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.
ANNUAL REPORT
DECEMBER 31, 2003
[UMBRELLA ART TOP]
[UMBRELLA ART BOTTOM]
MANAGED ASSETS TRUST
HIGH YIELD BOND TRUST
CAPITAL APPRECIATION FUND
MONEY MARKET PORTFOLIO
THE TRAVELERS SERIES TRUST:
U.S. GOVERNMENT SECURITIES PORTFOLIO
SOCIAL AWARENESS STOCK PORTFOLIO
PIONEER FUND PORTFOLIO
[TRAVELERS LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Cityplace
Hartford, CT 06103
ANNUAL REPORT FOR MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL
APPRECIATION FUND, MONEY MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST
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WHAT'S INSIDE
<Table>
LETTER FROM THE CHAIRMAN.................................... 1
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL
APPRECIATION FUND AND MONEY MARKET PORTFOLIO:
MANAGER OVERVIEW AND FUND PERFORMANCE (IF APPLICABLE):
MANAGED ASSETS TRUST................................... 3
HIGH YIELD BOND TRUST.................................. 7
CAPITAL APPRECIATION FUND.............................. 9
MONEY MARKET PORTFOLIO................................. 12
SCHEDULES OF INVESTMENTS.................................... 13
STATEMENTS OF ASSETS AND LIABILITIES........................ 40
STATEMENTS OF OPERATIONS.................................... 41
STATEMENTS OF CHANGES IN NET ASSETS......................... 42
NOTES TO FINANCIAL STATEMENTS............................... 46
FINANCIAL HIGHLIGHTS........................................ 51
INDEPENDENT AUDITORS' REPORT................................ 53
TAX INFORMATION............................................. 54
THE TRAVELERS SERIES TRUST - U.S. GOVERNMENT SECURITIES
PORTFOLIO, SOCIAL AWARENESS STOCK PORTFOLIO AND PIONEER FUND
PORTFOLIO:
MANAGER OVERVIEW AND FUND PERFORMANCE:
U.S. GOVERNMENT SECURITIES PORTFOLIO................... 55
SOCIAL AWARENESS STOCK PORTFOLIO....................... 57
PIONEER FUND PORTFOLIO................................. 60
SCHEDULES OF INVESTMENTS.................................... 63
STATEMENTS OF ASSETS AND LIABILITIES........................ 75
STATEMENTS OF OPERATIONS.................................... 76
STATEMENTS OF CHANGES IN NET ASSETS......................... 77
NOTES TO FINANCIAL STATEMENTS............................... 80
FINANCIAL HIGHLIGHTS........................................ 85
INDEPENDENT AUDITORS' REPORT................................ 87
ADDITIONAL INFORMATION...................................... 88
TAX INFORMATION............................................. 91
</Table>
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LETTER FROM THE CHAIRMAN
[R. JAY GERKEN PHOTO]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
DEAR SHAREHOLDER,
The 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 all
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
the market peaks of 2000, particularly technology
stocks. Overall, bond performance was a story of
contrasts, with high yield bonds significantly
outperforming investment-grade 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 achieved a swift and decisive victory. 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
led to gains in consumer confidence and rapid expansion
in the third quarter. Meanwhile, 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
-------- ---------
MANAGED ASSETS TRUST........................................ 9.54% 21.98%
S&P 500 Index............................................... 15.14 28.67
Lehman Brothers Government/Credit Bond Index................ -0.53 4.67
Lipper Flexible Portfolio Variable Funds Category Average... 9.44 18.65
HIGH YIELD BOND TRUST....................................... 10.95 29.15
Credit Suisse First Boston High Yield Index................. 9.05 27.94
Lipper High Current Yield Variable Funds Category Average... 8.41 23.93
CAPITAL APPRECIATION FUND................................... 15.20 24.91
S&P 500 Index............................................... 15.14 28.67
Russell 2000 Index.......................................... 24.92 47.25
Lipper Large-Cap Growth Variable Funds Category Average..... 13.57 28.18
MONEY MARKET PORTFOLIO...................................... 0.34 0.78
Lipper Money Market Variable Funds Category Average......... 0.27 0.64
U.S. GOVERNMENT SECURITIES PORTFOLIO........................ -1.81 2.75
Merrill Lynch U.S. Treasury/Agency Master Index............. -1.11 2.36
Lipper General U.S. Government Variable Funds Category
Average................................................... -0.76 2.33
SOCIAL AWARENESS STOCK PORTFOLIO............................ 14.85 28.85
S&P 500 Index............................................... 15.14 28.67
Lipper Specialty/Miscellaneous Variable Funds Category
Average................................................... 18.50 40.40
PIONEER FUND PORTFOLIO...................................... 14.80 23.78
S&P 500 Index............................................... 15.14 28.67
Lipper Multi-Cap Core Variable Funds Category Average....... 15.82 31.84
</Table>
1
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 S&P 500 Index is a market capitalization-weighted index of 500 widely held
common stocks. The Russell 2000 Index measures the performance of the 2000
smallest companies in the Russell 3000 Index, which represents approximately 8%
of the total market capitalization of the Russell 3000 Index. The Credit Suisse
First Boston High Yield Index is a market-weighted index that includes publicly
traded bonds rated below BBB by S&P and Baa by Moody's. The Lehman Brothers
Government/Credit Bond Index is a broad-based bond index composed of government
and corporate debt issues that are investment grade (rated Baa/BBB or higher).
The Merrill Lynch U.S. Treasury/Agency Master Index is an index comprises of
U.S. Treasury and Agency securities.
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 149 funds
for the six-month period and among the 146 funds for the 12-month period in the
Lipper large-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 87 funds for the six-month period and among the 86 funds
for the 12-month period in the Lipper flexible portfolio variable funds
category. Returns were calculated among the 109 funds for the six-month period
and among the 107 funds for the 12-month period in the Lipper money market
variable funds category. Returns were calculated among the 135 funds for the
six-month period and among the 130 funds for the 12-month period in the Lipper
specialty/ miscellaneous variable funds category. Returns were calculated among
the 54 funds for the six-month period and among the 51 funds for the 12-month
period in the Lipper general U.S. Government variable funds category. Returns
were calculated among the 124 funds for the six-month period and among the 121
funds for the 12-month period in the Lipper multi-cap core 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
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MANAGER OVERVIEW
MANAGED ASSETS TRUST
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund generated a return of
21.98%. In comparison, the fund outperformed one of its unmanaged benchmarks,
the Lehman Brothers Government/Credit Bond Index,(i) which advanced by 4.67%,
but underperformed its other unmanaged benchmark, the S&P 500 Index,(ii) which
gained 28.67% and for the same period. The fund outperformed its Lipper flexible
portfolio variable funds category average, which was up 18.65% over the same
time frame.(1)
EQUITY MARKET OVERVIEW
Optimistic forecasts for a strong economic rebound in 2003 have proven to be
correct. With real gross domestic product ("GDP")(iii) 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,
some investors continued to express concerns that the effects of these
stimulative policies might wear off, and corporate revenue growth might not be
sustainable. Other issues for the economy focus 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.
Consumer spending has clearly been a pillar for economic growth and any
significant weakening could be detrimental to the overall recovery. With the
recent slowdown in mortgage refinancing, there have been widespread concerns
that consumer spending could be losing its momentum.
Economic data released during 2003 showed evidence of a cyclical recovery and
provided more hope late in the year as retail sales and initial unemployment
claims were better than anticipated. With lower inventories and higher operating
profits, many companies have finally begun to hire selectively and slowly boost
capital expenditures. Along with continuing strength in consumer confidence, the
increase in capital spending helped lift many stocks to produce their best
returns in recent years. In addition, the gains were remarkably broad-based and
every economic sector participated.
With historically high oil and natural gas prices, energy stocks delivered
exceptional performance in the past year. The technology and consumer
discretionary sectors also traded much higher on improved capital investments
and strong retail sales. However, during the past month, weaker sales from major
department stores have led investors to begin gradually reduce their lofty
expectations on the industry. The only exceptions were luxury item stores, which
realized solid sales increases during the holiday season. Similarly, technology
investors turned less bullish as well. When it became evident that major capital
spending would not occur until later in 2004, most technology stocks came under
pressure and traded lower.
OVERVIEW OF FUND'S EQUITY INVESTMENTS
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
(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 flexible portfolio variable funds category
including the reinvestment of dividends and capital gains, if any.
3
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 modestly favorable in the producer durables, technology and
transportation sectors, but adverse in the utilities sector.
In the producer durables sector, the fund benefited from positions in Boeing
Co., Centex Corp., and PerkinElmer, Inc. when the market rally began in the
second quarter. Boeing reported quarterly earnings from operations above the
consensus estimate. The company cited ongoing strength in the military business
as the main reason for the upside surprise. Although the commercial business
remained weak, the stock gained during the second quarter. Similarly, Centex
reported higher earnings than expected. The upside was driven by strength in the
homebuilding and financial services, despite losses in construction products and
services. PerkinElmer reiterated its earnings guidance for the coming quarter.
Management stated that revenues seemed to have stabilized and would be higher
than the previous quarter.
In the technology sector, fund positions in Avaya, Inc., Scientific-Atlanta,
Inc., and Cisco Systems helped us during the third quarter. Avaya announced that
its domestic operation grew faster than management had previously guided for,
although its European group was slightly weaker. Analysts raised their earnings
estimates based on the new guidance and the stock moved higher.
Scientific-Atlanta posted robust financial results for the second quarter.
Demand for its digital systems exceeded management's expectation, and the
company guided for higher earnings growth for the coming year. Cisco continued
to gain market share in the data networking industry. The company reaffirmed its
earnings guidance and substantially strengthened its balance sheet.
In the auto & transportation sector, fund positions in Norfolk Southern Corp.,
Ford Motor Co., and Eaton contributed positively to performance towards the end
of the year. Norfolk Southern announced better earnings than the consensus
estimate. Although revenue was below analysts' expectations, operating costs
were also lower than expected. Its strength in cost control allowed the stock to
trade at a relatively higher earnings multiple than its competitors. Ford Motor
traded higher on reports that showed sales in Europe might be rebounding. The
company also met its production schedule and succeeded in reducing its inventory
level. Eaton, which manufactures power systems, benefited from an improvement in
the capital goods markets. Management guided for higher sales and expected its
market share to increase in the coming quarters.
On the other hand, in the utilities sector, the fund was negatively impacted by
its positions in AT&T Corp., Nicor, Inc., and Alltel Corp. at the beginning of
the year. AT&T pre-announced that earnings would miss consensus expectation.
Management acknowledged that consumer business remained weak and might take
longer to improve. The stock traded lower after the news. Nicor posted lower
earnings for the quarter due to a decline in utility revenue and higher
operating costs. The company trimmed its earnings guidance for the coming year.
Alltel missed its subscriber growth target in its wireless operation. Revenue
growth in its wireless business was also weaker than expected. Although most
analysts maintained their earnings estimates, they downgraded their rating on
the stock.
In our disciplined approach to stock selection, we screen our research universe
of over 1,000 large cap securities for companies that offer improving earnings
fundamentals at discounted stock valuations. We continued to focus on this dual
theme of low valuations and improving earnings outlook as the basis of our stock
selection.
FIXED-INCOME MARKET AND FUND OVERVIEW
By the end of 2003, equity prices rose for three consecutive quarters, giving
credence to an ongoing economic recovery. The labor markets finally showed some
long-awaited, albeit modest, strength and the U.S. economy continued its second
year of expansion, mainly due to gains in productivity. Consumer spending was
considerably stronger than first estimated. Although shrinking pay increases and
higher inflation expectations have spawned some worries, consumer sentiment has
held up surprisingly well.
The dramatic improvement in stocks benefited the equity portion of the fund. The
convertible portion of the fund continued to benefit from higher stock prices
and tighter fixed-income spreads as well as investors increased willingness to
take on more risk. The fixed income portion of the portfolio performed well even
as a "flight from quality" continued in the bond markets.
Despite some mixed signals from the economy, conventional wisdom suggests that
real economic growth may continue to pick up in 2004. Tax cuts seem to be having
their desired impact, interest rates are low and corporations are lean.
Furthermore, a falling dollar is helping to improve pricing power and earnings
for beaten-up manufacturing companies. Given this backdrop, interest rates may
rise moderately as should equity prices. Accordingly, we maintained our asset
allocation strategy of keeping the fund's investments close to 60% equities/40%
fixed-income securities.
4
Thank you for your investment in the Managed Assets Trust. We appreciate that
you have entrusted us to manage your money and value our relationship with you.
Sincerely,
<Table>
[/s/ DAVID A. TYSON] [/s/ SANDIP A. BHAGAT]
David Tyson Sandip A. Bhagat, CFA
Travelers Asset Management International Travelers Investment Management Company
Company LLC
</Table>
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 managers' current or
future investments. The fund's top ten holdings as of this date were: Freddie
Mac Benchmark Notes, 2.125% due 11/15/05 (2.77%); U.S. Treasury Notes, 5.750%
due 8/15/10 (2.41%); France Telecom S.A. (2.30%); PP&L Transition Bond Co. LLC
(1.93%); U.S. Treasury Notes, 4.250% due 11/15/13 (1.89%); General Electric Co.
(1.82%); Nationwide Health Properties, Inc. (1.76%); Microsoft Corp. (1.76%);
Pfizer Inc. (1.63%); Clear Channel Communications, Inc. (1.53%). Please refer to
pages 13 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: 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 Government/Credit Bond Index is a broad-based bond index
composed of government and corporate debt issues that are investment grade
(rated Baa/BBB or higher).
(ii) The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
(iii) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
5
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PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/03 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended
12/31/03 21.98%
Five Years Ended 12/31/03 3.53
Ten Years Ended 12/31/03 9.50
CUMULATIVE TOTAL RETURN
------------------------
12/31/93 through 12/31/03 147.72%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1993, assuming reinvestment of dividends, through
December 31, 2003. The Lehman Brothers 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. The Consumer Price Index is a measure of the average
change in prices over time in a fixed market basket of goods and
services. 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.
[MANAGED ASSETS TRUST LINE GRAPH]
<Table>
Managed Assets Trust Lehman Brothers Government/Credit Bond Index
12/93 10000.00 10000.00
12/94 9776.00 9648.00
12/95 12427.00 11505.00
12/96 14139.00 11839.00
12/97 17152.00 12994.00
12/98 20830.00 14225.00
12/99 23792.00 13601.00
12/00 23407.00 15213.00
12/01 22218.00 16507.00
12/02 20307.00 18329.00
12/31/03 24772.00 19185.00
Consumer Price Index S&P 500 Index
12/93 10000.00 10000.00
12/94 10268.00 10132.00
12/95 10528.00 12353.00
12/96 10877.00 15188.00
12/97 11062.00 20254.00
12/98 11240.00 26075.00
12/99 11575.00 31559.00
12/00 11968.00 28687.00
12/01 12153.00 25279.00
12/02 12443.00 19694.00
12/31/03 12677.00 25340.00
</Table>
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PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data
represents past performance including the investment return and principal value
of an investment, which 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 reinvestment
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.
6
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MANAGER OVERVIEW
HIGH YIELD BOND TRUST
SPECIAL SHAREHOLDER NOTICE
Effective February 6, 2004, Mr. Paul A. Mataras and Mr. David A. Nadeau began
serving as Portfolio Managers to the fund.
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 29.15%. In
comparison, the fund outperformed its unmanaged benchmark, the Credit Suisse
First Boston High Yield Index,(i) which returned 27.94% for the same period. The
fund also outperformed its Lipper high current yield variable funds average,
which was 23.93% over the same frame.(1)
An improving economy, strong third quarter earnings, declining default rates and
significant inflows of assets into high yield mutual funds propelled the high
yield market during the fund's fiscal year. The lowest rated issues, those rated
CCC, within the non-investment-grade universe outperformed again, as many
investors sought higher yields.
Our investment philosophy is based on finding total return opportunities on a
bond-by-bond basis, investing in companies which meet a rigorous fundamental
credit analysis. We continue to follow our bottom-up discipline. We focus on
companies with superior market shares and/or high barriers to entry and also
look for companies with catalysts to improving valuations and total return
realizations.
Key sectors which helped fund performance in 2003 included chemicals, utilities,
wireless telecommunications, and domestic cable. Although almost all high yield
bonds performed well, the past year's performance results for the whole market
were led by weaker companies.
Thank you for your investment in the High Yield Bond Trust. We appreciate that
you have entrusted us to manage your money and value our relationship with you.
Sincerely,
Thomas L. Hajdukiewicz
Travelers Asset Management International Company 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. Please refer to pages 27 through 34 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.
(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.
(i) The Credit Suisse First Boston High Yield Index is a market-weighted index
that includes publicly traded bonds rated below BBB by S&P and Baa by
Moody's.
7
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PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 12/31/03 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/03 29.15%
Five Years Ended 12/31/03 9.30
Ten Years Ended 12/31/03 9.87
CUMULATIVE TOTAL RETURN
------------------------
12/31/93 through 12/31/03 156.35%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1993, assuming reinvestment of dividends, through
December 31, 2003. The Credit Suisse First Boston High Yield Index
(formerly known as Credit Suisse First Boston Global High Yield
Index) is a broad-based market measure of high-yield bonds,
commonly known as "junk bonds." The Consumer Price Index is a
measure of the average change in prices over time in a fixed market
basket of goods and services.
[HIGH YIELD BOND TRUST LINE GRAPH]
<Table>
High Yield Bond Trust Comsumer Price Index
12/93 10000.00 10000.00
12/94 9874.00 10268.00
12/95 11401.00 10528.00
12/96 13231.00 10877.00
12/97 15422.00 11062.00
12/98 16433.00 11240.00
12/99 17160.00 11575.00
12/00 17326.00 11968.00
12/01 18981.00 12153.00
12/02 19849.00 12443.00
12/03 25635.00 12677.00
Credit Suisse First Boston High Yield Index
12/93 10000.00
12/94 9981.00
12/95 11845.00
12/96 13115.00
12/97 14772.00
12/98 14815.00
12/99 15473.00
12/00 14939.00
12/01 15805.00
12/02 16296.00
12/03 20849.00
</Table>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data
represents past performance including the investment return and principal value
of an investment, which 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 reinvestment
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.
8
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MANAGER OVERVIEW
CAPITAL APPRECIATION FUND
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 24.91%. In
comparison, the fund underperformed both of its benchmarks, the unmanaged S&P
500 Index,(i) which returned 28.67%, and the Russell 2000 Index,(ii) which
returned 47.25% for the same period. The fund also underperformed its Lipper
large-cap growth variable funds average, which was 28.18% for the same
period.(1)
MARKET OVERVIEW
Broadly speaking, many equity investors enjoyed positive performance in 2003 as
the major U.S. stock market indices ended the fiscal year with gains for the
first time since 1999. Meanwhile, U.S. Treasury yields fluctuated with the daily
headline news and fortunes of the stock market.
The period began with a brief rally that was quickly overcome by worries of a
looming conflict with Iraq. Rising unemployment, a persistent lack of new jobs
and soaring oil prices also were causes for concern. After hitting a trough in
the months leading up to the war, however, both the market and consumer
confidence bounced back sharply by the time the hostilities began in mid-March.
Later, signs that the manufacturing sector was emerging from a two-year slump
and a tax-cut-driven increase in consumer spending also helped to lift
investors' spirits. But the health of the economy still was in doubt as job
losses mounted. The Federal Reserve acknowledged the mixed picture, cutting its
benchmark federal funds rate to a 45-year low of 1% in an attempt to spur
corporate investment and hiring. As the fiscal year came to a close, however,
stocks added to their gains. Feelings of cautious optimism, fueled by an
acceleration of quarterly earnings and better-than-expected economic growth,
prevailed despite questions about whether the positive momentum could be
sustained.
INVESTMENT DECISIONS DURING THE PERIOD
Similar to post-bear market trends throughout history, the equity markets spent
much of 2003 bidding up small-capitalization stocks while dismissing large-cap
issues. Consequently, as the fund's charter demands that it generally invest in
larger companies, its short-term performance suffered slightly on a relative
basis.
While enduring the whims of the market, we worked diligently and monitored the
volatility that naturally occurs within a concentrated fund. By exploring a
larger universe and investing in a broader array of industries, we are striving
for more consistent returns through the market's ups and downs.
CONTRIBUTORS AND DETRACTORS TO PERFORMANCE
Portfolio detractors included global beverage giant Coca Cola Co, and insurer
American International Group Inc., more commonly known as AIG. Elsewhere,
defense contractor General Dynamics Corp. slumped, as did apparel and housewares
retailer Kohl's Corp., amid concerns over the durability of consumers'
purchasing power. Also lagging was deep-discount retailer Dollar Tree Stores,
Inc.
One of the leaders of the broad Nasdaq rally was the fund's
pacesetter -- innovative biotechnology interest Genentech, Inc., which benefited
from numerous developments within its strong research and development pipeline.
Other standouts included satellite radio provider XM Satellite Radio Holdings,
Inc. and health insurance interest UnitedHealth Group, which launched an
acquisition of health maintenance organization operator Mid-Atlantic Medical
Services. Videogame creator Electronic Arts Inc. and athletic shoe and active
wear manufacturer Nike, Inc. provided additional gains.
(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 146 funds in the Lipper large-cap growth variable funds category
including the reinvestment of dividends and capital gains, if any.
9
While investment decisions remained rooted in extensive company-level research,
sector analysis offers some insight into the fund's performance. The biggest
contributor on an absolute basis was the consumer discretionary sector, as
standouts such as eBay, Inc. helped compensate for the Kohl's setback. The
healthcare area, powered by companies such as Genentech, was another solid
contributor. Further aiding performance was the fund's overweight position in
both sectors, relative to the benchmark. The sole sector to generate a negative
return on an absolute basis was the consumer staples sector, although the fund's
underweight position actually helped results on a relative basis. Another
leading laggard was the industrials area, even though minimal gains were
generated by holdings in this sector.
Thank you for your investment in the Capital Appreciation Fund. We appreciate
that you have entrusted us to manage your money and value our relationship with
you.
Sincerely,
Scott Schoelzel
Janus Capital 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:
UnitedHealth Group, Inc. (6.50%), Murphy Oil Corp. (5.30%), Microsoft Corp.
(5.07%), Genentech, Inc. (4.66%), Electronic Arts Inc. (4.38%), XM Satellite
Radio Holdings, Inc. (4.14%), Nike Inc. Class B Shares (3.96%), SLM Corp.
(3.92%), The Goldman Sachs Group, Inc. (3.61%), Nextel Communications, Inc.
(3.53%). Please refer to pages 35 through 37 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 Index is a market capitalization-weighted index of 500 widely
held common stocks.
(ii) The Russell 2000 Index measures the performance of the 2000 smallest
companies in the Russell 3000 Index, which represents approximately 8% of
the total market capitalization of the Russell 3000 Index.
10
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/03 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/03 24.91%
Five Years Ended 12/31/03 (3.67)
Ten Years Ended 12/31/03 10.86
CUMULATIVE TOTAL RETURN
--------------------------------------------
12/31/93 through 12/31/03 180.50%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1993, assuming reinvestment of dividends, through
December 31, 2003. 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
Russell 2000 Index is a capitalization weighted total return index
which is comprised of 2,000 of the smallest capitaled U.S.
domiciled companies with less than average growth orientation whose
common stock is traded in the United States on the New York Stock
Exchange, American Stock Exchange and NASDAQ. The Consumer Price
Index is a measure of the average change in prices over time in a
fixed market basket of goods and services.
