEI Resources Inc., Sr. Sub. Notes, 11.500% due 12/15/06
(a)....................................................... 101,250
125,000 BB- Murrin Murrin Holding Property, Sr. Notes, 9.375% due
8/31/07................................................... 113,125
- ---------------------------------------------------------------------------------------------------
391,875
- ---------------------------------------------------------------------------------------------------
OIL & GAS -- 2.2%
100,000 B Comstock Resources Inc., Sr. Notes, 11.250% due 5/1/07
(a)....................................................... 102,500
200,000 CCC Continental Resources, Notes, 10.250% due 8/1/08............ 175,000
125,000 BB- Pogo Producing Co., Sr. Sub. Notes, 10.375% due 2/15/09..... 129,375
275,000 BB Pride International Inc., Sr. Notes, 9.375% due 5/1/07...... 275,688
200,000 B+ R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06............ 221,500
100,000 BB- RBF Finance Co., Company Guaranteed Notes, 11.375% due
3/15/09................................................... 108,250
125,000 B Universal Compress. Inc., Sr. Discount Notes, 9.875% due
2/15/08................................................... 79,219
- ---------------------------------------------------------------------------------------------------
1,091,532
- ---------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 0.9%
300,000 B+ Garden State Newspapers, Sr. Sub. Notes, 8.750% due
10/1/09................................................... 279,375
175,000 BB- Hollinger International Publishing Inc., Company Guaranteed
Notes, 9.250% due 3/15/07................................. 173,688
- ---------------------------------------------------------------------------------------------------
453,063
- ---------------------------------------------------------------------------------------------------
SERVICES -- 1.9%
100,000 B Coinmach Corp., Sr. Notes, 11.750% due 11/15/05............. 103,250
Crown Castle International Corp., Sr Discount Notes, step
bond to yield:
425,000 B 10.396% due 5/15/11....................................... 266,688
375,000 B 11.181% due 8/1/11........................................ 236,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SERVICES -- 1.9% (CONTINUED)
$ 175,000 B Sitel Corp., Company Guaranteed Notes, 9.250% due 3/15/06... $ 161,219
150,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09............... 157,875
- ---------------------------------------------------------------------------------------------------
925,282
- ---------------------------------------------------------------------------------------------------
STEEL -- 0.9%
250,000 B Metals USA Inc., Company Guaranteed Notes, 8.625% due
2/15/08................................................... 233,125
150,000 B Republic Technology Inc., 13.750% due 7/15/09 (b)........... 105,000
100,000 BBB Ryerson Tull Inc., Notes, 8.500% due 7/15/01................ 100,500
- ---------------------------------------------------------------------------------------------------
438,625
- ---------------------------------------------------------------------------------------------------
SURFACE TRANSPORTATION -- 2.4%
250,000 B+ Allied Holdings Inc., Company Guaranteed Notes, 8.625% due
10/1/07................................................... 222,500
200,000 B+ Gearbulk Holding Ltd., Sr. Notes, 11.250% due 12/1/04....... 204,500
100,000 B+ Holt Group, Sr. Notes, 9.750% due 1/15/06 (a)............... 67,500
150,000 B Railworks Corp., Sr. Sub. Notes, 11.500% due 4/15/09........ 152,250
Stena AB, Sr. Notes:
275,000 BB 10.500% due 12/15/05...................................... 253,688
250,000 BB 8.750% due 6/15/07........................................ 208,125
100,000 B Stena Line AB, Sr. Notes, 10.625% due 6/1/08................ 60,000
- ---------------------------------------------------------------------------------------------------
1,168,563
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR -- 23.6%
200,000 CCC+ American Cellular Corp., Sr. Notes, Callable 5/15/06,
10.500% due 5/15/08 (a)................................... 220,000
Call Net Enterprises Inc., Sr. Discount Notes, step bond to
yield:
175,000 B+ 10.800% due 8/15/03....................................... 85,750
375,000 B+ 11.735% due 5/15/04....................................... 221,250
375,000 B+ 8.820% due 8/15/07.......................................... 180,000
200,000 B- Centennial Cellular, Sr. Notes, 10.750% due 12/15/08........ 215,500
300,000 CCC+ Dolphin Telecom, PLC, Sr. Discount Notes, step bond to yield
14.000% due 5/15/09 (a)................................... 141,000
100,000 NR E. Spire Communications, Sr. Discount Notes, 10.789% due
4/1/06.................................................... 50,000
925,000 BB Global Crossing Holdings Ltd., Sr. Notes, 9.500% due
11/15/09 (a).............................................. 920,375
500,000 B Hermes Europe Railtel BV, Sr. Notes, 11.500% due 8/15/07.... 516,250
Intermedia Communications, Sr. Discount Notes:
175,000 B 8.600% due 6/1/08......................................... 161,875
250,000 B Step bond to yield 12.234% due 9/15/05.................... 151,250
225,000 CCC+ Step bond to yield 10.183% due 5/15/06.................... 200,250
450,000 B Step bond to yield 10.425% due 3/1/09..................... 337,500
Level 3 Communications, Sr. Notes:
525,000 B 10.500% due 12/1/08....................................... 317,625
925,000 B Step bond to yield 11.085% due 12/1/08.................... 874,125
725,000 B+ McLeodUSA Inc., Sr. Discount Notes, step bond to yield
9.608% due 3/1/07......................................... 589,063
425,000 B- Millicom International Cellular SA, Sr. Sub. Discount Notes,
step bond to yield 12.277% due 6/1/06..................... 349,563
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TELECOMMUNICATIONS & CELLULAR -- 23.6% (CONTINUED)
Nextel Communications:
$ 500,000 B- Sr. Discount Notes, 10.748% due 9/15/07................... $ 376,250
375,000 B Sr. Notes, 9.798% due 11/15/09 (a)........................ 265,306
600,000 B Sr. Sub. Notes, step bond to yield 11.008% due 2/15/08.... 591,000
75,000 B Nextel International Inc., Sr. Discount Notes, step bond to
yield 12.125% due 4/15/08................................. 42,750
125,000 CCC+ Nextel Partners Inc., Sr. Discount Notes, step bond to yield
14.000% due 2/1/09 (a).................................... 82,500
Nextlink Communications, Sr. Notes:
1,050,000 B 10.750% due 6/1/09........................................ 656,250
100,000 B 12.250% due 6/1/09........................................ 103,500
175,000 CC Paging Network, Sr. Sub. Notes, 10.000% due 10/15/08........ 55,125
PSInet Inc., Sr. Notes:
350,000 B- 10.000% due 2/15/05....................................... 348,250
100,000 B- 11.500% due 11/1/08....................................... 105,000
125,000 B- 11.000% due 11/1/09....................................... 129,375
700,000 BB+ Qwest Communications International Inc., Sr. Discount Notes,
step bond to yield 8.378% due 10/15/07.................... 568,750
275,000 BB- Rogers Cantel Inc., Sr. Sub. Notes, 8.800% due 10/1/07...... 280,500
425,000 CCC+ Telesystem International Wireless, Sr. Discount Notes, step
bond to yield 12.970% due 6/30/07......................... 259,250
Teligent Inc.:
175,000 CCC Sr. Discount Notes, 11.750% due 3/1/08.................... 102,813
350,000 CCC Sr. Notes, 11.500% due 12/1/07............................ 341,250
425,000 CCC+ Triton PCS Inc., Company Guaranteed Notes, step bond to
yield 13.043% due 5/1/08.................................. 301,750
200,000 CCC+ U.S. Unwired Inc., Sr. Discount Notes, step bond to yield
13.375% due 11/1/09 (a)................................... 119,000
150,000 B- US Xchange LLC, Sr. Notes, 15.000% due 7/1/08............... 127,500
100,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08.................. 105,500
Viatel Inc.:
350,000 B- Sr. Discount Notes, 13.236% due 4/15/08................... 220,500
100,000 B- Sr. Notes, 11.250% due 4/15/08 (a)........................ 100,000
100,000 B- Sr. Notes, 11.500% due 3/15/09............................ 100,250
650,000 B- Voicestream Wire Co., Sr. Discount Notes, step bond to yield
11.758% due 11/15/09 (a).................................. 393,250
250,000 CCC Winstar Communications Co., Sr. Sub. Notes, step bond to
yield 11.000% due 3/15/08................................. 255,000
- ---------------------------------------------------------------------------------------------------
11,561,995
- ---------------------------------------------------------------------------------------------------
UTILITIES -- 1.9%
250,000 BB Caithness Coso Fund Corp., Secured Notes, 9.050% due
12/15/09.................................................. 248,125
100,000 B CMS Energy Corp., Sr. Notes, 7.500% due 1/15/09............. 90,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING+ SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
UTILITIES -- 1.9% (CONTINUED)
$ 250,000 BBB- El Paso Electric Company, First Mortgage, 9.400% due
5/1/11.................................................... $ 267,500
450,000 BBB- Niagara Mohawk Power Corp., Sr. Discount Notes, step bond to
yield 8.075% due 7/1/10................................... 344,250
- ---------------------------------------------------------------------------------------------------
950,250
- ---------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $49,349,519)......... 45,505,459
- ---------------------------------------------------------------------------------------------------
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PREFERRED STOCK -- 2.5%
- ---------------------------------------------------------------------------------------------------
BROADCASTING - RADIO, CABLE & TV -- 0.7%
1,000 CCC+ Benedek Communications, Payment-in-Kind, 11.500%............ 87,000
631 B- Capstar Broadcasting, Radio, Cable & TV Partners, Sr.
Preferred, 12.000%........................................ 72,565
817 CCC+ Cumulus Media Inc., Fixed, 13.750%.......................... 90,091
1,000 B- Sinclair Capital, 11.625%................................... 105,750
- ---------------------------------------------------------------------------------------------------
355,406
- ---------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 0.1%
67 CCC Pegasus Communications, Payment-in-Kind, 12.750% due
1/1/02.................................................... 68,756
- ---------------------------------------------------------------------------------------------------
FOOD SERVICES -- 0.0%
1,209 CCC Nebco Evans Holding Co., Payment-in-Kind, 11.250% due
6/1/03.................................................... 13,299
- ---------------------------------------------------------------------------------------------------
OIL & GAS -- 0.6%
2,590 B- R&B Falcon Corp., Payment-in-Kind, 13.875% due 5/1/04....... 273,278
- ---------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 0.9%
1,500 B Primedia Inc., 8.625%....................................... 138,000
2,850 CCC+ Primedia Inc., 9.200%....................................... 274,313
- ---------------------------------------------------------------------------------------------------
412,313
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR -- 0.2%
890 CCC+ Nextel Communications, Payment-in-Kind, 10.650% due
9/15/07................................................... 89,223
- ---------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $1,310,143).................. 1,212,275
- ---------------------------------------------------------------------------------------------------
WARRANTS (c) -- 0.1%
- ---------------------------------------------------------------------------------------------------
CABLE TELEVISION -- 0.0%
300 Diva Systems, Corp., Expire 3/1/08.......................... 2,400
100 UIH Australia Pacific Inc., Expire 5/15/06.................. 3,000
- ---------------------------------------------------------------------------------------------------
5,400
- ---------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS -- 0.0%
100 Sterling Chemicals Holdings Inc., Expire 8/15/06............ 1,600
- ---------------------------------------------------------------------------------------------------
OIL & GAS -- 0.1%
750 R&B Falcon Corp., Expire 5/1/09............................. 18,750
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TELECOMMUNICATIONS & CELLULAR -- 0.0%
50 Metronet Communications Corp., Class B Shares, Expire
8/15/07................................................... $ 419
- ---------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $20,792)............................ 26,169
- ---------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $50,680,454)................. 46,743,903
- ---------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 4.6%
$2,251,000 Chase Securities Inc., 2.000% due 1/3/00; Proceeds at
maturity -- $2,251,375; (Fully collateralized by U.S.
Treasury Notes, 11.625% due 11/15/02;
Market value -- $2,302,773) (Cost -- $2,251,000).......... 2,251,000
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%(Cost -- $52,931,454**)............ $48,994,903
- ---------------------------------------------------------------------------------------------------
</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 securities.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 46 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 98.8%
- -------------------------------------------------------------------------------------
AEROSPACE -- 0.9%
8,500 Northrop Grumman Corp. ..................................... $ 459,531
- -------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT -- 1.2%
28,300 Cooper Tire & Rubber Co. ................................... 440,419
10,512 Delphi Automotive Systems Corp. ............................ 165,564
- -------------------------------------------------------------------------------------
605,983
- -------------------------------------------------------------------------------------
AUTOMOTIVE -- 2.1%
9,700 Ford Motor Co. ............................................. 518,344
7,300 General Motors Corp. ....................................... 530,619
- -------------------------------------------------------------------------------------
1,048,963
- -------------------------------------------------------------------------------------
CHEMICALS -- 1.0%
8,000 PPG Industries, Inc. ....................................... 500,500
- -------------------------------------------------------------------------------------
CONSUMER DURABLES -- 1.7%
6,700 Eastman Kodak Co. .......................................... 443,875
19,750 Hasbro, Inc. ............................................... 376,484
- -------------------------------------------------------------------------------------
820,359
- -------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 2.0%
15,200 Kimberly-Clark Corp. ....................................... 991,800
- -------------------------------------------------------------------------------------
CONTAINERS -- 0.5%
21,300 Pactiv Corp. (a)............................................ 226,313
- -------------------------------------------------------------------------------------
ELECTRIC - UTILITIES -- 4.6%
21,100 Entergy Corp. .............................................. 543,325
9,800 FPL Group, Inc. ............................................ 419,563
16,100 PG&E Corp. ................................................. 330,050
13,000 Public Service Enterprise Group, Inc. ...................... 452,563
22,800 Reliant Energy, Inc. ....................................... 521,550
- -------------------------------------------------------------------------------------
2,267,051
- -------------------------------------------------------------------------------------
ELECTRONICS -- 1.8%
6,440 Koninklijke Philips Electric NV............................. 869,400
- -------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.4%
10,900 Bank of America Corp. ...................................... 547,044
13,980 The Bear Stearns Cos. Inc. ................................. 597,645
32,200 The CIT Group, Inc. ........................................ 680,225
12,500 First Union Corp. .......................................... 410,156
10,600 H&R Block, Inc. ............................................ 463,750
9,200 MBIA, Inc. ................................................. 485,866
6,200 Morgan Stanley Dean Witter & Co. ........................... 885,050
21,700 Washington Mutual, Inc. .................................... 564,200
- -------------------------------------------------------------------------------------
4,633,936
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
FOOD -- 3.2%
21,982 Archer-Daniels-Midland Co. ................................. $ 267,906
14,900 General Mills, Inc. ........................................ 532,675
13,200 Nabisco Group Holdings Corp. ............................... 140,250
28,400 Sara Lee Corp. ............................................. 626,575
- -------------------------------------------------------------------------------------
1,567,406
- -------------------------------------------------------------------------------------
HEALTH CARE -- 8.7%
13,800 Abbott Laboratories......................................... 501,113
9,300 Baxter International Inc. .................................. 584,156
44,200 Beverly Enterprises, Inc. (a)............................... 193,375
14,600 Bristol-Myers Squibb & Co. ................................. 937,138
49,500 HEALTHSOUTH Corp. (a)....................................... 266,063
6,800 Merck & Co., Inc. .......................................... 456,025
16,200 Pharmacia & Upjohn, Inc. ................................... 729,000
11,600 United Healthcare Corp. .................................... 616,250
- -------------------------------------------------------------------------------------
4,283,120
- -------------------------------------------------------------------------------------
INSURANCE -- 8.4%
8,100 Allmerica Financial Corp. .................................. 450,563
20,500 Allstate Corp. ............................................. 492,000
5,900 CIGNA Corp. ................................................ 475,319
44,500 Conseco, Inc. .............................................. 795,438
8,000 Hartford Financial Services Group, Inc. .................... 379,000
11,600 Lincoln National Corp. ..................................... 464,000
8,200 Loews Corp. ................................................ 497,638
5,900 Marsh & McLennan Cos., Inc. ................................ 564,556
- -------------------------------------------------------------------------------------
4,118,514
- -------------------------------------------------------------------------------------
MACHINERY - GENERAL INDUSTRY -- 2.1%
10,900 Deere & Co. ................................................ 472,788
9,700 Ingersoll-Rand Co. ......................................... 534,106
- -------------------------------------------------------------------------------------
1,006,894
- -------------------------------------------------------------------------------------
MANUFACTURING -- 6.1%
10,400 Honeywell International, Inc. .............................. 599,950
9,600 Johnson Controls, Inc. ..................................... 546,000
13,500 Parker-Hannifin Corp. ...................................... 692,719
7,300 Textron, Inc. .............................................. 559,819
15,934 Tyco International Ltd. .................................... 619,434
- -------------------------------------------------------------------------------------
3,017,922
- -------------------------------------------------------------------------------------
MULTIMEDIA -- 4.4%
10,935 CBS Corp. (a)............................................... 699,157
19,600 The News Corp. Ltd. ADR..................................... 655,375
13,600 Viacom Inc., Class A Shares (a)............................. 821,950
- -------------------------------------------------------------------------------------
2,176,482
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
OIL & GAS -- 8.3%
15,700 Ashland Inc. ............................................... $ 517,119
4,200 Atlantic Richfield Co. ..................................... 363,300
5,000 Chevron Corp. .............................................. 433,125
19,900 ENSCO International Inc. ................................... 455,213
6,800 Exxon Mobil Corp. .......................................... 547,825
10,300 Royal Dutch Petroleum Co. .................................. 622,506
16,200 Sunoco, Inc. ............................................... 380,700
6,300 Texaco Inc. ................................................ 342,169
16,600 USX-Marathon Group.......................................... 409,813
- -------------------------------------------------------------------------------------
4,071,770
- -------------------------------------------------------------------------------------
PUBLISHING -- 0.9%
7,600 Knight-Ridder, Inc. ........................................ 452,200
- -------------------------------------------------------------------------------------
RESTAURANTS -- 0.8%
10,300 Tricon Global Restaurants, Inc. (a)......................... 397,838
- -------------------------------------------------------------------------------------
RETAIL -- 2.6%
7,700 Federated Department Stores, Inc. (a)....................... 389,331
32,600 KMart Corp. (a)............................................. 328,038
8,300 Wal-Mart Stores, Inc. ...................................... 573,738
- -------------------------------------------------------------------------------------
1,291,107
- -------------------------------------------------------------------------------------
SERVICES -- 7.3%
9,300 Computer Sciences Corp. (a)................................. 880,013
12,800 Electronic Data Systems Corp. .............................. 856,800
18,100 First Data Corp. ........................................... 892,556
16,700 Galileo International, Inc. ................................ 499,956
14,100 Unisys Corp. (a) ........................................... 450,319
- -------------------------------------------------------------------------------------
3,579,644
- -------------------------------------------------------------------------------------
STEEL & IRON -- 0.4%
49,600 LTV Corp. .................................................. 204,600
- -------------------------------------------------------------------------------------
TECHNOLOGY -- 10.4%
7,900 International Business Machines Corp. ...................... 853,200
9,000 Lexmark International Group, Inc., Class A Shares (a)....... 814,500
21,700 Novell, Inc. (a)............................................ 866,644
12,100 Seagate Technology, Inc. (a)................................ 563,406
23,600 Storage Technology Corp. (a)................................ 435,125
20,500 Sun Microsystems, Inc. (a).................................. 1,587,469
- -------------------------------------------------------------------------------------
5,120,344
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS -- 7.0%
15,300 AT&T Corp. ................................................. $ 776,475
8,100 Bell Atlantic Corp. ........................................ 498,656
13,200 BellSouth Corp. ............................................ 617,925
9,500 GTE Corp. .................................................. 670,344
11,900 U.S. West, Inc. ............................................ 856,800
- -------------------------------------------------------------------------------------
3,420,200
- -------------------------------------------------------------------------------------
TOBACCO -- 1.6%
14,900 Philip Morris Cos., Inc. ................................... 345,494
17,800 UST Inc. ................................................... 448,338
- -------------------------------------------------------------------------------------
793,832
- -------------------------------------------------------------------------------------
TRANSPORTATION -- 1.0%
11,200 Union Pacific Corp. ........................................ 488,600
- -------------------------------------------------------------------------------------
WASTE MANAGEMENT -- 0.4%
11,890 Waste Management, Inc. ..................................... 204,359
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $45,372,910).................... 48,618,668
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 1.2%
$588,000 Chase Manhattan Bank, 2.000% due 1/3/00; Proceeds at
maturity -- $588,098; (Fully collateralized by U.S.
