Filed On 4/25/95 · SEC Files 2-76640, 811-03429 · Accession Number 908812-95-69
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
4/25/95 Capital Appreciation Fund/CT 485BPOS 4/25/95 5:75 908812
Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment 51 265K
2: EX-8 Opinion re: Tax Matters 15 71K
3: EX-11 Statement re: Computation of Earnings Per Share 1 6K
4: EX-11 Statement re: Computation of Earnings Per Share 6 13K
5: EX-27 Financial Data Schedule 2± 8K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 23
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
CAPITAL APPRECIATION FUND
(Exact name of Registrant)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (203)277-0111
ERNEST J. WRIGHT
Secretary to the Board of Trustees
Capital Appreciation Fund
One Tower Square
Hartford, Connecticut 06183
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: ______________________
It is proposed that this filing will become effective (check appropriate box):
____ immediately upon filing pursuant to paragraph (b)
_X__ on May 1, 1995 pursuant to paragraph (b)
____
____ 60 days after filing pursuant to paragraph (a)(i)
____ on __________ pursuant to paragraph (a)(i)
____ 75 days after filing pursuant to paragraph (a)(ii)
____ on __________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
____ This Post-Effective Amendment designates a new effective date for a
previously filed post-effective amendment.
AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL INTEREST OF THE REGISTRANT WERE
REGISTERED PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF 1940. A
RULE 24F-2 NOTICE FOR REGISTRANT'S FISCAL YEAR ENDED DECEMBER 31, 1994 WAS
FILED ON FEBRUARY 27, 1995.
CAPITAL APPRECIATION FUND
Cross-Reference Sheet pursuant to Rule 495 under the Securities Act of 1933
ITEM
NO. CAPTION IN PROSPECTUS
----- ---------------------
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Fund Description;
Investment Objective and
Policies
5. Management of the Fund Board of Trustees, Investment
Advisers, Portfolio Turnover
and Expenses; Additional
Information
6. Capital Stock and Other Fund Description; Dividends and
Securities Taxes; Fund Shares; Pricing
Shares
7. Purchase of Securities Being Offered How to Buy Shares
8. Redemption or Repurchase How to Redeem Shares
9. Legal Proceedings Legal Proceedings
CAPTION IN STATEMENT OF
ADDITIONAL INFORMATION
------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Fund Description; Investment
Objective and Policies;
Investment Restrictions;
Appendix
14. Management of the Registrant Trustees and Officers
15. Control Persons and Principal Additional Information
Holders of Securities
16. Investment Advisory and Investment Adviser; Additional
Other Services Information
17. Brokerage Allocation Brokerage
18. Capital Stock and Other Securities Declaration of Trust
19. Purchase, Redemption and Pricing Valuation of Securities
of Securities Being Offered
20. Tax Status Distributions and Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Data Not Applicable
23. Financial Statements Financial Statements
PART A
INFORMATION REQUIRED IN A PROSPECTUS
-------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
-------------------------------------------------------------------------------
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 1-800-842-0125
Capital Appreciation Fund (the "Fund") is a diversified open-end management
investment company (mutual fund) whose goal is growth of capital primarily
through the use of common stocks. Income is not an objective. The Fund invests
principally in common stocks of small to large companies that
characteristically move faster than the market during major price movements.
Shares of the Fund are currently offered without a sales charge only to The
Travelers Fund U for Variable Annuities ("Fund U") and The Travelers Fund UL
for Variable Life Insurance ("Fund UL"), separate accounts of The Travelers
Insurance Company (the "Company" or "Travelers Insurance"). The Fund serves as
one of the investment vehicles for the variable annuity and variable life
insurance contracts issued by the Company. Funds U and UL invest in shares of
the Fund in accordance with allocation instructions received from owners of the
variable annuity and variable life insurance contracts. Such allocation rights
are described further in the accompanying prospectuses for Funds U and UL. The
rights of Funds U and UL as shareholders should be distinguished from the
rights of owners of the variable annuity and variable life insurance contracts.
The term "shareholder" as used herein refers to Funds U and UL or to any other
insurance company separate account that may use shares of the Fund as an
investment vehicle in the future.
This Prospectus concisely sets forth the information about the Fund that you
should know before investing. Please read and retain it for future reference.
Additional information about the Fund is contained in a Statement of Additional
Information dated May 1, 1995 which has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. A
copy may be obtained, without charge, by writing to Travelers Insurance,
Annuity Services 5 SHS, One Tower Square, Hartford, Connecticut 06183-5030, or
by calling 1-800-842-0125.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR VARIABLE
ANNUITY OR VARIABLE LIFE INSURANCE CONTRACTS ISSUED BY TRAVELERS INSURANCE AND
ITS SEPARATE ACCOUNTS. BOTH THIS PROSPECTUS AND THE CONTRACT PROSPECTUS SHOULD
BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
TABLE OF CONTENTS
· Download Table
FINANCIAL HIGHLIGHTS..................................................3
FUND DESCRIPTION......................................................4
INVESTMENT OBJECTIVE AND POLICIES.....................................4
INVESTMENT RESTRICTIONS...............................................4
INVESTOR CONSIDERATIONS AND RISK FACTORS..............................5
BOARD OF TRUSTEES.....................................................5
INVESTMENT ADVISERS...................................................5
TIMCO.........................................................5
Advisory Fees.........................................6
JANUS CAPITAL CORPORATION.....................................6
Sub-Advisory Fees.....................................6
Portfolio Manager.....................................6
SECURITIES TRANSACTIONS.......................................6
PORTFOLIO TURNOVER....................................................6
FUND EXPENSES.........................................................6
TRANSFER AGENT........................................................7
FUND SHARES...........................................................7
HOW TO BUY SHARES.....................................................7
PRICING SHARES........................................................7
HOW TO REDEEM SHARES..................................................7
DIVIDENDS AND TAX STATUS..............................................8
LEGAL PROCEEDINGS.....................................................8
ADDITIONAL INFORMATION................................................8
EXHIBIT A.............................................................9
CAF-2
FINANCIAL HIGHLIGHTS
CAPITAL APPRECIATION FUND
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
The following information on per share data for the five years ended December
31, 1994 has been audited by Coopers & Lybrand L.L.P., Independent Accountants.
All other periods presented have been audited by the Fund's prior auditors.
Coopers & Lybrand L.L.P.'s report on the per share data for each of the five
years in the period ended December 31, 1994 is contained in the 1994 Annual
Report to Shareholders. The Annual Report, which contains additional
performance information, is incorporated by reference into the Statement of
Additional Information. A copy of the Annual Report can be obtained without
charge by writing to or calling the Company at the address and telephone number
listed on the cover of this Prospectus. The following information should be
read in conjunction with the financial statements contained in the 1994 Annual
Report.
· Enlarge/Download Table
NOVEMBER 1,
TO YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, OCTOBER 31,
------------------------------------------------------------------------- ------------ --------------
PER SHARE DATA 1994 + 1993 1992 ++1991 1990 1989 1988 1987 1986 1986 #1985
----- ------ ---- ------ ---- ---- ---- ---- ---- ---- -----
Net asset value,
beginning of year $ 25.87 $ 22.72 $ 19.63 $ 14.62 $ 15.76 $ 13.62 $ 12.54 $ 17.11 $ 20.24 $ 16.06 $ 14.71
Income from operations
----------------------
Net investment income 0.19 0.19 0.28 0.36 0.09 0.14 0.11 (0.01) 0.02 (0.01) 0.03
Net gains or losses
on securities
(realized and
unrealized) ...... (1.41) 3.21 3.13 4.75 (1.08) 2.00 1.15 (1.35) 0.05 4.19 1.41
-------- ------ ------- ------- -------- ------- ------- -------- ------- ------- -------
Total from
investment
operations .... (1.22) 3.40 3.41 5.11 (0.99) 2.14 1.26 (1.36) 0.07 4.18 1.44
Less distributions
------------------
Distributions from net
investment income
and short-term
realized gains ... (0.15) (0.25) (0.32) (0.10) (0.15) -- (0.18) -- -- -- (0.09)
Distributions from
long-term realized
gains ............ -- -- -- -- -- -- -- (3.21) (3.20) -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions .. (0.15) (0.25) (0.32) (0.10) (0.15) -- (0.18) (3.21) (3.20) -- (0.09)
Net asset value,
end of year ..... $ 24.50 $ 25.87 $ 22.72 $ 19.63 $ 14.62 $ 15.76 $ 13.62 $ 12.54 $ 17.11 $ 20.24 $ 16.06
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN* (4.76)% 15.09% 17.60% 35.16% (6.24)% 15.71% 10.06% (8.12)%*** 10.05%*** 10.05%*** (27.11)%***
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (thousands) $78,494 $62,414 $29,506 $20,497 $13,494 $15,456 $42,470 $50,457 $67,156 $64,012 $51,053
Ratio of operating
expenses to
average net
assets .......... 0.89%** 0.87%** 0.56%** 0.56%** 0.82%** 1.37% 1.01% 0.93% 0.97%*** 0.91% 1.00%
Ratio of net
investment income
to average
net assets ...... 0.79% 0.81% 1.39% 2.05% 0.58% 0.84% 0.83% (0.05)% 0.75%*** (0.05)% 0.01%
Portfolio turnover
rate**** ........ 106% 155% 126% 205% 80% 75% 104% 170% 8% 166% 114%
<FN>
* Total return is determined by dividing the increase (decrease) in value of
a share during the year, after reflecting the reinvestment of dividends
declared during the year, by the beginning of year share price. Shares in
the Fund are only sold to Travelers Insurance separate accounts in
connection with the issuance of variable annuity and variable life
insurance contracts. Total Return does not reflect the deduction of any
contract charges or fees assessed by Travelers Insurance separate
accounts.
** The ratios of expenses to average net assets for 1990 and later years
reflect an expense reimbursement by Travelers Insurance in connection with
voluntary expense limitations. Without the expense reimbursement, the ratio
of operating expenses to average net assets would have been 0.96%, 0.91%,
1.28% and 1.56% for the years ended December 31, 1993, 1992, 1991 and 1990,
respectively. For the year ended December 31, 1994, there was no expense
reimbursement by Travelers Insurance in connection with the voluntary
expense limitation.
*** Annualized.
**** Portfolio turnover rates for periods ending on or after October 31, 1985
include certain U.S. Government obligations.
+ Effective May 1, 1993, Janus Capital Corporation became subadviser for the
Fund.
++ On May 1,1990, TIMCO replaced Keystone Custodian Funds, Inc. as the
investment adviser for the Fund.
# On August 16, 1985 the former Aggressive Stock Trust combined with Keystone
Stock Trust. Simultaneously, the name of Keystone Stock Trust was changed
to Aggressive Stock Trust. Amounts in this column include the income and
capital charges of Aggressive Stock Trust (formerly Keystone Stock Trust)
to August 16, 1985, and the activity in the combined funds from the date of
the merger.
CAF-3
FUND DESCRIPTION
Capital Appreciation Fund (the "Fund") is registered with the Securities and
Exchange Commission ("SEC") as a diversified open-end management investment
company, commonly known as a mutual fund. The Fund was created under
Massachusetts law as a Massachusetts business trust on March 18, 1982.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide shareholders with growth of
capital primarily through the use of common stocks. The Fund invests
principally in common stocks of small to large companies that
characteristically move faster than the market during major price movements. It
is the policy of the Fund to invest its assets as fully as practicable in
common stocks, securities convertible into common stocks and securities having
common stock characteristics, including rights and warrants, selected primarily
for prospective capital growth. The class of securities from which these
selections are made may be expected to experience wide fluctuations in price in
both rising and declining markets. While income is not an objective, securities
appearing to offer attractive possibilities for future growth of income may be
included in the portfolio whenever it seems possible to do so without
conflicting with the Fund's objective of capital growth. The Fund may invest in
domestic, foreign and restricted securities. While the Fund may occasionally
invest in foreign securities, it is not anticipated that they will, at any
time, account for more than twenty-five percent (25%) of the investment
portfolio.
Although the Fund normally invests primarily in equity securities, the Fund
may increase its cash position when the investment adviser or the sub-adviser
is unable to locate investment opportunities with desirable risk/reward
characteristics and perceives an opportunity for capital growth from such
securities so the Fund may receive a return on its idle cash. The Fund may
invest in preferred stocks; warrants; corporate bonds and debentures; U.S.
government securities; instruments of banks which are members of the Federal
Deposit Insurance Corporation and have assets of at least $1 billion, such as
certificates of deposit, demand and time deposits and bankers' acceptances;
prime commercial paper, including master demand notes; repurchase agreements
secured by U.S. government securities; or other debt securities. The Fund may
invest in debt securities rated below investment grade. (See "High Yield/High
Risk Bonds" in Exhibit A.) When the Fund invests in debt securities,
investment income will increase and may constitute a large portion of the
return on the Fund and the Fund probably will not participate in market
advances or declines to the extent that it would if it were fully invested in
common stocks.
