- ------------------------------------
Smith Barney High Income and
Putnam Diversified Income Portfolios
- ------------------------------------
Dear Shareholder:
We are pleased to provide the semi-annual report for the Travelers Series Fund
Inc.-Smith Barney High Income and Putnam Diversified Income Portfolios
("Portfolio(s)") for the period ended April 30, 1997. For your convenience, we
have summarized the period's prevailing economic and market conditions and
outlined each Portfolio's investment strategy. A detailed summary of performance
and current holdings can be found in the appropriate sections that follow.
Portfolio Highlights
Smith Barney High Income Portfolio
The Smith Barney High Income Portfolio generated a total return based on net
asset value of 5.80% for the six months ended April 30, 1997 and 12.00% based on
net asset value for the twelve months ended April 30, 1997. This compares to its
Lipper Analytical Services, Inc. six-month peer group average of 4.13% and
one-year peer group average of 10.34%, respectively. (Lipper Analytical Services
Inc., is a major mutual fund performance tracking organization.)
After a rather difficult three quarters in 1996, the fixed income markets began
to rally in the fourth quarter of 1996, with strong performance gains by
investment grade bonds and U.S. Treasury bonds. An apparent slowdown in U.S.
economic growth over the fourth quarter of 1996, combined with favorable
inflation data, helped to bolster the domestic fixed income markets. The bond
market rally was also fueled by the Federal Reserve Board's ("Fed") decision to
remain on the sidelines and not raise interest rates. However, since early
December, renewed inflation fears caused interest rates to rise. In retrospect,
fourth quarter economic growth was relatively strong, but the overall rate of
inflation remained well behaved.
In the first quarter of 1997 the U.S. economy has remained strong with only a
modest upturn in inflation. However, the Fed Chairman Alan Greenspan voiced
concern over continued strong economic growth in the first quarter and the
potential for higher inflation if the economy were to further strengthen in the
first quarter of 1997. Consequently, the Fed raised short-term interest rates by
a modest 0.25% (25 basis points) in March to slow down economic growth and
prevent any increase in inflationary pressures over the upcoming months. In the
opinion of the manager, the Fed Chairman's public comments and subsequent
actions caused a widespread sell-off in both the equity and bond markets that
began earlier this year. Despite Greenspan's concerns over potentially higher
inflation, many government reports indicated that inflation had remained well
contained during the first three months of 1997.
1
<PAGE>
Over the past year, the high yield bond market generally outperformed the more
interest-rate sensitive, longer-maturity Treasury and investment grade bond
markets. Specifically, the better quality issues (BB/Ba and B/B rated) turned in
the strongest performance since these issues tend to be less vulnerable to a
market volatility than lower-quality issues. Since the lower-quality high-yield
issues tend to trade more closely with the stock market, the lower-quality
issues could underperform the better quality issues, especially if the equity
market trades downward. However, because of the Portfolio's relatively
conservative investment philosophy, the manager tends to avoid these
lower-quality high-yield issues, which helped the Portfolio's relative
performance.
The manager also expects increased market volatility to continue over the near
term. While he believes the Fed will probably raise short-term interest rates
further during 1997, he still expects the economy to grow moderately over the
near future with no serious threat of either an increase in inflation or an
economic recession. In addition, the manager remains convinced the Fed can
successfully engineer an economic slowdown and effectively keep inflation under
control. Nevertheless, issue selectivity has become even more important when
seeking investment ideas given the fact the high yield bond market is fully
valued and the uncertainty over the future direction of the U.S. economy and Fed
monetary policy.
While the manager's near-term outlook for the high yield bond market is
cautious, he remains optimistic about the market's total return prospects in the
second half of 1997. In a moderately growing economy, stronger high yield
companies should perform well. These companies tend to be in industries that
continue to benefit from new technology.
The High Income Portfolio's manager has found many attractive growth
opportunities in the telecommunications, media, cable TV and oil and natural gas
industries, and the Portfolio is overweighted in these areas. Some of the issues
that the manager continues to favor include Time Warner Inc. (entertainment and
media), Brooks Fiber (alternate local telecommunications provider), Teleport
Communications Group (telecommunications), and Parker Drilling Company
(international contract drilling). All of these companies continue to generate
improving results either through increased market share, improved internal cost
controls, or a combination of both.
During the past year, the manager sold his investments in Harvard Industries,
Inc. (automotive components), Moblemedia (telecommunications), Metrocall, Inc.
(telecommunications), and Mobile Telecommunications Technologies Corp. (wireless
messaging), because of their deteriorating results.
2
<PAGE>
Putnam Diversified Income Portfolio
For the six months ended April 30, 1997, the Putnam Diversified Income Portfolio
had a total return of 1.21%. In comparison, the Portfolio's Lipper Analytical
Services, Inc. peer group returned an average of 1.78% for the same period.
During the period covered by this report, the Portfolio has continued to achieve
its investment objectives of seeking high current income with capital
preservation by investing in U.S. government securities, high-yield bonds and
international fixed-income securities.
For most of the first half of the reporting period, the U.S. financial markets
enjoyed a continuing trend of steady growth, falling interest rates and low
inflation. In March of 1997, however, the tables turned. In the midst of a
sharply declining U.S. stock market, the Fed raised the Federal funds rate by a
quarter percentage point in what appeared to be the first in a series of
interest-rate increases. (The Federal funds rate is the interest rate banks
charge each other for overnight loans and is a closely watched indicator of the
direction of the interest rates).
Both the stock market correction and the fed funds rate increase -- a
much-anticipated preemptive move by the Fed to help keep inflationary pressures
in check -- were viewed as necessary events in a U.S. economy that may have been
overheating. Fortunately, the Portfolio was strategically positioned in
anticipation of these events. Expecting these changing conditions, the managers
began to adjust allocations in February, taking a more defensive position in
U.S. government bonds and trimming back exposure to high-yield bonds.
(High-yield bonds tend to mirror the direction of the stock market, and so this
decision enabled the managers to help cushion the Portfolio against the expected
stock market correction.) Meanwhile, the Portfolio's holdings in international
bonds, specifically its investments in select European countries, generally
produced attractive results throughout most of the reporting period.
In addition, the Portfolio's high-yield bond holdings made a handsome
contribution to its performance the past six months. Because the managers began
reducing the Portfolio's high-yield bond exposure before the stock market
correction began, they were able to realize gains on most sales. Among the
period's strongest performers in this area were bonds of competitive local
exchange carriers, or CLECs -- smaller telephone companies that compete with the
large telephone providers such as the Bell operating companies, within local
markets. CLECs benefited substantially from the Telecommunications Act of 1996
that allowed them to enter local markets on a much wider basis. Also
contributing to the Portfolio's performance were the bonds of select foreign
cellular phone companies that are profiting from the ever-increasing numbers of
consumers who are using cellular phones as a replacement for traditional
wireline telephones.
3
<PAGE>
The Portfolio's U.S. government sector consists primarily of mortgage-backed
securities and U.S. Treasuries in various proportions. Throughout the period
under review, the managers have maintained a relatively heavy weighting in
mortgage-backed securities that have been offering high yields and, in the
opinion of the managers, mortgage-backed securities should continue to offer
greater price appreciation potential than U.S. Treasuries going forward.
The Portfolio's international bond sector benefited from its holdings in
high-yielding markets in Europe such as Italy, Spain and Sweden. Because of
their attractive yield potential, the Portfolio's managers focused on bonds in
these peripheral countries rather than core European countries. These countries
had been making significant efforts to rein in their fiscal budgets in order to
gain acceptance into the European Monetary Union ("EMU"). As a result of these
efforts, Italy, Spain and Sweden have made significant reductions in their
inflation rates and that resulted in lower bond yields. As yields declined, the
prices of these bonds rose.
Towards the middle of the reporting period, the managers began to reduce the
Portfolio's exposure in these peripheral European countries, taking profits and
shifting its focus towards core European markets such as Germany and France.
They are pleased to report that this repositioning was successful as these
countries delivered strong performance of late. On the other hand, the
Portfolio's low exposure to Japanese bonds had a negative impact on its
performance as the reporting period drew to a close as Japanese bonds began to
rally.
In bond markets around the world, the managers of the Putnam Diversified Income
Portfolio expect a modest acceleration in economic growth with low inflation for
the remainder of 1997. In the United States, they anticipate that concerns about
possibly higher inflation may result in a series of interest-rate increases in
the months ahead. In closing, the managers believe that the Putnam Diversified
Income Portfolio is positioned appropriately for this environment and its
multi-sector allocation strategy should enable it to continue to take advantage
of global bond market opportunities.
4
<PAGE>
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
May 23, 1997
5
<PAGE>
================================================================================
Smith Barney High Income Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $12.09 $12.06 $0.66 $0.06 5.80%++
- --------------------------------------------------------------------------------
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 $1.38 $0.06
================================================================================
</TABLE>
================================================================================
Putnam Diversified Income Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $11.99 $11.49 $0.56 $0.09 1.21%++
- --------------------------------------------------------------------------------
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 $1.04 $0.22
================================================================================
</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>
Six Months Ended 4/30/97++ 5.80% 1.21%
- --------------------------------------------------------------------------------
Year Ended 4/30/97 12.00 7.30
- --------------------------------------------------------------------------------
6/16/94* through 4/30/97 11.46 8.98
================================================================================
</TABLE>
================================================================================
Cumulative Total Return +
================================================================================
<TABLE>
<CAPTION>
Smith Barney Putnam
High Diversified
Income Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
6/16/94* through 4/30/97 36.60% 28.04%
================================================================================
</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.
6
<PAGE>
================================================================================
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 -- April 1997
[GRAPHIC]
<TABLE>
<CAPTION>
Salomon Brothers
Smith Barney High Intermediate High
Income Portfolio Yield Index
---------------- -----------------
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $10,070 $10,113
10/95 $11,510 $11,723
10/96 $12,912 $12,690
4/30/97 $13,660 $13,325
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares of the Smith Barney
High Income Portfolio on June 16, 1994 (commencement of operations),
assuming reinvestment of dividends and capital gains, if any, at net asset
value through April 30, 1997. 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.
7
<PAGE>
================================================================================
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 -- April 1997
[GRAPHIC]
<TABLE>
<CAPTION>
Salomon Brothers Lehman Brothers
Putnam Diversified Non-U.S. World Aggregate
Income Portfolio Government Bond Index -- Unhedged Bond Index
---------------- --------------------- ---------------
<S> <C> <C> <C>
6/16/94 $10,000 $10,000 $10,000
10/94 $10,180 $10,554 $10,052
10/95 $11,560 $12,155 $11,626
10/96 $12,650 $12,818 $12,305
4/30/97 $12,804 $13,400 $12,515
</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 April 30, 1997. 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.
8
<PAGE>
================================================================================
Schedules of Investments (unaudited) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
CORPORATE BONDS AND NOTES -- 84.9%
================================================================================
<S> <C> <C> <C>
Aerospace/Defense -- 1.5%
$ 500,000 Ba2* Airplanes Pass Through Trust Corporate
Collateralized Mortgage Obligation,
Series D, 10.875% due 3/15/19 $ 552,780
350,000 B Howmet Corp., Sr. Sub. Notes, 10.000%
due 12/1/03 378,000
300,000 B UNC Inc., Sr. Sub. Notes, 11.000% due 6/1/06 352,875
- --------------------------------------------------------------------------------
1,283,655
- --------------------------------------------------------------------------------
Broadcasting -- 11.6%
825,000 NR Australis Holding Ltd., Sr. Discount Notes,
step bond to yield 15.000% due 11/1/02+ 497,063
1,000,000 NR Australis Media Ltd. Sr. Discount Notes,
step bond to yield 12.574% due 5/15/03 600,000
Cablevision Systems Corp., Sr. Sub. Debentures:
725,000 B 10.750% due 4/1/04 748,563
200,000 B 9.875% due 2/15/13 193,750
900,000 B2* Comcast UK Cable, Sr. Unsecured Discount
Debentures, step bond to yield 11.184%
due 11/15/07 627,750
1,000,000 B2* Innova, Sr. Notes, 12.875% due 4/1/07+ 982,500
450,000 BBB- Le Groupe Videotron, Sr. Notes, 10.625%
due 2/15/05 498,375
1,050,000 B Marcus Cable Capital Corp., Sr. Discount Notes,
step bond to yield 11.488% due 8/1/04 874,125
150,000 BB Multicanal SA, Notes, 10.500% due 2/1/07+ 151,500
Rogers Cablesystems:
375,000 BB+ Sr. Secured Second Priority Debentures,
10.000% due 12/1/07 393,281
1,000,000 BB- Sr. Sub. Debentures, 11.000% due 12/1/15 1,060,000
450,000 BB- Rogers Communications, Inc., Debentures, 10.875%
due 4/15/04 472,500
300,000 BBB SCI Television Inc., Sr. Secured Notes,
11.000% due 6/30/05 316,500
400,000 B- SFX Broadcasting, Sr. Sub. Notes, 10.750%
due 5/15/06 418,000
300,000 Ba3* TV Azteca, Sr. Notes, 10.500% due 2/15/07+ 292,875
United International Holdings, Inc.:
500,000 B- Discount Notes, zero coupon bond to yield
12.000% due 11/15/99 365,000
750,000 B- Sr. Discount Notes, zero coupon bond to
yield 12.634% due 11/15/99 548,438
800,000 B3* United International Holdings Inc.,
Australia/Pacific, Sr. Discount Notes, step
bond to yield 14.000% due 5/15/06 416,000
400,000 B+ Videotron Holdings PLC, Sr. Discount Notes,
step bond to yield 10.996% due 8/15/05 325,000
700,000 B- Wireless One Inc., Sr. Notes, 13.000%
due 10/15/03 462,875
- --------------------------------------------------------------------------------
10,244,095
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
================================================================================
Schedules of Investments (unaudited)(continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
CORPORATE BONDS AND NOTES -- 84.9%
================================================================================
<S> <C> <C> <C>
Building/Construction -- 0.4%
$ 350,000 BB- American Standard Inc., Sr. Sub. Debentures,
11.375% due 5/15/04 $ 372,750
- --------------------------------------------------------------------------------
Chemical -- 2.4%
500,000 B1* NL Industries, Sr. Secured Notes, zero
coupon bond to yield 12.280% due 10/15/05 535,000
500,000 BB Pt. Polysindo Eka Perkasa, Sr. Secured Notes,
13.000% due 6/15/01 558,750
500,000 BB- Terra Industries, Inc., Sr Notes, 10.500%
due 6/15/05+ 536,250
500,000 NR Texas Petrochemical Corp., Sr. Sub. Notes,
11.125% due 7/1/06 525,625
- --------------------------------------------------------------------------------
2,155,625
- --------------------------------------------------------------------------------
Communications -- 21.0%
400,000 B- All American Communications, Inc., Sr.
Sub. Notes, 10.875% due 10/15/01 401,500
1,600,000 B- Allbritton Communications Corp., Sr.
Sub. Debentures, 11.500% due 8/15/04 1,684,000
Brooks Fiber Properties, Sr. Discount Notes:
750,000 NR Step bond to yield 11.209% due 3/1/06 489,375
1,900,000 NR Step bond to yield 11.832% due 11/1/06 1,182,750
1,500,000 B3* Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 13.220% due 12/15/05 956,250
1,000,000 NR Colt Telecom Group, step bond to yield
12.000% due 12/15/06 585,000
300,000 NR Dobson Communications, Sr. Notes, 11.750%
due 4/15/07+ 285,750
300,000 B+ Fonorola Inc., Sr. Secured Notes, 12.500%
due 8/15/02 324,000
500,000 B Globalstar LP, Notes, 11.375% due 2/15/04 497,500
Globo Communicacoes, Notes:
450,000 BB- 9.875% due 12/20/04 456,188
450,000 BB- 10.500% due 12/20/06+ 460,125
1,000,000 NR Intelcom Group Inc., Sr. Discount Notes,
step bond to yield 11.990% due 5/1/06 621,250
1,500,000 B- Intermedia Communications of Florida, Sr.
Discount Unsecured Notes, step bond to
yield 11.981% due 5/15/06 967,500
1,875,000 NR McCaw International Ltd., step bond to yield
13.728%due 4/15/07 928,125
1,000,000 B3* McLeod, Inc., step bond to yield 10.442%
due 3/1/07+ 565,000
1,250,000 B- Millicom International Cellular S.A., Sr.
Discount Notes, step bond to yield 12.975%
due 6/1/06 879,688
2,225,000 B3* Nextel Communications, Sr. Discount Notes,
step bond to yield 13.310% due 8/15/04 1,624,250
750,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06 774,375
275,000 NR Pagemart Inc., Sr. Discount Notes, step bond
to yield 11.643% due 11/1/03+ 217,938
500,000 NR Pagemart Nationwide Inc., Sr. Discount Notes,
step bond to yield 12.405% due 2/1/05 340,000
750,000 B2* Phonetel Technologies, Sr. Notes, 12.000%
due 12/15/06 744,375
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
================================================================================
Schedules of Investments (unaudited)(continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Communications -- 21.0% (continued)
$1,000,000 NR Qwest Communications, Sr. Notes, 10.875%
due 4/1/07+ $ 1,022,500
700,000 NR RSL Communications Ltd., 12.250% due 11/15/06 693,000
1,600,000 B1* Teleport Communications, Sr. Discount Notes,
step bond to yield 11.416% due 7/1/07 1,100,000
1,150,000 B+ Telewest Communications, Sr. Discount
Debentures, step bond to yield 11.093%
due 10/1/07 784,875
- --------------------------------------------------------------------------------
18,585,314
- --------------------------------------------------------------------------------
Consumer Durables -- 1.2%
1,575,000 Ba2* International Semi-Tech Corp., Sr. Secured
Discount Notes, step bond to yield
16.393% due 8/15/03 878,063
162,000 B+ TAG-Heuer International, Sr. Sub. Notes,
12.000% due 12/15/05 185,085
- --------------------------------------------------------------------------------
1,063,148
- --------------------------------------------------------------------------------
Diversified and Conglomerate Manufacturing -- 2.6%
500,000 B+ Anchor Advanced Products, Sr. Notes, 11.750%
due 4/1/04+ 507,500
1,000,000 B+ Clark R&M Holdings, Sr. Notes, zero coupon
bond to yield 11.212% due 2/15/00 735,000
450,000 B3* Interlake Corp., Sr. Sub. Debentures, 12.125%
due 3/1/02 473,625
600,000 B Unifrax Investment Corp., Sr. Notes, 10.500%
due 11/1/03 613,500
- --------------------------------------------------------------------------------
2,329,625
- --------------------------------------------------------------------------------
Electric Utilities -- 0.0%
18,402 BB Midland Cogeneration Venture Limited Partnership,
Midland Funding, Sr. Secured Lease Obligation
Bond, Series C, 10.330% due 7/23/02 19,621
- --------------------------------------------------------------------------------
Electronics and Computers -- 4.2%
500,000 B Celestica International, Sr. Sub. Notes,
10.500% due 12/31/06+ 526,875
750,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/07+ 757,500
500,000 B- Graphic Controls Corp., Sr. Sub. Notes, 12.000%
due 9/15/05 545,000
Unisys Corp., Sr. Notes:
800,000 B+ 12.000% due 4/15/03 846,000
1,000,000 B+ 11.750% due 10/15/04 1,057,500
- --------------------------------------------------------------------------------
3,732,875
- --------------------------------------------------------------------------------
Financial & Insurance -- 4.1%
1,250,000 B Amresco, Inc., Sr. Sub. Notes, 10.000%
due 3/15/04 1,253,125
350,000 B+ Imperial Credit Industries, Inc., Sr. Notes,
9.875% due 1/15/07+ 330,750
700,000 B2* Intertek Finance, PLC, Sr. Sub. Notes, 10.250%
due 11/1/06+ 719,250
750,000 B+ Ocwen Financial Corp., Notes, 11.875%
due 10/1/03 803,438
500,000 B- Outsourcing Solutions, Sr. Sub. Notes, 11.000%
due 11/1/06+ 533,125
- --------------------------------------------------------------------------------
3,639,688
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Schedules of Investments (unaudited)(continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Food -- 1.5%
$ 750,000 BB- TLC Beatrice International, Inc., Sr.
Secured Notes, 11.500% due 10/1/05 $ 826,875
450,000 B2* Van de Kamp, Inc., Sr. Sub. Notes, 12.000%
due 9/15/05+ 490,500
- --------------------------------------------------------------------------------
1,317,375
- --------------------------------------------------------------------------------
Grocery and Convenience Stores -- 0.9%
800,000 B- Pathmark Stores Inc., Debentures, 12.625%
due 6/15/02 808,000
- --------------------------------------------------------------------------------
Healthcare -- 1.3%
250,000 B Magellan Health Services, Sr. Sub. Notes,
11.250% due 4/15/04 276,250
Tenet Healthcare Corp.:
400,000 BB Sr. Notes, 8.000% due 1/15/05 394,000
500,000 Ba3* Sr. Sub. Notes, 8.625% due 1/15/07 496,250
- --------------------------------------------------------------------------------
1,166,500
- --------------------------------------------------------------------------------
Hotel, Casinos and Gaming -- 4.1%
450,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04 510,750
700,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08 733,250
1,500,000 BB Grand Casinos, Inc., Notes, 10.125% due 12/1/03 1,522,500
200,000 BB+ Mohegan Tribal Gaming Authority, Sr. Secured
Notes, 13.500% due 11/15/02 262,500
500,000 B Showboat Inc., Sr. Sub. Notes, 13.000% due 8/1/09 564,375
- --------------------------------------------------------------------------------
3,593,375
- --------------------------------------------------------------------------------
Machinery -- 2.1%
525,000 B- Alvey Systems, Inc., Sr. Sub. Notes, 11.375%
due 1/31/03 540,094
1,200,000 B- Terex Corp., Sr. Notes, 13.250% due 5/15/02 1,317,000
- --------------------------------------------------------------------------------
1,857,094
- --------------------------------------------------------------------------------
Metals and Mining -- 5.8%
500,000 NR Commonwealth Aluminum Co., Sr. Sub. Notes,
10.750% due 10/1/06+ 517,500
250,000 BB- Echo Bay Mines, Jr. Sub. Debentures, 11.000%
due 4/1/27 253,438
925,000 B- Haynes International, Inc., Sr. Notes,
11.625% due 9/1/04 975,875
1,600,000 B- Ivex Holdings Corp., Debentures, step bond
to yield 12.919% due 3/15/05 1,276,000
900,000 B2* Kaiser Aluminum and Chemical, Sr. Sub. Notes,
12.750% due 2/1/03 978,750
250,000 B Russell Metals, Sr. Notes, 10.250% due 6/15/00 253,120
740,000 BB- UCAR Global Enterprises Inc., Sr. Sub. Notes,
12.000% due 1/15/05 832,500
- --------------------------------------------------------------------------------
5,087,183
- --------------------------------------------------------------------------------
Oil and Natural Gas -- 6.8%
850,000 B+ Clark USA Inc., Sr. Notes, 10.875% due 12/1/05 869,125
1,100,000 B+ Dawson Production Services, Sr. Notes, 9.375%
due 2/1/07 1,080,750
750,000 CCC+ Deeptech International, Sr. Notes, 12.000%
due 12/15/00 793,125
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
================================================================================
Schedules of Investments (unaudited)(continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Oil and Natural Gas -- 6.8% (continued)
$ 175,000 B Forcenergy, Inc., Sr. Sub. Notes, 8.500%
due 2/15/07+ $ 166,688
550,000 BB- Global Marine, Sr. Secured Notes, 12.750%
due 12/15/99 580,250
600,000 B- Kelley Oil & Gas Corp., Sr. Notes, 10.375%
due 10/15/06 595,500
500,000 B1* Lomak Petroleum, Inc., Sr. Sub. Notes,
8.750% due 1/15/07 477,500
700,000 B+ Parker Drilling Corp., Sr. Notes, 9.750%
due 11/15/06 715,750
500,000 BB- Santa Fe Energy Resources, Sr. Sub. Debentures,
11.000% due 5/15/04 542,500
200,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05 212,500
- --------------------------------------------------------------------------------
6,033,688
- --------------------------------------------------------------------------------
Other Utilities -- 0.5%
400,000 B+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06 424,500
- --------------------------------------------------------------------------------
Paper and Printing -- 6.2%
341,000 B- American Pad & Paper, Sr. Sub. Notes, 13.000%
due 11/15/05 396,839
900,000 B+ Asia Pulp and Paper, Notes, 12.000% due 12/29/49+ 846,000
750,000 B Goss Graphic Systems, Inc., Sr. Sub. Notes,
12.000% due 10/15/06 796,875
800,000 BB Indah Kiat International Finance Co., Secured
Notes, 11.875% due 6/15/02 865,000
1,800,000 B+ SD Warren Co., Sr. Sub. Notes, 12.000% due
12/15/04 1,977,750
500,000 BB Tjiwi Kimia Industries, Sr. Notes, 13.250%
due 8/1/01 560,625
- --------------------------------------------------------------------------------
5,443,089
- --------------------------------------------------------------------------------
Pollution Control -- 1.1%
500,000 B+ Allied Waste, Sr. Sub. Notes, 10.250% due 12/1/06+ 526,875
500,000 B Envirosource, Inc., Sr. Notes, 9.750% due 6/15/03 473,750
- --------------------------------------------------------------------------------
1,000,625
- --------------------------------------------------------------------------------
Real Estate Investment -- 3.5%
2,200,000 B First Nationwide Holdings, Sr. Notes, 12.500%
due 4/15/03 2,447,500
625,000 BB+ Trizec Finance, Sr. Notes, 10.875% due 10/15/05 678,906
- --------------------------------------------------------------------------------
3,126,406
- --------------------------------------------------------------------------------
Retail -- 0.6%
500,000 B+ Barnes and Noble, Sr. Sub. Notes, 11.875%
due 1/15/03 546,250
- --------------------------------------------------------------------------------
Tobacco -- 0.2%
165,000 B Consolidated Cigar Acquisition Corp., Sr. Sub.
Notes, 10.500% due 3/1/03 174,075
- --------------------------------------------------------------------------------
Transportation -- 1.3%
1,000,000 BB- Sea Containers Ltd., Sr. Sub. Debentures,
Series A, 12.500% due 12/1/04 1,100,000
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $74,043,190) 75,104,556
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
================================================================================
Schedules of Investments (unaudited)(continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
FOREIGN CORPORATE BOND -- 0.4%
================================================================================
Broadcasting -- 0.4%
500,000++ BB+ Rogers Cablesystems, Sr. Secured Second
Priority Debentures, 9.650% due 1/15/14
(Cost-- $323,801) $ 355,941
<CAPTION>
================================================================================
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
COMMON STOCK -- 0.0%
================================================================================
Communications -- 0.0%
4,950 Clearnet Communications
(Cost -- $30,330) 23,513
================================================================================
CONVERTIBLE PREFERRED STOCK -- 0.5%
================================================================================
Automobiles and Trucking -- 0.5%
7,500 Navistar International, Series G, Convertible
$6.00 (Cost-- $401,776) 437,813
================================================================================
PREFERRED STOCKS -- 5.0%
================================================================================
Financial -- 0.3%
10,100 California Federal Capital, Series A, 9.125%,
Exchangeable 252,500
- --------------------------------------------------------------------------------
Healthcare and Pharmaceuticals -- 0.2%
28,325 Avatex Corp., Series A, Payment-in-kind,
$4.200 Exchangeable 215,978
- --------------------------------------------------------------------------------
Medical Products -- 0.5%
5,000 Fresenius National Medical Care, $9.000
Exchangeable 495,000
- --------------------------------------------------------------------------------
Multimedia -- 3.8%
3,102 Time Warner, Inc., Series M, 10.250%,
Exchangeable 3,334,650
- --------------------------------------------------------------------------------
Telecommunications -- 0.2%
126 PanAmSat Corp., Series A, 12.750%,
Exchangeable 151,554
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost-- $5,097,333) 4,449,682
================================================================================
WARRANTS -- 0.0%
825 Australis Holdings, Expire 5/15/00 25
200 Nextel Communications, Inc., Expire 4/25/99 2
750 Wireless One Inc., Expire 10/15/03 750
- --------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost-- $3,264) 777
================================================================================
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
================================================================================
Schedules of Investments (unaudited)(continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY HIGH INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 9.2%
================================================================================
$8,111,000 Chase Securities Inc., 5.314% due 5/1/97;
Proceeds at maturity $8,112,197; (Fully
collateralized by U.S. Treasury Notes,
6.625% due 4/30/02; Market value--
$8,273,225) (Cost-- $8,111,000) $ 8,111,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $88,010,694**) $88,483,282
================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT SECURITY VALUE
================================================================================
<S> <C> <C>
U.S. GOVERNMENT SECTOR -- 31.0%
================================================================================
U.S. Government Agencies & Obligations -- 30.0%
$3,965,000 U.S. Treasury Notes, 6.250% due 3/31/99 $ 3,965,396
850,000 U.S. Treasury Notes, 6.375% due 4/30/99 851,632
2,142,000 U.S. Treasury Notes, 6.500% due 10/15/06 2,106,357
975,000 U.S. Treasury Notes, 8.125% due 8/15/19 1,090,567
2,985,000 U.S. Treasury Notes, 6.500% due 11/15/26 2,799,572
94,400 FHLMC Gold, 8.500% due 7/1/26 97,645
480,150 FHLMC Gold, 8.500% due 8/1/26 496,653
707,635 FHLMC Gold, 8.500% due 1/1/27 731,955
485,000 FHLMC Gold, 8.500% @ 500,913
480,151 FNMA, 6.000% due 1/1/12 457,344
485,000 FNMA Dwarf, 6.000% @ 461,201
26,821 FNMA, 7.000% due 10/1/25 26,008
350,852 FNMA, 7.000% due 12/1/25 340,215
527,562 FNMA, 7.000% due 4/1/26 511,567
833,562 FNMA, 8.000% due 6/1/26 845,541
1,796,529 FNMA, 7.500% due 7/1/26 1,785,859
363,482 FNMA, 7.500% due 10/1/26 361,323
397,498 FNMA, 8.000% due 10/1/26 403,211
385,570 FNMA, 7.500% due 11/1/26 383,281
475,354 FNMA, 7.500% due 12/1/26 472,531
518,651 FNMA, 7.500% due 1/1/27 515,570
205,681 GNMA, 7.000% due 8/14/25 199,061
484,995 GNMA, 7.500% due 9/15/25 481,203
878,668 GNMA, 7.500% due 10/15/25 871,798
286,216 GNMA, 7.500% due 11/15/25 283,978
973,112 GNMA, 7.000% due 1/15/26 941,788
812,367 GNMA, 7.000% due 3/15/26 786,219
676,522 GNMA, 7.000% due 4/15/26 654,745
89,845 GNMA, 7.000% due 5/15/26 86,954
775,983 GNMA, 8.000% due 7/15/26 786,895
135,394 GNMA, 7.500% due 8/15/26 134,336
779,627 GNMA, 8.000% due 8/15/26 790,590
482,926 GNMA, 7.500% due 10/15/26 479,150
229,494 GNMA, 8.000% due 10/15/26 232,721
672,721 GNMA, 7.500% due 1/15/27 667,460
1,886,250 GNMA, 7.500% due 2/15/27 1,871,501
412,255 GNMA, 8.000% due 2/15/27 418,052
1,360,000 GNMA, 8.500% @ 1,402,922
- --------------------------------------------------------------------------------
30,293,714
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Collateralized Mortgage Obligations -- 1.0%
$ 155,000 AAA Chemical Master Credit Card Trust, 6.230%
due 6/15/03 $ 152,244
95,000 AAA Contimortgage Home Equity Loan Trust, 7.670%
due 3/15/25 94,584
167,904 AAA FNMA Series 97-5, 7.000% due 2/18/27 141,547
145,845 AAA FNMA Series 97-25, 7.000% due 3/18/27 124,926
203,953 AAA Rural Housing Trust, 6.330% due 4/1/26 197,362
255,000 AAA Sears Credit Account Master Trust, 6.050%
due 2/15/04 243,586
- --------------------------------------------------------------------------------
954,249
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR
(Cost-- $31,403,617) 31,247,963
================================================================================
HIGH YIELD SECTOR -- 35.2%
================================================================================
CORPORATE DEBENTURES -- 33.5%
================================================================================
Advertising - Communications -- 0.3%
15,000 B Outdoor Systems Inc., Sr. Notes, 9.375%
due 10/15/06 14,625
330,000 B Universal Outdoor Inc., Sr. Notes, 9.750%
due 10/15/06 329,999
- --------------------------------------------------------------------------------
344,624
- --------------------------------------------------------------------------------
Aerospace -- 0.1%
20,000 B+ Hawk Corp., Senior Notes, 10.250% due 12/1/03 20,150
45,000 B- L-3 Comms Corp., Sr. Sub. Notes, 10.375%
due 5/1/07 46,350
55,000 NR Tracor Inc., Sr. Sub. Notes, 8.500% due 3/1/07 54,038
- --------------------------------------------------------------------------------
120,538
- --------------------------------------------------------------------------------
Automotive -- 0.9%
100,000 B A.P.S. Inc., Guaranteed Sr. Sub. Notes, 11.875%
due 1/15/06 104,500
35,000 NR Blue Bird Body Co., Sr. Sub. Notes, 10.750%
due 4/15/02 36,663
55,000 B- CSK Auto Inc., Sr. Sub. Notes, 11.000%
due 11/1/06 56,994
60,000 NR DRA Inc., 11.500% due 7/31/04 60,600
25,000 B- Delco Remy International, Sr. Sub. Notes,
10.625% due 8/1/06 26,125
150,000 B Exide Corp., Sr. Sub. Deferred Debentures,
step bond to yield 11.291% due 12/15/04 144,563
80,000 B- Harvard Industries Inc., Senior Notes, 11.125%
due 8/1/05 37,200
95,000 BB- Lear Corp., Sub. Notes, 9.500% due 7/15/06 98,681
330,000 NR MCII Holdings Inc., Sr. Secured Discount Notes,
step bond to yield 12.109% due 11/15/02 284,624
60,000 BB- Motor & Gear Inc., Senior Notes, 10.750% due
11/15/06 59,775
10,000 B Safelight Glass Inc., Sr. Sub. Notes, 9.875%
due 12/15/06 10,200
- --------------------------------------------------------------------------------
919,925
- --------------------------------------------------------------------------------
Aviation Components -- 0.8%
130,000 BB- BE Aerospace, Sr. Notes, 9.750% due 3/1/03 135,200
275,000 B Howmet Corp., Sr. Sub. Notes, 10.000%
due 12/1/03 297,000
20,000 B- K&F Industries Inc., Sr. Sub. Discount
Debentures, 10.375% due 9/1/04 20,825
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Aviation Components -- 0.8% (continued)
Sequa Corp., Sr. Note:
$ 75,000 BB 9.625% due 10/15/99 $ 77,344
20,000 BB 8.750% due 12/15/01 19,950
275,000 B- Terex Corp., Sr. Secured Notes, 13.750%
due 5/15/02 301,813
- --------------------------------------------------------------------------------
852,132
- --------------------------------------------------------------------------------
Banking -- 0.6%
500,000 B First Nationwide, Sr. Exchange Notes, 12.500%
due 4/15/03 556,249
30,000 NR Imperial Credit Corp., Senior Notes, 9.875%
due 1/15/07 28,350
- --------------------------------------------------------------------------------
584,599
- --------------------------------------------------------------------------------
Brewers -- 0.1%
75,000 NR Canandaigua Wine, Sr. Sub. Notes, Series B,
8.750% due 12/15/03 74,813
- --------------------------------------------------------------------------------
Broadcasting -- 1.2%
125,000 B- Argyle Television, Sr. Sub. Notes, 9.750%
due 11/1/05 128,594
155,000 NR Capstar, Sr. Discount Notes, step bond to yield
12.750% due 2/1/09 86,219
100,000 BB- Globo Communicacoes Inc., Notes, 10.500%
due 12/20/06 102,250
100,000 B- Granite Broadcasting, Sr. Sub. Notes, 9.375%
due 12/10/05 107,875
183,000 NR Petracom Holdings, Sr. Discount Notes, Series B,
zero coupon bond to yield 6.142% due 2/1/03 175,680
100,000 BB+ Rogers Cablesystems of America Inc., Debentures,
10.125% due 9/1/12 103,000
180,000 B- SFX Broadcasting, Sr. Sub. Notes, Series B,
10.750% due 5/15/06 188,100
100,000 B Sinclair Broadcast Group, Sr. Sub. Notes,
10.000% due 9/30/05 101,500
200,000 B- Sullivan Broadcasting Inc., Sr. Sub. Notes,
10.250% due 12/15/05 202,000
25,000 B TV Azteca DE CV, Sr. Notes, 10.500% due 2/15/07 24,406
- --------------------------------------------------------------------------------
1,219,624
- --------------------------------------------------------------------------------
Building Materials -- 0.8%
55,000 B Atrium Inc., Sr. Sub. Notes, 10.500%
due 11/15/06 56,306
20,000 NR Building Material, Sr. Notes, 8.625%
due 12/15/06 19,825
100,000 BB Cemex Notes, 12.750% due 7/15/06+ 110,375
200,000 B- Intercity Products Corp., Sr. Secured Notes,
9.750% due 3/1/00 202,500
25,000 BB- Schuller International Group, Sr. Notes,
10.875% due 12/15/04 27,563
150,000 BB- Southdown Inc., Sr. Sub. Notes, Series B,
10.000% due 3/1/06 158,063
150,000 BB- Triangle Pacific Corp., Sr. Notes, 10.500%
due 8/1/03 159,563
50,000 CCC+ Waxman Industries, Sr. Secured Notes, Series B,
step bond to yield 12.973% due 6/1/04 41,313
- --------------------------------------------------------------------------------
775,508
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Business Services -- 0.2%
$ 180,000 B- Pierce Leahy Corp., Sr. Sub. Notes, 11.125%
due 7/15/06 $ 195,750
- --------------------------------------------------------------------------------
Casinos -- 2.1%
175,000 B+ Alliance Gaming, Sr. Secured Notes, 12.875%
due 6/30/03 192,063
Argosy Gaming, 1st Mortgage Notes:
100,000 B+ 12.000% due 6/1/01 72,625
150,000 B+ 13.250% due 3/15/04 135,000
140,000 B Casino America Inc., 1st Mortgage Notes,
12.500% due 8/1/03 141,050
Casino Magic, 1st Mortgage Notes:
20,000 B 11.500% due 10/15/01 16,400
45,000 B 13.000% due 8/15/03 37,575
275,000 B Coast Hotels & Casinos Inc., 1st Mortgage Notes,
13.000% due 12/15/02 306,624
386,600 NR Colorado Gaming, Sr. Secured Notes,
Payment-in-kind, 12.000% due 6/1/03 382,250
150,000 BB Empress River Casino Financial Corp.,
Guaranteed Sr. Notes, 10.750% due 4/1/02 158,625
75,000 BB Grand Casinos Inc., Guaranteed 1st Mortgage
Notes, 10.125% due 12/1/03 76,125
50,000 B Greath Bay Property Funding, 10.875% due 1/15/04 41,500
25,000 B Harvey Casinos, Sr. Sub. Notes, 10.625% due 6/1/06 26,250
200,000 B Lady Luck Gaming Financial Corp., Guaranteed
1st Mortgage Notes, 11.875% due 3/1/01 198,500
22,000 NR Louisiana Casino Cruises, 1st Mortgage, 11.500%
due 12/1/98 22,248
125,000 BB+ Mohegan Tribal Gaming Authority, Sr. Secured
Notes, 13.500% due 11/15/02 164,063
75,000 CCC+ PRT Funding, Sr. Notes, 11.625% due 4/15/04 53,156
75,000 BB- Trump Atlantic City Associates, 1st Mortgage
Notes, 11.250% due 5/1/06 73,125
- --------------------------------------------------------------------------------
2,097,179
- --------------------------------------------------------------------------------
Chemicals -- 0.9%
125,000 BB- Acetex Corp., Sr. Notes, 9.750% due 10/1/03 124,063
25,000 B- Astor Corp., Sr. Sub. Notes, 10.500%
due 10/15/06 25,813
25,000 B- Freedom Chemical, Sr. Sub. Notes, 10.625%
due 10/15/06 25,875
100,000 B Harris Chemical, Sr. Secured Notes, 10.250%
due 7/15/01 98,750
200,000 BB- ISP Holding, Sr. Notes, 9.750% due 2/15/02 208,000
150,000 B Magellan Health Services Inc., Sr. Sub. Notes,
11.250% due 4/15/04 165,750
75,000 B NL Industries Inc., Senior Notes, step bond to
yield 11.551% due 10/15/05 69,188
25,000 B Sifto Canada Inc., Guaranteed Secured Notes,
8.500% due 7/15/00 25,063
165,000 B+ Sterling Chemical Holdings, Sr. Secured
Discount Notes, step bond to yield 13.500%
due 8/15/08 104,775
20,000 NR Texas Petrochemical, Sr. Sub. Notes, 11.125%
due 7/1/06 21,025
- --------------------------------------------------------------------------------
868,302
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Computer Software Services -- 0.3%
$ 300,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05 $ 327,000
- --------------------------------------------------------------------------------
Conglomerates -- 0.2%
20,000 B Cliffs Drilling Co., Sr. Notes, Series B,
10.250% due 5/15/03 20,950
20,000 B- Iron Mountain Inc., Sr. Sub. Notes, 10.125%
due 10/1/06 20,650
120,000 NR MacAndrews and Forbes Holdings Inc., Sub.
