UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6465
THE TRAVELERS SERIES TRUST
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: DECEMBER 31
Date of reporting period: DECEMBER 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
ANNUAL REPORT
DECEMBER 31, 2004
[UMBRTOP]
[UMBRBTM]
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, FUND AT A GLANCE AND PERFORMANCE
COMPARISON (IF APPLICABLE):
MANAGED ASSETS TRUST................................... 4
HIGH YIELD BOND TRUST.................................. 8
CAPITAL APPRECIATION FUND.............................. 12
MONEY MARKET PORTFOLIO................................. 16
FUND EXPENSES............................................... 18
SCHEDULES OF INVESTMENTS.................................... 20
STATEMENTS OF ASSETS AND LIABILITIES........................ 52
STATEMENTS OF OPERATIONS.................................... 53
STATEMENTS OF CHANGES IN NET ASSETS......................... 54
FINANCIAL HIGHLIGHTS........................................ 58
NOTES TO FINANCIAL STATEMENTS............................... 60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 66
IMPORTANT TAX INFORMATION................................... 67
THE TRAVELERS SERIES TRUST - U.S. GOVERNMENT SECURITIES
PORTFOLIO, SOCIAL AWARENESS STOCK PORTFOLIO AND PIONEER FUND
PORTFOLIO:
MANAGER OVERVIEW, FUND AT A GLANCE AND PERFORMANCE
COMPARISON:
U.S. GOVERNMENT SECURITIES PORTFOLIO................... 68
SOCIAL AWARENESS STOCK PORTFOLIO....................... 72
PIONEER FUND PORTFOLIO................................. 76
FUND EXPENSES............................................... 80
SCHEDULE OF INVESTMENTS..................................... 82
STATEMENTS OF ASSETS AND LIABILITIES........................ 95
STATEMENTS OF OPERATIONS.................................... 96
STATEMENTS OF CHANGES IN NET ASSETS......................... 97
FINANCIAL HIGHLIGHTS........................................ 100
NOTES TO FINANCIAL STATEMENTS............................... 102
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 108
IMPORTANT TAX INFORMATION................................... 109
ADDITIONAL INFORMATION...................................... 110
</Table>
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LETTER FROM THE CHAIRMAN
[R. JAY GERKEN PHOTO]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
DEAR SHAREHOLDER,
Despite sharply rising oil prices, threats of terrorism, geopolitical concerns
and uncertainties surrounding the Presidential election, the U.S. economy
continued to expand during the reporting period. Following a robust 4.5% gain in
the first quarter of 2004, gross domestic product ("GDP")(i) growth was 3.3% in
the second quarter of the year. This decline was largely attributed to higher
energy prices. However, third quarter 2004 GDP rose a strong 4.0%. While fourth
quarter GDP figures have not yet been released, continued growth is expected.
Turning to the financial markets, stocks in both the U.S. and abroad rallied
sharply during the fourth quarter of 2004, helping to produce solid gains for
the year. With the uncertainty of the Presidential election behind them, coupled
with falling oil prices, investors were drawn to the equity markets. The overall
bond market also generated positive returns during the fiscal year. This was
surprising to many, given the economic expansion and five interest rate hikes by
the Federal Reserve Board ("Fed")(ii).
Within this environment, the funds performed as follows:
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004
(UNAUDITED)
<Table>
<Caption>
6 MONTHS 12 MONTHS
Managed Assets Trust 6.87% 9.44%
S&P 500 Index 7.19% 10.87%
Lehman Brothers Government/Credit Bond Index 4.39% 4.19%
Lipper Variable Flexible Portfolio Funds Category Average 6.08% 8.25%
High Yield Bond Trust 7.95% 8.75%
Credit Suisse First Boston High Yield Index 9.25% 11.95%
Lipper Variable High Current Yield Funds Category Average 8.73% 9.84%
Capital Appreciation Fund 13.99% 19.53%
S&P 500 Index 7.19% 10.87%
Russell 2000 Index 10.83% 18.33%
Lipper Variable Large-Cap Growth Funds Category Average 5.36% 8.04%
U.S. Government Securities Portfolio 6.19% 6.13%
Merrill Lynch U.S. Treasury/Agency Master Index 3.61% 3.42%
Merrill Lynch U.S. Treasuries 15+ Years/Merrill Lynch
Mortgage Master Index 6.24% 6.53%
Lipper Variable General U.S. Government Funds Category
Average 3.88% 3.92%
Social Awareness Stock Portfolio 6.57% 6.23%
S&P 500 Index 7.19% 10.87%
Lipper Variable Specialty/Miscellaneous Funds Category
Average 5.34% 7.82%
Pioneer Fund Portfolio 9.13% 11.13%
S&P 500 Index 7.19% 10.87%
Lipper Variable Large-Cap Core Funds Category Average 6.18% 8.59%
</Table>
1
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004 (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
7-DAY 7-DAY
CURRENT YIELD EFFECTIVE YIELD
Money Market Portfolio 1.88% 1.89%
</Table>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER
OR LOWER THAN THE PERFORMANCE SHOWN ABOVE. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE AND INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PERFORMANCE FIGURES OF THE MANAGED ASSETS TRUST, HIGH YIELD BOND
TRUST, CAPITAL APPRECIATION FUND, U.S. GOVERNMENT SECURITIES
PORTFOLIO, SOCIAL AWARENESS PORTFOLIO, PIONEER STOCK PORTFOLIO MAY
REFLECT REIMBURSEMENTS AND/OR FEE WAIVERS, WITHOUT WHICH THE
PERFORMANCE WOULD HAVE BEEN LOWER.
