UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6465
THE TRAVELERS SERIES TRUST
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: DECEMBER 31
Date of reporting period: JUNE 30, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Semi-Annual Report to Stockholders is filed herewith.
[INSERT SHAREHOLDER REPORT]
SEMI-ANNUAL REPORT
JUNE 30, 2004
[UMBRELLA ART TOP]
[UMBRELLA ART BOTTOM]
THE TRAVELERS SERIES TRUST:
MFS VALUE PORTFOLIO
[TRAVELERS LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Cityplace
Hartford, CT 06103
SEMI-ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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WHAT'S INSIDE
<Table>
LETTER FROM THE CHAIRMAN.................................... 1
SCHEDULE OF INVESTMENTS..................................... 3
STATEMENT OF ASSETS AND LIABILITIES......................... 8
STATEMENT OF OPERATIONS..................................... 9
STATEMENTS OF CHANGES IN NET ASSETS......................... 10
NOTES TO FINANCIAL STATEMENTS............................... 11
FINANCIAL HIGHLIGHTS........................................ 14
</Table>
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LETTER FROM THE CHAIRMAN
[R. JAY GERKEN PHOTO]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
DEAR SHAREHOLDER,
After a torrid second half of 2003, the equity markets
took a breather in the first half of this year. Markets
typically abhor uncertainty, so as the year progressed,
investors grew increasingly lethargic amid questions
over Iraq, global terrorism, a rise in oil prices,
interest rates, inflation, and the presidential
election. The good news -- solid corporate earnings, the
improving economy, renewed job growth, and the still low
level of interest rates -- largely was ignored. As a
result, stock market returns for the first six months of
2004 generally were modest, as opposed to the strong,
double-digit gains late last year.
As was the case in 2003, small- and mid-capitalization
stocks generally outperformed their larger brethren in
the first half of this year. Value- and growth-oriented
stocks frequently traded short-term performance
leadership during the past six months, but value stocks
slightly outperformed growth stocks over the full
six-month period. The performance of foreign stock
markets in the first half largely was in-line with that
of the broad U.S. market.
Stocks continued to outpace bonds in the first half of
the year. Bonds generally suffered, particularly during
the spring, due to heightened worries about resurgent
inflation, rising rates, and anticipation that the
Federal Reserve Bank ("Fed") would begin to raise key
short-term rates after a long accommodative stance on
monetary policy. Indeed, the Fed edged up its federal
funds target rate(i) at the end of June to 1.25%. Over
the six-month period, bonds generally experienced
slightly negative returns.
After a sharp drop early in the year, by the end of the period the U.S. Consumer
Confidence Index(ii) rose to levels not seen since June of 2002. The domestic
unemployment rate held steady for the six-month period, but the rate of job
growth slowed following a strong increase in the first three months of the year.
Real (inflation-adjusted) gross domestic product ("GDP")(iii) increased at an
annual rate of 3.90% in the first fiscal quarter of 2004, the most recent figure
available at the close of the period, down slightly from the 4.10% increase in
the last quarter of 2003.(iv)
PORTFOLIO PERFORMANCE
Within this environment, the MFS Value Portfolio performed as follows:(1)
During the period ended June 30, 2004, the MFS Value Portfolio returned 3.70%.
The Portfolio slightly underperformed its unmanaged benchmark, the Russell 1000
Value Index(v), which returned 3.94%, but outperformed its Lipper large-cap
value variable funds category average(2), which was 2.64% over the same period.
PERFORMANCE OF THE FUND
AS OF JUNE 30, 2004
<Table>
<Caption>
6 MONTHS
MFS Value Portfolio 3.70%
Russell 1000 Value Index 3.94%
Lipper Large-Cap Value Variable Funds Category Average 2.64%
</Table>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER
OR LOWER THAN THE PERFORMANCE SHOWN ABOVE. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE AND INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The performance returns set forth above do not reflect the reduction
of sales charges and expenses imposed in connection with investing in
variable annuity and life contracts such as administrative fees,
account charges, and surrender charges; which, if reflected, would
reduce the performance of the fund.