Debentures, 13.000% due 3/1/99 120,300
75,000 B Mafco Inc., Sr. Sub. Notes, 11.875% due 11/15/02 80,063
- --------------------------------------------------------------------------------
241,963
- --------------------------------------------------------------------------------
Construction -- 0.2%
30,000 B- Del E. Webb Corp., Sr. Sub. Notes, 9.750%
due 1/15/08 29,513
150,000 B NVR Inc., Sr. Notes, 11.000% due 4/15/03 157,875
- --------------------------------------------------------------------------------
187,388
- --------------------------------------------------------------------------------
Consumer Products -- 0.7%
150,000 B+ Coty Inc., Guaranteed Sr. Sub. Notes, 10.250%
due 5/1/05 159,938
200,000 B Herff Jones Inc., Sr. Sub. Notes, 11.000%
due 8/15/05 211,250
155,000 B+ International Semi-Tech., Sr. Secured Discount
Notes, step bond to yield 13.492% due 8/15/03 86,413
60,000 CCC+ Remington Product Co., Sr. Sub. Notes, 11.000%
due 5/15/06 51,150
180,000 B- Revlon Worldwide, Sr. Discount Notes, zero coupon
to yield 10.552% due 3/15/01 118,350
80,000 B Selmer Co. Inc., Sr. Sub. Notes, 11.000%
due 5/15/05 86,600
- --------------------------------------------------------------------------------
713,701
- --------------------------------------------------------------------------------
Consumer Services -- 0.3%
252,000 B+ Coinmach Corp., Sr. Notes, 11.750% due 11/15/05 277,829
20,000 B- E&S Holdings Corp., Sr. Sub. Notes, 10.375%
due 10/1/06+ 20,600
- --------------------------------------------------------------------------------
298,429
- --------------------------------------------------------------------------------
Containers -- 0.0%
25,000 B US Can Corp., Sr. Sub. Notes, 10.125%
due 10/15/06+ 25,969
- --------------------------------------------------------------------------------
Defense -- 0.2%
150,000 B Alliant Techsystems Inc., Sr. Sub. Notes,
11.750% due 3/1/03 163,500
- --------------------------------------------------------------------------------
Electronics -- 0.2%
Fairchild Semiconductor Inc., Sr. Sub.
Notes, Payment-in-kind:
60,000 B 10.125% due 3/15/07 60,600
65,000 NR 11.740% due 3/14/08 57,416
50,000 B Integrated Device Technology Inc., Sub. Notes,
5.500% due 6/1/02 42,000
20,000 B Moog Inc., Sr. Sub. Notes, 10.000% due 5/1/06+ 20,775
30,000 B National Semiconductor Inc., Debentures, 6.500%
due 10/1/02 29,400
- --------------------------------------------------------------------------------
210,191
- --------------------------------------------------------------------------------
Entertainment -- 1.5%
275,000 NR Act III, Sr. Sub. Notes, 11.875% due 2/1/03 297,687
100,000 B AMC Entertainment Inc., Sr. Sub. Notes, 9.500%
due 3/15/09 97,500
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Entertainment -- 1.5% (continued)
$ 85,000 B Cinemark USA Inc., Sr. Notes, 12.000%
due 6/1/02 $ 84,575
175,000 BB- Players International Inc., Sr. Notes, 10.875%
due 4/15/05 181,563
Premier Parks, Sr. Notes:
250,000 B+ 12.000% due 8/15/03 274,999
50,000 B+ 9.750% due 1/15/07 50,875
300,000 B Six Flags, Sr. Sub. Discount Notes, Series A,
step bond to yield
7.958% due 6/15/05 294,750
Time Warner Inc., Notes,
15,000 BBB- 8.110% due 8/15/06 15,319
115,000 BBB- 8.180% due 8/15/07 117,731
125,000 BB- Viacom Inc., Sub. Debentures Exchangeable,
8.000% due 7/7/06 116,250
- --------------------------------------------------------------------------------
1,531,249
- --------------------------------------------------------------------------------
Financial Services -- 1.0%
65,000 BB- Aames Financial Corp., Sr. Notes, 9.125%
due 11/1/03 61,750
50,000 BBB- AIM Management Group, Sr. Notes, 9.000%
due 11/15/03 53,313
200,000 B+ Chevy Chase Savings Bank, Sub. Notes,
9.250% due 12/1/05 197,000
30,000 BB- Colonial Capital, Company Guarantee,
8.920% due 1/15/27 30,038
55,000 BB+ Conti Financial Corp., Sr. Notes, 8.375%
due 8/15/03 55,825
30,000 BB- Dime Capital Trust., 9.330% due 5/6/27 30,000
30,000 B+ Dollar Financial Inc., Senior Notes, 10.875%
due 11/15/06 30,600
65,000 NR ESAT Holdings Inc., step bond to yield
12.500% due 2/1/07 36,563
45,000 NR Intertek Finance Inc., Sr. Sub. Notes, 10.250%
due 11/1/06 46,238
15,000 B Loomis Fargo & Co., Sr. Sub. Notes, 10.000%
due 1/15/04 15,225
45,000 BB+ North Fork Bancorp, Bonds, 8.700% due 12/15/26 44,831
45,000 B+ Ocwen Federal Bank, Sub. Debentures, 12.000%
due 6/15/05 47,813
25,000 B+ Ocwen Financial Corp., Notes, 11.875%
due 10/1/03 26,781
60,000 NR Provident Capital Corp., Company Guarantee,
8.600% due 12/1/26 57,900
25,573 NR PSF Finance LP, Sr. Secured Notes,
Payment-in-kind, 12.250% due 9/17/03 27,236
30,000 BB- Riggs Capital Trust, Bonds, 8.625%
due 12/31/26 28,913
45,000 BB Sovereign Capital Corp., Company Guarantee,
9.000% due 4/1/07 43,931
150,000 BB+ Tanger PPTYS Ltd. Partnership, Guaranteed Notes,
8.750% due 3/11/01 147,000
40,000 BB- Webster Capital Trust Inc., Bonds, 9.360%
due 1/29/27 40,650
- --------------------------------------------------------------------------------
1,021,607
- --------------------------------------------------------------------------------
Foods -- 0.5%
25,000 B- AmeriKing Inc., Senior Notes, 10.750%
due 12/1/06 25,938
200,000 B+ Chiquita Brands, Sr. Notes, 9.625% due 1/15/04 205,750
25,000 B- Del Monte Corp., Sr. Sub. Notes, 12.250%
due 4/15/07 25,281
250,000 B3* FRD Acquisition, Sr. Notes, 12.500%
due 7/15/04 263,124
20,000 B- MBW Foods Inc., Sr. Sub. Notes, 9.875%
due 2/15/07 20,100
- --------------------------------------------------------------------------------
540,193
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Gas/Oil Exploration -- 0.5%
$ 45,000 B Abraxas Petroleum Corp., Senior Notes,
11.500% due 11/1/04 $ 47,700
100,000 B Benton Oil & Gas Co., Sr. Notes, 11.625%
due 5/1/03 107,500
50,000 BB Chesapeake Energy Corp., Sr. Notes, 9.125%
due 4/15/06 51,125
20,000 B- Kelley Oil & Gas Corp., Sr. Sub. Notes,
10.375% due 10/15/06 19,850
150,000 BBB- Maxus Energy Corp., Notes, 9.500% due 2/15/02 154,125
70,000 CCC+ Transamerican Refinery, Guaranteed
1st Mortgage Discount Notes, step bond to
yield 18.268% due 2/15/02 64,925
209,000 NR Transtexas Gas, Sr. Notes, 11.500% due 6/15/02 113,905
- --------------------------------------------------------------------------------
559,130
- --------------------------------------------------------------------------------
Healthcare Services -- 1.1%
65,000 A- Columbia/HCA Healthcare, Term Notes, 7.580%
due 9/15/25 63,375
100,000 B Dade International Inc., Sr. Sub. Notes,
11.125% due 8/1/06+ 109,500
120,000 B Genesis Health Ventures, Sr. Sub. Notes, 9.250%
due 10/10/06 122,700
85,000 CCC+ Icon Fitness, Sr. Discount Notes, step bond
to yield 14.000% due 11/15/06 46,538
80,000 B Imed Corp., Sr. Sub. Notes, 9.750% due 12/1/06 80,000
100,000 B Integrated Health Services, Sr. Sub. Notes,
Series A, 9.625% due 5/31/02 102,500
170,000 B- Paracelsus Healthcare Corp., Sr. Sub. Notes,
9.875% due 10/15/03 160,225
100,000 BB- Quorum Health Group, Sr. Sub. Notes, 8.750%
due 11/1/05 100,250
Tenet Healthcare Corp., Sr. Note,:
50,000 BB 9.625% due 9/1/02 53,125
45,000 BB 8.000% due 1/15/05 44,325
100,000 B+ 10.125% due 3/1/05 107,750
45,000 B+ 8.625% due 1/15/07 44,663
100,000 B3* Wright Medical Technology Inc., Sr. Sub. Notes,
10.750% due 7/1/00 98,750
- --------------------------------------------------------------------------------
1,133,701
- --------------------------------------------------------------------------------
Hotels -- 0.7%
135,000 BB- HMH Properties Inc., Sr. Notes, 9.500%
due 5/15/05 138,038
275,000 BB- Host Marriot Travel Plazas Inc., Sr. Secured
Notes, Series B, 9.500% due 5/15/05 281,187
15,000 BB- John Q. Hammons Hotels LP, 1st Mortgage Notes,
8.875% due 2/15/04 14,625
140,000 CCC Presley Cos. Delaware, Sr. Notes, 12.500%
due 7/1/01 136,150
150,000 BB- Scotsman Group, Sr. Notes, 9.500% due 12/15/00 156,938
- --------------------------------------------------------------------------------
726,938
- --------------------------------------------------------------------------------
Industrial Goods & Services -- 0.2%
50,000 B- Merit Behavioral Care Corp., Sr. Sub. Notes,
11.500% due 11/15/05 54,063
105,000 B- Panda Global Corp., Sr. Notes, 12.550%
due 4/15/04 99,094
- --------------------------------------------------------------------------------
153,157
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Insurance -- 0.2%
$ 30,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06 $ 31,988
Reliance Group Holdings Inc., Sr. Sub.
Debentures:
148,000 BB+ 9.000% due 11/15/00 150,404
35,000 BB- 9.750% due 11/15/03 36,050
- --------------------------------------------------------------------------------
218,442
- --------------------------------------------------------------------------------
Lodging -- 0.1%
90,000 NR Prime Hospitality Inc., Sr. Sub. Notes,
9.750% due 4/1/07 91,575
- --------------------------------------------------------------------------------
Media - Cable -- 4.6%
Adelphia Communications Corp., Sr. Notes:
100,000 B 10.250% due 7/15/00 97,000
100,000 B 12.500% due 5/15/02 104,750
81,444 B Series B, Payment-in-kind 9.500% due 2/15/04 71,467
60,000 CCC+ Advanced Radio Telecommunications Corp.,
14.000% due 2/15/07 64,200
Affinity Group, Sr. Sub. Notes:
150,000 B 11.500% due 10/15/03 161,250
110,000 B 11.000% due 4/1/07 111,650
150,000 B- American Media Operation Inc., Sr. Sub. Notes,
11.625% due 11/15/04 161,250
American Telecasting Inc., Sr. Discount Notes:
70,000 CCC+ Step bond to yield 12.050% due 6/15/04 24,500
202,000 CCC+ Step bond to yield 12.220% due 8/15/05 62,620
35,000 BBB- CF Cable Television Inc., Sr. Notes, 11.625%
due 2/15/05 39,769
Cablevision Systems Corp., Sr. Sub. Debentures:
25,000 B 9.875% due 2/15/13 24,219
100,000 B 10.500% due 5/15/16 101,375
150,000 B 9.875% due 4/1/23 142,875
140,000 BB- Century Communications Corp., Sr. Notes, 9.500%
due 3/1/05 137,900
300,000 B- Chancellor Broadcasting, Sr. Sub. Notes, 9.375%
due 10/1/04 297,749
250,000 B Charter Communications Southeast,
Secured Debentures,
B step bond to yield 14.000% due 3/15/07 150,625
Comcast Corp., Sr. Sub. Notes:
200,000 B- Step bond to yield 10.435% due 11/15/07 139,500
250,000 BB+ 9.500% due 1/15/08 256,874
250,000 NR Commodore Media Inc., Sr. Sub. Notes, 7.500%
due 5/1/03+ 271,249
65,346 NR Falcon Holdings Group Inc., Sr. Sub. Notes,
Series B, 11.000% due 9/15/03 58,403
30,000 B Frontiervision, Sr. Sub. Notes, 11.000%
due 10/15/06 30,075
Heartland Wireless Communication Inc. Sr. Notes:
25,000 B 13.000% due 4/15/03 10,000
115,000 B 14.000% due 10/15/04 51,750
80,000 B- Innova Corp., Senior Notes, 12.875% due 4/1/07 78,600
125,000 B- Intermedia Communications, Sr. Notes, Series B,
13.500% due 6/1/05 138,438
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Media - Cable -- 4.6% (continued)
International Cabletel Inc., Sr. Deferred Notes:
$ 500,000 B- Series A, step bond to yield 11.550%
due 2/1/06 $ 325,000
130,000 B- 10.000% due 2/15/07 127,075
20,000 B JCAC, Inc., Sr. Sub. Notes, 10.125% due 6/15/06 20,650
30,000 B Jacor Communications Inc., Company Guaranteed,
9.750% due 12/15/06 30,600
Jones Intercable Inc., Sr. Sub. Notes:
125,000 BB 9.625% due 3/15/02 127,500
100,000 B+ 10.500% due 3/1/08 105,625
Lenfest Communications, Sr. Notes:
150,000 BB+ 8.375% due 11/1/05 143,250
100,000 BB- 10.500% due 6/15/06 104,000
Marcus Cable Operating Co., Sr. Discount Notes:
300,000 B Step bond to yield 11.671% due 8/1/04 249,749
100,000 B Step bond to yield 11.574% due 12/15/05 71,375
50,000 B- Pegasus Media & Communications, Notes, 12.500%
due 7/1/05 53,875
35,000 BB- RBS Participacoes S.A., Company Guaranteed,
11.000% due 4/1/07 35,000
60,000 B Spanish Broadcasting Systems, Sr. Notes,
11.000% due 3/15/04 60,075
60,000 NR TCI Satellite Entertainment Inc., Sr. Sub.
Notes, 10.875% due 2/15/07 56,850
50,000 BBB- Telecommunications Inc., Notes, 9.250%
due 1/15/23 49,250
50,000 B+ Telewest PLC, Sr. Discount Debentures, step
bond to yield 10.562% due 10/1/07 34,125
30,000 B T.V. Films Inc., Sr. Notes, 12.875% due 12/15/04 30,600
220,000 B3* UIH Australia, Sr. Discount Notes, Series B,
step bond to yield 14.000% due 5/15/06 114,400
Wireless One Inc., Sr. Note:
55,000 B- 13.000% due 10/15/03 36,369
145,000 B- Step bond to yield 13.500% due 8/1/06 39,150
- --------------------------------------------------------------------------------
4,602,606
- --------------------------------------------------------------------------------
Metals -- 0.7%
55,000 BB- AK Steel Corp., Senior Notes, 9.125%
due 12/15/06 54,656
25,000 B+ Acindar Industries Inc., Yankee Notes, 11.250%
due 2/15/04 25,438
35,000 B1* Altos Hornos De Mexico, Bonds, 11.800%
due 4/30/04 35,438
60,000 B Continental Global Group, Sr. Notes, 11.000%
due 4/1/07 61,350
40,000 BB- Echo Bay Mines Corp., Jr. Sub. Notes, 11.000%
due 4/1/27 40,550
150,000 BB- Great Lakes Carbon Corp., Sr. Secured Notes,
10.000% due 1/1/06 155,813
30,000 B- Royal Oak Mines, Inc., Sr. Sub. Notes, 11.000%
due 8/15/06+ 30,075
100,000 BB- UCAR Global Enterprises, Sr. Sub. Notes,
12.000% due 1/15/05 112,500
80,000 B+ WCI Steel Co., Sr. Notes, 10.000% due 12/1/04 81,000
100,000 B Weirton Steel Corp., Sr. Notes, 11.375%
due 7/1/04 102,750
- --------------------------------------------------------------------------------
699,570
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Miscellaneous -- 0.7%
$ 65,000 B+ Allied Waste Corp., Sr. Sub. Notes, 10.250%
due 12/1/06 $ 68,494
30,000 BBB- Comp Nav Perez Companc Inc., Bonds, 9.000%
due 1/30/04 30,263
130,000 B- Day International Group Inc., Sr. Sub. Notes,
11.125% due 6/1/05 133,250
Hollinger International Inc., Company Guaranteed:
40,000 BB+ 8.625% due 3/15/05 39,900
40,000 BB- 9.250% due 3/15/07 39,800
110,000 NR Interact Systems, Sr. Discount Notes, step bond
to yield 14.000% due 8/10/03+ 59,538
Newport News Shipbuilding Corp., Sr. Sub. Notes:
30,000 BB 8.625% due 12/1/06 30,150
25,000 B+ 9.250% due 12/1/06 25,438
25,000 B- Sun Media Corp., Sr. Sub. Notes, 9.500%
due 2/15/07 24,375
15,000 BB- Titan Wheel International Inc., Sr. Sub.
Notes, 8.750% due 4/1/07 15,038
180,000 B+ Unysis Corp., Sr. Notes, 11.750% due 10/15/04 190,350
50,000 B Vlsi Technology, Sub. Notes, 8.250% due 10/1/05 48,125
- --------------------------------------------------------------------------------
704,721
- --------------------------------------------------------------------------------
Oil Drilling & Services -- 0.1%
45,000 B+ Parker Drilling Corp., Sr. Notes, 9.750%
due 11/15/06 46,013
- --------------------------------------------------------------------------------
Paper Packaging/Products -- 1.3%
200,000 BB APP International Finance Co., Guaranteed
Secured Notes, 11.750% due 10/1/05 209,499
Domtar, Inc.:
60,000 BB+ Debentures, 9.500% due 8/1/16 61,275
25,000 BB+ Sr. Notes, 8.750% due 8/1/06 25,125
105,000 B Florida Coast Paper, 1st Mortgage Notes,
12.750% due 6/1/03 99,750
200,000 B- Ivex Packaging, Sr. Sub. Notes, 12.500%
due 12/15/02 216,250
135,000 NR Maxxam Group Holdings, Senior Notes, 12.000%
due 8/1/03 136,013
30,000 BB- Printpack Inc., Sr. Notes, Series A, 9.875%
due 8/15/04+ 30,825
50,000 BB+ Rainy River Forest, Sr. Secured Notes,
10.750% due 10/15/01 55,188
30,000 BB- Randor Holdings Inc., Sr. Notes, 10.000%
due 12/1/03 30,150
220,000 Caa* Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05 208,999
Riverwood International:
50,000 B- Sr. Notes, 10.250% due 4/1/06 47,250
250,000 B- Sr. Sub. Notes, 10.875% due 4/1/08 209,999
25,000 B Stone Container Corp., Sr. Sub. Notes, 11.500%
due 10/1/04 24,563
- --------------------------------------------------------------------------------
1,354,886
- --------------------------------------------------------------------------------
Plastics -- 0.1%
60,000 B3* Key Plastics, Sr. Notes, 14.000% due 11/15/99 61,050
75,000 BB- Owens Illinois Inc., Sr. Sub. Notes, 9.750%
due 8/15/04 78,750
- --------------------------------------------------------------------------------
139,800
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Publishing -- 0.1%
$ 40,000 B Globolstar Capital, Units, 11.375%
due 2/15/04 $ 39,800
25,000 BB- World Color Press Inc., Sr. Sub. Notes,
9.125% due 3/15/03 25,000
- --------------------------------------------------------------------------------
64,800
- --------------------------------------------------------------------------------
Recreation -- 0.3%
275,000 B Adams Outdoor Advertising Ltd., Sr. Notes,
10.750% due 3/15/06 286,000
- --------------------------------------------------------------------------------
Retailers -- 1.9%
30,000 B+ Anvil Knitwear Inc., Senior Notes, 10.870%
due 3/15/07 29,250
225,000 B+ Brylane LP/Brylane Capital Corp., Sr. Sub.
Notes A, 10.000% due 9/1/03 233,719
190,000 B Corporate Express, Sr. Sub. Notes, 9.125%
due 3/15/04 184,775
175,000 BB- Federated Department Stores Inc., Sr. Notes,
8.125% due 10/15/02 179,156
40,000 B Genesco Inc., Sr. Notes, 10.375% due 2/1/03 40,750
55,000 B Loehmann's Inc., Sr. Sub. Notes, 11.875%
due 5/15/03 57,475
150,000 B Mothers Work Inc., Sr. Notes, 12.625% due 8/1/05 153,938
200,000 B- Phar-Mor, Inc., Sr. Notes, 11.720% due 9/11/02 202,749
105,000 NR Sassco Fashions Ltd., 12.750% due 12/31/03 108,675
350,000 BB+ Southland Corp. First Priority, Sr. Sub.
Debentures, 5.000% due 12/15/03 287,000
170,000 BB- Tultex Corp., Sr. Notes, 10.625% due 3/15/05 183,600
50,000 B- United Stationer Supply, Sr. Sub. Notes,
12.750% due 5/1/05 55,750
150,000 BB- Waban Inc., Sr. Sub. Notes, 11.000% due 5/15/04 166,500
- --------------------------------------------------------------------------------
1,883,337
- --------------------------------------------------------------------------------
Supermarkets -- 0.5%
250,000 NR Pagemart Nationwide Inc., Sr. Discount Notes,
step bond to yield 12.591% due 2/1/05 170,000
40,000 B1* Quality Food Centers Inc., Sr. Sub. Notes,
8.700% due 3/15/07 39,600
200,000 B- Ralphs Grocery Co., Sr. Sub. Notes, 11.000%
due 6/15/05 213,249
30,000 B+ Stater Brothers, Sr. Notes, 11.000% due 3/1/01 32,138
35,000 B+ Supermercados Norte Inc., Bonds, 10.875%
due 2/9/04 35,088
- --------------------------------------------------------------------------------
490,075
- --------------------------------------------------------------------------------
Telecommunications -- 5.2%
500,000 NR American Communication Service, Sr.
Discount Notes, step bond to yield 13.297%
due 11/1/05 267,499
250,000 NR Brooks Fiber Properties Inc., Sr. Discount
Notes, step bond to yield 10.379% due 3/1/06 163,125
250,000 B+ Callnet Enterprises Inc., Sr. Discount Notes,
step bond to yield 11.462% due 12/1/04 211,875
3,000 NR Celcaribe SA Unit, Sr. Secured Notes, step
bond to yield 9.610% due 3/15/04 39,300
35,000 NR Celestica International, Sr. Sub. Notes,
10.500% due 12/31/06 36,881
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Telecommunications -- 5.2% (continued)
$ 100,000 B- Cellular Inc., Sr. Sub. Notes, step bond to
yield 11.038% due 9/1/03 $ 90,250
540,000 CCC- Cencall Communication Corp., Sr. Discount
Notes, step bond to yield 13.071% due 1/15/04 402,975
100,000 B Centennial Cellular, Sr. Notes, 8.875%
due 11/1/01 97,250
65,000 NR Colt Telecommunications, step bond to yield
12.000% due 12/15/06 38,025
30,000 NR Consorcio Ecuatoriano, Notes, 14.000% due 5/1/02 30,375
75,000 NR Dobson Communications Corp., Senior Notes,
11.750% due 4/15/07 71,438
20,000 NR GST Unit Telecommunications Inc., Sr. Sub.
Discount Notes, step bond to yield 14.752%
due 12/15/05 15,200
360,000 NR GST USA Inc., Sr. Discount Exchangeable Notes,
step bond to yield 14.606% due 12/15/05 215,999
15,000 B- Gray Communications Systems, Sr. Sub. Notes,
10.625% due 10/1/06 15,656
395,000 NR Hyperion Telecommunications Inc., Sr. Discount
Notes, step bond to yield 13.426% due 4/15/03 220,213
Intelcom Group Inc., Sr. Discount Notes:
200,000 NR Step bond to yield 13.236% due 9/15/05 136,000
200,000 NR Step bond to yield 12.500% due 5/1/06 124,250
45,000 NR International Wireless Unit, Sr. Secured
Discount Notes, zero coupon bond to yield
18.287% due 8/15/01 25,313
125,000 NR McCaw International Ltd., step bond to yield
13.000% due 4/15/07 61,875
130,000 B3* McLeod Inc., Sr. Discount Notes, step bond to
yield 10.500% due 3/1/07 73,450
MFS Communications Inc., Sr. Discount Notes:
150,000 BBB- Step bond to yield 8.993% due 1/15/04 135,563
250,000 BBB- Step bond to yield 8.864% due 1/15/06 188,750
180,000 CCC Metrocall Inc., Sr. Sub. Notes, 10.375% due
10/1/07 148,950
585,000 B- Millicom International Cellular, Sr. Sub.
Discount Notes, 13.500% due 6/1/06 411,693
125,000 B- Mobile Telecom, Sr. Notes, 13.500% due 12/15/02 122,813
675,000 CCC+ Nextel Communications Inc., Sr. Discount
Notes, step bond to yield 12.982% due 8/15/04 492,749
100,000 NR Nextlink Communications LLC, Sr. Discount Notes,
12.500% due 4/15/06 103,250
190,000 CCC+ Omnipoint Corp., Sr. Notes, 11.625% due 8/15/06+ 155,800
210,000 B3* Orbcomm Global, Sr. Notes, 14.000% due 8/15/04+ 215,775
95,000 B Paging Network Inc., Sr. Sub. Notes, 10.000%
due 10/15/03 84,075
76,000 NR Pricellular Wire, Convertible Debenture, step
bond to yield 10.750% due 8/15/04 64,600
175,000 CCC+ Pricellular Wireless Corp., Sr. Sub. Discount
Exchange Notes, zero coupon bond to yield
12.806% due 11/15/01 180,904
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Telecommunications -- 5.2% (continued)
$ 25,000 BB- Roger Communications Inc., Sr. Debentures,
10.875% due 4/15/04 $ 26,250
100,000 BB+ Rogers Cantel, Debenture, 9.375% due 6/1/08 102,500
25,000 CCC+ Sygnet Wireless, Sr. Notes, 11.500% due 10/1/06 24,813
250,000 B Teleport Communications, Sr. Discount Notes,
step bond to yield 9.974% due 7/1/07 171,875
300,000 CCC+ Winstar Communications, Sr. Sub. Discount
Notes, step bond to yield 12.327%
due 10/15/05+ 180,750
60,000 CCC+ Winstar Equipment Inc., Sr. Sub. Discount
Notes, 12.500% due 3/15/04 58,425
- --------------------------------------------------------------------------------
5,206,484
- --------------------------------------------------------------------------------
Telephone -- 0.5%
Diamond Cable Communications PLC, Sr.
Discount Notes:
100,000 B- Step bond to yield 10.920% due 9/30/04 81,625
225,000 B- Step bond to yield 11.468% due 12/15/05 156,937
115,000 B- Step bond to yield 10.750% due 2/15/07 68,713
75,000 B+ Fonorola Inc., Sr. Notes, 12.500% due 8/15/02 81,000
180,000 B Intercel Inc., Sr. Discount Notes, step bond
to yield 12.000% due 5/1/06 106,200
- --------------------------------------------------------------------------------
494,475
- --------------------------------------------------------------------------------
Textiles -- 0.4%
25,000 B- Gear for Sports Inc., Sr. Sub. Notes, 9.625%
due 3/1/07 24,531
30,000 B- Glenoit Corp., Sr. Sub. Notes, 11.000%
due 4/15/07 30,450
200,000 BB- Guess Jeans Inc., 9.500% due 8/15/03 202,999
70,000 B+ Polysindo International Finance, 11.375%
due 6/15/06 74,550
50,000 NR William Carter Holdings, 12.000% due 10/1/08 50,438
15,000 B- William Carter, Sr. Sub. Notes, 10.375%
due 12/1/06 15,131
- --------------------------------------------------------------------------------
398,099
- --------------------------------------------------------------------------------
Transportation -- 0.1%
15,000 B Atlantic Express, Company Guaranteed, 10.750%
due 2/1/04 15,413
100,000 BB- Eletson Holdings, Inc., First Preferred
Mortgage Notes, 9.250% due 11/15/03 99,250
- --------------------------------------------------------------------------------
114,663
- --------------------------------------------------------------------------------
Utility - Electric -- 1.1%
85,000 BB- AES China Generating Co., Senior Notes,
10.125% due 12/15/06 89,038
15,000 B Costilla Energy, Sr. Sub. Notes, 10.250%
due 10/1/06 15,150
72,000 BB- First PV Funding Corp., Lease Obligation
Bond Series 86B, 10.150% due 1/15/16 75,240
30,000 B Forcenergy Inc., Sr. Sub. Notes, 8.500%
due 2/15/07 28,575
20,000 NR Hidro Pierda Aguila, Bonds, 10.625% due 10/9/01 20,850
150,000 BB+ Long Island Lighting Co., Debenture, 9.000%
due 11/1/22 162,000
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Utility - Electric -- 1.1% (continued)
$ 19,140 BB- Midland Funding Corp. I, Sr. Secured
Lease Obligation Bond
Series C 91, 10.330% due 7/23/02 $ 20,409
Midland Funding Corp. II, Sub. Secured Lease
Obligation Bond:
115,000 B Series A, 11.750% due 7/23/05 124,919
75,000 B Series B, 13.250% due 7/23/06 84,469
Niagara Mohawk Power:
100,000 BB- 1st Mortgage Notes, 5.875% due 9/1/02 91,625
100,000 BB- 1st Mortgage Notes, 6.875% due 3/1/07 97,000
150,000 B Medium Term Notes, 9.990% due 5/11/04 154,125
Northeast Utilities, Notes:
122,666 BB- 8.380% due 12/1/05 119,600
19,036 BB- 8.580% due 12/1/06 18,370
- --------------------------------------------------------------------------------
1,101,370
- --------------------------------------------------------------------------------
TOTAL CORPORATE DEBENTURES
(Cost-- $33,748,907) 33,784,026
================================================================================
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
COMMON STOCKS -- 0.1%
25 AmeriKing, Inc. 1,250
500 Cablevision Systems Corp. 15,750
1,325 Grand Union Co. 4,430
2,202 Premium Standard Farms 58,368
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $133,572) 79,798
================================================================================
PREFERRED STOCKS -- 1.6%
204 American Radio Systems 20,116
1,000 AmeriKing, Inc. 26,500
15 Anvil Holdings Inc.+ 14,775
Cablevision System Corp., Class A:
294 Series H 27,857
1,657 Series M, Payment-in-kind 152,444
5,400 California Federal Capital 135,000
750 Chancellor Radio 73,688
3,500 Chevy Chase Capital Corp. 170,625
2,512 El Paso Electric Co., Series A, Payment-in-kind 271,362
800 Fresenius National Medical Care 79,400
1,250 Granite Broadcasting 54,219
20 Intermedia Communication, Payment-in-kind 193,498
1,910 Nextlink Communications Unit 90,009
65 NTL Inc., Payment-in-kind 63,050
3,000 Public Service Co. 67,500
825 SD Warren Co., Convertible 14.000% 32,175
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
PREFERRED STOCKS -- 1.6% (continued)
1,190 SFX Broadcasting 12.625% $ 118,108
75 Spanish Broadcasting System 66,000
4 Time Warner Inc. 4,300
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost-- $1,712,264) 1,660,626
================================================================================
WARRANTS -- 0.0%
150 Heartland Wireless Communications Inc.,
Expire 4/26/00 2
395 Hyperion Communications Inc., Expire 4/1/01 11,849
495 Intelcom Group Inc., Expire 9/15/05 6,435
110 Intersystems, Inc., Expire 12/31/99 28
125 Intermedia Communications Inc., Expire 6/1/00 2,500
45 International Wireless Inc., Expire 8/15/01 0
75 Louisiana Casino Cruises, Expire 12/1/98 1
201 Petracomm Holdings, Expire 8/1/05+ 1,432
221 President Riverboat Casinos Inc., Expire 9/30/99 111
85 SD Warren Holdings Corp., Series B,
Expire 12/15/06 1,105
40 Sterling Chemical Holdings, Expire 8/15/08 1,400
75 Spanish Broadcasting System, Expire 6/30/99 8,249
700 Terex Corp., Appreciation Rights, Expire 5/15/02 3,500
300 Wireless One Inc., Expire 10/15/03 300
- --------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost-- $49,527) 36,912
================================================================================
TOTAL HIGH YIELD SECTOR
(Cost -- $35,644,270) 35,561,362
================================================================================
<CAPTION>
FACE
AMOUNT++ SECURITY VALUE
================================================================================
<S> <C> <C>
INTERNATIONAL SECTOR -- 27.7%
================================================================================
FOREIGN GOVERNMENT AGENCIES & OBLIGATIONS -- 27.5%
================================================================================
Argentina -- 0.8%
887,550 Republic of Argentina, 6.750% due 3/31/05 814,327
- --------------------------------------------------------------------------------
Australia -- 0.7%
790,000 Australian Government, 10.000% due 2/15/06 703,949
- --------------------------------------------------------------------------------
Denmark -- 1.0%
Danish Government:
3,165,000 8.000% due 11/15/01 532,046
2,845,000 8.000% due 3/15/06 473,893
- --------------------------------------------------------------------------------
1,005,939
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
FACE
AMOUNT++ SECURITY VALUE
================================================================================
<S> <C> <C>
France -- 8.5%
- --------------------------------------------------------------------------------
French BTAN Treasury Bill:
27,030,000 4.500% due 10/12/98 $ 4,685,930
10,272,000 7.000% due 10/12/00 1,911,172
11,240,000 5.500% due 10/12/01 1,992,094
- --------------------------------------------------------------------------------
8,589,196
- --------------------------------------------------------------------------------
Germany -- 6.8%
Bundesobligation:
3,350,000 5.250% due 2/21/01+++ 1,995,452
6,000,000 4.750% due 11/20/01 3,487,325
Deutsche Republic:
240,000 6.875% due 5/12/05+++ 149,693
2,140,000 6.250% due 4/26/06+++ 1,280,268
- --------------------------------------------------------------------------------
6,912,738
- --------------------------------------------------------------------------------
Great Britain -- 5.9%
United Kingdom Treasury:
715,000 6.000% due 8/10/99 1,139,503
1,530,000 7.000% due 6/7/02 2,460,875
1,440,000 7.500% due 12/7/06 2,338,023
- --------------------------------------------------------------------------------
5,938,401
- --------------------------------------------------------------------------------
Italy -- 1.2%
60,000,000 Italian Government, 6.250% due 3/1/02 1,169,063
- --------------------------------------------------------------------------------
Mexico -- 0.8%
890,000 Mexico Discount Brady Floater Bond,
6.352% due 12/31/19 788,206
- --------------------------------------------------------------------------------
South Africa -- 0.5%
2,390,000 Republic of South Africa, 13.000% due 8/31/10 478,956
- --------------------------------------------------------------------------------
Sweden -- 1.3%
10,800,000 Swedish Government, 5.500% due 4/12/02 1,337,008
- --------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT
AGENCIES & OBLIGATIONS
(Cost-- $28,956,988) 27,737,783
================================================================================
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
CALL OPTIONS -- 0.1%
300,000,000 Japan Government Bond, Future Call @ 128.00 Yen
Expire 5/30/97 1,181
1,400,000 Japan Government Bond, Future Call @ 125.25 Yen
Expire 6/11/97 18,760
1,400,000 Swiss Franc Future, Call @ 1.4555 Franc Expire
6/11/97 25,060
- --------------------------------------------------------------------------------
TOTAL CALL OPTIONS
(Cost-- $53,275) 45,001
================================================================================
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
PUT OPTIONS -- 0.1%
================================================================================
4,200,000 Deutsche Mark, Future Put @ 1.692
Deutsche Mark Expire 5/28/97 $ 99,120
1,400,000 Deutsche Mark, Future Put @ 1.709
Deutsche Mark Expire 6/11/97 23,660
- --------------------------------------------------------------------------------
TOTAL PUT OPTIONS
(Cost-- $51,814) 122,780
================================================================================
TOTAL INTERNATIONAL SECTOR
(Cost-- $29,062,077) 27,905,564
================================================================================
<S> <C> <C>
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 6.1%
$6,198,000 J.P. Morgan Securities, 5.430% due 5/1/97;
Proceeds at maturity -- $6,198,935; Fully
collateralized by U.S. Treasury Bonds, 10.750%
due 2/15/03; (Market value -- $6,446,178)
(Cost -- $6,198,000) 6,198,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $102,307,964**) $100,912,889
================================================================================
</TABLE>
+ Security is 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.