The Fund may write covered call options on securities which it owns. Such an
option on an underlying security would obligate the Fund to sell, and give the
purchaser of the option the right to buy, that security at a stated exercise
price at any time until a stated expiration date of the option. The Fund may
also purchase index or individual equity call or put options. The Fund will pay
a premium to buy call (or put) options and thereby obtain the right to buy (or
sell) a fixed number of shares of the underlying asset at the stated exercise
price on or prior to the stated expiration date.
The Fund may also use exchange-traded futures contracts as a hedge to protect
against changes in stock prices or interest rates. At no time will the Fund's
transactions in such futures be employed for speculative purposes. A stock
index futures contract is a contractual obligation to buy or sell a specified
index of stocks at a future date for a fixed price. An interest rate futures
contract is a contract to buy or sell specified debt securities at a future
time for a fixed price.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated with such
investments and investment techniques, see Exhibit A to this Prospectus.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
may not be changed without a vote of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as
amended. These restrictions and certain other fundamental restrictions are
fully set forth in the Statement of Additional Information. Unless otherwise
stated, all references to the Fund's assets are in terms of current market
value.
The Fund will not: (1) invest more than 5% of its assets in the securities of
any one issuer; (2) borrow money, except that the Fund may borrow money from
banks for temporary or emergency purposes in amounts of up to 10% of its gross
assets computed at cost; assets pledged to secure borrowings shall be no more
than the lesser of the amount borrowed or 10% of the Fund's gross assets
computed at cost; (3) invest more than 25% of its assets in the securities of
issuers in the same industry; and (4) invest more than 10% of its assets in
securities for which market quotations are not readily available, including
restricted securities.
CAF-4
The Fund has undertaken to a state insurance authority that so long as the
state authority requires and shares of the Fund are offered for sale to fund
variable life insurance policies in that state, the Fund will comply with
certain foreign security diversification guidelines. These guidelines provide
that (1) as the percentage of the Fund's net asset value invested in foreign
securities increases, a corresponding increase will be made in the number of
countries in whose securities the Fund invests; and (2) the Fund will invest no
more than 20% of its net asset value in the securities of issuers located in
any one country (other than the United States). Notwithstanding the above, the
guidelines permit the Fund to invest any amount in the securities of issuers
located in the United States, and to invest an additional 15% of its net asset
value in the securities of issuers located in Australia, Canada, France, Japan,
the United Kingdom or Germany. The guidelines also require that American
Depository Receipts be treated as if they were foreign securities. This
undertaking is not a fundamental investment restriction or policy and may be
changed without a vote of Shareholders.
INVESTOR CONSIDERATIONS AND RISK FACTORS
The risk inherent in investing in the Fund is that the net asset value will
fluctuate in response to changes in economic conditions, interest rates and the
market's perception of the underlying portfolio securities of the Fund. There
can, of course, be no assurance that the Fund will achieve its investment
objective since there is uncertainty in every investment.
The investment experience of equity investments over time will tend to
reflect levels of stock market prices and dividend payouts. Both are affected
by diverse factors, including not only business conditions and investor
confidence in the economy, but current conditions in a particular industry or
company. The yield on a common stock is not contractually determined. Equity
securities are subject to financial risks relating to the earning stability and
overall financial soundness of an issue. They are also subject to market risks
relating to the effect of general changes in the securities market on the price
of a security. In addition, there may be more risk associated with the Fund to
the extent that it invests in small or mid-sized companies. More risk is
associated with investment in small or mid-sized companies than with larger
companies because such companies may be dependent on only one or two products
and may be more vulnerable to competition from larger companies with greater
resources and to economic conditions affecting their market sector. Small or
mid-sized companies may be new, without long business or management histories,
and perceived by the market as unproven. Their securities may be held primarily
by insiders or institutional investors, which may affect marketability. The
prices of these stocks often fluctuate more than the overall stock market.
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the
Fund. Subject to the provisions of the Declaration of Trust, the business and
affairs of the Fund shall be managed by the Trustees or other parties so
designated by the Trustees. Information relating to the Board of Trustees,
including its members and their compensation, is contained in the Statement of
Additional Information.
INVESTMENT ADVISERS
As described above, the Board of Trustees monitors the activities of those
entities which provide investment advisory services to the Fund. The Travelers
Investment Management Company (TIMCO) provides investment advice and, in
general, supervises the management and investment program of the Fund. Janus
Capital Corporation provides sub-advisory services to the Fund with respect to
its daily investment operations, subject to the supervision of the Board of
Trustees and TIMCO.
TIMCO
TIMCO is a registered investment adviser which has provided investment
advisory services since its incorporation in 1967. TIMCO is an indirect wholly
owned subsidiary of Travelers Group Inc., and its principal offices are located
at One Tower Square, Hartford, Connecticut 06183. In addition to serving as
investment adviser for the Fund, TIMCO also acts as investment adviser or
sub-adviser for other investment companies which fund variable contracts issued
by the Company, including The Travelers Growth and Income Stock Account for
Variable Annuities, The Travelers Timed Growth and Income Stock Account for
Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities
and Managed Assets Trust. TIMCO also provides investment advice to individual
and pooled pension and profit-sharing accounts, and affiliated companies of
Travelers Insurance.
CAF-5
ADVISORY FEES
Under the Investment Advisory Agreement, TIMCO will be paid an amount
equivalent on an annual basis to 0.75% of the average daily net assets of the
Fund. From that amount, TIMCO will in turn pay an amount equivalent on an
annual basis to 0.55% of the average daily net assets of the Fund to Janus
Capital Corporation for its services as sub-adviser, TIMCO thus retaining 0.20%
as compensation for its services as described above. The fee is computed daily
and paid weekly.
JANUS CAPITAL CORPORATION
Janus Capital Corporation (Janus Capital), 100 Fillmore Street, Suite 300,
Denver, Colorado 80206, has been employed by TIMCO as a sub-adviser to manage
the daily investment operations of the Fund, subject to the supervision of both
TIMCO and the Board of Trustees. Kansas City Southern Industries, Inc., a
publicly traded holding company whose primary subsidiaries are engaged in
transportation, financial services and real estate, owns approximately 81% of
the outstanding voting stock of Janus Capital. Janus Capital also acts as
investment adviser to other investment companies not affiliated with the Fund,
as well as to individual, corporate, charitable and retirement accounts.
SUB-ADVISORY FEES
As described above, TIMCO, and not the Fund, will pay to Janus Capital an
amount equivalent on an annual basis to 0.55% of the Fund's average daily net
assets for its services as sub-adviser to the Fund.
PORTFOLIO MANAGER
The day-to-day portfolio management of the Fund is currently handled by
Thomas F. Marsico, a Vice President and Portfolio Manager of Janus Capital
Corporation, and has been since May 1993. Prior to joining Janus Capital in
1986, Mr. Marsico was a Senior Portfolio Manager with Fred Alger Management
and a partner with Boettcher and Company, Inc.
SECURITIES TRANSACTIONS
Under policies established by the Board of Trustees, TIMCO or Janus Capital
will select broker-dealers to execute transactions for the Fund subject to the
receipt of best execution. Broker-dealers may from time to time be affiliated
with the Fund, TIMCO, Janus Capital or their affiliates.
The Fund may pay higher commissions to broker-dealers which provide research
services. TIMCO and Janus Capital may use these services in advising the Fund,
as well as in advising other clients for which they provide advisory services.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rates for the fiscal years ended December 31,
1992, 1993 and 1994 were 126%, 155% and 106%, respectively. High portfolio
turnover involves correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund.
FUND EXPENSES
In addition to the investment advisory fees discussed above, the other
principal expenses of the Fund include the charges and expenses of the transfer
agent, the custodian, the independent auditors, and any outside legal counsel
employed by either the Fund or the Board of Trustees; the compensation for the
disinterested members of the Board of Trustees; the costs of printing and
mailing the Fund's prospectuses, proxy solicitation materials, and annual,
semi-annual and periodic reports; brokerage commissions, interest charges and
taxes; and any registration, filing and other fees payable to government
agencies in connection with the registration of the Fund and its shares under
federal and state securities laws.
Pursuant to a Management Agreement dated May 1, 1993 between the Fund and the
Company, the Company has agreed to reimburse the Fund for the amount by which
the Fund's aggregate annual expenses, including investment advisory fees but
excluding brokerage commissions, interest charges and taxes, exceed 1.25% of
the Fund's average net assets for any fiscal year.
For the fiscal year ended December 31, 1994, the Fund paid .89% of its
average net assets in expenses.
CAF-6
TRANSFER AGENT
Travelers Insurance, One Tower Square, Hartford, Connecticut 06183,
serves as the Fund's transfer agent and dividend disbursing agent.
FUND SHARES
The Fund currently issues one class of shares which participate equally in
dividends and distributions and have equal voting, liquidation and other
rights. When issued and paid for, the shares will be fully paid and
nonassessable by the Fund and will have no preference, conversion, exchange or
preemptive rights.
Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares. Shares are redeemable, transferable and
freely assignable as collateral. There are no sinking fund provisions. (See the
accompanying separate account prospectus for a discussion of voting rights
applicable to purchasers of variable annuity and variable life insurance
contracts.)
Under Massachusetts law it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. However, the Fund's Declaration
of Trust provides that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
HOW TO BUY SHARES
Shares of the Fund are currently sold only to The Travelers Fund U for
Variable Annuities and The Travelers Fund UL for Variable Life Insurance in
connection with variable annuity and variable life insurance contracts issued
by the Company. Shares of the Fund are not sold to the general public. Fund
shares are sold on a continuing basis, without a sales charge, at the net asset
value next computed after payment is made by the insurance company to the
Fund's custodian. However, the separate accounts to which shares are sold may
impose sales and other charges, as described in the appropriate contract
prospectus.
Although the Fund is not currently aware of any disadvantages to contract
owners of either variable annuity or variable life insurance contracts because
the Fund's shares are available with respect to both products, an
irreconcilable material conflict may conceivably arise between contract owners
of different separate accounts investing in the Fund due to differences in tax
treatment, management of the Fund's investments, or other considerations. The
Fund's Board of Trustees will monitor events in order to identify any material
conflicts between variable annuity contract owners and variable life insurance
policy owners, and will determine what action, if any, should be taken in the
event of such a conflict.
PRICING SHARES
The net asset value of a Fund share is computed as of the close of trading on
each day on which the New York Stock Exchange is open, except on days when
changes in the value of the Fund's securities do not affect the current net
asset value of its shares. The New York Stock Exchange is currently closed on
weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share is arrived at by determining the value of the Fund's assets,
subtracting its liabilities, and dividing the result by the number of shares
outstanding.
The Fund values short-term money market instruments with maturities of sixty
days or less at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which, when combined with
accrued interest receivable, approximates market. All other investments are
valued at market value or, where market quotations are not readily available,
at fair value as determined in good faith by the Fund's Board of Trustees.
HOW TO REDEEM SHARES
Shareholders may redeem Fund shares at the redemption value next determined
after the Company receives a proper redemption request. The redemption value is
the net asset value adjusted for fractions of a cent and may be more or less
than the shareholder's cost depending upon changes in the value of the Fund's
portfolio securities between purchase and redemption.
CAF-7
The Fund computes the redemption value at the close of the New York Stock
Exchange at the end of the day on which it has received all proper
documentation from the shareholder. Redemption proceeds are normally wired or
mailed either the same or the next business day, but in no event later than
seven days thereafter.
The Fund may temporarily suspend the right to redeem its shares when: (1)
the New York Stock Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Fund's investments or determination of its net asset value is not reasonably
practicable; or (4) the Securities and Exchange Commission, for the protection
of shareholders, so orders.
DIVIDENDS AND TAX STATUS
The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under Subchapter M of the Internal Revenue Code. The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for each fiscal year.
Capital gains and dividends are distributed in cash or reinvested in
additional shares of the Fund, without a sales charge. Although purchasers of
variable contracts are not subject to federal income taxes on distributions by
the Fund, they may be subject to state and local taxes and should review the
accompanying contract prospectus for a discussion of the tax treatment
applicable to purchasers of variable annuity and variable life insurance
contracts.
LEGAL PROCEEDINGS
There are no pending material legal proceedings affecting the Fund.
