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: DECEMBER 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
1 of 12
ANNUAL REPORT
DECEMBER 31, 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
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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WHAT'S INSIDE
<Table>
LETTER FROM THE CHAIRMAN.................................... 1
MANAGER OVERVIEW............................................ 2
FUND AT A GLANCE............................................ 4
FUND EXPENSES............................................... 5
PERFORMANCE COMPARISON...................................... 7
SCHEDULE OF INVESTMENTS..................................... 8
STATEMENT OF ASSETS AND LIABILITIES......................... 9
STATEMENT OF OPERATIONS..................................... 10
STATEMENTS OF CHANGES IN NET ASSETS......................... 11
FINANCIAL HIGHLIGHTS........................................ 12
NOTES TO FINANCIAL STATEMENTS............................... 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 16
ADDITIONAL INFORMATION...................................... 17
IMPORTANT TAX INFORMATION................................... 20
</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,
Despite sharply rising oil prices, threats of terrorism,
geopolitical concerns and uncertainties surrounding the
presidential election, the U.S. economy continued to
expand during the reporting period. Following a robust
4.5% gain in the first quarter of 2004, gross domestic
product ("GDP")(i) growth was 3.3% in the second quarter
of the year. This decline was largely attributed to
higher energy prices. However, third quarter 2004 GDP
rose a strong 4.0%. While fourth quarter GDP figures
have not yet been released, continued growth is
expected.
Turning to the financial markets, stocks in both the
U.S. and abroad rallied sharply during the fourth
quarter of 2004, helping to produce solid gains for the
year. With the uncertainty of the presidential election
behind them, coupled with falling oil prices, investors
were drawn to the equity markets. The overall bond
market also generated positive returns during the fiscal
year. This was surprising to many, given the economic
expansion and five interest rate hikes by the Federal
Reserve Board ("Fed").(ii)
Please read on for a more detailed look at prevailing
economic and market conditions during the fund's fiscal
year and to learn how those conditions may have affected
fund performance.
INFORMATION ABOUT YOUR FUND
As you may be aware, several issues in the mutual fund and variable product
industry have recently 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, fees, revenue sharing, producer compensation 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, but are not in a position to predict the outcome of
these requests and investigations.
As previously disclosed by Citigroup, the Staff of the Securities and Exchange
Commission ("SEC") has notified Citigroup Asset Management ("CAM") and Citicorp
Trust Bank ("CTB"), an affiliate of CAM, that the Staff is considering
recommending a civil injunctive action and/or an administrative proceeding
against CAM, CTB, the former CEO of CAM, two former employees and a current
employee of CAM, relating to the creation, operation and fees of an internal
transfer agent unit that serves various CAM-managed 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. For further
information, please see the "Additional Information" note in the Notes to the
Financial Statements included in this report.
As always, thank you for your 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
January 14, 2005
1
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MANAGER OVERVIEW
ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
MARKET/ECONOMIC OVERVIEW
The economic expansion entered its fourth year at the close of 2004. Led by
strong consumer and business demand, the balance of growth was quite healthy.
The employment picture improved during the year, as rising profits led to
increased corporate willingness to hire new employees. Strong consumer and
business fundamentals appear likely to continue into 2005 and consumer spending
looks to strengthen further relative to last year.
Inflation began to rise modestly in 2004 as shortages of certain goods and
commodities developed around the world. In 2005, inflation pressures look to
rise as healthy growth continues to improve corporate pricing power. The ongoing
economic recovery and rising price pressures caused the Fed to institute a
series of five 25 basis point(iii) rate hikes, beginning in mid-2004. This trend
looks to continue well into 2005. After the end of the fund's reporting period,
at their February meeting, the Fed once again raised the target rate by 0.25% to
2.50%.
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Zero Coupon Bond Fund
Portfolio Series 2005 returned 1.06%. In comparison, a U.S. Treasury STRIP
maturing on November 15, 2005,(iv) which is similar to securities in the fund,
returned 0.99% during the same time period. In comparison, the fund's unmanaged
benchmark, the Merrill Lynch Zero Coupon 10-Year Index(v) returned 7.03%, and
the Lipper Variable Target Maturity Funds Category Average was 3.05% for the
same period.(2)
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004
(UNAUDITED)
<Table>
<Caption>
6 MONTHS 12 MONTHS
Zero Coupon Bond Fund Portfolio Series 2005 1.09% 1.06%
Merrill Lynch Zero Coupon 10-Year Index 7.38% 7.03%
U.S. Treasury STRIP Maturing 11/15/05 0.85% 0.99%
Lipper Variable Target Maturity Funds Category Average 3.37% 3.05%
</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.
