<PAGE> 1
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 2000
[UMBRELLA GRAPHICS]
THE TRAVELERS SERIES TRUST:
CONVERTIBLE BOND PORTFOLIO
STRATEGIC STOCK PORTFOLIO
DISCIPLINED SMALL CAP STOCK PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MFS RESEARCH PORTFOLIO
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for the Travelers Series
Trust -- Convertible Bond Portfolio, Strategic Stock Portfolio, Disciplined
Small Cap Stock Portfolio, MFS Mid Cap Growth Portfolio and MFS Research
Portfolio ("Portfolio(s)") for the period ended June 30, 2000. This letter
briefly discusses general economic and market conditions and each Portfolio's
investment strategy. The information provided represents the opinion of the
managers and is not intended to be a forecast of future events, a guarantee of
future results nor investment advice. Further, there is no assurance that
certain securities will remain in or out of the Portfolios.(1)
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. Past
performance is not indicative of future results.
<TABLE>
<CAPTION>
The Performance of the Travelers Series Trust* (12/31/99-6/30/00)
TOTAL RETURN
----------------------------------------------------------------------------
<S> <C>
Convertible Bond Portfolio.................................. 10.55%
Strategic Stock Portfolio................................... (6.76)
Disciplined Small Cap Stock Portfolio....................... 3.69
MFS Mid Cap Growth Portfolio................................ 24.23
MFS Research Portfolio...................................... 5.92
</TABLE>
MARKET AND ECONOMIC OVERVIEW
Stocks declined in the second quarter of 2000, leaving many of the major indexes
down for the first half of the year as investors debated potential rate
increases by the Federal Reserve Board ("Fed"). Volatility continued to be a
major theme with both the Dow Jones Industrial Average ("DJIA")(2) and the
Nasdaq Composite Index ("Nasdaq")(3) registering record one-day point losses.
The breadth of the declines affected a wide range of stocks including many
small-and large- capitalization company stocks, growth stocks and value stocks.
(Growth stocks are shares of companies with historically strong and relatively
predictable earnings growth rates. Value stocks are shares of companies that are
believed to be undervalued but have good longer-term business prospects.)
Momentum investing and dot.com stocks were out of favor, replaced in many cases
by a renewed interest in companies that many investors believed could provide
real earnings and had strong financials.
Concerns about higher interest rates peaked in mid-May, when the Fed raised
interest rates an additional 50 basis points.(4) The specter of rising rates was
a catalyst for the weak performance of all of the major indexes during the
period. The DJIA, which is made up of Old Economy companies, declined 8.44%
during the reporting period. (The Old Economy represents more established,
"blue-chip" companies.) The Standard & Poor's 500 Index ("S&P 500")(5) of
large-company stocks fell 0.43%, while the Standard and Poor's MidCap 400 Index
("S&P MidCap 400")(6) of medium-size company stocks and the Russell 2000
Index(7) of small-company stocks advanced 8.97% and 3.04%, respectively, for the
six months ended June 30, 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.
1 For a complete list of each of the Portfolio's respective holdings, please
refer to pages nine through 30.
2 DJIA is a price-weighted average of 30 actively traded blue-chip stocks. An
investor cannot invest directly in an index.
3 The Nasdaq is a market value-weighted index that measures all domestic and
non-U.S. based securities listed on the NASDAQ stock market. An investor
cannot invest directly in an index.
4 A basis point is 0.01% or one one-hundredth of a percent.
5 The S&P 500 is a market capitalization measure of 500 widely held common
stocks. An investor cannot invest directly in an index.
6 S&P MidCap 400 is a market-value weighted index, consisting of 400 domestic
stocks chosen for market size liquidating and industry group representation.
An investor cannot invest directly in an index.
7 Russell 2000 Index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index. An investor cannot invest directly in an index.
1
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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For the sixth consecutive time in the last year, the Fed acted to raise interest
rates in May to slow the U.S. economy, increasing the federal funds rate by 50
basis points to 6.5%. (The federal funds rate is the interest rate that banks
with excess reserves at a Fed district bank charge other banks that need
overnight loans. The fed funds rate, as it is called, often points to the
direction of U.S. interest rates.) The increase of the target overnight interest
rate marked its highest level in nine years and reflected Fed action intended to
address risks of an economy with higher inflationary pressures.
The Fed continued to stress its concern that there is a disparity in the growth
of demand and potential supply, which could foster inflation and jeopardize the
economy's performance. In theory, higher rates could potentially hurt stocks,
because slower growth often hinders profits at the same time that alternative
investments become more attractive. Accordingly, many interest-rate sensitive
stocks experienced price declines after the recent decision.
In June, many investors were relieved after the Fed left interest rates
unchanged during its latest policy meeting. Although the central bank noted that
inflation risks persist, the decision was made against more increases were ruled
out for the time being. Generally, monetary policy takes time to filter through
the economy and the full effect of higher interest rates may not be felt for
months.
CONVERTIBLE BOND PORTFOLIO
For the six months ended June 30, 2000, the Convertible Bond Portfolio
("Portfolio") returned 10.55%. In comparison, the Merrill Lynch Investment Grade
Convertible Bond Index(8) returned 9.15% for the same period. (Past performance
is not indicative of future results.)
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.(9)
The Portfolio is managed to have the characteristics of a traditional
convertible, where the convertible price sensitivity averages 50% to 70% of the
stock's movement while reasonably close to the bond value, to protect against
large declines in the stock price. The manager typically begins selling issues
when they are 50% above initial offering price.
During the reporting period, the Portfolio continued to benefit from the strong
performance of the utility sector, specifically AES and Calpine, and resurgence
in the performance of Real Estate Investment Trusts ("REITs")(10). The Portfolio
has been overweight in the energy sector for the past eighteen months. The
managers found a number of values in the non-technology, value sectors of the
convertible market which they feel may be beneficial in the future. The
telecommunications sector did particularly poorly in the second quarter and
negatively impacted the Portfolio's performance during the period. Yet, the
managers are still comfortable with the valuations and the underlying credits
the Portfolio has in that sector.
STRATEGIC STOCK PORTFOLIO
For the six months ended June 30, 2000, the Strategic Stock Portfolio
("Portfolio") returned a negative 6.76% compared with the negative 8.44% return
for the DJIA. (Past performance is not indicative of future results.)
The Portfolio invests in stocks with relatively high yield potential. The ten
highest dividend yielding stocks from the DJIA are identified each month. To
supplement the original ten Dow Jones stocks, another 15 stocks are selected
from the S&P 500
---------------
8 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. An investor cannot invest directly
in an index.
9 Convertible securities are bonds or preferred stocks that can be converted
into a preset number of shares of common stocks after a predetermined date.
Warrant are a type of security, usually issued together with a bond or
preferred stock, that entitles the holder to buy a proportionate amount of
common stock at a specified price, usually higher than the market price at a
time of issuance for a period of a year or to perpetuity. Call option right
to buy 100 shares of a particular stock index at a predetermined price before
a preset deadline, in exchange for a premium.
10 REITs are companies, that usually trade publicly, that manages a portfolio of
real estate to earn profits for shareholders.
2
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
based on dividend yield and subject to a high standard of quality ranking by
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, the Portfolio was allocated in
19 different sectors. As of June 30, 2000, the Portfolio's largest weighting was
in the food (11.7%), pharmaceutical (8.6%) and manufacturing (8.4%) sectors.
During the reporting period, the managers increased the Portfolio's weighting in
the chemical (9.3%) and telephone sectors (8.2%).
DISCIPLINED SMALL CAP STOCK PORTFOLIO
For the six months ended June 30, 2000, the Disciplined Small Cap Stock
Portfolio ("Portfolio") returned 3.69%. In comparison, the Russell 2000 Index
returned 3.04% for the same period.
The Portfolio is designed to provide qualified 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 to be attractive values.
The first half of 2000 saw unprecedented levels of volatility in the stock
market. Interest rates rose early in the first quarter and then fell
significantly as the quarter progressed. The tug-of-war between growth and value
stocks and large and small cap stocks continued through the first half of 2000.
Growth and small cap stocks came out ahead at the beginning of the year,
stumbled badly in March and April and then staged a comeback at the end of the
quarter.
Over the first six months of 2000, the Portfolio benefited from its holdings in
the healthcare and producer durables sectors. In the healthcare sector, the
Portfolio's positions in biotechnology companies such as, Idec Pharmaceuticals,
COR Therapeutics, Abgenix, Human Genome Science and Celera rose sharply in the
second quarter of 2000 largely due to the reported completion of the human
genome map project. The recovery in these biotechnology stocks during the period
followed dramatic sell-off that began in early March 2000 and lasted until the
beginning of June.
The managers' near-term outlook for the stock market relies heavily on the Fed's
monetary policy. The Fed has indicated that it will continue to monitor
inflationary developments closely. Economic data reported between now and the
next Federal Open Market Committee ("FOMC")(11) meeting scheduled for August
will determine if the Fed steps in and raises rates one more time or decides to
step aside to the sidelines as the U.S. election nears.
The stock selection of the managers and their risk control methods has
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 upcoming months is tied to the future direction of the
economy.
MFS MID CAP GROWTH PORTFOLIO
For the six months ended June 30, 2000, the MFS Mid Cap Growth Portfolio
("Portfolio") returned 24.23%. In comparison, the Russell 2000 Index returned
3.04% and the Russell Midcap Index(12) returned 5.12% for the same period. (Past
performance is not indicative of future results.)
As a mid-cap portfolio, the managers look for growing businesses that have made
the transition from small capitalization to middle capitalization. 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 should wind up dominating
the field, and to invest in those companies early, before the market recognizes
their true worth. (Of course, no guarantees can be given that this will occur.)
---------------
11 The FOMC is a policy-making body of the Federal Reserve System, the U.S.
central bank, that is responsible for the formulation of policy design to
promote economic growth, full employment, stable prices and a sustainable
pattern of international trade and payments.
12 Russell Midcap Index measures the performance of the 800 smallest companies
in the Russell 1000 Index, which represent approximately 24% of the total
market capitalization of the Russell 1000 Index. An investor cannot invest
directly in an index.
3
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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In the midst of last year's technology stock rally, the managers shifted a large
portion of the Portfolio's assets out of technology and into other sectors of
the market. They believe this move was a major factor in the Portfolio's
performance during the reporting period despite recent market volatility. It is
important to understand, however, that managers take a bottom-up(13),
stock-by-stock approach. The mangers reduced the Portfolio's position in the
technology sector because they believe that the valuations of many of the
Portfolio's technology holdings had reached unsustainable levels. In March and
April, many of those technology stocks did indeed decline dramatically from
their high valuations.
The managers think that one of the keys to making money in stock investing is
being early, that is, looking for industries that are changing and trying to
identify as early as possible who the winners and losers will be.
One area that the investment team researched and found attractive was a group of
firms enabling business transactions on the Internet. Companies such as
VeriSign, RSA Security, and CheckPoint Software are providing services such as
security, authentication, and authorization that the manager believes may be
essential to making the Internet a reliable medium for conducting business. The
managers think their customer bases could eventually number in the tens of
millions and that, long term, these firms have the potential to become
tremendously profitable.
MFS RESEARCH PORTFOLIO
For the six months ended June 30, 2000, the MFS Research Portfolio ("Portfolio")
returned 5.92%. In comparison, the S&P 500 returned a negative 0.43% for the
same period.
Historically, investment trends and styles have gone in and out of favor with
investors. This partially explains the weakness recently seen in the market. The
investment team does not spend too much time trying to determine when value or
growth, small-cap or large-cap stocks may move in and out of the spotlight.
Instead, they focus on trying to find dominant business franchises with
outstanding managements that are driving accelerating earnings growth.
The managers use a bottom-up approach that is based on intensive hands-on
research and the best ideas of their analysts. This approach has led them to
some very rewarding growth opportunities, and the managers believe it may
continue to provide superior long-term performance relative to competitors. (Of
course, there are no guarantees made that this will in fact occur.)
In this volatile environment, the managers have found opportunities in a wide
range of areas. Some industries that have recently performed well for the
Portfolio are energy, insurance, and pharmaceuticals. In the energy sector,
exploration and production companies such as Global Marine and Transocean Sedeo
Forex have rallied significantly due to the rebound in oil and natural gas
prices. Higher prices have spurred demand for drilling services, resulting in
strong revenue and earnings growth for many energy services companies.
Despite a fairly long stretch of weak stock performance from insurance companies
such as Hartford Financial, the managers held on to these companies because they
believed in their long-term prospects and the possibility of consolidation in
the industry. Recently, there has been an increase in merger and acquisition
activity in this group, which has boosted the performance of this sector.
In the first quarter of 2000, the managers took advantage of weakness in
pharmaceutical stocks to increase the Portfolio holdings in what the managers
believe to be top-notch companies with strong track records, such as Pharmacia,
American Home Products, and Bristol-Myers. Some of these stocks have come back
strong in the second quarter, and the managers believe still may have attractive
growth prospects.
---------------
13 Bottom-up investing is a search for outstanding performance of individual
stocks before considering the impact of economic trends.
4
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
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
July 26, 2000
5
<PAGE> 7
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PERFORMANCE COMPARISON -- CONVERTIBLE BOND PORTFOLIO AS OF 6/30/00 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 10.55%
Year Ended 6/30/00 21.69%
5/1/98* through 6/30/00 13.87%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
5/1/98* through 6/30/00 32.52%
</TABLE>
* Commencement of operations.
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
This chart assumes an initial investment of $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through June 30, 2000. 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>
MERRILL LYNCH INVESTMENT GRADE
CONVERTIBLE BOND PORTFOLIO CONVERTIBLE BOND INDEX
-------------------------- ------------------------------
<S> <C> <C>
5/1/98 $ 10,000 $ 10,000
6/98 10,120 9,849
9/98 9,570 9,083
12/98 10,098 10,387
3/99 10,190 10,435
6/99 10,889 11,057
9/99 10,941 10,608
12/99 11,987 11,594
3/00 13,104 12,484
6/30/00 13,252 12,668
</TABLE>
--------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- STRATEGIC STOCK PORTFOLIO AS OF 6/30/00 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ (6.76)%
Year Ended 6/30/00 (12.90)%
5/1/98* through 6/30/00 (2.95)%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
5/1/98* through 6/30/00 (6.28)%
</TABLE>
* Commencement of operations.
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
This chart assumes an initial investment of $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through June 30, 2000. The Dow Jones Industrial Average is a price
weighted average based on the price only performance of 30 blue
chip stocks.
[LINE GRAPH]
<TABLE>
<CAPTION>
STRATEGIC STOCK PORTFOLIO DOW JONES INDUSTRIAL AVERAGE
------------------------- ----------------------------
<S> <C> <C>
5/1/98 $ 10,000 $ 10,000
6/98 9,690 9,904
12/98 9,576 10,250
6/99 10,760 12,350
12/99 10,051 13,048
6/30/00 9,372 11,947
</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.
6
<PAGE> 8
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PERFORMANCE COMPARISON -- DISCIPLINED SMALL CAP STOCK PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 3.69%
Year Ended 6/30/00 15.84%
5/1/98* through 6/30/00 4.96%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
5/1/98* through 6/30/00 11.06%
</TABLE>
* Commencement of operations.
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
This chart assumes an initial investment of $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through June 30, 2000. 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 $ 10,000 $ 10,000
6/98 9,540 9,481
12/98 8,896 8,806
6/99 9,588 9,623
12/99 10,711 10,676
6/30/00 11,106 11,001
</TABLE>
--------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MFS MID CAP GROWTH PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 24.23%
Year Ended 6/30/00 79.99%
3/23/98* through 6/30/00 37.11%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
3/23/98* through 6/30/00 104.97%
</TABLE>
* Commencement of operations.
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
This chart assumes an initial investment of $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through June 30, 2000. 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 $ 10,000 $ 10,000
6/98 9,800 9,850
12/98 10,050 9,935
6/99 11,387 10,962
12/99 16,499 11,747
6/30/00 20,497 12,348
</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> 9
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PERFORMANCE COMPARISON -- MFS RESEARCH PORTFOLIO AS OF 6/30/00 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 5.92%
Year Ended 6/30/00 20.50%
3/23/98* through 6/30/00 15.42%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
3/23/98* through 6/30/00 38.55%
</TABLE>
* Commencement of operations.
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
This chart assumes an initial investment of $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through June 30, 2000. 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>
MFS RESEARCH PORTFOLIO S&P 500 STOCK INDEX
---------------------- -------------------
<S> <C> <C>
3/23/98 $ 10,000 $ 10,000
6/98 10,230 10,331
12/98 10,577 11,285
6/99 11,498 12,682
12/99 13,080 13,658
6/30/00 13,855 13,600
</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> 10
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCK -- 44.9%
-----------------------------------------------------------------------------------------------
BANKING -- 3.5%
20,000 National Australia Bank, Exchange 7.875%.................... $ 566,250
-----------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 2.3%
Calenergy Capital Trust:
3,070 Exchange 6.500%........................................... 115,125
3,150 Exchange 6.250%........................................... 130,725
5,000 Finova Finance Trust, Exchange 5.500%....................... 120,000
-----------------------------------------------------------------------------------------------
365,850
-----------------------------------------------------------------------------------------------
ELECTRIC -- 8.1%
10,000 AES Trust VII, Exchange 6.000% (b).......................... 591,250
10,000 Calpine Capital Trust, Exchange 5.500% (b).................. 716,250
-----------------------------------------------------------------------------------------------
1,307,500
-----------------------------------------------------------------------------------------------
FOREST PRODUCTS AND PAPER -- 1.0%
4,820 International Paper Capital Trust, Exchange 5.250%.......... 181,353
-----------------------------------------------------------------------------------------------
HOME BUILDERS -- 2.0%
11,200 Fleetwood Capital Trust, Exchange 6.000%.................... 324,800
-----------------------------------------------------------------------------------------------
HOUSEWARES -- 2.6%
11,000 Newell Financial Trust I, Exchange 5.250%................... 413,875
-----------------------------------------------------------------------------------------------
OIL AND GAS PRODUCERS -- 3.0%
7,917 Newfield Financial Trust I, Exchange 6.500%................. 486,895
-----------------------------------------------------------------------------------------------
PACKAGING AND CONTAINERS -- 2.8%
20,000 Owens-Illinois Inc., Exchange 4.750%........................ 445,000
-----------------------------------------------------------------------------------------------
PIPELINES -- 3.0%
7,494 El Paso Energy Cap Trust I, Exchange 4.750%................. 482,426
-----------------------------------------------------------------------------------------------
REAL ESTATE -- 7.4%
9,215 Equity Office PPTYS Trust, Exchange 5.250%.................. 389,334
18,541 Equity Residential Properties, Exchange 7.250%.............. 407,902
4,000 General Growth Properties, Exchange 7.250%.................. 87,000
13,900 Reckson Associates Realty, Exchange 7.625%.................. 308,406
-----------------------------------------------------------------------------------------------
1,192,642
-----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.8%
Global Crossing:
1,200 Exchange 7.000% (b)....................................... 215,250
1,200 Exchange 6.750%........................................... 264,600
6,000 Loral Space & Communications, Exchange 6.000% (b)........... 133,500
-----------------------------------------------------------------------------------------------
613,350
-----------------------------------------------------------------------------------------------
TRANSPORTATION -- 5.4%
9,000 Canadian National Railway, Exchange 5.250%.................. 405,000
12,245 Union Pacific Cap Trust, Exchange 6.250%.................... 472,963
-----------------------------------------------------------------------------------------------
877,963
-----------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $7,534,712)...... 7,257,904
-----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 11
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS AND NOTES -- 51.6%
-------------------------------------------------------------------------------------------------
COMPUTER -- 0.3%
$ 40,000 Aa2* GVC Corp. Ltd., zero coupon due 5/21/02 (b)................. $ 48,000
-------------------------------------------------------------------------------------------------
CONSUMER SERVICE -- 0.5%
100,000 BB+ Interim Services Inc., 4.500% due 6/1/05.................... 77,125
-------------------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE -- 2.1%
1,000,000 B Brightpoint Inc., zero coupon due 3/11/18................... 340,000
-------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 7.6%
Bell Atlantic Financial Service+:
99,000 A+ 5.750% due 4/1/03 (b)..................................... 96,648
207,000 A+ 4.250% due 9/15/05 (b).................................... 251,764
600,000 BBB- Elan Finance Corp. Ltd., zero coupon due 12/14/18........... 441,000
300,000 NR Financial Federal Corp., 4.500% due 5/1/05.................. 254,250
200,000 A- Hellenic Finance SCA, 2.000% due 7/15/03 (b)................ 187,000
-------------------------------------------------------------------------------------------------
1,230,662
-------------------------------------------------------------------------------------------------
ELECTRIC -- 0.6%
100,000 A- Potomac Electric Power Co., 5.000% due 9/1/02............... 93,750
-------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS AND EQUIPMENT -- 0.6%
400,000 BB+ Anixter International, zero coupon due 6/28/20.............. 103,750
-------------------------------------------------------------------------------------------------
ELECTRONICS -- 4.1%
900,000 BBB Solectron Corp., zero coupon due 5/8/20..................... 571,500
100,000 BBB+ Thermo Instrument System, 4.500% due 10/15/03 (b)........... 89,375
-------------------------------------------------------------------------------------------------
660,875
-------------------------------------------------------------------------------------------------
FOOD -- 0.1%
41,000 BBB+ Koninklijke Ahold NV, 3.000% due 9/30/03.................... 20,533
-------------------------------------------------------------------------------------------------
HEALTHCARE -- 1.6%
58,000 BB- Tenet Healthcare Corp., 6.000% due 12/1/05.................. 48,140
450,000 BBB- Universal Health Services, 0.426% due 6/23/20 (b)........... 210,938
-------------------------------------------------------------------------------------------------
259,078
-------------------------------------------------------------------------------------------------
HOME BUILDERS -- 2.5%
1,016,000 BB+ Lennar Corp., zero coupon due 7/29/18....................... 415,290
-------------------------------------------------------------------------------------------------
INSURANCE -- 1.5%
300,000 A+ Loews Corp., 3.125% due 9/15/07............................. 250,500
-------------------------------------------------------------------------------------------------
MACHINERY DIVERSIFIED -- 0.6%
100,000 BBB Thermo Electron Corp., 4.250% due 1/1/03 (b)................ 92,375
-------------------------------------------------------------------------------------------------
MEDIA -- 6.5%
400,000 BBB- Clear Channel Communication, 1.500% due 12/1/02............. 392,000
700,000 BBB Cox Communications Inc., 0.426% due 4/19/20................. 367,500
200,000 BBB- Liberty Media, 4.000% due 11/15/29.......................... 287,500
-------------------------------------------------------------------------------------------------
1,047,000
-------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 12
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
CONVERTIBLE BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-------------------------------------------------------------------------------------------------
<S> <C> <C>
OIL AND GAS PRODUCERS -- 6.3%
Diamond Offshore Drill:
$ 33,000 A- 3.750% due 2/15/07........................................ $ 34,403
600,000 A Zero coupon due 6/6/20 (b)................................ 281,250
600,000 BBB+ Global Marine Inc., zero coupon due 6/23/20 (b)............. 298,500
100,000 B- Parker Drilling Corp., 5.500% due 8/1/04.................... 82,375
525,000 A Transocean Sedco Forex, zero coupon due 5/24/20............. 315,000
-------------------------------------------------------------------------------------------------
1,011,528
-------------------------------------------------------------------------------------------------
PHARMACUETICALS -- 2.6%
450,000 NR Roche Holdings Inc., zero coupon due 1/19/15................ 416,250
-------------------------------------------------------------------------------------------------
REAL ESTATE -- 0.5%
100,000 BBB- Security Cap U.S. Realty, 2.000% due 5/22/03 (b)............ 78,500
-------------------------------------------------------------------------------------------------
SEMICONDUCTORS -- 3.3%
Cypress Semiconductor:
200,000 B 4.000% due 2/1/05......................................... 232,250
300,000 NR 3.750% due 7/1/05......................................... 293,625
-------------------------------------------------------------------------------------------------
525,875
-------------------------------------------------------------------------------------------------
SOFTWARE -- 3.8%
300,000 NR Mercury Interactive Corp., 4.750% due 7/1/07 (b)............ 324,376
200,000 NR Rational Software Corp., 5.000% due 2/1/07 (b).............. 292,750
-------------------------------------------------------------------------------------------------
617,126
-------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 4.1%
500,000 B- Aspect Telecommunications, zero coupon due 8/10/18(b)....... 205,000
39,000 B- Aspect Telecommunications, zero coupon due 8/10/18.......... 15,990
400,000 BB+ Commscope Inc., 4.000% due 12/15/06 (b)..................... 437,500
-------------------------------------------------------------------------------------------------
658,490
-------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.4%
400,000 NR Echostar Communications, 4.875% due 1/1/07 (b).............. 381,000
-------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS AND NOTES (Cost -- $7,839,976)...... 8,327,707
-------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.5%
562,000 Chase Securities Inc., 6.250% due 7/3/00; Proceeds at
maturity -- $562,293; (Fully collateralized by U.S.
Treasury Notes, 6.000% due 2/15/26; Market
value -- $576,437) (Cost -- $562,000)..................... 562,000
-------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $15,936,688**)........... $16,147,611
-------------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's")
with the exception of those identified by an asterisk (*), which are rated
by Moody's Investor Service, Inc. ("Moody's").
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 13
--------------------------------------------------------------------------------
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>
12
<PAGE> 14
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
STRATEGIC STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.1%
---------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 1.6%
10,000 Raytheon Co., Class B Shares................................ $ 192,500
---------------------------------------------------------------------------------------
AUTO MANUFACTURERS -- 2.8%
5,973 General Motors Corp. ....................................... 346,807
---------------------------------------------------------------------------------------
BEVERAGES -- 4.7%
13,000 PepsiCo Inc. ............................................... 577,687
---------------------------------------------------------------------------------------
CHEMICALS -- 9.3%
12,700 Air Products and Chemicals, Inc. ........................... 391,320
8,563 E.I. du Pont de Nemours & Co. .............................. 374,630
11,000 Rohm & Haas Co. ............................................ 379,500
---------------------------------------------------------------------------------------
1,145,450
---------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE -- 1.2%
7,200 Genuine Parts Co. .......................................... 144,000
---------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 4.0%
4,382 J.P. Morgan & Co. .......................................... 482,568
---------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS AND EQUIPMENT -- 3.6%
7,300 Emerson Electric Co. ....................................... 440,738
---------------------------------------------------------------------------------------
FOOD -- 11.7%
9,300 Bestfoods................................................... 644,025
17,200 ConAgra Inc. ............................................... 327,875
7,800 Hershey Foods Corp. ........................................ 378,300
6,200 Winn-Dixie Stores, Inc. .................................... 88,737
---------------------------------------------------------------------------------------
1,438,937
---------------------------------------------------------------------------------------
FOREST PRODUCTS AND PAPER -- 2.4%
10,000 International Paper Co. .................................... 298,125
---------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS/WARES -- 7.5%
7,700 Avery Dennison Corp. ....................................... 516,862
9,000 The Clorox Co. ............................................. 403,313
---------------------------------------------------------------------------------------
920,175
---------------------------------------------------------------------------------------
HOUSEWARES -- 2.2%
10,500 Newell Rubbermaid, Inc. .................................... 270,375
---------------------------------------------------------------------------------------
MACHINERY - CONSTRUCTION AND MINING -- 2.8%
10,155 Caterpillar Inc. ........................................... 344,001
---------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURER -- 8.4%
8,811 Eastman Kodak Co. .......................................... 524,255
6,130 Minnesota Mining & Manufacturing Co. ....................... 505,725
---------------------------------------------------------------------------------------
1,029,980
---------------------------------------------------------------------------------------
OFFICE/BUSINESS EQUIPMENT -- 2.4%
7,200 Pitney Bowes, Inc. ......................................... 288,000
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 15
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
STRATEGIC STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
OIL AND GAS PRODUCERS -- 3.5%
5,501 Exxon Mobil Corp. .......................................... $ 431,828
---------------------------------------------------------------------------------------
PHARMACEUTICALS -- 8.6%
11,000 Abbott Laboratories......................................... 490,187
9,600 American Home Products Corp. ............................... 564,000
---------------------------------------------------------------------------------------
1,054,187
---------------------------------------------------------------------------------------
RETAIL -- 2.9%
14,885 May Department Stores Co. .................................. 357,240
---------------------------------------------------------------------------------------
TELEPHONE -- 8.2%
6,500 ALLTEL Corp. ............................................... 402,594
14,000 SBC Communications, Inc. ................................... 605,500
---------------------------------------------------------------------------------------
1,008,094
---------------------------------------------------------------------------------------
TOBACCO -- 5.3%
20,759 Philip Morris Cos., Inc. ................................... 551,411
6,600 UST, Inc. .................................................. 96,938
---------------------------------------------------------------------------------------
648,349
---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $13,361,504).................... 11,419,041
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 6.9%
$ 848,000 Chase Securities, Inc., 6.250% due 7/3/00; Proceeds at
maturity -- $848,439; (Fully collateralized by U.S.
Treasury Note, 6.000% due 2/15/26; Market
value -- $867,163) (Cost -- $848,000)..................... 848,000
---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $14,209,504**)........... $12,267,041
---------------------------------------------------------------------------------------
</TABLE>
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 16
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 94.2%
-----------------------------------------------------------------------------------------
ADVERTISING -- 0.8%
3,912 ADVO, Inc. (a).............................................. $ 164,304
-----------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 0.4%
3,586 Primex Technologies Inc. ................................... 78,892
-----------------------------------------------------------------------------------------
APPAREL -- 0.2%
2,600 Reebok International Ltd. (a)............................... 41,437
-----------------------------------------------------------------------------------------
AUTO PARTS AND EQUIPMENT -- 1.0%
4,254 Arvin Industries, Inc....................................... 73,913
2,235 BorgWarner Inc.............................................. 78,504
5,211 Tower Automotive Inc. (a)................................... 65,137
-----------------------------------------------------------------------------------------
217,554
-----------------------------------------------------------------------------------------
BANKS -- 3.4%
5,304 Banknorth Group Inc......................................... 81,227
5,026 Brenton Banks, Inc.......................................... 69,745
2,848 Commerce Bancorp Inc., NJ................................... 131,018
200 Greater Bay Bancorp......................................... 9,360
4,420 Pacific Century Financial Corp. ............................ 64,652
7,848 Republic Bancorp Inc........................................ 70,151
6,157 Southwest Bancorp Of Texas Inc. (a)......................... 127,767
3,830 United Bankshares, Inc. .................................... 69,662
2,642 Westamerica Bancorporation.................................. 69,022
-----------------------------------------------------------------------------------------
692,604
-----------------------------------------------------------------------------------------
BEVERAGES -- 0.8%
1,877 Canadaigua Brands Inc., Class A Shares (a).................. 94,671
2,170 Robert Mondavi Corp., Class A Shares (a).................... 66,591
-----------------------------------------------------------------------------------------
161,262
-----------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 4.2%
410 Affymetrix, Inc. (a)........................................ 67,701
2,205 Aviron (a).................................................. 68,079
905 Human Genome Sciences, Inc. (a)............................. 120,704
1,645 IDEC Pharmaceuticals Corp. (a).............................. 192,979
470 Incyte Genomics, Inc. (a)................................... 38,628
1,205 Millennium Pharmaceuticals, Inc. (a)........................ 134,809
1,055 PE Corp. -- Celera Genomics Group (a)....................... 98,642
798 Protein Design Labs, Inc. (a)............................... 131,632
-----------------------------------------------------------------------------------------
853,174
-----------------------------------------------------------------------------------------
BUILDING MATERIALS -- 0.8%
2,836 Centex Construction Products, Inc. ......................... 64,341
2,309 Simpson Manufacturing Co., Inc. (a)......................... 110,399
-----------------------------------------------------------------------------------------
174,740
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 17
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
CHEMICALS -- 1.6%
4,202 Crompton Corp............................................... $ 51,474
3,000 Cytec Industries Inc. (a)................................... 74,062
4,210 Ferro Corp.................................................. 88,410
2,862 OM Group, Inc............................................... 125,928
-----------------------------------------------------------------------------------------
339,874
-----------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 4.2%
2,700 ACNielsen Corp. (a)......................................... 59,400
16,295 Caremark Rx, Inc. (a)....................................... 111,009
4,153 Education Management Corp. (a).............................. 75,013
1,200 F.Y.I. Inc. (a)............................................. 40,425
600 Forrester Research Inc. (a)................................. 43,687
5,535 Interim Services, Inc. (a).................................. 98,246
1,160 Lason, Inc. (a)............................................. 2,900
5,210 Mail-Well Inc. (a).......................................... 44,936
3,400 On Assignment Inc. (a)...................................... 103,700
1,200 Plexus Corp. (a)............................................ 135,600
3,601 Rent-a-center, Inc. (a)..................................... 81,022
1,500 StarTek, Inc. (a)........................................... 75,562
-----------------------------------------------------------------------------------------
871,500
-----------------------------------------------------------------------------------------
COMPUTERS -- 5.0%
2,625 Answerthink Inc. (a)........................................ 43,640
2,625 Apex Inc. (a)............................................... 114,845
4,300 AXENT Technologies, Inc. (a)................................ 106,693
3,637 Complete Business Solutions, Inc. (a)....................... 63,874
1,400 Emulex Corp. (a)............................................ 91,962
2,053 iGATE Capital Corp. (a)..................................... 28,229
1,277 ISS Group Inc. (a).......................................... 126,083
3,327 National Computer Systems Inc. ............................. 163,854
2,163 RadiSys Corp. (a)........................................... 122,751
1,055 SanDisk Corp. (a)........................................... 64,552
2,531 Xircom Inc. (a)............................................. 120,223
-----------------------------------------------------------------------------------------
1,046,706
-----------------------------------------------------------------------------------------
COSMETICS/PERSONAL CARE -- 0.2%
1,500 Alberto Culver Co., Class B Shares.......................... 45,843
-----------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE -- 0.5%
3,070 United Stationers Inc. (a).................................. 99,391
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.7%
3,904 Affiliated Managers Group Inc. (a).......................... 177,632
5,230 Doral Financial Corp. ...................................... 59,818
2,574 Eaton Vance Corp............................................ 119,047
-----------------------------------------------------------------------------------------
356,497
-----------------------------------------------------------------------------------------
ELECTRIC -- 2.1%
11,949 El Paso Electric Co. (a).................................... 133,679
570 Energy East Corp............................................ 10,865
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 18
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC -- 2.1% (CONTINUED)
3,167 IDACORP, Inc. .............................................. $ 102,135
4,305 MDU Resources Group, Inc. .................................. 93,095
4,425 NorthWestern Corp........................................... 102,328
-----------------------------------------------------------------------------------------
442,102
-----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.2%
4,200 AMETEK, Inc. ............................................... 73,500
3,228 C & D Technology Inc. ...................................... 182,382
-----------------------------------------------------------------------------------------
255,882
-----------------------------------------------------------------------------------------
ELECTRONICS -- 4.0%
1,700 Integrated Device Technology Inc. (a)....................... 101,787
2,587 Mettler-Toledo International Inc. (a)....................... 103,480
2,740 Micrel, Inc. (a)............................................ 119,018
2,415 PerkinElmer Inc............................................. 159,691
1,898 Sanmina Corp. (a)........................................... 162,313
6,415 Sensormatic Electronics Corp. (a)........................... 101,437
800 Technitrol, Inc............................................. 77,500
-----------------------------------------------------------------------------------------
825,226
-----------------------------------------------------------------------------------------
ENGINEERING AND CONSTRUCTION -- 1.0%
2,293 Dycom Industries, Inc. (a).................................. 105,478
3,226 Jacobs Engineering Group Inc. (a)........................... 105,449
-----------------------------------------------------------------------------------------
210,927
-----------------------------------------------------------------------------------------
ENTERTAINMENT -- 1.0%
9,230 Aztar Corp. (a)............................................. 143,065
2,490 Speedway Motorsports Inc. (a)............................... 57,270
-----------------------------------------------------------------------------------------
200,335
-----------------------------------------------------------------------------------------
FOOD -- 1.1%
6,528 Earthgrains Co. ............................................ 126,888
3,040 Hain Celestial Group, Inc. (a).............................. 111,530
-----------------------------------------------------------------------------------------
238,418
-----------------------------------------------------------------------------------------
FOREST PRODUCTS AND PAPER -- 0.5%
3,051 Potlatch Corp. ............................................. 101,064
-----------------------------------------------------------------------------------------
GAS -- 1.0%
2,193 New Jersey Resources Corp................................... 83,471
3,029 Southwest Gas Corp.......................................... 53,007
3,719 UGI Corp. .................................................. 76,239
-----------------------------------------------------------------------------------------
212,717
-----------------------------------------------------------------------------------------
HEALTHCARE -- 2.3%
3,348 CONMED Corp. (a)............................................ 86,629
3,632 Datascope Corp.............................................. 130,752
740 Laboratory Corp. Of America (a)............................. 57,072
3,700 Oakley, Inc. (a)............................................ 42,550
2,866 Renal Care Group, Inc. (a).................................. 70,082
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 19
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE -- 2.3% (CONTINUED)
3,764 Res-Care, Inc. (a).......................................... $ 20,231
2,840 ResMed Inc. (a)............................................. 75,970
-----------------------------------------------------------------------------------------
483,286
-----------------------------------------------------------------------------------------
HOME BUILDERS -- 1.6%
2,490 Centex Corp. ............................................... 58,515
5,431 D.R. Horton, Inc............................................ 73,657
4,485 Lennar Corp. ............................................... 90,821
1,842 NVR, Inc. (a)............................................... 104,994
-----------------------------------------------------------------------------------------
327,987
-----------------------------------------------------------------------------------------
HOME FURNISHINGS -- 1.2%
1,700 Harman International Industries, Inc........................ 103,700
1,540 Polycom Inc. (a)............................................ 144,904
-----------------------------------------------------------------------------------------
248,604
-----------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS/WARES -- 0.3%
3,254 Fossil, Inc. (a)............................................ 63,249
-----------------------------------------------------------------------------------------
INSURANCE -- 3.2%
2,375 Everest Reinsurance Holdings, Inc. ......................... 78,078
4,320 Enhance Financial Services Group Inc........................ 62,100
5,619 Fidelity National Financial, Inc............................ 102,897
1,866 Financial Security Assurance Holdings, Inc.................. 141,582
4,215 First American Corp......................................... 60,327
5,297 HCC Insurance Holdings, Inc. ............................... 99,980
2,550 Medical Assurance Inc. (a).................................. 28,687
1,680 Radian Group, Inc. ......................................... 86,940
-----------------------------------------------------------------------------------------
660,591
-----------------------------------------------------------------------------------------
INVESTMENT COMPANIES -- 0.4%
5,430 Medallion Financial Corp.................................... 83,825
-----------------------------------------------------------------------------------------
IRON/STEEL -- 0.6%
5,690 AK Steel Holdings Corp. .................................... 45,520
4,142 Reliance Steel & Aluminum Co. .............................. 79,215
-----------------------------------------------------------------------------------------
124,735
-----------------------------------------------------------------------------------------
LODGING -- 0.2%
4,059 Boca Resorts Inc., Class A Shares (a)....................... 40,082
-----------------------------------------------------------------------------------------
MACHINERY - CONSTRUCTION AND MINING -- 0.7%
3,306 Astec Industries, Inc. (a).................................. 83,889
3,632 Terex Corp. (a)............................................. 51,302
-----------------------------------------------------------------------------------------
135,191
-----------------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED -- 1.7%
2,019 Brooks Automation Inc. (a).................................. 129,089
730 Cognex Corp. (a)............................................ 37,777
2,000 Cummins Engine Co., Inc. ................................... 54,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 20
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
MACHINERY - DIVERSIFIED -- 1.7% (CONTINUED)
1,600 Kulicke & Soffa Industries, Inc. (a)........................ $ 95,000
1,600 Manitowoc Co., Inc. ........................................ 42,800
-----------------------------------------------------------------------------------------
359,166
-----------------------------------------------------------------------------------------
MEDIA -- 1.0%
2,504 McClatchy Co., Class A Shares............................... 82,945
3,785 Westwood One, Inc. (a)...................................... 129,163
-----------------------------------------------------------------------------------------
212,108
-----------------------------------------------------------------------------------------
METAL FABRICATE/HARDWARE -- 0.3%
12,510 Metals USA, Inc............................................. 58,640
-----------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURERS -- 1.7%
3,744 AptarGroup, Inc. ........................................... 101,088
2,762 Dexter Corp................................................. 132,576
4,600 Donaldson Co., Inc.......................................... 90,850
2,525 Wabtec Corp................................................. 26,196
-----------------------------------------------------------------------------------------
350,710
-----------------------------------------------------------------------------------------
OIL AND GAS PRODUCERS -- 2.2%
3,614 Barrett Resources Corp. (a)................................. 110,001
4,176 Marine Drilling Cos., Inc. (a).............................. 116,928
3,811 Newfield Exploration Co. (a)................................ 149,105
3,100 Swift Energy Co. (a)........................................ 87,962
-----------------------------------------------------------------------------------------
463,996
-----------------------------------------------------------------------------------------
OIL AND GAS SERVICES -- 1.0%
2,562 Cal Dive International, Inc. (a)............................ 138,828
7,877 Friede Goldman Halter Inc. (a).............................. 70,400
-----------------------------------------------------------------------------------------
209,228
-----------------------------------------------------------------------------------------
PACKAGING AND CONTAINERS -- 0.5%
9,565 Ivex Packaging Corp. (a).................................... 106,410
-----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 7.1%
950 Abgenix, Inc. (a)........................................... 113,866
1,890 Alkermes Inc. (a)........................................... 89,066
2,324 Alpharma, Inc., Class A Shares.............................. 144,669
5,150 AmeriSource Health Corp. (a)................................ 159,650
3,363 Bindley Western Industries Inc. ............................ 88,909
1,265 Celgene Corp. (a)........................................... 74,476
1,995 COR Therapeutics, Inc. (a).................................. 170,198
2,625 Corixa Corp. (a)............................................ 112,710
978 Gilead Sciences, Inc. (a)................................... 69,560
635 ImClone Systems Inc. (a).................................... 48,537
2,371 King Pharmaceuticals, Inc. (a).............................. 104,005
2,915 Medicis Pharmaceutical Corp., Class A Shares(a)............. 166,155
1,740 Priority Healthcare Corp. (a)............................... 129,303
-----------------------------------------------------------------------------------------
1,471,104
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 21
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE -- 0.2%
1,600 Castle & Cooke, Inc. (a).................................... $ 30,900
200 Catellus Development Corp. (a).............................. 3,000
-----------------------------------------------------------------------------------------
33,900
-----------------------------------------------------------------------------------------
REITS -- 4.0%
2,099 Cousins Properties, Inc. ................................... 80,811
6,820 Equity Inns, Inc. .......................................... 41,772
2,728 First Industrial Realty Trust, Inc. ........................ 80,476
3,481 General Growth Properties Inc. ............................. 110,521
1,945 Health Care Properties Investors Trust Inc. ................ 53,001
4,537 Liberty Property Trust...................................... 117,678
2,209 Mid-American Apartment Communities, Inc. ................... 53,016
3,481 Parkway Properties Inc. .................................... 106,170
4,831 Reckson Associates Realty Corp. ............................ 114,736
2,652 Regency Realty Corp. ....................................... 62,985
-----------------------------------------------------------------------------------------
821,166
-----------------------------------------------------------------------------------------
RETAIL -- 5.3%
3,139 Ames Department Stores Inc. (a)............................. 24,327
3,239 AnnTaylor Stores Inc. (a)................................... 107,291
3,588 Bebe Stores, Inc. (a)....................................... 30,049
5,505 Burlington Coat Factory Warehouse Corp. .................... 59,522
5,702 Cato Corp., Class A Shares.................................. 66,285
3,970 Chico's FAS Inc. (a)........................................ 79,400
3,299 Cost Plus, Inc. (a)......................................... 94,640
6,751 Haverty Furniture Cos., Inc. ............................... 57,383
4,164 Jack In The Box Inc. (a).................................... 102,538
2,625 Linens'n Things Inc. (a).................................... 71,203
9,746 LoneStar Steakhouse & Saloon, Inc. ......................... 98,678
3,449 The Mens Wearhouse Inc. (a)................................. 76,955
2,826 Pacific Sunware Of California, Inc. (a)..................... 52,987
4,393 Sonic Corp. (a)............................................. 129,044
4,445 Trans World Entertainment Corp. (a)......................... 53,895
-----------------------------------------------------------------------------------------
1,104,197
-----------------------------------------------------------------------------------------
SAVINGS AND LOANS -- 1.3%
1,476 Astoria Financial Corp. .................................... 38,007
2,781 Bank United Corp., Class A Shares........................... 97,856
2,739 Dime Bancorp, Inc. ......................................... 43,139
3,841 FirstFed Financial Corp. (a)................................ 54,254
2,100 IndyMac Mortgage Holdings, Inc. ............................ 28,481
-----------------------------------------------------------------------------------------
261,737
-----------------------------------------------------------------------------------------
SEMICONDUCTORS -- 5.1%
2,800 Alpha Industries Inc. (a)................................... 123,375
1,971 Amkor Technology, Inc. (a).................................. 69,600
2,413 C-cube Microsystems Inc. (a)................................ 47,355
525 Cree, Inc. (a).............................................. 70,087
2,095 Cypress Semiconductor Corp. (a)............................. 88,513
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 22
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS -- 5.1% (CONTINUED)
1,370 DuPont Photomasks, Inc. (a)................................. $ 93,845
4,174 Lam Research Corp. (a)...................................... 156,525
2,625 Lattice Semiconductor Corp. (a)............................. 181,453
2,155 TranSwitch Corp. (a)........................................ 166,339
635 Triquint Semiconductor Inc. (a)............................. 60,761
-----------------------------------------------------------------------------------------
1,057,853
-----------------------------------------------------------------------------------------
SOFTWARE -- 7.6%
6,801 AVT Corp. (a)............................................... 50,157
2,100 Advent Software, Inc. (a)................................... 135,450
1,265 Allaire Corp. (a)........................................... 46,488
2,400 AppliedTheory Corp. (a)..................................... 36,000
3,300 Ask Jeeves, Inc. (a)........................................ 59,606
6,603 Datastream Systems, Inc. (a)................................ 82,537
4,505 Dendrite International, Inc. (a)............................ 150,072
7,037 Informix Corp. (a).......................................... 52,337
5,000 JDA Software Group, Inc. (a)................................ 95,937
7,800 Juno Online Services, Inc. (a).............................. 83,850
1,653 Mercury Interactive Corp. (a)............................... 159,927
1,580 MicroStrategy Inc. (a)...................................... 47,400
420 Micromuse Inc. (a).......................................... 69,503
2,415 Open Market Inc. (a)........................................ 33,357
5,623 Progress Software Corp. (a)................................. 100,862
1,800 Rare Medium Group, Inc. (a)................................. 28,462
2,200 Remedy Corp. (a)............................................ 122,650
740 S1 Corp. (a)................................................ 17,251
3,200 Starmedia Network, Inc. (a)................................. 60,400
1,300 VerticalNet, Inc. (a)....................................... 48,018
2,840 Wind River Systems, Inc. (a)................................ 107,565
-----------------------------------------------------------------------------------------
1,587,829
-----------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 3.0%
3,415 Advanced Fibre Communications Inc. (a)...................... 154,742
1,824 ANTEC Corp. (a)............................................. 75,810
1,672 Carrier Access Corp. (a).................................... 88,407
1,680 Digital Microwave Corp. (a)................................. 64,050
2,626 Harmonic Inc. (a)........................................... 64,993
1,000 MRV Communications Inc. (a)................................. 67,250
635 Terayon Communication Systems, Inc. (a)..................... 40,788
5,000 Westell Technologies, Inc. (a).............................. 75,000
-----------------------------------------------------------------------------------------
631,040
-----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.2%
2,310 Aspect Communications Corp. (a)............................. 90,811
3,625 CTC Communications Group, Inc. (a).......................... 130,500
1,727 Commonwealth Telephone Enterprises, Inc. (a)................ 81,276
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE> 23
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED SMALL CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS -- 2.2% (CONTINUED)
3,262 ITC DeltaCom Inc. (a)....................................... $ 72,783
2,550 MasTec Inc. (a)............................................. 97,378
-----------------------------------------------------------------------------------------
472,748
-----------------------------------------------------------------------------------------
TELEPHONE -- 0.8%
2,786 Intermedia Communications Inc. (a).......................... 82,883
3,340 Primus Telecommunications Group (a)......................... 83,082
-----------------------------------------------------------------------------------------
165,965
-----------------------------------------------------------------------------------------
TRANSPORTATION -- 2.0%
3,707 Airborne Freight Corp. ..................................... 70,201
3,680 Atlas Air, Inc. (a)......................................... 132,020
3,728 EGL, Inc. (a)............................................... 114,636
200 Landstar Systems Inc. (a)................................... 11,912
2,504 U.S. Freightways Corp. ..................................... 61,505
-----------------------------------------------------------------------------------------
390,274
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $19,226,257).................... 19,556,070
-----------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY BILL -- 0.5%
$ 95,000 U.S. Treasury Bill, due 9/14/00 (Cost -- $93,886)........... 93,886
-----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.3%
1,108,000 Chase Securities, Inc., 6.250% due 7/3/00; Proceeds at
maturity -- $1,108,575; (Fully collateralized by U.S.
