SECURITIES AND EXCHANGE COMMISSION
Chief Council
c/o MetLife, Inc.
One MetLife Plaza
27-01 Queens Plaza North
Long Island City, NY 11101
(Name and address of agent for service)
Date of reporting period: June 30, 2005
ITEM 1. | REPORT TO STOCKHOLDERS. |
The Travelers Series Trust: | |
Managed Allocation Series: | |
Conservative Portfolio | |
Moderate-Conservative Portfolio | |
Moderate Portfolio | |
Moderate-Aggressive Portfolio | |
Aggressive Portfolio |
The Travelers Insurance Company
Semi-Annual Report for The Travelers Series Trust
Letter from the Chairman | 1 | |
Fund Expenses | 3 | |
Schedules of Investments | 5 | |
Statements of Assets and Liabilities | 10 | |
Statements of Operations | 11 | |
Statements of Changes in Net Assets | 12 | |
Financial Highlights | 17 | |
Notes to Financial Statements | 22 | |
Factors Considered by the Independent Trustees in Approving the Investment Advisory and Subadvisory Agreements | 26 |
Dear Shareholder, The U.S. economy overcame a number of obstacles and continued to expand during the first six months of 2005. Rising interest rates, record high oil prices, and geopolitical issues threatened to send the economy into a “soft patch.” However, when all was said and done, first quarter 2005 gross domestic product (“GDP”)i growth was 3.8%, mirroring the solid gain that occurred during the fourth quarter of 2004. Given the overall strength of the economy, the Federal Reserve Board (“Fed”)ii continued to raise interest rates over the past six months in an attempt to ward off inflation. Following five rate hikes from June 2004 through December 2004, the Fed again increased its target for the federal funds rateiii in 0.25% increments four additional times since January. All told, the Fed’s nine rate hikes brought the target for the federal funds rate from 1.00% to 3.25%. Since the start of 2005, the U.S. stock market was relatively flat, with the S&P 500 Indexiv returning -0.81%. Stocks were weak early in the reporting period, as the issues discussed above caused investors to remain on the sidelines. Equities then rallied in the second quarter of 2005, as the economy appeared to be on solid footing and inflation was largely under control. Looking at the reporting period as a whole, mid-cap stocks generated superior returns, with the Russell Midcapv, Russell 1000vi, and Russell 2000vii Indexes returning 3.92%, 0.11%, and -1.25%, respectively. From a market style perspective, value-oriented stocks outperformed their growth counterparts. | R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer* |
Special Shareholder Notice
On January 31, 2005, Citigroup Inc. (“Citigroup”) announced that it had agreed to sell The Travelers Insurance Company and certain other domestic and international insurance businesses to MetLife Inc. (“MetLife”) pursuant to an acquisition agreement (“MetLife Transaction”). The sale included Travelers Asset Management International Company LLC (“TAMIC”), which serves as the investment advisor for the funds. The MetLife Transaction closed on July 1, 2005.
Information About Your Funds
As you may be aware, several issues in the mutual fund and variable annuity product industry have recently come under the scrutiny of federal and state regulators. The Travelers Insurance Company and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees, revenue sharing, producer compensation and other mutual fund and variable annuity product issues in connection with various inquiries and or investigations. The Travelers Insurance Company and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations.
Important information concerning the Funds and its sub-administrator with regards to recent regulatory developments is contained in the “Additional Information” note in the Notes to Financial Statements included in its report.
As always, thank you for your continued confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals.
Sincerely,
R. Jay Gerken, CFA
July 26, 2005
* | Mr. Gerken resigned as Chairman, President and Chief Executive Officer of the Funds when the MetLife Transaction closed on July 1, 2005. |
1
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of June 30, 2005 and are subject to change. Please refer to pages 5 through 9 for a list and percentage breakdown of the Fund’s holdings.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
ii | The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
iv | The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. |
v | The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index whose average market capitalization was approximately $4.7 billion as of 6/24/05. |
vi | The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. |
vii | The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. |
2
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on May 2, 2005 and held for the period ended June 30, 2005.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period.”
Based on Actual Total Return(1)
Expenses | ||||||||||||||||||||
Actual | Beginning | Ending | Annualized | Paid | ||||||||||||||||
Total | Account | Account | Expense | During the | ||||||||||||||||
Return(2) | Value | Value | Ratio | Period(3) | ||||||||||||||||
Conservative Portfolio | 2.20 | % | $ | 1,000.00 | $ | 1,022.00 | 0.35 | % | $ | 0.58 | ||||||||||
Moderate-Conservative Portfolio | 2.60 | 1,000.00 | 1,026.00 | 0.35 | 0.58 | |||||||||||||||
Moderate Portfolio | 3.00 | 1,000.00 | 1,030.00 | 0.35 | 0.58 | |||||||||||||||
Moderate-Aggressive Portfolio | 3.10 | 1,000.00 | 1,031.00 | 0.35 | 0.58 | |||||||||||||||
Aggressive Portfolio | 3.60 | 1,000.00 | 1,036.00 | 0.35 | 0.59 | |||||||||||||||
(1) | For the period May 2, 2005 (inception date) to June 30, 2005. |
(2) | Assumes reinvestment of 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. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. |
(3) | Expenses (net of fee waiver and/or expense reimbursement) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal period, then divided by 365. |
3
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Based on Hypothetical Total Return(1)
Hypothetical | Expenses | |||||||||||||||||||
Annualized | Beginning | Ending | Annualized | Paid | ||||||||||||||||
Total | Account | Account | Expense | During the | ||||||||||||||||
Return | Value | Value | Ratio | Period(2) | ||||||||||||||||
