<PAGE>
ANNUAL REPORT
1996
1996
1996
1996
1996
TRAVELERS SERIES
FUND INC.
MFS TOTAL RETURN PORTFOLIO
TBC MANAGED INCOME
PORTFOLIO
SMITH BARNEY MONEY
MARKET PORTFOLIO
- --------------------------
OCTOBER 31, 1996
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
MFS Total Return, TBC Managed Income and
Smith Barney Money Market Portfolios
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide you with the annual report for the Travelers Series
Fund Inc. for the year ended October 31, 1996. This report covers the MFS Total
Return, TBC Managed Income and Smith Barney Money Market Portfolios (the
"Portfolios"). In this report, we have summarized the period's prevailing
economic and market conditions and briefly outline each Portfolio's investment
strategy. A detailed summary of each Portfolio's performance and current
holdings can be found in the appropriate sections that follow in the annual
report.
Portfolio Highlights
MFS Total Return Portfolio
For the year ended October 31, 1996, the MFS Total Return Portfolio (the
"Portfolio") posted a total return of 17.16% compared to the 13.17% return from
the Portfolio's peer group, as reported by Lipper Analytical Services Inc. for
the same period. (Lipper is an independent fund tracking organization.) As a
balanced fund, a large portion of the Portfolio's total assets are invested in
both stocks and bonds. In addition, the Portfolio purchases preferred stocks and
convertible bonds, which in many cases can provide similar returns to common
stocks with less risk. Over the past year, the Portfolio held about 57% of its
assets in common stocks, preferred stocks and convertible bonds. This allocation
provided the bulk of the return for the Portfolio as a whole, as the U.S. stock
market continued its trend of 1995, posting spectacular gains. The Standard and
Poor's 500 Composite Index ("S&P 500") gained 24.08% over the twelve-month
period covered by this report. (The S&P 500 is an unmanaged index of 500 widely
held common stocks.) The remainder of the Portfolio was invested in a blend of
corporate bonds and U.S. Treasury bonds, with an overall duration between 5 and
6 years. The fixed income sector also provided positive returns, however, the
magnitude was far less than that of the Portfolio's stock portion. For example,
the Lehman Brothers Government Corporate Bond Index, which is fairly
representative of the Portfolio's bond allocation, gained 5.39% over the same
twelve month period. (The Lehman Brothers Government Corporate Bond Index is an
unmanaged, market-value weighted index of U.S. Treasury and government agency
securities, excluding mortgage-backed securities.)
The Portfolio's stock investment strategy has focused on companies that, in our
view, have earnings prospects or asset values equal to or higher than the
overall market as measured by the S&P 500. Two sectors that we believe fit our
investment criteria are the energy and financial services sectors. Bank stocks
have done particularly well because earnings have risen steadily and an
1
<PAGE>
increase in merger activity has made nearly all banks more valuable. We also
favor the health care sector, where strong earnings and industry consolidation
has improved the outlook for the stocks of many of these companies. In addition,
we currently favor the aerospace industry, which we believe will benefit from a
cyclical increase in the number of aircraft being built over the next three
years. During the period covered by this report, we avoided the technology
sector, because, in our view, many of these stocks have high growth prospects
but also have high valuations, which means they often carry greater risk. The
Portfolio is also underweighted in consumer companies because of their inability
to raise prices as the U.S. consumer continues to demand more value at lower
prices.
Given where equity valuations are today, we feel comfortable with our current
asset allocation. However, should the stock market experience a meaningful
correction, we would be looking to increase our stock allocation.
The current composition of the fixed income portion of the Portfolio is 66%
corporate bonds, 27% U.S. Treasury bonds and mortgage-backed securities and 7%
foreign bonds. The average duration is a little more than 5 years.
Looking forward, we believe the U.S. economy will continue to experience modest
growth over the next twelve months. However, over the near term, we believe the
Federal Reserve Board will keep a close watch on wage inflation and general
economic activity, and may raise interest rates should future economic numbers
suggest inflationary growth.
TBC Managed Income Portfolio
The past year has seen a high degree of investor uncertainty surrounding both
the U.S. economy and the U.S. financial markets, particularly the bond market.
The period from October 1995 through January 1996 was characterized by low
inflation, somewhat weaker U.S. economic growth and a strong rally in the bond
market. In response to these conditions, the Federal Reserve Board (the "Fed")
lowered the fed funds rate (the rate banks charge each other for overnight
loans) in December 1995 and January of this year to its current level of 5.25%,
in an effort to buoy the economy. However, economic data released during the
first and second quarters of 1996 suggested strong U.S. economic growth. As a
result, investors became concerned over the possible re-emergence of inflation,
and interest rates subsequently rose. In July and again in September, the yield
on the 30-year Treasury rose to 7.20%, the high end of its seven-month trading
range, as investors continued to focus on inconclusive economic data, and the
effect it would have on Fed monetary policy. Toward the end of September and
into October, interest rates reversed their upward trend and the bond markets
rallied on data that revealed the rate of U.S.
2
<PAGE>
economic growth had slowed during the third quarter. The U.S. government
reported that third quarter gross domestic product (GDP) growth was measured at
2.2%, down from 4.7% for the second quarter of 1996. Consequently, fears of
inflation and the need for Fed tightening have subsided. However, investors and
the Fed will continue to focus on the rate of economic growth for the remainder
of 1996.
During the past year, TBC Managed Income Portfolio (the "Portfolio") cautiously
maintained a 30-45% allocation to corporate bonds. We have focused on bonds in
the banking industry because we believe they represent good value relative to
other corporate bonds. Newly initiated positions within the Portfolio include
First National Bank of Boston, Sanwa Bank and NationsBank. In addition, we
increased the Portfolio's exposure to Sears, which has recently received a
credit upgrade. We have avoided cyclical industrial stocks in the steel, paper
and chemical industries.
The Portfolio maintained a 5-10% allocation to dollar-denominated Yankee bonds
during the period covered by this report. (A Yankee bond is a bond issued in the
United States by a non-U.S. entity.) In our view, these bonds have offered
attractive spreads over Treasuries versus similar U.S. corporate bonds. One
addition to the Portfolio in this sector was Wharf Capital, located in Hong
Kong.
We have maintained our mortgage weighting of 25-40% as the yield spread on
mortgage-backed securities relative to Treasuries narrowed throughout the year,
enabling mortgage-backed securities to outperform Treasuries in terms of both
price appreciation and income. However, we are beginning to reduce our exposure
to this sector due to narrower spreads versus Treasuries. The remainder of the
Portfolio has been allocated to U.S. Treasuries and asset-backed securities,
which comprise approximately 17% and 4% of the Portfolio, respectively.
For the year ended October 31, 1996, the Portfolio had a total return of 4.61%.
In comparison, the benchmark Lehman Brothers Aggregate Index, a widely
recognized measure of the aggregate U.S. bond market, generated a total return
of 5.85%. The Portfolio's slight underperformance relative to its benchmark was
mainly due to the bond markets' increased level of volatility, as well as the
Portfolio's slightly long duration relative to the Lehman Aggregate going into
the first quarter of 1996. We believe that recent U.S. economic indicators have
pointed to a slowing in the current economic expansion, and that investors'
concerns about a possible re-emergence of inflation have eased. Moreover, it is
our opinion that the results of the recent U.S. elections, which once again
resulted in a Democratic President and a Republican Congress, should bode well
for the fixed income markets. Since we believe that U.S. Treasuries will trade
within a clearly defined range over the near-term, we will not be making
3
<PAGE>
any interest-rate bets and will seek to maintain a duration close to that of the
Portfolio's benchmark. We believe our value-oriented, research-driven and
risk-adverse investment philosophy should provide strong, stable performance
over the next year.
Smith Barney Money Market Portfolio
It would be hard to imagine a better economic scenario in the U.S. than what we
have seen so far in 1996. The U.S. economy has exhibited modest growth, little
or no inflation, positive job creation and generally content consumers.
The Fed has been keeping a watchful eye on the economy, despite having to make
very few changes in their policy. The last Fed action came in January 1996, when
they lowered the federal funds rate (the benchmark short-term interest rate and
the rate commercial banks charge each other for overnight loans) from 5.50% to
its current level of 5.25%. With only one month remaining in 1996, it is widely
expected that the Fed will not make any changes to their current policy stance
before the year is over.
The rate of U.S. economic growth slowed somewhat in the third quarter of 1996,
as GDP rose by an annual rate of 2.2% after increasing 4.7% during the second
quarter. Most of the increase in the third quarter came from a build-up of
inventories, not from increased consumer spending. In previous quarters U.S.
economic growth came from both the consumer and business investments.
On the inflation front, data from the U.S. Labor Department suggests that prices
remain in check. The Consumer Price Index (CPI) for the first nine months of the
current year is running at a 3.2% annual rate, up slightly from the 2.7% rate
reported for the same nine months of 1995. The Fed has been focusing on any
increases in wage inflation, because labor costs represent two-thirds of
business expenses.
Consumers continue to be in relatively good shape. Consumer confidence levels
remain high, which is evident in the steady growth of new and existing home
sales. This strength in housing activity can be attributed to the wealth effect
caused by the rising stock market and the robust growth of new jobs. The
unemployment rate now stands at 5.2% and new job growth is averaging 206,000
jobs per month for the first nine months of 1996, versus 185,000 jobs during the
first nine months of 1995.
Throughout the last year due to stronger-than-expected U.S. economic growth,
many investors had been anticipating tighter monetary policy by the Fed, i.e.
that they would raise short-term interest rates. Although the Fed held monetary
policy steady since January, these anticipated rate increases were at times
4
<PAGE>
priced into the short-term yield curve. It was during those periods that we
extended the Portfolio's maturity to lock in attractive, higher long-term
yields.
In closing, thank you for investing in the MFS Total Return, TBC Managed Income
and Smith Barney Money Market Portfolios. We look forward to continuing to help
you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and Chief Executive Officer
November 13, 1996
5
<PAGE>
================================================================================
MFS Total Return Portfolio
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End of Income Capital Gains Total
Year Ended of Year Year Dividends Distribution Returns+
==================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $11.53 $13.13 $0.27 $0.08 17.16%
- ----------------------------------------------------------------------------------
10/31/95 9.98 11.53 0.05 0.00 16.12
- ----------------------------------------------------------------------------------
6/16/94* - 10/31/94 10.00 9.98 0.00 0.00 (0.20)+++
==================================================================================
Total $0.32 $0.08
==================================================================================
</TABLE>
===============================================================================
TBC Managed Income Portfolio
===============================================================================
Historical Performance
===============================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End of Income Capital Gains Total
Year Ended of Year Year Dividends Distribution Returns+
===================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $11.16 $11.06 $0.46 $0.15 4.61%
- -----------------------------------------------------------------------------------
10/31/95 10.04 11.16 0.13 0.00 12.68
- -----------------------------------------------------------------------------------
6/16/94* - 10/31/94 10.00 10.04 0.00 0.00 0.40+++
===================================================================================
Total $0.59 $0.15
===================================================================================
</TABLE>
IT IS THE FUNDS' POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
================================================================================
Average Annual Total Return+
================================================================================
<TABLE>
<CAPTION>
MFS Total TBC Managed
Return Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
Year Ended 10/31/96 17.16% 4.61%
- --------------------------------------------------------------------------------
6/16/94* - 10/31/96 13.72 7.34
================================================================================
</TABLE>
================================================================================
Cumulative Total Return+
================================================================================
<TABLE>
<CAPTION>
MFS Total TBC Managed
Return Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
6/16/94* through 10/31/96 35.77% 18.35%
================================================================================
</TABLE>
+ Assumes the reinvestment of all dividends and capital gain distributions at
net asset value.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
* Commencement of operations.
6
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of
MFS Total Return Portfolio vs. S&P 500 Index and
Lehman Brothers Government Corporate Bond Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPHIC]
<TABLE>
<CAPTION>
Lehman Brothers
MFS Total Government
Return S&P 500 Corporate
DATE Portfolio Index Bond Index
---- --------- ------- ---------------
<S> <C> <C> <C>
6/16/94 $10,000 $10,000 $10,000
10/94 9,980 10,324 10,075
10/95 11,589 13,053 11,704
10/31/96 13,577 16,018 12,335
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the MFS Total
Return Portfolio on June 16, 1994 (commencement of operations), assumes
reinvestment of dividends and capital gains, if any, at net asset value
through October 31, 1996. The Standard & Poor's 500 Index ("S&P 500 Index")
is an index of widely held common stocks listed on the New York and
American Stock Exchanges and the over-the-counter markets. Figures for the
S&P 500 Index include reinvestment of dividends. The Lehman Brothers
Government Corporate Bond Index is comprised of over 5,000 issues of U.S.
Government Treasury and Agency securities and Corporate and Yankee
securities. The indexes are unmanaged and are not subject to the same
management and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
7
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
TBC Managed Income Portfolio vs.
Lehman Brothers Aggregate Bond Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPHIC]
<TABLE>
<CAPTION>
TBC Lehman Brothers
Managed Income Aggregate
DATE Portfolio Bond Index
---- ------------- ---------------
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 10,040 10,052
10/95 11,313 11,626
10/31/96 11,835 12,305
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the TBC Managed
Income Portfolio on June 16, 1994 (commencement of operations), assumes
reinvestment of dividends and capital gains, if any, at net asset value
through October 31, 1996. The Lehman Brothers Aggregate Bond Index is
comprised of over 6,500 issues of U.S. Treasuries, Agencies, Corporate
Bonds and Mortgage-Backed securities. The index is unmanaged and is not
subject to the same management and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
8
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments October 31, 1996
================================================================================
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
COMMON STOCKS -- 54.4%
Aerospace -- 3.6%
17,500 Allied Signal Inc. $ 1,146,250
6,200 General Dynamics Corp. 425,475
4,500 Lockheed Martin Corp. 403,312
20,000 Raytheon Co. 985,000
15,200 United Technologies Corp. 1,957,000
- --------------------------------------------------------------------------------
4,917,037
- --------------------------------------------------------------------------------
Apparel -- 0.5%
10,200 V.F. Corp. 666,825
- --------------------------------------------------------------------------------
Automotive -- 2.1%
27,600 B.F. Goodrich Co. 1,169,550
15,900 Dana Corp. 471,037
20,900 Ford Motor Co. 653,125
4,300 General Motors Corp. 231,663
14,000 Volvo Aktiebolaget ADR 287,000
- --------------------------------------------------------------------------------
2,812,375
- --------------------------------------------------------------------------------
Banking -- 6.1%
19,000 Bank of Boston Corp. 1,216,000
33,600 Bank of New York 1,113,000
18,984 Chase Manhattan Corp. 1,627,878
5,200 Comerica Inc. 276,250
7,000 Crestar Financial Corp. 430,500
17,300 Fleet Financial Corp. 862,838
29,800 National City Corp. 1,292,575
12,500 NationsBank Corp. 1,178,125
4,300 Northern Trust Corp. 297,775
- --------------------------------------------------------------------------------
8,294,941
- --------------------------------------------------------------------------------
Business Machines -- 0.7%
14,000 Digital Equipment Corp.+ 413,000
3,900 International Business Machines Corp. 503,100
- --------------------------------------------------------------------------------
916,100
- --------------------------------------------------------------------------------
Chemicals -- 2.0%
6,000 Dow Chemical Corp. 466,500
8,300 E.I. du Pont De Nemours & Co. ADR 769,825
9,300 Praxair Inc. 411,525
9,700 Rohm & Haas Co. 692,338
13,200 Witco Corp. 409,200
- --------------------------------------------------------------------------------
2,749,388
- --------------------------------------------------------------------------------
Conglomerates -- 0.3%
9,100 Eastern Enterprises 350,350
- --------------------------------------------------------------------------------
Consumer Products -- 3.1%
10,700 American Brands Inc. 510,925
6,000 Avon Products 325,500
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Consumer Products -- 3.1% (continued)
6,800 Colgate Palmolive Co. $ 625,600
10,800 Olin Corp. 459,000
15,200 Philip Morris Cos. 1,407,900
11,200 Rubbermaid Inc. 260,400
10,800 Scherwin Williams Co. 541,350
- --------------------------------------------------------------------------------
4,130,675
- --------------------------------------------------------------------------------
Electrical Equipment -- 2.5%
9,500 Cooper Industries Inc. 382,375
18,700 General Electric Corp. 1,809,225
9,300 Honeywell Inc. 577,763
23,400 Stanley Works 661,050
- --------------------------------------------------------------------------------
3,430,413
- --------------------------------------------------------------------------------
Electronics -- 0.1%
3,800 Analog Devices Inc.+ 98,800
- --------------------------------------------------------------------------------
Financial Services -- 2.1%
18,700 American Express Co. 878,900
2,900 Associates First Capital Corp. 125,788
8,600 Federal Home Loan Mortgage Corp. 868,600
28,200 Southern National Corp. 976,425
- --------------------------------------------------------------------------------
2,849,713
- --------------------------------------------------------------------------------
Food & Beverages -- 1.3%
4,000 Anheuser-Busch Cos., Inc. 154,000
11,400 Dimon Inc. 216,600
12,500 General Mills Inc. 714,063
8,600 McCormick & Co., Inc. 207,475
13,300 PepsiCo. Inc. 394,013
- --------------------------------------------------------------------------------
1,686,151
- --------------------------------------------------------------------------------
Insurance -- 2.5%
17,400 Allstate Corp. 976,575
7,200 Cigna Corp. 939,600
13,500 St. Paul Cos. 734,063
14,900 Torchmark Corp. 720,788
- --------------------------------------------------------------------------------
3,371,026
- --------------------------------------------------------------------------------
Machinery -- 1.0%
22,000 Deere & Co. 918,500
8,800 York International Corp. 425,700
- --------------------------------------------------------------------------------
1,344,200
- --------------------------------------------------------------------------------
Medical Products & Supplies -- 2.9%
14,600 American Home Products Corp. 894,250
8,700 Astra AB ADS 399,113
12,400 Baxter International Inc. 516,150
10,700 Pharmacia & UpJohn 385,200
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Medical Products & Supplies -- 2.9% (continued)
9,300 Rhone-Poulenc Rorer ADR $ 624,263
16,500 Smithkline Beecham Co. ADR 1,033,313
- --------------------------------------------------------------------------------
3,852,289
- --------------------------------------------------------------------------------
Medical Services -- 0.8%
10,300 Columbia HCA Healthcare Corp. 368,225
7,400 St. Jude Medical Inc.+ 292,300
11,900 United Healthcare Corp. 450,713
- --------------------------------------------------------------------------------
1,111,238
- --------------------------------------------------------------------------------
Metal & Minerals -- 0.6%
10,700 Aluminum Co. of America 627,288
2,800 Phelps Dodge Corp. 176,050
- --------------------------------------------------------------------------------
803,338
- --------------------------------------------------------------------------------
Oil -- 7.3%
10,500 Amoco Corp. 795,375
5,900 Atlantic Richfield Co. 781,750
11,700 British Petroleum Co. PLC ADR 1,504,910
9,100 Exxon Corp. 806,487
7,200 Mobile Corp. 840,600
35,800 Occidental Petroleum Corp. 877,100
12,200 Repsol S.A. ADR 398,025
10,000 Royal Dutch Petroleum Corp. ADR 1,653,750
9,800 Schlumberger Ltd. 971,425
4,000 Sun Co. 89,500
6,000 Ultramar Corp.+ 171,750
44,500 USX-Marathon Group Inc. 973,436
- --------------------------------------------------------------------------------
9,864,108
- --------------------------------------------------------------------------------
Paper & Forest Products -- 0.3%
9,500 Weyerhaeuser Co. 435,813
- --------------------------------------------------------------------------------
Photography -- 0.9%
14,600 Eastman Kodak Co. 1,164,350
- --------------------------------------------------------------------------------
Pollution Control -- 0.5%
10,700 Browning Ferris Industries Inc. 280,875
13,100 WMX Technologies Inc. 450,313
- --------------------------------------------------------------------------------
731,188
- --------------------------------------------------------------------------------
Publishing & Printing -- 0.6%
9,100 Tribune Co. 743,925
- --------------------------------------------------------------------------------
Railroads -- 1.8%
11,200 Burlington Northern Santa Fe Corp. 922,600
5,000 Canadian National Railway 137,500
14,100 CSX Corp. 608,062
24,000 Illinois Central Corp. 777,000
- --------------------------------------------------------------------------------
2,445,162
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Real Estate -- 0.9%
- --------------------------------------------------------------------------------
6,000 Arden Realty Group Inc.+ $ 135,750
21,000 Hospitality PropertiesTrust Corp. 546,000
13,000 Meditrust Corp. 468,000
1,300 Nationwide Health Properties Inc. 45,338
- --------------------------------------------------------------------------------
1,195,088
- --------------------------------------------------------------------------------
Retail -- 1.4%
9,800 May Department Stores Co. 464,275
5,000 Office Depot Inc.+ 98,125
19,200 Sears, Roebuck & Co. 928,800
16,600 Walmart Corp. 441,975
- --------------------------------------------------------------------------------
1,933,175
- --------------------------------------------------------------------------------
Utilities-Electric -- 2.8%
9,700 Allegheny Power Systems Inc. 289,787
14,800 Carolina Power & Light Co. 534,650
10,400 DPL Inc. 248,300
14,800 FPL Group, Inc. 680,800
11,000 Peco Energy Co. 277,750
17,900 Pinnacle West Capital Co. 552,662
18,600 Portland General Corp. 813,750
10,500 Texas Utilities Co. 425,250
- --------------------------------------------------------------------------------
3,822,949
- --------------------------------------------------------------------------------
Utilities-Gas -- 3.1%
18,600 Coastal Corp. 799,800
8,500 Pacific Enterprises 261,375
24,400 Panenergy Corp. 939,400
16,100 Sonat Inc. 792,925
4,000 Tenneco Inc. 198,000
23,000 UGI Corp. 543,375
12,600 Williams Cos., Inc. 658,350
- --------------------------------------------------------------------------------
4,193,225
- --------------------------------------------------------------------------------
Utilities-Telephone -- 2.6%
3,200 American Telephone & Telegraph Corp. 111,600
12,100 Ameritech Corp. 662,475
16,600 Bellsouth Corp. 676,450
21,900 GTE Corp. 922,535
37,600 MCI Communications Corp. 944,700
7,000 Telephone Data Systems Corp. 245,000
- --------------------------------------------------------------------------------
3,562,760
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $64,111,943) 73,476,602
================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- 1.7%
Agricultural Products -- 0.4%
4,200 Case Corp., Class A Shares,Convertible $4.500 $ 483,000
- --------------------------------------------------------------------------------
Consumer Goods & Services -- 0.1%
2,400 Corning Delaware LP, Convertible 6.00% 134,400
- --------------------------------------------------------------------------------
Energy -- 0.1%
3,200 Occidental Petroleum Corp., Convertible $3.875+++ 187,600
- --------------------------------------------------------------------------------
Medical Services -- 0.4%
5,300 SCI Finance, Class A Shares, Convertible $3.125 498,200
- --------------------------------------------------------------------------------
Steel -- 0.1%
2,800 US Capital LLC, Series A, Convertible 8.750% 68,950
- --------------------------------------------------------------------------------
Utilities-Gas -- 0.6%
11,000 Enron Corp., Convertible 6.250% 269,500
10,767 Unocal Corp., Convertible 6.250% 571,997
- --------------------------------------------------------------------------------
841,497
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost -- $1,970,006) 2,213,647
================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<C> <C> <S> <C>
CORPORATE BONDS -- 23.6%
Airlines -- 2.3%
$ 1,400,000 Baa3* AMR Corp., 9.750% due 8/15/21 479,500
Continental Airlines Inc.:
400,000 BBB 9.500% due 10/15/13 449,672
99,979 BBB 10.220% due 7/2/14 117,351
Delta Airlines Inc.:
400,000 BB+ 8.500% due 3/15/02 428,500
250,000 BB+ 10.375% due 12/15/22 310,625
Jet Equipment Trust:
250,000 NR 9.410% due 6/15/10+++ 289,095
196,747 A 8.640% due 11/1/12+++ 214,850
300,000 Baa2* 11.440% due 11/1/14+++ 351,699
100,000 BBB- 10.690% due 5/1/15+++ 106,148
200,000 BBB+ Qantas Airways Ltd., 7.500% due 6/30/03+++ 205,750
97,403 A+ U.S. Air Inc., 6.760% due 4/15/08 96,308
- --------------------------------------------------------------------------------
3,049,498
- --------------------------------------------------------------------------------
Banking -- 0.9%
400,000 BBB Advanta Corp., 7.470% due 9/10/01 411,000
400,000 BBB- Capital One Bank, 7.150% due 9/15/06 420,000
400,000 BBB- Standard Federal Bancorp,
7.750% due 7/17/06 417,500
- --------------------------------------------------------------------------------
1,248,500
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<C> <C> <S> <C>
Building & Construction -- 0.5%
$ 100,000 Baa2* Georgia-Pacific Corp., 9.875% due 11/1/21 $112,500
100,000 BBB- Owens-Corning Fiberglass, 8.875% due 6/1/02 108,000
400,000 B2* USG Corp., 9.250% due 9/15/01 427,500
- --------------------------------------------------------------------------------
648,000
- --------------------------------------------------------------------------------
Consumer Goods & Services -- 0.6%
400,000 BBB- Fingerhut Cos. Inc., 7.375% due 9/15/99 404,000
400,000 BBB+ Tupperware Finance Co., 7.250% due 10/1/06 408,000
- --------------------------------------------------------------------------------
812,000
- --------------------------------------------------------------------------------
Entertainment -- 1.2%
Time Warner Co.:
535,000 BBB- 8.375% due 3/15/23 546,369
1,000,000 BBB- 7.450% due 2/1/98 1,016,250
- --------------------------------------------------------------------------------
1,562,619
- --------------------------------------------------------------------------------
Financial -- 2.5%
200,000 Baa3* Aames Financial Corp., 9.125% due 11/1/03 202,500
200,000 BBB Alex Brown, 7.625% due 8/15/05 204,250
115,000 A- Auburn Hills, 12.000% due 5/1/20 173,506
400,000 A Bear Stearns Cos., 7.250% due 10/15/06 405,000
150,000 BB+ ContiFinancial Corp., 8.375% due 8/15/03 152,437
400,000 NR Hubco Inc., 8.200% due 9/15/06 416,000
Lehman Brothers Inc.:
400,000 A 7.125% due 9/15/03 402,000
500,000 A 7.500% due 8/1/26 515,625
400,000 AA- Nationwide Mutual Insurance, 7.500% due 2/15/24 387,500
Salton Sea Funding:
100,000 BBB- 7.370% due 5/30/05 99,375
400,000 BBB- 7.840% due 5/30/10 406,500
- --------------------------------------------------------------------------------
3,364,693
- --------------------------------------------------------------------------------
Foods & Beverages -- 0.7%
RJR Nabisco Inc.:
500,000 BBB- 8.750% due 4/15/04 505,000
400,000 BBB- 8.750% due 7/15/07 398,500
100,000 BBB- 7.550% due 6/15/15 98,375
- --------------------------------------------------------------------------------
1,001,875
- --------------------------------------------------------------------------------
Industrial -- 3.6%
420,000 BB+ ADT Operations, zero coupon due 7/6/10 250,425
400,000 NR BCF LLC, 7.750% due 9/25/26 388,784
400,000 BBB- Capital One, Medium Term Note, 6.750% due 11/6/00 400,000
100,000 BBB+ Fairfax Financial Holdings, 8.300% due 4/15/26 102,625
300,000 BBB Fisher Scientific Group Inc., 7.125% due 12/15/05 287,250
400,000 BB+ Loewen Group International Inc., 7.500% due 4/15/01 403,000
400,000 Baa3* Mark IV Industries Inc., 7.750% due 4/1/06+++ 377,500
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<C> <C> <S> <C>
Industrial -- 3.6% (continued)
$ 400,000 A- McDonnell Douglas, 6.875% due 11/1/06 $ 396,728
400,000 BB- Niagara Mohawk Power, 8.000% due 6/1/04 381,500
400,000 BBB- Northrop Grumman Corp., 9.375% due 10/15/24 450,000
400,000 Baa1* Price/Costco Inc., 7.125% due 6/15/05 401,500
534,000 BBB- 360 Communications, 7.500% due 3/1/06 531,996
400,000 BBB- Tosco Corp., 7.625% due 5/15/06 412,000
- --------------------------------------------------------------------------------
4,783,308
- --------------------------------------------------------------------------------
Insurance -- 1.1%
Equitable Life Assurance:
200,000 A 6.950% due 12/1/05 198,500
200,000 A 7.700% due 12/1/15 201,250
200,000 A2* Liberty Mutual Insurance Co., 8.200% due 5/4/07 214,250
250,000 AA+ Metlife Insurance Co., 7.770% due 11/1/15 249,375
400,000 AA New York Life, 7.500% due 12/15/23 390,000
Tenet Healthcare Corp.:
100,000 Ba1* 8.625% due 12/1/03 106,000
100,000 Ba1* 10.125% due 3/1/05 110,000
- --------------------------------------------------------------------------------
1,469,375
- --------------------------------------------------------------------------------
Oil -- 2.1%
500,000 Baa2* ANR Pipeline, 9.625% due 11/1/21 618,750
400,000 BBB Mitchell Energy & Development Corp.,
8.000% due 7/15/99 385,500
ORYX Energy Co.:
400,000 BB 10.000% due 4/1/01 440,500
400,000 BB 8.000% due 10/15/03 409,000
500,000 Ba2* 8.375% due 7/15/04 516,875
500,000 NR Petroliam Nasional, 7.625% due 10/15/26 504,375
- --------------------------------------------------------------------------------
2,875,000
- --------------------------------------------------------------------------------
Paper & Forest Products -- 0.6%
400,000 Baa3* Boise Cascade Corp., 7.430% due 10/10/05 404,000
400,000 Ba1* Canadian Pacific Forest Products,
9.250% due 6/15/02 429,500
- --------------------------------------------------------------------------------
833,500
- --------------------------------------------------------------------------------
Real Estate -- 0.3%
400,000 BBB Taubman Realty Group Ltd., 8.000% due 7/30/01 408,000
- --------------------------------------------------------------------------------
Restaurants & Lodging -- 0.2%
300,000 BBB RHG Finance Corp., 8.875% due 10/1/05 310,875
- --------------------------------------------------------------------------------
Telecommunications -- 1.7%
200,000 BB+ Lenfest Communications Inc., 8.375% due 11/1/05 183,000
Tele-Communications Inc.:
1,400,000 BBB- 7.375% due 2/15/00 1,394,750
415,000 BBB- 7.875% due 2/15/26 348,081
400,000 Ba1* Total Access Communications Ltd.,
8.375% due 11/4/06 400,000
- --------------------------------------------------------------------------------
2,325,831
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<C> <C> <S> <C>
Tobacco -- 0.3%
$400,000 A Philip Morris Cos., 7.650% due 7/1/08 $ 411,000
- --------------------------------------------------------------------------------
Utilities-Electric -- 3.6%
100,000 Baa2* Arkansas Power & Light Co., 8.750% due 3/1/26 101,875
400,000 Baa2* Cleveland Electric, 9.250% due 7/29/99 416,000
630,000 Baa3* Coastal Corp., 10.375% due 10/1/00 628,425
400,000 BBB DQU II Funding Corp., 8.700% due 6/1/16 417,500
200,000 Baa1* Edelnor, 7.750% due 3/15/06++ 203,000
250,000 Ba3* El Paso Electric Co., 8.900% due 2/1/06 258,438
First PV Funding:
248,000 Ba3* 10.150% due 1/15/16 264,120
275,000 Ba3* 10.300% due 1/15/16 293,219
Long Island Lighting Co.:
25,000 BB+ 7.500% due 3/1/07 23,125
100,000 BBB- 7.625% due 4/15/98 100,625
400,000 BB+ 8.900% due 7/15/19 394,000
600,000 BB+ 9.000% due 11/1/22 601,500
75,000 BBB- 9.625% due 7/1/24 77,625
Louisiana Power & Light Co.:
100,000 BBB- 10.670% due 1/2/17 106,500
50,000 BBB 8.750% due 3/1/26 50,438
100,000 BB- Midland Funding II, 11.750% due 7/23/05 109,250
100,000 BBB PacifiCorp Holdings, 7.200% due 4/1/06++ 100,250
400,000 BBB- System Energy Resources, 7.800% due 8/1/00 406,000
200,000 B+ Texas New Mexico Power, 12.500% due 1/15/99 218,000
100,000 BBB Utilicorp United Inc., 8.450% due 11/15/99 105,250
- --------------------------------------------------------------------------------
4,875,140
- --------------------------------------------------------------------------------
Utilities-Gas -- 1.4%
300,000 BB- California Energy Co., zero coupon due 1/15/04 309,000
400,000 Ba2* Gulf Canada Resource Ltd., 8.350% due 8/1/06 412,000
300,000 BB+ Louis Dreyfus, 9.250% due 6/15/04 317,250
400,000 BBB- NGC Corp., 6.750% due 12/15/05 393,000
400,000 BBB Panenergy Corp., 7.000% due 10/15/06 402,000
- --------------------------------------------------------------------------------
1,833,250
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost-- $31,198,933) 31,812,464
===============================================================================
<CAPTION>
SHARES SECURITY VALUE
================================================================================
FOREIGN COMMON STOCKS -- 1.1%
<C> <S> <C>
Germany -- 0.2%
6,100 Henkel KGAA 274,927
- --------------------------------------------------------------------------------
New Zealand -- 0.3%
147,000 Lion Nathan 379,555
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
MFS TOTAL RETURN PORTFOLIO
SHARES RATING SECURITY VALUE
================================================================================
<C> <C> <S> <C>
Switzerland -- 0.6%
- --------------------------------------------------------------------------------
700 Ciba Geigy AG $ 865,893
- --------------------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS
(Cost -- $1,291,069) 1,520,375
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
FOREIGN BONDS -- 2.5%
$ 250,000 BBB- Argentina Global, 9.250% due 2/23/01 244,686
1,000,000 BBB+ Empresa Electric Pehuenche, 7.300% due 5/1/03 1,012,420
255,000 BBB- Financiera Energy Nacional, 9.375% due 6/15/06 261,375
800,000 BB Peoples Republic of China, 7.750% due 7/5/06 832,000
250,000 Baa3* Republic of Colombia, 8.700% due 2/15/16 236,250
400,000 B3* Republic of South Africa, 8.375% due 10/17/06 402,000
400,000 NR United Mexican States, 11.375% due 9/15/16 392,500
- --------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost-- $3,338,074) 3,381,231
================================================================================
U.S. GOVERNMENT OBLIGATIONS -- 9.7%
775,000 U.S. Treasury Note, 8.875% due 11/15/98 820,927
4,700,000 U.S. Treasury Note, 9.125% due 5/15/99 5,058,051
100,000 U.S. Treasury Note, 6.625% due 6/30/01 102,172
400,000 U.S. Treasury Note, 6.500% due 8/31/01 406,732
1,000,000 U.S. Treasury Note, 6.250% due 10/31/01 1,006,790
150,000 U.S. Treasury Note, 7.875% due 11/15/04 164,715
1,052,000 U.S. Treasury Note, 7.000% due 7/15/06 1,099,287
1,700,000 U.S. Treasury Bond, 7.500% due 11/15/01 1,801,847
860,000 U.S. Treasury Bond, 12.000% due 5/15/05 1,177,804
650,000 U.S. Treasury Bond, 6.000% due 2/15/26 593,405
941,391 Government National Mortgage Association
15 Year, 7.500% due 4/15/08 961,094
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost -- $13,073,874) 13,192,824
================================================================================
SHORT-TERM INVESTMENTS -- 7.0%
3,600,000 Federal Home Loan Mortgage Corp.,
5.180% due 11/13/96 3,593,784
3,400,000 Federal National Mortgage Association,
5.175% due 11/26/96 3,387,781
2,500,000 Student Loan Market Association, 5.500% due 11/1/96 2,500,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $9,481,565) 9,481,565
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $124,465,464*) $135,078,708
================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<C> <C> <S> <C>
CORPORATE BONDS -- 44.4%
Banking -- 2.4%
$250,000 BBB+ First National Bank of Boston, 7.375% due 9/15/06 $ 256,250
100,000 Ba3* First Nationwide Bank, 10.625% due 10/1/03+++ 105,250
50,000 AAA International Bank for Reconstruction & Development,
9.875% due 10/1/97 51,875
145,000 A- NationsBank Corp., 7.500% due 9/15/06 150,256
- --------------------------------------------------------------------------------
563,631
- --------------------------------------------------------------------------------
Financial Services -- 6.6%
Associate Corp.:
65,000 AA- 6.625% due 5/15/01 65,488
50,000 AA- 6.750% due 7/15/01 50,625
125,000 AA- 6.750% due 8/1/01 126,563
95,000 BBB+ Fleet Financial Group, 7.125% due 4/15/06 95,831
140,000 A+ Ford Motor Credit Co., 96-A3, 6.500% due 11/1/99 141,491
50,000 BBB+ H.F. Ahmanson & Co., 7.650% due 4/15/00 51,313
50,000 NR Household Finance Corp., 7.800% due 11/1/96 50,000
Lehman Brothers Holdings, Inc.:
205,000 A 6.125% due 6/30/98 205,256
200,000 A 6.125% due 2/1/01 196,000
85,000 A 7.250% due 10/15/03 85,850
50,000 A Lincoln National Corp., 7.250% due 5/15/05 50,750
PaineWebber Group:
94,000 BBB+ 7.310% due 8/9/00 95,880
110,000 BBB+ 7.625% due 10/15/08 111,650
220,000 A Prudential Insurance Corp., 7.650% due 7/1/07+++ 225,500
- -------------------------------------------------------------------------------
1,552,197
- -------------------------------------------------------------------------------
Healthcare -- 1.9%
60,000 NR Genesis Health Ventures, Inc., 9.250% due 10/1/06 60,000
110,000 B Integrated Healthcare, Inc., 9.625% due 5/31/02 111,100
Tenet Healthcare Corp.:
100,000 BB 9.625% due 9/1/02 109,750
50,000 BB 8.625% due 12/1/03 53,000
100,000 BB- Universal Health Services, Inc., 8.750% due 8/15/05 101,500
- --------------------------------------------------------------------------------
435,350
- --------------------------------------------------------------------------------
Industrial -- 19.1%
90,000 BBB- ADT Operations, 8.250% due 8/1/00 93,263
95,000 B BE Aerospace, Inc., 9.875% due 2/1/06 96,544
105,000 A Burlington Northern Etc., 6.960% due 3/22/09 106,050
50,000 A- Carpenter Technology Corp., 7.440% due 8/16/99 51,438
143,000 B+ Chesapeake Energy Corp., 9.125% due 4/15/06 144,788
70,000 BB- Comcast Corp., 9.375% due 5/15/06 70,000
210,000 A+ CPC International, Inc., 6.875% due 10/15/03 212,888
100,000 BB Dominion Textiles, Inc., 8.875% due 11/1/03 99,250
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<C> <C> <S> <C>
Industrial -- 19.1% (continued)
$100,000 B- E&S Holdings Corp., 10.375% due 10/1/06 $ 102,625
190,000 BB- El Paso Electric Co., 7.250% due 2/1/99 189,763
190,000 BB Ferrellgas Inc., 10.000% due 8/1/01 196,888
75,000 BB- Flores & Rucks, Inc., 9.750% due 10/1/06 77,063
100,000 B+ Fort Howard Corp., 9.250% due 3/15/01 103,000
100,000 BB- Gulf Canada Resources Ltd., 9.625% due 7/1/05 105,750
100,000 BB Iron Mountain Inc., 10.125% due 10/1/06 102,750
100,000 B JCAC, Inc., 10.125% due 6/15/06 101,750
150,000 B Kaiser Aluminum & Chemical Inc.,
10.875% due 10/15/06 150,375
80,000 NR K&F Industries Inc., Sr. Sub. Notes,
10.375% due 9/1/04 82,600
125,000 BB- Lear Corp., 8.250% due 2/1/02 123,750
Lockheed Martin Corp.:
95,000 BBB+ 7.250% due 5/15/06 97,375
270,000 BBB+ 7.750% due 5/1/26 279,113
60,000 B+ Muzak Corp., 10.000% due 10/15/03 60,300
90,000 BBB News America Holdings,Inc., 8.625% due 2/1/03 97,988
200,000 BBB Noram Energy Corp., 7.500% due 8/1/00 205,000
35,000 BBB Norcen Energy Resources, Inc., 7.375% due 5/15/06 35,481
25,000 BBB- Ohio Edison Co., 8.750% due 2/15/98 25,750
40,000 BBB- ORYX Energy Co., 10.000% due 4/1/01 44,050
50,000 BB Rayovac Corp., 10.250% due 11/1/06+++ 50,750
100,000 B- Revlon Worldwide Corp., Series B, zero coupon
due 3/15/98 88,250
100,000 B Riverwood International Corp., 10.250% due 4/1/06 96,750
60,000 BBB- Safeway Inc., 9.650% due 1/15/04 67,200
100,000 B+ Speedy Muffler King Inc., 10.875% due 10/1/06 102,750
170,000 BB+ Stone Consolidated Corp., 10.250% due 12/15/00 180,200
40,000 BB- Stone Consolidated Inc., 10.750% due 10/1/02 41,900
50,000 BB+ Southland Corp., 5.000% due 12/15/03 40,125
175,000 BBB Union Pacific Railroad Co., 7.250% due 11/1/08 176,094
125,000 B Universal Outdoor Holdings, Inc.,
9.750% due 10/15/06 123,750
70,000 B U.S. Can Corp., 10.125% due 10/15/06+++ 72,275
75,000 BB USG Corp., 9.250% due 9/15/01 80,156
75,000 BB- Valassis Inserts Inc., 9.375% due 3/15/99 77,719
200,000 BB- Westpoint Stevens Inc., 8.750% due 12/15/01 203,000
- --------------------------------------------------------------------------------
4,456,511
- --------------------------------------------------------------------------------
Retail -- 2.0%
80,000 BB- Federated Department Stores, Inc.,
8.125% due 10/15/02 82,200
Sears, Roebuck & Co.:
120,000 A- 5.600% due 11/16/98 119,100
60,000 A- 5.710% due 2/6/01 58,200
198,000 A- 6.690% due 4/30/01 199,238
- --------------------------------------------------------------------------------
458,738
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Telecommunications -- 4.7%
$ 75,000 B Cablevision Systems Corp., 9.875% due 5/15/06 $ 73,781
125,000 BB- Century Communication Inc., 9.500% due 8/15/00 125,938
165,000 B MFS Communications Co., Inc., 8.875% due 1/15/06 117,150
120,000 B Paging Network Inc., 10.000% due 10/15/08+++ 119,400
150,000 BBB- Tele-Communications Inc., 7.130% due 2/2/98 150,375
95,000 B Teleport Communications Group, Inc., 9.875%
due 7/1/06 96,900
125,000 BBB- 360 Communications, 7.125% due 3/1/03 123,750
150,000 B+ Vanguard Celluar System, Inc., 9.375% due 4/15/06 148,500
130,000 B- Western Wireless Corp., 10.500% due 6/1/06 130,650
- --------------------------------------------------------------------------------
1,086,444
- --------------------------------------------------------------------------------
Transportation -- 0.2%
50,000 BBB Federal Express Corp., 6.250% due 4/15/98 50,188
- --------------------------------------------------------------------------------
Yankee Bond With Coupon -- 7.5%
111,000 AA- Aegon NV, 8.000% due 8/15/06 118,770
185,000 A+ ANZ Banking Group Ltd., 7.550% due 9/15/06 192,631
210,000 NR Bangkok Bank Public Co. Ltd., 8.250% due 3/15/16+++ 213,938
184,000 A BHP Finance USA, Inc., 6.690% due 3/1/06 181,240
140,000 NR China Global Bond, 7.750% due 7/5/06 145,600
110,000 A Hong Kong Mass Transit, 7.250% due 10/1/05 110,275
99,000 A Midland Bank PLC, 7.625% due 6/15/06 103,208
215,000 A+ Petroliam Nasional, 7.625% due 10/15/26 216,881
185,000 BB- Rogers Communications Inc., 2.000% due 11/26/05 97,125
250,000 A- Sanwa Bank Ltd., 7.250% due 9/15/01 256,250
115,000 A Wharf Capital International Limited, 8.875%
due 11/1/04 119,744
- --------------------------------------------------------------------------------
1,755,662
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost-- $10,391,247) 10,358,721
================================================================================
ASSET-BACKED SECURITIES -- 3.6%
260,000 Capital Equipment Receivables Trust, Series 1996-1-A3,
6.110% due 7/15/99 260,504
119,000 EQCC Home Equity Loan Trust, Series 1996-1-A2,
5.820% due 9/15/09 117,954
The Money Store Inc., Home Equity Loan:
72,000 7.600% due 7/15/21 74,033
49,000 7.800% due 10/15/21 50,650
153,000 7.690% due 5/15/24 156,794
168,000 UAC Home Equity Loan, Series 1996-C-A2,
6.510% due 11/8/02 169,458
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost -- $821,770) 829,393
================================================================================
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT SECURITY VALUE
================================================================================
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 52.0%
$1,190,000 U.S. Treasury Note, 7.250% due 2/15/98 $1,213,336
88,000 U.S. Treasury Note, 6.375% due 5/15/99 89,071
139,000 U.S. Treasury Note, 5.875% due 11/15/99 138,783
530,000 U.S. Treasury Note, 7.875% due 8/15/01 569,167
340,000 U.S. Treasury Note, 6.375% due 8/15/02 344,131
82,000 U.S. Treasury Note, 7.250% due 8/15/04 86,830
182,000 U.S. Treasury Bond, 11.750% due 2/15/10 243,986
193,000 U.S. Treasury Bond, 7.250% due 5/15/16 204,462
1,115,000 U.S. Treasury Bond, 7.125% due 2/15/23 1,167,360
196,640 Federal National Mortgage Association, 6.500% due 4/1/03 195,349
335,315 Federal National Mortgage Association, 7.000% due 8/1/03 338,039
223,875 Federal National Mortgage Association, 7.500% due 8/1/03 228,353
10,183 Federal National Mortgage Association, 7.500% due 4/1/05 10,209
135,713 Federal National Mortgage Association, 7.430% due 8/1/06 138,215
264,374 Federal National Mortgage Association, 7.500% due 7/1/09 268,835
62,217 Federal National Mortgage Association, 7.500% due 6/1/10 63,267
162,864 Federal National Mortgage Association, 8.000% due 8/1/10 167,902
104,000 Federal National Mortgage Association, 7.500% due 9/1/10 105,592
241,782 Federal National Mortgage Association, 8.000% due 10/1/10 249,260
209,364 Federal National Mortgage Association, 7.000% due 11/1/10 209,626
283,893 Federal National Mortgage Association, 7.000% due 1/1/11 284,248
134,000 Federal National Mortgage Association, 7.000% due 2/1/11 133,957
533,384 Federal National Mortgage Association, 7.000% due 3/1/11 534,051
359,795 Federal National Mortgage Association, 8.000% due 4/1/11 370,924
35,920 Federal National Mortgage Association, 6.500% due 9/1/25 34,382
484,552 Federal National Mortgage Association, 8.500% due 9/1/25 501,814
93,230 Federal National Mortgage Association, 7.000% due 1/1/26 91,540
69,000 Federal National Mortgage Association, 6.500% due 3/1/26 65,938
334,901 Federal National Mortgage Association, 7.000% due 3/1/26 328,829
516,193 Federal National Mortgage Association, 6.500% due 4/1/26 494,092
99,212 Federal National Mortgage Association, 8.500% due 4/1/26 102,747
390,892 Federal National Mortgage Association, 8.000% due 6/1/26 399,074
110,703 Federal National Mortgage Association, 8.500% due 6/1/26 114,646
732,124 Federal National Mortgage Association, 9.000% due 6/1/26 770,272
518,111 Federal National Mortgage Association, 8.000% due 7/1/26 528,955
164,270 Federal National Mortgage Association, 9.000% due 7/1/26 172,895
354,764 Federal National Mortgage Association, 6.069% due 10/1/26 353,435
53,000 Federal National Mortgage Association, 7.000% due 11/1/26 51,956
175,000 Government Mortgage Association Corp., 6.875% due 7/15/01 177,844
333,822 Government National Mortgage Association,
7.000% due 7/20/26 325,998
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
TBC MANAGED INCOME PORTFOLIO
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 52.0% (CONTINUED)
<S> <C> <C>
$ 231,000 Government National Mortgage Association,
8.000% due 11/15/26 $ 235,980
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost -- $11,790,837) 12,105,350
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $23,003,854*) $23,293,464
================================================================================
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
SMITH BARNEY MONEY MARKET PORTFOLIO
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
================================================================================
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 5.0%
$3,000,000 Federal Home Loan Mortgage Corp.