PERFORMANCE FIGURES MAY REFLECT REIMBURSEMENTS AND/OR FEE WAIVERS,
WITHOUT WHICH THE PERFORMANCE WOULD HAVE BEEN LOWER.
FUND RETURNS ASSUME THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS AT NET ASSET VALUE AND THE DEDUCTION OF ALL FUND
EXPENSES.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended December 31, 2004 and include
the reinvestment of dividends and capital gains, if any. Returns were
calculated among the 9 funds for the six-month period and among the 9
funds for the 12-month period in the variable target maturity funds
category.
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of initial sales charges and expenses imposed in connection with
investing in variable annuity or variable life contracts such as
administrative fees, account charges, and surrender charges, which if
reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 9 funds in the fund's Lipper category.
2
As the fund is scheduled to mature in December 2005 (please see special note
below), it is primarily invested in short-term U.S. Treasury STRIPS. Because of
the short-term nature of the fund's holdings, the fund underperformed its
benchmark indices, which are composed of longer-term holdings.
CONTRIBUTORS TO PERFORMANCE
As of December 31, 2004, the effective duration of the portfolio was 1.11 years.
During the fiscal year, the yield curve(vi) flattened as short and intermediate
term rates increased more than longer-term rates. The portfolio had less
exposure to the negative effects of these rising interest rate moves. The fund's
short-term cash position benefited results, as the yield it earned continued to
increase in the rising rate environment.
Thank you for your investment in the Zero Coupon Bond Fund Portfolio Series
2005. As ever, we appreciate that you have chosen us to manage your assets and
we remain focused on achieving the fund's investment goals.
Sincerely,
- -s- GENE COLLINS
Gene C. Collins
Travelers Asset Management International Company LLC
February 3, 2005
SPECIAL NOTE
The fund is scheduled to mature in December of 2005 (the "Target Date"). On the
fund's Target Date, the fund will be converted to cash and contract owners may
invest in another of the funding options available under their contract. If a
contract owner does not complete an instruction form directing what should be
done with liquidation proceeds, the proceeds will be automatically invested in
the money market funding option available under the contract.
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.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
(ii) The Fed is responsible for the formulation of a policy designated to
promote economic growth, full employment, stable prices, and a sustainable
pattern of international trade and payments.
(iii) A basis point is one one-hundredth (1/100 or 0.01) of one percent.
(iv) Treasury STRIPS (Separate Trading of Registered Interest and Principal
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.
(v) The Merrill Lynch Zero Coupon 10-Year Index is a U.S. Government stripped
security that has a maturity not greater than 10 years.
(vi) The yield curve is the graphical depiction of the relationship between the
yield on bonds of the same credit quality but different maturities.
3
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FUND AT A GLANCE (UNAUDITED)
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
U.S. Treasury Obligations 81.6 81
Repurchase Agreement 18.4 14.5
Corporate Bonds & Notes 0 4.5
</Table>
4
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FUND EXPENSES (UNAUDITED)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1)
transaction costs, including front-end and back-end sales charges (loads) on
purchase payments, reinvested dividends, or other distributions; and (2) ongoing
costs, including management fees; distribution and/or service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004
and held for the six months ended December 31, 2004.
ACTUAL EXPENSES
The table below titled "Based on Actual Total Return" provides information
about actual account values and actual expenses. You may use the information
provided in this table, together with the amount you invested, to estimate the
expenses that you paid over the period. To estimate the expenses you paid on
your account, divide your ending account value by $1,000 (for example, an $8,600
ending account value divided by $1,000 = 8.6), then multiply the result by the
number under the heading entitled "Expenses Paid During the Period."
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BASED ON ACTUAL TOTAL RETURN(1)
<Table>
<Caption>
BEGINNING ENDING ANNUALIZED EXPENSES
ACTUAL TOTAL ACCOUNT ACCOUNT EXPENSE PAID DURING
RETURN(2) VALUE VALUE RATIO THE PERIOD(3)
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Zero Coupon Bond Fund Portfolio Series
2005 1.09% $1,000.00 $1,010.90 0.15% $0.76
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</Table>
(1) For the six months ended December 31, 2004.
(2) Assumes reinvestment of dividends and capital gains distributions, if any,
at net asset value. Total return is not annualized, as it may not be
representative of the total return for the year. Total returns do not
reflect expenses associated with the separate account such as administrative
fees, account charges and surrender charges, which, if reflected, would
reduce the total returns. Performance figures may reflect voluntary fee
waivers and/or expense reimbursements. Past performance is no guarantee of
future results. In the absence of voluntary fee waivers and/or expense
reimbursements, the total return would have been lower.