Fund performance also reflects fee waivers and/or expense
reimbursements. In the absence of fee waivers and/or expense
reimbursements, the total return would be reduced.
(1) The fund is an underlying investment option of various variable annuity and
life products. Fund performance returns do not reflect the deduction of sales
charges and expenses imposed in connection with investing in variable annuity
and life contracts such as administrative fees, account charges, and surrender
charges, which if reflected, would reduce the performance of the fund. An
investor cannot invest directly in the fund. PAST PERFORMANCE IS NO INDICATION
OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the six-month period ended June 30, 2004, and include the
reinvestment of dividends and capital gains, if any. Returns were calculated
among the 79 funds in the Lipper large-cap value variable funds category.
1
SPECIAL SHAREHOLDER NOTICE
Effective July 7, 2004, Edward B. Baldini replaced Lisa B. Nurme on the team of
Portfolio Managers. Steven R. Gorham remains on the team.
INFORMATION ABOUT YOUR FUND
In recent months several issues in the mutual fund and variable product
industries have come under the scrutiny of federal and state regulators.
Travelers Life & Annuity and some of its affiliates have received requests for
information from various government regulators regarding market timing, late
trading, revenue sharing and other mutual fund and variable product issues in
connection with various investigations. The fund has been informed that
Travelers Life & Annuity and its affiliates are responding to those information
requests and cooperating with the regulators, but are not in a position to
predict the outcome of these requests and investigations.
In November 2003, Citigroup Asset Management disclosed an investigation by the
Securities and Exchange Commission ("SEC") and the U.S. Attorney relating to
Citigroup Asset Management's entry into the transfer agency business during
1997-1999. On July 20, 2004, Citigroup disclosed that it had been notified by
the Staff of the SEC that the Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against certain advisory
and transfer agent entities affiliated with Citigroup relating to the creation
and operation of its internal transfer agent unit to serve primarily the Smith
Barney family of mutual funds. Citigroup is cooperating with the SEC and will
seek to resolve this matter in discussion with the SEC Staff. Although there can
be no assurance, Citigroup does not believe that this matter will have a
material adverse effect on the fund.
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,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
July 20, 2004
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. Please note an investor cannot invest
directly in an index.
Past performance is no guarantee of future results. The performance returns set
forth above do not reflect the deduction of sales charges and expenses imposed
in connection with investing in variable annuity and life contracts, including,
but not limited to, administrative fees, account charges, and surrender charges,
which if reflected, would reduce performance.
Portfolio holdings and breakdowns are as of June 30, 2004 and are subject to
change. Please refer to pages 3 through 7 for a list and percentage breakdown of
the fund's holdings.
The commentary provided is as of July 20, 2004 and is subject to change based on
the market and other conditions. The views expressed are those of the portfolio
manager and are not intended to be a forecast of future events, a guarantee of
future results or investment advice. These views may differ from those of other
portfolio managers or the firm as a whole.
(i) 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.
(ii) Source: June 2004 Consumer Confidence Index, The Conference Board.
(iii) Gross domestic product is a market value of goods and services produced
by labor and property in a given country.
(iv) Source: Bureau of Economic Analysis, U.S. Department of Commerce, June 25,
2004.
(v) The Russell 1000 Value Index measures the performance of those Russell 1000
Index companies with lower price-to-book ratios and lower forecasted growth
rates.