Conservative Portfolio | 5.00 | % | $ | 1,000.00 | $ | 1,007.64 | 0.35 | % | $ | 0.58 | ||||||||||
Moderate-Conservative Portfolio | 5.00 | 1,000.00 | 1,007.64 | 0.35 | 0.58 | |||||||||||||||
Moderate Portfolio | 5.00 | 1,000.00 | 1,007.64 | 0.35 | 0.58 | |||||||||||||||
Moderate-Aggressive Portfolio | 5.00 | 1,000.00 | 1,007.64 | 0.35 | 0.58 | |||||||||||||||
Aggressive Portfolio | 5.00 | 1,000.00 | 1,007.64 | 0.35 | 0.58 | |||||||||||||||
(1) | For the period May 2, 2005, (inception date) to June 30, 2005. |
(2) | Expenses (net of fee waiver and/or expense reimbursement) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal period, then divided by 365. |
4
Schedules of Investments (unaudited) | June 30, 2005 |
SHARES | DESCRIPTION | VALUE | ||||||||
INVESTMENTS IN UNDERLYING FUNDS — 100.0% | ||||||||||
Travelers Series Fund Inc.: | ||||||||||
2 | AIM Capital Appreciation Portfolio | $ | 19 | |||||||
25,306 | Pioneer Strategic Income Portfolio | 242,681 | ||||||||
333 | Strategic Equity Portfolio | 5,549 | ||||||||
942 | Van Kampen Enterprise Portfolio | 11,196 | ||||||||
Travelers Series Trust: | ||||||||||
1,698 | Capital Appreciation Fund | 118,014 | ||||||||
1,893 | Convertible Securities Portfolio | 22,542 | ||||||||
50 | Disciplined Mid Cap Stock Portfolio | 1,031 | ||||||||
5,044 | Equity Income Portfolio | 83,877 | ||||||||
6,510 | Federated High Yield Portfolio | 56,114 | ||||||||
1,750 | High Yield Bond Trust | 17,344 | ||||||||
567 | Large Cap Portfolio | 7,881 | ||||||||
374 | Mercury Large Cap Core Portfolio | 3,494 | ||||||||
243 | MFS Mid Cap Growth Portfolio | 1,821 | ||||||||
91 | MFS Value Portfolio | 1,136 | ||||||||
6,497 | Mondrian International Stock Portfolio | 72,958 | ||||||||
179,969 | Money Market Portfolio | 179,969 | ||||||||
4,153 | Pioneer Fund Portfolio | 49,382 | ||||||||
157 | Pioneer Mid Cap Value Portfolio | 1,670 | ||||||||
Style Focus Series: | ||||||||||
208 | Small Cap Growth Portfolio | 2,234 | ||||||||
780 | Small Cap Value Portfolio | 8,472 | ||||||||
45,173 | Travelers Quality Bond Portfolio | 506,845 | ||||||||
32,188 | U.S. Government Securities Portfolio | 432,601 | ||||||||
TOTAL INVESTMENTS — 100.0% (Cost — $1,803,797#) | 1,826,830 | |||||||||
Liabilities in Excess of Other Assets — 0.0% | (13 | ) | ||||||||
TOTAL NET ASSETS — 100.0% | $ | 1,826,817 | ||||||||
# | Aggregate cost for Federal income tax purposes is substantially the same. |
5
Schedules of Investments (unaudited) (continued) | June 30, 2005 |
Moderate-Conservative Portfolio
SHARES | DESCRIPTION | VALUE | ||||||||
INVESTMENTS IN UNDERLYING FUNDS — 100.0% | ||||||||||
Travelers Series Fund Inc.: | ||||||||||
212 | AIM Capital Appreciation Portfolio | $ | 2,215 | |||||||
23,176 | Pioneer Strategic Income Portfolio | 222,263 | ||||||||
1,269 | Strategic Equity Portfolio | 21,117 | ||||||||
2,409 | Van Kampen Enterprise Portfolio | 28,615 | ||||||||
Travelers Series Trust: | ||||||||||
2,553 | Capital Appreciation Fund | 177,446 | ||||||||
3,950 | Convertible Securities Portfolio | 47,044 | ||||||||
143 | Disciplined Mid Cap Stock Portfolio | 2,922 | ||||||||
7,884 | Equity Income Portfolio | 131,107 | ||||||||
5,813 | Federated High Yield Portfolio | 50,112 | ||||||||
1,324 | High Yield Bond Trust | 13,117 | ||||||||
5,281 | Large Cap Portfolio | 73,407 | ||||||||
917 | Mercury Large Cap Core Portfolio | 8,574 | ||||||||
488 | MFS Mid Cap Growth Portfolio | 3,663 | ||||||||
99 | MFS Value Portfolio | 1,230 | ||||||||
14,872 | Mondrian International Stock Portfolio | 167,008 | ||||||||
102,248 | Money Market Portfolio | 102,248 | ||||||||
16,973 | Pioneer Fund Portfolio | 201,808 | ||||||||
278 | Pioneer Mid Cap Value Portfolio | 2,951 | ||||||||
Style Focus Series: | ||||||||||
692 | Small Cap Growth Portfolio | 7,430 | ||||||||
1,200 | Small Cap Value Portfolio | 13,029 | ||||||||
35,875 | Travelers Quality Bond Portfolio | 402,518 | ||||||||
31,132 | U.S. Government Securities Portfolio | 418,416 | ||||||||
TOTAL INVESTMENTS — 100.0% (Cost — $2,067,326#) | 2,098,240 | |||||||||
Liabilities in Excess of Other Assets — 0.0% | (110 | ) | ||||||||
TOTAL NET ASSETS — 100.0% | $ | 2,098,130 | ||||||||
# | Aggregate cost for Federal income tax purposes is substantially the same. |
6
Schedules of Investments (unaudited) (continued) | June 30, 2005 |
Moderate Portfolio
SHARES | DESCRIPTION | VALUE | ||||||||
INVESTMENTS IN UNDERLYING FUNDS — 100.0% | ||||||||||
Travelers Series Fund Inc.: | ||||||||||
890 | AIM Capital Appreciation Portfolio | $ | 9,299 | |||||||
58,208 | Pioneer Strategic Income Portfolio | 558,214 | ||||||||
3,919 | Strategic Equity Portfolio | 65,217 | ||||||||
18,985 | Van Kampen Enterprise Portfolio | 225,545 | ||||||||
Travelers Series Trust: | ||||||||||
8,366 | Capital Appreciation Fund | 581,381 | ||||||||
13,661 | Convertible Securities Portfolio | 162,706 | ||||||||
190 | Disciplined Mid Cap Stock Portfolio | 3,884 | ||||||||
27,047 | Equity Income Portfolio | 449,786 | ||||||||
10,919 | Federated High Yield Portfolio | 94,120 | ||||||||
1,196 | High Yield Bond Trust | 11,855 | ||||||||
20,688 | Large Cap Portfolio | 287,559 | ||||||||
3,588 | Mercury Large Cap Core Portfolio | 33,544 | ||||||||
1,215 | MFS Mid Cap Growth Portfolio | 9,127 | ||||||||
850 | MFS Value Portfolio | 10,562 | ||||||||
56,098 | Mondrian International Stock Portfolio | 629,982 | ||||||||
261,637 | Money Market Portfolio | 261,637 | ||||||||
66,637 | Pioneer Fund Portfolio | 792,312 | ||||||||
117 | Pioneer Mid Cap Value Portfolio | 1,241 | ||||||||
Style Focus Series: | ||||||||||
2,485 | Small Cap Growth Portfolio | 26,663 | ||||||||
2,805 | Small Cap Value Portfolio | 30,458 | ||||||||
29,517 | Travelers Quality Bond Portfolio | 331,185 | ||||||||
51,542 | U.S. Government Securities Portfolio | 692,717 | ||||||||
TOTAL INVESTMENTS — 100.0% (Cost — $5,239,310#) | 5,268,994 | |||||||||
Liabilities in Excess of Other Assets — 0.0% | (144 | ) | ||||||||
TOTAL NET ASSETS — 100.0% | $ | 5,268,850 | ||||||||
# | Aggregate cost for Federal income tax purposes is substantially the same. |
7
Schedules of Investments (unaudited) (continued) | June 30, 2005 |
Moderate-Aggressive Portfolio
SHARES | DESCRIPTION | VALUE | |||||||
INVESTMENTS IN UNDERLYING FUNDS — 100.0% | |||||||||
Travelers Series Fund Inc.: | |||||||||
58 | AIM Capital Appreciation Portfolio | $ | 604 | ||||||