ADDITIONAL INFORMATION
Except as otherwise stated in this Prospectus or as required by law, the Fund
reserves the right to change the terms of the offer stated in this Prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
CAF-8
EXHIBIT A
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS
AND INVESTMENT TECHNIQUES AVAILABLE TO THE FUND
FUTURES CONTRACTS
The Fund may use exchange-traded financial futures contracts either as a
hedge to protect against anticipated changes in stock prices and interest
rates, or as a hedge to facilitate the purchase or sale of securities.
Financial futures contracts consist of stock index futures contracts and
futures contracts on debt securities ("interest rate futures"). A stock index
futures contract is a contractual obligation to buy or sell a specified index
of stocks at a future date for a fixed price. An interest rate futures contract
is a contract to buy or sell specified debt securities at a future time for a
fixed price. At no time will the Fund's transactions in such financial futures
be employed for speculative purposes. When a futures contract is purchased, the
Fund will set aside, in an identifiable manner, an amount of cash and cash
equivalents equal to the total market value of the futures contract, less the
amount of the initial margin.
Hedging by use of interest rate futures seeks to establish, with more
certainty than would otherwise be possible, the effective rate of return on
portfolio securities. When hedging is successful, any depreciation in the value
of portfolio securities will substantially be offset by appreciation in the
value of the futures position. Conversely, any appreciation in the value of the
portfolio securities will substantially be offset by depreciation in the value
of the futures position.
Positions taken in the futures markets are not normally held to maturity, but
instead are liquidated through offsetting transactions which may result in a
profit or a loss. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the stock index or security and
the same delivery date. If the offsetting purchase price is less than the
original sale price, the Fund realizes a gain; if it is more, the Fund realizes
a loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if less, a loss. While futures
positions taken by the Fund will usually be liquidated in this manner, the Fund
may instead make or take delivery of underlying securities whenever it appears
economically advantageous for it to do so. In determining gain or loss,
transaction costs must also be taken into account. There can be no assurance
that the Fund will be able to enter into an offsetting transaction with respect
to a particular contract at a particular time.
The Fund will not purchase or sell futures contracts for which the aggregate
initial margin exceeds five percent (5%) of the fair market value of its
assets, after taking into account unrealized profits and unrealized losses on
any such contracts it has entered into.
All stock index and interest rate futures contracts will be traded on
exchanges that are licensed and regulated by the Commodity Futures Trading
Commission ("CFTC"). To ensure that its futures transactions meet CFTC
standards, the Fund will enter into futures contracts for hedging purposes
only, i.e., for the purposes or with the intent specified in CFTC regulations
and interpretations, subject to the requirements of the SEC. The Fund will
further seek to assure that fluctuations in the price of any futures contracts
that it uses for hedging purposes will be substantially related to fluctuations
in the price of the securities held by it or which it expects to purchase, or
for other risk reduction strategies, though there can be no assurance that the
expected result will always be achieved.
As evidence of its hedging intent, the Fund expects that on seventy-five
percent (75%) or more of the occasions on which it purchases a long futures
contract, it will effect the purchase of securities in the cash market or take
delivery as it closes out a futures position. In particular cases, however,
when it is economically advantageous, a long futures position may be terminated
without the corresponding purchase of securities.
SPECIAL RISKS RELATING TO FUTURES CONTRACTS
While certain futures contracts may be purchased and sold to reduce certain
risks, these transactions may entail other risks. Thus, while the Fund may
benefit from the use of such futures, changes in stock price movements or
interest rates may result in a poorer overall performance for the Fund than if
it had not entered into such futures contracts. Moreover, in the event of an
imperfect correlation between the futures position and the portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Fund may be exposed to risk of loss. TIMCO will attempt to reduce this
risk by engaging in futures transactions, to the extent possible, where, in its
judgment, there is a significant correlation between changes in the prices of
the futures contracts and the prices of any portfolio securities sought to be
hedged. Successful use of futures contracts for hedging purposes is also
subject to TIMCO's ability to predict correctly movements in the direction of
the market.
CAF-9
BUYING PUT AND CALL OPTIONS
The Fund may purchase put options on securities held, or on futures contracts
whose price volatility is expected to closely match that of securities held, as
a defensive measure to preserve shareholders' capital when market conditions
warrant. The Fund may purchase call options on specific securities, or on
futures contracts whose price volatility is expected to closely match that of
securities eligible for purchase by the Fund, in anticipation of or as a
substitute for the purchase of the securities themselves. These options may be
listed on a national exchange or executed "over-the-counter" with a
broker-dealer as the counterparty. While TIMCO anticipates that the majority of
option purchases and sales will be executed on a national exchange, put or call
options on specific securities or for non-standard terms are likely to be
executed directly with a broker-dealer when it is advantageous to do so. Option
contracts will be short-term in nature, generally less than nine months in
duration.
The Fund will pay a premium in exchange for the right to purchase (call) or
sell (put) a specific number of shares of an equity security or futures
contract at a specified price (the strike price) on or before the expiration
date of the option contract. In either case, the Fund's risk is limited to the
option premium paid.
The Fund may sell the put and call options prior to their expiration and
thereby realize a gain or loss. A call option will expire worthless if the
price of the related security is below the contract strike price at the time of
expiration; a put option will expire worthless if the price of the related
security is above the contract strike price at the time of expiration.
Put and call options will be employed for bona fide hedging purposes only.
Liquid securities sufficient to fulfill the call option delivery obligation
will be identified and segregated in an account; deliverable securities
sufficient to fulfill the put option obligation will be similarly identified
and segregated. In the case of put options on futures contracts, portfolio
securities whose price volatility is expected to match that of the underlying
futures contract will be identified and segregated.
WRITING COVERED CALL OPTIONS
The Fund may write or sell covered call options. By writing a call option,
the Fund becomes obligated during the term of the option to deliver the
securities underlying the option upon payment of the exercise price.
The Fund may only write "covered" options. This means that as long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
The principal reason for writing call options is to obtain, through a receipt
of premiums, a greater current return than would be realized on the underlying
securities alone. The Fund receives a premium from writing a call option which
it retains whether or not the option is exercised. By writing a call option,
the Fund might lose the potential for gain on the underlying security while the
option is open.
Options on some securities are relatively new and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could impair the Fund's ability to use such
options to achieve its investment objectives.
LOANS OF SECURITIES TO BROKER DEALERS
The Fund may lend securities to brokers and dealers pursuant to agreements
requiring that the loans be continuously secured by cash, or securities of the
U.S. government, its agencies or instrumentalities or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if as a result the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on the
securities loaned and simultaneously earns interest on the investment of the
cash loan collateral in U.S. Treasury notes, certificates of deposit, other
high grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by the Fund if, in the opinion of the Fund, a material event
affecting the investment is to occur. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans may be made only to borrowers deemed to be of good
standing, under standards approved by the Board of Trustees, when the income to
be earned from the loan justifies the attendant risks.
CAF-10
FOREIGN SECURITIES AND AMERICAN DEPOSITARY RECEIPTS
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio transactions,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. Additionally, dividends payable on foreign
securities may be subject to foreign taxes withheld prior to distribution.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Changes in
foreign exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar. Many of the
foreign securities held by the Fund will not be registered with, nor will
the issuers thereof be subject to the reporting requirements of, the SEC.
Accordingly, there may be less publicly available information about the
securities and the foreign company or government issuing them than is available
about a domestic company of government entity. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment positions.
HIGH YIELD/HIGH RISK BONDS
The Fund has no pre-established minimum quality standards and may invest up
to 35% of its assets in debt securities that are rated below investment grade
(securities rated Ba or lower by Moody's Investors Service, Inc. ("Moody's")
or BB or lower by Standard & Poor's Corporation ("S&P")). Such securities
generally offer a higher yield, but may be subject to a higher risk of default
in interest or principal payments and are considered speculative. The market
prices of lower rated securities are generally less sensitive to interest rate
changes than higher rated investments, but more sensitive to adverse economic
or political changes, or in the case of corporate issuers, individual
corporate developments. Lower rated securities may also have less liquid
markets than higher rated securities, and their liquidity as well as their
value may be more severely affected by adverse economic conditions, by adverse
publicity and investor perceptions of the market or by new or proposed
legislation. (See the Statement of Additional Information for a more detailed
discussion of the bond ratings.)
The Fund may also invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the investment adviser or sub-adviser may treat such securities as
unrated debt. Unrated debt securities will be included in the 35% limit of the
Fund, unless the investment adviser or the sub-adviser deems such securities to
be the equivalent of investment-grade securities.
RISKS RELATING TO HIGH YIELD/HIGH RISK BONDS
High yield bonds are typically lower rated securities; the lower the quality
of a debt security, the higher the yield it will provide, but the greater the
risk that interest or principal payments will not be made when due. In the
event of an unanticipated default, the Fund would experience a reduction in its
income, and could expect a decline in the market value of the securities so
affected.
While providing opportunities to maximize return over time, investors should
be aware of the following market, economic and credit factors influencing high
yield securities: (1) securities rated BB or lower by S&P or Ba or lower by
Moody's are considered predominantly speculative with respect to the ability of
the issuer to meet principal and interest payments; (2) the value of high yield
securities may be more susceptible to real or perceived adverse economic,
company or industry conditions than is the case for higher quality securities;
(3) widespread economic downturn could result in increased defaults in the high
yield market; (4) adverse market, credit or economic conditions could make it
difficult at certain times to sell certain high yield securities held by the
Fund; (5) the secondary market for high yield securities may be less liquid
than the secondary market for higher quality securities which may affect the
value of certain high yield securities held by the Fund at certain times; and
(6) there may not always be readily available market quotations for certain
securities. At these times, the investment adviser or sub-adviser will use its
best judgment to assign values to those securities.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one year
or less such as bank certificates of deposit, bankers' acceptances, commercial
paper (including master demand notes) and obligations issued or guaranteed
CAF-11
by the United States government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest
to the bearer of the receipt on the date specified on the certificate. The
certificate can usually be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of United States banks which have at least $1 billion in deposits
as of the date of their most recently published financial statements (including
foreign branches of U.S. banks, U.S. branches of foreign banks which are
members of the Federal Reserve System or the Federal Deposit Insurance
Corporation, and savings and loan associations which are insured by the Federal
Deposit Insurance Corporation).
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase A-1 or
higher by S&P or Prime-1 by Moody's; or, if not rated, will be issued by
companies which have an outstanding debt issue rated at the time of purchase
Aaa, Aa or A by Moody's, or AAA, AA or A by S&P, or will be determined by TIMCO
to be of comparable quality.
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. The issuer's long-term
senior debt is rated "A" or better, although in some cases "BBB" credits may be
allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances. Typically, the issuer's industry is well
established and the issuer has a strong position within the industry.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public preparations to meet such obligations. Relative strength or weakness of
the above factors determines how the issuer's commercial paper is rated within
various categories.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have maturities of one year or
less; Treasury notes have maturities of one to ten years; and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include direct obligations of the United States
Treasury and securities issued or guaranteed by the Federal Housing
Administration,
CAF-12
Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage
Association, General Services Administration, Central Bank for Cooperatives,
Federal Home Loan Banks, Federal Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Maritime Administration, The
Tennessee Valley Authority, District of Columbia Armory Board and Federal
National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities, such as
Treasury bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; still others, such as bonds
issued by the Federal National Mortgage Association, a private corporation, are
supported only by the credit of the instrumentality. Because the U.S.
government is not obligated by law to provide support to an instrumentality it
sponsors, the Fund will invest in the securities issued by such an
instrumentality only when TIMCO determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable investments. U.S.
government securities will not include international agencies or
instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank
or the Inter-American Development Bank, or issues insured by the Federal
Deposit Insurance Corporation.
REPURCHASE AGREEMENTS
Interim cash balances may be invested from time to time in repurchase
agreements with approved counterparties. Approved counterparties are limited to
national banks or reporting broker-dealers meeting TIMCO's credit quality
standards as presenting minimal risk of default. All repurchase transactions
must be collateralized by U.S. Government securities with market value no less
than 102% of the amount of the transaction, including accrued interest.
Repurchase transactions generally mature the next business day but, in the
event of a transaction of longer maturity, collateral will be marked to
market daily and, when required, additional cash or qualifying collateral will
be required from the counterparty.