(3) Expenses (net of expense reimbursement and/or voluntary fee waiver) are
equal to the Fund's annualized expense ratio multiplied by the average
account value over the period, multiplied by the number of days in the most
recent fiscal half-year, then divided by 366.
5
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FUND EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below titled "Based on Hypothetical Total Return" provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio and an assumed rate of return of 5.00% per year before
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use the information provided in this
table to compare the ongoing costs of investing in the Fund and other funds. To
do so, compare the 5.00% hypothetical example relating to the Fund with the
5.00% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as front-end or back-end sales charges (loads). Therefore, the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transaction costs were included, your costs would have been higher.
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BASED ON HYPOTHETICAL TOTAL RETURN(1)
<Table>
<Caption>
HYPOTHETICAL BEGINNING ENDING ANNUALIZED EXPENSES
TOTAL ACCOUNT ACCOUNT EXPENSE PAID DURING
RETURN VALUE VALUE RATIO THE PERIOD(2)
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Zero Coupon Bond Fund Portfolio Series
2005 5.00% $1,000.00 $1,024.38 0.15% $0.76
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</Table>
(1) For the six months ended December 31, 2004.
(2) Expenses (net of expense reimbursement and/or voluntary fee waiver) are
equal to the Fund's annualized expense ratio multiplied by the average
account value over the period, multiplied by the number of days in the most
recent fiscal half-year, then divided by 366.
6
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PERFORMANCE COMPARISON -- ZERO COUPON BOND FUND PORTFOLIO SERIES 2005
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 1.06%
Five Years Ended 12/31/04 6.83
10/11/95* through 12/31/04 6.22
CUMULATIVE TOTAL RETURN
-------------------------------------------------
10/11/95* through 12/31/04 74.51%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on October
11, 1995, assuming reinvestment of dividends, through December 31,
2004. The STRIP issue is not an index. Rather, it is a U.S.
Treasury zero coupon bond with a maturity date that is similar to
those in the Portfolio. The Merrill Lynch Zero Coupon 10-Year Index
is comprised of U.S. Government stripped securities which have a
maturity not greater than ten years.
[Performance graph - Series 2005]
<Table>
<Caption>
ZERO COUPON BOND FUND U.S. TREASURY STRIP MERRILL LYNCH ZERO COUPON
PORTFOLIO SERIES 2005 MATURING 11/15/05 10-YEAR INDEX
--------------------- ------------------- -------------------------
10/11/95 10000 10000 10000
12/95 10480 10687 10691
12/96 10580 10584 10585
12/97 11810 11101 12072
12/98 13258 12542 13945
12/99 12540 11820 12502
12/00 14311 13583 15436
12/01 15228 14845 15976
12/02 16871 16880 19332
12/03 17268 17253 19836
12/31/04 17451 17423 21231
</Table>
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Assumes reinvestment of all dividends and capital gain distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. The graph does not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns. Performance figures
may reflect voluntary fee waivers and/or expense reimbursements. In the absence
of voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
7
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SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 81.9%
$1,375,000 U.S. Treasury Note, Stripped Interest Payment only, to yield
6.301% due 11/15/05....................................... $1,343,523
1,800,000 U.S. Treasury Note, Stripped Interest Payment only, to yield
3.960% due 5/15/07........................................ 1,672,830
1,350,000 U.S. Treasury Note, Stripped Principal Payment only, to
yield 6.461% due 8/15/05.................................. 1,328,746
- ----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost -- $4,240,953)........ 4,345,099
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 18.5%
981,000 State Street Bank and Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $981,114; (Fully
collateralized by U.S. Treasury Bond, 11.250% due 2/15/15;
Market value -- $1,007,715) (Cost -- $981,000)............ 981,000
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.4% (Cost -- $5,221,953*)........... 5,326,099
Liabilities in Excess of Other Assets -- (0.4)%............. (20,537)
- ----------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $5,305,562
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</Table>
* Aggregate cost for federal income tax purposes is $5,223,933.
SEE NOTES TO FINANCIAL STATEMENTS.