Treasury Notes, 11.625% due 11/15/02;
Market value -- $601,781) (Cost -- $588,000).............. 588,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $45,960,910*)............ $49,206,668
- --------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 99.9%
- -------------------------------------------------------------------------------------
AUTOS & TRANSPORTATION -- 3.3%
8,123 Airborne Freight Corp. ..................................... $ 178,706
2,704 Alaska Air Group Inc. (a)................................... 94,978
3,378 Arvin Industries, Inc. ..................................... 95,851
2,434 Borg-Warner Automotive, Inc. ............................... 98,577
5,913 Clayton Homes Inc. ......................................... 54,325
3,989 CNF Transportation, Inc. ................................... 137,620
3,298 Federal-Mogul Corp. ........................................ 66,372
4,838 GATX Corp. ................................................. 163,282
1,100 International Speedway Corp., Class A Shares................ 55,413
5,425 Lear Corp. (a).............................................. 173,600
4,400 Mark IV Industries Inc. .................................... 77,825
6,750 Meritor Automotive Inc. .................................... 130,780
4,319 Trinity Industries, Inc. ................................... 122,821
- -------------------------------------------------------------------------------------
1,450,150
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 14.8%
6,494 Abercrombie & Fitch Co., Class A Shares (a)................. 173,308
5,020 ACNielsen Corp. (a)......................................... 123,617
2,600 American Eagle Outfitters, Inc. (a)......................... 117,000
3,439 Apollo Group, Inc., Class A Shares (a)...................... 68,994
2,839 Barnes & Noble Inc. (a)..................................... 58,554
2,413 Bed Bath & Beyond Inc. (a).................................. 83,851
5,925 BJ's Wholesale Club, Inc. (a)............................... 216,262
6,314 Brinker International Inc. (a).............................. 151,536
10,430 Callaway Golf Co. .......................................... 184,480
288 Central Newspapers, Inc., Class A Shares.................... 11,340
4,840 Cintas Corp. ............................................... 257,125
4,396 Dial Corp. ................................................. 106,877
2,314 Dollar Tree Stores Inc. (a)................................. 112,084
13,608 Family Dollar Stores, Inc. ................................. 221,980
4,710 Furniture Brands International, Inc. (a).................... 103,620
6,705 Harley Davidson Inc. ....................................... 429,539
1,283 Hillenbrand Industries, Inc. ............................... 40,655
3,865 Houghton Mifflin Co......................................... 163,054
6,490 Jones Apparel Group, Inc. (a)............................... 176,041
3,733 Leggett & Platt, Inc. ...................................... 80,026
9,200 Mandalay Resort Group (a)................................... 185,150
2,700 Media General Inc., Class A Shares.......................... 140,400
9,920 Modis Professional Services Inc. (a)........................ 141,360
9,095 OfficeMax Inc. (a).......................................... 50,022
5,400 Outback Steakhouse, Inc. (a)................................ 140,062
12,085 Park Place Entertainment Corp. (a).......................... 151,062
1,400 Pixar Inc. (a).............................................. 49,525
4,260 Readers Digest Association Inc., Class A Shares............. 124,605
7,561 Reynolds & Reynolds Co., Class A Shares..................... 170,122
6,985 Robert Half International, Inc. (a)......................... 199,509
8,651 Ross Stores, Inc............................................ 155,177
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER DISCRETIONARY -- 14.8% (CONTINUED)
10,721 Saks, Inc. (a).............................................. $ 166,845
6,232 Shaw Industries Inc......................................... 96,206
4,505 Snyder Communications, Inc. (a)............................. 86,721
4,290 Sotheby's Holdings Inc., Class A Shares..................... 128,700
6,926 Starbucks Corp. (a)......................................... 167,955
4,541 Tiffany & Co. .............................................. 405,284
8,633 U.S. Foodservice (a)........................................ 144,602
4,975 Univision Communications, Inc., Class A Shares (a).......... 508,382
530 Washington Post Co., Class B Shares......................... 294,613
4,505 Westpoint Stevens Inc....................................... 78,838
2,700 Williams-Sonoma, Inc. (a)................................... 124,200
- -------------------------------------------------------------------------------------
6,589,283
- -------------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.0%
2,830 Dean Foods Co............................................... 112,492
4,234 Flowers Industries Inc...................................... 67,479
2,663 Hannaford Brothers Co....................................... 184,579
4,890 Hormel Foods Corp........................................... 198,656
7,439 IBP, Inc. .................................................. 133,902
4,355 McCormick & Co., Non-voting Shares.......................... 129,561
4,770 R.J. Reynolds Tobacco Holdings, Inc......................... 84,071
4,360 Suiza Foods Corp. (a)....................................... 172,765
12,832 Tyson Foods Inc., Class A Shares............................ 208,520
1,357 Universal Corp.............................................. 30,956
- -------------------------------------------------------------------------------------
1,322,981
- -------------------------------------------------------------------------------------
FINANCE -- 10.9%
5,277 A.G. Edwards, Inc........................................... 169,193
4,375 Allmerica Financial Corp.................................... 243,359
3,926 Ambac Financial Group, Inc.................................. 204,888
4,336 American Financial Group, Inc............................... 114,362
3,551 AmSouth Bancorp............................................. 68,578
4,488 Associated Banc-Corp........................................ 153,714
8,816 Charter One Financial, Inc. ................................ 168,606
2,900 Checkfree Holdings Corp. (a)................................ 303,050
2,220 City National Corp.......................................... 73,121
5,030 Compass Bancshares Inc...................................... 112,231
1,721 Countrywide Credit Industries, Inc.......................... 43,455
4,428 Dime Bancorp, Inc........................................... 66,973
3,440 The FINOVA Group Inc. ...................................... 122,120
10,498 First Security Corp......................................... 268,027
5,501 First Tennessee National Corp............................... 156,778
1,878 First Virginia Banks, Inc................................... 80,754
5,283 Greenpoint Financial Corp................................... 125,801
1,422 Hartford Life, Inc., Class A Shares......................... 62,568
7,277 Hibernia Corp., Class A Shares.............................. 77,318
5,548 Marshall & Ilsley Corp...................................... 348,483
6,020 Mercantile Bankshares Corp.................................. 192,263
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
FINANCE -- 10.9% (CONTINUED)
10,222 North Fork Bancorporation, Inc. ............................ $ 178,885
2,254 Old Kent Financial Corp. ................................... 79,735
5,531 Old Republic International Corp. ........................... 75,359
8,055 Pacific Century Financial Corp. ............................ 150,527
4,396 The PMI Group Inc. ......................................... 214,579
4,290 Protective Life Corp. ...................................... 136,475
5,050 Provident Financial Group, Inc. ............................ 181,168
4,422 Reliastar Financial Corp. .................................. 173,287
9,627 Sovereign Bancorp., Inc. ................................... 71,751
4,342 T. Rowe Price Associates, Inc. ............................. 160,382
1,213 Wilmington Trust Corp. ..................................... 58,527
3,595 Zions Bancorporation........................................ 212,779
- -------------------------------------------------------------------------------------
4,849,096
- -------------------------------------------------------------------------------------
HEALTH CARE -- 11.0%
4,100 Beckman Coulter Inc. ....................................... 208,587
11,600 Bergen Brunswig Corp., Class A Shares....................... 96,425
7,789 Biogen, Inc. (a)............................................ 658,170
8,852 Chiron Corp. (a)............................................ 375,103
2,000 Express Scripts Inc., Class A Shares (a).................... 128,000
4,710 Forest Laboratories Inc., Class A Shares (a)................ 289,370
4,442 Genzyme Corp. -- General Division (a)....................... 199,890
1,990 Gilead Sciences Inc. (a).................................... 107,708
10,430 Health Management Associates, Inc. (a) ..................... 139,501
3,700 ICN Pharmaceuticals Inc. ................................... 93,656
7,090 Ivax Corp. (a).............................................. 182,568
5,469 Lincare Holdings, Inc. (a).................................. 189,705
3,475 MedImmune, Inc. (a)......................................... 576,415
1,470 Millennium Pharmaceuticals Inc. (a)......................... 179,340
1,350 MiniMed Inc. (a)............................................ 98,888
4,784 Mylan Laboratories Inc. .................................... 120,497
3,735 Oxford Health Plans, Inc. (a)............................... 47,387
2,094 Pacificare Health System Inc. (a)........................... 110,982
1,283 Sepracor Inc. (a)........................................... 127,257
4,221 Stryker Corp. .............................................. 293,887
4,900 Sybron International Corp. (a).............................. 120,969
4,710 Trigon Healthcare, Inc. (a)................................. 138,945
1,380 Ventiv Health Inc. (a)...................................... 12,678
4,605 VISX, Inc. (a).............................................. 238,308
2,810 Waters Corp. (a)............................................ 148,930
- -------------------------------------------------------------------------------------
4,883,166
- -------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 5.4%
8,063 Albemarle Corp. ............................................ 154,708
2,220 Bowater Inc. ............................................... 120,573
1,600 Briggs & Stratton Corp. .................................... 85,800
7,840 CK Witco Corp. ............................................. 104,860
6,844 Consolidated Papers, Inc. .................................. 217,724
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
MATERIALS & PROCESSING -- 5.4% (CONTINUED)
1,400 Georgia Gulf Corp. ......................................... $ 42,613
6,815 Georgia-Pacific Corp. ...................................... 167,819
6,435 IMC Global Inc. ............................................ 105,373
5,280 Lubrizol Corp. ............................................. 163,020
5,637 Lyondell Chemical Co........................................ 71,871
1,645 Minerals Technologies Inc. ................................. 65,902
4,800 Nova Corp. (a).............................................. 151,500
2,505 Novellus Systems Inc. (a)................................... 306,940
3,700 Pall Corp. ................................................. 79,781
7,482 Ryerson Tull, Inc. ......................................... 145,431
11,291 Solutia, Inc. .............................................. 174,304
3,852 Sonoco Products Co.......................................... 87,633
3,460 Southdown, Inc. ............................................ 178,622
- -------------------------------------------------------------------------------------
2,424,474
- -------------------------------------------------------------------------------------
OTHER ENERGY -- 4.9%
3,265 BJ Services Co. (a)......................................... 136,517
3,200 Cabot Corp. ................................................ 65,200
4,985 Calpine Corp. (a) .......................................... 319,040
3,515 Devon Energy Corp. ......................................... 115,556
6,741 Ensco International, Inc. .................................. 154,200
7,922 Global Marine, Inc. (a)..................................... 131,703
3,920 Ipalco Enterprises Inc. .................................... 66,885
2,035 Murphy Oil Corp. ........................................... 116,758
2,700 Noble Affiliates Inc. ...................................... 57,881
6,112 Noble Drilling Corp. (a).................................... 200,168
7,630 Ocean Energy Inc. (a)....................................... 59,133
7,347 OGE Energy Corp. ........................................... 139,593
5,225 Pioneer Natural Resources Co. (a)........................... 46,698
2,582 Tidewater, Inc. ............................................ 92,952
2,902 Tosco Corp. ................................................ 78,898
2,100 UCAR International Inc. (a) ................................ 37,406
6,293 Ultramar Diamond Shamrock Corp. ............................ 142,772
3,653 Varco International, Inc. (a)............................... 37,214
4,835 Weatherford International, Inc. (a)......................... 193,097
- -------------------------------------------------------------------------------------
2,191,671
- -------------------------------------------------------------------------------------
PRODUCER DURABLES -- 5.1%
12,309 American Power Conversion Corp. (a)......................... 324,649
5,270 American Standard Co. (a)................................... 241,761
4,070 Cordant Technologies, Inc. ................................. 134,310
4,920 Herman Miller Inc. ......................................... 113,160
3,570 Litton Industries, Inc. (a)................................. 178,053
5,500 Manpower Inc. .............................................. 206,937
2,830 Martin Marietta Materials, Inc. ............................ 116,030
1,605 Molex Inc. ................................................. 90,983
2,400 Olin Corp................................................... 47,550
3,700 P.H. Glatfelter Co.......................................... 53,881
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
PRODUCER DURABLES -- 5.1% (CONTINUED)
3,378 Pentair, Inc. .............................................. $ 130,053
1,415 SPX Corp. (a)............................................... 114,349
1,800 Symantec Corp. (a).......................................... 105,525
2,996 Tecumseh Products Co., Class A Shares....................... 141,373
3,378 Teleflex Inc. .............................................. 105,773
2,190 USG Corp.................................................... 103,203
2,450 York International Corp..................................... 67,221
- -------------------------------------------------------------------------------------
2,274,811
- -------------------------------------------------------------------------------------
TECHNOLOGY -- 29.4%
2,800 Adtran Inc. (a)............................................. 144,025
8,460 Altera Corp. (a)............................................ 419,298
1,114 Analog Devices, Inc. (a).................................... 103,602
6,085 Arrow Electronics, Inc. (a)................................. 154,406
12,410 Atmel Corp. (a)............................................. 366,870
2,000 Avnet Inc. ................................................. 121,000
9,366 Cadence Design Systems, Inc. (a)............................ 224,784
1,200 CDW Computer Centers, Inc. (a).............................. 94,350
1,035 Circle.com (a).............................................. 12,743
8,600 Cirrus Logic Inc. (a)....................................... 114,487
6,507 Comdisco, Inc. ............................................. 242,385
2,450 Compuware Corp. (a)......................................... 91,262
941 Comverse Technology, Inc. (a)............................... 136,209
7,883 Concord EFS, Inc. (a)....................................... 202,987
7,205 Convergys Corp. (a)......................................... 221,553
8,080 Cypress Semiconductors Corp. (a)............................ 261,590
4,160 DST Systems Inc. (a)........................................ 317,460
9,416 E*TRADE Group, Inc. (a)..................................... 245,993
3,555 Electronics Arts Inc. (a)................................... 298,620
3,445 Fiserv, Inc. (a)............................................ 131,986
21,300 Informix Corp. (a).......................................... 242,288
10,552 Intuit, Inc. (a)............................................ 632,460
3,620 Jabil Circuit Inc. (a)...................................... 264,260
2,000 JD Edwards Co. ............................................. 59,750
4,338 Legato Systems, Inc. (a).................................... 298,509
728 Lexmark International Group, Inc., Class A Shares (a)....... 65,884
5,944 Linear Technology Corp...................................... 425,367
12,896 Maxim Integrated Products, Inc. (a)......................... 608,530
2,330 Microchip Technology Inc. (a)............................... 159,459
5,748 NCR Corp. (a)............................................... 217,705
4,375 Networks Associates Inc. (a)................................ 116,757
2,290 Qlogic Corp. (a)............................................ 366,118
676 QUALCOMM, Inc. (a) ......................................... 119,145
8,567 Quantum Corp. (a)........................................... 129,575
5,766 Rational Software Corp. (a)................................. 283,254
555 Safeguard Scientifics, Inc. (a)............................. 89,944
3,595 Sanmina Corp. (a)........................................... 359,050
4,180 SCI Systems Inc. (a)........................................ 343,543
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 29.4% (CONTINUED)
10,275 Siebel Systems Inc. (a)..................................... $ 863,100
2,600 Sterling Commerce, Inc. (a)................................. 88,562
4,375 Storage Technology Corp. (a)................................ 80,664
5,161 SunGard Data Systems Inc. (a)............................... 122,573
5,049 Symbol Technologies, Inc.................................... 320,927
2,453 Synopsys, Inc. (a).......................................... 163,737
2,285 Tech Data Corp. (a)......................................... 61,980
12,670 Veritas Software Corp. (a).................................. 1,813,474
5,410 Viad Corp................................................... 150,803
7,235 Vishay Intertechnology Inc. (a)............................. 228,806
8,025 Vitesse Semiconductors Corp. (a)............................ 420,810
1,818 Xilinx Inc. (a)............................................. 82,662
- -------------------------------------------------------------------------------------
13,085,306
- -------------------------------------------------------------------------------------
TELECOMMUNICATION -- 4.8%
7,510 Belo Corp. -- Series A...................................... 143,159
11,260 Broadwig Inc................................................ 415,212
2,574 CenturyTel, Inc............................................. 121,943
1,600 Chris Craft Industries Inc. (a)............................. 115,400
1,773 Cox Communications Inc., Class A Shares (a)................. 91,309
2,285 Hispanic Broadcasting Corp. (a)............................. 210,720
4,215 Imation Corp. (a)........................................... 141,465
7,580 Integrated Device Technology Inc. (a)....................... 219,820
4,465 Navigant Consulting Co. (a)................................. 48,557
2,316 Qwest Communications International Inc. (a)................. 99,588
2,785 Telephone and Data Systems Inc.............................. 350,910
2,395 Westwood One Inc. (a)....................................... 182,020
- -------------------------------------------------------------------------------------
2,140,103
- -------------------------------------------------------------------------------------
UTILITIES -- 7.3%
3,515 Allegheny Energy Inc........................................ 94,685
5,300 Alliant Energy Co........................................... 145,750
2,926 Constellation Energy Group.................................. 84,854
9,135 DPL Inc..................................................... 158,149
8,025 Energy East Corp............................................ 167,020
1,400 Hanover Compressor Co. (a).................................. 52,850
8,809 Keyspan Energy Corp......................................... 204,258
2,926 MCN Energy Group, Inc....................................... 69,492
4,039 MidAmerican Energy Holdings Co.............................. 136,063
7,920 Minnesota Power Inc......................................... 134,145
7,136 The Montana Power Co........................................ 257,342
6,635 Nabor Industries Inc. (a)................................... 205,270
4,051 National Fuel Gas Co........................................ 188,371
1,884 New England Electric System................................. 97,497
5,642 Nisource, Inc............................................... 100,850
4,994 Northeast Utilities......................................... 102,689
2,631 Pinnacle West Capital Corp.................................. 80,409
3,985 Potomac Electric Power Co................................... 91,406
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 7.3% (CONTINUED)
8,110 Public Service Co. of New Mexico............................ $ 131,787
8,600 Santa Fe Snyder Corp. (a)................................... 68,800
7,089 SCANA Corp.................................................. 190,517
2,285 Smith International Inc. (a)................................ 113,535
10,244 TECO Energy, Inc............................................ 190,154
1,035 WinStar Communications, Inc. (a)............................ 77,495
6,357 Wisconsin Energy Corp....................................... 122,372
- -------------------------------------------------------------------------------------
3,265,760
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $39,943,107).................... 44,476,801
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATION -- 0.1%
$50,000 U.S. Treasury Bill, 5.200% due 3/16/00 (Cost -- $49,452).... 49,452
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $39,992,559*)............ $44,526,253
- ------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<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>
46
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 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.................... $57,708,742 $ 92,201,316 $229,354,870 $50,680,454 $45,372,910 $39,992,559
Repurchase agreements, at cost.......... 1,623,000 7,100,000 -- 2,251,000 588,000 --
Foreign currency, at cost............... -- 278,746 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Investments, at value................... $56,713,744 $110,023,991 $414,980,669 $46,743,903 $48,618,668 $44,526,253
Repurchase agreements, at value......... 1,623,000 7,100,000 -- 2,251,000 588,000 --
Cash.................................... 22,877 114,061 44,290 897 740 --
Foreign currency, at value.............. -- 278,812 -- -- -- --
Collateral for securities on loan
(Note 9).............................. -- 3,113,253 -- -- -- --
Dividends and interest receivable....... 968,651 113,394 40,560 859,853 65,659 22,736
Receivable for Fund shares sold......... 57,060 1,058,760 564,533 16,217 -- 257,257
Receivable for securities sold.......... -- -- 122,938 -- 446,435 393,800
Receivable from affiliate............... -- -- -- -- -- 15,257
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................ 59,385,332 121,802,271 415,752,990 49,871,870 49,719,502 45,215,303
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable........ 16,272 79,987 219,780 27,485 25,564 25,196
Administration fees payable............. 3,267 5,817 21,961 2,536 2,454 2,168
Payable for Fund shares purchased....... 2,348 -- -- -- 56,762 --
Payable for securities purchased........ -- -- 2,517,825 -- -- 86,161
Payable to bank......................... -- -- -- -- -- 20,242
Payable for securities on loan
(Note 9).............................. -- 3,113,253 -- -- -- --
Payable for open forward foreign
currency contracts (Note 7)........... -- -- 1,310 -- -- --
Accrued expenses........................ 25,062 46,386 38,538 26,284 22,529 13,779
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES....................... 46,949 3,245,443 2,799,414 56,305 107,309 147,546
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.......................... $59,338,383 $118,556,828 $412,953,576 $49,815,565 $49,612,193 $45,067,757
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital......................... $58,618,583 $ 95,724,291 $203,585,534 $49,670,961 $44,043,090 $37,721,630
Undistributed net investment income..... 2,975,583 1,092,663 1,310 4,325,509 499,270 86,307
Accumulated net realized gain (loss) on
security transactions, futures
contracts and foreign currencies...... (1,260,682) 3,920,492 23,740,219 (244,354) 1,824,075 2,726,126
Net unrealized appreciation
(depreciation) of investments and
foreign currencies.................... (995,101) 17,819,382 185,626,513 (3,936,551) 3,245,758 4,533,694
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.......................... $59,338,383 $118,556,828 $412,953,576 $49,815,565 $49,612,193 $45,067,757
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING........................ 5,484,185 7,577,577 13,847,808 4,355,250 3,036,173 2,886,883
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE................ $10.82 $15.65 $29.82 $11.44 $16.34 $15.61
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 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.................................. $ 3,250,813 $ 279,854 $ 1,031,264 $ 4,624,081 $ 79,385 $ 75,543
Dividends................................. 2,244 1,802,000 333,025 118,607 783,294 299,926
Less: Foreign withholding tax............. (336) (205,148) (8,117) -- (10,579) --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................... 3,252,721 1,876,706 1,356,172 4,742,688 852,100 375,469
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)......... 163,879 668,699 1,737,243 308,514 272,014 212,394
Administration fees (Note 2).............. 30,414 48,633 138,979 28,478 26,113 18,204
Audit and legal........................... 26,000 25,415 29,500 26,000 25,277 26,000
Pricing service fees...................... 22,000 8,127 400 2,700 -- 250
Shareholder and system servicing fees..... 13,000 13,000 13,000 13,000 12,754 13,000
Shareholder communications................ 10,000 13,237 38,000 9,000 8,836 4,000
Custody................................... 5,200 78,040 59,000 5,200 4,860 22,994
Trustees' fees............................ 4,000 3,934 4,000 4,000 3,934 4,000
Registration fees......................... 700 1,301 2,070 240 367 640
Other..................................... 1,100 2,613 4,910 1,100 1,034 1,100
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................ 276,293 862,999 2,027,102 398,232 355,189 302,582
Less: Expense reimbursement (Note 2)...... -- -- -- -- -- (13,500)
- ---------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES.............................. 276,293 862,999 2,027,102 398,232 355,189 289,082
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)................ 2,976,428 1,013,707 (670,930) 4,344,456 496,911 86,387
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS AND FOREIGN
CURRENCIES (NOTES 3, 5 AND 7):
Realized Gain (Loss) From:
Security transactions (excluding
short-term securities)................. (1,260,682) 4,776,298 26,455,677 (262,944) 1,828,158 2,531,836
Foreign currency transactions........... (845) (390,643) 106 -- -- --
Futures contracts....................... -- -- -- -- -- 320,970
- ---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).................. (1,261,527) 4,385,655 26,455,783 (262,944) 1,828,158 2,852,806
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments
and Foreign Currencies:
Beginning of year....................... 123,381 3,756,578 43,126,733 (1,119,433) 3,742,899 1,987,289
End of year............................. (995,101) 17,819,382 185,626,513 (3,936,551) 3,245,758 4,533,694
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION).......................... (1,118,482) 14,062,804 142,499,780 (2,817,118) (497,141) 2,546,405
- ---------------------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCIES.......... (2,380,009) 18,448,459 168,955,563 (3,080,062) 1,331,017 5,399,211
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...... $ 596,419 $19,462,166 $168,284,633 $ 1,264,394 $1,827,928 $5,485,598
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 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)........ $ 2,976,428 $ 1,013,707 $ (670,930) $ 4,344,456 $ 496,911 $ 86,387
Net realized gain (loss)............ (1,261,527) 4,385,655 26,455,783 (262,944) 1,828,158 2,852,806
Change in net unrealized
appreciation (depreciation)...... (1,118,482) 14,062,804 142,499,780 (2,817,118) (497,141) 2,546,405
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS....................... 596,419 19,462,166 168,284,633 1,264,394 1,827,928 5,485,598
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............... (854) (165,144) -- (196) -- (51,234)
Net realized gains.................. (264,169) (9,665) -- (59,218) (422,750) (1,191,452)
- ----------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS.... (265,023) (174,809) -- (59,414) (422,750) (1,242,686)
- ----------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares.... 29,891,910 197,628,753 79,979,145 14,870,243 14,331,819 21,999,045
Net asset value of shares issued for
reinvestment of dividends........ 265,023 174,809 -- 59,414 422,750 1,242,686
Cost of shares reacquired........... (6,657,341) (151,542,392) (5,369,326) (7,307,816) (1,967,681) (1,876,706)
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS............... 23,499,592 46,261,170 74,609,819 7,621,841 12,786,888 21,365,025
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS................ 23,830,988 65,548,527 242,894,452 8,826,821 14,192,066 25,607,937
NET ASSETS:
Beginning of year................... 35,507,395 53,008,301 170,059,124 40,988,744 35,420,127 19,459,820
- ----------------------------------------------------------------------------------------------------------------------------------
END OF YEAR*........................ $59,338,383 $118,556,828 $412,953,576 $49,815,565 $49,612,193 $45,067,757
- ----------------------------------------------------------------------------------------------------------------------------------
* Includes undistributed net
investment income of: $2,975,583 $1,092,663 $1,310 $4,325,509 $499,270 $86,307
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------
</TABLE>
<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 11):
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.