++ Represents local currency.
@ Security traded on a "to-be-announced" basis (See Note 9).
+++ Security segregated by Custodian for forward exchange contracts.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 33 for definition of ratings.
See Notes to Financial Statements.
32
<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 "CCC" may be modified by the addition of
a plus (+) or 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 bonds
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category than in
higher rated categories.
BB -- 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 "Caa", 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 adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B -- Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds that are rated "Caa" are of poor standing. These issues may
be in default, or present elements of danger may exist with respect to
principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
33
<PAGE>
================================================================================
Statements of Assets and Liabilities (unaudited) April 30,1997
================================================================================
<TABLE>
<CAPTION>
Putnam
Smith Barney Diversified
High Income Income
Portfolio Portfolio
===============================================================================================
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $88,010,694,
and $102,307,964, respectively) $ 88,483,282 $ 100,912,889
Dividends and interest receivable 1,554,312 1,730,134
Receivable for securities sold 875,866 2,618,927
Receivable for closed foreign currency exchange contracts -- 162,840
Other receivables -- 4,784
- -----------------------------------------------------------------------------------------------
Total Assets 90,913,460 105,429,574
- -----------------------------------------------------------------------------------------------
LIABILITIES:
Management fees payable 199,070 58,206
Payable for securities purchased -- 5,657,214
Payable for closed foreign currency exchange contracts -- 288,104
Payable for open foreign currency exchange contracts (Note 5) -- 192,381
Payable to bank -- 23,553
Accrued expenses 11,042 44,851
- -----------------------------------------------------------------------------------------------
Total Liabilities 210,112 6,264,309
- -----------------------------------------------------------------------------------------------
Total Net Assets $ 90,703,348 $ 99,165,265
===============================================================================================
NET ASSETS:
Par value of capital shares $ 75 $ 86
Capital paid in excess of par value 85,918,635 97,167,370
Undistributed net investment income 3,804,283 2,680,613
Accumulated net realized gain from security transactions
and options 507,767 957,333
Net unrealized appreciation (depreciation) of investments,
options and foreign currencies 472,588 (1,640,137)
- -----------------------------------------------------------------------------------------------
Total Net Assets $ 90,703,348 $ 99,165,265
===============================================================================================
Shares Outstanding 7,521,945 8,630,489
- -----------------------------------------------------------------------------------------------
Net Asset Value $12.06 $11.49
- -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
================================================================================
Statements of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997
Putnam
Smith Barney Diversified
High Income Income
Portfolio Portfolio
===============================================================================================
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 3,952,078 $ 3,390,954
Dividends 131,895 46,610
- -----------------------------------------------------------------------------------------------
Total Investment Income 4,083,973 3,437,564
- -----------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 235,516 337,607
Shareholder communications 10,331 14,876
Audit and legal 7,512 7,935
Registration fees 6,809 9,917
Pricing service fees 5,100 9,917
Directors' fees 4,368 2,976
Shareholder and system servicing fees 3,522 3,472
Custody 2,253 15,372
Other 4,526 3,272
- -----------------------------------------------------------------------------------------------
Total Expenses 279,937 405,344
- -----------------------------------------------------------------------------------------------
Net Investment Income 3,804,036 3,032,220
- -----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, OPTIONS AND FOREIGN
CURRENCIES (NOTES 3, 4 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 531,306 913,948
Options purchased -- (27,087)
Foreign currency transactions 146 (453,297)
- -----------------------------------------------------------------------------------------------
Net Realized Gain 531,452 433,564
- -----------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments, Options and Foreign Currencies:
Beginning of period 688,950 936,444
End of period 472,588 (1,640,137)
- -----------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (216,362) (2,576,581)
- -----------------------------------------------------------------------------------------------
Net Gain (Loss) on Investments, Options and
Foreign Currencies 315,090 (2,143,017)
- -----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 4,119,126 $ 889,203
===============================================================================================
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
Smith Barney High Income Portfolio 1997 1996
================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,804,036 $ 4,295,269
Net realized gain 531,452 325,168
Increase in net unrealized appreciation (depreciation) (216,362) 323,019
- ------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 4,119,126 4,943,456
- ------------------------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (3,902,709) (1,234,142)
Net realized gains (325,225) --
- ------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (4,227,934) (1,234,142)
- ------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 21,574,945 41,371,503
Net asset value of shares issued
for reinvestment of dividends 4,227,935 1,234,142
Cost of shares reacquired (945,648) (809,848)
- ------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 24,857,232 41,795,797
- ------------------------------------------------------------------------------------------------
Increase in Net Assets 24,748,424 45,505,111
NET ASSETS:
Beginning of period 65,954,924 20,449,813
- ------------------------------------------------------------------------------------------------
End of period* $ 90,703,348 $ 65,954,924
================================================================================================
* Includes undistributed net investment income of: $ 3,804,283 $ 3,902,810
================================================================================================
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
Putnam Diversified Income Portfolio 1997 1996
==================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,032,220 $ 4,349,534
Net realized gain 433,564 620,131
Increase in net unrealized appreciation (depreciation) (2,576,581) 464,183
- --------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 889,203 5,433,848
- --------------------------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (4,026,830) (1,338,472)
Net realized gains (647,170) (505,992)
- --------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (4,674,000) (1,844,464)
- --------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 17,914,156 44,714,713
Net asset value of shares issued
for reinvestment of dividends 4,673,999 1,844,465
Cost of shares reacquired (714,087) (586,297)
- --------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 21,874,068 45,972,881
- --------------------------------------------------------------------------------------------------
Increase in Net Assets 18,089,271 49,562,265
NET ASSETS:
Beginning of period 81,075,994 31,513,729
- --------------------------------------------------------------------------------------------------
End of period* $ 99,165,265 $ 81,075,994
==================================================================================================
* Includes undistributed net investment income of: $ 2,680,613 $ 4,128,520
==================================================================================================
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney High Income and Putnam Diversified Income Portfolios
("Portfolio(s)") 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 semi-annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales price was reported and U.S. government
agencies and 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 Portfolio 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 an accrual basis; (f) gains or losses on the sale of securities are
calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the
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 or expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank; (i) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At October 31, 1996, reclassifications
were made to the Portfolios' capital accounts to reflect permanent book/tax
differences and income and gains available for distribution under income tax
regulations. Net investment income, net realized gains and net assets were not
affected by this change; (j) the Portfolios intend to comply with
38
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
the requirements of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
and (k) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
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"). 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 and is compensated for such service at the annual rate of 0.35% of the
average daily net assets of PDIP. TIA pays this fee to PIM on a monthly basis.
TIA has entered into a Sub-Administrative Services Agreement with SBMFM.
TIA pays SBMFM, as sub-administrator, a fee calculated at an annual rate of
0.10% of the average daily net assets of PDIP.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares.
All officers and one Director of the Fund are employees of SB.
39
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
3. Investments
During the six months ended April 30, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
SBHI PDIP
================================================================================
<S> <C> <C>
Purchases $ 44,807,258 $120,332,658
- --------------------------------------------------------------------------------
Sales 26,958,662 101,005,452
================================================================================
</TABLE>
At April 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
SBHI PDIP
================================================================================
<S> <C> <C>
Gross unrealized appreciation $ 3,070,428 $ 1,627,968
Gross unrealized depreciation (2,597,840) (3,023,043)
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 472,588 $(1,395,075)
================================================================================
</TABLE>
4. Option Contracts
Premiums paid when put or call options are purchased by the Portfolios,
represent investments, which are marked-to-market daily and are included in the
schedules of investments. 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 April 30, 1997, PDIP held three purchased call options with a cost of
$53,275, and two purchased put options with a cost of $51,814.
When the Portfolios write a covered call or put option, an amount equal to
the premium received by the Portfolios is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolios
realize a gain 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
40
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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 Portfolios enter into options for hedging purposes. The
risk in writing a covered call option is that the Portfolios give up the
opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a put option is that the
Portfolios are exposed to the risk of loss if the market price of the underlying
security declines.
During the period ended April 30, 1997, the Portfolios did not write any
options.
5. Foreign Currency Exchange Contracts
At April 30, 1997, the PDIP had open foreign currency exchange contracts as
described below. The Portfolio 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:
Australian Dollar 751,519 $ 586,529 6/18/97 $ 893
British Pound 180,600 293,025 6/18/97 (2,188)
Canadian Dollar 2,428,700 1,741,378 6/18/97 (41,138)
French Franc 63,700 10,957 6/18/97 (127)
German Deutschemark 13,112,238 7,599,976 6/18/97 (122,028)
Italian Lira 3,124,663,260 1,823,237 6/18/97 (10,010)
Japanese Yen 412,350,068 3,267,692 6/18/97 (157,548)
Spanish Peseta 202,346,580 1,387,171 6/18/97 (33,985)
Swedish Krone 6,390,000 816,113 6/18/97 (25,257)
Swiss Franc 1,795,150 1,224,523 6/18/97 (26,366)
Thai Baht 5,237,500 199,897 6/18/97 (183)
- --------------------------------------------------------------------------------
(417,937)
- --------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
<S> <C> <C> <C> <C>
To Sell:
British Pound 1,995,300 $ 3,237,389 6/18/97 $ (42,924)
Canadian Dollar 405,000 290,385 6/18/97 9,171
German Deutschemark 7,051,750 4,087,260 6/18/97 87,199
Danish Krona 1,349,647 205,485 6/18/97 6,590
French Franc 28,590,500 4,918,034 6/18/97 84,132
Italian Lira 1,062,942,800 620,226 6/18/97 8,735
Japanese Yen 118,307,913 937,538 6/18/97 23,372
Swedish Krone 10,183,200 1,300,570 6/18/97 31,974
Swiss Franc 1,794,650 1,224,181 6/18/97 17,307
- --------------------------------------------------------------------------------
225,556
- --------------------------------------------------------------------------------
Total Unrealized Loss on
Forward Foreign Currency Contracts $ (192,381)
================================================================================
</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. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Portfolios record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transactions and the Portfolio's basis in the contract. The
Portfolios enter into such contracts to hedge a portion of their portfolios. The
Portfolios bear the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts) and the credit
risk should a counterparty fail to perform under such contracts.
As of April 30, 1997, the Portfolios had no open futures contracts.
42
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
8. Lending of Portfolio Securities
The Portfolios have an agreement with their custodian whereby the custodian
may lend securities owned by the Portfolios to brokers, dealers and other
financial organizations, and receive a lenders' fee, which is shared 60% by the
Portfolios and 40% by the custodian. Fees earned by the Portfolios on securities
lending are recorded as interest income. Loans of securities by the Portfolios
are collateralized by cash, U.S. government securities or high quality money
market instruments that are maintained at all times in an amount at least equal
to the current market value of the loaned securities, plus a margin which may
vary between 2% and 5% depending on the type of securities loaned. The custodian
establishes and maintains the collateral in segregated accounts. The Portfolios
maintain exposure for the risk of any losses in the investment of amounts
received as collateral.
At April 30, 1997, there were no securities on loan.
9. Securities Traded on a When-Issued or To-Be-Announced Basis
PDIP may trade securities on a "to-be-announced" ("TBA ") basis. In a TBA
transaction, the Portfolio commits to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date. Securities purchased on a TBA basis are not
settled until they are delivered to the Portfolio, normally 15 to 45 days later.
These transactions are subject to market fluctuations and their current value is
determined in the same manner as for other portfolio securities.
As of April 30, 1997, PDIP held three TBA securities with a cost of
$2,355,185.
10. Capital Shares
At April 30, 1997, 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.
43
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
================================================================================
<S> <C> <C>
Smith Barney High Income
Shares sold 1,785,801 3,599,769
Shares issued on reinvestment 358,299 111,284
Shares redeemed (78,386) (70,401)
- --------------------------------------------------------------------------------
Net Increase 2,065,714 3,640,652
================================================================================
Putnam Diversified
Income Shares sold 1,527,070 3,899,802
Shares issued on reinvestment 403,976 163,407
Shares redeemed (61,308) (51,742)
- --------------------------------------------------------------------------------
Net Increase 1,869,738 4,011,467
================================================================================
</TABLE>
44
<PAGE>
================================================================================
Financial Highlights
================================================================================
<TABLE>
<CAPTION>
For a share of each capital stock outstanding throughout each period:
Smith Barney High Income Portfolio 1997(1) 1996 1995 1994(2)
==========================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.09 $11.26 $10.07 $10.00
- ----------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income(3) 0.45 1.14 0.93 0.29
Net realized and unrealized gain (loss) 0.24 0.19 0.48 (0.22)
- ----------------------------------------------------------------------------------------------------------
Total Income From Operations 0.69 1.33 1.41 0.07
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.66) (0.50) (0.22) --
Net realized gains (0.06) -- -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.72) (0.50) (0.22) --
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.06 $12.09 $11.26 $10.07
- ----------------------------------------------------------------------------------------------------------
Total Return 5.80%++ 12.17% 14.30% 0.70%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $90,703 $65,955 $20,450 $3,395
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 0.71%+ 0.84% 0.70% 0.69%+
Net investment income 9.65+ 9.79 9.54 7.55+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 38% 104% 57% 15%
==========================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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. In addition, the Manager
reimbursed the Portfolio for $17,664 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
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
------------------- -----------------
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.
45
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Putnam Diversified Income Portfolio 1997(1) 1996(2) 1995 1994(3)
==============================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.99 $11.46 $10.18 $10.00
- --------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income(4) 0.26 0.78 0.79 0.23
Net realized and unrealized gain (loss) (0.11) 0.27 0.58 (0.05)
- --------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.15 1.05 1.37 0.18
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.56) (0.39) (0.09) --
Net realized gains (0.09) (0.13) -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (0.65) (0.52) (0.09) --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.49 $11.99 $11.46 $10.18
- --------------------------------------------------------------------------------------------------------------
Total Return 1.21%++ 9.43% 13.55% 1.80%++
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $99,165 $81,076 $31,514 $6,763
- --------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 0.90%+ 0.96% 0.97% 0.98%+
Net investment income 6.17+ 7.57 7.53 6.14+
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 118% 255% 276% 20%
==============================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(4) The Manager 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
reimbursed the Portfolio for $19,028 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
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
------------------- -----------------
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.
46
<PAGE>
[This page intentionally left blank]
47
<PAGE>
[This page intentionally left blank]
48
<PAGE>
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
TRAVELERS SERIES
FUND INC.
SMITH BARNEY HIGH
INCOME PORTFOLIO
PUTNAM DIVERSIFIED
INCOME PORTFOLIO
- ----------------------------------------
April 30, 1997
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
Travelers Series SMITH BARNEY
Fund Inc. ---------------------------------
A Member of TravelersGroup[LOGO]
Directors Investment Managers
Victor K. Atkins Smith Barney Mutual Funds
A. E. Cohen Management Inc.
Robert A. Frankel Travelers Investment Adviser, Inc.
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman Distributor
James M. Shuart Smith Barney Inc.
Officers Custodian
Heath B. McLendon PNC Bank, N.A.
Chief Executive Officer
Annuity Administration
Lewis E. Daidone Travelers Annuity Investor Services
Senior Vice President and Treasurer 5 State House Square
1 Tower Square
John C. Bianchi Hartford, CT 06183
Vice President
This report is submitted for the general
James B. Conheady information of the shareholders of
Vice President Travelers Series Fund Inc. -- Smith Barney
High Income and Putnam Diversified Income
Martin Hanley Portfolios. It is not authorized for
Vice President distribution to prospective investors
unless accompanied or preceded by a
Jeffrey J. Russell current Prospectus for the Portfolios,
Vice President which contains information concerning the
Portfolios' investment policies and
Bruce D. Sargent expenses as well as other pertinent
Vice President information.
Phyllis Zahorodny Travelers Series Fund Inc.
Vice President 388 Greenwich Street
New York, New York 10013
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
IN0805 6/97
<PAGE>
SEMI-ANNUAL REPORT
TRAVELERS SERIES
FUND INC.
SMITH BARNEY INTERNATIONAL
EQUITY PORTFOLIO
SMITH BARNEY PACIFIC BASIN
PORTFOLIO
GT GLOBAL STRATEGIC INCOME
PORTFOLIO
- --------------
April 30, 1997
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
SMITH BARNEY INTERNATIONAL EQUITY, SMITH BARNEY PACIFIC
BASIN AND GT GLOBAL STRATEGIC INCOME PORTFOLIOS
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide the semi-annual report for the Travelers Series Fund
Inc. - Smith Barney International Equity, Smith Barney Pacific Basin and GT
Global Strategic Income Portfolios for the period ended April 30, 1997. For your
convenience, we have summarized the period's prevailing economic and market
conditions and outlined each Portfolio's investment strategy. A detailed summary
of performance and current holdings can be found in the appropriate sections
that follow.
Portfolio Highlights
Smith Barney International Equity Portfolio
For the six months ended April 30, 1997, the Smith Barney International Equity
Portfolio provided a total return of 3.55%. The Portfolio's six-month total
return compares unfavorably to its Lipper Analytical Services Inc. fund peer
group average of 6.68% over the same period. (Lipper Analytical Services Inc. is
an independent firm that tracks fund performance.) The Portfolio lagged its
Lipper peer group primarily due to the effects of the strengthening U.S. dollar
versus European currencies, and the Portfolio's higher component of middle- to
small-capitalization stocks. During the global market correction earlier this
year, middle to small capitalization company stocks underperformed the larger
capitalization company stocks.
Over the six months covered by this report, international financial news has
been dominated by two historic events -- the anticipated European Monetary Union
("EMU") in 1999 and the scheduled transition later this summer of Hong Kong to
the People's Republic of China after 150 years of British rule. Overall,
performance varied considerably across global markets.
The Portfolio's managers continue to devote a major portion of its assets to
European markets. According to the Portfolio's managers, much of the recent
gains in European markets can be attributed to individual countries striving to
meet the guidelines of the Maastricht Treaty, which outlines requirements for
membership in the EMU. Under the Maastricht Treaty, member nations must meet a
number of fiscal requirements, including reducing national budget deficits. As a
result, many countries have reduced spending, which in turn has led to low
interest rates and moderate inflation. Against this positive economic backdrop,
European growth stocks have generally performed well.
However, after posting a relatively strong performance in the early part of
1997, international markets, including Europe, partially participated in a
1
<PAGE>
market correction paralleling a similar correction in U.S. markets.
International markets now appear to be recovering and have regained much of
their losses experienced during that correction.
In the opinion of the Portfolio's managers, these market downturns were most
likely triggered by the move to raise U.S. short-term interest rates by the U.S.
Federal Reserve ("Fed") and recent doubts over the future of the EMU. The rise
in U.S. interest rates and anticipation of further tightening of monetary policy
by the Fed caused many investors to believe that U.S. equity markets would begin
to lose their luster and that major world equity markets would soon follow.
Adding to the market volatility were Germany's struggles to meet the Maastricht
Treaty's strict criteria on budget deficits. As the continent's strongest and
most capable economy, Germany's failure to meet the budget deficit requirements
could call into question the viability of the Europe's monetary union. Further,
the recent French elections, with the return of Socialist forces, has added to
EMU anxiety, although the new cabinet appointments have calmed the market.
The Portfolio's managers remain bullish on the prospects for select European
companies. More importantly, the structural changes occurring in European
economies, such as historically low inflation, reduced budget deficits, and the
trend toward U.S.-style corporate restructuring should continue to be beneficial
for Europe's financial markets.
The Japanese economy continues to struggle despite a weakened currency compared
to its major trading partners (which increases the competitive advantage of its
export goods) and low interest rates. Although Japanese markets have improved
somewhat recently, they still remain confined to a fairly narrow trading range.
There is some evidence that investors may be gravitating back to Japan as the
previously booming Southeast Asian markets of Thailand and Malaysia have cooled.
Officials in those countries recently instituted lending restrictions to head
off inflationary pressures and the resulting credit squeeze could hamper growth
stock performance in those countries.
In Hong Kong, investors have displayed increased confidence toward the
transition to Chinese rule scheduled for July of this year. Chinese officials
have indicated that there are no substantial economic policy changes planned for
Hong Kong. Financial markets have responded very favorably to these developments
and both the stock market and real estate markets continue to thrive. Although
the economies of Latin American countries have improved, we believe that other
financial markets offer superior return potential. Therefore, the Portfolio's
managers continue to limit their exposure to Latin American companies. However,
they added to their position in Brazil's Telebras because
2
<PAGE>
they believe it exhibits excellent growth prospects. Telebras, Brazil's
telephone monopoly, has dominated telecommunications services in one of Latin
America's most dynamic economies.
Smith Barney Pacific Basin Portfolio
For the six months ended April 30, 1997, the Smith Barney Pacific Basin
Portfolio generated a total return of 4.97%. The Portfolio's six-month total
return exceeded its Lipper Analytical Services Inc. fund peer group average of
1.21% over the same period.
The last half-year has been a difficult time for Asian stock markets in general,
as countries in the region have had to cope with three challenging developments.
The most important event has to do with the return of Hong Kong to Chinese
sovereignty on July 1, 1997. This transition has repercussions for all of Asia,
as most Pacific Basin economies depend greatly on intraregional trade,
particularly with China, to fuel growth. The event has focused attention away
from Hong Kong and on to China. Rather than being gloomy about the end of
British rule, investors have become enthusiastic about the prospects for the new
age under China and have shown strong demand for Chinese-related shares. Chinese
"red chips" (Chinese companies incorporated and domiciled in Hong Kong with
shares trading on the Hong Kong exchange with their business based in China) and
"H" shares (Chinese companies incorporated and headquartered in China but whose
shares trade on the Hong Kong exchange) have been red-hot. Meanwhile, Hong Kong
blue-chip shares have largely traded in a tight range.
The second major development has been economic crisis and a subsequent stock
market collapse in Thailand. After years of strong economic growth and heady
expansion, Thailand fell prey to an enormous speculative bubble in property that
burst in 1996. As property prices plunged, nonperforming loans soared, the Thai
baht came under pressure, interest rates skyrocketed and growth turned negative.
The ensuing crisis has led to bankruptcies in the property, finance and even
manufacturing sectors. On a regional basis, the Thai crisis has made investors
nervous about other Southeast Asian countries, and governments in several
countries have introduced measures to cool overheated property markets. As a
result, stock markets in Malaysia, Singapore and the Philippines declined by
10%-17% in U.S. dollar terms, during the period.
The third major development has been rapid depreciation of the yen vis-a-vis the
dollar. After appreciating to 80 yen to the dollar, the rate declined to 114 yen
to the dollar by the end of October 1996. By the end of April 1997, the yen had
fallen to 127 to the dollar, a further 11.5% decline. Large swings in
3
<PAGE>
the yen/dollar rate have a big impact on other Asian economics, affecting debt
service ratios, trade balances and the demand for local goods competing with
Japanese products in world markets.
The Portfolio's managers made several changes to the Pacific Basin Portfolio to
cope with the developments noted above. To start with, they rebalanced the Hong
Kong position, maintaining their weighting at about 29% of the Portfolio but
switching into select red chips and H shares to take advantage of the positive
trends in China. Exposure to China stocks contributed to the Portfolio's
outperformance versus its benchmark during the reporting period.
Next, the Portfolio's managers reduced portfolio weightings in many Southeast
Asian markets, convinced that Thailand's economic woes were far from over and
would continue to trouble neighboring countries. Reduced exposure to Thailand
and the Philippines particularly, and Singapore to a lesser extent, also
contributed to the Portfolio's relative outperformance during the period.
In Japan, the managers increased the Portfolio's weighting in that country
because they expect that the weaker yen rate against the dollar would stimulate
growth in export-oriented companies and eventually trickle down and result in
better growth for domestic firms.
The Portfolio's managers expect that China-related shares in Hong Kong will
continue to outperform over the next six months. Valuations on some of these
shares are a bit high, and strong links to the dollar make this market
vulnerable to interest-rate tightening in the U.S.; but for the time being the
momentum is strong and a resurgent Chinese economy is providing good growth
opportunities for local companies. The Portfolio's managers are attracted by the
defensive nature of Japan at this stage, as this country is one of the few
economies and stock markets that is out of sync with the United States. They
also believe that the weaker yen, if sustained, will drive stronger earnings and
economic recovery and they continue to look for fundamentally attractive
Japanese shares to add to the Portfolio.
In addition, the Portfolio's managers expect it will take some time for Thailand
to sort out its economic problems and have no immediate plans to reenter this
market. The Philippines also makes them a bit nervous, with its heavy exposure
to foreign currency loans and cracks appearing in the property market. On the
other hand, the Portfolio's managers believe that select Malaysian and
Singaporean shares have been unfairly tarnished by economic problems in
neighboring countries and are likely to recover later this year. In addition,
they are expecting a rebound in the South Korean economy and have added a few
Korean shares to the Portfolio at very attractive valuation levels.
4
<PAGE>
GT Global Strategic Income Portfolio
After several years of impressive returns, emerging market debt suffered
weakness over the first quarter of 1997. The GT Global Strategic Income
Portfolio's total return for the six-months ended April 30, 1997, was 3.47%,
outperforming its Lipper Analytical Services Inc. fund peer group average of
- -1.16% over the same period.
While performance of this asset class over the short term has been
disappointing, the Portfolio's managers continue to believe in the long-term
opportunities these markets have to offer as their fundamental economic
conditions strengthen. In Latin America, many countries demonstrated the ability
to implement and adhere to serious monetary and fiscal policies following the
Mexican peso crisis of December 1994. Most importantly, these economies have
shown they are not nearly as vulnerable now to the same influences that
precipitated the crisis. They are not in danger of default, and Argentina and
Brazil, in fact, received upgrades in the beginning of April in their sovereign
ratings from Standard & Poor's Corporation.
Meanwhile, in eastern Europe domestic reform continues and economic
stabilization is underway. Many countries, including Russia, are expected to
enjoy positive economic growth this year. Thus, despite the short-term
contraction in emerging market debt markets, the Portfolio's managers continue
to believe that, fundamentally, many of these economies are still sound.
The Portfolio's managers believe that weakness in emerging fixed income markets
has largely been a function of the U.S. Treasury market as emerging market
economies remain very dependent on capital flows from the Organization of
Economic Cooperation and Development (OECD). The selloff in the first quarter of
1997 primarily occurred because of expectations that the Fed funds rate would
rise. (The Fed funds rate is the interest rate banks charge each other for
overnight loans and is a closely watched indicator of the direction of interest
rates in the U.S.) These expectations began affecting markets at the end of
February 1997 when U.S. Treasuries started rising in yield, reaching nearly 7%
by the time the Fed had tightened its monetary policy. In such an environment,
people become more risk averse and tend to switch into better quality
instruments and cash. And because some of these emerging market countries are
dependent on oil exports, the recent fall in oil prices has reduced the value of
exports which, on a fundamental basis, is not good for their economies.
5
<PAGE>
Several markets continued to do well in spite of the hike in rates. In Bulgaria,
for example, spreads narrowed dramatically, returning roughly 20% for the first
quarter of 1997. The three core Latin America markets -- Mexico, Argentina and
Brazil -- also managed to stay in positive territory. Their economic prospects
remain quite good and Argentina, in particular, is expected to benefit from a
pickup in consumer confidence, while inflation should remain low.
While the Portfolio's managers' fundamental "top-down" process remains in place,
they are currently implementing strategies that place more emphasis on global
liquidity and capital flows. Bulgaria is currently one of their favorite markets
and its fixed income market has done well this year. Although the Portfolio's
managers only invested after the previous government agreed to step aside, they
think Bulgaria could end the year as one of the best-performing markets. They
are enthusiastic about the political changes taking place there and believe the
new reform-minded government will accelerate economic progress. Moreover, the
introduction of a currency board should boost consumer confidence. Support from
multilateral organizations also appears forthcoming, and that should help
Bulgaria overcome their debt servicing problems, implement the currency board
and improve infrastructure.
In Russia, while its bond market has suffered this year from Boris Yeltsin's
absence and lack of direction in economic policy, the Portfolio's managers are
reasonably optimistic about Russia's future going forward. Spreads are currently
very attractive, Yeltsin has made a vigorous comeback and the addition of
several reform-minded ministers to the cabinet demonstrates his continued
commitment to fiscal reform. Perhaps the single most important feature is that
this year Russia is expected to enjoy positive growth -- for the first time
since the collapse of communism.
In closing, thank you for investing in the Smith Barney International Equity,
Smith Barney Pacific Basin and G.T. Global Strategic Income Portfolios. We look
forward to continue to help you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
May 29, 1997
6
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney International Equity Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $12.18 $12.60 $0.01 $0.00 3.55%++
- --------------------------------------------------------------------------------
10/31/96 10.48 12.18 0.01 0.00 16.36
- --------------------------------------------------------------------------------
10/31/95 10.55 10.48 0.00 0.00 (0.66)
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.55 0.00 0.00 5.50++
================================================================================
Total $0.02 $0.00
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Pacific Basin Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $ 9.75 $10.17 $0.06 $0.00 4.97%++
- --------------------------------------------------------------------------------
10/31/96 8.95 9.75 0.03 0.00 9.26
- --------------------------------------------------------------------------------
10/31/95 10.10 8.95 0.00 0.00 (11.39)
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.10 0.00 0.00 1.00++
================================================================================
Total $0.09 $0.00
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
GT Global Strategic Income Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $12.45 $11.85 $0.45 $0.59 3.47%++
- --------------------------------------------------------------------------------
10/31/96 10.77 12.45 0.42 0.00 20.07
- --------------------------------------------------------------------------------
10/31/95 9.95 10.77 0.10 0.00 9.37
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 9.95 0.00 0.00 (0.50)++
================================================================================
Total $0.97 $0.59
================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
7
<PAGE>
- --------------------------------------------------------------------------------
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>
Six months ended 4/30/97++ 3.55% 4.97% 3.47%
- --------------------------------------------------------------------------------
Year Ended 4/30/97 6.26 0.04 15.95
- --------------------------------------------------------------------------------
6/16/94* through 4/30/97 8.46 0.91 11.06
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Return+
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Smith Barney Smith Barney GT Global
International Pacific Strategic
Equity Basin Income
Portfolio Portfolio Portfolio
================================================================================
<S> <C> <C> <C>
6/16/94* through 4/30/97 26.28% 2.64% 35.19%
================================================================================
</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.
8
<PAGE>
- --------------------------------------------------------------------------------
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 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney International MSCI EAFE-GDP
Equity Portfolio Weighted Index
---------------- --------------
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $10,550 $10,345
4/95 $ 9,610 $10,585
10/95 $10,480 $10,398
4/96 $11,884 $11,749
10/96 $12,204 $11,533
4/30/97 $12,628 $12,015
</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 April 30, 1997. The Morgan Stanley Capital International
("MSCI") EAFE-GDP Weighted Index is a composite portfolio consisting of equity
total returns for the countries of Europe, Australia, New Zealand and the Far
East, weighted based on each country's gross domestic product. 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.
9
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Shares of the
Smith Barney Pacific Basin Portfolio vs.
MSCI Pacific Index+
- --------------------------------------------------------------------------------
June 1994 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney Pacific
Basin Portfolio MSCI Pacific Index
--------------- ------------------
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $10,100 $ 9,952
4/95 $ 8,760 $ 9,702
10/95 $ 8,950 $ 8,836
4/96 $10,260 $10,430
10/96 $ 9,779 $ 9,136
4/30/97 $10,264 $ 8,188
</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 April 30, 1997. The Morgan Stanley Capital International
("MSCI") 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.
10
<PAGE>
- --------------------------------------------------------------------------------
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 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
GT Global J.P. Morgan Global
Strategic Income Portfolio Bond Index
-------------------------- ----------
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $ 9,950 $10,391
4/95 $10,074 $11,490
10/95 $10,882 $11,985
4/96 $11,660 $12,009
10/96 $13,055 $12,716
4/30/97 $13,519 $13,157
</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 April 30, 1997. 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.