Treasury Note, 6.000% due 2/15/26; Market
value -- $1,132,825) (Cost -- $1,108,000)................. 1,108,000
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $20,428,143**)........... $20,757,956
-----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE> 24
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.5%
---------------------------------------------------------------------------------------
AUTO PARTS -- 0.0%
200 Federal-Mogul Corp.......................................... $ 1,913
---------------------------------------------------------------------------------------
CHEMICALS -- 0.5%
33,500 Rohm & Haas Co.............................................. 1,155,750
---------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 2.6%
29,080 Collectors Universe, Inc. (a)............................... 85,423
500 Gartner Group, Inc. (a)..................................... 6,000
217,500 NOVA Corp. (a).............................................. 6,076,406
---------------------------------------------------------------------------------------
6,167,829
---------------------------------------------------------------------------------------
COMPUTERS -- 17.7%
123,225 Ancor Communications, Inc. (a).............................. 4,407,219
43,300 Cabletron Systems, Inc. (a)................................. 1,093,325
9,000 Check Point Software Technologies Ltd. (a).................. 1,905,750
166,400 CheckFree Holdings Corp. (a)................................ 8,580,000
3,100 Computer Network Technology Corp. (a)....................... 53,863
65,600 Diversinet Corp. (a)........................................ 779,000
110,200 Emulex Corp. (a)............................................ 7,238,763
19,900 Entrust Technologies Inc. (a)............................... 1,646,725
48,100 MMC Networks, Inc. (a)...................................... 2,570,344
49,650 Radiant Systems, Inc. (a)................................... 1,191,600
108,600 RSA Security Inc. (a)....................................... 7,520,550
81,300 Seagate Technology, Inc. (a)................................ 4,471,500
700 Stratos Lightwave, Inc. (a)................................. 19,513
---------------------------------------------------------------------------------------
41,478,152
---------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE -- 1.0%
79,200 W.W. Grainger, Inc. ........................................ 2,440,350
---------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.0%
62,070 A.G. Edwards Inc............................................ 2,420,730
---------------------------------------------------------------------------------------
ELECTRICAL -- 1.6%
111,630 Cable Design Technologies Corp. (a)......................... 3,739,605
740 Capstone Turbine Corp. (a).................................. 33,346
---------------------------------------------------------------------------------------
3,772,951
---------------------------------------------------------------------------------------
ELECTRONICS -- 1.1%
8,700 Sawtek Inc. (a)............................................. 500,794
72,340 SIPEX Corp. (a)............................................. 2,002,914
---------------------------------------------------------------------------------------
2,503,708
---------------------------------------------------------------------------------------
FOOD -- 4.8%
62,000 Keebler Foods Co............................................ 2,301,750
406,700 The Kroger Co. (a).......................................... 8,972,819
---------------------------------------------------------------------------------------
11,274,569
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE> 25
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE -- 6.9%
123,800 Cytyc Corp. (a)............................................. $ 6,607,825
41,770 IDEXX Laboratories, Inc. (a)................................ 955,489
188,300 Total Renal Care Holdings, Inc. (a)......................... 1,129,800
262,900 VISX, Inc. (a).............................................. 7,377,631
---------------------------------------------------------------------------------------
16,070,745
---------------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED -- 1.2%
191,500 AGCO Corp. ................................................. 2,345,875
16,800 Applied Science & Technology, Inc. (a)...................... 434,700
---------------------------------------------------------------------------------------
2,780,575
---------------------------------------------------------------------------------------
MEDIA -- 1.0%
22,900 Hearst-Argyle Television, Inc. (a).......................... 446,550
32,370 Scholastic Corp. (a)........................................ 1,978,616
3,700 Sinclair Broadcast Group, Inc. (a).......................... 40,700
---------------------------------------------------------------------------------------
2,465,866
---------------------------------------------------------------------------------------
OIL AND GAS PRODUCERS -- 21.0%
71,900 Apache Corp................................................. 4,228,619
65,450 Diamond Offshore Drilling, Inc. ............................ 2,298,931
249,200 EOG Resources, Inc. ........................................ 8,348,200
302,340 Global Industries, Ltd. (a)................................. 5,706,668
87,800 Global Marine Inc. ......................................... 2,474,863
84,200 Houston Exploration Co. (a)................................. 2,115,525
183,400 Newfield Exploration Co. (a)................................ 7,175,525
14,000 Noble Affiliates Inc. ...................................... 521,500
212,820 Noble Drilling Corp. (a).................................... 8,765,524
137,200 Transocean Sedco Forex Inc. ................................ 7,331,625
---------------------------------------------------------------------------------------
48,966,980
---------------------------------------------------------------------------------------
PACKAGING AND CONTAINERS -- 1.8%
323,700 Smurfit-Stone Container Corp. (a)........................... 4,167,638
---------------------------------------------------------------------------------------
PHARMACEUTICALS -- 5.8%
107,190 IntraBiotics Pharmaceuticals, Inc. (a)...................... 2,860,633
99,500 United Therapeutics Corp. (a)............................... 10,783,313
---------------------------------------------------------------------------------------
13,643,946
---------------------------------------------------------------------------------------
REITS -- 0.2%
10,000 Pinnacle Holdings Inc. (a).................................. 540,000
---------------------------------------------------------------------------------------
RETAIL -- 2.1%
145,120 BJ's Wholesale Club, Inc. (a)............................... 4,788,960
49,660 Gymboree Corp. (a).......................................... 148,980
---------------------------------------------------------------------------------------
4,937,940
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 26
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS -- 1.0%
24,200 Dupont Photomasks, Inc. (a)................................. $ 1,657,700
600 Marvell Technology Group Ltd. (a)........................... 34,200
13,600 MKS Instruments, Inc. (a)................................... 532,100
---------------------------------------------------------------------------------------
2,224,000
---------------------------------------------------------------------------------------
SOFTWARE -- 16.2%
24,560 Aspen Technology, Inc. (a).................................. 945,560
28,300 Cerner Corp. (a)............................................ 771,175
23,460 Chordiant Software, Inc. (a)................................ 390,023
17,100 Covad Communications Group, Inc. (a)........................ 275,738
135,100 CSG Systems International, Inc. (a)......................... 7,574,044
61,200 ePresence, Inc. (a)......................................... 443,700
29,800 The InterCept Group, Inc. (a)............................... 506,600
26,000 Intuit Inc. (a)............................................. 1,075,750
5,700 iVillage Inc. (a)........................................... 48,094
72,300 National Data Corp.......................................... 1,662,900
30,500 Netzee, Inc. (a)............................................ 174,422
64,575 Peregrine Systems, Inc. (a)................................. 2,239,945
269,065 S1 Corp. (a)................................................ 6,272,578
75,440 SportsLine.com, Inc. (a).................................... 1,287,195
121,400 Switchboard Inc. (a)........................................ 1,214,000
74,078 VeriSign Inc. (a)........................................... 13,074,672
5,700 Ziff Davis Inc -- ZDNet (a)................................. 51,300
---------------------------------------------------------------------------------------
38,007,696
---------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 5.7%
8,600 Allegiance Telecom, Inc. (a)................................ 550,400
154,600 American Tower Corp. (a).................................... 6,444,888
18,800 Aware, Inc. (a)............................................. 961,150
13,100 Comverse Technology, Inc. (a)............................... 1,218,300
430 i3 Mobile, Inc. (a)......................................... 7,901
7,100 ICG Communications, Inc. (a)................................ 156,644
23,500 MGC Communications, Inc. (a)................................ 1,408,531
14,900 Tekelec (a)................................................. 717,994
27,900 Time Warner Telecom Inc., Class A Shares (a)................ 1,796,063
---------------------------------------------------------------------------------------
13,261,871
---------------------------------------------------------------------------------------
TELEPHONE -- 0.3%
21,600 Intermedia Communications, Inc. (a)......................... 642,600
---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $193,490,317)................... 218,925,809
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM SECURITY -- 6.5%
$15,300,000 Federal Home Loan Bank, 6.540% due 7/3/00
(Cost -- $15,294,440)..................................... 15,294,440
----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $208,784,757**).......... $234,220,249
----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE> 27
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.0%
-----------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 1.7%
45,300 Boeing Co. ................................................. $ 1,894,106
11,480 General Dynamics Corp. ..................................... 599,830
21,310 United Technologies Corp. .................................. 1,254,626
-----------------------------------------------------------------------------------------
3,748,562
-----------------------------------------------------------------------------------------
BANKS -- 1.3%
29,280 Chase Manhattan Corp. ...................................... 1,348,710
17,700 PNC Financial Services Group................................ 829,687
1,200 State Street Corp. ......................................... 127,275
27,800 U.S. Bancorp. .............................................. 535,150
-----------------------------------------------------------------------------------------
2,840,822
-----------------------------------------------------------------------------------------
BEVERAGES -- 0.8%
23,800 Anheuser-Busch Cos. Inc. ................................... 1,777,562
-----------------------------------------------------------------------------------------
CHEMICALS -- 0.3%
20,900 Rohm & Haas Co. ............................................ 721,050
-----------------------------------------------------------------------------------------
COMPUTERS -- 16.0%
5,500 Ancor Communications Inc. (a)............................... 196,710
25,700 Cabletron Systems, Inc. (a)................................. 648,925
113,320 Cisco Systems, Inc. (a)..................................... 7,202,902
28,800 Compaq Computer Corp. ...................................... 736,200
32,800 Computer Sciences Corp. (a)................................. 2,449,750
16,300 Dell Computer Corp. (a)..................................... 803,793
72,700 EMC Corp. (a)............................................... 5,593,356
18,800 Hewlett-Packard Co. ........................................ 2,347,650
16,300 International Business Machines Corp. ...................... 1,785,868
35,670 Oracle Corp. (a)............................................ 2,998,509
23,500 Seagate Technology, Inc. (a)................................ 1,292,500
62,880 Sun Microsystems, Inc. (a).................................. 5,718,150
25,097 VERITAS Software Corp. (a).................................. 2,836,353
-----------------------------------------------------------------------------------------
34,610,666
-----------------------------------------------------------------------------------------
COSMETICS/PERSONAL CARE -- 0.8%
28,960 Colgate-Palmolive Co. ...................................... 1,733,980
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 3.6%
67,898 Associates First Capital Corp. ............................. 1,514,974
20,400 Capital One Financial Corp. ................................ 910,350
40,500 Freddie Mac................................................. 1,640,250
5,600 Lehman Brothers Holdings Inc. .............................. 529,550
11,200 Merrill Lynch & Co., Inc. .................................. 1,288,000
8,800 Morgan Stanley Dean Witter & Co. ........................... 732,600
11,910 Providian Financial Corp. .................................. 1,071,900
-----------------------------------------------------------------------------------------
7,687,624
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE> 28
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC -- 1.7%
19,000 The AES Corp. (a)........................................... $ 866,875
21,326 Flextronics International Ltd. (a).......................... 1,464,829
4,800 SCI Systems Inc. (a)........................................ 188,100
26,800 Solectron Corp. (a)......................................... 1,122,250
-----------------------------------------------------------------------------------------
3,642,054
-----------------------------------------------------------------------------------------
FOOD -- 2.2%
15,200 The Quaker Oats Co. ........................................ 1,141,900
80,080 Safeway Inc. (a)............................................ 3,613,610
-----------------------------------------------------------------------------------------
4,755,510
-----------------------------------------------------------------------------------------
FOREST PRODUCTS AND PAPER -- 0.2%
11,780 Bowater Inc. ............................................... 519,792
-----------------------------------------------------------------------------------------
HAND/MACHINE TOOLS -- 0.3%
5,100 SPX Corp. (a)............................................... 616,781
-----------------------------------------------------------------------------------------
HEALTHCARE -- 1.3%
14,600 Bausch & Lomb Inc. ......................................... 1,129,675
34,550 Medtronic, Inc. ............................................ 1,721,021
-----------------------------------------------------------------------------------------
2,850,696
-----------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS/WARES -- 0.6%
30,220 The Clorox Co. ............................................. 1,354,233
-----------------------------------------------------------------------------------------
INSURANCE -- 3.0%
9,200 AFLAC INC. ................................................. 422,625
18,320 American International Group, Inc. ......................... 2,152,600
32,960 AXA Financial, Inc. ........................................ 1,120,640
22,160 Hartford Financial Services Group, Inc. .................... 1,239,575
8,100 Marsh & Mclennan Cos., Inc. ................................ 845,943
15,580 MetLife, Inc. (a)........................................... 328,153
9,500 St. Paul Cos., Inc. ........................................ 324,187
-----------------------------------------------------------------------------------------
6,433,723
-----------------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED -- 1.0%
32,000 Deere & Co. ................................................ 1,184,000
24,400 Ingersoll-Rand Co. ......................................... 982,100
-----------------------------------------------------------------------------------------
2,166,100
-----------------------------------------------------------------------------------------
MEDIA -- 3.5%
28,780 Comcast Corp., Class A Shares (a)........................... 1,165,590
38,825 Infinity Broadcasting Corp., Class A Shares (a)............. 1,414,685
24,190 Time Warner, Inc. .......................................... 1,838,440
30,780 Tribune Co. ................................................ 1,077,300
29,545 Viacom Inc., Non Voting (a)................................. 2,014,599
-----------------------------------------------------------------------------------------
7,510,614
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE> 29
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
METALS - DIVERSIFIED -- 5.5%
16,200 Alcoa, Inc. ................................................ $ 469,800
107,100 General Electric Co. ....................................... 5,676,300
122,600 Tyco International Ltd. .................................... 5,808,175
-----------------------------------------------------------------------------------------
11,954,275
-----------------------------------------------------------------------------------------
OIL AND GAS PRODUCERS -- 8.1%
23,600 Baker Hughes Inc. .......................................... 755,200
52,674 BP Amoco PLC ADR............................................ 2,979,373
97,420 Conoco Inc., Class B Shares................................. 2,392,878
2,920 Cooper Cameron Corp. (a).................................... 192,720
8,180 Devon Energy Corp. ......................................... 459,613
16,600 EOG Resources, Inc. ........................................ 556,100
46,061 Exxon Mobil Corp. .......................................... 3,615,788
66,900 Global Marine Inc. (a)...................................... 1,885,743
26,200 Noble Drilling Corp. (a).................................... 1,079,112
21,300 Santa Fe International Corp. ............................... 744,168
34,200 Transocean Sedco Forex Inc. (a)............................. 1,827,562
23,500 Weatherford International, Inc. (a)......................... 935,593
-----------------------------------------------------------------------------------------
17,423,850
-----------------------------------------------------------------------------------------
PACKAGING AND CONTAINERS -- 0.2%
27,180 Owens-Illinois Inc. (a)..................................... 317,666
-----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 6.1%
30,170 American Home Products Corp. ............................... 1,772,487
67,830 Bristol-Myers Squibb Co. ................................... 3,951,097
54,875 Pfizer, Inc. ............................................... 2,634,000
93,410 Pharmacia & Upjohn, Inc. ................................... 4,828,129
-----------------------------------------------------------------------------------------
13,185,713
-----------------------------------------------------------------------------------------
PIPELINES -- 0.4%
19,800 Williams Cos., Inc. ........................................ 825,412
-----------------------------------------------------------------------------------------
RETAIL -- 3.6%
92,520 CVS Corp. .................................................. 3,700,800
98,005 Office Depot Inc. (a)....................................... 612,531
39,200 Radioshack Corp. ........................................... 1,857,100
29,270 Wal-Mart Stores, Inc. ...................................... 1,686,683
-----------------------------------------------------------------------------------------
7,857,114
-----------------------------------------------------------------------------------------
SEMICONDUCTORS -- 7.8%
14,920 Analog Devices, Inc. (a).................................... 1,133,920
23,200 Atmel Corp. (a)............................................. 855,500
13,600 Fairchild Semiconductor Corp. (a)........................... 550,800
66,900 Intel Corp. ................................................ 8,943,693
28,800 Lam Research Corp. (a)...................................... 1,080,000
16,000 LSI Logic Corp. (a)......................................... 866,000
35,600 Micron Technology Inc. (a).................................. 3,135,025
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE> 30
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTORS -- 7.8% -- (CONTINUED)
1,000 Novellus Systems Inc. (a)................................... $ 56,562
15,300 Teradyne Inc. (a)........................................... 1,124,550
-----------------------------------------------------------------------------------------
17,746,050
-----------------------------------------------------------------------------------------
SOFTWARE -- 8.2%
33,500 America Online Inc. (a)..................................... 1,767,125
38,400 Automatic Data Processing, Inc. ............................ 2,056,800
6,300 BEA Systems, Inc. (a)....................................... 311,456
17,410 BMC Software, Inc. (a)...................................... 635,192
1,600 Business Objects SA ADR (a)................................. 141,000
13,110 Computer Associates International, Inc. .................... 671,068
1,790 Digimarc Corp. (a).......................................... 68,915
2,200 E.piphany, Inc. (a)......................................... 235,812
14,500 Fiserv Inc. (a)............................................. 627,125
6,000 i2 Technologies, Inc. (a)................................... 625,593
1,900 InterWorld Corp. (a)........................................ 38,950
7,250 Liberate Technologies, Inc. (a)............................. 212,515
8,400 Macromedia, Inc. (a)........................................ 812,175
71,540 Microsoft Corp. (a)......................................... 5,723,200
4,600 Rational Software Corp. (a)................................. 427,512
1,790 Selectica, Inc. (a)......................................... 125,411
2,500 Siebel Systems Inc. (a)..................................... 408,906
11,230 Trintech Group PLC ADR (a).................................. 221,266
9,280 VeriSign, Inc. (a).......................................... 1,637,920
-----------------------------------------------------------------------------------------
16,747,941
-----------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 8.6%
17,900 Ciena Corp. (a)............................................. 2,983,706
18,900 Comverse Technology Inc. (a)................................ 1,757,700
14,255 Corning Inc. ............................................... 3,847,068
63,100 Metromedia Fiber Network Inc. (a)........................... 2,504,281
84,175 Motorola, Inc. ............................................. 2,446,335
64,480 Nortel Networks Corp. ...................................... 4,400,760
9,920 Tellabs, Inc. (a)........................................... 678,900
-----------------------------------------------------------------------------------------
18,618,750
-----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.4%
2,600 Allegiance Telecom Inc. (a)................................. 166,400
18,840 FLAG Telecom Holdings Ltd. (a).............................. 280,245
59,700 Global Crossing Ltd. (a).................................... 1,570,856
6,300 Level 3 Communications Inc. (a)............................. 554,400
31,000 Qwest Communications International Inc. (a)................. 1,540,312
49,960 Sprint Corp. (PCS Group) (a)................................ 2,972,620
3,700 Time Warner Telecom Inc. Class A (a)........................ 238,187
3,300 Winstar Communications, Inc. (a)............................ 111,787
-----------------------------------------------------------------------------------------
7,434,807
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE> 31
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS RESEARCH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
TELEPHONE -- 2.8%
19,910 Bell Atlantic Corp.+........................................ $ 1,011,676
3,900 Intermedia Communications Inc. (a).......................... 116,025
46,000 Sprint Corp. (Fon Group).................................... 2,346,000
54,321 MCI Worldcom, Inc. (a)...................................... 2,491,952
-----------------------------------------------------------------------------------------
5,965,653
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $177,140,980)................... 201,047,000
-----------------------------------------------------------------------------------------
FOREIGN STOCK -- 4.5%
-----------------------------------------------------------------------------------------
FRANCE -- 0.1%
1,700 Total Fina Elf SA, Class B Shares........................... 261,716
-----------------------------------------------------------------------------------------
JAPAN -- 1.1%
1,600 Fast Retailing.............................................. 671,423
33,000 Hitachi Ltd. ............................................... 477,198
85 Nippon Telegraph & Telephone Corp. ......................... 1,132,744
-----------------------------------------------------------------------------------------
2,281,365
-----------------------------------------------------------------------------------------
NETHERLANDS -- 1.6%
28,000 Koniklijke.................................................. 1,257,489
34,000 Royal Dutch Petroleum Co. .................................. 2,121,761
-----------------------------------------------------------------------------------------
3,379,250
-----------------------------------------------------------------------------------------
UNITED KINGDOM -- 1.7%
21,770 AstraZeneca................................................. 1,017,074
207,800 BAE Systems PLC............................................. 1,295,319
56,300 HSBC Holdings............................................... 644,363
192,701 Vodafone Airtouch PLC....................................... 781,839
-----------------------------------------------------------------------------------------
3,738,595
-----------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $9,721,894).................... 9,660,926
-----------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM SECURITY -- 2.5%
$5,500,000 Federal Home Loan Bank, 6.540% due 7/3/00
(Cost -- $5,498,001)........................................ 5,498,001
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $192,360,875**).......... $216,205,927
-----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE> 32
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
<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, at cost....................... $15,936,688 $14,209,504 $20,428,143 $208,784,757 $192,360,875
Foreign currency, at cost.................. -- -- -- -- 202
--------------------------------------------------------------------------------------------------------------------
Investments, at value...................... $16,147,611 $12,267,041 $20,757,956 $234,220,249 $216,205,927
Foreign currency, at value................. -- -- -- -- 201
Cash....................................... 103 799 84 45,239 83,385
Dividends and interest receivable.......... 74,638 27,836 7,544 13,931 91,550
Receivable for securities sold............. 472,840 -- 503,361 101,682 1,731,165
Receivable for open forward foreign
currency contracts (Note 9).............. -- -- -- -- 1,879
Receivable from manager.................... 15,578 11,795 26,743 17,304 --
Variation margin-open futures.............. -- -- 10,275 -- --
--------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................... 16,710,770 12,307,471 21,305,963 234,398,405 218,114,107
--------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable........... 7,775 6,246 13,279 141,353 138,747
Administration fees payable................ 777 625 997 10,601 11,877
Payable for securities purchased........... 300,000 -- 816,629 439,243 1,311,528
Payable for open forward foreign currency
contracts (Note 9)....................... -- -- -- -- 18,745
Accrued expenses........................... 18,244 19,072 25,199 24,904 37,105
--------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.......................... 326,796 25,943 856,104 616,101 1,518,002
--------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................. $16,383,974 $12,281,528 $20,449,859 $233,782,304 $216,596,105
--------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital............................ $14,944,450 $14,190,577 $19,128,411 $179,905,276 $180,613,615
Undistributed net investment income........ 328,407 148,231 25,367 -- 69,425
Accumulated net investment loss............ -- -- -- (217,525) --
Accumulated net realized gain (loss) from
security transactions and foreign
currencies............................... 900,194 (114,817) 959,395 28,659,061 12,068,456
Net unrealized appreciation (depreciation)
of investments, futures contracts and
foreign currencies....................... 210,923 (1,942,463) 336,686 25,435,492 23,844,609
--------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................. $16,383,974 $12,281,528 $20,449,859 $233,782,304 $216,596,105
--------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING........................... 1,382,101 1,461,833 1,963,640 12,277,878 15,896,523
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE................... $11.85 $8.40 $10.41 $19.04 $13.63
--------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE> 33
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
<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......................................... $ 175,226 $ 46,299 $ 26,236 $ 403,931 $ 256,462
Dividends........................................ 208,410 160,975 79,928 89,908 577,534
Less: Foreign withholding tax.................... -- -- -- -- (6,316)
------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME.......................... 383,636 207,274 106,164 493,839 827,680
------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)................ 41,246 39,346 71,960 617,737 728,243
Audit and legal.................................. 7,957 7,878 7,900 10,500 16,557
Shareholder and system servicing fees............ 6,621 6,609 6,526 7,500 8,968
Administration fees (Note 2)..................... 4,125 3,935 5,397 46,330 54,618
Trustees' fees................................... 1,989 1,989 1,989 2,000 1,989
Pricing service fees............................. 1,492 -- -- -- 749
Shareholder communications....................... 1,343 1,989 1,355 8,000 16,326
Custody.......................................... 1,343 1,487 9,945 18,000 30,869
Registration fees................................ 249 249 249 797 746
Other............................................ 348 348 347 500 14,750
------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES................................... 66,713 63,830 105,668 711,364 873,815
Less: Expense reimbursements (Note 2)............ (11,578) (4,795) (16,242) -- --
------------------------------------------------------------------------------------------------------------------------
NET EXPENSES..................................... 55,135 59,035 89,426 711,364 873,815
------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)....................... 328,501 148,239 16,738 (217,525) (46,135)
------------------------------------------------------------------------------------------------------------------------
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)................................. 900,464 -- 1,239,356 29,565,374 12,255,990
Futures contracts.............................. -- -- (202,359) -- --
Foreign currency transactions.................. -- -- -- -- 115,560
------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN................................ 900,464 -- 1,036,997 29,565,374 12,371,550
------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments, Futures Contracts
and Foreign Currencies:
Beginning of period............................ 87,850 (799,286) 1,006,171 16,911,017 25,233,307
End of period.................................. 210,923 (1,942,463) 336,686 25,435,492 23,844,609
------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION)................................. 123,073 (1,143,177) (669,485) 8,524,475 (1,388,698)
------------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCIES........................... 1,023,537 (1,143,177) 367,512 38,089,849 10,982,852
------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $1,352,038 $ (994,938) $ 384,250 $37,872,324 $10,936,717
------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE> 34
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE
30, 2000
<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)................. $ 328,501 $ 148,239 $ 16,738 $ (217,525) $ (46,135)
Net realized gain............................ 900,464 -- 1,036,997 29,565,374 12,371,550
Change in net unrealized appreciation
(depreciation)............................. 123,073 (1,143,177) (669,485) 8,524,475 (1,388,698)
----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS................................. 1,352,038 (994,938) 384,250 37,872,324 10,936,717
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................ (317,473) (259,131) (33,902) -- --
Net realized gains........................... (1,016,846) (908,802) (1,168,322) (14,996,731) (3,136,681)
----------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS.............. (1,334,319) (1,167,933) (1,202,224) (14,996,731) (3,136,681)
----------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 14):
Net proceeds from sale of shares............. 4,225,831 1,611,340 9,507,712 111,928,075 60,976,263
Net asset value of shares issued for
reinvestment of dividends.................. 1,334,319 1,167,933 1,202,224 14,996,731 3,136,681
Cost of shares reacquired.................... (431,981) (3,064,654) (4,351,974) (10,142,300) (7,389,925)
----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS.................... 5,128,169 (285,381) 6,357,962 116,782,506 56,723,019
----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS.............. 5,145,888 (2,448,252) 5,539,988 139,658,099 64,523,055
NET ASSETS:
Beginning of period.......................... 11,238,086 14,729,780 14,909,871 94,124,205 152,073,050
----------------------------------------------------------------------------------------------------------------------
END OF PERIOD*............................... $16,383,974 $12,281,528 $20,449,859 $233,782,304 $216,596,105
----------------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:.......................................... $328,407 $148,231 $25,367 -- $69,425
----------------------------------------------------------------------------------------------------------------------
* Accumulated net investment loss of:.......... -- -- -- $(217,525) --
----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE> 35
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) 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.
34
<PAGE> 36
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Convertible Bond, Strategic Stock, Disciplined Small Cap Stock, MFS Mid
Cap Growth and MFS Research Portfolios ("Portfolio(s)") are separate investment
portfolios of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company and consists of these
portfolios and fifteen other separate investment portfolios: Travelers Quality
Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield,
Federated Stock, Disciplined Mid Cap Stock, U.S. Government Securities, Social
Awareness Stock, Utilities, Large Cap, Equity Income, Zero Coupon Bond Fund
Portfolio Series 2000, Zero Coupon Bond Fund Portfolio Series 2005, NWQ Large
Cap and Jurika & Voyles Core Equity Portfolios. Shares of the Trust are offered
only to insurance company separate accounts that fund certain variable annuity
and variable life insurance contracts. The financial statements and financial
highlights for the other portfolios are presented in separate 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 Company LLC ("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,
35
<PAGE> 37
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DSCS, MMCG, MRP, and SSP each pay TAMIC an investment advisory fee calculated at
annual rates of 0.60%, 0.80%, 0.80%, 0.80% and 0.60%, respectively. This fee is
calculated daily and paid monthly.
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"), a subsidiary of Salomon Smith Barney Holdings Inc.
("SSBH") which, in turn, is a subsidiary of Citigroup Inc. ("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 six months ended June 30, 2000, Travelers Insurance reimbursed
expenses in the amounts of $11,578, $4,795, and $16,242, for CB, SSP, and DSCS,
respectively.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney
Private Trust Company, another subsidiary of Citigroup, acts as the Trust's
transfer agent. CFTC receives fees and asset-based fees that vary according to
the account size and type of account. During the six months ended June 30, 2000,
CB, SSP, DSCS, MMCG, and MRP each paid transfer agent fees of $2,500 to CFTC.
For the six months ended June 30, 2000, DSCS paid Salomon Smith Barney
Inc., another subsidiary of SSBH, brokerage commissions of $176.
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 six
months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Bond Portfolio.................................. $ 6,944,552 $ 3,556,175
Strategic Stock Portfolio................................... 1,203,565 --
Disciplined Small Cap Stock Portfolio....................... 13,169,845 7,693,650
MFS Mid Cap Growth Portfolio................................ 206,196,663 109,766,026
MFS Research Portfolio...................................... 141,462,005 86,915,668
------------------------------------------------------------------------------------------
</TABLE>
At June 30, 2000, 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.................................. $ 1,256,911 $(1,045,988) $ 210,923
Strategic Stock Portfolio................................... 590,600 (2,533,063) (1,942,463)
Disciplined Small Cap Stock Portfolio....................... 2,536,587 (2,206,774) 329,813
MFS Mid Cap Growth Portfolio................................ 42,125,652 (16,690,160) 25,435,492
MFS Research Portfolio...................................... 33,491,689 (9,646,637) 23,845,052
---------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 38
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodians take possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
5. 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.
During the six months ended June 30, 2000, the Portfolios did not enter
into reverse repurchase agreements.
6. FUTURES CONTRACTS
The Portfolios may from time to time enter into futures contracts.
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking-to-market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Portfolio records a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transactions and the Portfolio's basis in the contract.
The Portfolios enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 2000, DSCS had purchased three financial futures contracts on
the Russell 2000 Index expiring in September 2000. The basis value of such
contracts was $777,027. The market value of such contracts on June 30, 2000, was
$783,900, resulting in an unrealized gain of $6,873.
7. OPTIONS CONTRACTS
The Portfolios may from time to time enter into options contracts.
Premiums paid when put or call options are purchased by the Portfolios,
represent investments, which are "marked-to-market" daily. When a purchased
option expires, the Portfolios will realize a loss in the amount of the premium
paid. When the Portfolios enter into a closing sales transaction, the Portfolios
will realize a gain or loss depending on whether the proceeds from the closing
sales transactions are greater or less than the premium paid for the option.
When the Portfolio exercises a put option, it will realize a gain or loss from
the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Portfolios exercise a call
option, the cost of the security which the Portfolios purchase upon exercise
will be increased by the premium originally paid.
At June 30, 2000, the Portfolios had no open purchased call or put option
contracts.
When Portfolios write a covered call or put option, an amount equals to the
premium received by the Portfolios is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolios
realize a gain. 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.
37
<PAGE> 39
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The risk associated with purchasing options is limited to the premium
originally paid. The Portfolios enter into options for hedging purposes. The
risk in writing a covered call option is that the Portfolios give up the
opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a put option is that the
Portfolios are exposed to the risk of a loss if the market price of the
underlying security declines.
During the six months ended June 30, 2000, the Portfolios did not write any
call or put option contracts.
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 June 30, 2000, 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 gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN (LOSS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO BUY:
British Pound....................................... 130,567 $197,664 7/3/00 $ 1,879
Yen................................................. 4,370,056 41,303 7/3/00 (97)
--------------------------------------------------------------------------------------------------------
1,782
--------------------------------------------------------------------------------------------------------
TO SELL:
Euro................................................ 701,417 672,377 7/31/00 (13,220)
Euro................................................ 406,632 389,796 7/31/00 (5,428)
--------------------------------------------------------------------------------------------------------
(18,648)
--------------------------------------------------------------------------------------------------------
Net Unrealized Loss on Open Forward Foreign Currency
Contracts......................................... $(16,866)
--------------------------------------------------------------------------------------------------------
</TABLE>
10. SECURITIES TRADED ON A WHEN-ISSUED BASIS
The Portfolios may from time to time purchase securities on a when-issued
basis.
In a when-issued transaction, the Portfolio commits to purchasing
securities for which specific information is not yet known at the time of the
trade. Securities purchased on a TBA basis are not settled until they are
delivered to the Portfolio. Beginning on the date the Portfolio enters into the
when-issued transaction, the custodian maintains cash, U.S. government
securities or other liquid high grade debt obligations in a segregated account
equal in value to the purchase price of the when-issued security. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
At June 30, 2000, there were no when-issued securities held by the
Portfolios.
38
<PAGE> 40
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. MORTGAGE DOLLAR ROLL TRANSACTIONS
The Portfolios have the ability to participate in mortgage dollar rolls.
A mortgage dollar roll transaction involves a sale by the Portfolio of
securities that it holds with an agreement by the Portfolio to purchase similar
securities at an agreed upon price and date. The securities repurchased will
bear the same interest as those sold, but generally will be collateralized by
pools of mortgages with different prepayment histories than those securities
sold. Proceeds of the sale will be invested and the income from these
investments, together with any additional income from the Portfolio exceeding
the yield on the securities sold.
At June 30, 2000, there were no mortgage dollar roll transactions held by
the Portfolios.
12. SHORT SALES AGAINST THE BOX
The Portfolios have the ability to engage in short sales against the box.
A short sale against the box is a short sale of common stock such that,
when the short position is open, the Portfolio involved owns an equal amount of
the stock or preferred stock or debt securities (convertible or exchangeable)
without payment of further consideration, into an equal number of shares of
common stock sold short. The proceeds of the sale will be held by the broker
until the settlement date, when the Portfolio delivers the stock or the
convertible or exchangeable securities to close out its short position. Although
prior to delivery a Portfolio will have to pay an amount equal to any dividends
paid on the common stock sold short, the Portfolio will receive the dividends
from the stock or the preferred stock or the interest from the stock or
convertible or exchangeable debt securities plus a portion of the interest
earned from the proceeds of the short sale. The Portfolio will deposit in a
segregated account with the Portfolio's custodian, the common stock or
convertible preferred stock or debt securities in connection with short sales
against the box.
At June 30, 2000, 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 June 30, 2000, there were no loaned securities held by the Portfolios.
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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND PORTFOLIO:
Shares sold................................................. 341,613 535,002
Shares issued on reinvestment............................... 114,239 825
Shares reacquired........................................... (35,409) (42,467)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 420,443 493,360
-----------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 41
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
STRATEGIC STOCK PORTFOLIO:
Shares sold................................................. 172,654 1,070,362
Shares issued on reinvestment............................... 134,710 11
Shares reacquired........................................... (328,493) (315,343)
-----------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (21,129) 755,030
-----------------------------------------------------------------------------------------------------
DISCIPLINED SMALL CAP STOCK PORTFOLIO:
Shares sold................................................. 853,619 869,308
Shares issued on reinvestment............................... 117,519 --
Shares reacquired........................................... (404,194) (54,806)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 566,944 814,502
-----------------------------------------------------------------------------------------------------
MFS MID CAP GROWTH PORTFOLIO:
Shares sold................................................. 6,283,879 4,406,616
Shares issued on reinvestment............................... 816,815 12,264
Shares reacquired........................................... (551,301) (6,624)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 6,549,393 4,412,256
-----------------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO:
Shares sold................................................. 4,562,071 8,114,832
Shares issued on reinvestment............................... 232,003 --
Shares reacquired........................................... (545,701) (53,683)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 4,248,373 8,061,149
-----------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 42
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
CONVERTIBLE BOND PORTFOLIO 2000(1)(2) 1999(2) 1998(3)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $11.69 $9.86 $10.00
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.29 0.46 0.22
Net realized and unrealized gain (loss)................... 0.93 1.38 (0.12)
---------------------------------------------------------------------------------------------------
Total Income From Operations................................ 1.22 1.84 0.10
---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.25) -- (0.22)
Net realized gains........................................ (0.81) (0.01) (0.02)
---------------------------------------------------------------------------------------------------
Total Distribution.......................................... (1.06) (0.01) (0.24)
---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $11.85 $11.69 $9.86
---------------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 10.55%++ 18.70% 0.98%++
---------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $16,384 $11,238 $4,617
---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................................ 0.80%+ 0.80% 0.80%+
Net investment income..................................... 4.78+ 4.33 4.31+
---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 27% 79% 7%
---------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
(4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $11,578, $32,000 and $24,996 for the period ended June 30,
2000, 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
----------------------------------------------- ------------------------------------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ----- ----- ------
<C> <C> <C> <S> <C> <C>
$0.01 $0.05 $0.05 0.97%+ 1.23% 1.86%+
</TABLE>
(5) 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.
41
<PAGE> 43
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
STRATEGIC STOCK PORTFOLIO 2000(1) 1999(2) 1998(3)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $9.93 $9.46 $10.00
-----------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.12 0.21 0.12
Net realized and unrealized gain (loss)................... (0.76) 0.26 (0.54)
-----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......................... (0.64) 0.47 (0.42)
-----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.20) (0.00)* (0.12)
Net realized gains........................................ (0.69) -- --
-----------------------------------------------------------------------------------------------
Total Distributions......................................... (0.89) (0.00)* (0.12)
-----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $8.40 $9.93 $9.46
-----------------------------------------------------------------------------------------------
TOTAL RETURN................................................ (6.76)%++ 4.97% (4.24)%++
-----------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $12,282 $14,730 $6,887
-----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................................ 0.90%+ 0.90% 0.90%+
Net investment income..................................... 2.27+ 2.09 2.42+
-----------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 0% 80% 1%
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISCIPLINED SMALL CAP STOCK PORTFOLIO 2000(1) 1999(2) 1998(3)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.68 $8.87 $10.00
-----------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.00* 0.04 0.03
Net realized and unrealized gain (loss)................... 0.38 1.77 (1.13)
-----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......................... 0.38 1.81 (1.10)
-----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.02) -- (0.03)
Net realized gains........................................ (0.63) -- --
Capital................................................... -- -- (0.00)*
-----------------------------------------------------------------------------------------------
Total Distributions......................................... (0.65) -- (0.03)
-----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $10.41 $10.68 $8.87
-----------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 3.69%++ 20.41% (11.04)%++
-----------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $20,450 $14,910 $5,162
-----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(6)............................................ 1.00%+ 1.00% 1.00%+
Net investment income..................................... 0.19+ 0.46 0.64+
-----------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 45% 94% 89%
-----------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
methods.
(3) For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
(4) Travelers Insurance has agreed to reimburse the Strategic Stock Portfolio
for expenses in the amounts of $4,795, $11,500 and $21,016 for the period
ended June 30, 2000, 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 $16,242, $44,300 and $45,146 for the period ended June 30,
2000, 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
----------------------------- -------------------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Strategic Stock Portfolio $0.00* $0.01 $0.03 0.98%+ 0.99% 1.51%+
Disciplined Small Cap Stock Portfolio 0.01 0.05 0.08 1.18+ 1.49 2.98+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses will
not exceed 0.90%.
(6) 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.
42
<PAGE> 44
--------------------------------------------------------------------------------
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 2000(1) 1999(2) 1998(2)(3)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $16.43 $10.05 $10.00
----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4).................................... (0.02) (0.04) (0.02)
Net realized and unrealized gain.......................... 3.95 6.46 0.07
----------------------------------------------------------------------------------------------------
Total Income From Operations................................ 3.93 6.42 0.05
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains........................................ (1.32) (0.04) --
----------------------------------------------------------------------------------------------------
Total Distributions......................................... (1.32) (0.04) --
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $19.04 $16.43 $10.05
----------------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 24.23%++ 64.17% 0.50%++
----------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $233,782 $94,124 $13,234
----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................................ 0.92%+ 1.00% 1.00%+
Net investment loss....................................... (0.28)+ (0.33) (0.25)+
----------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 76% 162% 100%
----------------------------------------------------------------------------------------------------
<CAPTION>
MFS RESEARCH PORTFOLIO 2000(1) 1999(2) 1998(3)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $13.06 $10.56 $10.00
----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)(4)........................... (0.00)* 0.00* 0.01
Net realized and unrealized gain.......................... 0.77 2.50 0.57
----------------------------------------------------------------------------------------------------
Total Income From Operations................................ 0.77 2.50 0.58
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... -- -- (0.02)
Net realized gains........................................ (0.20) -- --
Capital................................................... -- -- (0.00)*
----------------------------------------------------------------------------------------------------
Total Distributions......................................... (0.20) -- (0.02)
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $13.63 $13.06 $10.56
----------------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 5.92%++ 23.67% 5.77%++
----------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $216,596 $152,073 $37,870
----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................................ 0.96%+ 0.99% 1.00%+
Net investment income (loss).............................. (0.05)+ 0.02 0.42+
----------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 49% 85% 54%
----------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the average shares method.
(3) For the period from March 23, 1998 (commencement of operations) to December
31, 1998.
(4) Travelers Insurance has agreed to reimburse the MFS Mid Cap Growth Portfolio
for the expenses in the amounts of $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>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
43
<PAGE> 45
(This page intentionally left blank)
<PAGE> 46
Investment Advisers
TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC
Hartford, Connecticut
Independent Auditors
KPMG LLP
New York, New York
Custodians
PFPC TRUST COMPANY
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 (Semi-Annual) (8-00) Printed in U.S.A.
<PAGE> 47
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 2000
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> 48
THE TRAVELERS SERIES TRUST: ZERO COUPON BOND FUND PORTFOLIOS:
SERIES 2000 AND 2005
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for the Travelers Series Trust:
Zero Coupon Bond Fund Portfolios: Series 2000 and 2005 ("Portfolio(s)") for the
period ended June 30, 2000. This letter briefly discusses general economic and
market conditions and the investment strategies of the Portfolios. The
information provided represents the opinion of the manager and is not intended
to be a forecast of future results. Further, there is no assurance that certain
securities will remain in or out of the Portfolios.
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. 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
For the sixth consecutive time in the last year, the Federal Reserve Board
("Fed") acted to raise interest rates in May to slow the U.S. economy,
increasing the federal funds rate by 50 basis points to 6.5%. (The federal funds
rate is the interest rate that banks with excess reserves at a Fed district bank
charge other banks that need overnight loans. The federal funds rate often
points to the direction of U.S. interest rates.) The increase of the target
overnight interest rate marked its highest level in nine years and reflected Fed
action intended to address risks of an economy with higher inflationary
pressures.
The Fed continued to stress its concern that there is a disparity in the growth
of demand and potential supply, which could foster inflation and jeopardize the
economy's performance. In theory, higher rates could potentially hurt stocks,
because slower growth often hinders profits at the same time that alternative
investments become more attractive. Accordingly, many interest-rate sensitive
stocks experienced price declines after the recent decision.
In June, many investors were relieved after the Fed left interest rates
unchanged during its latest policy meeting. Although the central bank noted that
inflation risks persist, for the time being the Fed decided against further rate
increases. Generally, monetary policy takes time to filter through the economy
and the full effect of higher interest rates may not be felt for months.
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. Shareholders of the Zero
Coupon Bond Fund Portfolio Series 2000 will receive more information regarding
the Portfolio's maturity in the fall.
The Portfolios invest primarily in U.S. Treasury bonds that have a "locked-in"
rate of return. Zero coupon bonds, 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 upon 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 Portfolio 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 the duration
of each Portfolio.
1
<PAGE> 49
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
The Zero Coupon Bond Fund Portfolio Series 2000 returned 3.02% for the six
months ended June 30, 2000 versus the Merrill Lynch Zero Coupon 5-Year Index(1)
return of 3.02% for the same period.
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
The Zero Coupon Bond Fund Portfolio Series 2005 returned 5.54% for the six
months ended June 30, 2000 versus the Merrill Lynch Zero Coupon 10-Year Index(2)
total return of a 6.02% for the same period.
Our sincere thanks for investing in The Travelers Series Trust: Zero Coupon Bond
Fund Portfolios: Series 2000 and 2005. We look forward to serving your
investment needs in the new century.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 27, 2000
---------------
(1) Merrill Lynch Zero Coupon 5-Year Index is comprised of U.S. government
stripped securities that have a maturity of less than five years. An
investor cannot invest directly in an index.
(2) Merrill Lynch Zero Coupon 10-Year Index is comprised of U.S. government
stripped securities that have a maturity of less than ten years. An investor
cannot invest directly in an index.
2
<PAGE> 50
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/00+ 3.02%
Year Ended 6/30/00 5.20%
10/11/95* through 6/30/00 5.72%
CUMULATIVE TOTAL RETURN
-----------------------
10/11/95* through 6/30/00 30.06%
(*) Commencement of operations.
(+) Total return is not annualized, as
it may not be representative of the
total return for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made on October
11, 1995, assuming reinvestment of dividends, through 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
6/30/97 10841.00 10924.00
12/31/97 11359.00 11226.00
6/30/98 11748.00 11595.00
12/31/98 12220.00 12030.00
6/30/99 12363.00 12166.00
12/31/99 12625.00 12435.00
6/30/00 13006.00 12810.00
</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>
Six Months Ended 6/30/00+ 5.54%
Year Ended 6/30/00 4.65%
10/11/95 through 6/30/00 6.11%
CUMULATIVE TOTAL RETURN
-----------------------
10/11/95* through 6/30/00 32.34 %
(*) Commencement of operations.
(+) Total return is not annualized, as
it may not be representative of the
total return for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made on October
11, 1995, assuming reinvestment of dividends, through 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-YEAR
SERIES 2005 INDEX
------------------------------- ---------------------------------
<S> <C> <C>
10/11/95 $10000.00 $10000.00
12/31/95 10480.00 10687.00
12/31/96 10580.00 10584.00
6/30/97 10802.00 10829.00
12/31/97 11810.00 11101.00
6/30/98 12358.00 11642.00
12/31/98 13258.00 12542.00
6/30/99 12646.00 11903.00
12/31/99 12540.00 11820.00
6/30/00 13234.00 12532.00
</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.