8
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STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
<Table>
ASSETS:
Investments, at value (Cost -- $4,240,953)................ $4,345,099
Repurchase agreement, at value (Cost -- $981,000)......... 981,000
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Total investments, at value (Cost -- $5,221,953).......... 5,326,099
Cash...................................................... 31
Interest receivable....................................... 38
Receivable from administrator............................. 12,382
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TOTAL ASSETS.............................................. 5,338,550
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LIABILITIES:
Trustees' fees payable.................................... 2,400
Payable for Fund shares reacquired........................ 1,016
Investment advisory fee payable........................... 292
Accrued expenses.......................................... 29,280
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TOTAL LIABILITIES......................................... 32,988
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TOTAL NET ASSETS............................................ $5,305,562
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NET ASSETS:
Paid-in capital........................................... $5,203,396
Accumulated net realized loss from investment
transactions........................................... (1,980)
Net unrealized appreciation of investments................ 104,146
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TOTAL NET ASSETS............................................ $5,305,562
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SHARES OUTSTANDING.......................................... 485,741
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NET ASSET VALUE............................................. $10.92
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
9
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STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
INVESTMENT INCOME:
Interest.................................................. $ 243,365
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EXPENSES:
Audit and legal........................................... 35,152
Shareholder communications................................ 20,279
Trustees' fees............................................ 10,271
Custody................................................... 8,328
Investment advisory fee (Note 2).......................... 5,282
Administration fee (Note 2)............................... 3,169
Transfer agency services (Note 2)......................... 2,500
Other..................................................... 548
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TOTAL EXPENSES............................................ 85,529
Less: Expense reimbursement and fee waiver (Notes 2 and
6)..................................................... (79,294)
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NET EXPENSES.............................................. 6,235
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NET INVESTMENT INCOME....................................... 237,130
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1
AND 3):
Realized Gain From Investment Transactions................ 45,046
Net Change in Unrealized Appreciation/Depreciation of
Investments............................................ (224,712)
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NET LOSS ON INVESTMENTS..................................... (179,666)
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INCREASE IN NET ASSETS FROM OPERATIONS...................... $ 57,464
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</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
10
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STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 237,130 $ 281,130
Net realized gain......................................... 45,046 14,656
Net change in unrealized appreciation/depreciation........ (224,712) (145,875)
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 57,464 149,911
- ---------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):
Net investment income..................................... (239,703) (285,700)
Net realized gains........................................ (59,702) (36,106)
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS........................................... (299,405) (321,806)
- ---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 1,362,300 1,190,465
Net asset value of shares issued for reinvestment of
dividends and distributions............................ 299,405 321,806
Cost of shares reacquired................................. (1,745,735) (2,187,042)
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (84,030) (674,771)
- ---------------------------------------------------------------------------------------
DECREASE IN NET ASSETS...................................... (325,971) (846,666)
NET ASSETS:
Beginning of year......................................... 5,631,533 6,478,199
- ---------------------------------------------------------------------------------------
END OF YEAR*.............................................. $ 5,305,562 $ 5,631,533
- ---------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... -- $2,209
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
2004 2003(1) 2002(1) 2001(1) 2000(1)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............... $11.45 $11.84 $11.78 $11.56 $10.65
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.......................... 0.52 0.49 0.55 0.61 0.67
Net realized and unrealized gain (loss)........ (0.40) (0.21) 0.70 0.13 0.79
- -----------------------------------------------------------------------------------------------------------------------
Total Income From Operations..................... 0.12 0.28 1.25 0.74 1.46
- -----------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.......................... (0.52) (0.61) (1.05) (0.50) (0.55)
Net realized gains............................. (0.13) (0.06) (0.14) (0.02) --
- -----------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions................ (0.65) (0.67) (1.19) (0.52) (0.55)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $10.92 $11.45 $11.84 $11.78 $11.56
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2).................................. 1.06% 2.36% 10.79% 6.41% 14.13%
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).................. $5,306 $5,632 $6,478 $5,744 $4,346
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)(4)................................. 0.12% 0.15% 0.15% 0.15% 0.15%
Net investment income.......................... 4.49 4.11 4.58 5.18 6.07
- -----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 0% 0% 0% 16% 30%
- -----------------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) 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 voluntary fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of
voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
(3) Travelers Insurance Company has agreed to reimburse the fund for certain
expenses for the years ended December 31, 2004, 2003, 2002, 2001 and 2000
respectively. In addition, Smith Barney Fund Management LLC voluntarily
waived a portion of its fee for the year ended December 31, 2004. If such
expenses were not reimbursed and/or fees not voluntarily waived, actual
expense ratios would have been 1.62%, 1.16%, 1.27%, 1.28% and 1.44%,
respectively.
(4) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 0.15%.
SEE NOTES TO FINANCIAL STATEMENTS.
12
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Zero Coupon Bond Fund Portfolio Series 2005 ("Fund"), a separate
diversified investment fund of The Travelers Series Trust ("Trust"), a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Shares of the
Trust are offered exclusively for use with certain variable annuity and variable
life insurance contracts offered through the separate accounts of various
affiliated life insurance companies.