[CAPITAL APPRECIATION FUND LINE GRAPH]
<Table>
Capital Appreciation Fund S&P Index Russell 2000 Index
12/93 10000.00 10000.00 10000.00
12/94 9487.00 10132.00 4149.00
12/95 12937.00 12353.00 5330.00
12/96 16586.00 15188.00 6210.00
12/97 20922.00 20254.00 7599.00
12/98 33816.00 26075.00 7405.00
12/99 51913.00 31559.00 8979.00
12/00 40556.00 28687.00 8708.00
12/01 29976.00 25279.00 8931.00
12/02 22456.00 19694.00 7102.00
12/03 28050.00 25340.00 10458.00
Consumer Price Index
12/93 10000.00
12/94 10268.00
12/95 10528.00
12/96 10877.00
12/97 11062.00
12/98 11240.00
12/99 11575.00
12/00 11968.00
12/01 12153.00
12/02 12443.00
12/03 12677.00
</Table>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data
represents past performance including the investment return and principal value
of an investment, which 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.
11
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
MONEY MARKET PORTFOLIO
PERFORMANCE UPDATE
As of December 31, 2003, the seven-day current yield for the Money Market
Portfolio was 0.69% and its seven-day effective yield, which reflects
compounding, was 0.69%. These numbers are the same due to rounding.
Both yields include a partial waiver of the management fee; the yields would
have been lower had the full management fee been included. The seven-day
effective yield is calculated similarly to the seven-day current yield but, when
annualized, the income earned by an investment in the fund is assumed to be
reinvested. The effective yield typically will be slightly higher than the
current yield because of the compounding effect of the assumed reinvestment.
Please note that the performance represents past performance, which is not a
guarantee of future results and yields will vary. In addition, your investment
is neither insured nor guaranteed by the Federal Deposit Insurance Corporation
("FDIC") or any other government agency. Although the fund seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the fund.
INTEREST RATES HIT 45-YEAR LOW
Short-term interest rates and yields of money market instruments declined during
the fund's fiscal year ended December 31, 2003 as the Fed and Bush
Administration implemented measures to stimulate renewed economic growth.
When the fund's fiscal year began in January of 2003, views of the economy's
prospects were mixed. U.S. corporations reigned in capital spending as the
effects of a declining stock market and corporate accounting scandals took their
toll on investor confidence and business activity. Corporations remained
cautious as it became clearer early in 2003 that the United States and its
allies were likely to go to war in Iraq. In effect, the economy adopted a
"wait-and-see" attitude. Even the Fed indicated at its March 2003 meeting that
it could not adequately assess prevailing economic risks because of the
geopolitical situation. As a result, the U.S. economy expanded sluggishly.
As major combat operations in Iraq wound down in the spring, consumers and
businesses became increasingly optimistic. Improving sentiment was reinforced by
legislation enacting federal tax cuts, including a reduction in taxes on capital
gains and dividends. For its part, the Fed cut short-term interest rates by
another 0.25% in late June, driving the federal funds rate to just 1%, its
lowest level since the Eisenhower Administration. Money market yields continued
to decline as well.
By the end of August, evidence of sustainable economic improvement began to
emerge. Stronger retail sales, rising domestic consumption and increasing export
activity contributed to an improvement in gross domestic product(1) during the
third calendar quarter of 2003, which grew at a rate not seen in over two
decades. However, to forestall potential deflationary forces, the Fed indicated
that it was likely to leave rates at prevailing low levels for the foreseeable
future, which it did through the end of the period in December.
OUR INVESTMENT STRATEGY IN THIS MARKET ENVIRONMENT
Our strategy in management for the fund was to maintain a 20-40 day average life
weighting. At the end of the fiscal year, the fund's asset size had decreased as
many investors rebalanced their portfolios as a result of historically low money
market yields and continued evidence of economic improvement.
Thank you for your investment in the Money Market Portfolio. We appreciate that
you have entrusted us to manage your money and value our relationship with you.
Sincerely,
<Table>
/s/ Emil Molinaro, Jr. /s/ Michele Mirabella
Emil Molinaro, Jr. Michele Mirabella, CFA
Portfolio Manager Portfolio Manager
</Table>
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. Please refer to page 38 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. RISK: An investment in a money
market fund is neither insured nor guaranteed by the FDIC or any other
government agency. Although the fund seeks to preserve the value of your
investment at one dollar per share, it is possible to lose money by investing in
the fund.
(1) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
12
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCK -- 60.6%
- -----------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 1.1%
20,904 The Boeing Co. ............................................. $ 880,895
2,299 L-3 Communications Holdings, Inc. (a)....................... 118,077
10,625 Lockheed Martin Corp. ...................................... 546,125
809 Northrop Grumman Corp. ..................................... 77,340
22,184 Raytheon Co. ............................................... 666,407
8,288 United Technologies Corp. .................................. 785,454
- -----------------------------------------------------------------------------------------------------
3,074,298
- -----------------------------------------------------------------------------------------------------
AIR FREIGHT AND COURIERS -- 0.5%
19,243 United Parcel Service, Inc., Class B Shares................. 1,434,566
- -----------------------------------------------------------------------------------------------------
AUTO COMPONENTS -- 0.2%
4,633 Dana Corp. ................................................. 85,016
4,167 Gentex Corp. ............................................... 184,015
1,903 Johnson Controls, Inc. ..................................... 220,976
- -----------------------------------------------------------------------------------------------------
490,007
- -----------------------------------------------------------------------------------------------------
AUTOMOBILES -- 0.9%
34,912 Ford Motor Co. ............................................. 558,592
22,840 General Motors Corp. ....................................... 1,219,656
17,068 Harley-Davidson, Inc. ...................................... 811,242
- -----------------------------------------------------------------------------------------------------
2,589,490
- -----------------------------------------------------------------------------------------------------
BANKS -- 4.5%
33,449 Bank of America Corp. ...................................... 2,690,303
11,407 Bank One Corp. ............................................. 520,045
12,321 BB&T Corp. ................................................. 476,083
69 First Tennessee National Corp. ............................. 3,043
20,373 FleetBoston Financial Corp. ................................ 889,281
8,766 HSBC Holdings PLC........................................... 690,936
7,512 KeyCorp..................................................... 220,252
6,425 Marshall & Ilsley Corp. .................................... 245,756
7,072 Mellon Financial Corp. ..................................... 227,082
23,293 National City Corp. ........................................ 790,564
10,766 PNC Financial Services Group................................ 589,223
10,336 Regions Financial Corp. .................................... 384,499
2,509 SunTrust Banks, Inc. ....................................... 179,394
17,970 U.S. Bancorp................................................ 535,147
4,363 United Bankshares Inc. ..................................... 136,126
37,249 Wachovia Corp. ............................................. 1,735,431
18,005 Washington Mutual, Inc. .................................... 722,361
36,111 Wells Fargo & Co. .......................................... 2,126,577
- -----------------------------------------------------------------------------------------------------
13,162,103
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
BEVERAGES -- 1.8%
19,888 Anheuser-Busch Co., Inc. ................................... $ 1,047,700
41,864 The Coca-Cola Co. .......................................... 2,124,598
23,041 Coca-Cola Enterprises Inc. ................................. 503,907
34,384 PepsiCo, Inc. .............................................. 1,602,982
- -----------------------------------------------------------------------------------------------------
5,279,187
- -----------------------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.9%
28,128 Amgen, Inc. (a)............................................. 1,738,310
11,225 Biogen, Inc. (a)............................................ 412,855
3,465 Cephalon, Inc. (a).......................................... 167,741
998 Chiron Corp. (a)............................................ 56,876
12,992 MedImmune, Inc. (a)......................................... 329,997
- -----------------------------------------------------------------------------------------------------
2,705,779
- -----------------------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.2%
9,993 Crane Co. .................................................. 307,185
12,565 Masco Corp. ................................................ 344,407
- -----------------------------------------------------------------------------------------------------
651,592
- -----------------------------------------------------------------------------------------------------
CHEMICALS -- 0.9%
19,810 The Dow Chemical Co. ....................................... 823,502
7,393 E.I. du Pont de Nemours & Co. .............................. 339,265
12,710 Ecolab, Inc. ............................................... 347,873
10,412 International Flavors & Fragrances, Inc. ................... 363,587
24,982 Monsanto Co. ............................................... 718,982
- -----------------------------------------------------------------------------------------------------
2,593,209
- -----------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 0.5%
4,600 Avery Dennison Corp. ....................................... 257,692
18,666 Cendant Corp. (a)........................................... 415,692
1,881 Paychex, Inc. .............................................. 69,973
11,907 Total System Services, Inc. ................................ 370,665
6,127 Weight Watchers International, Inc. (a)..................... 235,093
- -----------------------------------------------------------------------------------------------------
1,349,115
- -----------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.1%
144,058 Cisco Systems, Inc. (a)..................................... 3,499,169
29,606 Comverse Technology, Inc. (a)............................... 520,770
24,096 Corning, Inc. (a)........................................... 251,321
45,406 McDATA Corp., Class A Shares (a)............................ 432,719
18,526 QUALCOMM, Inc............................................... 999,107
17,927 Scientific-Atlanta, Inc..................................... 489,407
- -----------------------------------------------------------------------------------------------------
6,192,493
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
14
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 2.0%
32,738 Dell Inc. (a)............................................... $ 1,111,782
22,555 EMC Corp. (a)............................................... 291,411
52,352 Hewlett-Packard Co. ........................................ 1,202,525
27,797 International Business Machines Corp. ...................... 2,576,226
21,138 NVIDIA Corp. (a)............................................ 491,458
- -----------------------------------------------------------------------------------------------------
5,673,402
- -----------------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING -- 0.4%
3,858 Ball Corp. ................................................. 229,821
17,711 Pactiv Corp. (a)............................................ 423,293
9,562 Sealed Air Corp. (a)........................................ 517,687
- -----------------------------------------------------------------------------------------------------
1,170,801
- -----------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 4.4%
31,011 American Express Co. ....................................... 1,495,661
4,172 The Bear Stearns Cos. Inc. ................................. 333,551
5,309 Capital One Financial Corp. ................................ 325,389
40,831 The Charles Schwab Corp. ................................... 483,439
13,685 Countrywide Credit Industries, Inc. ........................ 1,038,032
14,564 Fannie Mae.................................................. 1,093,174
12,942 Freddie Mac................................................. 754,777
10,528 The Goldman Sachs Group, Inc. .............................. 1,039,429
40,907 J.P. Morgan Chase & Co. .................................... 1,502,514
5,681 Lehman Brothers Holdings, Inc. ............................. 438,687
38,983 MBNA Corp. ................................................. 968,728
13,422 Merrill Lynch & Co., Inc. .................................. 787,200
23,469 Morgan Stanley ............................................. 1,358,151
17,537 Principal Financial Group, Inc. ............................ 579,949
21,880 Providian Financial Corp. (a) .............................. 254,683
7,519 SLM Corp. .................................................. 283,316
- -----------------------------------------------------------------------------------------------------
12,736,680
- -----------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%
5,321 Alltel Corp. ............................................... 247,852
15,341 BellSouth Corp. ............................................ 434,150
19,758 CenturyTel, Inc. ........................................... 644,506
40,710 Citizens Communications Co. (a)............................. 505,618
32,863 SBC Communications, Inc. ................................... 856,738
6,479 Sprint Corp. (FON Group).................................... 106,385
35,196 Verizon Communications Inc. ................................ 1,234,676
- -----------------------------------------------------------------------------------------------------
4,029,925
- -----------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 1.6%
17,537 Alliant Energy Corp. ....................................... 436,671
12,230 Ameren Corp. ............................................... 562,580
18,068 CMS Energy Corp. (a)........................................ 153,939
14,209 Constellation Energy Group, Inc. ........................... 556,424
16,862 Edison International (a).................................... 369,784
14,015 Entergy Corp. .............................................. 800,677
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 1.6% (CONTINUED)
15,216 Exelon Corp. ............................................... $ 1,009,734
12,569 Public Service Enterprise Group Inc. ....................... 550,522
9,894 The Southern Co. ........................................... 299,294
- -----------------------------------------------------------------------------------------------------
4,739,625
- -----------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.4%
3,101 Cooper Industries, Inc. .................................... 179,641
10,363 Emerson Electric Co. ....................................... 671,004
9,966 Thomas & Betts Corp. (a).................................... 228,122
- -----------------------------------------------------------------------------------------------------
1,078,767
- -----------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.3%
13,880 Avnet, Inc. (a)............................................. 300,641
27,379 Ingram Micro Inc., Class A Shares (a)....................... 435,326
2,632 Mettler-Toledo International Inc. (a)....................... 111,097
- -----------------------------------------------------------------------------------------------------
847,064
- -----------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 0.3%
3,170 Baker Hughes, Inc. ......................................... 101,947
7,077 Halliburton Co. ............................................ 184,002
8,938 Schlumberger Ltd. .......................................... 489,087
7,657 Transocean Inc. (a)......................................... 183,845
- -----------------------------------------------------------------------------------------------------
958,881
- -----------------------------------------------------------------------------------------------------
FOOD AND DRUG RETAILING -- 0.2%
8,112 CVS Corp. .................................................. 293,005
9,980 SYSCO Corp. ................................................ 371,555
- -----------------------------------------------------------------------------------------------------
664,560
- -----------------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.5%
13,404 Archer-Daniels-Midland Co. ................................. 204,009
28,817 Del Monte Foods Co. (a)..................................... 299,697
3,716 General Mills, Inc. ........................................ 168,335
3,698 Hershey Foods Corp. ........................................ 284,709
6,026 Hormel Foods Corp. ......................................... 155,531
12,598 Kellogg Co. ................................................ 479,732
- -----------------------------------------------------------------------------------------------------
1,592,013
- -----------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.1%
16,388 National Fuel Gas Co. ...................................... 400,523
- -----------------------------------------------------------------------------------------------------
HEALTHCARE - EQUIPMENT AND SUPPLIES -- 1.3%
19,147 Apogent Technologies, Inc. (a).............................. 441,147
15,471 Becton Dickinson & Co. ..................................... 636,477
29,356 Boston Scientific Corp. (a)................................. 1,079,127
12,361 Guidant Corp. .............................................. 744,132
15,415 Medtronic, Inc. ............................................ 749,323
2,926 St. Jude Medical, Inc. (a).................................. 179,510
- -----------------------------------------------------------------------------------------------------
3,829,716
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
HEALTHCARE - PROVIDERS AND SERVICES -- 0.9%
9,053 AETNA, Inc. ................................................ $ 611,802
8,769 AmerisourceBergen Corp. .................................... 492,379
2,048 Anthem, Inc. (a)............................................ 153,600
14,068 Lincare Holding Inc. (a).................................... 422,462
10,762 UnitedHealth Group Inc. .................................... 626,133
2,473 WellPoint Health Networks, Inc. (a)......................... 239,856
- -----------------------------------------------------------------------------------------------------
2,546,232
- -----------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE -- 0.8%
27,774 Darden Restaurants, Inc. ................................... 584,365
16,581 Marriott International Inc., Class A Shares................. 766,042
30,670 McDonald's Corp. ........................................... 761,536
3,024 Starwood Hotels & Resorts Worldwide, Inc. .................. 108,773
- -----------------------------------------------------------------------------------------------------
2,220,716
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.7%
4,979 The Black & Decker Corp. ................................... 245,564
13,380 Fortune Brands, Inc. ....................................... 956,536
8,835 Furniture Brands International, Inc. ....................... 259,131
1,600 KB HOME..................................................... 116,032
10,374 Newell Rubbermaid Inc. ..................................... 236,216
1,554 Pulte Homes, Inc............................................ 145,485
- -----------------------------------------------------------------------------------------------------
1,958,964
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.2%
16,138 Colgate-Palmolive Co. ...................................... 807,707
8,611 Kimberly-Clark Corp. ....................................... 508,824
22,278 The Procter & Gamble Co. ................................... 2,225,127
- -----------------------------------------------------------------------------------------------------
3,541,658
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.8%
8,336 3M Co. ..................................................... 708,810
170,387 General Electric Co. ....................................... 5,278,589
26,062 Honeywell International Inc. ............................... 871,253
6,179 Teleflex Inc. .............................................. 298,631
35,733 Tyco International Ltd. .................................... 946,924
- -----------------------------------------------------------------------------------------------------
8,104,207
- -----------------------------------------------------------------------------------------------------
INSURANCE -- 3.8%
5,050 ACE Ltd. ................................................... 209,171
9,150 AFLAC, Inc. ................................................ 331,047
25,368 Allstate Corp. ............................................. 1,091,331
9,864 Ambac Financial Group, Inc. ................................ 684,463
16,768 American Financial Group, Inc. ............................. 443,681
44,839 American International Group, Inc. ......................... 2,971,929
8,937 Aon Corp. .................................................. 213,952
11,365 The Chubb Corp. ............................................ 773,956
6,730 Fidelity National Financial, Inc. .......................... 260,989
1,943 The Hartford Financial Services Group, Inc. ................ 114,695
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
INSURANCE -- 3.8% (CONTINUED)
7,461 Jefferson-Pilot Corp. ...................................... $ 377,900
3,328 Lincoln National Corp. ..................................... 134,351
16,565 Marsh & McLennan Cos., Inc. ................................ 793,298
15,013 MBIA, Inc. ................................................. 889,220
6,337 MGIC Investment Corp. ...................................... 360,829
8,610 The PMI Group, Inc. ........................................ 320,550
1,401 The Progressive Corp. ...................................... 117,110
10,246 Prudential Financial, Inc. ................................. 427,975
2,286 SAFECO Corp. ............................................... 88,994
8,072 The St. Paul Cos., Inc. .................................... 320,055
- -----------------------------------------------------------------------------------------------------
10,925,496
- -----------------------------------------------------------------------------------------------------
INTERNET AND CATALOG RETAIL -- 0.4%
16,522 eBay Inc. (a)............................................... 1,067,156
- -----------------------------------------------------------------------------------------------------
INTERNET SOFTWARE AND SERVICES -- 0.2%
13,019 Yahoo! Inc. (a)............................................. 588,068
- -----------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT AND PRODUCTS -- 0.2%
25,083 Hasbro, Inc. ............................................... 533,766
7,455 Mattel, Inc. ............................................... 143,658
- -----------------------------------------------------------------------------------------------------
677,424
- -----------------------------------------------------------------------------------------------------
MACHINERY -- 0.8%
4,725 Deere & Co. ................................................ 307,361
1,735 Eaton Corp. ................................................ 187,345
9,831 Ingersoll-Rand Co. ......................................... 667,328
5,834 ITT Industries, Inc. ....................................... 432,941
2,830 PACCAR Inc. ................................................ 240,890
9,356 Pentair, Inc. .............................................. 427,569
- -----------------------------------------------------------------------------------------------------
2,263,434
- -----------------------------------------------------------------------------------------------------
MEDIA -- 2.0%
49,503 Comcast Corp., Class A Shares (a)........................... 1,627,164
20,086 Fox Entertainment Group Inc., Class A Shares (a)............ 585,507
9,265 Scholastic Corp. (a)........................................ 315,381
55,819 Time Warner Inc. (a)........................................ 1,004,184
8,751 Tribune Co. ................................................ 451,552
32,796 Viacom Inc., Class B Shares ................................ 1,455,486
11,516 The Walt Disney Co. ........................................ 268,668
- -----------------------------------------------------------------------------------------------------
5,707,942
- -----------------------------------------------------------------------------------------------------
METALS AND MINING -- 0.7%
37,591 Alcoa Inc. ................................................. 1,428,458
7,010 Newmont Mining Corp. ....................................... 340,756
2,270 Nucor Corp. ................................................ 127,120
- -----------------------------------------------------------------------------------------------------
1,896,334
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
MULTILINE RETAIL -- 2.3%
32,836 Big Lots, Inc. (a).......................................... $ 466,600
7,819 Costco Wholesale Corp. (a).................................. 290,710
35,067 Dollar General Corp. ....................................... 736,056
7,024 Dollar Tree Stores, Inc. (a)................................ 211,141
4,483 Federated Department Stores, Inc............................ 211,284
6,547 J.C. Penney Co., Inc. ...................................... 172,055
14,085 Target Corp. ............................................... 540,864
74,075 Wal-Mart Stores, Inc. ...................................... 3,929,679
- -----------------------------------------------------------------------------------------------------
6,558,389
- -----------------------------------------------------------------------------------------------------
MULTI-UTILITIES -- 0.3%
37,054 Duke Energy Corp. .......................................... 757,754
- -----------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.1%
23,088 Xerox Corp. (a)............................................. 318,614
- -----------------------------------------------------------------------------------------------------
OIL AND GAS -- 2.5%
5,200 Anadarko Petroleum Corp. ................................... 265,252
7,500 Burlington Resources, Inc. ................................. 415,350
13,051 ChevronTexaco Corp. ........................................ 1,127,476
11,958 ConocoPhillips.............................................. 784,086
2,798 Devon Energy Corp. ......................................... 160,213
102,211 Exxon Mobil Corp. .......................................... 4,190,651
6,700 Occidental Petroleum Corp. ................................. 283,008
- -----------------------------------------------------------------------------------------------------
7,226,036
- -----------------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.1%
6,300 Georgia Pacific Corp. ...................................... 193,221
3,635 Weyerhaeuser Co. ........................................... 232,640
- -----------------------------------------------------------------------------------------------------
425,861
- -----------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.6%
15,033 Abbott Laboratories......................................... 700,538
18,216 Bristol-Myers Squibb Co. ................................... 520,978
15,248 Eli Lilly & Co. ............................................ 1,072,392
52,707 Johnson & Johnson........................................... 2,722,844
4,825 Medco Health Solutions, Inc. (a)............................ 164,002
40,009 Merck & Co. Inc. ........................................... 1,848,416
16,880 Mylan Laboratories Inc. .................................... 426,389
134,061 Pfizer Inc. ................................................ 4,736,375
15,357 Schering-Plough Corp. ...................................... 267,058
19,440 Wyeth....................................................... 825,228
- -----------------------------------------------------------------------------------------------------
13,284,220
- -----------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 0.0%
7,067 Annaly Mortgage Management Inc. ............................ 130,033
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 2.6%