CURRENT REIMBURSEMENTS AND/OR FEE WAIVERS OF THE MONEY MARKET
PORTFOLIO ARE VOLUNTARY, AND MAY BE REDUCED OR TERMINATED AT ANY TIME.
ABSENT THESE REIMBURSEMENTS OR WAIVERS, PERFORMANCE WOULD HAVE BEEN
LOWER. THE 7-DAY CURRENT YIELD WOULD HAVE BEEN 1.86% AND THE 7-DAY
EFFECTIVE YIELD WOULD HAVE BEEN 1.87%.
FUND RETURNS ASSUME THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS AT NET ASSET VALUE AND THE DEDUCTION OF ALL FUND
EXPENSES.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended December 31, 2004 and include
the reinvestment of dividends and capital gains, if any. Returns were
calculated among the 79 funds for the six-month period and among the
78 funds for the 12-month period in the Variable Flexible Portfolio
funds category. Returns were calculated among the 87 funds for the
six-month period and among the 85 funds for the 12-month period in the
Variable High Current Yield funds category. Returns were calculated
among the 172 funds for the six-month period and among the 171 funds
for the 12-month period in the Variable Large-Cap Growth funds
category. Returns were calculated among the 56 funds for the six-month
period and among the 56 funds for the 12-month period in the Variable
General U.S. Government funds category. Returns were calculated among
the 136 funds for the six-month period and among the 136 funds for the
12-month period in the Variable Specialty/Miscellaneous funds
category. Returns were calculated among the 216 funds for the
six-month period and among the 216 funds for the 12-month period in
Variable Large-Cap Core funds category.
Please read on for a more detailed look at prevailing economic and market
conditions during the fund's fiscal year and to learn how those conditions have
affected fund performance.
INFORMATION ABOUT YOUR FUNDS
As you may be aware, several issues in the mutual fund and variable product
industry have recently come under the scrutiny of federal and state regulators.
Travelers Life & Annuity and some of its affiliates have received requests for
information from various government regulators regarding market timing, late
trading, fees, revenue sharing, producer compensation and other mutual fund and
variable product issues in connection with various investigations. The funds
have been informed that Travelers Life & Annuity and its affiliates are
responding to those information requests, but are not in a position to predict
the outcome of these requests and investigations.
As previously disclosed by Citigroup, the Staff of the Securities and Exchange
Commission ("SEC") has notified Citigroup Asset Management ("CAM") and Citicorp
Trust Bank ("CTB"), an affiliate of CAM, that the Staff is considering
recommending a civil injunctive action and/or an administrative proceeding
against CAM, CTB, the former CEO of CAM, two former employees and a current
employee of CAM, relating to the creation, operation and fees of an internal
transfer agent unit that serves various CAM-managed funds. Citigroup is
cooperating with the SEC and will seek to resolve this matter in discussion with
the SEC Staff. Although there can be no assurance, Citigroup does not believe
that this matter will have a material adverse effect on the funds. For further
information, please see the "Additional Information" note in the Notes to the
Financial Statements included in this report.
2
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
January 14, 2005
(i) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
(ii) The Fed is responsible for the formulation of a policy designed to promote
economic growth, full employment, stable prices and a sustainable pattern
of international trade and payments.
3
MANAGER OVERVIEW
MANAGED ASSETS TRUST
SPECIAL SHAREHOLDER NOTICE
Effective November 1, 2004, Mr. Gene Collins and Mr. Kurt Lin are responsible
for the day-to-day management of the Fund. Mr. Collins is a Senior Vice
President of Travelers Asset Management International Company LLC ("TAMIC").
Since 1986, he has been the Senior Portfolio Manager of the investment
portfolios of Primerica Inc., the predecessor company of Citigroup Inc. Since
1998, Mr. Collins has also been the Senior Portfolio Manager of Primerica Life
of Canada; a Canadian domiciled insurance company. Mr. Collins has 27 years of
experience in investments covering all types of fixed income and equity
securities. Mr. Lin is a Vice President of TAMIC and is responsible for managing
US investment grade portfolios and structured products. He also trades corporate
bonds, derivatives and currencies. Prior to joining TAMIC in 1997, Mr. Lin was
the senior derivatives trader at Smith Barney.