matures 12/24/96 5.37% $ 2,976,592
2,000,000 Federal National Mortgage Association
matures 12/6/96 5.48 1,989,500
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost -- $4,966,092) 4,966,092
================================================================================
COMMERCIAL PAPER -- 55.7%
1,000,000 A.I. Credit matures 11/4/96 5.51 999,548
2,000,000 Banca Commerciale Italiana matures 12/10/96 5.54 1,988,170
2,000,000 Bank Brussels Lambert matures 11/12/96 5.39 1,996,749
1,000,000 Bank of America (BankAmerica Corp.)
matures 3/11/97 5.76 979,778
2,000,000 Bankers Trust NY Corp. matures 11/19/96 5.40 1,994,680
2,000,000 Bear Stearns matures 11/22/96 5.40 1,993,793
2,000,000 CADES mature 11/25/96 to 12/20/96 5.57 to 5.61 1,988,935
3,000,000 CAFCO matures 11/7/96 5.27 2,997,375
1,000,000 Canadian Imperial Holdings Inc.
matures 11/1/96 5.52 1,000,000
2,000,000 Chase Manhattan Bank Corp. matures 1/27/97 5.46 1,974,045
3,000,000 Cheltenham & Gloucester Building Society
mature 12/11/96 to 2/28/97 5.42 to 5.66 2,958,718
3,000,000 CIT Group Holdings Inc. matures 3/13/97 5.41 2,941,700
4,000,000 E.I. du Pont de Nemours matures 11/14/96 5.27 3,992,431
2,125,000 Ford Motor Credit Corp. matures 11/12/96 5.44 2,121,494
2,000,000 General Electric Capital Corp.
mature 11/12/96 to 4/9/97 5.49 to 5.60 1,974,690
1,000,000 Goldman Sachs Group, L.P. matures 1/17/97 5.51 988,407
1,000,000 Merrill Lynch & Co., Inc. matures 11/4/96 5.42 999,554
1,000,000 NationsBank matures 12/17/96 5.64 992,998
3,500,000 Ontario Hydro matures 11/5/96 5.31 3,497,947
3,000,000 PHH Corp. matures 11/25/96 5.38 2,989,340
3,000,000 Philip Morris Cos., Inc. matures 12/10/96 5.36 2,982,775
3,000,000 San Paolo U.S. Finance Inc.
mature 11/6/96 to 12/16/96 5.42 to 5.52 2,985,657
3,000,000 Sara Lee Corp. matures 12/24/96 5.33 2,976,724
2,000,000 Sheffield Receivable Corp.
matures 11/25/96 5.29 1,992,973
3,000,000 Swiss Bank Corp.
matures 12/11/96 to 12/27/96 5.43 to 5.60 2,979,611
- --------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost -- $55,288,092) 55,288,092
================================================================================
DOMESTIC CERTIFICATES OF DEPOSIT -- 1.0%
1,000,000 Chase Manhattan Bank matures 11/21/96
(Cost -- $1,000,000) 5.25 1,000,000
================================================================================
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
SMITH BARNEY MONEY MARKET PORTFOLIO
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
================================================================================
<S> <C> <C> <C>
FOREIGN CERTIFICATES OF DEPOSIT -- 30.2%
$2,000,000 Bank of Montreal matures 1/13/97 5.40% $ 2,000,000
3,000,000 Bank of Nova Scotia
mature 1/21/97 to 3/10/97 5.48 to 5.79 3,000,318
2,000,000 Banque National de Paris matures 1/24/97 5.41 2,000,000
2,000,000 Barclays Bank matures 1/27/97 5.40 1,999,988
3,000,000 Bayerische Vereinsbank
mature 1/9/97 to 2/10/97 5.60 to 5.71 2,999,506
2,000,000 Canadian Imperial Holdings Inc.
matures 1/17/97 5.60 2,000,000
2,000,000 Commerzbank matures 11/15/96 5.38 1,999,992
1,000,000 Credit Agricole matures 2/6/97 5.52 999,927
2,000,000 Credit Suisse matures 2/13/97 5.55 1,999,619
3,000,000 Deutsche Bank matures 12/27/96 5.42 3,000,046
2,000,000 Hessiche Landesbank matures 11/4/96 5.39 2,000,014
2,000,000 National Westminster Bank PLC
matures 1/21/97 5.40 2,000,044
1,000,000 National Westminster Canada
matures 12/6/96 5.55 994,682
2,000,000 Rabo Bank matures 11/15/96 5.39 1,999,978
1,000,000 Toronto Dominion matures 1/13/97 5.78 1,000,050
- --------------------------------------------------------------------------------
TOTAL FOREIGN CERTIFICATES OF DEPOSIT
(Cost -- $29,994,164) 29,994,164
================================================================================
TIME DEPOSITS -- 6.0%
3,000,000 Bank Austriaengesellschaft (Bank Austria)
matures 11/1/96 5.56 3,000,000
3,000,000 Republic National Bank of New York
matures 11/1/96 5.53 3,000,000
- --------------------------------------------------------------------------------
TOTAL TIME DEPOSITS
(Cost -- $6,000,000) 6,000,000
================================================================================
REPURCHASE AGREEMENT -- 2.1%
2,034,000 Morgan Stanley Group, 5.530% due 11/1/96;
Proceeds at maturity -- $2,034,312;
(Fully collateralized by U.S. Treasury Bills
due 8/21/97; Market value --- $2,047,558)
(Cost -- $2,034,000) 2,034,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $99,282,348*) $99,282,348
================================================================================
</TABLE>
+ Non-income producing security.
+++ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
See page 25 for definition of ratings.
See Notes to Financial Statements.
24
<PAGE>
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Services ("Standard & Poor's"),
except that those identified by an asterisk (*) are rated by Moody's Investors
Service Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "BBB" may be modified by the addition
of a plus (+) or a minus (-) sign to show relative standings within the major
rating categories.
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 differs 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 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 debt in this
category than in higher rated categories.
BB, B and
CCC -- Bonds rated "BB" and "B" are regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" represents a lower degree of speculation than
"B," and "CCC" the highest degree of speculation. While such
bonds will likely have some quality and protective
characteristics, these are outweighted by large uncertainties or
major risk exposurers to adverse conditions.
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.
A -- Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment some time in the future.
Baa -- Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
25
<PAGE>
================================================================================
Statements of Assets and Liabilities October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL TBC MANAGED SB MONEY
RETURN INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value
(Cost -- $124,465,464,
$23,003,854 and $99,282,348) $135,078,708 $ 23,293,464 $ 99,282,348
Cash 64,518 77,747 408
Receivable for Fund shares sold 236,060 820 --
Receivable for securities sold 1,646,105 2,046,269 --
Dividends and interest receivable 1,201,624 309,310 275,740
- --------------------------------------------------------------------------------
TOTAL ASSETS 138,227,015 25,727,610 99,558,496
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 3,559,763 2,103,739 --
Management fees payable 88,588 69,108 168,672
Dividends payable -- -- 181,278
Accrued expenses 49,271 22,643 58,048
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 3,697,622 2,195,490 407,998
- --------------------------------------------------------------------------------
TOTAL NET ASSETS $134,529,393 $ 23,532,120 $ 99,150,498
================================================================================
NET ASSETS:
Par value of capital shares $ 102 $ 21 $ 992
Capital paid in excess of par value 118,818,894 22,524,191 99,149,506
Undistributed net investment income 3,168,201 1,063,584 --
Accumulated net realized gain (loss)
from security transactions 1,928,952 (345,286) --
Net unrealized appreciation
of investments 10,613,244 289,610 --
- --------------------------------------------------------------------------------
TOTAL NET ASSETS $134,529,393 $ 23,532,120 $ 99,150,498
================================================================================
SHARES OUTSTANDING 10,246,365 2,127,184 99,150,498
- --------------------------------------------------------------------------------
NET ASSET VALUE $13.13 $11.06 $1.00
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
================================================================================
Statements of Operations For the Year Ended October 31, 1996
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL TBC MANAGED SB MONEY
RETURN INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,829,090 $ 1,355,182 $ 3,903,744
Dividends 1,603,419 -- --
Less: Foreign withholding tax (17,770) -- --
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 4,414,739 1,355,182 3,903,744
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 744,834 123,774 425,361
Custody 26,000 5,000 12,691
Registration fees 25,200 4,500 24,263
Shareholder communications 16,000 4,000 11,460
Audit and legal 14,000 14,000 12,500
Pricing service fees 10,000 10,000 --
Shareholder and system
servicing fees 6,022 6,000 12,898
Directors' fees 5,000 3,500 8,400
Other 5,777 4,712 12,502
- --------------------------------------------------------------------------------
TOTAL EXPENSES 852,833 175,486 520,075
Less: Management fee waiver (Note 3) -- -- (60,833)
- --------------------------------------------------------------------------------
NET EXPENSES 852,833 175,486 459,242
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,561,906 1,179,696 3,444,502
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 4):
Realized Gain (Loss) From:
Security transactions
(excluding short-term
securities)* 1,948,923 (339,622) 549
Foreign currency transactions (442) -- --
- --------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) 1,948,481 (339,622) 549
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of year 2,217,552 251,203 --
End of year 10,613,244 289,610 --
- --------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED
APPRECIATION 8,395,692 38,407 --
- --------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 10,344,173 (301,215) 549
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS $ 13,906,079 $ 878,481 $ 3,445,051
================================================================================
</TABLE>
* Represents only gains from the sale of short-term securities for the SB
Money Market Portfolio.
See Notes to Financial Statements.
27
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
MFS TOTAL RETURN PORTFOLIO 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,561,906 $ 1,035,930
Net realized gain 1,948,481 394,347
Increase in net unrealized appreciation 8,395,692 2,258,516
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 13,906,079 3,688,793
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,430,635) (61,075)
Net realized gains (403,787) --
- --------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (1,834,422) (61,075)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 71,717,857 37,602,066
Net asset value of shares issued
for reinvestment of dividends 1,834,422 61,075
Cost of shares reacquired (457,554) (431,780)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 73,094,725 37,231,361
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 85,166,382 40,859,079
NET ASSETS:
Beginning of year 49,363,011 8,503,932
- --------------------------------------------------------------------------------
END OF YEAR* $ 134,529,393 $ 49,363,011
================================================================================
* Includes undistributed net investment
income of: $ 3,168,201 $ 1,038,795
================================================================================
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------
TBC MANAGED INCOME PORTFOLIO 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,179,696 $ 452,405
Net realized gain (loss) (339,622) 177,909
Increase in net unrealized appreciation 38,407 310,909
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 878,481 941,223
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (567,702) (63,967)
Net realized gains (186,111) (2,040)
- --------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (753,813) (66,007)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 12,619,297 8,018,349
Net asset value of shares issued
for reinvestment of dividends 753,813 66,007
Cost of shares reacquired (1,244,582) (1,521,061)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 12,128,528 6,563,295
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS 12,253,196 7,438,511
NET ASSETS:
Beginning of year 11,278,924 3,840,413
- --------------------------------------------------------------------------------
END OF YEAR* $ 23,532,120 $ 11,278,924
================================================================================
* Includes undistributed net
investment income of: $ 1,063,584 $ 454,153
================================================================================
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
SB MONEY MARKET PORTFOLIO 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,444,502 $ 884,152
Net realized gain 549 --
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 3,445,051 884,152
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (3,444,502) (884,152)
Net realized gains (549) --
- --------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (3,445,051) (884,152)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 98,594,062 41,451,114
Net asset value of shares issued
for reinvestment of dividends 3,325,266 829,090
Cost of shares reacquired (40,255,629) (10,071,297)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 61,663,699 32,208,907
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS 61,663,699 32,208,907
NET ASSETS:
Beginning of year 37,486,799 5,277,892
- --------------------------------------------------------------------------------
END OF YEAR $ 99,150,498 $ 37,486,799
================================================================================
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
================================================================================
Notes to Financial Statements
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The MFS Total Return, TBC Managed Income and Smith Barney Money Market
Portfolios ("Portfolios") are separate investment portfolios of the Travelers
Series Fund Inc. ("Fund"). The Fund, a Maryland corporation, is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company and consists of these Portfolios and nine other
separate investment portfolios: Alliance Growth, AIM Capital Appreciation,
GT Global Strategic Income, Putnam Diversified Income, Smith Barney High Income,
Smith Barney Income and Growth, Smith Barney International Equity, Smith Barney
Pacific Basin, and Van Kampen American Capital Enterprise Portfolios. Shares of
the Fund 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 annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) the Smith
Barney Money Market Portfolio uses the amortized cost method for valuing all of
its portfolios securities; the MFS Total Return and TBC Managed Income
Portfolios use the amortized cost method for valuing securities with maturities
less than 60 days; accordingly, the cost of securities plus accreted discount or
minus amortized premium, approximates market value; (c) securities traded on
national securities markets are valued at the closing prices on such markets;
securities for which no sales price was reported and U.S. Government and Agency
obligations are valued at the mean between the bid and ask prices; (d) 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;
(e) gains or losses on the sale of securities are calculated by using the
specific identification method; (f) interest income, adjusted for amortization
of premium and accretion of discount, is recorded on the accrual basis; (g)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) expenses are charged to each Portfolio; (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, 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 bank;
(j) the character of income and gains to be distributed are determined in
accordance
31
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
with income tax regulations which may differ from generally accepted
accounting principles. At October 31, 1996, reclassifications were made to the
capital accounts of the MFS Total Return Portfolio and the TBC Managed Income
Portfolio to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment income,
net realized gains and net assets were not affected by this change; (k) the
Portfolios intend to comply with the requirements of the Internal Revenue Code
of 1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (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
The Smith Barney Money Market Portfolio declares and records a dividend of
substantially all its net investment income on each business day. Such dividends
are paid or reinvested monthly on the payable date.
3. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH
AFFILIATED PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager of the Smith Barney
Money Market Portfolio ("SBMM"). Travelers Investment Adviser, Inc. ("TIA"), an
affiliate of SBMFM, acts as the investment manager of the MFS Total Return
("MFSTR") and the TBC Managed Income ("TBCMI") Portfolios, pursuant to the
Transfer and Assumption of Management Agreement, from SBMFM to TIA, dated
September 3, 1996. SBMM pays SBMFM a management fee calculated at an annual rate
of 0.60% of the average daily net assets of the Portfolio. MFSTR and TBCMI pay
TIA a management fee calculated at an annual rate of 0.80% and 0.65% of the
average daily net assets of each Portfolio, respectively. These fees are
calculated daily and paid monthly.
TIA has sub-advisory agreements with Massachusetts Financial Services
Company ("MFS") and The Boston Company Asset Management, Inc. ("TBC"). Pursuant
to each sub-advisory agreement, MFS and TBC are responsible for the day-to-day
portfolio operations and investment decisions for MFSTR and TBCMI, respectively.
As a result, TIA pays MFS and TBC, as sub-advisers, a fee calculated at the
annual rate of 0.375% and 0.30% of the average
32
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
daily net assets of MFSTR and TBCMI, respectively. These fees are calculated
daily and paid monthly.
TIA has entered into a sub-administrative services agreement with SBMFM.
From its management fee, TIA pays SBMFM, as sub-administrator, a fee calculated
at an annual rate of 0.10% of the average daily net assets of MFSTR and TBCMI.
SBMFM provides certain administrative services, including overseeing the
Portfolio's non-investment operations and its relations with other service
providers and providing executive and other officers to the Portfolio.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the year ended October 31, 1996, SB received brokerage
commissions of $174 for MFSTR.
All officers and two Directors of the Fund are employees of SB.
4. INVESTMENTS
During the year ended October 31, 1996, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
MFS TBC
TOTAL MANAGED
RETURN INCOME
================================================================================
<S> <C> <C>
Purchases $199,905,856 $61,033,992
- --------------------------------------------------------------------------------
Sales 124,253,836 47,367,722
================================================================================
</TABLE>
At October 31, 1996, the aggregate unrealized appreciation and depreciation
of investments were as follows:
<TABLE>
<CAPTION>
MFS TBC
TOTAL MANAGED
RETURN INCOME
================================================================================
<S> <C> <C>
Gross unrealized appreciation* $11,563,268 $339,261
Gross unrealized depreciation* (950,024) (49,651)
- --------------------------------------------------------------------------------
Net unrealized appreciation* $10,613,244 $289,610
================================================================================
</TABLE>
* Substantially the same for Federal income tax purposes.
33
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
5. REPURCHASE AGREEMENTS
The Portfolios purchase (and its custodian 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.
6. CAPITAL SHARES
At October 31, 1996, the Fund had six billion shares of capital stock
authorized with a par value of $0.00001 per share. Each share of a Portfolio
represents an identical interest in that Portfolio with each other share of the
same Portfolio and has an equal entitlement to any dividends and distributions
made by the Portfolio.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
================================================================================
<S> <C> <C>
MFS TOTAL RETURN
Shares sold 5,847,883 3,460,809
Shares issued on reinvestment 154,268 6,277
Shares redeemed (35,887) (39,326)
- --------------------------------------------------------------------------------
Net Increase 5,966,264 3,427,760
================================================================================
TBC MANAGED INCOME
Shares sold 1,163,766 766,837
Shares issued on reinvestment 69,444 6,674
Shares redeemed (116,880) (145,178)
- --------------------------------------------------------------------------------
Net Increase 1,116,330 628,333
================================================================================
SB MONEY MARKET
Shares sold 98,594,062 41,451,114
Shares issued on reinvestment 3,325,266 829,090
Shares redeemed (40,255,629) (10,071,297)
- --------------------------------------------------------------------------------
Net Increase 61,663,699 32,208,907
================================================================================
</TABLE>
7. CAPITAL LOSS CARRYFORWARD
At October 31, 1996, TBCMI had, for Federal income tax purposes,
approximately $326,000 of capital loss carryforwards available to offset future
realized gains expiring October 31, 2004. To the extent that these carryforward
losses are used to offset capital gains, it is probable that the gains so offset
will not be distributed.
34
<PAGE>
================================================================================
Financial Highlights
================================================================================
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO 1996 1995 1994(1)
================================================================================
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.53 $ 9.98 $ 10.00
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2) 0.33 0.45 0.13
Net realized and unrealized gain (loss) 1.62 1.15 (0.15)
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.95 1.60 (0.02)
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.27) (0.05) --
Net realized gains (0.08) -- --
- --------------------------------------------------------------------------------
Total Distributions (0.35) (0.05) --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 13.13 $ 11.53 $ 9.98
- --------------------------------------------------------------------------------
TOTAL RETURN 17.16% 16.12% (0.20)%+++
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $ 134,529 $ 49,363 $ 8,504
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 0.91% 0.95% 0.93%+
Net investment income 3.82 4.40 3.51+
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 139% 104% 18%
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS(3) $ 0.06 $ 0.04 --
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
31, 1995 and the period ended October 31, 1994. In addition, the Manager
has reimbursed the Portfolio for $13,857 in expenses for the period ended
October 31, 1994. If such fees were not waived and expenses not reimbursed,
the per share effect on net investment income and expense ratios would have
been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers
to Net Investment Income and Reimbursement
------------------------ -----------------
<S> <C> <C>
1995 $0.01 1.06%
1994 0.06 2.51+
</TABLE>
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
35
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO 1996(1) 1995 1994(2)
================================================================================
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.16 $ 10.04 $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(3) 0.65 0.61 0.21
Net realized and unrealized gain (loss) (0.14) 0.64 (0.17)
- --------------------------------------------------------------------------------
Total Income From Operations 0.51 1.25 0.04
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.46) (0.13) --
Net realized gains (0.15) -- --
- --------------------------------------------------------------------------------
Total Distributions (0.61) (0.13) --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 11.06 $ 11.16 $ 10.04
- --------------------------------------------------------------------------------
TOTAL RETURN 4.61% 12.68% 0.40%+++
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $ 23,532 $ 11,279 $ 3,840
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3) 0.92% 0.92% 0.87%+
Net investment income 6.19 6.13 5.67+
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 255% 170% 42%
================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with results of operations.
(2) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(3) The Manager has waived all or part of its fees for the year ended October
31, 1995 and the period ended October 31, 1994. In addition, the Manager
has reimbursed the Portfolio for $15,557 in expenses for the period ended
October 31, 1994. If such fees were not waived and expenses not reimbursed,
the per share effect on net investment income and the expense ratios would
have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers
to Net Investment Income and Reimbursement
------------------------ -----------------
<S> <C> <C>
1995 $0.04 1.29%
1994 0.07 2.91+
</TABLE>
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
36
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SB MONEY MARKET PORTFOLIO 1996 1995 1994(1)
================================================================================
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
Net investment income(2) 0.049 0.052 0.014
Dividends from net investment income (0.049) (0.052) (0.014)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
TOTAL RETURN 5.05% 5.35% 1.46%+++
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $ 99,150 $ 37,487 $ 5,278
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 0.65% 0.65% 0.66%+
Net investment income 4.86 5.26 3.83+
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager waived all or part of its fees for the years ended October 31,
1996 and October 31, 1995 and the period ended October 31, 1994. In
addition, the Manager reimbursed the Portfolio for $15,423 in expenses for
the period ended October 31, 1994. If such fees were not waived and
expenses not reimbursed, the per share effect on net investment income and
the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers
to Net Investment Income and Reimbursement
------------------------ -----------------
<S> <C> <C>
1996 $0.001 0.74%
1995 0.003 0.94
1994 0.005 2.11+
</TABLE>
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
37
<PAGE>
================================================================================
Independent Auditor's Report
================================================================================
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
TRAVELERS SERIES FUND INC.:
We have audited the accompanying statement of assets and liabilities,
including the schedules of investments, of the MFS Total Return, TBC Managed
Income and Smith Barney Money Market Portfolios of Travelers Series Fund Inc. as
of October 31, 1996, the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the two-year period then ended and the period from June 16, 1994 (commencement
of operations) to October 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. As to securities
purchased or sold but not received or delivered, we performed other appropriate
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
MFS Total Return, TBC Managed Income and Smith Barney Money Market Portfolios of
Travelers Series Fund Inc. as of October 31, 1996, the results of their
operations for the year then ended, the changes in their net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the two-year period then ended and the period from June 16,
1994 to October 31, 1994, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
New York, New York
December 12, 1996
38
<PAGE>
================================================================================
Tax Information (unaudited)
================================================================================
The amount of long-term capital gains paid by MFSTR and TBCMI to its
shareholders for the fiscal year ended October 31, 1996, was $44,854 and $4,343,
respectively.
39
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TRAVELERS SERIES
FUND INC.
DIRECTORS
Victor K. Atkins
Jessica M. Bibliowicz
Alger B. Chapman
A.E. Cohen
Robert A. Frankel
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
James M. Shuart
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President
James B. Conheady
Vice President
Martin Hanley
Vice President
Jeffrey J. Russell
Vice President
Bruce D. Sargent
Vice President
Phyllis Zahorodny
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- --------------------------------
A Member of TravelersGroup[LOGO]
INVESTMENT MANAGERS
Smith Barney Mutual Funds
Management Inc. and
Travelers Investment Adviser, Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
PNC Bank
ANNUITY ADMINISTRATION
Travelers Annuity Investor Services
5 State House Square
1 Tower Square
Hartford, CT 06183
This report is submitted for the general information of the shareholders of
Travelers Series Fund Inc. -- MFS Total Return, TBC Managed Income and Smith
Barney Money Market Portfolios. It is not authorized for distribution to
prospective investors unless accompanied or preceded by a current Prospectus for
the Portfolios, which contains information concerning the Portfolios' investment
policies and expenses as well as other pertinent information.
TRAVELERS SERIES
FUND INC.
388 Greenwich Street
New York, New York 10013
IN0253 12/96
ANNUAL REPORT
1996
1996
1996
1996
1996
TRAVELERS SERIES
FUND INC.
AIM CAPITAL APPRECIATION
PORTFOLIO
- ------------------------
October 31, 1996
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to bring you the annual report for the Travelers Series Fund Inc.
- -- AIM Capital Appreciation Portfolio, which covers the year ended October 31,
1996. In this report, we summarize the period's prevailing economic and market
conditions and outline our investment strategy. A detailed summary of
performance and current holdings can be found in the appropriate sections that
follow in the annual report.
Portfolio Performance Update
Small-company stocks lagged large company stocks during most of the past year,
as evidenced by the 16.77% total return posted by the Russell 2000 Index of
small-company stocks and the 17.35% return for the Standard & Poor's Midcap 400
Index compared to the 24.08% return for the Standard & Poor's 500 Composite
Index.* One of the primary factors behind the differences between the above
indices has been a flight to safety by investors out of volatile small-company
stocks and into "safer," big company stocks that are expected to earn above-
average profits in a slow growth environment.
For the year ended October 31, 1996, the AIM Capital Appreciation Portfolio had
a total return of 7.71%, which reflected the trend for small company stocks and
the significant volatility in the technology sector, particularly in the fall of
1995.
Market Recap
As the market leaders during 1995, small-company stocks were more vulnerable to
possible changes in the business cycle. For much of 1996, many investors were
concerned that the U.S. economy might be overheating, and that the Federal
Reserve Board might raise interest rates to slow it down. Higher interest rates
increase borrowing costs, and that can have a stronger impact on the profits of
smaller companies. While later reports seemed to indicate that the U.S. economy
had slowed to a moderate pace, some economists anticipated that higher interest
rates remained a possibility.
Many investors were also concerned that corporate profits would fall short of
their brisk pace of 1995, and small companies had posted stunning profits that
- ---------------
*The unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P 500) is
widely regarded by investors as representative of the stock market in general.
The unmanaged Standard & Poor's Midcap 400 (S&P 400) measures the performance of
medium-sized companies. The Russell 2000 Index measures the performance of
smaller companies, currently those with a market value of less than $750
million.
1
<PAGE>
seemed hard to match in 1996. That was particularly true for many technology
companies, and many stocks in the technology sector fell sharply in the fall of
1995 and the summer of 1996.
Uncertainty creates volatile markets, and investors gravitated to stocks in
larger companies with more predictable earnings. As a result, large company
stocks outperformed smaller company stocks during the reporting period.
Portfolio's Investment Strategy
The AIM Capital Appreciation Portfolio continued to hold a large number of
stocks -- 299 as of October 31, 1996 spread over 55 industries. The Portfolio
maintained its weighting in health care stocks at roughly 18% and increased its
holdings in retail stores and consumer cyclicals to 23%.
Technology
Due to its larger concentration in technology stocks, the AIM Capital
Appreciation Portfolio was vulnerable when the technology sector experienced a
broad-based decline in the fall of 1995. The Portfolio changed its emphasis from
semiconductor producers to computer software and networking companies during the
reporting period. Through October 1996, software companies handily outperformed
semiconductor companies for the year; however, investor concerns regarding lower
overall earnings continued to hamper the group's performance.
Nonetheless, we at the AIM Capital Appreciation Portfolio believe there are a
number of positive factors that bode well for selected technology areas going
forward. Personal computer makers such as Compaq and Dell have benefited from
the decline in the prices of components such as semiconductors. Microsoft's
Windows NT has the potential to launch another major upgrade cycle in spring
1997 that should benefit PC makers and software developers alike. Computer
networking companies such as Cisco Systems have been consistently strong during
the period as companies continue to upgrade data communications capacity.
Retail
Earnings in the retail sector have been surprisingly strong, and they continue
to grow at an attractive pace. Consumer demand for goods have kept store
inventories low and fully priced, which benefits high-profile players such as
Tommy Hilfiger, Inc., Gymboree Corp. and Nike, Inc. The Portfolio bolstered its
holdings in stronger, name-brand stores that dominate their market niche: such
as Petco Animal Supplies, Inc., Tech Data Corp., and The Sports Authority, Inc.
2
<PAGE>
Health Care
Consolidation efforts continue in the health care industry, and intense
competition has begun to drive out many of the smaller, less experienced
players, particularly in the physician practice management area. The AIM Capital
Appreciation Portfolio focused on three major areas in the health care segment
which we believe have attractive earnings growth potential: preventative
maintenance, assisted living and hospital systems administration. Among the
Portfolio's strongest performers in those segments were Cardinal Health, Inc.
and HEALTHSOUTH Corp.
Market Outlook
Conditions appear favorable for stocks in general, and even better for smaller-
company stocks. Recent reports show that Gross Domestic Product (GDP) slowed to
a 2.2% annual rate in the third quarter from 4.7% in the second quarter. The
U.S. economy is growing at a reasonable rate without rising inflation, and that
reduces the likelihood that interest rates may increase over the near term.
Still, the bull market has run longer than any other in history and October
marked its sixth year. As we have seen, that historic advance has not been
without considerable volatility. In 1996, circuit breaker mechanisms on the New
York Stock Exchange, which temporarily suspend trading, were triggered more than
90 times.
That is why we are recommending that investors remain cautious and patient. In
light of the heady performance of the stock market the past six years, it is
important to maintain a long-term perspective. We believe that it is wise to
remember that markets run in cycles -- even the longest bull market in history.
In closing, thank you for investing in the Travelers Series Fund Inc. -- AIM
Capital Appreciation Portfolio. We look forward to helping you to achieve your
financial goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and
Chief Executive Officer
November 15, 1996
3
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns+
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $10.00 $10.76 $0.01 $0.00 7.71%
- ------------------------------------------------------------------------------------------------------------------------------------
10/10/95*-10/31/95 10.00 10.00 0.00 0.00 0.00+++
====================================================================================================================================
Total $ 0.01 $ 0.00
====================================================================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS,
IF ANY, ANNUALLY.
- --------------------------------------------------------------------------------
Average Annual Total Return+
- --------------------------------------------------------------------------------
================================================================================
Year Ended 10/31/96 7.71%
- --------------------------------------------------------------------------------
10/10/95* through 10/31/96 7.26
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return+
- --------------------------------------------------------------------------------
================================================================================
10/10/95* through 10/31/96 7.71%
================================================================================
+ Assumes the reinvestment of all dividends and capital gain distributions.
+++ Total return is not annualized, as it may not be representative of the total
return for the year.
* Commencement of operations.
4
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Shares of the
AIM Capital Appreciation Portfolio vs. Lipper Midcap Index+
- --------------------------------------------------------------------------------
October 1995 - October 1996
[GRAPHIC]
<TABLE>
<CAPTION>
AIM Capital Lipper Midcap
DATE Appreciation INDEX
- -------- ------------ -------------
<S> <C> <C>
10/10/95 $10,000 $10,000
1/96 9,710 10,517
4/96 10,711 11,648
7/96 9,720 10,697
10/31/96 10,711 11,836
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the AIM Capital
Appreciation Portfolio on October 10, 1995 (commencement of operations),
assuming reinvestment of dividends and capital gains at net asset value
through October 31, 1996. The Lipper Midcap Index is an index of widely held
common stocks listed on the New York and American Stock Exchanges and
over-the-counter markets. Figures for the Lipper Midcap Index include
reinvestment of dividends. The index is unmanaged and is not subject to the
same management and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost.