18,793 Analog Devices, Inc. (a).................................... $ 857,900
99,054 Intel Corp. ................................................ 3,189,539
10,758 KLA-Tencor Corp. (a)........................................ 631,172
7,999 Lam Research Corp. (a)...................................... 258,368
6,210 Maxim Integrated Products, Inc. ............................ 309,258
13,417 Micron Technology, Inc. (a)................................. 180,727
27,270 Teradyne, Inc. (a).......................................... 694,021
43,566 Texas Instruments Inc. ..................................... 1,279,969
- -----------------------------------------------------------------------------------------------------
7,400,954
- -----------------------------------------------------------------------------------------------------
SOFTWARE -- 3.2%
18,537 Autodesk, Inc. ............................................. 455,639
12,554 BMC Software, Inc. (a)...................................... 234,132
26,453 Computer Associates International, Inc. .................... 723,225
13,940 Electronic Arts Inc. (a).................................... 666,053
3,659 Intuit Inc. (a)............................................. 193,598
185,393 Microsoft Corp. ............................................ 5,105,723
3,610 National Instruments Corp. ................................. 164,147
80,978 Oracle Corp. (a)............................................ 1,068,910
19,509 VERITAS Software Corp. (a).................................. 724,954
- -----------------------------------------------------------------------------------------------------
9,336,381
- -----------------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.2%
5,398 AutoNation, Inc. (a)........................................ 99,161
4,611 AutoZone, Inc. (a).......................................... 392,903
11,079 Best Buy Co., Inc. ......................................... 578,767
12,032 The Gap, Inc. .............................................. 279,263
52,811 The Home Depot, Inc. ....................................... 1,874,262
19,713 Lowe's Cos., Inc. .......................................... 1,091,903
18,615 PETsMART, Inc. ............................................. 443,037
12,997 Pier 1 Imports Inc. ........................................ 284,114
35,910 Staples, Inc. (a)........................................... 980,343
25,629 Toys "R" Us, Inc. (a)....................................... 323,951
- -----------------------------------------------------------------------------------------------------
6,347,704
- -----------------------------------------------------------------------------------------------------
TEXTILES AND APPAREL -- 0.4%
2,525 Jones Apparel Group, Inc. .................................. 88,956
16,905 Liz Claiborne, Inc. ........................................ 599,451
3,969 NIKE Inc., Class B Shares................................... 271,718
2,809 Reebok International Ltd. .................................. 110,450
- -----------------------------------------------------------------------------------------------------
1,070,575
- -----------------------------------------------------------------------------------------------------
TOBACCO -- 0.7%
34,589 Altria Group, Inc. ......................................... 1,881,245
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.6%
41,781 American Tower Corp., Class A Shares (a).................... $ 452,070
81,535 AT&T Wireless Services Inc. (a)............................. 651,465
17,337 Nextel Communications, Inc. (a)............................. 486,476
- -----------------------------------------------------------------------------------------------------
1,590,011
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $159,262,599)................... 175,069,204
- -----------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 3.4%
- -----------------------------------------------------------------------------------------------------
AUTOMOBILES -- 1.4%
36,000 Ford Motor Co. Capital Trust II, 6.500% Cumulative Trust
Preferred Securities...................................... 2,010,600
General Motors Corp., Sr. Debentures:
37,000 5.250% Series B........................................... 994,190
33,000 6.250% Series C........................................... 1,065,900
- -----------------------------------------------------------------------------------------------------
4,070,690
- -----------------------------------------------------------------------------------------------------
BANKS -- 0.5%
3,000(UNIT) Washington Mutual Capital Trust I, 5.375% Cumulative (b).... 166,980
25,000(UNIT) Washington Mutual Inc., 5.375% Cumulative (b)(c)............ 1,391,500
- -----------------------------------------------------------------------------------------------------
1,558,480
- -----------------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING -- 0.4%
4,000 Amcor Ltd., 7.250% PRIDES(SM)............................... 250,000
21,000 Newell Financial Trust I, 5.250% Cumulative QUIPS(SM)....... 966,000
- -----------------------------------------------------------------------------------------------------
1,216,000
- -----------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.2%
10,000 CalEnergy Capital Trust II, 6.250% Trust Preferred
Securities................................................ 480,000
- -----------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.2%
15,200 El Paso Energy Capital Trust I, 4.750% Trust Preferred
Securities................................................ 513,000
- -----------------------------------------------------------------------------------------------------
MEDIA -- 0.5%
17,000 Tribune Co., 2.000% PHONES(SM).............................. 1,381,250
- -----------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
7,000 Equity Office Properties Trust, 5.250% Cumulative, Series
B......................................................... 350,070
9,000 Reckson Associates Realty Corp., 7.625% Cumulative, Series
A......................................................... 227,250
- -----------------------------------------------------------------------------------------------------
577,320
- -----------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $9,011,032)...... 9,796,740
- -----------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 11.6%
- --------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 7.8%
U.S. Treasury Notes:
$ 3,200,000 1.625% due 10/31/05............................................. 3,196,003
2,320,000 3.000% due 2/15/08.............................................. 2,331,510
3,500,000 2.625% due 5/15/08.............................................. 3,448,459
710,000 3.375% due 11/15/08............................................. 715,853
500,000 3.375% due 12/15/08............................................. 503,555
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 7.8% (CONTINUED)
$ 6,225,000 5.750% due 8/15/10.............................................. $ 6,981,730
5,480,000 4.250% due 11/15/13............................................. 5,475,720
- --------------------------------------------------------------------------------------------------
22,652,830
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 3.8%
Freddie Mac, Benchmark Notes:
8,000,000 2.125% due 11/15/05............................................. 8,038,936
500,000 4.875% due 11/15/13............................................. 506,390
Federal National Mortgage Association (FNMA):
3,470 8.500% due 3/1/05............................................... 3,621
791,053 6.000% due 1/1/13............................................... 831,767
80,218 6.500% due 12/1/27.............................................. 84,098
195,805 6.000% due 3/1/28............................................... 202,914
62,499 6.000% due 4/1/28............................................... 64,810
149,337 6.000% due 5/1/28............................................... 154,759
192,310 6.000% due 6/1/28............................................... 199,293
177,265 6.000% due 7/1/28............................................... 183,701
503,138 5.500% due 8/1/28............................................... 512,754
128,862 6.000% due 8/1/28............................................... 133,541
Government National Mortgage Association (GNMA):
25,280 9.000% due 11/15/19............................................. 28,329
7,442 9.500% due 1/15/20.............................................. 8,338
19,982 7.500% due 5/15/23.............................................. 21,566
- --------------------------------------------------------------------------------------------------
10,974,817
- --------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES AND OBLIGATIONS
(Cost -- $33,827,445)............................................. 33,627,647
- --------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT RATING(d) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 13.8%
- -------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.1%
$ 100,000 BBB- Bombardier Inc., Notes, 6.750% due 5/1/12 (c)............... 109,750
200,000 BBB- Raytheon Co., Notes, 5.375% due 4/1/13...................... 200,705
- -------------------------------------------------------------------------------------------------------
310,455
- -------------------------------------------------------------------------------------------------------
BANKS -- 0.4%
1,000,000 A1* Fleet National Bank, Sub. Notes, 5.750% due 1/15/09......... 1,091,957
- -------------------------------------------------------------------------------------------------------
CONSTRUCTION SERVICES -- 0.1%
300,000 BBB- MDC Holdings, Inc., Sr. Notes, 5.500% due 5/15/13........... 301,175
- -------------------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING -- 0.1%
200,000 BBB Sealed Air Corp, Sr. Notes, 5.625% due 7/15/13 (c).......... 205,034
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(d) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 0.7%
$ 300,000 Aa3* Credit Suisse First Boston (USA), Inc., Notes, 6.125% due
11/15/11.................................................. $ 327,133
1,000,000 A3* Ford Motor Credit Co., Global Landmark Securities, 7.000%
due 10/1/13............................................... 1,056,547
600,000 Aa3* Merrill Lynch & Co., Inc., Medium-Term Notes, Series B,
3.375% due 9/14/07........................................ 608,275
- -------------------------------------------------------------------------------------------------------
1,991,955
- -------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 3.0%
5,000,000 BBB France Telecom S.A., Sr. Notes, 8.500% due 3/1/31........... 6,666,200
800,000 BBB+ Deutsche Telekom International Finance BV, Bonds, 8.250% due
6/15/05................................................... 868,162
1,100,000 BBB+ Telecom Italia Capital SA, Sr. Global Notes, 5.250% due
11/15/13 (c).............................................. 1,104,716
- -------------------------------------------------------------------------------------------------------
8,639,078
- -------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 1.8%
3,000,000 CCC+ Calpine Corp., Sr. Notes, 8.500% due 2/15/11................ 2,388,750
2,000,000 BB- PSEG Energy Holdings LLC, Sr. Notes, 8.500% due 6/15/11..... 2,227,500
700,000 AA+ SP PowerAssets Ltd., Notes, 5.000% due 10/22/13 (c)......... 705,343
- -------------------------------------------------------------------------------------------------------
5,321,593
- -------------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.1%
300,000 A+ Southern California Gas Co., First Mortgage Bonds, Series
II,
4.375% due 1/15/11........................................ 300,383
- -------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.3%
800,000 A- Hutchison Whampoa International Ltd., Sr. Notes, 6.250% due
1/24/14 (c)............................................... 814,114
- -------------------------------------------------------------------------------------------------------
INSURANCE -- 0.6%
1,000,000 AA+ New York Life Global Funding, Notes, 5.375% due 9/15/13
(c)....................................................... 1,033,617
600,000 AA Principal Life Global Funding I, Bonds, 6.125% due 10/15/33
(c)....................................................... 602,563
- -------------------------------------------------------------------------------------------------------
1,636,180
- -------------------------------------------------------------------------------------------------------
MEDIA -- 3.7%
4,000,000 BBB- Clear Channel Communications, Inc., Sr. Notes, 6.625% due
6/15/08................................................... 4,448,228
2,000,000 BBB Comcast Cable Communications, Inc., Notes, 8.875% due
5/1/17.................................................... 2,579,536
800,000 BBB- Liberty Media Corp., Sr. Notes, 2.640% due 9/17/06 (e)...... 809,327
2,000,000 BBB+ Time Warner, Inc., Guaranteed Debentures, 7.625% due
4/15/31................................................... 2,316,148
1,500,000 NR WorldCom Inc., Notes, 8.250% due 5/15/31 (f)................ 506,250
- -------------------------------------------------------------------------------------------------------
10,659,489
- -------------------------------------------------------------------------------------------------------
METALS AND MINING -- 0.2%
700,000 A- Alcan Inc., Notes, 6.125% due 12/15/33...................... 706,682
- -------------------------------------------------------------------------------------------------------
OIL AND GAS -- 0.3%
600,000 BBB Amerada Hess Corp., Notes, 7.875% due 10/1/29............... 660,216
300,000 BBB+ Anadarko Finance Co., Sr. Notes, Series B, 6.750% due
5/1/11.................................................... 340,588
- -------------------------------------------------------------------------------------------------------
1,000,804
- -------------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.2%
500,000 A Wyeth, Notes, 6.500% due 2/1/34............................. 512,971
- -------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 1.8%
5,000,000 BBB- Nationwide Health Properties, Inc., Medium-Term Notes,
Series C,
6.900% due 10/1/37........................................ 5,112,820
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(d) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
SOVEREIGN -- 0.2%
$ 500,000 AAA Canada Mortgage and Housing Corp., Notes, 3.375% due
12/1/08................................................... $ 498,870
- -------------------------------------------------------------------------------------------------------
TOBACCO -- 0.2%
700,000 BBB Altria Group, Inc., Notes, 5.625% due 11/4/08............... 718,841
- -------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $34,917,192)....... 39,822,401
- -------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 5.4%
- -------------------------------------------------------------------------------------------------------
AUTOMOBILES -- 0.4%
Lear Corp., Sr. Notes:
1,150,000 BBB- Zero coupon due 2/20/22................................... 605,188
1,000,000 BBB- Zero coupon due 2/20/22 (c)............................... 526,250
- -------------------------------------------------------------------------------------------------------
1,131,438
- -------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 0.1%
400,000 BBB Electronic Data Systems Corp, Sr. Notes, 3.875% due 7/15/23
(c)....................................................... 419,500
- -------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 0.3%
1,662,000 Aa3* Merrill Lynch & Co., Inc., LYO(TM)Ns, zero coupon due
5/23/31................................................... 916,178
- -------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.1%
250,000 BBB PPL Energy Supply LLC, Sr. Notes, 2.625% due 5/15/23 (c).... 257,500
- -------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.1%
440,000 BBB- Arrow Electronics, Inc., Sr. Debentures, zero coupon due
2/21/21................................................... 231,000
- -------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 0.9%
Diamond Offshore Drilling, Inc., Sr. Debentures:
915,000 A 1.500% due 4/15/31........................................ 841,800
300,000 A 1.500% due 4/15/31 (c).................................... 276,000
Global Marine Inc., Debentures:
1,000,000 A- Zero coupon due 6/23/20................................... 578,750
300,000 A- Zero coupon due 6/23/20 (c)............................... 173,625
500,000 BBB Halliburton Co., Sr. Notes, 3.125% due 7/15/23 (c).......... 520,625
100,000 B Hanover Compressor Co., Sr. Notes, 4.750% due 3/15/08....... 93,000
- -------------------------------------------------------------------------------------------------------
2,483,800
- -------------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.1%
818,000 B- El Paso Corp., Debentures, zero coupon due 2/28/21.......... 380,370
- -------------------------------------------------------------------------------------------------------
HEALTHCARE - PROVIDERS AND SERVICES -- 0.3%
800,000 BBB+ Health Management Associates, Inc., Sr. Sub. Notes, 1.500%
due 8/1/23 (c)............................................ 884,000
- -------------------------------------------------------------------------------------------------------
INSURANCE -- 0.5%
2,150,000 AAA American International Group, Inc., Sr. Debentures, zero
coupon due 11/9/31........................................ 1,432,438
- -------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT AND PRODUCTS -- 0.2%
1,050,000 BB+ Royal Caribbean Cruises Ltd., Sr. LYO(TM)Ns, zero coupon due
2/2/21.................................................... 509,250
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(d) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
MEDIA -- 1.1%
Liberty Media Corp., Sr. Exchangeable Debentures:
$ 500,000 BBB- 0.750% due 3/30/23 (c).................................... $ 592,500
650,000 BBB- 4.000% due 11/15/29....................................... 459,063
650,000 BBB- 3.500% due 1/15/31........................................ 547,625
100,000 BBB- 3.500% due 1/15/31 (c).................................... 84,250
1,500,000 BBB+ The Walt Disney Co., Sr. Notes, 2.125% due 4/15/23.......... 1,595,625
- -------------------------------------------------------------------------------------------------------
3,279,063
- -------------------------------------------------------------------------------------------------------
METALS AND MINING -- 0.0%
50,000 BBB+ Placer Dome Inc., Sr. Notes, 2.750% due 10/15/23 (c)........ 60,063
- -------------------------------------------------------------------------------------------------------
MULTILINE RETAIL -- 0.5%
J.C. Penney Co., Inc., Sub. Notes:
550,000 BB- 5.000% due 10/15/08....................................... 606,375
650,000 BB- 5.000% due 10/15/08 (c)................................... 716,625
- -------------------------------------------------------------------------------------------------------
1,323,000
- -------------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.2%
250,000 A Allergan, Inc., Sr. Notes, zero coupon due 11/6/22 (c)...... 239,375
140,000 BBB- Watson Pharmaceuticals, Inc., Sr. Debentures, 1.750% due
3/15/23 (c)............................................... 184,975
- -------------------------------------------------------------------------------------------------------
424,350
- -------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 0.6%
200,000 BB+ Best Buy Co., Inc., Sub. Debentures, 2.250% due 1/15/22
(c)....................................................... 218,500
1,000,000 BB+ The Gap, Inc., Sr. Notes, 5.750% due 3/15/09................ 1,538,750
- -------------------------------------------------------------------------------------------------------
1,757,250
- -------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $14,100,692)..... 15,489,200
- -------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 2.9%
Chase Funding Mortgage Loan:
500,000 AAA Series 2002-2, Class 1A5, 5.833% due 4/25/32.............. 525,575
2,000,000 AAA Series 2003-4, Class 2A2, 1.441% due 5/25/33.............. 2,001,302
444,956 NR Delta Funding Mortgage Corp., Series 1987-1, 9.250% due
7/2/07.................................................... 327,043
5,000,000 AAA PP&L Transition Bond Co. LLC, Series 1999-1, Class A7,
7.050% due 6/25/09........................................ 5,591,400
- -------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (Cost -- $7,967,119).......... 8,445,320
- -------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.8%
500,000 AAA CS First Boston Mortgage Securities Corp., Series 2003-C5,
Class A4,
4.900% due 12/15/36....................................... 501,247
1,908,930 AAA Washington Mutual Inc., Series 2003-S8, Class A2, 5.000% due
9/25/18................................................... 1,911,629
- -------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $2,422,938)...................................... 2,412,876
- -------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $261,509,017)................ 284,663,388
- -------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.5%
- -------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS -- 0.2%
500,000 U.S. Treasury Bills, due 3/18/04 (Cost -- $499,054)......... 499,121
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.3%
$ 3,820,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $3,820,170; Fully collateralized by U.S.
Treasury Bonds, 7.500% due 11/15/16; Market
value -- $3,896,736) (Cost -- $3,820,000)................. $ 3,820,000
- --------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $4,319,054)........... 4,319,121
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $265,828,071**)........ $288,982,509
- --------------------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
(b) Security issued with attached warrants.
(c) 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.
(d) 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.
(e) Variable rate security.
(f) Security is currently in default.
** Aggregate cost for Federal income tax purposes is $267,067,911.
<Table>
Abbreviations used in this schedule:
</Table>
<Table>
LYO(TM)Ns -- Liquid Yield Option(TM) Notes -- Trademark of Merrill Lynch
& Co., Inc.
PHONES(SM) -- Participation Hybrid Option Note Exchangeable
Securities(SM) -- Service Mark of Merrill Lynch & Co., Inc.
PRIDES(SM) -- Perpetual Redeemable Income Debt, Exchangeable for
Stock(SM) -- Service Mark of Merrill Lynch & Co., Inc.
QUIPS(SM) -- Quarterly Income Preferred Securities(SM) -- Service Mark of
Goldman Sachs & Co.
See page 39 for definitions of ratings.
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 85.8%
- --------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 1.0%
$ 450,000 B- BE Aerospace, Inc., Sr. Sub. Notes, Series B, 8.875% due
5/1/11.................................................... $ 424,125
500,000 CCC+ Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09............ 526,250
- --------------------------------------------------------------------------------------------------
950,375
- --------------------------------------------------------------------------------------------------
AIRLINES -- 1.2%
1,650,000 B Delta Air Lines, Inc., Notes, 8.300% due 12/15/29........... 1,099,313
- --------------------------------------------------------------------------------------------------
ALTERNATIVE VIDEO PROVIDERS -- 0.3%
300,000 BB- EchoStar DBS Corp., Sr. Notes, 9.375% due 2/1/09............ 315,375
- --------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 3.9%
Collins & Aikman Products Co., Sr. Sub. Notes:
975,000 B- 11.500% due 4/15/06....................................... 901,875
500,000 B2* 10.750% due 12/31/11...................................... 493,750
400,000 B+ Intermet Corp., Sr. Notes, 9.750% due 6/15/09............... 412,000
950,000 B Metaldyne Corp., Sr. Sub. Notes, 11.000% due 6/15/12........ 878,750
500,000 B1* RJ Tower Corp., Sr. Notes, 12.000% due 6/1/13 (b)........... 495,000
500,000 CCC+ Tenneco Automotive Inc., Sr. Notes, 11.625% due 10/15/09.... 542,500
- --------------------------------------------------------------------------------------------------
3,723,875
- --------------------------------------------------------------------------------------------------
BROADBAND ACCESS AND INTERNET SERVICES -- 0.5%
400,000 B- TSI Telecommunications Services, Inc., Sr. Sub. Notes,
12.750% due 2/1/09........................................ 441,000
- --------------------------------------------------------------------------------------------------
BUILDING MATERIALS -- 0.5%
Armstrong World Industries, Inc., Sr. Notes:
550,000 NR 6.500% due 8/15/05 (c).................................... 308,000
300,000 NR 7.450% due 5/15/29 (c).................................... 168,000
- --------------------------------------------------------------------------------------------------
476,000
- --------------------------------------------------------------------------------------------------
BUSINESS SERVICES -- 0.7%
425,000 B+ Danka Business Systems PLC, Sr. Notes, 11.000% due
6/15/10................................................... 423,937
250,000 Caa2* Foster Wheeler Ltd., Notes, 6.750% due 11/15/05............. 186,250
- --------------------------------------------------------------------------------------------------
610,187
- --------------------------------------------------------------------------------------------------
CABLE -- 7.5%
Adelphia Communications Corp., Sr. Notes:
875,000 NR 10.250% due 6/15/11 (c)................................... 831,250
Series B:
250,000 NR 8.125% due 7/15/03 (c)................................. 232,500
725,000 NR 8.375% due 2/1/08 (c).................................. 679,687
Charter Communications Holdings, LLC, Sr. Discount Notes:
550,000 CCC- Step bond to yield 10.736% due 4/1/11..................... 473,000
1,250,000 CCC- Step bond to yield 18.487% due 5/15/11.................... 843,750
1,200,000 BB- CSC Holdings Inc., Sr. Notes, Series B, 7.625% due 4/1/11... 1,269,000
100,000 NR Frontiervision Holdings LP, Sr. Discount Notes, 11.875% due
9/15/07 (c)............................................... 106,500
725,000 B+ Insight Midwest, L.P./Insight Capital, Inc., Sr. Notes,
9.750% due 10/1/09........................................ 770,312
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
27
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
CABLE -- 7.5% (CONTINUED)
$ 1,350,000 B+ Mediacom LLC/Mediacom Capital Corp., Sr. Notes, 9.500% due
1/15/13................................................... $ 1,437,750
375,000 BB+ Shaw Communications Inc., Sr. Notes, 7.250% due 4/6/11...... 407,344
- --------------------------------------------------------------------------------------------------
7,051,093
- --------------------------------------------------------------------------------------------------
CELLULAR -- 3.0%
Centennial Communications Corp./Centennial Cellular
Operating Co. LLC:
700,000 Caa1* Sr. Notes, 10.125% due 6/15/13............................ 771,750
150,000 CCC Sr. Sub. Notes, 10.750% due 12/15/08...................... 159,000
Dobson Communications Corp., Sr. Notes:
425,000 B3* 10.875% due 7/1/10........................................ 465,375
700,000 B3* 8.875% due 10/1/13 (b).................................... 712,250
700,000 CCC Rural Cellular Corp., Sr. Sub. Notes, 9.750% due 1/15/10.... 687,750
- --------------------------------------------------------------------------------------------------
2,796,125
- --------------------------------------------------------------------------------------------------
CHEMICALS -- 7.2%
325,000 BBB- Georgia Gulf Corp., Notes, 7.625% due 11/15/05.............. 343,687
475,000 CCC+ Huntsman ICI Chemicals LLC, Sr. Sub. Notes, 10.125% due
7/1/09.................................................... 491,625
450,000 B- Huntsman International LLC, Sr. Notes, 9.875% due 3/1/09.... 495,000
Lyondell Chemical Co.:
450,000 BB- Sr. Notes, Series B, 9.875% due 5/1/07.................... 477,000
825,000 B Sr. Sub. Notes, 10.875% due 5/1/09........................ 849,750
1,475,000 BB- Millennium America Inc., Sr. Notes, 7.000% due 11/15/06..... 1,519,250
Nalco Co.:
75,000 B Sr. Notes, 7.750% due 11/15/11 (b)........................ 80,625
125,000 B Sr. Sub. Notes, 8.875% due 11/15/13 (b)................... 133,125
325,000 BB- PolyOne Corp., Sr. Notes, 10.625% due 5/15/10............... 326,625
Resolution Performance Products LLC/RPP Capital Corp.:
400,000 B- Sr. Second Secured Notes, 9.500% due 4/15/10.............. 408,000
175,000 B+ Sr. Secured Notes, 8.000% due 12/15/09 (b)................ 182,000
Rhodia SA:
675,000 B3* Sr. Notes, 7.625% due 6/1/10 (b).......................... 651,375
400,000 CCC+ Sr. Sub. Notes, 8.875% due 6/1/11 (b)..................... 370,000
475,000 BBB- Union Carbide Corp., Debentures, 6.790% due 6/1/25.......... 470,250
50,000 B United Agri Products, Inc., Sr. Notes, 8.250% due 12/15/11
(b)....................................................... 51,625
- --------------------------------------------------------------------------------------------------
6,849,937
- --------------------------------------------------------------------------------------------------
CLECS AND OTHER LOCAL CARRIERS -- 0.2%
150,000 B- Cincinnati Bell Inc., Sr. Sub. Notes, 8.375% due 1/15/14
(b)....................................................... 162,000