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, Managed Assets Trust returned
9.44%. The fund outperformed its unmanaged benchmark, the Lehman Brothers
Government/Credit Bond Index(i), which returned 4.19% for the same period. The
fund underperformed its other unmanaged benchmark, the S&P 500 Index(ii), which
returned 10.87% for the same period. It also outperformed its Lipper Variable
Flexible Portfolio funds category average(2), which was 8.25%.
ECONOMIC OVERVIEW
The economic expansion entered its fourth year at the close of 2004. Led by
strong consumer and business demand, the balance of growth was quite healthy.
The employment picture improved during the year, as rising profits led to
increased corporate willingness to hire new employees. Strong consumer and
business fundamentals appear likely to continue into 2005 and consumer spending
looks to strengthen further relative to last year.
Inflation began to rise modestly in 2004 as shortages of certain goods and
commodities developed around the world. In 2005, inflation pressures look to
rise as healthy growth continues to improve corporate pricing power. The ongoing
economic recovery and rising price pressures caused the Federal Reserve Board
("Fed")(iii) to institute a series of five 25 basis point(iv) rate hikes,
beginning in mid-2004. This trend looks to continue well into 2005.
OVERVIEW OF FUND'S EQUITY INVESTMENTS
With improving earnings fundamentals, the equity portion of the fund performed
well, particularly during the fourth quarter of the year. Energy stocks were
among the biggest contributors to results, on the back of historically high oil
prices and solid earnings. As investors began to focus their attention on higher
quality stocks with solid dividends and strong cash flow, less-cyclical
industries, such as foods, chemicals and building materials also realized
substantial gains.
The outcome of the presidential election removed some uncertainties surrounding
the healthcare and defense industries. However, technology stocks were generally
weak, despite an impressive start in January 2004. Concerns regarding terrorism,
oil prices and weak profits also led to a significant decline in the auto and
transportation sector, especially the airlines. In the next several weeks, as
retail sales data from the holiday season trickles out, the equity market could
potentially experience more volatility as investors reposition their portfolios
for the new year.
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity contracts, such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce
the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 78 funds in the fund's Lipper category, and excluding sales charges.
4
OVERVIEW OF FUND'S FIXED INCOME INVESTMENTS
Our corporate security selection was the major driver of performance during the
period, far exceeding the negative impact of a slight underweighting in the
sector. In particular, the portfolio's utility, industrial and financial issues
were the best performing industries in our portfolio. The next major driver of
performance was our overweighting of mortgage-backed securities ("MBS") versus
Treasuries in the benchmark. In anticipation of further curve flattening and
higher yields, we shifted the portfolio's overall duration to short of the
benchmark as a defensive measure. This adjustment added to returns over the
period.
From a corporate credit perspective, the portfolio's BBB-rated securities
generated the best results. We believe the outlook for a sustained economic
recovery should result in further improvement in corporate fundamentals and may
result in some modest spread narrowing on selective issuers going forward. The
prospect for a further reduction of credit risks makes credit products
attractive relative to Treasuries in this environment.
In the mortgage sector, MBS outperformed collateralized mortgage-backed
securities ("CMBS"), asset-backed securities ("ABS") and Treasuries during the
fiscal year. Our discount MBS generated the best total returns for both 15-year
and 30-year maturities. Within the portfolio, our Federal National Mortgage
Association(v) ("Fannie Mae") 30-year securities were the best performers. This
was due to an increase in interest rates, yield curve flattening and a decline
in volatility. Our overweighting in MBS versus agency securities also enhanced
results. While our overweighting in CMBS was a negative versus MBS, it helped
reduce our exposure to the short end of the yield curve. The portfolio's poorest
performing sectors were MBS balloons (where the final loan payment is
considerably higher than prior payments) and ABS, as both yield curve and spread
changes of these securities led to underperformance.
Thank you for your investment in the Managed Assets Trust. As ever, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the fund's investment goals.
Sincerely,
<Table>
/s/ Gene Collins -s-Kurt Lin
Gene C. Collins Kurt Lin
Travelers Asset Management International Company LLC Travelers Asset Management International Company LLC
</Table>
January 14, 2005
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's top five security type
holdings (as a percentage of net assets) as of December 31, 2004 were: Common
Stock (62.6%); Corporate Bonds and Notes (14.1%); U.S. Government Obligations
(6.6%); Convertible Corporate Bonds (4.5%) and U.S. Government Agency
Obligations (3.2%). The fund's portfolio composition is subject to change at any
time.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) The Lehman 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) The Fed is responsible for the formulation of a policy designed to
promote economic growth, full employment, stable prices and a sustainable
pattern of international trade and payments.
(iv) A basis point is one one-hundredth (1/100 or 0.01) of one percent.
(v) Federal National Mortgage Association obligations are securities consisting
mostly of mortgages backed by the Federal Housing Administration. These
obligations also include some mortgages that are not backed by the U.S.
government.