94,382 | Pioneer Strategic Income Portfolio | 905,120 | |||||||
6,120 | Strategic Equity Portfolio | 101,837 | |||||||
53,972 | Van Kampen Enterprise Portfolio | 641,182 | |||||||
Travelers Series Trust: | |||||||||
15,615 | Capital Appreciation Fund | 1,085,053 | |||||||
21,394 | Convertible Securities Portfolio | 254,798 | |||||||
555 | Disciplined Mid Cap Stock Portfolio | 11,348 | |||||||
51,050 | Equity Income Portfolio | 848,964 | |||||||
8,560 | Federated High Yield Portfolio | 73,784 | |||||||
1,335 | High Yield Bond Trust | 13,228 | |||||||
32,125 | Large Cap Portfolio | 446,542 | |||||||
2,153 | Mercury Large Cap Core Portfolio | 20,135 | |||||||
1,131 | MFS Value Portfolio | 14,051 | |||||||
1,432 | MFS Mid Cap Growth Portfolio | 10,755 | |||||||
114,897 | Mondrian International Stock Portfolio | 1,290,291 | |||||||
425,661 | Money Market Portfolio | 425,661 | |||||||
125,463 | Pioneer Fund Portfolio | 1,491,756 | |||||||
333 | Pioneer Mid Cap Value Portfolio | 3,536 | |||||||
Style Focus Series: | |||||||||
3,395 | Small Cap Growth Portfolio | 36,424 | |||||||
1,932 | Small Cap Value Portfolio | 20,985 | |||||||
27,978 | Travelers Quality Bond Portfolio | 313,916 | |||||||
44,536 | U.S. Government Securities Portfolio | 598,567 | |||||||
TOTAL INVESTMENTS — 100.0% (Cost — $8,513,401#) | 8,608,537 | ||||||||
Liabilities in Excess of Other Assets — 0.0% | (435 | ) | |||||||
TOTAL NET ASSETS — 100.0% | $ | 8,608,102 | |||||||
# | Aggregate cost for Federal income tax purposes is substantially the same. |
8
Schedules of Investments (unaudited) (continued) | June 30, 2005 |
Aggressive Portfolio
SHARES | DESCRIPTION | VALUE | ||||||
INVESTMENTS IN UNDERLYING FUNDS — 100.0% | ||||||||
Travelers Series Fund Inc.: | ||||||||
88 | AIM Capital Appreciation Portfolio | $ | 916 | |||||
2,990 | Strategic Equity Portfolio | 49,749 | ||||||
27,395 | Van Kampen Enterprise Portfolio | 325,454 | ||||||
Travelers Series Trust: | ||||||||
4,306 | Capital Appreciation Fund | 299,213 | ||||||
253 | Disciplined Mid Cap Stock Portfolio | 5,164 | ||||||
16,473 | Equity Income Portfolio | 273,940 | ||||||
5,120 | Large Cap Portfolio | 71,169 | ||||||
34,869 | Mondrian International Stock Portfolio | 391,581 | ||||||
1,555 | Mercury Large Cap Portfolio | 14,538 | ||||||
831 | MFS Mid Cap Growth Portfolio | 6,245 | ||||||
176 | MFS Value Portfolio | 2,191 | ||||||
38,884 | Pioneer Fund Portfolio | 462,334 | ||||||
137 | Pioneer Mid Cap Value Portfolio | 1,453 | ||||||
Style Focus Series: | ||||||||
3,895 | Small Cap Growth Portfolio | 41,800 | ||||||
2,681 | Small Cap Value Portfolio | 29,112 | ||||||
TOTAL INVESTMENTS — 100.0% (Cost — $1,936,866#) | 1,974,859 | |||||||
Other Assets in Excess of Liabilities — 0.0% | 252 | |||||||
TOTAL NET ASSETS — 100.0% | $ | 1,975,111 | ||||||
# | Aggregate cost for Federal income tax purposes is substantially the same. |
9
Statements of Assets and Liabilities (unaudited) | June 30, 2005 |
Moderate- | Moderate- | ||||||||||||||||||||
Conservative | Conservative | Moderate | Aggressive | Aggressive | |||||||||||||||||
Portfolio | Portfolio | Portfolio | Portfolio | Portfolio | |||||||||||||||||
ASSETS: | |||||||||||||||||||||
Investments, at cost | $ | 1,803,797 | $ | 2,067,326 | $ | 5,239,310 | $ | 8,513,401 | $ | 1,936,866 | |||||||||||
Investments, at value | $ | 1,826,830 | $ | 2,098,240 | $ | 5,268,994 | $ | 8,608,537 | $ | 1,974,859 | |||||||||||
Cash | 49,198 | 5,263 | 5,514 | 6,311 | 14,901 | ||||||||||||||||
Receivable from manager | 6,720 | 6,621 | 6,316 | 5,336 | 6,625 | ||||||||||||||||
Dividends receivable | 82 | 58 | 141 | 236 | — | ||||||||||||||||
Receivable for Fund shares sold | — | — | 80,177 | 55,230 | 12,284 | ||||||||||||||||
Total Assets | 1,882,830 | 2,110,182 | 5,361,142 | 8,675,650 | 2,008,669 | ||||||||||||||||
LIABILITIES: | |||||||||||||||||||||
Payable for securities purchased | 43,981 | — | 80,177 | 55,230 | 21,507 | ||||||||||||||||
Trustees’ fees payable | 1,633 | 1,633 | 1,633 | 1,633 | 1,633 | ||||||||||||||||
Administration fees payable | 61 | 81 | 144 | 347 | 80 | ||||||||||||||||
Accrued expenses | 10,338 | 10,338 | 10,338 | 10,338 | 10,338 | ||||||||||||||||
Total Liabilities | 56,013 | 12,052 | 92,292 | 67,548 | 33,558 | ||||||||||||||||
Total Net Assets | $ | 1,826,817 | $ | 2,098,130 | $ | 5,268,850 | $ | 8,608,102 | $ | 1,975,111 | |||||||||||
NET ASSETS: | |||||||||||||||||||||
Paid-in capital (Note 4) | $ | 1,802,765 | $ | 2,065,395 | $ | 5,233,327 | $ | 8,500,999 | $ | 1,934,049 | |||||||||||
Undistributed net investment income | 1,019 | 1,821 | 5,839 | 11,216 | 3,066 | ||||||||||||||||
Accumulated net realized gain on investment transactions | — | — | — | 751 | 3 | ||||||||||||||||
Net unrealized appreciation of investments | 23,033 | 30,914 | 29,684 | 95,136 | 37,993 | ||||||||||||||||
Total Net Assets | $ | 1,826,817 | $ | 2,098,130 | $ | 5,268,850 | $ | 8,608,102 | $ | 1,975,111 | |||||||||||
Shares Outstanding | 178,803 | 204,426 | 511,549 | 834,945 | 190,579 | ||||||||||||||||
Net Asset Value | $ | 10.22 | $ | 10.26 | $ | 10.30 | $ | 10.31 | $ | 10.36 | |||||||||||
10
Statements of Operations (unaudited) | For the Period Ended June 30, 2005† |
Moderate- | Moderate- | ||||||||||||||||||||
Conservative | Conservative | Moderate | Aggressive | Aggressive | |||||||||||||||||
Portfolio | Portfolio | Portfolio | Portfolio | Portfolio | |||||||||||||||||
INVESTMENT INCOME | |||||||||||||||||||||
Income distributions from Underlying Funds | $ | 1,559 | $ | 2,458 | $ | 6,680 | $ | 12,999 | $ | 3,769 | |||||||||||
Interest | 111 | 163 | 422 | 1,068 | 101 | ||||||||||||||||
Total Investment Income | 1,670 | 2,621 | 7,102 | 14,067 | 3,870 | ||||||||||||||||
EXPENSES | |||||||||||||||||||||
Legal fees | 3,698 | 3,698 | 3,698 | 3,698 | 3,698 | ||||||||||||||||
Audit and tax | 3,673 | 3,673 | 3,673 | 3,673 | 3,673 | ||||||||||||||||
Shareholder reports | 2,449 | 2,449 | 2,449 | 2,449 | 2,449 | ||||||||||||||||
Custody | 1,959 | 1,959 | 1,959 | 1,959 | 1,959 | ||||||||||||||||
Trustees’ fees | 1,633 | 1,633 | 1,633 | 1,633 | 1,633 | ||||||||||||||||
Investment advisory fees (Note 2) | 279 | 343 | 541 | 1,222 | 345 | ||||||||||||||||
Administration fees (Note 2) | 112 | 137 | 217 | 489 | 138 | ||||||||||||||||
Miscellaneous expense | 612 | 612 | 612 | 612 | 612 | ||||||||||||||||
