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.
SEMI-ANNUAL REPORT
JUNE 30, 2004
[UMBRELLA ART TOP]
[UMBRELLA ART BOTTOM]
THE TRAVELERS SERIES TRUST:
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
[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......................... 5
STATEMENT OF OPERATIONS..................................... 6
STATEMENTS OF CHANGES IN NET ASSETS......................... 7
NOTES TO FINANCIAL STATEMENTS............................... 8
FINANCIAL HIGHLIGHTS........................................ 11
</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,
The bond markets experienced a pullback over the last
six months amid signs of a strengthening economy,
renewed inflationary pressures, and rising interest
rates. In general, returns on most sectors of the
fixed-income market were flat to slightly negative. (As
you know, bond prices decline as interest rates rise.)
Since January 2, 2004, the yield on the 30-year Treasury
bond rose from 5.07% to end June at 5.29%, settling back
from a peak of 5.56% during May. The Treasury bond's
total return over the six months was slightly
negative.(i)
After a four-year period of monetary easing, which saw
the Federal Reserve Bank ("Fed") steer the key federal
funds target rate(ii) down to a 40-year low of 1.00%,
the central bank reversed course in late June to what
many observers believe will be a protracted period of
monetary tightening or steering short-term interest
rates higher. Higher interest rates can act as a brake
on robust economic growth, which helps maintain a
balance between steady growth and the inflation that
generally accompanies that growth.
The Fed's increase in the federal funds rate to 1.25% at
the end of June was widely anticipated. Yields on most
fixed-income instruments began moving up earlier this
year and continued their ascent as it became more
evident that the improving economy and higher inflation
would compel the Fed to act in June. In particular,
evidence of renewed job growth -- the one missing piece
from the economic recovery -- drove rates higher
beginning in the spring.
As interest rates rose, the yield curve(iii) flattened with two-year Treasuries
increasing in yield by 77 basis points(iv) while the 30-year yield increased
only 12 basis points. Despite this flattening, shorter-maturity strip bonds
outperformed longer-term strips, as 25(+)-year strips had negative returns in
excess of 4.00%.(v) This performance difference was solely because
short-duration(vi) bonds are less volatile than long-duration bonds. Yield
spreads(vii) of long strip bonds actually narrowed to coupon while short
maturity strips widened.
PORTFOLIO PERFORMANCE
Within this environment, the Portfolio performed as follows:(1)
During the six months ended June 30, 2004, the Zero Coupon Bond Fund Portfolio
Series 2005 returned -0.03%. The Portfolio performed in-line with its unmanaged
benchmarks, the Merrill Lynch Zero Coupon -- 10 Year Index(viii) and the U.S.
Treasury STRIP Maturing 11/15/2005,(ix) which returned -0.32% and 0.13%,
respectively. The Portfolio also edged out its Lipper target maturity variable
funds category average,(2) which returned -0.29%.
PERFORMANCE OF THE PORTFOLIO
AS OF JUNE 30, 2004
<Table>
<Caption>
6 MONTHS
Zero Coupon Bond Fund Portfolio Series 2005 -0.03%
Merrill Lynch Zero Coupon -- 10 Year Index -0.32%
U.S. Treasury STRIP Maturing 11/15/2005 0.13%
Lipper Target Maturity Variable Funds Category Average -0.29%
</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 funds.
Performance figures may reflect fee waivers and/or expense
reimbursements, if any. In the absence of fee waivers and/or expense
reimbursements, if any, 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 may not invest directly in the fund. PAST PERFORMANCE IS NO
INDICATION OF FUTURE RESULTS.
(2) Lipper is a major independent mutual fund tracking organization. Average
annual returns are based on the six-month period ended June 30, 2004,
calculated among nine funds in the Lipper target maturity variable funds
category with reinvestment of dividends and capital gains, if any.
1
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 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 page 3 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. Past performance is no guarantee of
future results.
(i) Source: Bloomberg, L.P.
(ii) 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.
(iii) The yield curve is the graphical depiction of the relationship between
the yield on bonds of the same credit quality but different maturities.
(iv) A basis point is one one-hundredth (1/100 or 0.01) of one percent.
(v) Source: Bloomberg, L.P.