In accordance with its prospectus, the Fund will liquidate in December
2005. Accounting rules require that financial statements for entities in
liquidation, or for which liquidation appears imminent, be prepared on a
liquidation basis of accounting. As U.S. generally accepted accounting
principles ("GAAP") for investment companies are materially consistent with the
liquidation basis of accounting, the financial statements have been prepared in
conformity with GAAP for investment companies.
The following are significant accounting policies consistently followed by
the Fund and are in conformity with GAAP. Estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
(A) INVESTMENT VALUATION. Securities traded on national securities markets
are valued at the closing price 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.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which approximates value.
(B) 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 of 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.
(C) 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. 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.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are
accounted for on a trade date basis. Interest income is recorded on the accrual
basis. The cost of investments sold is determined by use of the specific
identification method.
(E) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net
investment income and distributions of net realized gains to shareholders of the
Fund, if any, are declared at least annually. Dividends and distributions to
shareholders of the Fund are recorded on the ex-dividend date and are determined
in accordance with income tax regulations, which may differ from GAAP.
(F) FEDERAL AND OTHER TAXES. It is the Fund's policy to comply with the
federal income and excise tax requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies. Accordingly, the Fund
intends to distribute substantially all of its taxable income and net realized
gains on investments, if any, to shareholders each year. Therefore, no federal
income tax provision is required.
(G) RECLASSIFICATION. GAAP requires that certain components of net assets
be adjusted to reflect permanent differences between financial and tax
reporting. Accordingly, during the current year, $364 has been reclassified
between paid-in capital and overdistributed net investment income, as a result
of permanent differences attributable to a taxable overdistribution of net
investment income. This reclassification has no effect on net assets or net
asset values per share.
13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the 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. The
investment management 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-administration service agreement with Smith Barney Fund Management
LLC ("SBFM"). TIC pays SBFM, as sub-administrator, an administration 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.
During the year ended December 31, 2004, the Fund had a contractual expense
limitation in place of 0.15%. As a result, TIC has agreed to reimburse the Fund
for expenses in the amount of $77,605. This expense limitation is renewed
annually and can be terminated at any time by TIC with 60 days' notice. In
addition, during the year ended December 31, 2004, SBFM voluntarily waived a
portion of its fee in the amount of $1,689.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as
the Fund's transfer agent. During the year ended December 31, 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 and do not receive compensation from the Trust.
3. INVESTMENTS
During the year ended December 31, 2004, the aggregate cost of purchases
and proceeds from sales of investments (excluding short-term investments) were
as follows:
<Table>
- ------------------------------------------------------------------------
Purchases................................................... --
- ------------------------------------------------------------------------
Sales....................................................... $1,335,310
- ------------------------------------------------------------------------
</Table>
At December 31, 2004, the aggregate unrealized appreciation and
depreciation of investments for federal income tax purposes were as follows:
<Table>
- ----------------------------------------------------------------------
Gross unrealized appreciation............................... $102,166
Gross unrealized depreciation............................... --
- ----------------------------------------------------------------------
Net unrealized appreciation................................. $102,166
- ----------------------------------------------------------------------
</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>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- ----------------------------------------------------------------------------------------------------
Shares sold................................................. 118,416 99,770
Shares issued on reinvestment............................... 27,353 27,948
Shares reacquired........................................... (151,897) (182,780)
- ----------------------------------------------------------------------------------------------------
Net Decrease................................................ (6,128) (55,062)
- ----------------------------------------------------------------------------------------------------
</Table>
5. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal years ended
December 31, was as follows:
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------
Distributions paid from:
Ordinary income........................................... $239,716 285,700
Long-term capital gains................................... 59,689 36,106
- ---------------------------------------------------------------------------------
Total Distributions Paid.................................... $299,405 $321,806
- ---------------------------------------------------------------------------------
</Table>
14
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 2004, the components of accumulated earnings on a tax
basis were as follows:
<Table>
- ----------------------------------------------------------------------
Unrealized appreciation..................................... $102,166*
- ----------------------------------------------------------------------
</Table>
* The difference between book-basis and tax-basis unrealized appreciation is
attributable to the tax deferral of losses on wash sales.
6. ADDITIONAL INFORMATION
In connection with an investigation previously disclosed by Citigroup, the
Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup
Asset Management ("CAM"), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through voluntary fee waivers, a total of
approximately $17 million (plus interest), which is the amount of the revenue
received by Citigroup relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering
recommending action based on the adequacy of the disclosures made to the fund
boards that approved the transfer agency arrangement, CAM's initiation and
operation of, and compensation for, the transfer agent business and CAM's
retention of, and agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC Staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are ongoing and any settlement of this matter with the SEC will require approval
by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance
that any amount reserved by Citigroup will be distributed. Nor is there at this
time any certainty as to how the proceeds of any settlement would be
distributed, to whom any such distribution would be made, the methodology by
which such distribution would be allocated, and when such distribution would be
made.