- --------------------------------------------------------------------------------------------------
CONVENIENCE AND DRUG RETAILERS -- 0.7%
675,000 B- The Pantry, Inc., Sr. Sub. Notes, 10.250% due 10/15/07...... 702,000
- --------------------------------------------------------------------------------------------------
EMITTING SERVICES MOBILE RADIO AND PERSONAL COMMUNICATIONS SYSTEMS -- 1.9%
549,444 Caa1* Alamosa (Delaware), Inc., Sr. Discount Notes, step bond to
yield
11.482% due 7/31/09....................................... 497,247
300,000 D Horizon PCS, Inc., Sr. Discount Notes, step bond to yield
22.052% due 10/1/10....................................... 67,500
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
EMITTING SERVICES MOBILE RADIO AND PERSONAL COMMUNICATIONS SYSTEMS -- 1.9%
(CONTINUED)
$ 50,000 B+ Nextel Communications, Inc., Sr. Notes, 9.375% due
11/15/09.................................................. $ 54,750
1,225,000 B- Triton PCS, Inc., Sr. Sub. Notes, 8.750% due 11/15/11....... 1,212,750
- --------------------------------------------------------------------------------------------------
1,832,247
- --------------------------------------------------------------------------------------------------
EQUIPMENT RENTAL -- 1.0%
150,000 BB- NationsRent, Inc., Sr. Secured Notes, 9.500% due 10/15/10
(b)....................................................... 162,000
Williams Scotsman, Inc.:
700,000 B Sr. Notes, 9.875% due 6/1/07.............................. 712,250
75,000 B+ Sr. Secured Notes, 10.000% due 8/15/08.................... 82,594
- --------------------------------------------------------------------------------------------------
956,844
- --------------------------------------------------------------------------------------------------
EXPLORATION AND PRODUCTION -- 2.5%
175,000 CCC- Belden & Blake Corp., Sr. Sub. Notes, Series B, 9.875% due
6/15/07................................................... 173,250
875,000 B El Paso Production Holding, Sr. Notes, 7.750% due 6/1/13
(b)....................................................... 866,250
250,000 BB Forest Oil Corp., Sr. Notes, 8.000% due 12/15/11............ 274,375
300,000 BB Pogo Producing Co., Sr. Sub. Notes, Series B, 8.250% due
4/15/11................................................... 336,000
775,000 Ba2* USEC Inc., Sr. Notes, 6.625% due 1/20/06.................... 744,000
- --------------------------------------------------------------------------------------------------
2,393,875
- --------------------------------------------------------------------------------------------------
FABRICATED GLASS, PLASTIC AND FIBER -- 2.3%
Crown Cork & Seal Co. Inc.:
1,075,000 B Debentures, 7.375% due 12/15/26........................... 976,906
75,000 B Notes, 7.000% due 12/15/06................................ 77,063
150,000 B Crown European Holdings SA, Third Priority Sr. Secured
Notes,
10.875% due 3/1/13........................................ 177,187
Owens-Brockway Glass Container, Inc., Sr. Secured Notes:
575,000 BB 8.875% due 2/15/09........................................ 633,219
300,000 BB 7.750% due 5/15/11........................................ 323,625
- --------------------------------------------------------------------------------------------------
2,188,000
- --------------------------------------------------------------------------------------------------
FOOD/BEVERAGE/TOBACCO -- 0.3%
250,000 B Land O'Lakes Inc., Sr. Secured Notes, 9.000% due 12/15/10
(b)....................................................... 253,125
- --------------------------------------------------------------------------------------------------
FOREST - PAPER PRODUCTS -- 4.3%
425,000 D Doman Industries Ltd., Sr. Notes, 12.000% due 7/1/04 (c).... 448,375
750,000 BB+ Fort James Corp., Sr. Notes, 6.875% due 9/15/07............. 795,000
Georgia-Pacific Corp., Sr. Notes:
300,000 BB+ 9.375% due 2/1/13......................................... 346,500
450,000 BB+ 8.875% due 5/15/31........................................ 497,250
350,000 B Smurfit-Stone Container Corp., Sr. Notes, 8.250% due
10/1/12................................................... 381,500
1,625,000 BB Tembec Inc., Sr. Notes, 7.750% due 3/15/12.................. 1,625,000
- --------------------------------------------------------------------------------------------------
4,093,625
- --------------------------------------------------------------------------------------------------
FREIGHT/CONTAINERS/SHIPPING -- 1.0%
275,000 D Atlas Air, Inc., Sr. Notes, 10.750% due 8/1/05 (c).......... 103,125
375,000 B3* Evergreen International Aviation, Inc., Sr. Second Secured
Notes,
12.000% due 5/15/10 (b)................................... 313,594
475,000 B1* TFM, S.A. de C.V., Sr. Notes, 12.500% due 6/15/12........... 543,875
- --------------------------------------------------------------------------------------------------
960,594
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
29
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
GAMING -- 4.4%
$ 675,000 Ba3* Aztar Corp., Sr. Sub. Notes, 8.875% due 5/15/07............. $ 707,906
450,000 B Isle of Capri Casinos, Inc., Sr. Sub. Notes, 8.750% due
4/15/09................................................... 474,750
Park Place Entertainment Corp., Sr. Sub. Notes:
325,000 Ba2* 7.875% due 12/15/05....................................... 348,969
800,000 Ba2* 7.875% due 3/15/10........................................ 890,000
875,000 CCC+ Pinnacle Entertainment, Inc., Sr. Sub. Notes, Series B,
9.250% due 2/15/07........................................ 910,000
550,000 B Resorts International Hotel and Casino, Inc., First Mortgage
Notes,
11.500% due 3/15/09....................................... 600,875
200,000 B+ Sun International Hotels Ltd., Sr. Sub. Notes, 8.875% due
8/15/11................................................... 219,500
- --------------------------------------------------------------------------------------------------
4,152,000
- --------------------------------------------------------------------------------------------------
HEALTHCARE -- 3.9%
450,000 B- Alliance Imaging Inc., Sr. Sub. Notes, 10.375% due
4/15/11................................................... 479,250
HEALTHSOUTH Corp.:
925,000 NR Sr. Notes, 7.625% due 6/1/12.............................. 869,500
250,000 NR Sr. Sub. Notes, 10.750% due 10/1/08....................... 237,500
525,000 B Radiologix, Inc., Notes, Series B, 10.500% due 12/15/08..... 527,625
Tenet Healthcare Corp., Sr. Notes:
250,000 BB- 7.375% due 2/1/13......................................... 252,500
1,425,000 BB- 6.875% due 11/15/31....................................... 1,282,500
- --------------------------------------------------------------------------------------------------
3,648,875
- --------------------------------------------------------------------------------------------------
HOME BUILDERS -- 0.8%
KB HOME, Sr. Sub. Notes:
125,000 Ba2* 8.625% due 12/15/08....................................... 140,625
325,000 Ba2* 9.500% due 2/15/11........................................ 364,000
225,000 B- William Lyon Homes, Sr. Notes, 10.750% due 4/1/13........... 257,062
- --------------------------------------------------------------------------------------------------
761,687
- --------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS -- 1.3%
Calpine Corp.:
600,000 CCC+ Sr. Notes, 8.500% due 2/15/11............................. 477,750
725,000 B Sr. Secured Notes, 8.750% due 7/15/13 (b)................. 710,500
- --------------------------------------------------------------------------------------------------
1,188,250
- --------------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS -- 3.7%
325,000 NR Advance Glassfiber Yarns LLC, Sr. Sub. Notes, 9.875% due
1/15/09 (c)............................................... 16,250
800,000 Ca* BGF Industries, Inc., Sr. Sub. Notes, Series B, 10.250% due
1/15/09................................................... 610,000
735,000 BB- Case Corp., Notes, 7.250% due 1/15/16....................... 749,700
375,000 BB- Case New Holland, Inc., Sr. Notes, 9.250% due 8/1/11 (b).... 421,875
Foamex L.P., Sr. Sub. Notes:
250,000 CCC+ 13.500% due 8/15/05....................................... 242,500
475,000 CCC+ 9.875% due 6/15/07........................................ 380,000
1,150,000 B+ The Goodyear Tire & Rubber Co., Notes, 7.857% due 8/15/11... 1,009,125
100,000 B+ Wolverine Tube, Inc., Sr. Notes, Series B, 10.500% due
4/1/09.................................................... 102,500
- --------------------------------------------------------------------------------------------------
3,531,950
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
30
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
w
LODGING AND LEISURE -- 6.0%
Felcor Lodging LP, Sr. Notes:
$ 400,000 B1* 9.500% due 9/15/08........................................ $ 434,000
200,000 B1* 8.500% due 6/1/11......................................... 218,000
525,000 Ba3* HMH Properties, Inc., Sr. Notes, Series B, 7.875% due
8/1/08.................................................... 548,625
650,000 BB+ ITT Corp., Notes, 6.750% due 11/15/05....................... 685,750
MeriStar Hospitality Corp., Sr. Notes:
125,000 B2* 9.000% due 1/15/08........................................ 131,250
725,000 B2* 9.125% due 1/15/11........................................ 772,125
1,375,000 BB+ Royal Caribbean Cruises Ltd., Sr. Debentures, 7.500% due
10/15/27.................................................. 1,354,375
1,350,000 B- Six Flags Inc., Sr. Notes, 9.750% due 4/15/13............... 1,427,625
100,000 Ba3* Steinway Musical Instruments, Inc., Sr. Notes, 8.750% due
4/15/11................................................... 106,500
- --------------------------------------------------------------------------------------------------
5,678,250
- --------------------------------------------------------------------------------------------------
LONG DISTANCE TELECOMMUNICATIONS -- 1.3%
166,590 Caa1* Calpoint Receivables Structured Trust 2001, Notes, 7.440%
due 12/10/06 (b).......................................... 167,007
Level 3 Communications, Inc.:
175,000 Caa2* Sr. Discount Notes, step bond to yield 13.442% due
3/15/10................................................... 147,437
525,000 Caa2* Sr. Notes, 9.125% due 5/1/08.............................. 480,375
1,275,000 NR WorldCom, Inc. -- WorldCom Group, Notes, 7.500% due 5/15/11
(c)....................................................... 430,313
- --------------------------------------------------------------------------------------------------
1,225,132
- --------------------------------------------------------------------------------------------------
MOTION PICTURE EXHIBITION -- 0.6%
500,000 CCC+ AMC Entertainment Inc., Sr. Sub. Notes, 9.500% due 2/1/11... 527,500
75,000 CCC- Carmike Cinemas, Notes, 10.375% due 2/1/09.................. 79,125
- --------------------------------------------------------------------------------------------------
606,625
- --------------------------------------------------------------------------------------------------
OIL SERVICES -- 1.1%
150,000 BB Pride International, Inc., Sr. Notes, 10.000% due 6/1/09.... 161,625
Tesoro Petroleum Corp.:
125,000 BB Sr. Secured Notes, Series B, 8.000% due 4/15/08........... 133,438
375,000 B Sr. Sub. Notes, 9.625% due 4/1/12......................... 412,500
450,000 Caa1* Trico Marine Services, Sr. Notes, 8.875% due 5/15/12........ 330,750
- --------------------------------------------------------------------------------------------------
1,038,313
- --------------------------------------------------------------------------------------------------
OTHER CONSUMER CYCLICAL -- 0.9%
625,000 Caa2* Home Products International, Inc., Sr. Sub. Notes, 9.625%
due 5/15/08............................................... 409,375
450,000 CCC+ Playtex Products, Inc., Sr. Sub. Notes, 9.375% due 6/1/11... 456,750
- --------------------------------------------------------------------------------------------------
866,125
- --------------------------------------------------------------------------------------------------
OTHER CONSUMER NON-CYCLICAL -- 0.8%
675,000 NR Alderwoods Group, Inc., Sr. Notes, 12.250% due 1/2/09....... 762,750
- --------------------------------------------------------------------------------------------------
PIPELINES -- 2.6%
The Coastal Corp.:
350,000 B- Notes, 7.750% due 6/15/10................................. 332,062
250,000 B- Sr. Debentures, 6.700% due 2/15/27........................ 234,375
50,000 B- Sr. Notes, 6.375% due 2/1/09.............................. 44,875
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
31
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
PIPELINES -- 2.6% (CONTINUED)
$ 1,400,000 B1* Southern Natural Gas Co., Notes, 7.350% due 2/15/31......... $ 1,389,500
375,000 B+ Transcontinental Gas Pipe Line Corp., Sr. Notes, Series B,
8.875% due 7/15/12........................................ 445,313
- --------------------------------------------------------------------------------------------------
2,446,125
- --------------------------------------------------------------------------------------------------
PUBLISHING -- 2.6%
100,000 B American Color Graphics, Inc., Sr. Second Secured Notes,
10.000% due 6/15/10 (b)................................... 103,000
Dex Media, Inc.:
425,000 B Discount Notes, step bond to yield 8.603% due 11/15/13
(b)....................................................... 301,750
225,000 B Notes, 8.000% due 11/15/13 (b)............................ 237,375
700,000 BB- Houghton Mifflin Co., Notes, 7.200% due 3/15/11............. 755,125
125,000 CCC- Penton Media Inc., Sr. Sub. Notes, 10.375% due 6/15/11...... 87,500
900,000 B Primedia, Inc., Sr. Notes, 8.875% due 5/15/11............... 954,000
- --------------------------------------------------------------------------------------------------
2,438,750
- --------------------------------------------------------------------------------------------------
RADIO BROADCASTING -- 1.0%
200,000 BBB- Chancellor Media Corp., Sr. Notes, 8.000% due 11/1/08....... 232,500
675,000 B2* Emmis Communications Corp., Sr. Sub. Notes, Series B,
8.125% due 3/15/09........................................ 711,281
- --------------------------------------------------------------------------------------------------
943,781
- --------------------------------------------------------------------------------------------------
RETAILERS -- 1.3%
380,000 BB+ J.C. Penney Co., Inc., Debentures, 8.125% due 4/1/27........ 414,675
775,000 BB Saks Inc., Notes, 7.500% due 12/1/10........................ 844,750
- --------------------------------------------------------------------------------------------------
1,259,425
- --------------------------------------------------------------------------------------------------
STEEL/METALS/MINING -- 2.9%
1,725,000 B+ AK Steel Corp., Sr. Notes, 7.750% due 6/15/12............... 1,483,500
350,000 BB+ IPSCO Inc., Sr. Notes, 8.750% due 6/1/13.................... 388,500
775,000 BB- U.S. Steel LLC, Sr. Notes, 10.750% due 8/1/08............... 910,625
- --------------------------------------------------------------------------------------------------
2,782,625
- --------------------------------------------------------------------------------------------------
SUPERMARKETS AND DISTRIBUTORS -- 2.7%
725,000 BB- Ahold Finance U.S.A., Inc., Sr. Notes, 6.875% due 5/1/29.... 650,687
425,000 BB+ Delhaize America, Inc., Debentures, 9.000% due 4/15/31...... 518,500
625,000 B The Great Atlantic & Pacific Tea Co., Inc., Sr. Notes,
9.125% due 12/15/11....................................... 575,000
375,000 B Roundy's, Inc., Sr. Sub. Notes, Series B, 8.875% due
6/15/12................................................... 402,188
400,000 B2* Stater Bros. Holdings Inc., Sr. Notes, 10.750% due
8/15/06................................................... 423,500
- --------------------------------------------------------------------------------------------------
2,569,875
- --------------------------------------------------------------------------------------------------
TECHNOLOGY -- 1.4%
1,400,000 B- Lucent Technologies, Inc., Debentures, 6.450% due 3/15/29... 1,107,750
175,000 BBB- Thomas & Betts Corp., Sr. Notes, 7.250% due 6/1/13.......... 181,125
- --------------------------------------------------------------------------------------------------
1,288,875
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - TOWERS -- 0.2%
325,000 B3* American Tower Escrow Corp., Discount Notes, zero coupon
bond to yield
10.265% due 8/1/08........................................ 225,875
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
32
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
TELEVISION BROADCASTING -- 0.3%
$ 250,000 B3* Granite Broadcasting Corp., Sr. Secured Notes, 9.750% due
12/1/10 (b)............................................... $ 250,625
- --------------------------------------------------------------------------------------------------
TEXTILES/APPAREL -- 0.8%
1,050,000 CCC Levi Strauss & Co., Sr. Notes, 12.250% due 12/15/12......... 687,750
125,000 Caa1* Tropical Sportswear International Corp., Sr. Sub. Notes,
Series A,
11.000% due 6/15/08....................................... 101,875
- --------------------------------------------------------------------------------------------------
789,625
- --------------------------------------------------------------------------------------------------
UTILITIES -- 5.2%
Allegheny Energy Supply Co. LLC, Secured Bonds:
158,293 B Series A, 10.250% due 11/15/07 (b)........................ 165,416
16,706 B Series B, 13.000% due 11/15/07 (b)........................ 16,622
100,000 BBB- Consumers Energy Co., First Mortgage Bonds, 7.375% due
9/15/23................................................... 102,526
325,000 B- Dynegy Holdings Inc., Sr. Secured Notes, 10.125% due 7/15/13
(b)....................................................... 375,375
1,100,000 CCC+ NGC Corp., Sr. Debentures, 7.125% due 5/15/18............... 948,750
Northwestern Corp., Notes:
575,000 D 7.875% due 3/15/07 (c).................................... 521,813
250,000 D 8.750% due 3/15/12 (c).................................... 226,875
Reliant Resources Inc., Sr. Secured Notes:
250,000 B1* 9.250% due 7/15/10 (b).................................... 266,250
425,000 B1* 9.500% due 7/15/13 (b).................................... 456,875
275,000 B- Sonat Inc., Notes, 6.625% due 2/1/08........................ 253,688
The Williams Cos., Inc., Notes:
650,000 B+ 6.625% due 11/15/04....................................... 669,500
850,000 B+ 7.125% due 9/1/11......................................... 903,125
- --------------------------------------------------------------------------------------------------
4,906,815
- --------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $74,529,127)....... 81,217,943
- --------------------------------------------------------------------------------------------------
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
COMMON STOCK (d) -- 0.3%
- --------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 0.1%
7,290 Hayes Lemmerz International, Inc. .......................... 132,095
- --------------------------------------------------------------------------------------------------
CABLE -- 0.0%
1,057 Classic Holdco LLC.......................................... 34,500
- --------------------------------------------------------------------------------------------------
CELLULAR -- 0.2%
25,745 Dobson Communications Corp., Class A Shares................. 169,145
- --------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $586,479)....................... 335,740
- --------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 0.7%
- --------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 0.0%
40 Hayes Lemmerz International Operating Co., Series A,
8.000% Cumulative Exchangeable............................ 3,279
- --------------------------------------------------------------------------------------------------
CELLULAR -- 0.1%
400 Dobson Communications Corp., 6.000% Cumulative Exchangeable,
Series F (b).............................................. 72,000
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
33
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
HIGH YIELD BOND TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
EMITTING SERVICES MOBILE RADIO & PERSONAL COMMUNICATIONS SYSTEMS -- 0.2%
534 Alamosa Holdings Inc., 7.500% Cumulative Exchangeable,
Series B.................................................. $ 165,540
- --------------------------------------------------------------------------------------------------
TELEVISION BROADCASTING -- 0.4%
350 Granite Broadcasting Corp., 12.750% Cumulative
Exchangeable.............................................. 224,907
2,035 Paxson Communications Corp., 14.250% Cumulative Jr.
Exchangeable.............................................. 187,763
- --------------------------------------------------------------------------------------------------
412,670
- --------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $972,066).................... 653,489
- --------------------------------------------------------------------------------------------------
<Caption>
WARRANTS SECURITY VALUE
- --------------------------------------------------------------------------------------------------
WARRANTS (d) -- 0.1%
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - TOWERS -- 0.1%
400 American Tower Escrow Corp., Expires 8/1/08 (b)
(Cost -- $173,947)........................................ 50,200
- --------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $76,261,619)................. 82,257,372
- --------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 13.1%
$12,414,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $12,414,552; (Fully collateralized by U.S.
Treasury Bonds, 6.125% due 11/15/27; Market
value -- $12,666,235) (Cost -- $12,414,000)............... 12,414,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $88,675,619**)......... $94,671,372
- --------------------------------------------------------------------------------------------------
</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) Security is currently in default.
(d) Non-income producing security.
** Aggregate cost for Federal income tax purposes is $88,769,276.
Abbreviation used in this schedule:
CLECs -- Common Local Exchange Carriers
See page 39 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
34
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
COMMON STOCK -- 94.8%
- ----------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 1.0%
203,200 Lockheed Martin Corp. ...................................... $ 10,444,480
- ----------------------------------------------------------------------------------------
BANKS -- 6.3%
390,650 Bank of America Corp. ...................................... 31,419,979
529,990 Wells Fargo & Co. .......................................... 31,211,111
- ----------------------------------------------------------------------------------------
62,631,090
- ----------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 5.7%
491,290 Genentech, Inc.+............................................ 45,970,005
156,335 Invitrogen Corp.+........................................... 10,943,450
- ----------------------------------------------------------------------------------------
56,913,455
- ----------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.3%
590,180 Nokia Oyj, Sponsored ADR.................................... 10,033,060
233,220 QUALCOMM Inc. .............................................. 12,577,555
- ----------------------------------------------------------------------------------------
22,610,615
- ----------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 4.2%
1,031,120 Apple Computer, Inc.+....................................... 22,035,034
866,840 NVIDIA Corp.+............................................... 20,154,030
- ----------------------------------------------------------------------------------------
42,189,064
- ----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 7.5%
360,865 The Goldman Sachs Group, Inc. .............................. 35,628,201
1,026,750 SLM Corp. .................................................. 38,687,940
- ----------------------------------------------------------------------------------------
74,316,141
- ----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.5%
400,000 Energizer Holdings, Inc.+................................... 15,024,000
- ----------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS AND SERVICES -- 8.1%
125,745 Anthem, Inc.+............................................... 9,430,875
1,100,920 UnitedHealth Group Inc. .................................... 64,051,526
76,895 WellPoint Health Networks, Inc.+............................ 7,458,046
- ----------------------------------------------------------------------------------------
80,940,447
- ----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS AND LEISURE -- 0.4%
91,990 Outback Steakhouse, Inc. ................................... 4,066,878
- ----------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 1.6%
185,830 3M Co. ..................................................... 15,801,125
- ----------------------------------------------------------------------------------------
INSURANCE -- 1.0%
3,697 Berkshire Hathaway, Inc.+................................... 10,407,055
- ----------------------------------------------------------------------------------------
INTERNET AND CATALOG RETAIL -- 5.5%
425,500 Amazon.com, Inc.+........................................... 22,398,320
497,700 eBay Inc.+.................................................. 32,146,443
- ----------------------------------------------------------------------------------------
54,544,763
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
35
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------
INTERNET SOFTWARE AND SERVICES -- 1.4%
306,260 Yahoo! Inc.+................................................ $ 13,833,764
- ----------------------------------------------------------------------------------------
MEDIA -- 8.5%
754,905 EchoStar Communications Corp., Class A Shares+.............. 25,666,770
1,007,697 Time Warner Inc.+........................................... 18,128,469
1,549,745 XM Satellite Radio Holdings Inc.+........................... 40,851,278
- ----------------------------------------------------------------------------------------
84,646,517
- ----------------------------------------------------------------------------------------
MULTILINE RETAIL -- 3.2%
373,895 Dollar Tree Stores, Inc.+................................... 11,239,284
457,090 Kohl's Corp.+............................................... 20,541,625
- ----------------------------------------------------------------------------------------
31,780,909
- ----------------------------------------------------------------------------------------
OIL AND GAS -- 5.3%
800,500 Murphy Oil Corp. ........................................... 52,280,655
- ----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 2.0%
318,595 Forest Laboratories, Inc., Class A Shares+.................. 19,689,171
- ----------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 8.7%
1,542,985 Applied Materials, Inc.+.................................... 34,640,013
531,450 KLA-Tencor Corp.+........................................... 31,180,171
693,945 Texas Instruments Inc. ..................................... 20,388,104
- ----------------------------------------------------------------------------------------
86,208,288
- ----------------------------------------------------------------------------------------
SOFTWARE -- 9.4%
903,910 Electronic Arts Inc.+....................................... 43,188,820
1,814,875 Microsoft Corp. ............................................ 49,981,657
- ----------------------------------------------------------------------------------------
93,170,477
- ----------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.6%
192,590 Advance Auto Parts+......................................... 15,676,826
- ----------------------------------------------------------------------------------------
TEXTILES AND APPAREL -- 3.9%
569,510 NIKE Inc., Class B Shares................................... 38,988,655
- ----------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 5.7%
1,241,040 Nextel Communications, Inc.+................................ 34,823,582
708,250 Vodafone Group PLC, GBP..................................... 1,751,004
804,640 Vodafone Group PLC, Sponsored ADR........................... 20,148,186
- ----------------------------------------------------------------------------------------
56,722,772
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $779,624,624)................... 942,887,147
- ----------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 0.2%
$ 2,195,000 U.S. Treasury Notes, 1.875% due 9/30/04
(Cost -- $2,200,144)...................................... 2,208,120
- ----------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $781,824,768)................ 945,095,267
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
36
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
CAPITAL APPRECIATION FUND
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.0%
$49,282,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $49,284,190; (Fully collateralized by U.S.