50
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Quality Bond, Lazard International Stock, MFS Emerging
Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock
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 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 the 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 is
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 31, 1999,
reclassifications were made to the capital accounts of Lazard International
Stock, MFS Emerging Growth, Federated High Yield, Federated Stock and
Disciplined Mid Cap Stock Portfolios 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 (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.
51
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Corporation ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup"), 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") 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 SSB Citi
Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management Inc., 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.
Effective October 1999, Smith Barney Private Trust Company ("Private
Trust"), another subsidiary of Citigroup, became the Trust's transfer agent and
PFPC Global Fund Services ("PFPC") became the Trust's sub-transfer agent.
Private Trust receives account fees and asset-based fees that vary according to
the account size and type of account. PFPC is responsible for shareholder
recordkeeping and financial processing for all shareholder accounts. During the
period October 1, 1999 through December 31, 1999, each fund, TQB, LIS, MEG, FHY,
FSP and DMCS, paid transfer agent fees of $1,250 to Private Trust.
For the year ended December 31, 1999, Travelers Insurance reimbursed
expenses in the amount of $13,500 for DMCS.
One Trustee and all officers of the Trust are employees of Citigroup, or
its subsidiaries.
3. INVESTMENTS
During the year ended December 31, 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............................ $186,913,919 $158,262,909
Lazard International Stock Portfolio........................ 66,492,278 26,813,715
MFS Emerging Growth Portfolio............................... 429,620,053 367,672,089
Federated High Yield Portfolio.............................. 21,938,828 10,408,786
Federated Stock Portfolio................................... 22,227,914 9,484,580
Disciplined Mid Cap Stock Portfolio......................... 43,159,934 20,618,067
- -----------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
At December 31, 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............................ $ 66,179 $(1,061,177) $ (994,998)
Lazard International Stock Portfolio........................ 22,753,917 (4,931,242) 17,822,675
MFS Emerging Growth Portfolio............................... 187,034,064 (1,408,265) 185,625,799
Federated High Yield Portfolio.............................. 512,315 (4,448,866) (3,936,551)
Federated Stock Portfolio................................... 8,648,289 (5,402,531) 3,245,758
Disciplined Mid Cap Stock Portfolio......................... 8,342,911 (3,809,217) 4,533,694
- ----------------------------------------------------------------------------------------------------------
</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 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 December 31, 1999, the Portfolios had no open futures contracts.
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 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 December 31, 1999, the Portfolios had no open purchased call or put
option contracts.
53
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
When Portfolios write a covered call or put option, an amount equal 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
purchase 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 year ended December 31, 1999, the Portfolios did not write any
call or put options.
7. FORWARD FOREIGN CURRENCY CONTRACTS
LIS and MFS may enter into forward foreign currency contracts.
At December 31, 1999, MFS 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:
Japanese Yen..................................... 61,342,050 $598,800 1/5/00 $ (1,152)
Japanese Yen..................................... 25,955,067 253,408 1/6/00 (158)
- -------------------------------------------------------------------------------------------------------
Net Unrealized Loss on Forward Foreign Currency
Contracts...................................... $ (1,310)
- -------------------------------------------------------------------------------------------------------
</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.
54
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
At December 31, 1999, LIS loaned common stocks having a value of
approximately $2,853,990 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
SECURITY DESCRIPTION VALUE
- ------------------------------------------------------------------------
<S> <C>
TIME DEPOSITS:
Australia New Zealand Bank, 8.500% due 1/4/00............. $ 153,351
Bank of Ireland, 9.000% due 1/4/00........................ 153,351
Banque Bruxelle Lambert, 7.500% due 1/4/00................ 153,351
Banque Paribas, 7.000% due 1/4/00......................... 95,844
Barclays Nassau, 5.000% due 1/3/00........................ 140,571
Credit Suisse, G.C., 5.000% due 1/3/00.................... 140,571
Fortis Bank, 9.000% due 1/4/00............................ 153,350
Halifax PLC, 8.500% due 1/4/00............................ 143,766
Natwest Bank, N.A., Nassau, 4.500% due 1/3/00............. 140,571
Sun Trust Bank, Atlanta, 4.500% due 1/3/00................ 140,571
REPURCHASE AGREEMENTS:
Bear Stearns, 4.530% due 1/3/00........................... 575,064
CS First Boston, 3.750% due 1/3/00........................ 547,828
Merrill Lynch Securities/MLPFS, 4.630% due 1/3/00......... 575,064
- ------------------------------------------------------------------------
Total....................................................... $3,113,253
- ------------------------------------------------------------------------
</TABLE>
Income earned by LIS from securities loaned for the year ended December 31,
1999 was $17,972.
10. CAPITAL LOSS CARRYFORWARDS
At December 31, 1999, Travelers Quality Bond Portfolio and Federated High
Yield Portfolio had, for Federal income tax purposes, approximately $1,103,000
and $182,000, respectively, of capital loss carryforward, expiring in December
31, 2007, 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.
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
Portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS QUALITY BOND PORTFOLIO
Shares sold.............................................. 2,774,520 2,353,028
Shares issued on reinvestment............................ 24,905 136,485
Shares reacquired........................................ (616,330) (102,056)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 2,183,095 2,387,457
- -----------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
Shares sold.............................................. 13,982,539 4,545,655
Shares issued on reinvestment............................ 12,930 46,711
Shares reacquired........................................ (10,531,940) (1,708,356)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 3,463,529 2,884,010
- -----------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS EMERGING GROWTH PORTFOLIO
Shares sold.............................................. 4,058,111 5,189,246
Shares issued on reinvestment............................ -- --
Shares reacquired........................................ (291,389) (709,159)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 3,766,722 4,480,087
- -----------------------------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
Shares sold.............................................. 1,297,954 2,511,163
Shares issued on reinvestment............................ 5,180 236,428
Shares reacquired........................................ (637,578) (296,346)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 665,556 2,451,245
- -----------------------------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
Shares sold.............................................. 870,702 1,542,339
Shares issued on reinvestment............................ 24,737 85,478
Shares reacquired........................................ (121,595) (240,375)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 773,844 1,387,442
- -----------------------------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
Shares sold.............................................. 1,570,920 883,471
Shares issued on reinvestment............................ 89,337 12,780
Shares reacquired........................................ (130,320) (34,061)
- -----------------------------------------------------------------------------------------------------
Net Increase............................................. 1,529,937 862,190
- -----------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
TRAVELERS QUALITY BOND PORTFOLIO 1999(1) 1998 1997 1996(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $10.76 $10.36 $10.10 $10.00
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3)............................ 0.64 0.37 0.43 0.19
Net realized and unrealized gain (loss)............. (0.51) 0.51 0.29 0.16
- ------------------------------------------------------------------------------------------------------
Total Income From Operations.......................... 0.13 0.88 0.72 0.35
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................... (0.00)* (0.37) (0.43) (0.19)
Net realized gains.................................. (0.07) (0.11) (0.03) (0.06)
- ------------------------------------------------------------------------------------------------------
Total Distributions................................... (0.07) (0.48) (0.46) (0.25)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.......................... $10.82 $10.76 $10.36 $10.10
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................................... 1.09% 8.49% 7.14% 3.56%++
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)....................... $59,338 $35,507 $9,468 $5,273
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)...................................... 0.54% 0.63% 0.75% 0.75%+
Net investment income............................... 5.86 5.51 5.80 5.62+
- ------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................... 357% 364% 295% 35%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(3) 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 expenses 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>
(4) 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.
57
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK PORTFOLIO 1999(1) 1998(1) 1997 1996(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR......................... $12.88 $11.57 $10.78 $10.00
- ------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(3)................................. 0.17 0.10 0.05 0.02
Net realized and unrealized gain......................... 2.63 1.37 0.87 0.76
- ------------------------------------------------------------------------------------------------------
Total Income From Operations............................... 2.80 1.47 0.92 0.78
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................................... (0.03) (0.04) (0.09) --
Net realized gains....................................... (0.00)* (0.12) (0.04) --
- ------------------------------------------------------------------------------------------------------
Total Distributions........................................ (0.03) (0.16) (0.13) --
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR............................... $15.65 $12.88 $11.57 $10.78
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN............................................... 21.78% 12.59% 8.50% 7.80%++
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................ $118,557 $53,008 $14,229 $4,322
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)........................................... 1.06% 1.25% 1.25% 1.25%+
Net investment income.................................... 1.25 0.78 0.66 0.42+
- ------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.................................... 35% 44% 22% 9%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from August 1, 1996 (commencement of operations) to December
31, 1996.
(3) 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 expenses 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>
(4) 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.
58
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
MFS EMERGING GROWTH PORTFOLIO 1999(1) 1998(1) 1997 1996(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR....................... $16.87 $12.56 $10.55 $10.00
- -----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)(3)........................ (0.06) (0.07) (0.03) 0.03
Net realized and unrealized gain....................... 13.01 4.38 2.26 0.57
- -----------------------------------------------------------------------------------------------------
Total Income From Operations............................. 12.95 4.31 2.23 0.60
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.................................. -- -- -- (0.03)
Net realized gains..................................... -- -- (0.21) (0.01)
Capital................................................ -- -- (0.01) (0.01)
- -----------------------------------------------------------------------------------------------------
Total Distributions...................................... -- -- (0.22) (0.05)
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR............................. $29.82 $16.87 $12.56 $10.55
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN............................................. 76.76% 34.32% 21.15% 6.00%++
- -----------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).......................... $412,954 $170,059 $70,347 $12,924
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)......................................... 0.87% 0.89% 0.95% 0.95%+
Net investment income (loss)........................... (0.29) (0.47) (0.40) 0.55+
- -----------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.................................. 168% 77% 94% 49%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(3) 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 expenses 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>
(4) 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.
59
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
FEDERATED HIGH YIELD PORTFOLIO 1999 1998 1997 1996(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................. $11.11 $11.34 $10.42 $10.00
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2).......................... 1.01 0.71 0.60 0.31
Net realized and unrealized gain (loss)........... (0.67) (0.18) 1.01 0.46
- -------------------------------------------------------------------------------------------------------
Total Income From Operations........................ 0.34 0.53 1.61 0.77
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................. (0.00)* (0.71) (0.60) (0.31)
Net realized gains................................ (0.01) (0.05) (0.09) (0.04)
- -------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.01) (0.76) (0.69) (0.35)
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................ $11.44 $11.11 $11.34 $10.42
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ 3.10% 4.71% 15.45% 7.61%++
- -------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)..................... $49,816 $40,989 $14,049 $5,381
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)(3).................................... 0.84% 0.90% 0.95% 0.95%+
Net investment income............................. 9.15 8.60 8.82 8.78+
- -------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 23% 31% 43% 23%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(2) 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 expenses 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>
(3) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
* 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:
<TABLE>
<CAPTION>
FEDERATED STOCK PORTFOLIO 1999 1998 1997 1996(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................... $15.66 $13.83 $11.10 $10.00
- -----------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(2)........................... 0.16 0.13 0.10 0.06
Net realized and unrealized gain................... 0.68 2.33 3.60 1.20
- -----------------------------------------------------------------------------------------------------
Total Income From Operations......................... 0.84 2.46 3.70 1.26
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. -- (0.13) (0.10) (0.06)
Net realized gains................................. (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 YEAR......................... $16.34 $15.66 $13.83 $11.10
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 5.34% 17.84% 33.41% 12.61%++
- -----------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $49,612 $35,420 $12,100 $3,380
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)(3)..................................... 0.82% 0.91% 0.95% 0.95%+
Net investment income.............................. 1.14 1.14 1.11 1.55+
- -----------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 23% 31% 74% 11%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(2) 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 expenses 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>
(3) 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:
<TABLE>
<CAPTION>
DISCIPLINED MID CAP STOCK PORTFOLIO 1999(1) 1998 1997(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $14.34 $12.47 $10.00
- --------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(3).................................. 0.02 0.04 0.06
Net realized and unrealized gain.......................... 1.84 2.05 3.37
- --------------------------------------------------------------------------------------------------
Total Income From Operations................................ 1.86 2.09 3.43
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.02) -- (0.06)
Net realized gains........................................ (0.57) (0.22) (0.90)
- --------------------------------------------------------------------------------------------------
Total Distributions......................................... (0.59) (0.22) (0.96)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................................ $15.61 $14.34 $12.47
- --------------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 13.47% 16.91% 34.38%++
- --------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $45,068 $19,460 $6,169
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)............................................ 0.95% 0.95% 0.95%+
Net investment income..................................... 0.28 0.48 0.85+
- --------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 71% 109% 74%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from April 1, 1997 (commencement of operations) to December
31, 1997.
(3) Travelers Insurance has waived all or a portion of its fees for the year
ended December 31, 1999, December 31, 1998 and the period ended December 31,
1997. In addition, Travelers Insurance has reimbursed the Portfolio for
$13,500, $29,138 and $3,564 of the Portfolio's expenses for the year ended
December 31, 1999, December 31, 1998 and for the period ended December 31,
1997. If such fees were not waived or expenses 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 0.99%
1998 0.02 1.22
1997 0.08 1.82+
</TABLE>
(4) 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.
62
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE TRAVELERS SERIES TRUST:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Travelers Quality Bond, Lazard
International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock
and Disciplined Mid Cap Stock Portfolios ("Portfolios") of the Travelers Series
Trust ("Trust") as of December 31, 1999, the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for the
two-year period then ended and for the period from April 1, 1997 (commencement
of operations) to December 31, 1997 with respect to the Disciplined Mid Cap
Stock Portfolio, for the three-year period ended December 31, 1999 and for the
period from August 30, 1996 (commencement of operations) to December 31, 1996
with respect to the Travelers Quality Bond, MFS Emerging Growth, Federated High
Yield and Federated Stock Portfolios, and for the three-year period ended
December 31, 1999 and for the period from August 1, 1996 (commencement of
operations) to December 31, 1996 with respect to the Lazard International Stock
Portfolio. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios as of December 31, 1999, the result of their operations for
the year then ended, the changes in their net assets for each of the years in
the two-year period then ended and their financial highlights for the periods
referred to above, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 11, 2000
63
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
For Federal tax purposes the Trust hereby designates for the fiscal year ended
December 31, 1999:
- Percentages of ordinary dividends paid as qualifying for the
corporate dividends received deduction:
<TABLE>
<S> <C>
Federated High Yield Portfolio.............................. 2.74%
Federated Stock Portfolio................................... 46.31
Disciplined Mid Cap Stock Portfolio......................... 15.41
</TABLE>
- Total long-term capital gain distributions paid:
<TABLE>
<S> <C>
Travelers Quality Bond Portfolio............................ $ 5,313
Lazard International Stock Portfolio........................ 9,665
Federated High Yield Portfolio.............................. 59,218
Federated Stock Portfolio................................... 224,143
Disciplined Mid Cap Stock Portfolio......................... 587,564
</TABLE>
The following percentages of ordinary dividends paid from net investment income
are derived from Federal obligations and may be exempt from taxation at the
state level:
<TABLE>
<S> <C>
Travelers Quality Bond Portfolio............................ 0.06%
Disciplined Mid Cap Stock Portfolio......................... 0.11
</TABLE>
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 (Annual) (2-00) Printed in U.S.A.
<PAGE>
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
ANNUAL REPORTS
DECEMBER 31, 1999
The Travelers Series Trust:
NWQ Large Cap Portfolio
Jurika & Voyles Core Equity Portfolio
[TRAVELERSLIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the annual report for the Travelers Series
Trust -- NWQ Large Cap Portfolio and the Jurika & Voyles Core Equity Portfolio
("Portfolios") for the year ended December 31, 1999. A detailed summary of
performance and current holdings for each Portfolio can be found in the pages
that follow. We hope you find this report useful and informative.
<TABLE>
<CAPTION>
The Performance of the Travelers Series Trust (12/31/98-12/31/99)*
- ----------------------------------------------------------------------
<S> <C>
NWQ Large Cap Portfolio..................................... 4.97%
Jurika & Voyles Core Equity Portfolio....................... 10.32
</TABLE>
MARKET AND ECONOMIC OVERVIEW
The year began on a volatile note for global financial markets as a potential
new threat emerged in Latin America. The devaluation of Brazil's currency, the
Real, affected many U.S. corporations and investors with exposure to the Latin
American markets and negatively impacted the performance of the U.S. stock
market.
Concerns regarding the future direction of interest rates were prevalent
throughout 1999. Despite low inflation, the Federal Reserve Board ("Fed") opted
to raise interest rates three times during the year, effectively "taking back"
the interest-rate cuts imposed following the global economic crisis in 1998. The
Fed's change in monetary policy did not significantly deter the remarkable
growth of the U.S. economy. In fact, throughout the year, the U.S. Gross
Domestic Product ("GDP"), which represents the total output of goods and
services, continued to exceed expectations.
Despite the rise in interest rates, the U.S. stock market continued its stellar
performance. Evidence of stronger-than-expected economic growth prompted hopes
of a meaningful earnings recovery and at the same time, triggered concerns
regarding future rate hikes. These factors led to a rally in small cap and value
stocks. (Value stocks are securities of companies that are believed to be
undervalued in the market.) However, the trend of investing in small cap and
value stocks soon changed, as many investors took the view that a proactive
monetary policy by the Fed would preempt inflationary pressures.
By the end of the year, nevertheless, the small cap sector, as measured by the
Russell 2000 Index,** which returned 21.26% for the year, outperformed the large
cap sector, as measured by the Standard & Poor's 500 Index*** ("S&P 500") which
returned 21.03%.
As a result of investors' focus on the direction of interest rates, the stock
and bond markets were characterized by higher levels of volatility. Investors
became increasingly concerned, especially toward the end of the year, about not
only the direction of interest rates but also about future earnings growth and
the high market valuations of many stocks. In addition, the strength of the
overseas markets attracted U.S. capital, which had a somewhat negative impact on
the performance of the U.S. stock market through the third quarter of 1999.
By the end of the year however, the U.S. stock market rose sharply largely due
to the incredible performance of the technology sector. Y2K concerns decreased,
with the market's assessment of the risks associated with potential Year 2000
glitches proving to be correct.
The bond markets did not react positively to the actions of the Fed in 1999 and
experienced their worst year since 1994. The overall bond market recorded losses
in 1999 in response to the Fed's interest rate increases and concerns regarding
inflation. Bond market losses increased with the length of maturities. The yield
on the bellwether 30-year government bond increased 1.39 percentage points in
1999 to 6.48%. At the end of 1998, the 30-year bond yielded 5.09%.
In our view, the strength of the U.S. economy should continue, prompting the Fed
to raise interest rates in 2000.+ In addition, overseas economies, many of which
are in the early stages of recovery, should continue to expand. This global
economic recovery should benefit the manufacturing sector of the U.S. market in
2000.
- ---------------
* Please note that data represents past performance, which is not indicative
of future results. The 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.
** The Russell 2000 measures the performance of the 2,000 smallest companies in
the Russell 3000 Index, which represents approximately 8% of the total
market capitalization of the Russell 3000 Index.
*** The S&P 500 Index is market capitalization-weighted measure of 500 widely
held common stocks.
+ On February 2, 2000, after this letter was written, the Federal Reserve
Board raised interest rates 0.25% to 5.25%.
1
<PAGE>
We predict that earnings should continue its double-digit growth through the
first quarter of 2000. It is our belief that the recent performance of
technology and telecommunications stocks is not sustainable. However, we are
confident that most stocks are appropriately valued. Over the longer term, we
think that the fundamentals for both stocks and bonds remains favorable.
NWQ LARGE CAP PORTFOLIO
For the year ended December 31, 1999, the NWQ Large Cap Portfolio ("Portfolio")
had a total return of 4.97%. For the same time period, the S&P 500 returned
21.03%.
The Portfolio performed strongly during the first half of the reporting period.
However, the Portfolio's performance declined in the second half of the year due
to the underperformance of value stocks. The Portfolio's holdings in Waste
Management, Lockheed Martin, Bank One and its exposure to the tobacco industry
negatively impacted performance. As a result, the Portfolio's positions in those
companies were eliminated and the Portfolio's exposure to the tobacco industry
was sharply reduced.
Additionally, the Portfolio's holdings in the financial services sector was
reduced due to concerns regarding the future direction of interest rates.
Staples Inc., Pitney Bowes Inc. and CVS Corp. were added to the Portfolio due to
their inexpensive valuations and superior prospects for future growth. The
Portfolio also significantly added to its holdings in the energy and technology
sectors.
The Portfolio's managers acknowledge that 1999 was a disappointing year for
value investing. (Value investing consists of identifying securities of
companies that are believed to be undervalued in the market.) However, while the
overall stock market remains richly valued and no guarantees can be given, the
managers believe that value stocks should enjoy a gradually improving climate in
the year ahead.
JURIKA & VOYLES CORE EQUITY PORTFOLIO
For the year ended December 31, 1999, the Jurika & Voyles Core Equity Portfolio
("Portfolio") returned 10.32% compared to the 21.03% return of the S&P 500 for
the same period.
The performance of the Portfolio was strong during the reporting period. The
Portfolio's emphasis on medium- and large-capitalization companies put the
Portfolio in a good position to benefit from the fact that more stocks are
performing well. Moreover, the Portfolio's low valuation emphasis also benefited
its performance during the period.
