UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6465
The Travelers Series Trust
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
[INSERT SHAREHOLDER REPORT]
ANNUAL REPORT
DECEMBER 31, 2003
[UMBRELLA ART TOP]
[UMBRELLA ART BOTTOM]
THE TRAVELERS SERIES TRUST:
TRAVELERS QUALITY BOND PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
[TRAVELERS LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Cityplace
Hartford, CT 06103
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHAT'S INSIDE
<Table>
LETTER FROM THE CHAIRMAN.................................... 1
TRAVELERS QUALITY BOND PORTFOLIO:
MANAGER OVERVIEW....................................... 3
PERFORMANCE COMPARISON................................. 4
LAZARD INTERNATIONAL STOCK PORTFOLIO:
MANAGER OVERVIEW....................................... 5
PERFORMANCE COMPARISON................................. 7
MFS EMERGING GROWTH PORTFOLIO:
MANAGER OVERVIEW....................................... 8
PERFORMANCE COMPARISON................................. 10
FEDERATED HIGH YIELD PORTFOLIO:
MANAGER OVERVIEW....................................... 11
PERFORMANCE COMPARISON................................. 13
FEDERATED STOCK PORTFOLIO:
MANAGER OVERVIEW....................................... 14
PERFORMANCE COMPARISON................................. 16
DISCIPLINED MID CAP STOCK PORTFOLIO:
MANAGER OVERVIEW....................................... 17
PERFORMANCE COMPARISON................................. 19
SCHEDULES OF INVESTMENTS.................................... 20
STATEMENTS OF ASSETS AND LIABILITIES........................ 63
STATEMENTS OF OPERATIONS.................................... 64
STATEMENTS OF CHANGES IN NET ASSETS......................... 65
NOTES TO FINANCIAL STATEMENTS............................... 67
FINANCIAL HIGHLIGHTS........................................ 74
INDEPENDENT AUDITORS' REPORT................................ 79
ADDITIONAL INFORMATION...................................... 80
TAX INFORMATION............................................. 83
</Table>
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
[R. JAY GERKEN PHOTO]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
DEAR SHAREHOLDER,
The year 2003 marked a sharp turning point in the
investment world. After a three-year equity bear market,
the worst since the 1930s, stocks of all sizes and
styles made a strong comeback, making gains across
myriad industries and sectors through the year. The
greatest gains were made by small-cap, rather than
large-cap stocks, and by those that had fallen the
farthest since 2000's market peaks, especially
technology stocks. Mid-cap stocks generally performed
better than large-caps, but not as well as small-caps.
Overall, bond performance was a story of contrasts, with
high yield bonds significantly outperforming investment
quality corporate bonds and government-issued fixed
income securities. Notably, bond market performance
paralleled stock performance in that the most volatile
securities outperformed the most conservative. Investors
clearly had increased appetites for risk.
The turning point for stocks came in mid-March as the
U.S. ended the uncertainty over the impending Iraq War
and the major combat came to a swift completion.
Meanwhile, historically low interest rates and lowered
income taxes combined to provide a strong economic
stimulus, which first raised expectations for economic
growth and then actually led to gains in consumer
confidence and rapid expansion. However, job growth
remained sluggish. This led to some concerns over the
sustainability of both the economic rebound and the
market's strong performance.
Within this environment, the funds performed as follows:
Performance of the Funds as of December 31, 2003
<Table>
<Caption>
6 MONTHS 12 MONTHS
-------- ---------
TRAVELERS QUALITY BOND PORTFOLIO................... 0.77% 6.98%
Lehman Brothers Intermediate Government/Credit
Bond Index....................................... 0.04 4.31
Lipper Short-Intermediate Investment Grade Debt
Variable Funds Category Average.................. 0.47 2.95
LAZARD INTERNATIONAL STOCK PORTFOLIO............... 18.70 28.60
MSCI EAFE GDP Index................................ 28.66 42.95
Lipper International Variable Funds Category
Average.......................................... 24.28 35.32
MFS EMERGING GROWTH PORTFOLIO...................... 11.44 29.14
Russell 3000 Growth Index.......................... 15.41 30.97
Lipper Multi-Cap Growth Variable Funds Category
Average.......................................... 16.47 35.55
FEDERATED HIGH YIELD PORTFOLIO..................... 8.16 22.39
Lehman Brothers High Yield Index................... 8.85 28.97
Lehman Brothers Aggregate Bond Index............... 0.17 4.10
Lipper High Current Yield Variable Funds Category
Average.......................................... 8.41 23.93
FEDERATED STOCK PORTFOLIO.......................... 15.71 27.61
S&P 500 Index...................................... 15.14 28.67
S&P 500/Barra Value Index.......................... 17.36 31.79
Lipper Multi-Cap Value Funds Category Average...... 16.78 31.38
</Table>
1
<Table>
<Caption>
6 MONTHS 12 MONTHS
-------- ---------
DISCIPLINED MID CAP STOCK PORTFOLIO................ 19.53% 33.75%
S&P MidCap 400 Index............................... 20.64 35.62
Lipper Mid-Cap Growth Variable Funds Category
Average.......................................... 17.25 36.34
</Table>
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. Principal value and investment returns will fluctuate and investors'
shares, when redeemed may be worth more or less than their original cost.
Each fund's returns reflect expenses incurred by that fund, but do not reflect
any charges or expenses imposed by the variable annuity or life contract you
own, and do not reflect the deduction of any taxes. Therefore, your actual
returns would have been lower. An investor may not invest directly in the fund.
Index returns are provided for comparison, but an investor cannot invest
directly in an index. Additionally, these returns do not reflect any deduction
for fees or expenses, as indices are unmanaged, and do not incur such expenses.
Index returns also do not reflect any deduction for taxes.
The Lehman Brothers Government/Credit Intermediate Bond Index is a broad measure
of bonds with maturities of up to ten years. The MSCI EAFE GDP Index is an
unmanaged index of common stocks of companies located in Europe, Australasia and
the Far East, generally considered representative of the foreign markets. The
Russell 3000 Growth Index measures the performance of those Russell 3000 Index
companies with higher price-to-book ratios and higher forecasted growth values.
The Lehman Brothers High Yield Index covers the universe of fixed rate,
non-investment grade debt, including corporate and non-corporate sectors.
Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as
emerging markets are excluded, but Canadian and global bonds (SEC registered) of
issuers in non-emerging market countries are included. Original issue zero
coupon bonds, step-up coupon structures, and 144-As are also included. The
Lehman Brothers Aggregate Bond Index is a broad-based bond index comprised of
Government, Corporate, Mortgage and Asset-backed issues, rated investment grade
or higher, and having at least one year to maturity. The S&P 500 Index is a
market capitalization-weighted index of 500 widely held common stocks. The S&P
500/Barra Value is a market-capitalization weighted index of stocks in the S&P
500 having lower price-to-book ratios relative to the S&P 500 as a whole. (A
price-to-book ratio is the price of a stock compared to the difference between a
company's assets and liabilities.) The S&P MidCap 400 Index is a market-value
weighted index consists of 400 domestic stocks chosen for market size,
liquidity, and industry group representation.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns
are based on the period ended December 31, 2003 and include the reinvestment of
dividends and capital gains, if any. Returns were calculated among the 28 funds
for the six-month period and among the 26 funds for the 12-month period in the
Lipper short-intermediate grade debt variable funds category. Returns were
calculated among the 190 funds for the six-month period and among the 186 funds
for the 12-month period in the Lipper international variable funds category.
Returns were calculated among the 114 funds for the six-month period and among
the 110 funds for the 12-month period in the Lipper multi-cap growth variable
funds category. Returns were calculated among the 88 funds for the six-month
period and among the 86 funds for the 12-month period in the Lipper high current
yield variable funds category. Returns were calculated among the 111 funds for
the six-month period and among the 109 funds for the 12-month period in the
Lipper multi-cap value variable funds category. Returns were calculated among
the 120 funds for the six-month period and among the 113 funds for the 12-month
period in the Lipper mid-cap growth variable funds category.
Please read on for a more detailed look at prevailing economic and market
conditions during the funds' fiscal year and to learn how those conditions and
changes made to the portfolio during this time may have affected fund
performance.
INFORMATION ABOUT YOUR FUND
In recent months several issues in the mutual fund and variable insurance
products industries have come under the scrutiny of federal and state
regulators. Travelers Life & Annuity and some of its affiliates have received
requests for information from various government regulators regarding market
timing, late trading, and other mutual fund and variable product issues in
connection with various investigations. The funds have been informed that
Travelers Life & Annuity and its affiliates are responding to those information
requests and cooperating with the regulators, but are not in a position to
predict the outcome of these requests and investigations.
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
January 20, 2004
2
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
TRAVELERS QUALITY BOND PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
Effective January 1, 2004, Gene Collins replaced Mr. Voss as Portfolio Manager.
Mr. Collins is a Senior Vice President of Travelers Asset Management
International Company LLC.
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 6.98%. In
comparison, the fund outperformed its benchmark, the unmanaged Lehman
Intermediate Government/Credit Bond Index(i), which returned 4.31% for the same
period. The fund also outperformed its Lipper short-intermediate
investment-grade debt variable funds category average, which was 2.95% for the
same period.(1)
The fund's outperformance was mainly driven by the tightening of
investment-grade corporate spreads(ii) and the strong performance of the
so-called fallen angels (securities issued by what we feel are sound companies
that have fallen in price) held in the portfolio. Credit spreads narrowed versus
Treasuries again in December, after peaking in October 2002. This dramatic
narrowing now puts spreads back to levels not seen since before the Russian and
Long Term Capital Management crises in 1998. Although this large move gives rise
to caution about valuations in this sector, spreads still remain high relative
to most of the 1990s with the exception of the 1990-91 recession.
Thank you for your investment in the Travelers Quality Bond Portfolio. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ F. Denney Voss
F. Denney Voss
Travelers Asset Management International Company LLC
January 20, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. The opinions expressed are
current only through the end of the period of this report as stated on the cover
and are subject to change at any time based on market or other conditions. Views
expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change. Please refer to pages 20 through 23 for a list and percentage breakdown
of the fund's holdings.
Fund performance reflects fund expenses, but does not reflect any charges or
expenses imposed by your variable contract. Index performance does not reflect
any deduction for fees or expenses. An investor may not invest directly in an
index.
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2003, calculated
among the 26 funds in the Lipper short-intermediate investment-grade debt
variable funds category including the reinvestment of dividends and capital
gains, if any.
(i) The Lehman Brothers Intermediate Government/Credit Bond Index is a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues (rated Baa/BBB or higher) with maturities between
one and ten years.
(ii) Credit spread is the difference between the yield of a particular corporate
security (in this case investment-grade corporate bonds) and a benchmark
security (in this case U.S. Treasuries) that has the same maturity as that
particular corporate security.
3
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- TRAVELERS QUALITY BOND PORTFOLIO AS OF 12/31/03
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
Twelve Months Ended 12/31/03 6.98%
Five Years Ended 12/31/03 5.57
8/30/96* through 12/31/03 6.42
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/30/96* through 12/31/03 57.84%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on August
30, 1996 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2003, with that of a similar
investment in the Lehman Brothers Intermediate Government/Credit
Bond Index, formerly known as Lehman Brothers Intermediate
Government/Corporate Bond Index. Index information is available at
month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. The Lehman Brothers Intermediate
Government/Credit Bond Index is a weighted composite of the Lehman
Brothers Government Bond Index, which is a broad-based index of all
public debt obligations of the U.S. government and its agencies and
has an average maturity of nine years and the Lehman Brothers
Credit Bond Index, which is comprised of all public fixed-rate
non-convertible investment-grade domestic corporate debt, excluding
collateralized mortgage obligations.
[Travelers Quality Performance Graph]
<Table>
<Caption>
LEHMAN BROTHERS INTERMEDIATE
TRAVELERS QUALITY BOND PORTFOLIO GOVERNMENT/CREDIT BOND INDEX
-------------------------------- ----------------------------
8/30/96 10000 10000
12/96 10356 10388
12/97 11095 11624
12/98 12036 13004
12/99 12168 13055
12/00 13015 14376
12/01 13944 15664
12/02 14753 16651
12/31/03 15784 16942
</Table>
- --------------------------------------------------------------------------------
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.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The total returns and graph presented above do not
reflect expenses associated with your variable contract such as administrative
fees, account charges and surrender charges which, if reflected, would reduce
the performance shown.
4
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
LAZARD INTERNATIONAL STOCK PORTFOLIO
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003 the fund returned 28.60%. In
comparison, the fund underperformed its benchmark, the unmanaged MSCI EAFE GDP
Index,(i) which returned 42.95% for the same period. The fund also
underperformed its Lipper international variable funds category average, which
rose 35.32% for the same period.(1)
MARKET OVERVIEW
The equity markets continued to decline through the first two-and-a-half months
of 2003, an anomaly in an otherwise bull market year. In mid-March, just before
the start of the second Gulf War, sentiment swung abruptly from very negative to
very positive. Investors rotated into the stocks that stood to gain the most
from an improving economy. These included highly-leveraged and
economically-sensitive companies. In fact, many of the greatest beneficiaries
were those same lower-quality companies whose business models had been most
questioned during the bear market.
Overall, 2003 proved to be a reversal of 2002, as all sectors in the MSCI EAFE
GDP Index rose in 2003, in comparison to the across-the-board declines
experienced in 2002. In addition, the technology sector, which led 2002's
decline, was 2003's strongest performer. However, late in the year there were
signs that the rebound in lower-quality stocks had begun to fade as investors
began to focus once again on individual companies' fundamentals.
FUND PERFORMANCE
During the year, the portfolio's performance was helped by stock selection in
the consumer discretionary sector, where NISSAN MOTOR CO., LTD. benefited from
new model introductions and strong U.S. demand. With the leadership of CEO
Carlos Ghosn, Nissan has steadily gained market share, improved its marketing
efforts, rolled out new models and implemented capital discipline. Luxury goods
manufacturer COMPAGNIE FINANCIERE RICHEMONT AG also performed well as the
improving economy has led to a rebound in demand for luxury items, which had
been hurt by the decline in travel related to SARS and fears of terrorism.
Conversely, the portfolio was hurt by stock selection in the financials sector,
as we avoided unprofitable Japanese financial stocks such as SUMITOMO MITSUI
FINANCIAL GROUP INC., MIZUHO TRUST & BANKING CO. LTD., UFJ HOLDINGS INC. and
RESONA HOLDINGS INC., which significantly outperformed the sector and the
market. Stock selection in the technology sector posed a similar problem:
unprofitable companies such as TELEFON AB LM ERICSSON and ALCATEL also
significantly outperformed their peers and the overall market, while companies
with consistently high return-on-capital, such as NOKIA OYJ, failed to fully
participate in the rally. Unusual asset flows during the period may have been
caused by market timing and may have negatively affected the fund's performance.
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2003, calculated
among the 186 funds in the Lipper international variable funds category
including the reinvestment of dividends and capital gains, if any.
5
Thank you for your investment in the Lazard International Stock Portfolio. We
appreciate that you have entrusted us to manage your money and we value our
relationship with you.
Sincerely,
The Portfolio Management Team
Lazard Asset Management LLC
January 21, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. The opinions expressed are
current only through the end of the period of this report as stated on the cover
and are subject to change at any time based on market or other conditions. Views
expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: Vodafone
Group PLC (3.85%); HSBC Holdings PLC (3.77%); Total S.A. (3.32%);
GlaxoSmithKline (3.07%); Nokia Oyj (2.72%); Barclays PLC (2.44%); Royal Bank of
Scotland Group (2.24%); Eni S.p.A. (2.19%); Credit Suisse Group (2.17%); BP PLC
(2.04%). Please refer to pages 24 through 26 for a list and percentage breakdown
of the fund's holdings.
Fund performance reflects fund expenses, but does not reflect any charges or
expenses imposed by your variable contract. Index performance does not reflect
any deduction for fees or expenses. An investor may not invest directly in an
index.
RISK: Investing in foreign securities is subject to certain risks not associated
with domestic investing, such as currency fluctuations, and changes in political
and economic conditions. These risks are magnified in emerging or developing
markets. Additionally, the fund may use derivatives, such as options and
futures, which can be illiquid, may disproportionately increase losses, and have
a potentially large impact on fund performance.
(i) The MSCI EAFE GDP Index is an unmanaged index of common stocks of companies
located in Europe, Australasia and the Far East, generally considered
representative of the foreign markets.
6
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- LAZARD INTERNATIONAL STOCK PORTFOLIO AS OF 12/31/03
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
Twelve Months Ended 12/31/03 28.60%
Five Years Ended 12/31/03 (2.29)
8/1/96* through 12/31/03 2.17
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
8/1/96* through 12/31/03 17.26%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on August
1, 1996 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2003, with that of a similar
investment in the MSCI EAFE GDP Weighted Index. Index information
is available at month-end only; therefore, the closest month-end to
inception date of the Portfolio has been used. The MSCI EAFE GDP
Weighted Index is a composite portfolio consisting of equity total
returns for the countries of Europe, Australia, New Zealand and the
Far East, weighted based on each country's gross domestic product.
[Lazard Int. Performance Graph]
<Table>
<Caption>
LAZARD INTERNATIONAL STOCK
PORTFOLIO MSCI EAFE GDP WEIGHTED INDEX
-------------------------- ----------------------------
8/1/96 10000 10000
12/96 10807 10515
12/97 11696 11122
12/98 13168 14092
12/99 16036 18460
12/00 14192 15593
12/01 10476 12132
12/02 9118 10197
12/31/03 11726 17353
</Table>
- --------------------------------------------------------------------------------
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.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The total returns and graph presented above do not
reflect expenses associated with your variable contract such as administrative
fees, account charges and surrender charges which, if reflected, would reduce
the performance shown.
7
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
MFS EMERGING GROWTH PORTFOLIO
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 29.14%. In
comparison, the fund underperformed its benchmark, the unmanaged Russell 3000
Growth Index(i), which returned 30.97% for the same period. The fund also
underperformed its Lipper multi-cap growth variable funds category average,
which was 35.55% for the same period.(1)
MARKET ENVIRONMENT
In the early months of 2003, investors were battered by economic and
geopolitical uncertainty. By year-end, however, they were celebrating 2003 as
the first positive year for global markets since 1999. The turnaround in global
stock markets began in March and April of 2003, when it became apparent that the
U.S.- and British-led coalition was on the verge of military success in Iraq.
The release of increasingly positive economic numbers as 2003 progressed,
particularly in the corporate earnings area, helped drive the ensuing equity
rally. In addition, investor concern over issues that had held back the market
in the first quarter -- including the Iraq situation, a short-lived SARS
epidemic and corporate misdeeds -- largely faded as the year progressed.
In the equity markets, the big surprise of 2003 was investors' appetite for
risk. After a brutal three-year market decline, many observers believed
investors would avoid risky investments. Instead, the equity rally was led by
relatively low-quality, higher-risk stocks -- stocks of companies with
substantial debt on their balance sheets, low profit margins, and/or second-and
third-tier competitive positioning. For much of 2003, investors seemed to favor
the stocks that had previously fallen the hardest, rather than bidding up
industry leaders that had weathered the global downturn relatively well.
CONTRIBUTORS TO FUND PERFORMANCE
Healthcare was by far the portfolio's strongest sector over the period. The fund
was overweighted in biotechnology, medical equipment, and healthcare services
stocks that we felt offered strong growth potential. In the biotechnology area,
GENZYME CORP., with two new drug approvals from the Food & Drug Administration,
helped portfolio results. Biotechnology instrumentation company INVITROGEN CORP.
was also a strong contributor, as was CAREMARK RX, INC., which helps
corporations contain prescription drug costs for employees.
Elsewhere in health care, the fund was underweighted in large-cap pharmaceutical
companies because we do not see them as the types of aggressive growth stocks
that we try to select. Not owning pharmaceutical firm MERCK & CO., INC. and
underweighting competitors such as PFIZER INC. and JOHNSON & JOHNSON helped
performance as large-cap pharmaceutical firms generally struggled over the
period, weighed down by patent expirations and a dearth of new drugs in the
development pipeline. By period-end, we had sold the fund's Pfizer position.
Wireless tower rental companies CROWN CASTLE INTERNATIONAL and AMERICAN TOWER
were among our best performing stocks. Cash flow growth and improving
fundamentals drove these stocks higher. In addition, debt refinancing improved
overall balance for these companies.
Contributors in the leisure sector included diversified travel and real estate
services company CENDANT CORP., which benefited from a rebound in travel and
from strong housing sales, and satellite TV operator ECHOSTAR COMMUNICATIONS
CORP., which expanded its subscriber base and reported healthy gains in free
cash flow.
In the technology sector, semiconductor company ANALOG DEVICES contributed to
performance due to an upswing in demand for semiconductors and market share
gains for its well-positioned products. Data storage software supplier VERITAS
benefited from a recovery in technology spending for storage software.
In addition, a cash settlement from a class-action lawsuit modestly contributed
to performance. The fund participated in a suit against Cendant related to
alleged accounting fraud that was uncovered in 1998, after Cendant was formed by
the merger of HFS and CUC INTERNATIONAL, two companies that the fund owned.
Along with other participants in the lawsuit, the fund had suffered losses on
Cendant stock in 1998.
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2003, calculated
among the 110 funds in the Lipper multi-cap growth variable funds category
including the reinvestment of dividends and capital gains, if any.
8
Relative performance also benefited from the portfolio's underweighting in the
consumer staples area. That sector, which investors often view as relatively
defensive, underperformed during much of the period as investors favored more
economically-sensitive areas, such as technology, that they felt would benefit
more from an economic recovery.
DETRACTORS OF FUND PERFORMANCE
In the technology sector, our holdings generated strong returns but trailed the
benchmark. Our underweighting of technology blue chip companies INTEL CORP.,
TEXAS INSTRUMENTS INC., and CISCO SYSTEMS, INC. held back performance as those
stocks climbed.
In the business services area, business outsourcing firm BISYS GROUP, INC. and
weight loss services provider WEIGHT WATCHERS INTERNATIONAL, INC. were key
detractors. BISYS Group lost value because of problems in its insurance and
education divisions. Weight Watchers stock retreated as competing diet programs
took market share. The fund sold both stocks during the period.
The fund's energy sector positions, which were largely in oil field services
companies, generally underperformed when those companies failed to achieve the
pricing power (the ability to raise prices) that we had expected.
Media holdings VIACOM INC. and WESTWOOD ONE, INC. lagged as the recovery we had
anticipated in advertising was slow to materialize. Shares of specialty
department store chain KOHL'S CORP. declined as a result of disappointing sales
trends. Drug distributor AMERISOURCEBERGEN CORP. detracted from performance as
the company lost two important customers during the year.
Thank you for your investment in the MFS Emerging Growth Portfolio. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ DALE A. DUTILE
Dale A. Dutile
Massachusetts Financial Services
/s/ ERIC B. FISCHMAN
Eric B. Fischman
Massachusetts Financial Services
/s/ DAVID E. SETTE-DUCATI
David E. Sette-Ducati
Massachusetts Financial Services
January 24, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. The opinions expressed are
current only through the end of the period of this report as stated on the cover
and are subject to change at any time based on market or other conditions. Views
expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: Microsoft
Corp. (2.24%); Cisco Systems, Inc. (2.16%); Tyco International, Ltd. (1.82%);
EchoStar Communications Corp., Class A Shares (1.68%); Comcast Corp., Class A
Shares (1.58%); Dell Inc. (1.53%); Analog Devices, Inc. (1.50%); Gilead
Sciences, Inc. (1.47%); NTL, Inc. (1.44%); Amdocs Ltd. (1.36%). Please refer to
pages 27 through 33 for a list and percentage breakdown of the fund's holdings.
Fund performance reflects fund expenses, but does not reflect any charges or
expenses imposed by your variable contract. Index performance does not reflect
any deduction for fees or expenses. An investor may not invest directly in an
index.
RISK: Investing in foreign securities is subject to certain risks not associated
with domestic investing, such as currency fluctuations, and changes in political
and economic conditions. These risks are magnified in emerging or developing
markets. Additionally, the fund may use derivatives, such as options and
futures, which can be illiquid, may disproportionately increase losses, and have
a potentially large impact on fund performance. Investments in small- and
medium-capitalization companies are subject to higher volatility than
larger-capitalization companies.
(i) The Russell 3000 Growth Index measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted
growth values.
9
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MFS EMERGING GROWTH PORTFOLIO AS OF 12/31/03
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/03 29.14%
Five Years Ended 12/31/03 (5.21)
8/30/96* through 12/31/03 3.86
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/30/96* through 12/31/03 32.00%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on August
30, 1996 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2003, with that of a similar
investment in the Russell 3000 Growth Index. Index Information is
available at month-end only; therefore, the closest month-end to
inception date of the Portfolio has been used. The Russell 3000
Growth Index measures the performance of those Russell 3000 Index
companies with higher price-to-book ratios and higher forecasted
growth values.
[MFS Emerging Growth Portfolio Performance Graph]
<Table>
<Caption>
MFS EMERGING GROWTH PORTFOLIO RUSSELL 3000 GROWTH INDEX
----------------------------- -------------------------
8/30/96 10000 10000
12/96 10600 11291
12/97 12843 15508
12/98 17250 18950
12/99 30491 25361
12/00 24353 19675
12/01 15529 15814
12/02 10221 14322
12/31/03 13200 18665
</Table>
- --------------------------------------------------------------------------------
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.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The total returns and graph presented above do not
reflect expenses associated with your variable contract such as administrative
fees, account charges and surrender charges which, if reflected, would reduce
the performance shown.
10
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
FEDERATED HIGH YIELD PORTFOLIO
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 22.39%. In
comparison, the fund underperformed its benchmark, the unmanaged Lehman Brothers
High Yield Index,(i) which returned 28.97% for the same period, but outperformed
the Lehman Brothers Aggregate Bond Index(ii), which returned 4.10% for the same
period. The fund also underperformed its Lipper high current yield variable
funds category average, which was 23.93% for the same period.(1)
MARKET REVIEW
The high yield market began the year at an extremely oversold position, as
investors were still in a very defensive posture due to economic and
geopolitical uncertainty. However, despite the conflict in the Middle East, over
the course of the year most indicators continued to show robust economic growth.
Consequently, over the past several quarters, improved corporate earnings have
led to improved credit quality for the underlying market. The significant
decline in corporate defaults has led to a contraction of the risk premium or
"credit spread"(iii) investors require for participating in the high yield
market. Consequently, prices have risen. In sharp contrast to 2002, the
distressed end of the high yield market had the strongest performance.
WHAT AFFECTED THE FUND'S PERFORMANCE?