Treasury Bonds, 6.125% due 8/15/29; Market value --
$50,273,402) (Cost -- $49,282,000)........................ $ 49,282,000
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $831,106,768*)......... $994,377,267
- ----------------------------------------------------------------------------------------
</Table>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is $832,941,134.
Abbreviations used in this schedule:
---------------------------------------
ADR -- American Depositary Receipt
GBP -- British Pound
SEE NOTES TO FINANCIAL STATEMENTS.
37
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
MONEY MARKET PORTFOLIO
<Table>
<Caption>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY INSTRUMENTALITIES -- 4.3%
$15,000,000 Federal Home Loan Mortgage Corp. matures 1/27/04
(Cost -- $14,989,058)....................................... 1.03% $ 14,989,058
- --------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 95.7%
17,600,000 Aegon Funding Corp. matures 1/13/04......................... 1.11 17,593,605
15,500,000 Alpine Securitization Corp. matures 1/16/04................. 1.10 15,493,025
15,950,000 American Express Credit Corp. matures 2/5/04................ 1.07 15,933,718
17,400,000 American General Financial Corp. matures 1/29/04............ 1.07 17,385,790
17,000,000 American Honda Finance Corp. mature 1/8/04 to 8/4/04........ 1.04 to 1.14 16,997,620
16,000,000 Beethoven Funding Corp. matures 1/27/04..................... 1.16 15,986,827
15,400,000 CIT Cap Corp. mature 2/6/04 to 12/1/04...................... 1.11 to 1.28 15,388,664
16,100,000 Coca-Cola Co. matures 1/30/04............................... 1.12 16,085,734
15,950,000 General Electric Capital Corp. matures 1/28/04.............. 1.10 15,937,080
15,983,000 Household Financial Corp. matures 1/22/04................... 1.10 15,972,931
17,400,000 Knight Ridder Inc. matures 1/7/04........................... 1.05 17,397,013
15,900,000 Morgan Stanley Dean Witter matures 1/23/04.................. 1.10 15,889,506
17,000,000 Nestle Capital Corp. matures 2/3/04......................... 1.06 16,983,793
16,000,000 Norddeutsche Landesbank matures 1/21/04..................... 1.12 15,990,267
17,000,000 Nordea North America Inc. matures 1/15/04................... 1.11 16,992,794
16,000,000 Prudential Funding Corp. matures 1/10/04.................... 1.07 15,981,333
17,700,000 State Street Bank & Trust Co. matures 1/14/04............... 1.08 17,700,000
15,363,000 UBS Finance Inc. mature 1/2/04 to 1/5/04.................... 0.97 to 1.00 15,362,017
18,300,000 Victory Receivable Corp. matures 1/12/04.................... 1.14 18,293,737
17,400,000 Wells Fargo Bank San Francisco CA matures 1/20/04........... 1.06 17,400,000
- --------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -- $330,765,454)............... 330,765,454
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $345,754,512*)......... $345,754,512
- --------------------------------------------------------------------------------------------------------
</Table>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
38
- --------------------------------------------------------------------------------
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 a 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 differs 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 it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Bonds rated "BBB" have an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in
this category than for bonds in higher rated categories.
BB, B -- Bonds rated "BB", "B", "CCC" and "CC" are regarded, on
CCC and balance, as predominantly speculative with respect to
CC capacity to pay interest and repay principal in accordance
with the terms of the obligation. "BB" represents the lowest
degree of speculation 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 income 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" are judged to have 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 to be medium grade
obligations; that is, they are neither highly protected nor
poorly secured. Interest payment 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. These bonds lack
outstanding investment characteristics and may 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 thereby 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 payments 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 -- Bonds rated "Ca" are speculative in a high degree. Such
issues are often in default or have other marked
shortcomings.
C -- Bonds rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</Table>
39
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2003
<Table>
<Caption>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost........................... $261,509,017 $76,261,619 $ 781,824,768 --
Short-term investments, at cost................ 4,319,054 12,414,000 49,282,000 $345,754,512
Foreign currency, at cost...................... 9 -- -- --
- -------------------------------------------------------------------------------------------------------------
Investments, at value.......................... $284,663,388 $82,257,372 $ 945,095,267 --
Short-term investments, at value............... 4,319,121 12,414,000 49,282,000 $345,754,512
Foreign currency, at value..................... 11 -- -- --
Cash........................................... 939 790 284 1,130
Dividends and interest receivable.............. 1,232,401 1,537,636 267,943 67,260
Receivable for securities sold................. 350,538 14,142 -- --
Receivable for Fund shares sold................ -- 15,852 -- 281,528
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................... 290,566,398 96,239,792 994,645,494 346,104,430
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares reacquired............. 507,632 104,194 3,456,644 33,666
Investment advisory fees payable............... 120,230 33,376 610,782 89,047
Administration fees payable.................... 14,460 4,367 48,386 17,575
Payable for securities purchased............... -- 212,350 4,687,420 --
Dividends payable.............................. -- -- -- 82,854
Accrued expenses............................... 49,776 33,175 100,223 55,936
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.............................. 692,098 387,462 8,903,455 279,078
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $289,874,300 $95,852,330 $ 985,742,039 $345,825,352
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital................................ $274,426,824 $90,046,110 $1,204,496,910 $345,825,208
Undistributed net investment income............ 151,483 53,663 -- 7,965
Accumulated net realized loss from investment
transactions and futures contracts.......... (7,858,447) (243,196) (382,025,881) (7,821)
Net unrealized appreciation of investments and
foreign currencies.......................... 23,154,440 5,995,753 163,271,010 --
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................. $289,874,300 $95,852,330 $ 985,742,039 $345,825,352
- -------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING............................... 18,436,722 9,819,304 17,790,470 345,825,208
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE....................... $15.72 $9.76 $55.41 $1.00
- -------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
40
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest........................................... $ 5,255,171 $ 6,913,216 $ 1,351,693 $4,573,178
Dividends.......................................... 3,256,529 13,787 7,376,753 --
Less: Foreign withholding tax...................... (1,092) -- (82,945) --
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................ 8,510,608 6,927,003 8,645,501 4,573,178
- ------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3).................. 1,315,694 360,258 6,734,977 1,247,941
Administration fees (Note 3)....................... 157,883 46,539 538,798 231,601
Audit and legal.................................... 32,451 29,034 9,482 27,375
Custody............................................ 25,571 44,909 12,310 33,690
Shareholder communications......................... 17,273 7,079 46,945 50,852
Shareholder servicing fees......................... 5,002 4,994 5,000 5,000
Trustees' fees..................................... 4,884 6,154 4,000 4,380
Registration fees.................................. -- -- -- 2,900
Other.............................................. 2,006 3,998 2,000 3,581
- ------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES..................................... 1,560,764 502,965 7,353,512 1,607,320
Less: Expense reimbursement (Note 3)............... -- -- -- (63,316)
- ------------------------------------------------------------------------------------------------------------
NET EXPENSES....................................... 1,560,764 502,965 7,353,512 1,544,004
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................ 6,949,844 6,424,038 1,291,989 3,029,174
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES (NOTES 4, 6 AND 7):
Realized Gain (Loss) From:
Investment transactions......................... 364,494 4,327,306 (93,618,396) (146)
Futures contracts............................... 1,719,070 -- -- --
Foreign currency transactions................... -- -- (902,350) --
- ------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)........................... 2,083,564 4,327,306 (94,520,746) (146)
- ------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation From:
Investments..................................... 43,602,644 8,815,307 297,278,645 --
Foreign currencies.............................. 46,059 -- 356,599 --
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION............ 43,648,703 8,815,307 297,635,244 --
- ------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCIES............................. 45,732,267 13,142,613 203,114,498 (146)
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS............... $52,682,111 $19,566,651 $204,406,487 $3,029,028
- ------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
41
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
MANAGED ASSETS TRUST 2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 6,949,844 $ 7,777,250
Net realized gain (loss).................................. 2,083,564 (9,479,626)
Increase (decrease) in net unrealized appreciation........ 43,648,703 (24,694,612)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 52,682,111 (26,396,988)
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income..................................... (6,863,313) (17,095,483)
Net realized gains........................................ -- (1,692,616)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (6,863,313) (18,788,099)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.......................... 9,228,282 5,690,077
Net asset value of shares issued for reinvestment of
dividends.............................................. 6,863,313 18,788,099
Cost of shares reacquired................................. (22,946,314) (35,902,871)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (6,854,719) (11,424,695)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... 38,964,079 (56,609,782)
NET ASSETS:
Beginning of year......................................... 250,910,221 307,520,003
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $289,874,300 $250,910,221
- ------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $151,483 $144,147
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
42
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
HIGH YIELD BOND TRUST 2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 6,424,038 $ 5,045,971
Net realized gain (loss).................................. 4,327,306 (691,927)
Increase (decrease) in net unrealized appreciation........ 8,815,307 (1,958,851)
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 19,566,651 2,395,193
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income..................................... (6,515,534) (8,752,260)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (6,515,534) (8,752,260)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.......................... 27,613,135 24,795,881
Net asset value of shares issued for reinvestment of
dividends.............................................. 6,515,534 8,752,260
Cost of shares reacquired................................. (12,145,093) (16,389,171)
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 21,983,576 17,158,970
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 35,034,693 10,801,903
NET ASSETS:
Beginning of year......................................... 60,817,637 50,015,734
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $ 95,852,330 $ 60,817,637
- ------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $53,663 $150,365
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
43
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
CAPITAL APPRECIATION FUND 2003 2002
- ---------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 1,291,989 $ 2,873,120
Net realized loss......................................... (94,520,746) (94,939,657)
Increase (decrease) in net unrealized appreciation........ 297,635,244 (223,318,883)
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 204,406,487 (315,385,420)
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income..................................... (389,109) (16,146,199)
Capital................................................... (64,253) (124,893)
- ---------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (453,362) (16,271,092)
- ---------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.......................... 14,007,803 62,309,750
Net asset value of shares issued for reinvestment of
dividends.............................................. 453,362 16,271,092
Cost of shares reacquired................................. (97,001,290) (182,668,729)
- ---------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (82,540,125) (104,087,887)
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... 121,413,000 (435,744,399)
NET ASSETS:
Beginning of year......................................... 864,329,039 1,300,073,438
- ---------------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $985,742,039 $ 864,329,039
- ---------------------------------------------------------------------------------------------------
* Includes overdistributed net investment income of:........ -- $(530)
- ---------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
44
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
MONEY MARKET PORTFOLIO 2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 3,029,174 $ 5,440,330
Net realized loss......................................... (146) (7,675)
- ----------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 3,029,028 5,432,655
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income..................................... (3,028,884) (5,432,655)
- ----------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (3,028,884) (5,432,655)
- ----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares.......................... 265,892,702 1,270,701,166
Net asset value of shares issued for reinvestment of
dividends.............................................. 3,072,564 5,477,804
Cost of shares reacquired................................. (316,384,220) (1,236,204,304)
- ----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... (47,418,954) 39,974,666
- ----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... (47,418,810) 39,974,666
NET ASSETS:
Beginning of year......................................... 393,244,162 353,269,496
- ----------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $ 345,825,352 $ 393,244,162
- ----------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $7,965 $7,675
- ----------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
45
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT"), Capital
Appreciation Fund ("CAF") and Money Market Portfolio ("MMP") (collectively,
"Fund(s)") are each a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as diversified, open-end management
investment companies. Shares of the Funds 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 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 prices on such markets;
securities for which no sales price were reported and U.S. government and agency
obligations are valued 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; (c) securities for which market quotations are not
available will be valued in good faith at fair value by or under the direction
of the Board of Trustees; (d) securities maturing within 60 days are valued at
cost plus accreted discount, or minus amortized premium, which approximates
value; (e) securities, other than U.S. government agencies and obligations, 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 the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (g) gains or losses on the sale of
securities are calculated by using the specific identification method; (h)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (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 on the date of valuation. Purchases and sales of securities and
income and expenses are translated at the rate of exchange quoted on the
respective date that such transactions are recorded. Differences between income
and expense amounts recorded and collected or paid are adjusted when reported by
the custodian; (j) the character of income and 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 capital accounts of MAT
and HYBT to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment income,
net realized gains and net assets were not affected by these changes; (k) the
Funds intend to comply with the applicable provisions of the Internal Revenue
Code of 1986, as amended, pertaining to regulated investment companies and to
make distributions of taxable income sufficient to relieve it from substantially
all Federal income and excise taxes; 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.
HYBT 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. HYBT's investment in securities rated below
investment-grade typically involve 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.
In addition, HYBT and CAF may 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 forward 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. DIVIDENDS
MMP declares and records a dividend of substantially all of its net
investment income on each business day. Such dividends are paid or reinvested on
the payable date.
In addition, MAT, HYBT and CAF distribute dividends and capital gains, if
any, at least annually.
46
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. 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 MAT, HYBT, CAF and MMP. MAT, CAF and MMP pay TAMIC an investment
advisory fee calculated at the annual rate of 0.50%, 0.75% and 0.3233%,
respectively, of their average daily net assets. HYBT pays TAMIC an investment
advisory fee calculated at an annual rate of 0.50% on the first $50 million,
0.40% on the next $100 million, 0.30% on the next $100 million and 0.25% on the
amount over $250 million of the average daily net assets of HYBT. These fees are
calculated daily and paid monthly.
TAMIC has a sub-advisory agreement with The Travelers Investment Management
Company ("TIMCO"), another indirect wholly-owned subsidiary of Citigroup.
Pursuant to the sub-advisory agreement, TIMCO is responsible for the day-to-day
portfolio operations and investment decisions for the equity portion of MAT. As
a result, TAMIC pays TIMCO, as sub-adviser, 0.25% of the average daily net
assets of MAT.
TAMIC also has a sub-advisory agreement with Janus Capital Management LLC
("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the
day-to-day portfolio operations and investment decisions for CAF. As a result,
TAMIC pays Janus an advisory fee calculated at an annual rate of 0.55% on the
first $100 million, 0.50% on the next $400 million and 0.45% on the amount over
$500 million of the average daily net assets of CAF.
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 the average daily
net assets of each respective Fund. This fee is calculated daily and paid
monthly. TIC has entered into a sub-administrative services 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 average daily net assets.
During the year ended December 31, 2003, MMP had a voluntary expense
limitation in place of 0.40% of the average daily net assets of MMP, resulting
in an expense reimbursement of $63,316. This expense limitation can be
terminated at any time by TIC.
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, and its affiliates did not receive any brokerage
commissions from the Funds.
One Trustee and all officers of the Funds are employees of Citigroup or its
affiliates.
4. 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 and proceeds from paydowns)
were as follows:
<Table>
<Caption>
MAT HYBT CAF
- -------------------------------------------------------------------------------------------------------
Purchases................................................... $218,524,277 $65,097,861 $471,390,239
- -------------------------------------------------------------------------------------------------------
Sales....................................................... 223,914,499 54,651,021 464,115,384
- -------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
<Table>
<Caption>
MAT HYBT CAF
- ------------------------------------------------------------------------------------------------------
Gross unrealized appreciation............................... $31,849,484 $ 7,837,750 $199,217,428
Gross unrealized depreciation............................... (9,934,886) (1,935,654) (37,781,295)
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation................................. $21,914,598 $ 5,902,096 $161,436,133
- ------------------------------------------------------------------------------------------------------
</Table>
47
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. 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, MMP did not have any repurchase agreements
outstanding.
6. FUTURES CONTRACTS
The Funds 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 portions 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, the Funds did not have any open futures contracts.
7. FORWARD FOREIGN CURRENCY CONTRACTS
HYBT and CAF may 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 Fund bears 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.
At December 31, 2003, HYBT and CAF did not have any open forward foreign
currency contracts.
8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in GNMA/FNMA transactions. Securities purchased on
a TBA basis normally settle 15 to 45 days after the trade date. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
At December 31, 2003, the Funds did not hold any TBA securities.
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
- ---------------------------------------------------------------------------------------------------
MANAGED ASSETS TRUST
Shares sold................................................. 620,844 386,025
Shares issued on reinvestment............................... 437,644 1,397,610
Shares reacquired........................................... (1,625,662) (2,559,554)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (567,174) (775,919)
- ---------------------------------------------------------------------------------------------------
</Table>
48
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
- ---------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
Shares sold................................................. 2,977,348 2,743,180
Shares issued on reinvestment............................... 668,649 1,061,672
Shares reacquired........................................... (1,324,438) (1,842,703)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 2,321,559 1,962,149
- ---------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
Shares sold................................................. 308,890 1,162,480
Shares issued on reinvestment............................... 8,160 351,774
Shares reacquired........................................... (2,001,426) (3,599,104)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (1,684,376) (2,084,850)
- ---------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Shares sold................................................. 265,892,702 1,270,701,166
Shares issued on reinvestment............................... 3,072,564 5,477,804
Shares reacquired........................................... (316,384,220) (1,236,204,304)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (47,418,954) 39,974,666
- ---------------------------------------------------------------------------------------------------
</Table>
10. CAPITAL LOSS CARRYFORWARD
At December 31, 2003, MAT, CAF and MMP had, for Federal income tax
purposes, approximately $6,609,000, $372,516,000 and $8,000, respectively, of
unused capital loss carryforwards available to offset future capital gains. To
the extent that these carryforward losses are used to offset capital gains, it
is probable that the gains so offset will not be distributed.
The amount and year of expiration for each carryforward loss is indicated
below. Expiration occurs on December 31 of the year indicated:
<Table>
<Caption>
2008 2009 2010 2011
- ---------------------------------------------------------------------------------------------------------
Managed Assets Trust........................... -- -- $ 6,609,000 --
Capital Appreciation Fund...................... $41,615,000 $151,853,000 74,123,000 $104,925,000
Money Market Portfolio......................... -- -- 8,000 --
- ---------------------------------------------------------------------------------------------------------
</Table>
In addition, CAF had $7,675,176 of capital losses realized after October
31, 2003, which were deferred for tax purposes to the first day of the following
fiscal year.
11. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
At December 31, 2003, the tax basis components of distributable earnings
were:
<Table>
<Caption>
MAT HYBT CAF MMP
- ----------------------------------------------------------------------------------------------------------
Undistributed ordinary income.................... $ 142,183 $ 53,663 -- $ 13,904
- ----------------------------------------------------------------------------------------------------------
Accumulated capital gains (losses)............... (6,609,307) 65,843 $(372,516,339) (7,821)
- ----------------------------------------------------------------------------------------------------------
Unrealized appreciation.......................... 21,914,600 5,902,096 161,436,644 --
- ----------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2003, the difference between book basis and tax basis
unrealized appreciation and depreciation was attributable primarily to wash sale
loss deferrals.
49
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax character of distributions paid during the year ended December 31,
2003 was:
<Table>
<Caption>
MAT HYBT CAF MMP
- ----------------------------------------------------------------------------------------------------------
Ordinary income.................................. $ 6,863,313 $ 6,515,534 $ 389,109 $3,028,884
Capital.......................................... -- -- 64,253 --
- ----------------------------------------------------------------------------------------------------------
Total............................................ $ 6,863,313 $ 6,515,534 $ 453,362 $3,028,884
- ----------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2002, the tax basis components of distributable earnings
were:
<Table>
<Caption>
MAT HYBT CAF MMP
- ----------------------------------------------------------------------------------------------------------
Undistributed ordinary income.................... $ 123,509 $ 150,365 -- $ 13,614
- ----------------------------------------------------------------------------------------------------------
Accumulated capital losses....................... (9,305,019) (4,132,529) $(267,591,724) (7,675)
- ----------------------------------------------------------------------------------------------------------
Unrealized depreciation.......................... (20,792,163) (3,047,351) (137,842,146) --
- ----------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2002, the difference between book basis and tax basis of
unrealized appreciation and 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>
MAT HYBT CAF MMP
- ----------------------------------------------------------------------------------------------------------
Ordinary income.................................. $ 17,095,483 $ 8,752,260 $ 16,146,199 $5,432,655
Long-term capital gains.......................... 1,692,616 -- -- --
Capital.......................................... -- -- 124,893 --
- ----------------------------------------------------------------------------------------------------------
Total............................................ $ 18,788,099 $ 8,752,260 $ 16,271,092 $5,432,655
- ----------------------------------------------------------------------------------------------------------
</Table>
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.
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.
50
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
MANAGED ASSETS TRUST 2003 2002 2001()(1) 2000()(1) 1999
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............... $13.20 $15.55 $17.94 $21.12 $19.99
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.......................... 0.39 0.45 0.49 0.48 0.39
Net realized and unrealized gain (loss)........ 2.51 (1.79) (1.40) (0.71) 2.30
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.............. 2.90 (1.34) (0.91) (0.23) 2.69
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.38) (0.92) (0.46) (0.41) (0.39)
Net realized gains(2).......................... -- (0.09) (1.02) (2.54) (1.17)
- ------------------------------------------------------------------------------------------------------------
Total Distributions.............................. (0.38) (1.01) (1.48) (2.95) (1.56)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $15.72 $13.20 $15.55 $17.94 $21.12
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3).................................. 21.98% (8.60)% (5.08)% (1.62)% 14.22%
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................... $289,874 $250,910 $307,520 $342,834 $339,438
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................... 0.59% 0.61% 0.59% 0.59% 0.60%
Net investment income.......................... 2.64 2.80 2.95 2.47 2.17
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 84% 39% 59% 56% 51%
- ------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
HIGH YIELD BOND TRUST 2003()(1) 2002()(1) 2001()(1) 2000()(1) 1999
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............... $8.11 $9.04 $8.77 $9.47 $9.85
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.......................... 0.77 0.78 0.80 0.79 0.81
Net realized and unrealized gain (loss)........ 1.59 (0.40) 0.04 (0.70) (0.38)
- ----------------------------------------------------------------------------------------------------------------
Total Income From Operations..................... 2.36 0.38 0.84 0.09 0.43
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.71) (1.31) (0.57) (0.79) (0.81)
- ----------------------------------------------------------------------------------------------------------------
Total Distributions.............................. (0.71) (1.31) (0.57) (0.79) (0.81)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $9.76 $8.11 $9.04 $8.77 $9.47
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3).................................. 29.15% 4.57% 9.55% 0.97% 4.42%
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................... $95,852 $60,818 $50,016 $34,678 $30,317
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................... 0.65% 0.71% 0.73% 0.83% 0.81%
Net investment income.......................... 8.28 8.81 8.79 8.74 8.85
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 80% 100% 110% 80% 112%
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains.