Although there can be no assurance, Citigroup does not believe that this
matter will have a material adverse effect on the funds.
7. SUBSEQUENT EVENT NOTE
On January 31, 2005, Citigroup announced that it has reached an agreement
with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TAMIC, currently an indirect wholly owned subsidiary of Citigroup, would become
an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser
to Zero Coupon Bond Fund Portfolio Series 2005.
The transaction is subject to certain regulatory approvals, as well as
other customary conditions to closing. The transaction is expected to close this
summer.
In connection with this transaction, the Trust's Board of Trustees will be
asked to approve new investment advisory and administrative services contracts,
and, to the extent required by law, variable annuity and variable life contract
owners, who beneficially own the shares of the funds, will be asked to approve
new investment advisory agreements.
15
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE TRAVELERS SERIES TRUST:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Zero Coupon Bond Fund Portfolio Series 2005 of
The Travelers Series Trust ("Trust") as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Zero
Coupon Bond Fund Portfolio Series 2005 of The Travelers Series Trust as of
December 31, 2004, and the results of its operations for the year then ended,
the changes in its net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
New York, New York
February 18, 2005
16
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
INFORMATION ABOUT TRUSTEES AND OFFICERS
The business and affairs of The Travelers Series Trust ("Trust") are
managed under the direction of the Trust's Board of Trustees. Information
pertaining to the Trustees and Officers of the Trust is set forth below. The
Statement of Additional Information includes additional information about the
Trustees and is available, without charge, upon request by calling the Trust's
administrator at 1-800-842-9368.
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PORTFOLIOS IN
POSITION(S) LENGTH FUND COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------
NON-INTERESTED
TRUSTEES(2):
Frances M. Hawk Trustee Since 1991 Private Investor 5 Board of Managers
CFA, CFP of 6 Variable
108 Oxford Hill Annuity Separate
Lane Accounts of The
Downingtown, PA Travelers
Birth Year: 1948 Insurance Co.
("TIC")
Lewis Mandell Trustee Since 1990 Professor, University of 5 Delaware North
160 Jacobs Hall Buffalo Corp.; Board of
Buffalo, NY Managers of 6
Birth Year: 1943 Variable Annuity
Separate Accounts
of TIC
Robert E. McGill, Trustee Since 1990 Retired 5 Lydall Inc.; Board
III of Managers of 6
295 Hancock Road Variable Annuity
Williamstown, MA Separate Accounts
Birth Year: 1931 of TIC
INTERESTED TRUSTEE:
R. Jay Gerken, Chairman, Since 2002 Managing Director of Citigroup 219 Chairman, Board of
CFA(3) President Global Markets ("CGM"); Managers of 6
Citigroup Asset and Chief Chairman, President and Chief Variable Annuity
Management ("CAM") Executive Executive Officer of Smith Separate Accounts
399 Park Avenue, Officer Barney Fund Management LLC of TIC
4th Floor ("SBFM"), Travelers Investment
New York, NY 10022 Adviser, Inc. ("TIA") and Citi
Birth Year: 1951 Fund Management Inc. ("CFM");
President and Chief Executive
Officer of certain mutual
funds associated with
Citigroup Inc. ("Citigroup");
formerly, Portfolio Manager of
Smith Barney Allocation Series
Inc. (from 1996 to 2001) and
Smith Barney Growth and Income
Fund (from 1996 to 2000)
</Table>
17
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PORTFOLIOS IN
POSITION(S) LENGTH FUND COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
OFFICERS:
Andrew B. Shoup Senior Vice Since 2004 Director of CAM; Senior Vice N/A N/A
CAM President and President and Chief
125 Broad Street Chief Administrative Officer of
11th Floor Administrative mutual funds associated with
New York, NY 10004 Officer Citigroup; Head of
Birth Year: 1956 International Funds
Administration of CAM (from
2001 to 2003); Director of
Global Funds Administration of
CAM from 2000 to 2001; Head of
U.S. Citibank Funds
Administration of CAM (from
1998 to 2000)
Kaprel Ozsolak Chief Since 2004 Vice President of CGM; Chief N/A N/A
CAM Financial Financial Officer and
125 Broad Street Officer and Treasurer of certain mutual
11th Floor Treasurer funds associated with
New York, NY 10004 Citigroup; Controller of
Birth Year: 1965 certain mutual funds
associated with Citigroup
(from 2002 to 2004)
William D. Wilcox Chief Since 2004 Counsel and Chief Compliance N/A N/A
Travelers Life & Compliance Officer (since 1999), TIC;
Annuity Officer Chief Anti- Money Laundering
One Cityplace Compliance Officer (since
Hartford, CT 06103 2002), 6 Variable Annuity
Birth Year: 1964 Separate Accounts of TIC;
Chief Compliance Officer
(since 2004), 5 mutual funds
and 6 Variable Separate
Accounts sponsored by TIC
</Table>
18
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PORTFOLIOS IN
POSITION(S) LENGTH FUND COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
Andrew Beagley Chief Anti- Since 2002 Director of CGM (since 2000); N/A N/A
CAM Money Director of Compliance, North
399 Park Avenue, Laundering America, CAM (since 2000);
4th Floor Compliance Chief Anti-Money Laundering
New York, NY 10022 Officer Compliance Officer, Chief
Birth Year: 1962 Compliance Officer and Vice
President of certain mutual
funds associated with
Citigroup; Director of
Compliance, Europe, the Middle
East and Africa, Citigroup
Asset Management (from 1999 to
2000); Chief Compliance
Officer, SBFM, CFM, TIA,
Salomon Brothers Asset
Management Limited, Smith
Barney Global Capital
Management Inc.