2
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SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 2004
<Table>
<Caption>
SHARES SECURITY VALUE
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COMMON STOCK -- 91.1%
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CONSUMER DISCRETIONARY -- 7.3%
HOTELS, RESTAURANTS & LEISURE -- 0.6%
8,410 McDonald's Corp. ........................................... $ 218,660
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LEISURE EQUIPMENT & PRODUCTS -- 0.2%
4,400 Hasbro, Inc. ............................................... 83,600
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MEDIA -- 6.0%
19,450 Comcast Corp., Special Class A Shares+...................... 537,014
6,880 Cox Communications, Inc., Class A Shares+................... 191,195
17,050 Time Warner Inc.+........................................... 299,739
9,620 Tribune Co. ................................................ 438,095
19,070 Viacom Inc., Class B Shares................................. 681,180
3,800 The Walt Disney Co. ........................................ 96,862
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2,244,085
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SPECIALTY RETAIL -- 0.5%
7,680 The TJX Cos., Inc. ......................................... 185,395
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TOTAL CONSUMER DISCRETIONARY................................ 2,731,740
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CONSUMER STAPLES -- 9.0%
BEVERAGES -- 0.2%
1,520 PepsiCo, Inc. .............................................. 81,898
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FOOD PRODUCTS -- 4.8%
33,906 Archer-Daniels-Midland Co. ................................. 568,943
9,540 H.J. Heinz Co. ............................................. 373,968
14,850 Kellogg Co. ................................................ 621,472
10,600 Sara Lee Corp. ............................................. 243,694
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1,808,077
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HOUSEHOLD PRODUCTS -- 1.8%
10,550 Kimberly-Clark Corp. ....................................... 695,034
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TOBACCO -- 2.2%
16,220 Altria Group, Inc. ......................................... 811,811
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TOTAL CONSUMER STAPLES...................................... 3,396,820
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ENERGY -- 11.1%
ENERGY EQUIPMENT & SERVICES -- 1.6%
3,100 GlobalSantaFe Corp. ........................................ 82,150
8,150 Noble Corp.+................................................ 308,804
3,450 Schlumberger Ltd. .......................................... 219,110
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610,064
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
3
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
<Table>
<Caption>
SHARES SECURITY VALUE
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OIL & GAS -- 9.5%
13,640 BP PLC, Sponsored ADR....................................... $ 730,695
1,160 ChevronTexaco Corp. ........................................ 109,168
10,200 ConocoPhillips.............................................. 778,158
2,370 Devon Energy Corp. ......................................... 156,420
2,900 EOG Resources, Inc. ........................................ 173,159
15,160 Exxon Mobil Corp. .......................................... 673,256
4,450 Total S.A., Sponsored ADR................................... 427,556
13,210 Unocal Corp. ............................................... 501,980
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3,550,392
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TOTAL ENERGY................................................ 4,160,456
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FINANCIALS -- 28.5%
BANKS -- 13.5%
24,119 Bank of America Corp. ...................................... 2,040,950
18,970 Bank One Corp. ............................................. 967,470
20,750 Mellon Financial Corp. ..................................... 608,597
8,970 PNC Financial Services Group................................ 476,128
4,340 SouthTrust Corp. ........................................... 168,435
12,650 SunTrust Banks, Inc. ....................................... 822,124
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5,083,704
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DIVERSIFIED FINANCIALS -- 9.0%
15,970 American Express Co. ....................................... 820,539
11,100 Fannie Mae.................................................. 792,096
1,200 Franklin Resources, Inc. ................................... 60,096
11,290 The Goldman Sachs Group, Inc. .............................. 1,063,066
5,700 MBNA Corp. ................................................. 147,003
9,270 Merrill Lynch & Co., Inc. .................................. 500,395
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3,383,195
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INSURANCE -- 6.0%
3,280 AFLAC, Inc. ................................................ 133,857
12,800 Allstate Corp. ............................................. 595,840
2,560 The Chubb Corp. ............................................ 174,541
5,190 The Hartford Financial Services Group, Inc. ................ 356,761
2,040 Marsh & McLennan Cos., Inc. ................................ 92,575
25,330 MetLife, Inc. .............................................. 908,080
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2,261,654
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TOTAL FINANCIALS............................................ 10,728,553
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HEALTHCARE -- 6.3%
HEALTHCARE EQUIPMENT & SUPPLIES -- 0.6%
3,870 Baxter International, Inc. ................................. 133,554
1,460 Guidant Corp. .............................................. 81,585
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215,139
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
4
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 5.7%
11,000 Abbott Laboratories......................................... $ 448,360
1,710 Eli Lilly and Co. .......................................... 119,546
14,260 Johnson & Johnson........................................... 794,282
4,000 Merck & Co., Inc. .......................................... 190,000
9,980 Pfizer Inc. ................................................ 342,114
6,750 Wyeth....................................................... 244,080
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2,138,382
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TOTAL HEALTHCARE............................................ 2,353,521