5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==================================================================================
<C> <S> <C>
COMMON STOCKS -- 85.8%
Advertising -- 0.1%
2,400 True North Communications, Inc. $ 57,000
- ----------------------------------------------------------------------------------
Agricultural Operations -- 0.2%
2,700 Potash Corp. of Saskatchewan Inc. 191,363
- ----------------------------------------------------------------------------------
Apparel -- 0.6%
6,000 Jones Apparel Group Inc.+ 187,500
9,000 Russell Corp. 255,374
8,400 Unifici, Inc. 261,450
- ----------------------------------------------------------------------------------
704,324
- ----------------------------------------------------------------------------------
Banking -- 1.8%
8,900 Bank of Boston Corp. 569,600
13,300 Capital One Financial Corp. 413,962
8,100 Cityscape Financial Corp.+ 208,575
15,000 MBNA Corp. 566,250
4,950 PMT Services Inc.+ 99,000
4,600 Washington Mutual Inc.+ 194,350
- ----------------------------------------------------------------------------------
2,051,737
- ----------------------------------------------------------------------------------
Broadcasting -- 1.2%
6,800 American Radio Systems Corp.+ 207,400
18,000 CanWest Global Communication Corp. 191,250
5,000 Chancellor Broadcasting Corp., Class A Shares+ 161,249
7,600 Clear Channel Communications Inc.+ 554,800
7,900 Infinity Broadcasting Corp., Class A Shares+ 229,100
3,500 U.S. Satellite Broadcasting Co.+ 56,438
- ----------------------------------------------------------------------------------
1,400,237
- ----------------------------------------------------------------------------------
Capital Goods -- 0.6%
6,200 Agrium Inc. 82,925
17,000 Airgas Inc.+ 384,623
5,200 IMC Global Inc. 195,000
- ----------------------------------------------------------------------------------
662,548
- ----------------------------------------------------------------------------------
Communications-Equipment & Software -- 2.9%
14,600 Cascade Communications Corp.+ 1,060,325
10,200 Jacor Communications Inc.+ 285,600
6,740 Mark IV Industries Inc. 145,753
6,500 Paxson Communications Corp.+ 57,688
5,000 Qualcomm Inc.+ 198,750
7,800 Tellabs, Inc.+ 663,972
12,100 U.S. Robotics Corp.+ 760,788
6,100 Western Wireless Corp.+ 100,650
- ----------------------------------------------------------------------------------
3,273,526
- ----------------------------------------------------------------------------------
Computer Software -- 12.2%
2,400 Auspex Systems Inc.+ 24,600
8,500 Baan Co.+ 314,500
9,600 BMC Software Inc. 796,800
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=============================================================================
<C> <S> <C>
Computer Software -- 12.2% (continued)
4,975 Cadence Design Systems Inc.+ $ 181,588
6,550 CDW Computer Center Inc.+ 412,240
18,250 Computer Associates International Inc. 1,079,031
10,100 Compuware Corp.+ 532,775
9,100 DST Systems Inc.+ 279,825
8,800 Electronics Arts Inc.+ 330,000
5,200 First Data Corp. 414,700
5,500 Gartner Group Inc., Class A Shares+ 169,125
3,000 HPR Inc.+ 42,000
1,700 IDX Systems Corp.+ 50,150
2,800 Input/Output Inc.+ 83,300
3,200 Integrated Systems Inc.+ 86,400
5,600 Intuit Inc.+ 151,200
14,625 McAfee Associates Inc.+ 665,438
18,600 Microsoft Corp.+ 2,552,850
5,100 National Data Corp. 209,738
19,300 Network General Corp.+ 465,613
24,250 Oracle Systems Corp.+ 1,026,078
23,300 Parametric Technologies Corp.+ 1,138,787
3,600 PC Docs Group International Inc.+ 29,700
15,500 Physician Computer Network+ 138,531
2,700 Premiere Technologies Inc.+ 43,875
10,600 Rational Software Corp.+ 406,775
14,800 Reynolds & Reynolds Co., Class A Shares 390,350
1,600 Shiva Corp.+ 65,600
16,185 Sterling Commerce Inc.+ 455,202
4,700 Sterling Software Inc.+ 152,750
4,600 Sungard Data Systems Inc.+ 196,650
3,500 Sync Research Inc. 46,375
14,600 Synopsys Inc.+ 657,000
2,700 Technomatrix Technology Inc. 46,912
3,100 Wind River Systems 131,750
- -----------------------------------------------------------------------------
13,768,208
- -----------------------------------------------------------------------------
Computers -- 6.2%
5,400 Adaptec Inc.+ 328,725
4,000 Bisys Group Inc.+ 149,000
9,900 Cabletron Systems Inc.+ 617,514
8,900 Ceridian Corp.+ 441,662
12,900 Compaq Computer Corp.+ 898,163
6,300 Computer Science Corp.+ 467,772
3,400 CSG Systems International Inc.+ 56,950
9,200 Dell Computer Corp. 748,650
7,400 GTech Holdings Corp.+ 218,300
9,846 HBO & Co. 591,990
10,700 Structural Dynamics Research Corp.+ 189,925
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=================================================================================
<C> <S> <C>
Computers -- 6.2% (continued)
18,000 Sun Microsystems Inc.+ $1,098,000
18,700 3Com Corp. 1,264,586
- ---------------------------------------------------------------------------------
7,071,237
- ---------------------------------------------------------------------------------
Consumer/Commercial Services -- 2.8%
5,400 Accustaff Inc.+ 144,450
2,500 Affiliated Computer Services, Inc., Class A Shares+ 137,500
2,000 Apac Teleservices Inc.+ 92,250
2,900 Career Horizons Inc.+ 117,812
3,500 Checkpoint Systems Inc.+ 78,311
9,800 Corning Inc. 379,750
1,400 Corrections Corp. of America+ 36,400
8,850 CUC International Inc.+ 216,825
10,200 Lowes Cos.+ 411,825
4,300 Metromail Corp.+ 79,013
1,000 Paychex Inc. 57,000
2,300 Rural/Metro Corp.+ 83,950
28,600 Service Corp. 815,100
7,750 Stewart Enterprises Inc. 265,438
4,100 Tyco International Ltd. 203,462
- ---------------------------------------------------------------------------------
3,119,086
- ---------------------------------------------------------------------------------
Electrical Equipment -- 0.8%
6,800 Allen Group+ 107,950
5,000 Methode Electronics Inc. 97,500
10,300 Microchip Technology Inc.+ 373,375
6,200 Symbol Technologies Inc.+ 278,225
- ---------------------------------------------------------------------------------
857,050
- ---------------------------------------------------------------------------------
Electronics -- 1.6%
7,700 Altera Corp.+ 477,400
14,300 Ascend Communications Inc.+ 934,862
11,400 ECI Telecom Ltd. 228,000
3,000 Solectron Corp.+ 160,500
- ---------------------------------------------------------------------------------
1,800,762
- ---------------------------------------------------------------------------------
Electronics-Semiconductors and Components -- 3.4%
5,600 Berg Electronics Corp.+ 158,200
3,400 BMC Industries Inc. 100,725
16,200 Fore Systems Inc.+ 643,950
22,000 Intel Corp. 2,417,250
1,200 Molex Inc. 38,850
5,700 SCI Systems Inc.+ 283,575
3,000 Vitesse Semiconductors Co.+ 95,625
3,700 Xircom Inc.+ 74,925
- ---------------------------------------------------------------------------------
3,813,100
- ---------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==========================================================================
<C> <S> <C>
Entertainment and Leisure Time -- 2.0%
5,500 Doubletree Corp.+ $ 223,092
11,700 HFS Inc.+ 857,025
18,900 International Game Technology+ 399,263
6,900 Promus Hotel Corp.+ 219,075
4,600 Speedway Motorsports Inc. 105,225
5,100 Sun International Hotel Ltd. 240,975
15,500 Trump Hotels & Casino Resorts, Inc.+ 246,063
- --------------------------------------------------------------------------
2,290,718
- --------------------------------------------------------------------------
Financial Services -- 4.6%
3,000 Aames Financial Corp.+ 133,875
3,800 Beneficial Corp. 222,300
9,500 Capmac Holdings Inc. 317,063
11,600 Credit Acceptance Corp.+ 313,200
4,800 Equifax Inc. 142,800
4,400 First U.S.A. Inc. 253,000
21,500 Green Tree Financial Corp. 851,938
7,200 Household International Inc. 637,200
8,400 Imperial Credit Industries, Inc.+ 152,250
12,200 MGIC Investment Corp. 837,225
13,700 Olympic Financial Ltd.+ 217,488
4,500 Student Loan Marketing Association 372,375
6,900 Sun America Inc. 258,750
11,000 The Money Store Inc. 283,250
8,000 United Cos. Financial Corp. 239,000
- --------------------------------------------------------------------------
5,231,714
- --------------------------------------------------------------------------
Hospital Related -- 1.9%
4,400 Advanced Technology Lab Inc.+ 134,200
2,400 American Medical Response+ 72,000
3,500 Cardiothoracic Systems Inc.+ 66,500
2,000 Curative Health Services+ 45,500
9,100 Idexx Laboratories Inc.+ 357,175
7,500 Medpartners/Mullikin Inc.+ 158,436
21,200 Omnicare Inc. 577,700
18,800 OrNda Healthcorp+ 512,300
11,100 Universal Health Services Inc.+ 277,500
- --------------------------------------------------------------------------
2,201,311
- --------------------------------------------------------------------------
Housing & Home Furnishings -- 0.2%
7,850 American Homepatient Inc. 186,438
1,600 Oakwood Homes Corp. 42,400
- --------------------------------------------------------------------------
228,838
- --------------------------------------------------------------------------
Insurance -- 0.2%
5,000 Conseco Inc. 267,500
- --------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
===================================================================
<C> <S> <C>
Managed Care and Medical Services -- 7.6%
7,000 Amercian Oncology Resources Inc.+ $ 56,000
18,400 Apria Healthcare Group Inc.+ 351,900
3,000 Billing Information Concepts+ 78,375
2,700 Clinitrials Research+ 100,238
23,400 Columbia HCA Healthcare Corp. 836,550
6,900 Compdent Corp.+ 237,188
7,100 Express Scripts Inc., Class A Shares+ 206,788
10,200 Genesis Health Ventures Inc.+ 233,325
5,000 HealthCare COMPARE Corp.+ 220,000
21,950 Health Care & Retirement Inc.+ 540,519
26,450 Health Management Association Inc.+ 581,900
29,800 HEALTHSOUTH Rehabilitation+ 1,117,500
3,650 Jones Medical Industries Inc. 158,775
10,500 Lincare Holdings Inc.+ 393,750
10,500 Manor Care Inc. 412,125
4,500 Medtronic Inc.+ 289,688
3,000 Occusystems Inc.+ 82,125
3,600 Orthodontic Centers of America+ 51,750
14,800 Oxford Health Plans, Inc.+ 673,400
9,350 Phycor Inc.+ 289,850
5,400 Physician Resource Group Inc.+ 145,800
5,300 Physician Sales & Service Inc.+ 112,625
6,500 Quorum Health Group Inc.+ 175,500
5,500 Riscorp Inc.+ 27,500
20,200 Tenet Healthcare Corp.+ 421,675
5,000 Total Renal Care Holdings Inc.+ 195,000
20,400 Vencor Inc.+ 604,350
- -------------------------------------------------------------------
8,594,196
- -------------------------------------------------------------------
Manufacturing -- 4.4%
4,100 ACT Networks Inc.+ 140,425
10,000 Amgen Inc.+ 613,125
12,700 Callaway Golf Co. 388,938
24,700 Cisco Systems Inc.+ 1,528,313
3,000 Designer Holdings Ltd.+ 57,375
4,500 Fila Holding S.p.A. Sponsored ADR 324,000
9,300 Leggett & Platt Inc. 277,838
20,200 Oakley Inc.+ 300,475
3,100 Pentair Inc. 78,275
4,800 Premisys Communications Inc.+ 240,000
6,600 Smith International Inc.+ 250,800
13,600 Tech Data Corp.+ 350,200
8,300 Thermo Electron Corp. 302,950
5,000 U.S. Industries Inc.+ 135,000
- -------------------------------------------------------------------
4,987,714
- -------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
============================================================================
<C> <S> <C>
Medical Equipment and Information Systems -- 2.0%
9,100 Boston Scientific Corp.+ $ 494,813
4,100 Dentsply International Inc. 172,713
6,900 Guidant Corp. 318,263
8,100 Invacare Corp. 226,800
5,700 Nellcor, Inc.+ 111,150
2,700 Spine Tech Inc.+ 68,175
19,400 Sybron International Corp.+ 565,025
2,000 Transition Systems Inc. 19,000
6,000 U.S. Surgical Corp. 251,250
- ----------------------------------------------------------------------------
2,227,189
- ----------------------------------------------------------------------------
Medical Products and Supplies -- 1.5%
13,600 Cardinal Health Inc. 1,067,600
11,000 Gulf South Medical Supply Inc.+ 242,000
8,500 STERIS Corp.+ 320,875
1,500 Target Therapeutics Inc.+ 55,500
- ----------------------------------------------------------------------------
1,685,975
- ----------------------------------------------------------------------------
Multimedia -- 0.1%
2,200 Times Mirror Co., Class A Shares 101,750
- ----------------------------------------------------------------------------
Office Equipment, Products and Supplies -- 2.6%
3,100 Avery Dennison Corp. 204,213
3,200 Boise Cascade Office Products Corp.+ 60,800
9,700 Corporate Express Inc. 316,463
16,800 Danka Business Systems Corp. 665,700
6,300 Global Direct Mail Corp.+ 310,275
38,350 Staples Inc.+ 714,269
25,300 Viking Office Products Inc.+ 736,863
- ----------------------------------------------------------------------------
3,008,583
- ----------------------------------------------------------------------------
Oil and Gas -- 3.1%
10,200 Baker Hughes Inc. 363,375
7,700 Burlington Resources Inc. 387,888
9,300 Diamond Offshore Drilling Inc.+ 566,137
7,800 Ensco International Inc.+ 337,350
20,200 Global Marine Inc.+ 371,175
15,600 Marine Drilling Co., Inc.+ 216,450
5,100 Pride Petroleum Services Inc. 89,250
11,500 Reading & Bates Corp.+ 330,625
15,000 Rowan Cos., Inc.+ 335,625
3,700 Transocean Offsore, Inc. 234,025
11,900 Varco International Inc.+ 235,025
- ----------------------------------------------------------------------------
3,466,925
- ----------------------------------------------------------------------------
Pharmaceuticals -- 1.2%
2,800 Dura Pharmaceuticals, Inc.+ 96,600
20,600 Elan Corp., PLC ADR+ 571,650
1,500 Parexel International Corp.+ 73,500
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=============================================================================
<C> <S> <C>
Pharmaceuticals -- 1.2% (continued)
4,400 Quintiles Transnational Corp.+ $ 289,300
10,400 Revco D.S.+ 313,300
1,000 Teva Pharmaceutical Corp.+ 41,875
- -----------------------------------------------------------------------------
1,386,225
- -----------------------------------------------------------------------------
Restaurants -- 3.1%
6,400 Apple South Inc.+ 75,200
9,000 Applebees International Inc. 219,375
14,700 Brinker International Inc.+ 249,900
5,000 Cracker Barrel Old Country Store Inc. 101,875
9,000 Kroger Co.+ 401,625
11,300 Lonestar Steakhouse Inc.+ 289,563
7,400 Outback Steakhouse Inc.+ 171,588
5,300 Planet Hollywood International Inc.+ 109,975
19,300 Safeway Inc.+ 827,488
8,200 Starbucks Corp.+ 266,500
14,400 Vons Cos., Inc.+ 797,400
- -----------------------------------------------------------------------------
3,510,489
- -----------------------------------------------------------------------------
Retail -- 3.4%
5,700 Claire's Stores Inc. 96,900
15,800 Consolidated Stores Corp.+ 610,275
5,800 Dillard Dept. Stores, Inc., Class A Shares 184,150
9,200 Dollar General Corp. 255,300
6,500 Dollar Tree Store Inc.+ 245,375
11,400 Eckerd Drugs Corp.+ 316,350
11,200 Gap Inc. 324,800
1,100 Home Depot, Inc.+ 60,225
8,300 Kohl's Corp.+ 298,800
6,500 Petco Animal Supplies Inc.+ 152,750
19,400 PETsMART Inc.+ 523,800
14,750 The Sports Authority Inc.+ 357,688
17,500 Thrifty Payless Holdings Inc.+ 374,064
- -----------------------------------------------------------------------------
3,800,477
- -----------------------------------------------------------------------------
Retail-Apparel -- 2.1%
4,000 Gucci Group NV+ 276,000
11,200 Liz Clairborne Inc. 473,200
10,900 Nautica Enterprises Inc.+ 335,175
8,800 Nike Inc., Class B Shares 518,100
9,800 Nine West Group Inc.+ 488,775
2,900 Ross Stores Inc. 120,350
9,650 The Mens Warehouse Inc.+ 199,030
- -----------------------------------------------------------------------------
2,410,630
- -----------------------------------------------------------------------------
Retail-Auto -- 1.0%
12,600 Autozone Inc.+ 322,875
9,700 Harley Davidson Inc. 437,713
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==================================================================
<C> <S> <C>
Retail-Auto -- 1.0% (continued)
12,100 Pep Boys - Manny, Moe & Jack $ 423,500
- ------------------------------------------------------------------
1,184,088
- ------------------------------------------------------------------
Retail-Specialty Line -- 3.6%
10,200 American Stores Co. 422,025
10,000 Bed Bath & Beyond Inc.+ 252,500
9,700 CompUSA Inc.+ 448,625
13,500 Dayton-Hudson Corp. 467,438
5,800 Fred Meyer Inc.+ 203,725
10,200 Gymboree Corp.+ 318,750
12,800 Micro Warehouse Inc.+ 294,400
3,500 Neiman-Marcus Group Inc.+ 114,188
3,200 Saks Holdings, Inc. 112,000
8,700 Sunglass Hut International Inc.+ 77,213
4,100 The Finish Line, Class A Shares+ 174,250
7,600 Tiffany & Co. 281,200
6,800 TJX Cos., Inc. 272,000
8,900 Tommy Hilfiger Corp.+ 462,800
3,900 Williams-Sonoma Inc.+ 107,250
3,150 Wolverine Worldwide Inc. 77,963
- ------------------------------------------------------------------
4,086,327
- ------------------------------------------------------------------
Steel -- 0.0%
1,600 Thermo Instruments Systems Inc.+ 48,400
- ------------------------------------------------------------------
Telecommunications -- 2.7%
15,100 ADC Telecommunications Inc.+ 1,032,463
17,350 Andrew Corp.+ 845,812
6,100 Aspect Telecommunications Corp. 362,950
5,000 Cincinnati Bell Inc.+ 246,875
20,000 Ericsson LM Telephone ADR 552,500
3,000 U.S. Long Distance Corp. 25,125
- ------------------------------------------------------------------
3,065,725
- ------------------------------------------------------------------
Telecommunications-Equipment -- 1.3%
13,800 Newbridge Networks Corp.+ 436,425
13,600 Pairgain Technologies Inc.+ 936,700
4,800 Picturetel Corp.+ 129,600
- ------------------------------------------------------------------
1,502,725
- ------------------------------------------------------------------
Toys -- 0.7%
5,850 Mattel Inc. 168,919
19,900 Toys 'R' Us Inc.+ 674,113
- ------------------------------------------------------------------
843,032
- ------------------------------------------------------------------
Transportation-Miscellaneous -- 0.1%
4,500 Airnet Systems Inc.+ 58,500
4,100 U.S. Freightways Corp.+ 89,688
- ------------------------------------------------------------------
148,188
- ------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================
<S> <C> <C>
Utilities -- 1.6%
2,700 ACC Corp.+ $ 114,750
5,600 Camco International Inc. 217,000
9,000 Frontier Corp. 261,000
19,400 MCI Communications Corp.+ 487,425
10,500 Richfood Holdings Inc. 253,312
2,500 U.S. Filter Corp.+ 86,250
15,800 Worldcom Inc.+ 385,125
- ------------------------------------------------------------------------
1,804,862
- ------------------------------------------------------------------------
Waste Management -- 0.4%
5,100 United Waste Systems Inc.+ 175,313
8,500 U.S.A. Waste Service Inc.+ 272,000
- ------------------------------------------------------------------------
447,313
- ------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $87,263,911) 97,301,072
========================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 14.2%
$ 50,000 U.S. Treasury Bill due 12/26/96+++ 49,616
125,000 U.S. Treasury Bill due 12/26/96+++ 124,038
80,000 U.S. Treasury Bill due 1/2/97+++ 79,322
6,305,000 U.S. Treasury Bill due 1/2/97+++ 6,251,304
9,615,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.530% due 11/1/96 9,615,000
- ------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $16,119,280) 16,119,280
========================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $103,383,191*) $113,420,352
========================================================================
</TABLE>
+ Non-income producing security.
+++ Security segregated by Custodian for open futures contracts
commitments.
* Aggregate cost for Federal income tax purposes is substantially the
same.
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost -- $103,383,191) $113,420,352
Receivable for securities sold 643,964
Receivable for Fund shares sold 226,236
Dividends receivable 15,439
Receivable from broker -- variation margin 65,075
- ----------------------------------------------------------------------------------------------------
Total Assets 114,371,066
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 1,356,030
Management fees payable 58,087
Accrued expenses 52,279
- ----------------------------------------------------------------------------------------------------
Total Liabilities 1,466,396
- ----------------------------------------------------------------------------------------------------
Total Net Assets $112,904,670
====================================================================================================
NET ASSETS:
Par value of capital shares $ 105
Capital paid in excess of par value 106,723,182
Undistributed net investment income 127,361
Accumulated net realized loss from security transactions and futures contracts (4,191,464)
Net unrealized appreciation of investments and futures contracts 10,245,486
- ----------------------------------------------------------------------------------------------------
Total Net Assets $112,904,670
====================================================================================================
Shares Outstanding 10,490,779
- ----------------------------------------------------------------------------------------------------
Net Asset Value $10.76
- ----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $ 616,710
Dividends (net of foreign withholding tax of $1,902) 127,856
- ------------------------------------------------------------------------------------------------
Total Investment Income 744,566
- ------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 503,898
Registration fees 34,690
Shareholder communications 20,000
Custody 18,481
Audit and legal 15,000
Shareholder and system servicing fees 6,000
Directors' fees 4,000
Other 995
- ------------------------------------------------------------------------------------------------
Total Expenses 603,064
- ------------------------------------------------------------------------------------------------
Net Investment Income 141,502
- ------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (4,681,634)
Futures contracts 497,774
- ------------------------------------------------------------------------------------------------
Net Realized Loss (4,183,860)
- ------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments and Futures Contracts:
Beginning of year (10,437)
End of year 10,245,486
- ------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 10,255,923
- ------------------------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 6,072,063
- ------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 6,213,565
================================================================================================
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended October 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995(a)
========================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 141,502 $ 13,217
Net realized loss (4,183,860) (7,604)
Increase in net unrealized appreciation (depreciation) 10,255,923 (10,437)
- ------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 6,213,565 (4,824)
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (27,358) --
- ------------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (27,358) --
- ------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 100,074,364 10,257,531
Net asset value of shares issued for
reinvestment of dividends 27,358 --
Cost of shares reacquired (1,465,966) (2,170,000)
- ------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 98,635,756 8,087,531
- ------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets 104,821,963 8,082,707
NET ASSETS:
Beginning of year 8,082,707 --
- ------------------------------------------------------------------------------------------------------------------------
End of year* $112,904,670 $8,082,707
========================================================================================================================
* Includes undistributed net investment income of: $127,361 $13,217
========================================================================================================================
</TABLE>
(a) For the period from October 10, 1995 (commencement of operations) to
October 31, 1995.
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The AIM Capital Appreciation Portfolio ("Portfolio") is a separate
investment portfolio of the Travelers Series Fund Inc. ("Fund"). The Fund, a
Maryland Corporation, is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company and consists of this
portfolio and eleven other separate investment portfolios: Smith Barney Income
and Growth, Alliance Growth, Van Kampen American Capital Enterprise, Smith
Barney International Equity, Smith Barney Pacific Basin, TBC Managed Income,
Putnam Diversified Income, GT Global Strategic Income, Smith Barney High Income,
MFS Total Return and Smith Barney Money Market Portfolios. Shares of the Fund
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
annual reports.
The significant accounting policies followed by the Portfolio 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 was reported and U.S. Government and Agency
obligations are valued at the mean between the bid and the ask prices; (c)
securities maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates market value; (d) interest income is
recorded on the accrual basis; (e) dividend income is recorded on the ex-
dividend date; foreign dividends are recorded on the ex-dividend date or as soon
as practical after the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (f) gains or losses on the sale of
securities are calculated by using the specific identification method; (g)
expenses are charged to the Portfolio; (h) the accounting records of the
Portfolio 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, and income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian; (i) the Portfolio intends
to comply with the applicable provisions of the Internal Revenue Code of 1986,
as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (j) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared.
18
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. Management Agreement and Transactions with
Affiliated Persons
Travelers Investment Adviser, Inc. ("TIA"), acts as investment manager
of the Fund. The Portfolio pays TIA a management fee calculated at an annual
rate of 0.80% on the average daily net assets. This fee is calculated daily and
paid monthly.
TIA has entered into a sub-advisory agreement with AIM Capital
Management, Inc. ("AIM"). Pursuant to the sub-advisory agreement, AIM is
responsible for the day-to-day portfolio operations and investment decisions.
As a result, TIA will pay AIM, as sub-advisor, a fee calculated at the annual
rate of 0.375% of the Portfolio's average daily net assets. This fee is
calculated daily and paid monthly.
TIA has entered into a sub-administrative services agreement with
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"). From its management fee, TIA pays SBMFM, as sub-
administrator, a fee calculated at an annual rate of 0.10% of the Portfolio's
average daily net assets.
SBMFM provides certain administrative services, including overseeing the
Portfolio's non-investment operations and its relations with other service
providers and providing executive and other officers to the Portfolio.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as
distributor of Fund shares and primary broker for its portfolio agency
transactions. For the year ended October 31, 1996, SB received brokerage
commissions of $525.
All officers and two Directors of the Fund are employees of SB.
3. Investments
During the year ended October 31, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $107,716,942
- --------------------------------------------------------------------------------
Sales 22,826,032
================================================================================
19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
At October 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
================================================================================
Gross unrealized appreciation $13,832,939 *
Gross unrealized depreciation (3,795,778)*
- --------------------------------------------------------------------------------
Net unrealized appreciation $10,037,161 *
================================================================================
* Substantially the same for Federal income tax purposes.
4. Capital Loss Carryforward
At October 31, 1996, the Portfolio had, for Federal income tax purposes,
approximately $3,814,000 of capital loss carryforwards available to offset any
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 October 31 of the year indicated:
2003 2004
================================================================================
Carryforward Amounts $1,000 $3,813,000
================================================================================
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 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 Portfolio enters into such contracts
to hedge a portion of its portfolio. The Portfolio bears the market risk that
arises from changes in the value of the financial instruments and securities
indices (futures contracts) and the credit risk should a counterparty fail to
perform under such contracts.
20
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
At October 31, 1996, the Portfolio had the following open futures
contracts:
<TABLE>
<CAPTION>
Expiration # of Basis Market Unrealized
Contracts Purchased Month/Year Contracts Value Value Gain
================================================================================
<S> <C> <C> <C> <C> <C>
S&P 500 Index 12/96 14 $4,823,350 $4,967,550 $144,200
S&P 500 Index 12/96 5 1,710,000 1,774,125 64,125
- --------------------------------------------------------------------------------
Total $6,533,350 $6,741,675 $208,325
================================================================================
</TABLE>
6. Capital Shares
At October 31, 1996, the Fund had six billion shares of capital stock
authorized with a par value of $0.00001 per share. Each share represents an
equal proportionate interest and has an equal entitlement to any dividends and
distributions made by the Portfolio.
Transactions in shares of the Portfolio were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995(a)
=================================================================
<S> <C> <C>
Shares sold 9,823,048 1,026,832
Shares issued on reinvestment 2,850 --
Shares redeemed (143,288) (218,663)
- -----------------------------------------------------------------
Net Increase 9,682,610 808,169
=================================================================
</TABLE>
(a) For the period from October 10, 1995 (commencement of operations) to
October 31, 1995.
21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout the year:
<TABLE>
<CAPTION>
1996(1) 1995(1)(2)
====================================================================
<S> <C> <C>
Net Asset Value, Beginning of Year $10.00 $10.00
- --------------------------------------------------------------------
Income From Operations:
Net investment income(3) 0.02 0.02
Net realized and unrealized gain (loss) 0.75 (0.02)
- --------------------------------------------------------------------
Total Income From Operations 0.77 ---
- --------------------------------------------------------------------
Less Distributions From:
Net investment income (0.01) ---
- --------------------------------------------------------------------
Total Distributions (0.01) ---
- --------------------------------------------------------------------
Net Asset Value, End of Year $10.76 $10.00
- --------------------------------------------------------------------
Total Return 7.71% 0.00%+++
- --------------------------------------------------------------------
Net Assets, End of Year (000s) $112,905 $8,083
- --------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 0.96% 1.00%+
Net investment income 0.22 4.07+
- --------------------------------------------------------------------
Portfolio Turnover Rate 43.97% 5.91%
- --------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.06 $0.06
====================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with results of operations.
(2) For the period from October 10, 1995 (commencement of operations) to
October 31, 1995.
(3) The Manager waived all or part of its fees and reimbursed expenses of
$13,456 for the period ended October 31, 1995. If such fees were not
waived, the per share effect on net investment income would have been a
decrease of $0.03 and the expense ratio would have been 5.95% (annualized).
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
22
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Travelers Series Fund Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the AIM Capital Appreciation Portfolio
of Travelers Series Fund Inc. as of October 31, 1996, the related statement of
operations for the year then ended and the statements of changes in net assets
and financial highlights for the year then ended and for the period from October
10, 1995 (commencement of operations) to October 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. As to securities
purchased or sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the AIM Capital Appreciation Portfolio of Travelers Series Fund Inc.
as of October 31, 1996, the results of its operations for the year then ended
and the changes in its net assets and financial highlights for the year then
ended and for the period from October 10, 1995 to October 31, 1995, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
December 12, 1996
23
<PAGE>
[This page intentionally left blank]
<PAGE>
TRAVELERS SERIES
FUND INC.
DIRECTORS
Victor K. Atkins
Jessica M. Bibliowicz
A.E. Cohen
Alger B. Chapman
Robert A. Frankel
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
James M. Shuart
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President
James B. Conheady
Vice President
Martin Hanley
Vice President
Jeffrey J. Russell
Vice President
Bruce D. Sargent
Vice President
Phyllis Zahorodny
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- -----------------------------------
A Member of TravelersGroup[LOGO]
INVESTMENT MANAGER
Travelers Investment Adviser, Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
PNC Bank, N.A.
ANNUITY ADMINISTRATION
Travelers Annuity Investor Services
5 State House Square
1 Tower Square
Hartford, CT 06183
This report is submitted for the general information of the shareholders of the
Travelers Series Fund Inc. -- AIM Capital Appreciation Portfolio. It is not
authorized for distribution to prospective investors unless accompanied or
preceded by a current Prospectus for the Portfolio, which contains information
concerning the Portfolio's investment policies and expenses as well as other
pertinent information.
TRAVELERS SERIES FUND INC.
388 Greenwich Street
New York, New York 10013
IN0794 12/96
ANNUAL REPORT
1996
1996
1996
1996
1996
TRAVELERS SERIES
FUND INC.
SMITH BARNEY HIGH INCOME
PORTFOLIO
PUTNAM DIVERSIFIED INCOME
PORTFOLIO
- -------------------------
October 31, 1996
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
- --------------------------------------------------------------------------------
Smith Barney High Income and
Putnam Diversified Income Portfolios
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide you with the annual report for the Travelers Series
Fund Inc. for the year ended October 31, 1996. This report covers the Smith
Barney High Income and Putnam Diversified Income Portfolios (the "Portfolios").
In this report, we have summarized the period's prevailing economic and market
conditions and briefly outlined each Portfolio's investment strategy. A detailed
summary of each Portfolio's performance and current holdings can be found in the
appropriate sections that follow in the annual report.
Market and Economic Overview
The past year has seen a high degree of investor uncertainty surrounding both
the U.S. economy and the U.S. financial markets, particularly the bond market.
The period from October 1995 through January 1996 was characterized by low
inflation, somewhat weaker U.S. economic growth and a strong rally in the bond
market. All signs pointed to a weaker economy, which is generally positive for
the bond market, and there was a growing consensus that the Federal Reserve
Board (the Fed) would probably lower interest rates. However, economic data
released by the U.S. government late in the first quarter and the second quarter
of 1996 indicated that the U.S. economy was growing at a stronger rate than
previously expected. For example, non-farm payrolls grew by an average of
206,000 jobs a month for the first ten months of 1996 compared to 185,000 jobs
for the same period in 1995, and the unemployment rate dropped to a seven-year
low of 5.1% in August. The economy, as measured by Gross Domestic Product
("GDP"), grew 4.7% during second quarter and an average of 3.5% for the first
half of 1996.
The strength in the U.S. economy during the first half of 1996 heightened
investor concerns over inflation, which caused bond market volatility to
increase significantly over the period. The yield on the 30-year U.S. Treasury
bond rose more than a full percent from 6% at year-end 1995, peaking at 7.20% in
mid-July.
After expanding considerably during the second quarter of 1996, the U.S. economy
has taken a breather during the third quarter. The U.S. government reported that
third quarter GDP growth was measured at 2.1%, down from 4.7% for the second
quarter of 1996. Consumer spending and residential construction spending slowed,
net exports remained even with the previous quarter, and inventories rose during
the third quarter. Despite this evidence of an economic slowdown, there are
still areas of growth within the U.S.
1
economy. For example, job growth is healthy and wages continue to rise. In
addition, housing activity and auto sales have remained surprisingly resilient
despite higher interest rates.
Because of the uncertainty surrounding the future direction of the U.S. economy,
the bond markets have continued to experience significant volatility. This
heightened volatility had been confined to a narrow trading range of 6.75% to
7.20% on 30-year U.S. Treasury yields since April. However, bond yields have
declined rapidly since the end of September on reports that inflation seems to
be non-existent within the U.S. economy, as well as the announcement that the
Fed left rates unchanged at its September 24 Federal Open Market Committee
meeting; and rates have continued to fall since the November elections.
We believe that bond market investors will continue to closely monitor U.S.
economic data for signs of whether the rate of economic growth will continue to
moderate, or whether the U.S. economy's growth rate will accelerate during the
final quarter of 1996. In either case, we believe that the Fed will likely
remain on the sidelines until a more definitive picture emerges on the state of
the U.S. economy.
Portfolio Highlights
Smith Barney High Income Portfolio
Despite recent pressures on the U.S. Treasury bond market, the high yield bond
market has turned in a solid performance over the past twelve months. A
combination of strong cash flows into high yield mutual funds, which have
outperformed all other fixed income funds year-to-date, a slowing new issue
calendar and investors seeking higher yields have all contributed to the high
yield bond market's strong performance. In addition, the current slow, steady
growth rate of the U.S. economy is ideal for the high yield bond market because
a stronger economy can potentially contribute to the financial strength of
companies that issue high yield debt, and increases the likelihood that these
companies will be able to meet their debt obligations.
During the 12-month period covered by this report, the Smith Barney High Income
Portfolio ("Portfolio") had a total return of 12.17%. In comparison, the high
yield mutual fund average 1-year total return was 12.33%, as reported by Lipper
Analytical Services, an independent fund tracking organization. We believe that
relative to its peer group, the Portfolio's conservative intermediate average
maturity, along with its conservative credit quality, contributed to its slight
underperformance. However, we continue to believe that over time, our relatively
conservative maturity and credit-quality investment strategy of concentrating on
improving high yield credits rated B/B and BB/Ba will generate more consistent,
less volatile returns over the long term.
2
Another key element of the Portfolio's investment strategy has been to reduce
and/or upgrade cyclical holdings, and to emphasize stronger, better capitalized
companies, as well as companies within industries that we believe have excellent
growth prospects. In our view, increasing worldwide demand for oil and gas
should cause prices to continue to rise. We therefore believe the energy sector
offers excellent investment opportunities, and we will look to increase our
holdings in this sector. In addition, we believe the telecommunications, cable
TV, technology and media industries all have the potential to grow
substantially. Because of our positive outlook on these industries, we have
continued to add to our existing positions in companies such as Calpine (an
independent power producer), Intelcom Group (a telecommunications company), and
Intermedia Communications (a Southeastern communications company). One new
addition to the Portfolio's core holdings during the period covered by this
report is First Nationwide, a bank holding company based on the West Coast.
Despite the strong performance of the high yield bond market in the past twelve
months, we still expect a short-term market pullback, especially in light of the
uncertainty surrounding the U.S. economy and the increased level of new high
yield bond issues. In anticipation of this short-term pullback, we became more
defensive by eliminating or reducing several holdings. Included in this group
are Harvard Industries, Dan River and Farm Fresh, which are all companies that
have weaker credit ratings, have underperformed, and that we believe have
deteriorating outlooks. We eliminated our position in Station Casinos to reduce
the Portfolio's exposure to the gaming industry which we believe is facing
increasing competitive pressures.
Although the pace of economic growth in the U.S. has slowed during the past
quarter, we believe that growth remains in a comfortable range and we anticipate
that inflation will stay at its current level of roughly 2.5% to 3.0%. In
addition, we expect the bond markets to trade in a narrow range with no major
moves in either direction. This "Goldilocks" economy- not too hot and not too
cold- is ideal for the high yield investor. Consequently, it is not surprising
that over the past twelve months, the high yield bond market has generated
superior investment results compared to other types of bonds. Going forward, we
do not expect to see any major interest rate moves or changes in the U.S. bond
markets for the remainder of 1996.
Putnam Diversified Income Portfolio
During the period covered by this report, the Putnam Diversified Income
Portfolio (the "Portfolio") has continued to achieve its investment objectives.
For the year ended October 31, 1996, the Portfolio posted a total return of
9.43% versus its peer group average total return of 8.39%, as reported by
3
Lipper Analytical Services Inc. (Lipper is an independent fund tracking
organization.) Our investment strategy during the fiscal year of focusing on
high-yield and international bonds, and de-emphasizing U.S. government
securities, was essential to the Portfolio's resilience during this period of
increased bond market volatility. As of October 31, 1996, 32% of the Portfolio's
assets were allocated in U.S. government and mortgage securities, 39% in
high-yield bonds, and 29% in international bonds.
During the twelve-month period covered by this report, we continued to reduce
the Portfolio's allocation in core cyclical issues, a strategy we first
implemented toward the middle of 1995 as the U.S. economy showed signs of slower
growth. Cyclical companies, in the chemical, paper and automotive industries,
are appropriately named because their performance typically shadows the behavior
of the economy, rising and falling along with the pace of economic growth. At
the same time, we added to the Portfolio's holdings of more growth-oriented
companies in sectors such as telecommunications -- the industry with the largest
representation in the Portfolio -- and other media groups such as television and
radio.
Among the Portfolio's holdings, MFS Communications, Teleport Communications and
Brooks Fiber Properties, three competitive local exchange carriers, were among
the strongest performers during the period covered by this report. Elsewhere in
the high-yield sector, the Portfolio benefited from its investments in the
banking industry. First Nationwide Holdings, one of the Portfolio's key
holdings, merged with California Federal Bank; the consolidation gave the newly
merged company a substantial share of the California banking market. Berkeley
Federal also contributed to the Portfolio's performance.
As with the high yield sector, the Portfolio's investments in international
bonds contributed substantially to its performance during the period under
review. While the international bond markets generally delivered positive
returns, our emphasis on country selection and currency management allowed the
Portfolio to earn competitive returns from its international holdings.
In the international sector, we focused on European government bonds. Early in
the fiscal year, we emphasized bonds of higher yielding markets, such as Italy
and Spain, rather than core European countries. Since that time, these and most
other European countries have focused their efforts on reining in fiscal budgets
in order to gain acceptance into the European Monetary Union (EMU), which plans
on creating a single currency among member nations. As a result of these
efforts, Italy, Spain and Sweden have driven down both inflation and bond
yields. As yields declined, the Portfolio's holdings in these markets benefited
from price appreciation.
4
A similar trend took place in Canada and Australia. In those markets, bond
yields at the outset of the fiscal period were considerably higher than those in
the United States. Interest rates have fallen considerably since then, narrowing
the yield spreads relative to U.S. Treasury bonds.
We increased the Portfolio's holdings in emerging markets securities, which
enjoyed solid gains throughout much of the period under review. The bond markets
in Russia and Poland benefited from upgraded credit ratings in recent months,
and our investments in these markets added to the Portfolio's total return.
Similarly our investments in Mexico and Argentina boosted performance.
Our currency strategy involved hedging international bonds back to the U.S.
dollar in an effort to protect the Portfolio's value from losses due to currency
fluctuations. This hedging strategy helped protect the value of the Portfolio's
investments as several European currencies declined in value against the U.S.
dollar.
When the bond market declined abruptly earlier this year, the market for
mortgage-backed securities was affected dramatically. The rise in interest rates
drove down the values of mortgage-backed securities and reduced prepayment risk
(because higher interest rates made mortgage refinancings less attractive to
mortgage holders). At that time, we quickly exchanged a considerable portion of
the Portfolio's U.S. Treasury holdings for mortgage-backed securities before the
market adjusted to these developments. As the year progressed, the yield spread
on mortgage-backed securities relative to Treasuries narrowed, allowing
mortgage-backed securities to outperform Treasuries in terms of both price
appreciation and income.
Our outlook for the coming months reflects what we have seen during much of this
year: moderate economic growth, low inflation and interest rates that move
within a relatively limited range. For this reason, we anticipate that the
sectors and securities that have served the Portfolio well in recent months
should continue to do so into the beginning of 1997. We plan to maintain the
Portfolio's considerable weighting in high yield bonds to take advantage of
higher corporate earnings and allow the Portfolio to grow while interest rates
hopefully remain stable. Among the international bond markets, we expect to
continue to invest in countries whose inflation rates are declining. We will
look to exploit the European markets as progress toward the EMU creates
additional investment opportunities.
5
If, as some economists predict, the rate of U.S. economic growth begins to slow
in the coming months, interest rates will likely decline once again. For this
reason, we expect to maintain a longer-than-average portfolio duration to enable
the Portfolio to participate in any corresponding potential price appreciation
among government bonds.
In closing, thank you for investing in the Smith Barney High Income and Putnam
Diversified Income Portfolios. We look forward to continuing to help you achieve
your financial goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and
Chief Executive Officer
November 12, 1996
6
================================================================================
Historical Performance -- Smith Barney High Income Portfolio
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $11.26 $12.09 $0.50 $0.00 12.17%
- --------------------------------------------------------------------------------
10/31/95 10.07 11.26 0.22 0.00 14.30
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.07 0.00 0.00 0.70+++
================================================================================
Total $0.72 $0.00
================================================================================
</TABLE>
================================================================================
Historical Performance -- Putnam Diversified Income Portfolio
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $11.46 $11.99 $0.39 $0.13 9.43%
- --------------------------------------------------------------------------------
10/31/95 10.18 11.46 0.09 0.00 13.55
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.18 0.00 0.00 1.80+++
================================================================================
Total $0.48 $0.13
================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
================================================================================
Average Annual Total Return+
================================================================================
<TABLE>
<CAPTION>
Smith Barney Putnam
High Diversified
Income Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
Year Ended 10/31/96 12.17% 9.43%
- --------------------------------------------------------------------------------
6/16/94* through 10/31/96 11.34 10.39
================================================================================
</TABLE>
================================================================================
Cumulative Total Return+
================================================================================
<TABLE>
<CAPTION>
Smith Barney Putnam
High Diversified
Income Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
6/16/94* through 10/31/96 29.12% 26.50%
================================================================================
</TABLE>
+ Assumes the reinvestment of all dividends and capital gains distributions.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
* Commencement of operations.
7
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
Smith Barney High Income Portfolio vs.