Kathleen A. McGah Secretary Since 2004 Deputy General Counsel of TIC; N/A N/A
Travelers Life & Assistant Secretary of 5
Annuity mutual funds and 6 Variable
One Cityplace Separate Accounts sponsored by
Hartford, CT 06103 TIC (from 1995 to 2004)
Birth Year: 1950
Ernest J. Wright Assistant Since 2004 Vice President and Secretary N/A N/A
Travelers Life & Secretary of TIC; Secretary of 5 mutual
Annuity funds and 6 Variable Separate
One Cityplace Accounts sponsored by TIC
Hartford, CT 06103 (from 1994 to 2004)
Birth Year: 1940
</Table>
- ---------------
(1) Each Trustee and officer serves until his or her respective successor has
been duly elected and qualified.
(2) Mr. Knight Edwards is an Emeritus Trustee. An Emeritus Trustee is permitted
to attend meetings, but has no voting power.
(3) Mr. Gerken is an "interested person" of the Trust as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is Managing
Director of CGM, an indirect wholly-owned subsidiary of Citigroup, and his
ownership shares and options to purchase shares of Citigroup, the indirect
parent of TIC.
19
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
The following information is provided with respect to the ordinary income
distributions paid by the Trust during the taxable year ended December 31, 2004.
<Table>
- ------------------------------------------------------------------------------------
Record Date................................................. 6/24/2004 12/27/2004
Payable Date................................................ 6/25/2004 12/28/2004
- ------------------------------------------------------------------------------------
Interest from Federal Obligations........................... 86.75% 91.23%
- ------------------------------------------------------------------------------------
Long-Term Capital Gain Distributions Paid Per Share......... $0.0318 $0.0978
- ------------------------------------------------------------------------------------
</Table>
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult with your tax adviser to determine if any portion of
the dividends you received is exempt from state income taxes.
Please retain this information for your records.
20
THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
TRUSTEES
R. Jay Gerken, CFA
Chairman
Frances M. Hawk, CFA, CFP
Lewis Mandell
Robert E. McGill, III
OFFICERS
R. Jay Gerken, CFA
President and
Chief Executive Officer
Andrew B. Shoup
Senior Vice President and
Chief Administrative Officer
Kaprel Ozsolak
Chief Financial Officer
and Treasurer
William D. Wilcox
Chief Compliance Officer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
Kathleen A. McGah
Secretary
Ernest J. Wright
Assistant Secretary
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 and is not for use with the general public.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS
SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION
ABOUT THE FUND. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q are available on the Commission's website at
www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, D.C., and information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain
information on Form N-Q from the Fund, shareholders can call 1-800-842-9368.
Information on how the Fund voted proxies relating to portfolio securities
during the 12-month period ended June 30, 2004 and a description of the policies
and procedures that the Fund uses to determine how to vote proxies relating to
portfolio securities is available (1) without charge upon request, by calling
1-800-842-9368, (2) on the Fund's website at www.citigroupAM.com and (3) on the
SEC's website at www.sec.gov.
VG-ZERO (Annual) (2-05) Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Robert
E. McGill, a member of the Board's Audit Committee, possesses the
technical attributes identified in Instruction 2(b) of Item 3 to
Form N-CSR to qualify as an "audit committee financial expert," and
has designated Mr. McGill as the Audit Committee's financial expert.