5
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FUND AT A GLANCE -- MANAGED ASSETS TRUST (UNAUDITED)
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INVESTMENT BREAKDOWN
As a Percent of Total Investments
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Common Stock 62.80 62.20
Corporate Bonds and Notes 14.10 12.70
U.S. Government Obligations 6.60 7.50
Convertible Corporate Bonds 4.60 6.20
U.S. Government Agency Obligations 3.20 4.10
Collateralized Mortgage Obligations 2.40 1.50
Convertible Preferred Stock 2.20 3.20
Asset-Backed Securities 2.00 2.10
Repurchase Agreement 1.80 0.00
Sovereign Debt 0.20 0.20
U.S. Treasury Bills 0.10 0.30
</Table>
6
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PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/04 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended
12/31/04 9.44%
Five Years Ended 12/31/04 2.64
Ten Years Ended 12/31/04 10.74
CUMULATIVE TOTAL RETURN
------------------------
Ten Years Ended 12/31/04 177.31%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1994, assuming reinvestment of dividends, through
December 31, 2004. 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>
<Caption>
LEHMAN BROTHERS
GOVERNMENT/CREDIT
MANAGED ASSETS TRUST BOND INDEX CONSUMER PRICE INDEX S&P 500 INDEX
-------------------- ----------------- -------------------- -------------
12/94 10000 10000 10000 10000
12/95 12712 11925 10254 13753
12/96 14464 12270 10594 16910
12/97 17546 13467 10774 22550
12/98 21308 14743 10947 29031
12/99 24338 14097 11273 35137
12/00 23945 15767 11656 31939
12/01 22728 17109 11837 28145
12/02 20774 18997 12119 21926
12/03 25340 19884 12347 28213
12/04 27731 20718 12749 31279
</Table>
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Assumes reinvestment of dividends and capital gains distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of voluntary fee
waivers and/or expense reimbursements, the total return would have been lower.
7
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MANAGER OVERVIEW
HIGH YIELD BOND TRUST
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, High Yield Bond Trust returned
8.75%. The fund underperformed its unmanaged benchmark, the Credit Suisse First
Boston High Yield Index(i), which returned 11.95% for the same period. It also
underperformed the Lipper Variable High Current Yield funds category average(2),
which was 9.84%.
MARKET/ECONOMIC OVERVIEW
Improving credit quality, coupled with strong economic activity, low interest
rates and supportive technical factors helped the high yield market sustain the
momentum it generated in 2003 and again post double digit returns in 2004. The
lowest rated issues within the non-investment grade universe, those rated CCC
and below, outperformed again this year, as investors continued to seek higher
yields. The fund's more conservative risk weightings and higher cash positions
principally led to its underperformance during the fiscal year.
CONTRIBUTORS TO PERFORMANCE
Portfolio returns were positively impacted by the fund's holdings in chemicals
and metals/steel, the best performing sectors in the high yield universe during
2004. These sectors' earnings benefited the most from the expanding economy and
the resulting increase in volume and price, which more than offset energy and
cost increases.
Conversely, holdings in the cable and wireless telecommunication sectors
negatively impacted the fund's returns. Cable valuations remained under pressure
for most of 2004, driven by intense pricing competition, while rural wireless
providers were negatively affected by the Cingular/AT&T Wireless merger.
While we believe strong fundamentals and technicals will remain supportive of
high yield in 2005, we remain cautious due to historically rich valuations. We
are also wary of the potential impact of increased volatility in Treasury rates
on the high yield asset class.
Thank you for your investment in the High Yield Bond Trust. As ever, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the fund's investment goals.
Sincerely,
<Table>
- -s- Paul A. Mataras -s- David A. Nadeau
Paul A. Mataras David A. Nadeau
Travelers Asset Management International Travelers Asset Management International
Company LLC Company LLC
</Table>
January 14, 2005
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity contracts, such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce
the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 85 funds in the fund's Lipper category, and excluding sales charges.
8
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's top five industry holdings
(as a percentage of net assets) as of December 31, 2004 were: Telecommunications
(9.2%); Chemicals (7.3%); Repurchase Agreement (7.2%); Cable (7.2%) and
Utilities (6.1%). The fund's portfolio composition is subject to change at any
time.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(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.