11
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) April 30, 1997
- --------------------------------------------------------------------------------
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
STOCKS -- 94.3%
================================================================================
<C> <S> <C>
Argentina -- 0.3%
35,000 Quilmes Industrial S.A. $ 323,750
17,500 Quilmes Industrial S.A. ADR 194,688
- --------------------------------------------------------------------------------
518,438
- --------------------------------------------------------------------------------
Australia -- 4.0%
453,564 Coca-Cola Amatil Ltd. 5,197,376
1,000,000 Portman Mining Ltd. 2,157,497
- --------------------------------------------------------------------------------
7,354,873
- --------------------------------------------------------------------------------
Austria -- 3.1%
10,000 VA Technologie AG 1,553,313
40,000 Wolford AG 4,122,256
- --------------------------------------------------------------------------------
5,675,569
- --------------------------------------------------------------------------------
Belgium -- 2.4%
25,000 Barco Industries N.V. 4,262,318
- --------------------------------------------------------------------------------
Brazil -- 1.9%
30,000 Telecomunicacoes Brasileiras S/A - Telebras
Sponsored ADR 3,442,500
- --------------------------------------------------------------------------------
Finland -- 1.8%
50,000 Nokia OY AB, Class A Shares 3,231,250
- --------------------------------------------------------------------------------
France -- 9.8%
5,000 Carrefour Supermarche S.A. 3,121,787
15,000 Groupe Axime+ 1,804,194
15,000 Le Carbone-Lorraine 3,559,557
35,000 Schlumberger Ltd. ADR 3,876,250
25,000 SGS - Thomson Microelectronics NV, NY Shares+ 1,959,375
50,000 Sidel S.A. 3,591,254
- --------------------------------------------------------------------------------
17,912,417
- --------------------------------------------------------------------------------
Germany -- 8.2%
50,000 Leica Camera AG+ 1,508,633
25,000 SGL Carbon AG 3,508,113
15,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred 2,762,314
35,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred ADR 2,130,625
10,000 Volkswagen AG Preferred 4,908,471
- --------------------------------------------------------------------------------
14,818,156
- --------------------------------------------------------------------------------
Hong Kong -- 3.6%
300,000 Cheung Kong Holdings Ltd. 2,633,447
153,688 HSBC Holdings PLC 3,888,575
- --------------------------------------------------------------------------------
6,522,022
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
India -- 2.1%
100,000 BSES Ltd. GDR (a)+ $ 2,350,000
100,000 Larsen & Toubro Ltd. GDR 1,419,000
- --------------------------------------------------------------------------------
3,769,000
- --------------------------------------------------------------------------------
Ireland -- 5.8%
282,151 Bank of Ireland 2,945,341
202,352 CRH PLC 1,980,118
250,000 Greencore Group PLC 1,276,698
399,998 Independent Newspapers PLC 2,072,746
252,127 Irish Continental Group PLC 2,272,165
- --------------------------------------------------------------------------------
10,547,068
- --------------------------------------------------------------------------------
Israel -- 3.8%
100,000 Gilat Satellite Networks Ltd.+ 3,150,000
75,000 Teva Pharmaceutical Industries Ltd. ADR 3,806,250
- --------------------------------------------------------------------------------
6,956,250
- --------------------------------------------------------------------------------
Italy -- 4.4%
50,000 Gucci Group N.V., NY Registered Shares 3,468,750
100,000 Industria Macchine Automatiche 423,512
30,000 Luxottica Group S.p.A. ADR 1,811,250
750,000 Telecom Italia Mobile S.p.A. 2,353,122
- --------------------------------------------------------------------------------
8,056,634
- --------------------------------------------------------------------------------
Japan -- 3.2%
500 Bank of Tokyo - Mitsubishi 7,919
17,000 Bunkyodo Co. Ltd. 107,163
700 H.I.S. Co. Ltd. 29,509
7,000 Japan Associated Finance 454,495
46,000 Matsushita Kotobuki Electron 1,467,969
30,000 Noritsu Koki Co. Ltd. 1,278,859
30 NTT Data Communications 876,999
5,618 Sato Co. 78,354
46,000 Sharp Corp. 598,062
122,000 Sumitomo Realty & Development 866,141
- --------------------------------------------------------------------------------
5,765,470
- --------------------------------------------------------------------------------
Malaysia -- 2.0%
466,666 Mancon Berhad 1,022,575
300,000 Renong Berhad 411,155
60,000 Renong Berhad 4% ICULS 21,275
37,500 Renong Berhad Warrants Expire 11/21/00+ 20,618
550,000 Sungei Way Holdings Berhad 1,259,960
800,000 TA Enterprise Berhad 933,865
- --------------------------------------------------------------------------------
3,669,448
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Mexico -- 1.4%
550,853 Gruma S.A. De C.V., Class B Shares+ $ 2,597,546
- --------------------------------------------------------------------------------
Netherlands -- 8.3%
120,952 Getronics N.V. 3,663,142
40,417 Hunter Douglas N.V. 3,298,754
50,000 IHC Caland N.V. 2,469,072
300,000 ING Groep N.V. Warrants Expire 3/15/01+ 2,721,113
25,000 Wolters Kluwer N.V. 2,963,144
- --------------------------------------------------------------------------------
15,115,225
- --------------------------------------------------------------------------------
Norway -- 2.8%
100,000 Schibsted ASA 1,727,334
150,000 Torma Systems ASA 2,906,977
220,000 VISMA ASA 509,774
- --------------------------------------------------------------------------------
5,144,085
- --------------------------------------------------------------------------------
Philippines -- 1.9%
8,000,000 Belle Corp.+ 1,911,263
6,000,000 SM Prime Holdings Inc. 1,569,966
- --------------------------------------------------------------------------------
3,481,229
- --------------------------------------------------------------------------------
Singapore -- 1.8%
200,000 Cerebos Pacific Ltd. 1,230,727
750,000 Singapore Technologies Industrial Co. 1,939,432
- --------------------------------------------------------------------------------
3,170,159
- --------------------------------------------------------------------------------
South Africa -- 0.8%
20,000 South African Breweries Ltd. 589,227
30,820 South African Breweries Ltd. ADR 905,338
- --------------------------------------------------------------------------------
1,494,565
- --------------------------------------------------------------------------------
South Korea -- 0.8%
4,460 Hung Chang Products Co. 365,000
14,800 Korea Electric Power Corp. 441,345
5,200 Korea Electric Power Corp. ADR 88,400
12,523 Samsung Display Devices Co. 586,952
- --------------------------------------------------------------------------------
1,481,697
- --------------------------------------------------------------------------------
Sweden -- 4.2%
15,000 Astra AB Class A Shares 613,728
25,000 Astra AB Class B Shares 992,607
40,000 Autoliv AB 1,455,612
100,000 Nobel Biocare AB 1,465,808
100,000 Telefonaktiebolaget LM Ericsson Series B 3,161,048
- --------------------------------------------------------------------------------
7,688,803
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Switzerland -- 3.6%
3,100 Novartis AG Registered $ 4,085,924
300 Roche Holding AG 2,534,953
100 Roche Holding AG Warrants Expire 5/5/98+ 5,973
- --------------------------------------------------------------------------------
6,626,850
- --------------------------------------------------------------------------------
Thailand -- 0.5%
250,000 Krung Thai Bank Public Co. Ltd. 313,397
300,000 Siam Makro Public Co. Ltd. 660,287
- --------------------------------------------------------------------------------
973,684
- --------------------------------------------------------------------------------
United Kingdom -- 10.1%
75,000 Biocompatibles International PLC 1,725,040
550,000 Boxmore International PLC 2,583,606
450,000 British Biotech PLC+ 1,763,375
200,000 Carlton Communications PLC 1,638,839
225,000 Compass Group PLC 2,478,948
100,800 Misys PLC 2,024,048
300,000 Powerscreen International PLC 2,957,212
300,000 Serco Group PLC 3,285,791
- --------------------------------------------------------------------------------
18,456,859
- --------------------------------------------------------------------------------
United States -- 1.7%
50,000 Transocean Offshore Inc. 3,031,250
- --------------------------------------------------------------------------------
TOTAL STOCKS
(Cost -- $150,283,372) 171,763,365
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 5.7%
<C> <S> <C>
$10,339,000 CS First Boston Corp., 5.300% due 5/1/97;
Proceeds at maturity -- $10,340,522;
(Fully collateralized by U.S. Treasury Note,
7.125% due 2/29/00; Market value -- $10,553,400)
(Cost -- $10,339,000) 10,339,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $160,622,372**) $182,102,365
================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
SMITH BARNEY PACIFIC BASIN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
STOCKS -- 92.3%
================================================================================
<C> <S> <C>
Australia -- 8.7%
500,000 AAPC Ltd. $ 304,864
53,217 Coca-Cola Amatil Ltd. 609,812
175,000 Henry Walker Group Ltd. 325,579
100,000 TABCORP Holdings Ltd. 495,208
- --------------------------------------------------------------------------------
1,735,463
- --------------------------------------------------------------------------------
Hong Kong -- 28.8%
780,000 Beijing Datang Power Generation Co. Ltd.+ 405,280
157,000 Cheung Kong Infrastructure Holdings 444,865
100,000 China Resources Enterprise Ltd. 276,254
400,000 Guangdong Kelon Elec Holding 387,272
370,000 Guangnan Holdings 532,563
252,000 Hong Kong & China Gas Co. Ltd. 400,129
26,111 HSBC Holdings PLC 660,654
75,000 Hutchinson Whampoa Ltd. 556,703
102,284 New World Development Co. Ltd. 590,214
193,000 Shanghai Industrial Holdings Ltd. 1,086,271
40,000 Sun Hung Kai Properties Ltd. 433,744
- --------------------------------------------------------------------------------
5,773,949
- --------------------------------------------------------------------------------
India -- 4.6%
25,000 Larsen & Toubro Ltd. GDR 354,750
30,000 Mahindra & Mahindra Ltd. GDR 372,751
10,000 Videsh Sanchar Nigam Ltd. GDR+ 197,451
- --------------------------------------------------------------------------------
924,952
- --------------------------------------------------------------------------------
Indonesia -- 2.6%
380,000 PT Bimantara Citra 516,049
- --------------------------------------------------------------------------------
Japan -- 19.4%
300 Bank of Tokyo-Mitsubishi 4,751
1,500 Bellsystem 24, Inc. 184,383
9,000 Fuji Photo Film 343,945
4,200 H.I.S. Co. Ltd. 177,055
14,000 Honda Motor Co. Ltd. 434,639
10,000 Matsushita Electric Industrial Co. Ltd. 319,124
11,000 Murata Manufacturing Co. Ltd. 405,642
13,200 Noritsu Koki Co. Ltd. 562,698
4,000 Rohm Co. 310,141
5,000 Seven-Eleven Japan 317,154
23,000 Sharp Corp. 299,031
1,100 Shohkoh Fund 258,293
37,000 Sumitomo Realty & Development 262,682
- --------------------------------------------------------------------------------
3,879,538
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
SMITH BARNEY PACIFIC BASIN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Malaysia -- 12.1%
260,000 Bandar Raya Developments Berhad $ 383,267
25,000 Cahya Mata Sarawak Berhad 236,056
10,000 Cahya Mata Sarawak Berhad Rights, Expire 5/29/97+ 0
27,000 Malayan Banking Berhad 268,924
90,000 Muhibbah Engineering Berhad 306,574
220,000 Sungei Way Holdings Berhad 503,984
200,000 Sunway Building Technology Berhad 721,116
- --------------------------------------------------------------------------------
2,419,921
- --------------------------------------------------------------------------------
New Zealand -- 2.1%
12,000 Telecom Corp. of New Zealand Ltd. ADR 432,000
- --------------------------------------------------------------------------------
Philippines -- 1.0%
800,000 Belle Corp.+ 191,126
415 Metropolitan Bank & Trust Co. 8,503
- --------------------------------------------------------------------------------
199,629
- --------------------------------------------------------------------------------
Singapore -- 6.4%
217,000 Lindeteves-Jacoberg Ltd. 316,580
60,000 Parkway Holdings Ltd. 244,762
150,000 Singapore Technologies Industrial Corp. 387,886
115,000 Venture Manufacturing Ltd. 326,004
- --------------------------------------------------------------------------------
1,275,232
- --------------------------------------------------------------------------------
South Korea -- 6.6%
7,000 Korea Electric Power Corp. 208,744
3,000 LG Information & Communication Ltd. 296,950
2,000 Lotte Chilsung Beverage Co. 209,641
5,000 Samchully Co. 385,050
520 Samsung Fire & Marine Insurance 185,041
220 Sungmi Telecom Electronics Co. 29,596
- --------------------------------------------------------------------------------
1,315,022
- --------------------------------------------------------------------------------
TOTAL STOCKS
(Cost -- $16,065,937) 18,471,755
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 7.7%
<C> <S> <C>
$1,540,000 CS First Boston Corp., 5.300% due 5/1/97;
Proceeds at maturity -- $1,540,227;
(Fully collateralized by U.S. Treasury Note, 7.125%
due 2/29/00; Market value -- $1,575,288)
(Cost -- $1,540,000) 1,540,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $17,605,937**) $20,011,755
================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
BONDS -- 82.5%
================================================================================
<C> <S> <C>
Argentina -- 7.3%
39,000 Acindar Industry, 11.250% due 2/15/04 $ 39,803
82,800 Republic of Argentina BOCON Series PRE1, 3.2376%
due 4/1/01(b) 103,314
205,000 Republic of Argentina BOCON Series PRO1, 3.2376%
due 4/1/07(b) 211,119
1,632,000 Republic of Argentina Discount, 6.375% due 3/31/23(b) 1,349,468
- --------------------------------------------------------------------------------
1,703,704
- --------------------------------------------------------------------------------
Australia -- 2.3%
630,000 Government of Australia, 9.500% due 8/15/03 540,306
- --------------------------------------------------------------------------------
Brazil -- 3.2%
900,000 Republic of Brazil DCB Bond, 6.9375% due 4/15/12(b) 718,875
42,000 Tevecap S.A., 12.625% due 11/26/04(a) 42,368
- --------------------------------------------------------------------------------
761,243
- --------------------------------------------------------------------------------
Bulgaria -- 2.8%
328,000 Bulgaria FLIRB Series A, 2.250% due 7/28/12(b) 157,647
781,000 Bulgaria IAB Series PDI, 6.5625% due 7/28/11(b) 491,545
- --------------------------------------------------------------------------------
649,192
- --------------------------------------------------------------------------------
Canada -- 2.7%
770,000 Government of Canada, 8.750% due 12/1/05 629,343
- --------------------------------------------------------------------------------
China -- 0.6%
72,000 AES China Generating Co., 10.125% due 12/15/06 75,780
65,000 Panda Global Energy Co., 12.500% due 4/15/04(a) 61,994
- --------------------------------------------------------------------------------
137,774
- --------------------------------------------------------------------------------
Costa Rica -- 0.4%
100,000 Banco Central Costa Rica Series A, 6.250% due 5/21/10 84,000
- --------------------------------------------------------------------------------
Denmark -- 1.6%
2,400,000 Kingdom of Denmark, 7.000% due 12/15/04 379,779
- --------------------------------------------------------------------------------
Ecuador -- 1.1%
215,262 Ecuador Bearer PDI, 6.4375% due 2/27/15(b)(c) 129,022
190,000 Ecuador Discount, 6.4375% due 2/28/25(b) 127,538
- --------------------------------------------------------------------------------
256,560
- --------------------------------------------------------------------------------
France -- 1.1%
1,400,000 Government of France, 7.250% due 4/25/06 267,100
- --------------------------------------------------------------------------------
Germany -- 11.2%
1,474,000 Bundesrepublik Deutscheland, 8.250% due 9/20/01 970,778
1,675,000 Bundesrepublik Deutscheland, 6.000% due 1/5/06 985,829
520,000 Federal National Mortgage Association Global Bond,
5.000% due 2/16/01 305,744
530,000 Treuhandanstalt, 7.125% due 1/29/03 336,572
- --------------------------------------------------------------------------------
2,598,923
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
BONDS -- 82.5%
================================================================================
<C> <S> <C>
Indonesia -- 0.6%
63,000 FSW International, 12.500% due 11/1/06 $ 62,055
75,000 Tjiwi Kimia International BV, 13.250% due 8/1/01 83,624
- --------------------------------------------------------------------------------
145,679
- --------------------------------------------------------------------------------
Italy -- 6.5%
580,000,000 Buoni Poliennali Del Tes, 9.500% due 2/1/99 353,616
1,120,000,000 Buoni Poliennali Del Tes, 10.500% due 11/1/00 723,604
150,000,000 Buoni Poliennali Del Tes, 8.500% due 8/1/04 92,654
45,000,000 Republic of Italy, 6.328% due 7/26/99(b) 356,461
- --------------------------------------------------------------------------------
1,526,335
- --------------------------------------------------------------------------------
Jamaica -- 0.2%
37,000 Mechala Group, 12.750% due 12/30/99(a) 38,388
- --------------------------------------------------------------------------------
Mexico -- 4.6%
45,000 Cemex S.A., 12.750% due 7/15/06(a) 50,288
59,000 Copamex, 11.375% due 4/30/04(a) 60,328
38,000 Grupo Elektra, 12.750% due 5/15/01(a) 40,549
49,000 Grupo Mex De Desarrollo, 8.250% due 2/17/01 34,239
50,000 TV Azteca S.A. DE CV, 10.500% due 2/15/07(a) 49,313
259,000 United Mexican States, 6.250% due 12/31/19 188,262
718,000 United Mexican States, 6.375% due 12/31/19(b) 637,677
1,364,000 United Mexican States Value Recovery Rights,
expire 6/30/03+ 0
- --------------------------------------------------------------------------------
1,060,656
- --------------------------------------------------------------------------------
Morocco -- 1.4%
367,000 Morocco Tranche A Restructuring & Consolidation
Agreement, 6.375% due 1/1/99(a) 322,960
- --------------------------------------------------------------------------------
Nigeria -- 1.4%
500,000 Central Bank of Nigeria Par, 6.250% due 11/15/20 320,000
500 Central Bank of Nigeria Warrants, expire 11/15/20+ 0
- --------------------------------------------------------------------------------
320,000
- --------------------------------------------------------------------------------
Panama -- 2.1%
445,000 Panama Interest Reduction, 3.500% due 7/17/14(b) 328,188
160,000 Republic of Panama, 7.875% due 2/13/02(a) 156,200
- --------------------------------------------------------------------------------
484,388
- --------------------------------------------------------------------------------
Philippines -- 0.5%
3,000,000 International Bank of Reconstruction & Development,
10.250% due 4/11/02 113,766
- --------------------------------------------------------------------------------
Poland -- 2.3%
878,000 Government of Poland, 12.000% due 6/12/01 224,927
370,000 Poland PDI, 4.000% due 10/27/14(b) 300,163
- --------------------------------------------------------------------------------
525,090
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
<C> <S> <C>
Russia -- 6.9%
95,000 Ministry Finance Russia, 3.000% due 5/14/06(a) $ 46,729
160,000 Ministry Finance Russia, 3.000% due 5/14/11(a) 60,400
241,800 Russian Federation GKO Linked Notes, due 4/8/98 326,121
1,170,000 Vnesheconombank Loan Agreement due 12/29/49(d)+ 949,900
466,000 Vnesheconombank Loan Agreement due 12/31/49(d)+ 225,371
- --------------------------------------------------------------------------------
1,608,521
- --------------------------------------------------------------------------------
Spain -- 2.0%
55,000,000 Government of Spain, 10.500% due 10/30/03 456,981
- --------------------------------------------------------------------------------
Sweden -- 1.5%
2,200,000 Swedish Government, 13.000% due 6/15/01 350,435
- --------------------------------------------------------------------------------
United Kingdom -- 5.4%
270,000 United Kingdom Treasury, 8.000% due 12/7/00 449,880
200,000 United Kingdom Treasury, 7.000% due 6/7/02 321,683
305,000 United Kingdom Treasury, 7.500% due 12/7/06 495,206
- --------------------------------------------------------------------------------
1,266,769
- --------------------------------------------------------------------------------
United States -- 10.3%
1,600,000 U.S. Treasury Note, 6.875% due 3/31/00 1,619,376
380,000 U.S. Treasury Bond, 6.875% due 8/15/25 373,209
95,000 Chase Manhattan, 6.250% due 1/15/06 88,854
330,000 General Motors Acceptance Corp., 6.625% due 10/15/05 315,942
- --------------------------------------------------------------------------------
2,397,381
- --------------------------------------------------------------------------------
Venezuela -- 2.5%
250,000 Republic of Venezuela DCB, 6.500% due 12/18/07(b) 220,938
500,000 Republic of Venezuela FLIRB Series A, 6.8125%
due 3/31/20(b) 363,440
- --------------------------------------------------------------------------------
584,378
- --------------------------------------------------------------------------------
TOTAL BONDS
(Cost -- $19,108,724) 19,209,651
===============================================================================
CONVERTIBLE BOND -- 0.5%
===============================================================================
Indonesia
115,000 Lukinter Finance, 3.500% due 5/6/02(a)
(Cost -- $116,148) 119,888
===============================================================================
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) (continued) April 30, 1997
- --------------------------------------------------------------------------------
GT GLOBAL STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT* SECURITY VALUE
================================================================================
BONDS -- 82.5%
================================================================================
<C> <S> <C>
OPTIONS -- 0.2%
2,518,000 Brazil DCB Call Strike Price 80.2220, Expire 6/12/97 $ 21,758
957,000 Bulgaria FLIRB A Call Strike Price 45.9375,
Expire 7/17/97 34,356
1,010,000 Russia Min Fin #3 Call Strike Price 86.6250,
Expire 5/7/97 970
- --------------------------------------------------------------------------------
TOTAL OPTIONS
(Cost -- $97,883) 57,084
================================================================================
SUB-TOTAL INVESTMENTS
(Cost -- $19,322,755) 19,386,623
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 16.8%
<C> <S> <C>
$3,920,000 CS First Boston Corp., 5.300% due 5/1/97; Proceeds
at maturity -- $3,920,577; (Fully collateralized
by U.S. Treasury Note, 7.125% due 2/29/00;
Market value -- $4,005,144) (Cost -- $3,920,000) 3,920,000
================================================================================
TOTAL INVESTMENTS -- 100.0%
(Cost -- $23,242,755**) $23,306,623
================================================================================
</TABLE>
(a) Security is 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.
(b) Represents current rate on floating rate security.
(c) Effective rate at period end including "payment in kind" bonds.
(d) Security is in default.
+ Non-income producing security.
* Represents local currency.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (unaudited) April 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Smith Barney Smith Barney GT Global
International Pacific Strategic
Equity Basin Income
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value
(Cost -- $160,622,372, $17,605,937
and $19,322,755, respectively) $ 182,102,365 $ 20,011,755 $ 19,386,623
Repurchase Agreement, at value
(Cost -- $0, $0 and $3,920,000,
respectively) -- -- 3,920,000
Foreign currency
(Cost -- $1,101,589, $699,621
and $0, respectively) 1,101,588 670,563 --
Cash 290,243 11,904 43
Receivable for securities sold 3,595,221 180,353 874,608
Dividends and interest receivable 359,041 66,992 456,739
Receivable for open forward
foreign currency contracts
(Note 5) 1,504 -- 119,743
Receivable from broker -- -- 1,753
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 187,449,962 20,941,567 24,759,509
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 4,911,482 429,277 343,316
Management fees payable 130,076 13,991 16,840
Payable for open forward foreign
currency contracts (Note 5) 66 102 95,277
Dividends payable -- -- 84
Payable to bank -- -- 135
Accrued expenses 120,798 49,997 24,522
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,162,422 493,367 480,174
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 182,287,540 $ 20,448,200 $ 24,279,335
====================================================================================================================================
NET ASSETS:
Par value of capital shares $ 145 $ 20 $ 20
Capital paid in excess of par value 162,483,887 19,422,787 22,596,481
Undistributed (overdistributed)
net investment income 321,371 (20,726) 706,878
Accumulated net realized gain
(loss) on security transactions,
futures contracts and options (1,970,543) (1,359,340) 897,769
Net unrealized appreciation of
investments, futures contracts,
options and foreign currencies 21,452,680 2,405,459 78,187
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 182,287,540 $ 20,448,200 $ 24,279,335
====================================================================================================================================
Shares Outstanding 14,462,517 2,011,426 2,048,116
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value $12.60 $10.17 $11.85
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended April 30, 1997
<TABLE>
<CAPTION>
Smith Barney Smith Barney GT Global
International Pacific Strategic
Equity Basin Income
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 751,586 $ 127,738 --
Interest 156,295 19,436 $ 712,602
Less: Foreign withholding tax (62,938) (5,830) (1,830)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 844,943 141,344 710,772
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 734,821 81,653 89,572
Custody 63,784 33,865 17,090
Shareholder communications 13,489 2,285 2,485
Audit and legal 10,867 7,412 7,383
Shareholder and system servicing fees 7,662 5,913 3,397
Director's fees 5,656 1,953 2,074
Registration fees 1,277 454 107
Other 2,358 969 932
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 839,914 134,504 123,040
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 5,029 6,840 587,732
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FUTURES CONTRACTS,
OPTIONS AND FOREIGN CURRENCIES
(NOTE 3, 5, 6 AND 7):
Realized Gain (Loss) From:
Security transactions
(excluding short-term securities) (1,020,986) (603,045) 911,509
Futures contracts -- -- 20,556
Options purchased -- -- 163
Foreign currency transations 317,485 (26,948) 119,857
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) (703,501) (629,993) 1,052,085
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments, Futures Contracts,
Options and Foreign Currencies:
Beginning of period 15,538,528 813,420 1,048,593
End of period 21,452,680 2,405,459 78,187
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in
Net Unrealized Appreciation 5,914,152 1,592,039 (970,406)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments, Futures
Contracts, Options and Foreign
Currencies 5,210,651 962,046 81,679
Increase in Net Assets From Operations $ 5,215,680 $ 968,886 $ 669,411
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
<TABLE>
<CAPTION>
Smith Barney International Equity Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,029 $ 224,890
Net realized gain (loss) (703,501) 303,917
Increase in net unrealized appreciation 5,914,152 12,631,849
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 5,215,680 13,160,656
- --------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (160,616) (75,105)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (160,616) (75,105)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 59,803,384 78,935,547
Net asset value of shares issued
for reinvestment of dividends 160,616 75,105
Cost of shares reacquired (26,054,102) (2,312,077)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 33,909,898 76,698,575
- --------------------------------------------------------------------------------
Increase in Net Assets 38,964,962 89,784,126
NET ASSETS:
Beginning of period 143,322,578 53,538,452
- --------------------------------------------------------------------------------
End of period* $182,287,540 $143,322,578
================================================================================
* Includes undistributed net investment income of: $321,371 $159,473
================================================================================
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
<TABLE>
<CAPTION>
Smith Barney Pacific Basin Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,840 $ 61,542
Net realized loss (629,993) (335,117)
Increase in net unrealized appreciation 1,592,039 1,008,150
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 968,886 734,575
- --------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (111,296) (25,705)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (111,296) (25,705)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 17,843,981 12,262,188
Net asset value of shares issued
for reinvestment of dividends 111,296 25,705
Cost of shares reacquired (15,021,742) (3,461,355)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 2,933,535 8,826,538
- --------------------------------------------------------------------------------
Increase in Net Assets 3,791,125 9,535,408
NET ASSETS:
Beginning of period 16,657,075 7,121,667
- --------------------------------------------------------------------------------
End of period* $20,448,200 $16,657,075
================================================================================
* Includes undistributed (overdistributed)
net investment income of: $(20,726) $110,678
================================================================================
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
<TABLE>
<CAPTION>
GT Global Strategic Income Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 587,732 $ 943,615
Net realized gain 1,052,085 857,613
Increase (decrease) in net unrealized
appreciation (970,406) 812,287
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 669,411 2,613,515
- --------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (757,534) (385,932)
Net realized gains (988,456) --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,745,990) (385,932)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 5,929,350 9,268,494
Net asset value of shares issued
for reinvestment of dividends 1,746,011 385,932
Cost of shares reacquired (1,471,685) (1,126,715)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 6,203,676 8,527,711
- --------------------------------------------------------------------------------
Increase in Net Assets 5,127,097 10,755,294
NET ASSETS:
Beginning of period 19,152,238 8,396,944
- --------------------------------------------------------------------------------
End of period* $24,279,335 $19,152,238
================================================================================
* Includes undistributed net investment income of: $706,878 $756,823
================================================================================
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney International Equity, Smith Barney Pacific Basin and GT
Global Strategic Income Portfolios ("Portfolio(s)") 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 semi-annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices 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 sales price 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 premium and accretion of discount, is recorded on
an 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 Portfolios determine 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) 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 or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (i)
the character of income and gains to be distributed are determined in accordance
with
27
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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; (j)
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 (k) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
In addition, the 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"). 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 its
average daily net assets. These fees are calculated daily and paid monthly.
TIA has entered into a subadvisory agreement with Chancellor 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 and is compensated for such services. TIA pays LGT a monthly fee
calculated at the annual rate of 0.375% of the average daily net assets of
GTGSI.
28
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
TIA has entered into a sub-administrative services agreement with SBMFM.
TIA pays SBMFM, as sub-administrator, a fee calculated at an annual rate of
0.10% of the Portfolios' average daily net assets.
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
six months ended April 30, 1997, SB received brokerage commissions of $1,950 for
SBIE and SBPB.
All officers and one Director of the Fund are employees of SB.
3. INVESTMENTS
For the six months ended April 30, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
SBIE SBPB GTGSI
================================================================================
<S> <C> <C> <C>
Purchases $52,718,183 $12,886,715 $17,438,935
- --------------------------------------------------------------------------------
Sales 26,324,117 10,700,775 14,894,433
================================================================================
</TABLE>
At April 30, 1997, the gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
SBIE SBPB GTGSI
================================================================================
<S> <C> <C> <C>
Gross unrealized appreciation $29,165,707 $2,937,385 $ 814,560
Gross unrealized depreciation (7,685,714) (531,567) (750,692)
- --------------------------------------------------------------------------------
Net unrealized appreciation $21,479,993 $2,405,818 $ 63,868
================================================================================
</TABLE>
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 amounts and
expiration of the carryforward losses 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>
29
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
5. FORWARD FOREIGN CURRENCY CONTRACTS
At April 30, 1997, 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)
================================================================================
<S> <C> <C> <C> <C>
Smith Barney International Equity
To Sell:
Japanese Yen 1,581,481 $ 12,465 5/2/97 $ 11
Norwegian Krone 210,833 29,618 5/5/97 84
- --------------------------------------------------------------------------------
95
- --------------------------------------------------------------------------------
To Buy:
Australian Dollar 282,057 220,482 5/1/97 1,409
Japanese Yen 7,711,844 60,776 5/1/97 (66)
- --------------------------------------------------------------------------------
1,343
- --------------------------------------------------------------------------------
Total Unrealized Gain
on Forward Foreign
Currency Contracts $ 1,438
================================================================================
Smith Barney Pacific Basin
To Sell:
Indonesian Rupiah 86,558,599 $ 35,615 5/1/97 $ (102)
================================================================================
GT Global Strategic Income
To Sell:
Australian Dollar 1,040,000 $ 812,876 5/12/97 $(25,596)
British Pound 170,000 275,640 6/10/97 (1,996)
British Pound 200,000 324,281 7/31/97 (91)
Canadian Dollar 1,205,000 863,962 5/29/97 15,314
German Deutschemark 1,767,000 1,020,745 5/5/97 35,471
German Deutschemark 1,060,000 613,414 5/30/97 19,668
German Deutschemark 500,000 289,612 6/11/97 3,188
German Deutschemark 520,000 301,519 6/25/97 8,691
Italian Lira 2,040,000,000 1,188,598 7/21/97 8,304
Japanese Yen 45,200,000 357,579 5/27/97 13,399
Japanese Yen 44,000,000 350,009 7/3/97 4,330
New Zealand Dollar 290,000 200,866 6/10/97 1,829
Spanish Peseta 69,300,000 474,730 7/15/97 3,119
- --------------------------------------------------------------------------------
85,630
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
GT Global Strategic Income
<S> <C> <C> <C> <C>
To Buy:
Australian Dollar 1,040,000 $ 812,876 5/12/97 $ 1,921
British Pound 170,000 275,640 6/10/97 4,509
Canadian Dollar 810,000 580,755 5/29/97 (12,677)
German Deutschemark 1,000,000 577,671 5/5/97 (11,229)
German Deutschemark 520,000 301,519 6/25/97 (9,925)
Japanese Yen 45,200,000 357,579 5/27/97 (16,996)
Japanese Yen 44,000,000 350,009 7/3/97 (15,503)
New Zealand Dollar 290,000 200,866 6/10/97 (1,264)
- --------------------------------------------------------------------------------
(61,164)
- --------------------------------------------------------------------------------
Total Unrealized Gain
on Forward Foreign
Currency Contracts $ 24,466
================================================================================
</TABLE>
6. FUTURES CONTRACTS
Initial margin deposits are made upon entering into futures contracts and
are recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Portfolios record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transactions and the Portfolios' basis in the contract. The
Portfolios enter into such contracts to hedge a portion of their portfolios. The
Portfolios bear the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts) and the credit
risk should a counterparty fail to perform under such contracts.
As of April 30, 1997, GTGSI had the following open futures contracts:
<TABLE>
<CAPTION>
# of Basis Market Unrealized
Futures contracts to sell contracts Expiration Value Value Gain
================================================================================
<S> <C> <C> <C> <C> <C>
Canada 10 Year 5 6/97 $411,891 $410,389 $1,502
Italy BTPS 10 Year 1 6/97 149,754 149,252 502
- --------------------------------------------------------------------------------
Total $561,645 $559,641 $2,004
================================================================================
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
7. OPTION CONTRACTS
Premiums paid when put or call options are purchased by the Portfolios
represent investments, which are marked-to-market daily and are included in the
schedules of investments. 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 transactions are greater or less
than the premium paid for the option. When the Portfolios exercise a put option,
they will realize a gain or loss from the sale of the underlying security and
the proceeds from such sale will be decreased by the premium originally paid.
When the Portfolios exercise a call option, the cost of the security which the
Portfolios purchase upon exercise will be increased by the premium originally
paid.
As of April 30 1997, GTGSI held three purchased call options with a cost of
$97,883.
When the Portfolios write a covered call or put option, an amount equal to
the premium received by the Portfolios is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolios
realize a gain equal to the amount of the premium received. When the Portfolios
enter into a closing purchase transaction, the Portfolios realize a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the cost of the security
sold will be decreased by the premium originally received. When a 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 Portfolios enter into options for hedging purposes. The risk in writing a
covered call option is that the Portfolios give up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolios are
exposed to the risk of loss if the market price of the underlying security
declines.
During the period ended April 30, 1997, the Portfolios did not write any
options.
32
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
8. REVERSE REPURCHASE AGREEMENT
GIGSI may enter into reverse repurchase agreement transactions for
leveraging purposes. A reverse repurchase agreement involves a sale by the
Portfolio of securities that it holds with an agreement by the Portfolio to
repurchase the same securities at an agreed upon price and date. A reverse
repurchase agreement involves the risk that the market value of the securities
sold by the Portfolio may decline below the repurchase price of the securities.
The Portfolio will establish a segregated account with its custodian, in which
the Portfolio will maintain cash, U.S. government securities or other liquid
high grade debt obligations equal in value to its obligations with respect to
reverse repurchase agreements.
At April 30, 1997, the Portfolio had no open reverse repurchase agreements.
9. LENDING OF PORTFOLIO SECURITIES
The Portfolios have an agreement with their custodian whereby the custodian
may lend securities owned by the Portfolios to brokers, dealers and other
financial organizations, and receives a lenders' fee, which is shared 60% by the
Portfolios and 40% by the custodian. Fees earned by the Portfolios on securities
lending are recorded as interest income. Loans of securities by the Portfolios
are collateralized by cash, U.S. government securities or high quality money
market instruments that are maintained at all times in an amount at least equal
to the current market value of the loaned securities, plus a margin which may
vary between 2% and 5% depending on the type of securities loaned. The custodian
establishes and maintains the collateral in segregated accounts. The Portfolios
maintain exposure for the risk of any losses in the investment of amounts
received as collateral.
At April 30, 1997, there were no securities on loan.
10. 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 Portfolios. 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.
33
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
11. CAPITAL SHARES
At April 30, 1997, 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.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
================================================================================
<S> <C> <C>
Smith Barney International Equity
Shares sold 4,743,684 6,840,983
Shares issued on reinvestment 12,902 7,032
Shares redeemed (2,057,382) (191,267)
- --------------------------------------------------------------------------------
Net Increase 2,699,204 6,656,748
================================================================================
Smith Barney Pacific Basin
Shares sold 1,784,904 1,262,559
Shares issued on reinvestment 11,185 2,782
Shares redeemed (1,492,784) (352,741)
- --------------------------------------------------------------------------------
Net Increase 303,305 912,600
================================================================================
GT Global Strategic Income
Shares sold 486,692 821,257
Shares issued on reinvestment 147,094 35,504
Shares redeemed (124,112) (98,292)
- --------------------------------------------------------------------------------
Net Increase 509,674 758,469
================================================================================
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Smith Barney International Equity Portfolio 1997(1) 1996 1995 1994(2)
======================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.18 $10.48 $10.55 $10.00
- ----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(3) 0.00* 0.02 0.03** (0.03)
Net realized and unrealized gain (loss) 0.43 1.69 (0.10) 0.58
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.43 1.71 (0.07) 0.55
- ----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.01) (0.01) -- --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.01) (0.01) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.60 $12.18 $10.48 $10.55
- ----------------------------------------------------------------------------------------------------------------------
Total Return 3.55%++ 16.36% (0.66)% 5.50%++
- ----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $182,288 $143,323 $53,538 $13,811
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.02%+ 1.10% 1.44% 1.20%+
Net investment income (loss) 0.01+ 0.23 0.25 (0.73)+
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 16% 41% 29% --
- ----------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4)(5) $0.02 $0.02 $0.01 --
======================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(2) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(3) The Manager has waived part of its fees for the year ended October 31,
1994. If such fees were not waived, the effect on the net investment loss
and the expense ratio would have been as follows:
<TABLE>
<CAPTION>
Per Share
Decrease to Net Expense Ratios
Investment Income Without Fee Waiver
----------------- ------------------
<S> <C> <C>
1994 $0.03 2.00%+
</TABLE>
In addition, during the years ended October 31, 1996 and 1995, the
Portfolio had earned credits from the custodian which reduced service fees
incurred. When the credits are taken into consideration the expense ratios
are 1.05% and 1.21%, respectively; prior year numbers have not been
restated to reflect these adjustments.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(5) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commission on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.5% to 1.00%.
* Amount less than $0.01 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.
35
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Smith Barney Pacific Basin Portfolio 1997(1) 1996 1995 1994(2)
=======================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.75 $8.95 $10.10 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(3) 0.01 0.08 (0.04)* (0.04)
Net realized and unrealized gain (loss) 0.47 0.75 (1.11) 0.14
- -----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.48 0.83 (1.15) 0.10
- -----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.06) (0.03) -- --
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.06) (0.03) -- --
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.17 $9.75 $8.95 $10.10
Total Return 4.97%++ 9.26% (11.39)% 1.00%++
- -----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $20,448 $16,657 $7,122 $4,238
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.48%+ 1.34% 1.83% 1.26%+
Net investment income (loss) 0.08+ 0.47 (0.51) (0.93)+
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 61% 59% 28% --
- -----------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4)(5) $0.01 $0.02 $0.01 --
=======================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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 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 years ended October 31, 1996 and 1995, the
Portfolio had earned credits from the custodian which reduced 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.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(5) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commission on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.5% to 1.00%.
* 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.
36
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
GT Global Strategic Income Portfolio 1997(1) 1996 1995 1994(2)
========================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.45 $10.77 $9.95 $10.00
- --------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.22 0.74 0.64* 0.17
Net realized and unrealized gain (loss) 0.22 1.36 0.28 (0.22)
- --------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.44 2.10 0.92 (0.05)
- --------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.42) (0.10) --
Net realized gains (0.59) -- -- --
- --------------------------------------------------------------------------------------------------------
Total Distributions (1.04) (0.42) (0.10) --
- --------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.85 $12.45 $10.77 $9.95
- --------------------------------------------------------------------------------------------------------
Total Return 3.47%++ 20.07% 9.37% (0.50)%++
- --------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $24,279 $19,152 $8,397 $2,624
- --------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.09%+ 1.23% 1.47% 1.07%+
Net investment income 5.19+ 6.87 6.44 4.58+
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 77% 192% 295% 56%
========================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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 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 had earned credits from the custodian which reduced 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.
37
<PAGE>
TRAVELERS SERIES
FUND INC.
DIRECTORS
Victor K. Atkins
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
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
Irving P. David
Controller
Christina T. Sydor
Secretary
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 Chase Manhattan 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. -- 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
IN0802 6/97
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
Travelers Series
Fund Inc.
MFS Total Return Portfolio
TBC Managed Income
Portfolio
Smith Barney Money
Market Portfolio
---------------------------------------------
April 30, 1997
[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 the semi-annual report for the Travelers Series Fund
Inc. - MFS Total Return, TBC Managed Income and Smith Barney Money Market
Portfolios for the period ended April 30, 1997. For your convenience, we have
summarized the period's prevailing economic and market conditions and outlined
each Portfolio's investment strategy. A detailed summary of performance and
current holdings can be found in the appropriate sections that follow.
Portfolio Highlights
MFS Total Return Portfolio
For the six months ended April 30, 1997, the MFS Total Return Portfolio provided
a total return of 8.35%. The Portfolio's six-month total return compares
favorably to its Lipper Analytical Services Inc. balanced fund peer group
average of 5.26% over the same period. (Lipper Analytical Services Inc. is an
independent firm that tracks fund performance.) 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 that
in many cases can provide similar returns to common stocks with generally less
risk.
Over the past six months the Portfolio has been helped by the strong pace of
U.S. economic activity. (The U.S. economy grew at an annual rate of 3.8% in the
last quarter of 1996 and 3.5% in the first quarter of 1997.) Employment levels
have also been strong and the national unemployment rate was roughly 4.9% at the
end of April. While inflation has not been a problem in recent years, prices did
edge up over the past six months and the Portfolio's managers are closely
monitoring key indicators for any signs of a serious rise in the annual rate of
inflation. While interest rates moved lower in the last few months of 1996,
interest rates moved up sharply in the first quarter of 1997 as the pace of U.S.
economic growth picked up with no signs of any slowdown.
During the reporting period, the economies of many other countries were sluggish
relative to the U.S. However, the Portfolio's managers believe the rise in the
value of the U.S. dollar over the past year should help to improve the
competitiveness of many foreign corporations. Under that scenario, foreign
economies would begin to grow more strongly while the U.S. economy would slow
down. Many investors have remained bullish on corporate America and stock prices
generally moved higher over most of the period under review.
1
<PAGE>
Bonds moved higher at the beginning of the period but declined sharply over
March and April 1997.
The Portfolio's allocations for the most part have remained conservative. At the
end of April 1997, 58% of the Portfolio was invested in stocks, preferred
stocks, and convertible bonds. The Portfolio's managers generally consider a 60%
stock weighting neutral and anything over 65% aggressive. The Portfolio's
Managers have been somewhat conservative for some time because they believe
stock valuations are expensive based on historical standards. With respect to
valuations, many analysts interpret a Standard & Poor's 500 Stock Index ("S&P
500") dividend yield of 3% as a strong 'sell' signal. (The S&P 500 is a
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange and over-the-counter market.)
Specifically, the dividend yield of the S&P 500 is just 2% and close to its
all-time low.
In selecting stocks for the Portfolio, the Portfolio's managers prefer to own
companies that they anticipate will have stable and growing earnings. The
Portfolio's managers also like to pay a price for these securities (as measured
by a number of different ratios such as price/earnings ratio, dividend yield,
and price-to-book value) below the market average. Financial services and energy
stocks both performed well for the Portfolio during the reporting period. Energy
company stocks were helped by generally higher oil prices, while financial
services company stocks reported solid earnings and consolidation in the
industry remained high.
The Portfolio continues to have less of an emphasis in the technology and
consumer non-durable areas of the market. While the Portfolio's managers believe
there are many outstanding companies in both of these market sectors, their
valuations in their view have not been compelling in recent months. Over the
past six months, the performance of the Portfolio's aerospace and defense
company holdings has been disappointing, in part because, after years of
consolidation, many investors are concerned that these industries are in for a
period of 'slow growth.' However, the managers still find these industries to be
relatively attractive and we believe select companies can continue to produce
solid earnings over the long term. The utility sector was another disappointment
for the Portfolio. The pace of deregulation in the utility industry continues to
pick up, causing investor concerns to rise and putting pressure on stock prices.