Mr. McGill is an "independent" Trustee pursuant to paragraph (a)(2)
of Item 3 to Form N-CSR.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees for The Travelers Series Trust were $276,000 and $276,000
for the years ended 12/31/04 and 12/31/03.
(b) Audit-Related Fees for The Travelers Series Trust were $0 and $0 for
the years ended 12/31/04 and 12/31/03.
(c) Tax Fees for The Travelers Series Trust of $36,400 and $36,400 for
the years ended 12/31/04 and 12/31/03. These amounts represent
aggregate fees paid for tax compliance, tax advice and tax planning
services, which include (the filing and amendment of federal, state and
local income tax returns, timely RIC qualification review and tax
distribution and analysis planning) rendered by the Accountant to
Travelers Series Trust.
(d) All Other Fees for The Travelers Series Trust of $0 and $0 for the
years ended 12/31/04 and 12/31/03.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the Board of
each registered investment company (the "Fund") advised by Smith Barney
Fund Management LLC or Salomon Brothers Asset Management Inc or one of
their affiliates (each, an "Adviser") requires that the Committee shall
approve (a) all audit and permissible non-audit services to be provided
to the Fund and (b) all permissible non-audit services to be provided
by the Fund's independent auditors to the Adviser and any Covered
Service Providers if the engagement relates directly to the operations
and financial reporting of the Fund. The Committee may implement
policies and procedures by which such services are approved other than
by the full Committee.
The Committee shall not approve non-audit services that the Committee
believes may impair the independence of the auditors. As of the date of
the approval of this Audit Committee Charter, permissible non-audit
services include any professional services (including tax services),
that are not prohibited services as described below, provided to the
Fund by the independent auditors, other than those provided to the Fund
in connection with an audit or a review of the financial statements of
the Fund. Permissible non-audit services may not include: (i)
bookkeeping or other services related to the accounting records or
financial statements of the Fund; (ii) financial information systems
design and implementation; (iii) appraisal or valuation services,
fairness opinions or contribution-in-kind reports; (iv) actuarial
services; (v) internal audit outsourcing services; (vi) management
functions or human resources; (vii) broker or dealer, investment
adviser or investment banking services; (viii) legal services and
expert services unrelated to the audit; and (ix) any other service the
Public Company Accounting Oversight Board determines, by regulation, is
impermissible.
Pre-approval by the Committee of any permissible non-audit services is
not required so long as: (i) the aggregate amount of all such
permissible non-audit services provided to the Fund, the Adviser and
any service providers controlling, controlled by or under common
control with the Adviser that provide ongoing services to the Fund
("Covered Service Providers") constitutes not more than 5% of the total
amount of revenues paid to the independent auditors during the fiscal
year in which the permissible non-audit services are provided to (a)
the Fund, (b) the Adviser and (c) any entity controlling, controlled by
or under common control with the Adviser that provides ongoing services
to the Fund during the fiscal year in which the services are provided
that would have to be approved by the Committee; (ii) the permissible
non-audit services were not recognized by the Fund at the time of the
engagement to be non-audit services; and (iii) such services are
promptly brought to the attention of the Committee and approved by the
Committee (or its delegate(s)) prior to the completion of the audit.
(2) For The Travelers Series Trust, the percentage of fees that were
approved by the audit committee, with respect to: Audit-Related Fees
were 100% and 100% for the years ended 12/31/04 and 12/31/03; Tax Fees
were 100% and 100% for the years ended 12/31/04 and 12/31/03; and Other
Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03.
(f) N/A
(g) Non-audit fees billed by the Accountant for services rendered to
Travelers Series Trust and CAM and any entity controlling, controlled
by, or under common control with CAM that provides ongoing services to
Travelers Series Trust. Fees billed to and paid by Citigroup Global
Markets, Inc. related to the transfer agent matter as fully described
in the notes to the financial statements titled "additional
information" were $75,000 and $0 for the years ended 12/31/04 and
12/31/03.
(h) Yes. The Travelers Series Trust's Audit Committee has considered
whether the provision of non-audit services that were rendered to
Service Affiliates which were not pre-approved (not requiring
pre-approval) is compatible with maintaining the Accountant's
independence. All services provided by the Accountant to the Travelers
Series Trust or to Service Affiliates which were required to be
pre-approved were pre-approved as required.
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.
2 of 12
ITEM 11. EXHIBITS.
(a) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(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: March 9, 2005
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: March 9, 2005
By: /s/ Kaprel Ozsolak
(Kaprel Ozsolak)
Chief Financial Officer of
THE TRAVELERS SERIES TRUST
Date: March 9, 2005
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