The primary cause of the fund's underperformance was its positioning in the
lower credit quality sector, where its portfolio was less aggressive (that is,
it owned fewer lower-rated securities) than the benchmark. The fund's relative
overweight positions in the consumer non-cyclical, and gaming sectors and its
underweight positions in the more speculative sectors detracted from relative
performance. For the 12-month period, these sectors underperformed the overall
market. Specific holdings that underperformed during the period included:
GENERAL CHEMICAL CORP. (Chemicals), NEW WORLD PASTA CO. (Food & Beverage), LEVI
STRAUSS & CO. (Textiles), TEXAS PETROCHEMICALS LP (Chemicals) and MMI PRODUCTS,
INC. (Building Products). Conversely, portfolio holdings which significantly
outperformed the market included; CHARTER COMMUNICATIONS INC. (Media -- Cable),
ALAMOSA HOLDINGS, INC. (Wireless), NEXTEL COMMUNICATIONS, INC. (Wireless),
CALPINE CORP. (Utilities) and WILLIAMS COS., INC. (Utilities).
We feel that the rapid expansion in economic growth will lead to increasing
interest rates during 2004. In the higher credit quality segment of the
portfolio, we are attempting to keep our duration shorter than that of our
benchmark. While the high yield market's performance in 2003 tended to be more
of a "rising tide lifting all boats" phenomenon, we expect more differentiation
of risk and return of individual credits during 2004. Accordingly, we have
continued to be vigilant on individual credit selection. In terms of sector
allocation, the fund remains overweight in the automotive, industrial and gaming
sectors while staying underweight in telecommunications, utilities and
technology.
Thank you for your investment in the Federated High Yield Portfolio. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
The Portfolio Management Team
Federated Investment Management Company
January 21, 2004
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2003, calculated
among the 86 funds in the Lipper high current yield variable funds category
including the reinvestment of dividends and capital gains, if any.
11
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. The opinions expressed are
current only through the end of the period of this report as stated on the cover
and are subject to change at any time based on market or other conditions. Views
expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. Please refer to pages 34 through 46 for a list and
percentage breakdown of the fund's holdings.
Fund performance reflects fund expenses, but does not reflect any charges or
expenses imposed by your variable contract. Index performance does not reflect
any deduction for fees or expenses. An investor may not invest directly in an
index.
RISK: High yield bonds involve greater credit and liquidity risks than
investment grade bonds. Additionally, the fund may use derivatives, such as
options and futures, which can be illiquid, may disproportionately increase
losses, and have a potentially large impact on fund performance.
i The Lehman Brothers High Yield Index covers the universe of fixed rate,
non-investment grade debt, including corporate and non-corporate sectors.
Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated
as emerging markets are excluded, but Canadian and global bonds (SEC
registered) of issuers in non-emerging market countries are included. Original
issue zero coupon bonds, step-up coupon structures, and 144 As are also
included.
ii The Lehman Brothers Aggregate Bond Index is a broad-based bond index
comprised of Government, Corporate, Mortgage and Asset-backed issues, rated
investment grade or higher, and having at least one year to maturity.
iii Credit spread is the difference between the yield of a particular corporate
security (in this case high yield bonds) and a benchmark security (in this
case U.S. Treasuries) that has the same maturity as that particular
corporate security.
12
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- FEDERATED HIGH YIELD PORTFOLIO AS OF 12/31/03
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/03 22.39%
Five Years Ended 12/31/03 4.15
8/30/96* through 12/31/03 6.53
CUMULATIVE TOTAL RETURN
---------------------------------------------
8/30/96* through 12/31/03 59.04%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on August
30, 1996 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2003, with that of a similar
investment in the Lehman Brothers High-Yield Bond Index and Lehman
Brothers Aggregate Bond Index. Index information is available at
month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. The Lehman Brothers High-Yield Bond
Index is composed of fixed rate non-investment grade debt with at
least one year remaining to maturity that are dollar-denominated,
nonconvertible and have an outstanding par value of at least $100
million. The Lehman Brothers Aggregate Bond Index, an unmanaged
index, is composed of the Lehman Brothers Intermediate
Government/Credit Bond Index, formerly known as the Lehman Brothers
Intermediate Government/Corporate Bond Index, and the Mortgage
Backed Securities Index and includes treasury issues, agency
issues, corporate bond issues and mortgage-backed securities.
[Federated High Yield Portfolio Performance Graph]
<Table>
<Caption>
FEDERAL HIGH YIELD LEHMAN BROTHERS HIGH LEHMAN BROTHERS
PORTFOLIO YIELD BOND INDEX AGGREGATE BOND INDEX
------------------ -------------------- --------------------
8/30/96 10000 10000 10000
12/96 10761 10599 10480
12/97 12394 11952 11491
12/98 12978 12161 12490
12/99 13380 12452 12388
12/00 12289 11723 13829
12/01 12528 12342 14997
12/02 12994 12788 15932
12/31/03 15904 15148 16204
</Table>
- --------------------------------------------------------------------------------
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.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The total returns and graph presented above do not
reflect expenses associated with your variable contract such as administrative
fees, account charges and surrender charges which, if reflected, would reduce
the performance shown.
13
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
FEDERATED STOCK PORTFOLIO
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 27.61%. In
comparison, the fund underperformed both of its benchmarks, the unmanaged S&P
500/Barra Value Index(i), which returned 31.79%, as well as the S&P 500
Index,(ii) which returned 28.67% for the same period. The fund also
underperformed its Lipper multi-cap value variable funds category average, which
was 31.38% for the same period.(1)
MARKET OVERVIEW
U.S. equity markets showed surprising strength during 2003 by overcoming the
impact of war with Iraq and weak economic activity early in the year. After
enduring the worst bear market since the 1930s, investors finally received
positive equity returns. Technology stocks performed the best during 2003, but
even after gaining more than 50% during the year, the NASDAQ Composite
Index(iii) remained significantly below the high it reached in the spring of
2000. Corporate operating profits grew steadily throughout the year and finished
above many analysts' expectations. The energy, financials and information
technology sectors experienced significant increases in profit growth during the
year. The S&P 500 Index's solid performance was led by the economically
sensitive information technology, materials, consumer discretionary and
industrials sectors. Lagging sectors were those least economically sensitive:
consumer staples, healthcare and telecommunication services. Large
capitalization strategies underperformed mid- and small-cap strategies during
the year, and value-based strategies outperformed growth strategies across most
market capitalizations.
PERFORMANCE
Positive influences on performance relative to the S&P 500/Barra Value Index for
the year included an underweight position and favorable security selection in
telecommunication services providers SPRINT FON GROUP and BELLSOUTH CORP. and an
overweight position and favorable security selection in energy companies
MARATHON OIL CORP., CONOCOPHILLIPS, and CHEVRONTEXACO CORP. Favorable security
selection in travel and real estate services company CENDANT CORP., industrial
product provider INGERSOLL-RAND CO. LTD., diversified manufacturing and service
company TYCO INTERNATIONAL LTD. and consumer discretionary retailer SEARS,
ROEBUCK AND CO. Auto manufacturer FORD MOTOR CO. and consumer electronics firm
KONINKLIJKE PHILIPS ELECTRONICS NV also positively influenced relative
performance.
Negative influences on relative performance during the year included an
overweight position in consumer staples and an underweight and unfavorable
security selection in insurance providers MARSH & MCLENNAN COS. INC., LOEWS
CORP. and AON CORP. Portfolio guidelines restricting an investment in Citigroup
negatively influenced relative performance to the S&P 500/Barra Value Index by
approximately 2%, assuming a benchmark weight within the portfolio. Unfavorable
security selection in information technology firms SUNGARD DATA SYSTEMS, INC.,
FIRST DATA CORP., STORAGE TECHNOLOGY CORP., and in chemical companies E.I. DU
PONT DE NEMOURS & CO., AIR PRODUCTS AND CHEMICALS, INC. also detracted from
relative performance.
POSITIONING AND STRATEGY
We continued to maintain overweight positions relative to the S&P 500/Barra
Value Index in the materials, industrials, information technology and consumer
staples sectors. Within the consumer staples sector, we emphasized the tobacco
industry given its high dividend yields and recently decreased litigation risk.
We continued to underweight utilities and telecommunication services companies
given concerns regarding higher interest rates and unattractive valuations for
utilities and poor fundamentals for many telecommunication services firms.
Within the financials industry, we emphasized consumer finance companies,
investment banks and capital markets exposure within banks and life insurers.
Themes within our valuation disciplines continued to be the healthcare and
consumer discretionary industries. Our bias within the healthcare sector was to
focus less attention on pharmaceuticals and more attention on device
manufacturers and service companies. Within the consumer discretionary industry,
our focus was on media-related companies and consumer durables manufacturers.
Our investment philosophy remained unchanged; we use our valuation disciplines
and
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2003, calculated
among the 109 funds in the Lipper multi-cap value variable funds category
including the reinvestment of dividends and capital gains, if any.
14
fundamental research to identify companies to add to the portfolio and to
eliminate companies that we believe are overvalued or have deteriorating
fundamentals.
Thank you for your investment in the Federated Stock Portfolio. We appreciate
that you have entrusted us to manage your money and value our relationship with
you.
Sincerely,
The Portfolio Management Team
Federated Investment Management Company
January 21, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. The opinions expressed are
current only through the end of the period of this report as stated on the cover
and are subject to change at any time based on market or other conditions. Views
expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: J.P.
Morgan Chase & Co. (3.23%), Tyco International, Ltd. (2.86%), Cendant Corp.
(2.77%), Bank of America Corp. (2.58%), Altria Group, Inc. (2.40%), Morgan
Stanley (2.38%), Hewlett-Packard Co. (2.30%), ChevonTexaco Corp. (2.30%),
Wachovia Corp. (2.27%), Johnson Controls, Inc. (2.04%). Please refer to pages 47
through 50 for a list and percentage breakdown of the fund's holdings.
Fund performance reflects fund expenses, but does not reflect any charges or
expenses imposed by your variable contract. Index performance does not reflect
any deduction for fees or expenses. An investor may not invest directly in an
index.
RISK: The fund may use derivatives, such as options and futures, which can be
illiquid, may disproportionately increase losses, and have a potentially large
impact on fund performance.
(i) The S&P 500/Barra Value Index is a market-capitalization weighted index of
stocks in the S&P 500 having lower price-to-book ratios relative to the S&P
500 as a whole. (A price-to-book ratio is the price of a stock compared to
the difference between a company's assets and liabilities.)
(ii) The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
(iii) The Nasdaq Composite Index is a market-value weighted index, which
measures all securities listed on the NASDAQ stock market.
15
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- FEDERATED STOCK PORTFOLIO AS OF 12/31/03 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/03 27.61%
Five Years Ended 12/31/03 2.73
8/30/96* through 12/31/03 10.10
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/30/96* through 12/31/03 102.53%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on August
30, 1996 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2003, with that of a similar
investment in the S&P 500 Index. Index information is available at
month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. The S&P 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange and over-the-counter
markets. The S&P 500/Barra Value Index is a market-capitalization
weighted index of stocks in the S&P 500 having lower price-to-book
ratios relative to the S&P 500 as a whole. (A price-to-book ratio
is the price of a stock compared to the difference between a
company's assets and liabilities.)
[Federated Stock Performance Graph]
<Table>
<Caption>
S&P 500/BARRA VALUE
FEDERATED STOCK PORTFOLIO S&P 500 INDEX++ INDEX++
------------------------- --------------- -------------------
8/30/96 10000 10000 10000
12/96 11261 11441 11416
12/97 15021 15258 14839
12/98 17700 19642 17015
12/99 18646 23773 19180
12/00 19349 21609 20346
12/01 19672 19043 17963
12/02 15871 17081 14218
12/31/03 20253 21280 18738
</Table>
++ It is the opinion of management that the S&P 500/Barra Value Index more
accurately reflects the current composition of the Federated Stock Portfolio
than the S&P 500 Index. In future reporting, the S&P 500/Barra Value will be
used as the basis of comparison of total return performance rather than the
S&P 500 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.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The total returns and graph presented above do not
reflect expenses associated with your variable contract such as administrative
fees, account charges and surrender charges which, if reflected, would reduce
the performance shown.
16
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
DISCIPLINED MID CAP STOCK PORTFOLIO
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 33.75%. In
comparison, the fund underperformed its benchmark, the unmanaged S&P MidCap 400
Index(i), which returned 35.62% for the same period. The fund also
underperformed its Lipper mid-cap growth variable funds category average, which
was 36.34% for the same period.(1)
Optimistic forecasts for a strong economic rebound in 2003 have proven to be
correct. With real gross domestic product ("GDP")(ii) growth of 3.3% in the
second quarter and a surge of 8.2% in the third quarter, the economy gradually
responded to the stimulus of aggressive monetary and fiscal policies. However,
many investors continued to express concerns that the effects of these
stimulative policies might wear off, and corporate revenue growth might not be
sustainable. Other worries during the year focused on weak employment data,
sluggish capital spending, and the impact on consumer spending from a slowdown
in mortgage refinancing.
From the monetary perspective, the Federal Reserve Board appeared to be firmly
committed to maintaining low interest rates, despite the widely discussed risk
of a further decline in inflation. The nation's fiscal stimulus also seemed to
be effective, and despite the scheduled expiration of recent tax cuts, most
consumers apparently perceived the reduction in tax rates as permanent.
The employment rate began to improve toward the end of 2003. Non-farm payrolls
rose, and initial claims for unemployment insurance fell steadily. The
industrial sector began to advance as well, with industrial production moving
higher over the last four months of the year. Many major corporations have
started to indicate some willingness to invest. Capital-goods orders have
trended higher, and capital spending rose in the final three quarters of 2003.
However, in 2003 the economy confronted a series of major issues, many of which
emerged quite suddenly. Corporate governance and accounting scandals, the
geopolitical crisis and the sharp drop in technology spending all contributed to
weakness in the financial markets in the beginning of the year. Fortunately, the
impact of those impediments mostly diminished during the year, in part because
of the economy's flexibility.
FUND PERFORMANCE
Our stock selection models produced mixed results during the course of 2003. The
strong market rally was primarily fueled by the tremendous gains of lower
quality stocks, which typically perform well at the inflection point of a market
recovery. Especially in industries such as semiconductors and
telecommunications, many stocks surged significantly without any visible rebound
in demand. Throughout the year, positive economic data continued to lead
investors towards stocks with higher earnings leverage and sales growth in
anticipation of a strong economic recovery.
Consequently, we feel that the focus on management guidance and longer-term
business outlook undermined the importance of earnings surprises and estimates
revisions as stock selection factors in 2003. As a result, most of our earnings
factors remained anemic. Among our valuation factors, operating cash flow
remained a strong preference with investors, although its effectiveness has
clearly diminished from the peak of the accounting crisis. Overall, our stock
selection was most favorable in the technology, consumer staples and
transportation sectors, but adverse in the financial services and healthcare
sectors.
In the technology sector, the fund profited from positions in computer storage
device provider SANDISK CORP. and software firm MENTOR GRAPHICS CORP. early in
the year and in electrical and fiberoptic connector supplier AMPHENOL later on.
SanDisk reported robust financial results as both sales and earnings exceeded
analysts' expectations. Its flash card business unit realized the biggest
revenue increase due to strong digital camera sales. In response, analysts
raised their earnings estimates and their target prices for the stock. Mentor
Graphics also posted solid results. Orders grew significantly and were driven
primarily from the military, communications, and consumer segments. Management
expressed optimism in the business outlook and increased profit guidance for the
upcoming quarters. Amphenol handily beat the consensus earnings estimate with
particularly strong sales from the wireless and data-networking units. Favorable
currency translation also helped boost its profit.
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2003,
calculated among the 113 funds in the Lipper mid-cap growth variable funds
category including the reinvestment of dividends and capital gains, if any.
17
In the consumer staples sector, the fund benefited from positions in UNIVERSAL
CORP. and DREYER'S GRAND ICE CREAM HOLDINGS, INC. Universal, which processes
leaf tobacco, rose after its largest client received a favorable verdict in the
appeals court on a major class-action lawsuit. Dreyer's Grand Ice Cream traded
higher as the Federal Trade Commission approved its merger with another major
food company.
In the auto & transportation sector, the fund profited from positions in
OVERSEAS SHIPHOLDING GROUP, INC. and THE BRINK'S CO. Overseas Shipholding
benefited from upward revisions in the consensus earnings estimate. Several
analysts expected demand for crude oil tankers to rebound in coming months, and
felt the company could realize substantial earnings increase because of its
operating leverage. Brink's, which provides security services, traded higher on
the approval of new liability legislations. As a part of the new Medicare drug
bill, the new limit on liability claims was expected to reduce Brink's cash
expenses on legacy liabilities. As a result, most analysts raised their earnings
estimates for the fiscal year.
In the financial services sector, we were negatively impacted by the fund's
positions in regional banks SILICON VALLEY BANCSHARES and FIRST TENNESSEE
NATIONAL CORP. during specific sub-periods of 2003 when we had emphasized these
stocks. Silicon Valley Bancshares announced a quarterly loss at mid-year that
was larger than the consensus estimate. Its acquisition of Alliant Partners
contributed to the loss because of goodwill impairment. In addition, management
continued to have budgeting and expense control problems. First Tennessee
National traded lower on concerns that the slowdown in mortgage banking
activities could hurt earnings. The company remained heavily dependent on
refinancing business, which softened significantly as mortgage rates moved
higher in the third quarter. In the healthcare sector, the fund fell behind its
benchmark and its peers in the mid cap universe to some extent from not owning
well-performing stocks such as Ivax, Visx and Sepracor.
Thank you for your investment in the Disciplined Mid Cap Stock Portfolio. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Sandip A. Bhagat
Sandip A. Bhagat
The Travelers Investment Management Company
January 28, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. The opinions expressed are
current only through the end of the period of this report as stated on the cover
and are subject to change at any time based on market or other conditions. Views
expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: Gilead
Sciences, Inc. (1.33%); Fidelity National Financial, Inc. (0.91%); M&T Bank
Corp. (0.91%); International Rectifier Corp. (0.89%); Greenpoint Financial Corp.
(0.84%); Coach, Inc. (0.82%); Williams-Sonoma, Inc. (0.80%); Synopsys, Inc.
(0.79%); D.R. Horton, Inc. (0.77%); Mohawk Industries, Inc. (0.76%). Please
refer to pages 51 through 60 for a list and percentage breakdown of the fund's
holdings.
Fund performance reflects fund expenses, but does not reflect any charges or
expenses imposed by your variable contract. Index performance does not reflect
any deduction for fees or expenses. An investor may not invest directly in an
index.
RISK: Investments in medium-capitalization companies may involve a higher degree
of risk and volatility than investments in larger, more established companies.
Additionally, the fund may use derivatives, such as options and futures, which
can be illiquid, may disproportionately increase losses, and have a potentially
large impact on fund performance.
(i) The S&P MidCap 400 Index is a market-value weighted index consists of 400
domestic stocks chosen for market size, liquidity, and industry group
representation.
(ii) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
18
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- DISCIPLINED MID CAP STOCK PORTFOLIO AS OF 12/31/03
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/03 33.75%
Five Years Ended 12/31/03 7.79
4/1/97* through 12/31/03 13.03
CUMULATIVE TOTAL RETURN
--------------------------------------------
4/1/97* through 12/31/03 128.62%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on April
1, 1997 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2003, with that of a similar
investment in the S&P MidCap 400 Index. Index information is
available at month-end only; therefore, the closest month-end to
inception date of the Portfolio has been used. The S&P MidCap 400
Index is an unmanaged index composed of 400 widely held mid cap
common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter markets.
[Disciplined Mid Cap Stock Performance Graph]
<Table>
<Caption>
DISCIPLINED MID CAP STOCK
PORTFOLIO S&P MIDCAP 400 INDEX
------------------------- --------------------
4/1/97 10000 10000
12/97 13438 11512
12/98 15710 12603
12/99 17826 14459
12/00 20789 16989
12/01 19950 16885
12/02 17092 14913
12/31/03 22862 22164
</Table>
- --------------------------------------------------------------------------------
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.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends. The total returns and graph presented above do not
reflect expenses associated with your variable contract such as administrative
fees, account charges and surrender charges which, if reflected, would reduce
the performance shown.
19
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2003
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 36.9%
U.S. Treasury Notes:
$22,250,000 1.625% due 10/31/05....................................... $ 22,222,210
21,350,000 3.500% due 11/15/06....................................... 22,074,747
4,500,000 3.125% due 9/15/08........................................ 4,498,772
4,720,000 3.375% due 11/15/08....................................... 4,758,907
7,550,000 4.750% due 11/15/08....................................... 8,084,993
1,800,000 6.500% due 2/15/10........................................ 2,092,219
7,400,000 5.750% due 8/15/10........................................ 8,299,566
5,000,000 4.250% due 11/15/13....................................... 4,996,095
- --------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost -- $77,439,296)....................................... 77,027,509
- --------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 50.7%
- --------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 2.2%
200,000 BBB- Bombardier Inc., Notes, 6.750% due 5/1/12 (b)............... 219,500
3,800,000 BBB Northrop Grumman Corp., Notes, 8.625% due 10/15/04.......... 4,003,878
400,000 BBB- Raytheon Co., Notes, 5.375% due 4/1/13...................... 401,409
- --------------------------------------------------------------------------------------------------------
4,624,787
- --------------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 1.0%
2,100,000 A3* DaimlerChrysler North America Holding Corp., Notes,
4.050% due 6/4/08......................................... 2,087,788
- --------------------------------------------------------------------------------------------------------
BANKING -- 3.4%
600,000 Aa3* Credit Suisse First Boston (USA), Inc., Notes, 6.125% due
11/15/11.................................................. 654,265
2,165,000 A2* FleetBoston Financial Corp., Sub. Notes, 7.125% due
4/15/06................................................... 2,387,001
2,100,000 A J.P. Morgan Chase & Co., Sub. Notes, 5.750% due 1/2/13...... 2,218,318
1,800,000 Aa2* US Bank NA, Notes, 2.850% due 11/15/06...................... 1,809,943
- --------------------------------------------------------------------------------------------------------
7,069,527
- --------------------------------------------------------------------------------------------------------
BROKERAGE -- 3.0%
2,100,000 Aa3* The Goldman Sachs Group, Inc., Notes, 4.750% due 7/15/13.... 2,050,467
1,200,000 Aa3* Merrill Lynch & Co., Medium-Term Notes, Series B, 3.375% due
9/14/07................................................... 1,216,550
2,600,000 Aa3* Morgan Stanley, Notes, 6.600% due 4/1/12.................... 2,908,459
- --------------------------------------------------------------------------------------------------------
6,175,476
- --------------------------------------------------------------------------------------------------------
CONGLOMERATES -- 0.8%
1,600,000 A- Hutchison Whampoa International Ltd., Sr. Notes, 6.250% due
1/24/14 (b)............................................... 1,628,227
- --------------------------------------------------------------------------------------------------------
DISTRIBUTORS -- 0.3%
700,000 A+ Southern California Gas Co., First Mortgage Bonds, Series
II,
4.375% due 1/15/11........................................ 700,894
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
ENERGY -- 5.3%
$ 700,000 BBB+ Anadarko Finance Co., Sr. Notes, Series B, 6.750% due
5/1/11.................................................... $ 794,706
870,000 BBB Duke Energy Field Services, LLC, Notes, 7.500% due
8/16/05................................................... 935,212
3,000,000 B- El Paso Corp., Medium-Term Notes, 6.950% due 12/15/07....... 2,898,750
2,700,000 B- Gemstone Investors Ltd., Sr. Notes, 7.710% due 10/31/04
(b)....................................................... 2,740,500
3,600,000 B+ Transcontinental Gas Pipe Line Corp., Notes, 6.125% due
1/15/05................................................... 3,676,500
- --------------------------------------------------------------------------------------------------------
11,045,668
- --------------------------------------------------------------------------------------------------------
FINANCE CAPTIVE -- 2.6%
Ford Motor Credit Co., Global Landmark Securities(TM):
1,900,000 A3* 6.875% due 2/1/06......................................... 2,028,868
1,300,000 A3* 7.000% due 10/1/13........................................ 1,373,511
1,800,000 A3* General Motors Acceptance Corp., Notes, 7.250% due 3/2/11... 1,977,575
- --------------------------------------------------------------------------------------------------------
5,379,954
- --------------------------------------------------------------------------------------------------------
FINANCE NON-CAPTIVE -- 3.2%
1,800,000 A Diageo Finance BV, Notes, 3.000% due 12/15/06............... 1,810,681
2,000,000 AAA General Electric Capital Corp., Medium-Term Notes, Series A,
5.450% due 1/15/13........................................ 2,084,358
2,590,000 A1* Household Finance Corp., Notes, 6.375% due 11/27/12......... 2,846,244
- --------------------------------------------------------------------------------------------------------
6,741,283
- --------------------------------------------------------------------------------------------------------
HOME CONSTRUCTION -- 0.4%
800,000 BBB- MDC Holdings, Inc., Sr. Notes, 5.500% due 5/15/13........... 803,133
- --------------------------------------------------------------------------------------------------------
INSURANCE -- 1.7%
1,700,000 AAA MassMutual, Global Funding II, Notes, 2.550% due 7/15/08
(b)....................................................... 1,627,609
1,900,000 AA+ New York Life Global Funding, Medium-Term Notes,
5.375% due 9/15/13 (b).................................... 1,963,872
- --------------------------------------------------------------------------------------------------------
3,591,481
- --------------------------------------------------------------------------------------------------------
MEDIA -- 5.5%
Comcast Cable Communications, Inc., Exchange Notes:
100,000 BBB 8.125% due 5/1/04......................................... 101,982
900,000 BBB 8.500% due 5/1/27......................................... 1,157,076
3,700,000 Baa1* Cox Enterprises Inc., Notes, 7.875% due 9/15/10 (b)......... 4,387,704
2,000,000 BBB- Liberty Media Corp., Sr. Notes, 2.670% due 9/17/06 (c)...... 2,023,318
3,600,000 BBB+ Time Warner Inc., Notes, 6.150% due 5/1/07.................. 3,920,476
- --------------------------------------------------------------------------------------------------------
11,590,556
- --------------------------------------------------------------------------------------------------------
PACKAGING -- 0.3%
550,000 BBB Sealed Air Corp., Sr. Notes, 5.625% due 7/15/13 (b)......... 563,844
- --------------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.1%
2,200,000 A Wyeth, Notes, 5.500% due 2/1/14............................. 2,229,388
- --------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 2.6%
250,000 BBB- Nationwide Health Properties, Inc., Medium-Term Notes,
Series C,
6.900% due 10/1/37........................................ 255,641
5,000,000 BBB Post Apartment Homes, L.P., MOPPRS(SM), 6.850% due
3/16/15................................................... 5,204,995
- --------------------------------------------------------------------------------------------------------
5,460,636
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
RETAILERS -- 4.0%
$ 3,900,000 Baa1* Sears Roebuck Acceptance Corp., Medium-Term Notes, Series
VI,
4.100% due 1/7/04 (c)..................................... $ 3,900,000
4,500,000 AA Wal-Mart Stores, Inc., Notes, 4.550% due 5/1/13............. 4,453,155
- --------------------------------------------------------------------------------------------------------
8,353,155
- --------------------------------------------------------------------------------------------------------
SOVEREIGN -- 1.0%
2,000,000 AAA Canada Mortgage and Housing Corp., Notes, 3.375% due
12/1/08................................................... 1,995,478
- --------------------------------------------------------------------------------------------------------
SUPERMARKETS -- 0.7%
1,300,000 BBB Fred Meyer, Inc., Notes, 7.450% due 3/1/08.................. 1,481,952
- --------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.0%
2,000,000 BBB+ Deutsche Telekom International Finance BV, Bonds,
8.250% due 6/15/05........................................ 2,170,406
3,400,000 A+ New York Telephone Co., Debentures, 7.000% due 8/15/25...... 3,471,903
2,700,000 BBB+ Telecom Italia Capital SA, Sr. Global Notes, 5.250% due
11/15/13 (b).............................................. 2,711,575
- --------------------------------------------------------------------------------------------------------
8,353,884
- --------------------------------------------------------------------------------------------------------
TOBACCO -- 0.8%
1,700,000 BBB Altria Group, Inc., Notes, 5.625% due 11/4/08............... 1,745,757
- --------------------------------------------------------------------------------------------------------
UTILITIES -- 6.8%
650,000 B+ CMS Energy Corp., Notes, 7.625% due 11/15/04................ 672,750
2,800,000 BBB Pepco Holdings, Inc., Notes, 5.500% due 8/15/07............. 2,997,652
2,900,000 Baa2* Progress Energy, Inc., Sr. Notes, 6.050% due 4/15/07........ 3,116,070
PSEG Energy Holdings Inc., Sr. Notes:
900,000 BB- 9.125% due 2/10/04........................................ 909,000
750,000 BB- 8.625% due 2/15/08........................................ 822,188
1,800,000 A3* SCANA Corp., Sr. Notes, 1.620% due 11/15/06 (c)............. 1,800,718
1,700,000 AA+ SP PowerAssets Ltd., Notes, 5.000% due 10/22/13 (b)......... 1,712,976
2,200,000 BBB- Xcel Energy, Inc., Sr. Notes, 3.400% due 7/1/08 (b)......... 2,150,678
- --------------------------------------------------------------------------------------------------------
14,182,032
- --------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $102,344,496)...... 105,804,900
- --------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 5.8%
1,668,314 AAA California Infrastructure PG&E-1, Series 1997-1, Class A7,
6.420% due 9/25/08........................................ 1,775,499
1,000,000 AAA Chase Funding Trust, Series 2002-2, Class 1A5,
5.833% due 4/25/32........................................ 1,051,151
2,500,000 AAA DaimlerChrysler Auto Trust, Series 2001-C, Class A4,
4.630% due 12/6/06........................................ 2,571,479
1,700,000 AAA Discover Card Master Trust I, Series 1996-3, Class A,
6.050% due 8/18/08........................................ 1,829,782
2,200,000 AAA Ford Credit Auto Owner Trust, Series 2002-B, Class A4,
4.750% due 8/15/06........................................ 2,285,503
600,000 AAA Metris Master Trust, Series 2001-1, Class A,
1.369% due 12/20/07 (c)................................... 600,365
2,000,000 AAA Toyota Auto Receivables Owner Trust, Series 2002-C, Class
A3,
2.650% due 11/15/06....................................... 2,019,218
- --------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (Cost -- $12,233,665)......... 12,132,997
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.9%
$ 1,500,000 AAA Credit Suisse First Boston Mortgage Securities Corp., Series
2003-C5,
Class A4, 4.900% due 12/15/36............................. $ 1,503,742
1,900,000 AAA J.P. Morgan Chase Commercial Mortgage Securities Corp.,
Series 2003-CB7,
Class A4, 4.879% due 1/12/38.............................. 1,909,462
1,090,000 AAA LB-UBS Commercial Mortgage Trust, Series 2002-C4, Class A5,
4.853% due 9/15/31........................................ 1,103,213
1,450,000 AAA Wachovia Bank Commercial Mortgage Trust, Series 2003-C6,
Class A3,
4.957% due 8/15/35........................................ 1,493,043
- --------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $6,017,196)........................................ 6,009,460
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.7%
7,800,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $7,800,347; (Fully collateralized by U.S.