In executing a repurchase agreement, the Fund purchases eligible securities
subject to the seller's simultaneous agreement to repurchase them on a mutually
agreed upon date and at a mutually agreed upon price. The purchase and resale
prices are negotiated with the counterparty on the basis of current short-term
interest rates, which may be more or less than the rate on the securities
collateralizing the transaction. Physical delivery or, in the case of "book
entry" securities, segregation in the counterparty's account at the Federal
Reserve for the benefit of the Fund is required to establish a perfected claim
to the collateral for the term of the agreement in the event the counterparty
fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by
the counterparty on its obligation, the Fund would bear the risks of delay,
adverse market fluctuation and transaction costs in disposing of the
collateral.
CAF-13
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CAF-14
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CAF-15
CAPITAL APPRECIATION FUND
PROSPECTUS
TIC Ed. 5-95
L-11171 Printed in U.S.A.
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
CAPITAL APPRECIATION FUND
MAY 1, 1995
This Statement of Additional Information is not a prospectus but relates to,
and should be read in conjunction with, the Fund's prospectus dated May 1,
1995. A copy of the prospectus may be obtained by writing to The Travelers
Insurance Company, Annuity Services 5 SHS, One Tower Square, Hartford,
Connecticut 06183-5030.
TABLE OF CONTENTS
· Download Table
Page
INVESTMENT OBJECTIVE AND POLICIES.....................................1
INVESTMENT RESTRICTIONS...............................................1
VALUATION OF SECURITIES...............................................2
DISTRIBUTIONS AND TAXES...............................................2
TRUSTEES AND OFFICERS.................................................3
DECLARATION OF TRUST..................................................4
INVESTMENT ADVISORY SERVICES..........................................4
The Investment Adviser........................................4
Advisory Fees.................................................5
The Sub-Adviser...............................................5
REDEMPTIONS IN KIND...................................................5
BROKERAGE.............................................................6
ADDITIONAL INFORMATION................................................6
FINANCIAL STATEMENTS..................................................7
APPENDIX..............................................................8
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Capital Appreciation Fund (the "Fund") is to
provide shareholders with growth of capital primarily through the use of common
stocks. The Fund invests principally in common stocks of small to large
companies that characteristically move faster than the market during major
price movements. It is the policy of the Fund to invest its assets as fully as
practicable in common stocks, securities convertible into common stocks and
securities having common stock characteristics, including rights and warrants,
selected primarily for prospective capital growth. The Fund may also invest in
debt instruments and money market instruments. The Fund may enter into
repurchase agreements, write covered call options and purchase call or put
options.
INVESTMENT RESTRICTIONS
None of the restrictions enumerated in this paragraph may be changed without
a vote of the holders of a majority of the Fund's outstanding shares, as
defined in the Investment Company Act of 1940 (the "1940 Act"). The Fund will
not:
(1) invest more than 5% of its total assets, computed at market
value, in the securities of any one issuer;
(2) invest in more than 10% of any class of securities of any one issuer;
(3) invest more than 5% of the value of its total assets in
companies which have been in operation for less than three years;
(4) borrow money, except to facilitate redemptions or for emergency
or extraordinary purposes and then only from banks and in amounts of
up to 10% of its gross assets computed at cost; while outstanding, a
borrowing may not exceed one-third of the value of the Fund's net
assets, including the amount borrowed; the Fund has no intention of
attempting to increase its net income by means of borrowing and all
borrowings will be repaid before additional investments are made;
assets pledged to secure borrowings shall be no more than the lesser
of the amount borrowed or 10% of the Fund's gross assets computed at
cost;
(5) underwrite securities, except that the Fund may purchase securities
from issuers thereof or others and dispose of such securities in a
manner consistent with its other investment policies; in the
disposition of restricted securities the Fund may be deemed to be
an underwriter, as defined in the Securities Act of 1933 (the "1933
Act");
(6) purchase real estate investment trusts that deal in real estate or
interests therein, or commodities or commodity contracts, except
transactions involving financial futures in order to limit transactions
and borrowing costs, and for hedging purposes;
(7) invest for the primary purpose of control or management;
(8) make margin purchases or short sales of securities, except that the
Fund may place up to 5% of the value of its net assets in total margin
deposits for positions in futures contracts;
(9) make loans, except that the Fund may purchase money market securities,
buy publicly and privately distributed debt securities and lend
limited amounts of its portfolio securities to broker-dealers; all
such investments must be consistent with the Fund's investment
objective and policies;
(10) invest more than 25% of its total assets in the securities of
issuers in any single industry;
(11) purchase the securities of any other investment company except in
the open market and at customary brokerage rates and in no event
more than 3% of the voting securities of any investment company;
(12) invest in interests in oil, gas or other mineral exploration or
development programs; or
(13) invest more than 5% of its net assets in warrants, valued at
the lower of cost or market; warrants acquired by the Fund in units
or attached to securities will be deemed to be without value with
regard to this restriction. The Fund is subject to restrictions in
the sale of portfolio securities to, and in its purchase or retention
of securities of, companies in which the management personnel of
The Travelers Investment Management Company Inc. ("TIMCO") have a
substantial interest.
The Fund has undertaken to a state insurance authority that, so long as the
state authority requires and shares of the Fund are offered for sale to fund
variable life insurance policies in that state, the Fund will comply with
certain foreign security diversification guidelines. These guidelines provide
that (1) as the percentage of the Fund's net asset value invested in foreign
securities increases, a corresponding increase will be made in the number of
countries in whose securities the Fund invests;
-1-
and (2) the Fund will invest no more than 20% of its net asset value in
securities of issuers located in any one country (other than the United
States). Notwithstanding the above, these guidelines permit the Fund to invest
any amount in securities of issuers located in the United States, and an
additional 15% of its net asset value in securities of issuers located in
Australia, Canada, France, Japan, the United Kingdom or Germany. These
guidelines require that American Depository Receipts be treated as if they were
foreign securities. This undertaking is not a fundamental investment
restriction or policy and may be changed without a vote of shareholders.
The Fund may make investments in an amount of up to 10% of the value of the
Fund's net assets in restricted securities which may not be publicly sold
without registration under the 1933 Act. In most instances such securities are
traded at a discount from the market value of unrestricted securities of the
same issuer until the restriction is eliminated. If and when the Fund sells
such portfolio securities, it may be deemed an underwriter, as such term is
defined in the 1933 Act, with respect thereto, and registration of such
securities under the 1933 Act may be required. The Fund will not bear the
expense of such registration. The Fund intends to reach agreements with all
such issuers whereby they will pay all expenses of registration. In determining
securities subject to the 10% limitation, the Fund will include, in addition to
restricted securities, repurchase agreements maturing in more than seven days
and other securities not having readily available market quotations.
VALUATION OF SECURITIES
Current value for the Fund's portfolio securities is determined as follows.
Securities that are traded on an established exchange are valued on the basis
of the last sales price on the exchange where primarily traded prior to the
time of valuation. Securities traded in the over-the-counter market, for which
complete quotations are readily available, are valued at the mean of the bid
and asked prices at the time of valuation. Short-term money market instruments
having maturities of sixty days or less are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of discount)
which, when combined with accrued interest, approximates market; should this
valuation of a security not approximate market, TIMCO will value the security
at a price deemed in good faith to be fair by the Board of Trustees. Short-term
money market instruments having maturities of more than sixty days, for which
complete quotations are readily available, are valued at market. The Board of
Trustees of the Fund values the following at prices it deems in good faith to
be fair: (1) securities, including restricted securities, for which complete
quotations are not readily available, (2) listed securities if in the Fund's
opinion the last sales price does not reflect a current market value or if no
sale occurred, and (3) other assets.
DISTRIBUTIONS AND TAXES
The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under Subchapter M of the Internal Revenue Code. Thus the
Fund is relieved of any federal income tax liability by distributing all of its
net investment income and net capital gains, if any, to its shareholders.
When the Fund makes a distribution, it intends to distribute only its net
capital gains and such income as has been predetermined to the best of the
Fund's ability to be taxable as ordinary income. Therefore, net investment
income distributions will not be made on the basis of distributable income as
computed on the Fund's books, but will be made on a federal taxation basis.
As of December 31, 1994, the Fund had a capital loss carryover of
approximately $4,875,708 which expires in 1998-2002. The Fund intends
not to distribute realized gains until the carryover is exhausted. The Fund may
not realize gains sufficient to use the carryover before it expires with the
passage of time.
-2-
TRUSTEES AND OFFICERS
Name Present Position and Principal Occupation During Last Five Years
---- ----------------------------------------------------------------
*Heath B. McLendon
Chairman and Member
388 Greenwich Street
New York, New York
Age 61
Managing Director (1993-present), Smith Barney Inc. ("Smith Barney");
Chairman (1993-present), Smith Barney Strategy Advisors, Inc.; President
(1994-present), Smith Barney Mutual Funds Management Inc.; Chairman and/or
Director and President of thirty investment companies associated with Smith
Barney; Chairman, Board of Trustees, Drew University; Trustees, The East New
York Savings Bank; Advisory Director, First Empire State Corporation; Chairman,
Board of Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Chairman, Board of Trustees, five Mutual Funds sponsored by
The Travelers Insurance Company.++
Knight Edwards
Member
2700 Hospital Trust Tower
Providence, Rhode Island
Age 71
Of Counsel (1988-present), Partner (1956-1988), Edwards & Angell, Attorneys;
Member, Advisory Board, (1973-1994) thirty-one mutual funds sponsored by
Keystone Group, Inc.; Member, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual
Funds sponsored by The Travelers Insurance Company.++
Robert E. McGill, III
Member
One Elm Street
Windsor Locks, Connecticut
Age 63
Director (1983-present), Executive Vice President (1989-1994), Senior Vice
President, Finance and Administration (1983-1989), The Dexter Corporation
(manufacturer of specialty chemicals and materials); Vice Chairman (1990-1992),
Director (1983-present), Life Technologies, Inc. (life science/present
products); Director (1993-present), Analytical Technology, Inc. (manufacturer
of measurement instruments); Director (1994-present), The Connecticut Surety
Corporation (insurance); Member, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual
Funds sponsored by The Travelers Insurance Company.++
Lewis Mandell
Member
368 Fairfield Road, U41F
Storrs, Connecticut
Age 52
Professor of Finance (1980-present) and Associate Dean (1993-present), School
of Business Administration, and Director, Center for Research and Development
in Financial Services (1980-present), University of Connecticut; Director
(1992-present), GZA Geoenvironmental Tech, Inc. (engineering services); Member,
Board of Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The Travelers
Insurance Company.++
Frances M. Hawk
Member
222 Berkeley Street
Boston, Massachusetts
Age 47
Portfolio Manager (1992-present), HLM Management Company, Inc. (investment
management); Assistant Treasurer, Pensions and Benefits Management (1989-1992),
United Technologies Corporation (broad-based designer and manufacturer of high
technology products); Member, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual
Funds sponsored by The Travelers Insurance Company.++
Ernest J. Wright
Secretary to the Board
One Tower Square
Hartford, Connecticut
Age 54
Assistant Secretary (1994-present), Counsel (1987-present), The Travelers
Insurance Company; Secretary, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Secretary, Board of
Trustees, five Mutual Funds sponsored by The Travelers Insurance Company.++
Ian R. Stuart
Treasurer
One Tower Square
Hartford, Connecticut
Age 38
Vice President and Financial Officer, Financial Services Department
(1994-present), Second Vice President and Financial Officer, Financial Services
Department (1991-1994), The Travelers Insurance Company; Senior Manager
(1986-1991), Price Waterhouse; Treasurer, Board of Trustees, five Mutual Funds
sponsored by The Travelers Insurance Company.++
+ These seven Variable Annuity Separate Accounts are: The Travelers
Growth and Income Stock Account for Variable Annuities, The Travelers Quality
Bond Account for Variable Annuities, The Travelers Money Market Account for
Variable Annuities, The Travelers Timed Growth and Income Stock Account for
Variable Annuities, The Travelers Timed Short Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities
and The Travelers Timed Bond Account for Variable Annuities.
-3-
++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income
Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers Series
Trust.
* Mr. McLendon is an "interested person" within the meaning of the 1940
Act by virtue of his position as director of TIMCO which serves as investment
adviser to the Fund. Mr. McLendon also owns shares and options to purchase
shares of Travelers Group Inc., the indirect parent of The Travelers Insurance
Company.
The Dexter Corporation, of which Mr. McGill is a director, entered into
contracts with The Travelers Insurance Company to provide short-term disability
and life insurance benefits to employees of The Dexter Corporation, and to
administer the health and dental benefit programs for employees of The Dexter
Corporation.
Members of the Board of Trustees who are also officers or employees of
Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members
of the Board of Trustees who are not affiliated as employees of Travelers Group
Inc. or its subsidiaries receive an aggregate annual retainer of $10,000 for
service on the Boards of the five Mutual Funds sponsored by The Travelers
Insurance Company and the seven Variable Annuity Separate Accounts established
by The Travelers Insurance Company. They also receive an aggregate annual fee
of $1,800 for each meeting of such Boards attended.