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INDUSTRIALS -- 7.7%
AEROSPACE & DEFENSE -- 3.3%
13,720 Lockheed Martin Corp. ...................................... 714,538
9,640 Northrop Grumman Corp. ..................................... 517,668
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1,232,206
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BUILDING PRODUCTS -- 0.5%
6,300 Masco Corp. ................................................ 196,434
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ELECTRICAL EQUIPMENT -- 1.6%
2,400 Cooper Industries, Ltd., Class A Shares..................... 142,584
7,350 Emerson Electric Co. ....................................... 467,092
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609,676
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MACHINERY -- 0.7%
3,920 Deere & Co. ................................................ 274,949
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ROAD & RAIL -- 1.6%
9,040 Burlington Northern Santa Fe Corp. ......................... 317,033
4,620 Union Pacific Corp. ........................................ 274,659
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591,692
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TOTAL INDUSTRIALS........................................... 2,904,957
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INFORMATION TECHNOLOGY -- 2.6%
COMPUTERS & PERIPHERALS -- 1.0%
5,230 Hewlett-Packard Co. ........................................ 110,353
2,890 International Business Machines Corp. ...................... 254,753
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365,106
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IT CONSULTING & SERVICES -- 0.6%
8,100 Accenture Ltd., Class A Shares+............................. 222,588
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SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 0.5%
6,310 Novellus Systems, Inc.+..................................... 198,386
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SOFTWARE -- 0.5%
6,530 Microsoft Corp. ............................................ 186,497
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TOTAL INFORMATION TECHNOLOGY................................ 972,577
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
5
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
MATERIALS -- 8.6%
CHEMICALS -- 6.3%
8,090 Air Products & Chemicals, Inc. ............................. $ 424,320
8,540 The Dow Chemical Co. ....................................... 347,578
12,780 E.I. du Pont de Nemours & Co. .............................. 567,688
9,100 Monsanto Co. ............................................... 350,350
9,030 PPG Industries, Inc. ....................................... 564,285
3,070 Praxair, Inc. .............................................. 122,524
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2,376,745
- -----------------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.5%
8,770 Smurfit-Stone Container Corp.+.............................. 174,961
- -----------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.8%
3,560 Bowater Inc. ............................................... 148,060
12,140 International Paper Co. .................................... 542,658
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690,718
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TOTAL MATERIALS............................................. 3,242,424
- -----------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 4.6%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.6%
15,210 SBC Communications, Inc. ................................... 368,842
31,480 Sprint Corp., Series 1 FON Shares........................... 554,048
22,060 Verizon Communications Inc. ................................ 798,351
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TOTAL TELECOMMUNICATION SERVICES............................ 1,721,241
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UTILITIES -- 5.4%
ELECTRIC UTILITIES -- 4.7%
5,380 Cinergy Corp. .............................................. 204,440
5,420 Dominion Resources, Inc. ................................... 341,894
8,010 Energy East Corp. .......................................... 194,242
4,160 Entergy Corp. .............................................. 233,002
2,700 Exelon Corp. ............................................... 89,883
2,610 FirstEnergy Corp. .......................................... 97,640
1,970 NSTAR....................................................... 94,324
3,710 PPL Corp. .................................................. 170,289
8,610 TXU Corp. .................................................. 348,791
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1,774,505
- -----------------------------------------------------------------------------------------
GAS UTILITIES -- 0.7%
3,720 KeySpan Corp. .............................................. 136,524
4,480 National Fuel Gas Co. ...................................... 112,000
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248,524
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TOTAL UTILITIES............................................. 2,023,029
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TOTAL COMMON STOCK (Cost -- $30,052,411).................... 34,235,318
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
6
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JUNE 30, 2004
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
FOREIGN STOCK -- 5.2%
- -----------------------------------------------------------------------------------------
CANADA -- 0.1%
1,650 Finning International Inc. ................................. $ 40,924
- -----------------------------------------------------------------------------------------
SWITZERLAND -- 2.6%
6,580 Novartis AG+................................................ 290,395
3,870 Roche Holding AG............................................ 383,321
3,380 Syngenta AG+................................................ 283,489
- -----------------------------------------------------------------------------------------
957,205
- -----------------------------------------------------------------------------------------
UNITED KINGDOM -- 2.5%
13,220 Diageo PLC+................................................. 178,191
43,730 Reed Elsevier PLC........................................... 424,931
159,740 Vodafone Group PLC.......................................... 349,683
- -----------------------------------------------------------------------------------------
952,805
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TOTAL FOREIGN STOCK (Cost -- $1,718,173).................... 1,950,934
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</Table>
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 3.7%
$1,399,000 Federal Home Loan Bank Discount Notes, zero coupon bond to