3
<PAGE> 51
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 18.4%
$400,000 AAA U.S. Treasury Bill, zero coupon to yield 5.980% due
12/7/2000 (Cost -- $389,675).............................. $ 389,688
-----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.9%
18,388 AAA Federal Home Loan Mortgage Corp., zero coupon bond to yield
7.180% due 9/15/18 (Cost -- $18,199)...................... 17,962
-----------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 8.6%
-----------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 3.0%
65,000 AAA Exxon Capital Ventures, Inc., zero coupon guaranteed notes
to yield 6.630% due 2/15/01............................... 62,319
-----------------------------------------------------------------------------------------------
FOODS -- 2.9%
70,000 A+ Archer-Daniels-Midland Co., Debentures, zero coupon bond to
yield 6.320% due 5/1/02................................... 61,600
-----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.7%
56,000 AA- AT&T Corp., 9.650% due 10/1/03.............................. 57,400
-----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $184,478) 181,319
-----------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES -- 8.3%
-----------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.3%
65,000 A+ American Express Co., Bonds, zero coupon bond to yield
6.110% due 12/12/00....................................... 63,001
50,000 A+ IBM International Finance NV, Bonds, 6.250% due 10/10/00.... 49,843
-----------------------------------------------------------------------------------------------
112,844
-----------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT -- 3.0%
64,000 AA+ Kingdom of Sweden, Notes, zero coupon notes to yield 5.710%
due 7/31/00............................................... 63,648
-----------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (Cost -- $176,920) 176,492
-----------------------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS -- 16.5%
350,000 Federal National Mortgage Association, 6.460% due 7/6/00
(Cost -- $349,812)........................................ 349,812
-----------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $1,119,084) 1,115,273
-----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 47.3%
500,000 Chase Manhattan Bank, 6.250% due 7/3/00; Proceeds at
maturity -- $500,260; (Fully collateralized by U.S. Treasury
Notes; 7.125% due 2/15/23; Market value -- $512,438)........ 500,000
500,000 CS First Boston Bank, 6.550% due 7/3/00; Proceeds at
maturity -- $500,272; (Fully collateralized by U.S. Treasury
Notes; 6.250% due 1/31/02; Market value -- $510,228)........ 500,000
-----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $1,000,000) 1,000,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $2,119,084*) $2,115,273
-----------------------------------------------------------------------------------------------
</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> 52
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 81.1%
$1,350,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 8/15/05.......................$ 978,399
1,500,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 11/15/05...................... 1,085,385
450,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 5/15/07....................... 295,880
910,000 AAA U.S. Treasury Note, Stripped Principal Payment only, due 2/15/09....................... 536,318
--------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost -- $2,893,441) 2,895,982
--------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 9.0%
--------------------------------------------------------------------------------------------------------------------------
FOOD -- 7.3%
70,000 A+ Archer-Daniels-Midland Co., Debentures, zero coupon bond to yield 6.320% due 5/1/02.... 61,600
180,000 A+ Diageo PLC, Notes, zero coupon note to yield 7.070% due 1/6/04......................... 139,275
80,000 A+ General Mills Inc., zero coupon bond to yield 6.560% due 8/15/04....................... 59,900
--------------------------------------------------------------------------------------------------------------------------
260,775
--------------------------------------------------------------------------------------------------------------------------
INSURANCE -- 1.7%
80,000 AAA American International Group, zero coupon bond to yield 6.380% due 8/15/04............. 58,900
--------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $324,828) 319,675
--------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES -- 3.5%
--------------------------------------------------------------------------------------------------------------------------
BANKING -- 1.9%
75,000 A+ Chemical New York NV Corp., zero coupon bond to yield 6.620% due 2/16/02................. 66,460
--------------------------------------------------------------------------------------------------------------------------
OIL -- 1.6%
80,000 AAA Exxon Capital Corp., zero coupon note to yield 6.340% due 11/15/04..................... 58,678
--------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES (Cost -- $127,924) 125,138
--------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $3,346,193) 3,340,795
--------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.4%
230,000 CS First Boston Bank, 6.550% due 7/3/00; Proceeds at maturity -- $230,123; (Fully
collateralized by U.S. Treasury Bill due 1/31/02; Market value -- $235,175)
(Cost -- $230,000)................................................................... 230,000
--------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $3,576,193*) $3,570,795
--------------------------------------------------------------------------------------------------------------------------
</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> 53
--------------------------------------------------------------------------------
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> 54
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $1,119,084 and $3,346,193,
respectively).......................................... $1,115,273 $3,340,795
Repurchase agreements, at value (Cost -- $1,000,000 and
$230,000, respectively)................................ 1,000,000 230,000
Cash...................................................... 351,526 648
Dividends and interest receivable......................... 3,783 41
Receivable from affiliate................................. 28,654 30,250
---------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 2,499,236 3,601,734
---------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased.......................... 349,812 --
Management fees payable................................... 157 300
Administration fees payable............................... 105 160
Accrued expenses.......................................... 14,464 18,760
---------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 364,538 19,220
---------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $2,134,698 $3,582,514
---------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital........................................... $2,081,148 $3,479,876
Undistributed net investment income....................... 61,818 100,229
Accumulated net realized gain (loss) from security
transactions........................................... (4,457) 7,807
Net unrealized depreciation of investments................ (3,811) (5,398)
---------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $2,134,698 $3,582,514
---------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 206,313 335,054
---------------------------------------------------------------------------------------
NET ASSET VALUE............................................. $10.35 $10.69
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 55
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
ZERO COUPON ZERO COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
TOTAL INVESTMENT INCOME................................... $ 63,395 $102,673
------------------------------------------------------------------------------------------
EXPENSES:
Audit and legal........................................... 13,000 13,000
Shareholder and system servicing fees..................... 7,500 7,500
Shareholder communications................................ 4,000 5,500
Directors' fees........................................... 2,000 2,000
Management fees (Note 2).................................. 1,047 1,611
Administration fees (Note 2).............................. 628 959
Custody................................................... 600 600
Pricing service fees...................................... 450 450
Other..................................................... 500 446
------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 29,725 32,066
Less: Expense reimbursement (Note 2)...................... (28,154) (29,650)
------------------------------------------------------------------------------------------
NET EXPENSES.............................................. 1,571 2,416
------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 61,824 100,257
------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions (excluding
short-term securities):
Proceeds from sales.................................... 1,179,264 951,966
Cost of securities sold................................ 1,178,842 924,173
------------------------------------------------------------------------------------------
NET REALIZED GAIN......................................... 422 27,793
------------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period.................................... (3,500) (48,979)
End of period.......................................... (3,811) (5,398)
------------------------------------------------------------------------------------------
(INCREASE) DECREASE IN NET UNREALIZED DEPRECIATION........ (311) 43,581
------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS..................................... 111 71,374
------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $ 61,935 $171,631
------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 56
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE30, 2000
ZERO COUPON ZERO COUPON
BOND FUND BOND FUND
PORTFOLIO PORTFOLIO
SERIES 2000 SERIES 2005
---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 61,824 $ 100,257
Net realized gain......................................... 422 27,793
(Increase) decrease in net unrealized depreciation........ (311) 43,581
---------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 61,935 171,631
---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (111,375) (174,390)
---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (111,375) (174,390)
---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares.......................... 114,307 615,131
Net asset value of shares issued for reinvestment of
dividends.............................................. 111,375 174,390
Cost of shares reacquired................................. (100,547) (204,751)
---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 125,135 584,770
---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 75,695 582,011
NET ASSETS:
Beginning of period....................................... 2,059,003 3,000,503
---------------------------------------------------------------------------------------
END OF PERIOD*............................................ $2,134,698 $3,582,514
---------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $61,818 $100,229
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 57
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1999
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.
10
<PAGE> 58
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Zero Coupon Bond Fund Portfolio Series 2000 ("Series 2000") and Zero
Coupon Bond Fund Portfolio Series 2005 ("Series 2005"), (collectively,
"Portfolios"), are separate investment portfolios of The Travelers Series Trust
("Trust"). The Trust is a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company and consists of these portfolios and eighteen
other separate investment portfolios: U.S. Government Securities, Social
Awareness Stock, Utilities, Travelers Quality Bond, Lazard International Stock,
MFS Emerging Growth, Federated High Yield, Federated Stock, Large Cap, Equity
Income, Disciplined Mid Cap Stock, Convertible Bond, MFS Research, MFS Mid Cap
Growth, Disciplined Small Cap Stock, Strategic Stock, NWQ Large Cap and Jurika &
Voyles Core Equity Portfolios. Shares of the Trust are offered only to insurance
company separate accounts that fund certain variable annuity and variable life
insurance contracts. The financial statements and financial highlights for the
other portfolios are presented in separate shareholder reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales prices were reported and U.S. government
agencies and obligations are valued at the mean between the last reported bid
and ask prices or on the basis of quotations received from reputable brokers or
other recognized sources; (c) securities maturing within 60 days are valued at
cost plus accreted discount, or minus amortized premium, which approximates
value; (d) securities that have a maturity of 60 days or more are valued at
prices based on market quotations for securities of similar type, yield and
maturity; (e) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on an accrual basis; (f) gains or losses on
the sale of securities are calculated by using the specific identification
method; (g) dividends and distributions to shareholders are recorded on the
ex-dividend date; (h) the Portfolios intend to comply with the requirements of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; (i) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles; 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 Company LLC ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup"), 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"). 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney
Private Trust, another subsidiary of Citigroup, acts as the Trust's transfer
agent. CFTC receives account fees and asset-based fees that vary according to
the account size and type of account. During the six months ended June 30, 2000,
each Portfolio, Series 2000 and Series 2005, paid transfer agent fees of $2,500,
respectively to CFTC.
For the six months ended June 30, 2000, Travelers Insurance has agreed to
reimburse Series 2000 and Series 2005 for expenses in the amount of $28,154 and
$29,650, respectively.
11
<PAGE> 59
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS
During the six months ended June 30, 2000, 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................................................... $ 379,802 $1,423,309
Sales....................................................... 1,179,264 951,966
--------------------------------------------------------------------------------------
</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............................... $ 13 $ 15,593
Gross unrealized depreciation............................... (3,824) (20,991)
---------------------------------------------------------------------------------
Net unrealized depreciation................................. $(3,811) $ (5,398)
---------------------------------------------------------------------------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking-to-market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Portfolio records a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transactions and the Portfolio's basis in the contract.
The Portfolios enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 2000, 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> 60
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
SERIES 2000
Shares sold................................................. 10,649 6,519
Shares issued on reinvestment............................... 10,771 --
Shares reacquired........................................... (9,328) (2,538)
----------------------------------------------------------------------------------------------------
Net Increase................................................ 12,092 3,981
====================================================================================================
SERIES 2005
Shares sold................................................. 55,805 25,360
Shares issued on reinvestment............................... 16,390 --
Shares reacquired........................................... (18,829) (25,163)
----------------------------------------------------------------------------------------------------
Net Increase................................................ 53,366 197
====================================================================================================
</TABLE>
13
<PAGE> 61
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2000 2000(1) 1999 1998 1997 1996 1995(2)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $10.60 $10.26 $10.09 $9.96 $10.31 $10.00
---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3).............. 0.30 0.57 0.59 0.59 0.50 0.13
Net realized and unrealized gain
(loss)............................. 0.02 (0.23) 0.17 0.13 (0.22) 0.18
---------------------------------------------------------------------------------------------------------------------
Total Income From Operations............ 0.32 0.34 0.76 0.72 0.28 0.31
---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.57) -- (0.59) (0.59) (0.63) --
---------------------------------------------------------------------------------------------------------------------
Total Distributions..................... (0.57) -- (0.59) (0.59) (0.63) --
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $10.35 $10.60 $10.26 $10.09 $9.96 $10.31
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................ 3.02%++ 3.31% 7.58% 7.20% 2.76% 3.10%++
---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $2,135 $2,059 $1,953 $1,757 $1,565 $1,029
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)........................ 0.15%+ 0.15% 0.15% 0.15% 0.15% 0.15%+
Net investment income................. 5.90+ 5.61 5.74 5.88 5.74 5.61+
---------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................. 23% 0% 0% 29% 33% 34%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from October 11, 1995 (commencement of operations) to
December 31, 1995.
(3) For the six months ended June 30, 2000 and the years ended December 31,
1999, 1998, 1997, 1996 and the period ended December 31, 1995, Travelers
Insurance reimbursed the Portfolio for $28,154, $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>
2000 $0.14 2.84%+
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>
(4) 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> 62
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005 2000(1)(2) 1999 1998 1997 1996 1995(3)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $10.65 $11.26 $10.53 $9.97 $10.48 $10.00
------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................. 0.34 0.62 0.55 0.60 0.48 0.13
Net realized and unrealized gain (loss)... 0.25 (1.23) 0.74 0.56 (0.38) 0.35
------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......... 0.59 (0.61) 1.29 1.16 0.10 0.48
------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................... (0.55) -- (0.56) (0.60) (0.61) --
------------------------------------------------------------------------------------------------------------------------------
Total Distributions......................... (0.55) -- (0.56) (0.60) (0.61) --
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............. $10.69 $10.65 $11.26 $10.53 $9.97 $10.48
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN................................ 5.54%++ (5.42)% 12.26% 11.63% 0.90% 4.80%++
------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........... $3,583 $3,170 $2,357 $2,054 $1,050
------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................ 0.15%+ 0.15% 0.15% 0.15% 0.15% 0.15%+
Net investment income..................... 6.22+ 5.68 5.63 6.11 6.14 5.89+
------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................... 5% 18% 3% 9% 17% 23%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from October 11, 1995 (commencement of operations) to
December 31, 1995.
(4) For the six months ended June 30, 2000 and the years ended December 31,
1999, 1998, 1997, 1996 and the period ended December 31, 1995, Travelers
Insurance reimbursed the Portfolio for $29,650, $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>
2000 $0.10 1.99%+
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>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.15%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
15
<PAGE> 63
(This page intentionally left blank)
<PAGE> 64
Investment Adviser
TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC
Hartford, Connecticut
Independent Auditors
KPMG LLP
New York, New York
Custodian
PFPC TRUST COMPANY
This report is prepared for the general information of contract owners and is
not an offer of shares of Zero Coupon Bond Fund Portfolio Series 2000 and Zero
Coupon Bond Fund Portfolio Series 2005. It should not be used in connection with
any offer except in conjunction with the Prospectuses for the Variable Universal
Life Insurance products offered by The Travelers Insurance Company and The
Travelers Life and Annuity Company and the Prospectuses for the underlying
funds, which collectively contain all pertinent information, including the
applicable sales commissions.
VG-ZERO (Semi-Annual) (8-00) Printed in U.S.A.
<PAGE> 65
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 2000
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> 66
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for the Travelers Series
Trust -- NWQ Large Cap Portfolio and the Jurika & Voyles Core Equity Portfolio
("Portfolio(s)") for the period ended June 30, 2000. For your convenience, we
have summarized each of the Portfolios' investment strategy during the reporting
period and discussed some of the Portfolios' holdings in greater detail. The
information provided represents the opinion of the managers and is not intended
to be a forecast of future results. Further, there is no assurance that certain
securities will remain in or out of the Portfolios. We hope you find this report
useful and informative.
<TABLE>
<CAPTION>
The Performance of the Travelers Series Trust (1/1/00-6/30/00)(1)
TOTAL RETURN
-------------------------------------------------------------------------------------
<S> <C>
NWQ Large Cap Portfolio..................................... 0.42%
Jurika & Voyles Core Equity Portfolio....................... 4.57
</TABLE>
MARKET AND ECONOMIC OVERVIEW
Stocks declined in the second quarter of 2000, leaving many of the major indexes
down for the first half of the year as investors debated potential rate
increases by the Federal Reserve Board ("Fed"). Volatility continued to be a
major theme with both the Dow Jones Industrial Average ("DJIA")(2) and the
NASDAQ Composite Index ("NASDAQ")(3) registering record one-day point losses.
The breadth of the declines affected a wide range of stocks including many
small- and large-capitalization company stocks, growth stocks and value stocks.
(Growth stocks are shares of companies with historically strong and relatively
predictable earnings growth rates. Value stocks are shares of companies that are
believed to be undervalued but have positive longer-term business prospects.)
Momentum investing and dot.com stocks were out of favor, replaced in many cases
by a renewed interest in companies that many investors believed could provide
real earnings and had strong financials.
Concerns about higher interest rates peaked in mid-May, when the Fed raised
interest rates 50 basis points(4). The specter of rising rates was a catalyst
for the weak performance of all of the major indexes in the quarter ending June
30, 2000. The DJIA, which is dominated by Old Economy stocks, followed a
negative first quarter performance with a decline of 8.44% in the first six
months of 2000. (The Old Economy represents more established, "blue-chip"
companies.) The Standard & Poor's 500 Index ("S&P 500")(5) of large-company
stocks fell 0.43%, the Standard and Poor's MidCap 400 Index(6) of medium-size
company stocks advanced 8.97% and the Russell 2000 Index(7) of small-company
stocks returned 3.04% for the same period.
For the sixth consecutive time in the last year, the Fed acted to raise interest
rates in May to slow the U.S. economy, increasing the federal funds rate by 50
basis points to 6.5%. (The federal funds rate is the interest rate that banks
with excess reserves at a Fed district bank charge other banks that need
overnight loans. The fed funds rate, as it is called, often points to the
direction of U.S. interest rates.) The increase of the target overnight interest
rate marked its highest level in nine years and reflected Fed actions intended
to address risks of an economy with higher inflationary pressures.
The Fed continued to stress its concern that there is a disparity in the growth
of demand and potential supply, which could foster inflation and jeopardize the
economy's performance. In theory, higher rates may potentially hurt stocks,
because slower growth often hinders profits at the same time that alternative
investments become more attractive. Accordingly, many interest-rate sensitive
stocks experienced price declines after the recent decision.
---------------
1 Total return is not annualized, as it may not be representative of the total
return for the year. Also, 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 DJIA is a price-weighted average of 30 actively traded blue-chip stocks. An
investor cannot invest directly in an index.
3 The NASDAQ is a market value-weighted index that measures all domestic and
non-U.S. based securities listed on the NASDAQ stock market. An investor
cannot invest directly in an index.
4 A basis point is 0.01% or one one-hundredth of a percent.
5 The S&P 500 is a market capitalization measure of 500 widely held common
stocks. An investor cannot invest directly in an index.
6 The Standard & Poor's MidCap 400 Index is a market-value weighted index,
consisting of 400 domestic stocks chosen for market size liquidating and
industry group representation. An investor cannot invest directly in an index.
7 Russell 2000 Index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index. An investor cannot invest directly in an index.
1
<PAGE> 67
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
In June, many investors were relieved after the Fed left interest rates
unchanged during its latest policy meeting. Although the central bank noted that
inflation risks persist, the decision was made against more increases for the
time being. Generally, monetary policy takes time to filter through the economy
and the full effect of higher interest rates may not be felt for months.
PORTFOLIO UPDATES(8)
NWQ LARGE CAP PORTFOLIO
For the six months ended June 30, 2000, the NWQ Large Cap Portfolio
("Portfolio") posted a return of 0.42%. In comparison, the S&P 500 returned a
negative 0.43% for the same period.
During the period, there was a higher degree of turnover (i.e., number of times
an asset is replaced during a reporting period) than usual. The Portfolio's
manager added a number of new positions during the reporting period, such as
Tyco International (a diversified manufacturing and service company), CVS
Drugstores (a leader in the retail drugstore industry in the United States) and
Worldcom (broad range of communications, outsourcing and managed network
services).
During the reporting period, the Portfolio suffered from a few disappointments.
The most prominent was the decline in Staples (an office supply retail chain).
However, the manager maintained the Portfolio's position in Staples because he
believed the stock market overreacted to what he deemed to be the company's
short-term problems.
In several sectors, the manager eliminated positions where either the company
had posted disappointing earnings or the manager believed the industry outlook
was diminished in light of a more restrictive monetary policy. As a result, the
manager eliminated positions in UNUM (a major provider of group and individual
disability insurance in North America, the United Kingdom and Japan), Allstate
(engaged principally in the United States and Canada, in the property-liability
insurance, life insurance and annuity businesses) and Xerox (global company that
offers the widest array of document-related business solutions, products and
services).
Most of the proceeds from these sales were allocated to the energy sector. The
manager increased the Portfolio's position in Coastal Corp. and established
positions in Conoco, Inc. (following its spin off from duPont) and two oil
service companies, Weatherford International and Noble Drilling. The manager
believes oil prices should remain well above the $17-$19 price per barrel level
and since most stocks discount oil prices in this range, the manager anticipates
stronger than expected earnings gains from energy related companies in the
second half of 2000.
JURIKA & VOYLES CORE EQUITY PORTFOLIO
For the six months ended June 30, 2000, the Jurika & Voyles Core Equity
Portfolio ("Portfolio") returned 4.57%. In comparison, the S&P 500 returned a
negative 0.43% during the same period.
The managers seek to invest in what they believe to be quality companies with
the potential for growth in earnings or cash flow and have durable business
models. The managers look to purchase companies when they believe the company's
stock is undervalued relative to the market and/or peer group.
The managers decision to favor more defensive market sectors (i.e., sectors that
tend to be more stable than the average) contributed significantly to the
Portfolio's positive performance during the reporting period. During the first
quarter of 2000, the managers took substantial profits from the technology
sector, which reduced the Portfolio's weighting in technology to 13% versus
approximately 30% of the S&P 500. The Portfolio's modest exposure to the
technology sector benefited performance during the second quarter of 2000.
Because of the Portfolio's underweight position, the managers were able to take
advantage of the tech sell-off and increase the Portfolio's technology weighting
to 15% of the Portfolio.
Investors' fixation on technology stocks in the earlier part of the year created
opportunities for the managers to invest in out-of-favor sectors of the market
at what they deemed to be very reasonable values. In the healthcare sector, the
managers established positions in leading pharmaceutical companies Bristol-Myers
Squibb, Pharmacia & Upjohn and Pfizer.
As of June 30, 2000, the consumer sector represented the largest weighting in
the Portfolio. Throughout the reporting period, the managers added to their
positions in companies that they believed to have the potential to benefit from
increased
---------------
8 Please note the Portfolios holdings are subject to change and any discussion
of the holdings is as of June 30, 2000. Please refer to pages five through
nine for a complete list and percentage breakdown of the Portfolios' holdings.
2
<PAGE> 68
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
consumer spending, such as Sysco, Blockbuster Video, Southwest Airlines and
Brinker International. The Portfolio's holdings in the energy sector also
provided solid returns for the first half of 2000.
The managers' outlook for the future remains positive. While no guarantees can
be made, the managers expect little change in the overall stock market until
investors determine if the Fed can successfully engineer a "soft landing" or
whether a significant slowdown in the U.S. economy may be ahead.
Thank you for investing in the Travelers Series Trust. We look forward to
continuing to help you pursue your financial goals in the future.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 19, 2000
3
<PAGE> 69
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- NWQ LARGE CAP PORTFOLIO AS OF 6/30/00 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 0.42%
Year Ended 6/30/00 (8.26)%
7/20/98* through 6/30/00 0.11%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
7/20/98* through 6/30/00 0.21%
* Commencement of operations
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on July 20, 1998, assuming reinvestment of dividends,
through June 30, 2000. 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>
[PERFORMANCE CHART]
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
12/99 9979.00 12653.00
6/30/00 10021.00 12598.00
</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 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 4.57%
Year Ended 6/30/00 7.81%
7/20/98* through 6/30/00 9.30%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
7/20/98* through 6/30/00 18.92%
* Commencement of operations
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made at
inception on July 20, 1998, assuming reinvestment of dividends,
through June 30, 2000. 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>
[PERFORMANCE CHART]
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
12/99 11372.00 12653.00
6/30/00 11892.00 12598.00
</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.
4
<PAGE> 70
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
NWQ LARGE CAP PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.9%
-----------------------------------------------------------------------------------------
AUTO/TRACK PARTS AND EQUIPMENT -- 2.3%
11,000 Ford Motor Co. ............................................. $ 473,000
1,440 Visteon Corp. .............................................. 17,463
-----------------------------------------------------------------------------------------
490,463
-----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 6.2%
8,100 Federated Department Stores, Inc. (a) ...................... 273,375
10,600 Fortune Brands, Inc. ....................................... 244,462
18,500 Staples, Inc. (a) .......................................... 284,437
6,500 Time Warner, Inc. .......................................... 494,000
-----------------------------------------------------------------------------------------
1,296,274
-----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 7.1%
12,500 CVS Corp. .................................................. 500,000
28,300 Philip Morris Cos., Inc. ................................... 751,719
5,100 Unilever NV ................................................ 219,300
-----------------------------------------------------------------------------------------
1,471,019
-----------------------------------------------------------------------------------------
ELECTRICAL - INTEGRATED -- 2.0%
17,800 The Southern Co. ........................................... 414,962
-----------------------------------------------------------------------------------------
ENERGY -- 11.5%
9,500 Coastal Corp. .............................................. 578,312
16,100 Conoco, Inc., Class B Shares ............................... 395,456
7,700 Halliburton Co. ............................................ 363,344
11,600 Noble Drilling Corp. (a) ................................... 477,775
9,300 Union Pacific Resources Group, Inc. ........................ 204,600
9,400 Weatherford International, Inc. (a) ........................ 374,238
-----------------------------------------------------------------------------------------
2,393,725
-----------------------------------------------------------------------------------------
FINANCE -- 15.2%
4,800 American International Group, Inc. ......................... 564,000
11,600 Bank of America Corp. ...................................... 498,800
4,700 Bear Stearns Cos. Inc. ..................................... 195,638
9,600 Chase Manhattan Corp. ...................................... 442,200
8,400 Fannie Mae ................................................. 438,375
8,700 First Union Corp. .......................................... 215,869
6,500 Hartford Financial Services Group, Inc. .................... 363,594
11,900 Wells Fargo & Co. .......................................... 461,125
-----------------------------------------------------------------------------------------
3,179,601
-----------------------------------------------------------------------------------------
HEALTH -- 5.1%
4,400 Aetna, Inc. ................................................ 282,425
13,600 HCA - The Healthcare Corp. ................................. 413,100
13,900 Tenet Healthcare Corp. (a) ................................. 375,300
-----------------------------------------------------------------------------------------
1,070,825
-----------------------------------------------------------------------------------------
MATERIALS AND PROCESSING -- 6.1%
13,800 Air Products and Chemicals, Inc. ........................... 425,212
8,700 International Paper Co. .................................... 259,369
10,000 Praxair, Inc. .............................................. 374,375
5,900 Rohm and Hass Co. .......................................... 203,550
-----------------------------------------------------------------------------------------
1,262,506
-----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 71
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
NWQ LARGE CAP PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
OIL FIELD MACHINERY AND EQUIPMENT -- 0.9%
7,400 Grant Prideco, Inc. ........................................ $ 185,000
-----------------------------------------------------------------------------------------
OIL REFINING AND MARKETING -- 1.1%
7,900 Tosco Corp. ................................................ 223,669
-----------------------------------------------------------------------------------------
PRODUCER DURABLES -- 8.1%
9,800 Honeywell International, Inc. .............................. 330,138
9,900 Ingersoll-Rand Co. ......................................... 398,475
3,700 Textron, Inc. .............................................. 200,956
16,200 Tyco International Ltd. .................................... 767,475
-----------------------------------------------------------------------------------------
1,697,044
-----------------------------------------------------------------------------------------
TECHNOLOGY -- 14.6%
5,155 Agilent Technologies, Inc. (a) ............................. 380,209
10,100 Computer Associates International, Inc. .................... 516,994
6,700 Hewlett-Packard Co. ........................................ 836,663
10,100 Pitney Bowes, Inc. ......................................... 404,000
11,800 Texas Instruments, Inc. .................................... 810,512
5,500 Thomas & Betts Corp. ....................................... 105,188
-----------------------------------------------------------------------------------------
3,053,566
-----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 9.6%
11,495 AT&T Corp. ................................................. 363,529
8,100 Bell Atlantic Corp. ........................................ 411,581
7,600 BellSouth Corp. ............................................ 323,950
3,700 Telephone and Data Systems, Inc. ........................... 370,925
11,500 WorldCom, Inc. (a) ......................................... 527,563
-----------------------------------------------------------------------------------------
1,997,548
-----------------------------------------------------------------------------------------
TRANSPORTATION -- 4.1%
8,200 Burlington Northern Sante Fe Corp. ......................... 188,087
8,600 Carnival Corp. ............................................. 167,700
10,100 Delta Air Lines, Inc. ...................................... 510,681
-----------------------------------------------------------------------------------------
866,468
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $19,451,107).................... 19,602,670
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 6.1%
$1,272,000 Chase Securities Inc., 6.250% due 7/3/00; Proceeds at
maturity -- $1,272,662; (Fully collateralized by U.S.
Treasury Notes, 6.000% due 2/15/26; Market
value -- $1,298,237) (Cost -- $1,272,000)................. 1,272,000
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $20,723,107*)............ $20,874,670
-----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 72
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 92.2%
---------------------------------------------------------------------------------------
AIRLINES -- 4.1%
4,900 AMR Corp. .................................................. $ 129,544
15,575 Southwest Airlines Co. ..................................... 294,952
---------------------------------------------------------------------------------------
424,496
---------------------------------------------------------------------------------------
BANKS -- 2.2%
2,200 Comerica, Inc. ............................................. 98,725
2,300 Wachovia Corp. ............................................. 124,775
---------------------------------------------------------------------------------------
223,500
---------------------------------------------------------------------------------------
CHEMICALS -- 2.3%
5,400 OM Group, Inc. ............................................. 237,600
---------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 5.5%
4,900 Ecolab, Inc. ............................................... 191,406
10,000 Valassis Communications, Inc. .............................. 381,250
---------------------------------------------------------------------------------------
572,656
---------------------------------------------------------------------------------------
COMPUTERS -- 1.1%
1,800 Sandisk Corp. .............................................. 110,138
---------------------------------------------------------------------------------------
COSMETICS/PERSONAL CARE -- 2.9%
5,300 Kimberly Clark Corp. ....................................... 304,088
---------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICE -- 0.8%
5,350 CIT Group, Inc. ............................................ 86,938
---------------------------------------------------------------------------------------
ELECTRIC -- 3.7%
8,400 AES Corp. .................................................. 383,250
---------------------------------------------------------------------------------------
ELECTRONICS -- 1.3%
3,800 Parker-Hannifin Corp. ...................................... 130,150
---------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL -- 2.1%
13,300 Republic Services, Inc. (a)................................. 212,800
---------------------------------------------------------------------------------------
FOOD -- 6.9%
3,843 Albertson's, Inc. .......................................... 127,780
19,900 Hormel Foods Corp. ......................................... 334,569
6,000 Sysco Corp. ................................................ 252,750
---------------------------------------------------------------------------------------
715,099
---------------------------------------------------------------------------------------
HEALTHCARE -- 3.4%
5,000 Baxter International, Inc. ................................. 351,563
---------------------------------------------------------------------------------------
INSURANCE -- 0.5%
959 Radian Group, Inc. ......................................... 49,628
---------------------------------------------------------------------------------------
LEISURE TIME -- 2.2%
8,000 Sabre Holdings Corp. ....................................... 228,000
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 73
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
MACHINERY - DIVERSIFIED -- 3.7%
3,500 Cognex Corp. ............................................... $ 181,125
5,700 Deere & Co. ................................................ 210,900
---------------------------------------------------------------------------------------
392,025
---------------------------------------------------------------------------------------
MEDIA -- 4.7%
9,000 McGraw-Hill Cos., Inc. ..................................... 486,000
---------------------------------------------------------------------------------------
OIL AND GAS PRODUCERS -- 11.1%
3,500 Apache Corp. ............................................... 205,844
7,500 EOG Resources, Inc. ........................................ 251,250
6,500 Nabors Industries Inc. (a).................................. 270,156
11,800 Suncor Energy Inc. ......................................... 275,088
4,400 Santa Fe International Corp. ............................... 153,725
---------------------------------------------------------------------------------------
1,156,063
---------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.0%
4,900 Mylan Laboratories Inc. .................................... 89,425
4,400 Pfizer, Inc. ............................................... 211,200
2,261 Pharmacia Corp. ............................................ 116,865
---------------------------------------------------------------------------------------
417,490
---------------------------------------------------------------------------------------
PIPELINES -- 2.9%
4,600 Enron Corp. ................................................ 296,700
---------------------------------------------------------------------------------------
REITS -- 3.2%
1,600 Avalonbay Communities, Inc. ................................ 66,800
1,600 Equity Residential Property Trust........................... 73,600
5,900 Prologis Trust.............................................. 125,744
1,500 Spieker Properties Inc. .................................... 69,000
---------------------------------------------------------------------------------------
335,144
---------------------------------------------------------------------------------------
RETAIL -- 6.2%
23,500 Blockbuster, Inc., Class A Shares........................... 227,656
10,400 Brinker International, Inc. (a)............................. 304,200
3,400 Circuit City Stores - Circuit City Group.................... 112,838
---------------------------------------------------------------------------------------
644,694
---------------------------------------------------------------------------------------
SEMICONDUCTORS -- 6.2%
4,900 KLA-Tencor Corp. (a)........................................ 286,952
2,900 STMicroelectronics, NV...................................... 186,144
2,200 Texas Instruments Inc. ..................................... 151,113
---------------------------------------------------------------------------------------
624,209
---------------------------------------------------------------------------------------
SOFTWARE -- 5.8%
7,650 First Data Corp. ........................................... 379,631
12,900 Transaction Systems Architects, Inc., Class A Shares (a).... 220,913
---------------------------------------------------------------------------------------
600,544
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 74
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
JURIKA & VOYLES CORE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS EQUIPMENT -- 3.4%
700 Corning Inc. ............................................... $ 188,913
6,000 Motorola, Inc. ............................................. 174,375
---------------------------------------------------------------------------------------
363,288
---------------------------------------------------------------------------------------
TELEPHONE -- 2.0%
4,700 SBC Communications, Inc. ................................... 203,275
---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $8,452,514)..................... 9,549,338
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 7.8%
$808,000 Morgan Stanley Dean Witter & Co., 6.500% due 7/3/00;
Proceeds at maturity -- $808,435; (Fully collateralized by
U.S. Treasury Note, 13.875% due 5/15/11; Market value --
$824,252) (Cost -- $808,000).............................. 808,000
---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $9,260,514*)............. $10,357,338
---------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 75
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments -- Cost....................................... $20,723,107 $ 9,260,514
----------------------------------------------------------------------------------------
Investments -- Value...................................... $20,874,670 $10,357,338
Cash...................................................... 221 38,799
Receivable from affiliate................................. 18,597 18,124
Dividends and interest receivable......................... 29,491 9,543
----------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 20,922,979 10,423,804
----------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased.......................... 205,973 --
Investment advisory fees payable.......................... 13,714 6,483
Administration fees payable............................... 1,097 518
Accrued expenses.......................................... 19,219 18,939
----------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 240,003 25,940
----------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $20,682,976 $10,397,864
----------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital........................................... $20,741,433 $ 9,373,224
Undistributed net investment income....................... 101,005 25,181
Accumulated net realized loss from security
transactions........................................... (311,025) (97,365)
Net unrealized appreciation of investments................ 151,563 1,096,824
----------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $20,682,976 $10,397,864
----------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 2,111,550 912,902
----------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................. $9.80 $11.39
----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 76
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $ 43,318 $ 21,754
Dividends................................................. 159,953 51,835
Less: Foreign withholding tax............................. (606) (440)
---------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 202,665 73,149
---------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)......................... 76,677 36,630
Audit and legal........................................... 8,454 8,313
Shareholder and system servicing fees..................... 6,468 7,516
Administration fees (Note 2).............................. 6,134 2,930
Shareholder communications................................ 5,469 3,028
Trustees' fees............................................ 1,989 1,989
Custody................................................... 1,905 1,691
Other..................................................... 3,062 466
---------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 110,158 62,563
Less: Expense reimbursements (Note 2)..................... (8,666) (13,798)
---------------------------------------------------------------------------------------
NET EXPENSES.............................................. 101,492 48,765
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 101,173 24,384
---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions (excluding
short-term securities):
Proceeds from sales.................................... 6,863,713 3,189,438
Cost of securities sold................................ 6,671,664 3,291,410
---------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).................................. 192,049 (101,972)
---------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of period.................................... 352,037 585,706
End of period.......................................... 151,563 1,096,824
---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION........ (200,474) 511,118
---------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS.............................. (8,425) 409,146
---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $ 92,748 $ 433,530
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 77
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE
30, 2000
<TABLE>
<CAPTION>
JURIKA &
NWQ VOYLES
LARGE CAP CORE EQUITY
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 101,173 $ 24,384
Net realized gain (loss).................................. 192,049 (101,972)
Increase (decrease) in net unrealized appreciation........ (200,474) 511,118
----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 92,748 433,530
----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (179,214) (45,234)
Net realized gains........................................ (196,662) (357,922)
----------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (375,876) (403,156)
----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.......................... 3,202,261 1,233,594
Net asset value of shares issued for reinvestment of
dividends.............................................. 375,876 403,156
Cost of shares reacquired................................. (2,519,588) (475,290)
----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 1,058,549 1,161,460
----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 775,421 1,191,834
NET ASSETS:
Beginning of period....................................... 19,907,555 9,206,030
----------------------------------------------------------------------------------------
END OF PERIOD*............................................ $20,682,976 $10,397,864
----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $101,005 $25,181
----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 78
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) 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
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.
13
<PAGE> 79
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The NWQ Large Cap and Jurika & Voyles Core Equity Portfolios,
("Portfolio(s)") are separate investment portfolios of The Travelers Series
Trust ("Trust"). The Trust is a Massachusetts business trust registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company and consists of these portfolios and eighteen
other separate investment portfolios: Travelers Quality Bond, Lazard
International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock,
Disciplined Mid Cap Stock, U.S. Government Securities, Social Awareness Stock,
Utilities, Large Cap, Equity Income, Convertible Bond, MFS Research, MFS Mid Cap
Growth, Disciplined Small Cap Stock, Strategic Stock, Zero Coupon Bond Fund
Portfolio Series 2000 and Zero Coupon Bond Fund Portfolio Series 2005
Portfolios. Shares of the Trust are offered only to insurance company separate
accounts that fund certain variable annuity and variable life insurance
contracts. The financial statements and financial highlights for the other
portfolios are presented in separate 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 Company LLC ("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
14
<PAGE> 80
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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"), 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney
Private Trust Company, another subsidiary of Citigroup, acts as the Trust's
transfer agent. CFTC receives account fees and asset-based fees that vary
according to the size and type of account. For the six months ended June 30,
2000, NWQ and JV each paid transfer agent fees of $2,500 to CFTC.
For the six months ended June 30, 2000, Travelers Insurance reimbursed
expenses in the amounts of $8,666 and $13,798 for NWQ and JV, respectively.
For the six months ended June 30, 2000, Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, did not receive brokerage commissions. 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 six
months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
-------------------------------------------------------------------------------------
<S> <C> <C>
NWQ Large Cap Portfolio..................................... $7,570,192 $6,863,713
Jurika & Voyles Core Equity Portfolio....................... 4,051,458 3,189,438
-------------------------------------------------------------------------------------
</TABLE>
At June 30, 2000, 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..................................... $2,590,937 $(2,439,374) $ 151,563
Jurika & Voyles Core Equity Portfolio....................... 1,560,224 (463,400) 1,096,824
----------------------------------------------------------------------------------------------------------
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodians take possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
5. FUTURES CONTRACTS
The NWQ and JV Portfolios may from time to time enter into futures
contracts.
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the
15
<PAGE> 81
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
contract are recognized as unrealized gains or losses by "marking-to-market" on
a daily basis to reflect the market value of the contract at the end of each
day's trading. Variation margin payments are received or made and recognized as
assets due from or liabilities due to broker, depending upon whether unrealized
gains or losses are incurred. When the contract is closed, the Portfolios record
a realized gain or loss equal to the difference between the proceeds from (or
cost of) the closing transactions and the Portfolio's basis in the contract.
The Portfolios enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 2000, the Portfolios had no open futures contracts.
6. OPTIONS CONTRACTS
The NWQ and JV Portfolios may from time to time enter into options
contracts.
Premiums paid when put or call options are purchased by the Portfolios,
represent investments, which are "marked-to-market" daily. When a purchased
option expires, the Portfolios will realize a loss in the amount of the premium
paid. When the Portfolios enter into a closing sales transaction, the Portfolios
will realize a gain or loss depending on whether the proceeds from the closing
sales transactions are greater or less than the premium paid for the option.
When the Portfolios exercises a put option, it will realize a gain or loss from
the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Portfolios exercise a call
option, the cost of the security which the Portfolios purchase upon exercise
will be increased by the premium originally paid.
At June 30, 2000, 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 six months ended June 30, 2000, the Portfolios did not write any
options.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in U.S. companies and the U.S. government. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. government.
8. LENDING OF PORTFOLIO SECURITIES
The Portfolios have an agreement with their custodian whereby the custodian
may lend securities owned by a Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolios on securities lending are recorded
as interest income. Loans of securities by the Portfolios are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Portfolios maintain exposure for the
risk of any losses in the investments of amounts received as collateral.
At June 30, 2000, the Portfolios had no securities on loan.
16
<PAGE> 82
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
NWQ LARGE CAP PORTFOLIO:
Shares sold................................................. 323,201 1,155,790
Shares issued on reinvestment............................... 37,814 --
Shares reacquired........................................... (254,889) (45,158)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 106,126 1,110,632
-----------------------------------------------------------------------------------------------------
JURIKA & VOYLES CORE EQUITY PORTFOLIO:
Shares sold................................................. 106,504 251,624
Shares issued on reinvestment............................... 35,303 --
Shares reacquired........................................... (41,681) (39,371)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 100,126 212,253
-----------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 83
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
NWQ LARGE CAP PORTFOLIO 2000(1) 1999(2) 1998(3)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $9.93 $9.46 $10.00
----------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).................................. 0.04 0.13 0.05
Net realized and unrealized gain (loss)................... 0.00* 0.34 (0.54)
----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......................... 0.04 0.47 (0.49)
----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.08) -- (0.05)
Net realized gains........................................ (0.09) -- --
Capital................................................... -- -- (0.00)*
----------------------------------------------------------------------------------------------
Total Distributions......................................... (0.17) -- (0.05)
----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $9.80 $9.93 $9.46
----------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 0.42%++ 4.97% (4.94)%++
----------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $20,683 $19,908 $8,463
----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................................ 1.00%+ 0.99% 0.99%+
Net investment income..................................... 0.99+ 1.26 1.47+
----------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 36% 41% 2%
----------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
(4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $8,666, $24,087 and $17,700 for the period ended June 30,
2000, 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
------------------------------------------- -------------------------------
2000(1) 1999 1998(3) 2000(1) 1999 1998(3)
------- ----- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
$0.00* $0.02 $0.02 1.08%+ 1.15% 1.64%+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
18
<PAGE> 84
--------------------------------------------------------------------------------
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 2000(1) 1999(2) 1998(3)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $11.33 $10.27 $10.00
---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4).................................. 0.02 0.06 0.04
Net realized and unrealized gain.......................... 0.50 1.00 0.27
---------------------------------------------------------------------------------------------
Total Income From Operations................................ 0.52 1.06 0.31
---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.05) -- (0.04)
Net realized gains........................................ (0.41) -- --
Capital................................................... -- -- (0.00)*
---------------------------------------------------------------------------------------------
Total Distributions......................................... (0.46) -- (0.04)
---------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $11.39 $11.33 $10.27
---------------------------------------------------------------------------------------------
TOTAL RETURN................................................ 4.57%++ 10.32% 3.08%++
---------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........................... $10,398 $9,206 $6,169
---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................................ 1.00%+ 1.00% 0.99%+
Net investment income..................................... 0.50+ 0.62 1.01+
---------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................................... 35% 68% 26%
---------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from July 20, 1998 (commencement of operations) to December
31, 1998.
(4) Travelers Insurance has agreed to reimburse the Portfolio for expenses in
the amounts of $13,798, $29,926 and $20,200 for the period ended June 30,
2000, 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
------------------------------------------- ----------------------------------------
2000(1) 1999 1998(3) 2000(1) 1999 1998(3)
------- ----- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
$0.02 $0.04 $0.03 1.28%+ 1.40% 1.89%+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
19
<PAGE> 85
(This page intentionally left blank)
<PAGE> 86
Investment Advisers
TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC
Hartford, Connecticut
Independent Auditors
KPMG LLP
New York, New York
Custodians
PFPC TRUST COMPANY
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Series Trust: NWQ Large Cap and Jurika &
Voyles Core Equity Portfolios. It should not be used in connection with any
offer except in conjunction with the Prospectuses for the Variable Annuity and
Variable Universal Life Insurance products offered by The Travelers Insurance
Company or Travelers Life & Annuity Company and the Prospectuses for the
underlying funds, which collectively contain all pertinent information,
including the applicable sales commissions.
Series Trust (Semi-Annual) (8-00) Printed in U.S.A.
<PAGE> 87
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 2000
[UMBRELLA GRAPHIC]
THE TRAVELERS SERIES TRUST:
TRAVELERS QUALITY BOND PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life And Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 88
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-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 ("Portfolio(s)") for the
period ended June 30, 2000. The information provided represents the opinion of
the manager or managers and is not intended to be a forecast of future events, a
guarantee of future results nor investment advice. Further, there is no
assurance that certain securities will remain in or out of the Portfolios. For
your convenience, we have summarized each of the Portfolio's investment strategy
during the reporting period.
In addition, a comparison showing the growth of a hypothetical $10,000 invested
in each Portfolio since inception can be found in this report. Past performance
is not indicative of future results. We hope you find this report useful and
informative.
<TABLE>
<CAPTION>
The Performance of the Travelers Series Trust* (12/31/99-6/30/00)
---------------------------------------------------------------------
<S> <C>
Travelers Quality Bond Portfolio............................ 2.59%
Lazard International Stock Portfolio........................ (4.90)
MFS Emerging Growth Portfolio............................... (2.74)
Federated High Yield Portfolio.............................. (1.68)
Federated Stock Portfolio................................... (4.80)
Disciplined Mid Cap Stock Portfolio......................... 9.11
</TABLE>
U.S. MARKET OVERVIEW
Signs that the U.S. economy is returning to a more moderate growth path enabled
financial markets to recover in late May and June after suffering for most of
the first two months of the second quarter of 2000. The recovery included both
stock markets and credit risk areas of the U.S. bond markets. These markets
benefited by many investors thinking that the end of Federal Reserve Board
("Fed") monetary policy tightening was in sight. The bond market's forecast for
future short-term rates have now returned to where it was at the beginning of
this year.
The market's apparent recovery was preceded by a 50 basis point(1) increase in
federal funds rate(2) on May 16, 2000. The key to the change in future
tightening expectations was the May unemployment report, which actually saw a
decline in private sector jobs. There has also been a drop-off in the pace of
consumer spending, housing starts and auto sales. In addition, various inflation
measures and commodity prices improved from the levels of the first quarter of
2000.
The Fed continued to stress its concerns that there was a disparity in the
growth of demand and potential supply, which may foster inflation and jeopardize
the economy's performance. In theory, higher rates could potentially hurt
stocks, because slower growth often hinders profits at the same time that
alternative investments become more attractive on a relative basis. Accordingly,
many interest-rate sensitive stocks experienced price declines after the recent
Fed decision.
In June, many investors were relieved after the Fed left interest rates
unchanged during its latest policy meeting. Although the central bank noted that
inflation risks persist, the decision was made against more increases.
Generally, monetary policy takes time to filter through the economy and the full
effect of higher interest rates may not be felt for months.
---------------
* 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) A basis point is 0.01% or one one-hundredth of a percent.
(2) The federal funds rate is the interest rate that banks with excess reserves
at a Fed district bank charge other banks that need overnight loans. The fed
funds rate, as it is called, often points to the direction of U.S. interest
rates.
1
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
During the period, bonds outperformed stocks -- led by U.S. Treasuries,
mortgage-backed securities and municipal bonds. The Lehman Brothers
Government/Corporate Index(3) was up 4.18% versus a negative 0.43% return for
the Standard & Poor's 500 ("S&P 500")(4) during the reporting period. The Nasdaq
Composite Index(5) was down 2.54% for the same period.
INTERNATIONAL MARKETS OVERVIEW
During the reporting period, German stocks fell 7.28% coming after a solid first
quarter performance. Slight gains were recorded in France and Italy, 6.16% and
4.19%, respectively. However, losses were recorded in Britain where stocks
declined 11.72% over the period. Many analysts expect that increased merger and
acquisition activity among European telecommunications and technology companies
may bode well for stock performance for the remainder of 2000.
Also, high stock prices for European acquirers have enabled these companies to
pay large premiums for American takeover targets. The euro,(6) Europe's single
currency, continued to struggle against major currencies over the quarter,
closing at 95.48 cents.
In Japan, stocks fell 5.32% during the period. Despite a lackluster performance
by Japanese stocks, Japan's economy has been recovering this year and it is
expected that the country's central bank may raise interest rates in mid-July to
attempt to create a more normal interest rate environment and sustain the
economic recovery. During the first half of the year, Asian stocks were poor
performers as Thailand, Indonesia and Hong Kong dropped 34.57%, 43.51% and
13.05%, respectively.
TRAVELERS QUALITY BOND PORTFOLIO(7)
The Travelers Quality Bond Portfolio ("Portfolio") seeks current income,
moderate capital volatility and total return. For the six months ended June 30,
2000, the Portfolio returned 2.59%. In comparison, the Lehman Brothers
Government/Corporate Bond Index returned 4.18% for the same period. (Past
performance is not indicative of future results.)
The Portfolio had a gross return of 0.69% for the second quarter and the Lehman
Brothers Intermediate Government/ Corporate Index returned 1.69% for the same
period. The Portfolio was hurt by its exposure to financial and retail companies
that had some earnings surprises the past quarter.
U.S. Treasury yields in the one- to ten-year range fell in the second quarter
and the yield curve inversion became slightly less extreme, with two-year yields
ending at 6.36% (down 13 basis points) and thirty-year yields at 5.90% (up 6
basis points). (The yield curve is a graphical depiction of the relationship
between the yield on bonds of the same credit quality but different maturities.)
The 10-year U.S. Treasury yield was essentially flat at 6.02%. A slide in yields
that had begun in January bottomed in early April, as the market became
concerned about Fed actions, continued corporate and consumer borrowing demand
and earnings stability. The 10-year U.S. Treasury yield rose from under 5.80% at
that point to over 6.50%, where it hovered for most of May until it appeared
that the Fed's latest, 50 point, rate hike was sufficient in braking on the
economy. The U.S. Treasury 10-year yield then fell back to just north of 6.00%.
Corporate yields rose more than U.S. Treasuries due to credit concerns resulting
from higher rates. Thirty-year A-quality spreads widened from 200 to 250 basis
points in May before retracing most of the widening. On signs of a cool economy,
investment-grade bond spreads tightened uniformly for the first time this year
in June, but remain near historic peaks. Yields on 10-year Baa bonds closed at
around 8.20%.
---------------
(3) The Lehman Brothers Government/Corporate Bond Index is a combination of
publicly issued intermediate- and long-term U.S. government bonds and
corporate bonds. An investor cannot invest directly in an index.
(4) The S&P 500 is a market capitalization measure of 500 widely held common
stocks. An investor cannot invest directly in an index.
(5) The Nasdaq Composite Index is a market value-weighted index that measures
all domestic and non-U.S. based securities listed on the NASDAQ stock
market. An investor cannot invest directly in an index.
(6) The euro is the single currency of the European Monetary Union that was
adopted by Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the
Netherlands, Austria, Portugal and Finland on January 1, 1999.
(7) Please note that the Portfolio's holdings are subject to change and any
discussion of holdings is as of June 30, 2000. Please refer to pages 10
through 11 for a complete list and percentage breakdown of the Portfolio's
holdings.