Although the managers are pleased with the market's recent greater emphasis on
smaller-sized company and lower valued stocks, they also believe that the
market's orientation 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 the risks of stock investing have increased and underscores the
importance of focusing on owning quality value stocks.
The Portfolio's holdings in the financial services sector were reduced during
the period in order to allocate capital to those sectors that the Portfolio's
managers believed would most benefit from the ongoing global economic recovery
and continued growth of the U.S. economy. The Portfolio's technology exposure
increased and those companies in the sector such as i2 Technologies, Motorola
Inc., Corning Inc. and STMicroelectronics NV positively contributed to
performance. The Portfolio's holdings in the energy sector also provided
excellent returns for the year in addition to its holdings in industrial stocks
such as Parker-Hannifin Corp., Deere & Co. and Cognex Corp.
The Portfolio's holdings in Mattel Inc., Fremont General Corp., Lockheed Corp.,
Case Corp. and McKesson Corp. negatively impacted performance and were
eliminated during the reporting period.
The managers' outlook for the future is positive. And while no assurances can be
made, strong global recovery and the continued strength of the U.S. economy
should provide ample opportunity for many select companies to perform well.
Our sincere thanks for investing in the Travelers Series Trust. We look forward
to continuing to help you pursue your financial goals in the new century.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 18, 2000
2
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- NWQ LARGE CAP PORTFOLIO AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Year Ended 12/31/99 4.97%
7/20/98* through 12/31/99 (0.15)%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
7/20/98* through 12/31/99 (0.21)%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on July 20, 1998, assuming reinvestment of dividends,
through December 31, 1999. The Standard & Poor's 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.
[LINE GRAPH]
<TABLE>
<CAPTION>
NWQ LARGE CAP PORTFOLIO STANDARD & POOR'S 500 STOCK INDEX
----------------------- ---------------------------------
<S> <C> <C>
7/20/98 10000.00 10000.00
12/98 9506.00 10454.00
6/99 10923.00 11748.00
12/31/99 9979.00 12653.00
</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 -- JURIKA & VOYLES CORE EQUITY PORTFOLIO AS OF 12/31/99
(UNAUDITED)
[LINE GRAPH]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Year Ended 12/31/99 10.32%
7/20/98* through 12/31/99 9.28%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
7/20/98* through 12/31/99 13.72%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on July 20, 1998, assuming reinvestment of dividends,
through December 31, 1999. The Standard & Poor's 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>
JURIKA & VOYLES CORE EQUITY
PORTFOLIO STANDARD & POOR'S 500 STOCK INDEX
--------------------------- ---------------------------------
<S> <C> <C>
7/20/98 10000.00 10000.00
12/98 10308.00 10454.00
6/99 11031.00 11748.00
12/31/99 11372.00 12653.00
</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.
3
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1999
NWQ LARGE CAP PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 94.8%
- -----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 14.3%
8,100 Federated Department Stores, Inc. (a) ...................... $ 409,556
6,000 Ford Motor Co. ............................................. 320,625
10,600 Fortune Brands, Inc. ....................................... 350,463
17,200 J.C. Penny Co., Inc. ....................................... 342,925
8,700 MediaOne Group, Inc. (a) ................................... 668,269
18,500 Staples, Inc. (a) .......................................... 383,875
5,300 Time Warner, Inc. .......................................... 383,919
- -----------------------------------------------------------------------------------------
2,859,632
- -----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 6.4%
8,700 CVS Corp. .................................................. 347,456
28,300 Philip Morris Cos., Inc. ................................... 656,206
5,100 Unilever NV................................................. 277,631
- -----------------------------------------------------------------------------------------
1,281,293
- -----------------------------------------------------------------------------------------
ENERGY -- 9.1%
8,100 Coastal Corp. .............................................. 287,044
10,054 Conoco, Inc., Class B Shares................................ 250,093
11,500 Halliburton Co. ............................................ 462,875
7,000 Noble Drilling Corp. (a) ................................... 229,250
6,000 Transocean Sedco Forex, Inc. ............................... 202,125
15,600 Union Pacific Resources Group, Inc. ........................ 198,900
4,400 Weatherford International, Inc. (a) ........................ 175,725
- -----------------------------------------------------------------------------------------
1,806,012
- -----------------------------------------------------------------------------------------
FINANCE -- 22.8%
12,000 Allstate Corp. ............................................. 288,000
3,875 American International Group, Inc. ......................... 418,984
11,600 Bank of America Corp. ...................................... 582,175
8,100 Bank of New York Co., Inc. ................................. 324,000
9,817 Bear Stearns Cos., Inc. .................................... 419,677
6,600 Chase Manhattan Corp. ...................................... 512,738
8,400 Fannie Mae.................................................. 524,475
8,700 First Union Corp. .......................................... 285,469
6,500 Hartford Financial Services Group, Inc. .................... 307,938
12,800 UnumProvident Corp. ........................................ 410,400
11,900 Wells Fargo & Co. .......................................... 481,206
- -----------------------------------------------------------------------------------------
4,555,062
- -----------------------------------------------------------------------------------------
HEALTH -- 5.4%
4,400 Aetna, Inc. ................................................ 245,575
5,300 CIGNA Corp. ................................................ 426,981
13,600 Columbia HCA Healthcare Corp. .............................. 398,650
- -----------------------------------------------------------------------------------------
1,071,206
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
NWQ LARGE CAP PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
MATERIALS AND PROCESSING -- 5.8%
13,800 Air Products and Chemicals, Inc. ........................... $ 463,162
4,500 Georgia-Pacific Group....................................... 228,375
3,000 International Paper Co. .................................... 169,313
6,000 Praxair, Inc. .............................................. 301,875
- -----------------------------------------------------------------------------------------
1,162,725
- -----------------------------------------------------------------------------------------
PRODUCER DURABLES -- 9.6%
2,000 Deere & Co. ................................................ 86,750
6,600 Honeywell International, Inc. .............................. 380,738
9,900 Ingersoll-Rand Co. ......................................... 545,118
6,700 Textron, Inc. .............................................. 513,806
5,900 United Technologies Corp. .................................. 383,500
- -----------------------------------------------------------------------------------------
1,909,912
- -----------------------------------------------------------------------------------------
TECHNOLOGY -- 13.2%
7,000 Agilent Technologies, Inc. (a) ............................. 541,188
6,700 Hewlett-Packard Co. ........................................ 763,381
10,100 Pitney Bowes, Inc. ......................................... 487,956
5,900 Texas Instruments, Inc. .................................... 571,562
5,500 Thomas & Betts Corp. ....................................... 175,313
3,800 Xerox Corp. ................................................ 86,213
- -----------------------------------------------------------------------------------------
2,625,613
- -----------------------------------------------------------------------------------------
TRANSPORTATION -- 3.9%
17,500 Delphi Automotive Systems Corp. ............................ 275,625
10,100 Delta Air Lines, Inc. ...................................... 503,106
- -----------------------------------------------------------------------------------------
778,731
- -----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.3%
8,100 Bell Atlantic Corp. ........................................ 498,656
7,600 BellSouth Corp. ............................................ 355,775
- -----------------------------------------------------------------------------------------
854,431
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $18,552,580).................... 18,904,617
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 5.2%
$1,042,000 Chase Securities Inc., 2.00% due 1/3/00; Proceeds at
maturity -- $1,042,174; (Fully collateralized by U.S.
Treasury Notes, 11.625% due 11/15/02: Market
value -- $1,066,013) (Cost -- $1,042,000)................... 1,042,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $19,594,580*)............ $19,946,617
- -----------------------------------------------------------------------------------------
</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 (CONTINUED) DECEMBER 31, 1999
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 91.0%
- --------------------------------------------------------------------------------------
AIRLINES -- 2.4%
13,275 Southwest Airlines Co. ..................................... $ 214,889
- --------------------------------------------------------------------------------------
BANKS - REGIONAL -- 1.1%
3,100 First Union Corp. .......................................... 101,719
- --------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 1.5%
2,350 Vastar Resources, Inc. ..................................... 138,650
- --------------------------------------------------------------------------------------
CAPITAL GOODS -- 2.1%
4,500 Valassis Communications, Inc. (a) .......................... 190,125
- --------------------------------------------------------------------------------------
CHEMICALS - SPECIALTY -- 1.3%
3,500 OM Group, Inc. ............................................. 120,531
- --------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 2.1%
1,000 i2 Technologies, Inc. (a)................................... 195,000
- --------------------------------------------------------------------------------------
COMPUTERS -- 1.3%
3,100 Cognex Corp. (a)............................................ 120,900
- --------------------------------------------------------------------------------------
COMPUTERS - EQUIPMENT -- 3.6%
6,600 Quantum Corp. (a)........................................... 99,825
4,800 Seagate Technology, Inc. (a)................................ 223,500
- --------------------------------------------------------------------------------------
323,325
- --------------------------------------------------------------------------------------
COMPUTERS SERVICES -- 4.7%
7,650 First Data Corp. ........................................... 377,241
1,800 Galileo International, Inc. ................................ 53,887
- --------------------------------------------------------------------------------------
431,128
- --------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 4.1%
3,100 Kimberly Clark Corp. ....................................... 202,275
6,000 Newell Rubbermaid Inc. ..................................... 174,000
- --------------------------------------------------------------------------------------
376,275
- --------------------------------------------------------------------------------------
DRUG STORES -- 1.4%
3,843 Albertson's, Inc. .......................................... 123,937
- --------------------------------------------------------------------------------------
EDUCATION -- 1.4%
2,100 McGraw-Hill Cos., Inc. ..................................... 129,412
- --------------------------------------------------------------------------------------
ELECTRONICS -- 9.4%
2,300 Circuit City Stores -- Circuit City Group................... 103,644
2,700 Eaton Corp. ................................................ 196,088
1,700 KLA-Tencor Corp. (a)........................................ 189,338
1,600 Motorola, Inc. ............................................. 235,600
4,800 Transaction Systems Architects Inc., Class A Shares (a)..... 134,400
- --------------------------------------------------------------------------------------
859,070
- --------------------------------------------------------------------------------------
ENERGY -- 2.3%
5,100 Suncor Energy, Inc. ........................................ 212,925
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 1.2%
5,350 CIT Group Inc. ............................................. $ 113,019
- --------------------------------------------------------------------------------------
FOOD WHOLESALERS -- 1.0%
2,200 Hormel Foods Corp. ......................................... 89,375
- --------------------------------------------------------------------------------------
HOLDING COMPANIES - DIVERSIFIED -- 1.0%
2,847 UnumProvident Corp. ........................................ 91,282
- --------------------------------------------------------------------------------------
HOSPITAL -- 0.6%
1,600 Avalonbay Communities, Inc. ................................ 54,900
- --------------------------------------------------------------------------------------
HOUSEHOLD FURNISHINGS AND APPLIANCES -- 2.6%
1,800 Corning, Inc. .............................................. 232,088
- --------------------------------------------------------------------------------------
INSURANCE -- 2.8%
2,100 Everest Reinsurance Holdings, Inc. ......................... 46,856
959 Radian Group, Inc. ......................................... 45,792
4,100 Reliastar Financial Corp. .................................. 160,669
- --------------------------------------------------------------------------------------
253,317
- --------------------------------------------------------------------------------------
MACHINERY -- 1.7%
3,500 Deere & Co. ................................................ 151,812
- --------------------------------------------------------------------------------------
MANUFACTURING -- 3.6%
6,400 Parker-Hannifin Corp. ...................................... 328,400
- --------------------------------------------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES -- 4.8%
5,000 Baxter International, Inc. ................................. 314,063
4,900 Mylan Laboratories.......................................... 123,419
- --------------------------------------------------------------------------------------
437,482
- --------------------------------------------------------------------------------------
OIL - EXPLORATION AND PRODUCTION -- 1.4%
3,500 Apache Corp. ............................................... 129,281
- --------------------------------------------------------------------------------------
OIL AND GAS -- 3.7%
7,500 EOG Resources, Inc. ........................................ 131,719
6,500 Nabors Industries, Inc. (a)................................. 201,094
- --------------------------------------------------------------------------------------
332,813
- --------------------------------------------------------------------------------------
OIL AND GAS - DRILLING -- 1.3%
4,400 Santa Fe International Corp. ............................... 113,850
- --------------------------------------------------------------------------------------
PAPER PRODUCTS -- 1.4%
2,300 International Paper Co. .................................... 129,806
- --------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 1.8%
5,900 ProLogis Trust.............................................. 113,575
1,500 Spieker Properties, Inc. ................................... 54,656
- --------------------------------------------------------------------------------------
168,231
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL -- 2.6%
5,300 Blockbuster, Inc., Class A Shares........................... $ 70,887
6,800 Brinker International, Inc. (a)............................. 163,200
- --------------------------------------------------------------------------------------
234,087
- --------------------------------------------------------------------------------------
TECHNOLOGY RELATED -- 1.3%
5,100 Xerox Corp. ................................................ 115,706
- --------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 1.5%
900 STMicroelectronics, NV...................................... 136,294
- --------------------------------------------------------------------------------------
TELEPHONE -- 2.7%
1,600 Equity Residentional Properties Trust....................... 68,300
3,600 SBC Communications, Inc. ................................... 175,500
- --------------------------------------------------------------------------------------
243,800
- --------------------------------------------------------------------------------------
TRANSPORT - AIR AND FREIGHT -- 2.5%
2,300 FDX Corp. (a)............................................... 94,156
1,900 United Parcel Service Inc., Class B Shares.................. 131,100
- --------------------------------------------------------------------------------------
225,256
- --------------------------------------------------------------------------------------
UTILITIES -- 6.8%
5,300 AES Corp. (a)............................................... 396,175
2,600 Duke Energy Corp. .......................................... 130,325
2,300 Ecolab, Inc................................................. 89,987
- --------------------------------------------------------------------------------------
616,487
- --------------------------------------------------------------------------------------
UTILITIES - GAS -- 3.2%
6,600 Enron Corp. ................................................ 292,875
- --------------------------------------------------------------------------------------
WASTE MANAGEMENT -- 2.8%
17,400 Republic Services, Inc. (a)................................. 250,125
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $7,692,466)..................... 8,278,172
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 9.0%
$820,000 Chase Securities Inc., 2.00% due 1/3/00; Proceeds at
maturity -- $820,137; (Fully collateralized by U.S. Treasury
Note, 11.625% due 11/15/02; Market value -- $836,763)
(Cost -- $820,000).......................................... 820,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $8,512,466*)............. $9,098,172
- --------------------------------------------------------------------------------------
</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 DECEMBER 31, 1999
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments -- Cost....................................... $19,594,580 $8,512,466
- ----------------------------------------------------------------------------------------
Investments, at value..................................... $19,946,617 $9,098,172
Cash...................................................... 646 318
Dividends and interest receivable......................... 32,937 9,423
Receivable for securities sold............................ -- 323,942
Receivable from affiliate................................. 9,930 4,326
- ----------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 19,990,130 9,436,181
- ----------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased......................... 49,924 1,354
Investment advisory fees payable.......................... 11,911 5,555
Administration fees payable............................... 953 444
Payable for securities purchased.......................... -- 201,825
Accrued expenses.......................................... 19,787 20,973
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 82,575 230,151
- ----------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $19,907,555 $9,206,030
- ----------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital........................................... $19,682,884 $8,211,764
Undistributed net investment income....................... 179,046 46,031
Accumulated net realized gain (loss) from security
transactions........................................... (306,412) 362,529
Net unrealized appreciation of investments................ 352,037 585,706
- ----------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $19,907,555 $9,206,030
- ----------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 2,005,424 812,776
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................. $9.93 $11.33
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $ 96,329 $ 32,982
Dividends................................................. 225,185 88,115
Less: Foreign withholding tax............................. (2,420) (88)
- --------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 319,094 121,009
- --------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)......................... 106,505 56,038
Audit and legal........................................... 17,000 17,000
Shareholder and system servicing fees..................... 13,000 13,000
Shareholder communications................................ 11,000 6,000
Administration fees (Note 2).............................. 8,520 4,482
Trustees' fees............................................ 4,000 4,000
Custody................................................... 3,107 3,400
Other..................................................... 1,003 801
- --------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 164,135 104,721
Less: Expense reimbursements (Note 2)..................... (24,087) (29,926)
- --------------------------------------------------------------------------------------
NET EXPENSES.............................................. 140,048 74,795
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 179,046 46,214
- --------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions (excluding
short-term securities):
Proceeds from sales.................................... 5,042,021 4,583,648
Cost of securities sold................................ 5,339,858 4,152,989
- --------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).................................. (297,837) 430,659
- --------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of year...................................... (114,750) 268,395
End of year............................................ 352,037 585,706
- --------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................... 466,787 317,311
- --------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS..................................... 168,950 747,970
- --------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $ 347,996 $794,184
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 179,046 $ 46,214
Net realized gain (loss).................................. (297,837) 430,659
Increase in net unrealized appreciation................... 466,787 317,311
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 347,996 794,184
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.......................... 11,555,100 2,645,856
Net asset value of shares issued for reinvestment of
dividends.............................................. -- --
Cost of shares reacquired................................. (458,397) (403,013)
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 11,096,703 2,242,843
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 11,444,699 3,037,027
NET ASSETS:
Beginning of year......................................... 8,462,856 6,169,003
- ----------------------------------------------------------------------------------------
END OF YEAR*.............................................. $19,907,555 $9,206,030
- ----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $179,046 $46,031
- ----------------------------------------------------------------------------------------
</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 9):
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
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 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
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, 1999,
reclassifications were made to the Jurika & Voyles Core Equity Portfolio's
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 the 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. ("Citigroup"), 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 (CONTINUED)
portfolio operations and investment decisions for NWQ and JV, respectively. As a
result, the following fees are 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 SSB Citi
Fund Management LLC, ("SSBC") formerly known as SSBC Fund Management Inc., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH") which, in turn, is a
subsidiary of Citigroup. 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.
Effective October 1999, Smith Barney Private Trust Company ("Private
Trust"), another subsidiary of Citigroup, became the Fund's transfer agent and
PFPC Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through December 31, 1999, NWQ and JV each paid transfer
agent fees of $1,250 to Private Trust.
For the year ended December 31, 1999, Travelers Insurance reimbursed
expenses in the amounts of $24,087 and $29,926 for NWQ and JV, respectively.
For the year ended December 31, 1999, NWQ and JV paid Salomon Smith Barney
Inc. ("SSB"), another subsidiary of SSBH, brokerage commissions of $318 and
$250, respectively. SSB acts as the primary broker for its portfolio agency
transactions.
One Trustee and all officers of the Trust are employees of Citigroup 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 year
ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- --------------------------------------------------------------------------------------
<S> <C> <C>
NWQ Large Cap Portfolio..................................... $17,030,679 $5,042,021
Jurika & Voyles Core Equity Portfolio....................... 6,651,352 4,583,648
- --------------------------------------------------------------------------------------
</TABLE>
At December 31, 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..................................... $1,995,040 $(1,643,003) $352,037
Jurika & Voyles Core Equity Portfolio....................... 1,296,177 (710,471) 585,706
- -----------------------------------------------------------------------------------------------------------
</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.
14
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 December 31, 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 December 31, 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
purchase 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 year ended December 31, 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
15
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 1999, the Portfolios had no securities on loan.
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998(a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
NWQ LARGE CAP PORTFOLIO:
Shares sold............................................... 1,155,790 892,819
Shares issued on reinvestment............................. -- 4,338
Shares reacquired......................................... (45,158) (2,365)
- -------------------------------------------------------------------------------------------------------
Net Increase.............................................. 1,110,632 894,792
- -------------------------------------------------------------------------------------------------------
JURIKA & VOYLES CORE EQUITY PORTFOLIO:
Shares sold............................................... 251,624 599,062
Shares issued on reinvestment............................. -- 2,237
Shares reacquired......................................... (39,371) (776)
- -------------------------------------------------------------------------------------------------------
Net Increase.............................................. 212,253 600,523
- -------------------------------------------------------------------------------------------------------
</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) 1998(2)
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $9.46 $10.00
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3).................................. 0.13 0.05
Net realized and unrealized gain (loss)................... 0.34 (0.54)
- -------------------------------------------------------------------------------
Total Gain (Loss) From Operations........................... 0.47 (0.49)
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.05)
Capital................................................... -- (0.00)*
- -------------------------------------------------------------------------------
Total Distributions......................................... -- (0.05)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................................ $9.93 $9.46
- -------------------------------------------------------------------------------
TOTAL RETURN................................................ 4.97% (4.94)%++
- -------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $19,908 $8,463
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)............................................ 0.99% 0.99%+
Net investment income..................................... 1.26 1.47+
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 41% 2%
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
(3) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $24,087 and $17,700 for the year ended December 31, 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 $0.02 1.15% 1.64%+
</TABLE>
(4) 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) 1998(2)
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $10.27 $10.00
- -------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(3).................................. 0.06 0.04
Net realized and unrealized gain.......................... 1.00 0.27
- -------------------------------------------------------------------------------
Total Income From Operations................................ 1.06 0.31
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.04)
Capital................................................... -- (0.00)*
- -------------------------------------------------------------------------------
Total Distributions......................................... -- (0.04)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................................ $11.33 $10.27
- -------------------------------------------------------------------------------
TOTAL RETURN................................................ 10.32% 3.08%++
- -------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $9,206 $6,169
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)............................................ 1.00% 0.99%+
Net investment income..................................... 0.62 1.01+
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 68% 26%
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
(3) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $29,926 and $20,200 for the year ended December 31, 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>
$0.04 $0.03 1.40% 1.89%+
</TABLE>
(4) 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>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
TRAVELERS SERIES TRUST:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of NWQ Large Cap Portfolio and Jurika & Voyles
Core Equity Portfolio of Travelers Series Trust as of December 31, 1999, and the
related statements of operations for the year then ended, and the statements of
changes in net assets and financial highlights for the year ended December 31,
1999 and for the period from July 20, 1998 (commencement of operations) to
December 31, 1998. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. As to securities
purchased and sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
NWQ Large Cap Portfolio and Jurika & Voyles Core Equity Portfolio of Travelers
Series Trust as of December 31, 1999, the results of their operations for the
year then ended, the changes in their net assets and their financial highlights
for the year ended December 31, 1999 and for the period from July 20, 1998 to
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 11, 2000
19
<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 (Annual) (2-00) Printed in U.S.A.
<PAGE>
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
ANNUAL REPORTS
DECEMBER 31, 1999
[TRAVELERS GRAPHIC]
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
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the 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 for the year ended December 31, 1999. This letter briefly discusses
general economic and market conditions.