yield 1.000% due 7/1/04 (Cost -- $1,399,000).............. 1,399,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $33,169,584*).......... $37,585,252
- -----------------------------------------------------------------------------------------
</Table>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
7
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STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2004
<Table>
ASSETS:
Investments, at value (Cost -- $33,169,584)............... $37,585,252
Cash...................................................... 16
Dividends and interest receivable......................... 58,828
Receivable for securities sold............................ 37,623
Receivable for Fund shares sold........................... 10,945
Receivable from administrator............................. 9,237
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TOTAL ASSETS.............................................. 37,701,901
- -------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased.......................... 72,500
Investment advisory fee payable........................... 22,695
Payable for Fund shares reacquired........................ 251
Accrued expenses.......................................... 34,693
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TOTAL LIABILITIES......................................... 130,139
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TOTAL NET ASSETS............................................ $37,571,762
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NET ASSETS:
Paid-in capital........................................... $33,180,484
Undistributed net investment income....................... 240,091
Accumulated net realized loss on investment
transactions........................................... (264,973)
Net unrealized appreciation of investments and foreign
currencies............................................. 4,416,160
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TOTAL NET ASSETS............................................ $37,571,762
- -------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 3,344,691
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NET ASSET VALUE............................................. $11.23
- -------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
8
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STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2004
<Table>
INVESTMENT INCOME:
Interest.................................................. $ 2,288
Dividends................................................. 434,303
Less: Foreign withholding tax............................. (5,745)
- ------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 430,846
- ------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2).......................... 142,329
Audit and legal........................................... 16,275
Custody................................................... 15,840
Shareholder communications................................ 11,802
Administration fee (Note 2)............................... 11,386
Pricing fees.............................................. 5,527
Trustees' fees............................................ 3,116
Transfer agency services.................................. 2,493
Other..................................................... 7,072
- ------------------------------------------------------------------------
TOTAL EXPENSES............................................ 215,840
Less: Expense reimbursement (Note 2)...................... (25,163)
- ------------------------------------------------------------------------
NET EXPENSES.............................................. 190,677
- ------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 240,169
- ------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES (NOTE 3):
Realized Gain From:
Investment transactions................................ 1,635,462
Foreign currency transactions.......................... 196
- ------------------------------------------------------------------------
NET REALIZED GAIN......................................... 1,635,658
- ------------------------------------------------------------------------
Change in Net Unrealized Appreciation From:
Investments............................................ (412,025)
Foreign currencies..................................... (18)
- ------------------------------------------------------------------------
DECREASE IN NET UNREALIZED APPRECIATION................... (412,043)
- ------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCIES.............. 1,223,615
- ------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $1,463,784
- ------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
9
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 240,169 $ 486,498
Net realized gain......................................... 1,635,658 268,945
Increase (decrease) in net unrealized appreciation........ (412,043) 7,155,432
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 1,463,784 7,910,875
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (3,331) (493,786)
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (3,331) (493,786)
- ---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 1,560,489 5,804,112
Net asset value of shares issued for reinvestment of
dividends.............................................. 3,331 493,786
Cost of shares reacquired................................. (5,580,500) (4,566,914)
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... (4,016,680) 1,730,984
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... (2,556,227) 9,148,073
NET ASSETS:
Beginning of period....................................... 40,127,989 30,979,916
- ---------------------------------------------------------------------------------------
END OF PERIOD*............................................ $37,571,762 $40,127,989
- ---------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $240,091 $3,057
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
10
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
MFS Value Portfolio ("Fund") is a separate investment fund of The Travelers
Series Trust ("Trust"). The Trust is a Massachusetts business trust registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company and consists of this fund and fifteen other
separate investment funds: Travelers Quality Bond, Lazard International Stock,
MFS Emerging Growth, Federated High Yield, Federated Stock, Disciplined Mid Cap
Stock, U.S. Government Securities, Social Awareness Stock, Pioneer Fund,
formerly known as Utilities, Large Cap, Equity Income, Convertible Securities,
Merrill Lynch Large Cap Core, MFS Mid Cap Growth and Zero Coupon Bond Fund
Portfolio (Series 2005) Portfolios. 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 financial statements and financial highlights for the other funds
are presented in separate shareholder reports.