2
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
After three-quarters of economic growth over 5%, it appears that the second
quarter may see an annual growth rate of less than 4%. While the second quarter
has shown cyclical weakness in recent years, there are good reasons to believe
that the Fed's policy tightening has caused a true braking of a speeding
economy. Among signs of slower growth released this past month were decreased
auto sales, a lower consumer confidence figure and concerns over bank loan
portfolio quality. For these reasons, the finance and retail sectors were
especially hit with concentrated concerns exhibited during the quarter. Yankee
and utility bonds lead the corporate issues during the second quarter and for
the year. (Yankee bonds are dollar-denominated bonds issued in the U.S. foreign
banks and corporations.) Due to some credit concerns and spreads widening that
have been proportional to risk, AAA quality bonds have outperformed
lower-quality counterparts this quarter and year-to-date.
Issuance in the investment-grade corporate bond market remains significantly
lower than that of 1999, partly due to both pre-Y2K funding and higher borrowing
costs. The combination of a tighter Fed monetary policy and high debt ratios
among both corporations and consumers could exacerbate an otherwise small
slowdown in economic activity. We are not overly concerned about a hard landing
at this time, though, and believe that the next two months leading up to the
August Federal Open Market Committee ("FOMC")(8) meeting should shed important
light on the lagging effects of the six rate hikes made by the Fed in the last
twelve months.
LAZARD INTERNATIONAL STOCK PORTFOLIO(9)
The Lazard International Stock Portfolio ("Portfolio") seeks capital
appreciation by investing primarily in the stocks of non-U.S. companies (i.e.,
incorporated or organized outside the U.S.). For the six months ended June 30,
2000, the Portfolio returned a negative 4.90%. In comparison, the Morgan Stanley
Capital International, Europe, Australia, Asia and Far East-GDP Weighted Index
("MSCI EAFE-GDP Weighted Index")(10) returned a negative 3.42% for the same
period. (Past performance is not indicative of future results.)
The Portfolio did not undergo significant changes over the last six months. The
manager's investment philosophy continued to be based on value creation through
bottom-up stock selection.(11) Although no guarantees can be made, the manager
believes this style of investing can add value by evaluating companies the same
way managements measure their own performance -- by focusing on financial
productivity and the long-term sustainability of investment returns.
Throughout the reporting period, the manager continued to find value
opportunities in the international markets. Several strategic purchases were
made during the period, including Fujitsu (Japan), a leading manufacturer of
software and services, computers and information processing and electronic
devices. At the time of purchase, the Fujitsu stock was trading at a discount to
the sum of the parts. Bayerische Hypo Vereinsbank AG (Germany), the leading
retail banking network in Germany, was also added to the Portfolio during the
first quarter of 2000.
Over the last year, the manager eliminated the Portfolio's position in Telecom
Italia (Italy), a provider of fixed and mobile telecommunications services and
British American Tobacco (U.K.), a manufacture and marketer of cigarettes and
tobacco products.
Going forward, the manager will continue to seek out relative value
opportunities among traditional companies whose competitive and strategic may
position them to excel through the transition to the "New Economy." (The New
Economy represents those companies in the technology, telecommunications and
Internet sectors.) In addition, the manager will attempt to take advantage of
the weakness in telecommunication, media and technology stocks by looking to
invest in
---------------
8 The FOMC is a policy-making body of the Federal Reserve System, the U.S.
Central bank, that is responsible for the formulation of policy design to
promote economic growth, full employment, stable prices and a sustainable
pattern of international trade and payments.
9 Please note that the Portfolio's holdings are subject to change and any
discussion of holdings is as of June 30, 2000. Please refer to pages 12
through 14 for a complete list and percentage breakdown of the Portfolio's
holdings.
10 The MSCI EAFE-GDP Weighted Index consists of the equity total returns for
Europe, Australia, New Zealand and the Far East, weighted based on each
country's gross domestic product. An investor cannot invest directly in an
index.
11 Bottom-up investing is a search for outstanding performance of individual
stocks before considering the impact of economic trends.
3
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
financially productive companies at what the manager deems to be attractive
prices. (Of course, no guarantees can be made that this will in fact occur.)
MFS EMERGING GROWTH PORTFOLIO(12)
The MFS Emerging Growth Portfolio ("Portfolio") seeks to provide long-term
growth of capital. For the six months ended June 30, 2000 the Portfolio returned
a negative 2.74%. In comparison, the Russell 2000 Index(13) and the S&P 500
Index returned 3.04% and negative 0.43%, respectively, for the same period.
(Past performance is not indicative of future results.)
Despite the extreme market volatility in the first half of 2000, the managers
viewed this as a period of opportunity. In the opinion of the managers, the
recent correction was positive for the market in general because it returned
many stocks to more sensible valuations. However, in some cases, investors sold
what the managers believed to be both healthy and unhealthy companies at the
same time, which offered the opportunity to buy healthy companies at what the
managers felt were more reasonable prices.
During the period, the managers created positions in companies that are somewhat
highly valued, even after the correction, but what their research team believes
may have strong prospects for high future earnings growth. The managers believe
this increased aggressiveness may help position the Portfolio to perform better
when and if market conditions improve.
Looking ahead at the Portfolio, the managers are working to capitalize on four
major ideas. First, they see the market broadening, both by industry and by
market capitalization. Second, they think the Portfolio's software holdings in
companies such as BMC Software and Compuware may potentially be strong
performers later on in the year as expanding Internet initiatives and other new
technologies force companies to upgrade their software in order remain
competitive. Third, the investment team believes that companies building the
Internet's infrastructure, such as VeriSign, Oracle, and Cisco, should continue
to prosper from Internet growth. A fourth current theme of the Portfolio is
business services companies such as First Data and Affiliated Computer Services.
Services provided by these companies make it possible for larger firms to
outsource, downsize and restructure in order to increase productivity and
earnings.
FEDERATED HIGH YIELD PORTFOLIO(14)
The Federated High Yield Portfolio ("Portfolio") seeks high current income by
investing primarily in lower-quality fixed-income securities. For the six months
ended June 30, 2000, the Portfolio returned a negative 1.68%. In comparison, the
Lehman Brothers High Yield Bond Index(15) returned a negative 1.21% and the
Lehman Brothers Aggregate Bond Index(16) returned 3.99% for the same period.
(Past performance is not indicative of future results.)
The high-yield bond market generated unattractive returns for the six-month
period ended June 30, 2000. The manager believes there are three primary reasons
that may have accounted for the underperformance during the reporting period.
First, credit risks remained high as default rates for high-yield securities
remained in the 4% to 5% range on an annualized basis. Second, the Fed campaign
to slow the U.S. economy created the possibility that a sustained business
slowdown may be near, which the manager believes may possibly lead to even
higher default rates. Lastly, during the reporting period, high-yield bond
mutual funds experienced substantial redemption activity from January 2000
through May 2000, which as a result,
---------------
12 Please note the Portfolio's holdings are subject to change and any discussion
of the holdings is as of June 30, 2000. Please refer to pages 15 through 20
for a complete list and percentage breakdown of the Portfolio's holdings.
13 The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index. An investor cannot invest directly in an
index.
14 Please note the Portfolio's holdings are subject to change and any discussion
of the holdings is as of June 30, 2000. Please refer to pages 21 through 30
for a complete list and percentage breakdown of the Portfolio's holdings.
15 The Lehman Brothers High Yield Bond Index is composed of fixed rate
noninvestment grade debt with at least one year remaining to maturity that
are dollar-dominated, nonconvertible and have an outstanding par value of at
least $100 million. An investor cannot invest directly in an index.
16 The Lehman Brothers 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. The Index is comprised of U.S. Treasury bonds, government agency
bonds, mortgage-backed securities and corporate bonds. An investor cannot
invest directly in an index.
4
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SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
placed considerable selling pressure on the high-yield market. However, a modest
reversal of shareholder activity did lead to a rally in the high-yield market.
During the period, the Portfolio performed in line with the Lehman Brothers High
Yield Bond Index. The Portfolio's underweight position in CCC-rated and below
securities aided its performance because that sector of the bond market
performed better than other types of high-yield bonds. The Portfolio's
overweight position in the chemical and telecommunications sectors contributed
positively to the Portfolio's performance during the reporting period.
The Portfolio's performance was adversely affected by its underweight position
in energy and gaming sector and BB-rated securities. Going forward, the manager
believes that credit quality and mutual fund flows should dictate the future
performance of high-yield securities in the near term. The manager anticipates
quoted default rates to remain in the 4% to 5% range for the remainder of 2000.
However, the manager believes the market has already felt the bulk of the
performance impact of deteriorating credit, with many issues currently trading
at distressed levels. Positive mutual fund inflows in June and the rally it
triggered illustrates fundamental value in the high-yield bond market. However,
according to the managers, for the rally to continue in the third quarter of
2000, credit conditions and mutual fund flows need to stabilize.
FEDERATED STOCK PORTFOLIO(17)
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 six months ended June 30,
2000, the Portfolio returned a negative 4.80%. In comparison, the S&P 500
returned a negative 0.43% and the Portfolio's Lipper Inc. ("Lipper") peer group
returned a negative 1.11%, respectively. Lipper is a major fund tracking
organization. (Past performance is not indicative of future results.)
The leading sectors that positively contributed to the Portfolio's performance
during the first half of 2000 were the healthcare, utilities and energy sectors.
While the lagging sectors included basic materials, consumer cyclicals and
communication services. Favorable relative security selection in consumer
staples (Nabisco Group Holdings, up 144% and Philip Morris, up 15%), energy
(ENSCO International, up 57%) and utilities (Reliant Energy, up 29%) positively
impacted the Portfolio's return during the period. However, offsetting these
positive performers was the Portfolio's underweight position as well as
unfavorable security selection in technology (Novell, down 66%), capital goods
(Honeywell, down 42%) and financial sectors (Conseco, down 43%).
The stock market outlook of the managers remains basically unchanged -- the
market appears overvalued by traditional measures, but the managers believe
there may still be pockets of reasonable valuations in the market. Despite the
recent correction in technology stocks, the managers think that the valuation
differentials between the "haves" and "have-nots" remain extremely wide. As of
the end of June, the technology sector in the S&P 500 Index was valued at 50x
forward earnings. This is historically unprecedented and remains amazing given
the historic difficulty of developing a sustainable, defendable and profitable
franchise in such a rapidly evolving and volatile sector.
Nearly one-half of the stocks in the Portfolio trades for less than 11x forward
12-month earnings, a huge discount to the S&P 500 Index which trades at 25x
forward 12-month earnings. However, the managers believe the catalyst to unwind
these valuation differences remains to be seen, and the specter of rising
interest rates and increased inflation may keep a damper on "Old Economy"
valuations. Many "New Economy" investors believe that technology shares may be
immune to rising rates, but "Old Economy" companies still generate the majority
of capital spending. (The Old Economy represents more established, "blue-chip"
companies. The New Economy represents those companies in the technology,
telecommunications and Internet sectors.)
In the managers' opinion, investors should recognize the disparities between the
market values and franchise values of many overlooked leading companies and
should consider these companies given their compelling risk and reward
characteristics.
---------------
17 Please note the Portfolio's holdings are subject to change and any discussion
of the holdings is as of June 30, 2000. Please refer to pages 31 through 34
for a complete list and percentage breakdown of the Portfolio's holdings.
5
<PAGE> 93
SEMI-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 six months ended June 30, 2000, the Portfolio returned 9.11%. In
comparison, the Standard & Poor's MidCap 400 Index ("S&P MidCap 400")(18)
returned 8.97% for the same period. (Past performance is not indicative of
future results.)
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
values. 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 Mid Cap 400.
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. (Of course, past performance is not
indicative of future results.)
In closing, thank you for your investment in The Travelers Series Trust. We look
forward to continuing to help you pursue your financial goals in the future.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 18, 2000
---------------
18 The S&P MidCap 400 is an unmanaged index comprised of mid- and small-cap
stocks. An investor cannot invest directly in an index.
6
<PAGE> 94
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- TRAVELERS QUALITY BOND PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 2.59%
Year Ended 6/30/00 3.65%
8/30/96* through 6/30/00 5.95%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 6/30/00 24.83%
</TABLE>
+ Total return is not annualized, as it may not be
representative of the total return for the year.
* Commencement of operations
This chart assumes an initial investment of $10,000 made on August 30, 1996,
assuming reinvestment of dividends, through June 30, 2000. The Lehman Brothers
Government/Corporate Bond Index is a weighted composite of the Lehman Brothers
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 Brothers Corporate Bond Index, which is comprised
of all public fixed-rate non-convertible investment-grade domestic corporate
debt, excluding collateralized mortgage obligations.
[TRAVELERS QUALITY PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
TRAVELERS QUALITY BOND PORTFOLIO GOVERNMENT/CORPORATE BOND INDEX
-------------------------------- -------------------------------
<S> <C> <C>
8/30/96 $ 10,000 $ 10,000
12/96 10,356 10,489
6/97 10,602 10,776
12/97 11,095 11,512
6/98 11,439 11,992
12/98 12,036 12,603
6/99 12,044 12,316
12/99 12,168 12,332
6/30/00 12,483 12,847
</TABLE>
--------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- LAZARD INTERNATIONAL STOCK PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ (4.90)%
Year Ended 6/30/00 10.65%
8/1/96* through 6/30/00 11.38%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/1/96* through 6/30/00 52.50%
</TABLE>
+ Total return is not annualized, as it may not be
representative of the total return for the year.
* Commencement of operations
This chart assumes an initial investment of $10,000 made on August
1, 1996, assuming reinvestment of dividends, through June 30, 2000.
The Morgan Stanley Capital International ("MSCI") EAFE-GDP Weighted
Index is a composite portfolio consisting of equity total returns
for the countries of Europe, Australia, New Zealand and the Far
East, weighted based on each country's gross domestic product.
[LAZARD INT. PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK
PORTFOLIO MSCI EAFE-GDP WEIGHTED INDEX
-------------------------- ----------------------------
<S> <C> <C>
8/1/96 $ 10,000 $ 10,000
12/96 10,780 10,533
6/97 11,859 11,815
12/97 11,696 11,180
6/98 13,507 13,649
12/98 13,168 14,149
6/99 13,782 14,711
12/99 16,026 17,965
6/30/00 15,250 17,350
</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> 95
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MFS EMERGING GROWTH PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/00+ (2.74)%
Year Ended 6/30/00 52.72%
8/30/96* through 6/30/00 32.76%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 6/30/00 196.55%
</TABLE>
+ Total return is not annualized, as it may not be
representative of the total return for the year.
* Commencement of operations
This chart assumes an initial investment of $10,000 made on August
30, 1996, assuming reinvestment of dividends, through June 30,
2000. 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 $ 10,000 $ 10,000 $ 10,000
12/96 10,600 11,441 10,931
6/97 11,726 13,798 12,046
12/97 12,843 15,258 13,376
6/98 15,593 17,961 14,035
12/98 17,250 19,642 13,036
6/99 19,417 22,074 14,246
12/99 30,491 23,773 15,806
6/30/00 29,655 23,671 16,286
</TABLE>
--------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- FEDERATED HIGH YIELD PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/00+ (1.68)%
Year Ended 6/30/00 (2.02)%
8/30/96* through 6/30/00 7.41%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 6/30/00 31.56%
</TABLE>
+ Total return is not annualized, as it may not be
representative of the total return for the year.
* Commencement of operations
This chart assumes an initial investment of $10,000 made on August
30, 1996, assuming reinvestment of dividends, through June 30,
2000. 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 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.
[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 $ 10,000 $ 10,000 $ 10,000
12/96 10,761 10,599 10,480
6/97 11,484 11,216 10,804
12/97 12,394 11,952 11,491
6/98 12,997 12,489 11,943
12/98 12,978 12,161 12,490
6/99 13,427 12,429 12,319
12/99 13,380 12,452 12,388
6/30/00 13,156 12,301 12,882
</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> 96
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- FEDERATED STOCK PORTFOLIO AS OF 6/30/00 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/00+ (4.80)%
Year Ended 6/30/00 (11.31)%
8/30/96* through 6/30/00 16.14%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
8/30/96* through 6/30/00 77.52%
</TABLE>
+ Total return is not annualized, as it may not be
representative of the total return for the year.
* Commencement of operations
This chart assumes an initial investment of $10,000 made on August
30, 1996, assuming reinvestment of dividends, through June 30,
2000. Standard & Poor's 500 Index is an unmanaged index composed of
500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange and over-the-counter
market.
[FEDERATED STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
FEDERATED STOCK PORTFOLIO STANDARD & POOR'S 500 INDEX
------------------------- ---------------------------
<S> <C> <C>
8/30/96 $ 10,000 $ 10,000
12/96 11,261 11,441
6/97 13,482 13,798
12/97 15,021 15,258
6/98 17,051 17,961
12/98 17,700 19,642
6/99 20,016 22,074
12/99 18,646 23,773
6/30/00 17,752 23,671
</TABLE>
--------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The returns do not reflect expenses associated with
the subaccount such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the performance shown.
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- DISCIPLINED MID CAP STOCK PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/00+ 9.11%
Year Ended 6/30/00 18.77%
4/1/97* through 6/30/00 22.72%
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
4/1/97* through 6/30/00 94.50%
</TABLE>
+ Total return is not annualized, as it may not be
representative of the total return for the year.
* Commencement of operations
This chart assumes an initial investment of $10,000 made on April
1, 1997, assuming reinvestment of dividends, through June 30, 2000.
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 PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
STANDARD & POOR'S MID CAP 400
DISCIPLINED MIDCAP STOCK PORTFOLIO INDEX
---------------------------------- -----------------------------
<S> <C> <C>
4/1/97 $ 10,000 $ 10,489
6/97 11,360 10,776
12/97 13,438 11,512
6/98 14,647 11,992
12/98 15,710 12,603
6/99 16,376 13,469
12/99 17,826 14,459
6/30/00 19,450 15,756
</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> 97
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 8.8%
U.S. Treasury Notes:
$1,603,000 AAA 3.625% due 7/15/02.......................................... $ 1,593,060
2,700,000 AAA 12.000% due 8/15/13......................................... 3,649,212
------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS (Cost --
$5,218,874)............................................... 5,242,272
------------------------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES -- 85.2%
------------------------------------------------------------------------------------------------------
BANKING -- 4.5%
2,700,000 A Bank of America, Sub. Notes, 7.800% due 2/15/00............. 2,689,875
------------------------------------------------------------------------------------------------------
ELECTRIC -- 8.3%
CMS Energy Corp., Sr. Notes:
2,000,000 BB 6.750% due 1/15/04.......................................... 1,852,500
650,000 BB 7.625% due 11/15/04......................................... 615,063
2,572,000 BBB UtiliCorp United Inc., Sr. Notes, 6.875% due 10/1/04........ 2,456,260
------------------------------------------------------------------------------------------------------
4,923,823
------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 19.4%
2,500,000 BBB+ Comdisco, Inc., Medium Term Notes, 7.250% due 9/20/01....... 2,453,125
1,500,000 BBB+ Finova Capital Corp., Notes, 6.250% due 11/1/02............. 1,305,000
2,950,000 A Household Finance Corp., Notes, 8.000% due 5/9/05........... 2,976,299
550,000 BBB+ MBNA America Bank, Notes, 6.000% due 12/26/00............... 546,563
1,600,000 BBB+ Orix Credit Alliance, Notes, 6.780% due 5/15/01............. 1,586,000
2,600,000 BBB Osprey Trust, Secured Notes, 8.310% due 1/15/03+............ 2,609,750
------------------------------------------------------------------------------------------------------
11,476,737
------------------------------------------------------------------------------------------------------
FOOD -- 4.8%
2,900,000 BBB Nabisco Inc., Debentures, 6.700% due 6/15/02................ 2,816,625
------------------------------------------------------------------------------------------------------
HEALTH CARE -- 2.6%
1,400,000 Ba2* Columbia HCA Healthcare, Medium Term Notes, 6.630% due
7/15/45................................................... 1,337,000
250,000 BBB Nationwide Health Properties, Inc., Medium Term Notes,
6.900% due 10/1/37........................................ 220,625
------------------------------------------------------------------------------------------------------
1,557,625
------------------------------------------------------------------------------------------------------
HOTELS -- 9.0%
2,950,000 BBB- Franchise Finance Corp. of America, Sr. Notes, 7.000% due
11/30/00.................................................. 2,939,115
2,400,000 BBB- Park Place Entertainment, Notes, 7.950% due 8/1/03.......... 2,370,000
------------------------------------------------------------------------------------------------------
5,309,115
------------------------------------------------------------------------------------------------------
INTEGRATED OIL -- 4.4%
2,600,000 BBB Noram Energy Corp., Notes, 7.500% due 8/1/00................ 2,600,000
------------------------------------------------------------------------------------------------------
INTEGRATED RADIO -- 1.7%
1,000,000 BBB- Clear Channel Communications, Inc., Notes, 7.875% due
6/15/05................................................... 1,006,250
------------------------------------------------------------------------------------------------------
PAPER & RELATED PRODUCTS -- 3.4%
2,000,000 BBB+ International Paper Co., Notes, 8.125% due 7/8/05........... 2,020,000
------------------------------------------------------------------------------------------------------
RAILROADS -- 1.9%
1,100,000 BBB Norfolk Southern Corp., Notes, 6.875% due 5/1/01............ 1,097,250
------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 4.4%
2,630,000 BBB CarrAmerica Realty Corp., Company Guaranteed, 6.625% due
10/1/00................................................... 2,621,347
------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 98
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
RETAIL -- 8.1%
$ 500,000 A- Dayton Hudson Corp., Notes, 6.800% due 10/1/01.............. $ 497,500
2,900,000 BBB+ Federated Department Store, Sr. Notes, 8.500% due 6/1/10.... 2,958,000
1,700,000 BB+ Saks Inc., Company Guaranteed, 7.500% due 12/1/10........... 1,391,875
------------------------------------------------------------------------------------------------------
4,847,375
------------------------------------------------------------------------------------------------------
SPECIAL PURPOSE ENTITY -- 4.7%
2,800,000 BBB PP&L Capital Funding, Medium Term Notes, 7.750% due
4/15/05................................................... 2,782,500
------------------------------------------------------------------------------------------------------
TELEPHONE -- 4.6%
2,700,000 AA- Deutsche Telekom International Finance, Bond, 8.000% due
6/15/10................................................... 2,727,378
------------------------------------------------------------------------------------------------------
YANKEE -- 3.4%
2,050,000 A- Telecom New Zealand, Sub. Notes, 6.250% due 2/10/03......... 1,999,304
------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $51,243,262)......... 50,475,204
------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.0%
3,522,000 Chase Securities Inc., 6.250% due 7/3/00; Proceeds at
maturity -- $3,523,834; (Fully collateralized by U.S.
Treasury Notes, 6.000% due 2/15/26;
Market value -- $3,593,962) (Cost -- $3,522,000).......... 3,522,000
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $59,984,136**)........... $59,239,476
------------------------------------------------------------------------------------------------------
</TABLE>
(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.
+ 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 44 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 99
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------------
<C> <S> <C>
STOCK -- 94.5%
------------------------------------------------------------------------------------------
AUSTRALIA -- 1.7%
202,106 Broken Hill Proprietary Co. Ltd. ........................... $ 2,396,548
------------------------------------------------------------------------------------------
DENMARK -- 1.2%
24,900 Tele Danmark A/S............................................ 1,682,952
------------------------------------------------------------------------------------------
FINLAND -- 0.9%
1 Metso Oyj................................................... 13
49,400 UPM-Kymmene Oyj............................................. 1,231,223
------------------------------------------------------------------------------------------
1,231,236
------------------------------------------------------------------------------------------
FRANCE -- 14.1%
62,000 Alcatel..................................................... 4,083,053
43,980 Aventis S.A. ............................................... 3,223,067
11,130 Axa......................................................... 1,760,418
21,800 BNP Paribas................................................. 2,106,462
7,680 Compagnie de Saint-Gobain*.................................. 1,042,464
5,400 Lagardere S.C.A. ........................................... 414,115
11,230 Suez Lyonnaise des Eaux S.A................................. 1,975,387
20,451 Total Fina Elf.............................................. 3,148,449
20,554 Vivendi S.A.*............................................... 1,821,544
------------------------------------------------------------------------------------------
19,574,959
------------------------------------------------------------------------------------------
GERMANY -- 8.2%
7,444 Allianz AG.................................................. 2,656,660
42,600 Bayerische Hypo-und Vereinsbank AG.......................... 2,797,286
60,800 Deutsche Lufthansa AG*...................................... 1,425,014
11,226 Deutsche Telecom AG......................................... 649,978
24,800 E.On AG..................................................... 1,200,549
12,800 Siemens AG.................................................. 1,923,944
44,450 Thyssen Krupp AG*........................................... 710,303
------------------------------------------------------------------------------------------
11,363,734
------------------------------------------------------------------------------------------
ITALY -- 2.5%
43,969 Alleanza Assicurazioni...................................... 582,072
231,200 ENI S.p.A.*................................................. 1,340,848
84,900 San Paolo-IMI S.p.A.*....................................... 1,506,436
------------------------------------------------------------------------------------------
3,429,356
------------------------------------------------------------------------------------------
JAPAN -- 22.9%
8,500 Acom Co., Ltd.*............................................. 716,602
52,000 Cannon, Inc. ............................................... 2,594,963
112,000 The Fuji Bank, Ltd.*........................................ 853,193
68,000 Fujitsu Ltd. ............................................... 2,358,679
143,000 The Industrial Bank of Japan, Ltd. ......................... 1,086,641
60,000 Kao Corp. .................................................. 1,837,343
98,000 Nippon Paper Industries Co., Ltd. .......................... 670,593
197 Nippon Telegraph and Telephone Corp. ....................... 2,625,301
674,000 Nissan Motor Co., Ltd.+..................................... 3,981,380
61 NTT DoCoMo, Inc. ........................................... 1,654,647
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 100
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------------
<C> <S> <C>
JAPAN -- 22.9% (CONTINUED)
14,500 ORIX CORP. ................................................. $ 2,144,747
217,000 The Sakura Bank, Ltd. ...................................... 1,503,341
47,000 Sankyo Co., Ltd. ........................................... 1,063,891
27,800 Sony Corp. ................................................. 2,601,200
50,000 Sumitomo Electric Industries, Ltd. ......................... 859,127
259,000 The Sumitomo Trust & Banking Co., Ltd. ..................... 1,848,164
24,000 TDK CORP. .................................................. 3,456,925
------------------------------------------------------------------------------------------
31,856,737
------------------------------------------------------------------------------------------
NETHERLANDS -- 6.6%
39,600 Akzo Nobel N.V. ............................................ 1,689,241
84,500 Getronics N.V. ............................................. 1,308,175
30,300 Heineken N.V. .............................................. 1,851,653
32,000 ING Groep N.V. ............................................. 2,171,800
44,448 Koninklijke Philips Electronics N.V. ....................... 2,104,823
------------------------------------------------------------------------------------------
9,125,692
------------------------------------------------------------------------------------------
PORTUGAL -- 1.6%
196,900 Portugal Telecom S.A. ...................................... 2,219,676
------------------------------------------------------------------------------------------
SINGAPORE -- 3.2%
295,700 Oversea-Chinese Banking Corp. Ltd. ......................... 2,035,182
379,624 United Overseas Bank Ltd. .................................. 2,481,059
------------------------------------------------------------------------------------------
4,516,241
------------------------------------------------------------------------------------------
SPAIN -- 2.8%
91,100 Empresa Nacional de Electricidad S.A.*...................... 1,771,891
97,789 Telefonica S.A.*+........................................... 2,109,158
------------------------------------------------------------------------------------------
3,881,049
------------------------------------------------------------------------------------------
SWEDEN -- 2.8%
67,900 Electrolux AB, Class B Shares............................... 1,056,704
110,600 Investor AB, Class B Shares................................. 1,519,474
94,400 Svenska Handelsbanken AB, Class A Shares.................... 1,377,630
------------------------------------------------------------------------------------------
3,953,808
------------------------------------------------------------------------------------------
SWITZERLAND -- 4.0%
15,675 ABB Ltd. ................................................... 1,882,138
179 Roche Holding AG............................................ 1,748,059
4,000 Zurich Allied AG............................................ 1,982,658
------------------------------------------------------------------------------------------
5,612,855
------------------------------------------------------------------------------------------
UNITED KINGDOM -- 22.0%
38,727 AstraZeneca Group PLC....................................... 1,809,273
246,800 BAE SYSTEMS PLC............................................. 1,538,414
257,800 BP Amoco PLC................................................ 2,474,380
129,633 British Energy PLC.......................................... 344,909
114,800 British Telecommunications PLC.............................. 1,484,205
240,196 Cadbury Schweppes PLC....................................... 1,579,064
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 101
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM -- 22.0% (CONTINUED)
197,974 Diageo PLC.................................................. $ 1,772,789
77,000 GKN PLC..................................................... 980,932
226,400 Great Universal Stores PLC.................................. 1,414,678
128,100 Halifax Group PLC........................................... 1,222,724
148,819 HSBC Holdings PLC........................................... 1,703,235
236,400 Imperial Chemical Industries PLC............................ 1,868,153
513,800 Invensys PLC................................................ 1,927,090
176,700 National Grid Group PLC..................................... 1,388,348
87,400 Prudential PLC.............................................. 1,280,799
181,600 Reed International PLC...................................... 1,583,554
187,200 SmithKline Beecham PLC...................................... 2,459,914
657,000 Tesco PLC................................................... 2,041,470
441,600 Vodafone AirTouch PLC....................................... 1,791,671
------------------------------------------------------------------------------------------
30,665,602
------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $120,885,956).......................... 131,510,445
------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 5.5%
$7,690,000 CIBC Wood Gundy Securities Inc., 6.450% due 7/3/00; Proceeds
at maturity -- $7,694,133;
(Fully collateralized by U.S. Treasury Notes, 5.500% due
8/31/01;
Market value -- $7,844,074) (Cost -- $7,690,000).......... 7,690,000
------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $128,575,956**).......... $139,200,445
------------------------------------------------------------------------------------------
</TABLE>
* All or a portion of this security is on loan (See Note 9).
+ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 102
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.5%
----------------------------------------------------------------------------------------
BANKS -- 0.4%
4,100 Comerica, Inc. ............................................. $ 183,987
300 First Tennessee National Corp. ............................. 4,968
21,900 Mellon Financial Corp. ..................................... 797,981
17,300 PNC Financial Services Group................................ 810,937
2,500 State Street Corp. ......................................... 265,156
----------------------------------------------------------------------------------------
2,063,029
----------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.9%
47,700 Amgen Inc.*................................................. 3,350,925
1,900 BioSphere Medical Inc.*..................................... 26,600
10,300 Biotech Holders Trust....................................... 1,833,400
15,800 Genentech, Inc.*............................................ 2,717,600
700 Human Genome Sciences, Inc.*................................ 93,362
27,500 Immunex Corp.*.............................................. 1,359,531
----------------------------------------------------------------------------------------
9,381,418
----------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.3%
59,100 Automatic Data Processing, Inc. ............................ 3,165,543
13,230 Cendant Corp.*.............................................. 185,220
31,600 First Data Corp. ........................................... 1,568,150
17,850 Learning Tree International, Inc.*.......................... 1,093,312
750 Quanta Services, Inc.*...................................... 41,250
----------------------------------------------------------------------------------------
6,053,475
----------------------------------------------------------------------------------------
COMPUTERS -- 6.2%
6,000 Brocade Communications Systems, Inc.*....................... 1,100,906
17,600 Check Point Software Technologies Ltd.*..................... 3,726,800
24,400 Compaq Computer Corp. ...................................... 623,725
33,600 Computer Sciences Corp.*.................................... 2,509,500
32,500 Dell Computer Corp.*........................................ 1,602,656
110,700 EMC Corp.*.................................................. 8,516,981
1,100 Internet Commerce Corp., Class A Shares*.................... 15,950
3,300 Redback Networks Inc.*...................................... 587,400
11,300 Seagate Technology, Inc.*................................... 621,500
72,200 Sun Microsystems, Inc.*..................................... 6,565,687
34,600 VERITAS Software Corp.*..................................... 3,910,340
----------------------------------------------------------------------------------------
29,781,445
----------------------------------------------------------------------------------------
COSMETICS & TOILETRIES -- 0.0%
8,400 Carson, Inc.*............................................... 37,800
----------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE -- 0.0%
700 United Stationers, Inc.*.................................... 22,662
----------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING -- 3.8%
47,800 General Electric, Co. ...................................... 2,533,400
329,062 Tyco International, Ltd. ................................... 15,589,312
----------------------------------------------------------------------------------------
18,122,712
----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 103
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC -- 1.6%
36,400 The AES Corp.*.............................................. $ 1,660,750
95,200 Calpine Corp.*.............................................. 6,259,400
----------------------------------------------------------------------------------------
7,920,150
----------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.1%
520 Capstone Turbine Corp.*..................................... 23,432
1,600 Conductus, Inc.*............................................ 31,600
4,100 Emerson Electric Co. ....................................... 247,537
----------------------------------------------------------------------------------------
302,569
----------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS - SEMICONDUCTORS -- 16.0%
122,100 Altera Corp.*............................................... 12,446,568
92,000 Analog Devices, Inc.*....................................... 6,992,000
17,500 Applied Materials, Inc.*.................................... 1,585,937
147,200 ARM Holdings PLC ADR*....................................... 4,839,200
26,800 Atmel Corp.*................................................ 988,250
400 ATMI, Inc.*................................................. 18,600
600 Burr-Brown Corp.*........................................... 52,012
106,400 Intel Corp. ................................................ 14,224,350
35,000 LAM Research Corp.*......................................... 1,312,500
58,800 LSI Logic Corp.*............................................ 3,182,550
1,200 LTX Corp.*.................................................. 41,925
400 Marvell Technology Group, Ltd.*............................. 22,800
181,100 Micron Technology, Inc.*.................................... 15,948,118
52,000 National Semiconductor Corp.*............................... 2,951,000
5,000 Novellus Systems, Inc.*..................................... 282,812
470 Phototronics, Inc.*......................................... 13,336
6,100 PMC-Sierra Inc.*............................................ 1,083,893
27,000 Teradyne, Inc.*............................................. 1,984,500
9,900 Texas Instruments, Inc. .................................... 680,006
102,500 Xilinx, Inc.*............................................... 8,462,656
----------------------------------------------------------------------------------------
77,113,013
----------------------------------------------------------------------------------------
ELECTRONICS -- 2.8%
800 Credence Systems Corp.*..................................... 44,150
42,780 Flextronics International Ltd.*............................. 2,938,451
5,860 Jabil Circuits, Inc.*....................................... 290,802
43,500 Linear Technology Corp. .................................... 2,781,281
420 Maxim Integrated Products, Inc.*............................ 28,533
800 Micrel, Inc.*............................................... 34,750
450 Microchip Technology, Inc.*................................. 26,219
45,800 PE Corp.-PE Biosystems Group................................ 3,017,075
25,300 Sanmina Corp.*.............................................. 2,163,150
2,600 SIPEX Corp.*................................................ 71,989
33,100 Solectron Corp.*............................................ 1,386,062
6,800 Waters Corp.*............................................... 848,725
----------------------------------------------------------------------------------------
13,631,187
----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 104
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT -- 0.0%
716 International Speedway Corp., Class A Shares................ $ 29,624
450 Pegasus Solutions Inc.*..................................... 4,893
----------------------------------------------------------------------------------------
34,517
----------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 1.1%
15,500 American Express Co. ....................................... 807,937
16,900 Household International, Inc. .............................. 702,406
25,200 Merrill Lynch & Co., Inc. .................................. 2,898,000
8,500 Providian Financial Corp. .................................. 765,000
600 Waddell & Reed Financial, Inc., Class A Shares.............. 19,687
----------------------------------------------------------------------------------------
5,193,030
----------------------------------------------------------------------------------------
FOOD & BEVERAGES -- 1.9%
28,200 Albertson's, Inc. .......................................... 937,650
11,800 Anheuser-Busch Cos., Inc. .................................. 881,312
17,600 The Coca-Cola Co. .......................................... 1,010,900
22,600 The Kroger Co.*............................................. 498,612
125,500 Safeway Inc.*............................................... 5,663,187
----------------------------------------------------------------------------------------
8,991,661
----------------------------------------------------------------------------------------
HEALTH CARE -- 0.4%
9,300 Allergan, Inc. ............................................. 692,850
11,600 Bausch & Lomb Inc. ......................................... 897,550
5,100 BioSource International, Inc.*.............................. 113,475
3,500 Quest Diagnostics Inc.*..................................... 250,468
----------------------------------------------------------------------------------------
1,954,343
----------------------------------------------------------------------------------------
INSURANCE -- 0.7%
14,100 American International Group, Inc. ......................... 1,656,750
26,500 AXA Financial, Inc. ........................................ 901,000
12,800 The Hartford Financial Services Group, Inc. ................ 716,000
----------------------------------------------------------------------------------------
3,273,750
----------------------------------------------------------------------------------------
MEDIA -- 1.3%
73,800 AT&T Corp. -- Liberty Media Group, Class A Shares*.......... 1,789,650
16,500 Clear Channel Communications, Inc.*......................... 1,237,500
41,200 USA Networks, Inc.*......................................... 890,950
32,400 Viacom Inc., Class B Shares*................................ 2,209,275
----------------------------------------------------------------------------------------
6,127,375
----------------------------------------------------------------------------------------
NETWORKING PRODUCTS -- 6.3%
22,600 Cabletron Systems, Inc.*.................................... 570,650
419,708 Cisco Systems, Inc.*........................................ 26,677,699
3,900 Emulex Corp.*............................................... 256,181
2,900 Foundry Networks, Inc.*..................................... 320,450
16,300 Juniper Networks, Inc.*..................................... 2,372,668
----------------------------------------------------------------------------------------
30,197,648
----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 105
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
OIL & GAS PRODUCTION -- 2.3%
24,600 Anadarko Petroleum Corp. ................................... $ 1,213,087
14,500 Apache Corp. ............................................... 852,781
36,500 The Coastal Corp. .......................................... 2,221,937
11,300 Devon Energy Corp. ......................................... 634,918
102,600 EOG Resources, Inc. ........................................ 3,437,100
26,900 Global Marine Inc.*......................................... 758,243
26,700 Noble Drilling Corp.*....................................... 1,099,706
11,900 Transocean Sedco Forex Inc. ................................ 635,906
----------------------------------------------------------------------------------------
10,853,678
----------------------------------------------------------------------------------------
OIL & GAS SERVICES -- 0.7%
56,000 Baker Hughes Inc. .......................................... 1,792,000
9,800 Grant Prideco, Inc.*........................................ 245,000
15,700 Halliburton Co. ............................................ 740,843
5,200 Noble Affiliates, Inc. ..................................... 193,700
9,800 Weatherford International, Inc.*............................ 390,162
----------------------------------------------------------------------------------------
3,361,705
----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.0%
53,500 Abbott Laboratories......................................... 2,384,093
2,400 Abgenix, Inc.*.............................................. 287,662
1,000 Alkermes, Inc.*............................................. 47,125
4,400 ALZA Corp.*................................................. 260,150
9,200 American Home Products Corp. ............................... 540,500
2,100 Andrx Corp.*................................................ 134,235
22,400 Bristol-Myers Squibb Co. ................................... 1,304,800
16,100 Cardinal Health, Inc. ...................................... 1,191,400
9,800 MedImunne, Inc.*............................................ 725,200
102,125 Pfizer, Inc. ............................................... 4,902,000
9,300 Pharmacia Corp. ............................................ 480,693
51,200 Sepracor, Inc.*............................................. 6,176,000
15,500 Teva Pharmaceutical Industries Ltd. ADR..................... 859,281
----------------------------------------------------------------------------------------
19,293,139
----------------------------------------------------------------------------------------
PIPELINES -- 0.5%
19,200 Dynegy Inc., Class A Shares................................. 1,311,600
21,000 Enron Corp. ................................................ 1,354,500
----------------------------------------------------------------------------------------
2,666,100
----------------------------------------------------------------------------------------
RETAIL -- 1.4%
32,900 CVS Corp. .................................................. 1,316,000
300 Insight Enterprises, Inc.*.................................. 17,793
4,400 Kohl's Corp.*............................................... 244,750
41,900 RadioShack Corp. ........................................... 1,985,012
53,800 Wal-Mart Stores, Inc. ...................................... 3,100,225
----------------------------------------------------------------------------------------
6,663,780
----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 106
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOAN -- 0.2%
9,800 Charter One Financial, Inc. ................................ $ 225,400
20,300 Golden West Financial Corp. ................................ 828,493
----------------------------------------------------------------------------------------
1,053,893
----------------------------------------------------------------------------------------
SHIPBUILDING -- 0.0%
100 Newport News Shipbuilding Inc. ............................. 3,675
----------------------------------------------------------------------------------------
SOFTWARE -- 19.1%
700 Allscripts, Inc.*........................................... 16,100
2,800 Ariba, Inc.*................................................ 274,531
1,300 Art Technology Group, Inc.*................................. 131,218
2,300 BEA Systems, Inc.*.......................................... 113,706
93,802 BMC Software, Inc.*......................................... 3,422,307
24,310 Cadence Design System, Inc.*................................ 495,316
43,502 Computer Associates International, Inc. .................... 2,226,758
3,000 E.piphany, Inc.*............................................ 321,562
5,600 Fiserv, Inc.*............................................... 242,200
6,400 i2 Technologies, Inc.*...................................... 667,300
2,500 IMRglobal, Corp.*........................................... 32,656
660 Lightspan Inc.*............................................. 3,630
8,500 Mercury Interactive Corp.*.................................. 822,375
216,600 Microsoft Corp.*............................................ 17,328,000
652,300 Oracle Corp.*............................................... 54,833,978
1,900 SAP AG ADR.................................................. 89,181
16,400 Siebel Systems, Inc.*....................................... 2,682,425
45,878 VeriSign, Inc.*............................................. 8,097,378
----------------------------------------------------------------------------------------
91,800,621
----------------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 15.2%
45,640 ADC Telecommunications, Inc.*............................... 3,828,055
16,000 Alcatel S.A. ADR............................................ 1,064,000
56,900 CIENA Corp.*................................................ 9,484,518
13,600 Comverse Technology, Inc.*.................................. 1,264,800
45,000 Corning, Inc. .............................................. 12,144,385
226,400 Ericsson LM Telephone ADR................................... 4,528,000
26,716 JDS Uniphase Corp.*......................................... 3,202,580
4,100 Lucent Technologies, Inc. .................................. 242,925
150,500 Metromedia Fiber Network, Inc.*............................. 5,972,968
6,200 Motorola, Inc. ............................................. 180,187
4,000 MRV Communications, Inc.*................................... 269,000
320 New Focus, Inc.*............................................ 26,280
136,600 Nokia Oyj ADR, Class A Shares............................... 6,821,462
264,970 Nortel Networks Corp. ...................................... 18,084,212
700 Scientific-Atlanta, Inc. ................................... 52,150
19,200 Sycamore Networks, Inc.*.................................... 2,119,200
53,900 Tellabs, Inc.*.............................................. 3,688,781
----------------------------------------------------------------------------------------
72,973,503
----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 107
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION SERVICES -- 2.9%
800 Adelphia Business Solutions, Inc.*.......................... $ 18,550
1,300 Amdocs Ltd.*................................................ 99,775
1,000 Call-Net Enterprises, Inc., Class B Shares*................. 2,437
4,700 China Unicom Ltd. ADR*...................................... 99,875
54,000 Global Crossing Ltd.*....................................... 1,420,875
700 ITC DeltaCom, Inc.*......................................... 15,618
1,800 MGC Communications, Inc.*................................... 107,887
19,100 Nextel Communications, Inc.*................................ 1,168,681
87,800 Sprint Corp. (PCS Group)*................................... 5,224,100
48,146 VoiceStream Wireless Corp.*................................. 5,599,229
----------------------------------------------------------------------------------------
13,757,027
----------------------------------------------------------------------------------------
TELEPHONE -- 1.4%
13,200 Intermedia Communications Inc.*............................. 392,700
80,996 MCI WorldCom, Inc.*......................................... 3,715,691
2,600 NEXTLINK Communications, Inc., Class A Shares*.............. 98,637
50,500 Sprint, Corp. (FON Group)................................... 2,575,500
----------------------------------------------------------------------------------------
6,782,528
----------------------------------------------------------------------------------------
TOBACCO -- 0.0%
6,000 Philip Morris Cos., Inc. ................................... 159,375
----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $334,456,437)................... 449,570,808
----------------------------------------------------------------------------------------
FOREIGN STOCK -- 1.8%
----------------------------------------------------------------------------------------
FINLAND -- 0.4%
37,500 Sonera Oyj.................................................. 1,716,490
----------------------------------------------------------------------------------------
FRANCE -- 0.8%
5,865 Bouygues SA*................................................ 3,935,525
----------------------------------------------------------------------------------------
UNITED KINGDOM -- 0.6%
27,000 ARM Holdings PLC ADR*....................................... 287,965
656,264 Vodafone AirTouch PLC....................................... 2,662,611
----------------------------------------------------------------------------------------
2,950,576
----------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $8,385,714).................... 8,602,591
----------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
----------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 4.7%
$22,700,000 Federal Home Loan Bank, Discount Notes, 6.540% due 7/3/00
(Cost -- $22,691,752)....................................... 22,691,752
----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $365,533,903**).......... $480,865,151
----------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 108
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS & NOTES -- 94.3%
-----------------------------------------------------------------------------------------------------
ADVERTISING -- 0.4%
$ 175,000 B Sitel Corp., Company Guaranteed Notes, 9.250% due 3/15/06... $ 160,125
-----------------------------------------------------------------------------------------------------
AEROSPACE -- 0.3%
175,000 B- Fairchild Corp., Company Guaranteed Notes, 10.750% due
4/15/09................................................... 122,063
-----------------------------------------------------------------------------------------------------
APPAREL -- 0.6%
225,000 B- GFSI, Inc., Sr. Sub. Notes, 9.625% due 3/1/07............... 165,375
Pillowtex Corp., Company Guaranteed Notes:
100,000 CC 10.000% due 11/15/06........................................ 35,500
175,000 CC 9.000% due 12/15/07......................................... 61,250
-----------------------------------------------------------------------------------------------------
262,125
-----------------------------------------------------------------------------------------------------
AUTO MANUFACTURERS -- 0.4%
200,000 B Motor Coach Industries International Inc., Company
Guaranteed Notes, 11.250% due 5/1/09...................... 171,250
-----------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT -- 3.9%
125,000 B- Accuride Corp., Sr. Sub. Notes, 9.250% due 2/1/08........... 105,625
200,000 B- Aftermarket Technology Corp., Sr. Sub. Notes, 12.000% due
8/1/04.................................................... 200,750
350,000 B+ American Axle & Manufacturing Inc., Company Guaranteed
Notes, 9.750% due 3/1/09.................................. 328,125
100,000 B Collins Aikman Products Co., Guaranteed Sr. Sub. Notes,
11.500% due 4/15/06....................................... 96,750
300,000 B- Eagle Picher Industries Inc., Sr. Sub. Notes, 9.375% due
3/1/08.................................................... 256,500
150,000 B- HDA Parts System Inc., Sr. Sub. Notes, 12.000% due
8/1/05+................................................... 101,250
200,000 B- J.L. French Auto Casting, Sr. Sub. Notes, 11.500% due
6/1/09+................................................... 183,000
475,000 BB- Lear Corp., Sub. Notes, 8.110% due 5/15/09+................. 433,437
-----------------------------------------------------------------------------------------------------
1,705,437
-----------------------------------------------------------------------------------------------------
BEVERAGES -- 0.7%
100,000 B National Wine & Spirits Corp., Sr. Notes, 10.125% due
1/15/09+.................................................. 97,500
225,000 NR Triarc Consumer/Beverage, Company Guaranteed Notes, 10.250%
due 2/15/04............................................... 218,812
-----------------------------------------------------------------------------------------------------
316,312
-----------------------------------------------------------------------------------------------------
BUILDING MATERIALS -- 2.1%
200,000 B- Albecca Inc., Company Guaranteed Notes, 10.750% due
8/15/08................................................... 169,500
100,000 B American Builders & Contractors Supply Co., Sr. Sub. Notes,
10.625% due 5/15/07....................................... 82,750
150,000 B- Formica Corp., Sr. Sub. Notes, 10.875% due 3/1/09+.......... 117,750
100,000 B- International Utility Structures Inc., Sr. Sub. Notes,
10.750% due 2/1/08........................................ 82,500
100,000 B- Juno Lighting, Inc., Sr. Sub. Notes, 11.875% due 7/1/09+.... 83,500
150,000 B- MMI Products Inc., Sr. Sub. Notes, 11.250% due 4/15/07...... 148,500
125,000 B NCI Building Systems, Inc., Sr. Sub. Notes, 9.250% due
5/1/09.................................................... 118,125
150,000 B Unifrax Investment Corp., Sr. Notes, 10.500% due 11/1/03.... 141,000
-----------------------------------------------------------------------------------------------------
943,625
-----------------------------------------------------------------------------------------------------
CHEMICALS -- 3.6%
100,000 BB- Georgia Gulf Corp., Sr. Sub. Notes, 10.375% due 11/1/07+.... 104,500
200,000 B2* Huntsman Corp., Sr. Sub. Notes, 9.500% due 7/1/07+.......... 183,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE> 109
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CHEMICALS -- 3.6% (CONTINUED)
$ 175,000 B+ Huntsman ICI Chemicals, Sr. Sub. Notes, 10.125% due
7/1/09+................................................... $ 177,188
225,000 BB- ISP Holdings Inc., Sr. Notes, 9.000% due 10/15/03........... 210,656
600,000 BB Lyondell Chemical Co., Sr. Sub. Notes, 10.875% due
5/1/09+................................................... 598,500
150,000 B Sterling Chemicals Inc., Sr. Sub. Notes, 11.750% due
8/15/06................................................... 123,750
150,000 B Texas Petrochemical Corp., Sr. Sub. Notes, 11.125% due
7/1/06.................................................... 128,250
100,000 B- United Industries Corp., Sr. Sub. Notes, 9.875% due
4/1/09+................................................... 55,500
-----------------------------------------------------------------------------------------------------
1,581,344
-----------------------------------------------------------------------------------------------------
COAL -- 0.2%
100,000 B- ISG Resources Inc., Sr. Sub. Notes, 10.000% due 4/15/08..... 91,500
-----------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.2%
100,000 B Coinmach Corp., Sr. Notes, 11.750% due 11/15/05............. 96,500
United Rentals Inc., Sr. Sub. Notes:
250,000 BB- 9.250% due 1/15/09.......................................... 226,875
250,000 BB- 9.000% due 4/1/09........................................... 222,500
-----------------------------------------------------------------------------------------------------
545,875
-----------------------------------------------------------------------------------------------------
CONGLOMERATES -- 0.4%
175,000 B- Anteon Corp., Sr. Sub. Notes, 12.000% due 5/15/09+.......... 158,813
-----------------------------------------------------------------------------------------------------
COSMETICS/PERSONAL CARE -- 1.7%
275,000 B- Chattem Inc., Company Guaranteed Notes, 8.875% due 4/1/08... 221,375
250,000 B Playtex Family Products Corp., Sr. Sub. Notes, 9.000% due
12/15/03.................................................. 243,125
600,000 CCC Revlon Consumer Products Corp., Sr. Sub. Notes, 8.625% due
2/1/08.................................................... 306,000
-----------------------------------------------------------------------------------------------------
770,500
-----------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 2.1%
250,000 BB Caithness Coso Funding Corp., Secured Notes, 9.050% due
12/15/09.................................................. 248,125
450,000 BB+ GS Escrow Corp., Sr. Sub. Notes, 7.125% due 8/1/05.......... 402,188
125,000 B- Hanger Orthopedic Group, Sr. Sub. Notes, 11.250% due
6/15/09................................................... 109,375
100,000 BB- RBF Finance Co., Company Guaranteed Notes, 11.375% due
3/15/09................................................... 109,000
100,000 B- Russell-Stanley Holdings Inc., Sr. Sub. Notes, 10.875% due
2/15/09................................................... 65,500
-----------------------------------------------------------------------------------------------------
934,188
-----------------------------------------------------------------------------------------------------
ELECTRIC -- 1.6%
100,000 BB CMS Energy Corp., Sr. Notes, 7.500% due 1/15/09............. 87,625
250,000 BBB- El Paso Electric Co., First Mortgage, 9.400% due 5/1/11..... 262,812
450,000 BBB- Niagara Mohawk Power Corp., Sr. Discount Notes, step bond to
yield 8.075% due 7/1/10................................... 346,500
-----------------------------------------------------------------------------------------------------
696,937
-----------------------------------------------------------------------------------------------------
ELECTRONICS -- 2.1%
145,000 B+ Amphenol Corp., Sr. Sub. Notes, Callable 5/15/02, 9.875% due
5/15/07................................................... 146,994
525,000 B- Fisher Scientific International Inc., Sr. Sub Notes, 9.000%
due 2/1/08................................................ 483,000
325,000 B Wesco Distribution Inc., Company Guaranteed Notes, 9.125%
due 6/1/08................................................ 299,000
-----------------------------------------------------------------------------------------------------
928,994
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE> 110
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ENGINEERING & CONSTRUCTION -- 0.4%
$ 150,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09............... $ 154,500
-----------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 1.8%
Premier Parks Inc.:
825,000 B- Sr. Discount Notes, step bond to yield 10.089% due 4/1/08... 564,095
150,000 B- Sr. Notes, 9.750% due 6/15/07............................... 145,688
425,000 B- Regal Cinemas Inc., Sr. Sub. Notes, 9.500% due 6/1/08....... 104,125
-----------------------------------------------------------------------------------------------------
813,908
-----------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL -- 2.3%
Allied Waste North America Inc.:
700,000 BB- Company Guaranteed Notes, 7.625% due 1/1/06................. 616,000
500,000 BB- Sr. Sub. Notes, 10.000% due 8/1/09.......................... 420,000
-----------------------------------------------------------------------------------------------------
1,036,000
-----------------------------------------------------------------------------------------------------
FOOD -- 2.5%
250,000 B- Agrilink Foods Inc., Sr. Sub. Notes, 11.875% due 11/1/08+... 196,250
100,000 CCC+ Aurora Foods Inc., Sr. Sub. Notes, Series B, 9.875% due
2/15/07................................................... 58,500
100,000 B- Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08........... 84,000
100,000 B- Dominos Inc., Sr. Sub. Notes, 10.375% due 1/15/09........... 93,250
300,000 CCC+ Eagle Family Foods, Company Guaranteed Notes, 8.750% due
1/15/08................................................... 178,500
350,000 B International Home Foods, Inc., Company Guaranteed Notes,
10.375% due 11/1/06....................................... 376,250
150,000 D Jitney-Jungle Stores of America, Inc., Company Guaranteed
Notes, 10.375% due 9/15/07................................ 3,000
150,000 B- Volume Services America Inc., Sr. Sub. Notes, 11.250% due
3/1/09+................................................... 137,250
-----------------------------------------------------------------------------------------------------
1,127,000
-----------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 0.2%
100,000 BB- Buckeye Cellulose Corp., Sr. Sub. Notes, 9.250% due
9/15/08................................................... 100,500
-----------------------------------------------------------------------------------------------------
HEALTH CARE -- 3.7%
250,000 BB+ Columbia/HCA Healthcare, Discount Notes, 6.910% due
6/15/05................................................... 228,750
250,000 B- Dade International Inc., Sr. Sub. Notes, 11.125% due
5/1/06.................................................... 118,750
100,000 B- Everest Healthcare Services Corp., Company Guaranteed Notes,
9.750% due 5/1/08......................................... 85,500
Genesis Health Ventures, Sr. Sub. Notes:
100,000 C* 9.250% due 10/1/06.......................................... 11,500
125,000 C* 9.875% due 1/15/09.......................................... 14,375
275,000 CCC+ Kinetic Concepts, Inc., Company Guaranteed Notes, 9.625% due
11/1/07................................................... 213,125
Tenet Healthcare Corp., Sr. Notes:
400,000 BB- 8.000% due 1/15/05.......................................... 386,000
100,000 BB- 7.625% due 6/1/08........................................... 92,125
550,000 BB- 8.125% due 12/1/08.......................................... 506,000
-----------------------------------------------------------------------------------------------------
1,656,125
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE> 111
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SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HOLDING COMPANIES - DIVERSIFIED -- 0.6%
$ 150,000 B- Continental Global Group, Sr. Notes, 11.000% due 4/1/07..... $ 43,875
125,000 BB- Murrin Murrin Holding Property, Sr. Notes, 9.375% due
8/31/07................................................... 108,750
100,000 C* Nebco Evans Holdings Co., Sr. Discount Notes, step bond to
yield 10.820% due 7/15/07#................................ 125
98,000 B SCG Holdings & Semiconductor Co., Sr. Sub. Notes, 12.000%
due 8/1/09................................................ 105,105
-----------------------------------------------------------------------------------------------------
257,855
-----------------------------------------------------------------------------------------------------
HOME FURNISHINGS -- 0.3%
125,000 B- Sealy Mattress Co., Sr. Sub. Notes, 9.875% due 12/15/07..... 121,250
-----------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS/WARES -- 1.2%
225,000 B- Amscan Holdings Inc., Sr. Sub. Notes, 9.875% due 12/15/07... 185,625
200,000 B Jostens Inc., Sr. Sub. Notes, 12.750% due 5/1/10++.......... 198,000
200,000 B+ Royster-Clark Inc., First Mortgage Notes, 10.250% due
4/1/09.................................................... 164,000
-----------------------------------------------------------------------------------------------------
547,625
-----------------------------------------------------------------------------------------------------
HOUSEWARES -- 0.3%
150,000 B- Boyds Collection Ltd., Sr. Sub. Notes, 9.000% due 5/15/08... 132,750
-----------------------------------------------------------------------------------------------------
IRON/STEEL -- 0.2%
100,000 B- Neenah Corp., Sr. Sub. Notes, Series B, 11.125% due
5/1/07.................................................... 74,000
150,000 NR Republic Technology Inc., Sr. Notes, 13.750% due 7/15/09+... 27,187
-----------------------------------------------------------------------------------------------------
101,187
-----------------------------------------------------------------------------------------------------
LEISURE TIME -- 0.5%
308,000 CCC+ AMF Bowling Worldwide Inc., Sr. Sub. Discount Notes, step
bond to yield 13.034% due 3/15/06......................... 63,910
150,000 B- True Temper Sports Inc., Sr. Sub. Notes, Series B, 10.875%
due 12/1/08............................................... 143,437
-----------------------------------------------------------------------------------------------------
207,347
-----------------------------------------------------------------------------------------------------
LODGING -- 2.0%
325,000 B- Florida Panthers Holdings Inc., Company Guaranteed Notes,
9.875% due 4/15/09........................................ 306,313
HMH Properties Inc.:
300,000 BB Sr. Notes, 8.450% due 12/1/08............................. 279,375
350,000 BB Sr. Sub. Notes, 7.875% due 8/1/08......................... 315,875
-----------------------------------------------------------------------------------------------------
901,563
-----------------------------------------------------------------------------------------------------
MACHINERY, CONSTRUCTION & MINING -- 0.4%
150,000 Ca* Clark Material Holdings Corp., Company Guaranteed Notes,
Series D, 10.750% due 11/15/06............................ 25,500
National Equipment Services Inc.:
100,000 B Company Guaranteed Notes, Series D, 10.000% due 11/30/04.... 83,500
100,000 B Sr. Sub. Notes, Series B, 10.000% due 11/30/04.............. 83,500
-----------------------------------------------------------------------------------------------------
192,500
-----------------------------------------------------------------------------------------------------
MACHINERY DIVERSIFIED -- 0.3%
125,000 B Woods Equipment Co., Company Guaranteed Notes, 12.000% due
7/15/09................................................... 112,031
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 112
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MEDIA -- 14.5%
AMFM Operating Inc.:
$ 31,700 NR Debentures, 12.625% due 10/31/06............................ $ 37,168
100,000 B Sr. Sub. Notes, 9.250% due 7/1/07........................... 102,500
225,000 B3* Big City Radio Inc., Company Guaranteed Notes, step bond to
yield 13.012% due 3/15/05................................. 127,687
63,100 B Capstar Broadcasting, Radio, Cable & TV Partners, Sr. Sub.