(vi) Duration is a common gauge of the price sensitivity of a fixed income
asset or portfolio to a change in interest rate.
(vii) Yield spread is the difference between yields on securities of the same
quality but different maturities or the difference between yields on
securities of the same maturity but different quality.
(viii) The Merrill Lynch Zero Coupon -- 10 Year Index is a U.S. Government
stripped security that has a maturity not greater then ten years.
(ix) Treasury STRIPS (Separate Trading of Registered Interest and Principal of
Securities) are Treasuries that have been stripped of their interest
payment (its coupon). A STRIP pays no cash income but is purchased at a
substantial discount from its value at maturity.
2
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SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 2004
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
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U.S. TREASURY OBLIGATIONS -- 81.0%
$1,350,000 AAA U.S. Treasury Note, Stripped Principal Payment only, to
yield 6.461% due 8/15/05.................................. $1,317,695
1,375,000 AAA U.S. Treasury Note, Stripped Principal Payment only, to
yield 6.301% due 11/15/05................................. 1,331,979
1,800,000 AAA U.S. Treasury Note, Stripped Principal Payment only, to
yield 3.960% due 5/15/07.................................. 1,643,594
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TOTAL U.S. TREASURY OBLIGATIONS (Cost -- $4,128,326)........ 4,293,268
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CORPORATE BONDS AND NOTES -- 4.5%
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FOOD -- 1.5%
80,000 BBB+ General Mills Inc., zero coupon bond to yield 6.787% due
8/15/04................................................... 79,845
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INSURANCE -- 1.5%
80,000 AAA American International Group, zero coupon bond to yield
6.596% due 8/15/04........................................ 79,868
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OIL -- 1.5%
80,000 AAA Exxon Capital Corp., zero coupon bond to yield 6.563% due
11/15/04.................................................. 79,447
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TOTAL CORPORATE BONDS AND NOTES (Cost -- $236,879).......... 239,160
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SUB-TOTAL INVESTMENTS (Cost -- $4,365,205).................. 4,532,428
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REPURCHASE AGREEMENT -- 14.5%
769,000 State Street Bank and Trust Co. dated 6/30/04, 1.150% due
7/1/04; Proceeds at maturity -- $769,025; (Fully
collateralized by U.S. Treasury Notes, 5.000% due 8/15/11;
Market value -- $788,252) (Cost -- $769,000).............. 769,000
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TOTAL INVESTMENTS -- 100.0% (Cost -- $5,134,205*)........... $5,301,428
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</Table>
(a) All ratings are by Standard & Poor's Ratings Service.
* Aggregate cost for Federal income tax purposes is substantially the same.
See page 4 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
3
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BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"BBB" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
<Table>
AAA -- Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay
interest and repay principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues
only in small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" have an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in
this category than in higher rated categories.
</Table>
4
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STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2004
<Table>
ASSETS:
Investments, at value (Cost -- $4,365,205)................ $4,532,428
Repurchase agreement, at value (Cost -- $769,000)......... 769,000
Cash...................................................... 486
Receivable for Fund shares sold........................... 29,900
Interest receivable....................................... 24
Receivable from administrator............................. 7,013
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TOTAL ASSETS.............................................. 5,338,851
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LIABILITIES:
Investment advisory fee payable........................... 274
Accrued expenses.......................................... 28,052
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TOTAL LIABILITIES......................................... 28,326
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TOTAL NET ASSETS............................................ $5,310,525
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NET ASSETS:
Capital paid in excess of par value....................... $4,983,949
Undistributed net investment income....................... 116,322
Accumulated net realized gain from investment
transactions........................................... 43,031
Net unrealized appreciation of investments................ 167,223
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TOTAL NET ASSETS............................................ $5,310,525
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SHARES OUTSTANDING.......................................... 465,346
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NET ASSET VALUE............................................. $11.41
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
5
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STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2004
<Table>
INVESTMENT INCOME:
Interest.................................................. $ 120,243
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EXPENSES:
Audit and legal........................................... 14,847
Shareholder communications................................ 11,192
Custody................................................... 5,166
Directors' fees........................................... 3,061
Investment advisory fee (Note 2).......................... 2,609
Transfer agency services.................................. 2,494
Administration fee (Note 2)............................... 1,565
Other..................................................... 358
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TOTAL EXPENSES............................................ 41,292
Less: Expense reimbursement (Note 2)...................... (37,378)
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NET EXPENSES.............................................. 3,914
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NET INVESTMENT INCOME....................................... 116,329