Treasury Bonds, 6.125% due 11/15/27; Market
value -- $7,958,230) (Cost -- $7,800,000)................. 7,800,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $205,834,653**)........ $208,774,866
- --------------------------------------------------------------------------------------------------------
</Table>
(a) All ratings are by Standard & Poor's Ratings Service, except for those which
are identified by an asterisk (*), are rated by Moody's Investors Service.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid pursuant to guidelines established by the Board of
Trustees.
(c) Variable rate security.
** Aggregate cost for Federal income tax purposes is $206,579,664.
Abbreviation used in this schedule:
MOPPRS(SM) -- MandatOry Par Put Remarketed Securities(SM). "MandatOry Par Put
Remarketed Securities(SM)" and MOPPRS(SM) are service marks
owned by Merrill Lynch & Co., Inc.
See pages 61 and 62 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
23
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
STOCK -- 96.7%
- -------------------------------------------------------------------------------------------
AUSTRALIA -- 1.5%
212,838 BHP Billiton Ltd. .......................................... $ 1,953,526
- -------------------------------------------------------------------------------------------
BELGIUM -- 1.5%
96,200 Fortis (NL) N.V.+........................................... 1,932,043
- -------------------------------------------------------------------------------------------
DENMARK -- 0.5%
16,000 Novo Nordisk A/S, Class B Shares............................ 651,078
- -------------------------------------------------------------------------------------------
FINLAND -- 2.7%
204,700 Nokia Oyj................................................... 3,476,039
- -------------------------------------------------------------------------------------------
FRANCE -- 10.6%
29,500 Aventis S.A. ............................................... 1,947,631
31,000 BNP Paribas S.A. ........................................... 1,949,798
13,700 Carrefour S.A. ............................................. 751,213
85,200 Credit Agricole S.A. ....................................... 2,032,093
28,200..... Lagardere S.C.A.+........................................... 1,626,236
15,800 Schneider Electric S.A. .................................... 1,033,185
22,851 Total S.A. ................................................. 4,243,812
- -------------------------------------------------------------------------------------------
13,583,968
- -------------------------------------------------------------------------------------------
GERMANY -- 4.8%
15,900 Bayerische Motoren Werke (BMW) AG........................... 736,221
142,500 Deutsche Telekom AG*........................................ 2,605,168
5,400 Muenchener Rueckversicherungs-Gesellschaft AG............... 653,975
1,240 Porsche AG, Preferred Shares................................ 735,111
17,500 Siemens AG+................................................. 1,400,120
- -------------------------------------------------------------------------------------------
6,130,595
- -------------------------------------------------------------------------------------------
HONG KONG -- 1.4%
241,500 CLP Holdings Ltd. .......................................... 1,147,815
395,000 Hong Kong & China Gas Co., Ltd. ............................ 602,898
- -------------------------------------------------------------------------------------------
1,750,713
- -------------------------------------------------------------------------------------------
IRELAND -- 3.8%
76,992 Allied Irish Banks PLC...................................... 1,231,978
142,900 Bank of Ireland............................................. 1,944,507
82,442 CRH PLC..................................................... 1,691,050
- -------------------------------------------------------------------------------------------
4,867,535
- -------------------------------------------------------------------------------------------
ITALY -- 3.1%
148,350 Eni S.p.A.+................................................. 2,796,228
283,500 Snam Rete Gas S.p.A. ....................................... 1,200,179
- -------------------------------------------------------------------------------------------
3,996,407
- -------------------------------------------------------------------------------------------
JAPAN -- 16.7%
39,650 ACOM CO., LTD. ............................................. 1,798,656
55,000 CANON INC. ................................................. 2,561,721
325 East Japan Railway Co. ..................................... 1,531,946
21,900 FANUC Ltd. ................................................. 1,312,344
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
JAPAN -- 16.7% (CONTINUED)
2,500 Funai Electric Co., Ltd. ................................... $ 343,258
39,800 HONDA MOTOR CO., LTD. ...................................... 1,768,311
52 Japan Tobacco Inc. ......................................... 381,015
37,000 Kao Corp. .................................................. 752,882
7,600 NEC Electronics Corp. ...................................... 556,158
182,300 Nissan Motor Co., Ltd. ..................................... 2,082,748
139,000 Nomura Holdings, Inc. ...................................... 2,367,807
736 NTT DoCoMo, Inc. ........................................... 1,669,370
5,400 ROHM CO., LTD. ............................................. 633,070
15,000 Shin-Etsu Chemical Co., Ltd. ............................... 613,245
52,200 Takeda Chemical Industries, Ltd. ........................... 2,070,752
272,000 TOKYO GAS Co., Ltd. ........................................ 969,842
- -------------------------------------------------------------------------------------------
21,413,125
- -------------------------------------------------------------------------------------------
THE NETHERLANDS -- 7.6%
39,700 ABN AMRO Holdings N.V. ..................................... 927,872
43,586 Heineken N.V. .............................................. 1,657,920
313,000 Koninklijke KPN N.V.*....................................... 2,413,511
89,272 Koninklijke (Royal) Philips Electronics N.V. ............... 2,603,873
40,200 Royal Dutch Petroleum Co. .................................. 2,117,170
- -------------------------------------------------------------------------------------------
9,720,346
- -------------------------------------------------------------------------------------------
NORWAY -- 0.5%
62,600 Statoil ASA................................................. 701,973
- -------------------------------------------------------------------------------------------
SINGAPORE -- 2.0%
214,700 Oversea-Chinese Banking Corp. Ltd. ......................... 1,529,688
127,624 United Overseas Bank Ltd. .................................. 991,955
- -------------------------------------------------------------------------------------------
2,521,643
- -------------------------------------------------------------------------------------------
SPAIN -- 2.6%
42,600 Altadis, S.A. .............................................. 1,207,663
107,200 Endesa, S.A.+............................................... 2,059,767
- -------------------------------------------------------------------------------------------
3,267,430
- -------------------------------------------------------------------------------------------
SWEDEN -- 0.5%
19,200 Sandvik AB+................................................. 661,995
- -------------------------------------------------------------------------------------------
SWITZERLAND -- 8.9%
69,300 Compagnie Financiere Richemont AG, Class A Shares........... 1,663,469
76,000 Credit Suisse Group......................................... 2,779,439
21,000 Roche Holding AG............................................ 2,117,312
34,500 Swiss Reinsurance Co. ...................................... 2,328,255
36,500 UBS AG...................................................... 2,498,626
- -------------------------------------------------------------------------------------------
11,387,101
- -------------------------------------------------------------------------------------------
UNITED KINGDOM -- 28.0%
350,300 Barclays PLC................................................ 3,115,574
135,300 Boots Group PLC............................................. 1,668,885
322,700 BP PLC...................................................... 2,609,443
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
UNITED KINGDOM -- 28.0% (CONTINUED)
246,796 Cadbury Schweppes PLC....................................... $ 1,807,330
158,574 Diageo PLC.................................................. 2,080,511
171,900 GlaxoSmithKline PLC......................................... 3,927,684
307,307 HSBC Holdings PLC........................................... 4,816,346
43,420 Imperial Tobacco Group PLC.................................. 852,576
84,360 Kesa Electricals PLC........................................ 387,385
484,700 Rentokil Initial PLC........................................ 1,643,907
53,800 Rio Tinto PLC............................................... 1,481,832
97,600 Royal Bank of Scotland Group PLC............................ 2,867,678
90,200 Smiths Group PLC............................................ 1,064,287
300,300 Tesco PLC................................................... 1,381,671
134,300 Unilever PLC................................................ 1,248,406
1,992,100 Vodafone Group PLC.......................................... 4,925,061
- -------------------------------------------------------------------------------------------
35,878,576
- -------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $102,401,037).......................... 123,894,093
- -------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.3%
$ 4,260,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $4,260,189; (Fully collateralized by U.S.
Treasury Bonds, 6.250% due 5/15/30; Market value --
$4,347,750) (Cost -- $4,260,000).......................... 4,260,000
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $106,661,037**)........ $128,154,093
- -------------------------------------------------------------------------------------------
</Table>
+ All or a portion of this security is on loan (See Note 8).
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is $108,302,611.
- --------------------------------------------------------------------------------
LOANED SECURITIES COLLATERAL DECEMBER 31, 2003
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------
$ 7,757,565 State Street Navigator Securities Lending Trust Prime
Portfolio (Cost -- $7,757,565)............................ $ 7,757,565
- -------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
COMMON STOCK -- 94.8%
- ----------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.1%
4,700 Empresa Brasileira de Aeronautica SA, Sponsored ADR......... $ 164,641
- ----------------------------------------------------------------------------------------
AIR FREIGHT AND COURIERS -- 0.9%
12,720 Expeditors International of Washington, Inc. ............... 479,035
17,500 FedEx Corp. ................................................ 1,181,250
- ----------------------------------------------------------------------------------------
1,660,285
- ----------------------------------------------------------------------------------------
AIRLINES -- 1.3%
32,900 JetBlue Airways Corp.* ..................................... 872,508
89,000 Southwest Airlines Co. ..................................... 1,436,460
- ----------------------------------------------------------------------------------------
2,308,968
- ----------------------------------------------------------------------------------------
BANKS -- 0.4%
19,230 Investors Financial Services Corp. ......................... 738,624
- ----------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 4.6%
19,620 Amgen Inc.* ................................................ 1,212,516
12,900 Biogen Idec Inc.* .......................................... 474,462
3,800 Celgene Corp.* ............................................. 171,076
5,200 Genentech, Inc.* ........................................... 486,564
27,470 Genzyme Corp.* ............................................. 1,355,370
42,400 Gilead Sciences, Inc.* ..................................... 2,465,136
4,200 ICOS Corp.* ................................................ 173,376
14,790 Invitrogen Corp.* .......................................... 1,035,300
16,700 Millennium Pharmaceuticals, Inc.* .......................... 311,789
3,200 Neurocrine Biosciences, Inc.* .............................. 174,528
- ----------------------------------------------------------------------------------------
7,860,117
- ----------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.3%
5,100 American Standard Cos. Inc.* ............................... 513,570
- ----------------------------------------------------------------------------------------
CHEMICALS -- 0.7%
7,200 Lyondell Chemical Co. ...................................... 122,040
28,580 Praxair, Inc. .............................................. 1,091,756
- ----------------------------------------------------------------------------------------
1,213,796
- ----------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 6.3%
5,100 Alliance Data Systems Corp.* ............................... 141,168
7,300 Apollo Group, Inc., Class A Shares* ........................ 496,400
56,450 ARAMARK Corp., Class B Shares .............................. 1,547,859
38,700 Career Education Corp.* .................................... 1,550,709
75,210 Cendant Corp.* ............................................. 1,674,927
13,500 Corinthian Colleges, Inc.* ................................. 750,060
11,400 The Corporate Executive Board Co.* ......................... 532,038
35,850 DST Systems, Inc.* ......................................... 1,497,096
484 Employee Solutions, Inc.* .................................. 1
21,710 Fiserv, Inc.* .............................................. 857,762
13,420 Manpower Inc. .............................................. 631,814
28,900 Monster Worldwide, Inc.* ................................... 634,644
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
27
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 6.3% (CONTINUED)
9,300 Paychex, Inc. .............................................. $ 345,960
11,100 Robert Half International Inc.* ............................ 259,074
- ----------------------------------------------------------------------------------------
10,919,512
- ----------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 5.8%
37,200 Adtran, Inc. ............................................... 1,153,200
12,900 Andrew Corp.* .............................................. 148,479
37,700 CIENA Corp.* ............................................... 250,328
149,178 Cisco Systems, Inc.* ....................................... 3,623,534
52,600 Corning Inc.* .............................................. 548,618
25,800 Juniper Networks, Inc.* .................................... 481,944
43,300 NetScreen Technologies, Inc.* .............................. 1,071,675
85,300 Nokia Oyj, Sponsored ADR.................................... 1,450,100
245,100 Nortel Networks Corp.* ..................................... 1,036,773
9,400 Scientific-Atlanta, Inc. ................................... 256,620
- ----------------------------------------------------------------------------------------
10,021,271
- ----------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 3.3%
31,400 Apple Computer, Inc.* ...................................... 671,018
75,470 Dell Inc.* ................................................. 2,562,961
48,900 Hewlett-Packard Co. ........................................ 1,123,233
230 International Business Machines Corp. ...................... 21,316
20,000 NVIDIA Corp.* .............................................. 465,000
46,700 Seagate Technology* ........................................ 882,630
- ----------------------------------------------------------------------------------------
5,726,158
- ----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 6.0%
3,500 Affiliated Managers Group* ................................. 243,565
37,800 Ameritrade Holding Corp.* .................................. 531,846
40,600 Franklin Resources, Inc. ................................... 2,113,636
16,560 The Goldman Sachs Group, Inc. .............................. 1,634,969
8,700 Legg Mason, Inc. ........................................... 671,466
32,400 Merrill Lynch & Co., Inc. .................................. 1,900,260
34,757 NTL Inc.* .................................................. 2,424,301
20,200 SLM Corp. .................................................. 761,136
- ----------------------------------------------------------------------------------------
10,281,179
- ----------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.2%
7,800 SpectraSite, Inc.* ......................................... 271,050
- ----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.4%
17,490 Rockwell Automation, Inc. .................................. 622,644
- ----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 2.0%
3,200 Amphenol Corp., Class A Shares* ............................ 204,576
69,700 Flextronics International Ltd.* ............................ 1,034,348
37,000 Ingram Micro Inc., Class A Shares* ......................... 588,300
27,500 Thermo Electron Corp.* ..................................... 693,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 2.0% (CONTINUED)
23,500 Vishay Intertechnology, Inc.* .............................. $ 538,150
8,980 Waters Corp.* .............................................. 297,777
- ----------------------------------------------------------------------------------------
3,356,151
- ----------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 1.7%
29,470 BJ Services Co.* ........................................... 1,057,973
7,820 Cooper Cameron Corp.* ...................................... 364,412
15,800 GlobalSantaFe Corp. ........................................ 392,314
9,600 Nabors Industries, Ltd.* ................................... 398,400
11,200 Rowan Cos., Inc.* .......................................... 259,504
10,800 Smith International, Inc.* ................................. 448,416
- ----------------------------------------------------------------------------------------
2,921,019
- ----------------------------------------------------------------------------------------
FOOD AND DRUG RETAILING -- 2.3%
33,190 CVS Corp. .................................................. 1,198,823
95,800 Rite Aid Corp.* ............................................ 578,632
23,200 Sysco Corp. ................................................ 863,736
37,060 Walgreen Co. ............................................... 1,348,243
- ----------------------------------------------------------------------------------------
3,989,434
- ----------------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.2%
4,880 Hershey Foods Corp. ........................................ 375,711
- ----------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT AND SUPPLIES -- 6.8%
15,600 Alcon, Inc. ................................................ 944,424
13,100 Apogent Technologies, Inc.* ................................ 301,824
30,800 Applera Corp. -- Applied Biosystems Group................... 637,868
28,700 Baxter International, Inc. ................................. 875,924
18,000 C.R. Bard, Inc. ............................................ 1,462,500
87,180 Cytyc Corp.* ............................................... 1,199,597
16,520 DENTSPLY International Inc. ................................ 746,208
32,500 Fisher Scientific International Inc.* ...................... 1,344,525
20,470 Guidant Corp. .............................................. 1,232,294
34,260 Medtronic, Inc. ............................................ 1,665,379
24,510 Millipore Corp.* ........................................... 1,055,155
12,800 Thoratec Corp.* ............................................ 166,528
- ----------------------------------------------------------------------------------------
11,632,226
- ----------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS AND SERVICES -- 2.4%
23,700 AmerisourceBergen Corp. .................................... 1,330,755
17,900 Cardinal Health, Inc. ...................................... 1,094,764
50,520 Caremark Rx, Inc.* ......................................... 1,279,672
29,500 Tenet Healthcare Corp.* .................................... 473,475
- ----------------------------------------------------------------------------------------
4,178,666
- ----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE -- 3.4%
22,600 Carnival Corp. ............................................. 897,898
12,000 The Cheesecake Factory Inc.* ............................... 528,360
16,100 Darden Restaurants, Inc. ................................... 338,744
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
29
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE -- 3.4% (CONTINUED)
5,600 Four Seasons Hotels, Inc. .................................. $ 286,440
27,300 Hilton Hotels Corp. ........................................ 467,649
600 Orbitz, Inc.* .............................................. 13,920
29,400 Outback Steakhouse, Inc. ................................... 1,299,774
13,900 Royal Caribbean Cruises Ltd. ............................... 483,581
42,550 Starwood Hotels & Resorts Worldwide, Inc. .................. 1,530,524
- ----------------------------------------------------------------------------------------
5,846,890
- ----------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.2%
8,200 Toll Brothers, Inc.* ....................................... 326,032
- ----------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 1.8%
115,400 Tyco International Ltd. .................................... 3,058,100
- ----------------------------------------------------------------------------------------
INSURANCE -- 0.7%
24,000 Marsh & McLennan Cos., Inc. ................................ 1,149,360
- ----------------------------------------------------------------------------------------
INTERNET AND CATALOG RETAIL -- 1.5%
25,900 eBay Inc.* ................................................. 1,672,881
27,050 InterActiveCorp* ........................................... 917,806
- ----------------------------------------------------------------------------------------
2,590,687
- ----------------------------------------------------------------------------------------
INTERNET SOFTWARE AND SERVICES -- 0.3%
45,600 Akamai Technologies, Inc.* ................................. 490,200
- ----------------------------------------------------------------------------------------
IT CONSULTING AND SERVICES -- 1.0%
29,710 Affiliated Computer Services Inc., Class A Shares* ......... 1,618,007
8,960 SunGard Data Systems Inc.* ................................. 248,282
- ----------------------------------------------------------------------------------------
1,866,289
- ----------------------------------------------------------------------------------------
MACHINERY -- 0.6%
13,200 Illinois Tool Works Inc. ................................... 1,107,612
- ----------------------------------------------------------------------------------------
MEDIA -- 10.5%
24,200 Citadel Broadcasting Co.* .................................. 541,354
40,980 Clear Channel Communications, Inc. ......................... 1,919,093
81,030 Comcast Corp., Class A Shares* ............................. 2,663,456
6,930 The E.W. Scripps Co., Class A Shares........................ 652,390
82,980 EchoStar Communications Corp., Class A Shares* ............. 2,821,320
32,030 Entercom Communications Corp.* ............................. 1,696,309
16,700 Getty Images, Inc.* ........................................ 837,171
6,370 Lamar Advertising Co.* ..................................... 237,728
11,400 Lin TV Corp., Class A Shares* .............................. 294,234
15,530 Meredith Corp. ............................................. 758,019
67,300 Time Warner Inc.* .......................................... 1,210,727
27,640 Viacom Inc., Class B Shares................................. 1,226,663
55,100 The Walt Disney Co. ........................................ 1,285,483
54,140 Westwood One, Inc.* ........................................ 1,852,129
- ----------------------------------------------------------------------------------------
17,996,076
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
30
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.6%
23,080 Kohl's Corp.* .............................................. $ 1,037,215
43,670 Target Corp. ............................................... 1,676,928
- ----------------------------------------------------------------------------------------
2,714,143
- ----------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.1%
2,300 Zebra Technologies Corp., Class A Shares* .................. 152,651
- ----------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.8%
19,240 Avon Products, Inc. ........................................ 1,298,508
- ----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 2.7%
24,400 Johnson & Johnson........................................... 1,260,504
9,550 K-V Pharmaceutical Co., Class A Shares* .................... 243,525
18,100 Medicis Pharmaceutical Corp., Class A Shares................ 1,290,530
23,820 Teva Pharmaceutical Industries Ltd., Sponsored ADR.......... 1,350,832
10,000 Watson Pharmaceuticals, Inc.* .............................. 460,000
- ----------------------------------------------------------------------------------------
4,605,391
- ----------------------------------------------------------------------------------------
ROAD AND RAIL -- 0.2%
16,520 Swift Transportation Co., Inc.* ............................ 347,250
- ----------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 8.4%
521,400 Agere Systems, Inc., Class B Shares* ....................... 1,512,060
55,310 Analog Devices, Inc.* ...................................... 2,524,902
11,200 Cymer, Inc.* ............................................... 517,328
39,700 Intel Corp. ................................................ 1,278,340
11,780 Linear Technology Corp. .................................... 495,585
32,600 Marvell Technology Group Ltd.* ............................. 1,236,518
8,700 Microchip Technology Inc. .................................. 290,232
27,770 Novellus Systems, Inc.* .................................... 1,167,728
29,900 PMC-Sierra, Inc.* .......................................... 602,485
100,300 Taiwan Semiconductor Manufacturing Co. Ltd., Sponsored
ADR* ....................................................... 1,027,072
55,800 Texas Instruments Inc. ..................................... 1,639,404
55,500 Xilinx, Inc.* .............................................. 2,150,070
- ----------------------------------------------------------------------------------------
14,441,724
- ----------------------------------------------------------------------------------------
SOFTWARE -- 8.1%
101,400 Amdocs Ltd.* ............................................... 2,279,472
5,300 Ascential Software Corp.* .................................. 137,429
37,780 BEA Systems, Inc.* ......................................... 464,694
21,800 Cognos, Inc.* .............................................. 667,516
14,400 Mercury Interactive Corp.* ................................. 700,416
2,900 MICROS Systems, Inc.* ...................................... 125,744
136,820 Microsoft Corp. ............................................ 3,768,023
32,890 Network Associates, Inc.* .................................. 494,666
85,830 Oracle Corp.* .............................................. 1,132,956
15,100 SAP AG, Sponsored ADR....................................... 627,556
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
31
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
SOFTWARE -- 8.1% (CONTINUED)
e50,200 Symantec Corp.* ............................................ $ 1,739,430
49,390 VERITAS Software Corp.* .................................... 1,835,332
- ----------------------------------------------------------------------------------------
13,973,234
- ----------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 4.5%
11,700 Best Buy Co., Inc. ......................................... 611,208
18,130 The Home Depot, Inc. ....................................... 643,434
4,100 HOT Topic, Inc.* ........................................... 120,786
20,690 Office Depot, Inc.* ........................................ 345,730
6,300 Pacific Sunwear of California, Inc.* ....................... 133,056
25,190 PETsMART, Inc. ............................................. 599,522
69,500 Ross Stores, Inc. .......................................... 1,836,885
45,200 Staples, Inc.* ............................................. 1,233,960
11,230 The Talbots, Inc. .......................................... 345,659
17,000 Tiffany & Co. .............................................. 768,400
30,300 Williams-Sonoma, Inc.* ..................................... 1,053,531
- ----------------------------------------------------------------------------------------
7,692,171
- ----------------------------------------------------------------------------------------
TEXTILES AND APPAREL -- 0.7%
6,200 Coach, Inc.* ............................................... 234,050
24,700 Reebok International Ltd. .................................. 971,204
- ----------------------------------------------------------------------------------------
1,205,254
- ----------------------------------------------------------------------------------------
TRADING COMPANIES AND DISTRIBUTORS -- 0.1%
5,400 W.W. Grainger, Inc. ........................................ 255,906
- ----------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 1.9%
18,200 America Movil SA de C.V., Sponsored ADR..................... 497,588
83,020 American Tower Corp., Class A Shares* ...................... 898,276
35,200 Nextel Communications, Inc., Class A Shares* ............... 987,712
34,196 Vodafone Group PLC, Sponsored ADR........................... 856,268
- ----------------------------------------------------------------------------------------
3,239,844
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $134,833,302)................... 163,112,344
- ----------------------------------------------------------------------------------------
FOREIGN STOCK -- 3.1%
- ----------------------------------------------------------------------------------------
GERMANY -- 1.1%
39,300 Bayerische Motoren Werke (BMW) AG........................... 1,819,715
- ----------------------------------------------------------------------------------------
SWITZERLAND -- 0.7%
25,170 Novartis AG* ............................................... 1,142,242
- ----------------------------------------------------------------------------------------
UNITED KINGDOM -- 1.3%
47,300 AstraZeneca PLC............................................. 2,262,802
- ----------------------------------------------------------------------------------------
TOTAL FOREIGN STOCK (Cost -- $4,231,729).................... 5,224,759
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
32
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 2.1%
$3,675,000 Federal Home Loan Bank, Discount Notes, 0.010% due 1/2/04
(Cost -- $3,674,923)........................................ $ 3,674,923
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $142,739,954**) $172,012,026
- ---------------------------------------------------------------------------------------
</Table>
*Non-income producing security.