DECLARATION OF TRUST
The Fund is organized as a Massachusetts business trust. Pursuant to certain
decisions of the Supreme Judicial Court of Massachusetts, shareholders of such
a trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, even if the Fund were held to be a
partnership, the possibility of its shareholders incurring financial loss for
that reason appears remote because the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or the Trustees, and because
the Declaration of Trust provides for indemnification out of Fund property for
any shareholder held personally liable for the obligations of the Fund.
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, a Trustee
shall not be liable for the neglect or wrongdoing of any such person; provided,
however, that nothing in the Declaration of Trust shall protect a Trustee
against any liability for his willful misfeasance, bad faith, gross negligence
or the reckless disregard of his duties.
Shareholders first elected Trustees at a meeting held on August 16, 1985, and
most recently elected Trustees on April 23, 1993. No further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, and unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. Trustees may voluntarily resign from office, or a Trustee may be
removed from office (1) at any time by two-thirds vote of the Trustees; (2) by
a majority vote of Trustees where any Trustee becomes mentally or physically
incapacitated; and (3) either by declaration in writing or at a meeting called
for such purpose by the holders of not less than two-thirds of the outstanding
shares or other voting interests of the Fund. The Trustees are required to call
a meeting for the purpose of considering the removal of a person serving as
trustee, if requested in writing to do so by the holders of not less than 10%
of the outstanding shares or other voting interests of the Fund. The Fund is
required to assist in Shareholders' communications. In accordance with current
laws, insurance companies using the Fund as an underlying investment option
within their variable contracts will request voting instructions from contract
owners participating in such contracts and will vote shares of the Fund in the
same proportion as the voting instructions received.
Voting rights are not cumulative, so that the holders of more than 50% of the
shares voting in the election of Trustees can, if they choose to do so, elect
all of the Trustees of the Fund, in which event the holders of the remaining
shares will be unable to elect any person as a Trustee.
No amendment may be made to the Declaration of Trust without a "vote of a
majority of the outstanding voting securities" of the Fund (as defined in the
1940 Act).
INVESTMENT ADVISORY SERVICES
THE INVESTMENT ADVISER
The Travelers Investment Management Company (TIMCO), an indirect wholly owned
subsidiary of Travelers Group Inc., furnishes investment management and
advisory services to the Fund in accordance with the terms of an Investment
Advisory Agreement which was approved by shareholders on April 23, 1993. As
required by the 1940 Act, the Advisory Agreement will
-4-
continue in effect for a period more than two years from the date of its
execution only so long as its continuance is specifically approved at least
annually (i) by a vote of a majority of the Board of Trustees, or (ii) by a
vote of a majority of the outstanding voting securities of the Fund. In
addition, and in either event, the terms of the Advisory Agreement must be
approved annually by a vote of a majority of the Board of Trustees who are not
parties to, or interested persons of any party to, the Advisory Agreement, cast
in person at a meeting called for the purpose of voting on such approval and at
which the Board of Trustees is furnished such information as may be reasonably
necessary to evaluate the terms of the Advisory Agreement. The Advisory
Agreement further provides that it will terminate automatically upon
assignment; may be amended only with prior approval of a majority of the
outstanding voting securities of the Fund; may be terminated without the
payment of any penalty at any time upon sixty days' notice by the Board of
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund; and may not be terminated by TIMCO without prior approval of a new
investment advisory agreement by a vote of a majority of the outstanding voting
securities of the Fund.
Under the terms of the Advisory Agreement, TIMCO shall:
(1) obtain and evaluate pertinent economic, statistical and financial
data and other information relevant to the investment policy of the
Fund affecting the economy generally and individual companies or
industries, the securities of which are included in the Fund's
portfolio or are under consideration for inclusion therein;
(2) be authorized to purchase supplemental research and other
services from brokers at an additional cost to the Fund;
(3) regularly furnish recommendations to the Board of Trustees with
respect to an investment program for approval, modification or
rejection by the Board of Trustees;
(4) take such steps as are necessary to implement the investment
program approved by the Board of Trustees;
(5) regularly report to the Board of Trustees with respect to
implementation of the approved investment program and any other
activities in connection with the administration of the assets of
the Fund; and
(6) be authorized to engage a sub-adviser to furnish investment
management information and advice to assist TIMCO in carrying out
its responsibilities under this agreement.
ADVISORY FEES
For furnishing investment management and advisory services to the Fund, TIMCO
is paid an amount equivalent on an annual basis to 0.75% of the average daily
net assets of the Fund. From that amount, TIMCO pays to Janus Capital
Corporation an amount equivalent on an annual basis to 0.55% of the average
daily net assets of the Fund for Janus Capital's services as sub-adviser, TIMCO
thus retaining 0.20% as compensation for its services (see "sub-adviser"
below). The advisory fee is computed daily and paid to TIMCO weekly.
For the fiscal years ended December 31, 1992, 1993 and 1994 were $109,783,
$292,573 and $526,483, respectively.
THE SUB-ADVISER
Janus Capital Corporation (Janus Capital), 100 Fillmore Street, Suite 300,
Denver, Colorado, has been employed by TIMCO as a sub-adviser to manage the
daily investment operations of the Fund, subject to the supervision of both
TIMCO and the Board of Trustees. Kansas City Southern Industries, Inc., a
publicly traded holding company whose primary subsidiaries are engaged in
transportation, financial services and real estate, owns approximately 82.7% of
the outstanding voting stock of Janus Capital. Janus Capital also acts as
investment adviser to other investment companies not affiliated with the Fund,
as well as to individual, corporate, charitable and retirement accounts.
As described above, TIMCO, and not the Fund, will pay to Janus Capital an
amount equivalent on an annual basis to 0.55% of the Fund's average daily net
assets for its services as a sub-adviser to the Fund. For the period May 1,
1993 to December 31, 1993, and for the year ended December 31, 1994 Janus
Capital Corporation received $182,573 and $263,242, respectively in advisory
fees.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for
all redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property.
However, the Fund has obligated itself under the 1940 Act to redeem for cash
all shares presented for redemption by any one shareholder up to $250,000, or
1% of the Fund's net assets if that is less, in any 90-day period. Securities
delivered in payment of redemptions would be valued at the same value assigned
to them in computing the net asset value per share. Shareholders receiving such
securities would incur brokerage costs when these securities are sold.
-5-
BROKERAGE
Subject to approval of the Board of Trustees, and in accordance with the
Advisory Agreement and Sub-Advisory Agreement, TIMCO or Janus Capital will
place purchase and sale orders for portfolio securities of the Fund through
brokerage firms which it may select from time to time with the objective of
seeking the best execution by responsible brokerage firms at reasonably
competitive rates. To the extent consistent with this policy, certain brokerage
transactions may be placed with firms which provide brokerage and research
services to TIMCO or Janus Capital, and such services may be paid for at higher
rates than other firms would charge. The term "brokerage and research services"
includes advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities for
purchasers or sellers of securities; furnishing analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
These brokerage and research services may be utilized in providing investment
advice to the Fund, and they may also be utilized in providing investment
advice and management to all accounts over which TIMCO or Janus Capital
exercise investment discretion, but not all of such services will necessarily
be utilized in providing investment advice to the Fund. This practice may be
expected to result in greater costs to the Fund than might otherwise be the
case if brokers whose charges were based on execution alone were used for such
transactions. TIMCO and Janus Capital believe that brokers' research services
are very important in providing investment advice to the Fund but are unable to
give the services a dollar value. While research services are not expected to
reduce the expenses of TIMCO or Janus Capital, either would, through the use of
these services, avoid the additional expenses which would be incurred if they
should attempt to develop comparable information through their own staff.
Transactions in the over-the-counter market are placed with the principal
market makers unless better price and execution may be obtained otherwise.
Brokerage fees will be incurred in connection with futures transactions and the
Fund will be required to deposit and maintain funds with brokers as margin to
guarantee performance of future obligations.
The overall reasonableness of brokerage commissions paid is evaluated by the
personnel of TIMCO or Janus Capital responsible for trading and managing the
Fund's portfolio by comparing brokerage firms utilized by TIMCO or Janus
Capital and other firms with respect to the following factors: the prices paid
or received in securities transactions; the speed of execution and settlement;
the size and difficulty of the brokerage transactions; the financial soundness
of the firms; and the quality, timeliness and quantity of research information
and reports.
The total brokerage commissions paid by the Fund for the fiscal years ended
December 31, 1992, 1993 and 1994 were $105,987, $202,557 and $132,061,
respectively. For the fiscal year ended December 31, 1994, portfolio
transactions in the amount of $137,000,828 were directed to certain brokers
because of research services, of which $132,061 was paid in commissions with
respect to these transactions. No formula was used in placing such transactions
and no specific amount of transactions was allocated for research services. No
brokerage business was placed with any brokers affiliated with the Fund's
investment adviser during the past three fiscal years.
ADDITIONAL INFORMATION
The Travelers Insurance Company (the "Company") acts as transfer agent and
dividend disbursing agent for the Fund. The Company is a stock insurance
company chartered in 1864 in Connecticut and continuously engaged in the
insurance business since that time. The Company is a wholly owned subsidiary of
The Travelers Insurance Group Inc., which is indirectly owned, through a wholly
owned subsidiary, by Travelers Group Inc. On April 1, 1995, the Company's
separate accounts (Fund U and Fund UL) owned 100% of the Fund's outstanding
shares. The Company's Home Office is located at One Tower Square, Hartford,
Connecticut 06183, telephone (203) 277-0111.
Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York 11245,
is custodian of all securities and cash of the Fund.
Coopers & Lybrand L.L.P., Independent Accountants, 100 Pearl Street,
Hartford, Connecticut 06103, are the independent auditors for the Fund. The
services provided to the Fund include primarily the examination of the Fund's
financial statements. The financial statements included or incorporated by
reference in the Prospectus, Statement of Additional Information and
Registration Statement have been audited by Coopers & Lybrand L.L.P., as
indicated in their reports thereon, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing.
Except as otherwise stated in its prospectus or as required by law, the Fund
reserves the right to change the terms of the offer stated in its prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
-6-
No dealer, salesman or other person is authorized to give any information or
to make any representation not contained in the Fund's prospectus, this
Statement of Additional Information or any supplemental sales literature issued
by the Fund, and no person is entitled to rely on any information or
representation not contained therein.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Fund's registration statement filed with
the Securities and Exchange Commission which may be obtained from the
Commission's principal office in Washington, D.C. upon payment of the fee
prescribed by the Rules and Regulations promulgated by the Commission.
FINANCIAL STATEMENTS
The financial statements contained in the Fund's December 31, 1994 Annual
Report to Shareholders are incorporated herein by reference. A copy may be
obtained by writing to The Travelers Insurance Company, Annuity Services--5 SHS,
One Tower Square, Hartford, Connecticut 06183-5030, or by calling
1-800-842-0125.
-7-
APPENDIX
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
A Standard & Poor's Corporation (S&P) corporate bond rating is a current
assessment of the creditworthiness of an obligor, including obligors outside
the United States, with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors, insurers, or lessees.
Ratings of foreign obligors do not take into account currency exchange and
related uncertainties. The ratings are based on current information furnished
by the issuer or obtained by S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Although it normally exhibits 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 debt in this category than in higher
rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation, and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
MOODY'S CORPORATE BOND RATINGS ARE AS FOLLOWS:
1. Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes are not likely to
impair the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
or there may be other ements present which make the long term risks
appear somewhat larger than in Aaa securities.
3. A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
5. Ba - Bonds which are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
-8-
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time
may be small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
8. Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
-9-
CAPITAL APPRECIATION FUND
STATEMENT OF ADDITIONAL INFORMATION
L-11171S TIC Ed. 5-95
Printed in U.S.A.
COPY OF ANNUAL REPORT DATED DECEMBER 31, 1994
TO WHICH THE REGISTRANT'S FINANCIAL STATEMENTS ARE
INCORPORATED IN THE PROSPECTUS/STATEMENT OF
ADDITIONAL INFORMATION BY REFERENCE TO THIS FILING.
THE TRAVELERS VARIABLE PRODUCTS MUTUAL FUNDS
ANNUAL REPORT
CAPITAL APPRECIATION FUND
DECEMBER 31, 1994
THETRAVELERS (logo with umbrella)
THE TRAVELERS INSURANCE COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TIMCO (logo with globe)
A COMPANY OF THETRAVELERS (logo with umbrella)
The Travelers Investment Management Company ("TIMCO")
provides equity management and advisory services for the following
Travelers Variable Product Mutual Funds contained in this report:
The Capital Appreciation Fund and the Social Awareness Stock
Portfolio. Additionally, TIMCO is the sub-adviser for Managed
Assets Trust.