The following are significant accounting policies consistently followed by
the Fund and are in conformity with U.S. generally accepted accounting
principles ("GAAP"): (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 or, if there were no sales during the day, at the mean
between the bid and ask prices; securities primarily traded on foreign exchanges
are generally valued at the preceding closing values of such securities on their
respective exchanges, except that when a significant event, subsequent to the
time a value was so established, is likely to have significantly changed the
value then, the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees or its delegates; over-the-counter securities are valued on the basis
of the bid price at the close of business on each day; U.S. government and
agency obligations are valued at the average between bid and asked prices in the
over-the-counter market; securities listed on the NASDAQ National Market System
for which market quotations are available are valued at the official closing
price or, if there is no official closing price on that day, at the last sales
price; (c) securities maturing within 60 days are valued at cost plus accreted
discount or minus amortized premium, which approximates value; (d) securities
that have a maturity of 60 days or more are valued at prices based on market
quotations for securities of similar type, yield and maturity; (e) securities
for which market quotations are not available will be valued in good faith at
fair value by or under the direction of the Board of Trustees; (f) interest
income, adjusted for amortization of premium and accretion of discount, is
recorded on an accrual basis and dividend income is recorded on the ex-dividend
date; foreign dividends are recorded on the ex-dividend date or as soon as
practical after the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (g) gains or losses on the sale of
securities are calculated by using the specific identification method; (h)
dividends and distributions to shareholders are recorded on the ex-dividend
date; the Fund distributes dividends and capital gains, if any, at least
annually; (i) the accounting records of the Fund are maintained in U.S. dollars.
All assets and liabilities denominated in foreign currencies are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income or expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank; (j) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from GAAP;
(k) the Fund intends to comply with the 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 (l) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Fund. The Fund pays TAMIC an investment advisory fee calculated
at the annual rate of 0.75% of the Fund's average daily net assets. This fee is
calculated daily and paid monthly.
TAMIC has entered into a sub-advisory agreement with Massachusetts
Financial Services ("MFS"). Pursuant to the sub-advisory agreement, MFS is
responsible for the day-to-day portfolio operations and investment decisions for
the Fund. TAMIC pays MFS 0.375% of the Fund's average daily net assets.
The Travelers Insurance Company ("TIC"), another indirect wholly-owned
subsidiary of Citigroup, acts as administrator to the Fund. The Fund pays TIC an
administration fee calculated at an annual rate of 0.06% of the Fund's 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.
11
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02%
of the Fund's average daily net assets, plus $30,000, subject to a maximum of
0.06% of the Fund's average daily net assets.
For the six months ended June 30, 2004, the Fund had a voluntary expense
limitation in place of 1.00%. As a result, TIC has agreed to reimburse the Fund
for expenses in the amount of $25,163. This expense limitation can be terminated
at any time by TIC.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as
the Fund's transfer agent. CTB receives account fees and asset-based fees that
vary according to the size and type of account. For the six months ended June
30, 2004, the Fund paid transfer agent fees of $2,500 to CTB.