In addition, a detailed comparison showing the growth of a hypothetical $10,000
invested in each Portfolio since inception can be found in this report. All
total return figures given in this report, both cumulative and average
annualized, exclude the effect of sales charges. Past performance is not
indicative of future results. A detailed summary of performance and current
holdings for each individual Portfolio can be found in the appropriate sections
that follow. We hope you find this report to be useful and informative.
<TABLE>
<CAPTION>
The Performance of the Travelers Series Trust (1) (12/31/98-12/31/99)
- ---------------------------------------------------------------------
<S> <C>
Convertible Bond Portfolio.................................. 18.70%
Strategic Stock Portfolio................................... 4.97
Disciplined Small Cap Stock Portfolio....................... 20.41
MFS Mid Cap Growth Portfolio................................ 64.17
MFS Research Portfolio...................................... 23.67
</TABLE>
MARKET AND ECONOMIC OVERVIEW
The year began on a volatile note for global financial markets as a potential
new threat emerged in Latin America. The devaluation of Brazil's currency, the
real, affected many U.S. corporations and investors with exposure to the Latin
American markets and negatively impacted the performance of the U.S. stock
market.
Concerns regarding the future direction of interest rates were prevalent
throughout 1999. Despite low inflation, the Federal Reserve Board ("Fed") opted
to raise interest rates three times during the year, effectively "taking back"
the interest-rate cuts imposed following the global economic crisis in 1998. The
Fed's change in monetary policy did not significantly deter the remarkable
growth of the U.S. economy. In fact, throughout the year, the U.S. Gross
Domestic Product ("GDP"), which represents the total output of goods and
services, continued to exceed expectations.
Despite the rise in interest rates, the U.S. stock market continued its stellar
performance. Evidence of stronger-than-expected economic growth prompted hopes
of a meaningful earnings recovery and at the same time, triggered concerns
regarding future rate hikes. These factors led to a rally in small cap and value
stocks. (Value stocks are securities of companies that are believed to be
undervalued in the market.) However, the trend of investing in small cap and
value stocks soon changed, as many investors took the view that a proactive
monetary policy by the Fed would preempt inflationary pressures.
By the end of the year, nevertheless, the small cap sector, as measured by the
Russell 2000 Index,(2) which returned 21.26% for the year, outperformed the
large cap sector, as measured by the Standard & Poor's 500 Index(3) ("S&P 500")
which returned 21.03%.
As a result of investors' focus on the direction of interest rates, the stock
and bond markets were characterized by higher levels of volatility. Investors
became increasingly concerned, especially toward the end of the year, about not
only the direction of interest rates but also about future earnings growth and
the high market valuations of many stocks. In addition, the strength of the
overseas markets attracted U.S. capital, which had a somewhat negative impact on
the performance of the U.S. stock market through the third quarter of 1999.
- ---------------
(1) Please note that data represents past performance, which is not indicative
of future results. The 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.
(2) The Russell 2000 measures the performance of the 2,000 smallest companies in
the Russell 3000 Index, which represents approximately 8% of the total
market capitalization of the Russell 3000 Index.
(3) The S&P 500 is market capitalization-weighted measure of 500 widely held
common stocks.
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ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
By the end of the year however, the U.S. stock market rose sharply largely due
to the incredible performance of the technology sector. Y2K concerns decreased,
with the market's assessment of the risks associated with potential Year 2000
glitches proving to be correct.
The bond markets did not react positively to the actions of the Fed in 1999 and
experienced their worst year since 1994. The overall bond market recorded losses
in 1999 in response to the Fed's interest rate increases and concerns regarding
inflation. Bond market losses increased with the length of maturities. The yield
on the bellwether 30-year government bond increased 1.39 percentage points in
1999 to 6.48%. At the end of 1998, the 30-year bond yielded 5.09%.
In our view, the strength of the U.S. economy should continue, prompting the Fed
to raise interest rates in 2000.(4) In addition, overseas economies, many of
which are in the early stages of recovery, should continue to expand. This
global economic recovery should benefit the manufacturing sector of the U.S.
market in 2000.
We predict that earnings should continue its double-digit growth through the
first quarter of 2000. It is our belief that the recent performance of
technology and telecommunications stocks is not sustainable. However, we are
confident that most stocks are appropriately valued. Over the longer term, we
think that the fundamentals for both stocks and bonds remains favorable.
CONVERTIBLE BOND PORTFOLIO
For the year ended December 31, 1999, the Convertible Bond Portfolio
("Portfolio") posted a total return of 18.70%. In comparison, the Merrill Lynch
Investment Grade Convertible Bond Index returned 11.62% for the same time
period. (Past performance is not indicative of future results. 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.)
The Portfolio's investment objective is to provide investors with current income
and capital appreciation by investing in convertible securities and in
combinations of non-convertible bonds 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 overall performance of the convertible bond market in 1999 was the result of
a select few issues, especially those in the technology sector. By the end of
1999, the technology sector comprised approximately 53.2% of the total
convertible market as measured by the Merrill Lynch Investment Grade Convertible
Bond Index.
During the year, the Portfolio was managed to have the characteristics of a
traditional convertible bond, where price sensitivity averages to 50%-70% of the
underlying stock's movement in price. The managers typically will begin to
eliminate issues from the Portfolio when the securities reach a price 50% above
their initial offering price.
The managers have identified many values in the non-technology value sector of
the convertible bond market and, while no guarantees can be made, are confident
the Portfolio should benefit from these holdings. Although the Portfolio remains
underweight in the technology sector in comparison to its benchmark, the
Portfolio consists of a number of technology and telecommunications issues. The
managers choose these issues because they fit the Portfolio's investment
criteria.
STRATEGIC STOCK PORTFOLIO
For the year ended December 31, 1999, the Strategic Stock Portfolio
("Portfolio") returned 4.97% compared with the 27.29% return for the Dow Jones
Industrial Average. (Past performance is not indicative of future results. The
Dow Jones Industrial Average is a price-weighted average of 30 blue chip
stocks.)
The Portfolio invests in stocks with relatively high yield potential. The ten
highest dividend yielding stocks from the Dow Jones Industrial Average are
identified each month. To supplement the original ten Dow Jones stocks, another
15 stocks are selected from the S&P 500 Industrials Index based on dividend
yield and subject to a high standard of quality ranking by
- ---------------
(4) On February 2, 2000, after this letter was written, the Fed raised interest
rates 0.25%, to 5.25%.
2
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
Standard & Poor's. The list of 25 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 was increased from 20 to 25 during the
period.
DISCIPLINED SMALL CAP STOCK PORTFOLIO
For the year ended December 31, 1999, the Disciplined Small Cap Stock Portfolio
("Portfolio") produced a total return of 20.41% compared with the Russell 2000
Index return of 21.26%. (Past performance is not indicative of future results.
Please note that Portfolio holdings are as of December 31, 1999 and are subject
to change.)
The Portfolio is managed to provide diversified exposure to the
small-capitalization sector of the U.S. stock 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 what the managers
believe are attractive values.
The technology sector continues to remain the dominant factor of both the U.S.
economy and within the large- and small-capitalization segments of the U.S.
stock market. As a result, the Portfolio's holdings in the technology sector
significantly contributed to performance. Investments in Lam Research, Mercury
Interactive and Dendrite International performed well in 1999. In addition,
investments in health care stocks such as IDEC Pharmaceuticals and U.S.
Bioscience also positively contributed to performance.
The stock selection of the managers and their risk control methods have
positively affected the performance of the Portfolio in the midst of increased
market volatility. However, the managers believe that the performance of the
small cap sector in the coming months lies in the future direction of the
economy.
MFS MID CAP GROWTH PORTFOLIO
For the year ended December 31, 1999, the Mid Cap Growth Portfolio ("Portfolio")
provided a total return of 64.17%. In comparison, the Russell 2000 Index
returned 21.26% and the Russell Midcap returned 18.23% for the same period.
(Past performance is not indicative of future results. Please note that
Portfolio holdings are as of December 31, 1999 and are subject to change. The
Russell Midcap Index measures the performance of the 800 smallest companies in
the Russell 1000 Index, which represent approximately 26% of the total market
capitalization of the Russell 1000 Index.)
The managers, in line with the Portfolio's investment objectives, look for
growing businesses that have made the transition from small cap to mid cap.
Often that means the Portfolio is investing in industries in which the
competitive field has narrowed down to just a few companies. The investment
team's goal is to use their research to pick the company or companies that will
wind up dominating the field, and to invest in those companies early, before the
market recognizes their true worth.
Following this theme, two main areas that contributed to the Portfolio's
outperformance over the past six months, relative to its benchmarks, were
semiconductor capital equipment and Internet infrastructure.
Semiconductor capital equipment is the machinery that semiconductor
manufacturers use to make, test, and package chips. One Portfolio holding in
this field is MKS Instruments, which the managers believe makes the best
equipment for measuring the pressure of the gas plasma used in making chips.
MKS, like many of their investments in this area, dominates a critical niche in
a very technical manufacturing process.
Semiconductor capital equipment stocks tend to be cyclical; they had a good run
early in 1999 and around mid-year many thought their potential had ended. But in
the managers' research visits to these companies, they were hearing that
business was getting stronger, and semiconductor capital equipment businesses
were projecting two to three more years of strong sales. With this in mind, the
managers bought into semiconductor capital equipment companies when many of
their stock prices were stagnating, and indeed they rose strongly late in the
year. In addition to MKS Instruments, the Portfolio's holdings in this area
include Teradyne, which makes perhaps the world's best equipment for testing a
chip to ensure it runs properly; KLA-Tencor, whose products allow chip makers to
increase the efficiency of their manufacturing processes; and
3
<PAGE>
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
thereby decrease the cost per chip; and Applied Science and Technology, which
makes systems that produce the gas plasma that gets deposited on wafers to make
semiconductors.
Another area that performed very strongly for the Portfolio was Internet
infrastructure companies. As distinguished from e-commerce or Internet portal
sites, infrastructure companies provide the products and services that make the
Internet work. The managers' biggest success in this area was Network Solutions,
Inc. the company that rents the site names for the Internet. They own the
exclusive rights to assign all the .com, .net, .edu, and .org names, so they are
virtually the worldwide building permit issuer for the Internet. Most anyone
doing business on the Internet has to pay Network Solutions $35/year to register
their domain, or site, names.
In the early 1990s, renting site names for the Internet was a Federal government
operation that was losing money and was consequently sold to a private company.
At that time, the government believed there would never be more than a million
domain names; today Network Solutions is adding roughly a million new names
every 75 days.
But in the middle of 1999 there was a controversy about whether the government
might take away Network Solutions' monopoly, and the company's stock price
dropped by two-thirds. The Portfolio's managers did extensive research,
analyzing legal precedents, and concluded that the government had no legal
standing to go back on the deal they had made when they sold the business. So,
the investment team bought the stock on the dip in price, and subsequently
Network Solutions negotiated a very favorable contract with the government; they
became in essence a government-sanctioned monopoly. Since then, the stock has
taken off to the point where the managers have had to sell some of their
position to keep it from becoming too large a part of the Portfolio. Network
Solutions exemplifies one of the things the Portfolio's managers look for in the
market: "second chance" opportunities, when a company has suffered a decline in
share price that they believe is unjustified and therefore temporary.
Another success in the Internet infrastructure area was CheckFree Holdings Corp.
This is a company that provides electronic home banking and other electronic
commerce services to a large number of financial solutions. The managers bought
the stock because a company visit and further research led them to believe
CheckFree was a dominant player in their business, and that CheckFree would
benefit directly from the explosive growth of the Internet. And in the fourth
quarter of 1999 the stock indeed appreciated quite significantly over its
purchase price.
Outside of the areas of semiconductor capital equipment and Internet
infrastructure, individual stocks in several areas contributed strongly to
performance. Gemstar International Group Ltd. is a great example of a company
the managers bought into early, that became the only player in its industry.
Gemstar consolidated the onscreen electronic program guide industry, so they
receive a royalty of about $9 on every TV, VCR, cable box, and satellite box
that is sold with an electronic guide. According to the managers' research, TV
sets alone are being replaced at a rate of 25 million per year, so the potential
is enormous. The stock doubled in price in the first half of 1999, and doubled
again in the second half after it agreed to acquire TV Guide. At that point the
company's market cap became larger than the managers believe is appropriate for
a mid-cap fund, so they sold their position after three years with the
Portfolio.
Another strong performer was Cytyc Corp., a company the managers have held for
some time, through several rocky periods, because on their research which
indicated Cytyc would eventually dominate their area of business. Cytyc
developed the Thinprep System, an improved Pap test that is rapidly becoming a
new standard in the health care industry. The stock was boosted this period by
better-than-expected acceptance in an initial product rollout in New England, as
well as agreement by Aetna, a major health insurer, to accept the Cytyc test for
reimbursement.
Looking toward 2000, the managers have positioned a substantial part of the
Portfolio in three major areas: energy, transaction processors, and health care.
In the energy sector, the investment team has significantly increased their
sector weighting since mid-1999 and focused on two themes: deep-water drillers,
and natural gas exploration and production. Oil companies have found that the
most productive wells, those with the lowest overall cost per barrel, are in
deep water over about 5,000 feet. The deep water rigs to drill these wells cost
in the vicinity of $300 million, take three years to build, and are owned
primarily by three companies: Transocean Sedco Forex Inc., Noble Drilling Corp.,
and Diamond Offshore Drilling, Inc. When the price of oil is above about
4
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ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
$18 per barrel -- and it's currently in the mid-twenties -- the leases for these
rigs are usually bid up in price each time they are renewed. The Portfolio's
investment team thinks this is a good business to be in, and the Portfolio has
large positions in all three of the dominant rig companies.
The other side of the exploration business is natural gas, and here the
situation is a supply/demand imbalance. Gas demand is growing faster than that
for oil, as more houses each year are being hooked up to gas, and electric
utilities are switching to gas powered turbines. But gas drilling activity has
been down the past few years, so demand is growing faster than supply, and the
managers believe some of the gas exploration and production companies are good
investments. Transaction processors are another major theme for the Portfolio
going forward. These are companies that process customer transactions for mutual
funds, banks, and credit card issuers, as well as bill payment for the cable
industry. These businesses tend to benefit strongly from new technologies such
as the Internet, which are continually driving down the cost of each individual
transaction. But what happened in 1999 was that many of these companies weren't
growing their business. The Portfolio's managers believe this was Y2K related;
potential customers were reluctant to change their processing systems in the
last three quarters of 1999. So although some processors and other business
services in the Portfolio did well in 1999, the managers bought many of them at
depressed prices in order to position the Portfolio for potential growth in
2000. By and large, they believe the processors should have a good year in 2000,
with demand coming back and technology continuing to drive down their costs. The
Portfolio's holdings in this area include SunGard Data Systems, which processes
mutual fund shareholder transactions and NOVA Corp., which does credit card
processing for retail merchants.
Health care is an additional area in which management has positioned the
Portfolio for 2000. Stocks in this sector were generally beaten down in 1999
because Medicare cut back reimbursements and changed the payment system. This
drastically impacted health care providers like nursing homes and hospitals.
Except for some companies like Cytyc, the reimbursement issue also cast a shadow
over many health care-related companies that actually had what the managers
consider to be good businesses. The managers invested in several of these
beaten-down health care companies in the second half of the year. Unfortunately,
they may have been a bit early, as some of their stock prices declined further
and detracted from the Fund's short-term performance. The investment team does,
however, believe that these are solid companies with good potential for stock
price appreciation in 2000. Firms in this category include Lincare Holdings
Inc., which provides home delivery of oxygen and other respiratory therapy
services; STERIS Corp., the dominant company in hospital sterilization products;
and Health Management Associates, an operator of rural hospitals whose stock has
already begun to benefit the Portfolio.
MFS RESEARCH PORTFOLIO
For the year ended December 31, 1999, the MFS Research Portfolio ("Portfolio")
returned 23.67%. In comparison, the S&P 500 returned 21.03% for the same period.
The Portfolio's holdings in the telecommunications and technology sectors
positively contributed to performance. (Past performance is not indicative of
future results. Please note that Portfolio holdings are as of December 31, 1999
and are subject to change.)
Despite the Portfolio's overweight in technology stocks relative to the S&P 500,
the managers avoided those companies with expensive valuations, poor business
models and unproven success in executing their strategy. However, according to
the managers, the Internet should continue to grow in popularity and in the
Portfolio's holdings in the networking and telecommunications industries was
increased during the reporting period. Cisco Systems Inc., Nortel Networks
Corp., Ericsson and Motorola Inc. were added to the Portfolio and significantly
contributed to its outstanding performance versus the benchmark.
The Portfolio's exposure to the software business was maintained during the
reporting period through it positions in Microsoft Corp., Oracle Corp. and
VERITAS. This sector declined in the first quarter of 1999 but rebounded over
the past six months due to increased demand for data storage and software
products.
The Portfolio's holdings in semiconductor companies such as LSI Logic Corp. and
Analog Devices, Inc. greatly benefited following their decline in 1998 in the
wake of the Asian economic slowdown. With the Asian economic recovery underway,
management thinks that this industry should continue to benefit in the
foreseeable future.
5
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ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
The Portfolio's holdings in the financial services, media and energy sectors
significantly added to performance. Financial stocks such as Morgan Stanley Dean
Witter & Co. and media stocks such as Infinity Broadcasting Corp., EchoStar
Communications Corp. and CBS Corp. continued to perform well.
Investments in Nabisco Inc., Safeway Inc. and CVS Corp. negatively impacted the
Portfolio's performance. These companies declined during the reporting period
due to downbeat industry outlooks and negative investor sentiment despite their
fundamentally sound business plans and growth prospects. Additionally, the
Portfolio's holding in Tyco International Ltd. was a major disappointment.
Despite no evidence to suggest that irregular accounting methods were used by
Tyco, an analyst report raised suspicions and the company's shares fell.
The Portfolio's holdings in the health care sector adversely affected
performance. Nursing homes, hospitals, HMOs, and pharmaceutical companies all
were hurt by fears of Medicare reform and potential government price controls.
Despite the overall negative sentiment surrounding this industry, the Portfolio
invested in the medical device sector of the market that the managers believe
should benefit from a number of new product offerings.
Looking ahead, the Portfolio's managers expects that the current strength of the
U.S. stock market should continue and also expand into other sectors, which
could create additional opportunities for the Portfolio. And while no guarantees
can be given, the managers are confident that their focus on finding high
quality companies that provide long-term gains despite market volatility should
continue to provide competitive performance.
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 in the new
century.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
January 20, 2000
6
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- CONVERTIBLE BOND PORTFOLIO AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Year Ended 12/31/99 18.70%
5/1/98* through 12/31/99 11.47%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
5/1/98* through 12/31/99 19.87%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through December 31, 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.)
[LINE GRAPH]
<TABLE>
<CAPTION>
TRAVELERS CONVERTIBLE BOND MERRILL LYNCH INVESTMENT GRADE
PORTFOLIO CONVERTIBLE BOND INDEX
-------------------------- ------------------------------
<S> <C> <C>
5/1/98 10000.00 10000.00
6/98 10120.00 10024.00
9/98 9570.00 9185.00
12/98 10098.00 10433.00
3/99 10190.00 10423.00
6/99 10889.00 10991.00
9/99 10941.00 10495.00
12/31/99 11987.00 11414.00
</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 -- STRATEGIC STOCK PORTFOLIO AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Year Ended 12/31/99 4.97%
5/1/98* through 12/31/99 0.31%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
5/1/98* through 12/31/99 0.51%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through December 31, 1999. The Dow Jones Industrial Average
("DJIA") is a price weighted average based on the price only
performance of 30 blue chip stocks.
[LINE GRAPH]
<TABLE>
<CAPTION>
TRAVELERS STRATEGIC STOCK PORTFOLIO DOW JONES INDUSTRIAL AVERAGE
----------------------------------- ----------------------------
<S> <C> <C>
5/1/98 10000% 10000%
6/98 9690% 9904%
12/98 9576% 10250%
6/99 10760% 12350%
12/31/99 10051% 13048%
</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
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- DISCIPLINED SMALL CAP STOCK PORTFOLIO AS OF 12/31/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Year Ended 12/31/99 20.41%
5/1/98* through 12/31/99 4.20%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
5/1/98* through 12/31/99 7.11%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through December 31, 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.
[Line Graph]
<TABLE>
<CAPTION>
DISCIPLINED SMALL CAP STOCK
PORTFOLIO RUSSELL 2000 INDEX
--------------------------- ------------------
<S> <C> <C>
5/1/98 10000 10000
6/98 9540 9481
12/98 8896 8806
6/99 9588 9623
12/31/99 10711 10676
</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 12/31/99
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Year Ended 12/31/99 64.17%
3/23/98* through 12/31/99 32.58%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
3/23/98* through 12/31/99 64.99%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through December 31, 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.
[Line Graph]
<TABLE>
<CAPTION>
MFS MID CAP GROWTH PORTFOLIO RUSSELL MIDCAP INDEX
---------------------------- --------------------
<S> <C> <C>
3/23/98 10000 10000
6/98 9800 9850
12/98 10050 9935
6/99 11387 10962
12/31/99 16499 11747
</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 RESEARCH PORTFOLIO AS OF 12/31/99 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Year Ended 12/31/99 23.67%
3/23/98* through 12/31/99 16.33%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
3/23/98* through 12/31/99 30.80%
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through December 31, 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.