** Aggregate cost for Federal income tax purposes is $146,345,491.
Abbreviation used in this schedule:
-----------------------------------
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
33
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 96.8%
- ----------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 1.5%
$ 175,000 B Alliant Techsystems Inc., Sr. Sub. Notes, 8.500% due 5/15/11..... $ 193,375
75,000 B DRS Technologies Inc., Sr. Sub. Notes, 6.875% due 11/1/13 (b).... 77,437
125,000 B+ Gencorp Inc., Sr. Sub. Notes, 9.500% due 8/15/13 (b)............. 130,313
Hexcel Corp.:
50,000 B Sr. Secured Notes, 9.875% due 10/1/08.......................... 56,625
350,000 CCC+ Sr. Sub. Notes, 9.750% due 1/15/09............................. 368,375
75,000 BB- L-3 Communications Corp., Sr. Sub. Notes, 6.125% due 1/15/14
(b)............................................................ 75,563
175,000 B- Transdigm Inc., Sr. Sub. Notes, 8.375% due 7/15/11............... 187,031
- ----------------------------------------------------------------------------------------------------------
1,088,719
- ----------------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 4.2%
50,000 CCC+ Accuride Corp., Sr. Sub. Notes, Series B, 9.250% due 2/1/08...... 51,625
200,000 B2* Advanced Accessory Systems, Sr. Notes, 10.750% due 6/15/11....... 221,250
250,000 BBB- American Axle & Manufacturing Inc., Sr. Sub. Notes, 9.750% due
3/1/09......................................................... 265,625
Arvin Industries, Inc., Notes:
100,000 Baa3* 6.750% due 3/15/08............................................. 105,500
100,000 Baa3* 7.125% due 3/15/09............................................. 106,500
75,000 Baa3* Arvinmeritor Inc., Sr. Notes, 8.750% due 3/1/12.................. 86,250
50,000 BB Dana Corp., Notes, 9.000% due 8/15/11............................ 60,500
General Motors Corp.:
325,000 Baa1* Debentures, 8.375% due 7/15/33................................. 378,398
275,000 Baa1* Sr. Notes, 7.125% due 7/15/13.................................. 302,113
Lear Corp., Sr. Notes, Series B:
100,000 BBB- 7.960% due 5/15/05............................................. 107,500
400,000 BBB- 8.110% due 5/15/09............................................. 472,500
275,000 B Stoneridge Inc., Sr. Notes, 11.500% due 5/1/12................... 325,875
400,000 B+ TRW Automotive Inc., Sr. Sub. Notes, 11.000% due 2/15/13......... 473,000
150,000 B United Components Inc., Sr. Sub. Notes, 9.375% due 6/15/13....... 164,625
- ----------------------------------------------------------------------------------------------------------
3,121,261
- ----------------------------------------------------------------------------------------------------------
BUILDING AND MATERIALS -- 1.8%
100,000 B American Builders & Contractors Supply Co., Sr. Sub. Notes,
Series B, 10.625% due 5/15/07.................................. 104,000
125,000 B- Associated Materials Inc., Sr. Sub. Notes, 9.750% due 4/15/12.... 137,500
200,000 B Collins & Aikman Floorcovering Inc., Sr. Sub. Notes, 9.750% due
2/15/10........................................................ 215,000
150,000 CCC MMI Products, Inc., Sr. Sub. Notes, Series B, 11.250% due
4/15/07........................................................ 123,000
225,000 B NCI Building Systems, Inc., Sr. Sub. Notes, Series B, 9.250% due
5/1/09......................................................... 237,938
125,000 B- Norcraft Co., Sr. Sub. Notes, 9.000% due 11/1/11 (b)............. 135,625
275,000 B- Nortek Holdings Inc., Sr. Notes, zero coupon due 5/15/11 (b)..... 200,063
150,000 B+ Nortek Inc., Sr. Notes, Series B, 9.125% due 9/1/07.............. 155,812
- ----------------------------------------------------------------------------------------------------------
1,308,938
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
34
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
CHEMICALS AND PLASTICS -- 4.1%
$ 225,000 B- Compass Minerals Group Inc., Sr. Sub. Notes, 10.000% due
8/15/11........................................................ $ 253,125
250,000 BB- Equistar Chemical, L.P., Sr. Notes, 10.125% due 9/1/08........... 275,000
125,000 BB+ FMC Corp., Secured Notes, 10.250% due 11/1/09.................... 146,875
125,000 NR General Chemical Industrial Products Inc., Sr. Sub. Notes,
10.625% due 5/1/09 (d)......................................... 23,125
100,000 B Huntsman Advanced Materials, Sr. Secured Notes, 11.000% due
7/15/10 (b).................................................... 111,000
375,000 CCC+ Huntsman ICI Chemicals, Sr. Sub. Notes, 10.125% due 7/1/09....... 388,125
150,000 B Koppers Inc., Sr. Notes, 9.875% due 10/15/13 (b)................. 166,125
50,000 B Kraton Polymers LLC, Sr. Sub. Notes, 8.125% due 1/15/14 (b)...... 52,250
Lyondell Chemical Co.:
225,000 BB- Sr. Secured Notes, 9.500% due 12/15/08......................... 236,250
150,000 BB- Sr. Secured Notes, Series B, 9.875% due 5/1/07................. 159,000
250,000 B Sr. Sub. Notes, 10.875% due 5/1/09............................. 257,500
175,000 B- Nalco Co., Sr. Sub. Notes, 8.875% due 11/15/13 (b)............... 186,375
125,000 CCC+ Rhodia SA, Sr. Sub. Notes, 8.875% due 6/1/11 (b)................. 115,625
Salt Holdings Corp.:
150,000 B- Sr. Discount Notes, step bond to yield 12.751% due 12/15/12
(b)............................................................ 119,250
275,000 B- Sr. Sub. Discount Notes, step bond to yield 11.996% due 6/1/13
(b)............................................................ 191,125
150,000 NR Texas Petrochemicals Corp., Sr. Sub. Notes, 11.125% due 7/1/06
(d)............................................................ 48,750
Union Carbide Chemicals & Plastics:
50,000 BBB- Debentures, 7.875% due 4/1/23.................................. 45,250
200,000 BBB- Sr. Notes, 8.750% due 8/1/22................................... 192,000
75,000 BBB- Union Carbide Corp., Debentures, 6.790% due 6/1/25............... 74,250
- ----------------------------------------------------------------------------------------------------------
3,041,000
- ----------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY -- 2.3%
175,000 BB AGCO Corp., Sr. Notes, 9.500% due 5/1/08......................... 192,500
400,000 BB- Case New Holland Inc., Sr. Notes, 9.250% due 8/1/11 (b).......... 450,000
150,000 NR Clark Material Handling Co., Sr. Notes, Series D, 10.750% due
11/15/06 (d)................................................... 765
Columbus McKinnon Corp.:
50,000 B- Sr. Secured Notes, 10.000% due 8/1/10.......................... 53,500
225,000 CCC+ Sr. Sub. Notes, 8.500% due 4/1/08.............................. 211,500
75,000 B- Great Lakes Dredge & Dock, Sr. Sub. Notes, 7.750% due 12/15/13
(b)............................................................ 77,531
150,000 BB- Nationsrent Inc., Sr. Secured Notes, 9.500% due 10/15/10 (b)..... 162,000
United Rentals Inc., Series B:
375,000 BB- Sr. Notes, 10.750% due 4/15/08................................. 423,750
150,000 B+ Sr. Sub. Notes, 9.000% due 4/1/09.............................. 159,563
- ----------------------------------------------------------------------------------------------------------
1,731,109
- ----------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 5.1%
250,000 B+ American Achievement Corp., Sr. Notes, Series B, 11.625% due
1/1/07......................................................... 276,250
325,000 BB+ American Greetings Corp., Sr. Sub. Notes, 11.750% due 7/15/08.... 377,000
175,000 B Amscan Holdings, Inc., Sr. Sub. Notes, 9.875% due 12/15/07....... 181,780
175,000 B Armkel LLC, Sr. Sub. Notes, 9.500% due 8/15/09................... 192,938
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
35
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 5.1% (CONTINUED)
$ 50,000 B- Bombardier Recreational Products, Sr. Sub. Notes, 8.375% due
12/15/13 (b)................................................... $ 52,500
300,000 B2* Chattem Inc., Sr. Sub. Notes, Series B, 8.875% due 4/1/08........ 310,500
50,000 B- Commemorative Brands, Sr. Sub. Notes, 11.000% due 1/15/07........ 50,750
50,000 D Diamond Brands Operating Corp., Sr. Sub. Notes, 10.125% due
4/15/08 (d).................................................... 5
150,000 B- Icon Health & Fitness Inc., Sr. Sub. Notes, 11.250% due 4/1/12... 164,250
325,000 B- Jarden Corp., Sr. Sub. Notes, 9.750% due 5/1/12.................. 359,125
350,000 B- Jostens Holding Corp., Sr. Discount Notes, step bond to yield
10.241% due 12/1/13 (b)........................................ 221,375
200,000 B- Jostens Inc., Sr. Sub. Notes, 12.750% due 5/1/10................. 228,250
250,000 CCC+ Playtex Products Inc., Sr. Sub. Notes, 9.375% due 6/1/11......... 253,750
Sealy Mattress Co.:
75,000 B- Sr. Sub. Discount Notes, Series B, 10.875% due 12/15/07........ 78,188
225,000 B- Sr. Sub. Notes, Series B, 9.875% due 12/15/07.................. 234,000
50,000 B- Simmons Co., Sr. Sub. Notes, 7.875% due 1/15/14 (b).............. 50,500
200,000 B- Tempur-Pedic Inc., Sr. Sub. Notes, 10.250% due 8/15/10 (b)....... 224,000
150,000 B- True Temper Sports Inc., Sr. Sub. Notes, Series B, 10.875% due
12/1/08........................................................ 159,750
350,000 B- United Industries Corp., Sr. Sub. Notes, Series D, 9.875% due
4/1/09......................................................... 368,375
- ----------------------------------------------------------------------------------------------------------
3,783,286
- ----------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING -- 1.8%
100,000 B Amsted Industries Inc., Sr. Notes, 10.250% due 10/15/11 (b)...... 111,000
Tyco International Group S.A., Notes:
75,000 BBB- 6.375% due 6/15/05............................................. 79,312
525,000 BBB- 6.375% due 2/15/06............................................. 561,750
575,000 BBB- 5.800% due 8/1/06.............................................. 610,938
- ----------------------------------------------------------------------------------------------------------
1,363,000
- ----------------------------------------------------------------------------------------------------------
ENERGY -- 2.5%
175,000 BB Citgo Petroleum Corp., Sr. Notes, 11.375% due 2/1/11............. 203,875
225,000 B Compton Petroleum Corp., Sr. Notes, Series A, 9.900% due
5/15/09........................................................ 246,375
200,000 CCC+ Continental Resources, Inc., Sr. Sub. Notes, 10.250% due
8/1/08......................................................... 202,000
225,000 B- Lone Star Technologies, Inc., Sr. Sub. Notes, Series B, 9.000%
due 6/1/11..................................................... 223,875
75,000 B+ Magnum Hunter Resources, Inc., Sr. Notes, 9.600% due 3/15/12..... 85,500
150,000 BB- Petroleum Helicopters Inc., Sr. Notes, Series B, 9.375% due
5/1/09......................................................... 160,125
275,000 BB Pogo Producing Co., Sr. Sub. Notes, Series B, 10.375% due
2/15/09........................................................ 292,875
200,000 B Swift Energy Co., Sr. Sub. Notes, 9.375% due 5/1/12.............. 221,000
Tesoro Petroleum Corp.:
50,000 BB Sr. Secured Notes, 8.000% due 4/15/08.......................... 53,375
175,000 B Sr. Sub. Notes, Series B, 9.625% due 11/1/08................... 187,250
- ----------------------------------------------------------------------------------------------------------
1,876,250
- ----------------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 3.1%
300,000 CCC+ AMC Entertainment Inc., Sr. Sub. Notes, 9.875% due 2/1/12........ 335,250
150,000 B3* AMF Bowling Worldwide Inc., Sr. Sub. Notes, 13.000% due 9/1/08
(c)............................................................ 168,937
150,000 B- Cinemark USA Inc., Sr. Sub. Notes, 9.000% due 2/1/13............. 169,500
225,000 B+ Intrawest Corp., Sr. Notes, 10.500% due 2/1/10................... 249,750
200,000 B Regal Cinemas, Inc., Sr. Sub. Notes, Series B, 9.375% due
2/1/12......................................................... 227,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
36
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 3.1% (CONTINUED)
Six Flags Inc., Sr. Notes:
$ 150,000 B- 9.750% due 4/15/13............................................. $ 158,625
50,000 B- 9.625% due 6/1/14 (b).......................................... 52,500
400,000 B- Universal City Development Partners, Sr. Notes, 11.750% due
4/1/10 (b)..................................................... 470,000
Vivendi Universal SA, Sr. Notes:
250,000 BB 6.250% due 7/15/08 (b)......................................... 265,938
200,000 BB 9.250% due 4/15/10 (b)......................................... 238,000
- ----------------------------------------------------------------------------------------------------------
2,335,500
- ----------------------------------------------------------------------------------------------------------
ENVIRONMENTAL -- 1.8%
Allied Waste North America Inc., Series B:
625,000 BB- Sr. Notes, 7.625% due 1/1/06................................... 660,938
150,000 BB- Sr. Notes, 7.875% due 1/1/09................................... 157,125
100,000 B+ Sr. Sub. Notes, 10.000% due 8/1/09............................. 108,500
175,000 B- Sensus Metering Systems Inc., Sr. Sub. Notes, 8.625% due 12/15/13
(b)............................................................ 180,468
175,000 B Synagro Technologies Inc., Sr. Sub. Notes, 9.500% due 4/1/09..... 190,750
- ----------------------------------------------------------------------------------------------------------
1,297,781
- ----------------------------------------------------------------------------------------------------------
FINANCIAL INSTITUTIONS -- 0.4%
50,000 B+ CBRE Escrow Inc., Sr. Notes, 9.750% due 5/15/10 (b).............. 55,750
200,000 B Dollar Financial Group, Sr. Notes, 9.750% due 11/15/11 (b)....... 208,000
- ----------------------------------------------------------------------------------------------------------
263,750
- ----------------------------------------------------------------------------------------------------------
FINANCIAL -- OTHER -- 1.0%
660,000 B1* Targeted Return Index Sector, Trains HY-2003-1, Secured Notes,
due 5/15/13 (b)................................................ 731,555
- ----------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE -- 5.4%
63,000 B- AgriLink Foods Inc., Sr. Sub. Notes, 11.875% due 11/1/08......... 67,250
250,000 B American Seafood Group LLC, Sr. Sub. Notes, 10.125% due
4/15/10........................................................ 298,438
150,000 B- B&G Foods, Inc., Sr. Sub. Notes, Series D, 9.625% due 8/1/07..... 155,438
Constellation Brands, Inc., Series B:
150,000 BB Sr. Notes, 8.000% due 2/15/08.................................. 167,250
50,000 B+ Sr. Sub. Notes, 8.125% due 1/15/12............................. 55,000
200,000 B+ Cott Beverages Inc., Sr. Sub. Notes, 8.000% due 12/15/11......... 217,000
400,000 B Del Monte Corp., Sr. Sub. Notes, 9.125% due 12/15/12............. 440,000
Dole Foods Co., Sr. Notes:
275,000 BB- 8.625% due 5/1/09.............................................. 303,188
175,000 BB- 7.250% due 6/15/10............................................. 181,125
300,000 CCC+ Eagle Family Foods Holdings, Inc., Sr. Sub. Notes, Series B,
8.750% due 1/15/08............................................. 220,500
225,000 B- Land O' Lakes, Inc., Sr. Notes, 8.750% due 11/15/11.............. 198,000
125,000 B- Michael Foods Inc., Sr. Sub. Notes, 8.000% due 11/15/13 (b)...... 130,938
125,000 B National Beef Packing Co. LLC, Sr. Notes, 10.500% due 8/1/11
(b)............................................................ 129,375
150,000 NR New World Pasta Co., Sr. Sub. Notes, 9.250% due 2/15/09.......... 39,750
275,000 BB- Pilgrim's Pride Corp., Sr. Notes, 9.625% due 9/15/11............. 303,875
225,000 B+ PPC Escrow Corp., Sr. Sub. Notes, 9.250% due 11/15/13 (b)........ 234,000
200,000 B- Reddy Ice Group, Inc., Sr. Sub. Notes, 8.875% due 8/1/11 (b)..... 213,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
37
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE -- 5.4% (CONTINUED)
Smithfield Foods Inc., Sr. Notes:
$ 200,000 BB 7.750% due 5/15/13............................................. $ 209,000
250,000 BB Series B, 8.000% due 10/15/09.................................. 265,000
75,000 B Swift & Co., Sr. Sub. Notes, 12.500% due 1/1/10 (b).............. 80,625
75,000 B United Agricultural Products Inc., Sr. Notes, 8.250% due 12/15/11
(b)............................................................ 77,438
- ----------------------------------------------------------------------------------------------------------
3,986,190
- ----------------------------------------------------------------------------------------------------------
GAMING -- 7.2%
Boyd Gaming Corp., Sr. Sub. Notes:
100,000 B+ 8.750% due 4/15/12............................................. 110,250
175,000 B+ 7.750% due 12/15/12............................................ 188,125
200,000 B Coast Hotels & Casino, Inc., Sr. Sub. Notes, 9.500% due 4/1/09... 212,500
500,000 BB+ Harrah's Operating Co., Inc., Sr. Sub. Notes, 7.875% due
12/15/05....................................................... 545,000
225,000 B Isle of Capri Casinos, Inc., Sr. Sub. Notes, 9.000% due
3/15/12........................................................ 251,438
150,000 B Majestic Star Casino LLC, Sr. Secured Notes,
9.500% due 10/15/10 (b)........................................ 154,500
Mandalay Resort Group:
125,000 BB+ Sr. Notes, 9.500% due 8/1/08................................... 146,563
475,000 BB- Sr. Sub. Notes, Series B, 10.250% due 8/1/07................... 551,000
MGM MIRAGE:
150,000 BB+ Sr. Notes, 8.500% due 9/15/10.................................. 172,875
475,000 BB- Sr. Sub. Notes, 9.750% due 6/1/07.............................. 543,875
200,000 BB- Sr. Sub. Notes, 8.375% due 2/1/11.............................. 227,500
Mohegan Tribal Gaming Authority, Sr. Sub. Notes:
25,000 BB- 8.375% due 7/1/11.............................................. 27,375
250,000 BB- 8.000% due 4/1/12.............................................. 271,875
200,000 B+ MTR Gaming Group, Sr. Notes, 9.750% due 4/1/10................... 215,000
Park Place Entertainment Corp., Sr. Sub. Notes:
275,000 BB- 7.875% due 3/15/10............................................. 305,938
250,000 BB- 8.125% due 5/15/11............................................. 281,563
Penn National Gaming, Inc., Sr. Sub. Notes:
50,000 B 8.875% due 3/15/10............................................. 54,500
175,000 B Series B, 11.125% due 3/1/08................................... 197,313
50,000 B Poster Financial Group Inc., Sr. Secured Notes, 8.750% due
12/1/11 (b).................................................... 53,125
75,000 B+ River Rock Entertainment, Sr. Notes, 9.750% due 11/1/11 (b)...... 81,000
250,000 B+ Sun International Hotels Ltd., Sr. Sub. Notes, 8.875% due
8/15/11........................................................ 274,375
225,000 B- Venetian Casino Resort LLC/Las Vegas Sands Inc., Mortgage Notes,
11.000% due 6/15/10............................................ 262,125
175,000 CCC+ Wynn Las Vegas LLC/Corp., Second Mortgage, 12.000% due 11/1/10... 206,935
- ----------------------------------------------------------------------------------------------------------
5,334,750
- ----------------------------------------------------------------------------------------------------------
HEALTHCARE -- 4.4%
275,000 B- Ameripath Inc., Sr. Sub. Notes, 10.500% due 4/1/13............... 294,250
150,000 B- Ardent Health Services Inc., Sr. Sub. Notes, 10.000% due 8/15/13
(b)............................................................ 164,250
175,000 B- Concentra Operating Corp., Sr. Secured Notes, 9.500% due
8/15/10........................................................ 189,875
275,000 B+ Fisher Scientific International, Sr. Notes, 8.000% due 9/1/13
(b)............................................................ 296,313
100,000 B- Hanger Orthopedic Group, Sr. Notes, 10.375% due 2/15/09.......... 114,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
38
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
HEALTHCARE -- 4.4% (CONTINUED)
HCA Inc., Notes:
$ 350,000 BBB- 6.910% due 6/15/05............................................. $ 368,807
200,000 BBB- 5.250% due 11/6/08............................................. 204,044
375,000 BBB- 8.750% due 9/1/10.............................................. 447,105
100,000 B Kinetic Concepts Inc., Sr. Sub. Notes, 7.375% due 5/15/13 (b).... 103,500
100,000 D Magellan Health Services, Inc., Sr. Notes, 9.375% due 11/15/07
(b)(d)......................................................... 105,500
200,000 BBB Manor Care Inc., Sr. Notes, 8.000% due 3/1/08.................... 227,000
150,000 B Sybron Dental Specialties, Inc., Sr. Sub. Notes, 8.125% due
6/15/12........................................................ 163,874
250,000 B- Universal Hospital Services Inc., Sr. Notes, 10.125% due 11/1/11
(b)............................................................ 263,750
300,000 CCC+ Vanguard Health Systems, Inc., Sr. Sub. Notes, 9.750% due
8/1/11......................................................... 327,000
- ----------------------------------------------------------------------------------------------------------
3,269,268
- ----------------------------------------------------------------------------------------------------------
INDUSTRIAL -- OTHER -- 4.1%
225,000 B- Brand Services, Inc., Sr. Sub. Notes, 12.000% due 10/15/12....... 261,280
200,000 BB+ Briggs & Stratton Corp., Sr. Notes, 8.875% due 3/15/11........... 236,000
200,000 B Cabot Safety Corp., Sr. Sub. Notes, 12.500% due 7/15/05.......... 205,000
400,000 B- Eagle-Picher Inc., Sr. Notes, 9.750% due 9/1/13 (b).............. 434,000
Foamex L.P.:
125,000 B- Sr. Secured Notes, 10.750% due 4/1/09.......................... 119,688
100,000 CCC+ Sr. Sub. Notes, 9.875% due 6/15/07............................. 80,000
50,000 B General Cable Corp., Sr. Notes, 9.500% due 11/15/10 (b).......... 53,750
50,000 NR Glenoit Corp., Sr. Sub. Notes, 11.000% due 4/15/07 (d)(f)........ 1,000
200,000 B+ Greif Bros. Corp., Sr. Sub. Notes, 8.875% due 8/1/12............. 221,000
175,000 B Hines Nurseries Inc., Sr. Notes, 10.250% due 10/1/11 (b)......... 191,625
225,000 B- Interline Brands Inc., Sr. Sub. Notes, 11.500% due 5/15/11....... 249,188
Neenah Corp.:
191,000 CCC+ Sr. Secured Notes, 11.000% due 9/30/10 (b)..................... 211,294
159,574 CCC+ Sr. Sub. Notes, 13.000% due 9/30/13 (b)........................ 161,968
250,000 B- Norcross Safety Products, Sr. Sub. Notes, 9.875% due 8/15/11
(b)............................................................ 275,625
200,000 B- Rexnord Corp., Sr. Sub. Notes, 10.125% due 12/15/12.............. 220,000
125,000 B- Wesco Distribution Inc., Sr. Sub. Notes, 9.125% due 6/1/08....... 130,000
- ----------------------------------------------------------------------------------------------------------
3,051,418
- ----------------------------------------------------------------------------------------------------------
LODGING -- 2.8%
125,000 CCC+ Courtyard by Marriott, Sr. Secured Notes, Series B, 10.750% due
2/1/08......................................................... 126,094
100,000 B- FelCor Lodging Trust Inc., L.P., Sr. Notes, 10.000% due
9/15/08........................................................ 108,500
250,000 B- Florida Panthers Holdings, Sr. Sub. Notes, 9.875% due 4/15/09.... 267,500
Hilton Hotels Corp., Notes:
300,000 BBB- 8.250% due 2/15/11............................................. 347,250
50,000 BBB- 7.625% due 12/1/12............................................. 56,438
HMH Properties, Inc., Sr. Notes:
250,000 B+ Series B, 7.875% due 8/1/08.................................... 261,250