(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.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
51
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
CAPITAL APPRECIATION FUND 2003(1) 2002(1) 2001(1) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $44.38 $60.30 $82.01 $108.80 $ 72.74
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................ 0.07 0.14 0.61 0.29 0.04
Net realized and unrealized gain (loss)...... 10.99 (15.24) (22.01) (23.29) 38.08
- -------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............ 11.06 (15.10) (21.40) (23.00) 38.12
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income........................ (0.03) (0.81) (0.31) (0.04) (0.07)
Net realized gains(2)........................ -- -- -- (3.75) (1.99)
Capital...................................... (0.00)* (0.01) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions............................ (0.03) (0.82) (0.31) (3.79) (2.06)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $55.41 $44.38 $60.30 $ 82.01 $108.80
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 24.91% (25.09)% (26.09)% (21.88)% 53.52%
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)............. $986 $864 $1,300 $1,797 $1,915
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................. 0.82% 0.84% 0.84% 0.83% 0.83%
Net investment income........................ 0.14 0.27 0.91 0.30 0.07
- -------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 59% 52% 47% 30% 37%
- -------------------------------------------------------------------------------------------------------------------------
<Caption>
MONEY MARKET PORTFOLIO 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
Net investment income(5)....................... 0.008 0.014 0.036 0.060 0.049
Distributions from net investment income....... (0.008) (0.014) (0.036) (0.060) (0.049)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)(6)............................. 0.78% 1.39% 3.71% 6.18% 4.96%
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................. $345,825 $393,244 $353,269 $147,117 $119,970
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(5)(7)............................... 0.40% 0.40% 0.40% 0.40% 0.37%
Net investment income........................ 0.78 1.38 3.46 6.04 4.96
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains.
(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.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
(5) The Travelers Insurance Company has reimbursed Money Market Portfolio for
$63,316, $71,805, $44,028, $47,023 and $85,612 in expenses for the years
ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively. If such
expenses were not reimbursed, the per share decreases to net investment
income and the actual expense ratios would have been:
<Table>
<Caption>
DECREASES TO EXPENSE RATIO
NET INVESTMENT INCOME WITHOUT REIMBURSEMENTS
------------------------------------------------------ -----------------
2003 2002 2001 2000 1999 2003 2002
------ ------ ------ ------ ------ ------ -----
MMP $0.000** $0.000** $0.000** $0.000** $0.001 0.42% 0.42%
<Caption>
EXPENSE RATIO
WITHOUT REIMBURSEMENTS
---------------------------
2001 2000 1999
----- ----- -----
MMP 0.42% 0.44% 0.50%
</Table>
(6) 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.
(7) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.40%.
* Amount represents less than $0.01 per share.
** Amount represents less than $0.001 per share.
52
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND AND MONEY
MARKET PORTFOLIO:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Managed Assets Trust, High Yield Bond Trust,
Capital Appreciation Fund and Money Market Portfolio ("Funds") 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 Funds' 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 broker. 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 positions 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 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
53
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Funds hereby designate for the fiscal year ended
December 31, 2003:
- For corporate shareholders, the percentages of ordinary dividends that
qualify for the dividends received deduction are:
<Table>
Managed Assets Trust........................................ 40.99%
Capital Appreciation Fund................................... 100.00%
</Table>
The following percentages of ordinary dividends paid from net investment income
are derived from Federal obligations and may be exempt from taxation at the
state level:
<Table>
Managed Assets Trust........................................ 14.91%
Capital Appreciation Fund................................... 0.53
Money Market Portfolio...................................... 2.84
</Table>
54
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
U.S. GOVERNMENT SECURITIES PORTFOLIO
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 2.75%. In
comparison, the fund outperformed its unmanaged benchmark, the Merrill Lynch
U.S. Treasury/Agency Master Index,(i) which returned 2.36% for the same period.
The fund also outperformed its Lipper general U.S. Government variable funds
average, which was 2.33% for the same period.(1)
MARKET OVERVIEW
When the period began, concerns about a faltering economy and stock market
volatility, coupled with expectations that interest rates would drop, triggered
investor demand for higher-rated fixed-income securities. Because bond prices
typically move opposite to interest rate movements, many longer-term
fixed-income securities appreciated over the first five months of the period.
The Fed proceeded to reduce its interest rate targets in June to their lowest
levels since the Eisenhower Administration. Shortly after the Fed's rate
reduction, signs suggesting that gross domestic product ("GDP")(ii) growth was
stronger than expected generated concerns that inflation could pick up. This led
investors to question whether the Fed's rate-cutting cycle had run its course,
which contributed to a decline in prices of bonds. The decline was exacerbated
due to selling from investors holding mortgage-backed securities ("MBS") in
their portfolios. Many institutional investors who had previously bought U.S.
Treasuries when long-term yields were dropping to help hedge their portfolios'
exposure to MBS sold Treasuries as long-term rates rose to help lower their
portfolios' duration, a common gauge of the price sensitivity of a fixed income
asset or portfolio to a change in interest rates, to better preserve their value
against a further rise in long-term rates.
Prices of Treasuries bounced back to an extent in September. Rate concerns
resurfaced after the Commerce Department released preliminary third-quarter data
stating that the economy grew at its fastest pace in almost 20 years. According
to estimates that were revised higher later in the quarter, real GDP increased
8.2% over the quarter.(iii) However, selling in the Treasury markets was more
contained than it was in July as some of this growth was attributable to
one-time factors, such as the tax cuts and end of major combat in Iraq, and many
analysts and investors felt that the Fed appeared to be in a holding pattern
from adjusting its rate targets.
In this environment we reduced the fund's duration by trading in its longer-term
U.S. Treasury and Collateralized Mortgage Obligations for those with shorter
maturities. This allowed us to benefit from the decline in fixed income
volatility and the reduction of short-term interest rates.
Thank you for your investment in the U.S. Government Securities Portfolio. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Gene Collins
Gene Collins
Travelers Asset Management International Company LLC
January 26, 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 63 through 64 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 51 funds in the Lipper general U.S. Government variable funds
category including the reinvestment of dividends and capital gains, if any.
(i) The Merrill Lynch U.S. Treasury/Agency Master Index is an index comprised
of U.S. Treasury and Agency securities.
(ii) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
(iii) Source: Bureau of Economic Analysis
55
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/03
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended
12/31/03 2.75%
Five Years Ended 12/31/03 6.27
Ten Years Ended 12/31/03 7.20
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
12/31/93 through 12/31/03 100.33%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1993, assuming reinvestment of dividends, through
December 31, 2003. The Consumer Price Index is a measure of the
average change in prices over time in a fixed market basket of
goods and services. The Merrill Lynch U.S. Treasury/Agency Master
Index (also known as the U.S. Government Index) tracks the
performance of the combined U.S. Treasury and U.S. Agency markets.
The Merrill Lynch U.S. Treasuries 15+ Years Index tracks the
performance of the direct Sovereign debt of the U.S. Government. It
includes all U.S. dollar-denominated U.S. Treasury Notes and Bonds
having at least 15 years remaining term to maturity and a minimum
amount outstanding of $1 billion. The Merrill Lynch Mortgage Master
Index (also called the Mortgage Backed Securities Index) tracks the
performance of the U.S. dollar-denominated 30-year, 15-year and
balloon pass-through mortgage securities having at least $150
million outstanding per generic production year (defined as the
aggregation of all mortgage pools having a common issuer, type,
coupon and production year.)
(LINE GRAPH)
<Table>
<Caption>
50% MERRILL LYNCH
U.S. TREASURIES 15+
MERRILL LYNCH U.S. YEARS INDEX AND 50%
U.S. GOVERNMENT TREASURY/AGENCY MORTGAGE MASTER
SECURITIES PORTFOLIO CONSUMER PRICE INDEX MASTER INDEX INDEX
-------------------- -------------------- ------------------ -------------------
12/93 10000.00 10000.00 10000.00 10000.00
12/94 9436.00 10268.00 9677.00 8815.00
12/95 11740.00 10529.00 11449.00 10950.00
12/96 11911.00 10878.00 11765.00 11181.00
12/97 13414.00 11062.00 12895.00 12562.00
12/98 14783.00 11240.00 14164.00 13879.00
12/99 14157.00 11575.00 13866.00 13349.00
12/00 16215.00 11968.00 15683.00 15504.00
12/01 17159.00 12433.00 16809.00 16426.00
12/02 19497.00 12729.00 18703.00 18605.00
12/03 20033.00 12968.00 19145.00 19118.00
</Table>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data
represents past performance including the investment return and principal value
of an investment, which 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.
56
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
SOCIAL AWARENESS STOCK PORTFOLIO
PERFORMANCE UPDATE
During its fiscal year ended December 31, 2003, the fund returned 28.85%. In
comparison, the fund outperformed its benchmark, the unmanaged S&P 500 Index,(i)
which returned 28.67% for the same period. The fund underperformed its Lipper
specialty/miscellaneous variable funds average, which was 40.40% for the same
period.(1)
MARKET OVERVIEW
This year has been one where lower quality, low-priced, high volatility stocks
outperformed companies with good balance sheets, sound business plans and
favorable long-term outlooks.
Early this year, the economy did not show any clear signs of improvement and the
stock market tested multi-year lows. Aggressive monetary and fiscal policies
finally manifested themselves in the third quarter with the best domestic
economic growth the U.S. had seen in almost two decades. Corporate expenses were
cautiously controlled during the economic downturn, which allowed for dramatic
operating leverage as modest revenue increases started to translate into
positive earnings surprises in the second and third quarters. This was the
backdrop for the dramatic bounce in the equity markets since the end of the
first quarter. Many of the biggest gainers were single-digit stocks that had
been oversold and were the worst performers over the previous three years.
FUND PERFORMANCE
Not surprisingly, the largest contributors to the fund's performance came from
the technology sector. The biggest contributor to performance for the period was
the fund's position in Intel Corporation. Intel is the largest semiconductor
manufacturer in the world and was a big beneficiary in the recovery in demand
for semiconductors used in personal computers, laptops and corporate network
servers. The company has been reaping the benefit of significant investments
made in research and development and manufacturing over the last several years.
The other two top contributors were EMC Corporation and Cisco Systems, Inc.
Cisco manufactures and sells networking and communications products worldwide.
Cisco benefited from market share gains in the network router and switch
segments, growth of emerging technologies such as VOIP (Voice Over Internet
Protocol) telephony and a general improvement in the business environment. EMC
manufactures and sells a wide range of network storage platforms, software and
services. During 2003, they benefited from market share gains in the high-end
storage market, resurgence in mid-range storage devices driven by EMC's
relationship with Dell and a general pickup in business spending as well.
On the negative side, the largest single detractor from fund performance during
the period was Kraft Foods Inc in the consumer staples sector. The company's
stock suffered during the period in part because of investor concerns over ties
to its parent company, Altria Group, Inc. (formerly Phillip Morris), and its
exposure to ongoing tobacco litigation issues and a decline in the company's
long-term growth expectations. The fund no longer holds Kraft.
HCA Inc. in the Health Care sector was the second largest detractor from fund
performance during the period. HCA suffered a considerable drop in share price,
falling from a five-year high of $52.05 per share in June of 2002 (before the
start of the period) to a low of $27.30 per share on April 16, 2003. The company
has been the focus of a number of government investigations as well as civil and
criminal suits brought against it, alleging fraud and accounting irregularities.
The third biggest detractor from fund performance in 2003 was Hartford Financial
Services Group, Inc. ("HIG") in the financial services sector. HIG provides
multiple lines of insurance coverage and financial services. The insurance
industry was hit hard by losses related to terrorism in 2001 and by the stock
market's difficulties in much of 2002. The fund no longer holds HIG.
(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 130 funds in the Lipper specialty/miscellaneous variable funds
category including the reinvestment of dividends and capital gains, if any.
57
In summary, our core philosophy continues to be based on investing in leading
companies across a broad cross-section of sectors and industries. Our selection
process focuses on companies that we perceive to have significant advantages and
excellent competitive market positions. With interest rates at relatively low
historical levels, we believe that well-positioned and conservatively-financed
companies could once again sell at a premium to the overall market, offering a
relatively compelling investment opportunity as part of a diversified portfolio.
Thank you for your investment in the Social Awareness Stock Portfolio. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Bill Theriault
Bill Theriault, CFA
Portfolio Manager
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: Intel
Corp. (3.07%), Microsoft Corp. (3.07%), Pfizer, Inc. (2.88%), American
International Group, Inc. (2.48%), Viacom, Inc. (2.14%), Cisco Systems, Inc.
(2.06%), American Express Co. (1.99%), Ambac Financial Group, Inc. (1.92%),
Alcoa, Inc. (1.91%), Bank of New York, Inc. (1.87%). Please refer to pages 65
through 69 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 Index is a market capitalization-weighted index of 500 widely
held common stocks.
58
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 12/31/03
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended
12/31/03 28.85%
Five Years Ended 12/31/03 (1.20)
Ten Years Ended 12/31/03 9.45
CUMULATIVE TOTAL RETURN
------------------------
12/31/93 through 12/31/03 146.79%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1993, assuming reinvestment of dividends, through
December 31, 2003. 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 the over-the-counter markets.
The Consumer Price Index is a measure of the average change in
prices over time in a fixed market basket of goods and services.
[LINE GRAPH]
<Table>
<Caption>
SOCIAL AWARENESS STOCK
PORTFOLIO S&P 500 INDEX CONSUMER PRICE INDEX
---------------------- ------------- --------------------
12/93 10000 10000 10000
12/94 9731 10132 10268
12/95 12979 12353 10529
12/96 15572 15188 10878
12/97 19821 20254 11062
12/98 26217 26075 11240
12/99 30368 31559 11575
12/00 30220 28687 11968
12/01 25474 23588 12433
12/02 19153 18376 12729
12/03 24679 23644 12968
</Table>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data
represents past performance including the investment return and principal value
of an investment, which 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.
59
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
PIONEER FUND PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
Please note that the Utilities Portfolio has changed its name to Pioneer Fund
Portfolio and modified its investment objective and strategy. Now advised by
Travelers Asset Management International Company LLC and sub-advised by Pioneer
Investment Management, Inc., the fund's revised investment objective is to seek
reasonable income and capital growth and it invests substantially in equity
securities, primarily those of U.S. issuers. Pioneer has been the fund's
sub-adviser since May 1, 2003.
PERFORMANCE REVIEW
During its fiscal year ended December 31, 2003, the fund returned 23.78%. In
comparison, the fund underperformed its unmanaged benchmark, the S&P 500
Index,(i) which returned 28.67% for the same period. The fund also
underperformed its Lipper multi-cap core variable funds category average, which
was 31.84% over the same time frame.(1)
MARKET OVERVIEW
Strong corporate-earnings comparisons led investors to push share prices higher
during 2003. Confidence in the economic recovery built gradually during the
year, as the positive effects of historically low interest rates, Federal
income-tax cuts, and the weak U.S. dollar converged to revive corporate profits.
Growth in capital spending, especially in information technology, accompanied
continued strong consumer activity to support big gains in the gross domestic
product numbers in the second half of the year. While some of the worries that
investors have had over the past couple of years -- namely, corporate scandals,
the terrorist threat, and government budget deficits -- threatened to bubble
over from time to time, they evidently did not seem to discourage too many
people from buying shares once again. So, after approximately three years of
"bearish" market conditions, the U.S. stock market generated large gains in
2003.
PORTFOLIO PERFORMANCE
For the period managed, the fund's strongest performance contribution came from
its investment exposure to materials, particularly metals and mining. Phelps
Dodge Corporation (copper), Alcoa, Inc. (aluminum), and Rio Tinto, PLC.
(diversified mining) all did extremely well for the portfolio. The fund also
realized a large percentage gain on its position in Newmont Mining (gold) when
we sold it in the fourth quarter. In industrials, an above-average performing
sector where the fund was overweight, the fund had exceptional performance from
General Dynamics Corp. in the aerospace & defense sector and from agricultural
machinery maker, Deere & Co. The fund's underweight position in General Electric
also contributed significantly to relative performance.
With respect to sector investments that detracted from relative performance,
utilities were the major culprit, followed by consumer staples, consumer
discretionary, and information technology. The fund was overweight utilities as
a result of the transition from the prior utilities-concentrated manager, and
the sector underperformed during the period, detracting from the fund's relative
performance. Both of the consumer sectors saw the biggest returns from
turnaround stories; we favored, as we usually do, the stronger and steadier
consumer businesses. For instance, retailers that had struggled during the
recession came back to life and excited investors as the economy recovered. The
fund had positions in companies that had held up relatively well in the
recession and then did not show such dramatic improvement.
Technology was a profitable area for the portfolio in the period. The fund was
approximately equal-weighted with the S&P 500 Index, and the fund's investments
in technology rose similarly in value. Although the fund owned many of the top-
performing technology companies, its smaller positions relative to their market
weights in two of the very biggest large-cap winners, Cisco Systems, Inc. and
Intel Corp., impaired relative returns. The fund was underweight healthcare, a
sector that generally underperformed during the period.
We added four stocks to the portfolio in the second half, and we deleted six.
Biomet, Inc. is a leading manufacturer of orthopedic implants, principally
artificial knees and hips, and impresses us with its outstanding management and
strong future earnings potential. Charter One Financial, Inc., an Ohio-based
bank, has a conservative lending record, tight cost controls,
(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 121 funds in the Lipper multi-cap core variable funds category
including the reinvestment of dividends and capital gains, if any.
60
attractive returns, and dividend yield above 3%. Philadelphia Suburban Corp. is
one of the most important remaining publicly traded water utilities in the U.S.,
with an unbroken record of annual dividend payments going back to 1939.
Shareowners will also note a small holding in Medco Health Solutions, Inc., a
pharmacy benefit manager "spun out" to us by its former parent, Merck.
In conclusion, Pioneer Investments appreciates your continued confidence.
Respectfully Submitted,
/s/ John Carey
John Carey
Pioneer Investment Management, Inc.
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: Chevron
Texaco, Corp. (3.07%), International Business Machines (2.35%), Exxon Mobil
Corp. (1.92%), SBC Communications, Inc. (1.84%), McGraw Hill Companies, Inc.
(1.76%), Rio Tinto PLC (1.73%), Target Corp. (1.65%), Intel Corp. (1.63%),
Walgreen Co. (1.62%), Reed Elsevier N.V. (1.57%). Please refer to pages 70
through 74 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 invests in REITS, which are significantly affected by the market
for real estate and the fund indirectly bears its proportionate share of any
management and other expenses paid by the REITS in which it invests.
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 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
61
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- PIONEER FUND PORTFOLIO AS OF 12/31/03 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/03 23.78%
Five Years Ended 12/31/03 (3.75)
2/4/94* through 12/31/03 6.06
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
2/4/94* through 12/31/03 79.05%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on
February 4, 1994, assuming reinvestment of dividends, through
December 31, 2003. 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 Utility Index is an unmanaged market cap-weighted index of
natural gas and electric companies. The Consumer Price Index is a
measure of the average change in prices over time in a fixed market
basket of goods and services.
[LINE GRAPH]
<Table>
<Caption>
PIONEER FUND PORTFOLIO S&P 500 INDEX+ S&P UTILITY INDEX+ CONSUMER PRICE INDEX
---------------------- -------------- ------------------ --------------------
2/4/94 10000 10000 10000 10000
12/94 10170 10072 9500 10205
12/95 13149 13852 12611 10464
12/96 14638 17031 13328 10811
12/97 18340 22712 16613 10995
12/98 21680 29240 19078 11171
12/99 21662 35390 17327 11504
12/00 26917 32168 27236 11895
12/01 20728 26450 18945 12357
12/02 14465 20606 13263 12651
12/31/03 17905 26514 16746 12889
</Table>
+ Due to the change in the Fund's adviser, sub-adviser, investment objective and
strategy, it is the opinion of management that the S&P 500 Index more
accurately reflects the current composition of the Pioneer Fund Portfolio than
the S&P Utility Index. In future reporting, the S&P 500 Index will be used as
the sole basis of comparison of total return performance and the S&P Utility
Index will no longer be shown.
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data
represents past performance including the investment return and principal value
of an investment, which 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.
62
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2003
U.S. GOVERNMENT SECURITIES PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 20.6%
U.S. Treasury Notes:
$ 1,500,000 2.625% due 5/15/08........................................ $ 1,477,911
4,000,000 5.000% due 8/15/11........................................ 4,281,876
1,000,000 4.250% due 8/15/13........................................ 1,001,563
U.S. Treasury Bonds:
4,000,000 8.875% due 8/15/17........................................ 5,666,252
10,000,000 6.000% due 2/15/26........................................ 11,092,580
4,000,000 6.375% due 8/15/27........................................ 4,646,876
15,000,000 5.500% due 8/15/28 (a).................................... 15,628,725
- ----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $43,974,189)..... 43,795,783
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 64.5%
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGHS -- 33.1%
Federal Home Loan Mortgage Corp. (FHLMC):
3,595,553 4.000% due 4/1/10......................................... 3,618,125
7,859,270 4.000% due 1/15/19 (b)(c)................................. 7,677,524
786,823 7.000% due 7/1/29......................................... 822,722
99,106 8.000% due 9/1/30......................................... 106,927
1,710,614 6.500% due 6/1/31......................................... 1,792,292
971,911 7.500% due 5/1/32......................................... 1,044,011
9,801,038 4.500% due 4/1/33......................................... 9,391,520
Federal National Mortgage Association (FNMA):
2,946,453 5.500% due 6/1/16 (d)..................................... 3,060,335
3,029,155 5.000% due 1/1/17 (d)..................................... 3,094,389
1,701,153 6.000% due 5/1/17......................................... 1,786,953
4,962,353 4.500% due 10/1/23........................................ 4,856,414
1,573,194 6.500% due 5/1/32 (d)..................................... 1,652,410
3,925,320 7.500% due 7/1/32 (d)..................................... 4,075,716
27,522,272 4.000% due 5/1/33 (d)..................................... 26,918,289
Government National Mortgage Association (GNMA):
448,431 9.000% due 9/15/09 (d).................................... 491,670
136,143 8.500% due 5/15/18 (d).................................... 150,770
- ----------------------------------------------------------------------------------------
70,540,067
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTES AND BONDS -- 31.4%
1,000,000 Federal Farm Credit Bank, 6.800% due 10/12/07............... 1,132,368
Federal Home Loan Bank (FHLB):
5,000,000 4.500% due 8/14/09........................................ 5,176,965
3,000,000 5.875% due 2/15/11........................................ 3,276,819
8,000,000 5.750% due 5/15/12........................................ 8,727,832
Federal Home Loan Mortgage Corp. (FHLMC):
1,500,000 4.875% due 11/15/13....................................... 1,519,169
4,330,000 6.000% due 6/27/17........................................ 4,573,069
Federal National Mortgage Association (FNMA):
5,000,000 5.500% due 7/18/12........................................ 5,123,015
3,000,000 6.250% due 5/15/29........................................ 3,260,544
13,949,000 Financing Corp. (FICO) Strips, Series 13, due 6/27/11....... 10,025,913
5,820,515 National Archives Facility Trust, COP, 8.500% due 9/1/19.... 7,203,079
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
63
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
U.S. GOVERNMENT SECURITIES PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTES AND BONDS -- 31.4% (CONTINUED)
$10,000,000 Resolution Funding Corp. Strips, due 1/15/21................ $ 3,866,970
4,680,000 Student Loan Marketing Association (SLMA), zero coupon due
5/15/14................................................... 2,153,142
9,000,000 Tennessee Valley Authority Certificates, 7.125% due
5/1/30.................................................... 10,831,734
- ----------------------------------------------------------------------------------------
66,870,619
- ----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost -- $134,685,189)...................................... 137,410,686
- ----------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 11.6%
Federal Home Loan Mortgage Corp. (FHLMC):
687,830 Series 1103, Class J, 8.500% due 6/15/21.................. 691,294
3,000,000 Series 2422, Class CH, 6.500% due 2/15/32................. 3,131,817
5,000,000 Series 2451, Class QB, 6.500% due 3/15/30................. 5,243,927
Federal National Mortgage Association (FNMA):
5,593,000 Series 2002-52, Class PC, 6.000% due 9/25/32.............. 5,871,657
5,000,000 Series 2003-63, Class GU, 4.000% due 7/25/33.............. 5,100,737
4,000,000 GNMA, Series 2001-21, Class PE, 6.500% due 5/16/31.......... 4,250,368
500,000 LB-UBS Commercial Mortgage Trust, Series 2003-C8,
Class A4, 5.124% due 11/15/32 (e)......................... 509,675
- ----------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $24,595,084)....................................... 24,799,475
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.3%
6,994,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $6,994,311; (Fully collateralized by U.S.