Looking ahead, the Portfolio's managers see the U.S. economy growing modestly
during the next twelve months. Over the near term, however, they believe that
the Federal Reserve Board ("Fed") will keep a close watch on
2
<PAGE>
wage inflation and general economic activity and it may raise interest rates
again if key economic indicators suggest a stronger-than-expected U.S. economy.
Given where many equity valuations are today, the management team feels
comfortable with how the Portfolio's assets are currently allocated. However, if
the stock market were to drop in any meaningful way, the Portfolio's managers
would view that as a buying opportunity and look to add to our stock holdings on
a selective basis.
TBC Managed Income Portfolio
For the six-months ended April 30, 1997, the TBC Managed Income Portfolio had a
total return of 2.1% versus the 1.7% total return of the Lehman Brothers
Aggregate Bond Index, an unmanaged bond index made up of more than 5,900 issues
of U.S. Treasuries and agencies, corporate bonds, and mortgage-backed
securities. Furthermore, the Portfolio outperformed its Lipper Analytical
Services, Inc. peer group average of 1.18%.
During the past six months, interest rates rose across the entire maturity
spectrum as many investors sold bonds in anticipation of short-term interest
rate increases. During the period, the economy continued to show signs of
strength while inflation remained in check. This economic strength was exhibited
by the first quarter Gross Domestic Product ("GDP"), which showed a 5.8% jump in
economic activity, its strongest number since 1987. (The GDP is a measure of the
total output of goods and services.) Despite the strong growth, inflation (as
measured by the gross domestic purchasers price index), rose only at a 2.2%
pace. As expected by many investors, the Fed took pre-emptive action against
inflation at its March Federal Open Market Committee meeting by raising the Fed
funds rate 25 basis points, or 0.25%. (The Fed funds rate is the interest rate
banks charge each other for overnight loans and is the key determinant of
interest rate levels across the maturity spectrum.) However, the Fed declined to
raise rates at its subsequent meeting on May 20, 1997. Investors continue to
sift through economic data in an effort to gauge the Fed's outlook on the
economy and interest rates.
In line with the Portfolio's managers' expectations, mortgage-backed securities
outperformed other major fixed income sectors during the six-months ended April
30, 1997. These issues performed well as interest rates trended modestly higher
throughout the period. Low interest rate volatility and stable-to-slightly
increasing interest rates tend to limit mortgage pre-payments, which makes
mortgage-backed securities attractive because their cash flows are more
predictable in such an environment. As of April 30, 1997, the Portfolio
allocated approximately 28% to this sector.
3
<PAGE>
Asset-backed securites also exhibited strong performance as credit trends have
remained stable while volatility has remained in check. Investment grade
corporate bonds and U.S. Treasuries lagged the broad fixed income market during
the reporting period. Moreover, investment grade corporate bonds continue to
trade at historically high price levels relative to comparable U.S. Treasuries.
The Portfolio's managers will continue to search for value within this sector
through detailed credit research, and will focus on non-cyclical industrials in
the coming months. High yield corporate bonds have continued to outperform the
broad fixed income market, despite experiencing volatility in late March.
Smith Barney Money Market Portfolio
Over the past six months the U.S. economy grew vigorously. Gross Domestic
Product, the total output of goods and services, rose at a roughly 5.8% annual
rate in the first quarter of 1997. This figure comes on the heels of a 3.8
percent annual rate of economic growth in the fourth quarter of 1996. As
evidenced by strong motor vehicle and durable goods sales, much of the first
quarter growth came from higher personal consumption. Record high consumer
confidence and a low rate of unemployment have also contributed to a healthy
economy. Absent from this picture has been any concrete signs of inflation. For
the first three months of 1997, consumer prices rose only 1.8%, down from the 4%
price rises of a year ago.
Nevertheless, the Federal Open Market Committee, the organization within the Fed
chiefly responsible for implementing monetary policy, raised the Fed funds rate
by 25 basis points (i.e., 0.25%) at their meeting in late March of 1997. The
Fed's belief is that persistent strength in the U.S. economy forces it to act
sooner rather than later with respect to keeping inflationary pressures in
check.
Going forward, the Portfolio's managers expect to see a slowdown in economic
growth from its current high pace. Since part of the growth in the first quarter
of 1997 came from a buildup in business inventories, growth should be slower in
future quarters. In addition, reports from many auto manufacturers and
department stores suggest that retail sales have slowed so far in the second
quarter of 1997. However, this slowdown in these industries may be attributable
to auto strikes and April income tax payments. Overall, the labor market and
corporate America remain strong. If the economy does not slow down to an annual
growth rate of roughly 2.5% to 3%, the Portfolio's managers believe the Fed may
be forced to raise rates again.
4
<PAGE>
So far in 1997, interest rates have gone higher as expectations of interest rate
increases became a reality. The Portfolio's managers have structured the Smith
Barney Money Market Portfolio to have a somewhat shorter average weighted
maturity in order to take advantage of higher reinvestment rates.
In closing, thank you for investing in the MFS Total Return, TBC Managed Income
and Smith Barney Money Market Portfolios. We look forward to helping you achieve
your investment goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
May 29, 1997
5
<PAGE>
================================================================================
MFS Total Return Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End of Income Capital Gains Total
Period Ended of Period Period Dividends Distribution Returns+
==================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $13.13 $13.75 $0.29 $0.17 8.35%++
- ----------------------------------------------------------------------------------
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 $0.61 $0.25
==================================================================================
</TABLE>
================================================================================
TBC Managed Income Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End of Income Capital Gains Total
Period Ended of Period Period Dividends Distribution Returns+
==================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $11.06 $10.80 $0.49 $0.00 2.10%++
- ----------------------------------------------------------------------------------
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 $1.08 $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>
Six Months Ended 4/30/97++ 8.35% 2.10%
- --------------------------------------------------------------------------------
Year Ended 4/30/97 15.48 7.04
- --------------------------------------------------------------------------------
6/16/94*-4/30/97 14.37 6.81
================================================================================
</TABLE>
================================================================================
Cumulative Total Return+
================================================================================
<TABLE>
<CAPTION>
MFS Total TBC Managed
Return Income
Portfolio Portfolio
================================================================================
<S> <C> <C>
6/16/94* through 4/30/97 47.11% 20.84%
================================================================================
</TABLE>
+ Assumes the reinvestment of all dividends and capital gains 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 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Lehman Brothers
MFS Total S&P Government Corporate
Return Portfolio 500 Index Bond Index
---------------- --------- ----------
<S> <C> <C> <C>
6/14/94 $10,000 $10,000 $10,000
10/94 $ 9,980 $10,324 $10,075
4/95 $10,614 $11,404 $10,777
10/95 $11,589 $13,053 $11,704
4/96 $12,740 $14,684 $11,709
10/96 $13,577 $16,018 $12,335
4/30/97 $14,711 $18,374 $12,496
</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 April 30, 1997. 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 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
TBC Managed Lehman Brothers
Income Portfolio Aggregate Bond Index
---------------- --------------------
<S> <C> <C>
6/14/94 $10,000 $10,000
10/94 $10,040 $10,052
4/95 $10,533 $10,757
10/95 $11,313 $11,626
4/96 $11,289 $11,687
10/96 $11,835 $12,305
4/30/97 $12,084 $12,515
</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 April 30, 1997. 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>
================================================================================
Schedules of Investments (unaudited) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 53.7%
================================================================================
<S> <C> <C>
Aerospace -- 3.2%
23,200 Allied Signal Inc. $ 1,676,200
12,300 General Dynamics Corp. 876,375
6,000 Lockheed Martin Corp. 537,000
21,100 Raytheon Co. 920,485
25,800 United Technologies Corp. 1,951,125
- --------------------------------------------------------------------------------
5,961,185
- --------------------------------------------------------------------------------
Apparel -- 0.5%
13,100 V.F. Corp. 944,838
- --------------------------------------------------------------------------------
Automotive -- 2.1%
22,900 Dana Corp. 729,938
30,800 Ford Motor Co. 1,070,300
4,300 General Motors Corp. 248,863
36,500 Goodrich B.F. Co. 1,455,438
14,000 Volvo Aktiebolaget ADR 353,500
- --------------------------------------------------------------------------------
3,858,039
- --------------------------------------------------------------------------------
Banking -- 5.9%
9,600 Bank of Boston Corp. 698,400
26,500 Bank of New York Co., Inc. 1,046,750
10,984 Chase Manhattan Corp. 1,017,393
14,000 Crestar Financial Corp. 518,000
21,900 Fleet Financial Corp. 1,335,900
31,600 National City Corp. 1,540,500
26,600 NationsBank Corp. 1,605,972
19,500 Northern Trust Corp. 867,750
26,300 Norwest Corp. 1,311,710
23,400 PNC Bank Corp. 962,325
- --------------------------------------------------------------------------------
10,904,700
- --------------------------------------------------------------------------------
Business Machines -- 1.0%
17,300 Digital Equipment Corp.+ 516,838
8,200 International Business Machines Corp. 1,318,150
- --------------------------------------------------------------------------------
1,834,988
- --------------------------------------------------------------------------------
Cellular Phones -- 0.2%
10,400 Telephone Data Systems Inc. 384,800
- --------------------------------------------------------------------------------
Chemicals -- 1.7%
9,700 Air Products & Chemical Inc. 695,975
5,800 Dow Chemical Co. 492,275
7,500 E.I. du Pont de Nemours & Co. 795,938
3,700 Praxair Inc. 191,013
7,600 Rohm & Haas Co. 632,700
9,200 Witco Corp. 343,850
- --------------------------------------------------------------------------------
3,151,751
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Computer Software-PC -- 0.1%
5,400 First Data Corp. $ 186,300
- --------------------------------------------------------------------------------
Conglomerates -- 0.2%
10,700 Eastern Enterprises 362,463
- --------------------------------------------------------------------------------
Consumer Products -- 2.5%
8,700 American Brands Inc. 467,625
6,000 Avon Products, Inc. 369,750
5,600 Colgate Palmolive Co. 621,600
50,100 Philip Morris Cos., Inc. 1,972,688
15,200 Rubbermaid Inc. 364,800
16,600 Scherwin Williams Co. 502,150
3,200 Stanley Works, Inc. 124,400
4,000 Tyco International Ltd. 244,000
- --------------------------------------------------------------------------------
4,667,013
- --------------------------------------------------------------------------------
Electrical Equipment-Utilities -- 1.9%
21,200 Cooper Industries Inc. 975,200
19,300 General Electric Co. 2,139,888
6,100 Honeywell Inc. 430,813
- --------------------------------------------------------------------------------
3,545,901
- --------------------------------------------------------------------------------
Financial Institutions -- 3.1%
21,200 A.G. Edwards Inc. 742,000
21,300 American Express Co. 1,403,138
26,900 Fannie Mae 1,106,263
21,900 Federal Home Loan Mortgage Corp. 698,060
13,300 Franklin Resources Inc. 786,360
25,800 Southern National Corp. 1,012,650
- --------------------------------------------------------------------------------
5,748,471
- --------------------------------------------------------------------------------
Food & Beverages --1.1%
4,000 Anheuser-Busch Cos., Inc. 171,500
11,400 Dimon Inc. 225,150
9,600 General Mills Inc. 595,200
9,600 McCormick & Co., Inc. 226,800
23,500 PepsiCo, Inc. 819,563
- --------------------------------------------------------------------------------
2,038,213
- --------------------------------------------------------------------------------
Forest & Paper Products -- 0.3%
11,700 Weyerhaeuser Co. 535,275
- --------------------------------------------------------------------------------
Hospital Related -- 3.4%
18,300 American Home Products Corp. 1,212,375
3,200 Astra AB ADR 131,200
6,900 Baxter Internatinal Inc. 330,338
30,000 Bristol-Myers Squibb Co. 1,965,000
5,200 Columbia HCA Healthcare Corp. 182,000
3,200 Rhone-Poulenc Rorer ADR 230,800
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Hospital Related -- 3.4% (continued)
22,500 Smithkline Beecham ADR $ 1,814,060
11,000 United Healthcare Corp. 534,875
- --------------------------------------------------------------------------------
6,400,648
- --------------------------------------------------------------------------------
Insurance -- 3.2%
11,600 Allstate Corp. 759,800
19,200 Chubb Corp. 1,108,800
10,100 Cigna Corp. 1,518,788
12,500 Nationwide Financial Services Inc.+ 331,250
12,800 St. Paul Cos. 857,600
21,800 Torchmark Corp. 1,354,325
- --------------------------------------------------------------------------------
5,930,563
- --------------------------------------------------------------------------------
Machinery-Diversified -- 0.9%
26,200 Deere & Co. 1,205,200
8,800 York International Corp. 394,900
- --------------------------------------------------------------------------------
1,600,100
- --------------------------------------------------------------------------------
Metals & Minerals -- 0.6%
13,900 Aluminum Co. of America 971,263
2,800 Phelps Dodge Corp. 214,900
- --------------------------------------------------------------------------------
1,186,163
- --------------------------------------------------------------------------------
Oil Production -- 7.8%
9,500 Amoco Corp. 794,438
7,200 Atlantic Richfield Co. 980,100
14,726 British Petroleum Co. PLC ADR 2,026,666
10,000 Chevron Corp. 685,000
35,600 Exxon Corp. 2,015,850
8,200 Mobil Corp. 1,066,000
31,200 Occidental Petroleum Corp. 690,300
16,800 Repsol S.A. ADR 703,500
8,200 Royal Dutch Petroleum Co. ADR 1,478,050
4,000 Sun Co. 109,500
4,000 Tenneco Inc. 159,500
16,300 Texaco Inc. 1,719,650
6,000 Ultramar Diamond Shamrock Corp. 192,750
19,700 Union Pacific Resource Group Inc. 534,362
44,700 USX-Marathon Group Inc. 1,234,838
- --------------------------------------------------------------------------------
14,390,504
- --------------------------------------------------------------------------------
Photographic Products -- 0.9%
19,500 Eastman Kodak Co. 1,628,250
- --------------------------------------------------------------------------------
Pollution Control -- 0.8%
23,700 Browning Ferris Industries Inc. 672,488
29,400 WMX Technologies Inc. 863,625
- --------------------------------------------------------------------------------
1,536,113
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Railroads -- 1.4%
11,700 Burlington Northern Santa Fe Corp. $ 921,375
5,000 Canadian National Railway 192,500
3,900 CSX Corp. 181,838
26,000 Illinois Central Corp. 864,500
4,100 Norfolk Southern Corp. 368,488
- --------------------------------------------------------------------------------
2,528,701
- --------------------------------------------------------------------------------
Real Estate Investment Trust -- 1.1%
11,000 Arden Realty Group Inc. 273,625
24,000 Hospitality Properties Trust Corp. 741,000
13,000 Meditrust Corp. 474,500
19,000 Trinet Corporate Realty Trust, Inc. 634,125
- --------------------------------------------------------------------------------
2,123,250
- --------------------------------------------------------------------------------
Retail -- 1.8%
10,900 J.C. Penny & Co. Inc. 520,475
8,800 May Department Stores Co. 407,000
34,600 Rite Aide Corp. 1,591,600
15,500 Sears, Roebuck & Co. 744,000
- --------------------------------------------------------------------------------
3,263,075
- --------------------------------------------------------------------------------
Utilities-Electric -- 2.8%
4,800 Allegheny Power Systems Inc. 126,000
18,000 CMS Energy Corp. 571,500
21,200 Carolina Power & Light Co. 720,800
10,400 DPL Inc. 245,700
20,800 FPL Group, Inc. 928,200
19,800 GPU Inc. 638,550
9,700 Pacificorp 192,788
9,000 Peco Energy Co. 177,750
24,200 Pinnacle West Capital Co. 689,700
13,100 Portland General Corp. 478,150
10,500 Texas Utilities Co. 354,375
- --------------------------------------------------------------------------------
5,123,513
- --------------------------------------------------------------------------------
Utilities-Gas -- 2.0%
22,300 Coastal Corp. 1,059,250
8,500 Pacific Enterprises 260,313
27,000 Panenergy Corp. 1,194,750
23,000 UGI Corp. 523,250
14,100 Williams Cos., Inc. 618,638
- --------------------------------------------------------------------------------
3,656,201
- --------------------------------------------------------------------------------
Utilities-Telephone -- 3.2%
26,200 Bellsouth Corp. 1,165,900
34,000 GTE Corp. 1,559,750
19,700 MCI Communications Corp. 751,063
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Utilities-Telephone -- 3.2% (continued)
20,262 SBC Communications Inc. $ 1,124,541
29,700 Sprint Corp. 1,303,088
- --------------------------------------------------------------------------------
5,904,342
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $84,993,633) 99,395,360
================================================================================
CONVERTIBLE PREFERRED STOCKS -- 2.4%
================================================================================
Aerospace -- 0.2%
8,700 Loral Space & Communications Ltd. 6.00%++ 441,525
- --------------------------------------------------------------------------------
Agricultural Products -- 0.5%
6,200 Case Corp. $4.50 823,050
- --------------------------------------------------------------------------------
Banks -- 0.1%
9,200 National Australia Bank 243,800
- --------------------------------------------------------------------------------
Consumer Services -- 0.1%
2,400 Corning Delaware LP, 6.00% 182,400
- --------------------------------------------------------------------------------
Financial Institutions -- 0.1%
2,400 Finova Finance Trust 127,800
- --------------------------------------------------------------------------------
Financial Services -- 0.3%
5,300 Sci Finance LLC, Class A Shares, $3.125 607,513
- --------------------------------------------------------------------------------
Metals & Minerals -- 0.2%
6,900 Timet Capital Trust 313,950
2,800 USX Capital LLC, Series A 69,650
- --------------------------------------------------------------------------------
383,600
- --------------------------------------------------------------------------------
Restaurants & Lodging -- 0.5%
16,000 Host Marriott Finance Trust++ 900,000
- --------------------------------------------------------------------------------
Utilities-Gas -- 0.4%
18,000 Enron Corp., 6.250% 360,000
5,267 Unocal Corp., 6.250% 297,586
- --------------------------------------------------------------------------------
657,586
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $3,904,601) 4,367,274
================================================================================
FOREIGN STOCKS -- 1.5%
================================================================================
Germany -- 0.5%
119,800 Grand Metropolitan PLC 1,003,047
- --------------------------------------------------------------------------------
Switzerland -- 0.3%
10,500 Henkel KGAA 568,747
- --------------------------------------------------------------------------------
United Kingdom -- 0.7%
946 Novartis AG 1,246,866
- --------------------------------------------------------------------------------
TOTAL FOREIGN STOCKS
(Cost -- $2,369,448) 2,818,660
================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
CORPORATE BONDS -- 19.7%
================================================================================
Airlines -- 1.6%
Continental Airlines Inc.:
$ 500,000 Ba3* 9.500% due 12/15/01 $ 510,000
392,156 BBB 9.500% due 10/15/13 435,271
97,210 NR 10.220% due 7/2/14 113,445
Delta Airlines Inc.:
400,000 Baa3* 8.500% due 3/15/02 422,000
500,000 Baa3* 9.750% due 5/15/21 588,750
Jet Equipment Trust:
250,000 A2* 9.410% due 6/15/10++ 282,068
194,335 A+ 8.640% due 11/1/12++ 208,467
300,000 Baa2* 11.440% due 11/1/14++ 356,703
100,000 Baa1* 10.690% due 5/1/15++ 119,991
- --------------------------------------------------------------------------------
3,036,695
- --------------------------------------------------------------------------------
Banking -- 1.4%
400,000 BBB- Capital One Bank, 6.970% due 2/4/02 393,000
400,000 BB+ Capital One Financial Corp., 7.250% due 12/1/03 388,000
400,000 BB Colonial Capital I, 8.920% due 1/15/27++ 400,500
400,000 Baa1* Dao Heng Bank Ltd., 7.750% due 1/24/07++ 392,500
190,000 BB- First USA Capital Trust I, 9.330% due 1/15/27++ 209,000
400,000 Ba1* Riggs National Bank, 8.500% due 2/1/06 407,500
400,000 A1* State Street Bank, 7.940% due 12/30/26 388,500
- --------------------------------------------------------------------------------
2,579,000
- --------------------------------------------------------------------------------
Building & Construction -- 0.3%
100,000 Baa2* Georgia-Pacific Corp., 9.875% due 11/1/21 111,750
100,000 BBB- Owens-Corning Fiberglass, 8.875% due 6/1/02 107,250
400,000 BB+ USG Corp., 9.250% due 9/15/01 420,500
- --------------------------------------------------------------------------------
639,500
- --------------------------------------------------------------------------------
Business Machines -- 0.1%
300,000 NR International Business Machines Corp., 7.125%
due 12/1/06 277,500
- --------------------------------------------------------------------------------
Collateral Mortgage Obligations -- 0.2%
396,396 NR BCF LLC, 7.750% due 9/25/26 376,973
- --------------------------------------------------------------------------------
Consumer Products -- 0.4%
400,000 Baa3* Fingerhut Co., 7.375% due 9/15/99 400,000
400,000 A Philip Morris Cos. Inc., 7.500% due 4/1/04 401,000
- --------------------------------------------------------------------------------
801,000
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Entertainment -- 1.4%
$ 400,000 BBB- NWCG Holdings Corp., zero coupon due 6/15/99 $ 342,500
750,000 BB+ Paramount Communications, 7.500% due 1/1/02 747,188
Time Warner Inc.:
1,000,000 BBB- 6.100% due 12/30/01++ 947,500
535,000 BBB- 9.150% due 2/1/23++ 572,450
- --------------------------------------------------------------------------------
2,609,638
- --------------------------------------------------------------------------------
Financial -- 2.2%
400,000 A2* AFC Capital Trust I, 8.207% due 2/3/27++ 397,500
550,000 BB+ Contifinancial Corp., 8.375% due 8/15/03 558,250
100,000 BBB+ Fairfax Financial Holdings Ltd., 8.300%
due 4/15/26 102,250
400,000 A3* First Empire Capital Trust, 8.234% due 2/1/27 390,000
Lehman Brothers Inc.:
400,000 A 6.400% due 12/27/99 394,500
400,000 A 7.125% due 9/15/03 396,000
500,000 A 7.500% due 8/1/26 505,000
400,000 BBB Montell America Finance, 7.600% due 3/15/07 401,000
400,000 A+ Nationwide Mutual Insurance Co., 7.500%
due 2/15/24 369,500
Salton Sea Funding:
100,000 BBB- 7.370% due 5/30/05 98,250
400,000 BBB- 7.840% due 5/30/10 399,500
- --------------------------------------------------------------------------------
4,011,750
- --------------------------------------------------------------------------------
Forest & Paper Products -- 0.3%
400,000 BBB- Boise Cascade Corp., 7.430% due 10/10/05 394,500
95,000 A1* Westvaco Corp., 7.650% due 3/15/27 94,050
- --------------------------------------------------------------------------------
488,550
- --------------------------------------------------------------------------------
Industrial -- 2.4%
534,000 BBB- 360 Communications Co., 7.500% due 3/1/06 530,663
400,000 BBB+ Circus Circus Enterprise, 6.700% due 11/15/2096 387,500
200,000 NR Eldelnor, 7.750% due 3/15/06++ 192,750
277,000 BBB- Freeport-McMoRan Corp., 7.500% due 11/15/06 272,499
400,000 Baa2* Humpuss Funding Corp., 7.720% due 12/15/09 392,276
400,000 A Industrial Finance Corp., 7.375% 1/14/07 386,500
200,000 A+ Liberty Mutual, 8.200% due 5/4/07++ 209,250
400,000 BB+ Loewen Group International Inc., 7.500%
due 4/15/01 394,500
400,000 BB+ Mark IV Industries Inc., 7.750% due 4/1/06 380,000
400,000 BBB- Northrop-Grumman Corp., 9.375% due 10/15/24 433,500
400,000 A- Southern Co. Capital Trust I, 8.190% due 2/1/37 402,000
200,000 BBB- Total Access Communications, 8.375% due 11/4/06 196,500
200,000 A- Transocean Offshore Inc., 8.000% due 4/15/27 203,250
- --------------------------------------------------------------------------------
4,381,188
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Insurance -- 0.8%
$ 400,000 BBB- Conseco Finance Trust III, 8.796% due 4/1/27 $ 404,000
267,000 A Equitable Life Assurance, 7.700% due 12/1/15 262,995
400,000 AA New York Life Insurance, 7.500% due 12/15/23 375,000
400,000 Baa1* Providian Capital I, 9.525% due 2/1/27 401,500
- --------------------------------------------------------------------------------
1,443,495
- --------------------------------------------------------------------------------
Media -- 0.4%
800,000 BBB News America Holdings Inc., 8.150% due 10/17/36 772,000
- --------------------------------------------------------------------------------
Medical Services -- 0.3%
Tenet Healthcare Corp.:
100,000 Ba1* 8.625% due 12/1/03 102,250
400,000 Ba1* 8.000% due 1/15/05 394,000
100,000 Ba3* 10.125% due 3/1/05 107,750
- --------------------------------------------------------------------------------
604,000
- --------------------------------------------------------------------------------
Oils -- 1.4%
400,000 BB Chesapeake Energy Corp., 7.875% due 3/15/04 387,500
400,000 NR Enserch Exploration Inc., 7.540% due 1/2/09 390,576
375,000 BB+ Gulf Canada Resources Ltd., 8.250% due 3/15/17 369,375
100,000 BBB Husky Oil Ltd., 7.125% due 11/15/06 97,000
400,000 BBB- Mitchell Energy & Development Corp.,
6.750% due 2/15/04 377,000
Oryx Energy Co.:
400,000 BB+ 10.000% due 4/1/01 434,500
500,000 BB+ 8.375% due 7/15/04 519,375
- --------------------------------------------------------------------------------
2,575,326
- --------------------------------------------------------------------------------
Restaurants & Lodging -- 0.2%
400,000 BBB+ Hilton Hotels, 7.950% due 4/15/07 404,000
- --------------------------------------------------------------------------------
Telecommunications -- 1.8%
1,000,000 BBB Continental Cablevision, 11.000% due 6/1/07 1,121,250
Tele-Communications Inc.:
1,400,000 BBB- 7.385% due 8/27/01 1,386,000
400,000 BB+ 9.650% due 3/31/27 394,000
400,000 BBB- Worldcom Inc., 7.750% due 4/1/27 400,500
- --------------------------------------------------------------------------------
3,301,750
- --------------------------------------------------------------------------------
Utilities-Electric -- 3.8%
100,000 Baa2* Arkansas Power & Light, 8.750% due 3/1/26 101,625
Cleveland Electric:
400,000 BB 9.250% due 7/29/99 417,000
500,000 BB 9.050% due 8/15/01 525,625
350,000 Baa2* 9.375% due 3/1/17 358,313
400,000 BBB- Commonwealth Edison, 7.625% due 1/15/07 396,000
125,000 A- El Paso Electric, 8.900% due 2/1/06 130,935
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Utilities Electric -- 3.8% (continued)
$ 400,000 BBB+ Empresa National Electrical, 7.325% due 2/1/37 $ 394,000
First PV Funding:
248,000 BB- 10.150% due 1/15/16 259,160
267,000 BB- 10.300% due 1/15/16 282,353
Long Island Lighting Co.:
25,000 BB+ 7.500% due 3/1/07 24,500
400,000 BB+ 8.900% due 7/15/19 424,000
1,550,000 BB+ 9.000% due 11/1/22 1,674,000
Louisiana Power & Light Co.:
100,000 BBB- 10.670% due 1/2/17 106,500
50,000 BBB- 8.750% due 3/1/26 51,688
100,000 B Midland Funding II, 11.750% due 7/23/05 108,625
Niagara Mohawk Power:
400,000 BB- 6.875% due 3/1/01 388,000
415,000 BB- 8.000% due 6/1/04 411,369
260,000 B+ North Atlantic Energy, 9.050% due 6/1/02 258,700
400,000 BBB- System Energy Resources, 7.800% due 8/1/00 400,000
200,000 Ba3* Texas New Mexico Power, 12.500% due 1/15/99 215,000
100,000 BBB Utilicorp United Inc., 8.450% due 11/15/99 103,625
- --------------------------------------------------------------------------------
7,031,018
- --------------------------------------------------------------------------------
Utilities-Gas -- 0.7%
300,000 BB+ California Energy Co., zero coupon due 1/15/04 318,750
550,000 BB+ Louis Dreyfus, 9.250% due 6/15/04 583,000
400,000 A3* Ras Laffan Liquefied Natural Gas 8.294%
due 3/15/14 405,000
- --------------------------------------------------------------------------------
1,306,750
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost -- $36,627,319) 36,640,133
<CAPTION>
================================================================================
CONVERTIBLE CORPORATE BONDS -- 0.4%
================================================================================
<S> <C> <C> <C>
Automobile -- 0.2%
825,000 AAA Deutsche Bank Finance BV, zero coupon
due 2/12/17++ 346,500
- --------------------------------------------------------------------------------
Oils -- 0.2%
410,000 BBB+ Diamond Offshore Drill, 3.750% due 2/15/07 416,663
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $752,008) 763,163
================================================================================
FOREIGN BONDS -- 2.1%
250,000 BBB- Argentina Global, 9.250% due 2/23/01 258,750
1,000,000 BBB+ Empresa Electric Pehuenche, 7.300% due 5/1/03 994,740
350,000 A- Enersis SA, 6.900% due 12/1/06 335,125
255,000 BBB- Financiera Energy Nacional, 9.375% due 6/15/06 268,706
400,000 AA- Korea Development Bank, 6.750% due 12/1/05 381,500
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
FOREIGN BONDS -- 2.1% (continued)
$ 222,000 A* PT Polysindo EKA, 13.000% due 6/15/01 $ 248,085
Republic of Colombia:
400,000 BBB- 7.625% due 2/15/07 373,000
250,000 BBB- 8.700% due 2/15/16 242,188
400,000 A1* Republic of Panama, 7.875% due 2/13/02 389,500
400,000 BB United Mexican States, 11.375% due 9/15/16 423,000
- --------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost -- $3,925,888) 3,914,594
================================================================================
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 6.1%
200,000 U.S. Treasury Note, 9.250% due 8/15/98 207,710
1,800,000 U.S. Treasury Note, 9.125% due 5/15/99 1,896,120
525,000 U.S. Treasury Note, 6.250% due 2/15/07 507,801
100,000 U.S. Treasury Note, 9.875% due 11/15/15 129,344
1,000,000 U.S. Treasury Note, 6.625% due 2/15/27 957,990
2,000,000 Federal National Mortgage Association, 7.000%
due 6/1/09 1,978,740
2,888,423 Federal National Mortgage Association,
8.000% due 8/1/26 2,929,930
891,779 Government National Mortgage Association,
7.500% due 4/15/08 902,089
705,763 Government National Mortgage Association,
8.000% due 6/15/17 725,391
700,000 Government National Mortgage Association,
8.000% due 6/20/25 703,794
330,140 Government National Mortgage Association,
8.500% due 9/15/29 341,074
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS
(Cost -- $11,350,179) 11,279,983
================================================================================
SUB-TOTAL INVESTMENTS
(Cost -- $143,923,076) 159,179,167
================================================================================
SHORT-TERM INVESTMENTS -- 14.1%
1,100,000 Federal Home Loan Discount Note, 5.280%
due 5/1/97 1,100,000
2,200,000 Federal Home Loan Discount Note, 5.281%
due 5/1/97 2,200,000
1,500,000 Federal Home Loan Discount Note, 5.340%
due 5/8/97 1,498,442
2,100,000 Federal Home Loan Discount Note, 5.360%
due 5/15/97 2,095,623
5,600,000 Federal Home Loan Discount Note, 5.370%
due 5/30/97 5,575,775
9,100,000 Federal Home Loan Mortgage Corp., 5.370%
due 5/5/97 9,094,570
4,500,000 Federal National Mortgage Association, 5.410%
due 5/9/97 4,494,590
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $26,059,000) 26,059,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $169,982,076**) $185,238,167
================================================================================
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
CORPORATE BONDS -- 46.0%
================================================================================
Banking -- 3.9%
$ 250,000 Baa3* Capital One Bank, 6.830% due 8/16/99 $ 249,370
250,000 BBB+ First National Bank of Boston, 7.375%
due 9/15/06 249,680
50,000 Ba3* First Nationwide Bank, 10.625% due 10/1/03++ 53,370
165,000 A3* First Security Corp., 6.875% due 11/15/06 158,810
295,000 Baa2* Great Western Financial Trust II, Inc., 8.206%
due 2/1/27 289,830
50,000 AAA International Bank of Reconstruction
& Development, 9.875% due 10/1/97 50,810
- --------------------------------------------------------------------------------
1,051,870
- --------------------------------------------------------------------------------
Financial Services -- 5.1%
50,000 B+ Dollar Financial Group, 10.875% due 11/15/06 51,000
115,000 A1* First Union Capital II, Inc., 7.850% due 1/1/27 109,960
180,000 BBB+ Fleet Financial Group, 7.125% due 4/15/06 176,840
55,000 A+ Ford Motor Credit Co., 7.400% due 11/1/46 52,310
50,000 BBB+ H.F. Ahmanson & Co., 7.650% due 4/15/00 50,560
Lehman Brothers Holdings, Inc.:
205,000 A 6.125% due 6/30/98 204,760
200,000 A 6.125% due 2/1/01 193,500
50,000 A Lincoln National Corp., 7.250% due 5/15/05 49,500
PaineWebber Group:
35,000 BBB+ 7.625% due 10/15/08 35,350
190,000 Baa1* 8.060% due 1/17/17 191,180
115,000 Baa1* 7.810% due 2/13/17 111,980
175,000 A3* Sun Hung Kai Finance Corp., 5.625% due 11/24/98 171,850
- --------------------------------------------------------------------------------
1,398,790
- --------------------------------------------------------------------------------
Healthcare -- 1.8%
110,000 B Integrated Healthcare, Inc., 9.625% due 5/31/02 112,750
Tenet Healthcare Corp.:
100,000 BB 9.625% due 9/1/02 106,250
50,000 BB 8.625% due 12/1/03 51,125
160,000 Ba1* 8.000% due 1/15/05 157,600
50,000 BB- Universal Health Services, Inc., 8.750%
due 8/15/05 51,000
- --------------------------------------------------------------------------------
478,725
- --------------------------------------------------------------------------------
Industrial -- 25.4%
90,000 BBB- ADT Operations, 8.250% due 8/1/00 92,925
150,000 B2* AMC Entertainment, Inc., 9.500% due 3/15/09 146,250
95,000 B BE Aerospace, Inc., 9.875% due 2/1/06 97,960
85,000 Ba3* Building Materials, 8.625% due 12/15/06 84,255
104,997 Aa3* Burlington Northern Etc., 6.960% due 3/22/09 103,370
50,000 A- Carpenter Technology Corp., 7.440% due 8/16/99 50,810
115,000 B3* Chancellor Radio Broadcasting, Inc., 9.375%
due 10/1/041 14,130
120,000 B+ Chesapeake Energy Corp., 7.875% due 3/15/04++ 116,250
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Industrial -- 25.4% (continued)
$ 115,000 Baa3* Coastal Corp., 8.125% due 9/15/02 $ 120,315
70,000 BB- Comcast Corp., 9.375% due 5/15/05 71,750
100,000 BB Dominion Textiles, Inc., 8.875% due 11/1/03 101,250
150,000 B2* Dyncorp, Inc., 9.500% due 3/1/07 147,562
100,000 B- E&S Holdings Corp., 10.375% due 10/1/06 103,000
110,000 B2* Echostar Communications, Inc., Sr. Discount
Notes, step bond to yield 10.280% due 6/1/04 90,750
190,000 BB- El Paso Electric Co., 7.250% due 2/1/99 189,762
190,000 BB Ferrellgas Inc., 10.000% due 8/1/01 196,887
240,000 B+ Fort Howard Corp., 9.250% due 3/15/01 247,800
100,000 BB- Gulf Canada Resources Ltd., 9.625% due 7/1/05 105,000
50,000 NR HS Resources, Inc., 9.250% due 11/15/06 48,750
100,000 BB Iron Mountain Inc., 10.125% due 10/1/06 103,250
100,000 B JCAC, Inc., 10.125% due 6/15/06 103,250
80,000 NR K&F Industries Inc., Sr. Sub. Notes, 10.375%
due 9/1/04 83,300
150,000 B Kaiser Aluminum & Chemical Inc., 10.875%
due 10/15/06 157,125
185,000 B3* Key Plastics, Inc., 10.250% due 3/15/07 188,236
80,000 B3* Kindercare Learning Centers, 9.500% due 2/15/09 75,900
70,000 B3* KSL Recreation Group, Inc., 10.250% due 5/1/07 70,700
125,000 BB- Lear Corp., 8.250% due 2/1/02 123,250
Lockheed Martin Corp.:
95,000 BBB+ 7.250% due 5/15/06 95,236
205,000 BBB+ 7.750% due 5/1/26 206,025
75,000 B1* Lodgenet Entertainment, Inc., 10.250%
due 12/15/06 73,030
200,000 Ba1* Loewen Group International, Inc., 7.500%
due 4/15/01 197,250
340,000 B3* McLeod, Inc., Sr. Discount Notes, step
bond to yield 10.500% due 3/1/07 192,100
60,000 B+ Muzak Corp., 10.000% due 10/1/03 61,200
115,000 B3* Neenah Corp., 11.125% due 5/1/07 119,025
News America Holdings, Inc.:
125,000 Baa3* 7.500% due 3/1/00 127,030
240,000 BBB 8.625% due 2/1/03 256,800
200,000 BBB Noram Energy Corp., 7.500% due 8/1/00 202,250
35,000 BBB Norcen Energy Resources, Inc., 7.375% due 5/15/06 34,825
25,000 BBB- Ohio Edison Co., 8.750% due 2/15/98 25,468
150,000 B2* Orion Network Systems, Inc., 11.250% due 1/15/07 150,375
40,000 BBB- ORYX Energy Co., 10.000% due 4/1/01 43,450
40,000 B+ Plastic Containers, Inc., 10.000% due 12/15/06 41,100
75,000 B+ Premier Parks, Inc., 9.750% due 1/15/07 76,311
190,000 B- Protection One, Inc., Sr. Discount Notes,
step bond to yield 10.915% due 6/30/05 183,587
50,000 BB Rayovac Corp., 10.250% due 11/1/06++ 52,062
60,000 B2* Revlon Consumer Product, 9.500% due 6/1/99 61,274
195,000 B- Revlon Worldwide Corp., Series B, zero coupon
due 3/15/01++ 128,212
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Industrial-- 25.4% (continued)
$ 50,000 A3* Rite Aid, Corp., 6.700% due 12/15/01 $ 49,437
60,000 BBB- Safeway Inc., 9.650% due 1/15/04 66,150
100,000 B+ Speedy Muffler King Inc., 10.875% due 10/1/06 103,750
220,000 BB+ Stone Consolidated Corp., 10.250% due 12/15/00 235,675
50,000 NR Tracor, Inc., 8.500% due 3/1/07 49,125
175,000 BBB Union Pacific Railroad Co., 6.700% due 12/1/06 166,468
70,000 B U.S. Can Corp., 10.125% due 10/15/06++ 72,711
205,000 BB USG Corp., 9.250% due 9/15/01 215,505
75,000 BB- Valassis Inserts Inc., 9.375% due 3/15/99 77,343
115,000 B+ Vintage Petroleum, Inc., 8.625% due 2/1/09 110,400
95,000 A2* WMX Technologies, Inc., 7.700% due 10/1/02 97,611
200,000 BB- Westpoint Stevens Inc., 8.750% due 12/15/01 203,500
- --------------------------------------------------------------------------------
6,908,072
- --------------------------------------------------------------------------------
Retail -- 1.4%
80,000 BB- Federated Department Stores, Inc., 8.125%
due 10/15/02 81,900
Sears, Roebuck & Co.:
120,000 A- 5.600% due 11/16/98 119,010
60,000 A- 5.710% due 2/6/01 57,600
133,000 A- 6.690% due 4/30/01 131,835
- --------------------------------------------------------------------------------
390,345
- --------------------------------------------------------------------------------
Telecommunications -- 1.7%
75,000 B Cablevision Systems Corp., 9.875% due 5/15/06 75,000
125,000 BB- Century Communication Inc., 9.500% due 8/15/00 127,187
120,000 B Paging Network Inc., 10.000% due 10/15/08++ 106,200
150,000 Ba1* Tele-Communications Inc., 7.130% due 2/2/98 150,220
- --------------------------------------------------------------------------------
458,607
- --------------------------------------------------------------------------------
Transportation -- 0.2%
50,000 Ba2* Federal Express Corp., 6.250% due 4/15/98 50,051
- --------------------------------------------------------------------------------
Yankee Bond With Coupon -- 6.5%
111,000 AA- Aegon NV, 8.000% due 8/15/06 115,578
185,000 A+ ANZ Banking Group Ltd., 7.550% due 9/15/06 188,237
BHP Finance USA Inc.:
140,000 A2* 7.875% due 12/1/02 145,775
184,000 A 6.690% due 3/1/06 177,330
244,000 A Midland Bank PLC, 7.625% due 6/15/06 247,660
215,000 A+ Petroliam Nasional, 7.625% due 10/15/26 210,700
80,000 A+ Quebec Province, 7.125% due 2/9/24 73,900
100,000 Baa3* Republic of Colombia, 7.625% due 2/15/07 93,250
120,000 Baa3* Republic of Indonesia, 7.750% due 8/1/06 118,500
155,000 BB- Rogers Communications Inc., 2.000% due 11/26/05 82,925
250,000 A- Sanwa Bank Ltd., 7.250% due 9/15/01 252,187
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
Yankee Bond With Coupon -- 6.5% (continued)
$ 55,000 A Wharf Capital International Ltd.,
8.875% due 11/1/04 $ 58,300
- --------------------------------------------------------------------------------
1,764,342
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost -- $12,553,015) 12,500,802
================================================================================
ASSET-BACKED SECURITIES -- 6.2%
Asset Securitization Corp.:
195,000 Series 1996-MD6-A1C, 7.040% due 11/13/26 192,105
158,000 Series 1997-D4-A1D, 7.490% due 4/14/29 159,975
260,000 Capital Equipment Receivables Trust, Series
1996-1-A3, 6.110% due 7/15/99 259,518
119,054 Centrex Auto Trust, Series 1996-B-A, 6.150%
due 9/15/04 118,180
119,000 EQCC Home Equity Loan Trust, Series 1996-1-A2,
5.820% due 9/15/09 116,336
107,040 Fleetwood Credit Corp., Grantor Trust, Series
1997-A-A, 6.640% due 9/15/12 106,740
110,000 Morgan Stanley Capital I, Series 1997-C1-A1C,
7.630% due 2/15/20 111,924
The Money Store Inc., Home Equity Loan:
64,000 6.890% due 3/15/16 63,800
72,000 7.600% due 7/15/21 72,736
49,000 7.800% due 10/15/21 49,770
153,000 7.690% due 5/15/24 155,596
World Omni, Inc.:
130,000 Series 1997-A-A4, 6.900% due 6/15/02 130,487
140,000 Series 1997-A-A2, 6.750% due 6/15/03 140,590
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost-- $1,680,969) 1,677,757
================================================================================
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 47.8%
2,745,000 U. S. Treasury Note, 5.500% due 11/15/98 2,719,444
558,000 U. S. Treasury Note, 5.875% due 11/15/99 551,589