Total Expenses | 14,415 | 14,504 | 14,782 | 15,735 | 14,507 | ||||||||||||||||
Less: Fee waivers and expense reimbursements (Note 2) | (13,764 | ) | (13,704 | ) | (13,519 | ) | (12,884 | ) | (13,703 | ) | |||||||||||
Net Expenses | 651 | 800 | 1,263 | 2,851 | 804 | ||||||||||||||||
Net Investment Income | 1,019 | 1,821 | 5,839 | 11,216 | 3,066 | ||||||||||||||||
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 3): | |||||||||||||||||||||
Net Realized Gain From Sale of Underlying Funds | — | — | — | 751 | 3 | ||||||||||||||||
Change in Net Unrealized Appreciation/ Depreciation From Underlying Funds | 23,033 | 30,914 | 29,684 | 95,136 | 37,993 | ||||||||||||||||
Net Gain on Investments | 23,033 | 30,914 | 29,684 | 95,887 | 37,996 | ||||||||||||||||
Increase in Net Assets From Operations | $ | 24,052 | $ | 32,735 | $ | 35,523 | $ | 107,103 | $ | 41,062 | |||||||||||
† For the period May 2, 2005 (inception date) to June 30, 2005. |
11
Statements of Changes in Net Assets (unaudited) | For the Period Ended June 30, 2005† |
CONSERVATIVE PORTFOLIO | |||||
OPERATIONS: | |||||
Net investment income | $ | 1,019 | |||
Change in net unrealized appreciation/depreciation | 23,033 | ||||
Increase in Net Assets From Operations | 24,052 | ||||
FUND SHARE TRANSACTIONS (NOTE 4): | |||||
Net proceeds from sale of shares | 1,809,572 | ||||
Cost of shares repurchased | (6,807 | ) | |||
Increase in Net Assets from Fund Share Transactions | 1,802,765 | ||||
Increase in Net Assets | 1,826,817 | ||||
NET ASSETS: | |||||
Beginning of period | — | ||||
End of period* | $ | 1,826,817 | |||
* Includes undistributed net investment income of: | $ | 1,019 | |||
† For the period May 2, 2005 (inception date) to June 30, 2005. |
12
Statements of Changes in Net Assets (unaudited) (continued) | For the Period Ended June 30, 2005† |
MODERATE-CONSERVATIVE PORTFOLIO | |||||
OPERATIONS: | |||||
Net investment income | $ | 1,821 | |||
Change in net unrealized appreciation/depreciation | 30,914 | ||||
Increase in Net Assets From Operations | 32,735 | ||||
FUND SHARE TRANSACTIONS (NOTE 4): | |||||
Net proceeds from sale of shares | 2,066,235 | ||||
Cost of shares repurchased | (840 | ) | |||
Increase in Net Assets from Fund Share Transactions | 2,065,395 | ||||
Increase in Net Assets | 2,098,130 | ||||
NET ASSETS: | |||||
Beginning of period | — | ||||
End of period* | $ | 2,098,130 | |||
* Includes undistributed net investment income of: | $ | 1,821 | |||
† For the period May 2, 2005 (inception date) to June 30, 2005. |
13
Statements of Changes in Net Assets (unaudited) (continued) | For the Period Ended June 30, 2005† |
MODERATE PORTFOLIO | |||||
OPERATIONS: | |||||
Net investment income | $ | 5,839 | |||
Change in net unrealized appreciation/depreciation | 29,684 | ||||
Increase in Net Assets From Operations | 35,523 | ||||
FUND SHARE TRANSACTIONS (NOTE 4): | |||||
Net proceeds from sale of shares | 5,234,355 | ||||
Cost of shares repurchased | (1,028 | ) | |||
Increase in Net Assets from Fund Share Transactions | 5,233,327 | ||||
Increase in Net Assets | 5,268,850 | ||||
NET ASSETS: | |||||
Beginning of period | — | ||||
End of period* | $ | 5,268,850 | |||
* Includes undistributed net investment income of: | $ | 5,839 | |||
† For the period May 2, 2005 (inception date) to June 30, 2005. |
14
Statements of Changes in Net Assets (unaudited) (continued) | For the Period Ended June 30, 2005† |
MODERATE-AGGRESSIVE PORTFOLIO | |||||
OPERATIONS: | |||||
Net investment income | $ | 11,216 | |||
Net realized gain | 751 | ||||
Change in net unrealized appreciation/depreciation | 95,136 | ||||
Increase in Net Assets From Operations | 107,103 | ||||
FUND SHARE TRANSACTIONS (NOTE 4): | |||||
Net proceeds from sale of shares | 8,527,266 | ||||
Cost of shares repurchased | (26,267 | ) | |||
Increase in Net Assets from Fund Share Transactions | 8,500,999 | ||||
Increase in Net Assets | 8,608,102 | ||||
NET ASSETS: | |||||
Beginning of period | — | ||||
End of period* | $ | 8,608,102 | |||
* Includes undistributed net investment income of: | $ | 11,216 | |||
† For the period May 2, 2005 (inception date) to June 30, 2005. |
15
Statements of Changes in Net Assets (unaudited) (continued) | For the Period Ended June 30, 2005† |
AGGRESSIVE PORTFOLIO | 2005 | ||||
OPERATIONS: | |||||
Net investment income | $ | 3,066 | |||
Net realized gain | 3 | ||||
Change in net unrealized appreciation/depreciation | 37,993 | ||||
Increase in Net Assets From Operations | 41,062 | ||||
FUND SHARE TRANSACTIONS (NOTE 4): | |||||
Net proceeds from sale of shares | 1,934,584 | ||||
Cost of shares repurchased | (535 | ) | |||
Increase in Net Assets from Fund Share Transactions | 1,934,049 | ||||
Increase in Net Assets | 1,975,111 | ||||
NET ASSETS: | |||||
Beginning of period | — | ||||
End of period* | $ | 1,975,111 | |||
* Includes undistributed net investment income of: | $ | 3,066 | |||
† For the period May 2, 2005 (inception date) to June 30, 2005. |
16
For a share of beneficial interest outstanding throughout the period ended June 30:
CONSERVATIVE PORTFOLIO | 2005(1) | ||||
Net Asset Value, Beginning of Period | $10.00 | ||||
Income From Operations: | |||||
Net investment income | 0.01 | ||||
Net realized and unrealized gain | 0.21 | ||||
Total Income From Operations | 0.22 | ||||
Net Asset Value, End of Period | $10.22 | ||||
Total Return(2) | 2.20 | % | |||
Net Assets, End of Period (000s) | $1,827 | ||||
Ratios to Average Net Assets(3): | |||||
Gross expenses | 7.74 | % | |||
Net expenses(4)(5) | 0.35 | ||||
Net investment income | 0.55 | ||||
Portfolio Turnover Rate(6) | 0 | % | |||
(1) | For the period May 2, 2005 (inception date) to June 30, 2005 (unaudited). |
(2) | Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be lower. Total returns do not reflect expenses associated with the separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Total returns for periods of less than one year are not annualized. |
(3) | Annualized. |
(4) | As a result of a contractual expense limitation, the ratio of expenses to average net assets of the fund will not exceed 0.35%, which will be in effect until at least May 1, 2006. |
(5) | The Investment Manager has waived its fees and reimbursed certain expenses, which waiver and/or reimbursement will be in effect until May 1, 2006. |
(6) | Amount represents less than 1.00%. |
See Notes to Financial Statements.