TAMIC (logo with globe and lines)
TRAVELERS ASSET MANAGEMENT
INTERNATIONAL CORPORATION
Travelers Asset Management International Corporation
("TAMIC") provides fixed income management and advisory services
for the following Travelers Variable Product Mutual Funds contained
in this report: U.S. Government Securities Portfolio, High Yield
Bond Trust, Managed Assets Trust and Cash Income Trust.
JANUS CAPITAL
CORPORATION (logo with two faces)
Janus Capital Corporation ("Janus") is the sub-adviser for Capital
Appreciation Fund. As sub-adviser, Janus is responsible for the
daily management of Capital Appreciation Fund.
SMITH BARNEY (logo)
An asset management group of Smith Barney, Greenwich Street
Advisors provides management services for the Utilities Portfolio.
THETRAVELERS (logo with umbrella)
THE TRAVELERS VARIABLE PRODUCTS MUTUAL FUNDS
INVESTMENT ADVISORY COMMENTARY AS OF DECEMBER 31, 1994
ECONOMIC REVIEW AND OUTLOOK
Economic growth kicked into high gear in 1994, and the economy used
up any excess capacity in product and labor markets. The fitful
recovery of the previous three years was replaced by a broad-based
expansion. Unemployment fell to 5.4% at year-end, from 7.0% at the
end of 1993. This robust economic activity was accompanied by few
signs of higher inflation. The Consumer Price Index rose just 2.7%
during 1994, the same as during the prior year. However, certain
commodity prices showed large gains, and there was evidence by
year-end of a modest acceleration in wage gains.
The Federal Reserve ("Fed") started a tightening policy in
February, while there still appeared to be slack in the economy.
Fed actions served to push 3-month T-bill rates up from 3.1% at the
start of the year to 5.7% at year-end. The yield curve rose and
flattened significantly during the year. Yields on one-year
Treasury bills rose by over 350 basis points, while yields on the
30-year bond were up over 150 basis points. At year-end, there
was little evidence that Fed tightening had started to slow growth.
In the fourth quarter, the economy grew at an annual rate of 4.5%,
well above the 2.0-2.5% pace that many economists think is
compatible with price stability.
There is normally a lag of 6-12 months between Federal Reserve
actions and the resulting impact on the economy. Coming into 1994,
Fed policy was very accommodative of economic growth, with real
money market interest rates (adjusted for inflation) close to zero.
Monetary policy became truly restrictive only with the last 2 or 3
rates hikes. With unemployment at levels that many economists view
as inflationary, we expect the Fed to push money market interest
rates somewhat higher in 1995. We think that the Federal Reserve
will succeed in slowing economic growth, and that inflation will
stay below 4% during 1995 and into 1996. However, convincing
evidence of the slowdown may take a while longer to emerge.
FIXED-INCOME MARKET COMMENTARY
Like a neutron bomb, which kills people but leaves buildings
intact, rising interest rates in 1994 decimated complicated
strategies much more than it hurt broad market averages. During
the fourth quarter, Orange County and emerging markets investors
were added to the casualty list, joining the hedge funds and
various corporate users of derivatives that were hurt earlier in
the year. While derivatives and mortgage backed securities have
taken much of the blame for these incidents, the rise in short-term
interest rates hurt any strategy that was based on leverage or
benefited from the prior three years of low short-term rates.
For the year, cash was the best performing asset, while stocks
treaded water and bonds had their worst year in recent history.
The Lehman Long Treasuries index showed a negative return of 7.6%
for the full year 1994. The long end of the yield curve stabilized
late in the year, allowing long Treasuries to outperform cash
during the fourth quarter. For the year as a whole, mortgage
backed securities and corporates outperformed similar duration
Treasuries. Late in the year, corporate spreads widened modestly
with growing concerns over the 1995 economic outlook; as a result,
long corporates underperformed similar duration Treasuries in the
fourth quarter.
We have been concerned by tight spreads on corporate issues
throughout 1994. We expect issuance of new corporates to be light
in the first half of 1995; this will help to support prices of
corporate issues. Corporates are still likely to underperform
Treasuries if a significant economic slowdown develops. We think
inflation will stay below 4% in 1995. We also expect stable to
modestly lower yields on Treasuries with maturities of 5 years or
longer. If we are correct, bond investors will enjoy real returns,
after inflation, of 4-7% in 1995. If the Federal Reserve is
successful in containing economic growth and inflation, lower
interest rates (stronger bond prices) are likely in 1996.
EQUITY MARKET COMMENTARY
Despite increased pressure by the Federal Reserve Board and a
string of potentially dangerous financial crises, the U.S. stock
market managed to achieve a broad-based gain in the second half of
1994. Surprisingly strong corporate earnings offset the negative
effect of higher interest rates on equity valuations. During the
final six months of 1994, the S&P 500 Stock Index provided a total
return of 4.9%, including dividends. The stocks of small and
medium sized companies provided comparable returns over that
period, but with considerably higher volatility.
Technology stocks led the market during the second half. The
office and business equipment group was up over 25%, owing to
continued booming sales of personal computers and a sharp rebound
in networking stocks. Semi conductor stocks advanced in concert,
reflecting strong demand for memory chips and microprocessors.
Investors also returned to many defensive and recently out-of-favor
"growth" groups in the second half. In the consumer staples
sector, for example, beverage stocks rose 24% on earnings
surprising and improving international growth prospects. In the
health care sector, drug and medical product stocks rebounded over
20%.
On the negative side, rising interest rates and fears of an
impending economic slowdown hurt many interest sensitive and early
cycle groups. Airline, trucking and railroad stocks were down over
10%. Auto stocks were off 8%. Regional banks declined 12%. In the
energy sector, independent producers and drilling companies were
down 12%, due to weaker oil and gas prices and the poor outlook for
new production.
We remain constructive, but cautious, in our outlook for stocks in
1995. With the S&P 500 Stock Index trading at only 14.5 times
operating earnings, the equity market starts the year with
reasonable valuation support. A more stable interest rate
environment could even help to reverse the broad-based market price
to earnings ratio contraction that has occurred over the past year.
Where we think the stock market is most likely to run into problems
is on the earnings front. Corporate earnings are expected to grow
8-10% in 1995, but most of that growth is expected to occur in the
first half of the year. By the third quarter, we expect a
noticeable deceleration in earnings growth. With equity indices
near their all-time highs, the stock market is probably more
vulnerable than the bond market to negative surprises, given the
relative performance of the two asset classes over the past year.
TIMCO (logo of globe) TAMIC (logo globe with lines)
A COMPANY OF THETRAVELERS(logo TRAVELERS ASSET MANAGEMENT
with umbrella) INTERNATIONAL CORPORATION
CAPITAL APPRECIATION FUND
The Travelers Capital Appreciation Fund encountered a difficult
market in 1994. Although the S&P 500 Stock Index managed a gain of
1.3%, bonds had one of their worst years on record. Much of the
damage was done during the first half, when the market sold off in
response to the Federal Reserve Board's initial increase in
short-term interest rates. After allowing short rates to approach
zero in real terms, taking inflation into account, the Board raised
rates six times from February through November for a total of 250
basis points. The stock market settled down in the second half of
the year, despite the continuing weakness in bonds. Strong, and
often exceptional, earnings reports supported stock prices.
Going forward, Portfolio Manager Tom Marsico, of Janus Capital,
believes the prospects for equities are mixed. If 1994 was any
indication, the market could continue to vacillate between
enthusiasm for stocks during reporting periods and fear of
inflation and higher rates in between. Higher interest rates do
profoundly affect earnings multiples and valuation models.
However, inflation has proved to be a perceived rather than an
actual threat to date. Furthermore, the number of values among
large growth stocks is increasing. Many of these are 12%-15%
growers, yet their multiples continue to compress. In some cases,
prices are close to where they were two years ago while earnings
have grown substantially.
The Fund is now focused more heavily in the technology sector, with
special emphasis on the client server and personal computer areas,
and on cellular telecommunications services and equipment. The
Fund continues to hold a number of financial services companies,
such as Federal Home Loan Mortgage Corporation, and Federal
National Mortgage Association. These companies are experiencing
solid earnings increases and sell at low multiples. In the retail
area, Mr. Marsico likes the home improvement chain Home Depot, and
in the area of health care the emphasis is on pharmaceutical
companies and HMOs, the low-cost service providers.
· Enlarge/Download Table
Capital S&P 500 Stock Index Russell Consumer Price
Appreciation Fund 2000 Index Index
10000 10000 10000 10000
12/85 12711 13203 13105 10379
12/86 13988 15652 13849 10503
12/87 12853 16469 12633 10967
12/88 14146 19239 15780 11450
12/89 16368 25305 18343 11982
12/90 15346 24501 14763 12731
12/91 20742 31991 21559 13110
12/92 24393 34451 25530 13501
12/93 28074 37892 30356 13870
12/94 26738 38381 29803 14251
Average Annual Total Returns Ended on December 31, 1994:
1 year -4.76%
5 years 10.31%
10 years 10.33%
This chart assumes an initial investment of $10,000
made on December 31, 1984. Returns include the reinvestment of all
distributions at Net Asset Value and the change in share price for
the stated period, but exclude insurance and administration charges
assessed by Travelers Insurance separate accounts.
The Russell 2000 is a broad based small stock index.
Past performance is not predictive of future performance.
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.
· Enlarge/Download Table
CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
ASSETS:
Investment securities, at market value (identified cost $73,146,224) $ 77,942,558
Receivables:
Dividends 44,549
Interest 63,368
Investment securities sold 515,277
-----------
Total Assets 78,565,752
-----------
LIABILITIES:
Cash overdraft 51,199
Payable for investment management and advisory fees 6,452
Accrued expenses 14,499
-----------
Total Liabilities 72,150
-----------
NET ASSETS $ 78,493,602
-----------
-----------
NET ASSETS REPRESENTED BY:
Paid-in capital $ 78,152,717
Undistributed net investment income 559,581
Accumulated net realized gains (losses) on investment security transactions (5,015,030)
Net unrealized appreciation on investment securities 4,796,334
-----------
Total net assets (applicable to 3,204,308 shares outstanding at $24.50
per share) $ 78,493,602
-----------
-----------
See Notes to Financial Statements
· Enlarge/Download Table
CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
INVESTMENT INCOME:
Dividends $ 656,679
Interest 529,146
-----------
Total income $ 1,185,825
EXPENSES:
Investment management and advisory fees 526,483
Accounting and audit fees 77,592
Custodian fees (3,858)
Printing and postage 17,385
Trustees' fees 5,745
Registration fees 2,897
-----------
Total expenses 626,244
-----------
Net investment income 559,581
-----------
REALIZED AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized loss from investment security transactions:
Proceeds from investment securities sold 87,260,305
Cost of investment securities sold 91,858,877
-----------
Net realized loss (4,598,572)
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1993 4,043,684
Unrealized gain at December 31, 1994 4,796,334
-----------
Net change in unrealized gain for the year 752,650
-----------
Net realized and change in unrealized gain (3,845,922)
-----------
Net decrease in net assets resulting from operations $ (3,286,341)
-----------
-----------
See Notes to Financial Statements
· Enlarge/Download Table
CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
---- ----
OPERATIONS:
Net investment income $ 559,581 $ 340,369
Net realized gain (loss) from investment security transactions (4,598,572) 4,891,079
Net change in unrealized gain on investment securities 752,650 474,099
----------- -----------
Net increase (decrease) in net assets resulting from operations (3,286,341) 5,705,547
----------- -----------
DISTRIBUTION TO SHAREHOLDERS FROM NET INVESTMENT INCOME (359,166) (333,836)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 29,010,545 38,021,938
Dividend reinvestment 359,166 333,836
Payments for shares redeemed (9,644,753) (10,819,519)
----------- -----------
Net increase in net assets resulting from capital share transactions 19,724,958 27,536,255
----------- -----------
Net increase in net assets 16,079,451 32,907,966
NET ASSETS:
Beginning of year 62,414,151 29,506,185
----------- -----------
End of year (including undistributed net investment income as follows:
December, 1994 $559,581 and December, 1993 $340,369) $ 78,493,602 $ 62,414,151
----------- -----------
----------- -----------
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Capital Appreciation Fund ("Fund CA"), formerly Aggressive Stock
Trust, is a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. Shares of Fund CA are
currently offered, without a sales charge, to separate accounts of
The Travelers Insurance Company ("Travelers Insurance"), an
indirect wholly owned subsidiary of The Travelers Inc., in
connection with the issuance of certain variable annuity and
variable life insurance contracts.