Treasury Bonds, 6.125% due 11/15/27; Market value --
$7,135,747) (Cost -- $6,994,000).......................... 6,994,000
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $210,248,462*)......... $212,999,944
- ----------------------------------------------------------------------------------------
</Table>
(a) All or a portion of this security is segregated for "to be announced"
securities.
(b) Security acquired under mortgage dollar roll agreement (See Note 5).
(c) Security is traded on a "to be announced" basis (See Note 6).
(d) Date shown represents the last in range of maturity dates.
(e) Variable rate security.
* Aggregate cost for Federal income tax purposes is $210,312,474.
Abbreviation used in this schedule:
COP -- Certificate of Participation
SEE NOTES TO FINANCIAL STATEMENTS.
64
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
COMMON STOCK -- 96.7%
- --------------------------------------------------------------------------------------
AIR FREIGHT AND COURIERS -- 1.3%
13,600 United Parcel Service, Inc., Class B Shares................. $ 1,013,880
- --------------------------------------------------------------------------------------
AIRLINES -- 0.5%
25,230 Southwest Airlines Co. ..................................... 407,212
- --------------------------------------------------------------------------------------
BANKS -- 6.5%
45,000 The Bank of New York Co., Inc. ............................. 1,490,400
31,500 Bank One Corp. ............................................. 1,436,085
7,200 Comerica Inc. .............................................. 403,632
6,500 Fifth Third Bancorp......................................... 384,150
25,000 Wells Fargo & Co. .......................................... 1,472,250
- --------------------------------------------------------------------------------------
5,186,517
- --------------------------------------------------------------------------------------
BEVERAGES -- 2.4%
22,400 The Coca-Cola Co. .......................................... 1,136,800
17,500 PepsiCo, Inc. .............................................. 815,850
- --------------------------------------------------------------------------------------
1,952,650
- --------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 2.0%
19,500 Amgen, Inc.+................................................ 1,205,100
15,600 MedImmune, Inc.+............................................ 396,240
- --------------------------------------------------------------------------------------
1,601,340
- --------------------------------------------------------------------------------------
CHEMICALS -- 3.9%
22,400 Air Products & Chemicals, Inc. ............................. 1,183,392
25,000 E.I. du Pont de Nemours & Co. .............................. 1,147,250
20,000 Praxair, Inc. .............................................. 764,000
- --------------------------------------------------------------------------------------
3,094,642
- --------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 2.6%
18,100 Automatic Data Processing Inc. ............................. 716,941
10,200 First Data Corp. ........................................... 419,118
24,500 Paychex, Inc. .............................................. 911,400
- --------------------------------------------------------------------------------------
2,047,459
- --------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 4.1%
67,600 Cisco Systems, Inc.+........................................ 1,642,004
44,300 Motorola, Inc. ............................................. 623,301
60,400 Nokia Oyj, Sponsored ADR.................................... 1,026,800
- --------------------------------------------------------------------------------------
3,292,105
- --------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 3.8%
35,300 Dell Inc.+.................................................. 1,198,788
85,800 EMC Corp.+.................................................. 1,108,536
32,200 Hewlett-Packard Co. ........................................ 739,634
- --------------------------------------------------------------------------------------
3,046,958
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
65
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 9.3%
6,200 Alliance Capital Management Holding LP...................... $ 209,250
32,900 American Express Co. ....................................... 1,586,767
8,000 Capital One Financial Corp. ................................ 490,320
16,200 The Charles Schwab Corp. ................................... 191,808
20,000 J.P. Morgan Chase & Co. .................................... 734,600
29,750 MBNA Corp. ................................................. 739,288
10,000 Merrill Lynch & Co., Inc. .................................. 586,500
24,000 Morgan Stanley.............................................. 1,388,880
9,900 SLM Corp. .................................................. 373,032
17,500 State Street Corp. ......................................... 911,400
4,500 T. Rowe Price Group Inc. ................................... 213,345
- --------------------------------------------------------------------------------------
7,425,190
- --------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.0%
22,800 Verizon Communications Inc. ................................ 799,824
- --------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.9%
10,000 Consolidated Edison, Inc. .................................. 430,100
10,000 The Southern Co. ........................................... 302,500
- --------------------------------------------------------------------------------------
732,600
- --------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 1.9%
14,100 Jabil Circuit, Inc.+........................................ 399,030
50,000 Vishay Intertechnology, Inc.+............................... 1,145,000
- --------------------------------------------------------------------------------------
1,544,030
- --------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 0.8%
17,300 GlobalSantaFe Corp. ........................................ 429,559
5,000 Noble Corp.+................................................ 178,900
- --------------------------------------------------------------------------------------
608,459
- --------------------------------------------------------------------------------------
FOOD AND DRUG RETAILING -- 0.9%
19,000 SYSCO Corp. ................................................ 707,370
- --------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT AND SUPPLIES -- 1.6%
27,000 Medtronic, Inc. ............................................ 1,312,470
- --------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS AND SERVICES -- 1.7%
6,000 Aetna Inc. ................................................. 405,480
5,000 HCA Inc. ................................................... 214,800
3,700 Oxford Health Plans, Inc. .................................. 160,950
2,800 PacifiCare Health Systems, Inc.+............................ 189,280
7,200 Sierra Health Services, Inc.+............................... 197,640
4,600 WellChoice Inc.+............................................ 158,700
- --------------------------------------------------------------------------------------
1,326,850
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
66
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.6%
13,900 The Black & Decker Corp. ................................... $ 685,548
150 Cavco Industries, Inc.+..................................... 3,600
3,000 Centex Corp. ............................................... 322,950
3,717 KB HOME..................................................... 269,557
- --------------------------------------------------------------------------------------
1,281,655
- --------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.2%
18,800 Colgate-Palmolive Co. ...................................... 940,940
- --------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.3%
12,800 Honeywell International Inc. ............................... 427,904
52,700 Tyco International Ltd. .................................... 1,396,550
- --------------------------------------------------------------------------------------
1,824,454
- --------------------------------------------------------------------------------------
INSURANCE -- 5.6%
22,000 Ambac Financial Group, Inc. ................................ 1,526,580
29,860 American International Group, Inc. ......................... 1,979,121
16,962 Marsh & McLennan Cos., Inc. ................................ 812,310
5,100 Prudential Financial, Inc. ................................. 213,027
- --------------------------------------------------------------------------------------
4,531,038
- --------------------------------------------------------------------------------------
INTERNET AND CATALOG RETAIL -- 1.8%
42,600 InterActiveCorp+............................................ 1,445,418
- --------------------------------------------------------------------------------------
MACHINERY -- 2.7%
12,800 Illinois Tool Works Inc. ................................... 1,074,048
23,200 Navistar International Corp.+............................... 1,111,048
- --------------------------------------------------------------------------------------
2,185,096
- --------------------------------------------------------------------------------------
MEDIA -- 7.7%
40,000 Cablevision Systems -- NY Group, Class A Shares+............ 935,600
18,600 Comcast Corp., Special Class A Shares+...................... 581,808
10,000 Omnicom Group, Inc.......................................... 873,300
73,300 Time Warner Inc.+........................................... 1,318,667
9,000 Univision Communications Inc., Class A Shares+.............. 357,210
38,450 Viacom Inc., Class B Shares................................. 1,706,411
12,100 Westwood One, Inc.+......................................... 413,941
- --------------------------------------------------------------------------------------
6,186,937
- --------------------------------------------------------------------------------------
METALS AND MINING -- 1.9%
40,000 Alcoa Inc. ................................................. 1,520,000
- --------------------------------------------------------------------------------------
MULTILINE RETAIL -- 1.9%
10,000 Target Corp. ............................................... 384,000
20,900 Wal-Mart Stores Inc. ....................................... 1,108,745
- --------------------------------------------------------------------------------------
1,492,745
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
67
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
OIL AND GAS -- 3.7%
6,300 Apache Corp. ............................................... $ 510,930
24,026 BP PLC, Sponsored ADR....................................... 1,185,683
24,800 Royal Dutch Petroleum Co., NY Shares........................ 1,299,272
- --------------------------------------------------------------------------------------
2,995,885
- --------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.9%
10,000 International Paper Co. .................................... 431,100
5,000 Weyerhaeuser Co. ........................................... 320,000
- --------------------------------------------------------------------------------------
751,100
- --------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.7%
15,000 The Gillette Co. ........................................... 550,950
- --------------------------------------------------------------------------------------
PHARMACEUTICALS -- 6.2%
8,000 Eli Lilly & Co. ............................................ 562,640
14,000 Johnson & Johnson........................................... 723,240
65,000 Pfizer Inc. ................................................ 2,296,450
11,600 Teva Pharmaceutical Industries Ltd., Sponsored ADR.......... 657,836
17,800 Wyeth....................................................... 755,610
- --------------------------------------------------------------------------------------
4,995,776
- --------------------------------------------------------------------------------------
ROAD AND RAIL -- 1.4%
11,300 CSX Corp. .................................................. 406,122
30,100 Norfolk Southern Corp. ..................................... 711,865
- --------------------------------------------------------------------------------------
1,117,987
- --------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 4.1%
17,700 Applied Materials, Inc.+.................................... 397,365
76,000 Intel Corp. ................................................ 2,447,200
10,000 Linear Technology Corp. .................................... 420,700
- --------------------------------------------------------------------------------------
3,265,265
- --------------------------------------------------------------------------------------
SOFTWARE -- 5.4%
25,000 Amdocs Ltd.+................................................ 562,000
23,200 BMC Software, Inc.+......................................... 432,680
88,800 Microsoft Corp. ............................................ 2,445,552
64,900 Oracle Corp.+............................................... 856,680
- --------------------------------------------------------------------------------------
4,296,912
- --------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.9%
28,000 The Home Depot, Inc. ....................................... 993,720
10,000 Lowe's Cos., Inc. .......................................... 553,900
- --------------------------------------------------------------------------------------
1,547,620
- --------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.5%
52,900 AT&T Wireless Services Inc.+................................ 422,671
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $64,035,730).................... 77,452,005
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
68
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.3%
$2,624,000 Merrill Lynch & Co., Inc., 0.820% due 1/2/04; Proceeds at
maturity -- $2,624,120;
(Fully collateralized by U.S. Treasury Bonds and Notes,
6.125% to 8.125% due 8/15/07 to 2/15/23; Market
value -- $2,676,487) (Cost -- $2,624,000)................. $ 2,624,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $66,659,730*).......... $80,076,005
- --------------------------------------------------------------------------------------
</Table>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is $66,661,939.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
69
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
COMMON STOCK -- 98.9%
- --------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 3.6%
2,576 The Boeing Co. ............................................. $ 108,553
4,305 General Dynamics Corp. ..................................... 389,129
3,434 Lockheed Martin Corp. ...................................... 176,508
3,212 United Technologies Corp. .................................. 304,401
- --------------------------------------------------------------------------------------
978,591
- --------------------------------------------------------------------------------------
AIR FREIGHT AND COURIERS -- 0.5%
1,929 United Parcel Service, Inc., Class B Shares................. 143,807
- --------------------------------------------------------------------------------------
AIRLINES -- 0.9%
15,142 Southwest Airlines Co. ..................................... 244,392
- --------------------------------------------------------------------------------------
AUTO COMPONENTS -- 1.0%
2,399 Johnson Controls, Inc. ..................................... 278,572
- --------------------------------------------------------------------------------------
BANKS -- 7.4%
2,355 Bank of America Corp. ...................................... 189,413
9,569 The Bank of New York Co., Inc. ............................. 316,925
1,200 Charter One Financial, Inc. ................................ 41,460
3,230 First Tennessee National Corp. ............................. 142,443
12,244 National City Corp. ........................................ 415,561
4,900 SunTrust Banks, Inc. ....................................... 350,350
5,791 Washington Mutual, Inc. .................................... 232,335
3,851 Wells Fargo & Co. .......................................... 226,785
1,887 Zions Bancorp. ............................................. 115,730
- --------------------------------------------------------------------------------------
2,031,002
- --------------------------------------------------------------------------------------
BEVERAGES -- 1.0%
5,792 PepsiCo, Inc. .............................................. 270,023
- --------------------------------------------------------------------------------------
CHEMICALS -- 1.5%
2,107 Air Products & Chemicals, Inc. ............................. 111,313
3,956 E.I. du Pont de Nemours & Co. .............................. 181,541
1,711 PPG Industries, Inc. ....................................... 109,538
- --------------------------------------------------------------------------------------
402,392
- --------------------------------------------------------------------------------------
COMMERCIAL SERVICES AND SUPPLIES -- 2.1%
4,326 Automatic Data Processing Inc. ............................. 171,353
2,414 DST Systems, Inc.+.......................................... 100,809
2,345 Fiserv, Inc.+............................................... 92,651
9,170 Robert Half International Inc.+............................. 214,028
- --------------------------------------------------------------------------------------
578,841
- --------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.6%
4,241 Cisco Systems, Inc.+........................................ 103,014
18,883 Motorola, Inc. ............................................. 265,684
13,277 Nokia Oyj, Sponsored ADR.................................... 225,709
2,162 QUALCOMM, Inc. ............................................. 116,597
- --------------------------------------------------------------------------------------
711,004
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
70
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
COMPUTERS AND PERIPHERALS -- 3.9%
6,925 Dell Inc.+.................................................. $ 235,173
2,102 Hewlett-Packard Co. ........................................ 48,283
6,953 International Business Machines Corp. ...................... 644,404
30,783 Sun Microsystems, Inc.+..................................... 138,216
- --------------------------------------------------------------------------------------
1,066,076
- --------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 5.2%
3,852 American Express Co. ....................................... 185,782
4,348 Federated Investors, Inc., Class B Shares................... 127,657
5,336 Merrill Lynch & Co., Inc. .................................. 312,956
6,920 State Street Corp. ......................................... 360,394
8,957 T. Rowe Price Group Inc. ................................... 424,651
- --------------------------------------------------------------------------------------
1,411,440
- --------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.6%
2,162 ALLTEL Corp. ............................................... 100,706
13,081 BellSouth Corp. ............................................ 370,192
19,302 SBC Communications, Inc. ................................... 503,203
- --------------------------------------------------------------------------------------
974,101
- --------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 1.2%
3,057 American Electric Power Co., Inc. .......................... 93,269
3,185 Consolidated Edison, Inc. .................................. 136,987
2,971 The Southern Co. ........................................... 89,873
- --------------------------------------------------------------------------------------
320,129
- --------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.5%
1,914 Emerson Electric Co. ....................................... 123,932
- --------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.5%
2,336 Diebold, Inc. .............................................. 125,840
- --------------------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES -- 0.9%
4,834 Smith International, Inc.+.................................. 200,708
1,924 Transocean Inc.+............................................ 46,195
- --------------------------------------------------------------------------------------
246,903
- --------------------------------------------------------------------------------------
FOOD AND DRUG RETAILING -- 2.6%
7,405 Sysco Corp. ................................................ 275,688
12,209 Walgreen Co. ............................................... 444,163
- --------------------------------------------------------------------------------------
719,851
- --------------------------------------------------------------------------------------
FOOD PRODUCTS -- 3.8%
7,513 Campbell Soup Co. .......................................... 201,348
4,073 General Mills, Inc. ........................................ 184,507
6,399 H.J. Heinz Co. ............................................. 233,116
2,336 Hershey Foods Corp. ........................................ 179,849
10,993 Sara Lee Corp. ............................................. 238,658
- --------------------------------------------------------------------------------------
1,037,478
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
71
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
GAS UTILITIES -- 0.3%
2,369 KeySpan Corp. .............................................. $ 87,179
- --------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT AND SUPPLIES -- 1.5%
6,567 Becton Dickinson & Co. ..................................... 270,166
3,857 Biomet, Inc. ............................................... 140,433
- --------------------------------------------------------------------------------------
410,599
- --------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS AND SERVICES -- 0.5%
1,366 UnitedHealth Group Inc. .................................... 79,474
720 WellPoint Health Networks, Inc.+............................ 69,833
- --------------------------------------------------------------------------------------
149,307
- --------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.5%
5,806 Colgate-Palmolive Co. ...................................... 290,590
3,868 The Procter & Gamble Co. ................................... 386,336
- --------------------------------------------------------------------------------------
676,926
- --------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.2%
1,351 General Electric Co. ....................................... 41,854
- --------------------------------------------------------------------------------------
INSURANCE -- 3.5%
4,130 American International Group, Inc. ......................... 273,736
5,038 The Chubb Corp. ............................................ 343,088
2,918 SAFECO Corp. ............................................... 113,598
5,727 The St. Paul Cos., Inc. .................................... 227,076
- --------------------------------------------------------------------------------------
957,498
- --------------------------------------------------------------------------------------
IT CONSULTING AND SERVICES -- 1.4%
5,061 Computer Sciences Corp.+.................................... 223,848
4,373 Electronic Data Systems Corp. .............................. 107,313
1,761 SunGard Data Systems Inc.+.................................. 48,797
- --------------------------------------------------------------------------------------
379,958
- --------------------------------------------------------------------------------------
LEISURE EQUIPMENT AND PRODUCTS -- 0.1%
1,000 Eastman Kodak Co. .......................................... 25,670
- --------------------------------------------------------------------------------------
MACHINERY -- 4.2%
3,859 Caterpillar Inc. ........................................... 320,374
5,572 Deere & Co. ................................................ 362,459
2,063 Illinois Tool Works, Inc. .................................. 173,106
3,532 PACCAR Inc. ................................................ 300,644
- --------------------------------------------------------------------------------------
1,156,583
- --------------------------------------------------------------------------------------
MEDIA -- 6.3%
1,886 Dow Jones & Co., Inc. ...................................... 94,017
4,282 Gannett Co., Inc. .......................................... 381,783
6,889 The McGraw Hill Cos., Inc. ................................. 481,679
3,792 Omnicom Group, Inc. ........................................ 331,155
17,374 Reed Elsevier NV, Sponsored ADR............................. 430,006
- --------------------------------------------------------------------------------------
1,718,640
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
72
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
METALS AND MINING -- 3.6%
6,971 Alcoa Inc. ................................................. $ 264,898
4 Newmont Mining Corp. ....................................... 194
3,401 Phelps Dodge Corp.+......................................... 258,782
4,258 Rio Tinto PLC, Sponsored ADR................................ 473,958
- --------------------------------------------------------------------------------------
997,832
- --------------------------------------------------------------------------------------
MULTILINE RETAIL -- 3.5%
2,980 Family Dollar Stores, Inc. ................................. 106,922
5,204 The May Department Stores Co. .............................. 151,280
11,769 Target Corp. ............................................... 451,930
4,495 Wal-Mart Stores, Inc. ...................................... 238,460
- --------------------------------------------------------------------------------------
948,592
- --------------------------------------------------------------------------------------
MULTI-UTILITIES -- 0.3%
3,374 Vectren Corp. .............................................. 83,169
- --------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.9%
5,315 Canon, Inc., Sponsored ADR.................................. 253,207
- --------------------------------------------------------------------------------------
OIL AND GAS -- 6.9%
9,733 ChevronTexaco Corp. ........................................ 840,834
2,850 ConocoPhillips.............................................. 186,874
12,845 Exxon Mobil Corp. .......................................... 526,645
3,873 Royal Dutch Petroleum Co., NY Shares........................ 202,906
2,932 Shell Transport & Trading Co. PLC, Sponsored ADR............ 132,028
- --------------------------------------------------------------------------------------
1,889,287
- --------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.5%
4,643 MeadWestvaco Corp. ......................................... 138,129
- --------------------------------------------------------------------------------------
PHARMACEUTICALS -- 8.2%
5,268 Abbott Laboratories......................................... 245,489
4,098 Eli Lilly & Co. ............................................ 288,212
8,148 Johnson & Johnson........................................... 420,926
733 Medco Health Solutions, Inc.+............................... 24,915
5,999 Merck & Co. Inc. ........................................... 277,154
5,139 Novartis AG, ADR............................................ 235,829
6,878 Pfizer Inc. ................................................ 243,000
1,638 Roche Holding AG, Sponsored ADR............................. 165,224
20,534 Schering-Plough Corp. ...................................... 357,086
- --------------------------------------------------------------------------------------
2,257,835
- --------------------------------------------------------------------------------------
ROAD AND RAIL -- 2.3%
4,543 Burlington Northern Santa Fe Corp. ......................... 146,966
16,059 Norfolk Southern Corp. ..................................... 379,795
1,383 Union Pacific Corp. ........................................ 96,091
- --------------------------------------------------------------------------------------
622,852
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
73
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 4.8%
1,936 Altera Corp.+............................................... $ 43,947
13,228 Applied Materials, Inc.+.................................... 296,969
13,870 Intel Corp. ................................................ 446,614
4,193 Novellus Systems, Inc.+..................................... 176,316
12,287 Texas Instruments Inc. ..................................... 360,992
- --------------------------------------------------------------------------------------
1,324,838
- --------------------------------------------------------------------------------------
SOFTWARE -- 3.5%
3,930 Adobe Systems, Inc. ........................................ 154,449
3,884 BMC Software, Inc.+......................................... 72,437
13,173 Microsoft Corp. ............................................ 362,784
2,544 Symantec Corp.+............................................. 88,150
8,536 Synopsys, Inc.+............................................. 288,175
- --------------------------------------------------------------------------------------
965,995
- --------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.0%
1,239 Barnes & Noble, Inc.+....................................... 40,701
4,285 Lowe's Cos., Inc. .......................................... 237,346
- --------------------------------------------------------------------------------------
278,047
- --------------------------------------------------------------------------------------
WATER UTILITIES -- 0.1%
1,576 Philadelphia Suburban Corp. ................................ 34,835
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $22,434,819).................... 27,063,206
- --------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.1%
$ 311,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds
at maturity -- $311,014; (Fully collateralized by U.S.