Salomon Brothers Intermediate High Yield Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement period Smith Barney Salomon Brothers Intermediate
(Fiscal year Covered) High Income Portfolio High Yield Index
- --------------------- --------------------- -----------------------------
<S> <C> <C>
06/16/94 $ 10,000 $ 10,000
10/94 $ 10,070 $ 10,113
10/95 $ 11,510 $ 11,723
10/96 $ 12,912 $ 12,690
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the High Income
Portfolio on June 16, 1994 (commencement of operations), assuming
reinvestment of dividends and capital gains, if any, at net asset value
through October 31, 1996. The Salomon Brothers Intermediate High Yield Index
is comprised of 434 issues, both cash-pay and deferred interest bonds with a
remaining maturity of at least seven years, but less than ten years. The
bonds are all public, non-convertible issues with at least $50 million
outstanding. The index is unmanaged and is not subject to the same management
and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
8
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
Putnam Diversified Income Portfolio vs. Lehman Brothers
Aggregate Bond Index and Salomon Brothers
Non-U.S. World Government Bond Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Salomon Brothers Non-
Measurement period Putnam Diversified Aggregate Bond U.S. World Government
(Fiscal year Covered) Income Portfolio Index Bond Index-Unhedged
- --------------------- ------------------ --------------- ---------------------
<S> <C> <C> <C>
06/16/94 $ 10,000 $ 10,000 $ 10,000
10/94 $ 10,554 $ 10,052 10,180
10/95 $ 12,155 $ 11,626 11,560
10/96 $ 12,818 $ 12,305 12,650
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the Putnam
Diversified Income Portfolio on June 16, 1994 (commencement of operations),
assuming reinvestment of dividends and capital gains, if any, at net asset
value through October 31, 1996. The Lehman Brothers Aggregate Bond Index is
comprised of over 6,500 issues of U.S. Treasuries, Agencies, Corporate
Bonds and Mortgage-Backed Securities. The Salomon Brothers Non-U.S. World
Government Bond Index Unhedged is comprised of fixed rate bonds with a
maturity of one year or longer, and at least $25 million outstanding. This
index includes securities from 10 countries, providing a comprehensive
measure of the total return performance of the domestic bond markets in
each country included, as well as the ten combined countries. These indexes
are unmanaged and are not subject to the same management and trading
expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
9
================================================================================
Schedules of Investments October 31, 1996
================================================================================
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
CORPORATE BONDS AND NOTES -- 89.2%
Aerospace/Defense -- 2.4%
$ 500,000 BB Airplanes Pass Through Trust Corporate Collateralized,
Mortgage Obligation, Series D, 10.875% due 3/15/19 $ 542,500
350,000 B Howmet Corp., Sr. Sub. Notes, 10.000% due 12/1/03 376,250
350,000 B Tracor Inc., Sr. Sub. Notes, 10.875% due 8/15/01 372,750
300,000 B UNC Inc., Sr. Sub Notes, 11.000% due 6/1/06+ 316,500
- ----------------------------------------------------------------------------------------
1,608,000
- ----------------------------------------------------------------------------------------
Broadcasting -- 16.2%
825,000 NR Australis Holding Ltd., Sr. Discount Notes,
step bond to yield 15.034% due 11/1/02+ 463,031
1,000,000 NR Australis Media Ltd., Sr. Sub Discount Notes,
step bond to yield 11.739% due 5/15/03+++ 585,000
Bell Cablemedia, Sr. Discounts Notes:
1,050,000 BB- Step bond to yield 14.163% due 7/15/04 866,250
775,000 BB- Step bond to yield 11.702% due 9/15/05 581,250
Cablevision Systems Corp., Sr. Sub. Debentures:
725,000 B 10.750% due 4/1/04 735,875
700,000 B 9.875% due 2/15/13 661,500
900,000 B Comcast UK Cable, Sr. Unsecured Discount Debentures,
step bond to yield 11.184% due 5/15/03 585,000
450,000 Ba3* Le Groupe Videotron, Sr. Notes, 10.625% due 2/15/05 492,750
1,050,000 B Marcus Cable Capital Corp., Sr. Discount Notes,
step bond to yield 11.098% due 8/1/04 787,500
925,000 B NWCG Holding, Sr. Discount Notes, zero coupon bond
to yield 11.611% due 6/15/99 758,500
Rogers Cablesystems:
Sr. Debentures:
450,000 BB- 10.875% due 4/15/04 463,500
500,000 BB+ 9.650% due 1/15/14 357,915
375,000 BB+ Sr. Secured Second Priority Debentures,
10.000% due 12/1/07 378,750
450,000 BB- Sr. Sub. Debentures, 11.000% due 12/1/15 462,375
300,000 BB- SCI Television Inc., Sr. Secured Notes,
11.000% due 6/30/05 320,625
400,000 B- SFX Broadcasting, Sr. Sub. Notes, 10.750% due 5/15/06 412,000
800,000 B3* United International Holdings Inc., Australia/Pacific,
Sr. Discount Notes, step bond to yield 14.000%
due 5/15/06 418,000
1,500,000 B- United International Holdings Inc., Sr. Discount Notes,
zero coupon bond to yield 12.845% due 11/15/99 1,027,500
400,000 B+ Videotron Holdings PLC, Sr. Discount Notes,
step bond to yield 10.659% due 8/15/05 290,500
250,000 B- Wireless One Inc., Sr. Notes, 13.000% due 10/15/03 258,750
- ----------------------------------------------------------------------------------------
10,906,571
- ----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Building/Construction -- 0.6%
$ 350,000 BB- American Standard Inc., Sr. Sub. Debentures,
11.375% due 5/15/04 $ 378,875
- ------------------------------------------------------------------------------------------
Chemical -- 2.8%
500,000 B NL Industries, Sr. Secured Notes, zero coupon bond
to yield 12.280% due 10/15/05 411,250
500,000 BB Pt. Polysindo Eka Perkasa, Sr. Secured Notes,
13.000% due 6/15/01 553,750
400,000 B Spinnaker Industries Inc., Sr. Notes, 10.750% due 10/15/06 408,000
500,000 B+ Terra Industries, Inc., Sr. Notes, 10.500% due 6/15/05+ 537,500
- ------------------------------------------------------------------------------------------
1,910,500
- ------------------------------------------------------------------------------------------
Communications -- 18.8%
400,000 B3* All American Communications, Inc., Sr. Sub Notes,
10.875% due 10/15/01 397,000
1,600,000 B- Allbritton Communications Corp., Sr. Sub. Debentures,
11.500% due 8/15/04 1,676,000
1,500,000 B3* Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 12.523% due 12/15/05 945,000
400,000 CCC- Dial Call Communications, Inc., Sr. Discount Notes,
step bond to yield 12.914% due 4/15/20 267,000
300,000 B+ Fonorola Inc., Sr. Secured Notes, 12.500% due 8/15/02 327,000
450,000 NR Intelcom Group Inc., Sr. Discount Notes, step bond
to yield 12.030% due 5/1/06 273,375
1,000,000 B- Intermedia Communications of Florida, Sr. Discount
Unsecured Notes, step bond to yield 11.807% due 5/1/06 620,000
950,000 B- Millicom International Cellular S.A., Sr. Discount Notes
step bond to yield 13.500% due 6/1/06 541,500
1,000,000 B- Mobile Telecommunications Tech. Corp., Sr. Notes,
13.500% due 12/15/02 1,017,500
1,500,000 CCC- Nextel Communications, Sr. Discount Notes, step bond
to yield 10.837% due 8/15/04 956,250
750,000 NR Nextlink Communications, Sr. Notes, 12.500% due 4/15/06 766,875
750,000 CCC+ Omnipoint Corp., Sr. Notes, 11.625% due 8/15/06+ 766,875
275,000 NR Pagemart Inc., Sr. Discount Notes, step bond to yield
11.643% due 11/1/03+ 215,875
500,000 NR Pagemart Nationwide, Inc., Sr. Discount Notes, step bond
to yield 10.950% due 2/1/02 338,750
500,000 B1* Price Cellular Wire, Sr. Notes, 10.750% due 11/1/04 505,000
700,000 NR RSL Communications Ltd., 12.500% due 11/15/06 707,000
1,600,000 B1* Teleport Communications, Sr. Discount Notes
step bond to yield 12.405% due 10/1/06 1,032,000
1,000,000 BB Telewest Communications, Sr. Discount Debentures
step bond to yield 10.859% due 10/1/07 641,250
</TABLE>
11
See Notes to Financial Statements.
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Communications -- 18.8% (continued)
$ 600,000 B- USA Mobile Communication, Inc., Sr. Notes, 14.000%
due 11/1/04 $ 672,000
- ------------------------------------------------------------------------------------------
12,666,250
- ------------------------------------------------------------------------------------------
Consumer Durables -- 1.2%
400,000 B+ International Semi-Tech Corp., Sr. Secured Discount
Notes, step bond to yield 12.673% due 8/15/03 247,000
300,000 B Mettler Toledo Inc., Notes, 9.750% due 10/1/06 306,750
250,000 B- TAG-Heuer International, Inc., Sr. Sub Notes, 12.000%
due 12/15/05 285,000
- ------------------------------------------------------------------------------------------
838,750
- ------------------------------------------------------------------------------------------
Diversified and Conglomerate Manufacturing -- 1.6%
450,000 B3* Interlake Corp., Sr. Sub. Debentures, 12.125% due 3/1/02 464,625
600,000 B Unifrax Investment Corp., Sr. Notes, 10.500% due 11/1/03 612,000
- ------------------------------------------------------------------------------------------
1,076,625
- ------------------------------------------------------------------------------------------
Electric Utilities -- 0.0%
19,395 BB- Midland Cogeneration Venture Limited Partnership,
Midland Funding, Debentures, Sr. Secured Lease
Obligation Bond, Series C, 10.330% due 7/23/02 20,608
- ------------------------------------------------------------------------------------------
Electronics and Computers -- 3.6%
500,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05 542,500
Unisys Corp., Sr. Notes:
800,000 B+ 12.000% due 4/15/03 822,000
1,000,000 B+ 11.750% due 10/15/04 1,025,000
- ------------------------------------------------------------------------------------------
2,389,500
- ------------------------------------------------------------------------------------------
Financial & Insurance -- 3.0%
700,000 B2* Intertek Finance, PLC, Sr. Sub. Notes,
10.250% due 11/1/06 708,750
750,000 B+ Ocwen Financial Corp., Notes, 11.875% due 10/1/03 798,750
500,000 B- Outsourcing Solutions, Sr. Sub. Notes,
11.000% due 11/1/06 505,000
- ------------------------------------------------------------------------------------------
2,012,500
- ------------------------------------------------------------------------------------------
Food -- 2.7%
500,000 B2* International Home Foods, Sr. Sub Notes,
10.375% due 11/1/06 505,000
750,000 BB- TLC Beatrice International, Inc., Sr. Secured Notes,
11.500% due 10/1/05 789,375
450,000 B- Van de Kamp, Inc., Sr. Sub. Notes, 12.000% due 9/15/05+ 491,625
- ------------------------------------------------------------------------------------------
1,786,000
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Grocery and Convenience Stores -- 1.2%
$ 135 B- Kash-N-Karry, Sr. Notes, 11.500% due 2/1/03 $ 135
800,000 B- Pathmark Stores Inc., Debentures, 12.625% due 6/15/02 834,000
- ------------------------------------------------------------------------------------------
834,135
- ------------------------------------------------------------------------------------------
Healthcare -- 0.7%
250,000 B Magellan Health Services, Sr. Sub Notes,
11.250% due 4/15/04 273,125
150,000 B OrNda Healthcorp, Sr. Sub. Notes, 12.250% due 5/15/02 161,062
- ------------------------------------------------------------------------------------------
434,187
- ------------------------------------------------------------------------------------------
Hotel, Casinos and Gaming -- 3.5%
450,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04 498,375
455,000 BB Bally's Grand, 1st Mortgage Notes, 10.375% due 12/15/03 503,913
500,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08 518,750
200,000 NR Mohegan Tribal Gaming Authority, Sr. Secured Notes,
13.500% due 11/15/02 256,000
500,000 B Showboat Inc., Sr. Sub. Notes, 13.000% due 8/1/09 570,000
- ------------------------------------------------------------------------------------------
2,347,038
- ------------------------------------------------------------------------------------------
Leisure -- 0.4%
240,646 NR Gillette Holdings, Inc., Sr. Sub. Notes,
12.250% due 6/30/02 252,077
- ------------------------------------------------------------------------------------------
Machinery -- 0.8%
525,000 B- Alvey Systems, Inc., Sr. Sub Notes, 11.325% due 1/31/03 549,938
- ------------------------------------------------------------------------------------------
Metals and Mining -- 8.6%
500,000 B- Commonwealth Aluminum Co., Sr. Sub. Notes,
10.750% due 10/1/06+ 506,250
500,000 B- Haynes International, Inc., Sr. Notes, 11.625% due 9/1/04 520,000
1,600,000 B- Ivex Holdings Corp., Debentures, step bond to yield
12.809% due 3/15/05 1,152,000
1,800,000 CCC+ Kaiser Aluminum and Chemical, Sr. Sub. Notes,
12.750% due 2/1/03 1,863,000
500,000 B Renco Metals Inc., Sr. Unsecured Notes,
11.500% due 7/1/03 525,000
400,000 B Russell Metals, Sr. Notes, 10.250% due 6/15/00 394,000
740,000 BB- UCAR Global Enterprises Inc., Sr. Sub. Notes,
12.000% due 1/15/05 854,700
- ------------------------------------------------------------------------------------------
5,814,950
- ------------------------------------------------------------------------------------------
Oil and Natural Gas -- 5.3%
850,000 B+ Clark USA Inc., Sr. Notes, 10.875% due 12/1/05 878,687
550,000 BB- Global Marine, Sr. Secured Notes, 12.750% due 12/15/99 590,563
600,000 B- Kelley Oil & Gas Corp., Sr. Notes, 10.375% due 10/15/06 602,250
1,000,000 B+ R&M Clark Holdings, Sr. Guaranteed Notes,
zero coupon bond to yield 10.461% due 2/15/00 717,500
</TABLE>
See Notes to Financial Statements.
13
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Oil and Natural Gas -- 5.3% (continued)
$ 500,000 BB- Santa Fe Energy Resources, Sr. Sub. Debentures,
11.000% due 5/15/04 $ 553,750
200,000 B United Meridian Corp., Sr. Sub. Guaranteed Notes,
10.375% due 10/15/05 214,000
- ------------------------------------------------------------------------------------------
3,556,750
- ------------------------------------------------------------------------------------------
Other Utilities -- 0.6%
400,000 B+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06 418,000
- ------------------------------------------------------------------------------------------
Paper and Printing -- 7.5%
341,000 B- American Pad & Paper, Sr. Sub. Notes,
13.000% due 11/15/05 395,560
550,000 B Crown Paper Corp., Sr. Sub. Notes, 11.000% due 9/1/05 519,750
750,000 B Goss Graphic Systems, Inc., Sr. Sub. Notes,
12.000% due 10/15/06 755,625
800,000 BB Indah Kiat International Finance Co., Secured Notes,
11.875% due 6/15/02 860,000
1,800,000 B+ SD Warren Co., Sr. Sub. Notes, 12.000% due 12/15/04 1,944,000
500,000 BB Tjiwi Kimia Industries, Sr. Guaranteed Notes,
13.250% due 8/1/01 566,250
- ------------------------------------------------------------------------------------------
5,041,185
- ------------------------------------------------------------------------------------------
Personal Care -- 2.1%
500,000 B- Revlon Consumer Products Corp., Sr. Sub. Notes,
10.500% due 2/15/03 520,000
1,000,000 B- Revlon Worldwide Corp., Sr. Secured Discount Notes,
zero coupon bond to yield 21.340% due 3/15/98 882,500
- ------------------------------------------------------------------------------------------
1,402,500
- ------------------------------------------------------------------------------------------
Real Estate Development -- 4.1%
2,200,000 B First Nationwide Holdings, Sr. Notes,
12.500% due 4/15/03 2,387,000
325,000 BB- Trizec Finance, Sr. Notes, 10.875% due 10/15/05 352,219
- ------------------------------------------------------------------------------------------
2,739,219
- ------------------------------------------------------------------------------------------
Retail -- 0.8%
500,000 B+ Barnes and Noble, Sr. Sub Notes, 11.875% due 1/15/03 545,000
- ------------------------------------------------------------------------------------------
Tobacco -- 0.3%
165,000 B Consolidated Cigar Acquisition Corp., Sr. Sub. Notes,
10.500% due 3/1/03 172,425
- ------------------------------------------------------------------------------------------
Transportation -- 0.4%
250,000 BB- Sea Containers Limited, Sr. Sub. Debentures, Series A,
12.500% due 12/1/04 273,125
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $58,850,660) 59,974,708
==========================================================================================
</TABLE>
See Notes to Financial Statements.
14
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<C> <S> <C>
COMMON STOCKS -- 0.4%
Communications -- 0.0%
4,950 Clearnet Communications $ 32,175
- ------------------------------------------------------------------------------------------
Mining & Steel -- 0.4%
15,500 Freeport McMoRan Resources Partners, L.P. 269,313
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $365,378) 301,488
==========================================================================================
CONVERTIBLE PREFERRED STOCKS -- 0.6%
Automobiles and Trucking -- 0.6%
7,500 Navistar International, Series G, Convertible $6.00
(Cost-- $401,776) 415,313
==========================================================================================
PREFERRED STOCKS -- 0.8%
Healthcare and Pharmaceuticals -- 0.6%
28,325 Foxmeyer Health Corp., Series A, Payment-in-kind,
Exchange $4.20 (Formerly National Intergroup) 361,143
- ------------------------------------------------------------------------------------------
Telecommunications -- 0.2%
118 PanAmSat Corp., Series A, Exchange $31.875 145,889
- ------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost-- $893,789) 507,032
==========================================================================================
WARRANTS -- 0.0%
200 Nextel Communications, Inc., Expire 4/25/99 2
750 Wireless One Inc., Expire 10/15/03 5,250
- ------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost-- $3,240) 5,252
==========================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
==========================================================================================
REPURCHASE AGREEMENT -- 9.0%
$6,024,000 Chase Manhattan Bank, 5.470% due 11/1/96;
Proceeds at maturity-- $6,024,915;
(Fully collateralized by U.S. Treasury Notes,
5.548% due 10/16/97; Market value-- $6,144,480)
(Cost-- $6,024,000) 6,024,000
==========================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $66,538,843**) $67,227,793
==========================================================================================
</TABLE>
See Notes to Financial Statements.
15
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
U.S. GOVERNMENT SECTOR -- 31.6%
=========================================================================================
<C> <C> <S> <C>
U.S. Government & Agency Obligations 31.1%
$1,299,000 U.S. Treasury Note, 5.750% due 8/15/03 $ 1,266,148
2,070,000 U.S. Treasury Note, Stripped Principal Payment only,
due 5/15/04++ 1,290,190
3,435,000 U.S. Treasury Note, 7.000% due 7/15/06++ 3,589,403
1,550,000 U.S. Treasury Note, 6.500% due 10/15/06++ 1,565,733
1,825,000 U.S. Treasury Bond, 7.875% due 2/15/21++ 2,068,218
484,627 FNMA, 7.000% due 7/1/25 475,842
27,487 FNMA, 7.000% due 10/1/25 26,989
360,418 FNMA, 7.000% due 12/1/25 353,884
195,097 FNMA, 7.000% due 2/1/26 191,561
864,659 FNMA, 7.000% due 4/1/26 848,984
2,628,668 FNMA, 7.500% due 7/1/26 2,635,242
35,661 FNMA, 8.000% due 5/1/26++ 36,408
882,727 FNMA, 8.000% due 6/1/26++ 901,203
1,938,420 FNMA, 8.000% due 7/1/26++ 1,978,991
990,000 FNMA, 8.000% due 10/1/26++ 1,010,720
206,746 GNMA, 7.000% due 8/14/25 202,934
487,315 GNMA, 7.500% due 9/15/25 489,143
891,708 GNMA, 7.500% due 10/15/25 895,052
287,507 GNMA, 7.500% due 11/15/25 288,586
987,433 GNMA, 7.000% due 1/15/26 969,225
1,695,956 GNMA, 7.500% due 1/15/26 1,702,316
822,289 GNMA, 7.000% due 3/15/26 807,127
685,627 GNMA, 7.000% due 4/15/26 672,985
90,316 GNMA, 7.000% due 5/15/26 88,652
470,748 GNMA, 7.500% due 6/15/26 472,514
- ------------------------------------------------------------------------------------------
24,828,050
- ------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations -- 0.5%
155,000 AAA Chemical Master Credit Card Trust, 6.230% due 6/15/03 155,313
255,000 AAA Sears Credit Account Master Trust, 6.050% due 2/15/04 247,508
- ------------------------------------------------------------------------------------------
402,821
- ------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR
(Cost-- $24,887,763) 25,230,871
==========================================================================================
HIGH YIELD SECTOR -- 38.1%
==========================================================================================
CORPORATE DEBENTURES -- 36.9%
Advertising-Communications -- 0.1%
15,000 B Outdoor Systems Inc., Sr. Notes, 9.375% due 10/15/06 14,925
80,000 B- Universal Outdoor Inc., Sr. Notes, 9.750% due 10/15/06 79,200
- ------------------------------------------------------------------------------------------
94,125
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Automotive -- 1.0%
$ 125,000 B3* Aftermarket Technology, Sr. Sub. Notes, 12.000%
due 8/1/04+ $ 137,813
100,000 B A.P.S. Inc., Guaranteed Sr. Sub. Notes, 11.875%
due 1/15/06 107,250
30,000 B Blue Bird Body Co., Sr. Sub. Notes, 11.750%
due 4/15/02 30,750
55,000 B- CSK Auto Inc., Sr. Sub. Notes, 11.000%
due 11/1/06+ 55,962
25,000 B- Delco Remy International, Sr. Sub. Notes, 10.625%
due 8/1/06+ 25,875
150,000 B+ Exide Corp., Sr. Sub. Deferred Debentures, step bond to
yield 11.291% due 12/15/04 135,750
95,000 BB- Lear Corp., Sub. Notes, 9.500% due 7/15/06 100,225
230,000 NR MCII Holdings Inc., Sr. Secured Discount Notes,
step bond to yield 12.630% due 11/15/02 183,425
20,000 B+ Speedy Muffler King Inc., Sr. Notes, 10.875%
due 10/1/06 20,550
- ------------------------------------------------------------------------------------------
797,600
- ------------------------------------------------------------------------------------------
Aviation Components -- 1.4%
130,000 B- BE Aerospace, Sr. Notes, 9.750% due 3/1/03 134,387
70,000 B+ Greenwich Air Inc., Sr. Notes, 10.500% due 6/1/06 73,675
275,000 BB Howmet Corp., Sr. Sub. Notes, 10.000% due 12/1/03 295,625
20,000 B- K&F Industries Inc., Sr. Sub. Discount Debentures,
10.375% due 9/1/04 20,650
Sequa Corp., Sr. Notes:
75,000 BB 9.625% due 10/15/99 77,625
20,000 BB 8.750% due 12/15/01 20,000
275,000 B Terex Corp., Sr. Secured Notes, 13.750% due 5/15/02+ 292,188
UNC Inc., Sr. Notes:
45,000 BB- 9.125% due 7/15/03 44,325
125,000 B- 11.000% due 6/1/06 130,938
- ------------------------------------------------------------------------------------------
1,089,413
- ------------------------------------------------------------------------------------------
Banking -- 0.5%
45,000 B+ Berkeley Federal Bank, Sub. Debentures, 12.000%
due 6/15/05 49,050
300,000 B First Nationwide, Sr. Exchange Notes, 12.500%
due 4/15/03 325,500
- ------------------------------------------------------------------------------------------
374,550
- ------------------------------------------------------------------------------------------
Brewers -- 0.2%
Canandaigua Wine, Sr. Sub. Notes:
100,000 B+ 8.750% due 12/15/03 95,500
75,000 B+ Series B, 8.750% due 12/15/03+ 71,625
- ------------------------------------------------------------------------------------------
167,125
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Broadcasting -- 1.7%
$ 125,000 B- Argyle Television, Sr. Sub. Notes, 9.750%
due 11/1/05 $ 124,688
250,000 NR Benedek Broadcasting, Sr. Notes, 13.379%
due 3/1/05 271,875
150,000 B- Granite Broadcasting, Sr. Sub. Notes, 9.375%
due 12/10/5 144,375
55,000 B Park Broadcasting, Sr. Notes, 11.750% due 5/15/04+ 63,250
100,000 B- Paxson Communications, Sr. Sub. Notes, 11.625%
due 10/1/02+ 103,000
183,000 NR Petracom Holdings, Sr. Discount Notes, Series B,
zero coupon bond to yield 5.880% due 2/1/03 157,380
100,000 BB+ Rogers Cablesystems of America Inc., Debentures,
10.125% due 9/1/12 100,750
250,000 B- SFX Broadcasting, Sr. Sub. Notes, Series B, 10.750%
due 5/15/06 257,500
150,000 NR Sullivan Broadcasting Inc., Sr. Sub. Notes, 10.250%
due 12/15/05 149,062
- ------------------------------------------------------------------------------------------
1,371,880
- ------------------------------------------------------------------------------------------
Building Materials -- 0.9%
100,000 BB Cemex Notes, 12.750% due 7/15/06+ 107,750
200,000 B Intercity Products Corp., Sr. Secured Notes, 9.750%
due 3/1/00 199,250
25,000 BB- Schuller International Group, Sr. Notes, 10.875%
due 12/15/04 27,625
150,000 B+ Southdown Inc., Sr. Sub. Notes, Series B, 10.000%
due 3/1/06 154,500
150,000 B Triangle Pacific Corp., Sr. Notes, 10.500%
due 8/1/03 156,938
50,000 CCC+ Waxman Industries, Sr. Secured Notes, Series B,
step bond to yield 12.973% due 6/1/04 35,875
- ------------------------------------------------------------------------------------------
681,938
- ------------------------------------------------------------------------------------------
Business Services -- 0.1%
100,000 B- Pierce Leahy Corp., Sr. Sub. Notes, 11.125% due 7/15/06+ 106,250
- ------------------------------------------------------------------------------------------
Casinos -- 2.6%
175,000 B+ Alliance Gaming, Sr. Secured Notes, 12.875% due 6/30/03 180,688
150,000 B+ Argosy Gaming, 1st Mortgage Notes, 13.250% due 3/15/04 145,125
75,000 BB Ballys Park Place Funding Inc., Guaranteed Mortgage Notes,
9.250% due 3/15/04 81,000
180,000 B Casino America Inc., 1st Mortgage Notes, 12.500%
due 8/1/03 184,500
45,000 B- Casino Magic, 1st Mortgage Notes, 13.000%
due 8/15/03+ 45,450
150,000 B Coast Hotels & Casinos Inc., 1st Mortgage Notes,
13.000% due 12/15/02 161,812
200,000 NR Colorado Gaming, Sr. Secured Notes, Payment-in-kind,
12.000% due 6/1/03 196,000
150,000 BB Empress River Casino Financial Corp., Guaranteed Sr. Notes,
10.750% due 4/1/02 160,313
75,000 B Fitzgerald Gaming Corp., Sr. Secured Notes, 13.000%
due 12/31/02 57,000
175,000 BB- Grand Casinos Inc., Guaranteed 1st Mortgage Notes,
10.125% due 12/1/03 172,156
50,000 B+ Greath Bay Property Funding, 10.875% due 12/1/03 45,875
25,000 B Harvey Casinos, Sr. Sub. Notes, 10.625% due 6/1/06 26,000
100,000 CCC Lady Luck Gaming Financial Corp., Guaranteed
1st Mortgage Note, 11.875% due 3/1/01 95,500
</TABLE>
See Notes to Financial Statements.
18
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Casinos -- 2.6% (continued)
$ 22,000 NR Louisiana Casino Cruises, 1st Mortgage, 11.500%
due 12/1/98 $ 21,285
125,000 B- Mohegan Tribal Gaming Authority, Sr. Secured Notes,
13.500% due 11/15/02 160,000
75,000 B- PRT Funding, Sr. Notes, 11.625% due 4/15/04 64,687
150,000 B+ Trump Atlantic City Associates, 1st Mortgage Notes,
11.250% due 5/1/06 142,500
115,000 B- Trump Hotel Casino Resorts Funding, Sr. Secured Notes,
15.500% due 6/15/05 133,113
- ------------------------------------------------------------------------------------------
2,073,004
- ------------------------------------------------------------------------------------------
Chemicals -- 1.6%
125,000 BB- Acetex Corp., Sr. Notes, 9.750% due 10/1/03 123,125
250,000 B+ Arcadian Partners LP, Sr. Notes, Series B, 10.750%
due 5/1/05 275,938
25,000 B- Astor Corp., Sr. Sub. Notes, 10.500% due 10/15/06 25,063
25,000 B- Freedom Chemical, Sr. Sub. Notes, 10.625% due 10/15/06+ 25,281
125,000 B+ Harris Chemical, Sr. Secured Notes, 10.250% due 7/15/01 127,500
200,000 B+ IMC Fertilizer, Sr. Debentures, 9.450% due 12/15/11 234,000
200,000 B+ ISP Holding, Sr. Notes, 9.750% due 2/15/02 206,500
150,000 B Magellan Health Services Inc., Sr. Sub. Notes, 11.250%
due 4/15/04 163,875
25,000 BB- Sifto Canada Inc., Guaranteed Secured Note, 8.500%
due 7/15/00 24,906
40,000 B+ Sterling Chemical Holdings, Sr. Secured Discount Notes,
step bond to yield 13.206% due 8/15/08 23,900
20,000 B Texas Petrochemical, Sr. Sub. Notes, 11.125% due 7/1/06 21,200
- ------------------------------------------------------------------------------------------
1,251,288
- ------------------------------------------------------------------------------------------
Computer Software Services -- 0.2%
150,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05 162,750
- ------------------------------------------------------------------------------------------
Conglomerates -- 0.4%
25,000 BB- ADT Group Limited, Sr. Sub. Notes, 9.250% due 8/1/03 25,938
20,000 B Cliffs Drilling Co., Sr. Notes, Series B,
10.250% due 5/15/03 20,750
20,000 B- Iron Mountain Inc., Sr. Sub. Notes, 10.125% due 10/1/06 20,550
150,000 NR MacAndrews and Forbes Holdings Inc., Sub. Debentures,
13.000% due 3/1/99 151,312
75,000 B Mafco Inc., Sr. Sub. Notes, 11.875% due 11/15/02 79,875
- ------------------------------------------------------------------------------------------
298,425
- ------------------------------------------------------------------------------------------
Construction -- 0.2%
150,000 B NVR Inc., Sr. Notes, 11.000% due 4/15/03 156,375
- ------------------------------------------------------------------------------------------
Consumer Products -- 0.9%
150,000 B+ Coty Inc., Guaranteed Sr. Sub. Notes, 10.250% due 5/1/05 160,125
90,000 BB- Ekco Group Inc., Sr. Notes, 9.250% due 4/1/06 84,600
200,000 B Herff Jones Inc., Sr. Sub. Notes, 11.000% due 8/15/05 212,500
255,000 A International Semi-Tech., Sr. Secured Discount Notes,
step bond to yield 13.332% due 8/15/03 157,462
35,000 B- Remington Product Co., Sr. Sub. Notes,
11.000% due 5/15/06+ 35,350
80,000 B- Selmer Co. Inc., Sr. Sub. Notes, 11.000% due 5/15/05 85,400
- ------------------------------------------------------------------------------------------
735,437
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Consumer Services -- 0.1%
$ 52,000 B+ Coinmach Corp., Sr. Notes, 11.750% due 11/15/05 $ 55,510
20,000 B- E&S Holdings Corp., Sr. Sub. Notes, 10.375% due 10/1/06+ 20,525
- ------------------------------------------------------------------------------------------
76,035
- ------------------------------------------------------------------------------------------
Containers -- 0.1%
55,000 CCC Ivex Holdings Corp., Sr. Sub. Notes, step bond to yield
11.011% due 3/15/05 39,600
25,000 B US Can Corp., Sr. Sub. Notes, 10.125% due 10/15/06+ 25,813
- ------------------------------------------------------------------------------------------
65,413
- ------------------------------------------------------------------------------------------
Defense -- 0.3%
200,000 B Alliant Techsystems Inc., Sr. Sub. Notes,
11.750% due 3/1/03 219,500
- ------------------------------------------------------------------------------------------
Electronics -- 0.0%
20,000 B Moog Inc., Sr. Sub. Notes, 10.000% due 5/1/06+ 20,350
- ------------------------------------------------------------------------------------------
Entertainment -- 1.5%
175,000 NR Act III, Sr. Sub. Notes, 11.875% due 2/1/03 190,313
Chelsea Piers Funding Corp.:
5,000 NR Discount Notes, Class B, step bond to yield 11.000%
due 6/15/09 4,675
50,000 NR 1st Mortgage Discount Notes, 12.500% due 6/15/04 46,750
85,000 B+ Cinemark USA Inc., Sr. Notes, 12.000% due 6/1/02 85,000
100,000 BB Players International Inc., Sr. Notes, 10.875% due 4/15/05 99,250
150,000 B+ Premier Parks, Sr. Notes, 12.000% due 8/15/03 162,000
250,000 B Six Flags, Sr. Sub. Discount Notes, Series A, step bond to
yield 7.958% due 6/15/05 226,250
Time Warner Inc., Notes:
15,000 BBB- 8.110% due 8/15/06 15,506
115,000 BBB- 8.180% due 8/15/07 119,169
275,000 BB- Viacom Inc., Sub. Debentures Exchangeable,
8.000% due 7/7/06 259,187
- ------------------------------------------------------------------------------------------
1,208,100
- ------------------------------------------------------------------------------------------
Financial Services -- 1.6%
50,000 BB AIM Management Group, Sr. Notes, 9.000% due 11/15/03 52,000
40,000 BB- Aames Financial Corp., Sr. Notes, 9.125% due 11/1/03 40,500
75,000 BB+ Centerbank, Sub. Notes, 8.375% due 10/1/02 80,063
200,000 B Chevy Chase Savings Bank, Sub. Notes, 9.250% due 12/1/05 209,500
55,000 BB+ Conti Financial Corp., Sr. Notes, 8.375% due 8/15/03 55,894
45,000 B2* Intertek Finance Inc., Sr. Sub. Notes, 10.250 due 11/1/06 45,000
185,000 BB- Keystone Group Inc., Sr. Note, 9.750% due 9/1/03 198,412
25,000 B+ Ocwen Financial Corp., Notes, 11.875% due 10/1/03 26,625
30,000 BB Olympic Financial Ltd., Sr. Notes, 13.000% due 5/1/00 33,150
24,254 NR PSF Finance LP, Sr. Secured Notes, Payment-in-kind,
12.250% due 9/17/03 24,618
</TABLE>
See Notes to Financial Statements.
20
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Financial Services -- 1.6% (continued)
$ 150,000 BB+ Tanger PPTYS Ltd. Partnership, Guaranteed Notes,
8.750% due 3/11/01 $ 145,688
300,000 BB Van Kampen Merrit, Sr. Secured Notes, 9.750% due 2/15/03 322,125
- ------------------------------------------------------------------------------------------
1,233,575
- ------------------------------------------------------------------------------------------
Foods -- 0.3%
200,000 B+ Chiquita Brands, Sr. Notes, 9.625% due 1/15/04 204,750
50,000 NR FRD Acquisition, Sr. Notes, 12.500% due 7/15/04 50,750
- ------------------------------------------------------------------------------------------
255,500
- ------------------------------------------------------------------------------------------
Gas/Oil Exploration -- 1.2%
100,000 B Benton Oil & Gas Co., Sr. Notes, 11.625% due 5/1/03 109,750
50,000 B+ Chesapeake Energy Corp., Sr. Notes, 9.125% due 4/15/06 50,625
275,000 AAA Flores & Rucks, Sr. Sub. Notes, 9.750% due 10/1/06 282,563
40,000 B- Kelley Oil & Gas Corp., Sr. Sub. Notes,
10.375% due 10/15/06 40,150
150,000 BB- Maxus Energy Corp., Notes, 9.500% due 2/15/02 151,125
150,000 BB- Trans Texas Gas, Sr. Notes, 11.500% due 6/15/02 158,250
70,000 CCC+ Transamerican Refinery, Guaranteed 1st Mortgage Discount
Notes, step bond to yield 18.268% due 2/15/02 52,500
25,000 BBB- Transcontinental Gas Pipeline, Debentures,
9.125% due 2/1/17 26,218
100,000 B+ Triton Energy, Sr. Sub. Discount Notes, step bond to yield
8.677% due 12/15/00 101,750
- ------------------------------------------------------------------------------------------
972,931
- ------------------------------------------------------------------------------------------
Healthcare Services -- 1.2%
65,000 BBB+ Columbia/HCA Healthcare, Term Notes, 7.580% due 9/15/25 65,975
100,000 B Dade International Inc., Sr. Sub. Notes,
11.125% due 8/1/06+ 106,500
120,000 B Genesis Health Ventures, Sr. Sub. Notes,
9.250% due 10/10/06 120,000
100,000 B Integrated Health Services, Sr. Sub. Notes, Series A, 9.625%
due 5/31/02 101,000
150,000 B- Ivac Corp., Sr. Notes, 9.250% due 12/1/02 157,500
70,000 B Paracelsus Healthcare Corp., Sr. Sub. Notes,
9.875% due 10/15/03 65,800
100,000 B+ Quorum Health Group, Sr. Sub. Notes, 8.750% due 11/1/05 100,750
Tenet Healthcare Corp., Sr. Notes:
50,000 BB- 9.625% due 9/1/02 54,875
100,000 B+ 10.125% due 3/1/05 110,000
100,000 B3* Wright Medical Technology Inc., Sr. Sub. Notes,
10.750% due 7/1/00 99,250
- ------------------------------------------------------------------------------------------
981,650
- ------------------------------------------------------------------------------------------
Hotels -- 0.9%
25,000 B Eldorado Resorts LLC, Sr. Sub. Notes, 10.500% due 8/15/06+ 26,312
135,000 BB- HMH Properties Inc., Sr. Notes, 9.500% due 5/15/05 136,350
275,000 BB- Host Marriot Travel Plazas Inc., Sr. Secured Notes,
Series B, 9.500% due 5/15/05 277,750
</TABLE>
See Notes to Financial Statements.
21
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Hotels -- 0.9% (continued)
$ 15,000 BB- John Q. Hammons Hotels LP, 1st Mortgage Notes,
8.875% due 2/15/04 $ 14,625
140,000 B- Presley Companies Delaware, Sr. Notes, 12.500% due 7/1/01 136,500
150,000 BB- Scotsman Group, Sr. Notes, 9.500% due 12/15/00 151,875
- ------------------------------------------------------------------------------------------
743,412
- ------------------------------------------------------------------------------------------
Industrial Goods & Services -- 0.1%
50,000 B- Merit Behavioral Care Corp., Sr. Sub. Notes,
11.500% due 11/15/05 52,438
- ------------------------------------------------------------------------------------------
Insurance -- 0.5%
150,000 B- American Life Holdings, Sr. Sub. Notes, 11.250% due
9/15/04 170,063
30,000 BBB Outsourcing Solutions, Sr. Sub. Notes, 11.000% due
11/1/06 30,000
Reliance Group Holdings Inc., Sr. Sub. Debentures:
148,000 BB+ 9.000% due 11/15/00 151,700
35,000 BB- 9.750% due 11/15/03 35,962
- ------------------------------------------------------------------------------------------
387,725
- ------------------------------------------------------------------------------------------
Manufacturing-Communications -- 0.0%
30,000 B+ Amphenol Corp., Sr. Sub. Notes, 12.750% due 12/15/02 33,150
- ------------------------------------------------------------------------------------------
Media-Cable -- 4.3%
Adelphia Communications Corp., Sr. Notes:
125,000 B 12.500% due 5/15/02 125,000
77,751 B Series B, 9.500% due 2/15/04 68,421
150,000 B Affinity Group, Sr. Sub. Notes, 11.500% due 10/15/03 155,813
150,000 B American Media Operation Inc., Sr. Sub. Notes,
11.625% due 11/15/04 150,937
American Telecasting Inc., Sr. Discount Notes:
70,000 CCC Step bond to yield 12.050% due 6/15/04 49,700
202,000 CCC+ Step bond to yield 12.220% due 8/15/05 123,725
Cablevision Systems Corp., Sr. Sub. Debentures:
25,000 B 9.875% due 2/15/13 23,625
100,000 B 10.500% due 5/15/16 97,500
150,000 B 9.875% due 4/1/23 139,125
140,000 BB- Century Communications Corp., Sr. Notes, 9.500% due 3/1/05 135,450
35,000 BB+ CF Cable Television Inc., Sr. Notes, 11.625% due 2/15/05 39,112
100,000 B- Chancellor Broadcasting, Sr. Sub. Notes, 9.375% due 10/1/04 98,250
250,000 B Charter Communications Southeast, Secured Debentures,
step bond to yield 14.000% due 3/15/07 151,250
250,000 B+ Comcast Corp., Sr. Sub. Notes, 9.500% due 1/15/08 248,750
200,000 B3* Commodore Media Inc., Sr. Sub. Notes, 7.500% due 5/1/03+ 206,500
61,940 NR Falcon Holdings Group Inc., Sr. Sub. Notes, Series B,
11.000% due 9/15/03 56,365
30,000 B Frontiervision, Sr. Sub. Notes, 11.000% due 10/15/06 29,850
</TABLE>
See Notes to Financial Statements.
22
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Media-Cable -- 4.3% (continued)
$ 25,000 B Heartland Wireless Communication Inc. Sr. Notes,
13.000% due 4/15/03 $ 26,875
125,000 B- Intermedia Communications, Sr. Notes, Series B,
13.500% due 6/1/05 142,813
360,000 B- International Cabletel Inc., Sr. Deferred Notes, Series
A, step bond to yield 11.580% due 2/1/06 218,700
20,000 B JCAC, Inc., Sr. Sub. Notes, 10.125% due 6/15/06 20,350
125,000 BB Jones Intercable Inc., Sr. Sub. Notes, 9.625% due 3/15/02 127,500
25,000 BB- K-III Communications Corp., Sr. Notes, 10.250% due 6/1/04 26,000
150,000 BB+ Lenfest Communications, Sr. Notes, 8.375% due 11/1/05 137,250
Marcus Cable Operating Co., Sr. Discount Notes:
100,000 B+ Step bond to yield 12.664% due 8/1/04 75,000
100,000 B Step bond to yield 11.574% due 12/15/05 66,500
50,000 BBB- Telecommunications Inc., Notes, 9.250% due 1/15/23 47,000
370,000 BB Telewest PLC, Sr. Discount Debentures, step bond to yield
11.246% due 10/1/07 237,263
220,000 B3* UIH Australia, Sr. Discount Notes, Series B, step bond to
yield 14.000% due 5/15/06 114,950
145,000 B+ Videotron Holdings PLC, Sr. Discount Notes, step bond to
yield 10.361% due 8/15/05 105,306
Wireless One Inc., Sr. Notes:
100,000 B- 13.000% due 10/15/03 103,500
145,000 B Step bond to yield 13.500% due 8/1/06 76,487
- ------------------------------------------------------------------------------------------
3,424,867
- ------------------------------------------------------------------------------------------
Metals -- 0.6%
150,000 BB- Great Lakes Carbon Corp., Sr. Secured Notes,
10.000% due 1/1/06 157,500
30,000 B Renco Metals, Inc., Sr. Notes, 11.500% due 7/1/03 31,500
45,000 B- Royal Oak Mines, Inc., Sr. Sub. Notes, 11.000% due
8/15/06+ 45,337
100,000 B+ UCAR Global Enterprises, Sr. Sub. Notes, 12.000% due
1/15/05 115,500
100,000 B Weirton Steel Corp., Sr. Notes, 11.375% due 7/1/04 100,500
- ------------------------------------------------------------------------------------------
450,337
- ------------------------------------------------------------------------------------------
Miscellaneous -- 0.5%
130,000 B- Day International Group Inc., Sr. Sub. Notes,
11.125% due 6/1/05 133,900
50,000 B- Integrated Device Technology Inc., Sub. Notes,
5.500% due 6/10/02 40,438
110,000 NR Interact Systems, Sr. Discount Notes, step bond to
yield 14.000% due 8/10/03+ 74,800
15,000 B Mettler Toledo Inc., Sr. Sub. Notes, 9.750% due 10/1/06 15,338
30,000 BB National Semiconductor, Convertible Debentures,
6.500% due 10/1/02+ 28,312
80,000 B+ Unysis Corp., Sr. Notes, 11.750% due 10/15/04 82,000
50,000 B Vlsi Technology, Sub. Notes, 8.250% due 10/1/05 48,000
- ------------------------------------------------------------------------------------------
422,788
- ------------------------------------------------------------------------------------------
Paper Packaging/Products -- 1.6%
100,000 BB APP International Finance Co., Guaranteed Secured Notes,
11.750% due 10/1/05 104,750
</TABLE>
See Notes to Financial Statements.