Notes, 9.250% due 7/1/07.................................. 73,038
Chancellor Media Corp., Sr. Sub. Notes:
650,000 B+ 8.125% due 12/15/07......................................... 657,312
425,000 B+ 9.000% due 10/1/08.......................................... 438,813
850,000 B+ Charter Communications Holdings LLC., Sr. Discount Notes,
zero coupon due 4/1/11+................................... 484,500
CSC Holdings Inc., Sr. Sub. Notes:
300,000 BB- 9.250% due 11/1/05........................................ 303,375
250,000 BB- 9.875% due 2/15/13........................................ 257,500
Diamond Cable Comm PLC:
150,000 B- 9.125% due 2/1/08......................................... 139,500
125,000 B- Sr. Discount Notes, step bond to yield 9.900% due 2/15/07. 95,937
500,000 B EchoStar DBS Corp., Sr. Notes, 9.375% due 2/1/09+........... 482,500
500,000 BBB- Fox/Liberty Networks LLC Inc., Sr. Discount Notes, step bond
to yield 9.750% due 8/15/07............................... 407,500
300,000 B+ Garden State Newspapers, Sr. Sub. Notes, 8.750% due
10/1/09................................................... 267,000
175,000 BB- Hollinger International Publishing Inc., Company Guaranteed
Notes, 9.250% due 3/15/07................................. 173,250
100,000 BBB- Lenfest Communications Inc., Sr. Sub. Notes, 8.250% due
2/15/08................................................... 99,375
425,000 CCC+ Pegasus Communications Corp., Sr. Notes, 9.625% due
10/15/05.................................................. 412,250
425,000 B Sinclair Broadcast Group, Sr. Sub. Notes, 8.750% due
12/15/07.................................................. 376,125
200,000 B- Spectrasite Holdings Inc., Sr. Sub. Discount Notes, step
bond to yield 12.875% due 3/15/10+........................ 110,000
Telewest Communications PLC, Sr. Notes:
50,000 B+ 11.250% due 11/1/08......................................... 50,250
400,000 B+ Step bond to yield 10.597% due 10/1/07...................... 381,000
125,000 B UIH Australia Inc., Sr. Discount Notes, step bond to yield
15.632% due 5/15/06....................................... 115,625
575,000 B- United International Holdings, Sr. Discount Notes, step bond
to yield 11.763% due 2/15/08.............................. 405,375
United Pan-Europe Communications Co., Sr. Discount Notes,
step bond to yield:
275,000 B 12.500% due 11/1/09+...................................... 139,562
400,000 B 13.375% due 11/1/09+...................................... 194,000
125,000 NR XM Satellite Radio Inc., 14.000% due 3/15/10++.............. 110,625
-----------------------------------------------------------------------------------------------------
6,441,767
-----------------------------------------------------------------------------------------------------
METAL, FABRICATE & HARDWARE -- 0.2%
125,000 B Metals USA Inc., Company Guaranteed Notes, 8.625% due
2/15/08................................................... 104,375
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE> 113
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MINING -- 0.2%
$ 250,000 CCC- AEI Holdings Co. Inc., Company Guaranteed Notes, 10.500% due
12/15/05+................................................. $ 51,250
150,000 CC AEI Resources Inc., Sr. Sub. Notes, 11.500% due 12/15/06+... 15,750
-----------------------------------------------------------------------------------------------------
67,000
-----------------------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING -- 2.1%
175,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09+............ 179,375
200,000 B Cabot Safety Corp., Sr. Notes, 12.500% due 7/15/05.......... 202,000
50,000 CCC+ Diamond Brands Operating Corp., Company Guaranteed Notes,
10.125% due 4/15/08....................................... 27,750
100,000 B Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09+........... 89,500
Polymer Group, Company Guaranteed Notes:
225,000 B 9.000% due 7/1/07........................................... 192,375
300,000 B 8.750% due 3/1/08........................................... 250,500
-----------------------------------------------------------------------------------------------------
941,500
-----------------------------------------------------------------------------------------------------
OIL & GAS -- 2.3%
100,000 B Comstock Resources, Inc., Sr. Notes, 11.250% due 5/1/07+.... 102,125
200,000 CCC Continental Resources, Company Guaranteed Notes, 10.250% due
8/1/08.................................................... 179,500
200,000 B NationsRent Inc., Company Guaranteed, 10.375% due
12/15/08.................................................. 129,000
125,000 BB- Pogo Producing Co., Sr. Sub. Notes, 10.375% due 2/15/09..... 128,750
275,000 BB Pride International Inc., Sr. Notes, 9.375% due 5/1/07...... 275,687
200,000 B+ R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06............ 219,000
-----------------------------------------------------------------------------------------------------
1,034,062
-----------------------------------------------------------------------------------------------------
PACKAGING & CONTAINERS -- 1.2%
100,000 B Huntsman Packaging Corp., Company Guaranteed Notes, 13.000%
due 6/1/10+++............................................. 103,500
Stone Container Corp.:
175,000 B- Sr. Sub. Debentures, 12.250% due 4/1/02++................... 175,875
250,000 B- Sr. Sub. Notes, 11.500% due 10/1/04......................... 259,375
-----------------------------------------------------------------------------------------------------
538,750
-----------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.2%
100,000 B+ NBTY Inc., Sr. Sub. Notes, 8.625% due 9/15/07............... 85,750
-----------------------------------------------------------------------------------------------------
RETAIL -- 1.0%
150,000 B Advantica Restaurant Group, Sr. Notes, 11.125% due
1/15/08................................................... 101,250
225,000 B Buhrmann US Inc., Sr. Sub. Notes, 12.250% due 11/1/09+...... 237,375
400,000 CCC- US Office Products Co., Company Guaranteed Notes, 9.750% due
6/15/08................................................... 86,000
-----------------------------------------------------------------------------------------------------
424,625
-----------------------------------------------------------------------------------------------------
SOFTWARE -- 2.5%
150,000 B Exodus Communications Inc., Sr. Notes, 11.625% due
7/15/10................................................... 151,125
200,000 NR NorthPoint Communications Group Inc., Sr. Notes, 12.875% due
2/15/10+.................................................. 145,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE> 114
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SOFTWARE -- 2.5% (CONTINUED)
PSINet Inc., Sr. Notes:
$ 350,000 B- 10.000% due 2/15/05......................................... $ 323,750
100,000 B- 11.500% due 11/1/08......................................... 94,500
125,000 B- 11.000% due 11/1/09......................................... 116,250
250,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08.................. 281,875
-----------------------------------------------------------------------------------------------------
1,112,500
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 2.8%
Nextel Communications Inc.:
Sr. Discount Notes:
250,000 B Step bond to yield 10.505% due 9/15/07...................... 197,500
375,000 B Step bond to yield 9.798% due 2/15/08....................... 276,562
800,000 B Sr. Notes, 9.375% due 11/15/09+............................. 768,000
-----------------------------------------------------------------------------------------------------
1,242,062
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 19.1%
200,000 B- Centennial Cellular Corp., Sr. Notes, 10.750% due
12/15/08.................................................. 195,250
Crown Castle International Corp., Sr. Discount Notes:
425,000 B Step bond to yield 10.396% due 5/15/11...................... 261,906
375,000 B Step bond to yield 11.181% due 8/1/11....................... 236,250
300,000 CCC+ Dolphin Telecom PLC, Sr. Discount Notes, step bond to yield
14.000% due 5/15/09+...................................... 106,500
100,000 NR e.spire Communications, Inc., Sr. Discount Notes, step bond
to yield 10.789% due 4/1/06............................... 45,500
925,000 BB Global Crossing Holdings Ltd., Sr. Notes, 9.500% due
11/15/09+................................................. 897,250
Level 3 Communications:
525,000 B Sr. Discount Notes, step bond to yield 11.085% due
12/1/08................................................... 321,562
925,000 B Sr. Notes, 9.125% due 5/1/08................................ 834,812
McLeodUSA Inc.:
725,000 B+ Sr. Discount Notes, step bond to yield 9.608% due 3/1/07.... 598,125
125,000 B+ Sr. Notes, 9.500% due 11/1/08............................... 122,812
50,000 B- Metricom Inc., Company Guaranteed, 13.000% due 2/15/10...... 34,500
425,000 B- Millicom International Cellular S.A., Sr. Sub. Discount
Notes, step bond to yield 12.277% due 6/1/06.............. 363,375
75,000 B- Nextel International Inc., Sr. Discount Notes, step bond to
yield 12.125% due 4/15/08................................. 49,125
80,000 CCC+ Nextel Partners Inc., Sr. Discount Notes, step bond to yield
14.000% due 2/1/09+ ...................................... 55,600
475,000 B- NTL Communications Corp., Sr. Notes, step bond to yield
11.703% due 10/1/08....................................... 304,000
NTL Inc., Sr. Notes:
375,000 B- Step bond to yield 10.564% due 2/1/06....................... 347,812
850,000 B- Step bond to yield 10.885% due 4/1/08....................... 533,375
275,000 B+ Orion Network Systems, Inc., Sr. Notes, 12.750% due
1/15/07................................................... 167,750
125,000 B- Orius Corp., Sr. Sub. Notes, 13.750% due 2/1/10+............ 129,375
350,000 B- RCN Corp., Sr. Discount Notes, 11.125% due 10/15/07, step
bond to yield 12.152% due 10/15/07........................ 220,500
275,000 BB- Rogers Cantel Inc., Sr. Sub. Notes, 8.800% due 10/1/07...... 275,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE> 115
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SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TELECOMMUNICATIONS -- 19.1% (CONTINUED)
$ 475,000 B- Telecommunication Technique Co., Company Guaranteed Notes,
9.750% due 5/15/08........................................ $ 429,875
425,000 CCC+ Telesystem International Wireless, Sr. Discount Notes, step
bond to yield 12.970% due 6/30/07......................... 297,500
Teligent, Inc.:
175,000 CCC Sr. Discount Notes, step bond to yield 13.776% due 3/1/08... 82,250
300,000 CCC Sr. Notes, 11.500% due 12/1/07.............................. 234,000
425,000 CCC+ Triton PCS Inc., Company Guaranteed Notes, step bond to
yield 13.043% due 5/1/08.................................. 310,250
200,000 CCC+ US Unwired Inc., Sr. Discount Notes, step bond to yield
13.375% due 11/1/09+...................................... 109,500
150,000 NR US Xchange LLC, Sr. Notes, 15.000% due 7/1/08............... 164,625
VoiceStream Wireless Corp.:
525,000 B- Sr. Discount Notes, step bond to yield 11.487% due
11/15/09.................................................. 355,687
100,000 B- Sr. Notes, 10.375% due 11/15/09............................. 104,000
Winstar Communications, Inc.:
372,000 B- Sr. Discount Notes, step bond to yield 15.561% due
4/15/10+.................................................. 174,840
127,000 B- Sr. Notes, 12.750% due 4/15/10+............................. 119,062
-----------------------------------------------------------------------------------------------------
8,481,968
-----------------------------------------------------------------------------------------------------
TELEPHONE -- 7.2%
Call-Net Enterprises, Inc., Sr. Discount Notes:
375,000 B+ Step bond to yield 8.902% due 8/15/07....................... 178,125
375,000 B+ Step bond to yield 10.148% due 8/15/08...................... 148,125
175,000 B+ Step bond to yield 10.800% due 5/15/09...................... 63,875
500,000 B Hermes Europe Railtel BV, Sr. Notes, 11.500% due 8/15/07.... 430,000
Intermedia Communications Inc., Sr. Discount Notes:
175,000 B 8.600% due 6/1/08........................................... 162,750
225,000 B Step bond to yield 10.183% due 5/15/06...................... 205,312
250,000 B Step bond to yield 10.851% due 7/15/07...................... 197,500
250,000 CCC+ Step bond to yield 12.234% due 3/1/09....................... 151,875
NEXTLINK Communication Inc.:
1,050,000 B Sr. Discount Notes, step bond to yield 12.197% due 6/1/09... 651,000
100,000 B Sr. Notes, 10.750% due 6/1/09............................... 99,000
700,000 BB+ Qwest Communications International Inc., Sr. Discount Notes,
step bond to yield 8.378% due 10/15/07.................... 588,875
Viatel Inc.:
350,000 B- Sr. Discount Notes, step bond to yield 13.236% due
4/15/08................................................... 159,250
Sr. Notes:
100,000 B- 11.250% due 4/15/08+................................... 74,500
100,000 B- 11.500% due 3/15/09.................................... 76,500
-----------------------------------------------------------------------------------------------------
3,186,687
-----------------------------------------------------------------------------------------------------
TEXTILES -- 0.4%
150,000 B- Collins & Aikman Floor Coverings Inc., Sr. Sub. Notes,
10.000% due 1/15/07....................................... 146,625
50,000 D Glenoit Corp., Company Guaranteed Notes, 11.000% due
4/15/07................................................... 7,750
-----------------------------------------------------------------------------------------------------
154,375
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE> 116
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TRANSPORTATION -- 2.6%
$ 250,000 B+ Allied Holdings Inc., Company Guaranteed Notes, 8.625% due
10/1/07................................................... $ 222,812
200,000 B+ Gearbulk Holding Ltd., Sr. Notes, 11.250% due 12/1/04....... 202,000
100,000 CCC Holt Group, Sr. Notes, 9.750% due 1/15/06+.................. 10,000
150,000 B Railworks Corp., Sr. Sub. Notes, 11.500% due 4/15/09........ 141,750
Stena AB, Sr. Notes:
275,000 BB 10.500% due 12/15/05........................................ 270,875
250,000 BB 8.750% due 6/15/07.......................................... 219,375
100,000 B Stena Line AB, Sr. Notes, 10.625% due 6/1/08................ 59,000
-----------------------------------------------------------------------------------------------------
1,125,812
-----------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $48,286,389)......... 41,792,462
-----------------------------------------------------------------------------------------------------
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PREFERRED STOCK -- 2.3%
-----------------------------------------------------------------------------------------------------
BROADCASTING - RADIO, CABLE & TV -- 0.2%
1,000 Sinclair Capital, 11.625%................................... 90,750
-----------------------------------------------------------------------------------------------------
HOLDING COMPANIES & DIVERS -- 0.0%
1,209 Nebco Evans Holding Co., Payment-in-kind, 11.250% due
6/1/03.................................................... 151
-----------------------------------------------------------------------------------------------------
MEDIA -- 1.0%
67 Pegasus Communications Corp., Payment-in-kind, 12.750% due
1/1/02.................................................... 67,914
Primedia Inc.:
2,850 Series F, 9.200%............................................ 258,637
1,500 Series H, 8.625%............................................ 129,375
-----------------------------------------------------------------------------------------------------
455,926
-----------------------------------------------------------------------------------------------------
OIL & GAS -- 0.7%
2,773 R&B Falcon Corp., Payment-in-kind, 13.875% due 5/1/04....... 314,057
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.4%
1,000 Benedek Communications Corp., Payment-in-kind, 11.500% due
5/15/03................................................... 55,250
930 Nextel Communications Inc., Payment-in-kind, 11.125% due
2/15/03................................................... 90,443
-----------------------------------------------------------------------------------------------------
145,693
-----------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $1,186,061).................. 1,006,577
-----------------------------------------------------------------------------------------------------
WARRANTS @ -- 0.1%
-----------------------------------------------------------------------------------------------------
BROADCASTING -- 0.0%
100 UIH Australia Pacific Inc., Expire 5/15/06.................. 3,000
-----------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS -- 0.0%
100 Sterling Chemicals Holdings Inc., Expire 8/15/08............ 850
-----------------------------------------------------------------------------------------------------
OIL & GAS -- 0.1%
750 R&B Falcon Corp., Expire 5/1/09+............................ 37,500
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.0%
100 Metricom Inc., Expire 2/15/10............................... 225
50 Metronet Communications Corp., Class B Shares, Expire
8/15/07................................................... 5,625
-----------------------------------------------------------------------------------------------------
5,850
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE> 117
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
STEEL -- 0.0%
150 Republic Technology Inc., Expire 7/15/09.................... $ 15
---------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $28,370)............................ 47,215
---------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 3.3%
$1,485,000 Chase Securities Inc., 6.250% due 7/3/00; Proceeds at
maturity -- $1,485,773;
(Fully collateralized by U.S. Treasury Notes, 6.000% due
2/15/26;
Market value -- $1,518,788) (Cost -- $1,485,000)............ 1,485,000
---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $50,985,820**)........... $44,331,254
---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(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.
+ 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.
# Security is currently in default.
++ Security has been issued with attached warrants.
@ Non-income producing securities.
** Aggregate cost for Federal income tax purposes is
substantially the same.
See page 44 for definition of ratings.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE> 118
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
--------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 98.5%
--------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 1.0%
6,700 Northrop Grumman Corp. ..................................... $ 443,875
--------------------------------------------------------------------------------------
AUTO MANUFACTURERS -- 1.7%
9,700 Ford Motor Co. ............................................. 417,100
5,490 General Motors Corp. ....................................... 318,784
--------------------------------------------------------------------------------------
735,884
--------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT -- 1.6%
28,300 Cooper Tire & Rubber Co. ................................... 314,838
10,512 Delphi Automotive Systems Corp. ............................ 153,081
5,000 TRW Inc. ................................................... 216,875
1,270 Visteon Corp.*.............................................. 15,399
--------------------------------------------------------------------------------------
700,193
--------------------------------------------------------------------------------------
BANKING -- 3.1%
10,900 Bank of America Corp. ...................................... 468,700
12,500 First Union Corp. .......................................... 310,156
12,000 PNC Financial Services Group................................ 562,500
--------------------------------------------------------------------------------------
1,341,356
--------------------------------------------------------------------------------------
CHEMICALS -- 3.0%
15,700 Ashland Inc. ............................................... 550,481
9,000 E.I. du Pont de Nemours & Co. .............................. 393,750
8,000 PPG Industries, Inc. ....................................... 354,500
--------------------------------------------------------------------------------------
1,298,731
--------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.6%
25,500 Cendant Corp.*.............................................. 357,000
10,600 H&R Block, Inc. ............................................ 343,175
--------------------------------------------------------------------------------------
700,175
--------------------------------------------------------------------------------------
COMPUTERS -- 10.7%
16,400 Compaq Computer Corp. ...................................... 419,225
5,900 Computer Sciences Corp.*.................................... 440,656
10,800 Electronic Data Systems Corp. .............................. 445,500
6,500 International Business Machines Corp. ...................... 712,156
8,600 Lexmark International Group, Inc., Class A Shares*.......... 578,350
12,100 Seagate Technology, Inc.*................................... 665,500
23,600 Storage Technology Corp.*................................... 258,125
9,500 Sun Microsystems, Inc.*..................................... 863,906
15,900 Unisys Corp.*............................................... 231,544
--------------------------------------------------------------------------------------
4,614,962
--------------------------------------------------------------------------------------
COSMETICS/PERSONAL CARE -- 1.5%
11,100 Kimberly-Clark Corp. ....................................... 636,863
--------------------------------------------------------------------------------------
ELECTRIC -- 5.6%
22,800 Edison International........................................ 467,400
18,300 Entergy Corp. .............................................. 497,531
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE> 119
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SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
--------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC -- 5.6% (CONTINUED)
9,800 FPL Group, Inc. ............................................ $ 485,100
13,000 Public Service Enterprise Group, Inc. ...................... 450,125
17,800 Reliant Energy, Inc. ....................................... 526,213
--------------------------------------------------------------------------------------
2,426,369
--------------------------------------------------------------------------------------
ELECTRONICS -- 3.8%
9,600 Johnson Controls, Inc. ..................................... 492,600
16,160 Koninklijke Philips Electric NV, NY Shares.................. 767,600
11,300 Parker-Hannifin Corp. ...................................... 387,025
--------------------------------------------------------------------------------------
1,647,225
--------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL -- 0.5%
11,890 Waste Management, Inc. ..................................... 225,910
--------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 4.7%
13,980 The Bear Stearns Cos. Inc. ................................. 581,918
32,200 The CIT Group, Inc., Class A Shares......................... 523,250
11,100 Morgan Stanley Dean Witter & Co. ........................... 924,075
--------------------------------------------------------------------------------------
2,029,243
--------------------------------------------------------------------------------------
FOOD -- 3.4%
14,900 General Mills, Inc. ........................................ 569,925
13,200 Nabisco Group Holdings Corp. ............................... 342,375
28,400 Sara Lee Corp. ............................................. 548,475
--------------------------------------------------------------------------------------
1,460,775
--------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 1.0%
14,900 International Paper Co. .................................... 444,206
--------------------------------------------------------------------------------------
HEALTH CARE -- 3.9%
9,300 Baxter International Inc. .................................. 653,906
49,500 HEALTHSOUTH Corp.*.......................................... 355,781
8,100 United Healthcare Corp. .................................... 694,575
--------------------------------------------------------------------------------------
1,704,262
--------------------------------------------------------------------------------------
INSURANCE -- 8.8%
8,100 Allmerica Financial Corp. .................................. 424,238
20,500 Allstate Corp. ............................................. 456,125
5,900 CIGNA Corp. ................................................ 551,650
55,700 Conseco, Inc. .............................................. 543,075
11,600 Lincoln National Corp. ..................................... 419,050
8,200 Loews Corp. ................................................ 492,000
4,700 Marsh & McLennan Cos., Inc. ................................ 490,856
9,200 MBIA, Inc. ................................................. 443,325
--------------------------------------------------------------------------------------
3,820,319
--------------------------------------------------------------------------------------
IRON & STEEL -- 0.4%
49,600 The LTV Corp. .............................................. 142,600
--------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE> 120
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
--------------------------------------------------------------------------------------
<C> <S> <C>
LEISURE TIME -- 0.9%
19,100 Galileo International, Inc. ................................ $ 398,713
--------------------------------------------------------------------------------------
MACHINERY - GENERAL INDUSTRY -- 0.9%
9,700 Ingersoll-Rand Co. ......................................... 390,425
--------------------------------------------------------------------------------------
MANUFACTURING -- 4.3%
6,700 Eastman Kodak Co. .......................................... 398,650
11,100 Honeywell International, Inc. .............................. 373,931
7,300 Textron, Inc. .............................................. 396,481
14,234 Tyco International Ltd. .................................... 674,336
--------------------------------------------------------------------------------------
1,843,398
--------------------------------------------------------------------------------------
MEDIA -- 6.8%
24,100 Charter Communications, Inc.*............................... 396,144
9,100 Knight-Ridder, Inc. ........................................ 484,006
17,400 The News Corp. Ltd. ADR..................................... 826,500
12,400 Viacom Inc., Class A Shares*................................ 847,850
5,879 Viacom Inc., Class B Shares*................................ 400,874
--------------------------------------------------------------------------------------
2,955,374
--------------------------------------------------------------------------------------
OIL & GAS -- 8.1%
5,000 Chevron Corp. .............................................. 424,063
19,900 ENSCO International, Inc. .................................. 712,669
6,800 Exxon Mobil Corp. .......................................... 533,800
10,300 Royal Dutch Petroleum Co. .................................. 634,094
6,300 Texaco Inc. ................................................ 335,475
15,000 Tosco Corp. ................................................ 424,688
16,600 USX-Marathon Group.......................................... 416,038
--------------------------------------------------------------------------------------
3,480,827
--------------------------------------------------------------------------------------
PHARMACEUTICALS -- 6.4%
13,800 Abbott Laboratories......................................... 614,963
14,600 Bristol-Myers Squibb & Co. ................................. 850,450
6,800 Merck & Co., Inc. .......................................... 521,050
14,778 Pharmacia & Upjohn, Inc. ................................... 763,838
--------------------------------------------------------------------------------------
2,750,301
--------------------------------------------------------------------------------------
RETAIL -- 1.9%
9,800 Federated Department Stores, Inc.*.......................... 330,750
8,300 Wal-Mart Stores, Inc. ...................................... 478,288
--------------------------------------------------------------------------------------
809,038
--------------------------------------------------------------------------------------
SAVINGS & LOANS -- 1.0%
15,600 Washington Mutual, Inc. .................................... 450,450
--------------------------------------------------------------------------------------
SOFTWARE -- 2.9%
16,100 First Data Corp. ........................................... 798,963
47,500 Novell, Inc.*............................................... 439,375
--------------------------------------------------------------------------------------
1,238,338
--------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE> 121
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
--------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS -- 0.4%
1,927 General Motors Corp., Class H Shares*....................... $ 169,094
--------------------------------------------------------------------------------------
TELEPHONE -- 5.4%
15,300 AT&T Corp. ................................................. 483,863
8,100 Bell Atlantic Corp.+ ....................................... 411,581
7,500 GTE Corp.+ ................................................. 466,875
8,100 Sprint Corp. ............................................... 413,100
11,700 Worldcom, Inc.*............................................. 536,738
--------------------------------------------------------------------------------------
2,312,157
--------------------------------------------------------------------------------------
TOBACCO -- 1.5%
14,900 Philip Morris Cos., Inc. ................................... 395,781
17,800 UST Inc. ................................................... 261,438
--------------------------------------------------------------------------------------
657,219
--------------------------------------------------------------------------------------
TOYS/GAMES/HOBBIES -- 0.7%
19,750 Hasbro, Inc. ............................................... 297,480
--------------------------------------------------------------------------------------
TRANSPORTATION -- 1.0%
11,200 Union Pacific Corp. ........................................ 416,500
--------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $43,535,597).................... 42,542,262
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 1.5%
$ 670,000 Chase Manhattan Bank, 6.250% due 7/3/00; Proceeds at
maturity -- $670,349; (Fully collateralized by U.S.
Treasury Notes, 6.000% due 2/15/26; Market
value -- $686,713) (Cost -- $670,000)..................... 670,000
--------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $44,205,597**)........... $43,212,262
--------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE> 122
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.9%
-------------------------------------------------------------------------------------
ADVERTISING -- 0.2%
6,055 Snyder Communications, Inc.*................................ $ 143,806
-------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 0.9%
5,750 L-3 Communications Holdings, Inc.*.......................... 328,109
4,820 Litton Industries, Inc.*.................................... 202,440
-------------------------------------------------------------------------------------
530,549
-------------------------------------------------------------------------------------
AIRLINES -- 0.2%
3,604 Alaska Air Group Inc.*...................................... 97,759
-------------------------------------------------------------------------------------
APPAREL -- 0.3%
8,890 Jones Apparel Group, Inc.*.................................. 208,915
-------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT -- 0.7%
4,578 Arvin Industries, Inc. ..................................... 79,543
3,284 Borg-Warner Automotive, Inc. ............................... 115,350
7,325 Lear Corp.*................................................. 146,500
9,150 Meritor Automotive Inc. .................................... 100,650
-------------------------------------------------------------------------------------
442,043
-------------------------------------------------------------------------------------
BANKS -- 3.8%
6,676 Associated Banc-Corp........................................ 145,620
3,070 City National Corp. ........................................ 106,683
6,880 Compass Bancshares Inc. .................................... 117,390
14,298 First Security Corp. ....................................... 193,917
2,578 First Virginia Banks, Inc. ................................. 89,747
19,777 Hibernia Corp., Class A Shares.............................. 215,075
7,248 Marshall & Ilsley Corp. .................................... 300,792
8,120 Mercantile Bankshares Corp. ................................ 242,077
10,222 North Fork Bancorporation, Inc. ............................ 154,608
3,259 Old Kent Financial Corp. ................................... 87,183
10,855 Pacific Century Financial Corp. ............................ 158,754
6,900 Provident Financial Group, Inc. ............................ 164,306
1,613 Wilmington Trust Corp. ..................................... 68,956
4,845 Zions Bancorporation........................................ 222,340
-------------------------------------------------------------------------------------
2,267,448
-------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 3.4%
12,002 Chiron Corp.*............................................... 570,095
5,992 Genzyme Corp. -- General Division*.......................... 356,150
2,250 IDEC Pharmaceuticals Corp.*................................. 263,953
1,920 Incyte Genomics, Inc.*...................................... 157,800
6,440 Millennium Pharmaceuticals, Inc.*........................... 720,475
-------------------------------------------------------------------------------------
2,068,473
-------------------------------------------------------------------------------------
BUILDING MATERIALS -- 1.3%
6,370 American Standard Cos. Inc.*................................ 261,170
3,880 Martin Marietta Materials, Inc. ............................ 156,898
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE> 123
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------
<C> <S> <C>
BUILDING MATERIALS -- 1.3% (CONTINUED)
4,660 Southdown, Inc. ............................................ $ 269,115
3,040 USG Corp. .................................................. 92,340
-------------------------------------------------------------------------------------
779,523
-------------------------------------------------------------------------------------
CHEMICALS -- 2.1%
10,963 Albemarle Corp. ............................................ 216,519
4,400 Cabot Corp. ................................................ 119,900
10,590 Crompton Corp. ............................................. 129,728
1,900 Georgia Gulf Corp. ......................................... 39,544
8,785 IMC Global Inc. ............................................ 114,205
7,180 The Lubrizol Corp. ......................................... 150,780
7,687 Lyondell Chemical Co. ...................................... 128,757
2,295 Minerals Technologies Inc. ................................. 105,570
3,250 Olin Corp. ................................................. 53,625
15,291 Solutia, Inc. .............................................. 210,251
-------------------------------------------------------------------------------------
1,268,879
-------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 3.6%
12,170 ACNielsen Corp.*............................................ 267,740
4,639 Apollo Group, Inc., Class A Shares*......................... 129,892
10,707 Comdisco, Inc. ............................................. 238,900
10,683 Concord EFS, Inc.*.......................................... 277,758
7,400 Manpower Inc. .............................................. 236,800
13,520 Modis Professional Services, Inc.*.......................... 119,990
4,800 NOVA Corp.*................................................. 134,100
18,870 Robert Half International, Inc.*............................ 537,795
7,310 Viad Corp. ................................................. 199,197
-------------------------------------------------------------------------------------
2,142,172
-------------------------------------------------------------------------------------
COMPUTERS -- 2.4%
3,950 Affiliated Computer Services, Class A Shares*............... 130,597
3,950 CheckFree Holdings Corp.*................................... 203,672
5,710 DST Systems, Inc.*.......................................... 434,673
6,500 MarchFirst, Inc.*........................................... 118,625
8,567 Quantum Corp.*.............................................. 82,993
7,061 SunGard Data Systems Inc.*.................................. 218,891
3,303 Synopsys, Inc.*............................................. 114,160
1,005 Veritas Software Corp.*..................................... 113,581
-------------------------------------------------------------------------------------
1,417,192
-------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE -- 0.5%
3,500 Fastenal Co. ............................................... 177,188
3,135 Tech Data Corp.*............................................ 136,568
-------------------------------------------------------------------------------------
313,756
-------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 3.0%
9,527 A.G. Edwards & Sons, Inc. .................................. 371,553
3,350 The Bear Stearns Cos. Inc. ................................. 139,444
15,966 E*TRADE Group, Inc.* ....................................... 263,439
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE> 124
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED FINANCIAL SERVICES -- 3.0% (CONTINUED)
4,150 Federated Investors, Inc. .................................. $ 145,509
4,640 The FINOVA Group Inc. ...................................... 60,320
7,100 Heller Financial, Inc. ..................................... 145,550
4,150 Legg Mason, Inc. ........................................... 207,500
4,542 T. Rowe Price Associates, Inc. ............................. 193,035
8,300 Waddell & Reed Financial, Inc. ............................. 272,344
-------------------------------------------------------------------------------------
1,798,694
-------------------------------------------------------------------------------------
ELECTRIC -- 7.3%
4,715 Allegheny Energy Inc. ...................................... 129,073
7,200 Alliant Energy Co. ......................................... 187,200
12,570 Calpine Corp.*.............................................. 826,478
3,976 Constellation Energy Group.................................. 129,469
12,385 DPL Inc. ................................................... 271,696
6,400 DQE Inc. ................................................... 252,800
10,825 Energy East Corp. .......................................... 206,352
12,620 IPALCO Enterprises, Inc. ................................... 253,978
10,720 Minnesota Power Inc. ....................................... 185,590
11,036 The Montana Power Co. ...................................... 389,709
7,692 NiSource Inc. .............................................. 143,264
9,194 Northeast Utilities......................................... 199,969
10,047 OGE Energy Corp. ........................................... 185,869
6,131 Pinnacle West Capital Corp. ................................ 207,687
11,010 Public Service Co. of New Mexico............................ 169,967
9,539 SCANA Corp. ................................................ 230,128
13,894 TECO Energy Inc. ........................................... 278,746
8,607 Wisconsin Energy Corp. ..................................... 170,526
-------------------------------------------------------------------------------------
4,418,501
-------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT -- 0.3%
2,706 Molex Inc. ................................................. 130,226
2,800 UCAR International Inc.*.................................... 36,575
-------------------------------------------------------------------------------------
166,801
-------------------------------------------------------------------------------------
ELECTRONICS -- 8.6%
8,285 Arrow Electronics, Inc.*.................................... 256,835
2,700 Avnet, Inc. ................................................ 159,975
7,730 Integrated Device Technology, Inc.*......................... 462,834
12,290 Jabil Circuit, Inc.*........................................ 609,891
7,900 Micrel, Inc.*............................................... 343,156
5,145 Microchip Technology Inc.*.................................. 299,777
4,600 Sawtek Inc.*................................................ 264,787
9,610 SCI Systems Inc.*........................................... 376,592
10,323 Symbol Technologies, Inc. .................................. 557,442
10,402 Vishay Intertechnology Inc.*................................ 394,626
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE> 125
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS -- 8.6% (CONTINUED)
12,975 Vitesse Semiconductors Corp.*............................... $ 954,473
3,810 Waters Corp.*............................................... 475,536
-------------------------------------------------------------------------------------
5,155,924
-------------------------------------------------------------------------------------
ENTERTAINMENT -- 0.4%
1,450 International Speedway Corp., Class A Shares................ 59,994
16,385 Park Place Entertainment Corp.*............................. 199,692
-------------------------------------------------------------------------------------
259,686
-------------------------------------------------------------------------------------
FOOD -- 2.1%
6,850 Dreyer's Grand Ice Cream, Inc. ............................. 143,850
3,563 Hannaford Brothers Co. ..................................... 256,091
9,780 Hormel Foods Corp. ......................................... 164,426
14,339 IBP, Inc. .................................................. 221,358
5,905 McCormick & Co., Inc., Non-voting Shares.................... 191,913
5,910 Suiza Foods Corp.*.......................................... 288,851
-------------------------------------------------------------------------------------
1,266,489
-------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 1.2%
3,070 Bowater Inc. ............................................... 135,464
9,294 Consolidated Papers, Inc. .................................. 339,812
9,215 Georgia-Pacific Corp. ...................................... 199,274
4,950 P.H. Glatfelter Co. ........................................ 50,428
-------------------------------------------------------------------------------------
724,978
-------------------------------------------------------------------------------------
GAS -- 0.7%
11,909 Keyspan Corp. .............................................. 366,202
3,976 MCN Energy Group Inc. ...................................... 84,987
-------------------------------------------------------------------------------------
451,189
-------------------------------------------------------------------------------------
HAND/MACHINE TOOLS -- 0.4%
1,915 SPX Corp.*.................................................. 231,595
-------------------------------------------------------------------------------------
HEALTH CARE -- 3.7%
5,600 Beckman Coulter Inc.*....................................... 326,900
14,080 Health Management Associates, Inc.* ........................ 183,920
7,369 Lincare Holdings, Inc.* .................................... 181,462
1,850 MiniMed Inc.* .............................................. 218,300
4,985 Oxford Health Plans, Inc.*.................................. 118,705
2,794 Pacificare Health System Inc.*.............................. 168,164
11,492 Stryker Corp. .............................................. 502,777
6,410 Trigon Healthcare, Inc.*.................................... 330,516
6,205 VISX, Inc.*................................................. 174,128
-------------------------------------------------------------------------------------
2,204,872
-------------------------------------------------------------------------------------
HOME BUILDERS -- 0.1%
8,013 Clayton Homes Inc. ......................................... 64,104
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE> 126
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------
<C> <S> <C>
HOME FURNISHINGS -- 0.8%
9,460 Furniture Brands International, Inc.*....................... $ 143,083
4,983 Leggett & Platt, Inc. ...................................... 82,219
2,700 Polycom Inc.*............................................... 254,053
-------------------------------------------------------------------------------------
479,355
-------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS/WARES -- 0.1%
5,946 Dial Corp. ................................................. 61,690
-------------------------------------------------------------------------------------
INSURANCE -- 2.6%
5,925 Allmerica Financial Corp. .................................. 310,322
5,426 Ambac Financial Group, Inc. ................................ 297,413
5,886 American Financial Group, Inc. ............................. 146,046
12,531 Old Republic International Corp. ........................... 206,761
5,946 The PMI Group Inc. ......................................... 282,435
5,840 Protective Life Corp. ...................................... 155,490
3,622 Reliastar Financial Corp. .................................. 189,929
-------------------------------------------------------------------------------------
1,588,396
-------------------------------------------------------------------------------------
IRON/STEEL -- 0.2%
10,232 Ryerson Tull, Inc. ......................................... 106,157
-------------------------------------------------------------------------------------
LEISURE TIME -- 0.4%
14,080 Callaway Golf Co. .......................................... 229,680
-------------------------------------------------------------------------------------
MACHINERY - DIVERSIFIED -- 0.7%
2,150 Briggs & Stratton Corp. .................................... 73,638
5,765 Imation Corp.*.............................................. 169,347
4,146 Tecumseh Products Co., Class A Shares....................... 158,325
-------------------------------------------------------------------------------------
401,310
-------------------------------------------------------------------------------------
MEDIA -- 4.4%
10,260 Belo Corp. -- Series A...................................... 177,626
2,298 Chris Craft Industries, Inc.*............................... 151,812
6,270 Hispanic Broadcasting Corp.*................................ 207,694
5,365 Houghton Mifflin Co. ....................................... 250,478
3,600 Media General Inc., Class A Shares.......................... 174,825
5,810 Readers Digest Association Inc., Class A Shares............. 230,948
6,825 Univision Communications, Inc., Class A Shares*............. 706,387
970 Washington Post Co., Class B Shares......................... 463,660
7,840 Westwood One Inc.*.......................................... 267,540
-------------------------------------------------------------------------------------
2,630,970
-------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING -- 1.3%
6,200 Carlisle Cos. Inc. ......................................... 279,000
4,950 Pall Corp. ................................................. 91,575
4,578 Pentair, Inc. .............................................. 162,519
4,578 Teleflex Inc. .............................................. 163,663
5,869 Trinity Industries Inc. .................................... 108,577
-------------------------------------------------------------------------------------
805,334
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE> 127
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------
<C> <S> <C>
OFFICE FURNISHINGS -- 0.3%
6,770 Herman Miller, Inc. ........................................ $ 175,174
-------------------------------------------------------------------------------------
OIL & GAS PRODUCERS -- 4.8%
5,865 Devon Energy Corp. ......................................... 329,540
9,141 Ensco International, Inc. .................................. 327,362
11,622 Global Marine, Inc.*........................................ 327,595
3,150 Helmerich & Payne, Inc. .................................... 117,731
3,185 Murphy Oil Corp. ........................................... 189,308
9,035 Nabors Industries Inc.*..................................... 375,517
3,950 Noble Affiliates Inc. ...................................... 147,138
9,112 Noble Drilling Corp.*....................................... 375,301
11,830 Ocean Energy Inc.*.......................................... 167,838
7,125 Pioneer Natural Resources Co.*.............................. 90,844
11,700 Santa Fe Snyder, Corp.*..................................... 133,087
8,543 Ultramar Diamond Shamrock Corp. ............................ 211,973
3,600 Valero Energy Corp. ........................................ 114,300
-------------------------------------------------------------------------------------
2,907,534
-------------------------------------------------------------------------------------
OIL & GAS SERVICES -- 2.3%
5,915 BJ Services Co. ............................................ 369,688
7,135 Grant Prideco Inc.*......................................... 178,375
3,800 Hanover Compressor Co.*..................................... 144,400
3,135 Smith International Inc.*................................... 228,267
3,482 Tidewater, Inc. ............................................ 125,352
3,501 Varco International, Inc.*.................................. 81,398
7,135 Weatherford International, Inc.*............................ 284,062
-------------------------------------------------------------------------------------
1,411,542
-------------------------------------------------------------------------------------
PACKAGING & CONTAINERS -- 0.2%
6,602 Sonoco Products Co. ........................................ 135,754
-------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.9%
5,850 Express Scripts Inc., Class A Shares*....................... 363,431
6,410 Forest Laboratories Inc., Class A Shares*................... 647,410
2,690 Gilead Sciences Inc.*....................................... 191,326
4,950 ICN Pharmaceuticals Inc. ................................... 137,672
14,535 Ivax Corp.*................................................. 603,203
6,484 Mylan Laboratories Inc. .................................... 118,333
6,266 Sepracor Inc.*.............................................. 755,836
6,650 Sybron International Corp.*................................. 131,753
-------------------------------------------------------------------------------------
2,948,964
-------------------------------------------------------------------------------------
PIPELINES -- 2.2%
10,550 Dynegy Inc., Class A Shares................................. 720,697
10,450 Kinder Morgan Inc. ......................................... 361,178
5,551 National Fuel Gas Co. ...................................... 270,611
-------------------------------------------------------------------------------------
1,352,486
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE> 128
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL -- 4.5%
7,939 Barnes & Noble Inc.*........................................ $ 176,643
3,263 Bed Bath & Beyond Inc.*..................................... 118,284
8,025 BJ's Wholesale Club, Inc.*.................................. 264,825
8,564 Brinker International Inc.*................................. 250,497
6,800 CDW Computer Centers, Inc.*................................. 425,000
7,271 Dollar Tree Stores Inc.*.................................... 287,659
18,458 Family Dollar Stores, Inc. ................................. 361,085
10,350 Outback Steakhouse, Inc.*................................... 302,738
3,950 Payless Shoesource Inc.*.................................... 202,437
11,751 Ross Stores, Inc. .......................................... 200,501
3,600 Williams-Sonoma, Inc.*...................................... 116,775
-------------------------------------------------------------------------------------
2,706,444
-------------------------------------------------------------------------------------
SAVINGS & LOANS -- 0.8%
7,416 Charter One Financial, Inc. ................................ 170,568
4,428 Dime Bancorp, Inc. ......................................... 69,741
7,183 GreenPoint Financial Corp. ................................. 134,681
13,077 Sovereign Bancorp, Inc. .................................... 91,948
-------------------------------------------------------------------------------------
466,938
-------------------------------------------------------------------------------------
SEMICONDUCTORS -- 3.8%
1,178 Analog Devices, Inc.*....................................... 89,528
15,210 Atmel Corp.*................................................ 560,869
5,050 Burr-Brown Corp.*........................................... 437,772
9,180 Cypress Semiconductors Corp.*............................... 387,855
4,930 QLogic Corp.*............................................... 325,688
3,250 TranSwitch Corp.*........................................... 250,860
2,450 TriQuint Semiconductor, Inc.*............................... 234,434
-------------------------------------------------------------------------------------
2,287,006
-------------------------------------------------------------------------------------
SOFTWARE -- 6.9%
7,850 Acxiom Corp.*............................................... 213,912
12,766 Cadence Design Systems, Inc.*............................... 260,107
1,900 CSG Systems International, Inc.*............................ 106,519
4,805 Electronic Arts Inc.*....................................... 350,465
9,145 Fiserv, Inc.*............................................... 395,521
21,800 Informix Corp.*............................................. 162,138
14,352 Intuit, Inc.*............................................... 593,814
5,538 Legato Systems, Inc.*....................................... 83,762
2,450 Macromedia, Inc.*........................................... 236,884
9,425 Network Associates Inc.*.................................... 192,034
3,400 NVIDIA Corp.*............................................... 216,113
7,816 Rational Software Corp.*.................................... 726,400
10,311 Reynolds & Reynolds Co., Class A Shares..................... 188,176
9,100 Sybase, Inc.*............................................... 209,300
4,050 Symantec Corp.*............................................. 218,447
-------------------------------------------------------------------------------------
4,153,592
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE> 129
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT -- 1.4%
3,800 ADTRAN, Inc.*............................................... $ 227,525
1,782 Comverse Technology, Inc.*.................................. 165,726
6,650 Harris Corp. ............................................... 217,788
4,600 Powerwave Technologies Inc.*................................ 202,400
-------------------------------------------------------------------------------------
813,439
-------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 1.1%
18,960 Broadwing Inc. ............................................. 491,775
2,423 Cox Communications, Inc., Class A Shares*................... 110,398
2,102 Winstar Communications, Inc.*............................... 71,205
-------------------------------------------------------------------------------------
673,378
-------------------------------------------------------------------------------------
TELEPHONE -- 0.8%
4,935 Telephone and Data Systems, Inc. ........................... 494,734
-------------------------------------------------------------------------------------
TEXTILES -- 0.7%
8,610 Cintas Corp. ............................................... 315,879
8,482 Shaw Industries Inc. ....................................... 106,025
-------------------------------------------------------------------------------------
421,904
-------------------------------------------------------------------------------------
TOBACCO -- 0.4%
7,620 R.J. Reynolds Tobacco Holdings, Inc. ....................... 212,884
200 Universal Corp. ............................................ 4,225
-------------------------------------------------------------------------------------
217,109
-------------------------------------------------------------------------------------
TRANSPORTATION -- 0.7%
5,850 C.H. Robinson Worldwide, Inc. .............................. 289,575
5,489 CNF Transportation, Inc. ................................... 124,875
-------------------------------------------------------------------------------------
414,450
-------------------------------------------------------------------------------------
TRUCKING & LEASING -- 0.4%
6,588 GATX Corp. ................................................. 223,991
-------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $53,685,871).................... 56,530,679
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE> 130
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
DISCIPLINED MID CAP STOCK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
---------------------------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS -- 0.8%
U.S. Treasury Bills:
$ 70,000 5.580% due 9/14/00........................................ $ 69,186
80,000 5.600% due 9/14/00........................................ 79,067
50,000 5.650% due 9/14/00........................................ 49,411
300,000 5.660% due 9/14/00........................................ 296,466
---------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost -- $494,130).......... 494,130
---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.3%
3,196,000 Morgan Stanley Dean Witter & Co., 6.500% due 7/3/00;
Proceeds at maturity -- $3,197,731;
(Fully collateralized by U.S. Treasury Notes, 11.875% due
11/15/03; Market value -- $3,260,567)
(Cost -- $3,196,000)...................................... 3,196,000
---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $57,376,001**)........... $60,220,809
---------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE> 131
--------------------------------------------------------------------------------
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
"CC" 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, CCC and CC -- 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 CC 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 "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 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.