The following is a summary of significant accounting policies
consistently followed by Fund CA in the preparation of its
financial statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as
of the close of business of the New York Stock Exchange on the last
business day of the year; securities traded on the over-the-counter
market and listed securities with no reported sales are valued at
the mean between the last-reported bid and asked prices or on the
basis of quotations received from a reputable broker or other
recognized source.
When market quotations are not considered to be readily available
for long-term corporate bonds and notes, such investments are
generally stated at fair value on the basis of valuations furnished
by a pricing service. These valuations are determined for normal
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. Securities, including restricted
securities, for which pricing services are not readily available
are valued by management at prices which it deems in good faith to
be fair.
Short-term investments for which a quoted market price is available
are valued at market. Short-term investments for which there is no
reliable quoted market price are valued by computing a market value
based upon quotations from dealers or issuers for securities of a
similar type, quality and maturity.
FUTURES CONTRACTS. Fund CA uses stock index futures contracts, and
may also use interest rate futures contracts, as a substitute for
the purchase or sale of individual securities. When Fund CA enters
into a futures contract, it agrees to buy or sell a specified index
of stocks or debt securities at a future time for a fixed price,
unless the contract is closed prior to expiration. Fund CA is
obligated to deposit with a broker an "initial margin" equivalent
to a percentage of the face, or notional value of the contract.
It is Fund CA's practice to hold short-term investments in an
amount at least equal to the notional value of outstanding
purchased futures contracts. Generally, futures contracts are
closed prior to expiration.
Futures contracts purchased by Fund CA are priced and settled
daily; accordingly, changes in daily prices are recorded as
realized gains or losses and no asset is recorded in the Statement
of Investments. However, when Fund CA holds open futures
contracts, it assumes a market risk generally equivalent to the
underlying market risk of changes in the value of the specified
indexes associated with the futures contract.
OPTIONS. Fund CA may purchase index or individual equity put or call
options, thereby obtaining the right to sell or buy a fixed number
of shares of the underlying asset at the stated price on or before
the stated expiration date. Fund CA may sell the options before
expiration. Options held by Fund CA are listed on either national
securities exchanges or on over-the-counter markets, and are
short-term contracts with a duration of less than nine months. The
market value of the options will be the latest sale price at the
close of the New York Stock Exchange, or, in the absence of such
sale, the latest bid quotation.
REPURCHASE AGREEMENTS. When Fund CA enters into a repurchase agreement
(a purchase of securities whereby the seller agrees to repurchase the
securities at a mutually agreed upon date and price), the repurchase
price of the securities will generally equal the amount paid by Fund
CA plus a negotiated interest amount. The seller under the
repurchase agreement will be required to provide to Fund CA securities
(collateral) whose market value, including accrued interest, will
be at least equal to 102% of the repurchase price. Fund CA
monitors the value of collateral on a daily basis. Repurchase
agreements will be limited to transactions with national banks and
reporting broker dealers believed to present minimal credit risks.
Fund CA's custodian will take actual or constructive receipt of all
securities underlying repurchase agreements until such agreements
expire.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
TAXES. Fund CA has qualified, and intends to continue to qualify each
year, as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. As a regulated
investment company, Fund CA is relieved of any federal income tax
liability by distributing all of its net taxable investment income
and net taxable capital gains, if any, to its shareholders.
Fund CA further intends to avoid excise tax liability by
distributing substantially all of its investment income.
Therefore, no federal income tax provision has been made by Fund CA
in its financial statements. As of December 31, 1994, Fund CA had
capital loss carryovers totalling $4,875,708, which may be
available to offset any future realized taxable capital gains, to
the extent provided by regulations. These amounts expire during
the period 1998-2002.
OTHER. Security transactions are accounted for on the trade date.
Interest income is recorded on the accrual basis and dividend
income is recorded on the ex-dividend date. Distributions to
shareholders are recorded at the close of business on the record
date.
2.INVESTMENTS
Purchases and sales of securities other than short-term investments
aggregated $75,136,840 and $62,924,192, respectively, for the year
ended December 31, 1994. Realized gains and losses from security
transactions are reported on an identified-cost basis.
3.FUND CHARGES
Investment management and advisory fees are calculated daily at an
annual rate of 0.75% of Fund CA's average net asset value. These
fees are paid to The Travelers Investment Management Company
("TIMCO"), an indirect wholly owned subsidiary of The Travelers
Inc.
Pursuant to a sub-advisory agreement between TIMCO and Janus
Capital Corporation ("Janus Capital"), TIMCO pays Janus Capital an
amount equivalent on an annual basis to 0.55% of Fund CA's average
net asset value for investment management and advisory services as
sub-adviser.
Travelers Insurance has agreed to reimburse Fund CA for the amount
by which all of Fund CA's aggregate annualized operating expenses,
excluding brokerage commissions and any interest charges and taxes,
exceed 1.25% of Fund CA's average net assets. Trustees and
officers of Fund CA who are also officers or employees of The
Travelers Inc. or its subsidiaries receive no compensation directly
from Fund CA.
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 Fund CA were as follows:
· Download Table
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993
---- ----
Shares sold 1,167,145 1,549,985
Shares redeemed (388,338) (451,028)
Shares issued in reinvestment of
distributions from net investment income 13,442 14,484
--------- ---------
Net 792,249 1,113,441
---------- ---------
---------- ---------
As of December 31, 1994, all outstanding shares of beneficial
interest were owned by The Travelers Fund U for Variable Annuities
and The Travelers Fund UL for Variable Life Insurance, both of
which are separate accounts of Travelers Insurance.
5. SUBSEQUENT EVENT
On January 27, 1995, the Board of Trustees declared a distribution
of net investment income of $0.17 per share, payable on
January 30, 1995, to shareholders of record as of January 27, 1995.
This distribution is not reflected in the accompanying financial
statements.
· Enlarge/Download Table
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. FINANCIAL HIGHLIGHTS*
(Per share data for a share outstanding
throughout each year.)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993#
---- ----
PER SHARE DATA
--------------
Net asset value, beginning of year ...................................... $ 25.87 $ 22.72
Income from operations
----------------
Net investment income .......................................... 0.19 0.19
Net gains or losses on securities (realized and unrealized) (1.41) 3.21
---------- -------
Total from investment operations........................... (1.22) 3.40
Less distributions
-------------
Distributions from net investment income ....................... (0.15) (0.25)
---------- -------
Net asset value, end of year ............................................ $ 24.50 $ 25.87
---------- -------
---------- -------
TOTAL RETURN*** (4.76)% 15.09%
------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net assets, end of year (thousands) ............................ $ 78,494 $ 62,414
Ratio of expenses to average net assets ........................ 0.89%** 0.87%**
Ratio of net investment income to average net assets ........... 0.79% 0.81%
Portfolio turnover rate ....................................... 106% 155%
1992 1991 1990##
---- ---- ----
PER SHARE DATA
--------------
Net asset value, beginning of year .............................................. $ 19.63 $ 14.62 $ 15.76
Income from operations
----------------------
Net investment income .................................................. 0.28 0.36 0.09
Net gains or losses on securities (realized and unrealized) 3.13 4.75 (1.08)
----------- ----------- ----------
Total from investment operations................................... 3.41 5.11 (0.99)
Less distributions
------------------
Distributions from net investment income ............................... (0.32) (0.10) (0.15)
----------- ----------- ----------
Net asset value, end of year .................................................... $ 22.72 $ 19.63 $ 14.62
----------- ----------- ----------
----------- ----------- ----------
TOTAL RETURN*** 17.60% 35.16% (6.24)%
-----------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net assets, end of year (thousands) .................................... $ 29,506 $ 20,497 $ 13,494
Ratio of expense to average net assets ................................. 0.56%** 0.56%** 0.82%**
Ratio of net investment income to average net assets ................... 1.39% 2.05% 0.58%
Portfolio turnover rate ............................................... 126% 205% 80%
* The information set forth in Note 6 replaces the data
presented in prior years as supplementary information.
** The ratio of expenses to average net assets for 1990-1993
reflects an expense reimbursement by Travelers Insurance in
connection with voluntary expense limitations. Without the expense
reimbursement, the ratios of operating expenses to average net
assets would have been 0.96%, 0.91%, 1.28% and 1.56% for the years
ended December 31, 1993, 1992, 1991 and 1990, respectively.
For the year ended December 31, 1994, there was no expense
reimbursement by Travelers Insurance in connection with the
voluntary expense limitations described in Note 3.
*** Total return is determined by dividing the increase (decrease)
in value of a share during the year, after reflecting the
reinvestment of dividends declared during the year, by the
beginning of year share price. As described in Note 1, shares in
Fund CA are only sold to Travelers Insurance separate accounts in
connection with the issuance of variable annuity and variable life
insurance contracts. The total return does not reflect the
deduction of any contract charges or fees assessed by Travelers
Insurance separate accounts.
# Effective May 1, 1993, Janus Capital Corporation became
sub-adviser for Fund CA.
## On May 1, 1990, TIMCO replaced Keystone Custodian Funds, Inc.
as the investment adviser for Fund CA.
· Download Table
CAPITAL APPRECIATION FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1994
NO. OF MARKET
SHARES VALUE
------ ------
COMMON STOCKS (76.4%)
BANKING (3.3%)
Citicorp 55,815 $ 2,309,346
First Bank Systems, Inc. 7,125 236,906
----------
2,546,252
----------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (4.6%)
Amgen (A) 21,350 1,258,305
Hercules, Inc. 225 25,959
Lynx Therapeutics (A) (C) 1,056 211
Pfizer, Inc. 30,375 2,346,469
----------
3,630,944
COMMUNICATION (3.8%)
AirTouch Communications (A) 46,085 1,342,226
Infinity Broadcasting (A) 4,500 142,313
Lin Broadcasting (A) 550 73,838
Lin Television (A) 275 6,188
Paging Network, Inc. (A) 41,525 1,401,469
----------
2,966,034
----------
ELECTRICAL AND
ELECTRONIC MACHINERY (18.3%)
Exide Corp. 15,025 845,156
General Instrument Corp. (A) 26,500 795,000
Microtouch Systems, Inc. (A) 50,000 2,243,750
Motorola, Inc. 54,600 3,159,975
Nokia Corp. 33,700 2,527,500
Philips NV 66,675 1,958,578
Polygram NV 7,900 364,388
Tellabs, Inc. (A) 15,000 834,375
Texas Instruments, Inc. 20,700 1,549,913
----------
14,278,635
----------
FINANCE (7.1%)
Federal Home Loan Mortgage Corp. 30,075 1,518,787
Federal National Mortgage Assoc. 25,670 1,870,701
Merrill Lynch & Co., Inc. 60,165 2,150,899
----------
5,540,387
----------
FOOD (3.8%)
Coca-Cola Co. 57,425 2,957,387
----------
INSURANCE (4.1%)
Oxford Health Plan, Inc. (A) 13,600 1,082,900
U.S. Healthcare, Inc. 9,865 405,698
United Healthcare Corp. 38,100 1,719,263
----------
3,207,861
----------
No. of Market
Shares Value
------ ----------
MACHINERY (8.1%)
Applied Materials (A) 25,375 $1,065,750
Ceridian Corp. (A) 4,925 132,359
Compaq Computer Corp. (A) 38,250 1,510,875
Dell Computer Corp. (A) 44,900 1,838,071
Digital Equipment Corp. (A) 52,975 1,761,419
----------
6,308,474
----------
MISCELLANEOUS MANUFACTURING (0.2%)
Aldila, Inc. (A) 10,770 123,176
----------
RETAIL (6.8%)
Home Depot, Inc. 24,110 1,109,060
Lone Star Steak House & Saloon (A) 30,000 588,750
Lowe's Co's, Inc. 103,600 3,600,100
----------
5,297,910
----------
SERVICES (9.4%)
Columbia HCA Healthcare Corp. 33,950 1,239,175
First Data Corp. 62,625 2,966,859
Gartner Group, Inc. (A) 12,500 484,375
Microsoft (A) 27,525 1,685,906
Oracle Systems Corp. (A) 21,165 936,551
----------
7,312,866
----------
TRANSPORTATION (2.4%)
Conrail, Inc. 36,500 1,843,250
----------
TRANSPORTATION MANUFACTURING (2.4%) 28,505 1,396,745
Chrysler Corp. 12,375 476,438
General Motors Corp., Cl. E ----------
1,873,183
----------
UTILITIES (2.1%)
Browning and Ferris Ind. 57,550 1,632,981
WMX Technologies, Inc. 1,775 46,594
----------
1,679,575
----------
TOTAL COMMON STOCKS
(COST $54,780,488) 59,565,934
----------
PREFERRED STOCKS (0.0%)
PHARMACEUTICAL AND
HEALTH CARE PRODUCTS (0.0%)
Lynx Therapeutics (A) (C) 1,536 1,536
----------
TOTAL PREFERRED STOCKS 1,536
(COST $1,536) ----------
· Enlarge/Download Table
STATEMENT OF INVESTMENTS - CONTINUED
PRINCIPAL MARKET
AMOUNT VALUE
------- -------
SHORT-TERM INVESTMENTS (23.6%)
U.S. GOVERNMENT SECURITIES (23.6%)
United States of America Treasury,
4.52% due February 9, 1995 $ 3,500,000 $ 3,483,035
United States of America Treasury,
4.88% due February 9, 1995 3,000,000 2,982,196
United States of America Treasury,
5.06% due January 12, 1995 2,000,000 1,990,753
United States of America Treasury,
5.15% due January 19, 1995 4,000,000 3,966,088
United States of America Treasury,
5.20% due January 26, 1995 2,000,000 1,984,430
United States of America Treasury,
5.38% due February 2, 1995 2,000,000 1,983,316
United States of America Treasury,
5.47% due February 2, 1995 2,000,000 1,985,270
----------
TOTAL SHORT-TERM
INVESTMENTS
(COST $18,364,199) 18,375,088
----------
TOTAL INVESTMENTS (100%)
(COST $73,146,224) (B) (D) $77,942,558
----------
----------
NOTES
(A) Non-income Producing Security.