23
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Paper Packaging/Products -- 1.6% (continued)
Domtar, Inc.:
$ 60,000 BB+ Debentures, 9.500% due 8/1/16 $ 61,950
25,000 BB+ Sr. Notes, 8.750% due 8/1/06 25,375
105,000 B3* Florida Coast Paper, 1st Mortgage Notes,
12.750% due 6/1/03 111,562
75,000 B Gaylord Container Corp., Sr. Notes, 11.500% due 5/15/01 79,688
200,000 B- Ivex Packaging, Sr. Sub. Notes, 12.500% due 12/15/02 213,500
Printpack Inc., Sr. Notes, Series A:
30,000 BB- 9.875% due 8/15/04+ 30,900
15,000 B+ 10.625% due 8/15/06+ 15,487
50,000 Rainy River Forest, Sr. Secured Notes,
10.750% due 10/15/01 54,000
175,000 B+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05 178,063
Riverwood International:
50,000 B Sr. Notes, 10.250% due 4/1/06 48,375
200,000 B Sr. Sub. Notes, 10.875% due 4/1/08 184,000
150,000 B+ Stone Consolidated Corp., Sr. Secured Notes,
10.250% due 12/15/00 159,000
25,000 B+ Stone Container Corp., Sr. Sub. Notes,
11.500% due 10/1/04 26,250
- ------------------------------------------------------------------------------------------
1,292,900
- ------------------------------------------------------------------------------------------
Plastics -- 0.2%
85,000 B+ Key Plastics, Sr. Notes, 14.000% due 11/15/99 87,125
75,000 B+ Owens Illinois Inc., Sr. Sub. Notes, 9.750% due 8/15/04 77,437
- ------------------------------------------------------------------------------------------
164,562
- ------------------------------------------------------------------------------------------
Publishing -- 0.2%
50,000 B Marvel Holdings, zero coupon bond to yield
14.032% due 4/15/98 21,125
250,000 B Marvel Parent Holdings, Sr. Secured Discount Notes,
zero coupon bond to yield 13.452% due 4/15/98 100,000
25,000 BB- World Color Press Inc., Sr. Sub. Notes, 9.125% due 3/15/03 24,844
- ------------------------------------------------------------------------------------------
145,969
- ------------------------------------------------------------------------------------------
Recreation -- 0.1%
25,000 B Adams Outdoor Advertising Ltd., Sr. Notes,
10.750% due 3/15/06 26,062
20,000 B Cobblestone Golf Group, Sr. Notes, 11.500% due 6/1/03+ 20,650
35,000 B- Cobblestone Holdings, Sr. Notes, Series A,
zero coupon bond to yield 14.377% due 6/1/04+ 13,125
- ------------------------------------------------------------------------------------------
59,837
- ------------------------------------------------------------------------------------------
Retailers -- 2.5%
225,000 B Brylane LP/Brylane Cap. Corp., Sr. Sub. Notes A,
10.000% due 9/1/03 229,500
190,000 B Corporate Express, Sr. Sub. Notes, 9.125% due 3/15/04 190,475
175,000 BB Federated Department Stores Inc., Sr. Notes, 8.125%
due 10/15/02 179,813
210,000 B Finlay Fine Jewelry, Sr. Notes, 10.625% due 5/1/03 213,150
40,000 B Genesco Inc., Sr. Notes, 10.375% due 2/1/03 40,550
</TABLE>
See Notes to Financial Statements.
24
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Retailers -- 2.5% (continued)
$ 25,000 B Guitar Center Management, Sr. Notes, 11.000% due 7/1/06+ $ 26,312
55,000 B Loehmann's Inc., Sr. Sub. Notes, 11.875% due 5/15/03 58,575
150,000 B+ Mothers Work Inc., Sr. Notes, 12.625% due 8/1/05 159,750
150,000 B- Phar-Mor, Inc., Sr. Notes, 11.720% due 9/11/02 156,562
25,000 B- Rayovac, Sr. Sub. Notes, 10.250% due 11/10/06+ 25,375
350,000 BB+ Southland Corp., First Priority, Sr. Sub. Debentures,
5.000% due 12/15/03 280,875
170,000 BB- Tultex Corp., Sr. Notes, 10.625% due 3/15/05 181,900
50,000 B- United Stationers Supply, Sr. Sub. Notes,
12.750% due 5/1/05 54,625
150,000 BB- Waban Inc., Sr. Sub. Notes, 11.000% due 5/15/04 157,875
- ------------------------------------------------------------------------------------------
1,955,337
- ------------------------------------------------------------------------------------------
Supermarkets -- 0.4%
100,000 BB- Fleming Co. Inc., Sr. Notes, 10.625% due 12/15/01 99,500
250,000 NR Pagemart Nationwide Inc., Sr. Discount Notes,
step bond to yield 12.591% due 2/1/05 169,375
30,000 BB+ Stop & Shop Cos. Inc., New Sr. Sub. Notes,
9.750% due 2/1/02 31,875
- ------------------------------------------------------------------------------------------
300,750
- ------------------------------------------------------------------------------------------
Telecommunications -- 4.8%
100,000 CCC+ A+ Network, Inc., Sr. Sub. Notes, 11.875% due 11/1/05 100,500
200,000 B+ Benedek Communications, Sr. Notes, step bond to
yield 13.250% due 5/15/06 114,500
250,000 NR Brooks Fiber Properties Inc., Sr. Discount Notes,
step bond to yield 10.379% due 3/1/06 146,563
250,000 B+ Callnet Enterprises Inc., Sr. Discount Notes, step
bond coupon bond to yield 11.462% due 12/1/04 194,375
3,000 NR Celcaribe SA Unit, Sr. Secured Notes, step bond to
yield 9.611% due 3/15/04 32,700
100,000 CCC Cellular Inc., Sr. Sub. Notes, step bond to
yield 11.038% due 9/1/03 84,000
215,000 B3* Cencall Communication Corp., Sr. Discount Notes,
step bond to yield 13.800% due 1/15/04 138,137
20,000 NR GST Unit Telecommunications Inc., Sr. Sub. Discount Notes,
step bond to yield 14.752% due 12/15/05 18,600
360,000 NR GST USA Inc., Sr. Discount Exchangeable Notes, step
bond to yield 14.606% due 12/15/05 205,200
15,000 B- Gray Communications Systems, Sr. Sub. Notes, 10.625%
due 10/1/06 15,300
95,000 NR Hyperion Telecommunications Inc., Sr. Discount Notes,
step bond to yield 13.000% due 4/15/03 54,387
Intelcom Group Inc., Sr. Discount Notes:
200,000 NR Step bond to yield 13.236% due 9/15/05 135,000
200,000 NR Step bond to yield 12.500% due 5/1/06 121,500
</TABLE>
See Notes to Financial Statements.
25
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Telecommunications -- 4.8% (continued)
$ 45,000 NR International Wireless Unit, Sr. Secured Discount Notes,
zero coupon bond to yield 18.287% due 8/15/01 $ 24,637
MFS Communications Inc., Sr. Discount Notes,:
150,000 B Step bond to yield 8.993% due 1/15/04 127,500
200,000 B Step bond to yield 9.370% due 1/15/06 142,000
180,000 B- Metrocall Inc., Sr. Sub. Notes, 10.375% due 10/1/07 150,300
135,000 BB- Millicom International Cellular, Sr. Sub. Discount Notes,
13.500% due 6/1/06+ 76,950
125,000 BB- Mobile Telecom, Sr. Notes, 13.500% due 12/15/02 127,188
125,000 B- Mobilemedia Corp., Sr. Sub. Notes, 9.375% due 11/1/07 72,500
Nextel Communications Inc., Sr. Discount Notes:
400,000 CCC+ Step bond to yield 14.041% due 9/1/98 292,000
375,000 CCC+ Step bond to yield 9.750% due 8/15/04 239,062
100,000 NR Nextlink Communications LLC, Sr. Discount Notes,
12.500% due 4/15/06 102,250
190,000 CCC+ Omnipoint Corp., Sr. Notes, 11.625% due 8/15/06+ 194,275
60,000 B- Orbcomm Global, Sr. Notes, 14.000% due 8/15/04+ 61,050
95,000 B Paging Network Inc., Sr. Sub. Notes, 10.000% due 10/15/03 94,525
76,000 B3* Pricellular Wire, Convertible Debenture,
10.750% due 8/15/04 72,200
175,000 CCC+ Pricellular Wireless Corp., Sr. Sub. Discount Exchange
Notes, step bond to yield 12.875% due 11/15/01 157,281
25,000 BB- Roger Communications Inc., Sr. Debentures,
10.875% due 4/15/04 25,750
100,000 BB- Rogers Cantel, Debenture, 9.375% due 6/1/08 101,000
25,000 CCC+ Sygnet Wireless, Sr. Notes, 11.500% due 10/1/06 25,188
350,000 B Teleport Communications, Sr. Discount Notes, step
bond to yield 11.010% due 7/1/07 225,750
300,000 NR Winstar Communications, Sr. Sub. Discount Notes,
step bond to yield 12.327% due 10/15/05+ 189,000
- ------------------------------------------------------------------------------------------
3,861,168
- ------------------------------------------------------------------------------------------
Telephone -- 0.5%
Diamond Cable Communications PLC, Sr. Discount Notes:
100,000 CCC- Step bond to yield 10.920% due 9/30/04 79,500
225,000 B- Step bond to yield 11.468% due 12/15/05 147,938
75,000 B+ Fonorola Inc., Sr. Notes, 12.500% due 8/15/02 81,750
180,000 B- Intercel Inc., Sr. Discount Notes, step bond to yield
12.000% due 5/1/06 99,900
- ------------------------------------------------------------------------------------------
409,088
- ------------------------------------------------------------------------------------------
Textiles -- 0.3%
200,000 BB- Guess Jeans Inc., 9.500% due 8/15/03 204,000
70,000 BB Polysindo International Finance, 11.375% due 6/15/06 74,375
- ------------------------------------------------------------------------------------------
278,375
- ------------------------------------------------------------------------------------------
Transportation -- 0.1%
100,000 BB- Eletson Holdings, Inc., First Preferred Mortgage Notes,
9.250% due 11/15/03 98,250
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=========================================================================================
<C> <C> <S> <C>
Utility-Electric -- 1.2%
$ 15,000 B Costilla Energy, Sr. Sub. Notes, 10.250% due 10/1/06 $ 14,963
72,000 B First PV Funding Corp., Lease Obligation Bond Series 86B,
10.150% due 7/1/23 76,680
45,000 B Forcenergy Inc., Sr. Sub Notes, 9.500% due 11/1/06 45,000
20,000 NR Hidro Pierda Aguila, Bonds, 10.625% due 10/9/01 19,975
150,000 BB+ Long Island Lighting Co., Debenture, 9.000% due 11/1/22 150,375
20,174 B+ Midland Funding Corp. I, Sr. Secured Lease Obligation
Bond, Series C-91, 10.330% due 7/23/02 21,435
Midland Funding Corp. II, Sub. Secured Lease Obligation
Bond:
115,000 B- Series A, 11.750% due 7/23/05 125,638
75,000 B- Series B, 13.250% due 7/23/05 85,687
Niagara Mohawk Power:
100,000 BB- 1st Mortgage Notes, 5.875% due 9/1/02 87,875
100,000 BBB- 1st Mortgage Notes, 6.875% due 9/1/02 94,250
150,000 B+ Medium Term Notes, 9.990% due 5/11/04 139,687
100,000 B Texas New Mexico Power, Secured Debentures,
12.500% due 1/15/99 109,000
- ------------------------------------------------------------------------------------------
970,565
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE DEBENTURES
(Cost -- $29,096,659) 29,444,732
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==========================================================================================
<C> <S> <C>
PREFERRED STOCKS -- 1.1%
278 Cablevision System Corp., Series G+ 26,688
1,570 Cablevision System Corp., Series L, Payment-in-Kind 143,655
1,626 El Paso Electric Co., Series A, Payment-in-kind 175,653
1,250 Granite Broadcasting 74,687
1,634 K-III Communications Corp., Series B, Payment-in-kind 161,739
105 Paxson Communications Corp. 100,275
825 SD Warren, Convertible 14.000% 29,700
850 SD Warren, Holding Corp. 24,650
172 Time Warner Inc.+ 181,890
- ------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost-- $920,356) 918,937
- ------------------------------------------------------------------------------------------
COMMON STOCKS -- 0.1%
500 Cablevision Systems Corp. 15,563
35 Cobblestone Holdings Inc. 700
1,325 Grand Union Co. 8,944
2,202 Premium Standard Farms 37,443
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost-- $133,377) 62,650
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
27
<TABLE>
<CAPTION>
========================================================================================
Schedules of Investments (continued) October 31, 1996
========================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<CAPTION>
SHARES SECURITY VALUE
========================================================================================
<C> <S> <C>
Warrants -- 0.0%
150 Heartland Wireless Communications Inc., Expire 4/26/00 $ 750
95 Hyperion Communications Inc., Expire 4/1/01 4,275
495 Intelcom Group Inc., Expire 9/15/05 7,673
125 Intermedia Communications Inc., Expire 6/1/00 6,250
75 Louisiana Casino Cruises, Expire 12/1/98 1
201 Petracomm Holdings, Expire 8/1/05+ 1,432
221 President Riverboat Casinos Inc., Expire 9/30/99 155
85 SD Warren Holdings Corp., Series B, Expire 12/15/06 1,105
40 Sterling Chemical Holdings, Expire 8/15/08 1,300
700 Terex Corp., Appreciation Rights, Expire 5/15/02 1,400
300 Wireless One Inc., Expire 10/15/03 2,100
- ----------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $8,429) 26,441
========================================================================================
TOTAL HIGH YIELD SECTOR
(Cost -- $30,158,821) 30,452,760
========================================================================================
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
========================================================================================
INTERNATIONAL SECTOR -- 25.6%
========================================================================================
<C> <S> <C>
FOREIGN GOVERNMENT AGENCIES & OBLIGATIONS -- 25.3%
Argentina -- 0.9%
874,160 Republic of Argentina, 6.625% due 3/31/05 721,733
- ----------------------------------------------------------------------------------------
Australia -- 1.6%
Australian Government:
685,000 7.000% due 4/15/00++ 546,705
865,000 9.500% due 8/15/03++ 769,278
- ----------------------------------------------------------------------------------------
1,315,983
- ----------------------------------------------------------------------------------------
Canada -- 2.9%
Canadian Government:
1,538,000 8.750% due 12/1/05 1,335,242
705,000 7.000% due 12/1/06++ 547,767
465,000 9.000% due 6/1/25++ 427,290
- ----------------------------------------------------------------------------------------
2,310,299
- ----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
28
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
=========================================================================================
<C> <S> <C>
Denmark -- 2.6%
Danish Government:
2,730,000 9.000% due 11/15/00++ $ 530,818
5,425,000 8.000% due 5/15/03++ 1,019,451
3,110,000 7.000% due 12/15/04++ 549,264
- ------------------------------------------------------------------------------------------
2,099,533
- ------------------------------------------------------------------------------------------
France -- 3.0%
French BTAN Treasury Bill:
6,385,000 4.500% due 10/12/98++ 1,265,200
4,030,000 7.000% due 10/12/00++ 855,355
1,550,000 France O.A.T., 6.000% due 10/25/25++ 271,847
- ------------------------------------------------------------------------------------------
2,392,402
- ------------------------------------------------------------------------------------------
Germany -- 3.1%
1,600,000 Bundesobligation, 5.250% due 2/21/01++ 1,078,826
Deutsche Republic:
240,000 6.875% due 5/12/05++ 168,168
585,000 6.250% due 4/26/06++ 393,479
1,207,000 Treuhandanstalt, 7.125% due 1/29/03++ 865,846
- ------------------------------------------------------------------------------------------
2,506,319
- ------------------------------------------------------------------------------------------
Great Britain -- 4.9%
United Kingdom Treasury:
150,000 9.000% due 3/3/00 258,305
430,000 9.750% due 8/27/02 777,016
165,000 6.750% due 11/26/04++ 256,259
1,110,000 7.750% due 9/8/06 1,818,255
455,000 8.500% due 7/16/07 784,219
- ------------------------------------------------------------------------------------------
3,894,054
- ------------------------------------------------------------------------------------------
Italy -- 2.4%
Italian Government:
1,960,000,000 9.500% due 2/1/99++ 1,357,853
775,000,000 9.500% due 2/1/01++ 549,581
- ------------------------------------------------------------------------------------------
1,907,434
- ------------------------------------------------------------------------------------------
Mexico -- 0.9%
840,000 Mexico Discount, Brady Floater Bond, 6.609% due 12/31/19 690,375
- ------------------------------------------------------------------------------------------
Russia -- 1.5%
1,631,000 Russian Loan, Participating Note 1,192,669
- ------------------------------------------------------------------------------------------
Spain -- 0.4%
37,700,000 Spanish Government, 10.100% due 2/28/01++ 329,045
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
29
<TABLE>
========================================================================================
Schedules of Investments (continued) October 31, 1996
========================================================================================
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<CAPTION>
FACE
AMOUNT(a) SECURITY VALUE
========================================================================================
<C> <S> <C>
Sweden -- 1.1%
5,000,000 Swedish Government, 10.250% due 5/5/00++ $ 860,462
- ----------------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT
AGENCIES & OBLIGATIONS
(Cost -- $19,798,770) 20,220,308
========================================================================================
<CAPTION>
SHARES SECURITY VALUE
========================================================================================
CALL OPTION -- 0.3%
<C> <S> <C>
300,000,000 Japan Government Bond Future, Call @ 117.50,
Expire 11/29/96
(Cost -- $119,881) 210,037
========================================================================================
TOTAL INTERNATIONAL SECTOR
(Cost -- $19,918,651) 20,430,345
========================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================
REPURCHASE AGREEMENT -- 4.7%
$3,769,000 Morgan Stanley, 5.520% due 11/1/96; Proceeds at maturity--
3,769,578; Fully collateralized by U.S. Treasury Bonds,
7.625% due 11/15/22; (Market value -- $3,809,993)
(Cost -- $3,769,000) 3,769,000
========================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $78,734,235**) $79,882,976
========================================================================================
</TABLE>
(a) Represents local currency.
+ Security exempt from registration under Rule 144A of Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, generally to qualified institutional buyers.
+++ Security issued with attached warrants.
++ Security segregated by Custodian for forward exchange contracts.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 31 for description of bond ratings.
See Notes to Financial Statements.
30
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Services ("Standard & Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service Inc.("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "CCC" may be modified by the addition
of a plus (+) or a minus (-) sign to show relative standings within the major
rating categories
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 differs 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 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 debt in this category than in
higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments.
B -- Bonds rated "B" have a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal.
CCC -- Bonds rated "CCC" are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation.
Moody's -- Numerical modifiers 1, 2, and 3 may be applied to each generic
rating from "Aa" to "B", where 1 is the highest and 3 the lowest
rating within its generic category.
Aaa -- Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in "Aaa" securities.
A -- Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade which
suggest a susceptibility to impairment some time in the future.
Baa -- Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear 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 which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B -- Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds that are rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with respect to
principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
31
================================================================================
Statements of Assets and Liabilities October 31, 1996
================================================================================
<TABLE>
<CAPTION>
Putnam
Smith Barney Diversified
High Income Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $66,538,843 and
$78,734,235, respectively) $67,227,793 $79,882,976
Cash 215 73,913
Dividends and interest receivable 1,059,382 1,483,836
Receivable for Fund shares sold 66,982 89,275
Receivable for closed foreign currency exchange
contracts -- 394,544
Receivable for securities sold -- 3,698,883
Other receivables -- 4,785
- --------------------------------------------------------------------------------
Total Assets 68,354,372 85,628,212
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 2,200,000 4,013,342
Management fees payable 187,804 50,169
Payable for closed foreign currency exchange
contracts -- 225,126
Payable for open foreign currency exchange
contracts -- 209,772
Accrued expenses 11,644 53,809
- --------------------------------------------------------------------------------
Total Liabilities 2,399,448 4,552,218
- --------------------------------------------------------------------------------
Total Net Assets $65,954,924 $81,075,994
================================================================================
NET ASSETS:
Par value of capital shares $ 55 $ 68
Capital paid in excess of par value 61,061,423 75,293,320
Undistributed net investment income 3,902,810 4,128,520
Accumulated net realized gain from security
transactions 301,686 717,642
Net unrealized appreciation of investments
and foreign currencies 688,950 936,444
- --------------------------------------------------------------------------------
Total Net Assets $65,954,924 $81,075,994
================================================================================
Shares Outstanding 5,456,231 6,760,751
- --------------------------------------------------------------------------------
Net Asset Value $12.09 $11.99
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
32
================================================================================
Statements of Operations For the Year Ended October 31, 1996
================================================================================
<TABLE>
<CAPTION>
Putnam
Smith Barney Diversified
High Income Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
INVESTMENT INCOME:
Interest $4,524,159 $4,858,751
Dividends 141,253 46,727
Less: Foreign withholding tax -- (6,272)
- --------------------------------------------------------------------------------
Total Investment Income 4,665,412 4,899,206
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 262,657 428,803
Shareholder communications 22,000 23,400
Audit and legal 16,000 14,000
Registration fees 14,500 20,000
Pricing service fees 12,000 20,000
Directors' fees 9,300 6,000
Shareholder and system servicing fees 7,000 6,000
Custody 4,800 31,000
Other 21,886 469
- --------------------------------------------------------------------------------
Total Expenses 370,143 549,672
- --------------------------------------------------------------------------------
Net Investment Income 4,295,269 4,349,534
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
OPTIONS AND FOREIGN CURRENCIES
(NOTES 3, 4 AND 5):
Realized Gain (Loss) From:
Securities transactions (excluding
short-term securities) 321,805 619,451
Options purchased -- 98,527
Foreign currency transactions 3,363 (97,847)
- --------------------------------------------------------------------------------
Net Realized Gain 325,168 620,131
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of
Investments and Foreign Currencies:
Beginning of year 365,931 472,261
End of year 688,950 936,444
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 323,019 464,183
- --------------------------------------------------------------------------------
Net Gain on Investments, Options and
Foreign Currencies 648,187 1,084,314
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $4,943,456 $5,433,848
================================================================================
</TABLE>
See Notes to Financial Statements.
33
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Years Ended October 31,
----------------------------
Smith Barney High Income Portfolio 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,295,269 $ 835,839
Net realized gain (loss) 325,168 (13,404)
Increase in net unrealized appreciation 323,019 433,954
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 4,943,456 1,256,389
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,234,142) (101,352)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,234,142) (101,352)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 41,371,503 17,271,651
Net asset value of shares issued
for reinvestment of dividends 1,234,142 85,584
Cost of shares reacquired (809,848) (1,457,780)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 41,795,797 15,899,455
- --------------------------------------------------------------------------------
Increase in Net Assets 45,505,111 17,054,492
NET ASSETS:
Beginning of year 20,449,813 3,395,321
- --------------------------------------------------------------------------------
End of year* $65,954,924 $20,449,813
================================================================================
* Includes undistributed net investment income of: $3,902,810 $838,320
================================================================================
</TABLE>
See Notes to Financial Statements.
34
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
Years Ended October 31,
---------------------------
Putnam Diversified Income Portfolio 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,349,534 $ 1,228,004
Net realized gain 620,131 473,641
Increase in net unrealized appreciation 464,183 498,067
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 5,433,848 2,199,712
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,338,472) (78,180)
Net realized gains (505,992) --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,844,464) (78,180)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 44,714,713 22,758,517
Net asset value of shares issued
for reinvestment of dividends 1,844,465 78,180
Cost of shares reacquired (586,297) (207,951)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 45,972,881 22,628,746
- --------------------------------------------------------------------------------
Increase in Net Assets 49,562,265 24,750,278
NET ASSETS:
Beginning of year 31,513,729 6,763,451
- --------------------------------------------------------------------------------
End of year* $81,075,994 $31,513,729
================================================================================
* Includes undistributed net investment income of: $4,128,520 $1,271,270
================================================================================
</TABLE>
See Notes to Financial Statements.
================================================================================
Notes to Financial Statements
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney High Income and Putnam Diversified Income Portfolios
("Portfolios") are separate investment portfolios of the Travelers Series Fund
Inc. ("Fund"). The Fund, a Maryland corporation, is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company and consists of these Portfolios and ten other
separate investment portfolios: AIM Capital Appreciation, Alliance Growth, Van
Kampen American Capital Enterprise, Smith Barney Income and Growth, Smith Barney
International Equity, Smith Barney Pacific Basin, TBC Managed Income, GT Global
Strategic Income, MFS Total Return and Smith Barney Money Market Portfolios.
Shares of the Fund are offered only to insurance company separate accounts which
fund certain variable annuity and variable life insurance contracts. The
financial statements and financial highlights for the other portfolios are
presented in separate annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales price was reported and U.S. Government
and Government Agency obligations are valued at the mean between the bid and ask
prices; (c) securities maturing within 60 days are valued at cost plus accreted
discount, or minus amortized premium, as applicable; (d) 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; (e)
interest income, adjusted for accretion of original issue discount, is recorded
on the accrual basis; (f) gains or losses on the sale of securities are
calculated by using the specific identification method; (g) expenses are charged
to each Portfolio; (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, 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 bank; (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
October 31, 1996, reclassfications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distribution under income tax
36
================================================================================
Notes to Financial Statements (continued)
================================================================================
regulations. Net investment income, net realized gains and net assets were not
affected by this change; (k) the Portfolios intend to comply with the
requirements of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
and (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, Putnam Diversified Income Portfolio may enter into foreign
currency 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 contracts are settled
or closed.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH
AFFILIATED PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as the investment manager of the Smith Barney
High Income Portfolio ("SBHI"). Travelers Investment Adviser, Inc. ("TIA"), an
affiliate of SBMFM, acts as the investment manager of the Putnam Diversified
Income Portfolio ("PDIP"), pursuant to the Transfer and Assumption of Management
Agreement, from SBMFM to TIA, dated September 3, 1996. SBHI pays SBMFM a
management fee calculated at an annual rate of 0.60% of the average daily net
assets of the Portfolio. PDIP pays TIA a management fee calculated at an annual
rate of 0.75% of the average daily net assets of the Portfolio. These fees are
calculated daily and paid monthly.
TIA has entered into a sub-advisory agreement with Putnam Investment
Management, Inc. ("PIM"). Pursuant to the sub-advisory agreement, PIM is
responsible for the day-to-day portfolio operations and investment decisions for
PDIP. TIA will pay PIM a monthly fee calculated at the annual rate of 0.35% of
the average daily net assets of PDIP.
TIA has entered into a Sub-Administrative Services Agreement with SBMFM.
From its management fee TIA pays SBMFM, as sub-administrator, a fee in the
amount equal to an annual rate of 0.10% of the average daily net assets of PDIP.
37
================================================================================
Notes to Financial Statements (continued)
================================================================================
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares.
All officers and two Directors of the Fund are employees of SB.
3. INVESTMENTS
During the year ended October 31, 1996, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were:
<TABLE>
<CAPTION>
Smith Barney Putnam
High Diversified
Income Income
================================================================================
<S> <C> <C>
Purchases $81,701,052 $181,311,262
- --------------------------------------------------------------------------------
Sales 41,518,682 136,014,455
================================================================================
</TABLE>
At October 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
<TABLE>
<CAPTION>
Smith Barney Putnam
High Diversified
Income Income
================================================================================
<S> <C> <C>
Gross unrealized appreciation* $1,436,328 $ 2,152,829
Gross unrealized depreciation* (747,378) (1,004,088)
- --------------------------------------------------------------------------------
Net unrealized appreciation* $ 688,950 $ 1,148,741
================================================================================
* Substantially the same for Federal income tax purposes.
</TABLE>
4. 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 closing sales transaction, the Portfolios will
realize a gain or loss depending on whether the proceeds from the closing sales
transaction are greater or lesser than the premium paid for the option. When the
Portfolios exercise a put option, they will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Portfolios exercise a call option, the
cost of the security which the Portfolios purchase upon exercise will be
increased by the premium originally paid.
As of October 31, 1996, PDIP held one purchased call option with a cost of
$119,881.
38
================================================================================
Notes to Financial Statements (continued)
================================================================================
When the Portfolios write a 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 equal to the amount of the premium received. When the Portfolios
enter into a closing purchase transaction, the Portfolios realize a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was written) 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 written put
option is exercised, the amount of the premium originally received will reduce
the cost of the security which the Portfolios purchased upon exercise. When
written index options are exercised, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally paid.
The Fund enters into options for hedging purposes. The risk in writing a call
option is that the Fund gives 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 Fund is exposed to the risk of loss if the
market price of the underlying security declines.
As of October 31, 1996, the Portfolio had no written option contracts.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS
At October 31, 1996, the PDIP had open foreign currency exchange contracts
as described below. The Fund records realized gains or losses at the time the
forward contract is offset by entry into a closing transaction or settlement of
the contract. The Portfolio bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain (loss) on the contracts is
reflected in the accompanying financial statements as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
<S> <C> <C> <C> <C>
To Buy:
Austrian Dollar 513,270 $ 407,073 11/1/96 $ 809
British Pound 552,329 899,413 11/4/96 (2,375)
European Currency Unit 4,600 5,815 12/18/96 (17)
French Franc 6,086,900 1,190,592 12/18/96 (15,255)
German Deutschemark 7,294,100 4,819,678 12/18/96 (26,420)
Italian Lira 897,109,960 588,925 12/18/96 1,216
Japanese Yen 545,409,900 4,809,611 12/18/96 (258,490)
Spanish Peseta 70,782,280 553,419 12/18/96 5,308
Swedish Krone 1,157,000 175,927 12/18/96 889
- --------------------------------------------------------------------------------
(294,335)
- --------------------------------------------------------------------------------
To Sell:
Austrian Dollar (681) (538) 12/18/96 0
British Pound (606,700) (986,777) 12/18/96 2,624
Canadian Dollar (202,432) (150,945) 11/1/96 (510)
Canadian Dollar (1,872,400) (1,402,547) 12/18/96 (15,495)
</TABLE>
39
================================================================================
Notes to Financial Statements (continued)
================================================================================
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
<S> <C> <C> <C> <C>
To Sell: (continued)
Danish Krone (9,453,047) $(1,630,426) 12/18/96 $ 12,953
French Franc (6,066,000) (1,186,504) 12/18/96 22,682
German Deutschemark (1,341,450) (886,382) 12/18/96 10,357
Italian Lira (2,095,053,604) (1,381,642) 11/4/96 137
Italian Lira (115,262,259) (76,013) 11/5/96 43
Italian Lira (1,560,280,200) (1,024,276) 12/18/96 (1,175)
Japanese Yen (108,877,800) (960,122) 12/18/96 35,836
South African Rand (1,972,622) (420,333) 11/14/96 (2,944)
Swiss Franc (2,501,600) (1,979,740) 12/18/96 21,670
Swedish Krone (3,109,000) (472,737) 12/18/96 (1,615)
- --------------------------------------------------------------------------------
84,563
- --------------------------------------------------------------------------------
Total Unrealized Loss on
Forward Foreign Currency Contracts $(209,772)
================================================================================
</TABLE>
6. 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.
7. CAPITAL SHARES
At October 31, 1996, the Fund had six billion shares of $0.00001 par value
capital stock authorized. Each share of a Portfolio represents an equal
proportionate interest in that Portfolio with each share of the same Portfolio
and has an equal entitlement to any dividends and distributions made by the
Portfolio.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
================================================================================
<S> <C> <C>
Smith Barney High Income
Shares sold 3,599,769 1,615,645
Shares issued on reinvestment 111,284 8,805
Shares redeemed (70,401) (146,026)
- --------------------------------------------------------------------------------
Net Increase 3,640,652 1,478,424
================================================================================
Putnam Diversified Income
Shares sold 3,899,802 2,096,498
Shares issued on reinvestment 163,407 7,771
Shares redeemed (51,742) (19,661)
- --------------------------------------------------------------------------------
Net Increase 4,011,467 2,084,608
================================================================================
</TABLE>
40
================================================================================
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Smith Barney High Income Portfolio 1996 1995 1994(1)
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $11.26 $10.07 $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income(2) 1.14 0.93 0.29
Net realized and unrealized gain (loss) 0.19 0.48 (0.22)
- --------------------------------------------------------------------------------
Total Income From Operations 1.33 1.41 0.07
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.50) (0.22) --
- --------------------------------------------------------------------------------
Total Distributions (0.50) (0.22) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $12.09 $11.26 $10.07
- --------------------------------------------------------------------------------
Total Return 12.17% 14.30% 0.70%+++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $65,955 $20,450 $3,395
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.84% 0.70% 0.69%+
Net investment income 9.79 9.54 7.55+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 104% 57% 15%
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The manager waived all or part of its fees for the year ended October 31,
1995. In addition, for the period ended October 31, 1994, the manager
waived all of its fees and reimbursed expenses of $13,857. If such fees and
expenses were not waived or reimbursed, the per share effect on net
investment income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Net Investment Income Without Fee Waivers
----------------------- -------------------
1995 1994 1995 1994
----- ----- ----- ------
<S> <C> <C> <C>
$0.04 $0.07 1.07% 2.60%+
</TABLE>
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
41
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Putnam Diversified Income Portfolio 1996(1) 1995 1994(2)
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $11.46 $10.18 $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income(3) 0.78 0.79 0.23
Net realized and unrealized gain (loss) 0.27 0.58 (0.05)
- --------------------------------------------------------------------------------
Total Income From Operations 1.05 1.37 0.18
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.39) (0.09) --
Net realized gains (0.13) -- --
- --------------------------------------------------------------------------------
Total Distributions (0.52) (0.09) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $11.99 $11.46 $10.18
- --------------------------------------------------------------------------------
Total Return 9.43% 13.55% 1.80%+++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $81,076 $31,514 $6,763
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 0.96% 0.97% 0.98%+
Net investment income 7.57 7.53 6.14+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 255% 276% 20%
================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with results of operations.
(2) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(3) The manager waived all or part of its fees for the year ended October 31,
1995 and the period ended October 31, 1994 and also reimbursed expenses of
$19,028 for the period ended October 31, 1994. If such fees and expenses
were not waived or reimbursed, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Net Investment Income Without Fee Waivers
---------------------- -------------------
1995 1994 1995 1994
----- ----- ----- ------
<S> <C> <C> <C>
$0.04 $0.07 1.31% 2.92%+
</TABLE>
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
42
================================================================================
Independent Auditor's Report
================================================================================
The Shareholders and Board of Directors of
Travelers Series Fund Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Smith Barney High Income and
Putnam Diversified Income Portfolios of Travelers Series Fund Inc. as of October
31, 1996, the related statements of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the years in the two-year
period then ended and for the period from June 16, 1994 (commencement of
operations) to October 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. As to securities
purchased or sold but not received or delivered we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Smith Barney High Income and Putnam Diversified Income Portfolios of Travelers
Series Fund Inc. as of October 31, 1996, the results of their operations for the
year then ended, the changes in their net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the two year period then ended and for the period from June 16, 1994 to October
31, 1994, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
December 23, 1996
43
================================================================================
Tax Information (unaudited)
================================================================================
The amount of long-term capital gains paid by Putnam Diversified Income
Portfolio to its shareholders for the fiscal year ended october 31, 1996, was
$13,868.
44
TRAVELERS SERIES
FUND INC.
DIRECTORS
Victor K. Atkins
Jessica M. Bibliowicz
A.E. Cohen
Alger B. Chapman
Robert A. Frankel
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
James M. Shuart
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President
James B. Conheady
Vice President
Martin Hanley
Vice President
Jeffrey J. Russell
Vice President
Bruce D. Sargent
Vice President
Phyllis Zahorodny
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- --------------------------------
A Member of TravelersGroup[LOGO]
INVESTMENT MANAGERS
Smith Barney Mutual Funds
Management Inc.
Travelers Investment Adviser, Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
PNC Bank, N.A.
ANNUITY ADMINISTRATION
Travelers Annuity Investor Services
5 State House Square
1 Tower Square
Hartford, CT 06183
This report is submitted for the general information of the shareholders of
Travelers Series Fund Inc.--Smith Barney High Income and Putnam Diversified
Income Portfolios. It is not authorized for distribution to prospective
investors unless accompanied or preceded by a current Prospectus for the
Portfolios, which contains information concerning the Portfolios' investment
policies and expenses as well as other pertinent information.
TRAVELERS SERIES FUND INC.
388 Greenwich Street
New York, New York 10013
IN0254 12/96
ANNUAL REPORT
1996
1996
1996
1996
1996
TRAVELERS SERIES
FUND INC.
SMITH BARNEY INTERNATIONAL
EQUITY PORTFOLIO
SMITH BARNEY PACIFIC BASIN
PORTFOLIO
GT GLOBAL STRATEGIC INCOME
PORTFOLIO
- --------------------------
October 31, 1996
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
- --------------------------------------------------------------------------------
Smith Barney International Equity, Smith Barney Pacific
Basin and GT Global Strategic Income Portfolios
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide you with the annual report for the Travelers Series
Fund Inc. - Smith Barney International Equity, Smith Barney Pacific Basin and GT
Global Strategic Income Portfolios for the year ended October 31, 1996. In this
report, we have summarized the period's prevailing economic and market
conditions and outlined the investment strategy employed by each Portfolio
during this time. A detailed summary of each Portfolio's performance and current
holdings can be found in the appropriate sections that follow in the annual
report.
Portfolio Update
Smith Barney International Equity Portfolio
During the year ended October 31, 1996, the Smith Barney International Equity
Portfolio generated a total return of 16.36%, outperforming its peer group
average total return of 11.97% for the same period, as tracked by Lipper
Analytical Services, Inc., an independent fund tracking organization. At October
31, 1996, the Portfolio owned securities of 94 issuers in 27 countries,
consistent with its approach which stresses broad diversification to minimize
portfolio risk.
The International Equity Portfolio invests in equities outside of the United
States. The key element of the Portfolio's investment strategy is a "bottom-up"
approach to equity investing--looking at companies and industry sectors. We seek
companies growing at a premium rate to that of their local country. At the same
time, we aim to maintain a risk level no higher than that of the overall
international equity market through broad diversification in a variety of
markets. Potential countries for investment are chosen largely from the major
markets of Europe and the Far East, which are tracked by Morgan Stanley's EAFE
Index. (The EAFE Index tracks stock performance in Europe, Australia and the Far
East, and is used as a benchmark for international equity investments). In
addition, because broad diversification is a key component of our investment
strategy, a portion of the International Equity Portfolio is invested in
emerging markets that meet our criteria for political and economic stability and
market liquidity.
The backdrop of international affairs during much of the twelve-month period
covered by this report has been marked by political and economic uncertainties.
Sluggish economic conditions persist in several of the major European, Asian and
Latin markets in which we invest. Moreover, there has been a litany of negative
news during the past fiscal year, such as the Chinese
1
aggression toward Taiwan, the indictment of various business leaders in Korea,
civil unrest in Indonesia and the recurrence of violence in Northern Ireland.
Yet the international equity markets have provided solid investment returns in
the just concluded fiscal year, supported by favorable corporate developments
and a hospitable level of interest rates and inflation.
Europe
The International Equity Portfolio's largest holdings are concentrated in Europe
at 64% of total assets. We have increased the European allocation by
approximately 10% during the past year. In our view, Europe is undergoing
profound structural change, driven by the recognition that "business as usual"
is no longer affordable or desirable. Many European corporations have embarked
on U.S.-style restructuring programs to improve corporate profitability, sharpen
their company focus and ultimately enhance shareholder value. In order to become
more competitive, many European corporations have narrowed their strategic focus
to core businesses, and spinning are off low-margin and unproductive assets. At
the same time, there has also been a tremendous increase in merger and
acquisition activity in Europe. In particular, there has been an increase in
mergers within the financial services industry, as well as in the pharmaceutical
industry. Two large Swiss drug companies, Ciba Geigy (one of the Portfolio's
largest holdings) and Sandoz have agreed to merge to form Novartis, which will
be the second-largest drug company in the world. Companies continue to build
economies of scale across an increasingly unified Europe, which should
contribute to a higher long-term earnings outlook. We believe this is an
important underpinning of the European markets' recent strength.
In addition, one of the significant long-term attractions in Europe is that
corporations are becoming more "shareholder friendly." Many European companies
are moving toward international accounting standards, and are now disclosing
more financial information than in the past. Many countries have recently or are
in the process of authorizing corporate share repurchases, and stock splits are
now occurring for the first time in history in countries such as Germany and
Switzerland.
Moreover, European governments are striving toward a monetary union in 1999
which has important macroeconomic implications. Budget deficits must be reduced
and inflation contained, which suggests continued fiscal restraint. As a result,
many European governments introduced austere budget plans this Fall. Monetary
conditions are positive for European stocks, with interest rates at relatively
modest levels. In our view, stable interest rates are likely to remain for the
foreseeable future.