87,000 B+ Series C, 8.450% due 12/1/08................................... 91,132
MeriStar Hospitality Corp., Sr. Notes:
50,000 CCC+ 10.500% due 6/15/09............................................ 54,500
75,000 CCC+ 9.125% due 1/15/11............................................. 79,875
175,000 BB+ Royal Caribbean Cruises Ltd., Sr. Notes, 8.000% due 5/15/10...... 191,625
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
39
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
LODGING -- 2.8% (CONTINUED)
Starwood Hotels & Resorts Worldwide Inc., Sr. Notes:
$ 350,000 BB+ 7.375% due 5/1/07.............................................. $ 379,750
100,000 BB+ 7.875% due 5/1/12.............................................. 113,000
- ----------------------------------------------------------------------------------------------------------
2,076,914
- ----------------------------------------------------------------------------------------------------------
MEDIA - CABLE -- 2.0%
275,000 CCC- Charter Communications Holdings II, Sr. Notes, 10.250% due
9/15/10 (b).................................................... 290,125
Charter Communications Holdings LLC, Sr. Discount Notes:
175,000 CCC- Step bond to yield 11.758% due 1/15/11......................... 131,250
450,000 CCC- Step bond to yield 10.959% due 4/1/11.......................... 387,000
CSC Holdings Inc.:
375,000 BB- Sr. Notes, 7.875% due 12/15/07................................. 397,500
300,000 B+ Sr. Sub. Debentures, 9.875% due 2/15/13........................ 315,000
- ----------------------------------------------------------------------------------------------------------
1,520,875
- ----------------------------------------------------------------------------------------------------------
MEDIA - NON-CABLE -- 8.7%
Advanstar Communications Inc.:
125,000 B- Sr. Secured Notes, 10.750% due 8/15/10 (b)..................... 135,938
250,000 CCC+ Sr. Sub. Notes, Series B, 12.000% due 2/15/11.................. 264,375
125,000 NR Advanstar Inc., Sr. Sub. Notes, Series B, step bond to yield
14.993% due 10/15/11 (c)....................................... 98,281
American Media Operations Inc., Sr. Sub. Notes:
50,000 B- 8.875% due 1/15/11............................................. 54,500
175,000 B- Series B, 10.250% due 5/1/09................................... 187,469
200,000 B- Block Communications Inc., Sr. Sub. Notes, 9.250% due 4/15/09.... 216,000
375,000 B Dex Media East, LLC, Sr. Sub. Notes, 12.125% due 11/15/12........ 463,125
150,000 B Dex Media Inc., Discount Notes, step bond to yield 9.002% due
11/15/13 (b)................................................... 106,500
75,000 B Dex Media Inc., Notes, 8.000% due 11/15/13 (b)................... 79,125
475,000 B Dex Media West, LLC, Sr. Sub. Notes, 9.875% due 8/15/13 (b)...... 554,563
325,000 BB- DirecTV Holdings, LLC, Sr. Notes, 8.375% due 3/15/31............. 378,625
Echostar DBS Corp., Sr. Notes:
100,000 BB- 10.375% due 10/1/07............................................ 110,125
575,000 BB- 9.375% due 2/1/09.............................................. 604,469
175,000 B Lamar Media Corp, Sr. Sub. Notes, 7.250% due 1/1/13.............. 189,000
125,000 BBB- Liberty Media Corp., Sr. Notes, 7.750% due 7/15/09............... 143,518
50,000 B- Lodgenet Entertainment Corp., Sr. Sub. Notes, 9.500% due
6/15/13........................................................ 55,000
150,000 B- Muzak LLC/Muzak Finance, Sr. Notes, 10.000% due 2/15/09.......... 160,500
400,000 B+ PanAmSat Corp., Sr. Notes, 8.500% due 2/1/12..................... 446,000
300,000 B Quebecor Media, Inc., Sr. Notes, 11.125% due 7/15/11............. 348,750
275,000 B+ R. H. Donnelley Corp., Sr. Sub. Notes, 10.875% due 12/15/12
(b)............................................................ 327,594
Sinclair Broadcast Group, Sr. Sub. Notes:
300,000 B 8.750% due 12/15/11............................................ 334,500
50,000 B 8.000% due 3/15/12............................................. 54,250
Vertis, Inc.:
450,000 B- Notes, Series B, 10.875% due 6/15/09........................... 480,375
50,000 B- Sr. Secured Notes, 9.750% due 4/1/09........................... 54,563
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
40
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
MEDIA - NON-CABLE -- 8.7% (CONTINUED)
XM Satellite Radio Inc.:
$ 197,950 CCC+ Sr. Secured Discount Notes, step bond to yield 21.882% due
12/31/09....................................................... $ 177,906
150,000 CCC+ Sr. Secured Notes, 12.000% due 6/15/10 (c)..................... 170,250
Yell Finance B.V.:
179,000 B+ Sr. Discount Notes, step bond to yield 13.494% due 8/1/11...... 165,575
97,000 B+ Sr. Notes, 10.750% due 8/1/11.................................. 113,975
- ----------------------------------------------------------------------------------------------------------
6,474,851
- ----------------------------------------------------------------------------------------------------------
METALS AND MINING -- 0.8%
75,000 B- Commonwealth Industries, Sr. Sub. Notes, 10.750% due 10/1/06..... 76,875
175,000 B- IMCO Recycling Inc., Sr. Secured Notes, 10.375% due 10/15/10
(b)............................................................ 180,688
150,000 NR Republic Technology Inc., Sr. Secured Notes,
13.750% due 7/15/09 (d)(c)..................................... 2,250
150,000 B Ryerson Tull Inc., Notes, 9.125% due 7/15/06..................... 150,000
175,000 BB- United States Steel Corp., Sr. Notes, 9.750% due 5/15/10......... 197,750
- ----------------------------------------------------------------------------------------------------------
607,563
- ----------------------------------------------------------------------------------------------------------
OIL AND GAS -- 0.2%
175,000 B El Paso Production Holdings, Sr. Notes, 7.750% due 6/1/13 (b).... 173,250
- ----------------------------------------------------------------------------------------------------------
PACKAGING -- 3.4%
Berry Plastics, Sr. Sub. Notes:
125,000 B- 10.750% due 7/15/12............................................ 144,530
100,000 B- 10.750% due 7/15/12 (b)........................................ 115,625
75,000 CCC+ Graham Packaging/GPC CAP Co., Sr. Sub. Notes, 8.750% due 1/15/08
(b)............................................................ 77,063
Graham Packaging, Sr. Sub. Notes, Series B:
175,000 CCC+ 4.735% due 1/15/08............................................. 162,750
175,000 CCC+ 8.750% due 1/15/08 (b)......................................... 179,813
150,000 B- Huntsman Packaging Corp., 13.000% due 6/1/10..................... 138,000
Owens-Brockway Glass Containers, Sr. Secured Notes:
250,000 BB 8.875% due 2/15/09............................................. 275,313
150,000 BB 7.750% due 5/15/11............................................. 161,813
100,000 B+ 8.250% due 5/15/13............................................. 107,875
350,000 B+ Owens Illinois Inc., Sr. Notes, 8.100% due 5/15/07............... 370,560
175,000 B+ Plastipak Holdings, Inc., Sr. Notes, 10.750% due 9/1/11.......... 195,563
Pliant Corp.:
50,000 B- Sr. Secured Notes, 11.125% due 9/1/09.......................... 54,250
150,000 B- Sr. Secured Sub. Notes, 13.000% due 6/1/10..................... 138,000
15,981 NR Russell-Stanley Holdings Inc., Sr. Sub. Notes, Payment-in-kind,
9.000% due 11/30/08 (b)........................................ 2
375,000 B- Tekni-Plex Inc., Sr. Sub. Notes, Series B, 12.750% due 6/15/10... 410,625
- ----------------------------------------------------------------------------------------------------------
2,531,782
- ----------------------------------------------------------------------------------------------------------
PAPER -- 3.8%
50,000 BB Boise Cascade Corp., Sr. Notes, 7.000% due 11/1/13............... 52,055
Georgia Pacific Corp.:
500,000 BB+ Notes, 7.500% due 5/15/06...................................... 531,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
41
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
PAPER -- 3.8% (CONTINUED)
Sr. Notes:
$ 250,000 BB+ 8.125% due 5/15/11........................................... $ 276,250
350,000 BB+ 9.375% due 2/1/13............................................ 404,250
250,000 B- Graphic Packaging International Inc., Sr. Sub. Notes, 9.500% due
8/15/13 (b).................................................... 277,500
MDP Acquisitions PLC, Sr. Notes:
250,000 B 9.625% due 10/1/12............................................. 281,250
166,374 B 15.500% due 10/1/13............................................ 190,498
375,000 B Smurfit-Stone Container Corp., Sr. Notes, 8.250% due 10/1/12..... 408,750
225,000 B Stone Container Corp., Sr. Notes, 9.750% due 2/1/11.............. 249,750
125,000 BB Tembec Industries Inc., Sr. Notes, 8.500% due 2/1/11............. 130,000
- ----------------------------------------------------------------------------------------------------------
2,801,553
- ----------------------------------------------------------------------------------------------------------
RESTAURANTS -- 0.8%
150,000 CCC- Advantica Restaurant Group, Inc., Sr. Notes, 11.125% due
1/15/08........................................................ 104,250
75,000 B- Buffets Inc., Sr. Sub. Notes, 11.250% due 7/15/10................ 80,813
250,000 B- Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08................ 255,000
175,000 B- Dominos Inc., Sr. Sub. Notes, 8.250% due 7/1/11 (b).............. 188,343
- ----------------------------------------------------------------------------------------------------------
628,406
- ----------------------------------------------------------------------------------------------------------
RETAILERS -- 3.6%
325,000 B Buhrmann U.S. Inc., Sr. Sub. Notes, 12.250% due 11/1/09.......... 365,625
200,000 B Couche-Tard US/Finance, Sr. Sub. Notes, 7.500% due 12/15/13
(b)............................................................ 210,500
125,000 B- General Nutrition Center Inc., Sr. Sub. Notes, 8.500% due 12/1/10
(b)............................................................ 128,750
J.C. Penney Co., Inc., Notes:
50,000 BB+ 7.600% due 4/1/07.............................................. 55,438
476,000 BB+ 9.000% due 8/1/12.............................................. 571,795
150,000 BB+ Michaels Stores Inc., Sr. Notes, 9.250% due 7/1/09............... 166,312
150,000 B+ Mothers Work, Inc., Sr. Notes, 11.250% due 8/1/10................ 167,438
250,000 B- PCA LLC/PCA Finance Corp., Sr. Notes, 11.875% due 8/1/09......... 275,000
Rite Aid Corp.:
375,000 B- Debentures, 6.875% due 8/15/13................................. 361,875
100,000 B+ Sr. Notes, 9.500% due 2/15/11.................................. 113,250
225,000 B United Auto Group Inc., Sr. Sub. Notes, 9.625% due 3/15/12....... 253,125
400,000 NR US Office Products Co., Sr. Sub. Notes, 9.750% due 6/15/08....... 40
- ----------------------------------------------------------------------------------------------------------
2,669,148
- ----------------------------------------------------------------------------------------------------------
SERVICES -- 0.7%
225,000 B Brickman Group, Ltd., Sr. Sub. Notes, 11.750% due 12/15/09....... 263,250
100,000 B Coinmach Corp., Sr. Notes, 9.000% due 2/1/10..................... 109,000
175,000 CCC SITEL Corp., Sr. Sub. Notes, 9.250% due 3/15/06.................. 172,375
- ----------------------------------------------------------------------------------------------------------
544,625
- ----------------------------------------------------------------------------------------------------------
SUPERMARKETS -- 0.0%
150,000 NR Jitney-Jungle Stores, Sr. Sub. Notes, 10.375% due 9/15/07........ 15
- ----------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 2.8%
150,000 B+ Activant Solutions Inc., Sr. Notes, 10.500% due 6/15/11.......... 162,188
130,000 B AMI Semiconductor Inc., Sr. Sub. Notes, 10.750% due 2/1/13....... 155,675
125,000 B+ Danka Business Services, Sr. Notes, 11.000% due 6/15/10.......... 124,686
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
42
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 2.8% (CONTINUED)
$ 250,000 BB- Ingram Micro Inc., Sr. Sub. Notes, 9.875% due 8/15/08............ $ 277,500
175,000 BB+ Seagate Technology HDD Holdings, Sr. Notes, 8.000% due 5/15/09... 189,438
225,000 BB+ Unisys Corp., Sr. Notes, 6.875% due 3/15/10...................... 244,688
75,000 CCC+ Viasystems Inc., Sr. Sub. Notes, 10.500% due 1/15/11 (b)......... 80,438
50,000 B+ Xerox Cap Europe PLC, Notes, 5.875% due 5/15/04.................. 50,750
Xerox Corp., Sr. Notes:
450,000 B+ 9.750% due 1/15/09............................................. 528,750
225,000 B+ 7.625% due 6/15/13............................................. 244,125
- ----------------------------------------------------------------------------------------------------------
2,058,238
- ----------------------------------------------------------------------------------------------------------
TEXTILE -- 2.0%
100,000 B- Broder Brothers Co., Sr. Notes, 11.250% due 10/15/10 (b)......... 99,000
200,000 B3* GFSI Inc., Sr. Sub. Notes, Series B, 9.625% due 3/1/07........... 185,250
250,000 CCC Levi Strauss & Co., Sr. Notes, 11.625% due 1/15/08............... 164,375
200,000 BB- Phillips Van-Heusen, Sr. Notes, 8.125% due 5/1/13................ 213,500
200,000 BB Russell Corp., Sr. Notes, 9.250% due 5/1/10...................... 208,250
425,000 B Warnaco Inc., Sr. Notes, 8.875% due 6/15/13 (b).................. 439,875
162,000 B William Carter Co., Sr. Sub. Notes, Series B, 10.875% due
8/15/11........................................................ 187,920
- ----------------------------------------------------------------------------------------------------------
1,498,170
- ----------------------------------------------------------------------------------------------------------
TOBACCO -- 0.5%
200,000 NR Commonwealth Brands Inc., 10.625% due 9/1/08 (b)................. 221,000
DIMON Inc.:
50,000 BB Sr. Notes, 7.750% due 6/1/13 (b)............................... 51,750
100,000 BB Sr. Notes, Series B, 9.625% due 10/15/11....................... 112,000
- ----------------------------------------------------------------------------------------------------------
384,750
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.9%
225,000 B- Allied Holdings Inc., Sr. Notes, Series B, 8.625% due 10/1/07.... 217,125
100,000 C* Holt Group, Sr. Sub. Notes, 9.750% due 1/15/06 (d)............... 3,375
Stena AB, Sr. Notes:
250,000 BB- 9.625% due 12/1/12............................................. 283,125
150,000 BB- 7.500% due 11/1/13 (b)......................................... 155,250
- ----------------------------------------------------------------------------------------------------------
658,875
- ----------------------------------------------------------------------------------------------------------
UTILITY -- ELECTRIC -- 3.4%
251,100 BB+ Caithness Coso Fund Corp., Secured Notes, Series B, 9.050% due
12/15/09....................................................... 273,699
400,000 B-++ Calpine Corp., Sr. Notes, 8.500% due 2/15/11..................... 318,500
CMS Energy Corp., Sr. Notes:
375,000 B+ 8.900% due 7/15/08............................................. 408,750
100,000 B+ 7.500% due 1/15/09............................................. 103,500
300,000 B Illinois Power, 11.500% due 12/15/10............................. 361,500
175,000 B+ NRG Energy Inc., Sr. Secured Notes, 8.000% due 12/15/13 (b)...... 184,844
100,000 NR PG&E Corp., Sr. Secured Notes, 6.875% due 7/15/08 (b)............ 108,750
PSEG Energy Holdings:
250,000 BB- Notes, 10.000% due 10/1/09..................................... 294,375
200,000 BB- Sr. Notes, 8.625% due 2/15/08.................................. 219,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
43
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
UTILITY -- ELECTRIC -- 3.4% (CONTINUED)
Reliant Resources Inc., Sr. Secured Notes:
$ 125,000 B 9.250% due 7/15/10 (b)......................................... $ 133,125
125,000 B 9.500% due 7/15/13 (b)......................................... 134,375
- ----------------------------------------------------------------------------------------------------------
2,540,668
- ----------------------------------------------------------------------------------------------------------
UTILITY -- NATURAL GAS -- 3.8%
El Paso Corp.:
Medium-Term Notes:
175,000 B- 6.950% due 12/15/07.......................................... 169,094
325,000 Caa1* 8.050% due 10/15/30.......................................... 284,375
450,000 B- 7.800% due 8/1/31............................................ 385,313
225,000 B- Sr. Notes, 6.750% due 5/15/09.................................. 215,719
125,000 BB- Semco Energy Inc., Sr. Notes, 7.125% due 5/15/08................. 130,781
Tennessee Gas Pipeline:
150,000 B Debentures, 7.500% due 4/1/17.................................. 155,625
450,000 B Notes, 8.375% due 6/15/32...................................... 479,813
150,000 B+ Transcontinental Gas Pipeline Corp., Sr. Notes, Series B, 8.875%
due 7/15/12.................................................... 178,125
The Williams Cos., Inc.:
200,000 B+ Notes, 7.625% due 7/15/19...................................... 210,250
425,000 B+ Notes, 7.875% due 9/1/21....................................... 450,500
125,000 B+ Sr. Notes, 8.625% due 6/1/10................................... 140,936
- ----------------------------------------------------------------------------------------------------------
2,800,531
- ----------------------------------------------------------------------------------------------------------
WIRELESS COMMUNICATIONS -- 5.9%
225,000 B- ACC Escrow Corp., Sr. Notes, 10.000% due 8/1/11 (b).............. 252,000
Alaska Communications Holdings Inc.:
125,000 B- Sr. Notes, 9.875% due 8/15/11 (b).............................. 131,875
100,000 B- Sr. Sub. Notes, 9.375% due 5/15/09............................. 100,500
Cincinnati Bell Inc.:
250,000 B- Sr. Notes, 7.250% due 7/15/13 (b).............................. 263,750
200,000 B- Sr. Sub. Notes, 8.375% due 1/15/14 (b)......................... 216,000
125,000 BB+ Eircom Funding, Sr. Sub. Notes, 8.250% due 8/15/13............... 139,060
750,000 B+ Nextel Communications Inc., Sr. Notes, 9.375% due 11/15/09....... 821,250
Nextel Partners Inc., Sr. Notes:
120,000 CCC+ 12.500% due 11/15/09........................................... 139,800
50,000 CCC+ 8.125% due 7/1/11.............................................. 53,500
600,000 B- Qwest Corp., Notes, 8.875% due 3/15/12 (b)....................... 691,500
1,025,000 CCC+ Qwest Services Corp., Sr. Sub. Secured Notes, 13.500% due
12/15/10 (b)................................................... 1,250,500
150,000 BB- Rogers Wireless Communication Inc., Sr. Sub. Notes, 8.800% due
10/1/07........................................................ 154,875
150,000 B+ Triton PCS Inc., Sr. Notes, 8.500% due 6/1/13.................... 162,000
- ----------------------------------------------------------------------------------------------------------
4,376,610
- ----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $67,917,215)............ 71,930,599
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
44
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
COMMON STOCK (e) -- 0.1%
- ----------------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 0.0%
392 AMF Bowling Worldwide, Inc. ..................................... 9,467
- ----------------------------------------------------------------------------------------------------------
CONTAINER AND PACKAGING -- 0.0%
2,000 Russell-Stanley Holdings, Inc. (b)............................... 20
- ----------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 0.1%
710 NTL Inc. ........................................................ 49,522
- ----------------------------------------------------------------------------------------------------------
INDUSTRIAL -- OTHER -- 0.0%
60,638 ACP Holding Co. ................................................. 30,319
- ----------------------------------------------------------------------------------------------------------
MEDIA - CABLE -- 0.0%
1,076 Viatel Holding Bermuda Ltd. ..................................... 2,663
- ----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $527,666)............................ 91,991
- ----------------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 0.7%
- ----------------------------------------------------------------------------------------------------------
PRINTING AND PUBLISHING -- 0.4%
PRIMEDIA Inc.:
1,625 Series F, 9.200%............................................... 153,969
1,500 Series H, 8.625%............................................... 136,875
- ----------------------------------------------------------------------------------------------------------
290,844
- ----------------------------------------------------------------------------------------------------------
RETAIL -- 0.3%
200 General Nutrition Centers Holding Co., Series A (b).............. 201,500
- ----------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS AND CELLULAR -- 0.0%
1,878 McLeodUSA Inc., Series A (c)..................................... 14,310
- ----------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $961,068)......................... 506,654
- ----------------------------------------------------------------------------------------------------------
<Caption>
WARRANTS SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
WARRANTS (E) -- 0.1%
54,513 ACP Holding Co., Expire 10/7/13 (b).............................. 26,712
75 Advanstar Holdings Corp., Expire 10/15/11 (b).................... 1
923 AMF Bowling Worldwide, Inc., Expire 3/9/09....................... 2,654
901 AMF Bowling Worldwide, Inc., Class B Shares, Expire 3/9/09....... 230
4,162 McLeodUSA Inc., Class A Shares, Expire 4/16/07................... 2,123
100 MDP Acquisitors PLC, Expire 10/1/13 (b).......................... 700
100 Pliant Corp., Expire 6/1/10 (b).................................. 1
150 Republic Technologies International LLC, Class D Shares, Expire
7/15/09 (b).................................................... 2
125 XM Satellite Radio Holdings Inc., Expire 3/15/10 (b)............. 2,655
- ----------------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $214,480)................................ 35,078
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
45
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.3%
$1,706,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds at
maturity --
$1,706,076; (Fully collateralized by U.S. Treasury Notes,
7.875% due 11/15/04; Market value -- $1,745,363)
(Cost -- $1,706,000)........................................... 1,706,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $71,326,429**)..................... $74,270,322
- --------------------------------------------------------------------------------------------------------
</Table>
<Table>
(a) All ratings are by Standard & Poor's Ratings Service, except
for those which are identified by an asterisk (*) or a
double dagger (++), are rated by Moody's Investors Service
and Fitch Ratings, respectively.
(b) Security is exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in
transactions that are exempt from registration, normally to
qualified institutional buyers. These securities have been
deemed liquid pursuant to guidelines established by the
Board of Trustees.
(c) Security has been issued with attached warrants.
(d) Security is currently in default.
(e) Non-income producing security.
(f) Pursuant to a plan of reorganization, the fund received 5.27
membership units of CVC Claims Litigation LLC.
** Aggregate cost for Federal income tax purposes is
$71,485,442.
See pages 61 and 62 for definitions of ratings.