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Investment Transactions (excluding
short-term investments):
Proceeds from sales.................................... 1,095,310
Cost of securities sold................................ 1,050,276
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NET REALIZED GAIN......................................... 45,034
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Change in Net Unrealized Appreciation of Investments:
Beginning of period.................................... 328,858
End of period.......................................... 167,223
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DECREASE IN NET UNREALIZED APPRECIATION................... (161,635)
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NET LOSS ON INVESTMENTS..................................... (116,601)
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DECREASE IN NET ASSETS FROM OPERATIONS...................... $ (272)
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
6
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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..................................... $ 116,329 $ 281,130
Net realized gain......................................... 45,034 14,656
Decrease in net unrealized appreciation................... (161,635) (145,875)
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INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... (272) 149,911
- -------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (2,216) (285,700)
Net realized gains........................................ (14,679) (36,106)
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DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (16,895) (321,806)
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FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares.......................... 292,192 1,190,465
Net asset value of shares issued for reinvestment of
dividends.............................................. 16,895 321,806
Cost of shares reacquired................................. (612,928) (2,187,042)
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DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (303,841) (674,771)
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DECREASE IN NET ASSETS...................................... (321,008) (846,666)
NET ASSETS:
Beginning of period....................................... 5,631,533 6,478,199
- -------------------------------------------------------------------------------------
END OF PERIOD*............................................ $5,310,525 $5,631,533
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* Includes undistributed net investment income of:.......... $116,322 $2,209
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
7
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Zero Coupon Bond Fund Portfolio Series 2005 ("Fund"), a separate
investment fund of The Travelers Series Trust ("Trust"), 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: U.S. Government Securities,
Social Awareness Stock, Pioneer Fund, Travelers Quality Bond, Lazard
International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock,
Large Cap, Equity Income, Disciplined Mid Cap Stock, Convertible Securities,
Merrill Lynch Large Cap Core, MFS Mid Cap Growth and MFS Value 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; securities for which no sales prices were reported and
U.S. government agencies and obligations are valued at the mean between the last
reported bid and ask prices or on the basis of quotations received from
reputable brokers or other recognized sources; (c) securities maturing within 60
days are valued at cost plus accreted discount, or minus amortized premium,
which approximates value; (d) securities that have a maturity of 60 days or more
are valued at prices based on market quotations for securities of similar type,
yield and maturity; (e) 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; (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 Fund intends to comply with the applicable provisions of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; (j) the
character of income and gains to be distributed is determined in accordance with
income tax regulations which may differ from GAAP; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Fund. The Fund pays TAMIC an investment advisory fee calculated
at an annual rate of 0.10% of the Fund's average daily net assets. This fee is
calculated daily and paid monthly.
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"). 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 0.15%. As a result, TIC has agreed to reimburse the Fund
for expenses in the amount of $37,378. 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. During the six months ended June
30, 2004, the Fund paid transfer agent fees of $2,500 to CTB.
One Trustee and all officers of the Trust are employees of Citigroup or its
affiliates.
8
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 as follows:
<Table>
- ------------------------------------------------------------------------
Purchases................................................... --
- ------------------------------------------------------------------------
Sales....................................................... $1,095,310
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</Table>
At June 30, 2004, the aggregate unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
<Table>
- ----------------------------------------------------------------------
Gross unrealized appreciation............................... $167,223
Gross unrealized depreciation............................... --
- ----------------------------------------------------------------------
Net unrealized appreciation................................. $167,223
- ----------------------------------------------------------------------
</Table>
4. REPURCHASE AGREEMENTS
When entering into repurchase agreements, it is the Fund's policy that a
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market to
ensure the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
5. STRIPPED SECURITIES
The Fund invests primarily in "Stripped Securities," a term used
collectively for Stripped Treasury Securities, Stripped Government Securities,
Stripped Corporate Securities, and Stripped Eurodollar Obligations; as well as
other stripped securities. Stripped securities can be securities consisting of
debt obligations that have been stripped of unmatured interest coupons,
securities consisting of unmatured interest coupons that have been stripped from
debt obligations, or debt obligations that are issued without interest coupons
and are sold at substantial discounts from their face amounts.