2
Our major European holdings are concentrated in the United Kingdom (10.9%) of
assets, the Netherlands (8.8%), France (7.2%), Sweden (6.0%). Many of the
companies whose stocks we own are major multinationals which derive a modest
portion of their earnings from their domestic market.
Recent purchases in the International Equity Portfolio include U.K.-based
Compass Group, the leading global contract caterer for educational, health care
and corporate facilities. We believe the institutional food industry is capable
of sustained high growth as companies trim back the breadth of their activities
to core operations. Outsourcing food service to efficient institutional
operators is a natural progression in many companies. Another recent addition in
the Portfolio is the Norwegian capital goods supplier Tomra, the European leader
in "reverse vending" machines which accept back food and beverage containers
from customers in return for deposit reimbursement. Tomra is expanding rapidly
throughout Europe and also throughout the United States where, in selected
geographic areas, the company serves as a service and materials handling agent.
Our investment in both of these companies illustrates our commitment to owning
progressive industry leaders in rapidly growing businesses.
In 1995, we invested a significant portion of the Portfolio's assets in the
European temporary employment industry because of increasing liberalization of
labor regulations and the desire of corporations to limit fixed costs. In 1996,
however, we sold those investments. French temporary employment company Ecco,
agreed to merge with its Swiss competitor, Adia. Our investment in the Dutch
employment agency Randstad, in our view, became fully valued, so we sold it and
realized a substantial profit.
Asia/Pacific
At present, we have 26% of the Portfolio invested in the markets of the Pacific
Rim. The performance of these equity markets has been disappointing in the past
twelve months, with the exception of Hong Kong and Malaysia. The largest Pacific
market, Japan (5.2%) has been a relative laggard for much of the past fiscal
year. The stock market in Japan has traded in a narrow range over the past three
to four months. Despite a materially weakened currency versus its major trading
partners (which has improved Japan's export competitiveness), as well as low
interest rates, economic recovery in Japan remains problematic.
We continue to find greater investment opportunities in Southeast Asia. In our
opinion, the July 1, 1997 transition of Hong Kong from British to Chinese rule
could lead to a favorable upward revaluation of that market, a process which in
fact has already. Residential property prices in Hong Kong, an important
barometer of local sentiment, have firmed considerably in the past year. While
3
the long-term implications of the transition are less certain, we are
overweighted versus the Morgan Stanley EAFE Index, but still relatively
conservative at 6.2% of Portfolio assets in Hong Kong.
The Pacific Rim is also home to many laggard markets over the past year, such as
Korea, Thailand and those of the sub-Continent. Each of these markets has had
fundamental factors at work which led to their decline. For example, there is
political uncertainty in Thailand and Indonesia, and Singapore and South Korea
have lowered economic-growth projections. We are diligently searching for new
opportunities in some of these lagging Pacific Rim markets. In our view, the
strong underlying growth rate of the Pacific Rim economies continues to justify
committing a significant portion of the Portfolio's assets to the region.
Other Markets
The remaining 10% of the Portfolio is invested in the Americas, South Africa and
Israel. The Latin American markets have performed well in the past year with
clear signs that Mexico is on the mend--interest rates have declined and
consumer spending has picked up, which have helped to drive the economy higher.
However, we believe that significant risks still exist in Mexico. Given the
superior opportunities elsewhere, our Latin American exposure is currently lower
than it has been in years past.
Smith Barney Pacific Basin Portfolio
During the year ended October 31, 1996, the Pacific Basin Portfolio generated a
total return of 9.26%, roughly in line with the Portfolio's Lipper Analytical
Services Inc. peer group average total return of 10.00%. (Lipper is an
independent fund tracking organization.) At October 31, 1996, the Portfolio
owned securities of 50 issuers in 11 countries with the highest allocation to
Hong Kong at 27% of the Portfolio.
Slowing export growth throughout Asia, political trouble in Thailand and
Indonesia, increasing tension between North and South Korea and China's
threatening posture toward Taiwan have caused the markets of the Pacific Rim to
be global laggards during the period covered by this report.
Japan, by far the largest Pacific Rim market, delivered very modest returns,
concentrated in the early part of 1996. Japanese stocks responded well in the
first quarter of 1996 to signs of macroeconomic resurgence, driven by government
spending initiatives and record low interest rates. Also, the concerted effort
to weaken the Japanese yen from its record highs versus major currencies,
particularly the U.S. dollar, in mid-1995, aided the prospects of key export
industries. (A weaker yen makes Japanese exports more competitive on a global
basis.)
4
Yet Japanese consumer spending remains muted and the condition of the financial
sector is precarious, as witnessed by several recent sizable bankruptcies. We
foresee a widening of the Japanese trade surplus with the U.S. in the coming
year, which once again could strengthen the yen versus the U.S. dollar. Overall,
we remain cautious on the market and have concentrated on select high growth
special situations such as Noritsu Koki, the global leader in photographic
minilab processing. The Portfolio had 16% of assets in Japan as of October 31,
1996.
We continue to find greater investment merit in Southeast Asia. In our opinion,
the July 1, 1997 transition of Hong Kong from British to Chinese rule could lead
to a favorable upward revaluation of that market, a process which in fact has
already begun. Residential property prices in Hong Kong, an important barometer
of local sentiment, have firmed considerably in the past year. The long-term
implications of the transition are less certain, but for now we are comfortable
with an overweight position of 27% of Portfolio assets in Hong Kong.
We also maintain a very positive view on the Malaysian equity market at 14% of
the Portfolio's assets. The Malaysian economy continues to be one of the most
robust in Asia and our primary exposure is in companies in the construction and
infrastructure development businesses.
The Pacific Rim is also home to many other laggard markets over the past year,
such as Korea, Thailand and Singapore, and those of the sub-Continent. Each of
these markets have had fundamental factors at work which led to their decline.
In our view, the strong underlying growth rate of the Pacific Rim economies
continues to justify committing a significant portion of the Portfolio's assets
to the region.
Please note that effective with the beginning of the new fiscal year, management
responsibility for the Pacific Basin Portfolio has been assumed by Smith Barney
Managing Director Scott Kalb and Vice President David Ishibashi. Both of these
investment professionals have been important contributors to the management of
the Portfolio over the past several years. Mr. Kalb was formerly director of
international equity research for Smith Barney and lived in Korea for over ten
years. Mr. Ishibashi has over fourteen years experience in the securities
industry, concentrated in the Japanese equity market.
GT Global Strategic Income Portfolio
Major markets around the world have seen their long-term yields decline
dramatically. In the U.S., economic growth has been moderate, fears of inflation
have subsided and, as a result, the Federal Reserve Board has kept rates stable.
This environment has provided a benign backdrop for generally larger bond
rallies elsewhere in the world.
5
For example, Canada has enjoyed an excellent core bond market rally over the
last several months. Canadian bonds have rallied on the back of much weaker
growth relative to the U.S., lower inflation and a vastly improved current
account deficit. Going forward, we believe Canada will continue to provide good
value, and our outlook remains positive. Europe has presented a similar profile
of limited or subpar economic activity. Germany and France, for example, are
experiencing growth of roughly 1%, versus potential growth rates of 2.5% or 3%
per year. As a result, the German mark has been weak and the Bundesbank was
prompted to cut the repo rate again in August, providing the catalyst for a
Europe-wide bond rally. The exception has been the U.K., mainly because the
economy is operating on a different economic cycle than continental Europe, and
has actually been enjoying reasonable growth.
Another very important trend in Europe, the steady tightening of yield spreads,
has produced some spectacular returns in the higher-yielding markets this year.
This convergence has occurred as emphasis has shifted from economic fundamentals
to increasing political will to participate in the first stage of the European
Monetary Union (the "EMU"). The resulting surge in bond prices has been driven
primarily by the possibility that countries such as Spain, Sweden and Italy will
be willing and able to join the EMU in 1999. Consequently, yields have fallen in
many of these countries to a level we believe may not be justified by their
economic fundamentals at the moment. However, markets have been driven by
technical factors, not fundamentals, and based on our technical models we are
comfortable with the current upward trends in Spain and Italy unless we see any
signs of weakness.
Adding to the bullish sentiment is the large liquidity flows out of Japan. The
monetary authorities of Japan are keeping interest rates low to aid the
country's weak economic recovery and banking sector. Record low yields on
Japanese bonds and the lackluster performance of the Japanese stock market led
investors to seek better yields overseas. We do not expect this to change within
the next six months.
Against this background of stable and declining global bond yields, a benign
inflationary environment and improving emerging markets fundamentals, emerging
market debt has enjoyed an outstanding year. For the twelve months ended October
31, 1996, the J.P. Morgan Emerging Markets Brady Bond Index was up 39.90%. When
contrasted to the 6.11% the J.P. Morgan Global Government Bond Index generated
during the same period, the positive return of the overall Portfolio is clearly
attributable to its significant weighting in emerging markets. For the
twelve-month period ended October 31, 1996, the GT Global Strategic Income
Portfolio had a total return of 19.97%, as compared to the average total return
of 8.60% for global income funds during
6
the same period, as reported by Lipper Analytical Services Inc., an independent
fund tracking organization.
In general, the Portfolio benefited from its considerable holdings in Latin
America. Early on, we recognized the attractiveness of Mexican debt and the
contribution a recovery in the Mexican economy would make to the government's
fiscal standing. The Portfolio also maintains sizable positions in Argentina and
Brazil. In the former, the financial credibility of the government is growing as
it becomes clearer that the worst of the recent recession is past. In the latter
case, we believe interest rates should continue to fall as progress is made
towards fiscal reform.
A key element of the Portfolio's strategy has also been the recognition of
outstanding value in Russian debt. Over the twelve-month period covered by this
report, the Russian bond market has reflected progress toward economic reform
and improvement in Russian economic fundamentals. Going forward, we are
encouraged by the presence of a sufficient nucleus of reformers within the
government who understand that orthodox monetary and fiscal policies are
necessary to maintain support from investors and the IMF (the International
Monetary Fund).
We expect the bond-friendly environment of low short-term interest rates and
accommodative liquidity conditions to continue in the short run. As a result, we
believe the capital markets on the European periphery will outperform U.S. and
German bond markets. Meanwhile, we continue to prefer Canada and Australia over
the U.S. In the longer run, however, we believe the appearance of more
synchronized global expansion may mean rising real rates. In our view, the
greatest pressure from this scenario would most likely be felt in Europe.
We do not expect the significant outperformance of emerging market debt to
continue, keeping in mind that values have rebounded from an extremely low base.
Performance can be mainly attributed to the dramatic correction following the
Mexican peso crisis. Also, post-crisis, government securities in emerging
markets have behaved less like typical fixed income investments, (i.e., driven
by fundamentals), and more like equities whose value was driven by growth
expectations. At present, we believe that the distortion created by Mexico has
been fully corrected, and that the market is in a transition phase, moving from
an equity environment to an environment more friendly for bonds.
7
In closing, thank you for investing in the Travelers Series Fund Inc. - Smith
Barney International Equity, Smith Barney Pacific Basin, and GT Global Strategic
Income Portfolios. We look forward to continuing to help you reach your
financial goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and Chief Executive Officer
November 29, 1996
8
================================================================================
Smith Barney International Equity Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns+
================================================================================
<S> <C> <C> <C> <C>
10/31/96 $10.48 $12.18 $0.01 16.36%
- --------------------------------------------------------------------------------
10/31/95 10.55 10.48 0.00 (0.66)
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.55 0.00 5.50+++
================================================================================
Total $0.01
================================================================================
</TABLE>
================================================================================
Smith Barney Pacific Basin Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns+
================================================================================
<S> <C> <C> <C> <C>
10/31/96 $ 8.95 $ 9.75 $0.03 9.26%
- --------------------------------------------------------------------------------
10/31/95 10.10 8.95 0.00 (11.58)
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.10 0.00 1.00+++
================================================================================
Total $0.03
================================================================================
</TABLE>
================================================================================
GT Global Strategic Income Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns+
================================================================================
<S> <C> <C> <C> <C>
10/31/96 $10.77 $12.45 $0.42 19.97%
- --------------------------------------------------------------------------------
10/31/95 9.95 10.77 0.10 9.37
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 9.95 0.00 (0.50)+++
================================================================================
Total $0.52
================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
9
===============================================================================
Average Annual Total Return+
===============================================================================
<TABLE>
<CAPTION>
Smith Barney Smith Barney GT Global
International Pacific Strategic
Equity Basin Income
Portfolio Portfolio Portfolio
=================================================================================
<S> <C> <C> <C>
Year Ended 10/31/96 16.36% 9.26% 19.97%
- ---------------------------------------------------------------------------------
6/16/94* through 10/31/96 8.74 (0.94) 11.86
=================================================================================
=================================================================================
Cumulative Total Return+
=================================================================================
<CAPTION>
Smith Barney Smith Barney GT Global
International Pacific Strategic
Equity Basin Income
Portfolio Portfolio Portfolio
=================================================================================
<S> <C> <C> <C>
6/16/94* through 10/31/96 22.04% (2.22)% 30.55%
=================================================================================
</TABLE>
+ Assumes the reinvestment of all dividends and capital gains distributions.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
* Commencement of operations.
10
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
Smith Barney International Equity Portfolio vs.
MSCI EAFE-GDP Weighted Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement period Smith Barney International MSCI EAFE-GDP
(Fiscal year Covered) Equity Portfolio Weighted Index
- --------------------- -------------------------- --------------
<S> <C> <C>
06/16/94 $ 10,000 $ 10,000
10/94 $ 10,550 $ 10,345
04/95 $ 9,610 $ 10,585
10/95 $ 10,480 $ 10,393
04/96 $ 11,884 $ 11,749
10/31/96 $ 12,204 $ 11,533
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the Smith Barney
International Equity Portfolio on June 16, 1994 (commencement of operations),
assuming reinvestment of dividends and capital gains, if any, at net asset
value through October 31, 1996. The Morgan Stanley Capital International
EAFE-GDP Weighted Index is a composite portfolio consisting of equity total
returns for the countries of Europe, Australia, New Zealand and countries in
the Far East, weighted based on each country's gross domestic product. The
index is unmanaged and is not subject to the same management and trading
expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost.
11
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
Smith Barney Pacific Basin Portfolio vs.
MSCI Pacific Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement period Smith Barney MSCI
(Fiscal year Covered) Pacific Basin Portfolio Pacific Index
- --------------------- ----------------------- -------------
<S> <C> <C>
06/16/94 $ 10,000 $ 10,000
10/94 $ 10,100 $ 9,952
04/95 $ 8,760 $ 9,702
10/95 $ 8,950 $ 8,836
04/96 $ 10,260 $ 10,430
10/31/96 $ 9,778 $ 9,136
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the Smith Barney
Pacific Basin Portfolio on June 16, 1994 (commencement of operations),
assuming reinvestment of dividends and capital gains, if any, at net asset
value through October 31, 1996. The Morgan Stanley Capital International
Pacific Index is comprised of a sampling of large, medium and small
capitalization companies who are listed on the various Pacific exchanges, such
as Australia, Hong Kong, Japan, Malaysia, New Zealand and the Singapore stock
exchange. The index is unmanaged and is not subject to the same management and
trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost.
12
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of
the GT Global Strategic Income
Portfolio vs.
J.P. Morgan Global Bond Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement period GT Global Strategic J.P. Morgan Global
(Fiscal year Covered) Income Portfolio Bond Index
- --------------------- ------------------- ------------------
<S> <C> <C>
06/16/94 $ 10,000 $ 10,000
10/94 $ 9,950 $ 10,391
04/95 $ 10,074 $ 11,490
10/95 $ 10,882 $ 11,985
04/96 $ 11,660 $ 12,009
10/31/96 $ 13,055 $ 12,716
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the GT Global
Strategic Income Portfolio on June 16, 1994 (commencement of operations),
assuming reinvestment of dividends and capital gains, if any, at net asset
value through October 31, 1996. The J.P. Morgan Global Bond Index is a daily,
market capitalization weighted international fixed income index consisting of
13 countries. The index is unmanaged and is not subject to the same management
and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost.
13
================================================================================
Schedules of Investments October 31, 1996
================================================================================
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
STOCKS -- 97.4%
Argentina -- 0.4%
35,000 Quilmes Industrial S.A. $ 358,750
17,500 Quilmes Industrial S.A. ADR 183,750
- --------------------------------------------------------------------------------
542,500
- --------------------------------------------------------------------------------
Australia -- 3.2%
226,369 Coca-Cola Amatil Ltd. 3,114,890
800,000 Portman Mining Ltd.+ 1,427,574
- --------------------------------------------------------------------------------
4,542,464
- --------------------------------------------------------------------------------
Austria -- 4.2%
5,000 VA Technologie AG 699,688
40,000 Wolford AG 5,278,185
- --------------------------------------------------------------------------------
5,977,873
- --------------------------------------------------------------------------------
Belgium -- 2.9%
25,000 Barco Industries N.V.+ 4,111,895
- --------------------------------------------------------------------------------
Chile -- 1.2%
50,000 Embotelladora Andina S.A. ADR 1,725,000
- --------------------------------------------------------------------------------
Finland -- 1.6%
50,000 Nokia OY AB Class A Shares 2,308,056
- --------------------------------------------------------------------------------
France -- 7.2%
5,000 Carrefour Supermarche S.A. 2,776,908
6,382 Castorama Dubois Investisse 1,093,193
100,000 Forasol Foramer NV+ 1,725,000
10,000 Group Axime+ 1,039,505
25,000 SGS-Thomson Microelectronics NV--
NY Registered Shares+ 1,309,375
35,000 Sidel S.A. 2,337,125
- --------------------------------------------------------------------------------
10,281,106
- --------------------------------------------------------------------------------
Germany -- 5.6%
50,000 Leica Camera AG+ 1,685,171
25,000 SGL Carbon AG 2,772,271
15,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred 2,020,222
35,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred(a)+ 1,526,875
- --------------------------------------------------------------------------------
8,004,539
- --------------------------------------------------------------------------------
Hong Kong -- 6.2%
300,000 Cheung Kong Holdings Ltd. 2,405,494
200,000 Guoco Group Ltd. 1,057,900
153,688 HSBC Holdings PLC 3,130,486
200,000 Sun Hung Kai Properties Ltd. 2,276,166
- --------------------------------------------------------------------------------
8,870,046
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
India -- 2.4%
100,000 BSES Ltd. GDR(a) $1,900,000
100,000 Larsen & Toubro Ltd. GDR 1,500,000
- --------------------------------------------------------------------------------
3,400,000
- --------------------------------------------------------------------------------
Ireland -- 4.6%
204,717 Bank of Ireland 1,693,060
101,837 CRH PLC 1,054,430
399,998 Independent Newspapers PLC 2,132,671
250,203 Irish Continental Group PLC 1,771,889
- --------------------------------------------------------------------------------
6,652,050
- --------------------------------------------------------------------------------
Israel -- 2.1%
50,000 Gilat Satellite Networks Ltd.+ 975,000
50,000 Teva Pharmaceutical Industries Ltd. ADR 2,093,750
- --------------------------------------------------------------------------------
3,068,750
- --------------------------------------------------------------------------------
Italy -- 6.2%
50,000 De Rigo S.p.A. ADR+ 543,750
50,000 Gucci Group N.V.-- NY Registered Shares 3,450,000
100,000 Industria Macchine Automatiche 397,006
25,000 Industrie Natuzzi S.p.A. ADR 1,134,375
30,000 Luxottica Group S.p.A. ADR 1,905,000
750,000 Telecom Italia Mobile S.p.A. 1,547,136
- --------------------------------------------------------------------------------
8,977,267
- --------------------------------------------------------------------------------
Japan -- 5.2%
500 Bank of Tokyo - Mitsubishi 10,199
23,500 Bunkyodo Co. Ltd. 402,893
40,000 Canon Inc. 766,661
7,700 H.I.S. Co. Ltd. 408,897
7,000 Japan Associated Finance 576,666
77,000 Mitsubishi Heavy Industries Ltd. 592,360
25,000 Noritsu Koki Co. Ltd. 1,307,807
50,000 Noruma Securities Co. Ltd. 826,446
300 NTT Data Communications 888,869
43,847 Sato Co. 886,655
21,000 Trans Cosmos 784,684
- --------------------------------------------------------------------------------
7,452,137
- --------------------------------------------------------------------------------
Malaysia -- 2.0%
266,666 Mancon Berhad 891,807
300,000 Renong Berhad 472,553
60,000 Renong Berhad 4% ICULS 21,965
37,500 Renong Berhad Warrants, Expires 11/21/00+ 15,287
250,000 Sungei Way Holdings Berhad 1,424,783
- --------------------------------------------------------------------------------
2,826,395
- --------------------------------------------------------------------------------
</TABLE>
15
See Notes to Financial Statements.
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
Mexico -- 2.1%
<C> <S> <C>
409,979 Gruma S.A. De C.V. Class B Shares+ $ 2,029,549
50,000 Grupo Casa Autrey S.A. de C.V. Sponsored ADR 943,750
- --------------------------------------------------------------------------------
2,973,299
- --------------------------------------------------------------------------------
Netherlands -- 8.8%
100,952 Getronics N.V. 2,482,280
10,000 Heineken N.V. 1,889,852
40,417 Hunter Douglas N.V. 2,859,862
50,000 IHC Caland N.V. 2,792,028
20,000 Wolters Kluwer N.V. 2,572,086
- --------------------------------------------------------------------------------
12,596,108
- --------------------------------------------------------------------------------
New Zealand -- 1.1%
200,000 Wilson & Horton Ltd. 1,556,277
- --------------------------------------------------------------------------------
Norway -- 2.0%
125,000 Torma Systems ASA 1,774,454
225,000 VISMA ASA 1,041,144
- --------------------------------------------------------------------------------
2,815,598
- --------------------------------------------------------------------------------
Philippines -- 1.9%
7,000,000 Belle Corp.+ 1,864,536
4,000,000 SM Prime Holdings Inc. 852,359
- --------------------------------------------------------------------------------
2,716,895
- --------------------------------------------------------------------------------
Singapore -- 2.0%
175,000 Cerebos Pacific Ltd. 1,353,797
73,000 Sembawang Maritime Ltd. 192,732
600,000 Singapore Technologies Industrial Corp. 1,303,052
- --------------------------------------------------------------------------------
2,849,581
- --------------------------------------------------------------------------------
South Africa -- 1.4%
75,000 Barlow Ltd. 653,633
20,000 South African Breweries Ltd. 519,923
30,820 South African Breweries Ltd. ADR 797,468
- --------------------------------------------------------------------------------
1,971,024
- --------------------------------------------------------------------------------
South Korea -- 1.5%
4,460 Hung Chang Products Co.+ 341,598
14,800 Korea Electric Power Corp. 434,847
5,200 Korea Electric Power Corp. ADR 93,600
4,840 Samchully Co. 397,652
12,523 Samsung Display Devices Co. 810,993
130 Samsung Fire and Marine Insurance 68,686
220 Sungmi Telecom Electronics 49,098
- --------------------------------------------------------------------------------
2,196,474
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Sweden -- 6.0%
15,000 Astra AB Class A Shares $ 690,075
25,000 Astra AB Class B Shares 1,142,509
40,000 Autoliv AB 1,700,053
40,000 Enator AB+ 889,634
90,000 Getinge Industrier AB Class B Shares 1,645,213
75,000 Nobel Biocare AB 1,268,185
50,000 Telefonaktiebolaget LM Ericsson Series B 1,355,777
- --------------------------------------------------------------------------------
8,691,446
- --------------------------------------------------------------------------------
Switzerland -- 3.1%
1,000 Ciba-Geigy AG 1,231,429
200 Roche Holding AG 1,519,028
100 Roche Holding AG Warrants, Expire 5/5/98+ 2,661
1,500 Sandoz AG 1,741,082
- --------------------------------------------------------------------------------
4,494,200
- --------------------------------------------------------------------------------
Thailand -- 1.6%
250,000 Krung Thai Bank Public Co. Ltd. 676,338
300,000 Siam Makro Public Co. Ltd. 1,282,102
50,000 United Communication Industry Public Co. Ltd. 415,605
- --------------------------------------------------------------------------------
2,374,045
- --------------------------------------------------------------------------------
United Kingdom -- 10.9%
500,000 Boxmore International PLC 2,568,800
425,000 British Biotech PLC+ 1,567,538
150,000 Carlton Communications PLC 1,201,759
100,800 Misys PLC 1,489,595
300,000 Powerscreen International PLC 2,987,298
250,000 Rentokil Initial PLC 1,679,287
20,000 Reuters Holdings PLC ADR 1,487,500
250,000 Serco Group PLC 2,578,976
- --------------------------------------------------------------------------------
15,560,753
- --------------------------------------------------------------------------------
TOTAL STOCKS
(Cost -- $123,980,683) 139,535,778
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 2.6%
$3,700,000 CS First Boston Corp., 5.40% due 11/1/96;
Proceeds at maturity -- 3,700,562;
(Fully collateralized by U.S. Treasury
Bill due 3/27/97; Market value -- $3,776,744)
(Cost -- $3,700,000) 3,700,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $127,680,683**) $143,235,778
================================================================================
</TABLE>
See Notes to Financial Statements.
17
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY PACIFIC BASIN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
STOCKS -- 100.0%
Australia -- 9.1%
<C> <S> <C>
41,167 Coca-Cola Amatil Ltd. $ 566,467
175,000 Henry Walker Group Ltd. 362,247
100,000 TABCORP Holdings Ltd. 471,892
- --------------------------------------------------------------------------------
1,400,606
- --------------------------------------------------------------------------------
Hong Kong -- 27.2%
300,000 Amoy Properties Ltd. 370,524
31,000 Cheung Kong Holdings Ltd. 248,568
132,000 Cheung Kong Infrastructure Holdings+ 245,826
50,000 Citic Pacific Ltd. 243,136
75,000 Guoco Group Ltd. 396,712
120,000 Hong Kong & China Gas Co. Ltd. 211,063
26,111 HSBC Holdings PLC 531,858
50,000 Hutchinson Whampoa Ltd. 349,185
100,622 New World Development Co. Ltd. 585,594
110,000 Shanghai Industrial Holdings Ltd.+ 249,667
65,000 Sun Hung Kai Properties Ltd. 739,754
- --------------------------------------------------------------------------------
4,171,887
- --------------------------------------------------------------------------------
India -- 4.4%
25,000 Larsen & Toubro Ltd. GDR+ 375,000
30,000 Mahindra & Mahindra Ltd. GDR+ 300,000
- --------------------------------------------------------------------------------
675,000
- --------------------------------------------------------------------------------
Indonesia -- 2.1%
280,000 PT Bimantara Citra 315,654
- --------------------------------------------------------------------------------
Japan -- 16.1%
300 Bank of Tokyo-Mitsubishi 6,119
20,000 Canon Inc. 383,330
2,200 H.I.S. Co. Ltd. 116,828
2,000 Japan Associated Finance 164,762
10,000 Matsushita Electric Industrial Co. Ltd. 160,014
3,000 Nintendo Corp. Ltd. 192,017
11,000 Noritsu Koki Co. Ltd. 575,435
8,000 Sato Corp. 161,772
1,100 Shohkoh Fund 231,141
5,200 Trans Cosmos 194,303
19,000 Yagi Antenna 275,629
- --------------------------------------------------------------------------------
2,461,350
- --------------------------------------------------------------------------------
Malaysia -- 14.4%
65,000 Hong Leong Credit Berhad 360,154
90,000 Muhibbah Engineering Berhad 333,043
50,000 Rashid Hussain Berhad 312,661
</TABLE>
18
See Notes to Financial Statements.
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY PACIFIC BASIN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Malaysia -- 14.4% (continued)
100,000 Sungei Way Holdings Berhad $ 569,913
200,000 Sunway Building Technology Berhad 629,279
- --------------------------------------------------------------------------------
2,205,050
- --------------------------------------------------------------------------------
New Zealand -- 3.3%
6,000 Telecom Corp. of New Zealand Ltd. ADR 499,500
- --------------------------------------------------------------------------------
Philippines -- 6.9%
75,000 Ayala Corp., Class B Shares 71,347
800,000 Belle Corp.+ 213,090
300,000 Fil-Estate Land Inc. 279,680
12,816 Metropolitan Bank & Trust Co. 282,855
1,000,000 SM Prime Holdings Inc. 213,090
- --------------------------------------------------------------------------------
1,060,062
- --------------------------------------------------------------------------------
Singapore -- 6.2%
40,000 Sembawang Maritime Ltd. 105,607
150,000 Singapore Technologies Industrial Corp. 325,763
300,000 Steamers Maritime Holdings Ltd. 238,467
75,000 Van Der Horst Ltd. 276,792
- --------------------------------------------------------------------------------
946,629
- --------------------------------------------------------------------------------
South Korea -- 6.9%
4,460 Hung Chang Products Co.+ 341,598
10,000 Korea Electric Power Corp. ADR 180,000
5,000 Samchully Co. 410,797
130 Samsung Fire & Marine Insurance 68,686
220 Sungmi Telecom Electronics 49,098
- --------------------------------------------------------------------------------
1,050,179
- --------------------------------------------------------------------------------
Thailand -- 3.4%
50,000 Krung Thai Bank Public Co. Ltd. 135,268
30,000 Krung Thai Bank Public Co. Ltd. Foreign 82,337
72,000 Siam Makro Public Co. Ltd. 307,704
- --------------------------------------------------------------------------------
525,309
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $14,490,263**) $15,311,226
================================================================================
</TABLE>
See Notes to Financial Statements.
19
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
<C> <S> <C>
BONDS -- 91.2%
Argentina -- 7.0%
40,000 Industrias Metalurgicas Pescarmona S.A., 11.750%
due 3/27/98(a) $ 40,800
275,500 Republic of Argentina BOCON PRE4, zero coupon
due 9/1/02+ 276,227
609,000 Republic of Argentina Discount, 6.4375%
due 3/31/23+++ 457,055
363,580 Republic of Argentina FRB, 6.625% due 3/31/05+++ 300,182
400,000 Republic of Argentina Par, 5.250% due 3/31/23(c) 238,000
- --------------------------------------------------------------------------------
1,312,264
- --------------------------------------------------------------------------------
Australia -- 2.3%
478,000 Government of Australia, 9.500% due 8/15/03 425,104
- --------------------------------------------------------------------------------
Brazil -- 3.8%
100,000 Brazil Mydfa Trust Certificates, 6.6875%
due 9/15/07(a)+++ 83,813
70,000 Grupo Industrial Durango, 12.625% due 8/1/03 73,346
due 9/15/07(a)+++ 83,813
821,622 Republic of Brazil C Bond, 6.928% due 4/15/14(d) 569,302
- --------------------------------------------------------------------------------
726,461
- --------------------------------------------------------------------------------
Bulgaria -- 1.2%
448,000 Bulgaria Discount, 6.688% due 7/28/24+++ 227,082
- --------------------------------------------------------------------------------
Canada -- 2.6%
200,000 Government of Canada, 8.000% due 11/1/98 159,390
370,000 Government of Canada, 8.750% due 12/1/05 321,222
- --------------------------------------------------------------------------------
480,612
- --------------------------------------------------------------------------------
China -- 0.6%
100,000 Zhuhai Highway Co. Ltd., 11.500% due 7/1/08(a) 107,750
- --------------------------------------------------------------------------------
Costa Rica -- 0.4%
100,000 Banco Central de Costa Rica Principal Series A,
6.250% due 5/21/10 81,000
- --------------------------------------------------------------------------------
Denmark -- 2.7%
2,900,000 Kingdom of Denmark, 7.000% due 12/15/04 512,176
- --------------------------------------------------------------------------------
Ecuador -- 3.0%
716,910 Ecuador Bearer PDI, 4.960% due 2/27/15+++(d) 400,129
250,000 Ecuador Discount, 6.500% due 2/28/25+++ 164,533
- --------------------------------------------------------------------------------
564,662
- --------------------------------------------------------------------------------
France -- 1.6%
1,400,000 Government of France, 7.250% due 4/25/06 300,243
- --------------------------------------------------------------------------------
Germany -- 9.6%
514,000 Bundesrepublik Deutscheland, 8.250% due 9/20/01 386,349
1,575,000 Bundesrepublik Deutscheland, 6.000% due 1/5/06 1,040,528
530,000 Treuhandanstalt, 7.125% due 1/29/03 380,198
- --------------------------------------------------------------------------------
1,807,075
- --------------------------------------------------------------------------------
Indonesia -- 0.8%
38,000 FSW International, 12.500% due 11/1/06(a) 38,356
17,000 PT Polysindo Eka Perkasa, 13.000% due 6/15/01 18,743
</TABLE>
See Notes to Financial Statements.
20
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
<C> <S> <C>
Indonesia -- 0.8% (continued)
75,000 Tjiwi Kimia International BV, 13.250% due 8/1/01 $ 84,375
- --------------------------------------------------------------------------------
141,474
- --------------------------------------------------------------------------------
Italy -- 6.3%
580,000,000 Buoni Poliennali del Tes, 9.500% due 2/1/99 401,814
800,000,000 Buoni Poliennali del Tes, 10.500% due 11/1/00 583,243
22,000,000 Republic of Italy, 0.5625% due 7/26/99+++ 194,439
- --------------------------------------------------------------------------------
1,179,496
- --------------------------------------------------------------------------------
Japan -- 1.5%
27,500,000 International Bank Reconstruction Development,
4.750% due 12/20/04 283,341
- --------------------------------------------------------------------------------
Luxemburg -- 0.2%
50,000 Millicom International Cellular, step bond
to yield 13.500% due 6/1/06(a) 28,500
- --------------------------------------------------------------------------------
Mexico -- 4.5%
71,000 Banco Nacional de Comercto Enterior S.N.C.
(BIVCE) Trust Division, 11.250% due 5/30/06(a) 73,308
45,000 Cemex S.A., 12.750% due 7/15/06(a) 48,769
552,000 Mexican States Value Recovery Rights,
Expire 6/30/03+ 0
100,000 United Mexican States, 7.6875% due 8/6/01(a)+++ 100,030
105,000 United Mexican States, 11.375% due 9/15/16(a) 104,869
358,000 United Mexican States, 6.352% due 12/31/19+++ 294,903
225,000 United Mexican States, 11.500% due 5/15/26(a) 223,155
- --------------------------------------------------------------------------------
845,034
- --------------------------------------------------------------------------------
Morocco -- 2.0%
470,000 Morocco Tranche A Restructuring & Consolidation
Agreement, 6.438% due 1/1/09+++ 373,063
- --------------------------------------------------------------------------------
Netherlands -- 0.7%
105,000 Asia Pulp & Paper International Finance Co. Ltd.,
11.750% due 10/1/05 109,106
18,000 PT Indah Kiat International Finance, 11.875%
due 6/15/02 19,305
- --------------------------------------------------------------------------------
128,411
- --------------------------------------------------------------------------------
New Zealand -- 1.1%
286,000 New Zealand Government, 8.000% due 2/15/01 208,102
- --------------------------------------------------------------------------------
Nigeria -- 1.6%
500,000 Central Bank of Nigeria Par, 6.250% due 11/15/20 310,000
500 Central Bank of Nigeria Warrants, Expire 11/15/20+ 0
- --------------------------------------------------------------------------------
310,000
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
21
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
<C> <S> <C>
Panama -- 1.5%
430,000 Panama Interest Reduction, 3.500%
due 7/17/14(a)(c) $ 283,800
- --------------------------------------------------------------------------------
Philippines -- 3.0%
380,000 Central Bank of Philippines DCB, 6.438%
due 12/1/09+++ 363,850
200,000 Republic of Philippines, 8.750% due 10/7/16(a) 195,875
- --------------------------------------------------------------------------------
559,725
- --------------------------------------------------------------------------------
Russia -- 6.3%
95,000 Ministry Finance Russia GDR, 3.000% due 5/14/06(a) 41,918
160,000 Ministry Finance Russia GDR, 3.000% due 5/14/11(a) 52,800
466,000 Vnesheconombank Loan Agreement Assignment(b)+ 236,357
811,000 Vnesheconombank Loan Agreement Participation(b)+ 595,582
359,000 Vnesheconombank Loan Agreement Assignment 263,643
- --------------------------------------------------------------------------------
1,190,300
- --------------------------------------------------------------------------------
Spain -- 3.5%
75,300,000 Government of Spain, 10.100% due 2/28/01 657,217
- --------------------------------------------------------------------------------
Sweden -- 2.2%
2,200,000 Swedish Government, 13.000% due 6/15/01 420,948
- --------------------------------------------------------------------------------
United Kingdom -- 6.3%
500,000 United Kingdom Treasury, 7.000% due 11/6/01 805,549
235,000 United Kingdom Treasury, 7.500% due 12/7/06 379,325
- --------------------------------------------------------------------------------
1,184,874
- --------------------------------------------------------------------------------
United States -- 11.4%
1,550,000 U.S. Treasury Note, 6.875% due 3/31/00 1,593,152
380,000 U.S. Treasury Bond, 6.875% due 8/15/25 388,869
95,000 Chase Manhattan, 6.250% due 1/15/06 90,487
90,000 General Motors Acceptance Corp., 6.625%
due 10/15/05 87,974
- --------------------------------------------------------------------------------
2,160,482
- --------------------------------------------------------------------------------
Venezuela -- 3.3%
250,000 Republic of Venezuela DCB, 6.625% due 12/18/07+++ 205,313
250,000 Republic of Venezuela Flirb, Series A, 6.625%
due 3/31/07+++ 208,125
250,000 Republic of Venezuela Flirb, Series B, 6.500%
due 3/31/07+++ 208,125
- --------------------------------------------------------------------------------
621,563
- --------------------------------------------------------------------------------
Philippines -- 0.2%
33,000 Filivest Capital, Convertible, 3.750% due 2/1/02(a) 32,505
- --------------------------------------------------------------------------------
TOTAL BONDS
(Cost -- $16,051,687) 17,153,264
================================================================================
</TABLE>
See Notes to Financial Statements.
22
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 8.7%
Discount Bonds -- 0.9%
27,182 Mexican Cetes, zero coupon to yield 29.610%
due 1/16/97 $ 31,839
92,580 Mexican Cetes, zero coupon to yield 29.660%
due 1/23/97 106,634
24,846 Mexican Cetes, zero coupon to yield 29.880%
due 1/30/97 28,970
2,746 Mexican Cetes, zero coupon to yield 29.660%
due 2/6/97 3,135
6,590 Mexican Cetes, zero coupon to yield 29.660%
due 2/10/97 7,454
- --------------------------------------------------------------------------------
178,032
- --------------------------------------------------------------------------------
Indexed Commercial Paper -- 0.6%
$ 105,500 National Westminster Currency Linked, 12.378%
due 2/28/97 104,181
- --------------------------------------------------------------------------------
Repurchase Agreement -- 7.2%
$ 1,363,000 CS First Boston Corp., 5.470% due 11/1/96;
Proceeds at maturity -- $1,363,207; (Fully
collateralized by U.S. Treasury Bill due
3/27/97; Market value -- $1,391,174) 1,363,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $1,646,532) 1,645,213
================================================================================
SHARES SECURITY VALUE
================================================================================
CALL OPTIONS -- 0.1%
1,965,693 Brazil C Strike Price 71.81, Expire 12/26/96 21,861
200,000 Venezuela DCB Strike Price 84.15, Expire 1/2/97 1,920
200,000 Venezuela DCB Strike Price 84.44, Expire 1/2/97 1,742
- --------------------------------------------------------------------------------
TOTAL CALL OPTIONS
(Cost -- $57,995) 25,523
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $17,756,214**) $18,824,000
================================================================================
</TABLE>
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(b) Security is in default.
(c) The coupon rate shown on step up coupon bond represents the rate at period
end.
(d) Effective rate at period end including "payment in kind" bonds.
+ Non-income producing security.
+++ Represents current rate on floating rate security.