9
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FUND AT A GLANCE -- HIGH YIELD BOND TRUST (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT BREAKDOWN
As a Percent of Total Investments
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Telecommunications 9.2 6.8
Chemicals 7.4 7.4
Repurchase Agreement 7.3 18.1
Cable 7.3 7.9
Utilities 6.2 8.0
Gaming 6.0 4.8
Lodging & Leisure 5.1 5.6
Diversified 4.5 0.0
Healthcare 4.0 3.2
Energy 3.9 3.6
Industrial Products 3.5 3.1
Fabricated Glass, Plastic & Fiber 3.3 2.4
Retail 3.3 1.5
Building/Construction 3.3 1.6
Paper/Forestry Products 3.0 3.4
Printing/Publishing 2.9 2.5
Metal/Mining 2.9 2.4
Automotive 0.9 3.6
Other 16.0 14.1
</Table>
10
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PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 12/31/04 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 8.75%
Five Years Ended 12/31/04 10.19
Ten Years Ended 12/31/04 10.94
CUMULATIVE TOTAL RETURN
------------------------
Ten Years Ended 12/31/04 182.34%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1994, assuming reinvestment of dividends, through
December 31, 2004. The Credit Suisse First Boston 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>
<Caption>
CREDIT SUISSE FIRST BOSTON
HIGH YIELD BOND TRUST CONSUMER PRICE INDEX HIGH YIELD INDEX
--------------------- -------------------- --------------------------
12/94 10000 10000 10000
12/95 11547 10254 11868
12/96 13400 10594 13140
12/97 15619 10773 14800
12/98 16643 10946 14843
12/99 17379 11273 15503
12/00 17547 11655 14967
12/01 19224 11836 15836
12/02 20103 12118 16327
12/03 25963 12346 20889
12/04 28234 12749 23385
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gains distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of voluntary fee
waivers and/or expense reimbursements, the total return would have been lower.
11
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
CAPITAL APPRECIATION FUND
SPECIAL SHAREHOLDER NOTICE
The Board of Trustees of the trust, on behalf of Capital Appreciation Fund
approved an amendment to the investment advisory agreement between the fund and
Travelers Asset Management International Company LLC. Effective September 1,
2004, the investment advisory fee was revised from the annual rate of 0.75% of
the daily net assets of the fund, to a fee calculated at an annual rate in
accordance with the following schedule:
<Table>
<Caption>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
- ------------------------ ------------
First $1.5 billion.......................................... 0.700%
Over $1.5 billion........................................... 0.650%
</Table>
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, Capital Appreciation Fund
returned 19.53%. The fund outperformed its unmanaged benchmarks, the S&P 500
Index(i) and the Russell 2000 Index(ii), which returned 10.87% and 18.33%,
respectively, for the same period. The fund also outperformed its Lipper
Variable Large-Cap Growth funds category average(2), which was 8.04%.
Golfing great Ben Hogan once said, "The greatest pleasure is obtained in
improving." I think Mr. Hogan was right; we take great pleasure in sharing with
you your fund's improving results.
Among the reasons the fund significantly outperformed the S&P 500 Index was our
decision to maintain overweight positions in the consumer discretionary and
information technology sectors. In addition, the exceptionally strong results
posted by a number of our holdings in these two groups boosted returns. Weaker
areas of investment included industrials and telecommunications services, where
select fund holdings experienced setbacks.
I credit the fund's impressive metrics to the outstanding quality and depth of
the investment research performed by our analysts. Their work has given us the
confidence to invest early and with conviction in some of our best ideas. In
fact, our investments in strong performers such as APPLE COMPUTER, INC., EBAY
INC. and UNITEDHEALTH GROUP INC., among others, are the result of long-term
investment commitments.
CONTRIBUTORS TO PERFORMANCE
Our investment in Apple Computer, Inc. was the strongest contributor to
performance during the period. Apple recently launched one of its most elegant
products to date, the new G5 iMac. The early reviews have been overwhelmingly
positive and we expect this to be an important product for the company. More
importantly, Apple's wildly successful iPod music player continues to be the
music-listening device of choice and sales continue to exceed most investors'
expectations.
Another strong-performing position in the fund was eBay Inc. Its management
team, the sheer financial power of its business model and the global
proliferation of the "eBay economy" have all continued to impress us. The eBay
trading platform is well on its way to enabling the buying and selling of
products worldwide with a gross merchandise value ("GMV") in excess of $34
billion dollars. Ebay's own revenues from those sales were in excess of $2.5
billion this year and we expect both to grow rapidly again next year. To give
you an idea of the velocity of trade on eBay, a car is sold every six minutes, a
digital camera is sold every 14 minutes and a piece of jewelry every eight
minutes. Today, over 430,000 people are making a living buying and selling on
eBay. Finally, we continue to be impressed with eBay's entire management team
and their ability to guide the company's explosive growth.
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity contracts, such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce
the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 171 funds in the fund's Lipper category, and excluding sales charges.
12
Investing in the managed care sector is not for the faint of heart; very few
issues are as highly charged as healthcare. But, as consumers become
increasingly responsible for the first dollars spent on their healthcare needs,
it's clear to us that UnitedHealth Group Inc. is winning in the marketplace. The
company's flexible plan designs, along with its increasing focus on making
healthcare more affordable for larger and larger segments of the population, are
a powerful financial combination. Janus' healthcare team continues to do an
outstanding job monitoring medical and financial trends as well as anticipating
the changes in this emotionally charged space. We continue to have the utmost
confidence in Bill Maguire, Steve Hemsley and the entire UnitedHealth management
team.