[Line Graph]
<TABLE>
<CAPTION>
MFS RESEARCH PORTFOLIO S&P 500 INDEX
---------------------- -------------
<S> <C> <C>
3/23/98 10000 10000
6/98 10230 10331
12/98 10577 11285
6/99 11498 12682
12/31/99 13080 13658
</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>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1999
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCK -- 46.0%
- -----------------------------------------------------------------------------------------------
BANKING -- 3.5%
14,000 National Australia Bank, Exchange 7.875%.................... $ 386,750
- -----------------------------------------------------------------------------------------------
ENERGY -- 14.1%
Calenergy Capital Trust:
3,070 Exchange 6.500%........................................... 117,811
3,150 Exchange 6.250%........................................... 130,725
8,000 Calpine Capital Trust, Exchange 5.750%...................... 525,000
7,494 El Paso Energy Cap Trust I, Exchange 4.750%................. 377,510
11,000 Newell Financial Trust I, Exchange 5.250%................... 419,375
- -----------------------------------------------------------------------------------------------
1,570,421
- -----------------------------------------------------------------------------------------------
FINANCE -- 6.9%
6,000 AES Trust III, Exchange 6.750%.............................. 369,750
11,200 Fleetwood Capital Trust, Exchange 6.000%.................... 390,600
- -----------------------------------------------------------------------------------------------
760,350
- -----------------------------------------------------------------------------------------------
MULTIMEDIA -- 0.1%
74 News Corp. Ltd. Exchange 5.000%............................. 10,591
- -----------------------------------------------------------------------------------------------
REAL ESTATE -- 9.8%
9,215 Equity Office PPTYS Trust, Exchange 5.250%.................. 363,993
18,541 Equity Residential Properties, Exchange 7.250%.............. 362,708
4,000 General Growth Properties, Exchange 7.250%.................. 80,000
13,900 Reckson Associates Realty, Exchange 7.625%.................. 276,263
- -----------------------------------------------------------------------------------------------
1,082,964
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.0%
1,200 Global Crossing, Exchange 7.000%............................ 337,200
- -----------------------------------------------------------------------------------------------
TRANSPORTATION -- 5.3%
2,000 Canadian National Railway, Exchange 5.250%.................. 84,000
12,245 Union Pacific Cap Trust, Exchange 6.250%.................... 509,698
- -----------------------------------------------------------------------------------------------
593,698
- -----------------------------------------------------------------------------------------------
MISCELLANEOUS -- 3.3%
7,917 Newfield Financial Trust I, Exchange 6.500%................. 370,120
- -----------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $5,211,280)...... 5,112,094
- -----------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONVERTIBLE BONDS AND NOTES -- 54.0%
- -------------------------------------------------------------------------------------------------
ADVERTISING -- 1.2%
$ 121,000 A Interpublic Group Cos. Inc., 1.870% due 6/1/06 (b).......... 137,486
- -------------------------------------------------------------------------------------------------
BUILDING AND CONSTRUCTION -- 3.6%
1,016,000 BBB- Lennar Corp., zero coupon due 7/29/18....................... 402,590
- -------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 4.2%
300,000 NR Bea Systems Inc., 4.000% due 12/15/06 (b)................... 351,375
100,000 Aa2* GVC Corp. Ltd., zero coupon due 5/21/02 (b)................. 112,750
- -------------------------------------------------------------------------------------------------
464,125
- -------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ELECTRONIC -- 0.9%
$ 100,000 A- Potomac Electric Power Co., 5.000% due 9/1/02............... $ 97,750
- -------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 7.2%
600,000 BBB- Elan International Financial, zero coupon due 12/14/18...... 318,000
300,000 NR Financial Federal Corp., 4.500% due 5/1/05.................. 285,750
200,000 A- Hellenic Finance SCA, 2.000% due 7/15/03 (b)................ 200,500
- -------------------------------------------------------------------------------------------------
804,250
- -------------------------------------------------------------------------------------------------
HEALTHCARE -- 1.2%
58,000 BB- Tenet Healthcare Corp., 6.000% due 12/1/05.................. 47,343
100,000 BBB+ Thermo Instrument System, 4.500% due 10/15/03 (b)........... 82,375
- -------------------------------------------------------------------------------------------------
129,718
- -------------------------------------------------------------------------------------------------
HUMAN RESOURCES -- 0.8%
100,000 BB+ Interim Services Inc., 4.500% due 6/1/05.................... 88,500
- -------------------------------------------------------------------------------------------------
MEDIA -- 6.0%
400,000 BBB- Clear Channel Communication, 1.500% due 12/1/02............. 411,000
200,000 BBB- Liberty Media, 4.000% due 11/15/29 (b)...................... 252,000
- -------------------------------------------------------------------------------------------------
663,000
- -------------------------------------------------------------------------------------------------
MISCELLANEOUS -- 1.6%
190,000 A- Koninklijke Ahold NV, 3.000% due 9/30/03.................... 97,912
100,000 BBB Thermo Electron Corp., 4.250% due 1/1/03 (b)................ 85,000
- -------------------------------------------------------------------------------------------------
182,912
- -------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE -- 2.2%
300,000 A+ Loews Corp., 3.125% due 9/15/07............................. 246,000
- -------------------------------------------------------------------------------------------------
OIL AND NATURAL GAS -- 1.9%
100,000 A Baker Hughes Inc., zero coupon due 5/5/08................... 70,375
66,000 A- Diamond Offshore Drill, 3.750% due 2/15/07.................. 66,990
100,000 B- Parker Drilling Corp., 5.500% due 8/1/04.................... 70,000
- -------------------------------------------------------------------------------------------------
207,365
- -------------------------------------------------------------------------------------------------
REAL ESTATE -- 0.7%
100,000 BBB- Security Cap U.S. Realty, 2.000% due 5/22/03 (b)............ 74,312
- -------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 19.6%
500,000 B- Aspect Telecommunications, zero coupon due 8/10/18 (b)...... 200,000
500,000 B- Aspect Telecommunications, zero coupon due 5/13/20.......... 200,000
Bell Atlantic Financial Service:
99,000 A+ 5.750% due 4/1/03 (b)....................................... 104,198
300,000 A+ 4.250% due 9/15/05 (b)...................................... 369,015
400,000 BB+ Commscope Inc., 4.000% due 12/15/06 (b)..................... 434,500
400,000 NR EchoStar Communications, 4.875% due 1/1/07 (b).............. 492,500
600,000 B Total Renal Care Holdings, 7.000% due 5/15/09 (b)........... 378,000
- -------------------------------------------------------------------------------------------------
2,178,213
- -------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WHOLESALE DISTRIBUTOR -- 2.9%
$1,000,000 B Brightpoint Inc., zero coupon due 3/11/18................... $ 326,250
- -------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS AND NOTES (Cost -- $5,815,435)...... 6,002,471
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $11,026,715**)........... $11,114,565
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's")
with the exemption 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
<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 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 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 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
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
STRATEGIC STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 76.7%
- ---------------------------------------------------------------------------------------
AEROSPACE-DEFENSE -- 1.8%
10,000 Raytheon Co., Class B Shares................................ $ 265,625
- ---------------------------------------------------------------------------------------
AUTOMOTIVE -- 7.0%
12,700 Air Products and Chemicals, Inc. ........................... 426,244
5,973 General Motors Corp. ....................................... 434,162
7,200 Genuine Parts Co. .......................................... 178,650
- ---------------------------------------------------------------------------------------
1,039,056
- ---------------------------------------------------------------------------------------
CHEMICALS -- 5.6%
17,200 ConAgra, Inc. .............................................. 388,075
11,000 Rohm & Haas Co. ............................................ 447,563
- ---------------------------------------------------------------------------------------
835,638
- ---------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 13.8%
7,700 Avery Dennison Corp. ....................................... 561,137
5,000 The Clorox Co. ............................................. 251,875
6,811 Eastman Kodak Co. .......................................... 451,229
14,885 May Department Stores Co. .................................. 480,041
10,500 Newell Rubbermaid, Inc. .................................... 304,500
- ---------------------------------------------------------------------------------------
2,048,782
- ---------------------------------------------------------------------------------------
CONSUMER STAPLES -- 11.4%
9,300 Bestfoods................................................... 488,831
7,800 Hershey Foods Corp. ........................................ 370,500
13,000 PepsiCo, Inc. .............................................. 458,250
15,759 Phillip Morris Cos., Inc. .................................. 365,412
- ---------------------------------------------------------------------------------------
1,682,993
- ---------------------------------------------------------------------------------------
DRUGS -- 2.6%
9,600 American Home Products Corp. ............................... 378,600
- ---------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 4.9%
4,382 J.P. Morgan & Co. .......................................... 554,871
6,600 UST, Inc. .................................................. 166,238
- ---------------------------------------------------------------------------------------
721,109
- ---------------------------------------------------------------------------------------
HOSPITAL SUPPLIES AND SERVICES -- 2.7%
11,000 Abbott Laboratories......................................... 399,438
- ---------------------------------------------------------------------------------------
MANUFACTURING -- 2.8%
7,300 Emerson Electric Co. ....................................... 418,837
- ---------------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 4.8%
6,563 E.I. du Pont de Nemours & Co. .............................. 432,338
5,000 International Paper Co. .................................... 282,187
- ---------------------------------------------------------------------------------------
714,525
- ---------------------------------------------------------------------------------------
OFFICE EQUIPMENT -- 2.4%
7,200 Pitney Bowes, Inc. ......................................... 347,850
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
STRATEGIC STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
OIL PRODUCTION - DOMESTIC -- 3.0%
5,501 Exxon Mobil Corp. .......................................... $ 443,174
- ---------------------------------------------------------------------------------------
PRODUCER DURABLES -- 6.0%
6,155 Caterpillar Inc. ........................................... 289,670
6,130 Minnesota Mining & Manufacturing Co. ....................... 599,974
- ---------------------------------------------------------------------------------------
889,644
- ---------------------------------------------------------------------------------------
SUPERMARKETS -- 1.0%
6,200 Winn-Dixie Stores, Inc. .................................... 148,412
- ---------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 6.9%
6,500 ALLTEL Corp. ............................................... 537,469
10,000 SBC Communications, Inc. ................................... 487,500
- ---------------------------------------------------------------------------------------
1,024,969
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $12,157,938).................... 11,358,652
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS -- 23.3%
$ 454,000 Morgan Stanley Dean Witter & Co., 2.470% due 1/3/00;
Proceeds at maturity -- $454,093; (Fully collateralized by
U.S. Treasury Notes, 14.250% due 2/15/02;
Market value -- $463,078)................................... 454,000
3,000,000 Chase Manhattan Bank, 2.000% due 1/3/00; Proceeds at
maturity -- $3,000,500; (Fully collateralized by U.S.
Treasury Note, 11.625% due 11/15/02; Market
value -- $3,060,488)........................................ 3,000,000
- ---------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $3,454,000)............ 3,454,000
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $15,611,938*)............ $14,812,652
- ---------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 90.6%
- -----------------------------------------------------------------------------------
AUTOMATION -- 0.3%
3,500 Global Imaging Systems Inc. (a)............................. $ 42,875
- -----------------------------------------------------------------------------------
AUTOS AND TRANSPORTATION -- 2.6%
2,527 Airborne Freight Corp. ..................................... 55,594
2,949 Arvin Industries, Inc. ..................................... 83,678
1,520 Borg-Warner Automotive, Inc. ............................... 61,560
2,548 Eagle USA Airfreight, Inc. (a).............................. 109,883
288 Navistar International Corp. (a)............................ 13,644
2,439 SkyWest, Inc. .............................................. 68,292
- -----------------------------------------------------------------------------------
392,651
- -----------------------------------------------------------------------------------
BUILDING AND CONSTRUCTION -- 1.6%
3,766 D.R. Horton, Inc. .......................................... 52,018
1,789 Dycom Industries, Inc. (a).................................. 78,828
3,765 Insituform Technologies Inc., Class A Shares (a)............ 106,361
- -----------------------------------------------------------------------------------
237,207
- -----------------------------------------------------------------------------------
CHEMICALS -- 0.3%
2,892 Ck Witco Corp. ............................................. 38,681
- -----------------------------------------------------------------------------------
COMPUTER SOFTWARE/SYSTEMS -- 11.4%
2,283 AVT, Corp. (a).............................................. 107,301
2,911 American Management Systems Inc. (a)........................ 91,333
1,355 Ardent Software, Inc. (a)................................... 52,845
2,090 Cognex Corp. (a)............................................ 81,510
4,578 Computer Network Technology Corp. (a)....................... 105,008
4,578 Datastream Systems, Inc. (a)................................ 112,447
3,189 Dendrite International, Inc. (a)............................ 108,027
1,203 Genesys Telecommunications Laboratories Inc. (a)............ 64,962
2,212 ISS Group Inc. (a).......................................... 157,329
2,753 Mastech Corp. (a)........................................... 68,137
1,449 Mercury Interactive Corp. (a)............................... 156,401
600 MicroStrategy Inc. (a)...................................... 126,000
2,262 National Computer Systems Inc. ............................. 85,108
5,300 NeoMagic Corp. (a).......................................... 57,969
1,476 New Era of Networks Inc. (a)................................ 70,294
1,458 RadiSys Corp. (a)........................................... 74,358
7,221 Sybase Inc. (a)............................................. 122,757
600 WebTrends Corp. (a)......................................... 48,600
- -----------------------------------------------------------------------------------
1,690,386
- -----------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 8.4%
2,787 Action Performance Cos., Inc. (a)........................... 32,050
2,722 ADVO, Inc. (a).............................................. 64,647
729 BroadVision, Inc. (a)....................................... 123,976
3,827 Cato Corp., Class A Shares.................................. 48,316
2,262 Complete Business Solutions, Inc. (a)....................... 56,833
1,637 Consolidated Graphics, Inc. (a)............................. 24,453
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER DISCRETIONARY -- 8.4% (CONTINUED)
557 Cort Business Services Corp. (a)............................ $ 9,713
2,670 Daisytek International Corp. (a)............................ 62,244
2,753 Education Management Corp. (a).............................. 38,542
2,075 Ethan Allen Interiors, Inc. ................................ 66,530
2,194 Fossil, Inc. (a)............................................ 50,736
3,765 Interim Systems Corp. (a)................................... 93,184
881 Lason, Inc. (a)............................................. 9,691
3,655 Mail-Well, Inc. (a)......................................... 49,342
1,784 McClatchy Co., Class A Shares............................... 77,158
1,478 Navigant Consulting Inc. (a)................................ 16,073
8 Ogden Corp. ................................................ 96
3,286 Pacific Sunware of California, Inc. (a)..................... 105,768
2,190 Sirius Satellite Radio Inc. (a)............................. 97,455
2,983 Sonic Corp. (a)............................................. 85,016
1,670 Speedway Motorsports Inc. (a)............................... 46,447
2,825 Trans World Entertainment Corp. (a)......................... 29,662
2,120 United Stationers Supply Co. (a)............................ 60,552
- -----------------------------------------------------------------------------------
1,248,484
- -----------------------------------------------------------------------------------
CONSUMER STAPLES -- 1.1%
1,387 Canadaigua Brands, Inc., Class A Shares (a)................. 70,737
2,308 Earthgrains Co. ............................................ 37,217
2,262 IBP, Inc. .................................................. 40,716
2,624 Pilgrim's Pride Corp., Class B Shares....................... 21,812
- -----------------------------------------------------------------------------------
170,482
- -----------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.1%
1,698 C-cube Microsystems Inc. (a)................................ 105,700
2,263 Park Electrochemical Corp. ................................. 60,111
- -----------------------------------------------------------------------------------
165,811
- -----------------------------------------------------------------------------------
ELECTRONICS -- 1.8%
2,614 Brooks Automation, Inc. (a)................................. 85,118
1,456 Hadco Corp. (a)............................................. 74,256
3,550 Integrated Device Technology, Inc. (a)...................... 102,950
- -----------------------------------------------------------------------------------
262,324
- -----------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTOR -- 3.2%
1,100 Alpha Industries Inc. (a)................................... 63,044
3,766 Amkor Technologies Inc. (a)................................. 106,389
1,178 Lam Research Corp. (a)...................................... 131,421
1,800 Lattice Semiconductor Corp. (a)............................. 84,825
1,200 TranSwitch Corp. (a)........................................ 87,075
- -----------------------------------------------------------------------------------
472,754
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT -- 0.7%
6,480 Aztar Corp. (a)............................................. $ 70,470
2,864 Boca Resorts, Inc. (a)...................................... 27,924
- -----------------------------------------------------------------------------------
98,394
- -----------------------------------------------------------------------------------
FINANCIAL SERVICES -- 11.3%
2,614 Affiliated Managers Group Inc. (a).......................... 105,704
1,076 Astoria Financial Corp. .................................... 32,751
1,941 Bank United Corp., Class A Shares........................... 52,892
2,781 Brenton Banks, Inc. ........................................ 28,158
1,238 Centura Banks, Inc. ........................................ 54,627
1,655 City National Corp. ........................................ 54,511
1,918 Commerce Bancorp, Inc. ..................................... 77,559
2,439 Dime Bancorp, Inc. ......................................... 36,890
3,675 Doral Financial Corp. ...................................... 45,248
3,444 Eaton Vance Corp. .......................................... 130,872
3,005 Enhance Financial Services Group, Inc. ..................... 48,831
1,655 Everest Reinsurance Holdings, Inc. ......................... 36,927
3,839 Fidelity National Financial, Inc. .......................... 55,186
1,076 Financial Security Assurance Holdings, Ltd. ................ 56,086
3,005 First American Financial Corp. ............................. 37,375
2,656 FirstFed Financial Corp. (a)................................ 37,350
2,511 Flagstar Bancorp, Inc. ..................................... 43,315
2,783 Hamilton Bancorp, Inc. (a).................................. 49,398
3,737 HCC Insurance Holdings, Inc. ............................... 49,282
3,765 Medallion Financial Corp. .................................. 67,534
1,648 Medical Assurance, Inc. (a)................................. 34,917
3,021 National Commerce Bancorporation............................ 68,539
3,444 People's Heritage Financial Group, Inc. .................... 51,875
1,300 Radian Group, Inc. ......................................... 62,075
5,468 Republic Bancorp Inc. ...................................... 66,386
764 SEI Investments Co. ........................................ 90,927
4,252 Southwest Bancorp Of Texas Inc. (a)......................... 84,243
2,745 United Bankshares, Inc. .................................... 65,537
1,717 Westamerica Bancorporation.................................. 47,969
- -----------------------------------------------------------------------------------
1,672,964
- -----------------------------------------------------------------------------------
FOOD AND BEVERAGE PRODUCTS -- 1.2%
2,090 Hain Food Group Inc. (a).................................... 46,764
4,421 International Home Foods, Inc. (a).......................... 76,815
1,565 Robert Mondavi Corp., Class A Shares (a).................... 54,384
- -----------------------------------------------------------------------------------
177,963
- -----------------------------------------------------------------------------------
HEALTHCARE -- 7.6%
1,514 Alpharma, Inc., Class A Shares.............................. 46,556
3,300 Aviron (a).................................................. 52,181
2,298 Bindley Western Industries, Inc. ........................... 34,614
2,283 CONMED Corp. (a)............................................ 59,073
2,400 COR Therapeutics, Inc. (a).................................. 64,500
2,457 Datascope Corp. ............................................ 98,280
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE -- 7.6% (CONTINUED)
728 Gilead Sciences, Inc. (a)................................... $ 39,403
1,160 IDEC Pharmaceuticals Corp. (a).............................. 113,970
3,922 InfoCure Corp. (a).......................................... 122,317
1,822 King Pharmaceuticals, Inc. (a).............................. 102,146
1,870 Medicis Pharmaceutical Corp., Class A Shares (a)............ 79,592
500 Millennium Pharmaceuticals, Inc. (a)........................ 61,000
1,155 Priority Healthcare, Corp. (a).............................. 33,423
963 Protein Design Labs, Inc. (a)............................... 67,410
1,931 Renal Care Group, Inc. (a).................................. 45,137
2,579 Res-Care, Inc. (a).......................................... 32,882
2,062 Sunrise Assisted Living, Inc. (a)........................... 28,352
1,870 Trigon Healthcare, Inc. (a)................................. 55,165
- -----------------------------------------------------------------------------------
1,136,001
- -----------------------------------------------------------------------------------
INTEGRATED OIL -- 0.9%
1,732 Cal Dive International, Inc. (a)............................ 57,372
1,303 Devon Energy Corp. ......................................... 42,836
5,397 Friede Goldman Halter Inc. (a).............................. 37,442
- -----------------------------------------------------------------------------------
137,650
- -----------------------------------------------------------------------------------
MACHINERY -- 0.5%
2,457 Terex Corp. (a)............................................. 68,182
- -----------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 3.5%
3,415 AK Steel Holding Corp. ..................................... 64,458
2,464 AptarGroup, Inc. ........................................... 61,908
1,932 Dexter Corp. ............................................... 76,797
1,352 NVR, Inc. (a)............................................... 64,558
2,027 OM Group Inc. .............................................. 69,805
1 Pope & Talbot, Inc. ........................................ 16
1,599 Simpson Manufacturing Co., Inc. (a)......................... 69,956
2,144 Tredegar Industries, Inc. .................................. 44,354
3,956 Tower Automotive Inc. (a)................................... 61,071
- -----------------------------------------------------------------------------------
512,923
- -----------------------------------------------------------------------------------
MEDICAL AND HEALTH PRODUCTS -- 0.3%
2,946 Gliatech Inc. (a)........................................... 48,977
- -----------------------------------------------------------------------------------
MEDICAL AND HEALTH TECHNOLOGY SERVICES -- 0.4%
400 PE Corp. - Celera Genomics Group (a)........................ 59,600
- -----------------------------------------------------------------------------------
OTHER ENERGY -- 1.7%
2,439 Barrett Resources Corp. (a)................................. 71,798
4,876 Marine Drilling Cos., Inc. (a).............................. 109,405
2,626 Newfield Exploration Co. (a)................................ 70,246
- -----------------------------------------------------------------------------------
251,449
- -----------------------------------------------------------------------------------
PAPER AND RELATED PRODUCTS -- 0.6%
2,101 Potlatch Corp. ............................................. 93,757
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
PRODUCER DURABLES -- 4.1%
2,251 Astec Industries, Inc. (a).................................. $ 42,347
1,062 Briggs & Stratton Corp. .................................... 56,950
2,034 C & D Technology, Inc. ..................................... 86,445
1,996 Centex Construction Products, Inc. ......................... 77,844
1,870 Centex Corp. ............................................... 46,166
1,827 Cordant Technologies, Inc. ................................. 60,291
2,166 Jacobs Engineering Group Inc. (a)........................... 70,395
3,070 Lennar Corp. ............................................... 49,888
2,511 Primex Technologies, Inc. .................................. 52,103
2,942 Reliance Steel & Aluminum Co. .............................. 68,953
- -----------------------------------------------------------------------------------
611,382
- -----------------------------------------------------------------------------------
REAL ESTATE/REITS -- 4.8%
1,717 Arden Realty, Inc. ......................................... 34,447
1,599 Cousins Properties, Inc. ................................... 54,266
2,079 EastGroup Properties, Inc. ................................. 38,461
4,785 Equity Inns, Inc. .......................................... 32,299
2,098 First Industrial Realty Trust, Inc. ........................ 57,564
2,511 General Growth Properties Inc. ............................. 70,308
3,172 Glenborough Realty Trust, Inc. ............................. 42,425
1,450 Health Care Properties Investors, Inc. ..................... 34,619
3,012 Liberty Property Trust...................................... 73,041
1,504 Mid-American Apartment Communities, Inc. ................... 34,028
2,960 Nationwide Health Properties, Inc. ......................... 40,700
2,511 Parkway Properties Inc. .................................... 72,348
3,766 Prime Retail, Inc. ......................................... 21,184
3,701 Reckson Associates Realty Corp. ............................ 75,870
1,827 Regency Realty Corp. ....................................... 36,540
1 Starwood Hotels & Resort Worldwide, Inc. ................... 24
- -----------------------------------------------------------------------------------
718,124
- -----------------------------------------------------------------------------------
RESTAURANTS AND LODGING -- 0.8%
2,864 Jack In The Box Inc., (a)................................... 59,249
6,866 Lone Star Steakhouse & Saloon, Inc. (a)..................... 61,258
- -----------------------------------------------------------------------------------
120,507
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
RETAIL/STORES -- 4.9%
2,184 Ames Department Stores Inc. (a)............................. $ 62,927
2,079 AnnTaylor Stores Corp. (a).................................. 71,596
2,513 Bebe Stores, Inc. (a)....................................... 67,851
3,835 Burlington Coat Factory Warehouse Corp. .................... 53,211
2,510 Chico's FAS, Inc. (a)....................................... 94,439
2,239 Cost Plus, Inc. (a)......................................... 79,764
4,521 Haverty Furniture Cos., Inc. ............................... 57,078
3,655 K-Swiss' Inc. .............................................. 67,903
1,800 Linens 'n Things, Inc. (a).................................. 53,325
2,379 The Men's Wearhouse Inc. (a)................................ 69,883
2,426 Rent-a-center, Inc. (a)..................................... 48,065
- -----------------------------------------------------------------------------------
726,042
- -----------------------------------------------------------------------------------
TECHNOLOGY -- 5.0%
1,261 CSG Systems International, Inc. (a)......................... 50,282
2,786 Esterline Technologies Corp. (a)............................ 32,213
3,257 Mettler-Toledo International Inc. (a)....................... 124,377
1,437 PRI Automation, Inc. (a).................................... 96,459
1,924 Progress Software Corp. (a)................................. 109,187
1,624 Semtech Corp. (a)........................................... 84,651
500 VerticalNet, Inc. (a)....................................... 82,000
1,805 Westinghouse Air Brake Co. ................................. 32,039
1,711 Xircom Inc. (a)............................................. 128,325
- -----------------------------------------------------------------------------------
739,533
- -----------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 6.2%
3,550 Advanced Fibre Communications Inc. (a)...................... 158,644
1,334 ANTEC Corp. (a)............................................. 48,691
1,092 Carrier Access Corp. (a).................................... 73,505
1,142 Commonwealth Telephone Enterprises, Inc. (a)................ 60,383
3,402 ITC DeltaCom Inc. (a)....................................... 93,980
3,546 Intermedia Communications Inc. (a).......................... 137,629
1,845 Polycom, Inc. (a)........................................... 117,503
3,275 Primus Telecommunications Group (a)......................... 125,269
977 Proxim Inc. (a)............................................. 107,470
- -----------------------------------------------------------------------------------
923,074
- -----------------------------------------------------------------------------------
TRANSPORTATION -- 1.0%
1,715 Alaska Air Group, Inc. (a).................................. 60,239
1,784 U.S. Freightways Corp. ..................................... 85,409
- -----------------------------------------------------------------------------------
145,648
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 3.3%
1,965 Connecticut Energy Corp. ................................... $ 76,389
8,064 El Paso Electric Co. (a).................................... 79,128
2,212 IDACORP, Inc. .............................................. 59,309
3,090 MDU Resources Group, Inc. .................................. 61,800
1,388 New Jersey Resources Corp. ................................. 54,219
3,005 NorthWestern Corp. ......................................... 66,110
2,079 Southwest Gas Corp. ........................................ 47,817
2,439 UGI Corp. .................................................. 49,847
- -----------------------------------------------------------------------------------
494,619
- -----------------------------------------------------------------------------------
TOTAL COMMON STOCK(Cost -- $12,510,707)..................... 13,458,444
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY BILLS -- 0.4%
U.S. Treasury Bills (b):
$ 10,000 4.87% due 3/16/00........................................... 9,899
50,000 5.18% due 3/16/00........................................... 49,460
- ------------------------------------------------------------------------------------
TOTAL U.S. TREASURY BILLS (Cost -- $59,359)................. 59,359
- ------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $12,570,066)................. 13,517,803
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 9.0%
1,339,000 Chase Manhattan Bank, 2.000% due 1/3/00; Proceeds at
maturity -- $1,339,223; (Fully collateralized by U.S.