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
46
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK -- 99.1%
- ------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 1.4%
3,100 General Dynamics Corp. ..................................... $ 280,209
1,617 Northrop Grumman Corp. ..................................... 154,585
- ------------------------------------------------------------------------------------
434,794
- ------------------------------------------------------------------------------------
AUTO COMPONENTS -- 2.0%
5,600 Johnson Controls, Inc. ..................................... 650,272
- ------------------------------------------------------------------------------------
AUTOMOBILES -- 2.6%
27,057 Ford Motor Co. ............................................. 432,912
7,390 General Motors Corp. ....................................... 394,626
- ------------------------------------------------------------------------------------
827,538
- ------------------------------------------------------------------------------------
BANKS -- 10.6%
10,200 Bank of America Corp. ...................................... 820,386
6,200 PNC Financial Services Group................................ 339,326
15,700 U.S. Bancorp................................................ 467,546
15,500 Wachovia Corp. ............................................. 722,145
10,550 Washington Mutual, Inc. .................................... 423,266
10,100 Wells Fargo & Co. .......................................... 594,789
- ------------------------------------------------------------------------------------
3,367,458
- ------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 1.0%
11,500 Masco Corp. ................................................ 315,215
- ------------------------------------------------------------------------------------
CHEMICALS -- 4.2%
8,600 Air Products & Chemicals, Inc. ............................. 454,338
8,300 E.I. du Pont de Nemours & Co. .............................. 380,887
7,900 PPG Industries, Inc. ....................................... 505,758
- ------------------------------------------------------------------------------------
1,340,983
- ------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 6.3%
39,570 Cendant Corp.*.............................................. 881,224
8,800 First Data Corp. ........................................... 361,592
6,800 H&R Block, Inc. ............................................ 376,516
12,890 Waste Management, Inc. ..................................... 381,544
- ------------------------------------------------------------------------------------
2,000,876
- ------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 0.7%
15,600 Motorola, Inc. ............................................. 219,492
- ------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 6.3%
31,893 Hewlett-Packard Co. ........................................ 732,582
5,900 International Business Machines Corp. ...................... 546,812
4,300 Lexmark International, Inc., Class A Shares*................ 338,152
15,800 Storage Technology Corp.*................................... 406,850
- ------------------------------------------------------------------------------------
2,024,396
- ------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
47
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 11.6%
5,180 The Bear Stearns Cos. Inc. ................................. $ 414,141
5,700 Capital One Financial Corp. ................................ 349,353
4,400 Fannie Mae.................................................. 330,264
4,300 The Goldman Sachs Group, Inc. .............................. 424,539
28,000 J.P. Morgan Chase & Co. .................................... 1,028,440
15,400 MBNA Corp. ................................................. 382,690
13,100 Morgan Stanley.............................................. 758,097
- ------------------------------------------------------------------------------------
3,687,524
- ------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.8%
5,800 BellSouth Corp. ............................................ 164,140
10,200 SBC Communications, Inc. ................................... 265,914
18,300 Sprint Corp. (FON Group).................................... 300,486
13,350 Verizon Communications Inc. ................................ 468,318
- ------------------------------------------------------------------------------------
1,198,858
- ------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 2.5%
5,800 FirstEnergy Corp. .......................................... 204,160
4,300 FPL Group, Inc. ............................................ 281,306
7,000 Public Service Enterprise Group Inc. ....................... 306,600
- ------------------------------------------------------------------------------------
792,066
- ------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 1.7%
10,900 ENSCO International Inc. ................................... 296,153
9,700 Halliburton Co. ............................................ 252,200
- ------------------------------------------------------------------------------------
548,353
- ------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS AND SERVICES -- 0.9%
4,000 McKesson Corp. ............................................. 128,640
2,800 UnitedHealth Group Inc. .................................... 162,904
- ------------------------------------------------------------------------------------
291,544
- ------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.3%
14,075 Koninklijke Philips Electronics N.V......................... 409,442
- ------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 3.6%
4,100 Textron, Inc. .............................................. 233,946
34,291 Tyco International Ltd. .................................... 908,711
- ------------------------------------------------------------------------------------
1,142,657
- ------------------------------------------------------------------------------------
INSURANCE -- 7.2%
13,300 The Allstate Corp. ......................................... 572,166
8,500 American International Group, Inc. ......................... 563,380
6,100 Aon Corp. .................................................. 146,034
6,900 The Hartford Financial Services Group, Inc. ................ 407,307
6,600 Lincoln National Corp. ..................................... 266,442
10,000 MetLife, Inc. .............................................. 336,700
- ------------------------------------------------------------------------------------
2,292,029
- ------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
48
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
IT CONSULTING AND SERVICES -- 2.3%
5,000 Computer Sciences Corp.*.................................... $ 221,150
11,900 Electronic Data Systems Corp. .............................. 292,026
8,100 SunGard Data Systems Inc.*.................................. 224,451
- ------------------------------------------------------------------------------------
737,627
- ------------------------------------------------------------------------------------
MACHINERY -- 0.4%
1,900 Ingersoll-Rand Co., Class A Shares ......................... 128,972
- ------------------------------------------------------------------------------------
MEDIA -- 5.8%
18,600 The News Corp. Ltd., Preferred Shares ADR................... 562,650
18,500 Time Warner Inc.*........................................... 332,815
12,100 Viacom Inc., Class B Shares................................. 536,998
18,700 The Walt Disney Co. ........................................ 436,271
- ------------------------------------------------------------------------------------
1,868,734
- ------------------------------------------------------------------------------------
METALS AND MINING -- 1.4%
11,900 Alcoa Inc. ................................................. 452,200
- ------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.5%
5,100 Federated Department Stores, Inc. .......................... 240,363
5,400 Sears, Roebuck & Co. ....................................... 245,646
- ------------------------------------------------------------------------------------
486,009
- ------------------------------------------------------------------------------------
OIL AND GAS -- 9.7%
3,300 Anadarko Petroleum Corp. ................................... 168,333
11,300 BP PLC, Sponsored ADR....................................... 557,655
8,451 ChevronTexaco Corp. ........................................ 730,082
8,700 ConocoPhillips.............................................. 570,459
15,800 Exxon Mobil Corp. .......................................... 647,800
12,300 Marathon Oil Corp. ......................................... 407,007
- ------------------------------------------------------------------------------------
3,081,336
- ------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 1.2%
8,800 International Paper Co. .................................... 379,368
- ------------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.7%
10,200 Bristol-Myers Squibb Co. ................................... 291,720
7,300 Pfizer Inc. ................................................ 257,909
- ------------------------------------------------------------------------------------
549,629
- ------------------------------------------------------------------------------------
ROAD AND RAIL -- 1.4%
6,500 Union Pacific Corp. ........................................ 451,620
- ------------------------------------------------------------------------------------
SOFTWARE -- 0.8%
13,700 BMC Software, Inc.*......................................... 255,505
- ------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.1%
16,100 The Gap, Inc. .............................................. 373,681
8,800 The Home Depot, Inc. ....................................... 312,312
- ------------------------------------------------------------------------------------
685,993
- ------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
49
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
TOBACCO -- 3.1%
14,000 Altria Group, Inc. ......................................... $ 761,880
6,100 UST Inc. ................................................... 217,709
- ------------------------------------------------------------------------------------
979,589
- ------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $27,920,518).................... 31,600,079
- ------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.9%
$282,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $282,013; (Fully collateralized by U.S.
Treasury Bonds, 6.125% due 11/15/27; Market
value -- $289,287) (Cost -- $282,000)..................... 282,000
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $28,202,518**) $31,882,079
- ------------------------------------------------------------------------------------
</Table>
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is $28,213,949.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
50
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
COMMON STOCK -- 95.2%
- ------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 1.3%
19,712 L-3 Communications Holdings, Inc.*.......................... $ 1,012,408
23,712 Precision Castparts Corp. .................................. 1,076,762
- ------------------------------------------------------------------------------------------
2,089,170
- ------------------------------------------------------------------------------------------
AIR FREIGHT AND COURIERS -- 0.7%
20,607 CNF Inc. ................................................... 698,577
11,054 Expeditors International of Washington, Inc. ............... 416,294
- ------------------------------------------------------------------------------------------
1,114,871
- ------------------------------------------------------------------------------------------
AIRLINES -- 0.6%
11,054 Alaska Air Group, Inc.*..................................... 301,664
26,451 JetBlue Airways Corp.*...................................... 701,481
- ------------------------------------------------------------------------------------------
1,003,145
- ------------------------------------------------------------------------------------------
AUTO COMPONENTS -- 1.3%
7,320 ArvinMeritor, Inc. ......................................... 176,558
13,900 Bandag, Inc. ............................................... 572,680
4,053 BorgWarner, Inc. ........................................... 344,789
9,995 Gentex Corp. ............................................... 441,379
9,329 Lear Corp. ................................................. 572,148
- ------------------------------------------------------------------------------------------
2,107,554
- ------------------------------------------------------------------------------------------
BANKS -- 8.9%
17,500 Associated Banc-Corp. ...................................... 746,375
13,384 Astoria Financial Corp. .................................... 497,885
20,848 Bank of Hawaii Corp. ....................................... 879,786
16,220 Banknorth Group, Inc. ...................................... 527,637
8,087 City National Corp. ........................................ 502,364
50,809 The Colonial BancGroup, Inc. ............................... 880,012
21,458 Commerce Bancorp, Inc. ..................................... 1,130,407
14,695 Compass Bancshares, Inc. ................................... 577,661
10,416 First Tennessee National Corp. ............................. 459,346
39,249 Greenpoint Financial Corp. ................................. 1,386,275
16,673 Hibernia Corp., Class A Shares.............................. 391,982
23,910 Independence Community Bank Corp. .......................... 860,043
15,201 M&T Bank Corp. ............................................. 1,494,258
16,457 National Commerce Financial Corp. .......................... 448,947
26,995 New York Community Bancorp, Inc. ........................... 1,027,160
9,857 Silicon Valley Bancshares*.................................. 355,542
51,050 Sovereign Bancorp, Inc. .................................... 1,212,438
12,200 TCF Financial Corp. ........................................ 626,470
14,878 Webster Financial Corp. .................................... 682,305
- ------------------------------------------------------------------------------------------
14,686,893
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
51
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
BEVERAGES -- 0.8%
2,086 Brown-Forman Corp., Class B Shares.......................... $ 194,937
15,766 Constellation Brands, Inc., Class A Shares*................. 519,174
38,353 PepsiAmericas, Inc. ........................................ 656,603
- ------------------------------------------------------------------------------------------
1,370,714
- ------------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 2.5%
727 Biogen Idec Inc.*........................................... 26,739
11,049 Charles River Laboratories International, Inc.*............. 379,312
37,858 Gilead Sciences, Inc.*+..................................... 2,201,064
64,452 Millennium Pharmaceuticals, Inc.*........................... 1,203,319
14,767 Protein Design Labs, Inc.*.................................. 264,329
11,961 Vertex Pharmaceuticals Inc.*................................ 122,361
- ------------------------------------------------------------------------------------------
4,197,124
- ------------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.8%
Lennar Corp.:
12,207 Class A Shares............................................ 1,171,872
1,486 Class B Shares............................................ 135,820
- ------------------------------------------------------------------------------------------
1,307,692
- ------------------------------------------------------------------------------------------
CHEMICALS -- 1.8%
19,315 Airgas, Inc. ............................................... 414,886
8,510 Albemarle Corp. ............................................ 255,045
3,552 Cabot Corp. ................................................ 113,096
24,737 Crompton Corp. ............................................. 177,364
9,890 Cytec Industries, Inc.*..................................... 379,677
9,285 FMC Corp.*.................................................. 316,897
20,845 IMC Global, Inc. ........................................... 206,991
8,227 Lubrizol Corp. ............................................. 267,542
25,617 Lyondell Chemical Co. ...................................... 434,208
17,570 RPM International, Inc. .................................... 289,202
3,672 Valspar Corp. .............................................. 181,470
- ------------------------------------------------------------------------------------------
3,036,378
- ------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 5.5%
15,834 Banta Corp. ................................................ 641,277
10,604 The BISYS Group, Inc.*...................................... 157,788
31,764 The Brink's Co. ............................................ 718,184
4,443 Career Education Corp.*..................................... 178,031
27,593 Ceridian Corp.*............................................. 577,798
16,833 ChoicePoint Inc.*........................................... 641,169
4,967 Corinthian Colleges, Inc.*.................................. 275,967
20,223 D&B Corp.*.................................................. 1,025,508
14,230 DeVry, Inc.*................................................ 357,600
6,368 DST Systems, Inc.*.......................................... 265,928
27,452 Education Management Corp.*................................. 852,110
21,829 HON Industries, Inc. ....................................... 945,632
21,723 Manpower Inc. .............................................. 1,022,719
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
52
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 5.5% (CONTINUED)
6,766 Republic Services, Inc. .................................... $ 173,413
16,423 Sylvan Learning Systems, Inc.*.............................. 472,818
14,490 Viad Corp. ................................................. 362,250
18,845 West Corp.*................................................. 437,769
- ------------------------------------------------------------------------------------------
9,105,961
- ------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.4%
55,061 3Com Corp.*................................................. 449,848
11,036 Adtran, Inc. ............................................... 342,116
19,829 Advanced Fibre Communications, Inc.*........................ 399,554
7,218 Harris Corp. ............................................... 273,923
50,313 JDS Uniphase Corp.*......................................... 183,642
15,478 McData Corp., Class A Shares*............................... 147,505
19,712 NetScreen Technologies, Inc.*............................... 487,872
- ------------------------------------------------------------------------------------------
2,284,460
- ------------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 1.5%
14,582 Imation Corp. .............................................. 512,557
91,472 Quantum Corp.*.............................................. 285,393
14,684 SanDisk Corp.*.............................................. 897,780
30,286 Storage Technology Corp.*................................... 779,864
- ------------------------------------------------------------------------------------------
2,475,594
- ------------------------------------------------------------------------------------------
CONSTRUCTION AND ENGINEERING -- 0.7%
6,826 Granite Construction, Inc. ................................. 160,343
14,701 Jacobs Engineering Group Inc.*.............................. 705,795
36,704 Quanta Services, Inc.*...................................... 267,939
- ------------------------------------------------------------------------------------------
1,134,077
- ------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS -- 0.2%
8,599 Martin Marietta Materials, Inc. ............................ 403,895
- ------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING -- 0.2%
24,072 Longview Fibre Co. ......................................... 297,289
- ------------------------------------------------------------------------------------------
DISTRIBUTORS -- 0.4%
24,347 CarMax, Inc.*............................................... 753,053
- ------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 1.9%
17,256 A.G. Edwards, Inc. ......................................... 625,185
4,997 Affiliated Managers Group*.................................. 347,741
14,474 American Capital Strategies, Ltd. .......................... 430,312
20,056 E*TRADE Financial Corp.*.................................... 253,708
25,460 IndyMac Bancorp, Inc. ...................................... 758,453
8,788 Legg Mason, Inc. ........................................... 678,258
- ------------------------------------------------------------------------------------------
3,093,657
- ------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.1%
49,194 Cincinnati Bell, Inc.*...................................... 248,430
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
53
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 3.1%
20,951 Allete, Inc. ............................................... $ 641,101
19,049 Alliant Energy Corp. ....................................... 474,320
22,728 Black Hills Corp. .......................................... 677,976
28,851 Energy East Corp. .......................................... 646,262
9,548 Great Plains Energy, Inc. .................................. 303,817
12,750 OGE Energy Corp. ........................................... 308,422
7,903 Pepco Holdings, Inc. ....................................... 154,425
31,803 Puget Energy, Inc. ......................................... 755,957
33,549 Wisconsin Energy Corp. ..................................... 1,122,214
- ------------------------------------------------------------------------------------------
5,084,494
- ------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.4%
12,217 Ametek, Inc. ............................................... 589,592
4,280 Energizer Holdings, Inc.*................................... 160,757
- ------------------------------------------------------------------------------------------
750,349
- ------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 1.4%
1,933 Amphenol Corp., Class A Shares*............................. 123,577
23,998 Arrow Electronics, Inc.*.................................... 555,314
19,861 Avnet, Inc.*................................................ 430,189
9,071 Diebold, Inc. .............................................. 488,655
11,685 Newport Corp.*.............................................. 193,153
13,839 Symbol Technologies, Inc. .................................. 233,741
12,203 Vishay Intertechnology, Inc.*............................... 279,449
- ------------------------------------------------------------------------------------------
2,304,078
- ------------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 2.6%
7,470 Cooper Cameron Corp.*....................................... 348,102
24,499 ENSCO International Inc. ................................... 665,638
10,235 FMC Technologies, Inc.*..................................... 238,476
16,738 Grant Prideco, Inc.*........................................ 217,929
8,366 Helmerich & Payne, Inc. .................................... 233,662
11,636 National-Oilwell, Inc.*..................................... 260,181
3,563 Patterson-UTI Energy, Inc.*................................. 117,294
4,839 Pride International, Inc.*.................................. 90,199
15,930 Smith International, Inc.*.................................. 661,414
10,335 Tidewater, Inc. ............................................ 308,810
16,699 Varco International, Inc.*.................................. 344,500
21,306 Weatherford International Ltd.*............................. 767,016
- ------------------------------------------------------------------------------------------
4,253,221
- ------------------------------------------------------------------------------------------
FOOD AND DRUG RETAILING -- 0.7%
35,887 Ruddick Corp. .............................................. 642,377
6,988 Whole Foods Market, Inc. ................................... 469,104
- ------------------------------------------------------------------------------------------
1,111,481
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
54
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.5%
5,178 Dean Foods Co.*............................................. $ 170,201
6,029 Dreyer's Grand Ice Cream Holdings, Inc., Class A Shares..... 468,755
11,092 The J.M. Smucker Co. ....................................... 502,357
34,445 Sensient Technologies Corp. ................................ 680,978
17,688 Smithfield Foods, Inc.*..................................... 366,142
18,817 Tyson Foods, Inc., Class A Shares........................... 249,137
- ------------------------------------------------------------------------------------------
2,437,570
- ------------------------------------------------------------------------------------------
GAS UTILITIES -- 1.7%
31,777 AGL Resources, Inc. ........................................ 924,711
38,772 MDU Resources Group, Inc. .................................. 923,161
17,758 National Fuel Gas Co. ...................................... 434,006
20,766 WGL Holdings Inc. .......................................... 577,087
- ------------------------------------------------------------------------------------------
2,858,965
- ------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT AND SUPPLIES -- 2.8%
11,235 Apogent Technologies, Inc.*................................. 258,854
20,986 Beckman Coulter, Inc. ...................................... 1,066,718
1,279 Bio-Rad Laboratories, Inc., Class A Shares*................. 73,760
12,893 DENTSPLY International Inc. ................................ 582,377
16,879 Edwards Lifesciences Corp.*................................. 507,720
8,813 Hillenbrand Industries, Inc. ............................... 546,935
7,599 Respironics, Inc.*.......................................... 342,639
22,494 Steris Corp.*............................................... 508,364
11,303 Varian Medical Systems, Inc.*............................... 781,037
- ------------------------------------------------------------------------------------------
4,668,404
- ------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS AND SERVICES -- 4.8%
11,443 AdvancePCS*................................................. 602,588
2,810 AETNA, Inc. ................................................ 189,900
23,470 Apria Healthcare Group, Inc.*............................... 668,191
7,747 Coventry Health Care, Inc.*................................. 499,604
26,257 First Health Group Corp.*................................... 510,961
22,674 Health Net, Inc.*........................................... 741,440
3,504 Henry Schein, Inc.*......................................... 236,800
27,044 LifePoint Hospitals, Inc.*.................................. 796,446
3,588 Lincare Holdings Inc.*...................................... 107,748
16,104 Omnicare, Inc. ............................................. 650,441
9,520 Oxford Health Plans, Inc. .................................. 414,120
13,634 PacifiCare Health Systems, Inc.*............................ 921,658
10,729 Patterson Dental Co.*....................................... 688,373
9,494 Renal Care Group, Inc.*..................................... 391,153
9,730 Triad Hospitals, Inc.*...................................... 323,717
20,387 WebMD Corp.*................................................ 183,279
- ------------------------------------------------------------------------------------------
7,926,419
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
55
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE -- 3.5%
19,755 Bob Evans Farms, Inc. ...................................... $ 641,247
18,661 Brinker International, Inc.*................................ 618,799
18,476 CBRL Group, Inc. ........................................... 706,892
21,527 Extended Stay America, Inc. ................................ 311,711
19,367 GTECH Holdings Corp. ....................................... 958,473
9,025 Krispy Kreme Doughnuts, Inc.*............................... 330,315
11,213 Mandalay Resort Group....................................... 501,445
17,536 Outback Steakhouse, Inc. ................................... 775,267
32,028 Ruby Tuesday, Inc. ......................................... 912,478
- ------------------------------------------------------------------------------------------
5,756,627
- ------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 3.0%
21,993 Blyth, Inc. ................................................ 708,615
29,337 D.R. Horton, Inc. .......................................... 1,269,119
4,940 Hovnanian Enterprises, Inc., Class A Shares*................ 430,076
17,720 Mohawk Industries, Inc.*.................................... 1,249,969
956 NVR, Inc.*.................................................. 445,496
2,879 Pulte Homes, Inc. .......................................... 269,532
13,186 Toll Brothers, Inc.*........................................ 524,275
- ------------------------------------------------------------------------------------------
4,897,082
- ------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.5%
8,138 Church & Dwight, Inc. ...................................... 322,265
17,450 The Dial Corp. ............................................. 496,802
- ------------------------------------------------------------------------------------------
819,067
- ------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.5%
17,514 Teleflex Inc. .............................................. 846,452
- ------------------------------------------------------------------------------------------
INSURANCE -- 6.2%
9,146 American Financial Group, Inc. ............................. 242,003
15,819 AmerUs Group Co. ........................................... 553,190
11,155 Brown & Brown, Inc. ........................................ 363,765
12,162 Everest Re Group Ltd. ...................................... 1,028,905
38,671 Fidelity National Financial, Inc. .......................... 1,499,661
16,611 First American Corp. ....................................... 494,510
25,247 Horace Mann Educators Corp. ................................ 352,701
10,324 Leucadia National Corp. .................................... 475,936
18,468 The MONY Group Inc.*........................................ 577,864
35,313 Old Republic International Corp. ........................... 895,538
12,026 The PMI Group, Inc. ........................................ 447,728
12,453 Radian Group, Inc. ......................................... 607,084
5,763 Reinsurance Group of America, Inc. ......................... 222,740
14,768 Stancorp Financial Group, Inc. ............................. 928,612
17,293 Unitrin, Inc. .............................................. 716,103
24,762 W.R. Berkley Corp. ......................................... 865,432
- ------------------------------------------------------------------------------------------
10,271,772
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
56
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
INTERNET SOFTWARE AND SERVICES -- 0.2%
56,310 RealNetworks, Inc.*......................................... $ 321,530
- ------------------------------------------------------------------------------------------
IT CONSULTING AND SERVICES -- 1.1%
41,523 Acxiom Corp.*............................................... 771,082
12,904 Affiliated Computer Services Inc., Class A Shares*.......... 702,752
26,829 Keane, Inc.*................................................ 392,777
- ------------------------------------------------------------------------------------------
1,866,611
- ------------------------------------------------------------------------------------------
LEISURE EQUIPMENT AND PRODUCTS -- 0.4%
36,701 Callaway Golf Co. .......................................... 618,412
- ------------------------------------------------------------------------------------------
MACHINERY -- 1.3%
22,385 AGCO Corp.*................................................. 450,834
3,309 Donaldson Co., Inc. ........................................ 195,760
9,195 Flowserve Corp.*............................................ 191,992
5,101 Kennametal Inc. ............................................ 202,765
18,913 Pentair, Inc. .............................................. 864,324
3,272 SPX Corp.*.................................................. 192,426
- ------------------------------------------------------------------------------------------
2,098,101
- ------------------------------------------------------------------------------------------
MARINE -- 0.4%
19,522 Overseas Shipholding Group, Inc. ........................... 664,724
- ------------------------------------------------------------------------------------------
MEDIA -- 2.0%
23,098 Belo Corp., Class A Shares.................................. 654,597
21,333 Harte-Hanks, Inc. .......................................... 463,993
31,719 Macrovision Corp.*.......................................... 716,532
981 Washington Post Co., Class B Shares......................... 776,363
18,897 Westwood One, Inc.*......................................... 646,466
- ------------------------------------------------------------------------------------------
3,257,951
- ------------------------------------------------------------------------------------------
METALS AND MINING -- 0.6%
8,275 Arch Coal, Inc. ............................................ 257,932
7,854 Freeport-McMoRan Copper & Gold Inc., Class B Shares......... 330,889
9,003 Peabody Energy Corp. ....................................... 375,515
- ------------------------------------------------------------------------------------------
964,336
- ------------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.0%
21,843 99 Cents Only Stores*....................................... 594,785
13,652 Dollar Tree Stores, Inc.*................................... 410,379
12,696 The Neiman Marcus Group, Inc., Class A Shares*.............. 681,394
- ------------------------------------------------------------------------------------------
1,686,558
- ------------------------------------------------------------------------------------------
MULTI-UTILITIES -- 1.0%
21,897 Questar Corp. .............................................. 769,680
13,143 SCANA Corp. ................................................ 450,148
23,133 Westar Energy, Inc. ........................................ 468,443
- ------------------------------------------------------------------------------------------
1,688,271
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
57
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.4%
10,817 Zebra Technologies Corp., Class A Shares*................... $ 717,924
- ------------------------------------------------------------------------------------------
OIL AND GAS -- 3.3%
206 Cross Timbers Royalty Trust................................. 5,875
11,512 Devon Energy Corp. ......................................... 659,177
9,904 EOG Resources, Inc. ........................................ 457,268
17,141 Forest Oil Corp.*........................................... 489,718
14,346 Murphy Oil Corp. ........................................... 936,937
9,285 Noble Energy, Inc. ......................................... 412,533
16,295 Pioneer Natural Resources Co.*.............................. 520,299
9,995 Pogo Producing Co. ......................................... 482,758
8,674 Valero Energy Corp. ........................................ 401,953
9,945 Westport Resources Corp.*................................... 296,958
27,863 XTO Energy, Inc. ........................................... 788,523
- ------------------------------------------------------------------------------------------
5,451,999
- ------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.8%
9,772 Bowater Inc. ............................................... 452,541
12,041 Glatfelter.................................................. 149,910
4,621 Potlatch Corp. ............................................. 160,672
7,080 Rayonier, Inc. ............................................. 293,900
18,862 Wausau-Mosinee Paper Corp. ................................. 255,014
- ------------------------------------------------------------------------------------------
1,312,037
- ------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 2.5%
12,711 Barr Laboratories, Inc.*.................................... 978,111
45,854 Mylan Laboratories Inc. .................................... 1,158,272
26,326 Sepracor, Inc.*............................................. 629,981
12,313 SICOR Inc.*................................................. 334,914
40,949 Valeant Pharmaceuticals International....................... 1,029,867
- ------------------------------------------------------------------------------------------
4,131,145
- ------------------------------------------------------------------------------------------
REAL ESTATE -- 1.2%
13,761 AMB Property Corp. ......................................... 452,462
3,587 Hospitality Properties Trust................................ 148,071
14,670 Liberty Property Trust...................................... 570,663
20,013 New Plan Excel Realty Trust, Inc. .......................... 493,721
17,797 United Dominion Realty Trust, Inc. ......................... 341,702
- ------------------------------------------------------------------------------------------
2,006,619
- ------------------------------------------------------------------------------------------
ROAD AND RAIL -- 1.4%
13,732 C.H. Robinson Worldwide, Inc. .............................. 520,580
31,284 GATX Corp. ................................................. 875,326
31,558 J.B. Hunt Transport Services, Inc.*......................... 852,382
- ------------------------------------------------------------------------------------------
2,248,288
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
58
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 5.3%
95,868 Atmel Corp.*................................................ $ 576,167
3,577 Cabot Microelectronics Corp.*............................... 175,273
23,385 Credence Systems Corp.*..................................... 307,747
12,134 Cree, Inc.*................................................. 214,650
11,486 Integrated Circuit Systems, Inc.*........................... 327,236
31,113 Integrated Device Technology, Inc.*......................... 534,210
29,762 International Rectifier Corp.*+............................. 1,470,540
5,274 KLA-Tencor Corp.*........................................... 309,426
27,632 Lam Research Corp.*......................................... 892,514
84,798 Lattice Semiconductor Corp.*................................ 820,845
20,241 Micrel, Inc.*............................................... 315,355
23,756 Microchip Technology Inc. .................................. 792,500
41,003 MPS Group, Inc.*............................................ 383,378
34,087 RF Micro Devices, Inc.*..................................... 342,574
12,799 Semtech Corp.*.............................................. 290,921
9,959 Silicon Laboratories Inc.*.................................. 430,428
11,215 Teradyne, Inc.*............................................. 285,422
33,949 Triquint Semiconductor, Inc.*............................... 240,019
- ------------------------------------------------------------------------------------------
8,709,205
- ------------------------------------------------------------------------------------------
SOFTWARE -- 4.1%
26,285 Advent Software, Inc.*...................................... 458,148
34,550 Ascential Software Corp.*................................... 895,882
30,796 Cadence Design Systems, Inc.*............................... 553,712
11,608 Fair Isaac Corp. ........................................... 570,649
17,397 Internet Security Systems, Inc.*............................ 327,586
9,035 Macromedia, Inc.*........................................... 161,184
39,912 Mentor Graphics Corp.*...................................... 580,320
19,146 National Instruments Corp. ................................. 870,569
13,675 The Reynolds and Reynolds Co., Class A Shares............... 397,259
35,751 Sybase, Inc.*............................................... 735,756
38,574 Synopsys, Inc.*............................................. 1,302,258
- ------------------------------------------------------------------------------------------
6,853,323
- ------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 3.3%
12,436 Abercrombie & Fitch Co., Class A Shares*.................... 307,294
15,428 American Eagle Outfitters, Inc.*............................ 253,019
10,300 Barnes & Noble, Inc.*....................................... 338,355
10,876 CDW Corp. .................................................. 628,198
51,718 Claire's Stores, Inc. ...................................... 974,367
20,345 Michaels Stores, Inc. ...................................... 899,249
14,428 PETsMART, Inc. ............................................. 343,386
17,686 Ross Stores, Inc. .......................................... 467,441
37,955 Williams-Sonoma, Inc.*...................................... 1,319,695
- ------------------------------------------------------------------------------------------
5,531,004
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
59
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
TEXTILES AND APPAREL -- 0.9%
35,952 Coach, Inc.*+............................................... $ 1,357,188
2,777 Columbia Sportswear Co.*.................................... 151,346
- ------------------------------------------------------------------------------------------
1,508,534
- ------------------------------------------------------------------------------------------
TOBACCO -- 0.3%
10,938 Universal Corp. ............................................ 483,131
- ------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.4%
11,093 Telephone & Data Systems, Inc. ............................. 693,867
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $131,414,762)................... 157,509,508
- ------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.8%
U.S. TREASURY BILLS -- 0.2%
$ 265,000 U.S. Treasury Bills, due 3/18/04++ (Cost -- $264,504)....... 264,504
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.6%
7,652,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity --
$7,652,340; (Fully collateralized by U.S. Treasury Bonds,
6.125% due 11/15/27; Market value -- $7,805,078)
(Cost -- $7,652,000)...................................... 7,652,000
- ----------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $7,916,504)........... 7,916,504
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $139,331,266**)........ $165,426,012
- ----------------------------------------------------------------------------------------
</Table>
* Non-income producing security.