Treasury Bonds, 8.875% due 2/15/19; Market value --
$321,750) (Cost -- $311,000).............................. 311,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $22,745,819*).......... $27,374,206
- --------------------------------------------------------------------------------------
</Table>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is $22,748,960.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
74
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2003
<Table>
<Caption>
U.S. GOVERNMENT SOCIAL AWARENESS
SECURITIES STOCK PIONEER FUND
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost................................. $210,248,462 $ 66,659,730 $ 22,745,819
- --------------------------------------------------------------------------------------------------------------
Investments, at value................................ $212,999,944 $ 80,076,005 $ 27,374,206
Cash................................................. 363 11 981
Receivable for securities sold....................... 2,824,261 -- --
Dividends and interest receivable.................... 1,922,668 63,286 33,027
Receivable for Fund shares sold...................... -- -- 94,633
Prepaid expenses..................................... 194 -- --
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................... 217,747,430 80,139,302 27,502,847
- --------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased..................... 7,640,084 -- 50,995
Payable for Fund shares reacquired................... 113,099 371,936 --
Investment management and advisory fees payable...... 57,190 41,018 16,883
Administration fees payable.......................... 10,619 3,968 1,047
Accrued expenses..................................... 44,482 43,949 32,929
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................... 7,865,474 460,871 101,854
- --------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $209,881,956 $ 79,678,431 $ 27,400,993
- --------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital...................................... $206,811,916 $80,055,618 $37,473,443
Undistributed net investment income.................. -- 22,797 303
Accumulated net realized gain (loss) from investment
transactions...................................... 318,558 (13,816,259) (14,701,140)
Net unrealized appreciation of investments........... 2,751,482 13,416,275 4,628,387
- --------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $209,881,956 $ 79,678,431 $ 27,400,993
- --------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING..................................... 16,666,618 3,458,331 2,508,647
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................. $12.59 $23.04 $10.92
- --------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
75
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER
SECURITIES STOCK FUND
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest............................................... $ 11,084,823 $ 23,088 $ 9,228
Dividends.............................................. -- 926,442 608,063
Less: Foreign withholding tax.......................... -- (13,431) (1,568)
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................ 11,084,823 936,099 615,723
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management and advisory fees (Note 2)....... 770,679 427,155 165,533
Administration fees (Note 2)........................... 143,027 41,144 13,786
Audit and legal........................................ 29,011 29,368 30,667
Custody................................................ 25,365 11,627 12,298
Shareholder communications............................. 24,109 10,026 23,831
Trustees' fees......................................... 6,154 6,155 6,152
Shareholder servicing fees............................. 5,003 4,994 4,997
Other.................................................. 1,081 1,002 564
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES......................................... 1,004,429 531,471 257,828
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.................................... 10,080,394 404,628 357,895
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE
3):
Realized Gain (Loss) From Investment Transactions
(excluding short-term investments):
Proceeds from sales................................. 327,522,195 25,069,999 22,136,165
Cost of securities sold............................. 324,049,943 25,973,132 22,698,563
- -------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................... 3,472,252 (903,133) (562,398)
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of year................................... 10,082,480 (4,896,783) (652,490)
End of year......................................... 2,751,482 13,416,275 4,628,387
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION..... (7,330,998) 18,313,058 5,280,877
- -------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS........................... (3,858,746) 17,409,925 4,718,479
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS................... $ 6,221,648 $17,814,553 $ 5,076,374
- -------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
76
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES PORTFOLIO 2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 10,080,394 $ 8,313,886
Net realized gain......................................... 3,472,252 3,331,447
Increase (decrease) in net unrealized appreciation........ (7,330,998) 10,623,543
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 6,221,648 22,268,876
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (10,812,735) (14,482,356)
Net realized gains........................................ (3,572,312) (1,567,341)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (14,385,047) (16,049,697)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares.......................... 29,246,982 125,224,139
Net asset value of shares issued for reinvestment of
dividends.............................................. 14,385,047 16,049,697
Cost of shares reacquired................................. (69,457,633) (30,112,939)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... (25,825,604) 111,160,897
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... (33,989,003) 117,380,076
NET ASSETS:
Beginning of year......................................... 243,870,959 126,490,883
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $209,881,956 $243,870,959
- ------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... -- $329,492
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
77
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
SOCIAL AWARENESS STOCK PORTFOLIO 2003 2002
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 404,628 $ 288,889
Net realized loss......................................... (903,133) (8,155,464)
Increase (decrease) in net unrealized appreciation........ 18,313,058 (13,723,733)
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 17,814,553 (21,590,308)
- -----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (392,136) (642,498)
- -----------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (392,136) (642,498)
- -----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares.......................... 5,724,855 8,483,608
Net asset value of shares issued for reinvestment of
dividends.............................................. 392,136 642,498
Cost of shares reacquired................................. (6,158,720) (7,939,606)
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... (41,729) 1,186,500
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... 17,380,688 (21,046,306)
NET ASSETS:
Beginning of year......................................... 62,297,743 83,344,049
- -----------------------------------------------------------------------------------------
END OF YEAR*.............................................. $79,678,431 $ 62,297,743
- -----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: ......... $22,797 $10,305
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
78
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
PIONEER FUND PORTFOLIO 2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 357,895 $ 813,462
Net realized loss......................................... (562,398) (11,177,209)
Increase (decrease) in net unrealized appreciation........ 5,280,877 (701,900)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 5,076,374 (11,065,647)
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (360,254) (1,848,406)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (360,254) (1,848,406)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares.......................... 4,118,215 2,027,881
Net asset value of shares issued for reinvestment of
dividends.............................................. 360,254 1,848,406
Cost of shares reacquired................................. (3,354,880) (8,833,615)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... 1,123,589 (4,957,328)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... 5,839,709 (17,871,381)
NET ASSETS:
Beginning of year......................................... 21,561,284 39,432,665
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $ 27,400,993 $ 21,561,284
- ------------------------------------------------------------------------------------------
* Includes undistributed net investment income of: ......... $303 $2,662
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
79
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The U.S. Government Securities Portfolio ("USGS"), Social Awareness Stock
Portfolio ("SAS") and Pioneer Fund Portfolio ("PFP") (formerly known as
Utilities Portfolio), (collectively, "Fund(s)") are separate diversified
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 an open-end management investment company and consists of
these funds and 13 other separate investment funds: Travelers Quality Bond,
Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated
Stock, Large Cap, Equity Income, Disciplined Mid Cap Stock, Convertible
Securities, MFS Mid Cap Growth, Merrill Lynch Large Cap Core (formerly known as
MFS Research), MFS Value, and Zero Coupon Bond Fund (Series 2005) Portfolios.
Shares of the Trust are offered exclusively for use with certain variable
annuity and variable life insurance contracts offered through the separate
accounts of various affiliated life insurance companies. The financial
statements and financial highlights for the other funds are presented in
separate shareholder reports.
The 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 prices on such markets;
securities for which no sales prices were reported and U.S. government and
agency obligations are valued 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; (c) securities for which market quotations are not
available will be valued in good faith at fair value by or under the direction
of the Board of Trustees; (d) securities maturing within 60 days are valued at
cost plus accreted discount, or minus amortized premium, which approximates
value; (e) securities, other than U.S. government agencies and obligations, 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 the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (g) gains or losses on the sale of
securities are calculated by using the specific identification method; (h)
dividends and distributions to shareholders are recorded on the ex-dividend
date; the 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 on the date of valuation. Purchases and sales of
securities and income and expenses are translated at the rate of exchange quoted
on the respective date that such transactions are recorded. Differences between
income and expense amounts recorded and collected or paid are adjusted when
reported by the custodian; (j) the Funds intend to comply with the applicable
provisions of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
(k) the character of income and 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 capital accounts of USGS to reflect
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change; and (l) estimates and assumptions are
required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc., ("Citigroup"), acts as investment
adviser to USGS and PFP. Prior to May 1, 2003, Smith Barney Fund Management LLC
("SBFM"), another indirect wholly-owned subsidiary of Citigroup, acted as
investment manager and adviser to PFP. USGS and PFP pay TAMIC an investment
advisory fee calculated at the annual rate of 0.3233% and 0.75% of its average
daily net assets, respectively. Under the previous agreement, PFP paid SBFM an
investment management and advisory fee calculated at an annual rate of 0.65% of
PFP's average daily net assets. These fees are calculated daily and paid
monthly.
80
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SBFM acts as investment manager and adviser to SAS. SAS pays SBFM an
investment management and advisory fee calculated at an annual rate of: 0.65% on
the first $50 million, 0.55% on the next $50 million, 0.45% on the next $100
million and 0.40% on amounts over $200 million of the average daily net assets
of SAS. This fee is calculated daily and paid monthly.
With shareholder approval, effective May 1, 2003, TAMIC entered into a
sub-advisory agreement with Pioneer Investment Management, Inc. ("Pioneer").
Pursuant to the sub-advisory agreement, Pioneer is responsible for the
day-to-day operations and investment decisions for PFP. As a result, TAMIC pays
Pioneer, as sub-adviser, 0.375% of the average daily net assets of PFP. Prior to
May 1, 2003, PFP did not have a sub-adviser.
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 the average daily
net assets of each Fund. This fee is calculated daily and paid monthly. TIC has
entered into a sub-administrative services agreement with SBFM. 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 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, and its affiliates received brokerage commissions of
$2,465 and $332 from SAS and PFP, respectively.
One Trustee and all officers of the Trust are employees of Citigroup or its
affiliates.
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 and mortgage dollar rolls)
were as follows:
<Table>
<Caption>
USGS SAS PFP
- ------------------------------------------------------------------------------------------------------
Purchases................................................... $333,456,809 $25,037,185 $23,198,486
- ------------------------------------------------------------------------------------------------------
Sales....................................................... 327,522,195 25,069,999 22,136,165
- ------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
<Table>
<Caption>
USGS SAS PFP
- ----------------------------------------------------------------------------------------------------
Gross unrealized appreciation............................... $ 4,801,186 $16,030,925 $4,802,161
Gross unrealized depreciation............................... (2,113,716) (2,616,859) (176,915)
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation................................. $ 2,687,470 $13,414,066 $4,625,246
- ----------------------------------------------------------------------------------------------------
</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.
81
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. MORTGAGE DOLLAR ROLLS
The Funds may enter into mortgage dollar roll transactions. A mortgage
dollar roll transaction involves a sale by the Fund of mortgage related
securities that it holds with an agreement by the Fund to repurchase similar
securities at an agreed upon price and date. The securities purchased will bear
the same interest rate as those sold, but generally will be collateralized by
pools of mortgages with different prepayment histories than those securities
sold. Proceeds from the sale will be reinvested and the income from these
investments, together with any additional income received on the sale, is
included in investment income. Losses may arise due to changes in the value of
the securities or if the counterparty does not perform under the terms of the
agreement. If the counterparty files for bankruptcy or becomes insolvent, the
Fund's right to repurchase the securities may be limited.
During the year ended December 31, 2003, USGS entered into mortgage dollar
roll transactions in the aggregate amount of $58,180,474.
At December 31, 2003, USGS had outstanding mortgage dollar rolls with a
total cost of $7,574,371. SAS and PFP did not have any outstanding mortgage
dollar rolls.
6. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in GNMA/FNMA transactions. Securities purchased on
a TBA basis normally settle 15 to 45 days after the trade date. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
At December 31, 2003, USGS held TBA securities with a total cost amounting
to $7,574,371.
7. 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
- ---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold................................................. 2,193,616 9,502,251
Shares issued on reinvestment............................... 1,138,891 1,220,920
Shares reacquired........................................... (5,229,809) (2,325,219)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (1,897,302) 8,397,952
- ---------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold................................................. 283,273 396,282
Shares issued on reinvestment............................... 17,094 34,690
Shares reacquired........................................... (309,569) (415,324)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (9,202) 15,648
- ---------------------------------------------------------------------------------------------------
PIONEER FUND PORTFOLIO
Shares sold................................................. 418,833 190,341
Shares issued on reinvestment............................... 33,048 193,234
Shares reacquired........................................... (354,955) (815,007)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... 96,926 (431,432)
- ---------------------------------------------------------------------------------------------------
</Table>
82
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL LOSS CARRYFORWARD
At December 31, 2003, SAS and PFP had, for Federal income tax purposes,
approximately $13,740,000 and $14,591,000, respectively, of unused capital loss
carryforwards available to offset future capital gains. To the extent that these
carryforward losses are used to offset capital gains, it is probable that the
gains so offset will not be distributed.
The amount and year of expiration for each carryforward loss is indicated
below. Expiration occurs on December 31 of the year indicated:
<Table>
<Caption>
2008 2009 2010 2011
- ---------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio....................... $774,000 $3,269,000 $ 8,137,000 $1,560,000
Pioneer Fund Portfolio................................. -- 944,000 12,363,000 1,284,000
- ---------------------------------------------------------------------------------------------------------
</Table>
In addition, SAS and PFP had $73,819 and $106,626, respectively, of capital
losses realized after October 31, 2003, which were deferred for tax purposes to
the first day of the following fiscal year.
9. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
At December 31, 2003, the tax basis components of distributable earnings
were:
<Table>
<Caption>
USGS SAS PFP
- ------------------------------------------------------------------------------------------------------
Undistributed ordinary income............................... -- $ 22,797 $ 303
- ------------------------------------------------------------------------------------------------------
Accumulated capital gains (losses).......................... $ 382,570 (13,740,231) (14,591,373)
- ------------------------------------------------------------------------------------------------------
Unrealized appreciation..................................... 2,687,470 13,414,066 4,625,246
- ------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2003, the difference between book basis and tax basis
unrealized appreciation and depreciation is attributable primarily to wash sale
loss deferrals.
The tax character of distributions paid during the year ended December 31,
2003 was:
<Table>
<Caption>
USGS SAS PFP
- -------------------------------------------------------------------------------------------------------
Ordinary income............................................. $11,912,557 $392,136 $360,254
Long-term capital gains..................................... 2,472,490 -- --
- -------------------------------------------------------------------------------------------------------
Total....................................................... $14,385,047 $392,136 $360,254
- -------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2002, the tax basis components of distributable earnings
were:
<Table>
<Caption>
USGS SAS PFP
- ------------------------------------------------------------------------------------------------------
Undistributed ordinary income............................... $1,055,276 $ 10,305 $ 2,662
- ------------------------------------------------------------------------------------------------------
Accumulated capital gains (losses).......................... 211,631 (12,179,617) (13,307,091)
- ------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation)...................... 9,966,531 (4,898,992) (652,490)
- ------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2002, the difference between book basis and tax basis
unrealized appreciation and 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>
USGS SAS PFP
- -------------------------------------------------------------------------------------------------------
Ordinary income............................................. $15,201,304 $642,498 $1,848,406
Long-term capital gains..................................... 848,393 -- --
- -------------------------------------------------------------------------------------------------------
Total....................................................... $16,049,697 $642,498 $1,848,406
- -------------------------------------------------------------------------------------------------------
</Table>
83
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. 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.
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.
84
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES PORTFOLIO 2003(1) 2002(1) 2001(1) 2000(1) 1999(1)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $13.14 $12.44 $12.22 $11.30 $11.80
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................ 0.56 0.63 0.69 0.74 0.68
Net realized and unrealized gain (loss)...... (0.20) 1.05 0.02 0.84 (1.18)
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............ 0.36 1.68 0.71 1.58 (0.50)
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:(2)
Net investment income........................ (0.68) (0.89) (0.49) (0.66) (0.00)*
Net realized gains........................... (0.23) (0.09) -- -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions............................ (0.91) (0.98) (0.49) (0.66) (0.00)*
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $12.59 $13.14 $12.44 $12.22 $11.30
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 2.75% 13.63% 5.82% 14.53% (4.23)%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................ $209,882 $243,871 $126,491 $90,970 $61,623
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................. 0.42% 0.44% 0.45% 0.48% 0.48%
Net investment income........................ 4.23 4.82 5.55 6.46 5.97
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 143%** 165% 327% 289% 164%
- ----------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SOCIAL AWARENESS STOCK PORTFOLIO 2003(1) 2002 2001(1) 2000(1) 1999(1)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $17.97 $24.14 $28.76 $29.42 $25.92
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................ 0.12 0.08 0.11 0.14 0.13
Net realized and unrealized gain (loss)...... 5.06 (6.06) (4.63) (0.29) 3.93
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............ 5.18 (5.98) (4.52) (0.15) 4.06
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:(2)
Net investment income........................ (0.11) (0.19) (0.10) (0.16) (0.09)
Net realized gains........................... -- -- -- (0.35) (0.47)
- ----------------------------------------------------------------------------------------------------------
Total Distributions............................ (0.11) (0.19) (0.10) (0.51) (0.56)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $23.04 $17.97 $24.14 $28.76 $29.42
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 28.85% (24.81)% (15.71)% (0.49)% 15.84%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................ $79,678 $62,298 $83,344 $81,184 $68,239
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................. 0.78% 0.78% 0.74% 0.75% 0.80%
Net investment income........................ 0.59 0.40 0.45 0.48 0.69
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 38% 37% 22% 33% 12%
- ----------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains.
(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.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
* Amount represents less than $0.01 per share.
** Excluding mortgage dollar roll transactions. If mortgage dollar roll
transactions had been included, the portfolio turnover rate would have been
168%.
85
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
PIONEER FUND PORTFOLIO 2003(1) 2002(1) 2001(1) 2000(1) 1999(1)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................ $8.94 $13.87 $19.22 $15.91 $17.18
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................... 0.15 0.32 0.37 0.43 0.41
Net realized and unrealized gain (loss)......... 1.98 (4.47) (4.65) 3.36 (0.36)
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............... 2.13 (4.15) (4.28) 3.79 0.05
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:(2)
Net investment income........................... (0.15) (0.78) (0.30) (0.45) (0.40)
Net realized gains.............................. -- -- (0.77) (0.03) (0.92)
- ----------------------------------------------------------------------------------------------------------
Total Distributions............................... (0.15) (0.78) (1.07) (0.48) (1.32)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR...................... $10.92 $ 8.94 $13.87 $19.22 $15.91
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................... 23.78% (30.21)% (23.00)% 24.26% (0.08)%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................... $27,401 $21,561 $39,433 $48,456 $31,413
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)..................................... 1.12% 0.90% 0.81% 0.84% 0.88%
Net investment income........................... 1.56 2.88 2.18 2.47 2.41
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................... 98% 25% 20% 22% 10%
- ----------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Distributions from realized gains include both net realized short-term and
long-term capital gains.
(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.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25%.
86
- --------------------------------------------------------------------------------
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 U.S. Government Securities Portfolio,
Social Awareness Stock Portfolio and Pioneer Fund Portfolio (formerly known as
Utilities Portfolio) ("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 positions of the
Funds of the Trust 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 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
87
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
INFORMATION ABOUT TRUSTEES AND OFFICERS
The business and affairs of the Managed Assets Trust, High Yield Bond
Trust, Capital Appreciation Fund, Money Market Portfolio and The Travelers
Series Trust (each a "Trust" and together, the "Trusts") are managed under the
direction of the Board of Trustees. Information pertaining to the Trustees and
Officers of the Trusts is set forth below. Unless otherwise noted, each person
listed below holds his or her position with all of the Trusts. The Statement of
Additional Information includes additional information about Trustees and is
available, without charge, upon request by calling the Trusts' administrator
(Travelers Insurance Company at 1-800-842-9368).
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD
POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS
HELD WITH OF TIME DURING PAST OVERSEEN HELD BY
NAME, ADDRESS AND AGE TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES:(2)
Robert E. McGill, III Trustee Since Retired 5 Lydall Inc.;
295 Hancock Road 1990 Board of
Williamstown, MA Managers of 6
Age 72 Variable
Annuity
Separate
Accounts of
The Travelers
Insurance Co.
("TIC")
Lewis Mandell Trustee Since Professor, 5 Delaware North
University of Buffalo 1990 University of Corp.; Board
160 Jacobs Hall Buffalo of Managers of
Buffalo, NY 6 Variable
Age 60 Annuity
Separate
Accounts of
TIC
Frances M. Hawk, CFA, CFP Trustee Since Private Investor 5 Board of
108 Oxford Hill Lane 1991 Managers of 6
Downingtown, PA Variable
Age 55 Annuity
Separate
Accounts of
TIC
INTERESTED TRUSTEE:
R. Jay Gerken, CFA(3) Chairman, Since Managing Director 221 Chairman,
Citigroup Asset Management President, 2002 of Citigroup Board of
("CAM") Chief Global Markets Managers of 6
399 Park Avenue, 4th Floor Executive Inc. ("CGM"); Variable
New York, NY 10022 Officer and Chairman, Annuity
Age 52 Trustee President and Separate
Chief Executive Accounts of
Officer of Smith TIC
Barney Fund
Management LLC
("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>
88
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD
POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS
HELD WITH OF TIME DURING PAST OVERSEEN HELD BY
NAME, ADDRESS AND AGE TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS:
Andrew B. Shoup(4) Senior Vice Since Director of CAM; N/A N/A
CAM President 2004 Senior Vice
125 Broad Street, 10th Floor and Chief President and
New York, NY 10004 Administrative Chief
Age 47 Officer Administrative
Officer of mutual
funds associated
with Citigroup;
Treasurer of
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 Director of CGM; N/A N/A
CAM 2002 Chief Financial
125 Broad Street, 11th Floor Officer and
New York, NY 10004 Treasurer of
Age 42 certain mutual
funds associated
with Citigroup;
Director and Head
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 N/A N/A
CAM Anti-Money 2002 (since 2000);
399 Park Avenue, 4th Floor Laundering Director of
New York, NY 10022 Compliance Compliance, North
Age 40 Officer America, CAM
(since 2000);
Chief Anti-Money
Laundering
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)
Kaprel Ozsolak Controller Since Vice President of N/A N/A
CAM 2002 CGM; Controller of
125 Broad Street, 11th Floor certain mutual
New York, NY 10004 funds associated
Age 38 with Citigroup
</Table>
89
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD
POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS
HELD WITH OF TIME DURING PAST OVERSEEN HELD BY
NAME, ADDRESS AND AGE TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------------
Ernest J. Wright Secretary Since Vice President and N/A N/A
Travelers Life & Annuity One 1994 Secretary of TIC
Cityplace
Hartford, CT 06103
Age 63
Kathleen A. McGah Assistant Since Deputy General N/A N/A
Travelers Life & Annuity One Secretary 1995 Counsel of
Cityplace Travelers
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" as defined in the Investment Company
Act of 1940, as amended, because Mr. Gerken is Managing Director of CGM, an
indirect wholly owned subsidiary of Citigroup, and his ownership shares and
options to purchase shares of Citigroup, the indirect parent of TIC.
(4) As of January 21, 2004.
90
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Trust hereby designates for the fiscal year ended
December 31, 2003:
<Table>
- For corporate shareholders, the percentages of ordinary dividends that
qualify for the dividends received deduction are:
Social Awareness Stock Portfolio.......................... 100%
Pioneer Fund Portfolio.................................... 100%
- Total long-term capital gain distributions paid:
U.S. Government Securities Portfolio...................... $2,472,490
</Table>
The following percentage of ordinary dividends paid from net investment income
is derived from Federal obligations and may be exempt from taxation at the state
level:
<Table>
U.S. Government Securities Portfolio........................ 20.04%
</Table>
91
(This page intentionally left blank.)
MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY
MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
TRUSTEES
R. Jay Gerken, CFA
Chairman
Frances M. Hawk, CFA, CFP
Lewis Mandell
Robert E. McGill, III
OFFICERS
R. Jay Gerken, CFA
President and Chief
Executive Officer
Andrew B. Shoup*
Senior Vice President and
Chief Administrative Officer
Richard L. Peteka
Treasurer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
Kaprel Ozsolak
Controller
Ernest J. Wright
Secretary
Kathleen A. McGah
Assistant Secretary
INVESTMENT MANAGER
AND ADVISERS
Travelers Asset Management International
Company LLC
Smith Barney Fund Management LLC
(Social Awareness Stock Portfolio)
ADMINISTRATOR
The Travelers Insurance Company
CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT
Citicorp Trust Bank, fsb.
------------------
* As of January 21, 2004.
U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and
Pioneer Fund Portfolio 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 Managed Assets Trust, High Yield Bond Trust, Capital
Appreciation Fund, Money Market Portfolio, The Travelers Series Trust: U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer
Fund Portfolio. It should not be used in connection with any offer except in
conjunction with the Prospectuses for the Variable Annuity and Variable
Universal Life Insurance products offered by The Travelers Insurance Company or
Travelers Life and Annuity Company and the Prospectuses for the underlying
funds, which collectively contain all pertinent information, including more
complete information on charges and expenses. All the Funds contained in this
report may not be available under your variable annuity or life contract.
VG-181 (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 were $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 were $0 and
$0 for the years ended 12/31/03 and 12/31/02.
(c) Tax Fees for The Travelers Series Trust were $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 The Travelers
Series Trust.
(d) All Other Fees for The Travelers Series Trust were $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. The Travelers Series Trust's Audit Committee has
considered whether the provision of non-audit services that
were rendered to Service Affiliates which were not
pre-approved (not requiring pre-approval) is compatible with
maintaining the Accountant's independence. All services
provided by the Accountant to The Travelers Series Trust or to
Service Affiliates which were required to be pre-approved were
pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. 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 8, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
The Travelers Series Trust
Date: March 8, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
The Travelers Series Trust
Date: March 8, 2004