Stripped Securities do not make periodic payments of interest prior to
maturity. The market value of Stripped Securities will fluctuate in response to
changes in economic conditions, interest rates and the market's perception of
the securities. Fluctuations in response to interest rates may be greater than
those for debt obligations of comparable maturities that pay interest currently.
The amount of fluctuation increases with a longer period of maturity.
6. 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................................................. 25,522 99,770
Shares issued on reinvestment............................... 1,482 27,948
Shares reacquired........................................... (53,527) (182,780)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (26,523) (55,062)
- ---------------------------------------------------------------------------------------------------
</Table>
7. 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
9
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 $1,689, its allocable share of the
amount described above through a waiver of its fees.
10
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FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
2004(1) 2003(2) 2002(2) 2001(2) 2000(2) 1999
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $11.45 $11.84 $11.78 $11.56 $10.65 $11.26
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(3)............ 0.25 0.49 0.55 0.61 0.67 0.62
Net realized and unrealized gain
(loss)........................... (0.26) (0.21) 0.70 0.13 0.79 (1.23)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations... (0.01) 0.28 1.25 0.74 1.46 (0.61)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............... (0.00)* (0.61) (1.05) (0.50) (0.55) --
Net realized gains.................. (0.03) (0.06) (0.14) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions................... (0.03) (0.67) (1.19) (0.52) (0.55) --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........ $11.41 $11.45 $11.84 $11.78 $11.56 $10.65
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(4)....................... (0.03)%++ 2.36% 10.79% 6.41% 14.13% (5.42)%
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S)..... $5,311 $5,632 $6,478 $5,744 $4,346 $3,001
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(5)...................... 0.15%+ 0.15% 0.15% 0.15% 0.15% 0.15%
Net investment income............... 4.46+ 4.11 4.58 5.18 6.07 5.68
- ---------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............... 0% 0% 0% 16% 30% 18%
- ---------------------------------------------------------------------------------------------------------------------------
</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) For six months ended June 30, 2004 and the five years ended December 31,
2003, The Travelers Insurance Company reimbursed the Fund for $37,378,
$69,291, $68,397, $57,934, $46,621 and $55,152 in expenses, respectively. If
such expenses were not reimbursed, the per share decreases to net investment
income and actual expense ratios would have been as follows:
<Table>
<Caption>
EXPENSE RATIOS
PER SHARE DECREASES WITHOUT EXPENSE
TO NET INVESTMENT INCOME REIMBURSEMENTS
------------------------ -------------------
2004 $0.08 1.58%+
2003 0.12 1.16
2002 0.14 1.27
2001 0.13 1.28
2000 0.14 1.44
1999 0.20 1.95
</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. Past
performance is no guarantee of future results. In the absence of fee waivers
and/or expense reimbursements, the total return would be reduced.
(5) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.15%.
* 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.
11
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THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
TRUSTEES
R. Jay Gerken, CFA
Chairman
Robert E. McGill, III
Frances M. Hawk, CFA, CFP
Lewis Mandell
OFFICERS
R. Jay Gerken, CFA
President and
Chief Executive Officer
Andrew B. Shoup
Senior Vice President and
Chief Administrative Officer
William D. Wilcox*
Chief Compliance Officer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
Kaprel Ozsolak
Controller
Kathleen A. McGah
Secretary
Ernest J. Wright
Assistant Secretary
- ---------------
* As of July 23, 2004.
INVESTMENT ADVISER
Travelers Asset Management International Company LLC
ADMINISTRATOR
The Travelers Insurance Company
CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT
Citicorp Trust Bank, fsb.
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 or life
contract owners and is not an offer of shares of the Zero Coupon Bond Fund
Portfolio Series 2005.
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 website 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 website at www.sec.gov.
VG-ZERO (Semi) (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 9, 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 9, 2004
By: /s/ Andrew B. Shoup
Andrew B. Shoup
Chief Administrative Officer of
The Travelers Series Trust
Date: September 9, 2004