Not all of our investments have met our expectations. Drugmaker FOREST
LABORATORIES, INC. was a poor performer. While the stock will be faced with some
issues over the next several quarters, including product competition and generic
challenges to key drugs, we believe that the worst is priced into the stock and
have maintained our stake for now.
Meanwhile, we liquidated our position in NVIDIA CORP., a stock that was among
our biggest detractors. While we like the longer-term prospects for
graphic-intensive semiconductor manufacturers, we feel that better opportunities
lie elsewhere.
We are very pleased with the fund's continued improvement but recognize there is
more work to be done. Our investment staff, while gratified, is certainly not
satisfied. We can continue to improve and I am confident we will. As the fund's
portfolio manager, I remain committed to further repairing the financial
fortunes of the shareholders who have had the fortitude to stay invested in the
fund and who have hopefully kept investing along the way.
Thank you for your investment in the Capital Appreciation Fund. As ever, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the fund's investment goals.
Sincerely,
Scott Schoelzel
Janus Capital Management LLC
January 18, 2005
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2004 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 a percentage of net assets)
as of this date were: UnitedHealth Group Inc. (9.8%), Apple Computer (6.7%),
Murphy Oil Corp. (6.5%), Electronic Arts Inc. (5.9%), eBay Inc. (5.7%), XM
Satellite Radio Holdings Inc., Class A Shares (5.7%), Genentech Inc. (5.4%),
Nike Inc., Class B Shares (5.1%), Wells Fargo & Co. (4.2%) and Nextel
Communications Inc., Class A Shares (3.8%). Please refer to pages 47 through 49
for a list and percentage breakdown of the fund's holdings.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's top five sector holdings (as
a percentage of net assets) as of December 31, 2004 were: Consumer Discretionary
(23.6%); Healthcare (21.8%); Information Technology (19.0%); Financials (15.1%)
and Energy (7.8%). The fund's portfolio composition is subject to change at any
time.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(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 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 8% of
the total market capitalization of the Russell 3000 Index.
13
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- CAPITAL APPRECIATION FUND (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT BREAKDOWN
As a Percent of Total Investments
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Consumer Discretionary 23.40 20.30
Healthcare 21.70 22.70
Information Technology 18.90 23.80
Financials 15.10 13.60
Energy 7.80 7.10
Industrials 4.70 4.70
Telecommunication Services 3.80 5.40
Repurchase Agreement 4.60 2.20
U.S. Government Obligations 0.00 0.20
</Table>
14
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF
12/31/04 -- (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 19.53%
Five Years Ended 12/31/04 (8.37)
Ten Years Ended 12/31/04 13.46
CUMULATIVE TOTAL RETURN
--------------------------------------------
Ten Years Ended 12/31/04 253.40%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1994, assuming reinvestment of dividends, through
December 31, 2004. 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>
<Caption>
CAPITAL APPRECIATION
FUND S&P 500 INDEX RUSSELL 2000 INDEX CONSUMER PRICE INDEX
-------------------- ------------- ------------------ --------------------
12/94 10000 10000 10000 10000
12/95 13637 13753 12846 10254
12/96 17483 16910 14965 10594
12/97 22054 22550 18312 10773
12/98 35645 29031 17847 10946
12/99 54720 35137 21638 11273
12/00 42749 31939 20985 11655
12/01 31597 28145 21524 11836
12/02 23670 21926 17115 12118
12/03 29567 28213 25202 12346
12/04 35340 31279 29822 12749
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gains distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of voluntary fee
waivers and/or expense reimbursements, the total return would have been lower.
15
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
MONEY MARKET PORTFOLIO
PERFORMANCE UPDATE(I)
As of December 31, 2004, the seven-day current yield for Money Market Portfolio
was 1.88% and its seven-day effective yield, which reflects compounding, was
1.89%(ii).
These yields include both a voluntary waiver and expense reimbursement pursuant
to an expense limitation agreement. Absent both the voluntary waiver and expense
reimbursement, the seven-day current yield would have been 1.86% and the
seven-day effective yield would have been 1.87%. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. THE FUND'S 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.
MARKET/ECONOMIC OVERVIEW
As the reporting period began, short term interest rates were at a four decade
low. However, as expected, short-term yields moved markedly higher in 2004. This
was due to continued broad based improvements in the economy and five interest
rate hikes by the Federal Reserve Board ("Fed")(iii). After solid gains during
the first three quarters of the year, fourth quarter gross domestic product
("GDP")(iv) is widely expected to mirror the 4% gain experienced in the third
quarter of 2004. The labor markets continued to show improvement over the period
and oil prices, after rising sharply to record highs in October 2004, reversed
course toward the end of the period as forecasted warmer weather and increased
reserves brought prices lower. We believe that lower oil prices should help
lessen the negative impact to consumers and businesses in the coming months.