* Represents local currency.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
23
<TABLE>
<CAPTION>
=================================================================================================
Statements of Assets and Liabilities October 31, 1996
=================================================================================================
Smith Barney Smith Barney GT Global
International Pacific Strategic
Equity Basin Income
Portfolio Portfolio Portfolio
=================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value
(Cost -- $127,680,683, $14,490,263
and $17,756,214, respectively) $ 143,235,778 $ 15,311,226 $ 18,824,000
Foreign currency
(Cost -- $1,065,354, $2,269,874
and $0, respectively) 1,078,749 2,256,775 --
Cash 709 -- 171,145
Receivable for Fund shares sold 1,035,391 -- 23,683
Receivable for securities sold 322,192 157,418 232,311
Dividends and interest receivable 96,991 15,495 460,352
Receivable for open forward foreign
currency contracts (Note 5) 2,380 -- 97,093
- -------------------------------------------------------------------------------------------------
Total Assets 145,772,190 17,740,914 19,808,584
- -------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 2,232,013 731,194 499,250
Management fees payable 106,942 11,411 12,578
Payable for open forward foreign
currency contracts (Note 5) 1,401 1,632 117,458
Payable for Fund shares purchased -- 7,270 --
Payable to bank -- 297,134 545
Dividends payable -- -- 105
Accrued expenses and other liabilities 109,256 35,198 26,410
- -------------------------------------------------------------------------------------------------
Total Liabilities 2,449,612 1,083,839 656,346
- -------------------------------------------------------------------------------------------------
Total Net Assets $ 143,322,578 $ 16,657,075 $ 19,152,238
=================================================================================================
NET ASSETS:
Par value of capital shares $ 118 $ 17 $ 15
Capital paid in excess of par value 128,574,016 16,489,255 16,392,810
Undistributed net investment income 159,473 110,678 756,823
Accumulated net realized gain (loss)
on security transactions, futures
contracts, options and foreign currencies (949,557) (756,295) 953,997
Net unrealized appreciation of investments,
options and foreign currencies 15,538,528 813,420 1,048,593
- -------------------------------------------------------------------------------------------------
Total Net Assets $ 143,322,578 $ 16,657,075 $ 19,152,238
=================================================================================================
Shares Outstanding 11,763,313 1,708,121 1,538,442
- -------------------------------------------------------------------------------------------------
Net Asset Value $12.18 $9.75 $12.45
- -------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
24
<TABLE>
<CAPTION>
=================================================================================================
Statements of Operations For the Year Ended October 31, 1996
=================================================================================================
Smith Barney Smith Barney GT Global
International Pacific Strategic
Equity Basin Income
Portfolio Portfolio Portfolio
=================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,199,510 $ 197,225 --
Interest 164,543 37,338 $ 1,100,490
Less: Foreign withholding tax (105,023) (20,832) (3,819)
- -------------------------------------------------------------------------------------------------
Total Investment Income 1,259,030 213,731 1,096,671
- -------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 887,397 117,581 109,949
Custody 113,056 41,978 29,803
Registration fees 26,127 3,037 2,817
Audit and legal 20,959 15,158 15,558
Shareholder communications 15,331 10,397 10,750
Shareholder and system servicing fees 14,518 12,412 9,260
Directors' fees 9,164 3,594 3,649
Other 1,765 961 7,706
- -------------------------------------------------------------------------------------------------
Total Expenses 1,088,317 205,118 189,492
- -------------------------------------------------------------------------------------------------
Less: Management fee waiver (Note 2) -- (30,849) (20,036)
Custody earnings credit (Note 2) (54,177) (22,080) (16,400)
- -------------------------------------------------------------------------------------------------
Total Waivers and Credits (54,177) (52,929) (36,436)
- -------------------------------------------------------------------------------------------------
Net Expenses 1,034,140 152,189 153,056
- -------------------------------------------------------------------------------------------------
Net Investment Income 224,890 61,542 943,615
- -------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FUTURES CONTRACTS,
OPTIONS AND FOREIGN CURRENCIES
(NOTES 3, 5, 6 AND 7):
Realized Gain (Loss) From:
Security transactions
(excluding short-term securities) 384,317 (394,949) 956,296
Futures contracts -- -- 2,681
Options purchased -- -- 46,024
Options written -- -- (21,220)
Foreign currency transactions (80,400) 59,832 (126,168)
- -------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) 303,917 (335,117) 857,613
- -------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments, Options
and Foreign Currencies:
Beginning of year 2,906,679 (194,730) 236,306
End of year 15,538,528 813,420 1,048,593
- -------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 12,631,849 1,008,150 812,287
- -------------------------------------------------------------------------------------------------
Net Gain on Investments, Futures Contracts,
Options and Foreign Currencies 12,935,766 673,033 1,669,900
- -------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 13,160,656 $ 734,575 $ 2,613,515
=================================================================================================
</TABLE>
See Notes to Financial Statements.
25
<TABLE>
<CAPTION>
================================================================================
Statements of Changes in Net Assets
================================================================================
Years Ended October 31,
------------------------------
Smith Barney International Equity Portfolio 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 224,890 $ 86,074
Net realized gain (loss) 303,917 (1,329,860)
Increase in net unrealized appreciation 12,631,849 2,520,365
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 13,160,656 1,276,579
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (75,105) --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (75,105) --
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 78,935,547 38,693,155
Net asset value of shares issued
for reinvestment of dividends 75,105 --
Cost of shares reacquired (2,312,077) (242,713)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 76,698,575 38,450,442
- --------------------------------------------------------------------------------
Increase in Net Assets 89,784,126 39,727,021
NET ASSETS:
Beginning of year 53,538,452 13,811,431
- --------------------------------------------------------------------------------
End of year* $ 143,322,578 $ 53,538,452
================================================================================
* Includes undistributed net investment
income of: $ 159,473 $ 74,756
================================================================================
</TABLE>
See Notes to Financial Statements.
26
<TABLE>
<CAPTION>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
Years Ended October 31,
-----------------------------
Smith Barney Pacific Basin Portfolio 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 61,542 $ (14,162)
Net realized loss (335,117) (318,221)
Increase (decrease) in net unrealized
appreciation 1,008,150 (229,837)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Operations 734,575 (562,220)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (25,705) --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (25,705) --
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 12,262,188 4,389,864
Net asset value of shares issued
for reinvestment of dividends 25,705 --
Cost of shares reacquired (3,461,355) (944,296)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 8,826,538 3,445,568
- --------------------------------------------------------------------------------
Increase in Net Assets 9,535,408 2,883,348
NET ASSETS:
Beginning of year 7,121,667 4,238,319
- --------------------------------------------------------------------------------
End of year* $ 16,657,075 $ 7,121,667
================================================================================
* Includes undistributed (overdistributed)
net investment income of: $ 110,678 $ (41,342)
================================================================================
</TABLE>
See Notes to Financial Statements.
27
<TABLE>
<CAPTION>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
Years Ended October 31,
-----------------------------
GT Global Strategic Income Portfolio 1996 1995
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 943,615 $ 385,183
Net realized gain (loss) 857,613 (60,795)
Increase in net unrealized appreciation 812,287 258,297
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,613,515 582,685
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (385,932) (34,436)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (385,932) (34,436)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 9,268,494 5,781,130
Net asset value of shares issued
for reinvestment of dividends 385,932 31,412
Cost of shares reacquired (1,126,715) (587,696)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 8,527,711 5,224,846
- --------------------------------------------------------------------------------
Increase in Net Assets 10,755,294 5,773,095
NET ASSETS:
Beginning of year 8,396,944 2,623,849
- --------------------------------------------------------------------------------
End of year* $ 19,152,238 $ 8,396,944
================================================================================
* Includes undistributed net investment
income of: $ 756,823 $ 325,186
================================================================================
</TABLE>
See Notes to Financial Statements.
28
================================================================================
Notes to Financial Statements
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney International Equity, Smith Barney Pacific Basin and GT
Global Strategic Income Portfolios ("Portfolios") are separate investment
portfolios of the Travelers Series Fund Inc. ("Fund"). The Fund, a Maryland
corporation, is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company and consists of these
Portfolios and nine other separate investment portfolios: AIM Capital
Appreciation, Alliance Growth, MFS Total Return, Putnam Diversified Income,
Smith Barney High Income, Smith Barney Income and Growth, Smith Barney Money
Market, TBC Managed Income and Van Kampen American Capital Enterprise
Portfolios. Shares of the Fund are offered only to insurance company separate
accounts which fund certain variable annuity and variable life insurance
contracts. The financial statements and financial highlights for the other
portfolios are presented in separate annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices in the
primary exchange on which they are traded; securities listed or traded on
certain foreign exchanges or other markets whose operations are similar to the
U.S. over-the-counter market (including securities listed on exchanges where the
primary market is believed to be over-the-counter) and listed securities for
which no sale was reported on that date are valued at the mean between the bid
and ask prices. Securities which are listed or traded on more than one exchange
or market are valued at the quotations on the exchange or market determined to
be the primary market for such securities; (c) securities maturing within 60
days are valued at cost plus accreted discount, or minus amortized premium, as
applicable; (d) gains or losses on the sale of securities are calculated by
using the specific identification method; (e) interest income, adjusted for
amortization of premiums and accretion of discount, is recorded on the accrual
basis; (f) dividend income is recorded on the ex-dividend date; foreign
dividends are recorded on the ex-dividend date or as soon as practicable after
the Fund determines the existence of a dividend declaration after exercising
reasonable due diligence; (g) dividends and distributions to shareholders are
recorded on the ex-dividend date; (h) expenses are charged to each Portfolio;
(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 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
29
================================================================================
Notes to Financial Statements (continued)
================================================================================
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At October 31, 1996, reclassifications
were made to the capital accounts of GT Global Strategic Income Portfolio to
reflect permanent book/tax differences and income and gains available for
distribution under income tax regulations. Accordingly, a portion of
undistributed net investment loss amounting to $122 has been reclassified to
paid-in capital. Net investment income, net realized gains and net assets were
not affected by this change; (k) each Portfolio intends to comply with the
requirements of the Internal Revenue Code of 1986, as amended pertaining to
regulated investment companies and 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.
In addition, the 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 contracts are settled.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager of the Smith Barney
International Equity ("SBIE") and the Smith Barney Pacific Basin ("SBPB")
Portfolios. Travelers Investment Adviser, Inc., ("TIA"), an affiliate of SBMFM,
acts as the investment manager of the GT Global Strategic Income Portfolio
("GTGSI"), pursuant to the Transfer and Assumption of Management Agreement, from
SBMFM to TIA, dated September 3, 1996. SBIE and SBPB pay SBMFM a management fee
calculated at the annual rate of 0.90% of the average daily net assets of each
Portfolio, respectively. GTGSI pays TIA a management fee calculated at an annual
rate of 0.80% of the average daily net assets of the Portfolio. These fees are
calculated daily and paid monthly. The investment manager waived a portion of
its management fee for SBPB and GTGSI for the year ended October 31, 1996.
TIA has entered into a subadvisory agreement with LGT Asset Management,
Inc. ("LGT"). Pursuant to the subadvisory agreement, LGT is responsible for the
day-to-day portfolio operations and investment decisions for GTGSI. TIA pays LGT
with regard to GTGSI, a monthly fee calculated at the annual rate of 0.375% of
the average daily net assets of GTGSI.
30
================================================================================
Notes to Financial Statements (continued)
================================================================================
TIA has entered into a sub-administrative services agreement with Smith
Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith Barney
Holdings Inc. ("SBH"). From its management fee, TIA pays SBMFM, as sub-
administrator, a fee calculated at an annual rate of 0.10% of the Portfolio's
average daily net assets.
SBMFM provides certain administrative services, including overseeing the
Portfolio's non-investment operations and its relations with other service
providers and providing executive and other officers to the Portfolio.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. SB also acts as broker for certain portfolio transactions. For the
year ended October 31, 1996, SB received brokerage commissions of $17,005.
All officers and two Directors of the Fund are employees of SB.
The Fund has an arrangement with its custodian, The Bank of New York, where
custody earnings credits are earned on available cash balances. These credits
offset custody fees which may be charged to the Portfolios. These credits
totalled $54,177, $22,080 and $16,400 for the SBIE, SBPB and GTGSI,
respectively, for the year ended October 31, 1996.
3. INVESTMENTS
For the year ended October 31, 1996, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
SB SB GT Global
International Pacific Strategic
Equity Basin Income
================================================================================
<S> <C> <C> <C>
Purchases $115,131,035 $15,775,372 $32,400,728
- --------------------------------------------------------------------------------
Sales 39,961,994 6,946,772 24,587,383
================================================================================
</TABLE>
At October 31, 1996, the gross unrealized appreciation and depreciation of
investments were as follows:
<TABLE>
<CAPTION>
SB SB GT Global
International Pacific Strategic
Equity Basin Income
================================================================================
<S> <C> <C> <C>
Gross unrealized appreciation* $22,252,150 $1,675,683 $1,151,395
Gross unrealized depreciation* (6,697,055) (854,720) (83,609)
- --------------------------------------------------------------------------------
Net unrealized appreciation* $15,555,095 $ 820,963 $1,067,786
================================================================================
</TABLE>
* Substantially the same for Federal income tax purposes.
31
================================================================================
Notes to Financial Statements (continued)
================================================================================
4. CAPITAL LOSS CARRYFORWARD
At October 31, 1996, the Fund had capital loss carryforwards available to
offset future realized capital gains, if any, for Federal income tax purposes of
approximately $950,000 and $757,000 for SBIE and SBPB, respectively. 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 carryovers amounts are indicated below. Expiration occurs on
October 31 of the year indicated.
<TABLE>
<CAPTION>
Portfolio 2003 2004
================================================================================
<S> <C> <C>
SBIE $950,000 --
- --------------------------------------------------------------------------------
SBPB 305,000 $452,000
================================================================================
</TABLE>
5. FORWARD FOREIGN CURRENCY CONTRACTS
At October 31, 1996, the 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 (loss) on
the contracts is reflected as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
Smith Barney International Equity
<S> <C> <C> <C> <C>
To Sell:
Singapore Dollar 153,069 $ 108,645 11/2/96 $ (530)
Singapore Dollar 150,865 107,094 11/5/96 (655)
Singapore Dollar 82,162 58,327 11/6/96 (216)
- --------------------------------------------------------------------------------
274,066 (1,401)
- --------------------------------------------------------------------------------
To Buy:
Australian Dollar 180,586 143,216 11/1/96 743
Australian Dollar 202,734 160,762 11/4/96 339
Australian Dollar 688,719 546,090 11/6/96 1,038
Australian Dollar 248,070 196,689 11/7/96 217
Norwegian Krone 2,233,180 350,319 11/4/96 43
- --------------------------------------------------------------------------------
1,397,076 2,380
- --------------------------------------------------------------------------------
Total Unrealized Gain
on Forward Foreign
Currency Contracts $ 979
================================================================================
</TABLE>
32
================================================================================
Notes to Financial Statements (continued)
================================================================================
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
Smith Barney Pacific Basin
<S> <C> <C> <C> <C>
To Sell:
Japanese Yen 95,090,667 $ 836,488 11/4/96 $ (893)
Malaysian Ringgit 30,531 12,081 11/4/96 (7)
Singapore Dollar 969,372 687,986 11/4/96 (732)
- --------------------------------------------------------------------------------
Total Unrealized Loss
on Forward Foreign
Currency Contracts $(1,632)
================================================================================
GT Global Strategic Income
To Sell:
Australian Dollar 125,000 $ 99,090 11/12/96 $ (2,302)
Canadian Dollar 585,000 436,956 11/29/96 (5,905)
German Deutschemark 600,000 396,609 11/4/96 9,947
German Deutschemark 2,095,000 1,384,912 11/5/96 45,484
German Deutschemark 498,000 329,369 11/13/96 9,188
German Deutschemark 3,570,000 2,363,188 11/27/96 8,250
German Deutschemark 1,050,000 659,727 12/11/96 2,026
Italian Lira 755,900,000 495,477 1/21/97 (6,759)
Japanese Yen 25,600,000 225,227 11/5/96 14,660
Japanese Yen 9,125,000 80,543 11/29/96 2,438
New Zealand Dollar 285,900 201,596 11/29/96 (5,335)
Swedish Krone 2,220,000 337,941 1/21/97 (2,132)
- --------------------------------------------------------------------------------
7,010,635 69,560
- --------------------------------------------------------------------------------
To Buy:
Australian Dollar 125,000 99,089 11/12/96 331
German Deutschemark 600,000 396,609 11/4/96 (14,674)
German Deutschemark 2,475,000 1,636,113 11/5/96 (43,592)
German Deutschemark 498,000 329,369 11/13/96 (9,266)
German Deutschemark 2,510,000 1,661,513 11/27/96 (24,550)
Japanese Yen 9,125,000 80,543 11/29/96 (2,943)
New Zealand Dollar 285,900 201,596 11/29/96 4,769
- --------------------------------------------------------------------------------
4,404,832 (89,925)
- --------------------------------------------------------------------------------
Total Unrealized Loss
on Forward Foreign
Currency Contracts $(20,365)
================================================================================
</TABLE>
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
33
================================================================================
Notes to Financial Statements (continued)
================================================================================
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 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 Fund enters into such contracts to hedge a portion of
its portfolio. The Fund bears the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts)
and the credit risk should a counterparty fail to perform under such contracts.
At October 31, 1996, there were no open futures contracts.
7. OPTION CONTRACTS
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into closing sales transaction, the Fund 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 Fund 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 Fund exercises a call option, the cost of the security
which the Fund purchases upon exercise will be increased by the premium
originally paid.
As of October 31, 1996, GTGSI held three purchased call options with a cost
of $57,995.
When a Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is eliminated. When a written call
option is exercised the cost of the security sold will be decreased by the
premium originally received. When a written put option is exercised, the amount
of the premium originally received will reduce the cost of the security which
the Fund purchased upon exercise. When written index options are exercised,
settlement is made in cash. The risk associated with purchasing options is
limited to the premium originally paid. The Fund enters into options for hedging
purposes.
34
================================================================================
Notes to Financial Statements (continued)
================================================================================
The risk in writing a call option is that the Fund gives 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 Fund is exposed to
the risk of loss if the market price of the underlying security declines.
The following covered call option transactions occurred during the year
ended October 31, 1996 in GTGSI:
<TABLE>
<CAPTION>
Number of
Premiums Contracts
================================================================================
<S> <C> <C>
Options written, outstanding at October 31, 1995 $ 0 0
Options written during the fiscal year 10,475 467,000
Options cancelled in closing purchase transactions (10,475) (467,000)
- --------------------------------------------------------------------------------
Options written, outstanding at October 31, 1996 $ 0 0
================================================================================
</TABLE>
8. PORTFOLIO CONCENTRATION
The Portfolios' investments in foreign securities may involve risks not
present in domestic investments. Since securities may be denominated in a
foreign currency and may require settlement in foreign currencies and pay
interest or dividends in foreign currencies, changes in the relationship of
these foreign currencies to the U.S. dollar can significantly affect the value
of the investments and earnings of the Portfolio. Foreign investments may also
subject the Portfolios to foreign government exchange restrictions,
expropriation, taxation or other political, social or economic developments, all
of which could affect the market and/or credit risk of the investments.
In addition to the risks described above, risks may arise from forward
foreign currency contracts with respect to the potential inability of counter-
parties to meet the terms of their contracts.
9. CAPITAL SHARES
At October 31, 1996, the Fund had six billion shares of capital stock
authorized with a par value of $0.00001 per share. Each share of a Portfolio
represents an equal proportionate interest in that Portfolio with each share of
the same Portfolio and has an equal entitlement to any dividends and
distributions made by the Portfolio.
35
================================================================================
Notes to Financial Statements (continued)
================================================================================
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
================================================================================
<S> <C> <C>
Smith Barney International Equity
Shares sold 6,840,983 3,823,913
Shares issued on reinvestment 7,032 --
Shares redeemed (191,267) (26,232)
- --------------------------------------------------------------------------------
Net Increase 6,656,748 3,797,681
================================================================================
Smith Barney Pacific Basin
Shares sold 1,262,559 477,242
Shares issued on reinvestment 2,782 --
Shares redeemed (352,741) (101,281)
- --------------------------------------------------------------------------------
Net Increase 912,600 375,961
================================================================================
GT Global Strategic Income
Shares sold 821,257 573,083
Shares issued on reinvestment 35,504 3,338
Shares redeemed (98,292) (60,141)
- --------------------------------------------------------------------------------
Net Increase 758,469 516,280
================================================================================
</TABLE>
36
================================================================================
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Smith Barney International Equity Portfolio 1996 1995 1994(1)
===============================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $10.48 $10.55 $10.00
- -------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(2) 0.02 0.03* (0.03)
Net realized and unrealized gain (loss) 1.69 (0.10) 0.58
- -------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.71 (0.07) 0.55
- -------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.01) -- --
- -------------------------------------------------------------------------------
Total Distributions (0.01) -- --
- -------------------------------------------------------------------------------
Net Asset Value, End of Year $12.18 $10.48 $10.55
- -------------------------------------------------------------------------------
Total Return 16.36% (0.66)% 5.50%+++
- -------------------------------------------------------------------------------
Net Assets, End of Year (000s) $143,323 $53,538 $13,811
- -------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 1.10% 1.44% 1.20%+
Net investment income (loss) 0.23 0.25 (0.73)+
- -------------------------------------------------------------------------------
Portfolio Turnover Rate 41.32% 28.72% --
- -------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(3) $0.02 $0.01 --
===============================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived part of its fees for the year ended October 31,
1994. If such fees were not waived and expense not reimbursed, the effect
on the net investment loss and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Without Fee Waiver,
Decrease to Net Reimbursement
Investment Income and Custody Credits
----------------- -------------------
<S> <C> <C>
1994 $0.03 2.00%+
</TABLE>
In addition, during the years ended October 31, 1996 and 1995, the
Portfolio has earned credits from the custodian which reduce service fees
incurred. When the credits are taken into consideration the expenses ratios
are 1.05% and 1.21%, respectively; prior year numbers have not been
restated to reflect these adjustments.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* Includes realized gains and losses from foreign currency transactions.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
37
================================================================================
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Smith Barney Pacific Basin Portfolio 1996 1995 1994(1)
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $8.95 $10.10 $10.00
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(2) 0.08 (0.04)* (0.04)
Net realized and unrealized gain (loss) 0.75 (1.11) 0.14
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.83 (1.15) 0.10
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) -- --
- --------------------------------------------------------------------------------
Total Distributions (0.03) -- --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $9.75 $8.95 $10.10
- --------------------------------------------------------------------------------
Total Return 9.26% (11.58)% 1.00%+++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $16,657 $7,122 $4,238
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 1.34% 1.83% 1.26%+
Net investment income (loss) 0.47 (0.51) (0.93)+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 58.94% 27.70% --
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(3) $0.02 $0.01 --
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the years ended October
31, 1996, October 31, 1995 and the period ended October 31, 1994. In
addition, the Manager has reimbursed the Portfolio for $9,778 in expenses
for the period ended October 31, 1994. If such fees were not waived and
expenses not reimbursed, the effect on the net investment loss and the
expense ratios would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Without Fee Waiver,
Decreases to Net Reimbursement and
Investment Income Custody Credits
----------------- -------------------
<S> <C> <C>
1996 $0.02 1.58%
1995 0.03 2.23
1994 0.06 2.82+
</TABLE>
In addition, during the year ended October 31, 1996 and 1995, the Portfolio
has earned credits from the custodian which reduce service fees incurred.
If the credits are taken into consideration the expense ratios are 1.17%
and 1.30%, respectively; prior year numbers have not been restated to
reflect these adjustments.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* Includes realized gains and losses from foreign currency transactions.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
38
================================================================================
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
GT Global Strategic Income Portfolio 1996 1995 1994(1)
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $10.77 $ 9.95 $10.00
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.74 0.64* 0.17
Net realized and unrealized gain (loss) 1.36 0.28 (0.22)
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.10 0.92 (0.05)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.42) (0.10) --
- --------------------------------------------------------------------------------
Total Distributions (0.42) (0.10) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $12.45 $10.77 $ 9.95
- --------------------------------------------------------------------------------
Total Return 19.97% 9.37% (0.50)%+++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $19,152 $8,397 $2,624
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 1.23% 1.47% 1.07%+
Net investment income 6.87 6.44 4.58+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 192.36% 295.47% 56.34%
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the years ended October
31, 1996, October 31, 1995 and the period ended October 31, 1994. In
addition, the Manager has reimbursed the Portfolio for $18,556 in expenses
for the period ended October 31, 1994. If such fees were not waived and
expenses not reimbursed, the per share effect on net investment income and
expense ratios would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Without Fee Waiver,
Per Share Decreases Reimbursement and
to Net Investment Income Custody Credits
------------------------ -----------------
<S> <C> <C>
1996 $0.02 1.38%
1995 0.04 1.93
1994 0.13 4.53+
</TABLE>
In addition, during the years ended October 31, 1996 and 1995, the
Portfolio has earned credits from the custodian which reduce service fees
incurred. If the credits are taken into consideration the expense ratios
are 1.11% and 1.11%, respectively; prior year numbers have not been
restated to reflect these adjustments.
* Includes realized gains and losses from foreign currency transactions.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
39
================================================================================
Independent Auditors' Report
================================================================================
The Shareholders and Board of Directors of
Travelers Series Fund Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Smith Barney International
Equity, Smith Barney Pacific Basin and GT Global Strategic Income Portfolios of
Travelers Series Fund Inc. as of October 31, 1996, the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and the financial highlights
for each of the years in the two-year period then ended and for the period from
June 16, 1994 (commencement of operations) to October 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. As to securities
purchased or sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Smith Barney International Equity, Smith Barney Pacific Basin and GT Global
Strategic Income Portfolios of Travelers Series Fund Inc. as of October 31,
1996, the results of their operations for the year then ended, the changes in
their net assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the two-year period then ended and
for the period from June 16, 1994 to October 31, 1994, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
December 19, 1996
40
TRAVELERS SERIES
FUND INC.
DIRECTORS
Victor K. Atkins
Jessica M. Bibliowicz
Alger B. Chapman
A. E. Cohen
Robert A. Frankel
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
James M. Shuart
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President
James B. Conheady
Vice President
Martin Hanley
Vice President
Jeffrey J. Russell
Vice President
Bruce D. Sargent
Vice President
Phyllis Zahorodny
Vice President
Thomas M. Reynolds
Controller
SMITH BARNEY
- --------------------------------
A Member of TravelersGroup[LOGO]
INVESTMENT MANAGERS
Smith Barney Mutual Funds
Management Inc.
Travelers Investment
Advisers, Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
The Bank of New York
ANNUITY ADMINISTRATION
Travelers Annuity Investor Services
5 State House Square
1 Tower Square
Hartford, CT 06183
This report is submitted for the general information of the shareholders of
Travelers Series Fund Inc. -- Smith Barney International Equity, Smith Barney
Pacific Basin and GT Global Strategic Income Portfolios. It is not authorized
for distribution to prospective investors unless accompanied or preceded by a
current Prospectus for the Portfolios, which contains information concerning the
Portfolios' investment policies and expenses as well as other pertinent
information.
TRAVELERS SERIES FUND INC.
388 Greenwich Street
New York, New York 10013
IN0252 12/96
<PAGE>
ANNUAL REPORT
1996
1996
1996
1996
1996
TRAVELERS SERIES
FUND INC.
SMITH BARNEY INCOME
AND GROWTH PORTFOLIO
ALLIANCE GROWTH PORTFOLIO
VAN KAMPEN AMERICAN
CAPITAL ENTERPRISE PORTFOLIO
- ----------------------------
OCTOBER 31, 1996
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
================================================================================
Smith Barney Income and Growth, Alliance Growth
and Van Kampen American Capital Enterprise Portfolios
================================================================================
Dear Shareholder:
We are pleased to bring you the annual report of the Travelers Series Fund Inc.
- -- Smith Barney Income and Growth, Alliance Growth and Van Kampen American
Capital Enterprise Portfolios, which covers the year ended October 31, 1996. In
this report, we summarize the period's prevailing economic and market conditions
and outline each Portfolio's investment strategy. A detailed summary of
performance and current holdings for each Portfolio can be found in the
appropriate sections that follow in the report.
Portfolio Highlights
Smith Barney Income and Growth Portfolio
For the year ended October 31, 1996, the Smith Barney Income and Growth
Portfolio had a total return of 24.55% as compared to the total return of 18.12%
for its Lipper growth fund peer group average over the same period. (Lipper
Analytical Services, Inc. is a major fund tracking organization.) In selecting
stocks for the Income and Growth Portfolio, we typically choose
large-capitalization companies that have an above-market dividend yield and
assets undervalued by the marketplace. We look to find a fundamental improvement
underway, such as a new product development or new management, the positive
effect of which has not yet been reflected in the stock price.
In addition, we seek to employ a conservative, highly disciplined and bottom-up
approach to investing. This means that individual stock selection is more
influential to the overall performance of the Portfolio rather than the present
or future condition of the economy, financial markets or particular market
sectors.
During the spring and summer of 1996, concerns about the pace of economic growth
caused an increase in volatility in the bond market. A generally positive stock
market was interrupted in July when earnings disappointments by a few prominent
corporations caused some investors to believe their stock prices had become
overvalued and this resulted in a relatively sharp sell-off. In retrospect,
those investor concerns proved unfounded which set the stage for the stock
market's current rally. Moreover, with inflation apparently under control, an
economy that is neither too hot nor too cold and stock funds taking in more than
$200 billion so far this calendar year, conditions in the financial markets
continue to be ideal.
1
<PAGE>
Two new additions to the Income and Growth Portfolio during the reporting period
that demonstrate its value approach to investing are Unilever NV and Union
Pacific Corp. With sales of approximately $50 billion in 1995, Unilever is one
of the largest consumer products companies in the world and recently reported a
net profit of $781 million for the third quarter. In our view, Unilever remains
an attractive and unique growth story because of its excellent overseas
distribution system, strong competitive position in the emerging markets and low
relative value versus its international peer group. After Unilever purchased
U.S.-based Helene Curtis earlier in the year, there were some questions as to
why the British and Dutch food and household products giant wanted to be in the
highly competitive, low margin U.S. personal-care products business.
Unilever didn't and subsequently announced plans to sell the U.S. portion of
Helene Curtis' business to a Japanese company while retaining the international
side. In our view, this was an excellent business maneuver by Unilever which
further strengthened Unilver's already formidable international presence. We
believe this maneuver demonstrates Unilever management's commitment to enhancing
shareholder value.
Union Pacific Corp. is another company whose stock, we believe, is undervalued
and thus has excellent upside potential. On October 15, 1996, the company
spun-off Union Pacific Resources, its natural gas exploration subsidiary, to
concentrate on improving the performance of Union Pacific Railroad, its core
railroad business. (In recent years, Union Pacific Railroad has been losing
market share to smaller, more efficient railroads.) In addition to spinning off
a cyclical and challenging natural resource business, Union Pacific Railroad
merged with Southern Pacific on September 11, 1996. We believe the combination
of these two railroads makes perfect strategic sense and will result in a
stronger and more profitable railroad, especially in the western region of the
U.S. where it owns most of the key routes.
Looking ahead, we expect that the U.S. economy will continue to grow slowly and
corporate earnings improvements will be harder to achieve. We therefore plan to
look for companies with strong overseas businesses that can grow earnings abroad
in order to offset what may be lower earnings from a slowing U.S. economy.
Alliance Growth Portfolio
For the twelve months ended October 31, 1996, the Alliance Growth Portfolio had
a total return of 26.55% as compared to the total return of 18.12% for its
Lipper growth fund peer group average over the same time period.
2
<PAGE>
The Alliance Growth Portfolio began the fiscal year overweighted in technology
and financial services company stocks. Because they believed these industries
offered both outstanding growth potential and reasonable values, the portfolio
managers increased the Alliance Growth Portfolio's emphasis in these industries
throughout the year.
The portfolio managers also believe that the communications and computer
industries are still in the relatively early stages of a multi-year boom driven
primarily by the transition from analog to digital technology which is taking
place throughout the world. The Alliance Growth Portfolio's significant holdings
in companies such as Cisco Systems, Intel and MFS Communications are companies
that they believe are well positioned to benefit from this ongoing revolution.
Another sector that performed well for the Alliance Growth Portfolio during the
reporting period is its broadly diversified holdings in financial services
companies, an industry with attractive long-term growth potential that continues
to benefit from lower interest rates.
The current environment of moderate U.S. economic growth, benign inflation and
declining interest rates remains positive for stocks. While the Portfolio's
managers expect no near-term changes, they do report that recent stock market
returns have been well above the long-term trend.
Van Kampen American Capital Enterprise Portfolio
For the year ended October 31, 1996, the Van Kampen American Capital Enterprise
Portfolio generated a total return of 23.35% as compared to its Lipper
Analytical Services, Inc. growth fund peer group total return average of 18.12%.
Managed with a consistent investment philosophy, the Van Kampen American Capital
Enterprise Portfolio looks to own companies with positive future fundamentals
and whose stocks are attractively priced. The portfolio managers believe that
the best return potential has usually been achieved by a disciplined focus on
stock selection. In selecting stocks, the Van Kampen American Capital Enterprise
Portfolio generally looks for stocks that meet at least one of the following
criteria:
- -- Accelerating earnings growth
- -- Consistent earnings growth
- -- Better-than-expected fundamentals
- -- A fundamental change in a company, industry or regulatory environment
3
<PAGE>
As long as their original criteria for purchasing a particular stock hold true
and its value remains relatively attractive, it usually remains in the Van
Kampen American Capital Enterprise Portfolio. With U.S. corporate growth slowing
down, it has become more difficult for many companies to maintain high earnings
growth. Because earnings outlook is a primary factor for selecting stocks, the
portfolio managers have been especially diligent in monitoring the outlook for
their holdings.
During the twelve months under review, the portfolio managers also believed that
the financial services industry was particularly attractive. With industry
consolidation helping to contain costs and increase profitability, many consumer
financial companies performed particularly well. The Van Kampen American Capital
Enterprise Portfolio benefited from favorable returns from Aames Financial
Corp., Money Store and RAC Financial Group. Moreover, the Portfolio's
performance was helped by private mortgage insurers such as CMAC Investment
Corp. and MGIC Investment Corp.
Another bright spot for the Van Kampen American Capital Enterprise Portfolio was
consumer distribution companies, particularly grocery stores. During the past
twelve months, Safeway, Vons Companies and Kroger were added to the portfolio in
order to capitalize on their consistent earnings growth potential. Supermarkets
provide basic products for which consumer demand had remained relatively
constant which we believe is a key to earnings and stock price stability in a
slower economy. In addition, the managers decreased their holdings in the
utilities industry, particularly their exposure to long-distance telephone
companies. Recent deregulation will make this industry more competitive in the
short term, which the managers of the Van Kampen American Capital Enterprise
Portfolio believe does not bode well for the telephone companies' future
earnings growth.
In closing, thank you for investing in the Smith Barney Income and Growth,
Alliance Growth and Van Kampen American Capital Enterprise Portfolios. We look
forward to helping you to achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and Chief Executive Officer
December 2, 1996
4
<PAGE>
================================================================================
Smith Barney Income and Growth Portfolio
- --------------------------------------------------------------------------------
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End of Income Capital Gain Total
Year Ended of Year Year Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $12.12 $14.84 $0.17 $0.05 24.55%
- --------------------------------------------------------------------------------
10/31/95 10.14 12.12 0.06 0.00 20.21
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.14 0.00 0.00 1.40+++
================================================================================
Total $0.23 $0.05
================================================================================
</TABLE>
================================================================================
Alliance Growth Portfolio
- --------------------------------------------------------------------------------
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End of Income Capital Gain Total
Year Ended of Year Year Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $13.28 $16.30 $0.09 $0.32 26.55%
- --------------------------------------------------------------------------------
10/31/95 10.65 13.28 0.02 0.10 26.19
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.65 0.00 0.00 6.50+++
================================================================================
Total $0.11 $0.42
================================================================================
</TABLE>
================================================================================
Van Kampen American Capital Enterprise Portfolio
- --------------------------------------------------------------------------------
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End of Income Capital Gain Total
Year Ended of Year Year Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
10/31/96 $12.89 $15.37 $0.04 $0.40 23.35%
- --------------------------------------------------------------------------------
10/31/95 10.38 12.89 0.02 0.03 24.74
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.38 0.00 0.00 3.80+++
================================================================================
Total $0.06 $0.43
================================================================================
</TABLE>
It is the Funds' policy to distribute dividends and capital gains, if any,
annually.
5
<PAGE>
================================================================================
Average Annual Total Return+
================================================================================
<TABLE>
<CAPTION>
Smith Barney Alliance Van Kampen
Income and Growth American Capital
Growth Portfolio Portfolio Enterprise Portfolio
================================================================================
<S> <C> <C> <C>
Year Ended 10/31/96 24.55% 26.55% 23.35%
- --------------------------------------------------------------------------------
6/16/94* through 10/31/96 19.01 25.02 21.76
================================================================================
</TABLE>
================================================================================
Cumulative Total Return+
================================================================================
<TABLE>
<CAPTION>
Smith Barney Alliance Van Kampen
Income and Growth American Capital
Growth Portfolio Portfolio Enterprise Portfolio
================================================================================
<S> <C> <C> <C>
6/16/94* through 10/31/96 51.82% 70.07% 59.72%
================================================================================
</TABLE>
+ Assumes the reinvestment of all dividends and capital gain distributions,
if any, at net asset value.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
* Commencement of operations.
6
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
Smith Barney Income and Growth Portfolio vs. S&P 500 Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPHIC]
<TABLE>
<CAPTION>
Smith Barney Income S&P 500
Date and Growth Portfolio Index
- ---- -------------------- -----
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $10,140 $10,324
10/95 $12,189 $13,053
10/31/96 $15,182 $16,018
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the Smith Barney
Income and Growth Portfolio on June 16, 1994 (commencement of operations),
assuming reinvestment of dividends and capital gains, if any, at net asset
value through October 31, 1996. The Standard & Poor's 500 Index ("S&P 500
Index") is an index of widely held common stocks listed on the New York and
American Stock Exchanges and the over-the-counter markets. Figures for the S&P
500 Index include reinvestment of dividends. The index is unmanaged and is not
subject to the same management and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
7
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
Alliance Growth Portfolio vs. S&P 500 Index
and Russell 1000 Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPHIC]
<TABLE>
<CAPTION>
Alliance
Growth S&P 500 Russell 1000
Date Portfolio Index Index
- ---- --------- ----- -----
<S> <C> <C> <C>
6/16/94 $10,000 $10,000 $10,000
10/94 $10,650 $10,324 $10,191
10/95 $13,428 $13,053 $12,612
10/31/96 $17,007 $16,018 $15,501
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the Alliance
Growth Portfolio on June 16, 1994 (commencement of operations), assuming
reinvestment of dividends and capital gains, if any, at net asset value
through October 31, 1996. The Standard & Poor's 500 Index ("S&P 500 Index")
is an index of widely held common stocks listed on the New York and
American Stock Exchanges and the over-the-counter markets. Figures for the
S&P 500 Index include reinvestment of dividends. The Russell 1000 Index is
comprised of 1,000 of the largest capitalized U.S. domiciled companies
whose common stock is traded on either the New York, American or NASDAQ
stock exchanges. The indexes are unmanaged and are not subject to the same
management and trading expenses of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
8
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
Van Kampen American Capital Enterprise Portfolio vs.
S&P 500 Index+
- --------------------------------------------------------------------------------
June 1994 -- October 1996
[GRAPHIC]
<TABLE>
<CAPTION>
Van Kampen
American
Capital
Enterprise S&P 500
Date Portfolio Index
- ---- ---------- -----
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $10,380 $10,324
10/95 $12,948 $13,053
10/31/96 $15,972 $16,018
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the Van Kampen
American Capital Enterprise Portfolio on June 16, 1994 (commencement of
operations), assuming reinvestment of dividends and capital gains, if any,
at net asset value through October 31, 1996. The Standard & Poor's 500
Index ("S&P 500 Index") is an index of widely held common stocks listed on
the New York and American Stock Exchanges and the over-the-counter markets.