193,000 U. S. Treasury Note, 6.375% due 8/15/02 191,398
53,000 U. S. Treasury Note, 6.500% due 10/15/06 52,118
1,921,000 U. S. Treasury Bond, 7.250% due 8/15/22 1,963,435
212,955 Federal Home Loan Mortgage Corp., 7.000%
due 1/1/00 212,755
492,000 Federal Home Loan Mortgage Corp., 7.500%
due 4/1/12 495,995
325,937 Federal National Mortgage Association,
7.000% due 8/1/03 325,425
240,400 Federal National Mortgage Association,
7.500% due 8/1/03 242,353
178,960 Federal National Mortgage Association,
6.500% due 11/1/03 177,953
513,581 Federal National Mortgage Association,
6.000% due 3/1/04 495,925
9,573 Federal National Mortgage Association,
7.500% due 4/1/05 9,516
251,319 Federal National Mortgage Association,
7.500% due 7/1/09 253,360
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
TBC MANAGED INCOME PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 47.8% (continued)
$ 57,985 Federal National Mortgage Association,
7.500% due 6/1/10 $ 58,456
368,215 Federal National Mortgage Association,
ACES, M1, E, 2.526% due 7/25/10 28,709
152,000 Federal National Mortgage Association,
ACES, M1, G,2.336% due 7/25/10 15,058
587,000 Federal National Mortgage Association,
ACES, M1, H, 2.211% due 7/25/10 72,825
150,364 Federal National Mortgage Association,
8.000% due 8/1/10 153,887
223,577 Federal National Mortgage Association,
8.000% due 9/1/10 228,816
201,751 Federal National Mortgage Association,
6.000% due 12/1/10 192,168
334,951 Federal National Mortgage Association,
8.000% due 4/1/11 342,799
77,000 Federal National Mortgage Association,
6.856% due 6/17/11 75,460
100,269 Federal National Mortgage Association,
7.500% due 11/1/11 101,083
239,721 Federal National Mortgage Association,
7.536% due 6/1/16 242,640
59,626 Federal National Mortgage Association,
7.000% due 7/1/22 57,819
176,122 Federal National Mortgage Association,
7.000% due 7/1/23 170,782
144,625 Federal National Mortgage Association,
9.000% due 7/1/26 151,540
876,000 Federal National Mortgage Association,
8.000% due 5/1/27 887,222
175,000 Government Mortgage Association Corp.,
6.875% due 7/15/01 175,000
272,358 Government National Mortgage Association,
8.000% due 7/15/17 277,209
231,535 Government National Mortgage Association,
8.500% due 12/15/21 240,071
491,612 Government National Mortgage Association,
7.000% due 9/15/23 475,785
259,285 Government National Mortgage Association,
7.000% due 11/15/23 250,938
465,405 Government National Mortgage Association,
7.500% due 12/15/23 463,509
590,778 Government National Mortgage Association,
9.000% due 3/1/27 624,493
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS
(Cost -- $12,996,305) 12,977,535
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $27,230,289**) $27,156,094
================================================================================
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY MONEY MARKET PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
==================================================================================================
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 6.0%
$3,000,000 Federal Home Loan Mortgage Corp. matures 6/13/97 5.55% $2,980,363
- --------------------------------------------------------------------------------------------------
4,000,000 Federal National Mortgage Association
mature 6/5/97 to 7/3/97 5.36 to 5.65 3,970,219
- --------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS
(Cost -- $6,950,582) 6,950,582
==================================================================================================
BANK NOTES -- 1.7%
1,000,000 Australia &New Zealand Banking Group matures 9/23/97 5.76 999,876
1,000,000 Bank of America NT&SA matures 9/22/97 5.70 1,000,000
- --------------------------------------------------------------------------------------------------
TOTAL BANK NOTE
(Cost-- $1,999,876) 1,999,876
==================================================================================================
COMMERCIAL PAPER -- 60.6%
3,000,000 A.I. Credit matures 5/5/97 5.39 2,998,230
3,000,000 American Express Credit Corp. matures 5/7/97 5.49 2,997,260
3,000,000 Associates Corp. of North America matures 5/12/97 5.56 2,994,931
- --------------------------------------------------------------------------------------------------
2,000,000 BBL N.A. Inc. (Bank Brussels Lambert) matures 7/1/97 5.72 1,980,853
1,390,000 Bank of New York matures 5/1/97 5.59 1,390,000
3,000,000 Cades matures 5/9/97 5.52 2,996,333
1,000,000 Cariplo Finance Inc. matures 6/10/97 5.44 994,033
2,000,000 Citicorp matures 5/2/97 5.41 1,999,700
2,000,000 Compagnie de Saint-Gobain matures 5/19/97 5.32 1,994,750
1,800,000 Creditanstalt Finance Inc. matures 5/12/97 5.55 1,796,964
1,000,000 Credito Italiano Delaware, Inc. matures 8/29/97 5.47 982,267
3,800,000 Deutsche Bank Financial Inc. matures 5/8/97 5.50 3,795,951
2,400,000 E.I. du Pont de Nemours matures 5/21/97 5.52 2,392,667
1,000,000 Eli Lilly & Co. matures 8/4/97 5.47 985,961
1,900,000 Ford Motor Credit Co. matures 5/7/97 5.50 1,898,265
3,000,000 General Electric Capital Corp. matures 5/5/97 5.46 2,998,183
2,000,000 Goldman Sachs Group, L.P. matures 5/21/97 5.61 1,993,811
4,000,000 Lloyds Bank matures 5/8/97 5.54 3,995,714
3,000,000 Merrill Lynch & Co., Inc. matures 5/7/97 5.51 2,997,250
2,000,000 NationsBank Corp. matures 5/22/97 5.32 1,993,875
3,000,000 Norwest Corp. matures 5/21/97 5.60 2,990,733
4,000,000 PepsiCo, Inc. matures 5/14/97 5.53 3,992,056
2,525,000 Province of British Columbia matures 6/5/97 5.40 2,511,916
2,000,000 Royal Bank of Canada matures 7/31/97 5.52 1,972,852
2,000,000 San Paolo U.S. Finance Inc. matures 6/6/97 5.45 1,989,240
3,700,000 Shell Oil Co. matures 5/20/97 5.50 3,689,299
1,000,000 Transamerica Finance Corp. matures 5/15/97 5.42 997,947
2,400,000 Toyota Motor Credit matures 5/6/97 5.51 2,398,167
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY MONEY MARKET PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
==================================================================================================
<S> <C> <C> <C>
COMMERCIAL PAPER -- 60.6% (continued)
$2,000,000 Union Bank of Switzerland matures 5/1/97 5.60% $ 2,000,000
1,325,000 USAA Capital Corp. matures 5/16/97 5.50 1,321,975
- --------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost -- $70,041,183) 70,041,183
==================================================================================================
DOMESTIC CERTIFICATES OF DEPOSIT -- 6.9%
3,000,000 Bankers Trust matures 5/1/97 5.50 3,000,000
1,000,000 Morgan Guaranty matures 9/30/97 5.74 999,981
4,000,000 Wachovia Bank matures 5/12/97 5.52 4,000,023
- --------------------------------------------------------------------------------------------------
TOTAL DOMESTIC CERTIFICATES OF DEPOSIT
(Cost-- $8,000,004) 8,000,004
==================================================================================================
FOREIGN CERTIFICATES OF DEPOSIT -- 18.2%
3,000,000 ABN AMRO Bank N.V. mature 5/12/97 to 6/30/97 5.50 to 5.62 2,999,885
2,000,000 Bank of Nova Scotia matures 7/14/97 5.48 2,000,000
2,000,000 Barclays Bank matures 5/12/97 5.33 2,000,019
2,000,000 Bayerische Landesbank matures 7/30/97 5.55 2,000,049
2,000,000 Canadian Imperial Bank of Commerce matures 5/19/97 5.53 2,000,000
2,000,000 Creditanstalt Bankverein matures 5/1/97 5.57 2,000,000
3,000,000 Kredietbank NV matures 5/20/97 5.54 3,000,032
3,000,000 National Westminster Bank PLC matures 7/2/97 5.69 2,999,894
1,000,000 Royal Bank of Canada matures 5/7/97 5.41 1,000,001
1,000,000 Societe Generale matures 6/10/97 5.43 1,000,503
- --------------------------------------------------------------------------------------------------
TOTAL FOREIGN CERTIFICATES OF DEPOSIT
(Cost -- $21,000,383) 21,000,383
==================================================================================================
TIME DEPOSITS -- 6.6%
2,000,000 Bank Austriengellschaft (Bank Austria AG)
matures 5/1/97 5.63 2,000,000
1,657,000 Chase Manhattan Bank matures 5/1/97 5.56 1,657,000
- --------------------------------------------------------------------------------------------------
4,000,000 Credit Agricole matures 5/1/97 5.63 4,000,000
- --------------------------------------------------------------------------------------------------
TOTAL TIME DEPOSITS
(Cost -- $7,657,000) 7,657,000
==================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $115,649,028**) $115,649,028
==================================================================================================
</TABLE>
+ Non-income producing security.
++ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions that are exempt
from registration, normally to qualified institutional buyers.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 26 for definition of ratings.
See Notes to Financial Statements.
25
<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 "CCC" may be modified by the addition
of a plus (+) or 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
bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB, B and -- Bonds rated "BB" and "B" are regarded, on balance, as
CCC predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" represents a lower degree of speculation than
"B," and "CCC" the highest degree of speculation. While such
bonds will likely have some quality and protective
characteristics, these are outweighted by large uncertainties or
major risk exposure to adverse conditions.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "A" to "B," 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.
26
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
Statements of Assets and Liabilities (unaudited) April 30, 1997
=========================================================================================================
Smith Barney
MFS Total TBC Managed Money
Return Income Market
Portfolio Portfolio Portfolio
=========================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value
(Cost -- $143,923,076, $27,230,289
and $115,649,028, respectively) $ 159,179,167 $ 27,156,094 $ 115,649,028
Short-term investments, at value
(Cost -- $26,059,000, $0 and
$0, respectively) 26,059,000 -- --
Cash 94,225 1,419,714 842
Dividends and interest receivable 1,278,031 397,860 338,154
Receivable for securities sold 2,078,562 663,303 --
- ---------------------------------------------------------------------------------------------------------
Total Assets 188,688,985 29,636,971 115,988,024
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 3,025,032 2,031,890 --
Management fees payable 117,574 70,372 245,730
Dividends payable -- -- 209,668
Accrued expenses 27,475 10,410 17,451
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 3,170,081 2,112,672 472,849
- ---------------------------------------------------------------------------------------------------------
Total Net Assets $ 185,518,904 $ 27,524,299 $ 115,515,175
=========================================================================================================
NET ASSETS:
Par value of capital shares $ 135 $ 25 $ 1,155
Capital paid in excess of par value 162,672,952 27,079,045 115,514,020
Undistributed net investment income 2,997,345 791,634 --
Accumulated net realized gain (loss)
from security transactions 4,592,381 (272,210) --
Net unrealized appreciation (depreciation)
of investments 15,256,091 (74,195) --
- ---------------------------------------------------------------------------------------------------------
Total Net Assets $ 185,518,904 $ 27,524,299 $ 115,515,175
=========================================================================================================
Shares Outstanding 13,495,566 2,549,576 115,515,175
- ---------------------------------------------------------------------------------------------------------
Net Asset Value $13.75 $10.80 $1.00
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
================================================================================
Statements of Operations (unaudited)
================================================================================
For the Six Months Ended April 30,1997
<TABLE>
<CAPTION>
Smith Barney
MFS Total TBC Managed Money
Return Income Market
Portfolio Portfolio Portfolio
================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,430,588 $ 898,874 $ 2,862,471
Dividends 1,248,838 -- --
- ------------------------------------------------------------------------------------------------
Total Investment Income 3,679,426 898,874 2,862,471
- ------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 634,939 80,271 312,567
Custody 14,753 1,940 10,855
Audit and legal 10,615 7,917 11,422
Shareholder communications 8,844 3,278 21,500
Pricing service fees 5,191 7,862 --
Shareholder and system servicing fees 3,141 3,048 9,304
Directors' fees 2,480 1,812 8,750
Registration fees -- 2,777 6,800
Insurance -- -- 1,200
Other 3,427 997 4,750
- ------------------------------------------------------------------------------------------------
Total Expenses 683,390 109,902 387,148
Less: Management fee waiver (Note 3) -- -- (49,935)
- ------------------------------------------------------------------------------------------------
Net Expenses 683,390 109,902 337,213
- ------------------------------------------------------------------------------------------------
Net Investment Income 2,996,036 788,972 2,525,258
- ------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 4):
Realized Gain From Security transactions
(excluding short-term securities)*:
Proceeds from sales 81,531,965 27,429,216 5,293,085
Cost of securities sold 76,930,752 27,356,140 5,293,038
- ------------------------------------------------------------------------------------------------
Net Realized Gain 4,601,213 73,076 47
- ------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments:
Beginning of period 10,613,244 289,610 --
End of period 15,256,091 (74,195) --
- ------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation
(Depreciation) 4,642,847 (363,805) --
- ------------------------------------------------------------------------------------------------
Net Gain (Loss) on Investments 9,244,060 (290,729) 47
- ------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 12,240,096 $ 498,243 $ 2,525,305
================================================================================================
</TABLE>
* Represents only gains from the sale of short-term securities for the Smith
Barney Money Market Portfolio.
See Notes to Financial Statements.
28
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended April 30,1997 (unaudited)
and the Year Ended October 31, 1996
<TABLE>
<CAPTION>
MFS Total Return Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,996,036 $ 3,561,906
Net realized gain 4,601,213 1,948,481
Increase in net unrealized appreciation 4,642,847 8,395,692
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 12,240,096 13,906,079
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,166,892) (1,430,635)
Net realized gains (1,937,784) (403,787)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (5,104,676) (1,834,422)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 39,835,893 71,717,857
Net asset value of shares issued
for reinvestment of dividends 5,104,675 1,834,422
Cost of shares reacquired (1,086,477) (457,554)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 43,854,091 73,094,725
- --------------------------------------------------------------------------------
Increase in Net Assets 50,989,511 85,166,382
NET ASSETS:
Beginning of period 134,529,393 49,363,011
- --------------------------------------------------------------------------------
End of period* $185,518,904 $134,529,393
================================================================================
* Includes undistributed net investment income of: $2,997,345 $3,168,201
================================================================================
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
For the Six Months Ended April 30,1997 (unaudited)
and the Year Ended October 31, 1996
<TABLE>
<CAPTION>
TBC Managed Income Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 788,972 $ 1,179,696
Net realized gain (loss) 73,076 (339,622)
Increase in net unrealized appreciation
(depreciation) (363,805) 38,407
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 498,243 878,481
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,060,922) (567,702)
Net realized gains -- (186,111)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,060,922) (753,813)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 4,309,381 12,619,297
Net asset value of shares issued
for reinvestment of dividends 1,060,922 753,813
Cost of shares reacquired (815,445) (1,244,582)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 4,554,858 12,128,528
- --------------------------------------------------------------------------------
Increase in Net Assets 3,992,179 12,253,196
NET ASSETS:
Beginning of period 23,532,120 11,278,924
- --------------------------------------------------------------------------------
End of period* $ 27,524,299 $23,532,120
================================================================================
* Includes undistributed net investment income of: $ 791,634 $ 1,063,584
================================================================================
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
For the Six Months Ended April 30,1997 (unaudited)
and the Year Ended October 31, 1996
<TABLE>
<CAPTION>
Smith Barney Money Market Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,525,258 $ 3,444,502
Net realized gain 47 549
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,525,305 3,445,051
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (2,525,258) (3,444,502)
Net realized gains (47) (549)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (2,525,305) (3,445,051)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 83,409,105 98,594,062
Net asset value of shares issued
for reinvestment of dividends 2,496,357 3,325,266
Cost of shares reacquired (69,540,785) (40,255,629)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 16,364,677 61,663,699
- --------------------------------------------------------------------------------
Increase in Net Assets 16,364,677 61,663,699
NET ASSETS:
Beginning of period 99,150,498 37,486,799
- --------------------------------------------------------------------------------
End of period $115,515,175 $99,150,498
================================================================================
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The MFS Total Return, TBC Managed Income and Smith Barney Money Market
Portfolios ("Portfolio(s)") 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,
GTGlobal 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 semi-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 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 agencies and
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 Portfolio 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 an accrual basis; (g)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) the accounting records of the Portfolios are maintained in U.S.
dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income or expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank; (i) the character of income and gains to be
distributed are
32
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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 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; (j) the Portfolios intend to comply with the requirements of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve it
from substantially all Federal income and excise taxes; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. DIVIDENDS
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. 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%, respectively, of the average daily net assets
of each Portfolio. 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,
and are compensated for such services. As a result, TIA pays MFS and TBC, as
sub-advisers, a fee calculated at the annual rate of 0.375% and 0.30%,
respectively, of the average daily net assets of MFSTR and TBCMI. TIA pays these
fees to MFS and TBC on a monthly basis.
33
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
TIA has entered into a sub-administrative services agreement with SBMFM.
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.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares.
All officers and one Director of the Fund are employees of SB.
4. INVESTMENTS
During the six months ended April 30, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
MFS TBC
Total Managed
Return Income
================================================================================
<S> <C> <C>
Purchases $106,441,328 $31,931,981
- --------------------------------------------------------------------------------
Sales 81,531,965 27,429,216
================================================================================
</TABLE>
At April 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
MFS TBC
Total Managed
Return Income
================================================================================
<S> <C> <C>
Gross unrealized appreciation $16,895,608 $ 142,996
Gross unrealized depreciation (1,639,517) (217,191)
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $15,256,091 $ (74,195)
================================================================================
</TABLE>
5. 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.
34
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
6. CAPITAL SHARES
At April 30, 1997, 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 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>
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
================================================================================
<S> <C> <C>
MFS Total Return
Shares sold 2,945,735 5,847,883
Shares issued on reinvestment 383,810 154,268
Shares redeemed (80,344) (35,887)
- --------------------------------------------------------------------------------
Net Increase 3,249,201 5,966,264
================================================================================
TBC Managed Income
Shares sold 398,399 1,163,766
Shares issued on reinvestment 98,782 69,444
Shares redeemed (74,789) (116,880)
- --------------------------------------------------------------------------------
Net Increase 422,392 1,116,330
================================================================================
SB Money Market
Shares sold 83,409,105 98,594,062
Shares issued on reinvestment 2,496,357 3,325,266
Shares redeemed (69,540,785) (40,255,629)
- --------------------------------------------------------------------------------
Net Increase 16,364,677 61,663,699
================================================================================
</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.
8. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking to market" on a daily
35
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Portfolio records a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transactions and the Portfolio's basis in the contract. MFSTR
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.
As of April 30, 1997, MFSTR had no open futures contracts.
9. LENDING OF PORTFOLIO SECURITIES
The Portfolios have an agreement with their custodian whereby the custodian
may lend securities owned by the Portfolios to brokers, dealers and other
financial organizations, and receives a lenders' fee, which is shared 60% by the
Portfolios and 40% by the custodian. Fees earned by the Portfolios on securities
lending are recorded as interest income. Loans of securities by the Portfolios
are collateralized by cash, U.S. government securities or high quality money
market instruments that are maintained at all times in an amount at least equal
to the current market value of the loaned securities, plus a margin which may
vary between 2% and 5% depending on the type of securities loaned. The custodian
establishes and maintains the collateral in segregated accounts. The Portfolios
maintain exposure for the risk of any losses in the investment of amounts
received as collateral.
As of April 30, 1997, there were no securities on loan.
10. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Portfolios
represent investments, which are marked-to-market daily and are included in the
schedule of investments. When a purchased option expires, the Portfolios will
realize a loss in the amount of the premium paid. When the Portfolios enter into
a closing sales transaction, the Portfolios will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Portfolios exercise a put
option, they will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the
36
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
premium originally paid. When the Portfolios exercise a call option, the cost of
the security which the Porfolios purchase upon exercise will be increased by the
premium originally paid.
As of April 30, 1997, the Portfolios had no open purchased put or call
option contracts.
When the Porfolios write a covered call or put option, an amount equal to
the premium received by the Portfolios is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolios
realize a gain equal to the amount of the premium received. When the Portfolios
enter into a closing purchase transaction, the Portfolios realize a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the cost of the security
sold will be decreased by the premium originally received. When a put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the Portfolios purchased upon exercise. When the written
index options are exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Portfolios enter into options for hedging purposes. The
risk in writing a covered call option is that the Portfolios give up the
opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a put option is that the
Portfolios are exposed to the risk of a loss if the market price of the
underlying security declines.
During the period ended April 30, 1997, the Portfolios did not write any
options.
37
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
MFS Total Return Portfolio 1997(1) 1996 1995 1994(2)
===================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.13 $11.53 $9.98 $10.00
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.20 0.33 0.45 0.13
Net realized and unrealized gain (loss) 0.88 1.62 1.15 (0.15)
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.08 1.95 1.60 (0.02)
- -------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.27) (0.05) --
Net realized gains (0.17) (0.08) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions (0.46) (0.35) (0.05) --
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.75 $13.13 $11.53 $9.98
- -------------------------------------------------------------------------------------------------------------------
Total Return 8.35%++ 17.16% 16.12% (0.20)%++
- -------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $185,519 $134,529 $49,363 $8,504
- -------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 0.86%+ 0.91% 0.95% 0.93%+
Net investment income 3.76+ 3.82 4.40 3.51+
- -------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 56% 139% 104% 18%
- -------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.06 $0.06 $0.04 --
===================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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 $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
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
------------------- -----------------
<S> <C> <C>
1995 $0.01 1.06%
1994 0.06 2.51+
</TABLE>
(4) 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.
38
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
TBC Managed Income Portfolio 1997(1) 1996(2) 1995 1994(3)
==================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.06 $11.16 $10.04 $10.00
- ------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income(4) 0.30 0.65 0.61 0.21
Net realized and unrealized gain (loss) (0.07) (0.14) 0.64 (0.17)
- ------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.23 0.51 1.25 0.04
- ------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.49) (0.46) (0.13) --
Net realized gains -- (0.15) -- --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.61) (0.13) --
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.80 $11.06 $11.16 $10.04
- ------------------------------------------------------------------------------------------------------------------
Total Return 2.10%++ 4.61% 12.68% 0.40%++
- ------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $27,524 $23,532 $11,279 $3,840
- ------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 0.89%+ 0.92% 0.92% 0.87%+
Net investment income 6.37+ 6.19 6.13 5.67+
- ------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 112% 255% 170% 42%
==================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(4) 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
Net Investment Income Without Fee Waivers
Per Share Decreases 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.
39
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Smith Barney Money Market Portfolio 1997(1) 1996 1995 1994(2)
=======================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.024 0.049 0.052 0.014
Distributions from net investment income (0.024) (0.049) (0.052) (0.014)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------
Total Return 2.43%++ 5.05% 5.35% 1.46%++
- -----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $115,515 $99,150 $37,487 $5,278
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 0.65%+ 0.65% 0.65% 0.66%+
Net investment income 4.85+ 4.86 5.26 3.83+
=======================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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 six months ended April
30, 1997 and 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
Net Investment Income Without Fee Waivers
Per Share Decreases and Reimbursement
------------------- -----------------
<S> <C> <C>
1997 $0.001 0.74%+
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.
40
<PAGE>
Travelers Series SMITH BARNEY
Fund Inc. ------------
A Member of TravelersGroup[LOGO]
Directors Investment Managers
Victor K. Atkins Smith Barney Mutual Funds
A.E. Cohen Management Inc. and
Robert A. Frankel Travelers Investment Adviser, Inc.
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
James M. Shuart Distributor
Smith Barney Inc.
Officers
Heath B. McLendon Custodian
Chief Executive Officer PNC Bank, N.A.
Lewis E. Daidone Annuity Administration
Senior Vice President and Treasurer Travelers Annuity Investor Services
5 State House Square
John C. Bianchi 1 Tower Square
Vice President Hartford, CT 06183
James B. Conheady
Vice President
This report is submitted for the
Martin Hanley general information of the
Vice President shareholders of Travelers Series
Fund Inc. -- MFS Total Return, TBC
Jeffrey J. Russell Managed Income and Smith Barney
Vice President Money Market Portfolios. It is not
authorized for distribution to
Bruce D. Sargent prospective investors unless
Vice President accompanied or preceded by a
current Prospectus for the
Phyllis Zahorodny Portfolios, which contains
Vice President information concerning the
Portfolios' investment policies and
Thomas M. Reynolds expenses as well as other pertinent
Controller information.
Christina T. Sydor
Secretary
Travelers Series
Fund Inc.
388 Greenwich Street
New York, New York 10013
IN0804 6/97
<PAGE>
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
Travelers Series
Fund Inc.
Smith Barney Income
and Growth Portfolio
Alliance Growth Portfolio
Van Kampen American
Capital Enterprise Portfolio
----------------------------------------
April 30, 1997
[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 provide the semi-annual report of the Travelers Series Fund
Inc. - Smith Barney Income and Growth, Alliance Growth and Van Kampen American
Capital Enterprise Portfolios for the period ended April 30, 1997. 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.
Portfolio Highlights
Smith Barney Income and Growth Portfolio
For the six months ended April 30, 1997, the Smith Barney Income and Growth
Portfolio had a total return of 11.39% as compared to the total return of 10.38%
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, the Portfolio's
managers typically choose large-capitalization companies that have an
above-market dividend yield and assets undervalued by the marketplace. The
Portfolio's managers 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, the Portfolio's managers 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.
The equity markets have been characterized by volatility in response to economic
releases and the threat of Federal Reserve Board ("Fed") interest rate hikes.
Nevertheless, the Standard & Poor's 500 Stock Index ("S&P 500") has marched
higher this year. (The S&P 500 is an unmanaged capitalization-weighted index of
500 widely held common stocks.) The first four months of 1997 have witnessed the
heaviest trading volume ever on the New York Stock Exchange with over 683
million shares trading hands on January 23, 1997. After a market top in March,
the Dow Jones Industrial Average and the S&P 500 have begun another climb toward
record territory. (The Dow Jones Industrial Average is the most widely
recognized unmanaged stock market index consisting of 30 of the largest
1
<PAGE>
American corporations.) The Income and Growth Portfolio performed well during
the reporting period and currently has an emphasis on the financial, energy and
health care sectors of the stock market.
During the reporting period, the Portfolio's managers added Exxon (petroleum
products) and Amoco (petroleum products) to the Portfolio's holdings. The
Portfolio's managers purchased Exxon after the company announced that it planned
to repurchase its stock. Historically, stock buy-back initiatives have been
beneficial to the stock price. Exxon has demonstrated strong financial
fundamentals, excellent management, and a commitment to enhancing shareholder
value. In addition, Exxon recently announced a restructuring plan which we
believe should further improve profitability. Amoco also appeared to them to be
undervalued and was selling at the lowest earnings multiple of its asset class.
The Portfolio's managers also sold holdings in Allstate (insurance and financial
services), Monsanto (chemical manufacturer), and Texas Utilities (power
provider). Although Allstate and Monsanto have been very successful investments,
the Portfolio's managers' disciplined management style required them to sell
these holdings. In these instances, the dividend yields on Allstate and Monsanto
dropped below the threshold needed to remain in the Portfolio. The Portfolio's
Managers sold Texas Utilities because of a deteriorating regulatory environment.
As long as inflation remains under control, the Portfolio's managers' outlook
for the stock market is positive for the remainder of the year. With labor
markets tight and consumers giving most companies little or no pricing power,
the ability of most companies to increase earnings has become more difficult.
First quarter earnings reports were generally above expectations, but investors
will increasingly concentrate on the next few quarterly reports in order to
determine any slowdown in profit growth. Large-capitalization firms with a
multinational exposure seem to have an advantage over smaller, domestic-only
companies. By keeping costs under control and expanding volume growth overseas,
many multinational firms can generate at least modest revenue growth and solid
bottom line growth compared to most smaller-sized firms. The Portfolio's
managers' outlook for geographically diversified firms with the financial
capacity to expand and take market share from competitors remains positive.
Alliance Growth Portfolio
For the six months ended April 30, 1997, the Alliance Growth Portfolio generated
a total return of 2.85% as compared to its Lipper Analytical Services, Inc.
growth fund peer group average of 6.68% over the same period.
2
<PAGE>
After reaching new all-time highs in February the stock market fell sharply
before bottoming out in mid-April of 1997. The decline in the major stock market
averages was modest compared to the much steeper drop in the broader market. The
Nasdaq Composite Index and the technology sector were particularly hit hard.
(The Nasdaq Composite Index is a capitalization-weighted index of all stocks
which trade on the Nasdaq.) With its heavy weighting in the technology sector
the Alliance Growth Portfolio fell much more than the S&P 500.
In the opinion of the Portfolio's managers, the immediate catalyst for the
market's decline was the Federal funds rate increase by the Fed in late March of
1997. (The Federal funds rate is the interest rate banks charge each other for
overnight loans and is a closely watched indicator of the direction of interest
rates.) As the market began to fall there was a series of events that led many
investors to question the continuing attractiveness of the technology sector.
Some of the leading networking companies acknowledged order slow-downs and
possible short-term earnings problems. Moreover, there was also some
unexpectedly steep price cutting. Networking companies have been growing at an
extraordinary pace, generally in excess of 30% per year. Any hint of
interruption in the momentum of revenues caused many investors to fear that the
earnings of some technology firms might deteriorate sharply as rapidly rising
expenses ran ahead of realized revenues. Most of these companies have now
reported first quarter earnings. There have been some shortfalls, but their
growth prospects still appear to be generally quite strong.
In the opinion of the Portfolio's managers, the integration of computer and
communications technologies will continue to provide exceptional growth
opportunities in the years ahead. It is unfortunately characteristic of some
rapidly growing technology stocks that these stocks occasionally experience
periods of volatility. The Portfolio's managers believe that volatility in the
technology sector is largely behind us and the Portfolio remains aggressively
positioned in technology companies such as Cisco Systems, Worldcom and 3Com.
The other major area of emphasis for the Portfolio continues to be the financial
services industry. Recent investor concerns that interest rates might move
meaningfully higher (which would in turn adversely impact the financial sector)
appear to be subsiding. The Portfolio's managers do not expect rates to move
much higher, nor do they believe that interest rates will be the main
determinant of performance in this market sector. They believe select financial
services companies represent an attractive sector of the economy for long-term
growth. The Portfolio continues to hold a diversified list of financial company
stocks including American International Group, American Express and several
large banks.
3
<PAGE>
The investment environment continues to be one of moderate growth with little
inflation. Yet recent economic growth has been somewhat stronger than consensus
expectations. If this growth continues, there may be some further monetary
policy tightening by the Fed that could adversely impact the stock market.
However, the Portfolio's managers believe it's equally likely that growth may
slow, and provide a continued favorable climate for stocks. They would, however,
once again point out that market returns have been well above long-term
historical trends for some time now and that future gains from the stock market
will likely be more modest.
Van Kampen American Capital Enterprise Portfolio
For the six months ended April 30, 1997, the Van Kampen American Capital
Enterprise Portfolio posted a total return of 8.21%. This performance compares
favorably to the total return of 6.68% for its Lipper Analytical Services, Inc.
growth fund peer group average.
The Portfolio is managed with a consistent investment philosophy: to own
companies with positive future fundamentals at an attractive current price.
Although this philosophy may sound simplistic, the Portfolio's managers believe
that the best total return potential has usually been achieved by a primary
focus on disciplined stock selection. In selecting stocks, the managers of the
Portfolio generally look for at least one of the following fundamental
characteristics:
o Consistently above-average earnings growth
o Accelerating earnings growth
o Better-than-expected fundamentals
o An underlying change in a company, industry, or regulatory environment
As long as the original criteria for purchasing a particular stock hold true and
its value continues to be relatively attractive, it usually remains a Portfolio
holding.
As corporate growth has slowed in recent years and stocks market valuations have
reached record levels, it has become increasingly difficult for many U.S.
companies to maintain above-average earnings growth. As a result, the
Portfolio's managers have been especially diligent in monitoring the fundamental
outlook for their holdings.
During the reporting period, the U.S. stock market experienced a bout of
heightened volatility. The market dropped sharply in late March of 1997 after a
tightening by the Fed but rallied in mid-April to close out the month near its
all-time high. By keeping the Portfolio fully invested throughout this period of
volatility, its managers maximized its participation in the subsequent market
rally.
4
<PAGE>
In addition, the Portfolio's managers found positive opportunities in many
industry sectors, including health care, technology, and finance. The
Portfolio's weighting in the health-care sector was increased modestly during
the period under review, primarily due to the addition of Wellpoint Health
Network, a health maintenance organization. Other substantial Portfolio holdings
in the health-care sector included Merck & Co. and Bristol-Myers Squibb, two
pharmaceutical companies. The Portfolio also increased its position in BMC
Software, a computer software firm, and maintained large positions in Intel
Corp. (semiconductors) and Compaq Computer Corp. (personal computer hardware).
In the financial services sector, the Portfolio's managers added substantially
to holdings in Conseco, a financial services holding company that operates life
insurance firms. They recently visited with representatives from Conseco and
gained renewed confidence in the positive fundamentals, earnings growth, and
quality of management of the company. Going forward, the Portfolio's managers
believe that a continuation of slow but steady economic growth, solid corporate
earnings, and controlled inflation should continue to benefit investors in the
Van Kampen American Capital Enterprise Portfolio.
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 achieve your financial goals.