Overall, inflation remains contained, but it is rising modestly at the core
level.
CONTRIBUTORS TO PERFORMANCE
Throughout much of the reporting period, we remained cautious in our maturity
stance for the fund. This strategy was used as we anticipated more attractive
extension opportunities in the rising interest rate environment. We believe
money market yields should continue to rise as the Fed moves short-term interest
rates towards a more neutral policy level.
Thank you for your investment in the Money Market Portfolio. As ever, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the fund's investment goals.
Sincerely,
<Table>
/s/ Emil Molinaro, Jr. /s/ Michele Mirabella
Emil Molinaro, Jr. Michele Mirabella, CFA
Portfolio Manager Portfolio Manager
</Table>
January 13, 2005
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity contracts, such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce
the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
(ii) 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.
(iii) The Fed is responsible for the formulation of a policy designed to promote
economic growth, full employment, stable prices and a sustainable pattern
of international trade and payments.
(iv) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
16
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- MONEY MARKET PORTFOLIO (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT BREAKDOWN
As a Percent of Total Investments
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Commercial Paper 94.7 90.3
Foreign Certificates of Deposit 3.7 0.0
U.S. Government Obligations and Agencies 1.6 9.7
</Table>
17
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED)
EXAMPLE
As a shareholder of the Funds, you may incur two types of costs: (1)
transaction costs, including front-end and back-end sales charges (loads) on
purchase payments, reinvested dividends, or other distributions; and (2) ongoing
costs, including management fees; distribution and/or service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004
and held for the six months ended December 31, 2004.
ACTUAL EXPENSES
The table below titled "Based on Actual Total Return" provides information
about actual account values and actual expenses. You may use the information
provided in this table, together with the amount you invested, to estimate the
expenses that you paid over the period. To estimate the expenses you paid on
your account, divide your ending account value by $1,000 (for example, an $8,600
ending account value divided by $1,000 = 8.6), then multiply the result by the
number under the heading entitled "Expenses Paid During the Period".
- --------------------------------------------------------------------------------
BASED ON ACTUAL TOTAL RETURN(1)
<Table>
<Caption>
EXPENSES
BEGINNING ENDING ANNUALIZED PAID
ACTUAL TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE
RETURN(2) VALUE VALUE RATIO PERIOD(3)
- ------------------------------------------------------------------------------------------------------------------
Managed Assets Trust........................ 6.87% $1,000.00 $1,068.70 0.59% $3.07
- ------------------------------------------------------------------------------------------------------------------
High Yield Bond Trust....................... 7.95 1,000.00 1,079.50 0.56 2.93
- ------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund................... 13.99 1,000.00 1,139.90 0.79 4.25
- ------------------------------------------------------------------------------------------------------------------
Money Market Portfolio...................... 0.67 1,000.00 1,006.70 0.40 2.02
- ------------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Assumes reinvestment of dividends and capital gain distributions, if any, at
net asset value. Total return is not annualized, as it may not be
representative of the total return for the year. Total returns do not
reflect expenses associated with the separate account such as administrative
fees, account charges and surrender charges, which, if reflected, would
reduce the total returns. Performance figures may reflect voluntary fee
waivers and/or expense reimbursements. Past performance is no guarantee of
future results. In the absence of voluntary fee waivers and/or expense
reimbursements, the total return would have been lower.
(3) Expenses (net of voluntary fee waiver and/or expense reimbursement) are
equal to the Fund's annualized expense ratio multiplied by the average
account value over the period, multiplied by the number of days in the most
recent fiscal half-year, then divided by 366.
18
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below titled "Based on Hypothetical Total Return" provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio and an assumed rate of return of 5.00% per year before
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use the information provided in this
table to compare the ongoing costs of investing in the Fund and other funds. To
do so, compare the 5.00% hypothetical example relating to the Fund with the
5.00% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as front-end or back-end sales charges (loads). Therefore, the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transaction costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
BASED ON HYPOTHETICAL TOTAL RETURN(1)
<Table>
<Caption>
HYPOTHETICAL EXPENSES
ANNUALIZED BEGINNING ENDING ANNUALIZED PAID
TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE
RETURN VALUE VALUE RATIO PERIOD(2)
- -----------------------------------------------------------------------------------------------------------------
Managed Assets Trust.......................... 5.00% $1,000.00 $1,022.17 0.59% $3.00
- -----------------------------------------------------------------------------------------------------------------
High Yield Bond Trust......................... 5.00 1,000.00 1,022.32 0.56 2.85
- -----------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund..................... 5.00 1,000.00 1,021.17 0.79 4.01
- -----------------------------------------------------------------------------------------------------------------
Money Market Portfolio........................ 5.00 1,000.00 1,023.13 0.40 2.03
- -----------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Expenses (net of voluntary fee waiver and/or expense reimbursement) are
equal to the Fund's annualized expense ratio multiplied by the average
account value over the period, multiplied by the number of days in the most
recent fiscal half-year, then divided by 366.