17
For a share of beneficial interest outstanding throughout the period ended June 30:
MODERATE-CONSERVATIVE PORTFOLIO | 2005(1) | ||||
Net Asset Value, Beginning of Period | $10.00 | ||||
Income From Operations: | |||||
Net investment income | 0.01 | ||||
Net realized and unrealized gain | 0.25 | ||||
Total Income From Operations | 0.26 | ||||
Net Asset Value, End of Period | $10.26 | ||||
Total Return(2) | 2.60 | % | |||
Net Assets, End of Period (000s) | $2,098 | ||||
Ratios to Average Net Assets(3): | |||||
Gross expenses | 6.34 | % | |||
Net expenses(4)(5) | 0.35 | ||||
Net investment income | 0.80 | ||||
Portfolio Turnover Rate(6) | 0 | % | |||
(1) | For the period May 2, 2005 (inception date) to June 30, 2005 (unaudited). |
(2) | Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be lower. Total returns do not reflect expenses associated with the separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Total returns for periods of less than one year are not annualized. |
(3) | Annualized. |
(4) | As a result of a contractual expense limitation, the ratio of expenses to average net assets of the fund will not exceed 0.35%, which will be in effect until at least May 1, 2006. |
(5) | The Investment Manager has waived its fees and reimbursed certain expenses, which waiver and/or reimbursement will be in effect until May 1, 2006. |
(6) | Amount represents less than 1.00%. |
See Notes to Financial Statements.
18
For a share of beneficial interest outstanding throughout the period ended June 30:
MODERATE PORTFOLIO | 2005(1) | ||||
Net Asset Value, Beginning of Period | $10.00 | ||||
Income From Operations: | |||||
Net investment income | 0.01 | ||||
Net realized and unrealized gain | 0.29 | ||||
Total Income From Operations | 0.30 | ||||
Net Asset Value, End of Period | $10.30 | ||||
Total Return(2) | 3.00 | % | |||
Net Assets, End of Period (000s) | $5,269 | ||||
Ratios to Average Net Assets(3): | |||||
Gross expenses | 4.10 | % | |||
Net expenses(4)(5) | 0.35 | ||||
Net investment income | 1.62 | ||||
Portfolio Turnover Rate(6) | 0 | % | |||
(1) | For the period May 2, 2005 (inception date) to June 30, 2005 (unaudited). |
(2) | Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be lower. Total returns do not reflect expenses associated with the separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Total returns for periods of less than one year are not annualized. |
(3) | Annualized. |
(4) | As a result of a contractual expense limitation, the ratio of expenses to average net assets of the fund will not exceed 0.35%, which will be in effect until at least May 1, 2006. |
(5) | The Investment Manager has waived its fees and reimbursed certain expenses, which waiver and/or reimbursement will be in effect until May 1, 2006. |
(6) | Amount represents less than 1.00%. |
See Notes to Financial Statements.
19
For a share of beneficial interest outstanding throughout the period ended June 30:
MODERATE-AGGRESSIVE PORTFOLIO | 2005(1) | ||||
Net Asset Value, Beginning of Period | $10.00 | ||||
Income From Operations: | |||||
Net investment income | 0.01 | ||||
Net realized and unrealized gain | 0.30 | ||||
Total Income From Operations | 0.31 | ||||
Net Asset Value, End of Period | $10.31 | ||||
Total Return(2) | 3.10 | % | |||
Net Assets, End of Period (000s) | $8,608 | ||||
Ratios to Average Net Assets(3): | |||||
Gross expenses | 1.94 | % | |||
Net expenses(4)(5) | 0.35 | ||||
Net investment income | 1.38 | ||||
Portfolio Turnover Rate(6) | 0 | % | |||
(1) | For the period May 2, 2005 (inception date) to June 30, 2005 (unaudited). |
(2) | Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be lower. Total returns do not reflect expenses associated with the separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Total returns for periods of less than one year are not annualized. |
(3) | Annualized. |
(4) | As a result of a contractual expense limitation, the ratio of expenses to average net assets of the fund will not exceed 0.35%, which will be in effect until at least May 1, 2006. |
(5) | The Investment Manager has waived its fees and reimbursed certain expenses, which waiver and/or reimbursement will be in effect until May 1, 2006. |
(6) | Amount represents less than 1.00%. |
See Notes to Financial Statements.
20
For a share of beneficial interest outstanding throughout the period ended June 30:
AGGRESSIVE PORTFOLIO | 2005(1) | ||||
Net Asset Value, Beginning of Period | $10.00 | ||||
Income From Operations: | |||||
Net investment income | 0.02 | ||||
Net realized and unrealized gain | 0.34 | ||||
Total Income From Operations | 0.36 | ||||
Net Asset Value, End of Period | $10.36 | ||||
Total Return(2) | 3.60 | % | |||
Net Assets, End of Period (000s) | $1,975 | ||||
Ratios to Average Net Assets(3): | |||||
Gross expenses | 6.31 | % | |||
Net expenses(4)(5) | 0.35 | ||||
Net investment income | 1.33 | ||||
Portfolio Turnover Rate(6) | 0 | % | |||
(1) | For the period May 2, 2005 (inception date) to June 30, 2005 (unaudited). |
(2) | Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be lower. Total returns do not reflect expenses associated with the separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Total returns for periods of less than one year are not annualized. |
(3) | Annualized. |
(4) | As a result of a contractual expense limitation, the ratio of expenses to average net assets of the fund will not exceed 0.35%, which will be in effect until at least May 1, 2006. |
(5) | The Investment Manager has contractually waived its fees and reimbursed certain expenses, which waiver and/or reimbursement will be in effect until May 1, 2006. |
(6) | Amount represents less than 1.00%. |
See Notes to Financial Statements.