Figures for the S&P 500 Index include reinvestment of dividends. The index
is unmanaged and is not subject to the same management and trading expenses
of a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
9
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments October 31, 1996
================================================================================
SMITH BARNEY INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
COMMON STOCKS -- 89.4%
Advertising -- 0.3%
17,500 MARC, Inc. $ 420,000
- --------------------------------------------------------------------------------
Aerospace -- 2.0%
20,000 Honeywell, Inc. 1,242,500
6,000 Lockheed Martin Corp. 537,750
8,000 United Technologies Corp. 1,030,000
- --------------------------------------------------------------------------------
2,810,250
- --------------------------------------------------------------------------------
Auto Related -- 2.4%
150,000 Federal Mogul Corp. 3,356,250
- --------------------------------------------------------------------------------
Banks -- 5.0%
40,000 Bankers Trust of New York Corp. 3,380,000
18,720 Chase Manhattan Corp. 1,605,240
70,000 Great Western Financial Corp. 1,960,000
- --------------------------------------------------------------------------------
6,945,240
- --------------------------------------------------------------------------------
Building Products -- 1.2%
60,000 Stanley Works 1,695,000
- --------------------------------------------------------------------------------
Capital Goods -- 5.6%
30,000 Corning Inc. 1,162,500
30,000 Emerson Electric Co. 2,670,000
40,000 General Electric Co. 3,870,000
- --------------------------------------------------------------------------------
7,702,500
- --------------------------------------------------------------------------------
Chemicals -- 5.1%
40,000 B.F. Goodrich Co. 1,695,000
20,000 Lyondell Petrochemical Co. 425,000
40,000 Monsanto Co. 1,585,000
80,000 Olin Corp. 3,400,000
- --------------------------------------------------------------------------------
7,105,000
- --------------------------------------------------------------------------------
Conglomerate -- 3.4%
80,000 National Service Industries, Inc. 2,760,000
40,000 Tenneco Inc. 1,980,000
- --------------------------------------------------------------------------------
4,740,000
- --------------------------------------------------------------------------------
Consumer Financing -- 1.3%
20,000 Household International, Inc. 1,770,000
- --------------------------------------------------------------------------------
Energy -- 14.4%
60,000 Ashland Inc. 2,550,000
80,000 Dresser Industries Inc. 2,630,000
50,000 Enron Global Power & Pipelines 1,406,250
15,000 Mobil Oil Corp. 1,751,250
70,000 Panenergy Corp. 2,695,000
8,000 Royal Dutch Petroleum Co. 1,323,000
17,000 Texaco Inc. 1,727,625
42,347 Union Pacific Resources Group 1,164,543
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
SMITH BARNEY INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Energy -- 14.4% (continued)
90,000 Unocal Corp. $ 3,296,250
60,000 Valero Energy Corp. 1,425,000
- --------------------------------------------------------------------------------
19,968,918
- --------------------------------------------------------------------------------
Financial Services -- 1.9%
80,000 Deluxe Corp. 2,610,000
- --------------------------------------------------------------------------------
Food/Supermarkets -- 4.2%
70,000 Giant Foods Inc., Class A Shares 2,362,500
80,000 Interstate Bakeries Corp. 3,390,000
- --------------------------------------------------------------------------------
5,752,500
- --------------------------------------------------------------------------------
Household Products -- 6.5%
40,000 Kimberly-Clark Corp. 3,730,000
35,000 Tambrands, Inc. 1,491,875
25,000 Unilever NV 3,821,875
- --------------------------------------------------------------------------------
9,043,750
- --------------------------------------------------------------------------------
Insurance -- 5.6%
40,000 Allstate Corp. 2,245,000
30,000 ITT Hartford Group 1,890,000
40,000 Provident Life & Accident Insurance Co. of America 1,485,000
40,000 St. Paul Cos., Inc. 2,175,000
- --------------------------------------------------------------------------------
7,795,000
- --------------------------------------------------------------------------------
Medical Products & Supplies -- 2.6%
16,000 Allegiance Corp. 300,000
80,000 Baxter International, Inc. 3,330,000
- --------------------------------------------------------------------------------
3,630,000
- --------------------------------------------------------------------------------
Mining -- 1.1%
10,000 Cleveland Cliffs, Inc. 410,000
20,000 Reynolds Metals Co. 1,125,000
- --------------------------------------------------------------------------------
1,535,000
- --------------------------------------------------------------------------------
Office Products -- 2.9%
4,000 Imation Corp. 109,500
50,000 Minnesota Mining & Manufacturing Co. 3,831,250
- --------------------------------------------------------------------------------
3,940,750
- --------------------------------------------------------------------------------
Paper -- 1.2%
40,000 International Paper Co. 1,710,000
- --------------------------------------------------------------------------------
Pharmaceuticals -- 7.1%
50,000 American Home Products Corp. 3,062,500
20,000 Bristol Myers Squibb 2,115,000
30,000 Eli Lilly & Co. 2,115,000
70,000 Pharmacia & Upjohn, Inc. 2,520,000
- --------------------------------------------------------------------------------
9,812,500
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
SMITH BARNEY INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Photography -- 2.9%
50,000 Eastman Kodak Co. $ 3,987,500
- --------------------------------------------------------------------------------
Publishing -- 1.0%
40,000 New York Times Co., Class A Shares 1,445,000
- --------------------------------------------------------------------------------
Real Estate Investment Trust -- 0.6%
20,000 Crescent Real Estate Equities Inc. 835,000
- --------------------------------------------------------------------------------
Retail/Department Stores -- 2.6%
50,000 J.C. Penney Corp. 2,625,000
20,000 Sears Roebuck & Co. 967,500
- --------------------------------------------------------------------------------
3,592,500
- --------------------------------------------------------------------------------
Telecommunications -- 2.5%
60,000 GTE Corp. 2,527,500
20,000 Nynex Corp. 890,000
- --------------------------------------------------------------------------------
3,417,500
- --------------------------------------------------------------------------------
Transportation -- 2.7%
13,000 Alexander Baldwin Inc. 320,125
60,000 Union Pacific Corp. 3,367,500
- --------------------------------------------------------------------------------
3,687,625
- --------------------------------------------------------------------------------
Utility -- 3.3%
60,000 Dominion Resources, Inc. 2,265,000
80,000 Entergy Corp. 2,240,000
- --------------------------------------------------------------------------------
4,505,000
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $107,755,608) 123,812,783
================================================================================
PREFERRED STOCKS -- 0.7%
HMO -- 0.4%
20,000 FHP International Corp., Convertible 5.00%, Series A 575,000
- --------------------------------------------------------------------------------
Mining -- 0.1%
6,000 Freeport McMoRan, Series B 197,250
- --------------------------------------------------------------------------------
Publishing -- 0.2%
10,095 Times Mirror Co., Series B 271,303
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost-- $939,458) 1,043,553
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
<C> <S> <C>
REPURCHASE AGREEMENT -- 9.9%
$13,719,000 Chase Manhattan Bank, 5.472% due 11/1/96;
Proceeds at maturity -- $13,721,085;
(Fully collateralized by U.S. Treasury Bills
due 10/16/97; Market value -- $13,993,380)
(Cost -- $13,719,000) 13,719,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $122,414,066*) $138,575,336
================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
COMMON STOCKS -- 93.5%
Aerospace -- 0.6%
106,000 Loral Space & Communications+ $ 1,682,750
- --------------------------------------------------------------------------------
Airlines -- 1.0%
119,000 Continental Airlines Inc.+ 2,989,875
- --------------------------------------------------------------------------------
Aluminum -- 0.5%
108,000 Century Aluminum Co. 1,458,000
- --------------------------------------------------------------------------------
Banks -- 5.3%
53,504 Chase Manhattan Corp. 4,587,968
57,000 First Chicago NBD Corp. 2,907,000
69,000 First Union Corp. 5,019,750
36,000 NationsBank Corp. 3,393,000
- --------------------------------------------------------------------------------
15,907,718
- --------------------------------------------------------------------------------
Chemicals -- 0.7%
47,000 WMX Technologies Inc. 1,615,625
10,000 W.R. Grace & Co.+ 530,000
- --------------------------------------------------------------------------------
2,145,625
- --------------------------------------------------------------------------------
Commercial Services -- 2.0%
237,750 CUC International Inc. 5,824,875
- --------------------------------------------------------------------------------
Computer Services -- 6.9%
210,600 Ceridian Corp.+ 10,451,025
95,000 Electronic Data Systems Corp. 4,275,000
203,375 Sterling Commerce Inc.+ 5,719,922
- --------------------------------------------------------------------------------
20,445,947
- --------------------------------------------------------------------------------
Diversified Operations -- 1.5%
177,900 Canadian Pacific Ltd. 4,491,975
- --------------------------------------------------------------------------------
Drugs -- 3.8%
10,000 Amgen Inc.+ 613,125
21,000 Biogen Inc.+ 1,564,500
72,400 Merck & Co., Inc. 5,514,900
35,000 Pfizer Inc. 2,896,250
11,000 Schering-Plough Corp. 704,000
- --------------------------------------------------------------------------------
11,292,775
- --------------------------------------------------------------------------------
Electronics -- 11.4%
243,400 Cisco Systems Inc.+ 15,060,375
102,000 Cypress Semiconductor Corp.+ 1,096,500
103,000 EMC Corp.+ 2,703,750
221,800 3Com Corp.+ 14,999,225
- --------------------------------------------------------------------------------
33,859,850
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Financial Services -- 5.4%
30,600 Dean Witter Discover & Co. $ 1,801,575
135,000 Federal National Mortgage Association 5,281,875
41,700 MBNA Corp. 1,574,175
499,400 Mercury Finance Co. 5,743,100
99,600 Union Acceptance Corp.+ 1,755,450
- --------------------------------------------------------------------------------
16,156,175
- --------------------------------------------------------------------------------
Food and Beverages -- 0.2%
21,000 Pepsico Inc. 622,125
- --------------------------------------------------------------------------------
Holding Company - Diversified -- 0.8%
46,000 ITT Corp.+ 1,932,000
15,900 TIG Holdings Inc. 459,112
- --------------------------------------------------------------------------------
2,391,112
- --------------------------------------------------------------------------------
Hospital Supplies & Services -- 1.6%
42,300 Medtronic Inc. 2,723,062
102,000 Quest Medical Inc.+ 650,250
33,000 St. Jude Medical Inc.+ 1,303,500
- --------------------------------------------------------------------------------
4,676,812
- --------------------------------------------------------------------------------
Insurance -- 8.1%
292,000 Acceptance Insurance Cos., Inc.+ 5,913,000
78,450 American International Group Inc. 8,521,631
27,000 PennCorp Financial Group Inc. 934,875
38,900 Progressive Corp. 2,674,375
62,100 The PMI Group Inc. 3,547,462
151,600 Twentieth Century Industries, Inc.+ 2,425,600
- --------------------------------------------------------------------------------
24,016,943
- --------------------------------------------------------------------------------
Office Equipment and Services -- 1.8%
37,500 Compaq Computer Corp.+ 2,610,937
60,600 Xerox Corp. 2,810,325
- --------------------------------------------------------------------------------
5,421,262
- --------------------------------------------------------------------------------
Oil Related -- 3.2%
1,143,000 Gulf Canada Resources Ltd.+ 7,858,125
36,700 National-Oilwell Inc.+ 853,275
31,102 Union Pacific Resources Group+ 855,293
- --------------------------------------------------------------------------------
9,566,693
- --------------------------------------------------------------------------------
Printing, Publishing and Broadcasting -- 3.3%
58,400 Argyle Television Inc., Class A Shares+ 1,620,600
413,500 Tele-Communications Inc., Class A Shares+ 5,142,906
46,125 Tele-Communications Liberty Media Group,
Class A Shares+ 1,187,719
56,200 Time Warner Inc. 2,093,450
- --------------------------------------------------------------------------------
10,044,675
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Protection - Safety -- 0.7%
114,000 ADT Ltd.+ $ 2,251,500
- --------------------------------------------------------------------------------
Transportation -- 0.6%
31,724 Union Pacific Corp. 1,780,496
- --------------------------------------------------------------------------------
Real Estate -- 6.1%
100,000 Arden Realty Group Inc.+ 2,262,500
203,200 Castle & Cooke Inc.+ 3,124,200
93,000 JP Realty Inc. 2,115,750
250,000 Koger Equity Inc.+ 3,906,250
131,900 Macerich Co. 2,901,800
74,000 Prentiss Properties Trust+ 1,526,250
55,000 Summit Properties Inc. 1,079,375
40,000 Sun Communities Inc. 1,145,000
- --------------------------------------------------------------------------------
18,061,125
- --------------------------------------------------------------------------------
Restaurants -- 0.8%
125,000 American General Hospitality 2,484,375
- --------------------------------------------------------------------------------
Retail -- 5.4%
209,500 Autozone Inc.+ 5,368,437
32,300 Lowe's Cos., Inc.+ 1,384,863
48,000 Micro Warehouse Inc.+ 1,104,000
77,800 Sears Roebuck & Co. 3,763,575
172,000 Wal-Mart Corp. 4,579,500
- --------------------------------------------------------------------------------
16,200,375
- --------------------------------------------------------------------------------
Technology - Computer Software -- 5.9%
70,000 Informix Corp.+ 1,553,125
39,000 Microsoft Corp.+ 5,352,750
100,700 Oracle Corp.+ 4,260,870
32,000 Seagate Technology Inc.+ 2,136,000
127,700 Sterling Software Inc.+ 4,150,250
- --------------------------------------------------------------------------------
17,452,995
- --------------------------------------------------------------------------------
Technology - Semi-Conductor -- 5.4%
129,400 Intel Corp. 14,217,825
104,400 National Semiconductor Corp.+ 2,009,700
- --------------------------------------------------------------------------------
16,227,525
- --------------------------------------------------------------------------------
Telecommunications -- 6.6%
15,400 Airtouch Communications Inc.+ 402,325
130,000 Comcast Corp. 1,917,500
40,000 Cox Communications Inc. Class A Shares+ 740,000
230,044 MFS Communications Co., Inc.+ 11,430,705
38,000 Millicom International Cellular SA+ 1,510,500
114,000 Teleport Communications Group Inc.+ 2,793,000
25,500 United States Cellular Corp.+ 749,063
- --------------------------------------------------------------------------------
19,543,093
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Tobacco -- 2.3%
83,800 Loews Corp. $ 6,758,725
- --------------------------------------------------------------------------------
Toy Manufacturing -- 0.4%
28,000 Hasbro Inc. 1,088,500
- --------------------------------------------------------------------------------
Utility-Telephone -- 1.2%
98,800 Telephone & Data Systems Inc. 3,458,000
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $236,278,925) 278,301,896
================================================================================
CONVERTIBLE PREFERRED STOCKS -- 0.8%
Drugs -- 0.1%
24,400 Gensia Pharmaceuticals Inc., Exchangeable $3.75++ 347,700
- --------------------------------------------------------------------------------
Electronics -- 0.7%
22,000 MFS Communications Co, Inc., Exchangeable 8.00% 1,908,500
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost -- $1,994,976) 2,256,200
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
CONVERTIBLE BONDS -- 1.4%
Electronics -- 1.4%
<S> <C> <C>
$ 1,120,000 Altera Corp., 5.75% due 6/15/02++ 1,548,400
1,300,000 3Com Corp., 10.25% due 11/1/01++ 2,700,750
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost-- $3,295,674) 4,249,150
================================================================================
SHORT-TERM INVESTMENTS -- 4.3%
3,900,000 Federal Home Loan Bank
Discount Note, 5.18% due 11/14/96 3,892,705
6,100,000 Federal Home Loan Bank
Discount Note, 5.17% due 11/21/96 6,082,479
3,000,000 Federal Home Loan Mortgage Corp.
Discount Note, 5.17% due 11/4/96 2,998,708
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost-- $12,973,892) 12,973,892
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $254,543,467*) $297,781,138
================================================================================
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
COMMON STOCKS -- 93.2%
Advertising -- 1.0%
21,900 Omnicom Group Inc. $ 1,089,525
- --------------------------------------------------------------------------------
Aircraft & Aerospace -- 2.8%
8,000 Allied Signal, Inc. 524,000
11,700 Boeing Co. 1,115,888
6,100 Textron, Inc. 541,375
6,900 United Technologies Corp. 888,375
- --------------------------------------------------------------------------------
3,069,638
- --------------------------------------------------------------------------------
Automotive -- 1.2%
16,200 Chrysler Corp. 544,725
10,700 Harley Davidson Co. 482,838
7,300 Lear Corp. 270,100
- --------------------------------------------------------------------------------
1,297,663
- --------------------------------------------------------------------------------
Banking-Major -- 4.1%
16,600 Bank of Boston Corp. 1,062,400
12,700 BankAmerica Corp. 1,162,050
19,100 Chase Manhattan Corp. 1,637,825
6,500 Citicorp 643,500
- --------------------------------------------------------------------------------
4,505,775
- --------------------------------------------------------------------------------
Broadcast Media and Cable Television -- 0.7%
26,850 Evergreen Media Corp., Class A Shares+ 724,950
- --------------------------------------------------------------------------------
Chemicals -- 2.1%
13,600 Cytec Industries Inc.+ 486,200
30,900 Praxair Inc. 1,367,325
11,100 Union Carbide Corp. 473,138
- --------------------------------------------------------------------------------
2,326,663
- --------------------------------------------------------------------------------
Communications -- 0.9%
12,200 Ascend Communications Co.+ 797,575
14,000 Octel Communications Corp.+ 222,250
- --------------------------------------------------------------------------------
1,019,825
- --------------------------------------------------------------------------------
Consumer Durables -- 1.5%
9,500 Black & Decker Corp. 355,063
10,500 Nike, Inc. 618,188
6,500 Procter & Gamble Co. 643,500
- --------------------------------------------------------------------------------
1,616,751
- --------------------------------------------------------------------------------
Consumer Services -- 2.7%
12,500 Career Horizons Inc.+ 507,812
36,100 Service Corp. 1,028,850
9,500 UCAR International Inc.+ 371,688
18,000 Von Companies, Inc. 996,750
- --------------------------------------------------------------------------------
2,905,100
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Electrical Products -- 1.4%
10,300 BMC Industries, Inc. $ 305,138
12,100 Sanmina Corp. 553,575
12,400 SCI Systems Inc.+ 616,900
- --------------------------------------------------------------------------------
1,475,613
- --------------------------------------------------------------------------------
Energy - Oil & Gas -- 3.7%
14,000 Apache Corp. 497,000
15,500 Texaco Inc. 1,575,188
26,800 Panenergy Corp. 1,031,800
18,000 Williams Co. 940,500
- --------------------------------------------------------------------------------
4,044,488
- --------------------------------------------------------------------------------
Energy - Oilfield Services -- 2.2%
10,000 Baker Hughes Inc. 356,250
18,100 Phillips Petroleum Co. 742,100
24,000 Smith International Inc. 912,000
5,300 Transocean Offshore, Inc. 335,225
- --------------------------------------------------------------------------------
2,345,575
- --------------------------------------------------------------------------------
Environmental Production/Services -- 1.6%
33,100 United Waste Systems Inc.+ 1,137,813
18,900 USA Waste Service Inc.+ 604,800
- --------------------------------------------------------------------------------
1,742,613
- --------------------------------------------------------------------------------
Financial Services -- 10.3%
13,250 Aames Financial Corp. 591,281
9,600 Alex Brown Inc. 544,800
21,000 Equifax, Inc. 624,750
86,000 Federal National Mortgage Association 3,364,750
6,500 First Bank System, Inc. 429,000
31,200 Green Tree Financial Corp. 1,236,300
18,800 Merrill Lynch & Co., Inc. 1,320,700
20,600 Money Store 530,450
15,300 RAC Financial Group, Inc. 918,000
9,800 Raychem Corp. 765,625
10,500 Student Loan Marketing Association 868,875
- --------------------------------------------------------------------------------
11,194,531
- --------------------------------------------------------------------------------
Gaming -- 0.2%
15,900 Trump Hotels & Casino Resort Inc.+ 252,413
- --------------------------------------------------------------------------------
Healthcare - Biotech -- 1.1%
15,300 Amgen Inc.+ 938,081
11,000 ESC Medical Systems, Ltd. 303,875
- --------------------------------------------------------------------------------
1,241,956
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Healthcare - Hospital/Medical Services -- 5.4%
12,000 Columbia HCA Healthcare Corp. $ 429,000
21,212 Health Management Association Inc.+ 466,664
22,700 HealthSouth Rehabilitation+ 851,250
19,100 Lincare Holdings Inc.+ 716,250
10,000 Medtronic Inc. 643,750
8,100 Mentor Corp. 179,213
18,200 Pfizer Inc. 1,506,050
13,900 Physician Reliance Network+ 81,662
19,200 Renal Treatment Centers Inc.+ 513,600
19,600 Universal Health Service, Inc. 490,000
- --------------------------------------------------------------------------------
5,877,439
- --------------------------------------------------------------------------------
Healthcare - Pharmaceuticals -- 5.4%
14,600 Bristol Myers Squibb Co. 1,543,950
27,100 Johnson & Johnson 1,334,675
22,200 Merck & Co., Inc. 1,645,575
15,700 Schering-Plough Corp. 1,004,800
9,900 Watson Pharmaceuticals Inc. 330,413
- --------------------------------------------------------------------------------
5,859,413
- --------------------------------------------------------------------------------
Hotels/Motels -- 1.8%
19,400 Hilton Hotels Corp. 589,275
17,100 Marriott International Inc. 972,563
12,000 Promus Hotel Corp. 381,000
- --------------------------------------------------------------------------------
1,942,838
- --------------------------------------------------------------------------------
Insurance -- 4.0%
10,900 CMAC Investment Corp. 753,463
20,300 Conseco Inc. 1,086,050
8,000 MGIC Investment Corp. 549,000
15,000 Penncorp Financial Group Inc. 519,375
39,400 SunAmerica, Inc. 1,477,500
- --------------------------------------------------------------------------------
4,385,388
- --------------------------------------------------------------------------------
Machine - Diversified -- 0.2%
2,900 Air Products & Chemical, Inc. 174,000
- --------------------------------------------------------------------------------
Manufacturing -- 2.6%
4,100 AK Steel Holding Corp. 145,550
18,200 Deere & Co. 759,850
10,400 Dover Corp. 534,300
7,700 Illinois Tool Works Inc. 540,925
8,100 Input/Output Inc. 240,975
12,100 Tyco International Ltd. 600,462
- --------------------------------------------------------------------------------
2,822,062
- --------------------------------------------------------------------------------
Retail - Department/Discount -- 2.3%
13,500 Ross Stores, Inc. 560,250
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Retail - Department/Discount-- 2.3% (continued)
26,500 Sears Roebuck & Co. $ 1,281,938
17,700 TJX Co. 708,000
- --------------------------------------------------------------------------------
2,550,188
- --------------------------------------------------------------------------------
Retail - Food/Drugs -- 4.6%
15,400 Boston Chicken, Inc. 560,175
51,400 Eckerd Drugs Corp.+ 1,426,350
15,000 General Nutrition Co. 273,750
20,200 Kroger Inc.+ 901,425
43,100 Safeway Inc.+ 1,847,913
- --------------------------------------------------------------------------------
5,009,613
- --------------------------------------------------------------------------------
Retail - Specialty -- 4.3%
13,000 Bed Bath & Beyond 328,250
4,000 Compuware 211,000
9,700 Fila Holding ADS 698,400
11,800 Gap Inc. 342,200
16,500 Liz Claiborne Inc. 697,125
16,500 Lowes Companies, Inc. 666,188
18,400 Nautica Enterprises Inc.+ 565,800
15,600 Tiffany & Co. 577,200
10,200 Tommy Hilfiger+ 530,400
- --------------------------------------------------------------------------------
4,616,563
- --------------------------------------------------------------------------------
Technology - Computer Software -- 8.0%
15,500 BMC Software+ 1,286,500
17,925 Cadence Design Systems Inc.+ 654,263
8,200 CHS Electronics, Inc. 90,200
38,350 Computer Associates International, Inc. 2,267,444
16,600 DST Systems Inc. 510,450
9,600 Lucent Technologies Inc.+ 451,200
13,500 Medic Computer Systems Inc.+ 381,375
11,400 Microsoft Corp.+ 1,564,650
7,800 Newbridge Networks Corp.+ 246,675
19,400 Oracle Systems+ 820,863
9,450 Wind River Systems+ 401,624
- --------------------------------------------------------------------------------
8,675,244
- --------------------------------------------------------------------------------
Technology - Computers & Office Equipment-- 3.3%
10,600 Compaq Computer Corp.+ 738,025
10,500 CompUSA 485,625
21,450 Staples Inc.+ 399,506
23,800 Sun Microsystems Inc. 1,451,800
19,000 US Office Products Co.+ 551,000
- --------------------------------------------------------------------------------
3,625,956
- --------------------------------------------------------------------------------
Technology - Semiconductors -- 2.8%
6,500 Altera Corp. 403,000
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedules of Investments (continued) October 31, 1996
================================================================================
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Technology - Semiconductors -- 2.8% (continued)
9,500 Analog Devices Inc.+ $ 247,000
10,000 Atmel Corp.+ 253,750
15,900 Intel Corp. 1,747,013
12,000 Linear Technology Co. 402,000
- --------------------------------------------------------------------------------
3,052,763
- --------------------------------------------------------------------------------
Technology - Telecommunications Equipment -- 4.4%
24,100 Cisco Systems Inc.+ 1,491,188
15,000 Tellabs, Inc. 1,276,875
21,500 3Com Corp.+ 1,453,930
9,600 U.S. Robotics Corp.+ 603,600
- --------------------------------------------------------------------------------
4,825,593
- --------------------------------------------------------------------------------
Telecommunications -- 2.1%
14,000 ADC Telecommunications Inc.+ 957,250
12,100 Aspect Telecommunications Corp.+ 719,950
19,800 LCI International Inc. 631,125
- --------------------------------------------------------------------------------
2,308,325
- --------------------------------------------------------------------------------
Tobacco -- 3.9%
46,100 Philip Morris Cos., Inc. 4,270,012
- --------------------------------------------------------------------------------
Utilities - Telephone -- 0.6%
28,000 WorldCom Inc.+ 682,500
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $86,149,829) 101,530,976
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 6.8%
$ 1,380,000 U.S. Treasury Bills, 4.81% due 11/14/96 1,377,603
755,000 U.S. Treasury Bills, 5.19% due 11/14/96 753,585
130,000 U.S. Treasury Bills, 5.16% due 11/27/96 129,515
155,000 U.S. Treasury Bills, 4.85% due 11/29/96 154,415
995,000 U.S. Treasury Bills, 4.86% due 12/19/96 988,546
500,000 U.S. Treasury Bills, 4.92% due 12/19/96 496,720
1,585,000 U.S. Treasury Bills, 5.21% due 12/26/96 1,572,384
1,375,000 U.S. Treasury Bills, 5.01% due 1/30/97 1,357,778
555,000 U.S. Treasury Bills, 5.21% due 2/3/97 547,450
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $7,377,996) 7,377,996
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $93,527,825*) $108,908,972
================================================================================
</TABLE>
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
21
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Statements of Assets and Liabilities October 31, 1996
============================================================================================================
Van Kampen
Smith Barney American
Income Alliance Capital
and Growth Growth Enterprise
Portfolio Portfolio Portfolio
============================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value
(Cost--$122,414,066, $254,543,467
and $93,527,825, respectively) $ 138,575,336 $ 297,781,138 $ 108,908,972
Cash 368 47,698 20,071
Receivable for securities sold -- 1,077,162 1,070,383
Receivable for Fund shares sold 445,266 239,819 134,452
Dividends and interest receivable 106,239 176,542 65,652
- ------------------------------------------------------------------------------------------------------------
Total Assets 139,127,209 299,322,359 110,199,530
- ------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased -- 4,422,735 6,204,629
Payable for Fund shares purchased 282,750 -- --
Management fees payable 89,150 195,276 241,888
Accrued expenses 42,990 108,462 61,884
- ------------------------------------------------------------------------------------------------------------
Total Liabilities 414,890 4,726,473 6,508,401
- ------------------------------------------------------------------------------------------------------------
Total Net Assets $ 138,712,319 $ 294,595,886 $ 103,691,129
============================================================================================================
NET ASSETS:
Par value of capital shares $ 94 $ 181 $ 67
Capital paid in excess of par value 118,970,155 239,034,502 88,402,636
Undistributed net investment income 1,807,717 353,728 312,534
Accumulated net realized gain (loss)
on security transactions 1,773,083 11,969,804 (405,255)
Net unrealized appreciation of investments 16,161,270 43,237,671 15,381,147
- ------------------------------------------------------------------------------------------------------------
Total Net Assets $ 138,712,319 $ 294,595,886 $ 103,691,129
============================================================================================================
Shares Outstanding 9,348,478 18,072,508 6,744,697
- ------------------------------------------------------------------------------------------------------------
Net Asset Value $14.84 $16.30 $15.37
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Statements of Operations For the Year Ended October 31, 1996
====================================================================================================================================
Van Kampen
Smith Barney American
Income Alliance Capital
and Growth Growth Enterprise
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,230,139 $ 2,106,181 $ 761,062
Interest 467,543 491,363 183,291
Less: Foreign withholding tax (13,386) (13,876) (627)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 2,684,296 2,583,668 943,726
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 564,232 1,624,602 482,803
Registration fees 26,580 53,745 20,200
Audit and legal 14,300 17,064 13,500
Shareholder communications 12,000 25,285 9,000
Shareholder and system servicing fees 7,000 6,365 6,000
Directors' fees 8,000 16,375 6,100
Custody 4,798 23,649 36,000
Other 768 10,154 3,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Expenses 637,678 1,777,239 576,603
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 2,046,618 806,429 367,123
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales 24,918,937 170,106,707 73,648,209
Cost of securities sold 23,145,854 158,209,112 73,934,864
- ---------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) 1,773,083 11,897,595 (286,655)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of year 2,551,104 8,264,697 1,338,823
End of year 16,161,270 43,237,671 15,381,147
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 13,610,166 34,972,974 14,042,324
- ---------------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments 15,383,249 46,870,569 13,755,669
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $17,429,867 $47,676,998 $14,122,792
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================
Statements of Changes in Net Assets
=======================================================================================
Years Ended October 31,
------------------------------
Smith Barney Income and Growth Portfolio 1996 1995
=======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,046,618 $ 494,918
Net realized gain 1,773,083 208,200
Increase in net unrealized appreciation 13,610,166 2,537,787
- ------------------------------------------------------------------------------------
Increase in Net Assets From Operations 17,429,867 3,240,905
- ------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (735,738) (51,640)
Net realized gains (199,857) --
- ------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (935,595) (51,640)
- ------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sales of shares 82,911,406 30,321,187
Net asset value of shares issued
for reinvestment of dividends 935,595 51,640
Cost of shares reacquired (992,481) (575,314)
- ------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 82,854,520 29,797,513
- ------------------------------------------------------------------------------------
Increase in Net Assets 99,348,792 32,986,778
NET ASSETS:
Beginning of year 39,363,527 6,376,749
- ------------------------------------------------------------------------------------
End of year* $138,712,319 $39,363,527
====================================================================================
* Includes undistributed net investment income of: $1,807,717 $496,837
====================================================================================
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Statements of Changes in Net Assets (continued)
====================================================================================================================================
Years Ended October 31,
-------------------------------------------
Alliance Growth Portfolio 1996 1995
====================================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 806,429 $ 655,256
Net realized gain 11,897,595 3,286,075
Increase in net unrealized appreciation 34,972,974 7,747,277
- --------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 47,676,998 11,688,608
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (966,222) (50,811)
Net realized gains (3,357,984) (231,524)
- --------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (4,324,206) (282,335)
- --------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sales of shares 137,418,319 83,125,087
Net asset value of shares issued
for reinvestment of dividends 4,324,206 282,335
Cost of shares reacquired (2,072,279) (326,769)
- --------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 139,670,246 83,080,653
- --------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets 183,023,038 94,486,926
NET ASSETS:
Beginning of year 111,572,848 17,085,922
- --------------------------------------------------------------------------------------------------------------------------------
End of year* $294,595,886 $111,572,848
================================================================================================================================
* Includes undistributed net investment income of: $353,728 $659,256
================================================================================================================================
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Statements of Changes in Net Assets (continued)
====================================================================================================================================
Years Ended October 31,
-------------------------------------------
Van Kampen American Capital Enterprise Portfolio 1996 1995
====================================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 367,123 $ 86,576
Net realized gain (loss) (286,655) 1,248,678
Increase in net unrealized appreciation 14,042,324 1,146,998
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 14,122,792 2,482,252
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (141,540) (13,157)
Net realized gains (1,367,253) (16,757)
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,508,793) (29,914)
- ---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sales of shares 57,624,883 26,651,648
Net asset value of shares issued
for reinvestment of dividends 1,508,793 29,914
Cost of shares reacquired (503,508) (2,420,846)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 58,630,168 24,260,716
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets 71,244,167 26,713,054
NET ASSETS:
Beginning of year 32,446,962 5,733,908
- ---------------------------------------------------------------------------------------------------------------------------------
End of year* $103,691,129 $32,446,962
=================================================================================================================================
* Includes undistributed net investment income of: $312,534 $86,951
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
================================================================================
Notes to Financial Statements
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Income and Growth, Alliance Growth and Van Kampen American
Capital Enterprise Portfolios ("Portfolios") are separate investment portfolios
of the Travelers Series Fund Inc. ("Fund"). The Fund, a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company and consists of these Portfolios and nine other
separate investment portfolios: AIM Capital Appreciation, Smith Barney
International Equity, Smith Barney Pacific Basin, TBC Managed Income, Putnam
Diversified Income, GT Global Strategic Income, Smith Barney High Income, MFS
Total Return and Smith Barney Money Market Portfolios. Shares of the Fund are
offered only to insurance company separate accounts which fund certain variable
annuity and variable life insurance contracts. The financial statements and
financial highlights for the other portfolios are presented in separate annual
reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales price was reported and U.S. Government
and Agency obligations are valued at the mean between bid and ask prices; (c)
securities maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates market value; (d) 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; (e)
interest income is recorded on the accrual basis; (f) dividends and
distributions to shareholders are recorded on the ex-dividend date; (g) gains or
losses on the sale of securities are calculated by using the specific
identification method; (h) expenses are charged to each Portfolio; (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, 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 bank; (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 October 31, 1996, reclassifications
were made to the capital accounts of the Alliance Growth and Van Kampen American
Capital Enterprise Portfolios to reflect permanent book/tax
27
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
differences and income and gains available for distributions under income tax
regulations. Accordingly, a portion of undistributed net investment income
amounting to $58 has been reclassified to paid-in capital for the Alliance
Growth Portfolio. Net investment income, net realized gains and net assets were
not affected by this change; (k) the Portfolios intend to comply with the
requirements of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
and (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. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as the investment manager of the Smith Barney
Income and Growth Portfolio ("SBIG"). Travelers Investment Adviser, Inc.
("TIA"), an affiliate of SBMFM, acts as the investment manager of the Alliance
Growth ("AGP") and the Van Kampen American Capital Enterprise ("VKACEP")
Portfolios, pursuant to the Transfer and Assumption of Management Agreement,
from SBMFM to TIA, dated September 3, 1996. SBIG pays SBMFM a management fee
calculated at annual rate of 0.65% of the average daily net assets of the
Portfolio. AGP and VKACEP pay TIA a management fee calculated at an annual rate
of 0.80% and 0.70% of the average daily net assets of each Portfolio,
respectively. These fees are calculated daily and paid monthly.
TIA has entered into sub-advisory agreements with Alliance Capital
Management L.P. ("Alliance Capital") and Van Kampen American Capital Asset
Management, Inc. ("VKAC"). Pursuant to each sub-advisory agreement, Alliance
Capital and VKAC are responsible for the day-to-day portfolio operations and
investment decisions for AGP and VKACEP, respectively. As a result, TIA will pay
Alliance Capital and VKAC a fee calculated at the annual rate of 0.375% and
0.325% of the average daily net assets of AGP and VKACEP, respectively. These
fees are calculated daily and paid monthly.
TIA has entered into a sub-administrative services agreement with SBMFM.
From its management fee TIA pays SBMFM, as sub-administrator, a fee in the
amount equal to an annual rate of 0.10% of the average daily net assets of AGP
and VKACEP.
28
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
SBMFM provides certain administrative services, including overseeing the
Portfolio's non-investment operations and its relations with other service
providers and providing executive and other officers to Portfolio.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the year ended October 31, 1996, SB received brokerage
commissions of $124,340.
All officers and two Directors of the Fund are employees of SB.
3. INVESTMENTS
During the year ended October 31, 1996, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were:
<TABLE>
<CAPTION>
Van Kampen
Smith Barney American
Income and Alliance Capital
Growth Growth Enterprise
================================================================================
<S> <C> <C> <C>
Purchases $ 98,122,934 $300,492,948 $130,549,803
- --------------------------------------------------------------------------------
Sales 24,918,937 170,106,707 73,648,209
================================================================================
</TABLE>
At October 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
<TABLE>
<CAPTION>
Van Kampen
Smith Barney American
Income and Alliance Capital
Growth Growth Enterprise
================================================================================
<S> <C> <C> <C>
Gross unrealized appreciation* $17,565,552 $50,388,058 $16,579,265
Gross unrealized depreciation* (1,404,282) (7,150,387) (1,198,118)
- --------------------------------------------------------------------------------
Net unrealized appreciation* $16,161,270 $43,237,671 $15,381,147
================================================================================
</TABLE>
* Substantially the same forFederal income tax purposes.
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and its custodian takes possession of) U.S.
Government Securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
29
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
5. CAPITAL SHARES
At October 31, 1996, the Fund had six billion shares authorized with a par
value of $0.00001 per share. Each share of a Portfolio represents an equal
proportionate interest in that Portfolio with each other share of the same
Portfolio and has an equal entitlement to any dividends and distributions made
by the Portfolio.
Transactions in shares of each Portfolio were as follows:
Year Ended Year Ended
October 31, 1996 October 31, 1995
================================================================================
Smith Barney Income and Growth
Shares sold 6,099,448 2,665,475
Shares issued on reinvestment 72,831 5,253
Shares redeemed (71,100) (52,420)
- --------------------------------------------------------------------------------
Net Increase 6,101,179 2,618,308
================================================================================
Alliance Growth
Shares sold 9,488,140 6,799,083
Shares issued on reinvestment 322,568 27,438
Shares redeemed (142,507) (26,705)
- --------------------------------------------------------------------------------
Net Increase 9,668,201 6,799,816
================================================================================
Van Kampen American Capital Enterprise
Shares sold 4,145,450 2,171,971
Shares issued on reinvestment 117,704 2,968
Shares redeemed (35,328) (210,523)
- --------------------------------------------------------------------------------
Net Increase 4,227,826 1,964,416
================================================================================
6. CAPITAL LOSS CARRYFORWARD
At October 31, 1996, VKACEP had, for Federal income tax purposes,
approximately $367,000 of capital loss carryforwards available to offset future
realized gains expiring October 31, 2004. To the extent that these carryforward
losses are used to offset capital gains, it is probable that the gains so offset
will not be distributed.
30
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Smith Barney Income and Growth Portfolio 1996 1995 1994(1)
=================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $12.12 $10.14 $10.00
- ---------------------------------------------------------------------------------
Income From Operations:
Net investment income (2) 0.32 0.28 0.11
Net realized and unrealized gain 2.62 1.76 0.03
- ---------------------------------------------------------------------------------
Total Income From Operations 2.94 2.04 0.14
- ---------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.17) (0.06) --
Net realized gains (0.05) -- --
- ---------------------------------------------------------------------------------
Total Distributions (0.22) (0.06) --
- ---------------------------------------------------------------------------------
Net Asset Value, End of Year $14.84 $12.12 $10.14
- ---------------------------------------------------------------------------------
Total Return 24.55% 20.21% 1.40%+++
- ---------------------------------------------------------------------------------
Net Assets, End of Year (000s) $138,712 $39,364 $6,377
- ---------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.73% 0.73% 0.73%+
Net investment income 2.35 2.70 2.82+
- ---------------------------------------------------------------------------------
Portfolio Turnover Rate 32% 38% 2%
- ---------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (3) $0.06 $0.07 --
=================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
31, 1995 and the period ended October 31, 1994. In addition, the Manager
has reimbursed the Portfolio for $13,120 in expenses for the period ended
October 31, 1994. If such fees were not waived and expenses not reimbursed,
the per share decreases in net investment income and the ratios of expenses
to average net assets would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -------------------
<S> <C> <C>
1995 $0.02 0.94%
1994 0.05 2.08+
</TABLE>
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
31
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Alliance Growth Portfolio 1996 1995 1994(1)
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $13.28 $10.65 $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income (2) 0.04 0.14 0.06
Net realized and unrealized gain 3.39 2.61 0.59
- --------------------------------------------------------------------------------
Total Income From Operations 3.43 2.75 0.65
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.09) (0.02) --
Net realized gains (0.32) (0.10) --
- --------------------------------------------------------------------------------
Total Distributions (0.41) (0.12) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $16.30 $13.28 $10.65
- --------------------------------------------------------------------------------
Total Return 26.55% 26.19% 6.50%+++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $294,596 $111,573 $17,086
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.87% 0.90% 0.88%+
Net investment income 0.39 1.24 1.47+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 88% 78% 37%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (3) $0.05 $0.06 --
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
31, 1995 and the period ended October 31, 1994. In addition, the Manager
has reimbursed the Portfolio for $3,500 in expenses for the period ended
October 31, 1994. If such fees were not waived and expenses not reimbursed,
the per share decreases in net investment income and the ratios of expenses
to average net assets would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -----------------
<S> <C> <C>
1995 $0.01 0.97%
1994 0.03 1.76+
</TABLE>
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
32
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Van Kampen American
Capital Enterprise Portfolio 1996 1995 1994(1)
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $12.89 $10.38 $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income (2) 0.05 0.03 0.03
Net realized and unrealized gain 2.87 2.53 0.35
- --------------------------------------------------------------------------------
Total Income From Operations 2.92 2.56 0.38
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.04) (0.02) --
Net realized gains (0.40) (0.03) --
- --------------------------------------------------------------------------------
Total Distributions (0.44) (0.05) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $15.37 $12.89 $10.38
- --------------------------------------------------------------------------------
Total Return 23.35% 24.74% 3.80%+++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $103,691 $32,447 $5,734
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.83% 0.88% 0.84%+
Net investment income 0.53 0.65 0.79+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 112% 180% 55%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (3) $0.06 $0.05 --
================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
31, 1995 and the period ended October 31, 1994. In addition, the Manager
has reimbursed the Portfolio for $19,007 in expenses for the period ended
October 31, 1994. If such fees were not waived and expenses not reimbursed,
the per share decreases in net investment income and the ratios of expenses
to average net assets would have been as follows:
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -----------------
<S> <C> <C>
1995 $0.06 1.26%
1994 0.07 2.66+
</TABLE>
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
33
<PAGE>
================================================================================
Independent Auditors' Report
================================================================================
The Shareholders and Board of Directors of
Travelers Series Fund Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Smith Barney Income and Growth,
Alliance Growth and Van Kampen American Capital Enterprise Portfolios of
Travelers Series Fund Inc. as of October 31, 1996, the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and financial highlights for
each of the years in the two-year period then ended and for the period from June
16, 1994 (commencement of operations)to October 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Smith Barney Income and Growth, Alliance Growth and VanKampen American Capital
Enterprise Portfolios of Travelers Series Fund Inc. as of October 31, 1996, the
results of their operations for the year then ended, the changes in their net
assets for each of the years in the two-year period then ended and financial
highlights for each of the years in the two-year period then ended and for the
period from June 16, 1994 to October 31, 1994, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
December 17, 1996
34
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On October 25, 1996, a Special Meeting of the Shareholders of the Van
Kampen American Capital Enterprise Portfolio was held for the purpose of voting
on the following matter:
1. To consider a new sub-advisory agreement to take effect following the
consummation of the Merger of VK/AC Holding Inc., the indirect parent
corporation of the Portfolio's investment sub-adviser, and Morgan Stanley Inc.
The results of the vote were as follows:
<TABLE>
<CAPTION>
% of Votes % of Votes % of
Votes For Shares Voted* Against Shares Voted* Abstained Shares Voted*
================================================================================
<S> <C> <C> <C> <C> <C>
5,578,635.914 89.997% 152,425.810 2.459% 467,629.246 7.544%
</TABLE>
* There were no broker non-votes.
35
<PAGE>
================================================================================
Tax Information (unaudited)
================================================================================
The amount of long-term capital gains paid by SBIG, AGP and VKACEP to its
shareholders for the fiscal year ended October 31, 1996, was $199,857, $118,122
and $134,050, respectively.
36
<PAGE>
TRAVELERS SERIES
FUND INC.
DIRECTORS
Victor K. Atkins
Jessica M. Bibliowicz
Alger B. Chapman
A.E. Cohen
Robert A. Frankel
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
James M. Shuart
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President
James B. Conheady
Vice President
Martin Hanley
Vice President
Jeffrey J. Russell
Vice President
Bruce D. Sargent
Vice President
Phyllis Zahorodny
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- --------------------------------
A Member of TravelersGroup[LOGO]
INVESTMENT MANAGERS
Smith Barney Mutual Funds
Management Inc. and
Travelers Investment Adviser, Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
PNC Bank, N.A.
ANNUITY ADMINISTRATION
Travelers Annuity Investor Services
5 State House Square
1 Tower Square
Hartford, CT 06183
This report is submitted for the general
information of the shareholders of Travelers
Series Fund Inc. It is not authorized for
distribution to prospective investors unless
accompanied or preceded by a current Prospectus
for the Fund, which contains information
concerning the Fund's investment policies and
expenses as well as other pertinent information.
TRAVELERS SERIES
FUND INC.
388 Greenwich Street
New York, New York 10013
IN0251 12/96