For the six months ended June 30, 2004, Citigroup Global Markets Inc.,
another indirect wholly-owned subsidiary of Citigroup, and its affiliates did
not receive any brokerage commissions.
One Trustee and all officers of the Trust are employees of Citigroup or its
affiliates.
3. INVESTMENTS
During the six months ended June 30, 2004, the aggregate cost of purchases
and proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were substantially as
follows:
<Table>
- -------------------------------------------------------------------------
Purchases................................................... $ 8,567,799
Sales....................................................... 12,652,347
- -------------------------------------------------------------------------
</Table>
At June 30, 2004, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<Table>
- ------------------------------------------------------------------------
Gross unrealized appreciation............................... $4,768,176
Gross unrealized depreciation............................... (352,508)
- ------------------------------------------------------------------------
Net unrealized appreciation................................. $4,415,668
- ------------------------------------------------------------------------
</Table>
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 the
Fund were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
- ------------------------------------------------------------------------------------------------------
Shares sold................................................. 141,338 629,956
Shares issued on reinvestment............................... 299 45,825
Shares reacquired........................................... (503,324) (490,506)
- ------------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (361,687) 185,275
- ------------------------------------------------------------------------------------------------------
</Table>
5. ADDITIONAL INFORMATION
Citigroup has been notified by the Staff of the Securities and Exchange
Commission ("SEC") that the Staff is considering recommending a civil injunctive
action and/or an administrative proceeding against Citigroup Asset Management
("CAM"), including its applicable investment advisory companies and Citicorp
Trust Bank ("CTB"), an internal transfer agent, relating to the creation and
operation of the internal transfer agent unit to serve certain CAM-managed
funds, including the Fund. This notification arises out of a previously
disclosed investigation by the SEC and the U.S. Attorney and relates to CTB's
entry in 1999 into the transfer agency business, CAM's retention of, and
agreements with an unaffiliated sub transfer agent, the adequacy of the
disclosures made to the fund boards that approved the transfer agency
arrangements, (including CAM's failure to disclose a related revenue guarantee
agreement benefiting CAM and its affiliates), and CAM's operation of and
compensation for the transfer agency business. The revenue guarantee described
above was terminated in 1999 and CAM will be paying the applicable funds,
primarily through fee waivers, a total of approximately $17 million (plus
interest) that is the amount of the revenue received by Citigroup relating to
the revenue guarantee. Citigroup is cooperating fully in the investigation and
will seek to resolve the matter in discussions with the SEC Staff. Although
there can be no assurance, Citigroup does not believe that this matter will have
a material adverse effect on the Fund. On August 12, 2004, CAM paid the Fund
$1,726, its allocable share of the amount described above through a waiver of
its fees.
12
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. SUBSEQUENT EVENT
The Board of Trustees of the Trust, on behalf of the Fund, has approved an
amendment to the investment advisory agreement between the Fund and TAMIC, and
an amendment to the sub-advisory agreement between TAMIC and MFS. Effective
September 1, 2004, the investment advisory fee and sub-advisory fee will be
revised from the annual rates of 0.75% and 0.375%, respectively, of the average
daily net assets of the Fund, to a fee calculated at the annual rates in
accordance with the following schedule:
<Table>
<Caption>
INVESTMENT
ADVISORY SUB-ADVISORY
AVERAGE DAILY NET ASSETS FEE RATE FEE RATE
- --------------------------------------------------------------------------------------------
First $600 million.......................................... 0.750% 0.375%
Next $300 million........................................... 0.725 0.350
Next $600 million........................................... 0.700 0.325
Next $1 billion............................................. 0.675 0.300
Over $2.5 billion........................................... 0.625 0.250
- --------------------------------------------------------------------------------------------
</Table>
13
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