Ca and C -- Bonds rated "Ca" and "C" represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
44
<PAGE> 132
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
<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.................... $59,984,136 $128,575,956 $365,533,903 $50,985,820 $44,205,597 $57,376,001
Foreign currency, at cost............... -- 1,293,600 2,521 -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Investments, at value................... $59,239,476 $139,200,445 $480,865,151 $44,331,254 $43,212,262 $60,220,809
Foreign currency, at value.............. -- 1,301,324 480 -- -- --
Cash.................................... 709 5,745 76,916 9,865 178 393
Receivable for securities sold.......... 2,739,325 740,155 7,760,730 204,000 116,718 --
Receivable for open forward foreign
currency contracts (Note 7)........... -- 67 22,356 -- -- --
Dividends and interest receivable....... 1,057,252 245,873 122,604 857,259 56,688 29,884
Receivable from manager................. -- -- -- -- -- 15,258
Collateral for securities on loan (Note
9).................................... -- 11,456,572 -- -- --
---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................ 63,036,762 152,950,181 488,848,237 45,402,378 43,385,846 60,266,344
---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased........ 2,692,359 1,580,949 8,394,935 256,383 -- --
Investment advisory fees payable........ 16,413 94,436 289,580 23,922 23,093 33,975
Administration fees payable............. 2,688 6,868 23,166 2,207 2,217 2,921
Payable for securities on loan (Note
9).................................... -- 11,456,572 -- -- -- --
Payable for broker - variation margin... -- -- -- -- -- 10,950
Accrued expenses........................ 24,247 46,029 21,962 33,565 19,411 16,580
---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES....................... 2,735,707 13,184,854 8,729,643 316,077 44,721 64,426
---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.......................... $60,301,055 $139,765,327 $480,118,594 $45,086,301 $43,341,125 $60,201,918
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital......................... $61,039,180 $128,430,643 $309,242,116 $50,089,298 $42,610,168 $51,608,849
Undistributed (overdistributed) net
investment income..................... 2,000,990 (1,025,855) (470,032) 2,444,041 292,992 98,869
Accumulated net realized gain (loss) on
security transactions, futures
contracts and foreign currencies...... (1,994,262) 1,716,459 56,016,827 (792,472) 1,431,300 5,684,969
Net unrealized appreciation
(depreciation) of investments, futures
contracts and foreign currencies...... (744,853) 10,644,080 115,329,683 (6,654,566) (993,335) 2,809,231
---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.......................... $60,301,055 $139,765,327 $480,118,594 $45,086,301 $43,341,125 $60,201,918
---------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING........................ 5,716,628 9,893,102 17,445,380 4,431,358 2,955,226 3,726,668
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE................ $10.55 $14.13 $27.52 $10.17 $14.67 $16.15
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE> 133
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
<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.................................. $2,156,386 $ 298,303 $ 1,169,805 $ 2,585,127 $ 15,434 $ 86,373
Dividends................................. -- 1,474,903 290,062 56,029 467,180 246,230
Less: Foreign withholding tax............. -- (182,345) (22,469) -- (2,565) --
---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................... 2,156,386 1,590,861 1,437,398 2,641,156 480,049 332,603
---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)......... 95,727 533,393 1,700,328 152,214 143,928 180,832
Administration fees (Note 2).............. 17,766 38,792 136,026 14,050 13,817 15,500
Audit and legal........................... 13,225 12,929 13,002 12,929 12,929 12,929
Pricing service fees...................... 10,940 4,177 275 1,343 -- 124
Shareholder and system servicing fees..... 6,637 7,426 7,575 6,732 6,681 7,701
Shareholder communications................ 4,972 6,714 19,703 4,211 4,262 2,417
Custody................................... 2,586 42,879 30,475 2,586 2,535 10,860
Trustees' fees............................ 1,989 1,989 1,989 1,989 1,989 1,989
Registration fees......................... 348 697 1,101 120 198 319
Other..................................... 834 7,948 838 550 548 870
---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................ 155,024 656,944 1,911,312 196,724 186,887 233,541
---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)................ 2,001,362 933,917 (473,914) 2,444,432 293,162 99,062
---------------------------------------------------------------------------------------------------------------------------------
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)................. (733,580) 2,391,137 56,538,535 (548,118) 1,594,686 5,698,302
Foreign currency transactions........... -- (255,522) 2,572 -- -- --
Futures contracts....................... -- -- -- -- -- 204,260
---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).................. (733,580) 2,135,615 56,541,107 (548,118) 1,594,686 5,902,562
---------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments,
Futures Contracts and Foreign Currencies:
Beginning of period..................... (995,101) 17,819,382 185,626,513 (3,936,551) 3,245,758 4,533,694
End of period........................... (744,853) 10,644,080 115,329,683 (6,654,566) (993,335) 2,809,231
---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION).......................... 250,248 (7,175,302) (70,296,830) (2,718,015) (4,239,093) (1,724,463)
---------------------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCIES.......... (483,332) (5,039,687) (13,755,723) (3,266,133) (2,644,407) 4,178,099
---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS................................ $1,518,030 $(4,105,770) $(14,229,637) $(821,701) $(2,351,245) $4,277,161
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE> 134
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE
30, 2000
<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)........ $ 2,001,362 $ 933,917 $ (473,914) $ 2,444,432 $ 293,162 $ 99,062
Net realized gain (loss)............ (733,580) 2,135,615 56,541,107 (548,118) 1,594,686 5,902,562
Change in net unrealized
appreciation (depreciation)...... 250,248 (7,175,302) (70,296,830) (2,718,015) (4,239,093) (1,724,463)
---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS.................. 1,518,030 (4,105,770) (14,229,637) (821,701) (2,351,245) 4,277,161
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............... (2,975,955) (3,151,671) -- (4,325,900) (499,440) (86,500)
Net realized gains.................. -- (4,240,412) (24,261,927) -- (1,987,461) (2,943,719)
---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS.... (2,975,955) (7,392,083) (24,261,927) (4,325,900) (2,486,901) (3,030,219)
---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares.... 7,601,379 302,533,519 83,742,767 3,536,719 2,209,972 18,332,481
Net asset value of shares issued for
reinvestment of dividends........ 2,975,955 7,392,083 24,261,927 4,325,900 2,486,901 3,030,219
Cost of shares reacquired........... (8,156,737) (277,219,250) (2,348,112) (7,444,282) (6,129,795) (7,475,481)
---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS..... 2,420,597 32,706,352 105,656,582 418,337 (1,432,922) 13,887,219
---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS..... 962,672 21,208,499 67,165,018 (4,729,264) (6,271,068) 15,134,161
NET ASSETS:
Beginning of period................. 59,338,383 118,556,828 412,953,576 49,815,565 49,612,193 45,067,757
---------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD*...................... $60,301,055 $139,765,327 $480,118,594 $45,086,301 $43,341,125 $60,201,918
---------------------------------------------------------------------------------------------------------------------------------
* Includes undistributed
(overdistributed)
net investment income of:......... $2,000,990 $(1,025,855) $(470,032) $2,444,041 $292,992 $98,869
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE> 135
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) 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.
48
<PAGE> 136
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Quality Bond, Lazard International Stock, MFS Emerging
Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock
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.
49
<PAGE> 137
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
advisor 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"), 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney
Private Trust Company, another subsidiary of Citigroup, acts as the Portfolios'
transfer agent. CFTC receives accounts fees and asset-based fees that vary
according to the account size and type of account. During the six months ended
June 30, 2000, each Portfolio, TQB, LIS, MEG, FHY, FSP and DMCS, paid transfer
agent fees of $2,500 to CFTC.
One Trustee and all officers of the Trust are employees of Citigroup, or
its subsidiaries.
3. INVESTMENTS
During the six months ended June 30, 2000, 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............................ $ 38,556,800 $ 39,856,928
Lazard International Stock Portfolio........................ 55,647,654 29,354,152
MFS Emerging Growth Portfolio............................... 489,147,372 420,108,525
Federated High Yield Portfolio.............................. 4,441,436 5,809,710
Federated Stock Portfolio................................... 6,024,297 9,456,296
Disciplined Mid Cap Stock Portfolio......................... 26,131,898 18,087,435
-----------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 138
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At June 30, 2000, 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........................... $ 201,750 $ (946,410) $ (744,660)
Lazard International Stock Portfolio....................... 17,908,378 (7,283,889) 10,624,489
MFS Emerging Growth Portfolio.............................. 130,242,959 (14,911,711) 115,331,248
Federated High Yield Portfolio............................. 1,353,503 (8,008,069) (6,654,566)
Federated Stock Portfolio.................................. 6,825,313 (7,818,648) (993,335)
Disciplined Mid Cap Stock Portfolio........................ 8,038,385 (5,193,577) 2,844,808
-----------------------------------------------------------------------------------------------------------
</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
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 Portfolios' basis in the contract.
The Portfolios enter into such contracts to hedge a portion of their
portfolios. The Portfolios bear the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At June 30, 2000, DMCS had the following open futures contracts.
<TABLE>
<CAPTION>
EXPIRATION # OF BASIS MARKET UNREALIZED
MONTH/YEAR CONTRACTS VALUE VALUE LOSS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS TO BUY:
S&P Mid Cap 400 Index......................... 9/00 3 $768,027 $732,450 $(35,577)
---------------------------------------------------------------------------------------------------------
</TABLE>
6. OPTIONS CONTRACTS
The LIS, MEG, FHY and DMCS Portfolios may from time to time enter into
option 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 June 30, 2000, the Portfolios had no open purchased call or put option
contracts.
51
<PAGE> 139
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 six months ended June 30, 2000, the Portfolios did not write any
call or put option contracts.
7. FORWARD FOREIGN CURRENCY CONTRACTS
LIS and MFS Portfolios may enter into forward foreign currency contracts.
At June 30, 2000, LIS and MFS Portfolios had open forward foreign currency
contracts as described below. The Portfolios bear the market risk that arises
from changes in foreign currency exchange rates. The unrealized gain on the
contracts reflected in the accompanying financial statements were as follows:
LAZARD INTERNATIONAL STOCK PORTFOLIO
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO BUY:
British Pound......................................... 115,156 $174,345 7/3/00 $67
------------------------------------------------------------------------------------------------------
</TABLE>
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO SELL:
British Pound......................................... 934,485 $141,488,346 7/6/00 $22,356
------------------------------------------------------------------------------------------------------
</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.
52
<PAGE> 140
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At June 30, 2000, LIS Portfolio loaned common stocks having a value of
approximately $11,130,265 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
SECURITY DESCRIPTION VALUE
-------------------------------------------------------------------------
<S> <C>
TIME DEPOSITS:
Abbey National London, 7.188% due 7/3/00.................. $ 478,094
ABN AMRO Bank - Tokyo, 7.125% due 7/3/00.................. 478,094
Allied Irish, 7.125% due 7/3/00........................... 478,094
Banca Commerciale Italiano, London, 7.250% due 7/3/00..... 478,094
Banco Bilbao Viz Argentaria, Milan, 7.219% due 7/3/00..... 478,094
Banco Santander - Paris, 7.125% due 7/3/00................ 478,094
Bank of Austria London, 7.250% due 7/3/00................. 478,094
Bank of Ireland, 7.125% due 7/3/00........................ 478,094
Bank of Scotland, London, 7.156% due 7/3/00............... 478,095
Banque Bruxelles Lambert London, 7.250% due 7/3/00........ 478,095
Barclays Bank PLC, 7.125% due 7/3/00...................... 478,095
Bayrische Hypo - Und Vereinsbank AG, 7.125% due 7/3/00.... 478,095
BNP Paribas, London, 7.125% due 7/3/00.................... 168,261
Citibank London, 7.125% due 7/3/00........................ 478,095
Commerzbank AG Tokyo, 7.125% due 7/3/00................... 398,412
Credit Agricole Indozuez Singapore, 7.125% due 7/3/00..... 443,532
Credit Commercial London, 7.125% due 7/3/00............... 478,095
Dresdner Tokyo, 7.125% due 7/3/00......................... 478,095
Fortis Bank 7.188% due 7/3/00............................. 478,095
Halifax PLC, 7.125% due 7/3/00............................ 478,095
Landesbank Baden - Wuerttemberg, 7.188% due 7/3/00........ 478,095
Nordeutsche Landesbank Singapore, 7.125% due 7/3/00....... 478,095
Societe Generale, 7.125% due 7/3/00....................... 478,095
Toronto Dominion - London, 7.125% due 7/3/00.............. 478,095
Westdeutsche Landesbank Singapore, 7.125% due 7/3/00...... 390,444
REPURCHASE AGREEMENT:
CS First Boston Corp., 7.225% due 7/3/00.................. 15,936
-------------------------------------------------------------------------
Total....................................................... $11,456,572
-------------------------------------------------------------------------
</TABLE>
Income earned by LIS Portfolio from securities loaned for the six months
ended June 30, 2000 was $18,994.
10. CAPITAL LOSS CARRYFORWARDS
At December 31, 1999, TQB Portfolio and FHY 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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS QUALITY BOND PORTFOLIO
Shares sold................................................. 696,359 2,774,520
Shares issued on reinvestment............................... 283,155 24,905
Shares reacquired........................................... (747,071) (616,330)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 232,443 2,183,095
-----------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 141
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL STOCK PORTFOLIO
Shares sold................................................. 20,666,736 13,982,539
Shares issued on reinvestment............................... 530,658 12,930
Shares reacquired........................................... (18,881,869) (10,531,940)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 2,315,525 3,463,529
-----------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
Shares sold................................................. 2,791,156 4,058,111
Shares issued on reinvestment............................... 888,390 --
Shares reacquired........................................... (81,974) (291,389)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 3,597,572 3,766,722
-----------------------------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
Shares sold................................................. 314,779 1,297,954
Shares issued on reinvestment............................... 424,524 5,180
Shares reacquired........................................... (663,195) (637,578)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 76,108 665,556
-----------------------------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
Shares sold................................................. 141,388 870,702
Shares issued on reinvestment............................... 168,147 24,737
Shares reacquired........................................... (390,482) (121,595)
-----------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (80,947) 773,844
-----------------------------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
Shares sold................................................. 1,100,041 1,570,920
Shares issued on reinvestment............................... 186,705 89,337
Shares reacquired........................................... (446,961) (130,320)
-----------------------------------------------------------------------------------------------------
Net Increase................................................ 839,785 1,529,937
-----------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 142
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
TRAVELERS QUALITY BOND PORTFOLIO 2000(1)(2) 1999(2) 1998 1997 1996(3)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $10.82 $10.76 $10.36 $10.10 $10.00
------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4).............. 0.36 0.64 0.37 0.43 0.19
Net realized and unrealized gain
(loss)............................. (0.08) (0.51) 0.51 0.29 0.16
------------------------------------------------------------------------------------------------------------
Total Income From Operations............ 0.28 0.13 0.88 0.72 0.35
------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.55) (0.00)* (0.37) (0.43) (0.19)
Net realized gains.................... -- (0.07) (0.11) (0.03) (0.06)
------------------------------------------------------------------------------------------------------------
Total Distributions..................... (0.55) (0.07) (0.48) (0.46) (0.25)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $10.55 $10.82 $10.76 $10.36 $10.10
------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................ 2.59%++ 1.09% 8.49% 7.14% 3.56%++
------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $60,301 $59,338 $35,507 $9,468 $5,273
------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)........................ 0.52%+ 0.54% 0.63% 0.75% 0.75%+
Net investment income................. 6.78+ 5.86 5.51 5.80 5.62+
------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................. 71% 357% 364% 295% 35%
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived all or a portion 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 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 FEE WAIVERS AND REIMBURSEMENT
------------------------ ------------------------------
<S> <C> <C>
1997 $0.03 1.13%
1996 0.03 1.76+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.75%.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
55
<PAGE> 143
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL STOCK PORTFOLIO 2000(1)(2) 1999(2) 1998(2) 1997 1996(3)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $15.65 $12.88 $11.57 $10.78 $10.00
--------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(4)..................... 0.11 0.17 0.10 0.05 0.02
Net realized and unrealized gain (loss)...... (0.88) 2.63 1.37 0.87 0.76
--------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............ (0.77) 2.80 1.47 0.92 0.78
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income........................ (0.32) (0.03) (0.04) (0.09) --
Net realized gains........................... (0.43) (0.00)* (0.12) (0.04) --
--------------------------------------------------------------------------------------------------------------
Total Distributions............................ (0.75) (0.03) (0.16) (0.13) --
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD................. $14.13 $15.65 $12.88 $11.57 $10.78
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN................................... (4.90)%++ 21.78% 12.59% 8.50% 7.80%++
--------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S).............. $139,765 $118,557 $53,008 $14,229 $4,322
--------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................... 1.02%+ 1.06% 1.25% 1.25% 1.25%+
Net investment income........................ 1.45+ 1.25 0.78 0.66 0.42+
--------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 24% 35% 44% 22% 9%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 1, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived all or a portion 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 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 FEE WAIVERS AND REIMBURSEMENT
------------------------ ------------------------------
<S> <C> <C>
1997 $0.03 1.76%
1996 0.07 2.87+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.25%.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
56
<PAGE> 144
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
MFS EMERGING GROWTH PORTFOLIO 2000(1) 1999(2) 1998(2) 1997 1996(3)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $29.82 $16.87 $12.56 $10.55 $10.00
-----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)(4)............ (0.03) (0.06) (0.07) (0.03) 0.03
Net realized and unrealized gain (loss).... (0.80) 13.01 4.38 2.26 0.57
-----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.......... (0.83) 12.95 4.31 2.23 0.60
-----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income...................... -- -- -- -- (0.03)
Net realized gains......................... (1.47) -- -- (0.21) (0.01)
Capital.................................... -- -- -- (0.01) (0.01)
-----------------------------------------------------------------------------------------------------------
Total Distributions.......................... (1.47) -- -- (0.22) (0.05)
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $27.52 $29.82 $16.87 $12.56 $10.55
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN................................. (2.74)%++ 76.76% 34.32% 21.15% 6.00%++
-----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............ $480,119 $412,954 $170,059 $70,347 $12,924
-----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5)............................. 0.85%+ 0.87% 0.89% 0.95% 0.95%+
Net investment income (loss)............... (0.21)+ (0.29) (0.47) (0.40) 0.55+
-----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE...................... 102% 168% 77% 94% 49%
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(4) Travelers Insurance has waived all or a portion 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 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 FEE WAIVERS AND REIMBURSEMENT
------------------------ ------------------------------
<S> <C> <C>
1997 $0.01 1.05%
1996 0.06 2.09+
</TABLE>
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
57
<PAGE> 145
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
FEDERATED HIGH YIELD PORTFOLIO 2000(1) 1999 1998 1997 1996(2)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $11.44 $11.11 $11.34 $10.42 $10.00
--------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3)...................... 0.64 1.01 0.71 0.60 0.31
Net realized and unrealized gain (loss)....... (0.83) (0.67) (0.18) 1.01 0.46
--------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............. (0.19) 0.34 0.53 1.61 0.77
--------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income......................... (1.08) (0.00)* (0.71) (0.60) (0.31)
Net realized gains............................ -- (0.01) (0.05) (0.09) (0.04)
--------------------------------------------------------------------------------------------------------
Total Distributions............................. (1.08) (0.01) (0.76) (0.69) (0.35)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................. $10.17 $11.44 $11.11 $11.34 $10.42
--------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................... (1.68)%++ 3.10% 4.71% 15.45% 7.61%++
--------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............... $45,086 $49,816 $40,989 $14,049 $5,381
--------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)................................ 0.84%+ 0.84% 0.90% 0.95% 0.95%+
Net investment income......................... 10.47+ 9.15 8.60 8.82 8.78+
--------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......................... 10% 23% 31% 43% 23%
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(3) Travelers Insurance has waived all or a portion 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 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 FEE WAIVERS AND REIMBURSEMENT
------------------------ ------------------------------
<S> <C> <C>
1997 $0.01 1.14%
1996 0.04 2.19+
</TABLE>
(4) 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.
58
<PAGE> 146
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
FEDERATED STOCK PORTFOLIO 2000(1) 1999 1998 1997 1996(2)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $16.34 $15.66 $13.83 $11.10 $10.00
--------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3)...................... 0.11 0.16 0.13 0.10 0.06
Net realized and unrealized gain (loss)....... (0.89) 0.68 2.33 3.60 1.20
--------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............. (0.78) 0.84 2.46 3.70 1.26
--------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income......................... (0.18) -- (0.13) (0.10) (0.06)
Net realized gains............................ (0.71) (0.16) (0.50) (0.87) (0.09)
Capital....................................... -- -- -- -- (0.01)
--------------------------------------------------------------------------------------------------------
Total Distributions............................. (0.89) (0.16) (0.63) (0.97) (0.16)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................. $14.67 $16.34 $15.66 $13.83 $11.10
--------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................... (4.80)%++ 5.34% 17.84% 33.41% 12.61%++
--------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)............... $43,341 $49,612 $35,420 $12,100 $3,380
--------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)................................ 0.81%+ 0.82% 0.91% 0.95% 0.95%+
Net investment income......................... 1.28+ 1.14 1.14 1.11 1.55+
--------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......................... 13% 23% 31% 74% 11%
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from August 30, 1996 (commencement of operations) to December
31, 1996.
(3) Travelers Insurance has waived all or a portion 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 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 FEE WAIVERS AND REIMBURSEMENT
------------------------ ------------------------------
<S> <C> <C>
1997 $0.02 1.16%
1996 0.08 3.03+
</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> 147
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
DISCIPLINED MID CAP STOCK PORTFOLIO 2000(1) 1999(2) 1998 1997(3)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $15.61 $14.34 $12.47 $10.00
---------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4).......................... 0.02 0.02 0.04 0.06
Net realized and unrealized gain.................. 1.41 1.84 2.05 3.37
---------------------------------------------------------------------------------------------------------
Total Income From Operations........................ 1.43 1.86 2.09 3.43
---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................. (0.03) (0.02) -- (0.06)
Net realized gains................................ (0.86) (0.57) (0.22) (0.90)
---------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.89) (0.59) (0.22) (0.96)
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD...................... $16.15 $15.61 $14.34 $12.47
---------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ 9.11%++ 13.47% 16.91% 34.38%++
---------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)................... $60,202 $45,068 $19,460 $6,169
---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5).................................... 0.91%+ 0.95% 0.95% 0.95%+
Net investment income............................. 0.38+ 0.28 0.48 0.85+
---------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 36% 71% 109% 74%
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from April 1, 1997 (commencement of operations) to December
31, 1997.
(4) Travelers Insurance has waived all or a portion of its fees for the year
ended December 31, 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 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 FEE WAIVERS AND REIMBURSEMENT
------------------------ ------------------------------
<S> <C> <C>
1999 $0.01 0.99%
1998 0.02 1.22
1997 0.08 1.82+
</TABLE>
(5) As a result of voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
60
<PAGE> 148
Investment Advisors
TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC
Hartford, Connecticut
Independent Auditors
KPMG LLP
New York, New York
Custodians
PFPC TRUST COMPANY
THE CHASE MANHATTAN BANK, N.A.
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Series Trust: Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated
Stock and Disciplined Mid Cap Stock Portfolios. It should not be used in
connection with any offer except in conjunction with the Prospectuses for the
Variable Annuity and Variable Universal Life Insurance products offered by The
Travelers Insurance Company or Travelers Life & Annuity Company, and the
Prospectuses for the underlying funds, which collectively contain all pertinent
information, including the applicable sales commissions.
Series Trust (Semi-Annual) (8-00) Printed in U.S.A.
<PAGE> 149
THE TRAVELERS VARIABLE
PRODUCTS FUNDS
SEMI-ANNUAL REPORTS
JUNE 30, 2000
[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
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 150
SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for the Travelers Variable
Products Funds -- Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Money Market Portfolio ("Trust" or "Portfolio") and the
Travelers Series Trust -- U.S. Government Securities, Social Awareness Stock and
Utilities Portfolios ("Portfolio(s)") for the period ended June 30, 2000. The
information stated in this letter represents the opinion of the manager or
managers and is not intended to be a forecast of future events, a guarantee of
future results nor investment advice. Further, there is no assurance that
certain securities may remain in or out of the Trusts or Portfolios. 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. Past performance is
not indicative of future results. We hope you find this report to be useful and
informative.
<TABLE>
<CAPTION>
The Performance of the Travelers Variable Products Funds* (December 31, 1999 - June 30, 2000)
<S> <C>
Managed Assets Trust.......................................... 2.66%
High Yield Bond Trust......................................... 1.20
Capital Appreciation Fund..................................... (1.02)
Money Market Portfolio........................................ 2.89
U.S. Government Securities Portfolio.......................... 5.16
Social Awareness Stock Portfolio.............................. (1.25)
Utilities Portfolio........................................... 6.29
</TABLE>
<TABLE>
<CAPTION>
MARKET SCHEDULE OF
SUBACCOUNT COMMENTARY INVESTMENTS
---------- ---------- -----------
<S> <C> <C>
Managed Assets Trust........................................ 2 8
High Yield Bond Trust....................................... 3 17
Capital Appreciation Fund................................... 3 23
Money Market Portfolio...................................... 4 25
U.S. Government Securities Portfolio........................ 36 40
Social Awareness Stock Portfolio............................ 36 41
Utilities Portfolio......................................... 37 44
</TABLE>
MARKET AND ECONOMIC OVERVIEW
Stocks declined in the second quarter of 2000, leaving many of the major indexes
down for the first half of the year as investors debated potential rate
increases by the Federal Reserve Board ("Fed"). Volatility continued to be a
major theme with both the Dow Jones Industrial Average ("DJIA")(1) and the
Nasdaq Composite Index ("Nasdaq")(2) registering record one-day point losses.
The breadth of the declines affected a wide range of stocks including many
small- and large-capitalization company stocks, growth stocks and value stocks.
(Growth stocks are shares of companies with historically strong and relatively
predictable earnings growth rates. Value stocks are shares of companies that are
believed to be undervalued but have positive longer-term business prospects.)
Momentum investing and dot.com stocks were out of favor replaced, in many cases,
by a renewed interest in companies that many investors believed may provide real
earnings and strong financials.
Concerns about higher interest rates peaked in mid-May, when the Fed raised
interest rates an additional 50 basis points.(3) The specter of rising rates was
a catalyst for the weak performance of all of the major indexes during the
period. The DJIA, which is made up of "Old Economy" companies, declined 8.44%
during the reporting period. (The "Old Economy" represents
---------------
* 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 The DJIA is a price-weighted average of 30 actively traded blue-chip stocks.
An investor cannot invest directly in an index.
2 The Nasdaq is a market value-weighted index that measures all domestic and
non-U.S. based securities listed on the NASDAQ stock market. An investor
cannot invest directly in an index.
3 A basis point is 0.01% or one one-hundredth of a percent.
1
<PAGE> 151
SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
--------------------------------------------------------------------------------
more established, "blue-chip" companies.) The Standard & Poor's 500 Index ("S&P
500")(4) of large-company stocks fell 0.43%, while the Standard and Poor's
MidCap 400 Index(5) ("S&P MidCap 400") of medium-size company stocks and the
Russell 2000 Index(6) of small-company stocks advanced 8.97% and 3.04%,
respectively, for the six months ended June 30, 2000.
For the sixth consecutive time in the last year, the Fed acted to raise interest
rates in May to slow the U.S. economy, increasing the federal funds rate by 50
basis points to 6.5%. (The federal funds rate is the interest rate that banks
with excess reserves at a Fed district bank charge other banks that need
overnight loans. The fed funds rate, as it is called, often points to the
direction of U.S. interest rates.) The increase of the target overnight interest
rate marked its highest level in nine years and reflected Fed action intended to
address risks of an economy with higher inflationary pressures.
The Fed continued to stress its concern that there is a disparity in the growth
of demand and potential supply, which may foster inflation and jeopardize the
economy's performance. In theory, higher rates may potentially hurt stocks,
because slower growth often hinders profits at the same time that alternative
investments become more attractive. Accordingly, many interest-rate sensitive
stocks experienced price declines after the recent Fed decision.
In June, many investors were relieved after the Fed left interest rates
unchanged during its latest policy meeting. Although the central bank noted that
inflation risks persist, the decision made against more interest rate increases
was ruled out for the time being. Generally, monetary policy takes time to
filter through the economy and the full effect of higher interest rates may not
be felt for months.
MANAGED ASSETS TRUST
Managed Assets Trust ("Trust") seeks to provide a high total investment return
through a fully managed investment policy. For the six months ended June 30,
2000, the Trust returned 2.66%. In comparison, the Lehman Brothers Government/
Corporate Bond Index(7) returned 4.18% and the S&P 500 returned a negative 0.43%
for the same period. (Past performance is not indicative of future results.)
Signs that the economy is returning to a more moderate growth path enabled
financial markets to recover in late May and June after suffering for most of
the first two months of the second quarter. The recovery included both stock
markets and credit risk areas of the U.S. bond markets. These markets benefited
by investors sharply increasing the probability that the end of the Fed's
tightening is in sight. The bond markets' forecast for the future of short-term
interest rates has now returned to where they were at the beginning of the year.
Bonds outperformed stocks led by U.S. Treasuries, mortgage-backed securities and
municipal bonds in the second quarter of 2000. The Lehman Brothers
Government/Corporate Bond Index was up 1.45% in the quarter versus a negative
2.65% return for the S&P 500. Smaller capitalization stocks underperformed with
the Russell 2000 Index down 3.78% and the Nasdaq down in price by over 13%.
The Trust outperformed the benchmark by 13 basis points in the quarter (negative
0.89% versus negative 1.02% for the blend of 60% S&P 500, 40% Lehman Brothers
Government/Corporate Bond Index). The stock portion of the Trust's portfolio
underperformed the S&P 500 in the second quarter by 45 basis points but is still
ahead by 39 basis points for the six months ended June 30, 2000.
The speculation in the stock market has started to unwind. Many Internet and
technology stocks are down sharply from their highs earlier in the year and are
actually having layoffs. The market has not benefited as much from the recent
decline in interest rates because earning expectations are declining along with
the slowdown in the pace of economic growth. The managers feel that the internal
corrections the market is undergoing are healthy and reduce the risk of
substantial decline in the broad indices. The biggest risk to the market is
accelerated economic growth leading to their view that the Fed, in turn, has to
be more aggressive.
---------------
4 The S&P 500 is a market capitalization measure of 500 widely held common
stocks. An investor cannot invest directly in an index.
5 The S&P MidCap 400 is a market-value weighted index, consisting of 400
domestic stocks chosen for market size liquidating and industry group
representation. An investor cannot invest directly in an index.
6 The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index. An investor cannot invest directly in an
index.
7 The Lehman Brothers Government/Corporate Bond Index tracks the performance of
the overall bond market and is a broad measure of the performance of
government and corporate fixed-rate debt issues. An investor cannot invest
directly in an index.
2
<PAGE> 152
SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
--------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
The High Yield Bond Trust ("Trust") seeks generous income. The assets of the
Trust will be invested in bonds which, as a class, sell at discounts from par
value and are typically higher-risk securities. For the six months ended June
30, 2000, the Trust returned 1.20%. In comparison, the Lehman Brothers Aggregate
Bond Index(8) posted a return of 3.99% for the same period. (Past performance is
not indicative of future results.)
Along with most credit sectors, the high yield market turned around in the
second quarter. The widening in spreads was proportional to risk, in general,
allowing lower-quality high yield issues to advance more strongly. At the
annualized pace thus far, however, the sector's performance was still poor based
on historical measures. Mutual fund flows into high yield investments picked up
at the end of quarter as well, but is still off for the year versus 1999.
Credit concerns have recently spilled from the high-tech industry, where
start-ups have been seeing a dry-up of venture capital and increased funding
costs, which has led to cash flow worries into mainstream markets such as the
finance and retail sectors. However, the default picture overall appears to be
somewhat unique, with increases in actual defaults accompanied by a decrease in
those that are close but have not yet defaulted.
The high yield sector for the year has been hit harder than any other sector of
the bond market, but in the second quarter, the high yield market performed
better than long-term corporate bonds and emerging market debt.
The managers think that if the current spread-tightening trend continues, there
is reason to believe that high yield bonds may continue to see more gains than
their investment grade counterparts,(9) due to a potential overreaction to
credit issues in the first five months of the year.
CAPITAL APPRECIATION FUND
The Capital Appreciation Fund ("Portfolio") seeks growth of capital through the
use of common stocks. Income is not an objective. The Portfolio invests
principally in common stocks of small to large companies that are expected to
experience wide fluctuations in price. For the six months ended June 30, 2000,
the Portfolio returned a negative 1.02%. In comparison, the S&P 500 returned a
negative 0.43% for the same period. (Past performance is not indicative of
future results.)
If one looks just on the surface, not much happened in the stock market in the
first half of 2000. The popular averages finished with only minor changes to the
downside. But scratch the surface, or better yet, ask any former day trader to
describe the period, and a far more fascinating and moreover, complex story
becomes evident. During the first two months of the year, speculative activity
in the stock market rivaled the greatest manias in history. After a blazing end
to the last century, many technology stocks continued to tear ahead, accompanied
by what the manager believes to be a sense of entitlement by people who were
convinced that their time had come to get rich merely by speculating in "New
Economy" stocks regardless of valuation or risk.
Meanwhile, the vast majority of sound companies not perceived to be part of that
technology wave suffered from neglect, if not outright liquidation. With
business conditions favorable, executives were at a loss to explain the poor
performance of their stocks. In fact, it was a flow-of-funds matter, as
investors switched money out of conservative investments into more "aggressive"
vehicles. Simply put, the rapid flow of money into the tech-laden NASDAQ(10) in
search of fast, and ultimately unrealistic gains, sucked the life out of the
rest of the stock market.
But by mid-March 2000, the Fed had raised interest rates enough to bite, and
with prices of many speculative stocks in the stratosphere, and market
capitalizations (i.e., the number of shares multiplied by the stock price) at
levels never seen before, there was not enough money to send them higher. Prices
weakened a bit, and recovered to within the heights seen in mid-March, and
started slipping again. Like the aftermath of a wild party, people who had known
nothing but good times, woke up feeling a bit queasy. Selling began slowly, but
picked up steam as panic began to replace greed, and by mid-April, only a month
after setting new highs, the Nasdaq declined 40%. By any historic standard that
should be considered a crash. In comparison, the bear market of 1973-1974 took
two years to decline 40%.
---------------
8 The Lehman Brothers Aggregate Bond Index is a broad based measure of the
performance of taxable bonds in the U.S. market with maturities of at least
one year. An investor cannot invest directly in an index.
9 Investment grade bonds are rated AAA to BBB by major credit rating agencies.
10 The NASDAQ is a computerized system that provides brokers and dealers with
price quotations for securities traded over the counter as well as for many
New York Stock Exchange listed securities.
3
<PAGE> 153
SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
--------------------------------------------------------------------------------
The manager has written in the past that it was a matter of if, and not when,
technology stocks would break. According to the manager, the consequences for
the overall market were dependent on whether money would then flow into the
previously neglected industrial and financial stocks. For a brief moment in
April, the picture appeared bright, as so-called "Old Economy" stocks rallied.
However, in June, Nasdaq began to recover, and most other stocks started
slipping. On balance, then, the overall market lost a bit of ground in the first
six months, but the internal rotation was intense and rapid, making it very
difficult to achieve much progress. In fact, the rapid rotation made it
relatively easy to lose money, as many stocks simply evaporated after momentum
broke. There were some big declines in stocks with household names and
widespread ownership.
The manager believes it is important to view the stock market with some
historical perspective. After several years of significantly above-average
gains, a flat or even declining market should not be viewed as a disaster.
Earnings did not keep pace with gains in stock prices over the past few years.
Therefore, a period during which earnings and dividends play catch-up would be a
reasonable scenario to expect. That may be preferable to a general
teeth-rattling decline that took the market to less excessive valuations.
Interestingly, for the first time in recent memory, the strong U.S. economy,
coupled with investor neglect of so many stocks, has created what the manager
thinks are many outstanding values, particularly in the industrial sector. The
series of interest rate rises by the Fed has caused people to wonder if we will
have to suffer a "hard landing," otherwise known as a steep recession.
In the manager's opinion, it is more likely that the Fed has engineered a "soft
landing" or slowdown, rather than sending the U.S. economy into a slump. It
seems possible that if that outcome becomes more widely accepted, money could
flow into some of the very inexpensive stocks that have become available. At any
rate, those areas of neglect now seem to have a much more favorable risk-reward
ratio than many of the high fliers, which even having come down, still sell at
price-to-earnings ("P/E") or price-to-revenue ratios(11) that are way too high
for comfort.
Throughout the first six months of 2000, the manager attempted to increase the
Portfolio's holdings in what the manager viewed as good companies when their
stocks were down, and trim positions when they got particularly expensive. The
manager did use the extreme weakness in Microsoft after the antitrust ruling to
add to the position of the portfolio.
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 six months ended June 30, 2000, the Portfolio returned 2.89%.
(Past performance is not indicative of future results.)
Please note that the investment in the Portfolio is not insured or guaranteed by
the Federal Deposit Insurance Corporation ("FDIC") or any other government
agency. Although the Portfolio seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Portfolio.
The Portfolio's average maturity was kept short at 20 days and gradually
lengthened to 30 days in order to capture higher yields. Currently, the
manager's target will be to keep the average life of the Portfolio at about 35
days. The manager believes that a peak in short-term interest rates may occur
later on this year or early in 2001 and will extend accordingly.
---------------
11 The P/E ratio is the price of a stock divided by its earnings per share. The
price-to-revenue ratio is the price of a stock divided by its revenues.
4
<PAGE> 154
SEMI-ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS
--------------------------------------------------------------------------------
In closing, we would like to thank you for your investment in Managed Assets
Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market
Portfolio.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
July 27, 2000
5
<PAGE> 155
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 6/30/00 (UNAUDITED)
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Six Months Ended 6/30/00+ 2.66%
Year Ended 6/30/00 9.73%
Five Years Ended 6/30/00 16.69%
Ten Years Ended 6/30/00 13.48%
CUMULATIVE TOTAL RETURN
-----------------------
6/30/90 through 6/30/00 254.22%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made on June 30, 1990,
assuming reinvestment of dividends, through June 30, 2000. The Lehman Brothers
Government/Corporate Bond Index is a weighted composite of the Lehman Brothers
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 Brothers 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.
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
GOVERNMENT/CORPORATE STANDARD & POOR'S
MANAGED ASSETS TRUST BOND INDEX CONSUMER PRICE INDEX 500 INDEX
-------------------- -------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
6/90 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/90 10,366 10,573 10,300 9,400
12/91 12,616 12,278 10,615 12,258
12/92 13,265 13,209 10,923 13,191
12/93 14,502 14,666 11,223 14,517
12/94 14,177 14,151 11,524 14,708
12/95 18,022 16,874 11,816 17,933
12/96 20,605 17,363 12,208 22,048
12/97 24,875 19,057 12,415 29,403
12/98 30,209 20,862 12,615 37,854
12/99 34,504 19,948 12,991 45,815
6/00 35,422 20,782 13,300 45,618
</TABLE>
--------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 6/30/00 (UNAUDITED)
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Six Months Ended 6/30/00+ 1.20%
Year Ended 6/30/00 1.30%
Five Years Ended 6/30/00 9.49%
Ten Years Ended 6/30/00 10.20%
CUMULATIVE TOTAL RETURN
-----------------------
6/30/90 through 6/30/00 164.04%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made on June 30, 1990,
assuming reinvestment of dividends, through June 30, 2000. 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 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."
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS FIRST BOSTON HIGH
HIGH YIELD BOND TRUST AGGREGATE BOND INDEX CONSUMER PRICE INDEX YIELD INDEX TOP TIER
--------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
6/90 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/90 9,347 10,896 10,610 10,093
12/91 11,786 12,640 10,935 12,402
12/92 13,337 13,574 11,252 13,485
12/93 15,057 14,898 11,561 15,591
12/94 15,013 14,463 11,871 15,562
12/95 17,336 17,135 12,172 18,469
12/96 20,118 17,757 12,576 20,449
12/97 23,450 19,470 12,789 23,031
12/98 24,987 21,162 12,994 23,098
12/99 26,092 20,989 13,382 24,125
6/00 26,404 21,826 13,700 24,367
</TABLE>
--------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
6
<PAGE> 156
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 6/30/00 (UNAUDITED)
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Six Months Ended 6/30/00+ (1.02)%
Year Ended 6/30/00 30.97%
Five Years Ended 6/30/00 35.17%
Ten Years Ended 6/30/00 23.63%
CUMULATIVE TOTAL RETURN
-----------------------
6/30/90 through 6/30/00 734.02%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
</TABLE>
This chart assumes an initial investment of $10,000 made on June 30, 1990,
assuming reinvestment of dividends, through June 30, 2000. 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.