21
1. Organization and Significant Accounting Policies
The Managed Allocation Series consists of the Conservative Portfolio (“CP”), Moderate-Conservative Portfolio (“MCP”), Moderate Portfolio (“MP”), Moderate-Aggressive Portfolio (“MAP”) and Aggressive Portfolio (“AP”) (“Fund(s)”) are separate non-diversified investment funds of The Travelers Series Trust (“Trust”), a Massachusetts business trust, registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as an open-end management investment company. Shares of the Trust are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies.
The following are significant accounting policies consistently followed by the Funds. These policies are in conformity with U.S. generally accepted accounting principles (“GAAP”). 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.
(a) Investment Valuation. Investments in the Underlying Funds are valued at the closing net asset value per share of each Underlying Fund on the day of valuation.
(b) Investment Transactions and Investment Income. Net investment income distributions and short-term capital gain distributions from Underlying Funds are recorded on the ex-dividend date as investment income and interest income is recorded on an accrual basis. Long-term capital gain distributions from Underlying Funds are recorded on the ex-dividend date as realized gains. Gains or losses on the sale of Underlying Funds are calculated by using the specific identification method.
(c) Distributions to Shareholders. Distributions from net investment income and of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal and Other Taxes. It is the Funds’ policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required in the Funds’ financial statements.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Travelers Asset Management International Company LLC, (“TAMIC”), an indirect wholly-owned subsidiary of Citigroup Inc. (“Citigroup”), acts as investment adviser to the Funds. Each Fund pays TAMIC an investment advisory fee calculated at the annual rate of 0.15% of the first $100 million of each Fund’s average daily net assets, 0.10% of each Fund’s average daily net assets between $100 million and $500 million and 0.05% of each Fund’s average daily net assets above $500 million. TAMIC has entered into a sub-advisory agreement with Deutsche Investment Management Americas Inc., (“DIMA”). Pursuant to the subadvisory agreement, DIMA is responsible for the day-to-day fund operations and investment decisions for the Funds. TAMIC pays the entire amount of its advisory fees to DIMA.
The Travelers Insurance Company (“TIC”), another wholly-owned subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC an administrative fee calculated at an annual rate of 0.06% of each Fund’s respective average daily net assets. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative service agreement with Smith Barney Fund Management LLC (“SBFM”), another indirect wholly-owned subsidiary of Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund’s respective average daily net assets.
During the period ended June 30, 2005, the Funds had contractual expense limitations in place of 0.35% for each Fund. This expense limitation is in effect through May 1, 2006.
During the period ended June 30, 2005, TAMIC waived a portion of its investment advisory fee in the amount of $279, $343, $541, $1,221, and $345 for CP, MCP, MP, MAP, AP, respectively. In addition, TAMIC reimbursed expenses in the amount of $13,485, $13,361, $12,978, $11,663 and $13,358, respectively.
Citicorp Trust Bank, fsb. (“CTB”), another subsidiary of Citigroup, acts as the Funds’ transfer agent.
All Officers and one trustee of the Trust are employees of Citigroup or its subsidiaries and do not receive compensation from the Trust.
22
3. Investments
During the period ended June 30, 2005, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
Purchases | Sales | |||||||
CP | $ | 1,804,531 | $ | 734 | ||||
MCP | 2,068,630 | 1,304 | ||||||
MP | 5,239,649 | 339 | ||||||
MAP | 8,532,535 | 19,885 | ||||||
AP | 1,937,106 | 243 | ||||||
At June 30, 2005, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:
Gross | Gross | Net | ||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||
Appreciation | Depreciation | Appreciation | ||||||||||
CP | $ | 23,033 | — | $ | 23,033 | |||||||
MCP | 31,246 | $ | (332 | ) | 30,914 | |||||||
MP | 38,251 | (8,567 | ) | 29,684 | ||||||||
MAP | 101,606 | (6,470 | ) | 95,136 | ||||||||
AP | 37,993 | — | 37,993 | |||||||||
4. Shares of Beneficial Interest
The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Fund were as follows:
Period Ended | ||||
June 30, 2005† | ||||
CP | ||||
Shares sold | 179,470 | |||
Shares repurchased | (667 | ) | ||
Net Increase | 178,803 | |||
MCP | ||||
Shares sold | 205,508 | |||
Shares repurchased | (82 | ) | ||
Net Increase | 205,426 | |||
MP | ||||
Shares sold | 511,650 | |||
Shares repurchased | (101 | ) | ||
Net Increase | 511,549 | |||
MAP | ||||
Shares sold | 837,476 | |||
Shares repurchased | (2,531 | ) | ||
Net Increase | 834,945 | |||
23
Period Ended | ||||
June 30, 2005† | ||||
AP | ||||
Shares sold | 190,631 | |||
Shares repurchased | (52 | ) | ||
Net Increase | 190,579 | |||
† | For the period May 2, 2005 (inception date) to June 30, 2005. |
5. Additional Information
On May 31, 2005, the U.S. Securities and Exchange Commission (“SEC”) issued an order in connection with the settlement of an administrative proceeding against Smith Barney Fund Management LLC (“SBFM”) and Citigroup Global Markets Inc. (“CGMI”) relating to the appointment of an affiliated transfer agent for the Smith Barney family of mutual funds (the “Funds”), which includes the Funds (“TL&A Funds”).
The SEC order finds that SBFM and CGMI willfully violated Section 206(1) of the Investment Advisers Act of 1940 (“Advisers Act”). Specifically, the order finds that SBFM and CGMI knowingly or recklessly failed to disclose to the boards of the Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that First Data Investors Services Group (“First Data”), the Funds’ then-existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before. Additionally, the SEC order finds that Citigroup Asset Management (“CAM”), the Citigroup business unit that includes the Fund’s sub-administrator, SBFM, had entered into a side letter with First Data under which CAM agreed to recommend the appointment of First Data as sub-transfer agent to the affiliated transfer agent in exchange, among other things, for a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGMI. The order also finds that SBFM and CGMI willfully violated Section 206(2) of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Funds’ boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the transfer agent functions, and the suggestion that the proposed arrangement was in the Funds’ best interests and that no viable alternatives existed. SBFM and CGMI do not admit or deny any wrongdoing or liability. The settlement does not establish wrongdoing or liability for purposes of any other proceeding.