Treasury Note, 11.625% due 11/15/02; Market
value -- $1,369,769) (Cost -- $1,339,000)................... 1,339,000
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost -- $13,909,066*).................... $14,856,803
- ------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Rate represents annualized yield to maturity.
* Aggregated cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 89.3%
- --------------------------------------------------------------------------------------
AUTO PARTS -- 0.0%
1,100 Federal-Mogul Corp.......................................... $ 22,138
- --------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 2.6%
64,400 AGCO Corp................................................... 865,375
79,600 Houston Exploration Co. (a)................................. 1,577,075
- --------------------------------------------------------------------------------------
2,442,450
- --------------------------------------------------------------------------------------
BROADCASTING -- 1.6%
35,700 American Tower Corp......................................... 1,091,081
14,100 Hearst-Argyle Television, Inc. (a).......................... 375,412
2,800 Sinclair Broadcast Group Inc., Class A Shares (a)........... 34,169
225 Spanish Broadcasting System, Inc. (a)....................... 9,056
- --------------------------------------------------------------------------------------
1,509,718
- --------------------------------------------------------------------------------------
BROKERAGE -- 2.9%
84,470 A.G. Edwards, Inc........................................... 2,708,319
- --------------------------------------------------------------------------------------
BUSINESS SERVICES -- 5.4%
17,380 Collectors Universe, Inc. (a)............................... 108,625
14,600 CSG Systems International, Inc. (a)......................... 582,175
36,845 Fiserv, Inc. (a)............................................ 1,411,624
9,800 Great Atlantic & Pacific Tea Co., Inc....................... 273,175
9,190 Learning Tree International, Inc. (a)....................... 257,320
49,840 SportsLine USA, Inc. (a).................................... 2,498,230
- --------------------------------------------------------------------------------------
5,131,149
- --------------------------------------------------------------------------------------
COMMERICAL SERVICES -- 2.1%
62,200 NOVA Corp. (a).............................................. 1,963,188
- --------------------------------------------------------------------------------------
COMPUTERS -- 0.6%
500 Computer Network Technology Corp. (a)....................... 11,469
5,300 Emulex Corp. (a)............................................ 596,250
- --------------------------------------------------------------------------------------
607,719
- --------------------------------------------------------------------------------------
COMPUTER SERVICES -- 11.2%
9,680 Affiliated Computer Services, Inc., Class A Shares (a)...... 445,280
10,325 Ancor Communications Inc. (a)............................... 700,809
6,650 The BISYS Group, Inc. (a)................................... 433,912
2,300 CheckFree Holdings Corp. (a)................................ 240,350
27,300 National Data Corp.......................................... 926,494
56,200 RSA Security Inc. (a)....................................... 4,355,500
25,500 Seagate Technology, Inc. (a)................................ 1,187,344
98,300 SunGard Data Systems Inc. (a)............................... 2,334,625
- --------------------------------------------------------------------------------------
10,624,314
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE -- 7.2%
15,660 Aspen Technology, Inc. (a).................................. $ 414,011
1,100 Citrix Systems, Inc. (a).................................... 135,300
16,290 DST Systems, Inc. (a)....................................... 1,243,131
36,400 Harbinger Corp. (a)......................................... 1,157,975
5,400 Interliant Inc. (a)......................................... 140,400
2,500 Macromedia, Inc. (a)........................................ 182,812
16,400 Network Solutions Inc. (a).................................. 3,568,025
- --------------------------------------------------------------------------------------
6,841,654
- --------------------------------------------------------------------------------------
CONSUMER SERVICES -- 1.0%
26,320 BJ's Wholesale Club, Inc. (a)............................... 960,680
500 Gartner Group, Inc., Class B Shares......................... 7,625
- --------------------------------------------------------------------------------------
968,305
- --------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 2.1%
86,030 Cable Design Technologies Corp. (a)......................... 1,978,690
- --------------------------------------------------------------------------------------
ELECTRONICS -- 4.7%
13,500 Analog Devices, Inc. (a).................................... 1,255,500
9,400 KLA-Tenor Corp. (a)......................................... 1,046,925
39,570 Lo-Jack Corp. (a)........................................... 267,098
900 LTX Corp. (a)............................................... 20,137
26,440 SIPEX Corp. (a)............................................. 649,433
18,700 Teradyne Inc. (a)........................................... 1,234,200
- --------------------------------------------------------------------------------------
4,473,293
- --------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 0.8%
4,700 RF Micro Devices, Inc. (a).................................. 321,656
6,200 Sawtek Inc. (a)............................................. 412,688
- --------------------------------------------------------------------------------------
734,344
- --------------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTOR -- 3.8%
29,000 Amkor Technology, Inc. (a).................................. 819,250
10,200 Cypress Semiconductor Corp. (a)............................. 330,225
17,900 DuPont Photomasks, Inc. (a)................................. 863,675
13,300 Etec Systems, Inc. (a)...................................... 596,838
600 Metromedia Fiber Network Inc., Class A Shares (a)........... 28,762
20,300 MKS Instruments Inc. (a).................................... 733,338
1,800 Novellus Systems, Inc. (a).................................. 220,556
- --------------------------------------------------------------------------------------
3,592,644
- --------------------------------------------------------------------------------------
FOODS -- 2.1%
103,700 The Kroger Co............................................... 1,957,337
- --------------------------------------------------------------------------------------
FOODS AND BEVERAGES -- 1.1%
35,900 Keebler Foods Co. (a)....................................... 1,009,687
- --------------------------------------------------------------------------------------
HEALTH EQUIPMENT AND SERVICES -- 0.8%
13,600 Waters Corp. (a)............................................ 720,800
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
INTERNET CONTENT -- 0.3%
2,965 S1 Corp. (a)................................................ $ 231,641
- --------------------------------------------------------------------------------------
MACHINERY -- 0.7%
20,100 Applied Science and Technology, Inc. ....................... 668,011
- --------------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.8%
76,200 STERIS Corp. (a)............................................ 785,812
- --------------------------------------------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES -- 5.1%
12,700 Cytyc Corp. (a)............................................. 775,494
71,170 IDEXX Laboratories, Inc. (a)................................ 1,147,616
56,800 VISX, Inc. (a).............................................. 2,939,400
- --------------------------------------------------------------------------------------
4,862,510
- --------------------------------------------------------------------------------------
MEDICAL SERVICES -- 5.8%
257,190 Health Management Associates, Inc., Class A Shares (a)...... 3,439,916
30,020 Lincare Holdings Inc. (a)................................... 1,041,319
148,400 Total Rental Care Holdings, Inc. (a)........................ 992,425
- --------------------------------------------------------------------------------------
5,473,660
- --------------------------------------------------------------------------------------
NATURAL GAS - DIVERSIFIED -- 3.4%
119,400 Newfield Exploration Co. (a)................................ 3,193,950
- --------------------------------------------------------------------------------------
OIL DRILLING AND SERVICES -- 14.8%
62,600 Apache Corp. ............................................... 2,312,288
20,880 Cooper Cameron Corp. (a).................................... 1,021,815
31,050 Diamond Offshore Drilling, Inc. ............................ 948,966
87,100 EOG Resources, Inc.......................................... 1,529,694
205,640 Global Industries, Ltd. (a)................................. 1,773,645
88,920 Noble Drilling Corp. (a).................................... 2,912,130
84,300 Transocean Sedco Forex Inc.................................. 2,839,856
10,800 Vastar Resources, Inc....................................... 637,200
- --------------------------------------------------------------------------------------
13,975,594
- --------------------------------------------------------------------------------------
PAPER PRODUCTS -- 0.6%
25,000 Smurfit-Stone Container Corp. (a)........................... 612,500
- --------------------------------------------------------------------------------------
PHARMACEUTICAL -- 1.9%
6,540 Sepracor Inc. (a)........................................... 648,686
24,400 United Therapeutics Corp. (a)............................... 1,122,400
- --------------------------------------------------------------------------------------
1,771,086
- --------------------------------------------------------------------------------------
PUBLISHING - NEWSPAPER -- 2.6%
6,900 Meredith Corp............................................... 287,644
14,200 Readers Digest Associates, Inc., Class A Shares............. 415,350
27,670 Scholastic Corp. (a)........................................ 1,720,728
- --------------------------------------------------------------------------------------
2,423,722
- --------------------------------------------------------------------------------------
RETAIL - SPECIALTY -- 0.2%
30,460 Gymboree Corp. (a).......................................... 171,338
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS -- 3.1%
76,000 Intermedia Communications, Inc. (a)......................... $ 2,949,750
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $67,494,306).................... 84,405,323
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 10.7%
Federal Home Loan Mortgage Corp.:
$3,600,000 5.720% due 1/12/00.......................................... 3,593,708
6,500,000 1.500% due 1/3/00........................................... 6,499,458
- --------------------------------------------------------------------------------------
TOTAL SHORT TERM SECURITIES (Cost -- $10,093,166)........... 10,093,166
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $77,587,472*)............ $94,498,489
- --------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 89.2%
- -----------------------------------------------------------------------------------------
AEROSPACE -- 0.8%
22,580 General Dynamics Corp. ..................................... $ 1,191,095
- -----------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.9%
20,510 United Technologies Corp. .................................. 1,333,150
- -----------------------------------------------------------------------------------------
AUTO PARTS -- 0.3%
22,410 Federal-Mogul Corp. ........................................ 451,001
- -----------------------------------------------------------------------------------------
AUTO RELATED -- 0.1%
1,400 SPX Corp. (a)............................................... 113,137
- -----------------------------------------------------------------------------------------
BANKING -- 1.5%
15,250 Bank of America Corp. ...................................... 765,359
16,800 Bank One Corp. ............................................. 538,650
7,520 Chase Manhattan Corp. ...................................... 584,210
10,720 Wells Fargo Co. ............................................ 433,490
- -----------------------------------------------------------------------------------------
2,321,709
- -----------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.7%
23,030 Guidant Corp. (a)........................................... 1,082,410
- -----------------------------------------------------------------------------------------
BREWERS -- 1.2%
24,900 Anheuser-Busch Cos. Inc. ................................... 1,764,788
- -----------------------------------------------------------------------------------------
BROADCASTING - TV, CABLE -- 2.1%
29,825 Infinity Broadcasting Corp., Class A Shares (a)............. 1,079,292
28,590 Time Warner, Inc. .......................................... 2,070,988
- -----------------------------------------------------------------------------------------
3,150,280
- -----------------------------------------------------------------------------------------
BROKERAGE -- 0.2%
3,700 Merrill Lynch & Co. Inc. ................................... 308,950
- -----------------------------------------------------------------------------------------
CABLE TELEVISION - EQUIPMENT -- 0.5%
16,280 Comcast Corp., Class A Shares............................... 818,070
- -----------------------------------------------------------------------------------------
CAPITAL GOODS -- 0.0%
925 Ancor Communications Inc. (a)............................... 62,784
- -----------------------------------------------------------------------------------------
CHEMICALS -- 1.3%
11,210 Cambrex Corp. .............................................. 386,044
36,120 Pharmacia & Upjohn, Inc. ................................... 1,625,400
- -----------------------------------------------------------------------------------------
2,011,444
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 0.6%
36,230 The Dial Corp. ............................................. 880,842
- -----------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 0.5%
5,600 EchoStar Communications, Class A Shares (a)................. 546,000
1,700 General Instrument Corp. ................................... 144,500
20 Tellabs, Inc. (a)........................................... 1,284
- -----------------------------------------------------------------------------------------
691,784
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SERVICES -- 3.6%
2,100 Ariba Inc. (a).............................................. $ 372,487
13,570 First Data Corp. ........................................... 669,171
7,680 VeriSign, Inc. (a).......................................... 1,466,400
21,065 VERITAS Software Corp. (a).................................. 3,014,928
- -----------------------------------------------------------------------------------------
5,522,986
- -----------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 13.4%
19,610 BMC Software, Inc. (a)...................................... 1,567,574
44,160 Cisco Systems, Inc. (a)..................................... 4,730,640
4,340 Citrix Systems Inc. (a)..................................... 533,820
11,610 Computer Associates International, Inc. .................... 811,974
31,850 Compuware Corp. (a)......................................... 1,186,413
4,600 Macromedia, Inc. (a)........................................ 336,375
55,740 Microsoft Corp. (a)......................................... 6,507,645
32,685 Oracle Corp. (a)............................................ 3,662,763
980 Phone.com, Inc. (a)......................................... 113,619
17,600 Seagate Technology, Inc. (a)................................ 819,500
4,765 Trintech Group PLC -- ADR (a)............................... 235,868
- -----------------------------------------------------------------------------------------
20,506,191
- -----------------------------------------------------------------------------------------
COMPUTERS -- 3.8%
12,500 International Business Machines Corp........................ 1,350,000
57,280 Sun Microsystems, Inc. (a).................................. 4,435,620
- -----------------------------------------------------------------------------------------
5,785,620
- -----------------------------------------------------------------------------------------
CONGLOMERATES -- 0.7%
6,500 General Electric Co. ....................................... 1,005,875
- -----------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 1.9%
6,200 Cendant Corp. (a)........................................... 164,687
24,560 Colgate-Palmolive Co. ...................................... 1,596,400
10,030 The Procter & Gamble Co..................................... 1,098,912
- -----------------------------------------------------------------------------------------
2,859,999
- -----------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING -- 2.0%
76,500 Tyco International Ltd. .................................... 2,973,938
- -----------------------------------------------------------------------------------------
DRUGS -- 1.4%
54,670 American Home Products Corp. ............................... 2,156,048
- -----------------------------------------------------------------------------------------
DRUGS AND HEALTHCARE -- 1.0%
23,930 Bristol-Myers Squibb Co. ................................... 1,536,007
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS -- 6.4%
13,840 CBS Corp. (a)............................................... $ 884,895
5,700 The DII Group, Inc. (a)..................................... 404,522
22,450 EMC Corp. (a)............................................... 2,452,663
6,500 Hewlett-Packard Co. ........................................ 740,594
7,900 Intel Corp. ................................................ 650,269
22,990 Motorola, Inc. ............................................. 3,385,277
7,900 Oak Industries Inc. (a)..................................... 838,388
5,200 SCI Systems Inc. (a)........................................ 427,375
- -----------------------------------------------------------------------------------------
9,783,983
- -----------------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTOR -- 5.6%
48,660 Analog Devices, Inc. (a).................................... 4,525,380
49,800 LSI Logic Corp. (a)......................................... 3,361,500
8,300 Micron Technology Inc. (a).................................. 645,325
- -----------------------------------------------------------------------------------------
8,532,205
- -----------------------------------------------------------------------------------------
ENERGY -- 0.3%
4,960 Atlantic Richfield Co. ..................................... 429,040
- -----------------------------------------------------------------------------------------
ENTERTAINMENT -- 0.5%
16,300 Carnival Corp. ............................................. 779,344
- -----------------------------------------------------------------------------------------
FINANCIAL -- 0.6%
19,500 Freddie Mac................................................. 917,719
- -----------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.2%
23,598 Associates First Capital Corp. ............................. 647,470
32,960 Axa Financial Inc. ......................................... 1,116,520
15,600 Capital One Financial Corp. ................................ 751,725
5,400 Morgan Stanley Dean Witter & Co. ........................... 770,850
- -----------------------------------------------------------------------------------------
3,286,565
- -----------------------------------------------------------------------------------------
FOOD PROCESSING -- 1.0%
20,240 Nabisco Holdings Corp., Class A Shares...................... 640,090
14,500 The Quaker Oats Co. ........................................ 951,562
- -----------------------------------------------------------------------------------------
1,591,652
- -----------------------------------------------------------------------------------------
HOSPITAL SUPPLIES AND SERVICES -- 0.5%
12,950 United HealthCare Corp. .................................... 687,969
- -----------------------------------------------------------------------------------------
HOUSEHOLD FURNISHINGS AND APPLIANCES -- 0.8%
8,900 Corning Inc. ............................................... 1,147,544
- -----------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.8%
23,220 The Clorox Co. ............................................. 1,169,707
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- 4.3%
15,420 American International Group, Inc. ......................... $ 1,667,288
5,700 Aon Corp. .................................................. 228,000
20,660 CIGNA Corp. ................................................ 1,664,421
16,960 Hartford Financial Services Group, Inc. .................... 803,480
9,810 Providian Financial Corp. .................................. 893,323
18,950 ReliaStar Financial Services, Inc. ......................... 742,603
5,400 Marsh & Mclennan Cos., Inc. ................................ 516,712
- -----------------------------------------------------------------------------------------
6,515,827
- -----------------------------------------------------------------------------------------
MACHINERY -- 0.3%
6,900 Deere & Co. ................................................ 299,288
3,400 Ingersoll-Rand Co. ......................................... 187,212
- -----------------------------------------------------------------------------------------
486,500
- -----------------------------------------------------------------------------------------
MANUFACTURING -- 1.5%
22,800 Danaher Corp. .............................................. 1,100,100
12,200 Flextronics International Ltd. (a).......................... 561,200
26,080 Owens-Illinois, Inc. (a).................................... 653,630
- -----------------------------------------------------------------------------------------
2,314,930
- -----------------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.9%
36,950 Medtronic Inc. ............................................. 1,346,366
- -----------------------------------------------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES -- 0.7%
22,400 Boston Scientific Corp. (a)................................. 490,000
10,990 VISX, Inc. (a).............................................. 568,733
- -----------------------------------------------------------------------------------------
1,058,733
- -----------------------------------------------------------------------------------------
MULTI-LINE INSURANCE -- 0.6%
23,280 Lincoln National Corp....................................... 931,200
- -----------------------------------------------------------------------------------------
OIL AND GAS -- 0.4%
15,000 Noble Drilling Corp. (a).................................... 491,250
2,310 Total Fina SA -- ADR........................................ 159,967
- -----------------------------------------------------------------------------------------
651,217
- -----------------------------------------------------------------------------------------
OIL - EXPLORATION AND PRODUCTION -- 0.1%
6,280 Devon Energy Corp. ......................................... 206,455
- -----------------------------------------------------------------------------------------
OIL DRILLING AND SERVICES -- 0.4%
19,400 Transocean Sedco Forex Inc. ................................ 653,537
- -----------------------------------------------------------------------------------------
OIL INTEGRATED - INTERNATIONAL -- 0.7%
18,864 BP Amoco PLC -- ADR......................................... 1,118,871
- -----------------------------------------------------------------------------------------
OIL PRODUCTION - DOMESTIC -- 1.8%
7,820 Cooper Cameron Corp. (a).................................... 382,691
13,100 EOG Resources, Inc. ........................................ 230,069
26,461 Exxon Mobil Corp. .......................................... 2,131,764
- -----------------------------------------------------------------------------------------
2,744,524
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
PAPER - FOREST PRODUCTS -- 1.7%
10,760 Abitibi-Consolidated Inc. .................................. $ 127,775
68,820 Conoco Inc., Class B Shares................................. 1,698,994
14,880 Bowater Inc. ............................................... 808,170
- -----------------------------------------------------------------------------------------
2,634,939
- -----------------------------------------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT -- 0.2%
1,290 Digimarc Corp. (a).......................................... 64,500
14,570 Polaroid Corp. ............................................. 274,098
- -----------------------------------------------------------------------------------------
338,598
- -----------------------------------------------------------------------------------------
PUBLISHING -- 0.9%
23,680 Tribune Co. ................................................ 1,303,880
- -----------------------------------------------------------------------------------------
RETAIL -- 6.7%
9,600 Costco Wholesale Corp. (a).................................. 876,000
37,020 CVS Corp. .................................................. 1,478,486
50 FreeMarkets Inc. (a)........................................ 17,066
16,700 The Gap Inc. ............................................... 768,200
35,180 Kroger Co. (a).............................................. 664,023
44,805 Office Depot Inc. (a)....................................... 490,055
52,780 Safeway Inc. (a)............................................ 1,876,989
6,400 Tandy Corp. ................................................ 314,800
23,930 TJX Cos. ................................................... 489,069
27,250 U.S. Bancorp................................................ 648,891
38,070 Wal-Mart Stores, Inc. ...................................... 2,631,589
- -----------------------------------------------------------------------------------------
10,255,168
- -----------------------------------------------------------------------------------------
SOFTWARE -- 0.7%
12,400 America Online Inc. (a)..................................... 935,425
2,400 BEA Systems, Inc. (a)....................................... 167,850
- -----------------------------------------------------------------------------------------
1,103,275
- -----------------------------------------------------------------------------------------
TECHNOLOGY -- 0.5%
2,775 Liberate Technologies, Inc. (a)............................. 713,175
- -----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 5.3%
6,280 GTE Corp. .................................................. 443,132
19,490 Nortel Networks Corp. ...................................... 1,968,490
20,480 SBC Communications, Inc. ................................... 998,400
21,300 Sprint, Corp. .............................................. 1,433,756
32,080 Sprint, Corp. (PCS Group) (a)............................... 3,288,200
- -----------------------------------------------------------------------------------------
8,131,978
- -----------------------------------------------------------------------------------------
TELEPHONE -- 3.0%
36,510 Bell Atlantic Corp. ........................................ 2,247,647
43,721 MCI Worldcom, Inc. (a)...................................... 2,319,919
- -----------------------------------------------------------------------------------------
4,567,566
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1999
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 1.3%
7,300 The AES Corp. (a)........................................... $ 545,675
14,870 CMS Energy Corp. ........................................... 463,758
7,570 Columbia Energy Group....................................... 478,802
14,190 Texas Utilities Co. ........................................ 504,632
- -----------------------------------------------------------------------------------------
1,992,867