Sincerely,
/s/Heath B. McLendon
Heath B. McLendon
Chairman
May 28, 1997
5
<PAGE>
================================================================================
Smith Barney Income and Growth Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $14.84 $16.16 $0.18 $0.17 11.39%++
- --------------------------------------------------------------------------------
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 $0.41 $0.22
================================================================================
</TABLE>
================================================================================
Alliance Growth Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $16.30 $16.15 $0.02 $0.62 2.85%++
- --------------------------------------------------------------------------------
10/31/96 13.28 16.30 0.09 0.32 26.55
- --------------------------------------------------------------------------------
10/31/95 10.65 13.28 0.02 0.10 26.18
- --------------------------------------------------------------------------------
6/16/94*-10/31/94 10.00 10.65 0.00 0.00 6.50++
================================================================================
Total $0.13 $1.04
================================================================================
</TABLE>
================================================================================
Van Kampen American Capital Enterprise Portfolio
================================================================================
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $15.37 $16.58 $0.05 $0.00 8.21%++
- --------------------------------------------------------------------------------
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 $0.11 $0.43
================================================================================
</TABLE>
It is the Funds' policy to distribute dividends and capital gains, if any,
annually.
6
<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>
Six Months Ended 4/30/97++ 11.39% 2.85% 8.21%
- --------------------------------------------------------------------------------
Year Ended 4/30/97 21.28 12.44 15.74
- --------------------------------------------------------------------------------
6/16/94* through 4/30/97 20.06 21.48 20.96
================================================================================
</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 4/30/97 69.10% 74.91% 72.83%
================================================================================
</TABLE>
+ Assumes the reinvestment of all dividends and capital gains 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.
7
<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 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
Smith Barney S&P
Income & Growth Portfolio 500 Index
------------------------- ---------
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $10,140 $10,324
04/95 $10,982 $11,404
10/95 $12,189 $13,053
04/96 $13,943 $14,684
10/96 $15,181 $16,018
04/30/97 $16,910 $18,374
</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 April 30, 1997. 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.
8
<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 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
Alliance S&P Russell
Growth Portfolio 500 Index 1000 Index
---------------- --------- -----------
<S> <C> <C> <C>
6/16/94 $10,000 $10,000 $10,000
10/94 $10,650 $10,324 $10,191
04/95 $11,475 $11,404 $11,050
10/95 $13,428 $13,053 $12,612
04/96 $15,557 $14,684 $14,327
10/96 $17,007 $16,018 $15,501
04/30/97 $17,491 $18,374 $17,529
</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 April 30, 1997. 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.
9
<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 -- April 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
Van Kampen
American Capital S&P
Enterprise Portfolio 500 Index
-------------------- ---------
<S> <C> <C>
6/16/94 $10,000 $10,000
10/94 $10,380 $10,324
04/95 $11,160 $11,404
10/95 $12,948 $13,053
04/96 $14,933 $14,684
10/96 $15,972 $16,018
04/30/97 $17,283 $18,374
</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 April 30, 1997. 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.
10
<PAGE>
================================================================================
Schedules of Investments (unaudited) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 90.2%
================================================================================
<C> <S> <C>
Capital Goods -- 4.3%
60,000 Emerson Electric Co. $ 3,045,000
40,000 General Electric Co. 4,435,000
20,000 Honeywell, Inc. 1,412,500
- --------------------------------------------------------------------------------
8,892,500
- --------------------------------------------------------------------------------
Communication Equipment & Services -- 5.4%
50,000 BellSouth Corp. 2,225,000
90,000 GTE Corp. 4,128,750
110,000 Sprint Corp. 4,826,250
- --------------------------------------------------------------------------------
11,180,000
- --------------------------------------------------------------------------------
Conglomerates -- 6.1%
100,000 Giant Foods, Inc., Class A Shares 3,225,000
50,000 Minnesota Minning and Manufacturing Co. 4,350,000
100,000 National Service Industries, Inc. 4,212,500
30,000 Pharmacia & Upjohn, Inc. 888,750
- --------------------------------------------------------------------------------
12,676,250
- --------------------------------------------------------------------------------
Consumer Cyclicals -- 10.8%
40,000 Dow Jones & Co., Inc. 1,620,000
190,000 Federal-Mogul Corp. 5,248,750
80,000 Ford Motor Co. 2,780,000
26,250 M/A/R/C, Inc. 400,313
100,000 Masco Corp. 3,775,000
40,000 New York Times Co., Class A Shares 1,730,000
60,000 Sears, Roebuck & Co. 2,880,000
100,000 Stanley Works, Inc. 3,887,500
- --------------------------------------------------------------------------------
22,321,563
- --------------------------------------------------------------------------------
Consumer Staples -- 4.8%
80,000 Kimberly-Clark Corp. 4,100,000
30,000 Unilever NV 5,887,500
- --------------------------------------------------------------------------------
9,987,500
- --------------------------------------------------------------------------------
Energy -- 11.0%
30,000 Amoco Corp. 2,508,750
80,000 Ashland Inc. 3,570,000
100,000 Dresser Industries, Inc. 2,987,500
60,000 Exxon Corp. 3,397,500
40,000 Mobil Oil Corp. 5,200,000
50,000 Unocal Corp. 1,906,250
75,000 The Williams Cos., Inc. 3,290,625
- --------------------------------------------------------------------------------
22,860,625
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Financial Services -- 14.3%
80,000 Banc One Corp. $ 3,390,000
40,000 Chase Manhattan Corp. 3,705,000
90,000 Chubb Corp. 5,197,500
20,000 Cigna Corp. 3,007,500
50,000 Great Western Financial Corp. 2,100,000
50,000 ITT Hartford Group Inc. 3,725,000
40,000 Provident Cos., Inc. 2,235,000
60,000 St. Paul Cos., Inc.. 4,020,000
80,000 Toronto-Dominion Bank 2,260,000
- --------------------------------------------------------------------------------
29,640,000
- --------------------------------------------------------------------------------
Healthcare -- 8.6%
50,000 American Home Products Corp. 3,312,500
120,000 Baxter International Inc. 5,745,000
80,000 Bristol-Myers Squibb Co. 5,240,000
40,000 Eli Lilly & Co. 3,515,000
- --------------------------------------------------------------------------------
17,812,500
- --------------------------------------------------------------------------------
Raw Intermediate Materials -- 7.9%
100,000 Ball Corp. 2,687,500
20,000 Birmingham Steel Corp. 292,500
80,000 Crown Cork & Seal Co., Inc. 4,380,000
40,000 International Paper Co. 1,690,000
80,000 Olin Corp. 3,290,000
60,000 Reynolds Metals Co. 4,072,500
- --------------------------------------------------------------------------------
16,412,500
- --------------------------------------------------------------------------------
Real Estate Investment Trust -- 0.5%
40,000 Crescent Real Estate Equities Co. 1,050,000
- --------------------------------------------------------------------------------
Technology -- 7.2%
40,000 Corning Inc. 1,930,000
70,000 Eastman Kodak Co. 5,845,000
30,000 Lockheed Martin Corp. 2,685,000
50,000 Pitney Bowes Inc. 3,200,000
8,000 Primex Technologies, Inc. 161,000
16,000 United Technologies Corp. 1,210,000
- --------------------------------------------------------------------------------
15,031,000
- --------------------------------------------------------------------------------
Transportation -- 2.6%
10,000 Alexander & Baldwin Inc. 265,000
80,000 Union Pacific Corp. 5,100,000
- --------------------------------------------------------------------------------
5,365,000
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
SMITH BARNEY INCOME AND GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Utilities -- 6.7%
100,000 Brooklyn Union Gas Co. $ 2,737,500
80,000 Dominion Resources, Inc. 2,750,000
50,000 EL Paso Natural Gas Co. 2,906,250
120,000 Enron Global Power & Pipelines L.L.C. 3,540,000
80,000 Entergy Corp. 1,870,000
- --------------------------------------------------------------------------------
13,803,750
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $163,055,831) 187,033,188
================================================================================
PREFERRED STOCKS -- 1.1%
================================================================================
Consumer Staples -- 1.0%
25,000 Aetna Inc., Class C Shares 2,125,000
- --------------------------------------------------------------------------------
Mining -- 0.1%
6,000 Freeport-McMoRan Copper & Gold, Inc., Series B 188,250
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost-- $2,177,360) 2,313,250
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
<C> <S> <C>
REPURCHASE AGREEMENT -- 8.7%
$18,053,000 Chase Manhattan Bank, 5.314% due 5/1/97;
Proceeds at maturity -- $18,055,665; (Fully
collateralized by U.S. Treasury Notes 6.625%
due 4/30/02; Market value-- $18,414,072)
(Cost-- $18,053,000) 18,053,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $183,286,191*) $207,399,438
================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 96.4%
================================================================================
<C> <S> <C>
Aerospace -- 0.4%
106,000 Loral Space & Communications+ $ 1,550,250
- --------------------------------------------------------------------------------
Airlines -- 2.3%
11,000 AMR Corp.+ 1,024,375
138,000 Continental Airlines, Inc. 4,381,500
14,000 Delta Airlines Inc. 1,289,750
36,000 Northwest Airlines+ 1,404,000
6,900 United Airlines Corp.+ 513,187
- --------------------------------------------------------------------------------
8,612,812
- --------------------------------------------------------------------------------
Banks -- 6.1%
77,504 Chase Manhattan Corp. 7,178,808
57,000 First Chicago NBD Corp. 3,206,250
70,000 First Union Corp. 5,880,000
100,000 NationsBank Corp. 6,037,500
- --------------------------------------------------------------------------------
22,302,558
- --------------------------------------------------------------------------------
Commercial Services -- 3.8%
660,350 CUC International Inc.+ 13,949,894
- --------------------------------------------------------------------------------
Computer Services -- 5.1%
78,000 Applied Magnetics Corp.+ 1,959,750
280,600 Ceridian Corp.+ 9,365,025
68,000 Electronic Data Systems Corp. 2,269,500
203,375 Sterling Commerce Inc.+ 5,262,328
- --------------------------------------------------------------------------------
18,856,603
- --------------------------------------------------------------------------------
Diversified Operations -- 0.2%
26,000 Republic Industries Inc.+ 645,125
- --------------------------------------------------------------------------------
Drugs -- 4.7%
47,000 Biogen Inc.+ 1,504,000
113,400 Merck & Co., Inc. 10,262,700
45,000 Pfizer Inc. 4,320,000
16,000 Schering-Plough Corp. 1,280,000
- --------------------------------------------------------------------------------
17,366,700
- --------------------------------------------------------------------------------
Electronics -- 8.5%
340,300 Cisco Systems Inc.+ 17,610,525
176,000 EMC Corp.+ 6,402,000
241,600 3Com Corp.+ 7,006,400
- --------------------------------------------------------------------------------
31,018,925
- --------------------------------------------------------------------------------
Equipment Rental -- 0.3%
41,000 Hertz Corp., Class A Shares 1,189,000
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Financial Services -- 5.2%
160,000 American Express Co. $10,540,000
51,200 Dean Witter Discover & Co. 1,958,400
27,000 Household International Inc. 2,376,000
120,050 MBNA Corp. 3,961,650
29,600 Union Acceptance Corp.+ 310,800
- --------------------------------------------------------------------------------
19,146,850
- --------------------------------------------------------------------------------
Hospital Supplies & Services -- 1.7%
55,300 Medtronic Inc. 3,829,525
102,000 Quest Medical Inc.+ 612,000
50,200 St. Jude Medical Inc.+ 1,631,500
- --------------------------------------------------------------------------------
6,073,025
- --------------------------------------------------------------------------------
Insurance -- 7.1%
267,000 Acceptance Insurance Cos., Inc.+ 5,139,750
78,450 American International Group Inc. 10,080,825
173,000 Nationwide Financial Services, Inc. 4,584,500
26,300 PennCorp Financial Group Inc. 904,062
16,800 The PMI Group Inc. 858,900
28,000 Progressive Corp. 2,131,500
131,600 Twentieth Century Industries 2,335,900
- --------------------------------------------------------------------------------
26,035,437
- --------------------------------------------------------------------------------
Medical Products -- 0.8%
57,400 Boston Scientific Corp.+ 2,769,550
- --------------------------------------------------------------------------------
Oil Related -- 6.2%
49,000 Baker Hughes Inc. 1,690,500
34,600 BJ Services Co.+ 1,630,525
1,147,500 Gulf Canada Resources Ltd.+ 9,323,438
48,900 Halliburton Co. 3,453,563
139,000 Nabors Industries Inc.+ 2,606,250
45,000 Rowan Cos. Inc.+ 810,000
52,000 Transocean Offshore, Inc. 3,152,500
- --------------------------------------------------------------------------------
22,666,776
- --------------------------------------------------------------------------------
Printing, Publishing & Broadcasting -- 0.4%
43,400 Argyle Television Inc., Class A Shares+ 1,090,425
9,700 Time Warner Inc. 436,500
- --------------------------------------------------------------------------------
1,526,925
- --------------------------------------------------------------------------------
Protection - Safety -- 1.1%
150,000 ADT Ltd.+ 4,106,250
- --------------------------------------------------------------------------------
Railroads -- 0.4%
21,723 Union Pacific Corp. 1,384,841
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Real Estate -- 5.9%
100,000 Arden Realty Group Inc. $ 2,487,500
28,000 Golf Trust of America Inc. 714,000
191,300 Humphrey Hospitality Trust, Inc. 1,817,350
93,000 JP Realty, Inc. 2,359,875
250,000 Koger Equity Inc.+ 3,906,250
131,900 The Macerich Co. 3,429,400
114,000 Prentiss Properties Trust 2,693,250
53,000 Spieker Properties, Inc. 1,848,375
55,000 Summit Properties, Inc. 1,086,250
40,000 Sun Communities, Inc. 1,280,000
- --------------------------------------------------------------------------------
21,622,250
- --------------------------------------------------------------------------------
Restaurants -- 0.8%
125,000 American General Hospitality Corp. 3,078,125
- --------------------------------------------------------------------------------
Retail -- 7.0%
184,100 Autozone Inc.+ 4,510,450
358,600 CompUSA Inc.+ 6,903,050
136,900 Home Depot, Inc. 7,940,200
67,800 Sears, Roebuck & Co. 3,254,400
109,000 Wal-Mart Stores, Inc. 3,079,250
- --------------------------------------------------------------------------------
25,687,350
- --------------------------------------------------------------------------------
Technology - Computer Software -- 5.7%
89,900 Cabletron Systems+ 3,101,550
60,000 Microsoft Corp.+ 7,290,000
72,000 Seagate Technology Inc.+ 3,303,000
241,700 Sterling Software Inc.+ 7,371,850
- --------------------------------------------------------------------------------
21,066,400
- --------------------------------------------------------------------------------
Technology - Semi-Conductor -- 6.0%
128,400 Intel Corp. 19,661,250
22,000 Micron Technology Inc.+ 775,500
69,400 National Semiconductor Corp.+ 1,735,000
- --------------------------------------------------------------------------------
22,171,750
- --------------------------------------------------------------------------------
Telecommunications -- 7.3%
142,100 Brooks Fiber Properties, Inc.+ 3,090,675
158,000 Cascade Communications Corp.+ 4,977,000
275,500 Colt Telecommunications Group PLC ADR+ 4,924,563
60,000 Comcast Corp. 945,000
69,000 Fore Systems Inc.+ 1,052,250
38,000 Millicom International Cellular SA+ 1,729,000
178,500 Tele-Communications Inc., Class A Shares+ 2,465,531
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Telecommunications -- 7.3% (continued)
129,787 Tele-Communications Liberty Media Group,
Class A Shares+ $ 2,441,618
154,500 Teleport Communications Group Inc.+ 4,403,250
23,500 United States Cellular Corp.+ 587,500
- --------------------------------------------------------------------------------
26,616,387
- --------------------------------------------------------------------------------
Tobacco -- 2.1%
81,800 Loews Corp. 7,515,375
- --------------------------------------------------------------------------------
Utility - Telephone -- 5.5%
93,800 Telephone & Data Systems Inc. 3,470,600
696,060 WorldCom Inc.+ 16,705,440
- --------------------------------------------------------------------------------
20,176,040
- --------------------------------------------------------------------------------
Wire & Cable Products -- 1.8%
50,700 Anixter International Inc.+ 722,475
219,100 Viacom Inc., Non-Voting Class B Shares+ 5,860,925
- --------------------------------------------------------------------------------
6,583,400
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $307,376,716) 353,718,598
================================================================================
CONVERTIBLE PREFERRED STOCKS -- 0.6%
================================================================================
Drugs -- 0.1%
24,400 Gensia Pharmaceuticals Inc., Exchangable $3.75 427,000
- --------------------------------------------------------------------------------
Utility - Telephone -- 0.5%
22,000 WorldCom Inc., Exchangable 8.00% 1,837,000
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost-- $1,981,667) 2,264,000
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
<C> <S> <C>
CONVERTIBLE BONDS -- 2.5%
================================================================================
Computers -- 1.5%
$2,000,000 Applied Magnetic Corp., 7.00% due 3/15/06 3,067,500
2,905,000 HMT Technology Corp., 5.75% due 1/15/04++ 2,374,837
- --------------------------------------------------------------------------------
5,442,337
- --------------------------------------------------------------------------------
Electronics -- 1.0%
1,120,000 Altera Corp., 5.75% due 6/15/02++ 2,252,600
1,300,000 3Com Corp., 10.25% due 11/1/01 1,469,000
- --------------------------------------------------------------------------------
3,721,600
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost-- $9,928,042) 9,163,937
================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
FACE
AMOUNT SECURITY VALUE
================================================================================
<C> <S> <C>
SHORT-TERM INVESTMENT -- 0.5%
$1,700,000 Federal Home Loan Mortgage Corp.
Discount Note, 5.30% due 5/1/97
(Cost -- $1,700,000) $ 1,700,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $320,986,425*) $366,846,535
================================================================================
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 90.5%
================================================================================
<C> <S> <C>
Advertising -- 1.1%
29,300 Omnicom Group Inc. $1,552,900
- --------------------------------------------------------------------------------
Aircraft & Aerospace -- 3.3%
14,700 Allied Signal, Inc. 1,062,075
7,500 Boeing Co.+ 739,687
14,000 Textron, Inc. 1,559,250
18,300 United Technologies Corp.+ 1,383,938
- --------------------------------------------------------------------------------
4,744,950
- --------------------------------------------------------------------------------
Automotive -- 0.3%
14,800 Chrysler Corp. 444,000
- --------------------------------------------------------------------------------
Banking - Major -- 3.9%
20,700 Bank of Boston Corp. 1,505,925
16,100 BankAmerica Corp. 1,881,687
15,400 Chase Manhattan Corp. 1,426,425
7,500 Citicorp 844,688
- --------------------------------------------------------------------------------
5,658,725
- --------------------------------------------------------------------------------
Broadcast Media and Cable Television -- 0.8%
34,850 Evergreen Media Corp., Class A Shares+ 1,128,269
- --------------------------------------------------------------------------------
Chemicals -- 2.6%
9,800 BetzDearborn Inc. 627,200
28,800 Cytec Industries, Inc.+ 1,083,600
40,800 Praxair, Inc. 2,106,300
- --------------------------------------------------------------------------------
3,817,100
- --------------------------------------------------------------------------------
Commercial Services -- 0.3%
27,025 Accustaff Inc.+ 493,206
- --------------------------------------------------------------------------------
Communications -- 0.6%
20,300 Ascend Communications Co.+ 928,725
- --------------------------------------------------------------------------------
Consumer Non-Durables -- 1.0%
7,600 Procter & Gamble Co. 955,700
6,500 Ralston-Ralston Purina Group+ 535,438
- --------------------------------------------------------------------------------
1,491,138
- --------------------------------------------------------------------------------
Consumer Services -- 1.2%
49,500 Service Corp. 1,695,375
- --------------------------------------------------------------------------------
Electrical Products -- 1.0%
24,600 Tyco International Ltd. 1,500,600
- --------------------------------------------------------------------------------
Electronics - Semiconductors/Components -- 1.4%
21,600 Adaptec Inc.+ 799,200
25,200 Read-Rite Corp.+ 652,050
13,700 Seagate Technology, Inc.+ 628,488
- --------------------------------------------------------------------------------
2,079,738
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Energy - Oil & Gas -- 2.3%
17,600 Apache Corp. $ 598,400
26,400 Exxon Corp. 1,494,900
11,300 Texaco, Inc. 1,192,150
- --------------------------------------------------------------------------------
3,285,450
- --------------------------------------------------------------------------------
Energy - Oilfield Services -- 2.0%
17,600 Baker Hughes, Inc. 607,200
7,300 Schlumberger Ltd.+ 808,475
18,300 Smith International, Inc.+ 866,963
14,950 The Williams Cos., Inc. 655,931
- --------------------------------------------------------------------------------
2,938,569
- --------------------------------------------------------------------------------
Environmental Production/Services -- 1.8%
29,800 USA Waste Service, Inc.+ 975,950
45,900 United Waste Systems, Inc.+ 1,549,125
- --------------------------------------------------------------------------------
2,525,075
- --------------------------------------------------------------------------------
Financial Services -- 6.3%
30,275 Aames Financial Corp. 465,478
83,800 Fannie Mae 3,446,275
11,100 First Bank Systems, Inc. 851,925
39,400 FirstPlus Financial Group, Inc.+ 871,725
39,400 Green Tree Financial Corp. 1,167,225
7,800 Merrill Lynch & Co., Inc. 742,950
13,900 Money Store, Inc. 300,588
2,900 Raychem Corp. 187,050
9,000 Student Loan Marketing Association 1,064,250
- --------------------------------------------------------------------------------
9,097,466
- --------------------------------------------------------------------------------
Healthcare - Biotech -- 1.1%
19,200 Amgen, Inc.+ 1,130,400
16,100 ESC Medical Systems, Ltd.+ 432,687
- --------------------------------------------------------------------------------
1,563,087
- --------------------------------------------------------------------------------
Healthcare - Hospital/Medical Services -- 5.9%
10,000 Columbia HCA Healthcare Corp. 350,000
29,312 Health Management Association, Inc.+ 784,096
62,500 HealthSouth Rehabilitation Corp.+ 1,234,375
26,500 Lincare Holdings, Inc.+ 1,040,125
10,000 Pacificare Health Systems, Inc.+ 802,500
25,800 Renal Treatment Centers, Inc.+ 557,925
18,400 Tenet Healthcare Corp.+ 478,400
25,200 Universal Health Services Inc., Class B Shares+ 954,450
20,100 Vencor Inc.+ 836,663
34,500 Wellpoint Health Networks,Inc.+ 1,457,625
- --------------------------------------------------------------------------------
8,496,159
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Healthcare - Pharmaceuticals -- 7.8%
39,100 Bristol-Myers Squibb Co. $ 2,561,050
23,000 Johnson & Johnson 1,408,750
28,700 Merck & Co., Inc. 2,597,350
23,700 Pfizer, Inc. 2,275,200
20,200 Schering-Plough Corp. 1,616,000
24,000 Watson Pharmaceuticals, Inc.+ 858,000
- --------------------------------------------------------------------------------
11,316,350
- --------------------------------------------------------------------------------
Hotels/Motels -- 1.1%
25,200 Hilton Hotels Corp. 680,400
39,200 La Quinta Inns Inc. 857,500
- --------------------------------------------------------------------------------
1,537,900
- --------------------------------------------------------------------------------
Insurance -- 5.9%
10,400 AMBAC Inc.+ 673,400
30,300 CMAC Investment Corp. 1,151,400
92,300 Conseco, Inc. 3,818,912
11,100 MGIC Investment Corp. 901,875
19,500 Penncorp Financial Group, Inc. 670,313
28,000 SunAmerica, Inc. 1,288,000
- --------------------------------------------------------------------------------
8,503,900
- --------------------------------------------------------------------------------
Manufacturing -- 1.2%
13,200 Cummins Engine Co., Inc.+ 740,850
10,000 Illinois Tool Works Co. 913,750
- --------------------------------------------------------------------------------
1,654,600
- --------------------------------------------------------------------------------
Newspapers -- 1.4%
10,000 E.W. Scripps Co., Class A Shares 380,000
5,800 Gannett Inc.+ 506,050
22,200 New York Times Co., Class A Shares 960,150
3,200 Tribune Co.+ 140,400
- --------------------------------------------------------------------------------
1,986,600
- --------------------------------------------------------------------------------
Retail - Department/Discount -- 3.6%
19,400 Consolidated Stores Corp.+ 776,000
20,200 Dayton Hudson Corp.+ 909,000
35,200 Ross Stores, Inc. 990,000
28,100 Sears, Roebuck & Co. 1,348,800
24,300 TJX Co. 1,148,175
- --------------------------------------------------------------------------------
5,171,975
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Retail - Food/Drugs -- 5.5%
26,800 American Stores Co. $1,219,400
19,000 Boston Chicken, Inc.+ 453,625
21,200 CVS Corp. 1,052,050
25,200 General Nutrition Co.+ 541,800
52,500 Kroger, Inc.+ 1,443,750
70,997 Safeway, Inc.+ 3,168,263
- --------------------------------------------------------------------------------
7,878,888
- --------------------------------------------------------------------------------
Retail - Specialty -- 4.1%
16,100 Bed Bath & Beyond, Inc.+ 440,737
29,400 Compuware Corp.+ 1,109,850
14,900 Home Depot, Inc.+ 864,200
21,200 Liz Claiborne, Inc. 959,300
20,200 Lowes Cos., Inc. 767,600
21,100 Nautica Enterprises, Inc.+ 466,838
20,200 Tiffany & Co. 800,425
12,600 Tommy Hilfiger Corp.+ 500,850
- --------------------------------------------------------------------------------
5,909,800
- --------------------------------------------------------------------------------
Technology - Computer Software -- 3.5%
63,600 BMC Software, Inc.+ 2,750,700
16,300 CHS Electronics, Inc.+ 309,700
31,225 Cadence Design Systems, Inc.+ 999,200
8,400 Microsoft Corp.+ 1,020,600
- --------------------------------------------------------------------------------
5,080,200
- --------------------------------------------------------------------------------
Technology - Computers & Office Equipment -- 5.7%
21,700 Compaq Computer Corp.+ 1,852,637
8,400 Dell Computer Corp.+ 702,975
9,800 Gateway 2000 Inc.+ 537,775
5,200 International Business Machine Corp.+ 835,900
12,100 Lear Corp.+ 432,575
15,100 Sanmina Corp.+ 755,000
18,300 SCI Systems Inc.+ 1,130,025
44,300 Sun Microsystems, Inc.+ 1,276,394
30,100 US Office Products Co.+ 767,550
- --------------------------------------------------------------------------------
8,290,831
- --------------------------------------------------------------------------------
Technology - Semiconductors -- 4.7%
16,100 Altera Corp.+ 797,956
17,466 Analog Devices, Inc.+ 467,215
13,600 BMC Industries Inc. 394,400
12,500 Intel Corp. 1,914,063
27,200 LSI Logic Corp.+ 1,040,400
13,700 Linear Technology Co. 688,425
11,400 Micron Technology Inc.+ 401,850
20,200 National Semiconductor Corp.+ 505,000
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
================================================================================
Schedules of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE PORTFOLIO
SHARES SECURITY VALUE
================================================================================
<C> <S> <C>
Technology - Semiconductors -- 4.7% (continued)
6,000 Texas Instruments Inc. $ 535,500
- --------------------------------------------------------------------------------
6,744,809
- --------------------------------------------------------------------------------
Technology - Telecommunications Equipment -- 3.5%
32,100 ADC Telecommunications Inc.+ 838,612
31,200 Aspect Telecommunications Corp.+ 553,800
12,600 Lucent Technologies Inc. 744,975
10,000 Nokia Corp. ADR 646,250
17,700 PairGain Technologies, Inc.+ 460,200
49,800 Scientific-Atlanta Inc.+ 796,800
25,800 Tellabs, Inc.+ 1,028,775
- --------------------------------------------------------------------------------
5,069,412
- --------------------------------------------------------------------------------
Tobacco -- 4.4%
161,400 Philip Morris Cos., Inc. 6,355,125
- --------------------------------------------------------------------------------
Utilities - Telephone -- 1.2%
13,800 Cincinnati Bell, Inc. 772,800
37,900 WorldCom, Inc.+ 909,600
- --------------------------------------------------------------------------------
1,682,400
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $111,809,119) 130,623,322
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 9.5%
$1,150,000 U.S. Treasury Bill, 4.850% due 5/1/97 1,150,000
1,895,000 U.S. Treasury Bill, 4.890% due 5/8/97 1,893,198
130,000 U.S. Treasury Bill, 4.730% due 5/22/97 129,641
615,000 U.S. Treasury Bill, 4.980% due 5/22/97 613,213
1,400,000 U.S. Treasury Bill, 5.080% due 5/29/97 1,394,468
820,000 U.S. Treasury Bill, 5.000% due 6/12/97 815,217
1,330,000 U.S. Treasury Bill, 4.940% due 6/26/97 1,319,780
5,720,000 U.S. Treasury Bill, 5.035% due 6/26/97 5,675,200
290,000 U.S. Treasury Bill, 5.060% due 6/26/97 287,717
450,000 U.S. Treasury Bill, 5.150% due 6/26/97 444,593
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost-- $13,723,027) 13,723,027
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $125,532,146*) $144,346,349
================================================================================
</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.
23
<PAGE>
================================================================================
Statements of Assets and Liabilities (unaudited) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
Van Kampen
Smith Barney American
Income Alliance Capital
and Growth Growth Enterprise
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value
(Cost -- $183,286,191, $320,986,425
and $125,532,146, respectively) $207,399,438 $366,846,535 $144,346,349
Cash 662 18,541 4,738
Receivable for securities sold -- -- 1,633,919
Dividends and interest receivable 218,507 359,322 83,298
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 207,618,607 367,224,398 146,068,304
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 1,229,220 1,624,719 9,207,188
Management fees payable 119,952 226,611 256,635
Accrued expenses 36,006 55,418 39,386
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,385,178 1,906,748 9,503,209
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $206,233,429 $365,317,650 $136,565,095
====================================================================================================================================
NET ASSETS:
Par value of capital shares $ 128 $ 226 $ 82
Capital paid in excess of par value 172,358,650 315,770,917 112,878,254
Undistributed net investment income 1,981,788 542,109 286,110
Accumulated net realized gain on
security transactions 7,779,616 3,144,288 4,586,446
Net unrealized appreciation of investments 24,113,247 45,860,110 18,814,203
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $206,233,429 $365,317,650 $136,565,095
====================================================================================================================================
Shares Outstanding 12,761,908 22,614,192 8,238,242
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value $16.16 $16.15 $16.58
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
================================================================================
Statements of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997
Van Kampen
Smith Barney American
Income Alliance Capital
and Growth Growth Enterprise
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,256,029 $ 1,568,213 $ 599,208
Interest 329,450 431,765 204,042
Less: Foreign withholding tax -- (9,822) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 2,585,479 1,990,156 803,250
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 559,628 1,365,678 428,938
Registration fees 13,144 -- --
Audit and legal 8,444 8,670 7,439
Shareholder communications 5,935 14,712 5,455
Directors' fees 4,781 8,178 3,224
Shareholder and system servicing fees 3,817 2,823 3,075
Custody 3,522 14,105 17,648
Other 2,226 1,173 1,984
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 601,497 1,415,339 467,763
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1,983,982 574,817 335,487
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 47,464,687 98,978,173 48,394,843
Cost of securities sold 39,679,094 95,785,535 43,403,142
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain 7,785,593 3,192,638 4,991,701
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of period 16,161,270 43,237,671 15,381,147
End of period 24,113,247 45,860,110 18,814,203
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 7,951,977 2,622,439 3,433,056
- ------------------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments 15,737,570 5,815,077 8,424,757
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 17,721,552 $ 6,389,894 $ 8,760,244
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
Smith Barney Income and Growth Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,983,982 $ 2,046,618
Net realized gain 7,785,593 1,773,083
Increase in net unrealized appreciation 7,951,977 13,610,166
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 17,721,552 17,429,867
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,809,911) (735,738)
Net realized gains (1,779,060) (199,857)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (3,588,971) (935,595)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 51,102,949 82,911,406
Net asset value of shares issued
for reinvestment of dividends 3,588,971 935,595
Cost of shares reacquired (1,303,391) (992,481)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 53,388,529 82,854,520
- --------------------------------------------------------------------------------
Increase in Net Assets 67,521,110 99,348,792
NET ASSETS:
Beginning of period 138,712,319 39,363,527
- --------------------------------------------------------------------------------
End of period* $206,233,429 $138,712,319
================================================================================
* Includes undistributed net investment income of: $1,981,788 $1,807,717
================================================================================
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
Alliance Growth Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 574,817 $ 806,429
Net realized gain 3,192,638 11,897,595
Increase in net unrealized appreciation 2,622,439 34,972,974
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 6,389,894 47,676,998
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (386,436) (966,222)
Net realized gains (12,018,154) (3,357,984)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (12,404,590) (4,324,206)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 66,641,330 137,418,319
Net asset value of shares issued
for reinvestment of dividends 12,404,590 4,324,206
Cost of shares reacquired (2,309,460) (2,072,279)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 76,736,460 139,670,246
- --------------------------------------------------------------------------------
Increase in Net Assets 70,721,764 183,023,038
NET ASSETS:
Beginning of period 294,595,886 111,572,848
- --------------------------------------------------------------------------------
End of period* $365,317,650 $294,595,886
================================================================================
* Includes undistributed net investment income of: $542,109 $353,728
================================================================================
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
Van Kampen American Capital Enterprise Portfolio 1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 335,487 $ 367,123
Net realized gain (loss) 4,991,701 (286,655)
Increase in net unrealized appreciation 3,433,056 14,042,324
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 8,760,244 14,122,792
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (361,911) (141,540)
Net realized gains -- (1,367,253)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (361,911) (1,508,793)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 25,730,031 57,624,883
Net asset value of shares issued
for reinvestment of dividends 361,911 1,508,793
Cost of shares reacquired (1,616,309) (503,508)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 24,475,633 58,630,168
- --------------------------------------------------------------------------------
Increase in Net Assets 32,873,966 71,244,167
NET ASSETS:
Beginning of period 103,691,129 32,446,962
- --------------------------------------------------------------------------------
End of period* $136,565,095 $103,691,129
================================================================================
* Includes undistributed net investment income of: $286,110 $312,534
================================================================================
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Income and Growth, Alliance Growth and Van Kampen American
Capital Enterprise Portfolios ("Portfolio(s)") 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
semi-annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales price was reported and U.S. government
agencies and 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 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 Portfolios determine the
existence of a dividend declaration after exercising reasonable due diligence;
(e) interest income is recorded on an 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) 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 or expense amounts recorded and collected or paid are
adjusted when reported by the custodian bank; (i) the character of income and
gains to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. At 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 differences and income and gains available for distributions under
income tax regulations. Accordingly, a portion of undistributed net investment
29
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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; (j) the Portfolios intend to comply
with the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (k) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. 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. SBIG pays SBMFM a management fee calculated at an 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%, respectively, of
the average daily net assets of each Portfolio. 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 and are compensated for such service 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.
TIA pays SBMFM, as sub-administrator, a fee calculated at an annual rate of
0.10% of the average daily net assets of AGP and VKACEP.
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 Portfolios.
30
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the six months ended April 30, 1997, SB received brokerage
commissions of $87,310.
All officers and one Director of the Fund are employees of SB.
3. INVESTMENTS
During the six months ended April 30, 1997, 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 $96,217,219 $173,487,878 $69,062,431
- --------------------------------------------------------------------------------
Sales 47,464,687 98,978,173 48,394,843
================================================================================
</TABLE>
At April 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
Van Kampen
Smith Barney American
Income and Alliance Capital
Growth Growth Enterprise
================================================================================
<S> <C> <C> <C>
Gross unrealized appreciation $26,302,813 $ 63,383,257 $20,986,090
Gross unrealized depreciation (2,189,566) (17,523,147) (2,171,887)
- --------------------------------------------------------------------------------
Net unrealized appreciation $24,113,247 $ 45,860,110 $18,814,203
================================================================================
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also
31
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
segregated up to the current market value of the futures contract. During the
period the futures contract is open, changes in the value of the contract are
recognized as unrealized gains or losses by "marking to market" on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments are received or made and recognized as assets due from
or liabilities due to broker, depending upon whether unrealized gains or losses
are incurred. When the contract is closed, the Portfolios record a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transactions and the Portfolios' basis in the contract. The Portfolios
except SBIG enter into such contracts to hedge a portion of their portfolios.
The Portfolios bear the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts) and the credit
risk should a counterparty fail to perform under such contracts.
As of April 30, 1997, AGP and VKACEP had no open futures contracts.
6. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Portfolios
except SBIG represent investments, which are marked-to-market daily and are
included in the schedule of investments. When a purchased option expires, the
Portfolios will realize a loss in the amount of the premium paid. When the
Portfolios enter into a closing sales transaction, the Portfolios will realize a
gain or loss depending on whether the proceeds from the closing sales
transaction are greater or less than the premium paid for the option. When the
Portfolios exercise a put option, they will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Portfolios exercise a call option, the
cost of the security which the Portfolios purchase upon exercise will be
increased by the premium originally paid.
As of April 30, 1997, AGP and VKACEP had no open purchased put or call
option contracts.
When the Portfolios write a covered call or put option, an amount equal to
the premium received by the Portfolios is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolios
realize a gain equal to the amount of the premium received. When the Portfolios
enter into a closing purchase transaction, the Portfolios realize a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
eliminated. When a
32
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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 Portfolios enter into options for hedging purposes. The
risk in writing a covered call option is that the Portfolios give up the
opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a put option is that the
Portfolios are exposed to the risk of a loss if the market price of the
underlying security declines.
During the period ended April 30, 1997, the Portfolios did not write any
options.
7. LENDING OF PORTFOLIO SECURITIES
The Portfolios except VKACEP have an agreement with their custodian whereby
the custodian may lend securities owned by the Portfolios to brokers, dealers
and other financial organizations, and receives a lender's fee, which is shared
60% by the Portfolios and 40% by the custodian. Fees earned by the Portfolios on
securities lending are recorded as interest income. Loans of securities by the
Portfolios are collateralized by cash, U.S. government securities or high
quality money market instruments that are maintained at all times in an amount
at least equal to the current market value of the loaned securities, plus a
margin which may vary between 2% and 5% depending on the type of securities
loaned. The custodian establishes and maintains the collateral in segregated
accounts. The Portfolios maintain exposure for the risk of any losses in the
investment of amounts received as collateral.
As of April 30, 1997, there were no securities on loan.
8. CAPITAL SHARES
At April 30, 1997, 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.
33
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
================================================================================
<S> <C> <C>
Smith Barney Income and Growth
Shares sold 3,261,656 6,099,448
Shares issued on reinvestment 235,342 72,831
Shares redeemed (83,568) (71,100)
- --------------------------------------------------------------------------------
Net Increase 3,413,430 6,101,179
================================================================================
Alliance Growth
Shares sold 3,950,488 9,488,140
Shares issued on reinvestment 734,869 322,568
Shares redeemed (143,673) (142,507)
- --------------------------------------------------------------------------------
Net Increase 4,541,684 9,668,201
================================================================================
Van Kampen American Capital Enterprise
Shares sold 1,569,601 4,145,450
Shares issued on reinvestment 22,619 117,704
Shares redeemed (98,675) (35,328)
- --------------------------------------------------------------------------------
Net Increase 1,493,545 4,227,826
================================================================================
</TABLE>
9. 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.