The SEC censured SBFM and CGMI and ordered them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act. The order requires Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Funds, primarily through fee waivers. In addition, Travelers Life & Annuity and CAM reviewed the adequacy and accuracy of the disclosure provided to the TL&A Fund boards at the time the revised transfer agency arrangement was discussed with the boards and concluded that the transfer agency fees paid to CTB, for the period from June 1, 1999 to August 23, 2004, by the TL&A Funds that did not have expense caps in effect should be reimbursed with interest to the TL&A Funds. The reimbursement occurred on November 1, 2004.
The remaining $183.7 million to be paid under the SEC order, including the penalty, has been paid to the U.S. Treasury and will be distributed pursuant to a plan to be prepared by Citigroup and submitted within 90 days of the entry of the order for approval by the SEC. The order also requires that transfer agency fees received from the Funds since December 1, 2004 less certain expenses be placed in escrow and provides that a portion of such fees may be subsequently distributed in accordance with the terms of the order.
The order requires SBFM to recommend a new transfer agent contract to the Fund boards within 180 days of the entry of the order.
At this time, there is no certainty as to how the proceeds of the settlement will be distributed, to whom such distributions will be made, the methodology by which such distributions will be allocated, and when such distributions will be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the Funds.
24
6. Subsequent Events
On July 1, 2005, MetLife, Inc., a Delaware corporation (“MetLife”), acquired all of the outstanding shares of capital stock of certain indirect subsidiaries held by Citigroup, Inc. (“Citigroup”) including The Travelers Insurance Company (“TIC”), The Travelers Life and Annuity Company, a wholly owned subsidiary of TIC and certain other domestic insurance companies of Citigroup and substantially all Citigroup’s international insurance businesses for $11.8 billion. The sale also included TIC’s affiliated investment adviser, Travelers Asset Management International Company, LLC, which serves as the investment adviser to these Funds.
TIC filed a Form 8-K Current Report with The United States Securities and Exchange Commission on July 8, 2005, with additional information about the transaction.
Also effective July 1, 2005, PFPC Inc. replaced Citicorp Trust Bank as transfer agent for the Funds and State Street Bank and Trust Company replaced SBFM as sub-administrator for the Funds.
7. Change in Independent Registered Public Accounting Firm
KPMG LLP was previously the independent registered public accounting firm for the Funds. In connection with the transaction described in Note 6, the decision to change the independent registered public accounting firm was approved by the Audit Committee and by the Board of Trustees, resulting in Deloitte and Touche LLP’s appointment as independent registered public accounting firm.
There were no disagreements between the Funds and KPMG LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures.
25
and Subadvisory Agreements (unaudited)
The Portfolios became operational on May 2, 2005. In addition, on July 1, 2005, Citigroup Inc. (“Citigroup”) sold The Travelers Insurance Company (“TIC”) and certain of TIC’s affiliates, including TAMIC, to MetLife, Inc. (“MetLife” and the “MetLife Transaction”). The change in control of TAMIC resulted in the termination of the Agreements and Subadvisory Agreements on the closing of the MetLife Transaction. Therefore, it was necessary under the 1940 Act for the Independent Trustees to consider and approve Agreements and Subadvisory Agreements for the Portfolios to be dated May 2, 2005 (the “Initial Agreements” and “Initial Subadvisory Agreements”), as well as substantially identical Agreements and Subadvisory Agreements to be dated on the date of the closing of MetLife Transaction (the “New Agreements” and “New Subadvisory Agreements”).
In voting to approve the Agreements and the Subadvisory Agreements, the Independent Trustees considered whether the approval of the Agreements and the Subadvisory Agreements would be in the best interests of the Portfolios and their shareholders, an evaluation largely based on the nature and quality of the services to be provided under the Agreements and the Subadvisory Agreements and the overall fairness of the Agreements and the Subadvisory Agreements to the shareholders.
The Independent Trustees did not identify any one factor, piece of information or written document as all important or controlling, and each Independent Trustee attributed different weight to different factors. Prior to voting, the Independent Trustees reviewed the proposal to approve the Agreements and the Subadvisory Agreements with management and with experienced independent and fund counsel and received materials from counsel discussing the legal standards for their consideration of the approval of the Agreements and the Subadvisory Agreements. The Independent Trustees also reviewed the proposed continuation of the Agreements and the Subadvisory Agreements in private sessions alone and with their independent counsel at which no representatives of management were present. Based on an evaluation of all material factors including those described below, the Independent Trustees concluded that the Agreements and the Subadvisory Agreements were reasonable and fair and in the best interest of the Portfolios and their shareholders.
The Independent Trustees met in executive session and considered: (a) the nature, extent and quality of the services to be provided by TAMIC and DIMA under the Agreements and the Subadvisory Agreements;(b) the investment performance of the Portfolios, TAMIC and DIMA; (c) the cost of services to be provided and the profit realized by TAMIC and Deutsche and their affiliates, which information was to be reviewed in depth at the July, 2005 Board meeting; (d) the extent to which TAMIC realizes economies of scale as each Portfolio grows; and (e) whether the fee levels reflect these economies of scale for the benefit of the shareholders.
The Initial Agreements |
As part of the process, legal counsel to the Portfolios requested certain information from TAMIC and in response TAMIC provided certain written and oral information that addressed certain factors designed to inform the Independent Trustees regarding their consideration of the Initial Agreements. In making their determination, the Independent Trustees were provided with information about the Portfolios and their proposed investment objectives and policies and the proposed fees and expenses of the Portfolios.
The Independent Trustees considered TAMIC’s substantial experience in overseeing subadvised portfolios, and TAMIC’s representations about the expected demand for the new Portfolios. Because the Portfolios had not commenced operations, the Independent Trustees could not consider the performance of the Portfolios. They also could not consider information regarding the profit realized by TAMIC from its relationship with the Portfolios in the past, but noted that it was satisfied that TAMIC’s profits were not excessive generally, and that TAMIC would pass its entire fee under the Agreements on to DIMA. In light of the anticipated operation of the Portfolios as “funds of funds”, the Independent Trustees considered the financial benefits that might accrue to TAMIC as a result of investments by the Portfolios in other funds advised by TAMIC. The Independent Trustees were provided with information as to the advisory fees and total expenses of a limited number of other comparable funds, and concluded that, while certain of these other funds had fees and expenses lower than
26
and Subadvisory Agreements (unaudited) (continued)
The New Agreements |
With respect to the New Agreements, legal counsel to the Portfolios requested certain information from MetLife and in response MetLife provided certain written and oral information that addressed certain factors designed to inform the Independent Trustees regarding their consideration of the Agreements. In making their determination, the Independent Trustees were provided with information about MetLife and its purchase of The Travelers Insurance Company from Citigroup. At the various meetings, MetLife representatives discussed MetLife’s intentions regarding the preservation and strengthening of TAMIC’s business and MetLife’s intentions regarding staffing changes and executive leadership changes at TAMIC. The MetLife representatives also discussed and provided certain written information on MetLife’s business and products, including MetLife’s advisory subsidiaries their experience in overseeing subadvised mutual funds. The Independent Trustees also discussed the plans and anticipated role and responsibilities of certain of employees and officers after the MetLife Transaction.