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $112,186,109)................... 135,923,442
- -----------------------------------------------------------------------------------------
FOREIGN STOCK -- 6.1%
- -----------------------------------------------------------------------------------------
FRANCE -- 1.5%
27,600 Sanofi SA................................................... 1,149,538
8,800 Total Ser B................................................. 1,174,741
- -----------------------------------------------------------------------------------------
2,324,279
- -----------------------------------------------------------------------------------------
GERMANY -- 0.8%
5,090 Mannesmann AG............................................... 1,232,809
- -----------------------------------------------------------------------------------------
IRELAND -- 0.6%
115,700 Bank of Ireland............................................. 920,882
- -----------------------------------------------------------------------------------------
UNITED KINGDOM -- 0.7%
24,370 AstraZeneca................................................. 1,010,271
- -----------------------------------------------------------------------------------------
JAPAN -- 2.0%
70,000 Hitachi Ltd. ............................................... 1,119,673
68 Nippon Telegraph & Tel C.................................... 1,160,637
3,100 ORIX Corp. ................................................. 696,012
- -----------------------------------------------------------------------------------------
2,976,322
- -----------------------------------------------------------------------------------------
SWEDEN -- 0.5%
12,210 Ericsson Tel B Free......................................... 786,749
- -----------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $7,874,437).................... 9,251,312
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
<C> <S> <C>
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.7%
Federal Home Loan Mortgage Corp.:
$3,300,000 5.72% due 1/12/2000......................................... 3,294,232
3,900,000 1.50% due 1/3/2000.......................................... 3,899,675
- ---------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $7,193,907)........... 7,193,907
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $127,254,453*)........... $152,368,661
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 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......................... $11,026,715 $12,157,938 $12,570,066 $77,587,472 $127,254,453
Repurchase agreements -- Cost............... -- 3,454,000 1,339,000 -- --
- --------------------------------------------------------------------------------------------------------------------
Investments, at value....................... $11,114,565 $11,358,652 $13,517,803 $94,498,489 $152,368,661
Repurchase agreements, at value............. -- 3,454,000 1,339,000 -- --
Cash........................................ 52,987 445 -- 55,548 65,433
Dividends and interest receivable........... 46,636 28,123 15,809 15,557 65,489
Receivable for securities sold.............. -- -- 176,771 152,356 280,874
Receivable for open forward foreign currency
contracts (Note 9)........................ -- -- -- -- 58
Receivable for Fund shares sold............. 47,117 -- -- 122,247 140,585
Receivable from affiliate................... 4,000 7,000 5,000 17,304 --
Receivable from broker-variation margin..... -- -- 8,364 -- --
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................ 11,265,305 14,848,220 15,062,747 94,861,501 152,921,100
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable............ 5,291 8,035 9,244 58,219 95,177
Administration fees payable................. 529 804 695 4,953 8,609
Payable for securities purchased............ -- -- 100,700 645,527 734,208
Payable for Fund shares purchased........... -- 87,667 14,862 3,564 5,090
Payable for open forward foreign currency
contracts (Note 9)........................ -- -- -- -- 331
Payable to bank............................. -- -- 1,269 -- --
Accrued expenses............................ 21,399 21,934 26,106 25,033 4,635
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES........................... 27,219 118,440 152,876 737,296 848,050
- --------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.............................. $11,238,086 $14,729,780 $14,909,871 $94,124,205 $152,073,050
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital............................. $ 9,816,281 $14,475,958 $12,770,449 $63,122,770 $123,890,596
Undistributed net investment income......... 317,379 259,123 42,531 -- --
Accumulated net realized gain from security
transactions, futures contracts and
foreign currencies........................ 1,016,576 793,985 1,090,720 14,090,418 2,949,147
Net unrealized appreciation (depreciation)
of investments, futures contracts and
foreign currencies........................ 87,850 (799,286) 1,006,171 16,911,017 25,233,307
- --------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.............................. $11,238,086 $14,729,780 $14,909,871 $94,124,205 $152,073,050
- --------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING............................ 961,658 1,482,962 1,396,696 5,728,485 11,648,150
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................... $11.69 $9.93 $10.68 $16.43 $13.06
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 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........................................... $ 244,882 $127,945 $ 32,519 $ 196,263 $ 241,325
Dividends.......................................... 134,742 242,542 99,078 51,798 635,240
Less: Foreign withholding tax...................... -- -- (63) -- (8,873)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................ 379,624 370,487 131,534 248,061 867,692
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2).................. 44,297 74,188 71,941 295,208 684,162
Audit and legal.................................... 16,000 16,000 16,000 16,000 16,000
Shareholder and system servicing fees.............. 13,000 13,000 13,000 13,000 13,000
Administration fees (Note 2)....................... 4,430 7,418 5,396 22,140 51,312
Trustees' fees..................................... 4,000 4,000 4,000 4,000 4,000
Pricing service fees............................... 3,000 -- -- -- 500
Shareholder communications......................... 2,700 4,000 2,700 10,200 27,200
Custody............................................ 2,700 3,000 20,000 34,000 48,000
Registration fees.................................. 500 500 500 1,500 1,500
Other.............................................. 702 700 700 700 853
- ------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES..................................... 91,329 122,806 134,237 396,748 846,527
Less: Expense reimbursements (Note 2).............. (32,000) (11,500) (44,300) (27,304) --
- ------------------------------------------------------------------------------------------------------------------------
NET EXPENSES....................................... 59,329 111,306 89,937 369,444 846,527
- ------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)......................... 320,295 259,181 41,597 (121,383) 21,165
- ------------------------------------------------------------------------------------------------------------------------
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)................................... 1,013,665 795,590 1,612,367 14,355,701 3,718,293
Futures contracts................................ -- -- (33,522) -- --
Foreign currency transactions.................... -- -- -- -- (120,062)
- ------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN.................................. 1,013,665 795,590 1,578,845 14,355,701 3,598,231
- ------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments, Futures Contracts
and Foreign Currencies:
Beginning of year................................ (32,859) (15,341) 347,835 1,054,708 4,168,831
End of year...................................... 87,850 (799,286) 1,006,171 16,911,017 25,233,307
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION)................................... 120,709 (783,945) 658,336 15,856,309 21,064,476
- ------------------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENT, FUTURES CONTRACTS AND FOREIGN
CURRENCIES......................................... 1,134,374 11,645 2,237,181 30,212,010 24,662,707
- ------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............... $1,454,669 $270,826 $2,278,778 $30,090,627 $24,683,872
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 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)............... $ 320,295 $ 259,181 $ 41,597 $ (121,383) $ 21,165
Net realized gain.......................... 1,013,665 795,590 1,578,845 14,355,701 3,598,231
Change in net unrealized appreciation
(depreciation)........................... 120,709 (783,945) 658,336 15,856,309 21,064,476
- ----------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS..... 1,454,669 270,826 2,278,778 30,090,627 24,683,872
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................... -- (118) -- -- --
Net realized gains......................... (8,610) -- -- (130,485) --
- ----------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS
TO SHAREHOLDERS.......................... (8,610) (118) -- (130,485) --
- ----------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 14):
Net proceeds from sale of shares........... 5,610,953 10,729,693 7,970,667 50,876,930 90,126,801
Net asset value of shares issued for
reinvestment of dividends................ 8,610 118 -- 130,485 --
Cost of shares reacquired.................. (444,746) (3,157,506) (501,792) (77,165) (608,064)
- ----------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE
TRANSACTIONS............................. 5,174,817 7,572,305 7,468,875 50,930,250 89,518,737
- ----------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS....................... 6,620,876 7,843,013 9,747,653 80,890,392 114,202,609
NET ASSETS:
Beginning of year.......................... 4,617,210 6,886,767 5,162,218 13,233,813 37,870,441
- ----------------------------------------------------------------------------------------------------------------------
END OF YEAR*............................... $11,238,086 $14,729,780 $14,909,871 $94,124,205 $152,073,050
- ----------------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment
income of:................................. $317,379 $259,123 $42,531 -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
- --------------------------------------------------------------------------------
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)
Change 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 14):
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.
36
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 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
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, 1999,
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. Accordingly,
for the MFS Mid Cap Growth Portfolio, a portion of accumulated net realized
gains amounting to $100 was reclassified to paid-in capital. 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 forward 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. ("Citigroup"), 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,
37
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 SSB Citi
Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management Inc., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH") which, in turn, is a
Subsidiary of Citigroup. 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 year ended December 31, 1999, Travelers Insurance reimbursed
expenses in the amounts of $32,000, $11,500, $44,300, and $27,304 for CB, SSP,
DSCS and MMCG, respectively.
Effective October 1999, Smith Barney Private Trust Company ("Private
Trust"), another subsidiary of Citigroup, became the Fund's transfer agent and
PFPC Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through December 31, 1999, CB, SSP, DSCS, MMCG, and MRP
each paid transfer agent fees of $1,250 to Private Trust.
SSB acts as the Primary broker for its portfolio agency transactions. For
the year ended December 31, 1999, DSCS paid Salomon Smith Barney Inc., another
subsidiary of SSBH, brokerage commissions of $1,162.
One Trustee and all officers of the Trust are employees of Citigroup 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 year
ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Bond Portfolio.................................. $ 11,161,296 $ 4,989,503
Strategic Stock Portfolio................................... 13,017,376 7,750,505
Disciplined Small Cap Stock Portfolio....................... 14,495,391 8,021,763
MFS Mid Cap Growth Portfolio................................ 97,508,702 55,701,218
MFS Research Portfolio...................................... 154,588,987 69,372,095
- -----------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Bond Portfolio.................................. $ 685,609 $ (597,759) $ 87,850
Strategic Stock Portfolio................................... 628,421 (1,427,707) (799,286)
Disciplined Small Cap Stock Portfolio....................... 2,223,504 (1,275,767) 947,737
MFS Mid Cap Growth Portfolio................................ 19,440,823 (2,529,806) 16,911,017
MFS Research Portfolio...................................... 31,837,645 (6,723,437) 25,114,208
- -----------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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. 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 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 December 31, 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 December 31, 1999, DSCS had purchased six financial futures contracts on
the Mid Cap 400 Index expiring in March 2000. The basis value of such contracts
was $1,289,016. The market value of such contracts on December 31, 1999 was
$1,347,450, resulting in an unrealized gain of $58,434.
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 December 31, 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.
39
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 year ended December 31, 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
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 December 31, 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 GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO BUY:
Euro................................................. 15,990 $16,118 1/7/00 $ 58
Euro................................................. 45,689 46,140 1/31/00 (290)
British Pound........................................ 10,351 16,711 1/7/00 (41)
- -------------------------------------------------------------------------------------------------------
Net Unrealized Loss on Forward
Foreign Currency Contract.......................... $(273)
- -------------------------------------------------------------------------------------------------------
</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 December 31, 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 December 31, 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.
40
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 1999, there were no open short sales against the box.
13. 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 December 31, 1999, there were no loaned securities held by the
Portfolios.
41
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. 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>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998(a)(b)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND PORTFOLIO:
Shares sold............................................ 535,002 467,540
Shares issued on reinvestment.......................... 825 11,055
Shares reacquired...................................... (42,467) (10,297)
- --------------------------------------------------------------------------------------------------------
Net Increase........................................... 493,360 468,298
- --------------------------------------------------------------------------------------------------------
STRATEGIC STOCK PORTFOLIO:
Shares sold............................................ 1,070,362 1,041,160
Shares issued on reinvestment.......................... 11 8,666
Shares reacquired...................................... (315,343) (321,894)
- --------------------------------------------------------------------------------------------------------
Net Increase........................................... 755,030 727,932
- --------------------------------------------------------------------------------------------------------
DISCIPLINED SMALL CAP STOCK PORTFOLIO:
Shares sold............................................ 869,308 597,608
Shares issued on reinvestment.......................... -- 1,691
Shares reacquired...................................... (54,806) (17,105)
- --------------------------------------------------------------------------------------------------------
Net Increase........................................... 814,502 582,194
- --------------------------------------------------------------------------------------------------------
MFS MID CAP GROWTH PORTFOLIO:
Shares sold............................................ 4,406,616 1,328,144
Shares issued on reinvestment.......................... 12,264 --
Shares reacquired...................................... (6,624) (11,915)
- --------------------------------------------------------------------------------------------------------
Net Increase........................................... 4,412,256 1,316,229
- --------------------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO:
Shares sold............................................ 8,114,832 3,675,328
Shares issued on reinvestment.......................... -- 5,571
Shares reacquired...................................... (53,683) (93,898)
- --------------------------------------------------------------------------------------------------------
Net Increase........................................... 8,061,149 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
<PAGE>
- --------------------------------------------------------------------------------
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) 1998(2)
- ------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $9.86 $10.00
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3).................................. 0.46 0.22
Net realized and unrealized gain (loss)................... 1.38 (0.12)
- ------------------------------------------------------------------------------------
Total Income From Operations................................ 1.84 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 YEAR................................ $11.69 $9.86
- ------------------------------------------------------------------------------------
TOTAL RETURN................................................ 18.70% 0.98%++
- ------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $11,238 $4,617
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)............................................ 0.80% 0.80%+
Net investment income..................................... 4.33 4.31+
- ------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 79% 7%
- ------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
(3) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $32,000 and $24,996 for the year ended December 31, 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>
$0.05 $0.05 1.23% 1.86%+
</TABLE>
(4) As a result of a voluntary expense limitation, the ratio of expenses will
not exceed 0.80%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
43
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
STRATEGIC STOCK PORTFOLIO 1999(1) 1998(2)
- ----------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $9.46 $10.00
- ----------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3).................................. 0.21 0.12
Net realized and unrealized gain (loss)................... 0.26 (0.54)
- ----------------------------------------------------------------------------------
Total Income (Loss) From Operations......................... 0.47 (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 YEAR................................ $9.93 $9.46
- ----------------------------------------------------------------------------------
TOTAL RETURN................................................ 4.97% (4.24)%++
- ----------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $14,730 $6,887
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)............................................ 0.90% 0.90%+
Net investment income..................................... 2.09 2.42+
- ----------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 80% 1%
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISCIPLINED SMALL CAP STOCK PORTFOLIO 1999(1) 1998(2)
- ----------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $8.87 $10.00
- ----------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3).................................. 0.04 0.03
Net realized and unrealized gain (loss)................... 1.77 (1.13)
- ----------------------------------------------------------------------------------
Total Income (Loss) From Operations......................... 1.81 (1.10)
- ----------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.03)
Capital................................................... -- (0.00)*
- ----------------------------------------------------------------------------------
Total Distributions......................................... -- (0.03)
- ----------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................................ $10.68 $8.87
- ----------------------------------------------------------------------------------
TOTAL RETURN................................................ 20.41% (11.04)%++
- ----------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $14,910 $5,162
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(5)............................................ 1.00% 1.00%+
Net investment income..................................... 0.46 0.64+
- ----------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 94% 89%
- ----------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
methods.
(2) For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
(3) Travelers Insurance has agreed to reimburse the Strategic Stock Portfolio
for expenses in the amounts of $11,500 and $21,016 for the year ended
December 31, 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 $44,300 and $45,146 for
the year ended December 31, 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 0.99% 1.51%+
Disciplined Small Cap Stock Portfolio 0.05 0.08 1.49 2.98+
</TABLE>
(4) As a result of a voluntary expense limitation, the ratio of expenses will
not exceed 0.90%.
(5) As a result of a voluntary expense limitation, the ratio of expenses 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.
44
<PAGE>
- --------------------------------------------------------------------------------
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) 1998(1)(2)
- --------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $10.05 $10.00
- --------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(3).................................... (0.04) (0.02)
Net realized and unrealized gain.......................... 6.46 0.07
- --------------------------------------------------------------------------------------
Total Income From Operations................................ 6.42 0.05
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains........................................ (0.04) --
- --------------------------------------------------------------------------------------
Total Distributions......................................... (0.04) --
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................................ $16.43 $10.05
- --------------------------------------------------------------------------------------
TOTAL RETURN................................................ 64.17% 0.50%++
- --------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $94,124 $13,234
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)............................................ 1.00% 1.00%+
Net investment loss....................................... (0.33) (0.25)+
- --------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 162% 100%
- --------------------------------------------------------------------------------------
<CAPTION>
MFS RESEARCH PORTFOLIO 1999(1) 1998(2)
- --------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $10.56 $10.00
- --------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(3).................................. 0.00* 0.01
Net realized and unrealized gain.......................... 2.50 0.57
- --------------------------------------------------------------------------------------
Total Income From Operations................................ 2.50 0.58
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.02)
Capital................................................... -- (0.00)*
- --------------------------------------------------------------------------------------
Total Distributions......................................... -- (0.02)
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................................ $13.06 $10.56
- --------------------------------------------------------------------------------------
TOTAL RETURN................................................ 23.67% 5.77%++
- --------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............................. $152,073 $37,870
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)............................................ 0.99% 1.00%+
Net investment income..................................... 0.02 0.42+
- --------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 85% 54%
- --------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the average shares method.
(2) For the period from March 23, 1998 (commencement of operations) to December
31, 1998.
(3) Travelers Insurance has agreed to reimburse the MFS Mid Cap Growth Portfolio
for the expenses in the amounts of $27,304 and $32,634 for the year ended
December 31, 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 $41,049 for the period ended
December 31, 1998. 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 1.07% 1.62%+
MFS Research Portfolio -- 0.01 -- 1.37+
</TABLE>
(4) 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.
45
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
TRAVELERS SERIES TRUST:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Convertible Bond Portfolio, Strategic Stock
Portfolio, Disciplined Small Cap Stock Portfolio, MFS Mid Cap Growth Portfolio
and MFS Research Portfolio, five of the portfolios of the Travelers Series
Trust, as of December 31, 1999, and the related statements of operations for the
year then ended and the statements of changes in net assets and financial
highlights for the periods from March 23, 1998 (commencement of operations) to
December 31, 1998, and for the year ended December 31, 1999, with respect to the
MFS Mid Cap Growth Portfolio and MFS Research Portfolio, from May 1, 1998
(commencement of operations) to December 31, 1998, and for the year ended
December 31, 1999, with respect to the Convertible Bond Portfolio, Strategic
Stock Portfolio and Disciplined Small Cap Stock Portfolio. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Convertible Bond Portfolio, Strategic Stock Portfolio, Disciplined Small Cap
Stock Portfolio, MFS Mid Cap Growth Portfolio and MFS Research Portfolio of the
Travelers Series Trust as of December 31, 1999, the results of their operations
for the year then ended and the changes in their net assets and financial
highlights for the periods referred to above, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 11, 2000
46
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Trust hereby designates for the fiscal year ended
December 31, 1999:
- Percentage of the ordinary dividends paid as qualifying for the corporate
dividends received deduction:
<TABLE>
<S> <C>
Convertible Bond Portfolio............................. 12.86%
Strategic Stock Portfolio.............................. 54.92%
</TABLE>
- Total long-term capital gain distributions paid of:
<TABLE>
<S> <C>
Convertible Bond Portfolio............................. $68
</TABLE>
47
<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.
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Series Trust: 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 (Annual) (2-00) Printed in U.S.A.