+ All or a portion of this security is segregated as collateral for open
futures contracts commitments.
++All or a portion of this security is held as collateral for open futures
contracts commitments.
** Aggregate cost for Federal income tax purposes is $139,759,698.
SEE NOTES TO FINANCIAL STATEMENTS.
60
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CCC" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
<Table>
AAA -- Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest
and repay principal and differ from the highest rated issue
only in a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than in higher
rated categories.
BB, B, CCC and CC -- Bonds rated "BB" and "B" are 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" represents a lower degree of
speculation than "B", "CCC" and "CC" the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
C -- Bonds rated "C" are bonds on which no interest is being
paid.
D -- Bonds rated "D" are in default, and payment of interest
and/or repayment of principal is in arrears.
</Table>
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2, and 3 may be
applied to each generic rating from "Aa" to "Caa," where 1 is the highest and 3
the lowest rating within its generic category.
<Table>
Aaa -- Bonds 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 as can be
visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds 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 fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds 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 some time in the
future.
Baa -- Bonds 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.
Ba -- Bonds 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 therefore not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payment or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with
respect to principal or interest.
Ca and C -- Bonds rated "Ca" and "C" represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
</Table>
61
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED) (CONTINUED)
Fitch Ratings ("Fitch") -- Ratings from "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standings within the
major rating categories.
<Table>
AAA -- Bonds rated "AAA" have the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected by
foreseeable events.
AA -- Bonds rated "AA" have a very low expectation of credit risk.
They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A -- Bonds rated "A" have a low expectation of credit risk. The
capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
BBB -- Bonds rated "BBB" have a low expectation of credit risk. The
capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this
capacity.
BB -- Bonds rated "BB" indicate that there is a possibility of
credit risk developing, particularly as the result of
adverse economic change over time; however, business of
financial alternatives may be available to allow financial
commitments to be met.
B -- Bonds rated "B" indicate that significant credit risk is
present, but a limited margin of safety remains. Financial
Commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favourable
business and economic environment.
NR -- Indicates that the bond is not rated by Standard & Poor's,
Moody's or Fitch.
</Table>
62
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2003
<Table>
<Caption>
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED
QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP
BOND STOCK GROWTH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost............ $205,834,653 $106,661,037 $ 142,739,954 $ 71,326,429 $28,202,518 $139,331,266
Loaned securities collateral, at
cost.......................... -- 7,757,565 -- -- -- --
Foreign currency, at cost....... -- 3,117 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Investments, at value........... $208,774,866 $128,154,093 $ 172,012,026 $ 74,270,322 $31,882,079 $165,426,012
Loaned securities collateral, at
value (Note 8)................ -- 7,757,565 -- -- -- --
Foreign currency, at value...... -- 3,169 -- -- -- --
Cash............................ 399 451 649 753,007 985 664
Dividends and interest
receivable.................... 2,045,623 196,543 97,493 1,570,680 41,024 105,959
Receivable for securities
sold.......................... -- -- 2,161,695 -- -- 456,922
Receivable for Fund shares
sold.......................... 17,259 18,812 -- 36,427 -- 33,434
Prepaid expenses................ -- 183 -- -- -- 173
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................... 210,838,147 136,130,816 174,271,863 76,630,436 31,924,088 166,023,164
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares
reacquired.................... 1,651,964 346,165 1,249,986 -- 73,818 453,294
Investment advisory fees
payable....................... 57,789 86,755 106,127 41,366 16,368 96,237
Administration fees payable..... 10,367 7,200 8,505 3,819 1,574 8,258
Payable for securities
purchased..................... -- 6,995 4,800,670 752,671 -- 475,173
Payable for loaned securities
collateral (Note 8)........... -- 7,757,565 -- -- -- --
Payable for open forward foreign
currency contracts (Note 6)... -- 12 -- -- -- --
Payable to broker -- variation
margin........................ -- -- -- -- -- 27,200
Accrued expenses................ 44,906 51,209 48,585 36,438 28,942 46,314
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES............... 1,765,026 8,255,901 6,213,873 834,294 120,702 1,106,476
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................. $209,073,121 $127,874,915 $ 168,057,990 $ 75,796,142 $31,803,386 $164,916,688
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital................. $208,446,545 $154,907,083 $ 346,383,555 $ 86,532,143 $30,172,318 $146,412,650
Undistributed (overdistributed)
net investment income......... (650,983) (237,139) -- (99,971) 6,786 69,223
Accumulated net realized loss
from investment transactions
and futures contracts......... (1,662,654) (48,300,076) (207,598,133) (13,579,923) (2,055,279) (7,751,220)
Net unrealized appreciation of
investments, futures contracts
and
foreign currencies............ 2,940,213 21,505,047 29,272,568 2,943,893 3,679,561 26,186,035
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................. $209,073,121 $127,874,915 $ 168,057,990 $ 75,796,142 $31,803,386 $164,916,688
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING................ 18,655,850 12,774,101 17,971,104 9,009,414 2,093,500 9,428,466
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE........ $11.21 $10.01 $9.35 $8.41 $15.19 $17.49
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
63
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
TRAVELERS LAZARD MFS FEDERATED DISCIPLINED
QUALITY INTERNATIONAL EMERGING HIGH FEDERATED MID CAP
BOND STOCK GROWTH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.............................. $ 9,761,035 $ 111,925 $ 61,293 $ 5,440,281 $ 7,343 $ 30,411
Dividends............................. -- 3,147,082 865,453 51,895 670,975 1,525,513
Less: Foreign withholding tax......... -- (327,797) (11,955) -- (2,966) --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............... 9,761,035 2,931,210 914,791 5,492,176 675,352 1,555,924
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)..... 688,640 867,230 1,161,225 404,314 175,132 910,327
Administration fees (Note 2).......... 127,802 63,071 92,898 37,321 16,813 78,028
Audit and legal....................... 30,040 28,991 36,234 40,488 31,854 27,026
Shareholder communications............ 29,417 15,407 22,538 5,116 6,398 20,980
Custody............................... 23,846 65,193 57,296 59,439 14,100 13,225
Trustees' fees........................ 6,154 6,154 6,154 4,000 4,000 6,154
Shareholder servicing fees............ 5,002 5,002 5,003 5,000 5,000 5,002
Other................................. 8,914 2,418 2,297 3,586 1,000 2,415
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES........................ 919,815 1,053,466 1,383,645 559,264 254,297 1,063,157
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS).......... 8,841,220 1,877,744 (468,854) 4,932,912 421,055 492,767
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES
(NOTES 3, 5 AND 6):
Realized Gain (Loss) From:
Investment transactions............. (813,388) (4,101,040) 3,123,874 (800,373) 27,649 3,136,607
Futures contracts................... -- -- -- -- -- 145,347
Foreign currency transactions....... -- (80,748) 1,266 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).............. (813,388) (4,181,788) 3,125,140 (800,373) 27,649 3,281,954
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
From:
Investments......................... 6,204,698 30,581,893 36,792,050 8,350,883 6,552,918 35,315,211
Foreign currencies.................. -- (18,439) 260 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET UNREALIZED
APPRECIATION........................ 6,204,698 30,563,454 36,792,310 8,350,883 6,552,918 35,315,211
- ---------------------------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS, FUTURES
CONTRACTS AND
FOREIGN CURRENCIES.................... 5,391,310 26,381,666 39,917,450 7,550,510 6,580,567 38,597,165
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS............................ $14,232,530 $28,259,410 $39,448,596 $12,483,422 $7,001,622 $39,089,932
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
64
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
TRAVELERS QUALITY LAZARD INTERNATIONAL MFS EMERGING
BOND PORTFOLIO STOCK PORTFOLIO GROWTH PORTFOLIO
---------------------------- ------------------------------ -----------------------------
2003 2002 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income
(loss)...................... $ 8,841,220 $ 8,078,244 $ 1,877,744 $ 1,465,505 $ (468,854) $ (604,238)
Net realized gain (loss)...... (813,388) 3,722,973 (4,181,788) (18,276,682) 3,125,140 (75,179,979)
Change in net unrealized
appreciation
(depreciation).............. 6,204,698 (642,907) 30,563,454 5,022,074 36,792,310 (8,789,751)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS...... 14,232,530 11,158,310 28,259,410 (11,789,103) 39,448,596 (84,573,968)
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income......... (10,103,492) (14,569,091) (2,035,977) (2,266,863) -- --
Net realized gains............ (474,419) (2,872,440) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO
SHAREHOLDERS................ (10,577,911) (17,441,531) (2,035,977) (2,266,863) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE
9):
Net proceeds from sale of
shares...................... 43,240,349 95,124,858 104,649,317 506,647,467 8,640,718 9,100,113
Net asset value of shares
issued for reinvestment of
dividends................... 10,577,911 17,441,531 2,035,977 2,266,863 -- --
Cost of shares reacquired..... (54,268,288) (52,329,902) (102,506,397) (517,627,040) (24,103,589) (38,067,740)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM
FUND SHARE TRANSACTIONS..... (450,028) 60,236,487 4,178,897 (8,712,710) (15,462,871) (28,967,627)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS........................ 3,204,591 53,953,266 30,402,330 (22,768,676) 23,985,725 (113,541,595)
NET ASSETS:
Beginning of year............. 205,868,530 151,915,264 97,472,585 120,241,261 144,072,265 257,613,860
- ---------------------------------------------------------------------------------------------------------------------------------
END OF YEAR*.................. $209,073,121 $205,868,530 $ 127,874,915 $ 97,472,585 $168,057,990 $ 144,072,265
- ---------------------------------------------------------------------------------------------------------------------------------
*Includes undistributed
(overdistributed) net
investment income of:....... $(650,983) $(237,976) $(237,139) $1,842 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
*Includes accumulated net
investment loss of:......... -- -- -- -- -- $(1,503)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
65
<Table>
<Caption>
- ----------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
FEDERATED HIGH FEDERATED DISCIPLINED MID CAP
YIELD PORTFOLIO STOCK PORTFOLIO STOCK PORTFOLIO
---------------------------- --------------------------- ----------------------------
2003 2002 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............. $ 4,932,912 $ 3,812,819 $ 421,055 $ 393,778 $ 492,767 $ 266,823
Net realized gain (loss).......... (800,373) (5,245,997) 27,649 (1,290,074) 3,281,954 (9,361,311)
Change in net unrealized
appreciation (depreciation)..... 8,350,883 3,056,684 6,552,918 (6,011,824) 35,315,211 (10,533,043)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................. 12,483,422 1,623,506 7,001,622 (6,908,120) 39,089,932 (19,627,531)
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............. (5,110,185) (7,888,998) (414,269) (832,675) (426,728) (660,997)
Net realized gains................ -- -- -- -- -- (125,180)
- ---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS... (5,110,185) (7,888,998) (414,269) (832,675) (426,728) (786,177)
- ---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of
shares.......................... 45,580,198 18,111,636 2,031,831 5,094,575 27,684,956 33,422,635
Net asset value of shares issued
for reinvestment of dividends... 5,110,185 7,888,998 414,269 832,675 426,728 786,177
Cost of shares reacquired......... (30,064,428) (11,459,844) (4,280,218) (15,380,343) (12,959,405) (16,041,994)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM
FUND SHARE TRANSACTIONS......... 20,625,955 14,540,790 (1,834,118) (9,453,093) 15,152,279 18,166,818
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS... 27,999,192 8,275,298 4,753,235 (17,193,888) 53,815,483 (2,246,890)
NET ASSETS:
Beginning of year................. 47,796,950 39,521,652 27,050,151 44,244,039 111,101,205 113,348,095
- ---------------------------------------------------------------------------------------------------------------------------------
END OF YEAR*...................... $ 75,796,142 $ 47,796,950 $31,803,386 $ 27,050,151 $164,916,688 $111,101,205
- ---------------------------------------------------------------------------------------------------------------------------------
*Includes undistributed
(overdistributed) net investment
income of:...................... $(99,971) $30,006 $6,786 -- $69,223 $14,998
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
66
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Quality Bond, Lazard International Stock, MFS Emerging
Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock
Portfolios ("Fund(s)") are separate investment funds of The Travelers Series
Trust ("Trust"). The Trust is a Massachusetts business trust registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company and consists of these Funds and ten other separate
investment funds: U.S. Government Securities, Social Awareness Stock, Pioneer
Fund (formerly known as Utilities), Large Cap, Equity Income, Convertible
Securities, Merrill Lynch Large Cap Core (formerly known as MFS Research), MFS
Mid Cap Growth, Zero Coupon Bond Fund Series 2005 and MFS Value Portfolios.
Shares of the Trust are offered exclusively for use with certain variable
annuity and variable life insurance contracts offered through the separate
accounts of various affiliated life insurance companies. The financial
statements and financial highlights for the other funds are presented in
separate shareholder reports.
The significant accounting policies consistently followed by the Funds are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing price on such markets
or, if there were no sales during the day, at the mean between the last reported
bid and asked prices or on the basis of quotations received from unaffiliated
reputable brokers or other recognized sources; securities listed on the NASDAQ
National Market System for which market quotations are available are valued at
the official closing price or, if there is no official closing price on that
day, at the last sale price; securities primarily traded on foreign exchanges
are generally valued at the closing values of such securities on their
respective exchanges, except that when a significant occurrence exists
subsequent to the time a value was so established and it is likely to have
significantly changed the value, then the fair value of those securities will be
determined by consideration of other factors by and under the direction of the
Board of Trustees; securities traded in the over-the-counter market are valued
on the basis of the bid price at the close of business on each day; U.S.
government agencies and obligations are valued at the mean between the last
reported bid and asked prices; (c) securities for which market quotations are
not available will be valued in good faith at fair value by and under the
direction of the Board of Trustees; (d) securities maturing within 60 days are
valued at cost plus accreted discount or minus amortized premium, which
approximates value; (e) securities that have a maturity of more than 60 days are
valued at prices based on market quotations for securities of similar type,
yield and maturity; (f) interest income, adjusted for amortization of premium
and accretion of discount, is recorded on an accrual basis and dividend income
is recorded on the ex-dividend date; foreign dividends are recorded on the
ex-dividend date or as soon as practical after a Fund determines the existence
of a dividend declaration after exercising reasonable due diligence; (g) gains
or losses on the sale of securities are calculated by using the specific
identification method; (h) dividends and distributions to shareholders are
recorded on the ex-dividend date; the Funds distribute dividends and capital
gains, if any, at least annually; (i) the accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income or expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank; (j) the character of income and capital
gains to be distributed is determined in accordance with income tax regulations
which may differ from accounting principles generally accepted in the United
States of America; At December 31, 2003, reclassifications were made to the
Travelers Quality Bond, Federated High Yield and Disciplined Mid Cap Stock
Portfolios' capital accounts to reflect permanent book/tax differences and
income and gains available for distributions under income tax regulations.
Accordingly, for the MFS Emerging Growth Portfolio a portion of accumulated net
investment loss amounting to $469,091 was reclassified to paid-in capital. Net
investment income, net realized gains and net assets were not affected by this
adjustment; (k) each Fund intends to comply with the provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income; and excise taxes and (l) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
The Federated High Yield Portfolio invests in high yield instruments that
are subject to certain credit and market risks. The yields of high yield debt
obligations reflect, among other things, perceived credit risk. The Federated
High Yield Portfolio's investment in securities rated below investment grade
typically involves risks not associated with higher rated securities including,
among others, greater risk of timely and ultimate payment of interest and
principal, greater market price volatility and less liquid secondary market
trading.
67
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In addition, the Lazard International Stock and MFS Emerging Growth
Portfolios may from time to time enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked to market
daily, by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when the contracts are settled or offset by entering into another
forward exchange contract.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Travelers Quality Bond ("TQB"), Lazard International Stock
("LIS"), MFS Emerging Growth ("MEG"), Federated High Yield ("FHY"), Federated
Stock ("FSP") and Disciplined Mid Cap Stock ("DMCS") Portfolios. TQB, LIS, MEG,
FHY, FSP and DMCS each pay TAMIC an investment advisory fee calculated at the
annual rate of 0.3233%, 0.825%, 0.75%, 0.65%, 0.625% and 0.70%, respectively, of
each Fund's respective average daily net assets. These fees are calculated daily
and paid monthly.
TAMIC has entered into sub-advisory agreements with Lazard Asset Management
LLC ("Lazard"), Massachusetts Financial Services ("MFS"), Federated Investment
Management Company ("Federated") and The Travelers Investment Management Company
("TIMCO"), another indirect wholly-owned subsidiary of Citigroup. Pursuant to
each sub-advisory agreement, Lazard, MFS and TIMCO are responsible for the
day-to-day fund operations and investment decisions for LIS, MEG and DMCS,
respectively. Federated is responsible for the day-to-day fund operations and
investment decisions for FHY and FSP. As a result, the following fees are paid
and calculated at an annual rate:
- TAMIC pays Lazard 0.475% of LIS's average daily net assets.
- TAMIC pays MFS 0.375% of MEG's average daily net assets.
- TAMIC pays Federated 0.40% and 0.375% of the average daily net
assets of FHY and FSP, respectively.
- TAMIC pays TIMCO 0.35% of DMCS's average daily net assets.
The Travelers Insurance Company ("TIC"), another indirect wholly-owned
subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC
an administration fee calculated at an annual rate of 0.06% of each Fund's
respective average daily net assets. This fee is calculated daily and paid
monthly. TIC has entered into a sub-administrative service agreement with Smith
Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of
Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual
rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per
Fund, subject to a maximum of 0.06% of each Fund's respective average daily net
assets.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as
the Funds' transfer agent. CTB receives account fees and asset-based fees that
vary according to the size and type of account. For the year ended December 31,
2003, each Fund paid transfer agent fees of $5,000 to CTB.
For the year ended December 31, 2003, Citigroup Global Markets Inc.
(formerly known as Salomon Smith Barney Inc.), another indirect wholly-owned
subsidiary of Citigroup, did not receive any brokerage commissions from the
Funds.
One Trustee and all officers of the Trust are employees of Citigroup or its
subsidiaries.
3. INVESTMENTS
During the year ended December 31, 2003, the aggregate cost of purchases
and proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments), were as follows:
<Table>
<Caption>
PURCHASES SALES
- -----------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio............................ $380,844,975 $381,685,216
Lazard International Stock Portfolio........................ 47,203,484 44,771,577
MFS Emerging Growth Portfolio............................... 158,212,945 169,033,495
Federated High Yield Portfolio.............................. 53,716,025 33,358,112
Federated Stock Portfolio................................... 11,288,897 12,448,665
Disciplined Mid Cap Stock Portfolio......................... 89,365,038 78,491,557
- -----------------------------------------------------------------------------------------
</Table>
68
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
<Table>
<Caption>
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
- ----------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio............................ $ 3,713,473 $(1,518,271) $ 2,195,202
Lazard International Stock Portfolio........................ 22,130,865 (2,279,383) 19,851,482
MFS Emerging Growth Portfolio............................... 30,453,237 (4,786,702) 25,666,535
Federated High Yield Portfolio.............................. 5,993,157 (3,208,277) 2,784,880
Federated Stock Portfolio................................... 5,525,646 (1,857,516) 3,668,130
Disciplined Mid Cap Stock Portfolio......................... 31,917,719 (6,251,405) 25,666,314
- ----------------------------------------------------------------------------------------------------------
</Table>
4. REPURCHASE AGREEMENTS
The Funds purchase (and the custodian takes possession of) U.S. government
securities from securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Funds require continual
maintenance of the market value (plus accrued interest) of the collateral in
amounts at least equal to the repurchase price.
At December 31, 2003, MEG did not have any repurchase agreements
outstanding.
5. FUTURES CONTRACTS
TQB, LIS, MEG, FSP and DMCS may from time to time enter into futures
contracts. Securities or cash equal to the initial margin amount are either
deposited with the broker or segregated by the custodian upon entering into the
futures contract. Additional securities are also segregated up to the current
market value of the futures contracts. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
received or made and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Funds' basis in the contract.
The Funds enter into such contracts typically to hedge a portion of their
respective portfolios. The Funds bear the market risk that arises from changes
in the value of the financial instruments and securities indices.
At December 31, 2003, DMCS had the following open futures contracts:
<Table>
<Caption>
NUMBER OF BASIS MARKET UNREALIZED
EXPIRATION CONTRACTS VALUE VALUE GAIN
- --------------------------------------------------------------------------------------------------------
PURCHASED CONTRACTS:
S&P Midcap 400........................... 3/04 17 $4,805,136 $4,896,425 $91,289
- --------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2003, TQB, LIS, MEG and FSP did not have any open futures
contracts.
6. FORWARD FOREIGN CURRENCY CONTRACTS
LIS and MEG may from time to time enter into forward foreign currency
contracts. A forward foreign currency contract is an agreement between two
parties to buy and sell a currency at a set price on a future date. The contract
is marked-to-market daily and the change in value is recorded by the Fund as an
unrealized gain or loss. When a forward foreign currency contract is
extinguished, through either delivery or offset by entering into another forward
foreign currency contract, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value of the contract at the time it was extinguished or offset. The Funds bear
the market risk that arises from changes in foreign currency exchange rates and
the credit risk should a counterparty be unable to meet the terms of such
contracts.
69
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2003, LIS had open forward foreign currency contracts as
described below. The unrealized loss on the contracts reflected in the
accompanying financial statements were as follows:
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE LOSS
- ----------------------------------------------------------------------------------------------------------
CONTRACTS TO BUY:
Japanese Yen................................................ 749,455 $6,996 1/5/2004 $(12)
- ----------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2003, MEG did not have any open forward foreign currency
contracts.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves additional risks and considerations not typically associated with
investing in U.S. companies and the U.S. government. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. government.
8. LENDING OF PORTFOLIO SECURITIES
The Funds have an agreement with their custodian whereby the custodian may
lend securities owned by a Fund to brokers, dealers and other financial
organizations. Fees earned by the Funds on securities lending are recorded as
interest income. Loans of securities by the Funds are collateralized by cash,
U.S. government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the securities loaned, plus a margin which may vary depending on the type of
securities loaned. The custodian establishes and maintains the collateral in a
segregated account. The Funds maintain exposure for the risk of any losses in
the investments of amounts received as collateral.
At December 31, 2003, LIS loaned securities having a market value of
$7,408,228. LIS received cash collateral amounting to $7,757,565 which was
invested in the State Street Navigator Securities Lending Trust Prime Portfolio.
Income earned by LIS from securities lending for the year ended December
31, 2003 was $75,608.
At December 31, 2003, TQB, MEG, FHY, FSP, and DMCS did not have any
securities on loan.
9. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------
TRAVELERS QUALITY BOND PORTFOLIO
Shares sold................................................. 3,799,891 8,361,815
Shares issued on reinvestment............................... 943,628 1,568,847
Shares reacquired........................................... (4,753,702) (4,599,695)
- ------------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (10,183) 5,330,967
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
Shares sold................................................. 13,041,118 56,655,129
Shares issued on reinvestment............................... 204,469 282,266
Shares reacquired........................................... (12,799,010) (57,538,184)
- ------------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... 446,577 (600,789)
- ------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
Shares sold................................................. 1,024,938 1,009,475
Shares issued on reinvestment............................... -- --
Shares reacquired........................................... (2,951,286) (4,521,297)
- ------------------------------------------------------------------------------------------------------
Net Decrease................................................ (1,926,348) (3,511,822)
- ------------------------------------------------------------------------------------------------------
</Table>
70
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
Shares sold................................................. 5,705,531 2,215,620
Shares issued on reinvestment............................... 607,710 1,051,969
Shares reacquired........................................... (3,792,186) (1,401,244)
- ------------------------------------------------------------------------------------------------------
Net Increase................................................ 2,521,055 1,866,345
- ------------------------------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
Shares sold................................................. 152,214 351,152
Shares issued on reinvestment............................... 27,308 66,878
Shares reacquired........................................... (328,610) (1,047,691)
- ------------------------------------------------------------------------------------------------------
Net Decrease................................................ (149,088) (629,661)
- ------------------------------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
Shares sold................................................. 1,842,815 2,217,193
Shares issued on reinvestment............................... 24,260 58,969
Shares reacquired........................................... (913,912) (1,155,780)
- ------------------------------------------------------------------------------------------------------
Net Increase................................................ 953,163 1,120,382
- ------------------------------------------------------------------------------------------------------
</Table>
10. CAPITAL LOSS CARRYFORWARDS
At December 31, 2003, TQB, LIS, MEG, FHY, FSP and DMCS had, for Federal
income tax purposes, a total of approximately $1,233,000, $46,892,000,
$203,993,000, $13,568,000, $2,044,000 and $7,188,000, respectively, of unused
capital loss carryforwards available to offset future capital gains. To the
extent that these carryforward losses are used to offset future realized capital
gains, it is probable that the gains to offset will not be distributed. The
amount and year of expiration of the carryforwards are indicated below.