With respect to the nature, scope and quality of the services to be provided by TAMIC after the MetLife Transaction, the Board considered the experience of MetLife’s advisory subsidiaries and the mutual funds advised by them and also MetLife’s efforts to build and maintain a strong investment team in TAMIC. The Board also considered the level and depth of knowledge of TAMIC, including the professional experience and qualifications of its personnel as well as current staffing levels. The Independent Trustees also considered.
• | the ability of TAMIC to continue the oversight of both the investment and compliance operations of DIMA after the MetLife transaction, | |
• | the intention of MetLife to integrate The Travelers Insurance Company and its affiliates, including TAMIC, into MetLife’s current businesses to create a single business operation, | |
• | MetLife’s compliance with certain conditions set forth in Section 15(f) of the 1940 Act regarding placing unfair burdens on the Portfolios, | |
• | anticipated changes to back office operations to the Portfolios, including the provision of administrative and transfer agency services, after the MetLife Transaction, and | |
• | the fact that the Agreements, including the investment advisory fees, would be identical to the current Agreements, except for the inception date. |
The Independent Trustees’ consideration of the New Agreements in terms of Portfolio performance and fees, TAMIC’s profitability, and the realization of economies of scale was substantially the same as its consideration of the Initial Agreements. In addition, as to TAMIC’s profitability, the Board noted that it was not possible to predict how the MetLife Transaction would affect such profits at this time, but that it would reconsider this factor in connection with future reviews. The Independent Trustees considered the level of service expected to be provided by TAMIC after the MetLife Transaction.
The Initial Subadvisory Agreements |
TAMIC recommended and the Independent Trustees approved the retention of DIMA as subadviser for the Portfolios under the Initial Subadvisory Agreements. The Independent Trustees considered DIMA’s significant experience in providing asset allocation advice similar to the advice that it would provide to the Portfolios. Because the Portfolios had not commenced operations, the Independent Trustees did not consider the performance of the Portfolios or the profits realized by DIMA from its relationship with the Portfolios. Also, the Board noted that the investment subadvisory fees were paid by TAMIC out of its investment advisory fees. The Independent Trustees concluded that the information available with respect to the subadvisory fees paid by other comparable funds was not sufficient to be useful in assessing the subadvisory fees for the Portfolios, but that the proposed subadvisory fees for the Portfolios appeared to be reasonable. As to whether economies of scale would be realized as the Portfolios grow and whether fee levels reflect any such economies of scale, the Board noted that the proposed subadvisory fees for the Portfolios included breakpoints that reduced fees payable at the higher asset levels.
27
and Subadvisory Agreements (unaudited) (continued)
The New Subadvisory Agreements |
Also, MetLife recommended and the Independent Trustees approved the New Subadvisory Agreements for the Portfolios. As discussed above, the change in control of TAMIC resulted in the termination of TAMIC’s previous subadvisory contracts with its various subadvisers on the closing of the MetLife Transaction. The Board considered that, notwithstanding the termination of the Initial Subadvisory Agreements as a legal matter, the MetLife Transaction was not expected to affect DIMA or its services including the day-to-day portfolio management of the Portfolios. Therefore, the Independent Trustees considered the same factors in approving the New Subadvisory Agreements as it did in approving the Initial Subadvisory Agreements. The Independent Trustees also noted that the subadvisory fees would not change as a result of the MetLife Transaction.
Other Business Relationships |
Finally, the Independent Trustees considered other business relationships that MetLife and TAMIC would enter into with Citigroup. In connection with the closing of the MetLife Transaction, MetLife, Citigroup and certain of their affiliates entered into a Distribution Agreement under which Citigroup-affiliated broker-dealers will continue to offer certain TIC and MetLife insurance contracts until July 1, 2015. In addition, MetLife, Citigroup and certain of their affiliates entered into an Investment Products Agreement under which certain TIC and MetLife insurance products will include certain Citigroup-sponsored mutual funds as investment options until July 1, 2010.
Conclusion |
Based on the deliberations of the Independent Trustees and their evaluation of the information described above, the Independent Trustees unanimously concluded that (a) the terms of the Initial and New Agreements and the Initial and New Subadvisory Agreements are fair and reasonable; (b) the fees are reasonable in light of the services TAMIC and DIMA provided to the Portfolios and their shareholders; (d) TAMIC and DIMA possess the capabilities to perform the duties required of them under the Initial and New Agreements and the Initial and New Subadvisory Agreements; and (e) the Initial and New Agreements and the Initial and New Subadvisory Agreements are approved.
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The Travelers Series Trust
TRUSTEES* Elizabeth M. Forget Chairperson Frances M. Hawk, CFA, CFP Lewis Mandell Robert E. McGill, III OFFICERS* Elizabeth M. Forget President and Chief Executive Officer Peter H. Duffy Chief Financial Officer and Treasurer Leonard M. Bakal Chief Anti-Money Laundering Compliance Officer and Chief Compliance Officer Paul G. Cellupica Secretary Jack P. Huntington Assistant Secretary | INVESTMENT ADVISER* Travelers Asset Management International Company LLC ADMINISTRATOR* The Travelers Insurance Company CUSTODIAN* State Street Bank and Trust Company TRANSFER AGENT* PFPC Inc. |
* | As of July 1, 2005 |
The Funds are separate investment funds of The Travelers Series Trust, a Massachusetts business trust.
This report is prepared for the general information of variable annuity and life contract owners and is not an offer of shares of The Travelers Series Trust: Managed Allocation Series: Conservative Portfolio, Moderate-Conservative Portfolio, Moderate Portfolio, Moderate-Aggressive Portfolio and Aggressive Portfolio. All the Funds contained in this report may not be available under your variable annuity or life contract.
This report must be preceded or accompanied by a free prospectus. Investors should consider the Funds’ investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information about the Funds. Please read the prospectus carefully before investing.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the Commission’s website at www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Funds, shareholders can call 1-800-842-9406.
Information on how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 and a description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-842-9406 and (2) on the SEC’s website at www.sec.gov.
Series Trust (Semi-Annual) (8-05) Printed in U.S.A.
ITEM 2. | CODE OF ETHICS. |
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
ITEM 6. | SCHEDULE OF INVESTMENTS. |
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES. |
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. | ||
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. | ||
Effective July 1, 2005, certain changes were made to the registrant’s internal controls over financial reporting in connection with the acquisition of the registrant’s investment adviser by MetLife, Inc. Such changes will be reported in the registrant’s Form N-Q for the fiscal quarter ending September 30, 2005 to be filed, which covers the effective date of such changes. |
ITEM 12. | EXHIBITS. |
(a) | (1) Not applicable. | ||
(2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | |||
(3) Not applicable. | |||
(b) | Certifications pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
The Travelers Series Trust | ||
By: | /s/ Elizabeth M. Forget Elizabeth M. Forget Chief Executive Officer of The Travelers Series Trust |
By: | /s/ Elizabeth M. Forget Elizabeth M. Forget Chief Executive Officer of The Travelers Series Trust |
By: | /s/ Peter H. Duffy Peter H. Duffy Chief Financial Officer of The Travelers Series Trust |