(B) At December 31, 1994, net unrealized appreciation for all securities
was $4,796,334. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over cost of $6,318,002 and aggregate gross unrealized
depreciation for all securities in which there was an excess of cost
over market value of $1,521,668.
(C) Management Priced Security.
(D) The cost of investments for federal income tax purposes amounted
to $73,266,792. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost, at December 31, 1994,
were as follows:
Gross unrealized appreciation ...................... $ 6,197,434
Gross unrealized depreciation ...................... (1,521,668)
------------
Net unrealized appreciation ........................ $ 4,675,766
------------
------------
See Notes to Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of Capital Appreciation
Fund:
We have audited the accompanying statement of assets and
liabilities of
CAPITAL APPRECIATION FUND
including the statement of investments, as of December 31, 1994,
and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of
the five years in the period then ended. These financial
statements and financial highlights are the responsibility of
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 generally accepted
auditing standards. 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, 1994, by correspondence with the custodian
and brokers. 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 Capital Appreciation Fund as of December 31,
1994, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 15, 1995
This page intentionally left blank.
Investment Advisers
------------------------
(CAPITAL APPRECIATION FUND AND
SOCIAL AWARENESS STOCK PORTFOLIO)
THE TRAVELERS INVESTMENT MANAGEMENT COMPANY
Hartford, Connecticut
(MANAGED ASSETS TRUST, HIGH YIELD
BOND TRUST, CASH INCOME
TRUST AND U.S. GOVERNMENT SECURITIES PORTFOLIO)
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
Hartford, Connecticut
(UTILITIES PORTFOLIO)
GREENWICH STREET ADVISORS
New York, New York
Independent Accountants
------------------------
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
Custodian
------------------------
SHAWMUT BANK CONNECTICUT, N.A.
Hartford, Connecticut
This report is prepared for the general information
of contract owners and is not an offer of shares of Managed Assets
Trust, High Yield Bond Trust, Capital Appreciation Fund, Cash
Income Trust, U.S. Government Securities Portfolio, Social
Awareness Stock Portfolio or Utilities Portfolio. It should not be
used in connection with any offer except in conjunction with the
Prospectuses for the Variable Annuity and Variable Universal Life
Insurance products offered by The Travelers Insurance Company and
the Prospectuses of the underlying mutual funds, which collectively
contain all pertinent information, including the applicable selling
commissions.
VG-181 (Annual) (12-94) Printed in U.S.A.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant and the Report of Independent
Accountants are contained in the December 31, 1994 Annual Report to
Shareholders and are incorporated by reference in the Statement of Additional
Information. The Registrant's financial statements include:
Statement of Assets and Liabilities as of December 31, 1994
Statement of Operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the years ended December 31,
1994 and 1993
Statement of Investments as of December 31, 1994
Notes to Financial Statements
(b) Exhibits
*1. Declaration of Trust. (Incorporated herein by reference to Exhibit
1(b)(1) to the Registration Statement on Form N-1 filed on March 22,
1982.)
*2. By-Laws of Capital Appreciation Fund. (Incorporated herein by
reference to Exhibit 1(b)(2) to the Registration Statement on Form N-1
filed on March 22, 1982.) Amendments to the Registrant's By-Laws are
also incorporated herein by reference to Exhibits 24(b)(2) to Post-
Effective Amendments Nos. 8, 15 and 18 to the Registration Statement
on Form N-1A.
*5(A). Investment Advisory Agreement between the Registrant and The Travelers
Investment Management Company. (Incorporated herein by reference to
Exhibit 5A to Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A filed on April 15, 1993.)
*5(B). Sub-Advisory Agreement between The Travelers Investment Management
Company and Janus Capital Corporation. (Incorporated herein by
reference to Exhibit 5A to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed on April 15, 1993.)
8. Custody Agreement dated February 1, 1995 between the Registrant and
Chase Manhattan Bank, N.A., of Brooklyn, New York.
*9. Transfer and Recordkeeping Agreement between the Registrant and The
Travelers Insurance Company. (Incorporated herein by reference to
Exhibit 24(b)(9) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A filed on April 14, 1992.)
*10. An opinion and consent of counsel as to the legality of the securities
registered by the Registrant. (Incorporated herein by reference to
the Registrant's most recent 24f-2 Notice filed on February 27, 1995.)
11(A). Consent of Coopers & Lybrand L.L.P., Independent Accountants, to the
use of their name and opinion in Part A and Part B of this Form N-1A
and to the incorporation by reference of their report.
11(B). Powers of Attorney authorizing Ernest J. Wright as signatory for Heath
B. McLendon, Knight Edwards, Robert E. McGill, III, Lewis Mandell,
Frances M. Hawk and Ian R. Stuart.
27 Financial Data Schedule
* Previously filed and incorporated herein by reference.
Item 25. Persons Controlled By or Under Common Control With the Registrant
Not Applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of February 17, 1995
--------------- ------------------------
Shares of beneficial interest, Two (2)
without par value
Item 27. Indemnification
Provisions for the indemnification of the Fund's Trustees and officers are
contained in the Fund's Declaration of Trust which was filed with the Fund's
Registration Statement as Exhibit 1(b)(1) and is incorporated by reference
herein.
Item 28. Business and Other Connections of Investment Adviser
Officers and Directors of The Travelers Investment Management Company (TIMCO),
the Registrant's Investment Adviser, are set forth in the following table:
Name Position with TIMCO Other Business
----- ------------------- ---------------
Jeffrey B. Lane Director and Chairman Vice Chairman
Smith Barney Inc.**
Kent A. Kelley * Director and Chief Not Applicable
Executive Officer
Sandip A. Bhagat* Director and President Not Applicable
Heath B. McLendon Director Managing Director
Smith Barney Inc.**
Jacob E. Hurwitz* Vice President Not Applicable
Emil Molinaro Vice President Not Applicable
Daniel Willey* Vice President Not Applicable
Gloria G. Williams* Assistant Vice President Not Applicable
James W. Churm Corporate Secretary Senior Vice President
Smith Barney Inc.**
Michael Day Treasurer Managing Director
Smith Barney Inc.**
* Address: One Tower Square, Hartford, Connecticut 06183
** Address: 388 Greenwich Street, New York, New York 10013
Executive Officers and Directors of Janus Capital Corporation, the
Registrant's Sub-Adviser, are set forth in the following table:
Position with Janus
Name Capital Corporation Other Business
----- ------------------- ---------------
Thomas H. Bailey President, Director Chairman and President
and Chairman Janus Aspen Series
Denver, Colorado
Chairman and Director
IDEX Management, Inc.
Largo, Florida
Jack R. Thompson Executive Vice President Trustee and Senior
and Director Vice President
Janus Aspen Series
Janus Service
Janus Distributors
Denver, Colorado
Michael E. Herman Independent Director Chairman
Finance Committee
Ewing Marion Kauffman
Foundation
Kansas City, Missouri
Thomas A. McDonnell Independent Director President, CEO and
Director,
DST Systems Inc.
Kansas City, Missouri
Executive Vice
President
and Director
Kansas City Southern
Industries, Inc.
Kansas City, Missouri
Michael Stolper Independent Director President,
Stolper & Co., Inc.
San Diego, California
David C. Tucker Vice President, General Vice President and
Counsel and Secretary General Counsel
Janus Aspen Series
Janus Service
Janus Distributors
Denver, Colorado
Steven R. Goodbarn Treasurer and Chief Treasurer and Chief
Financial Officer Financial Officer
Janus Aspen Series
Janus Service
Janus Distributors
Denver, Colorado
Item 29. Principal Underwriter
Not Applicable.
Item 30. Location of Accounts and Records
(1) The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
(2) Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, New York
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The undersigned Registrant hereby undertakes to provide to each person to whom
a prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Capital Appreciation Fund, certifies that
it meets all of the requirements for effectiveness of this post-effective
amendment to this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on April 25, 1995.
CAPITAL APPRECIATION FUND
(Registrant)
By: *HEATH B. McLENDON
------------------
Heath B. McLendon
Chairman, Board of Trustees
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on April 25, 1995.
*HEATH B. McLENDON Chairman of the Board
------------------
(Heath B. McLendon)
*KNIGHT EDWARDS Trustee
---------------
(Knight Edwards)
*ROBERT E. McGILL, III Trustee
----------------------
(Robert E. McGill, III)
*LEWIS MANDELL Trustee
--------------
(Lewis Mandell)
*FRANCES M. HAWK Trustee
----------------
(Frances M. Hawk)
*IAN R. STUART Treasurer and Chief Accounting Officer
--------------
(Ian R. Stuart)
*By: /s/ Ernest J. Wright
__________________________________
Ernest J. Wright, Attorney-in-Fact
Secretary, Board of Trustees
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
------- ----------- ----------------
1. Declaration of Trust. (Incorporated herein by
reference to Exhibit 1(b)(1) to the Registration
Statement on Form N-1 filed on March 22, 1982.)
2. By-Laws of Capital Appreciation Fund. (Incorporated
herein by reference to Exhibit 1(b)(2) to the Registration
Statement on Form N-1 filed on March 22, 1982.)
Amendments to the Registrant's By-Laws are also
incorporated herein by reference to Exhibits 24(b)(2)
to Post-Effective Amendments Nos. 8, 15 and 18 to
the Registration Statement on Form N-1A.
5(A). Investment Advisory Agreement between the Registrant
and The Travelers Investment Management Company.
(Incorporated herein by reference to Exhibit 5A to
Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A filed on April 15, 1993.)
5(B). Sub-Advisory Agreement between The Travelers Investment
Management Company and Janus Capital Corporation.
(Incorporated herein by reference to Exhibit 5A to Post-
Effective Amendment No. 21 to the Registration Statement
on Form N-1A filed on April 15, 1993.)
8. Custody Agreement dated February 1, 1995 between the Electronically
Registrant and Chase Manhattan Bank, N.A., of
Brooklyn, New York.
9. Transfer and Recordkeeping Agreement between the
Registrant and The Travelers Insurance Company.
(Incorporated herein by reference to Exhibit 24(b)(9) to
Post-Effective Amendment No. 19 to the Registration
Statement on Form N-1A filed on April 14, 1992.)
10. An opinion and consent of counsel as to the legality of
the securities registered by the Registrant. (Incorporated
herein by reference to the Registrant's most recent
24f-2 Notice filed on February 27, 1995.)
11(A). Consent of Coopers & Lybrand L.L.P., Independent Electronically
Accountants, to the use of their name and opinion in
Part A and Part B of this Form N-1A.
11(B). Powers of Attorney authorizing Ernest J. Wright Electronically
as signatory for Heath B. McLendon, Knight Edwards,
Robert E. McGill, III, Lewis Mandell, Frances M. Hawk
and Ian R. Stuart.
27. Financial Data Schedule Electronically
Dates Referenced Herein and Documents Incorporated By Reference
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