Expiration occurs on December 31 of the year indicated:
<Table>
<Caption>
2007 2008 2009 2010 2011
- -----------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio............. -- -- -- -- $1,233,000
Lazard International Stock Portfolio......... -- -- $16,611,000 $22,825,000 7,456,000
MFS Emerging Growth Portfolio................ -- -- 123,707,000 75,064,000 5,222,000
Federated High Yield Portfolio............... $182,000 $803,000 4,766,000 6,218,000 1,599,000
Federated Stock Portfolio.................... -- -- 128,000 973,000 943,000
Disciplined Mid Cap Stock Portfolio.......... -- -- -- 7,188,000 --
- -----------------------------------------------------------------------------------------------------------
</Table>
In addition, TQB had the following capital losses and LIS had foreign
exchange losses realized after October 31, 2003, which were deferred for Federal
income tax purposes to the first day of the following fiscal year:
<Table>
<Caption>
- ----------------------------------------------------------------------
Travelers Quality Bond Portfolio............................ $409,125
Lazard International Stock Portfolio........................ 15,993
- ----------------------------------------------------------------------
</Table>
11. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
At December 31, 2003, the tax basis components of distributable earnings
were:
<Table>
<Caption>
UNDISTRIBUTED ACCUMULATED UNREALIZED
ORDINARY INCOME CAPITAL LOSSES APPRECIATION
- --------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio..................... $73,229 $ (1,232,729) $2,195,202
Lazard International Stock Portfolio................. 12,792 (46,892,451) 19,863,485
MFS Emerging Growth Portfolio........................ -- (203,992,597) 25,667,031
Federated High Yield Portfolio....................... 47,263 (13,568,144) 2,784,880
Federated Stock Portfolio............................ 6,786 (2,043,848) 3,668,130
Disciplined Mid Cap Stock Portfolio.................. 26,172 (7,188,447) 25,666,314
- --------------------------------------------------------------------------------------------------------
</Table>
71
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2003, the difference between book basis and tax basis
unrealized appreciation and depreciation was attributable primarily to wash sale
loss deferrals, mark to market of derivate contracts, returns of capital from
Real Estate Investment Trusts, mark to market of passive foreign investment
companies, the treatment of accretion of discount and amortization of premiums
and consent fees.
During the year ended December 31, 2003, the tax character of distributions
paid was:
<Table>
<Caption>
ORDINARY
INCOME TOTAL
- ---------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio............................ $10,577,911 $10,577,911
Lazard International Stock Portfolio........................ 2,035,977 2,035,977
Federated High Yield Portfolio.............................. 5,110,185 5,110,185
Federated Stock Portfolio................................... 414,269 414,269
Disciplined Mid Cap Stock Portfolio......................... 426,728 426,728
- ---------------------------------------------------------------------------------------
</Table>
For the year ended December 31, 2003, MEG did not make any distributions.
At December 31, 2002, the tax basis components of distributable earnings
were:
<Table>
<Caption>
UNDISTRIBUTED ACCUMULATED UNREALIZED
ORDINARY INCOME CAPITAL LOSSES DEPRECIATION
- --------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio....................... $739,731 -- $ (3,767,773)
Lazard International Stock Portfolio................... 3,654 $ (39,436,337) (11,661,861)
MFS Emerging Growth Portfolio.......................... -- (197,562,158) (13,743,162)
Federated High Yield Portfolio......................... 109,418 (11,969,058) (5,497,199)
Federated Stock Portfolio.............................. -- (1,101,356) (2,873,381)
Disciplined Mid Cap Stock Portfolio.................... -- (9,666,674) (9,668,062)
- --------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2002, the difference between book basis and tax basis
unrealized depreciation was attributable primarily to wash sale and other loss
deferrals.
The tax character of distributions paid during the year ended December 31,
2002 was:
<Table>
<Caption>
ORDINARY LONG TERM
INCOME CAPITAL GAINS TOTAL
- -------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio............................ $17,441,531 -- $17,441,531
Lazard International Stock Portfolio........................ 2,266,863 -- 2,266,863
Federated High Yield Portfolio.............................. 7,888,998 -- 7,888,998
Federated Stock Portfolio................................... 832,675 -- 832,675
Disciplined Mid Cap Stock Portfolio......................... 660,997 $125,180 786,177
- -------------------------------------------------------------------------------------------------------
</Table>
For the year ended December 31, 2002, MEG did not make any distributions.
12. ADDITIONAL INFORMATION
The Funds have received the following information from Citigroup Asset
Management ("CAM"), the Citigroup business unit which includes the Funds'
Investment Manager and other investment advisory companies, all of which are
indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry,
through an affiliate, into the transfer agent business in the period 1997-1999.
As CAM currently understands the facts, at the time CAM decided to enter the
transfer agent business, CAM sub-contracted for a period of five years certain
of the transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
72
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Boards of CAM-managed funds (the "Boards") were not informed of the
Revenue Guarantee Agreement with the sub-contractor at the time the Boards
considered and approved the transfer agent arrangements. Nor were the Boards
informed of the subsequent amendment to the Revenue Guarantee Agreement when
that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable
funds approximately $17 million (plus interest) that CAM and its affiliates
received from the Revenue Guarantee Agreement and its amendment. CAM also plans
an independent review to verify that the transfer agency fees charged by CAM
were fairly priced as compared to competitive alternatives. CAM is instituting
new procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
73
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
TRAVELERS QUALITY BOND PORTFOLIO 2003(1) 2002(1) 2001(1) 2000(1) 1999(1)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................... $11.03 $11.39 $11.00 $10.82 $10.76
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2)........................... 0.48 0.51 0.59 0.73 0.64
Net realized and unrealized gain (loss)(2)......... 0.29 0.14 0.20 0.00* (0.51)
- ----------------------------------------------------------------------------------------------------------------
Total Income From Operations......................... 0.77 0.65 0.79 0.73 0.13
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.56) (0.85) (0.40) (0.55) (0.00)*
Net realized gains................................. (0.03) (0.16) -- -- (0.07)
- ----------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (0.59) (1.01) (0.40) (0.55) (0.07)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $11.21 $11.03 $11.39 $11.00 $10.82
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)...................................... 6.98% 5.81% 7.13% 6.97% 1.09%
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)................... $209 $206 $152 $73 $59
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)........................................ 0.43% 0.44% 0.45% 0.49% 0.54%
Net investment income(2)........................... 4.15 4.48 5.14 6.81 5.86
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 191% 176% 225% 157% 357%
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective January 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended December
31, 2001, those amounts would have been $0.61, $0.18 and 5.31% for net
investment income, net realized and unrealized gain and the ratio of net
investment income to average net assets, respectively. Per share
information, ratios and supplemental data for the periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(3) Total returns do not reflect expenses associated with your variable contact
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of fee waivers
and/or expense reimbursements, the total return would be reduced.
(4) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.75%.
* Amount represents less than $0.01 per share.
74
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
LAZARD INTERNATIONAL STOCK PORTFOLIO 2003(1) 2002(1) 2001(1) 2000(1) 1999(1)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................... $7.91 $9.30 $13.15 $15.65 $12.88
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.............................. 0.15 0.11 0.11 0.13 0.17
Net realized and unrealized gain (loss)............ 2.11 (1.31) (3.50) (1.88) 2.63
- ----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 2.26 (1.20) (3.39) (1.75) 2.80
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.16) (0.19) (0.02) (0.32) (0.03)
Net realized gains................................. -- -- (0.44) (0.43) (0.00)*
- ----------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (0.16) (0.19) (0.46) (0.75) (0.03)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $10.01 $7.91 $ 9.30 $13.15 $15.65
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)...................................... 28.60% (12.96)% (26.19)% (11.50)% 21.78%
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)................... $128 $97 $120 $141 $119
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)........................................ 1.00% 1.06% 1.01% 1.02% 1.06%
Net investment income.............................. 1.79 1.32 1.01 0.92 1.25
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 44% 55% 81% 39% 35%
- ----------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MFS EMERGING GROWTH PORTFOLIO 2003 2002(1) 2001(1) 2000(1) 1999(1)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................... $7.24 $11.00 $22.60 $29.82 $16.87
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss................................ (0.03) (0.03) (0.02) (0.05) (0.06)
Net realized and unrealized gain (loss)............ 2.14 (3.73) (8.20) (5.70) 13.01
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 2.11 (3.76) (8.22) (5.75) 12.95
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains................................. -- -- (3.38) (1.47) --
- --------------------------------------------------------------------------------------------------------------
Total Distributions.................................. -- -- (3.38) (1.47) --
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $9.35 $7.24 $11.00 $22.60 $29.82
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)...................................... 29.14% (34.18)% (36.18)% (20.13)% 76.76%
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)................... $168 $144 $258 $420 $413
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)........................................ 0.89% 0.89% 0.89% 0.90% 0.87%
Net investment loss................................ (0.30) (0.32) (0.12) (0.18) (0.29)
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 106% 114% 266% 203% 168%
- --------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of fee waivers
and/or expense reimbursements, the total return would be reduced.
(3) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.25%.
(4) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets (excluding interest expense) will not exceed 0.95%.
* Amount represents less than $0.01 per share.
75
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
FEDERATED HIGH YIELD PORTFOLIO 2003(1) 2002(1) 2001(1) 2000 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR.............. $7.37 $8.55 $9.50 $11.44 $11.11
- ---------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2)...................... 0.65 0.74 0.97 1.25 1.01
Net realized and unrealized gain (loss)(2).... 1.00 (0.46) (0.77) (2.11) (0.67)
- ---------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............. 1.65 0.28 0.20 (0.86) 0.34
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income......................... (0.61) (1.46) (1.15) (1.08) (0.00)*
Net realized gains............................ -- -- -- -- (0.01)
- ---------------------------------------------------------------------------------------------------------
Total Distributions............................. (0.61) (1.46) (1.15) (1.08) (0.01)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................... $8.41 $7.37 $8.55 $ 9.50 $11.44
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................. 22.39% 3.72% 1.94% (8.15)% 3.10%
- ---------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................. $75,796 $47,797 $39,522 $38,736 $49,816
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)................................... 0.90% 0.89% 0.89% 0.88% 0.84%
Net investment income(2)...................... 7.93 9.09 10.45 10.61 9.15
- ---------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......................... 57% 58% 44% 19% 23%
- ---------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective January 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended December
31, 2001, those amounts would have been $0.98, $0.78 and 10.51% for net
investment income, net realized and unrealized loss and the ratio of net
investment income to average net assets, respectively. Per share
information, ratios and supplemental data for the periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(3) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of fee waivers
and/or expense reimbursements, the total return would be reduced.
(4) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
* Amount represents less than $0.01 per share.
76
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
FEDERATED STOCK PORTFOLIO 2003(1) 2002(1) 2001(1) 2000 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR.............. $12.06 $15.40 $15.99 $16.34 $15.66
- ---------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income......................... 0.20 0.16 0.16 0.21 0.16
Net realized and unrealized gain (loss)....... 3.13 (3.13) 0.11 0.33 0.68
- ---------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............. 3.33 (2.97) 0.27 0.54 0.84
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income......................... (0.20) (0.37) (0.20) (0.18) --
Net realized gains............................ -- -- (0.66) (0.71) (0.16)
- ---------------------------------------------------------------------------------------------------------
Total Distributions............................. (0.20) (0.37) (0.86) (0.89) (0.16)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................... $15.19 $12.06 $15.40 $15.99 $16.34
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)................................. 27.61% (19.32)% 1.67% 3.77% 5.34%
- ---------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................. $31,803 $27,050 $44,244 $44,813 $49,612
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)................................... 0.91% 0.84% 0.81% 0.82% 0.82%
Net investment income......................... 1.50 1.14 0.99 1.23 1.14
- ---------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE......................... 41% 13% 14% 24% 23%
- ---------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of fee waivers
and/or expense reimbursements, the total return would be reduced.
(3) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
77
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
DISCIPLINED MID CAP STOCK PORTFOLIO 2003 2002 2001(1) 2000(1) 1999(1)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $13.11 $15.41 $17.26 $15.61 $14.34
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2)..................... 0.05 0.03 0.06 0.08 0.02
Net realized and unrealized gain (loss)...... 4.38 (2.23) (0.78) 2.46 1.84
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............ 4.43 (2.20) (0.72) 2.54 1.86
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income........................ (0.05) (0.08) (0.04) (0.03) (0.02)
Net realized gains........................... -- (0.02) (1.09) (0.86) (0.57)
- ----------------------------------------------------------------------------------------------------------
Total Distributions............................ (0.05) (0.10) (1.13) (0.89) (0.59)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $17.49 $13.11 $15.41 $17.26 $15.61
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 33.75% (14.32)% (4.02)% 16.61% 13.47%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................ $164,917 $111,101 $113,348 $95,216 $45,068
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)(4)............................... 0.82% 0.85% 0.83% 0.88% 0.95%
Net investment income........................ 0.38 0.23 0.37 0.49 0.28
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 61% 67% 40% 67% 71%
- ----------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) The Travelers Insurance Company has waived all or a portion of its fees for
the year ended December 31, 1999. In addition, The Travelers Insurance
Company has reimbursed the Fund for $13,500 of the Fund's expenses for the
year ended December 31, 1999. If such fees were not waived or expenses not
reimbursed, the per share decreases to net investment income and the actual
expense ratio would have been $0.01 and 0.99%, respectively.
(3) Total returns do no reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of fee waivers
and/or expense reimbursements, the total return would be reduced.
(4) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
78
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE TRAVELERS SERIES TRUST:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Travelers Quality Bond, Lazard
International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock
and Disciplined Mid Cap Stock Portfolios ("Funds") of The Travelers Series Trust
("Trust") as of December 31, 2003, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and financial highlights for each of
the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2003, by correspondence with the custodian
and brokers. As to securities purchased or sold but not yet received or
delivered, we performed other appropriate auditing procedures. 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 each
of the Funds as of December 31, 2003, and the results of their operations for
the year then ended, the changes in their net assets for each of the years in
the two-year period then ended and their financial highlights for each of the
years in the five-year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
[KPMG LLP SIGNATURE]
New York, New York
February 13, 2004
79
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
INFORMATION ABOUT TRUSTEES AND OFFICERS
The business and affairs of The Travelers Series Trust ("Trust") are
managed under the direction of the Trust's Board of Trustees. Information
pertaining to the Trustees and Officers of the Trust is set forth below. The
Statement of Additional Information includes additional information about
Trustees and is available, without charge, upon request by calling the Trust's
administrator at 1-800-842-9368.
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE(1) AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND AGE TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- --------------------------- ------------ ------------- ------------------------------ ----------- ------------------------
NON-INTERESTED TRUSTEES:(2)
Robert E. McGill, III Trustee Since Retired 5 Lydall Inc.; Board of
295 Hancock Road 1990 Managers of 6 Variable
Williamstown, MA Annuity Separate
Age 72 Accounts of The
Travelers Insurance
Company ("TIC")
Lewis Mandell Trustee Since Professor, University of 5 Delaware North Corp.;
160 Jacobs Hall 1990 Buffalo Board of Managers of 6
Buffalo, NY Variable Annuity
Age 61 Separate Accounts of TIC
Frances M. Hawk, CFA, CFP Trustee Since Private Investor 5 Board of Managers of 6
108 Oxford Hill Lane 1991 Variable Annuity
Downingtown, PA Separate Accounts of TIC
Age 56
INTERESTED TRUSTEE:
R. Jay Gerken, CFA(3) Chairman, Since Managing Director of Citigroup 221 Chairman, Board of
Citigroup Asset Management President, 2002 Global Markets Inc. ("CGM"); Managers of 6 Variable
("CAM") Chief Chairman, President and Chief Annuity Separate
399 Park Avenue, 4th Floor Executive Executive Officer of Smith Accounts of TIC
New York, NY 10022 Officer and Barney Fund Management LLC
Age 52 Trustee ("SBFM"), Travelers Investment
Adviser, Inc. ("TIA") and Citi
Fund Management Inc. ("CFM");
President and Chief Executive
Officer of certain mutual
funds associated with
Citigroup Inc. ("Citigroup");
Formerly, Portfolio Manager of
Smith Barney Allocation Series
Inc. (from 1996 to 2001) and
Smith Barney Growth and Income
Fund (from 1996 to 2000)
</Table>
80
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE(1) AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND AGE TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- --------------------------- ------------ ------------- ------------------------------ ----------- ------------------------
OFFICERS:
Andrew B. Shoup(4) Senior Vice Since Director of CAM; Senior Vice N/A N/A
CAM President 2004 President and Chief
125 Broad Street and Chief Administrative Officer of
10th Floor Administrative mutual funds associated with
New York, NY 10004 Officer Citigroup; Treasurer of
Age 47 certain mutual funds
associated with Citigroup;
Head of International Funds
Administration of CAM (from
2001 to 2003); Director of
Global Funds Administration of
CAM (from 2000 to 2001); Head
of U.S. Citibank Funds
Administration of CAM (from
1998 to 2000)
Richard L. Peteka Treasurer Since 2002 Director of CGM; Chief N/A N/A
CAM Financial Officer and
125 Broad Street, 11th Treasurer of certain mutual
Floor funds associated with
New York, NY 10004 Citigroup; Director and Head
Age 42 of Internal Control for CAM
U.S. Mutual Fund
Administration (from 1999 to
2002); Vice President, Head of
Mutual Fund Administration and
Treasurer at Oppenheimer
Capital (from 1996 to 1999)
Andrew Beagley Chief Since Director of CGM (since 2000); N/A N/A
CAM Anti-Money 2002 Director of Compliance, North
399 Park Avenue, 4th Floor Laundering America, CAM (since 2000);
New York, NY 10022 Compliance Chief Anti-Money Laundering
Age 40 Officer Compliance Officer and Vice
President of certain mutual
funds associated with
Citigroup; Director of
Compliance, Europe, the Middle
East and Africa, CAM (from
1999 to 2000); Compliance
Officer, Salomon Brothers
Asset Management Limited,
Smith Barney Global Capital
Management Inc., Salomon
Brothers Asset Management Asia
Pacific Limited (from 1997 to
1999)
</Table>
81
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE(1) AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND AGE TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- --------------------------- ------------ ------------- ------------------------------ ----------- ------------------------
Kaprel Ozsolak Controller Since 2002 Vice President of CGM; N/A N/A
CAM Controller of certain mutual
125 Broad Street, 11th funds associated with
Floor Citigroup
New York, NY 10004
Age 38
Ernest J. Wright Secretary Since Vice President and Secretary N/A N/A
Travelers Life & Annuity 1994 of TIC
One Cityplace
Hartford, CT 06103
Age 63
Kathleen A. McGah Assistant Since Deputy General Counsel of TIC N/A N/A
Travelers Life & Annuity Secretary 1995
One Cityplace
Hartford, CT 06103
Age 53
</Table>
- ---------------
(1) Each Trustee and officer serves until his or her successor has been duly
elected and qualified.
(2) Mr. Knight Edwards is an Emeritus Trustee. An Emeritus Trustee is permitted
to attend meetings, but has no voting power.
(3) Mr. Gerken is an "interested person" of the Company as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is an
officer of SBFM and certain of its affiliates.
(4) As of January 21, 2004.
82
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Trust hereby designates for the fiscal year ended
December 31, 2003:
- Percentages of ordinary dividends paid as qualifying for the dividends
received deduction:
<Table>
Federated Stock Portfolio 100.00%
Disciplined Mid Cap Stock Portfolio 100.00
</Table>
The following percentages of ordinary dividends paid by the Trust from net
investment income are derived from Federal obligations and may be exempt from
taxation at the state level:
<Table>
Travelers Quality Bond Portfolio 20.49%
Disciplined Mid Cap Stock Portfolio 0.06
</Table>
The total foreign sourced income received by the Lazard International Stock
Portfolio was $0.2464 per share (or a total amount of $3,147,082). The total
amount of foreign taxes paid was $0.0257 per share (or a total amount of
$327,797).
83
(This page intentionally left blank.)
THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
<Table>
TRUSTEES INVESTMENT ADVISER
R. Jay Gerken, CFA Travelers Asset Management International Company LLC
Chairman
Frances M. Hawk, CFA, CFP ADMINISTRATOR
Lewis Mandell
Robert E. McGill, III The Travelers Insurance Company
OFFICERS CUSTODIAN
R. Jay Gerken, CFA State Street Bank and Trust Company
President and
Chief Executive Officer TRANSFER AGENT
Andrew B. Shoup* Citicorp Trust Bank, fsb.
Senior Vice President and
Chief Administrative
Officer
Richard L. Peteka
Treasurer
Andrew Beagley
Chief Anti-Money
Laundering
Compliance Officer
Kaprel Ozsolak
Controller
Ernest J. Wright
Secretary
Kathleen A. McGah
Assistant Secretary
</Table>
- ---------------
*As of January 21, 2004.
The Funds are separate investment funds of The Travelers Series Trust, a
Massachusetts business trust.
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Series Trust: Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated
Stock and Disciplined Mid Cap Stock Portfolios. 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 or Travelers Life and Annuity Company, and the
Prospectuses for the underlying funds, which collectively contain all pertinent
information, including more complete information on changes and expenses. All
the Funds contained in this report may not be available under your variable
annuity or life contract.
Series Trust (Annual) (2-04) Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Robert E.
McGill, a member of the Board's Audit Committee, possesses the
technical attributes identified in Instruction 2(b) of Item 3 to Form
N-CSR to qualify as an "audit committee financial expert," and has
designated Mr. McGill as the Audit Committee's financial expert. Mr.
McGill is an "independent" Trustee pursuant to paragraph (a)(2) of Item
3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees for The Travelers Series Trust of $276,000 and
$225,000 for the years ended 12/31/03 and 12/31/02.
(b) Audit-Related Fees for The Travelers Series Trust of $0 and $0
for the years ended 12/31/03 and 12/31/02.
(c) Tax Fees for The Travelers Series Trust of $30,000 and $30,000
for the years ended 12/31/03 and 12/31/02. These amounts
represent aggregate fees paid for tax compliance, tax advice
and tax planning services, which include (the filing and
amendment of federal, state and local income tax returns,
timely RIC qualification review and tax distribution and
analysis planning) rendered by the Accountant to Travelers
Series Trust.
(d) All Other Fees for The Travelers Series Trust of $0 and $0 for
the years ended 12/31/03 and 12/31/02.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Audit Committee ("Committee") has adopted policies and
procedures to, among other purposes, approve all audit and
non-audit services provided to the Registrant and certain
other persons by the Registrant's independent auditors.
The Committee shall not approve non-audit services that the
Committee believes may taint the independence of the auditors.
As of the date of the approval of this Audit Committee
Charter, permissible non-audit services include any
professional services (including tax services), that are not
prohibited services as described below, provided to the Fund
by the independent auditors, other than those provided to the
Fund in connection with an audit or a review of the financial
statements of the Fund. Permissible non-audit services may not
include: (i) bookkeeping or other services related to the
accounting records or financial statements of the Fund; (ii)
financial information systems design and implementation; (iii)
appraisal or valuation services, fairness opinions or
contribution-in-kind reports; (iv) actuarial services; (v)
internal audit outsourcing services; (vi) management functions
or human resources; (vii) broker or dealer, investment adviser
or investment banking services; (viii) legal services and
expert services unrelated to the audit; and (ix) any other
service the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
The policies and procedures require the Committee to approve
(a) all audit and permissible non-audit services to be
provided to the Registrant and (b) all permissible non-audit
services to be provided by the Fund's independent auditors to
the Adviser and any Covered Service Providers if the
engagement relates directly to the operations and financial
reporting of the Registrant. In carrying out this
responsibility, the Committee shall seek periodically from the
Adviser and from the independent auditors a list of audit and
permissible non-audit services that can be expected to be
rendered to the Registrant, the Adviser or any Covered Service
Providers by the Registrant's independent auditors, and an
estimate of the fees sought to be paid in connection with such
services. The Committee may delegate its responsibility to
approve any such audit and permissible non-audit services to a
sub-committee consisting of the Chairperson of the Committee
(the "Chairperson") and at least one other member of the
Committee, as the Chairperson, from time to time, may
determine and appoint, and such sub-committee shall report to
the Committee, at its next meeting after the sub-committee's
meeting, its decision(s). From year to year, and at such other
times as the Committee deems appropriate, the Committee shall
report to the Board whether this system of approval has been
effective and efficient or whether this Charter should be
amended to allow for pre-approval pursuant to such policies
and procedures as the Committee shall approve, including the
delegation of some or all of the Committee's per-approval
responsibilities to other persons (other than the Adviser or
the Fund's officers).
Pre-approval by the Committee of any permissible non-audit
services is not required so long as: (i) the aggregate amount
of all such permissible non-audit services provided to the
Fund, the Adviser and any service providers controlling,
controlled by or under common control with the Adviser that
provide ongoing services to the Fund ("Covered Service
Providers") constitutes not more than 5% of the total amount
of revenues paid to the independent auditors during the fiscal
year in which the permissible non-audit services are provided
by (a) the Fund, (b) the Adviser and (c) any entity
controlling, controlled by or under common control with the
Adviser that provides ongoing services to the Fund during the
fiscal year in which the services are provided that would have
to be approved by the Committee; (ii) the permissible
non-audit services were not recognized by the Fund at the time
of the engagement to be non-audit services; and (iii) such
services are promptly brought to the attention of the
Committee and approved by the Committee (or its delegate(s))
prior to the completion of the audit.
(f) N/A
(g) Non-audit fees billed - $100,000 and $1.2 million for the
years ended 12/31/2003 and 12/31/2002.
(h) Yes. Travelers Series Trust's Audit Committee has considered
whether the provision of non-audit services that were rendered
to Service Affiliates which were not pre-approved (not
requiring pre-approval) is compatible with maintaining the
Accountant's independence. All services provided by the
Accountant to the Travelers Series Trust or to Service
Affiliates which were required to be pre-approved were
pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-
3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act")) are effective as of a date within 90 days of the
filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the
disclosure controls and procedures required by Rule 30a-3(b)
under the 1940 Act and 15d-15(b) under the Securities Exchange
Act of 1934.
(b) There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under
the 1940 Act) that occurred during the registrant's last
fiscal half-year (the registrant's second fiscal half-year in
the case of an annual report) that have materially affected,
or are likely to materially affect the registrant's internal
control over financial reporting.
ITEM 10. EXHIBITS.
(a) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, there unto duly authorized.
The Travelers Series Trust
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
The Travelers Series Trust
Date: March 10, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
The Travelers Series Trust
Date: March 10, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
The Travelers Series Trust
Date: March 10, 2004