2004(1) 2003 2002 2001(2) 2000(2) 1999(2)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........ $10.83 $8.80 $10.83 $10.89 $9.93 $9.46
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3).................. 0.07 0.13 0.12 0.11 0.11 0.13
Net realized and unrealized gain (loss)... 0.33 2.04 (1.53) (0.00)* 1.02 0.34
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......... 0.40 2.17 (1.41) 0.11 1.13 0.47
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income..................... (0.00)* (0.14) (0.21) (0.08) (0.08) --
Net realized gains........................ -- -- (0.41) (0.09) (0.09) --
- --------------------------------------------------------------------------------------------------------------
Total Distributions......................... (0.00)* (0.14) (0.62) (0.17) (0.17) --
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............. $11.23 $10.83 $8.80 $10.83 $10.89 $9.93
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN(4)............................. 3.70%++ 24.61% (13.14)% 1.00% 11.59% 4.97%
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)........... $37,572 $40,128 $30,980 $32,295 $23,326 $19,908
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(5)............................ 1.00%+ 1.00% 1.00% 1.00% 1.00% 0.99%
Net investment income..................... 1.27+ 1.44 1.38 1.01 1.05 1.26
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................... 23% 57% 60% 123% 54% 41%
- --------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended June 30, 2004 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) The Travelers Insurance Company has agreed to reimburse the Fund for
expenses in the amounts of $25,163, $26,185, $44,292, $28,095, $15,528 and
$24,087 for the six months ended June 30, 2004 and years ended December 31,
2003, 2002, 2001, 2000 and 1999, respectively. If such expenses were not
reimbursed, the per share decreases to net investment income and the actual
expense ratios would have been as follows:
<Table>
<Caption>
PER SHARE DECREASES EXPENSE RATIOS WITHOUT
TO NET INVESTMENT INCOME EXPENSE REIMBURSEMENT
- ---------------------------------------- ----------------------------------------
2004 2003 2002 2001 2000 1999 2004 2003 2002 2001 2000 1999
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$0.01 $0.01 $0.01 $0.01 $0.01 $0.02 1.14%+ 1.08% 1.13% 1.11% 1.07% 1.15%
</Table>
(4) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect fee waivers and/or expense reimbursements. In the
absence of fee waivers and/or expense reimbursements, the total return would
be reduced. Past performance is no guarantee of future results.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.00%.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
14
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THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
<Table>
TRUSTEES INVESTMENT ADVISER
R. Jay Gerken, CFA
Chairman Travelers Asset Management International Company LLC
Frances M. Hawk, CFA, CFP
Lewis Mandell ADMINISTRATOR
Robert E. McGill, III
Travelers Insurance Company
OFFICERS
R. Jay Gerken, CFA CUSTODIAN
President and
Chief Executive Officer State Street Bank and Trust Company
Andrew B. Shoup
Senior Vice President and TRANSFER AGENT
Chief Administrative
Officer Citicorp Trust Bank, fsb.
Andrew Beagley
Chief Anti-Money
Laundering
Compliance Officer
William D. Wilcox*
Chief Compliance Officer
Kaprel Ozsolak
Controller
Kathleen A. McGah
Secretary
Ernest J. Wright
Assistant Secretary
- ---------------
* As of July 23, 2004.
</Table>
The Fund is a separate investment fund 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: MFS
Value Portfolio.
Beginning August 31, 2004, information on how the Fund voted proxies relating to
portfolio securities during the 12 month period ended June 30, 2004 will be
available (1) without charge, upon request, by calling 1-800-842-9368 and (2) on
the SEC's web site at www.sec.gov.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to Portfolio Securities is available without charge
upon request, by telephoning the Fund (toll-free) at 1-800-842-9368 and by
visiting the SEC's web site at www.sec.gov.
Series Trust Semi-Annual (8-04) Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
Not Applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. 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 last
fiscal half-year (the registrant's second fiscal half-year in
the case of an annual report) that have materially affected,
or are likely to materially affect the registrant's internal
control over financial reporting.
ITEM 11. EXHIBITS.
(a) Not applicable.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, there unto duly authorized.
THE TRAVELERS SERIES TRUST
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
THE TRAVELERS SERIES TRUST
Date: September 8,2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
THE TRAVELERS SERIES TRUST
Date: September 8,2004
By: /s/ Andrew B. Shoup
Andrew B. Shoup
Chief Administrative Officer of
THE TRAVELERS SERIES TRUST
Date: September 8,2004