[LINE GRAPH]
<TABLE>
<CAPTION>
CAPITAL APPRECIATION STANDARD & POOR'S
FUND 500 INDEX RUSSELL 2000 INDEX CONSUMER PRICE INDEX
-------------------- ----------------- ------------------ --------------------
<S> <C> <C> <C> <C>
6/90 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/90 8,838 9,400 7,936 10,300
12/91 11,945 12,258 11,591 10,615
12/92 14,048 13,191 13,724 10,923
12/93 16,168 14,517 16,315 11,223
12/94 15,398 14,708 6,770 11,524
12/95 20,997 17,933 8,696 11,816
12/96 26,920 22,048 10,131 12,208
12/97 33,958 29,423 12,397 12,415
12/98 54,886 37,879 12,082 12,615
12/99 84,258 45,846 14,649 12,991
6/00 83,402 45,649 15,094 13,300
</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> 157
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 59.5%
-----------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 3.5%
8,400 Bed Bath & Beyond Inc.+..................................... $ 304,500
7,300 Best Buy Co., Inc.+......................................... 461,725
8,000 Circuit City Stores, Inc. .................................. 265,500
10,827 CVS Corp. .................................................. 433,080
33,795 Home Depot, Inc. ........................................... 1,687,638
8,900 Interpublic Group of Cos., Inc. ............................ 382,700
10,000 Kohl's Corp.+............................................... 556,250
30,200 The Limited, Inc. .......................................... 653,075
14,100 Lowe's Cos., Inc. .......................................... 578,981
11,800 McDonald's Corp. ........................................... 388,662
6,000 Omnicom Group Inc. ......................................... 534,375
21,710 Sears, Roebuck & Co. ....................................... 708,289
10,827 Target Corp. ............................................... 627,966
2,739 Visteon Corp.+.............................................. 33,207
24,600 Walgreen Co. ............................................... 791,812
66,460 Wal-Mart Stores, Inc. ...................................... 3,829,774
-----------------------------------------------------------------------------------------------------
12,237,534
-----------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.7%
28,700 ACNielsen Corp.+............................................ 631,400
7,200 Adolph Coors Co., Class B Shares............................ 435,600
10,727 Anheuser-Busch Cos., Inc. .................................. 801,173
4,600 Avery Dennison Corp. ....................................... 308,775
9,000 Bestfoods................................................... 623,250
43,300 Cendant Corp.+.............................................. 606,200
42,605 Coca-Cola Co. .............................................. 2,447,125
14,684 Colgate-Palmolive Co. ...................................... 879,205
14,364 Kimberly-Clark Corp. ....................................... 824,134
22,080 PepsiCo, Inc. .............................................. 981,180
47,015 Philip Morris Cos. Inc. .................................... 1,248,836
27,532 Procter & Gamble Co. ....................................... 1,576,207
16,262 Safeway Inc.+............................................... 733,823
15,844 SYSCO Corp. ................................................ 667,428
-----------------------------------------------------------------------------------------------------
12,764,336
-----------------------------------------------------------------------------------------------------
ENTERTAINMENT/MEDIA -- 2.3%
4,842 Clear Channel Communications, Inc.+......................... 363,150
14,200 Comcast Corp., Special Class A Shares....................... 575,100
7,511 Gannett Co., Inc. .......................................... 449,252
10,161 The New York Times Co., Class A Shares...................... 401,360
7,700 The Seagram Co. Ltd. ....................................... 446,600
24,422 Time Warner Inc. ........................................... 1,856,072
12,500 Tribune Co. ................................................ 437,500
26,786 Viacom Inc., Class B Shares+................................ 1,826,470
41,595 The Walt Disney Co. ........................................ 1,614,406
-----------------------------------------------------------------------------------------------------
7,969,910
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 158
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL -- 5.5%
29,649 American Express Co. ....................................... $ 1,545,454
21,876 Bank of America Corp. ...................................... 940,668
16,500 Bank of New York Co., Inc. ................................. 767,250
21,121 Bank One Corp. ............................................. 561,027
11,600 Bear Stearns Cos. Inc. ..................................... 482,850
8,108 Capital One Financial Corp. ................................ 361,819
18,900 Charles Schwab Corp. ....................................... 635,513
25,002 Chase Manhattan Corp. ...................................... 1,151,655
4,908 Equity Residential Properties Trust......................... 225,768
18,052 Fannie Mae.................................................. 942,089
4,300 Fifth Third Bancorp......................................... 271,975
18,600 Firstar Corp. .............................................. 391,762
23,523 FleetBoston Financial Corp. ................................ 799,787
14,250 Freddie Mac................................................. 577,125
14,200 Household International, Inc. .............................. 590,187
2,313 J.P. Morgan & Co. .......................................... 254,719
10,481 Lehman Brothers Holdings Inc. .............................. 991,110
23,800 MBNA Corp. ................................................. 645,575
12,775 Merrill Lynch & Co., Inc. .................................. 1,469,125
28,682 Morgan Stanley Dean Witter & Co. ........................... 2,387,776
13,200 National City Corp. ........................................ 225,225
9,600 Paine Webber Group Inc. .................................... 436,800
6,500 Providian Financial Corp. .................................. 585,000
4,948 State Street Corp. ......................................... 524,797
8,900 T. Rowe Price Associates, Inc. ............................. 378,250
24,700 Wells Fargo & Co. .......................................... 957,125
-----------------------------------------------------------------------------------------------------
19,100,431
-----------------------------------------------------------------------------------------------------
HEALTH CARE -- 6.2%
16,046 Abbott Laboratories......................................... 715,050
10,900 Allergan, Inc. ............................................. 812,050
21,613 American Home Products Corp. ............................... 1,269,764
4,900 Baxter International Inc. .................................. 344,531
36,596 Bristol-Myers Squibb Co. ................................... 2,131,717
5,400 Cardinal Health, Inc. ...................................... 399,600
21 Crescendo Pharmaceuticals Corp.+............................ 423
12,704 Eli Lilly & Co. ............................................ 1,268,812
18,400 HCA - The Healthcare Corp. ................................. 558,900
25,211 Johnson & Johnson........................................... 2,568,370
17,266 Medtronic, Inc. ............................................ 860,063
44,138 Merck & Co., Inc. .......................................... 3,382,074
106,891 Pfizer Inc. ................................................ 5,130,768
20,492 Pharmacia Corp. ............................................ 1,059,180
24,368 Schering-Plough Corp. ...................................... 1,230,584
-----------------------------------------------------------------------------------------------------
21,731,886
-----------------------------------------------------------------------------------------------------
INSURANCE -- 2.3%
9,000 Aetna Inc. ................................................. 577,688
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 159
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- 2.3% (CONTINUED)
21,754 The Allstate Corp. ......................................... $ 484,027
5,481 Ambac Financial Group, Inc. ................................ 300,427
3,800 American General Corp. ..................................... 231,800
24,630 American International Group, Inc. ......................... 2,894,025
7,900 CIGNA Corp. ................................................ 738,650
12,800 Cincinnati Financial Corp. ................................. 402,400
12,500 Lincoln National Corp. ..................................... 451,562
4,100 Marsh & McLennan Cos., Inc. ................................ 428,194
6,900 MBIA, Inc. ................................................. 332,494
25,000 MetLife, Inc.+.............................................. 526,562
11,400 MGIC Investment Corp. ...................................... 518,700
-----------------------------------------------------------------------------------------------------
7,886,529
-----------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 1.0%
3,300 Alcan Aluminum Ltd. ........................................ 102,300
15,940 Alcoa Inc. ................................................. 462,260
12,300 Barrick Gold Corp. ......................................... 223,706
12,657 The Dow Chemical Co. ....................................... 382,083
16,422 E.I. du Pont de Nemours & Co. .............................. 718,463
8,384 Georgia-Pacific Group....................................... 220,080
8,302 International Paper Co. .................................... 247,503
5,106 The Mead Corp. ............................................. 128,927
2,700 Nucor Corp. ................................................ 89,606
4,200 Phelps Dodge Corp. ......................................... 156,188
2,600 Praxair, Inc. .............................................. 97,337
7,400 Rohm & Haas Co. ............................................ 255,300
2,000 Union Carbide Corp. ........................................ 99,000
19,200 W.R. Grace & Co.+........................................... 232,800
3,635 Weyerhaeuser Co. ........................................... 156,305
-----------------------------------------------------------------------------------------------------
3,571,858
-----------------------------------------------------------------------------------------------------
OIL/ENERGY -- 3.6%
6,600 Apache Corp. ............................................... 388,163
5,400 Baker Hughes Inc. .......................................... 172,800
10,984 Chevron Corp. .............................................. 931,581
9,962 Conoco Inc., Class B Shares................................. 244,692
13,288 Enron Corp. ................................................ 857,076
57,397 Exxon Mobil Corp. .......................................... 4,505,636
7,810 Halliburton Co. ............................................ 368,534
6,500 Kerr-McGee Corp. ........................................... 383,094
6,700 Occidental Petroleum Corp. ................................. 141,119
4,300 Phillips Petroleum Co. ..................................... 217,956
34,134 Royal Dutch Petroleum Co. ADR............................... 2,101,374
8,938 Schlumberger Ltd. .......................................... 666,998
8,700 Texaco Inc. ................................................ 463,275
4,500 Tosco Corp. ................................................ 127,406
4,850 Transocean Sedco Forex Inc. ................................ 259,159
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 160
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL/ENERGY -- 3.6% (CONTINUED)
5,000 USX-Marathon Group Inc. .................................... $ 125,312
12,054 The Williams Cos., Inc. .................................... 502,541
-----------------------------------------------------------------------------------------------------
12,456,716
-----------------------------------------------------------------------------------------------------
PRODUCER DURABLES -- 4.6%
6,407 Agilent Technologies, Inc.+................................. 472,516
5,500 Ball Corp. ................................................. 177,031
4,200 Black & Decker Corp. ....................................... 165,113
3,867 Caterpillar Inc. ........................................... 130,995
6,000 Eastman Kodak Co. .......................................... 357,000
4,154 Emerson Electric Co. ....................................... 250,798
8,600 FedEx Corp.+................................................ 326,800
164,402 General Electric Co. ....................................... 8,713,306
16,336 Honeywell International Inc. ............................... 550,327
10,400 Ingersoll-Rand Co. ......................................... 418,600
8,500 Johnson Controls, Inc. ..................................... 436,156
12,565 Masco Corp. ................................................ 226,955
3,700 Minnesota Mining & Manufacturing Co. ....................... 305,250
10,200 PE Corp. - PE Biosystems Group.............................. 671,925
9,159 PerkinElmer, Inc. .......................................... 605,639
14,800 Solectron Corp.+............................................ 619,750
37,146 Tyco International Ltd. .................................... 1,759,792
-----------------------------------------------------------------------------------------------------
16,187,953
-----------------------------------------------------------------------------------------------------
TECHNOLOGY -- 21.9%
10,800 ADC Telecommunications, Inc.+............................... 905,850
5,100 Adobe Systems Inc. ......................................... 663,000
6,700 Advanced Micro Devices, Inc.+............................... 517,575
8,200 Altera Corp.+............................................... 835,888
36,736 America Online, Inc.+....................................... 1,937,824
21,440 Amgen Inc.+................................................. 1,506,160
10,900 Analog Devices, Inc.+....................................... 828,400
11,800 Apple Computer, Inc.+....................................... 618,025
17,126 Applied Materials, Inc.+.................................... 1,552,044
10,800 AT&T Wireless Group+........................................ 301,050
6,900 Automatic Data Processing, Inc. ............................ 369,581
4,400 Biogen, Inc.+............................................... 283,800
19,243 The Boeing Co. ............................................. 804,598
3,900 Broadcom Corp., Class A Shares+............................. 853,856
113,528 Cisco Systems, Inc.+........................................ 7,216,124
28,082 Compaq Computer Corp. ...................................... 717,846
7,700 Computer Associates International, Inc. .................... 394,144
5,600 Comverse Technology, Inc.+.................................. 520,800
7,800 Corning Inc. ............................................... 2,105,025
29,984 Dell Computer Corp.+........................................ 1,478,586
31,516 EMC Corp.+.................................................. 2,424,762
13,200 First Data Corp. ........................................... 655,050
11,500 Global Crossing Ltd.+....................................... 302,594
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 161
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 21.9% (CONTINUED)
18,300 Hewlett-Packard Co. ........................................ $ 2,285,212
56,086 Intel Corp. ................................................ 7,497,997
31,488 International Business Machines Corp. ...................... 3,449,904
8,200 L-3 Communications Holdings, Inc.+.......................... 467,912
26,500 Lockheed Martin Corp. ...................................... 657,531
8,900 LSI Logic Corp.+............................................ 481,712
54,345 Lucent Technologies Inc. ................................... 3,219,941
15,100 Micron Technology, Inc.+.................................... 1,329,744
85,434 Microsoft Corp.+............................................ 6,834,720
35,170 Motorola, Inc. ............................................. 1,022,128
7,700 Network Appliance, Inc.+.................................... 619,850
22,200 Nextel Communications, Inc.+................................ 1,358,362
51,800 Nortel Networks Corp. ...................................... 3,535,350
49,530 Oracle Corp.+............................................... 4,163,616
12,500 QUALCOMM Inc.+.............................................. 750,000
4,800 Siebel Systems, Inc.+....................................... 785,100
23,952 Sprint PCS Group+........................................... 1,425,144
27,900 Sun Microsystems, Inc.+..................................... 2,537,156
6,658 Tellabs, Inc.+.............................................. 455,657
6,300 Teradyne, Inc.+............................................. 463,050
28,068 Texas Instruments Inc. ..................................... 1,927,921
14,322 United Technologies Corp. .................................. 843,208
5,300 VERITAS Software Corp.+..................................... 598,983
9,100 Xilinx, Inc.+............................................... 751,319
8,210 Yahoo! Inc.+................................................ 1,017,014
-----------------------------------------------------------------------------------------------------
76,271,113
-----------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.6%
1,874 AMR Corp.+.................................................. 49,544
5,900 Delta Air Lines, Inc. ...................................... 298,319
20,917 Ford Motor Co. ............................................. 899,431
9,642 General Motors Corp. ....................................... 559,838
11,100 Harley-Davidson, Inc. ...................................... 427,350
-----------------------------------------------------------------------------------------------------
2,234,482
-----------------------------------------------------------------------------------------------------
UTILITIES -- 4.3%
13,000 AES Corp.+.................................................. 593,125
6,669 ALLTEL Corp. ............................................... 413,061
63,388 AT&T Corp. ................................................. 2,004,650
32,414 Bell Atlantic Corp.++ ...................................... 1,647,036
24,618 BellSouth Corp. ............................................ 1,049,342
20,600 FirstEnergy Corp. .......................................... 481,525
7,025 FPL Group, Inc. ............................................ 347,738
9,573 GTE Corp.++ ................................................ 595,919
7,100 The Montana Power Co. ...................................... 250,719
13,900 PECO Energy Co. ............................................ 560,344
61,546 SBC Communications Inc. .................................... 2,661,867
7,073 The Southern Co. ........................................... 164,890
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 162
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 4.3% (CONTINUED)
17,906 Sprint Corp. ............................................... $ 913,206
11,723 U.S. West, Inc. ............................................ 1,005,247
50,353 WorldCom, Inc.+............................................. 2,309,921
-----------------------------------------------------------------------------------------------------
14,998,590
-----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $151,753,637)................... 207,411,338
-----------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 1.3%
-----------------------------------------------------------------------------------------------------
ENERGY -- 0.2%
5,977 El Paso Energy Capital Trust, 4.750%........................ 384,769
5,924 Newfield Financial Trust, 6.500%............................ 364,326
-----------------------------------------------------------------------------------------------------
749,095
-----------------------------------------------------------------------------------------------------
FINANCIAL -- 0.8%
10,000 CalEnergy Capital II, 6.250%................................ 415,000
6,000 Equity Office Properties Trust, 5.250%...................... 253,500
18,564 Equity Residential Properties Trust, 7.250%................. 408,408
2,000 FINOVA Finance Trust, 5.500%................................ 48,000
12,000 General Growth Properties, Inc., 7.250%..................... 261,000
12,000 National Australia Bank Ltd., 7.875%........................ 339,750
3,220 New Plan Excel Realty Trust, 8.500%......................... 71,645
6,000 Newell Financial Trust, 5.250%.............................. 225,750
9,000 Reckson Associates Realty Corp., 7.625%..................... 199,688
5,000 Tosco Financing Trust, 5.750%............................... 238,750
2,245 Union Pacific Capital Trust, 6.250%......................... 86,713
-----------------------------------------------------------------------------------------------------
2,548,204
-----------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.1%
4,000 Amcor Ltd., 7.250%.......................................... 148,000
4,000 Canadian National Railway Co., 5.250%....................... 180,000
-----------------------------------------------------------------------------------------------------
328,000
-----------------------------------------------------------------------------------------------------
UTILITIES -- 0.2%
6,000 AES Trust VII, 6.000%....................................... 354,750
5,999 Calpine Capital Trust II, 5.500%............................ 434,948
-----------------------------------------------------------------------------------------------------
789,698
-----------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $4,505,589)...... 4,414,997
-----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS & NOTES -- 14.7%
-----------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 2.9%
$ 5,000,000 A+ Daimler Chrysler NA Holdings, 7.750% due 6/15/05............ 5,050,000
5,000,000 A Lowes Cos., Inc., Notes, 8.250% due 6/1/10.................. 5,118,750
-----------------------------------------------------------------------------------------------------------------
10,168,750
-----------------------------------------------------------------------------------------------------------------
FINANCIAL -- 5.4%
5,000,000 A Bank One Corp., Notes, 5.625% due 2/17/04................... 4,712,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 163
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
FINANCIAL -- 5.4% (CONTINUED)
Ford Motor Credit Co., Notes:
$ 5,000,000 A 5.750% due 2/23/04........................................ $ 4,706,250
5,000,000 A 7.500% due 3/15/05........................................ 4,975,000
5,000,000 BBB Nationwide Health Properties, Inc., Notes, 6.900% due
10/1/37................................................... 4,412,500
-----------------------------------------------------------------------------------------------------------------
18,806,250
-----------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 2.3%
5,000,000 A+ Caterpillar Financial Services Corp., Notes, 6.875% due
8/1/04.................................................... 4,918,750
3,000,000 BBB CSX Corp., Notes, 6.950% due 5/1/27......................... 2,958,750
-----------------------------------------------------------------------------------------------------------------
7,877,500
-----------------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 2.7%
5,000,000 BBB+ Computer Associates International, Inc., Notes, 6.375% due
4/15/05................................................... 4,687,500
5,000,000 A Xerox Corp., Notes, 6.250% due 11/15/26..................... 4,693,750
-----------------------------------------------------------------------------------------------------------------
9,381,250
-----------------------------------------------------------------------------------------------------------------
UTILITIES -- 1.4%
5,000,000 AA- BellSouth Capital Funding Corp., Notes, 6.040% due
11/15/26.................................................. 4,912,500
-----------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $52,056,662)......... 51,146,250
-----------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 1.6%
-----------------------------------------------------------------------------------------------------------------
ENERGY -- 0.1%
Diamond Offshore Drilling, Inc., Sub. Notes:
101,000 A- 3.750% due 2/15/07........................................ 105,293
300,000 A- Zero coupon due 6/6/20 (b)................................ 140,625
300,000 BBB+ Global Marine Inc., Debentures, zero coupon due 6/23/20 (b). 149,250
175,000 A Transocean Sedco Forex Inc., Debentures, zero coupon due
5/24/20................................................... 105,000
-----------------------------------------------------------------------------------------------------------------
500,168
-----------------------------------------------------------------------------------------------------------------
ENTERTAINMENT/MEDIA -- 0.3%
150,000 BBB- AT&T Corp. - Liberty Media Group, Debentures, 4.000% due
11/15/29.................................................. 215,625
150,000 BBB- Clear Channel Communications, Inc., Unsecured Notes, 1.500%
due 12/1/02............................................... 147,000
350,000 BBB+ Cox Communications, Inc., Notes, 0.425% due 4/19/20......... 183,750
500,000 BBB- Scholastic Corp., Sub. Notes, 5.000% due 8/15/05............ 495,625
-----------------------------------------------------------------------------------------------------------------
1,042,000
-----------------------------------------------------------------------------------------------------------------
FINANCIAL -- 0.5%
Bell Atlantic Financial Services, Bonds:
297,000 A+ 5.750% due 4/1/03......................................... 289,946
345,000 A+ 4.250% due 9/15/05 (b).................................... 419,606
400,000 BBB- Elan International Finance Ltd., Company Guaranteed,
zero coupon due 12/14/18.................................. 294,000
300,000 A- Hellenic Finance, 2.000% due 7/15/03........................ 280,500
300,000 Baa3* Security Capital U.S. Realty, Bonds, 2.000% due 5/22/03..... 235,500
-----------------------------------------------------------------------------------------------------------------
1,519,552
-----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 164
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE -- 0.1%
$ 146,000 BBB- Athena Neurosciences, Inc., Notes, 4.750% due 11/15/04...... $ 205,495
300,000 NR Roche Holding AG, Notes, zero coupon due 1/19/15............ 277,500
-----------------------------------------------------------------------------------------------------------------
482,995
-----------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.4%
181,000 Aa2* GVC Corp. Ltd., Bonds, zero coupon due 5/21/02 (b).......... 217,200
300,000 AA- Indian Petrochemicals Corp. Ltd., Bonds, 2.500% due 3/11/02
(b)....................................................... 309,750
300,000 BB+ Interim Services Inc., Sub. Notes, 4.500% due 6/1/05........ 231,375
124,000 BBB+ Koninklijke Ahold, Sub. Notes, 3.000% due 9/30/03........... 62,102
431,000 BB+ Lennar Corp., Notes, zero coupon due 7/29/18................ 176,171
500,000 BBB Solectron Corp., Notes, zero coupon due 5/8/20.............. 317,500
100,000 BBB Thermo Electron Corp., Sub. Debentures, 4.250% due 1/1/03... 92,375
100,000 BBB+ Thermo Instrument Systems Inc., Company Guaranteed, 4.000%
due 1/15/05............................................... 86,376
-----------------------------------------------------------------------------------------------------------------
1,492,849
-----------------------------------------------------------------------------------------------------------------
UTILITIES -- 0.2%
600,000 A- Potomac Electric Power Co., Debentures, 5.000% due 9/1/02... 562,500
-----------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $5,326,622)...... 5,600,064
-----------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.6%
5,000,000 PP&L Transition Bond Co. LLC, 7.050% due 6/25/09......................... 4,961,625
713,398 Wilmington Trust, 9.250% due 1/2/07...................................... 714,221
-----------------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $5,712,937)................................................... 5,675,846
-----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 17.5%
15,722,300 U.S. Treasury Notes, 3.625% due 1/15/08.................................. 15,250,631
10,000,000 U.S. Treasury Bonds, 11.750% due 2/15/10................................. 12,081,200
4,500,000 U.S. Treasury Bonds, 12.000% due 8/15/13................................. 6,082,020
6,279,240 U.S. Treasury Bonds, 3.625% due 4/15/28.................................. 5,990,772
21,626,850 U.S. Treasury Inflation Index Bonds, 3.875% due 4/15/29.................. 21,572,783
-----------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $59,493,189).................. 60,977,406
-----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 3.0%
Federal Home Loan Mortgage Corp. (FHLMC):
58,816 8.500% due 9/1/02...................................................... 59,477
1,321,921 8.000% due 9/1/04...................................................... 1,336,792
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 165
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MANAGED ASSETS TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES -- 3.0% (CONTINUED)
Federal National Mortgage Association (FNMA):
$ 70,030 8.500% due 3/1/05...................................................... $ 71,452
2,779,673 6.000% due 1/1/13...................................................... 2,631,128
886,956 6.500% due 12/1/27..................................................... 836,506
983,250 6.000% due 3/1/28...................................................... 899,979
159,168 6.000% due 4/1/28...................................................... 145,688
129,464 5.500% due 5/1/28...................................................... 114,210
473,141 6.000% due 5/1/28...................................................... 433,071
849,124 5.500% due 6/1/28...................................................... 749,080
404,054 6.000% due 6/1/28...................................................... 369,835
429,745 6.000% due 7/1/28...................................................... 393,351
1,085,037 5.500% due 8/1/28...................................................... 957,198
1,155,235 6.000% due 8/1/28...................................................... 1,057,397
Government National Mortgage Association (GNMA):
128,250 9.000% due 11/15/19.................................................... 132,578
77,507 9.500% due 1/15/20..................................................... 80,632
64,012 9.500% due 3/15/20..................................................... 66,592
145,215 7.500% due 5/15/23..................................................... 144,261
-----------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $11,056,389)..................... 10,479,227
-----------------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $289,905,025)............................. 345,705,128
-----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.8%
2,934,000 Morgan Stanley Dean Witter & Co., 6.500% due 7/3/00; Proceeds at
maturity -- $2,935,589; (Fully collateralized by U.S. Treasury Bonds,
8.500% due 2/15/20; Market value -- $2,993,205) (Cost -- $2,934,000)... 2,934,000
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $292,839,025**)....................... $348,639,128
-----------------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
++ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged.
The surviving company was renamed Verizon Communications.
(a) All ratings are by Standard & Poor's Ratings Service, except
for those which are identified by an asterisk (*), are rated
by Moody's Investors Service, Inc.
(b) 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 22 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 166
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS & NOTES -- 72.7%
-----------------------------------------------------------------------------------------------------
AUTO/TRUCK PARTS & EQUIPMENT - ORIGINAL -- 2.0%
$ 475,000 B- Advance Stores Co., Inc., Company Guaranteed, 10.250% due
4/15/08................................................... $ 394,250
150,000 BB Federal-Mogul Corp., Notes, 7.375% due 1/15/06.............. 109,125
120,000 BB- Lear Corp., Sub. Notes, 8.250% due 2/1/02................... 118,200
-----------------------------------------------------------------------------------------------------
621,575
-----------------------------------------------------------------------------------------------------
BUILDING - RESIDENTIAL/COMMERCIAL -- 0.2%
75,000 BB+ Lennar Corp., Sr. Notes, 9.950% due 5/1/10.................. 74,250
-----------------------------------------------------------------------------------------------------
CASINO HOTELS -- 1.4%
ITT Corp., Notes:
180,000 BB+ 6.250% due 11/15/00....................................... 178,650
75,000 BB+ 6.750% due 11/15/05....................................... 67,875
Venetian Casino Resort LLC/Las Vegas Sands, Inc., Company
Guaranteed:
135,000 B- 12.250% due 11/15/04...................................... 137,025
50,000 CCC+ Step bond to yield 10.000% due 11/15/05................... 47,500
-----------------------------------------------------------------------------------------------------
431,050
-----------------------------------------------------------------------------------------------------
CHEMICALS -- 1.8%
100,000 B+ Acetex Corp., Company Guaranteed, 9.750% due 10/1/03........ 94,500
Lyondell Chemical Co.:
225,000 BB Secured, 9.875% due 5/1/07................................ 222,750
225,000 B+ Sr. Sub. Notes, 10.875% due 5/1/09........................ 224,438
-----------------------------------------------------------------------------------------------------
541,688
-----------------------------------------------------------------------------------------------------
CONTAINERS - PAPER/PLASTIC -- 0.2%
50,000 B Huntsman Packaging Corp., 13.000% due 6/1/10#............... 51,750
-----------------------------------------------------------------------------------------------------
DISTRIBUTION/WHOLESALE -- 0.4%
225,000 B- Aviation Sales Co., Company Guaranteed, 8.125% due
2/15/08................................................... 131,625
-----------------------------------------------------------------------------------------------------
ELECTRONICS -- 1.4%
300,000 B+ Flextronics International Ltd., Sr. Sub. Notes, 8.750% due
10/15/07.................................................. 285,000
140,000 B Hadco Corp., Company Guaranteed, 9.250% due 6/15/08......... 141,750
-----------------------------------------------------------------------------------------------------
426,750
-----------------------------------------------------------------------------------------------------
ENERGY -- 2.6%
400,000 BB Pride International, Inc., Sr. Notes, 10.000% due 6/1/09.... 414,000
135,000 BBB- PSE&G Energy Holdings, Inc., Sr. Notes, 10.000% due 10/1/09
(b)....................................................... 141,919
250,000 BBB- Tucson Electric Power Co., Collateral Trust, 7.500% due
8/1/08 (b)................................................ 231,250
-----------------------------------------------------------------------------------------------------
787,169
-----------------------------------------------------------------------------------------------------
FOOD & DRUG -- 1.3%
175,000 B Archibald Candy Corp., Company Guaranteed, 10.250% due
7/1/04.................................................... 127,750
300,000 B- Duane Reade Inc., Company Guaranteed, 9.250% due 2/15/08.... 267,000
-----------------------------------------------------------------------------------------------------
394,750
-----------------------------------------------------------------------------------------------------
FORESTRY -- 1.1%
350,000 B+ Millar Western Forest Products, Sr. Notes, 9.875% due
5/15/08................................................... 329,000
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 167
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
GAMING/LEISURE -- 7.3%
$ 500,000 B- Bally Total Fitness Holding Corp., Sr. Sub. Notes, 9.875%
due 10/15/07.............................................. $ 455,000
350,000 BB+ Harrah's Operating Co. Inc., Company Guaranteed, 7.875% due
12/15/05.................................................. 329,875
275,000 B Isle of Capri Casinos, Inc., Company Guaranteed, 8.750% due
4/15/09................................................... 255,750
Park Place Entertainment Corp., Sr. Sub. Notes:
450,000 BB+ 7.875% due 12/15/05....................................... 424,125
75,000 NR 9.375% due 2/15/07........................................ 75,188
175,000 B+ Prime Hospitality Corp., Sr. Sub. Notes, 9.750% due
4/1/07.................................................... 169,750
Station Casinos, Inc., Sr. Sub. Notes:
410,000 B+ 10.125% due 3/15/06....................................... 417,175
100,000 B+ 9.875% due 7/1/10......................................... 100,750
-----------------------------------------------------------------------------------------------------
2,227,613
-----------------------------------------------------------------------------------------------------
HEALTH CARE -- 2.8%
225,000 BB+ HCA - The Healthcare Corp., Notes, 7.000% due 7/1/07........ 199,405
250,000 BBB- HEALTHSOUTH Corp., Sr. Sub. Notes, 9.500% due 4/1/01........ 251,250
275,000 BB+ Tenet Healthcare Corp., Sr. Notes, 9.250% due 9/1/10 (b).... 278,438
125,000 B- Unilab Corp., Sr. Sub. Notes, 12.750% due 10/1/09........... 129,375
-----------------------------------------------------------------------------------------------------
858,468
-----------------------------------------------------------------------------------------------------
HOUSING -- 1.3%
250,000 B- Atrium Cos., Inc., Company Guaranteed, 10.500% due 5/1/09... 211,875
225,000 BB- Beazer Homes USA, Inc., Company Guaranteed, 8.875% due
4/1/08.................................................... 202,500
-----------------------------------------------------------------------------------------------------
414,375
-----------------------------------------------------------------------------------------------------
INFORMATION/TECHNOLOGY -- 1.7%
175,000 B- Anteon Corp., 12.000% due 5/15/09........................... 158,813
Viasystems Group, Inc., Sr. Sub. Notes:
225,000 B 9.750% due 6/1/07......................................... 195,750
175,000 B Series B, 9.750% due 6/1/07............................... 152,250
-----------------------------------------------------------------------------------------------------
506,813
-----------------------------------------------------------------------------------------------------
MANUFACTURING -- 3.7%
175,000 B+ American Axle & Manufacturing Holdings, Inc., Company
Guaranteed, 9.750% due 3/1/09............................. 164,063
450,000 B BGF Industries, Inc., Sr. Sub. Notes, 10.250% due 1/15/09... 418,500
350,000 B- Cherokee International LLC, Sr. Sub. Notes, 10.500% due
5/1/09.................................................... 303,625
300,000 B- TransDigm Inc., Company Guaranteed, 10.375% due 12/1/08..... 259,500
-----------------------------------------------------------------------------------------------------
1,145,688
-----------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 11.2%
100,000 B2* Adelphia Communications Corp., Sr. Notes, 8.125% due
7/15/03................................................... 94,750
50,900 NR AMFM Inc., Debentures, 12.625% due 10/31/06................. 59,680
75,000 B- Carmike Cinemas, Inc., Company Guaranteed, 9.375% due
2/1/09.................................................... 41,438
Chancellor Media Corp., Company Guaranteed:
400,000 B 9.000% due 10/1/08........................................ 413,000
150,000 B+ 8.000% due 11/1/08........................................ 151,313
275,000 B- Paxson Communications Corp., Sr. Sub. Notes, 11.625% due
10/1/02................................................... 282,563
500,000 CCC+ Pegasus Media & Communications, Inc., Sr. Sub. Notes,
12.500% due 7/1/05........................................ 535,000
175,000 B- Phoenix Color Corp., Company Guaranteed, 10.375% due
2/1/09.................................................... 158,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 168
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MEDIA/ENTERTAINMENT -- 11.2% (CONTINUED)
$ 250,000 CCC- Production Resource Group LLC, Sr. Sub. Notes, 11.500% due
1/15/08................................................... $ 38,125
425,000 B+ Telewest Communications PLC, Debentures, step bond to yield
11.000% due 10/1/07....................................... 404,813
Telewest Communications PLC, Sr. Discount Notes, step bond
to yield:
225,000 B+ 9.250% due 4/15/09........................................ 122,063
300,000 B+ 11.375% due 2/1/10........................................ 161,250
375,000 B- T/SF Communications Corp., Company Guaranteed, 10.375% due
11/1/07................................................... 350,625
500,000 B- United International Holdings Inc., Sr. Discount Notes, step
bond to yield 10.750% due 2/15/08......................... 352,500
300,000 B United Pan-Europe Communications NV, Sr. Notes, 11.250% due
2/1/10.................................................... 268,500
-----------------------------------------------------------------------------------------------------
3,433,995
-----------------------------------------------------------------------------------------------------
METALS/MINERALS -- 2.0%
500,000 B- Diamond Holdings PLC, Company Guaranteed, 9.125% due
2/1/08.................................................... 465,000
175,000 B+ National Steel Corp., First Mortgage, 9.875% due 3/1/09..... 147,000
-----------------------------------------------------------------------------------------------------
612,000
-----------------------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURER -- 1.5%
100,000 B- Desa International Inc., Company Guaranteed, 9.875% due
12/15/07.................................................. 80,500
75,000 B Jostens, Inc., 12.750% due 5/1/10#.......................... 74,250
175,000 CCC+ Samsonite Corp., Sr. Sub. Notes, 10.750% due 6/15/08........ 147,000
150,000 B- Tekni-Plex, Inc., Sr. Sub. Notes, 12.750% due 6/15/10 (b)... 150,750
-----------------------------------------------------------------------------------------------------
452,500
-----------------------------------------------------------------------------------------------------
OIL & GAS DRILLING -- 1.0%
Cross Timbers Oil Co., Sr. Sub. Notes:
125,000 B 9.250% due 4/1/07......................................... 122,188
100,000 B 8.750% due 11/1/09........................................ 95,500
R&B Falcon Corp., Sr. Notes:
50,000 B+ 6.500% due 4/15/03........................................ 46,500
50,000 B+ 6.750% due 4/15/05........................................ 45,250
-----------------------------------------------------------------------------------------------------
309,438
-----------------------------------------------------------------------------------------------------
RETAIL -- 5.4%
390,000 B Advance Glassfiber Yarns LLC, Sr. Sub. Notes, 9.875% due
1/15/09................................................... 358,800
575,000 CCC+ J. Crew Operating Corp., Sr. Sub. Notes, 10.375% due
10/15/07.................................................. 474,375
500,000 BB+ Kmart Corp., Medium Term Notes, 7.900% due 12/14/00......... 497,500
25,000 BB- Levi Strauss & Co., Notes, 7.000% due 11/1/06............... 19,125
150,000 B Pantry Inc., Company Guaranteed, 10.250% due 10/15/07....... 142,500
175,000 BB+ Saks Inc., Company Guaranteed, 8.250% due 11/15/08.......... 155,324
-----------------------------------------------------------------------------------------------------
1,647,624
-----------------------------------------------------------------------------------------------------
SERVICES -- 3.4%
250,000 B- Advance Holding Corp., Debentures, step bond to yield
12.875% due 4/15/09....................................... 106,250
555,000 B AFC Enterprises, Sr. Sub. Notes, 10.250% due 5/15/07........ 541,123
310,896 B FRD Acquisition Co., Sr. Notes, 12.500% due 7/15/04......... 116,585
300,000 B- Williams Scotsman, Inc., Company Guaranteed, 9.875% due
6/1/07.................................................... 274,500
-----------------------------------------------------------------------------------------------------
1,038,458
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 169
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 11.4%
$ 125,000 B CapRock Communications Corp., Sr. Notes, 11.500% due
5/1/09.................................................... $ 113,125
350,000 B- Centennial Communications Corp., Sr. Sub. Notes, 10.750% due
12/15/08.................................................. 341,687
1,000,000 B+ Charter Communications Holdings LLC, Sr. Discount Notes,
step bond to yield 9.920% due 4/1/11...................... 570,000
Classic Cable Inc.:
225,000 B- Company Guaranteed, 9.375% due 8/1/09..................... 197,438
175,000 NR Sr. Sub. Notes, 10.500% due 3/1/10........................ 162,313
150,000 NR Dobson Communications Corp., Sr. Notes, 10.875% due
7/1/10.................................................... 151,500
Exodus Communications, Inc., Sr. Notes:
300,000 B 10.750% due 12/15/09...................................... 291,000
100,000 B 11.625% due 7/15/10....................................... 100,750
100,000 BB Global Crossing Ltd., Company Guaranteed, 9.500% due
11/15/09.................................................. 97,000
300,000 B Level 3 Communications, Inc., Sr. Notes, 9.125% due
5/1/08.................................................... 270,750
325,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/09............... 294,125
100,000 B Nextel Communications, Inc., Sr. Notes, 9.375% due
11/15/09.................................................. 96,000
500,000 B- NTL Inc., Sr. Notes, step bond to yield 9.750% due 4/1/08... 313,750
175,000 B- Primus Telecommunications Group, Inc., Sr. Notes, 12.750%
due 10/15/09.............................................. 140,875
300,000 BBB+ Qwest Communications International Inc., Sr. Discount Notes,
step bond to yield 8.290% due 2/1/08...................... 237,000
150,000 B- Viatel, Inc., Sr. Notes, 11.500% due 3/15/09................ 114,750
-----------------------------------------------------------------------------------------------------
3,492,063
-----------------------------------------------------------------------------------------------------
TEXTILES -- 4.8%
600,000 B+ Avondale Mills, Inc., Company Guaranteed, 10.250% due
5/1/06.................................................... 567,000
175,000 B Dan River Inc., Sr. Sub. Notes, 10.125% due 12/15/03........ 170,625
125,000 B Norton Co., Company Guaranteed, 12.500% due 6/1/05.......... 112,500
215,000 B- Supreme International Corp., Company Guaranteed, 12.250% due
4/1/06.................................................... 205,325
425,000 B- Tropical Sportswear International Corp., Company Guaranteed,
11.000% due 6/15/08....................................... 410,125
-----------------------------------------------------------------------------------------------------
1,465,575
-----------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.8%
325,000 B Atlas Air, Inc., Sr. Notes, 10.750% due 8/1/05.............. 331,905
125,000 BB- Continental Airlines, Inc., Sr. Notes, 9.500% due
12/15/01.................................................. 127,967
400,000 B- Pacer International, Inc., Company Guaranteed, 11.750% due
6/1/07.................................................... 401,000
-----------------------------------------------------------------------------------------------------
860,872
-----------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (Cost -- $23,948,183)......... 22,255,089
-----------------------------------------------------------------------------------------------------
FOREIGN CORPORATE BOND -- 0.8%
-----------------------------------------------------------------------------------------------------
TRANSPORTATION SERVICES -- 0.8%
250,000 B CHC Helicopter Corp., 11.750% due 7/15/07
(Cost -- $231,523)........................................ 237,254
-----------------------------------------------------------------------------------------------------
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------------
COMMON STOCK -- 0.1%
-----------------------------------------------------------------------------------------------------
HOTELS & MOTELS -- 0.1%
2,250 Prime Hospitality Corp.+ (Cost -- $19,140).................. 21,234
-----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 170
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
HIGH YIELD BOND TRUST
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK -- 4.0%
--------------------------------------------------------------------------------------------------
ENERGY -- 0.7%
2,299 R&B Falcon Corp., 13.875%................................... $ 260,470
--------------------------------------------------------------------------------------------------
INDUSTRIAL -- 0.2%
3,500 Eagle-Picher Industries, Inc., 11.750% Exchangeable
3/1/08.................................................... 88,375
--------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT -- 0.5%
-- Paxson Communications Corp., 12.500% Exchangeable
10/31/06.................................................. 86
--------------------------------------------------------------------------------------------------
TECHNOLOGY -- 0.4%
9,367 Viasystems Group, Inc., Series B, 8.000%+................... 168,611
--------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.2%
5,500 Global Crossing Ltd., 10.500%............................... 532,125
1,850 Rural Cellular Corp., 12.250%............................... 176,213
--------------------------------------------------------------------------------------------------
708,338
--------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $1,114,943).................. 1,225,880
--------------------------------------------------------------------------------------------------
WARRANTS -- 0.3%
2,000 R&B Falcon Corp., Expire 5/1/09 (b)+ (Cost -- $18,868)...... 100,000
--------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $25,332,657)................. 23,839,457
--------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 22.1%
$6,767,000 CS First Boston Corp., 6.550% due 7/3/00; Proceeds at
maturity -- $6,770,694; (Fully collateralized by U.S.
Treasury Notes, 6.250% due 1/31/02;
Market value -- $6,902,898) (Cost -- $6,767,000)............ 6,767,000
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $32,099,657**)........... $30,606,457
--------------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except for those which
are identified by an asterisk (*), are rated by Moody's Investors Service,
Inc.
(b) 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.
# Security has been issued with attached warrants.
+ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 22 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>
-------------------------------------------------
Baa BBB 3.9%
Ba BB 15.8
B B 72.7
Caa CCC 5.6
NR NR 2.0
-------------------------------------------------
100.0%
-------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE> 171
--------------------------------------------------------------------------------
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>
22
<PAGE> 172
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 88.3%
-------------------------------------------------------------------------------------------
ADVERTISING -- 1.2%
676,770 DoubleClick Inc.+........................................... $ 25,801,856
-------------------------------------------------------------------------------------------
BEVERAGE -- 1.4%
534,040 Coca-Cola Co. .............................................. 30,673,923
-------------------------------------------------------------------------------------------
COMMUNICATIONS -- 5.0%
597,710 3Com Corp.+................................................. 34,443,039
662,825 Nextel Communications, Inc.+................................ 40,556,605
519,710 Nortel Networks Corp........................................ 35,470,207
-------------------------------------------------------------------------------------------
110,469,851
-------------------------------------------------------------------------------------------
COMPUTERS -- 4.6%
1,414,190 Apple Computer, Inc.+....................................... 74,068,201
561,730 Dell Computer Corp.+........................................ 27,700,311
-------------------------------------------------------------------------------------------
101,768,512
-------------------------------------------------------------------------------------------
DIVERSIFIED OPERATIONS -- 7.3%
1,491,195 General Electric Co. ....................................... 79,033,335
1,080,580 Time Warner Inc. ........................................... 82,124,080
-------------------------------------------------------------------------------------------
161,157,415
-------------------------------------------------------------------------------------------
DRUGS & HEALTH CARE -- 5.4%
1,036,100 MedImmune, Inc.+............................................ 76,671,400
877,155 Pfizer Inc. ................................................ 42,103,440
-------------------------------------------------------------------------------------------
118,774,840
-------------------------------------------------------------------------------------------
ELECTRONICS -- 10.5%
702,720 EMC Corp.+.................................................. 54,065,520
404,160 General Motors Corp., Class H Shares+....................... 35,465,040
2,036,520 Texas Instruments Inc. ..................................... 139,883,468
-------------------------------------------------------------------------------------------
229,414,028
-------------------------------------------------------------------------------------------
ENTERTAINMENT -- 0.0%
84 Acclaim Entertainment, Inc.+................................ 47
-------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 8.6%
2,171,760 Charles Schwab Corp......................................... 73,025,430
1,400,000 Morgan Stanley Dean Witter & Co............................. 116,550,000
-------------------------------------------------------------------------------------------
189,575,430
-------------------------------------------------------------------------------------------
INSURANCE -- 1.9%
355,191 American International Group, Inc........................... 41,734,972
-------------------------------------------------------------------------------------------
INTERNET -- 12.1%
1,857,200 America Online, Inc.+....................................... 97,967,300
2,032,980 Cisco Systems, Inc.+........................................ 129,221,291
309,510 Yahoo! Inc.+................................................ 38,340,551
-------------------------------------------------------------------------------------------
265,529,142
-------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE> 173
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL -- 1.9%
842,957 Home Depot, Inc............................................. $ 42,095,190
-------------------------------------------------------------------------------------------
SOFTWARE -- 14.5%
445,900 Intuit Inc.+................................................ 18,449,113
476,215 Microsoft Corp.+............................................ 38,097,200
1,927,710 VERITAS Software Corp.+..................................... 217,861,350
1,029,095 Vodafone AirTouch PLC....................................... 42,643,124
-------------------------------------------------------------------------------------------
317,050,787
-------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 13.9%
501,805 Level 3 Communications, Inc.+............................... 44,158,840
2,956,160 Nokia Oyj, Sponsored ADR.................................... 147,623,240
1,608,175 Sprint PCS Group+........................................... 95,686,412
292,205 Telefonos de Mexico SA de CV................................ 16,692,211
-------------------------------------------------------------------------------------------
304,160,703
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $1,064,379,572)................. 1,938,206,696
-------------------------------------------------------------------------------------------
FOREIGN STOCK -- 0.8%
-------------------------------------------------------------------------------------------
UNITED KINGDOM -- 0.8%
4,101,991 Vodafone AirTouch PLC (Cost -- $20,556,905)................. 16,642,701
-------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $1,084,936,477).............. 1,954,849,397
-------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 10.9%
$238,479,000 Morgan Stanley Dean Witter & Co., 6.500% due 7/3/00;
Proceeds at maturity -- $230,608,176; (Fully collateralized by
U.S. Treasury Bonds, 9.250% due 2/15/16; Market value --
$243,294,920) (Cost -- $238,479,000).................. 238,479,000
-------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $1,323,415,477**)........ $2,193,328,397
-------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 174
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
COMMERCIAL PAPER -- 93.2%
$4,300,000 Alcoa Inc. matures 7/18/00.................................. 6.60 % $ 4,288,265
5,000,000 American Express Credit Corp. matures 7/6/00................ 6.71 4,997,208
5,000,000 Asset Securitization Corp. matures 7/21/00.................. 6.58 4,983,675
3,300,000 Becton, Dickinson & Co. matures 8/1/00...................... 6.61 3,282,615
5,400,000 Bell Atlantic Financial Corp. matures 7/19/00............... 6.62 5,384,280
5,000,000 The Coca-Cola Co. matures 7/12/00........................... 6.60 4,991,800
5,000,000 Delaware Funding Corp. matures 7/7/00....................... 6.57 4,996,372
5,100,000 Electronic Data Systems Corp. matures 7/5/00................ 6.96 5,098,031
4,500,000 Exxon Asset Management matures 7/3/00....................... 6.90 4,500,000
5,250,000 Ford Motor Credit Co. matures 7/7/00........................ 6.58 5,246,173
3,000,000 The Gap, Inc. matures 8/15/00............................... 6.61 2,976,529
5,000,000 General Dynamics Corp. matures 7/12/00...................... 6.54 4,991,875
5,250,000 General Electric Capital Corp. matures 7/27/00.............. 6.58 5,227,110
5,000,000 General Motors Acceptance Corp. matures 7/14/00............. 6.55 4,990,054
5,370,000 Household Finance Corp. matures 7/3/00...................... 6.90 5,370,000
5,000,000 Morgan Stanley Dean Witter & Co. matures 7/25/00............ 6.62 4,979,894
5,000,000 Newell Co. matures 7/5/00................................... 6.54 4,998,192
5,000,000 Potomac Electric Power Co. matures 7/10/00.................. 6.54 4,993,681
4,600,000 Providian Master Trust matures 7/14/00...................... 6.60 4,590,765
5,300,000 Prudential Funding Co. matures 7/5/00....................... 6.60 5,298,060
3,000,000 Transamerica Finance Corp. matures 7/26/00.................. 6.64 2,987,350
5,000,000 Union Bank of Switzerland matures 7/5/00.................... 6.76 4,998,125
---------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -- $104,170,054)............... 104,170,054
---------------------------------------------------------------------------------------------------------------
FOREIGN CORPORATE NOTE -- 4.1%
4,600,000 The Goldman Sachs Group, Inc. matures 7/10/00 6.62
(Cost -- $4,594,097)........................................ 4,594,097
---------------------------------------------------------------------------------------------------------------
MEDIUM-TERM NOTE -- 2.7%
3,000,000 Associates Corp. of North America matures 6/15/01 6.77
(Cost -- $3,000,000)........................................ 3,000,000
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $111,764,151**).......... $111,764,151
---------------------------------------------------------------------------------------------------------------
</TABLE>
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE> 175
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at cost........................... $289,905,025 $25,332,657 $1,084,936,477 $111,764,151
Repurchase agreements, at cost................. 2,934,000 6,767,000 238,479,000 --
-------------------------------------------------------------------------------------------------------------
Investments, at value.......................... $345,705,128 $23,839,457 $1,954,849,397 $111,764,151
Repurchase agreements, at value................ 2,934,000 6,767,000 238,479,000 --
Cash........................................... 286 652 986 78,077
Dividends and interest receivable.............. 2,208,803 531,895 345,758 2,987
Receivable for securities sold................. 71,700 560,048 -- --
-------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................... 350,919,917 31,699,052 2,193,675,141 111,845,215
-------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable............... 142,138 12,959 1,373,294 15,389
Administration fees payable.................... 17,093 1,099 109,387 10,751
Payable for securities purchased............... -- 632,495 -- --
Dividends payable.............................. -- -- -- 326,162
Accrued expenses............................... 63,348 15,399 50,106 33,178
-------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.............................. 222,579 661,952 1,532,787 385,480
-------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $350,697,338 $31,037,100 $2,192,142,354 $111,459,735
-------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital................................ $275,828,754 $32,876,799 $1,326,725,706 $111,459,179
Undistributed net investment income (loss)..... 4,003,642 1,313,344 (387,275) 343
Accumulated net realized gain (loss) from
security transactions, futures contracts and
foreign currencies.......................... 15,064,839 (1,654,533) (4,117,460) 213
Net unrealized appreciation (depreciation) of
investments and foreign currencies.......... 55,800,103 (1,498,510) 869,921,383 --
-------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $350,697,338 $31,037,100 $2,192,142,354 $111,459,735
-------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING............................... 18,732,018 3,532,587 21,096,423 111,459,179
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE....................... $18.72 $8.79 $103.91 $1.00
-------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE> 176
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest............................................ $ 3,784,296 $ 1,407,103 $ 6,262,929 $3,335,367
Dividends........................................... 1,227,744 28,875 2,267,359 --
Less: Foreign withholding tax....................... (6,164) -- (186,714) --
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................. 5,005,876 1,435,978 8,343,574 3,335,367
-------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)................... 844,646 76,309 7,956,694 175,448
Administration fees (Note 3)........................ 101,357 9,157 636,536 32,561
Audit and legal..................................... 16,409 13,227 17,469 14,275
Shareholder communications.......................... 15,058 4,972 62,938 7,956
Custody............................................. 10,786 4,525 25,690 6,039
Shareholder and system servicing fees............... 7,603 7,636 7,450 8,010
Pricing service fees................................ 2,932 4,226 -- --
Trustees' fees...................................... 1,989 2,074 1,989 2,088
Registration fees................................... -- -- 33,800 --
Other............................................... 994 497 3,179 3,877
-------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES...................................... 1,001,774 122,623 8,745,745 250,254
Less: Expense reimbursement......................... -- -- -- (35,110)
-------------------------------------------------------------------------------------------------------------
NET EXPENSES........................................ 1,001,774 122,623 8,745,745 215,144
-------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS).......................... 4,004,102 1,313,355 (402,171) 3,120,223
-------------------------------------------------------------------------------------------------------------
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*)................................... 14,231,791 (302,756) 5,957,151 213
Futures contracts................................ 621,238 -- -- --
Foreign currency transactions.................... -- -- 15,330 --
-------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................ 14,853,029 (302,756) 5,972,481 213
-------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments and Foreign Currencies:
Beginning of period.............................. 65,550,577 (836,216) 905,748,863 --
End of period.................................... 55,800,103 (1,498,510) 869,921,383 --
-------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION)...................................... (9,750,474) (662,294) (35,827,480) --
-------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCIES.............................. 5,102,555 (965,050) (29,854,999) 213
-------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..... $ 9,106,657 $ 348,305 $(30,257,170) $3,120,436
-------------------------------------------------------------------------------------------------------------
</TABLE>
* Except for Money Market Portfolio where the net realized gains are only from
the sale of short-term securities.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE> 177
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................. $ 4,004,102 $ 1,313,355 $ (402,171) $ 3,120,223
Net realized gain (loss)...................... 14,853,029 (302,756) 5,972,481 213
Change in net unrealized appreciation
(depreciation)............................. (9,750,474) (662,294) (35,827,480) --
-------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS................................. 9,106,657 348,305 (30,257,170) 3,120,436
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income......................... (6,657,840) (2,577,225) (753,152) (3,119,880)
Net realized gains............................ (40,976,421) -- (76,133,308) --
-------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................... (47,634,261) (2,577,225) (76,886,460) (3,119,880)
-------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares.............. 11,660,951 3,800,885 321,919,572 425,275,568
Net asset value of shares issued for
reinvestment of dividends.................. 47,634,261 2,577,225 76,886,460 3,048,691
Cost of shares reacquired..................... (9,508,224) (3,428,682) (14,681,219) (436,834,964)
-------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS......................... 49,786,988 2,949,428 384,124,813 (8,510,705)
-------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS............... 11,259,384 720,508 276,981,183 (8,510,149)
NET ASSETS:
Beginning of period........................... 339,437,954 30,316,592 1,915,161,171 119,969,884
-------------------------------------------------------------------------------------------------------------
END OF PERIOD*................................ $350,697,338 $31,037,100 $2,192,142,354 $ 111,459,735
-------------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net
investment income of:......................... $4,003,642 $1,313,344 $(387,275) $343
-------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE> 178
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
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.