34
<PAGE>
================================================================================
Financial Highlights
================================================================================
<TABLE>
<CAPTION>
For a share of capital stock outstanding throughout each period:
Smith Barney Income and Growth Portfolio 1997(1) 1996 1995 1994(2)
====================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $14.84 $12.12 $10.14 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.14 0.32 0.28 0.11
Net realized and unrealized gain 1.53 2.62 1.76 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.67 2.94 2.04 0.14
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.18) (0.17) (0.06) --
Net realized gains (0.17) (0.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.35) (0.22) (0.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.16 $14.84 $12.12 $10.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 11.39%++ 24.55% 20.21% 1.40%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $206,233 $138,712 $39,364 $6,377
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 0.70%+ 0.73% 0.73% 0.73%+
Net investment income 2.30+ 2.35 2.70 2.82+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 29% 32% 38% 2%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (4) $0.06 $0.06 $0.07 --
====================================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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 $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>
(4) 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)
================================================================================
<TABLE>
<CAPTION>
For a share of capital stock outstanding throughout each period:
Alliance Growth Portfolio 1997(1) 1996 1995 1994(2)
====================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.30 $13.28 $10.65 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.02 0.04 0.14 0.06
Net realized and unrealized gain 0.47 3.39 2.61 0.59
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.49 3.43 2.75 0.65
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.02) (0.09) (0.02) --
Net realized gains (0.62) (0.32) (0.10) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.41) (0.12) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.15 $16.30 $13.28 $10.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 2.85%++ 26.55% 26.18% 6.50%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $365,318 $294,596 $111,573 $17,086
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 0.83%+ 0.87% 0.90% 0.88%+
Net investment income 0.34+ 0.39 1.24 1.47+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 29% 88% 78% 37%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (4) $0.05 $0.05 $0.06 --
====================================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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 $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>
(4) 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.
36
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
<TABLE>
<CAPTION>
For a share of capital stock outstanding throughout each period:
Van Kampen American
Capital Enterprise Portfolio 1997(1) 1996 1995 1994(2)
====================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.37 $12.89 $10.38 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.04 0.05 0.03 0.03
Net realized and unrealized gain 1.22 2.87 2.53 0.35
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.26 2.92 2.56 0.38
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.05) (0.04) (0.02) --
Net realized gains -- (0.40) (0.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.05) (0.44) (0.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.58 $15.37 $12.89 $10.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 8.21%++ 23.35% 24.74% 3.80%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $136,565 $103,691 $32,447 $5,734
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 0.77%+ 0.83% 0.88% 0.84%+
Net investment income 0.55+ 0.53 0.65 0.79+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 112% 180% 55%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (4) $0.06 $0.06 $0.05 --
====================================================================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(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 $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>
(4) 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.
37
<PAGE>
Travelers Series SMITH BARNEY
Fund Inc. ------------
A Member of TravelersGroup[LOGO]
Directors Investment Managers
Victor K. Atkins Smith Barney Mutual Funds
A.E. Cohen Management Inc. and
Robert A. Frankel Travelers Investment Adviser, Inc.
Rainer Greeven
Susan M. Heilbron Distributor
Heath B. McLendon, Chairman Smith Barney Inc.
James M. Shuart
Custodian
Officers PNC Bank, N.A.
Heath B. McLendon
Chief Executive Officer Annuity Administration
Travelers Annuity Investor Services
Lewis E. Daidone 5 State House Square
Senior Vice President and Treasurer 1 Tower Square
Hartford, CT 06183
John C. Bianchi
Vice President This report is submitted for the general
information of the shareholders of
James B. Conheady Travelers Series Fund Inc. It is not
Vice President authorized for distribution to prospective
investors unless accompanied or
Martin Hanley preceded by a current Prospectus for the
Vice President Fund, which contains information
concerning the Fund's investment
Jeffrey J. Russell policies and expenses as well as other
Vice President pertinent information.
Bruce D. Sargent
Vice President Travelers Series Fund Inc.
388 Greenwich Street
Phyllis Zahorodny New York, New York 10013
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
IN0801 6/97
SEMI-ANNUAL REPORT
TRAVELERS SERIES FUND INC.
AIM CAPITAL
APPRECIATION
PORTFOLIO
April 30, 1997
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
================================================================================
AIM CAPITAL APPRECIATION PORTFOLIO
================================================================================
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report of the Travelers Series Fund
Inc. - AIM Capital Appreciation Portfolio covering the period ended April 30,
1997. In this report, we summarize the period's prevailing economic and market
conditions and outline our portfolio strategy. A detailed summary of performance
and current holdings can be found in the appropriate sections that follow.
PORTFOLIO PERFORMANCE UPDATE
Since last year, large-company stocks have continued to outperform smaller-
company stocks. The AIM Capital Appreciation Portfolio was bucking a market that
continued to dote on large-company stocks. For the six months covered by this
report, the Portfolio's total return was -1.76% versus the Lipper Mid-Cap Fund
Index* total return of -1.78% over the same period. During the six months ended
April 30, 1997, the Standard & Poor's 500 Composite Stock Index** generated a
total return of 14.3%. In contrast, the Standard & Poor's Midcap 400 Index***
posted a total return of 6.4% and the Nasdaq Composite Index**** had a total
return of 4.5%.
MARKET RECAP
During the reporting period, three factors shaped a difficult market environment
for the AIM Capital Appreciation Portfolio:
1. The strong performance of large-cap stocks
Market volatility, uneasiness about earnings trends and uncertainty about
economic trends have driven many investors to the relative safety and
liquidity of the stocks of big, predictable companies. It's a phenomenon
often termed a "flight to quality." Historically, small-cap stocks have
offered excellent returns for investors, but small-cap stocks tend to be more
volatile than the stocks of most large, better-known corporations.
- ------------
*The unmanaged Lipper Mid-Cap Fund Index represents an average of the
performance of mid-capitalization growth funds tracked by Lipper Analytical
Services, Inc., a major fund tracking organization.
**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 Standard & Poor's Midcap 400 (S&P 400) is an unmanaged index made up of
the common stocks of approximately 400 mid-capitalization companies.
****The Nasdaq Composite Index is a group of more than 4,500 unmanaged over-the-
counter securities widely regarded by investors to be representative of the
small- and mid-sized company stock universe.
1
<PAGE>
2. The narrowness of the stock market rise
The performance of the major market indices has been driven by a
comparatively few stocks. For example, during 1996 four stocks -- Microsoft,
Intel, Cisco and Oracle -- accounted for 70% of the Nasdaq Index's return.
(Intel alone represented 36% of the Nasdaq Index.) Such a narrow market tends
to put a highly diversified fund such as the AIM Capital Appreciation
Portfolio at a disadvantage because of its relatively small holdings of each
stock.
3. Weakness in certain sectors where the Portfolio is heavily invested,
particularly technology
Technology and health care are two areas in which the Portfolio is
overweighted compared to the benchmark S&P 400 Index. As of April 30, 1997,
the technology sector represented about 25% of the Portfolio's holdings,
whereas technology is only about 10% of the S&P 400. The health care sector
represented about 15% of Portfolio holdings at the end of April, whereas
health care makes up roughly 10% of the S&P 400.
PORTFOLIO'S INVESTMENT STRATEGY
Despite recent difficulties and potential uncertainty in the short run, the
Portfolio's managers remain committed to technology as a high-growth sector over
the long term. Technology has been the chief engine of economic expansion in the
past few years, and, according to some estimates, generated up to one-third of
all economic growth recently. In the opinion of the managers, the technology
industry should remain the dominant economic force for the rest of the decade.
However, the managers have altered the composition of the Portfolio's technology
holdings during the reporting period. Six months ago, computer networking stocks
represented more than 5% of the Portfolio's net assets; that had been cut back
to less than 2% by the close of the reporting period. The networking field has
become more problematic as networking has become complex and the field
increasingly competitive. For example, the stock of networking device maker 3COM
was hard hit when this part of the technology sector fell out of favor.
Moreover, the Portfolio has migrated into other areas of the technology sector.
Holdings of semiconductor makers were up significantly during the six months
under review. These companies are chiefly makers of high-value, noncommodity,
specialized semiconductor products.
Health care stocks represent the Portfolio's second largest group of holdings.
These stocks have been volatile as this dynamic industry sorts out its leaders
2
<PAGE>
and laggards. The managers have emphasized three major health care areas where
there appears to be the attractive potential for earnings growth: hospitals
(which are benefiting from ongoing consolidation efforts); assisted living
facilities (because of their appeal to the elderly); and health maintenance
organizations (HMOs) as these organizations continue to lead the efficiency
drive in the industry and have recently improved their pricing structures.
The managers believe that when investor sentiment toward the technology and
health care sectors becomes more favorable, the Portfolio's overweighted
positions in these industries will be a decided advantage and should have a
significantly positive impact on performance.
MARKET OUTLOOK
In the U.S., the economic fundamentals appear to be in place: moderate inflation
(which dampens expectations of rising interest rates); an economy that continues
to grow at a very healthy clip; and corporate earnings that have outstripped
most analysts' forecasts for a record 17 quarters in a row.
After two extraordinary years in 1995 and 1996, the consensus expectation is for
market performance to be closer to its historical norm of 9% or 10% total
returns per year. Investors need to remember that 9% to 10% total returns per
year from equities are substantial returns and well above the prevailing annual
rate of inflation of about 3%. It's just that these historical returns may seem
slim to many investors when compared to the recent past.
In closing, the Portfolio's managers remain confident about select small- and
mid-sized company stocks. Many of their prices have been flat or have been
pressured lower without regard for the higher potential for earnings growth
projected by many analysts. That means that the AIM Capital Appreciation
Portfolio is able to make stock selections as prices for many attractive
companies are near their lowest for the year. In comparison, the prices for
stocks in many large companies are at record levels despite slower projected
growth rates for future earnings. When current concerns about the direction of
the economy and interest rates subside, the market should return its valuation
focus to growth potential -- a boost for stocks in faster-growing small- and
mid-sized companies.
In fact, just after the reporting period drew to a close, the market recovered
from the 9.8% decline it registered from mid-March through the middle of April
and for the first time in a long time the stocks of smaller companies
participated in the rally. While it is too early to declare that the corner has
been turned, it is possible that the narrow market has begun to broaden.
3
<PAGE>
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
May 15, 1997
4
<PAGE>
================================================================================
Historical Performance
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns+
================================================================================
<S> <C> <C> <C> <C> <C>
4/30/97 $ 10.76 $ 10.56 $ 0.01 $ 0.00 (1.76)%++
- --------------------------------------------------------------------------------
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 $ 0.02 $ 0.00
================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
================================================================================
Average Annual Total Return+
================================================================================
Six Months Ended 4/30/97++ (1.76)%
- --------------------------------------------------------------------------------
Year Ended 4/30/97 (1.21)
- --------------------------------------------------------------------------------
10/10/95* through 4/30/97 3.70
================================================================================
================================================================================
Cumulative Total Return+
================================================================================
10/10/95* through 4/30/97 5.82%
================================================================================
+ 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.
5
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Shares of the
AIM Capital Appreciation Portfolio vs. Lipper Midcap Index+
- --------------------------------------------------------------------------------
October 1995 -- April 1997
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
AIM CAPITAL LIPPER
Measurement period APPRECIATION MIDCAP
(Fiscal year Covered) PORTFOLIO 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
10/96 $ 10,771 $ 11,836
4/30/97 $ 10,582 $ 11,628
</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
April 30, 1997. 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.
6
<PAGE>
================================================================================
Schedule of Investments (unaudited) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 82.1%
================================================================================
Advertising -- 0.0%
2,400 True North Communications, Inc. $ 45,900
- --------------------------------------------------------------------------------
Banking-- 1.7%
10,200 Bank of Boston Corp. 742,050
20,300 Capital One Financial Corp. 733,337
24,000 MBNA Corp. 792,000
4,600 Washington Mutual Inc.* 227,125
- --------------------------------------------------------------------------------
2,494,512
- --------------------------------------------------------------------------------
Biotechnology -- 0.2%
7,800 Biogen Inc. 249,600
- --------------------------------------------------------------------------------
Broadcasting -- 0.3%
4,300 American Radio Systems Corp.* 125,775
18,000 CanWest Global Communication Corp. 240,750
5,000 Chancellor Broadcasting Corp., Class A Shares* 140,000
- --------------------------------------------------------------------------------
506,525
- --------------------------------------------------------------------------------
Commercial Services -- 1.3%
3,900 Equity Corp. International 83,850
6,800 Paychex Inc. 318,325
10,150 PMT Services Inc. 120,531
38,400 Service Corp. International 1,315,200
- --------------------------------------------------------------------------------
1,837,906
- --------------------------------------------------------------------------------
Communications-Equipment and Software -- 0.3%
9,000 DSP Communications Inc. 71,437
5,500 Gartner Group Inc., Class A Shares 144,375
7,077 Mark IV Industries Inc. 164,540
3,000 Storage Technology Corp. 105,375
- --------------------------------------------------------------------------------
485,727
- --------------------------------------------------------------------------------
Computers -- 6.3%
18,400 Adaptec Inc.* 680,800
4,000 Bisys Group Inc.* 128,000
23,500 Cabletron Systems Inc.* 810,750
14,700 Compaq Computer Corp.* 1,255,012
5,200 Computer Science Corp.* 325,000
3,400 CSG Systems International Inc. 60,350
18,400 Dell Computer Corp. 1,539,850
23,600 EMC Corp. 858,450
5,500 Gateway 2000 Inc. 301,813
7,400 GTech Holdings Corp.* 227,550
9,846 HBO & Co. 526,761
24,000 International Game Technology 381,000
15,500 Micron Electronics Inc. 315,812
46,600 Sun Microsystems Inc.* 1,342,663
16,400 Tech Data Corp. 401,800
- --------------------------------------------------------------------------------
9,155,611
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Computer Software -- 8.8%
15,300 Adobe Systems Inc. $ 598,612
11,300 Affiliated Computer Services, Inc., Class A
Shares 293,800
14,100 Baan Co., N.V.* 757,875
5,000 BDM International Inc. 116,250
21,800 BMC Software Inc. 942,850
22,175 Cadence Design Systems Inc.* 709,600
6,750 Computer Associates International Inc. 351,000
20,200 Compuware Corp.* 762,550
9,100 DST Systems Inc.* 258,212
8,800 Electronics Arts Inc.* 212,300
3,600 Electronics for Imaging, Inc. 141,300
9,100 First Data Corp. 313,950
3,000 HPR Inc. 42,375
4,000 IDX Systems Corp. 119,000
12,325 McAfee Associates Inc.* 687,119
13,200 Microsoft Corp.* 1,603,800
8,300 National Data Corp. 311,250
24,700 Network General Corp.* 339,625
17,750 Oracle Systems Corp.* 705,563
26,000 Parametric Technologies Corp.* 1,176,500
15,500 Physician Computer Network, Inc.* 82,344
24,600 Reynolds & Reynolds Co., Class A Shares 510,450
21,285 Sterling Commerce Inc.* 550,749
4,700 Sterling Software Inc.* 143,350
4,600 Sungard Data Systems Inc. 204,125
21,900 Synopsys Inc.* 698,063
2,700 Technomatrix Technology Inc. 69,187
4,650 Wind River Systems 106,950
- --------------------------------------------------------------------------------
12,808,749
- --------------------------------------------------------------------------------
Consumer/Commercial Services -- 1.2%
9,837 Accustaff Inc.* 179,525
3,500 Central Garden & Pet Co. 69,782
9,800 Corning Inc. 472,850
8,850 CUC International Inc.* 186,956
7,750 Stewart Enterprises Inc., Class A Shares 255,750
9,300 Symbol Technologies Inc. 301,087
4,100 Tyco International Ltd. 250,100
- --------------------------------------------------------------------------------
1,716,050
- --------------------------------------------------------------------------------
Distribution -- 0.2%
15,700 Ingram Micro Inc., Class A Shares 357,175
- --------------------------------------------------------------------------------
Diversified -- 0.2%
4,700 Raychem Corp. 303,150
- --------------------------------------------------------------------------------
Electrical Equipment -- 0.1%
5,000 Methode Electronics Inc., Class A Shares 70,625
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
8
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Electronics -- 3.4%
18,400 Altera Corp.* $ 911,950
2,500 Avnet Inc. 152,188
9,600 Hewlett-Packard Co. 504,000
18,000 KLA Instruments Corp. 801,000
12,000 Motorola Inc. 687,000
3,000 Solectron Corp.* 172,124
6,500 Tencor Instruments 288,438
20,700 Teradyne Inc. 677,925
8,300 Texas Instruments Inc. 740,775
- --------------------------------------------------------------------------------
4,935,400
- --------------------------------------------------------------------------------
Electronics-Semiconductors and Components -- 5.5%
12,700 Advanced Micro Devices, Inc. 539,750
11,000 Analog Devices, Inc. 294,250
15,700 Applied Materials, Inc. 861,537
10,000 Atmel Corp. 248,750
5,600 Berg Electronics Corp.* 168,000
5,600 BMC Industries Inc. 162,400
2,000 Intel Corp. 306,250
17,800 LSI Logic Corp. 680,850
15,600 Linear Technology Corp. 783,900
14,500 Maxim Integrated Products, Inc. 766,688
10,300 Micron Technology Inc. 363,075
1,500 Molex Inc. 43,500
26,500 National Semiconductor Corp. 662,500
5,700 Novellus Systems Inc. 329,175
8,800 Perkin-Elmer Corp. 639,100
2,500 SCI Systems Inc.* 154,375
4,500 Vitesse Semiconductors Co.* 141,750
17,900 Xilinx Inc. 877,100
- --------------------------------------------------------------------------------
8,022,950
- --------------------------------------------------------------------------------
Entertainment and Leisure Time -- 2.2%
20,000 Choice Hotels International Inc. 280,000
13,500 Circus Circus Enterprise Inc. 325,688
7,800 Doubletree Corp.* 327,600
9,000 HFS Inc.* 533,250
19,100 Lowes Cos. Inc. 725,800
10,800 MGM Grand Inc. 364,500
6,900 Promus Hotel Corp.* 243,225
6,300 Regal Cinemas Inc. 171,675
4,600 Speedway Motorsports Inc. 96,025
2,700 Sun International Hotel Ltd. 82,012
- --------------------------------------------------------------------------------
3,149,775
- --------------------------------------------------------------------------------
Fertilizers -- 0.2%
8,000 IMC Global Inc. 295,000
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Financial Services -- 3.6%
10,950 Aames Financial Corp.* $ 168,356
6,200 American Express Co. 408,425
9,500 Capmac Holdings Inc. 247,000
24,300 Concord EFS Inc. 479,925
12,600 Credit Acceptance Corp.* 136,238
4,800 Equifax Inc. 138,000
25,700 Green Tree Financial Corp. 761,362
7,200 Household International Inc. 633,600
11,300 Imperial Credit Industries, Inc.* 164,556
11,000 MGIC Investment Corp. 893,750
3,450 Southern Pacific Funding Corp. 36,656
4,500 Student Loan Marketing Association 532,125
6,900 SunAmerica, Inc. 317,400
17,100 The Money Store Inc. 369,788
- --------------------------------------------------------------------------------
5,287,181
- --------------------------------------------------------------------------------
Hospital Management -- 4.0%
7,850 American Homepatient Inc. 151,113
23,700 Cardinal Health Inc. 1,262,025
6,900 Compdent Corp. 111,263
11,200 FPA Medical Management Inc. 182,000
22,000 Humana Inc. 478,500
7,500 Medpartners/Mullikin Inc. 136,875
3,600 Orthodontic Centers of America, Inc. 43,200
3,400 Pacificare Health Systems Inc., Class B Shares 272,850
53,160 Tenet Healthcare Corp. 1,382,160
14,000 United Healthcare Corp. 680,750
14,300 Universal Health Services Inc., Class B Shares 541,612
13,000 Wellpoint Health Networks, Inc. 549,250
- --------------------------------------------------------------------------------
5,791,598
- --------------------------------------------------------------------------------
Hospital Related -- 0.1%
2,000 Curative Health Services, Inc.* 47,250
2,300 Rural/Metro Corp. 66,125
- --------------------------------------------------------------------------------
113,375
- --------------------------------------------------------------------------------
Insurance -- 0.5%
10,000 Conseco Inc. 413,750
5,700 Providian Corp. 329,175
- --------------------------------------------------------------------------------
742,925
- --------------------------------------------------------------------------------
Manufacturing -- 3.6%
3,800 Ametek Inc. 85,025
17,600 Harley-Davidson Inc. 695,200
7,800 Hillenbrand Industries, Inc. 335,400
11,300 Lam Research Corp. 327,700
9,300 Leggett & Platt Inc. 323,175
24,550 Microchip Technology Inc. 767,188
See Notes to Financial Statements.
10
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Manufacturing -- 3.6% (continued)
6,700 Oakley Inc.* $ 68,675
5,300 Pentair Inc. 158,337
2,800 Potash Corp. of Saskatchewan 215,250
5,500 Precision Castparts Corp. 294,250
1,400 SGS - Thomson Microelectronics N.V. 109,725
11,000 Smith International Inc. 521,125
6,600 Steris Corp. 216,150
13,500 Thermo Electron Corp. 465,750
6,400 Thermo Instrument Systems, Inc. 200,800
10,400 Unifi, Inc. 322,400
5,000 U.S. Industries Inc.* 180,625
- --------------------------------------------------------------------------------
5,286,775
- --------------------------------------------------------------------------------
Medical Equipment and Information Systems -- 0.7%
5,600 Guidant Corp. 382,200
8,100 Invacare Corp. 160,988
12,000 U.S. Surgical Corp. 411,000
- --------------------------------------------------------------------------------
954,188
- --------------------------------------------------------------------------------
Medical Products and Supplies -- 1.7%
8,600 Boston Scientific Corp. 414,950
5,800 Dentsply International Inc. 287,100
11,000 Gulf South Medical Supply Inc. 156,750
36,500 Omnicare Inc. 889,687
20,900 Sybron International Corp. 694,925
- --------------------------------------------------------------------------------
2,443,412
- --------------------------------------------------------------------------------
Medical Services -- 6.3%
10,000 Amgen Inc. 588,750
28,100 Columbia HCA Healthcare Corp. 983,500
7,100 Express Scripts Inc., Class A Shares 260,925
6,900 Genesis Health Ventures Inc.* 206,138
18,750 Health Care & Retirement Inc. 592,969
37,750 Health Management Associates Inc., Class A Shares 1,009,813
5,000 Healthcare Compare Corp. 216,875
67,200 Healthsouth Corp. 1,327,200
11,750 Jones Medical Industries Inc. 414,187
10,500 Lincare Holdings Inc.* 412,125
8,100 Multicare Cos. Inc. 150,862
3,000 Occusystems Inc.* 61,875
17,700 Oxford Health Plans, Inc. 1,165,988
11,450 Phycor Inc. 304,856
8,100 Physician Sales & Service, Inc. 117,450
10,600 Quorum Health Group Inc. 329,925
10,500 Total Renal Care Holdings, Inc. 337,312
2,000 Transition Systems Inc. 24,000
14,000 Vencor Inc. 582,750
- --------------------------------------------------------------------------------
9,087,500
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Miscellaneous -- 0.3%
7,700 Fiserv Inc. $ 290,675
13,000 Sybase Inc. 191,750
- --------------------------------------------------------------------------------
482,425
- --------------------------------------------------------------------------------
Office Equipment, Products and Supplies -- 1.9%
6,200 Avery Dennison Corp. 227,850
20,000 Danka Business Systems Corp. 611,250
6,300 Global Direct Mail Corp.* 111,038
12,000 Security Dynamics Tech Inc. 303,000
42,050 Staples Inc.* 756,900
26,000 Viking Office Products Inc.* 354,250
6,500 Xerox Corp. 399,750
- --------------------------------------------------------------------------------
2,764,038
- --------------------------------------------------------------------------------
Oil and Gas -- 3.6%
5,800 BJ Services Co. 273,325
18,300 Baker Hughes Inc. 631,350
7,700 Burlington Resources Inc. 326,288
11,700 Camco International Corp. 519,188
6,300 Cooper Cameron Corp. 448,875
20,600 Elan Corp. PLC ADR 700,400
4,000 Energy Ventures Inc. 267,500
10,700 Ensco International Inc.* 508,250
25,000 Global Marine Inc.* 503,125
5,000 Pennzoil Co. 246,250
11,100 Pride Petroleum Services Inc. 191,475
14,000 Rowan Cos., Inc.* 252,000
16,500 Santa Fe Energy Resources, Inc. 233,062
3,200 Veritas DGC Inc. 61,600
- --------------------------------------------------------------------------------
5,162,688
- --------------------------------------------------------------------------------
Oil and Gas Drilling -- 1.5%
9,100 Diamond Offshore Drilling Inc. 585,812
10,000 Falcon Drilling Co. Inc. 382,500
6,000 Halliburton Co. 423,750
31,600 Marine Drilling Co. Inc. 497,700
12,000 Nabors Industries Inc. 225,000
- --------------------------------------------------------------------------------
2,114,762
- --------------------------------------------------------------------------------
Pharmaceuticals -- 0.8%
8,500 Dura Pharmaceuticals, Inc.* 246,500
6,000 Forest Labs Inc. 204,750
3,000 Parexel International Corp.* 84,000
9,400 Quintiles Transnational Corp.* 478,225
2,600 Teva Pharmaceutical Corp.* 131,950
- --------------------------------------------------------------------------------
1,145,425
- --------------------------------------------------------------------------------
Publishing -- 0.1%
2,200 Times Mirror Co., Class A Shares 121,550
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
12
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Restaurants -- 1.9%
11,000 Apple South Inc.* $ 143,000
11,000 Applebees International Inc. 257,125
16,000 Cracker Barrel Old Country Store Inc. 428,000
12,600 Lonestar Steakhouse Inc.* 248,850
10,700 Outback Steakhouse Inc.* 209,987
8,800 Planet Hollywood International Inc.* 161,700
25,500 Safeway Inc.* 1,137,938
6,000 Starbucks Corp.* 179,250
- --------------------------------------------------------------------------------
2,765,850
- --------------------------------------------------------------------------------
Retail -- 11.1%
15,900 American Stores Co. 723,450
12,600 Bed Bath & Beyond Inc.* 344,925
11,550 CDW Computers Centers Inc. 554,400
35,700 Comp USA Inc.* 687,225
26,575 Consolidated Stores Corp.* 1,063,000
19,650 Covance Inc. 289,837
20,600 Dayton-Hudson Corp. 927,000
13,125 Dollar General Corp. 415,078
6,500 Dollar Tree Store Inc.* 256,750
8,400 Fred Meyer Inc.* 345,450
5,700 Gap Inc. 181,688
21,400 General Nutrition Cos. 460,100
5,700 Gucci Group NV 395,437
1,100 Home Depot, Inc. 63,800
14,200 Jones Apparel Group Inc. 592,850
8,300 Kohl's Corp.* 405,662
24,400 Kroger Co. 671,000
13,200 Liz Clairborne Inc. 597,300
12,800 Micro Warehouse Inc.* 220,800
17,400 Nautica Enterprises Inc.* 384,975
16,200 Nine West Group Inc.* 641,925
8,200 Pep Boys - Manny, Moe & Jack 267,525
10,000 Petco Animal Supplies Inc.* 213,750
19,400 PETsMART Inc.* 326,162
11,000 Quality Food Centers Inc. 441,375
10,400 Revco D.S. Inc. 452,400
10,200 Rexall Sundown Inc. 202,725
9,375 Rite Aid Corp. 431,250
9,200 Ross Stores Inc. 258,750
3,200 Saks Holdings, Inc. 61,200
8,200 The Finish Line, Class A Shares 84,563
15,650 The Men's Wearhouse, Inc. 389,294
16,150 The Sports Authority Inc.* 286,663
11,000 Tiffany & Co. 435,875
6,800 TJX Cos., Inc. 321,300
15,000 Tommy Hilfiger Corp.* 596,250
See Notes to Financial Statements.
13
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Retail -- 11.1% (continued)
24,400 Toys "R" Us Inc. $ 695,400
3,900 Williams-Sonoma Inc.* 120,900
6,250 Wolverine Worldwide Inc. 251,563
- --------------------------------------------------------------------------------
16,059,597
- --------------------------------------------------------------------------------
Telecommunications -- 5.5%
2,700 ACC Corp. 42,863
32,900 ADC Telecommunications Inc.* 859,513
24,525 Andrew Corp.* 606,993
13,800 Aspect Telecommunications Corp. 244,950
9,700 Billing Information Concepts 231,588
5,000 Cincinnati Bell Inc. 280,000
15,200 Clear Channel Communications, Inc. 737,200
25,000 Ericsson LM Telephone ADR 840,625
10,200 Jacor Communications Inc. 286,875
10,500 Lucent Technologies Inc. 620,813
22,000 Newbridge Networks Corp. 698,500
6,700 Northern Telecom Ltd. 486,587
6,500 Paxson Communications Corp. 65,000
5,000 Qualcomm Inc. 233,750
23,900 Tellabs Inc. 953,013
3,000 U.S. Long Distance Corp. 36,375
17,500 Varco International Inc. 402,500
15,800 Worldcom Inc. 379,200
- --------------------------------------------------------------------------------
8,006,345
- --------------------------------------------------------------------------------
Telecommunications Equipment -- 1.4%
4,100 ACT Networks Inc. 55,350
8,700 Ascend Communications Inc. 398,025
22,700 DSC Communications Corp. 462,512
12,600 Nokia Corp. ADR 814,275
13,000 Pairgain Technologies Inc. 338,000
- --------------------------------------------------------------------------------
2,068,162
- --------------------------------------------------------------------------------
Transportation-Miscellaneous -- 0.3%
4,500 Airnet Systems Inc.* 69,750
10,000 CNF Transportation Inc. 297,500
4,100 US Freightways Corp.* 110,700
- --------------------------------------------------------------------------------
477,950
- --------------------------------------------------------------------------------
Utilities -- 0.3%
6,500 AES Corp. 424,125
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
14
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
SHARES SECURITY VALUE
================================================================================
Waste Management -- 1.0%
17,100 United Waste Systems Inc. $ 560,025
14,000 US Filter Corp. 425,250
15,700 U.S.A. Waste Service Inc.* 529,876
- --------------------------------------------------------------------------------
1,515,151
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $111,551,243) 119,249,677
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
SHORT-TERM INVESTMENTS -- 17.9%
$ 4,065,000 U.S. Treasury Bill 5.01% due 6/26/97++ 4,033,320
2,635,000 U.S. Treasury Bill 5.08% due 6/26/97++ 2,614,178
7,013,000 U.S. Treasury Bill 5.19% due 6/26/97++ 6,956,381
12,355,000 Federal Home Loan Mortgage Corp.
Discount Notes 5.28% due 5/1/97 12,355,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $25,958,879) 25,958,879
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $137,510,122**) $145,208,556
================================================================================
* 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.
15
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost -- $111,551,243) $119,249,677
Short-term investments, at value (Cost -- $25,958,879) 25,958,879
Receivable for securities sold 994,980
Receivable from broker -- variation margin 43,500
Dividends receivable 27,433
- --------------------------------------------------------------------------------
Total Assets 146,274,469
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 539,244
Management fees payable 90,898
Accrued expenses 51,695
- --------------------------------------------------------------------------------
Total Liabilities 681,837
- --------------------------------------------------------------------------------
Total Net Assets $145,592,632
================================================================================
NET ASSETS:
Par value of capital shares $ 138
Capital paid in excess of par value 143,287,518
Undistributed net investment income 202,249
Accumulated net realized loss from
security transactions and futures contracts (5,398,909)
Net unrealized appreciation of investments
and futures contracts 7,501,636
- --------------------------------------------------------------------------------
Total Net Assets $145,592,632
================================================================================
Shares Outstanding 13,781,686
- --------------------------------------------------------------------------------
Net Asset Value $10.56
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
================================================================================
Statement of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED APRIL 30, 1997
INVESTMENT INCOME:
<S> <C>
Interest $ 543,690
Dividends (net of foreign withholding tax of $20,009) 246,400
- --------------------------------------------------------------------------------
Total Investment Income 790,090
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 538,905
Shareholder communications 13,740
Registration fees 10,000
Custody 9,421
Audit and legal 7,910
Shareholder and system servicing fees 2,809
Directors' fees 2,806
Other 1,486
Total Expenses 587,077
Net Investment Income 203,013
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (2,306,935)
Futures contracts 1,099,490
- --------------------------------------------------------------------------------
Net Realized Loss (1,207,445)
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of
Investments and Futures Contracts:
Beginning of period 10,245,486
End of period 7,501,636
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (2,743,850)
- --------------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (3,951,295)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (3,748,282)
================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996
1997 1996
==========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 203,013 $ 141,502
Net realized loss (1,207,445) (4,183,860)
Increase (decrease) in net unrealized appreciation (2,743,850) 10,255,923
- ------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (3,748,282) 6,213,565
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (128,125) (27,358)
- ------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (128,125) (27,358)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 37,565,592 100,074,364
Net asset value of shares issued for 128,125 27,358
reinvestment of dividends
Cost of shares reacquired (1,129,348) (1,465,966)
- ------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 36,564,369 98,635,756
- ------------------------------------------------------------------------------------------
Increase in Net Assets 32,687,962 104,821,963
NET ASSETS:
Beginning of period 112,904,670 8,082,707
- ------------------------------------------------------------------------------------------
End of period* $145,592,632 $112,904,670
==========================================================================================
* Includes undistributed net investment income of: $202,249 $127,361
==========================================================================================
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
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
semi-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 agencies
and 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, which approximates value; (d) interest income is
recorded on an 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 Portfolio determines the existence of a dividend declaration
after exercising reasonable due diligence; (f) gains or losses on the sale of
securities are calculated by using the specific identification method; (g) 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 or expense
amounts recorded and collected or paid are adjusted when reported by the
custodian; (h) 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 (i)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared.
19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (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 and is compensated for
such service at the annual rate of 0.375% of the Portfolio's average daily net
assets. TIA pays this fee to AIM on a monthly basis.
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"). TIA pays SBMFM, as sub-administrator, a fee calculated at an
annual rate of 0.10% of the Portfolio's average daily net assets.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended April 30, 1997, SB received brokerage commissions of $498.
All officers and one Director of the Fund are employees of SB.
3. INVESTMENTS
During the six months ended April 30, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $58,534,965
- --------------------------------------------------------------------------------
Sales 31,940,673
================================================================================
20
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
At April 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $15,260,277
Gross unrealized depreciation (7,561,843)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 7,698,434
================================================================================
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. LENDING OF PORTFOLIO SECURITIES
The Portfolio has an agreement with its custodian whereby the custodian may
lend securities owned by the Portfolio to brokers, dealers and other financial
organizations, and receives a lender's fee, which is shared 60% by the Portfolio
and 40% by the custodian. Fees earned by the Portfolio on securities lending are
recorded as interest income. Loans of securities by the Portfolio are
collateralized by cash, U.S. government securities or high quality money market
instruments that are maintained at all times in an amount at least equal to the
current market value of the loaned securities, plus a margin which may vary
between 2% and 5% depending on the type of securities loaned. The custodian
establishes and maintains the collateral in a segregated account. The Portfolio
maintains exposure for the risk of any losses on the investment of amounts
received as collateral.
As of April 30, 1997, there were no securities on loan.
6. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contract. During
the period the futures contract is open, changes in the value of the contract
are
21
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
recognized as unrealized gains or losses by "marking to market" on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments are received or made and recognized as assets due from
or liabilities due to broker, depending upon whether unrealized gains or losses
are incurred. When the contract is closed, the Portfolio records a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transactions and the Portfolio's basis in the contract. The 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.
At April 30, 1997, the Portfolio had the following open futures contracts:
<TABLE>
<CAPTION>
Expiration # of Basis Market Unrealized
Futures contracts to buy Month/Year Contracts Value Value Loss
======================================================================================
<S> <C> <C> <C> <C> <C>
S&P 500 Index 6/97 10 $ 4,065,148 $ 4,014,000 $ (51,148)
S&P 500 Index 6/97 8 3,257,400 3,211,200 (46,200)
S&P 500 Index 6/97 6 2,468,100 2,408,400 (59,700)
S&P 500 Index 6/97 5 2,046,750 2,007,000 (39,750)
- -------------------------------------------------------------------------------------
Total $11,837,398 $11,640,600 $(196,798)
=====================================================================================
</TABLE>
7. OPTIONS CONTRACTS
When a Portfolio writes a covered call option, an amount equal to the premium
received by the Portfolio is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Portfolio realizes a
gain equal to the amount of the premium received. When the Portfolio enters into
a closing purchase transaction, the Portfolio 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 written index options are exercised,
settlement is made in cash. The risk associated with purchasing options is
limited to the premium originally paid. The Portfolio enters into options for
hedging purposes. The risk in writing a covered call option is that the
Portfolio gives up the opportunity to participate in any increase in the price
of the underlying security beyond the exercise price.
During the period ended April 30, 1997, the Portfolio did not write any
covered call options.
22
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
8. CAPITAL SHARES
At April 30, 1997, 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:
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
========================================================================
Shares sold 3,385,319 9,823,048
Shares issued on reinvestment 11,595 2,850
Shares redeemed (106,007) (143,288)
- ------------------------------------------------------------------------
Net Increase 3,290,907 9,682,610
========================================================================
23
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1997(1) 1996(2) 1995(2)(3)
===============================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.76 $10.00 $10.00
- -----------------------------------------------------------------------------------------------
Income From Operations:
Net investment income(4) 0.01 0.02 0.02
Net realized and unrealized gain (loss) (0.20) 0.75 (0.02)
- -----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.19) 0.77 --
- -----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.01) (0.01) --
- -----------------------------------------------------------------------------------------------
Total Distributions (0.01) (0.01) --
- -----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.56 $10.76 $10.00
- -----------------------------------------------------------------------------------------------
Total Return (1.76)++ 7.71% 0.00%++
- -----------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $145,593 $112,905 $8,083
- -----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 0.87%+ 0.96 1.00%+
Net investment income 0.30+ 0.22 4.07+
- -----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 44% 6%
- -----------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.06 $0.06 $0.06
===============================================================================================
</TABLE>
(1) For the six months ended April 30, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from October 10, 1995 (commencement of operations) to October
31, 1995.
(4) The Manager waived all 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.
24
<PAGE>
Travelers Series
Fund Inc.
DIRECTORS
Victor K. Atkins
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
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
IN0806 6/97