29
<PAGE> 179
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund
and Money Market Portfolio (collectively, "Fund(s)") are each a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment companies. Shares of the Funds
are offered only to insurance company separate accounts that fund certain
variable annuity and variable life insurance contracts.
The significant accounting policies consistently followed by the Funds are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported and U.S. government and agency
obligations are valued at the mean between the last reported bid and asked
prices or on the basis of quotations received from reputable brokers or other
recognized sources; (c) securities for which market quotations are not available
will be valued in good faith at fair value by or under the direction of the
Board of Trustees; (d) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates value;
(e) securities, other than U.S. government agencies and obligations, that have a
maturity of 60 days or more are valued at prices based on market quotations for
securities of similar type, yield and maturity; (f) interest income, adjusted
for amortization of premium and accretion of discount, is recorded on the
accrual basis and dividend income is recorded on the ex-dividend date; foreign
dividends are recorded on the ex-dividend date or as soon as practical after the
Fund determines the existence of a dividend declaration after exercising
reasonable due diligence; (g) gains or losses on the sale of securities are
calculated by using the specific identification method; (h) dividends and
distributions to shareholders are recorded on the ex-dividend date; (i) the
accounting records of the Fund are maintained in U.S. dollars. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
on the date of valuation. Purchases and sales of securities and income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian; (j) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 31, 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 Company LLC ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc. ("Citigroup"), 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.
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.
30
<PAGE> 180
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TAMIC also has a sub-advisory agreement with Janus Capital Corporation
("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the
day-to-day portfolio operations and investment decisions for CAF. As a result,
TAMIC pays Janus, as sub-advisor, 0.55% of the average daily net assets of CAF.
Travelers Insurance Company ("Travelers Insurance") acts as administrator
to the Funds. The Funds pay Travelers Insurance an administration fee calculated
at an annual rate of 0.06% of its average daily net assets. Travelers Insurance
has entered into a sub-administrative services agreement with SSB Citi Fund
Management LLC ("SSBC"), 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney
Private Trust Company, another subsidiary of Citigroup, acts as the Funds
transfer agent. CFTC receives account fees and asset-based fees that vary
according to the size and type of account. During the six months ended June 30,
2000, MAT, HYBT, CAF and MMP each paid transfer agent fees of $2,500 to CFTC.
For the six months ended June 30, 2000, Travelers Insurance reimbursed
expenses of $35,110 for MMP.
For the six months ended June 30, 2000, Salomon Smith Barney Inc. and its
affiliates received brokerage commissions of $12,157.
One Trustee and all officers of the Funds are employees of Citigroup or its
subsidiaries.
4. INVESTMENTS
During the six months ended June 30, 2000, 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................................................... $98,911,958 $11,285,838 $420,743,788
-------------------------------------------------------------------------------------------------------
Sales....................................................... 92,719,134 10,227,751 131,698,183
--------------------------------------------------------------------------------
</TABLE>
At June 30, 2000, 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............................... $ 66,208,499 $ 462,263 $969,493,637
Gross unrealized depreciation............................... (10,408,396) (1,955,463) (99,580,717)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $ 55,800,103 $(1,493,200) $869,912,920
-------------------------------------------------------------------------------------------------------
</TABLE>
5. REPURCHASE AGREEMENTS
The Funds 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 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.
31
<PAGE> 181
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 June 30, 2000, the Funds had no open futures contracts.
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 will realize a loss in the amount of the premium paid.
When the Funds enter into closing sales transactions, the Funds 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
Funds 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 Funds exercise a call option, the cost of the
security which the Funds purchase upon exercise will be increased by the premium
originally paid.
At June 30, 2000, the Funds had no open purchased call or put option
contracts.
8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in GNMA/FNMA transactions. Securities purchased on
a TBA basis are not settled until they are delivered to the Funds, normally 15
to 45 days later. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other securities.
At June 30, 2000, 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.
32
<PAGE> 182
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
MANAGED ASSETS TRUST
Shares sold................................................. 555,076 1,654,617
Share issued on reinvestment................................ 2,556,857 1,187,265
Shares reacquired........................................... (452,845) (581,353)
---------------------------------------------------------------------------------------------------
Net Increase................................................ 2,659,088 2,260,529
---------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
Shares sold................................................. 401,899 776,247
Shares issued on reinvestment............................... 292,866 245,327
Shares reacquired........................................... (363,372) (671,120)
---------------------------------------------------------------------------------------------------
Net Increase................................................ 331,393 350,454
---------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
Shares sold................................................. 2,890,263 5,582,389
Share issued on reinvestment................................ 739,364 400,399
Shares reacquired........................................... (136,118) (626,790)
---------------------------------------------------------------------------------------------------
Net Increase................................................ 3,493,509 5,355,998
---------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Shares sold................................................. 425,275,568 388,474,577
Share issued on reinvestment................................ 3,048,691 3,049,209
Shares reacquired........................................... (436,834,964) (313,623,231)
---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (8,510,705) 77,900,555
---------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 183
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
MANAGED ASSETS TRUST 2000(1) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $21.12 $19.99 $17.65 $14.98 $15.50 $12.85
-----------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income............ 0.21 0.39 0.41 0.48 0.46 0.49
Net realized and unrealized
gain.......................... 0.34 2.30 3.27 2.70 1.50 2.83
-----------------------------------------------------------------------------------------------------------------
Total Income From Operations....... 0.55 2.69 3.68 3.18 1.96 3.32
-----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(2):
Net investment income............ (0.41) (0.39) (0.47) (0.12) (0.89) (0.50)
Net realized gains............... (2.54) (1.17) (0.87) (0.39) (1.59) (0.17)
-----------------------------------------------------------------------------------------------------------------
Total Distributions................ (2.95) (1.56) (1.34) (0.51) (2.48) (0.67)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $18.72 $21.12 $19.99 $17.65 $14.98 $15.50
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................... 2.66%++ 14.22% 21.44% 21.31% 13.78% 27.12%
-----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $350,697 $339,438 $276,182 $223,870 $188,610 $171,276
-----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)...................... 0.60%+ 0.60% 0.60% 0.63% 0.58% 0.58%
Net investment income............ 2.38+ 2.17 2.30 2.91 3.51 3.49
-----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............ 28% 51% 74% 90% 108% 110%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND TRUST 2000(1)(4) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $9.47 $9.85 $9.89 $8.49 $9.00 $8.49
-------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............ 0.36 0.81 0.77 0.76 0.91 0.80
Net realized and unrealized gain
(loss)........................ (0.25) (0.38) (0.13) 0.65 0.41 0.41
-------------------------------------------------------------------------------------------------------------------
Total Income From Operations....... 0.11 0.43 0.64 1.41 1.32 1.21
-------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(2):
Net investment income............ (0.79) (0.81) (0.68) (0.01) (1.83) (0.70)
-------------------------------------------------------------------------------------------------------------------
Total Distributions................ (0.79) (0.81) (0.68) (0.01) (1.83) (0.70)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $8.79 $9.47 $9.85 $9.89 $8.49 $9.00
-------------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................... 1.20%++ 4.42% 6.56% 16.56% 16.05% 15.47%
-------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S).......................... $31,037 $30,317 $28,088 $25,272 $17,291 $12,902
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(5)................... 0.81%+ 0.81% 0.82% 0.84% 0.97% 1.25%
Net investment income............ 8.63+ 8.85 8.42 9.04 11.01 9.37
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............ 45% 112% 147% 137% 84% 222%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(3) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
(4) Per share amounts have been calculated using the monthly average shares
method.
(5) The ratio of expenses to average net assets reflects an expense
reimbursement by Travelers Insurance 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.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
34
<PAGE> 184
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND 2000(1) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $108.80 $72.74 $46.32 $36.72 $33.18 $24.50
---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income
(loss)..................... (0.03) 0.04 0.06 0.19 0.23 0.24
Net realized and unrealized
gain (loss)................ (1.07) 38.08 28.07 9.41 8.49 8.61
---------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations.................... (1.10) 38.12 28.13 9.60 8.72 8.85
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(2):
Net investment income......... (0.04) (0.07) (0.18) -- (0.41) (0.17)
Net realized gains............ (3.75) (1.99) (1.53) (0.00)* (4.77) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions............. (3.79) (2.06) (1.71) (0.00)* (5.18) (0.17)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD........................ $103.91 $108.80 $72.74 $46.32 $36.72 $33.18
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................... (1.02)%++ 53.52% 61.63% 26.14% 28.21% 36.37%
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(MILLIONS).................... $2,192 $1,915 $891 $408 $224 $122
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)................... 0.83%+ 0.83% 0.85% 0.84% 0.83% 0.85%
Net investment income
(loss)..................... (0.04)+ 0.07 0.18 0.54 0.69 0.84
---------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......... 7% 37% 53% 89% 84% 124%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO 2000(1) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------------------------------------------------------
Net investment income(4)........ 0.029 0.049 0.049 0.049 0.0412 0.0417
Distributions from net
investment income............. (0.029) (0.049) (0.049) (0.049) (0.0412) (0.0417)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD........................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................... 2.89%++ 4.96% 5.08% 5.03% 4.20% 4.17%
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S)....................... $111,460 $119,970 $42,069 $13,494 $3,543 $1,417
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)(5)............. 0.40%+ 0.37% 0.65% 0.57% 0.78% 1.25%
Net investment income......... 5.83+ 4.96 5.37 5.03 3.72 --
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(3) 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.
(4) Travelers Insurance reimbursed Money Market Portfolio for $35,110, $85,612,
$31,300 and $43,376 in expenses for the six months ended June 30, 2000, 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, $0.001, $0.002 and $0.02, respectively, and the actual
expense ratios would have been 0.47%, 0.50%, 1.39% and 1.71%, respectively.
(5) The ratio of expenses to average net assets for 1995 reflects an expense
reimbursement by Travelers Insurance 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.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
35
<PAGE> 185
SEMI-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 who is primarily concerned
with the highest credit quality, current income and total return. The assets of
the Portfolio will be invested in direct obligations of the United States, its
agencies and instrumentalities. For the six months ended June 30, 2000, the
Portfolio returned 5.16%. In comparison, the Lehman Brothers Government Bond
Index(12) returned 4.97% for the same period. (Past performance is not
indicative of future results.)
The Fed only had one tightening in the second quarter but it was for 50 basis
points. (A basis point is 0.01% or one one-hundredth of a percent.) The Fed has
now tightened by 175 basis points since it began raising the federal funds rate
on June 30, 1999. The short-end of the U.S. Treasury yield curve moved as if the
Fed was done tightening. The 5-year Treasury rallied by 70 basis points after
the Fed tightening. The 5-year Treasury ended the quarter at a yield 15 basis
points lower than when it started.
Moreover, the Treasury yield curve flattened during the quarter. The rally in
the 30-year was more muted than the rally in the 5-year note. Thus, the yield
curve ended the quarter inverted by 28 basis points. The yield curve had started
the quarter 48 basis points inverted (An inverted yield curve is an unusual
situation where short-term interest rates are longer than long-term rates.)
The cumulative Fed action appears to have taken its toll on the economy. While
the first quarter Gross Domestic Product ("GDP")(13) annual economic growth rate
was 5.5%, the second quarter may be substantially slower. Consumer spending
increased only 0.2% in both May and April. Lending indicators were also weak
during the reporting period, and they were unchanged in April and down 1% in
May.
Going forward the Portfolio is nearly even to its benchmark's duration.
(Duration is a common gauge of the price sensitivity of a fixed income asset or
portfolio to a change in interest rates.) As of June 30, 2000, the Portfolio
remained overweighted in spread product and was relatively neutral to the yield
curve.
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, military defense
related services or gambling services. For the six months ended June 30, 2000,
the Portfolio returned a negative 1.25%. In comparison, the S&P 500 returned a
negative 0.43% for the same period. (Past performance is not indicative of
future results.)
The Portfolio underperformed the benchmark because of the under emphasis the
Portfolio had in technology stocks. The manager believed technology stocks
looked too expensive in his valuation models. The Portfolio's overweight
position in big name retail stocks also contributed to the underperformance of
the Portfolio. In the latter instance, the stocks were surprisingly weak in
price apparently reacting more to the rising trend of interest rates rather than
a continued strong presence by consumers in the first half of the year.
The manager was fairly active from a portfolio management perspective,
initiating almost 100 individual trades, with the emphasis on the buy side as
the manager continued to employ new cash inflows. The relatively modest decline
in values for both the S&P 500 and the Portfolio masked the very volatile nature
of the stock market. It was common to see stocks up or down 25% to 50% in price,
and the Portfolio had its fair share of both.
As the first half of 2000, the manager retained a lighter than market exposure
to the technology sector because the valuations accorded many individual stocks
exceeded the acceptable boundaries of the manager's valuation models. The
Portfolio remained slightly less than fully invested with between 6% and 7% in
cash. On balance, the manager is comfortable with the Portfolio, feeling that it
conforms well to all elements of its investment discipline.
---------------
12 The Lehman Brothers Government Bond Index is a broad-based index of all
public debt obligations of the U.S. government and its agencies that has an
average maturity of roughly nine years. An investor cannot invest directly in
an index.
13 GDP is the market value of the goods and services produced by labor in the
U.S.
36
<PAGE> 186
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
--------------------------------------------------------------------------------
UTILITIES PORTFOLIO
The Utilities Portfolio ("Portfolio") seeks to provide current income by
investing in equity and debt securities of companies in the utility industries.
For the six months ended June 30, 2000, the Portfolio returned 6.29%. In
comparison, the S&P 500 returned negative 0.43% for the same period. In a
difficult market for both utilities stocks and bonds, the Portfolio continued to
generate competitive performance. (Past performance is not indicative of future
results.)
The first half of the year produced two tales for this Portfolio. The Portfolio
recorded strong absolute investment returns in an otherwise negatively biased
stock market, but the broad diversification across all aspects of the utility
sector hurt the relative performance of the Portfolio. In the long run, the
manager believes investors should have a strong representation in the
telecommunications sector; however, in the most recent period, those stocks
negatively impacted the final results of the Portfolio.
At or near the bottom of the Portfolio's performance roster were stocks such as
WorldCom, Sprint, AT&T and NEXTLINK. At the top of the list were companies in
natural gas and restructuring electric sectors. In the long-term the manager
remains committed to diversification, especially in today's world where fiber
optics is intruding into the gas pipeline universe. Moreover, traditional
electric companies are transforming themselves into energy movers and shakers
and these are, in the views of the manager, solid investment opportunities.
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
July 27, 2000
37
<PAGE> 187
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/00+ 5.16%
Year Ended 6/30/00 4.79%
Five Years Ended 6/30/00 6.49%
1/24/92* through 6/30/00 6.92%
CUMULATIVE TOTAL RETURN
----------------------------------------------
1/24/92* through 6/30/00 75.88%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on January
24, 1992, assuming reinvestment of dividends, through June 30,
2000. The Lehman Brothers 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.
[U.S GOVERNMENT SECURITIES PORTFOLIO GRAPH]
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES LEHMAN BROTHERS
PERIOD END PORTFOLIO GOVERNMENT BOND INDEX CONSUMER PRICE INDEX
---------- -------------------------- --------------------- --------------------
<S> <C> <C> <C>
1/24/92 $ 10,000.00 $ 10,000.00 $ 10,000.00
12/92 10,790.00 10,723.00 10,275.00
12/93 11,813.00 11,866.00 10,557.00
12/94 11,147.00 11,464.00 10,640.00
12/95 13,869.00 13,567.00 11,115.00
12/96 14,071.00 13,943.00 11,484.00
12/97 15,846.00 15,280.00 11,579.00
12/98 17,463.00 16,785.00 11,866.00
12/99 16,724.00 16,411.00 12,220.00
6/30/00 17,588.00 17,226.00 12,511.00
</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 -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 6/30/00
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<S> <C>
Six Months Ended 6/30/00+ (1.25)%
Year Ended 6/30/00 1.55%
Five Years Ended 6/30/00 20.81%
5/1/92* through 6/30/00 16.70%
CUMULATIVE TOTAL RETURN
----------------------------------------------
5/1/92* through 6/30/00 253.18%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on May 1,
1992, assuming reinvestment of dividends, through June 30, 2000.
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.
[SOCIAL AWARENESS STOCK PORTFOLIO GRAPH]
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK STANDARD & POOR'S 500
PERIOD END PORTFOLIO INDEX CONSUMER PRICE INDEX
---------- ---------------------- --------------------- --------------------
<S> <C> <C> <C>
5/1/92 $ 10,000.00 $ 10,000.00 $ 10,000.00
12/92 10,950.00 10,673.00 10,157.00
12/93 11,777.00 11,745.00 10,436.00
12/94 11,461.00 11,900.00 10,716.00
12/95 15,285.00 14,509.00 10,988.00
12/96 18,339.00 17,838.00 11,353.00
12/97 23,343.00 23,789.00 11,545.00
12/98 30,875.00 30,626.00 11,731.00
12/99 35,765.00 37,067.00 12,080.00
6/30/00 35,318.00 38,908.00 12,368.00
</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.
38
<PAGE> 188
--------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 6/30/00 (UNAUDITED)
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------------------------
<S> <C>
Six Months Ended 6/30/00+ 6.29%
Year Ended 6/30/00 1.81%
Five Years Ended 6/30/00 15.18%
2/4/94* through 6/30/00 13.90%
CUMULATIVE TOTAL RETURN
----------------------------------------------
2/4/94* through 6/30/00 130.24%
+ Total return is not annualized, as it may
not be representative of the total return
for the year.
* Commencement of operations
</TABLE>
This chart assumes an initial investment of $10,000 made on
February 4, 1994, assuming reinvestment of dividends, through June
30, 2000. 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 Consumer Price Index is a measure of the average change
in prices over time in a fixed market basket of goods and services.
[UTILITIES PORTFOLIO GRAPH]
<TABLE>
<CAPTION>
STANDARD & POOR'S
PERIOD END UTILITIES PORTFOLIO 500 INDEX CONSUMER PRICE INDEX
---------- ------------------- ----------------- --------------------
<S> <C> <C> <C>
2/4/94 $ 10,000.00 $ 10,000.00 $ 10,000.00
12/94 10,170.00 10,072.00 10,205.00
12/95 13,149.00 13,852.00 10,464.00
12/96 14,638.00 17,031.00 10,811.00
12/97 18,340.00 22,712.00 10,995.00
12/98 21,880.00 29,240.00 11,171.00
12/99 21,662.00 35,390.00 11,504.00
6/30/00 23,024.00 35,237.00 11,778.00
</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.
39
<PAGE> 189
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS -- 39.8%
U.S. Treasury Notes:
$1,000,000 8.000% due 11/15/21......................................... $ 1,207,180
3,000,000 5.250% due 2/15/29.......................................... 2,662,500
3,000,000 6.125% due 8/15/29.......................................... 3,034,500
4,000,000 6.250% due 5/15/30.......................................... 4,200,000
U.S. Treasury Bonds:
2,000,000 12.000% due 8/15/13......................................... 2,703,120
6,500,000 9.250% due 2/15/16.......................................... 8,423,545
1,000,000 6.125% due 11/15/27......................................... 997,180
9,000,000 U.S. REFCO Strips, zero coupon due 10/15/13................. 3,750,030
1,041,320 U.S. Treasury Inflation Index Bonds, 3.875% due 4/15/29..... 1,038,717
--------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $27,867,805)..... 28,016,772
--------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 53.4%
3,000,000 Federal Home Loan Bank (FHLB) Certificates, 5.705% due
3/2/09...................................................... 2,720,370
Federal Home Loan Mortgage Corp. (FHLMC) Certificates:
2,668,875 8.500% due 6/15/21.......................................... 2,724,084
2,843,050 8.000% due 3/1/27+.......................................... 2,859,028
6,336,454 6.500% due 3/15/28++........................................ 5,910,712
Federal National Mortgage Association (FNMA) Certificates:
1,844,000 8.000% due 7/1/27+.......................................... 1,852,630
2,660,868 6.500% due 12/1/27.......................................... 2,509,518
3,904,997 7.500% due 11/1/29.......................................... 3,851,304
2,000,000 8.500% due 6/1/30........................................... 2,037,500
Government National Mortgage Association (GNMA)
Certificates:
1,455,740 9.000% due 9/15/09++........................................ 1,504,867
591,165 8.500% due 7/15/18++........................................ 606,128
1,363,282 7.000% due 3/15/28++........................................ 1,326,638
6,498,426 6.000% due 2/20/29++........................................ 5,057,758
2,914,728 7.500% due 9/15/29.......................................... 2,895,579
2,000,000 Tennessee Valley Authority Debentures, 6.250% due
12/15/17.................................................... 1,801,680
--------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $39,146,870)........ 37,657,796
--------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.8%
4,772,000 CS First Boston Corp., 6.550% due 7/3/00; Proceeds at
maturity -- $4,774,602; (Fully collateralized by U.S.
Treasury Notes, 6.250% due 1/31/02; Market value --
$4,868,123) (Cost -- $4,772,000)......................... 4,772,000
--------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $71,786,675**)........... $70,446,568
--------------------------------------------------------------------------------------
</TABLE>
+ Security is traded on a "to-be-announced" basis (See Note 7).
++ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE> 190
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.5%
-----------------------------------------------------------------------------------------
AUTOMOTIVE -- 0.5%
8,000 Ford Motor Co. ............................................. $ 344,000
-----------------------------------------------------------------------------------------
BASIC MATERIALS -- 4.3%
44,600 Alcoa Inc. ................................................. 1,293,400
25,000 Engelhard Corp. ............................................ 426,563
20,000 Nucor Corp. ................................................ 663,750
16,000 Praxair, Inc. .............................................. 599,000
-----------------------------------------------------------------------------------------
2,982,713
-----------------------------------------------------------------------------------------
CAPITAL GOODS -- 2.9%
24,500 Anixter International Inc.+................................. 649,250
25,500 Deere & Co. ................................................ 943,500
9,800 Pitney Bowes Inc. .......................................... 392,000
1,047 Visteon Corp. .............................................. 12,701
-----------------------------------------------------------------------------------------
1,997,451
-----------------------------------------------------------------------------------------
COMMUNICATION -- 3.9%
10,000 AT&T Wireless Group......................................... 278,750
24,100 Bell Atlantic Corp.++ ...................................... 1,224,581
6,250 Time Warner Telecom Inc.+................................... 402,344
17,754 WorldCom, Inc.+............................................. 814,465
-----------------------------------------------------------------------------------------
2,720,140
-----------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 17.6%
26,100 Black & Decker Corp. ....................................... 1,026,056
11,400 Convergys Corp. ............................................ 591,375
35,600 Home Depot, Inc. ........................................... 1,777,775
50,000 Interface, Inc. ............................................ 190,625
31,000 Kaufman & Broad Home Corp. ................................. 614,187
16,928 Koninklijke Philips Electronics N.V. ADR.................... 804,080
27,500 Liz Claiborne, Inc. ........................................ 969,375
25,200 Lowe's Cos., Inc. .......................................... 1,034,775
33,000 Office Depot, Inc.+......................................... 206,250
31,200 Reader's Digest Association, Inc. .......................... 1,240,200
37,600 Staples, Inc.+.............................................. 578,100
22,200 Tribune Co. ................................................ 777,000
29,200 Tyco International Ltd. .................................... 1,383,350
19,500 Wal-Mart Stores, Inc. ...................................... 1,123,687
-----------------------------------------------------------------------------------------
12,316,835
-----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 7.9%
18,000 Brinker International, Inc.+................................ 526,500
18,000 Kimberly-Clark Corp. ....................................... 1,032,750
27,400 Kroger Co.+................................................. 604,512
14,800 Newell Rubbermaid Inc. ..................................... 381,100
25,000 Pepsi Bottling Group, Inc. ................................. 729,688
4,800 PepsiCo, Inc. .............................................. 213,300
15,400 Sara Lee Corp. ............................................. 297,412
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE> 191
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER STAPLES -- 7.9% (CONTINUED)
29,700 SYSCO Corp. ................................................ $ 1,251,113
27,700 Wendy's International, Inc. ................................ 493,406
-----------------------------------------------------------------------------------------
5,529,781
-----------------------------------------------------------------------------------------
ENERGY -- 5.0%
6,600 Anadarko Petroleum Corp. ................................... 325,463
28,626 BP Amoco PLC ADR............................................ 1,619,158
10,600 Coastal Corp. .............................................. 645,275
14,800 Royal Dutch Petroleum Co. ADR............................... 911,125
-----------------------------------------------------------------------------------------
3,501,021
-----------------------------------------------------------------------------------------
FINANCIALS -- 10.0%
24,600 American Express Co. ....................................... 1,282,275
7,640 American International Group, Inc. ......................... 897,700
14,400 Associates First Capital Corp. ............................. 321,300
12,300 Bank of New York Co., Inc. ................................. 571,950
30,450 Chase Manhattan Corp. ...................................... 1,402,603
5,400 Freddie Mac................................................. 218,700
10,000 Hartford Financial Services Group, Inc. .................... 559,375
7,000 Marsh & McLennan Cos., Inc. ................................ 731,063
11,100 PNC Financial Services Group................................ 520,313
13,300 St. Paul Cos., Inc. ........................................ 453,862
-----------------------------------------------------------------------------------------
6,959,141
-----------------------------------------------------------------------------------------
HEALTH CARE -- 10.1%
28,000 Amgen Inc.+................................................. 1,967,000
6,600 C.R. Bard, Inc. ............................................ 317,625
12,700 Johnson & Johnson........................................... 1,293,813
14,100 Medtronic, Inc. ............................................ 702,356
11,600 Merck & Co., Inc. .......................................... 888,850
23,100 Schering-Plough Corp. ...................................... 1,166,550
25,900 Tenet Healthcare Corp. ..................................... 699,300
-----------------------------------------------------------------------------------------
7,035,494
-----------------------------------------------------------------------------------------
PUBLISHING -- 0.9%
11,900 Harcourt General, Inc. ..................................... 647,063
-----------------------------------------------------------------------------------------
TECHNOLOGY -- 21.5%
24,000 America Online, Inc.+....................................... 1,266,000
20,000 Automatic Data Processing, Inc. ............................ 1,071,250
19,500 Cisco Systems, Inc.+........................................ 1,239,469
10,000 Compaq Computer Corp. ...................................... 255,625
15,000 Electronic Data Systems Corp. .............................. 618,750
38,200 EMC Corp.+.................................................. 2,939,012
10,500 Genuity Inc. ............................................... 96,141
500 Infineon Technologies AG ADR................................ 39,625
10,400 Intel Corp. ................................................ 1,390,350
18,500 International Business Machines Corp. ...................... 2,026,906
7,700 Microsoft Corp.+............................................ 616,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE> 192
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
SOCIAL AWARENESS STOCK PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 21.5% (CONTINUED)
10,000 N2H2, Inc.+................................................. $ 50,000
15,000 Oracle Corp.+............................................... 1,260,937
11,500 Solectron Corp. ............................................ 481,562
12,400 Sun Microsystems, Inc.+..................................... 1,127,625
27,100 Xerox Corp. ................................................ 562,325
-----------------------------------------------------------------------------------------
15,041,577
-----------------------------------------------------------------------------------------
TRANSPORTATION -- 2.7%
26,187 Southwest Airlines Co. ..................................... 495,916
16,800 United Parcel Service, Inc., Class B Shares................. 991,200
15,200 USFreightways Corp. ........................................ 373,350
-----------------------------------------------------------------------------------------
1,860,466
-----------------------------------------------------------------------------------------
UTILITIES -- 6.2%
44,200 AES Corp.+.................................................. 2,016,625
17,300 Enron Corp. ................................................ 1,115,850
28,200 The Williams Cos., Inc. .................................... 1,175,588
-----------------------------------------------------------------------------------------
4,308,063
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $48,479,791).................... 65,243,745
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 6.5%
$4,500,000 CS First Boston Corp., 6.550% due 7/3/00; Proceeds at
maturity -- $4,502,456; (Fully collateralized by
U.S. Treasury Notes, 6.250% due 1/31/02; Market value
-- $4,590,003) (Cost -- $4,500,000)......................... 4,500,000
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $52,979,791**)........... $69,743,745
-----------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
++ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE> 193
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 91.7%
------------------------------------------------------------------------------------------------------
ELECTRIC - UTILITY -- 53.9%
20,000 Allegheny Energy, Inc. .................................................. $ 547,500
30,000 Calpine Corp.+........................................................... 1,972,500
15,000 Cinergy Corp. ........................................................... 381,563
12,106 Dominion Resources, Inc. ................................................ 519,061
30,000 DQE, Inc. ............................................................... 1,185,000
11,000 Duke Energy Corp. ....................................................... 620,125
21,800 Edison International..................................................... 446,900
20,000 Energy East Corp. ....................................................... 381,250
29,000 FirstEnergy Corp. ....................................................... 677,875
20,000 Florida Progress Corp. .................................................. 937,500
10,000 FPL Group, Inc. ......................................................... 495,000
20,000 GPU, Inc. ............................................................... 541,250
20,000 Montana Power Co. ....................................................... 706,250
11,000 New Century Energies, Inc. .............................................. 330,000
53,000 Niagara Mohawk Holdings Inc.+............................................ 738,687
20,000 Nisource Inc. ........................................................... 372,500
30,000 Northeast Utilities...................................................... 652,500
20,000 Northern States Power Co. ............................................... 403,750
14,766 NSTAR.................................................................... 600,792
21,000 PECO Energy Co. ......................................................... 846,562
25,000 Pinnacle West Capital Corp. ............................................. 846,875
10,000 Public Service Enterprise Group Inc. .................................... 346,250
15,000 SCANA Corp. ............................................................. 361,875
36,000 Sierra Pacific Resources................................................. 452,250
10,000 Texas Utilities Co. ..................................................... 295,000
30,000 Unicom Corp. ............................................................ 1,160,625
------------------------------------------------------------------------------------------------------
16,819,440
------------------------------------------------------------------------------------------------------
NATURAL GAS -- 17.0%
16,000 Coastal Corp. ........................................................... 974,000
15,000 Dynegy Inc. ............................................................. 1,024,688
22,000 Energen Corp. ........................................................... 479,875
15,000 MCN Energy Group Inc. ................................................... 320,625
15,000 National Fuel Gas Co. ................................................... 731,250
20,000 Sempra Energy............................................................ 340,000
20,000 Southwest Gas Corp. ..................................................... 350,000
26,000 The Williams Cos., Inc. ................................................. 1,083,875
------------------------------------------------------------------------------------------------------
5,304,313
------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE> 194
--------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2000
UTILITIES PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TELEPHONE -- 20.8%
28,450 AT&T Corp. .............................................................. $ 899,731
5,000 AT&T Wireless Group+..................................................... 139,375
10,000 Bell Atlantic Corp.++ ................................................... 508,125
6,975 Covad Communications Group, Inc.+........................................ 112,472
10,000 GTE Corp.++ ............................................................. 622,500
17,000 NEXTLINK Communications, Inc.+........................................... 644,938
12,000 Qwest Communications International Inc.+................................. 596,250
20,000 SBC Communications Inc. ................................................. 865,000
14,000 Sprint Corp. ............................................................ 714,000
30,000 WorldCom, Inc.+.......................................................... 1,376,250
------------------------------------------------------------------------------------------------------
6,478,641
------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $23,030,645)................................. 28,602,394
------------------------------------------------------------------------------------------------------
</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............... 178,250
------------------------------------------------------------------------------------------------------
TELEPHONE -- 0.7%
230,000 A- MCI Communications Corp., 7.750% due 3/23/25................ 216,487
------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost -- $405,157).................... 394,737
------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 7.0%
2,193,000 CS First Boston Corp., 6.550% due 7/3/00; Proceeds at
maturity -- $2,194,197; (Fully collateralized by U.S.
Treasury Notes, 6.250% due 1/31/02;
Market value -- $2,237,230) (Cost -- $2,193,000)......... 2,193,000
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $25,628,802**)........... $31,190,131
------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
++ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
(a) All ratings are by Standard & Poor's Ratings Service, except for those which
are identified by an asterisk (*), are rated by Moody's Investors Service,
Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 46 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE> 195
--------------------------------------------------------------------------------
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>
46
<PAGE> 196
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost -- $71,786,675,
$52,979,791 and $25,628,802, respectively)........ $70,446,568 $69,743,745 $31,190,131
Cash................................................. 923 166,200 22
Dividends and interest receivable.................... 802,988 37,978 75,833
-------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................... 71,250,479 69,947,923 31,265,986
-------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased..................... 4,713,272 -- --
Investment advisory fees payable..................... 17,640 35,665 16,524
Administration fees payable.......................... 3,205 3,399 1,581
Accrued expenses..................................... 10,820 33,726 28,621
-------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................... 4,744,937 72,790 46,726
-------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $66,505,542 $69,875,133 $31,219,260
-------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital...................................... $69,547,663 $51,484,154 $23,529,163
Undistributed net investment income.................. 2,109,636 138,726 358,044
Accumulated net realized gain (loss) from security
transactions...................................... (3,811,650) 1,488,299 1,770,724
Net unrealized appreciation (depreciation) of
investments....................................... (1,340,107) 16,763,954 5,561,329
-------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $66,505,542 $69,875,133 $31,219,260
-------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING..................................... 5,928,225 2,448,287 1,899,371
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................. $11.22 $28.54 $16.44
-------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE> 197
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................ $ 2,267,425 $ 93,179 $ 36,634
Dividends............................................... -- 306,367 458,725
Less: Foreign withholding tax........................... -- (4,355) --
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................. 2,267,425 395,191 495,359
-------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)....................... 103,803 207,825 99,922
Administration fees (Note 2)............................ 19,122 19,952 9,224
Audit and legal......................................... 16,123 13,310 14,407
Shareholder and system servicing fees................... 7,466 7,343 7,484
Shareholder communications.............................. 2,983 2,935 1,508
Custody................................................. 2,139 2,382 1,631
Trustees' fees.......................................... 1,989 2,006 1,989
Pricing service fees.................................... 417 -- 249
Other................................................... 3,270 589 572
-------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................... 157,312 256,342 136,986
-------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................... 2,110,113 138,849 358,373
-------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE
3):
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales.................................. 49,950,601 12,584,116 4,541,839
Cost of securities sold.............................. 50,785,513 11,008,478 2,687,182
-------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)................................ (834,912) 1,575,638 1,854,657
-------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of period.................................. (3,259,091) 19,320,275 5,942,842
End of period........................................ (1,340,107) 16,763,954 5,561,329
-------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION).... 1,918,984 (2,556,321) (381,513)
-------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS............................ 1,084,072 (980,683) 1,473,144
-------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... $ 3,194,185 $ (841,834) $1,831,517
-------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE> 198
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK UTILITIES
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 2,110,113 $ 138,849 $ 358,373
Net realized gain (loss)......................... (834,912) 1,575,638 1,854,657
Change in net unrealized appreciation
(depreciation)................................ 1,918,984 (2,556,321) (381,513)
-------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.................................... 3,194,185 (841,834) 1,831,517
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ (3,702,666) (378,165) (823,875)
Net realized gains............................... -- (844,042) (53,040)
-------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS.................................. (3,702,666) (1,222,207) (876,915)
-------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares................. 12,429,574 6,216,688 3,110,319
Net asset value of shares issued for reinvestment
of dividends.................................. 3,702,666 1,222,207 876,915
Cost of shares reacquired........................ (10,740,908) (3,738,438) (5,135,656)
-------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS....................... 5,391,332 3,700,457 (1,148,422)
-------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS.................. 4,882,851 1,636,416 (193,820)
NET ASSETS:
Beginning of period.............................. 61,622,691 68,238,717 31,413,080
-------------------------------------------------------------------------------------------------------
END OF PERIOD*................................... $ 66,505,542 $69,875,133 $31,219,260
-------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income
of:........................................... $2,109,636 $138,726 $358,044
-------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE> 199
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
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.
50
<PAGE> 200
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The U.S. Government Securities, Social Awareness Stock and Utilities
Portfolios (collectively, "Portfolio(s)") are separate investment portfolios of
The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company and consists of these
portfolios and 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 & Voyles 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 Company LLC ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup Inc., ("Citigroup"), 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 0.3257% of its average daily net assets. This fee is calculated daily
and paid monthly.
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH") and an indirect wholly owned subsidiary of Citigroup,
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.
51
<PAGE> 201
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Travelers Insurance Company ("Travelers Insurance") acts as administrator
to the Portfolios. The Portfolios pay Travelers Insurance an administration fee
calculated at an annual rate of 0.06% of the average daily net assets. Travelers
Insurance has entered into a sub-administrative services agreement with SSBC.
Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an
annual rate of 0.06% of the average daily net assets of each Portfolio. This fee
is calculated daily and paid monthly.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney
Private Trust Company, another subsidiary of Citigroup, acts as the Portfolios
transfer agent. CFTC receives account fees and asset-based fees that vary
according to the size and type of account. During the six months ended June 30,
2000, USGS, SAS, and Utilities, each paid transfer agent fees of $2,500 to CFTC.
One Trustee and all officers of the Trust are employees of Citigroup or its
subsidiaries.
3. INVESTMENTS
During the six months ended June 30, 2000, 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................................................... $56,992,072 $15,510,805 $ 687,644
----------------------------------------------------------------------------------------------------
Sales....................................................... 49,950,601 12,584,116 4,541,839
--------------------------------------------------------------------------------
</TABLE>
At June 30, 2000, the 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............................... $ 761,541 $20,179,434 $ 7,671,565
Gross unrealized depreciation............................... (2,101,648) (3,415,480) (2,110,236)
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $(1,340,107) $16,763,954 $ 5,561,329
-----------------------------------------------------------------------------------------------------
</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 Portfolios' basis in the contract.
The Portfolios enter into such contracts to hedge portions of their
respective portfolios. The Portfolios bear the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts).
At June 30, 2000, the Portfolios had no open futures contracts.
52
<PAGE> 202
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Portfolios,
represent investments, which are "marked-to-market" daily. When a purchased
option expires, the Portfolios will realize a loss in the amount of the premium
paid. When the Portfolios enter into closing sales transactions, the Portfolios
will realize a gain or loss depending on whether the proceeds from the closing
sales transactions are greater or less than the premium paid for the option.
When the Portfolios exercise a put option, they will realize a gain or loss from
the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Portfolios exercise a call
option, the cost of the security which the Portfolios purchase upon exercise
will be increased by the premium originally paid.
At June 30, 2000, the Portfolios had no open purchased call or put option
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 June 30, 2000, USGS had purchased TBA securities with a total cost of
$4,696,599.
8. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Portfolio were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold................................................. 1,083,995 1,246,566
Shares issued on reinvestment............................... 330,595 484
Shares reacquired........................................... (937,763) (1,427,742)
-------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... 476,827 (180,692)
-------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold................................................. 216,985 808,161
Shares issued on reinvestment............................... 43,051 40,998
Shares reacquired........................................... (130,852) (53,531)
-------------------------------------------------------------------------------------------------
Net Increase................................................ 129,184 795,628
-------------------------------------------------------------------------------------------------
UTILITIES PORTFOLIO
Shares sold................................................. 184,358 414,864
Shares issued on reinvestment............................... 52,890 154,823
Shares reacquired........................................... (312,340) (510,525)
-------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (75,092) 59,162
-------------------------------------------------------------------------------------------------
</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.
53
<PAGE> 203
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 2000(1)(2) 1999(2) 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $11.30 $11.80 $11.65 $10.86 $12.43 $10.58
--------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................. 0.34 0.68 0.49 0.58 0.68 0.65
Net realized and unrealized gain
(loss)............................. 0.24 (1.18) 0.70 0.79 (0.52) 1.80
--------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations..... 0.58 (0.50) 1.19 1.37 0.16 2.45
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(3):
Net investment income................. (0.66) (0.00)* (0.50) (0.58) (1.55) (0.60)
Net realized gains.................... -- -- (0.54) -- (0.18) --
--------------------------------------------------------------------------------------------------------------------
Total Distributions..................... (0.66) (0.00)* (1.04) (0.58) (1.73) (0.60)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $11.22 $11.30 $11.80 $11.65 $10.86 $12.43
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................ 5.16%++ (4.23)% 10.20% 12.62% 1.46% 24.42%
--------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $66,506 $61,623 $66,454 $35,279 $26,009 $28,192
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)........................... 0.50%+ 0.48% 0.45% 0.49% 0.62% 0.56%
Net investment income................. 6.64+ 5.97 5.31 6.10 5.68 5.80
--------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................. 80% 164% 349% 208% 501% 214%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SOCIAL AWARENESS STOCK PORTFOLIO 2000(1)(2) 1999(2) 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $29.42 $25.92 $20.06 $15.76 $14.32 $11.05
--------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(5).............. 0.06 0.13 0.10 0.15 0.31 0.12
Net realized and unrealized gain
(loss)............................. (0.43) 3.93 6.30 4.15 2.42 3.47
--------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations..... (0.37) 4.06 6.40 4.30 2.73 3.59
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(3):
Net investment income................. (0.16) (0.09) (0.12) -- (0.43) (0.14)
Net realized gains.................... (0.35) (0.47) (0.42) -- (0.86) (0.18)
--------------------------------------------------------------------------------------------------------------------
Total Distributions..................... (0.51) (0.56) (0.54) -- (1.29) (0.32)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $28.54 $29.42 $25.92 $20.06 $15.76 $14.32
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................ (1.25)%++ 15.84% 32.27% 27.28% 19.98% 33.37%
--------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)....... $69,875 $68,239 $39,482 $21,013 $11,040 $7,055
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(5)(6)........................ 0.77%+ 0.80% 0.84% 0.98% 1.25% 1.25%
Net investment income................. 0.42+ 0.69 0.63 0.97 0.43 0.99
--------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................. 20% 12% 14% 19% 26% 73%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
(5) 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%.
(6) The ratio of expenses to average net assets for the year ended December 31,
1995 reflects an expense reimbursement by Travelers Insurance 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.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
54
<PAGE> 204
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
UTILITIES PORTFOLIO 2000(1) 1999(2) 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $15.91 $17.18 $15.29 $12.22 $12.85 $10.17
----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.................. 0.22 0.41 0.37 0.46 0.47 0.48
Net realized and unrealized gain
(loss).............................. 0.79 (0.36) 2.33 2.63 0.47 2.44
----------------------------------------------------------------------------------------------------------------------
Total Income From Operations............. 1.01 0.05 2.70 3.09 0.94 2.92
----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM(3):
Net investment income.................. (0.45) (0.40) (0.42) (0.01) (0.84) (0.24)
Net realized gains..................... (0.03) (0.92) (0.39) (0.01) (0.73) --
----------------------------------------------------------------------------------------------------------------------
Total Distributions...................... (0.48) (1.32) (0.81) (0.02) (1.57) (0.24)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........... $16.44 $15.91 $17.18 $15.29 $12.22 $12.85
----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................. 6.29%++ (0.08)% 18.21% 25.29% 7.47% 29.29%
----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........ $31,219 $31,413 $32,909 $21,413 $18,214 $15,340
----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)............................ 0.89%+ 0.88% 0.80% 1.06% 1.07% 1.25%
Net investment income.................. 2.34+ 2.41 3.06 3.58 3.88 4.29
----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.................. 2% 10% 51% 68% 39% 25%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Distributions from realized gains include both net realized short-term and
long-term capital gains. Prior to 1996 net realized short-term capital gains
were included in distributions from net investment income.
(4) The ratio of expenses to average net assets for the year ended December 31,
1995 reflects expense reimbursements by Travelers Insurance in connection
with voluntary expense limitations. Without the expense reimbursement, the
ratio of expenses to average net assets would have been 1.27%.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
55
<PAGE> 205
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 COMPANY LLC
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
----------
PFPC TRUST COMPANY
This report is prepared for the general information of contract owners and is
not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Money Market Portfolio, The Travelers Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio or Utilities
Portfolio. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity and Variable
Universal Life Insurance products offered by The Travelers Insurance Company or
Travelers Life & Annuity Company and the Prospectuses for the underlying funds,
which collectively contain all pertinent information, including the applicable
sales commissions.
Printed in U.S.A. VG-181 (Semi-Annual)(8-00)