19
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCK -- 62.6%
- -----------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 10.0%
AUTOMOBILES -- 0.8%
56,008 Ford Motor Co. ............................................. $ 819,957
22,840 General Motors Corp. ....................................... 914,970
10,588 Harley-Davidson, Inc. ...................................... 643,221
- -----------------------------------------------------------------------------------------------------
2,378,148
- -----------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 1.1%
10,356 Carnival Corp. ............................................. 596,816
12,840 Marriott International, Inc., Class A Shares................ 808,663
35,306 McDonald's Corp. ........................................... 1,131,910
6,609 Starbucks Corp. (a)......................................... 412,137
3,024 Starwood Hotels & Resorts Worldwide, Inc. .................. 176,602
4,703 Yum! Brands, Inc. .......................................... 221,888
- -----------------------------------------------------------------------------------------------------
3,348,016
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.5%
1,444 The Black & Decker Corp. ................................... 127,549
9,630 Fortune Brands, Inc. ....................................... 743,243
8,282 Pulte Homes, Inc. .......................................... 528,392
- -----------------------------------------------------------------------------------------------------
1,399,184
- -----------------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 0.4%
11,137 eBay Inc. (a)............................................... 1,295,010
- -----------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.2%
16,328 Eastman Kodak Co. .......................................... 526,578
- -----------------------------------------------------------------------------------------------------
MEDIA -- 2.7%
38,849 Comcast Corp., Class A Shares (a)........................... 1,292,895
20,086 Fox Entertainment Group, Inc., Class A Shares (a)........... 627,888
8,056 Gannett Co., Inc. .......................................... 658,175
8,230 Lamar Advertising Co., Class A Shares (a)................... 352,079
30,427 News Corp., Class A Shares.................................. 567,768
76,286 Time Warner Inc. (a)........................................ 1,483,000
16,201 Univision Communications Inc., Class A Shares (a)........... 474,203
29,025 Viacom Inc., Class B Shares................................. 1,056,220
58,696 The Walt Disney Co. ........................................ 1,631,749
- -----------------------------------------------------------------------------------------------------
8,143,977
- -----------------------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.6%
7,819 Costco Wholesale Corp. ..................................... 378,518
4,483 Federated Department Stores, Inc. .......................... 259,073
4,844 Target Corp. ............................................... 251,549
72,020 Wal-Mart Stores, Inc. ...................................... 3,804,096
- -----------------------------------------------------------------------------------------------------
4,693,236
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.2%
2,060 AutoZone, Inc. (a).......................................... $ 188,099
11,079 Best Buy Co., Inc. ......................................... 658,314
16,588 Borders Group, Inc. ........................................ 421,335
5,517 GameStop Corp., Class B Shares (a).......................... 123,636
15,011 The Gap, Inc. .............................................. 317,032
57,789 The Home Depot, Inc. ....................................... 2,469,902
16,784 Limited Brands.............................................. 386,368
6,851 Lowe's Cos., Inc. .......................................... 394,549
28,518 Staples, Inc. .............................................. 961,342
25,629 Toys "R" Us, Inc. (a)....................................... 524,626
- -----------------------------------------------------------------------------------------------------
6,445,203
- -----------------------------------------------------------------------------------------------------
TEXTILES & APPAREL -- 0.5%
2,525 Jones Apparel Group, Inc. .................................. 92,339
13,925 Nike, Inc., Class B Shares.................................. 1,262,858
- -----------------------------------------------------------------------------------------------------
1,355,197
- -----------------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 29,584,549
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.3%
BEVERAGES -- 1.5%
3,843 Anheuser-Busch Cos., Inc. .................................. 194,955
4,432 Brown-Forman Corp., Class B Shares.......................... 215,750
49,773 The Coca-Cola Co. .......................................... 2,072,050
7,645 Coca-Cola Enterprises Inc. ................................. 159,398
34,384 PepsiCo, Inc. .............................................. 1,794,845
- -----------------------------------------------------------------------------------------------------
4,436,998
- -----------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILING -- 0.2%
19,883 Walgreen Co. ............................................... 762,911
- -----------------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.7%
41,549 Archer-Daniels-Midland Co. ................................. 926,958
6,026 Hormel Foods Corp. ......................................... 188,915
3,549 Kellogg Co. ................................................ 158,498
36,154 Sara Lee Corp. ............................................. 872,758
- -----------------------------------------------------------------------------------------------------
2,147,129
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.1%
5,750 Colgate-Palmolive Co. ...................................... 294,170
8,611 Kimberly-Clark Corp. ....................................... 566,690
44,556 The Procter & Gamble Co. ................................... 2,454,144
- -----------------------------------------------------------------------------------------------------
3,315,004
- -----------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.1%
8,411 The Gillette Co. ........................................... 376,645
- -----------------------------------------------------------------------------------------------------
TOBACCO -- 0.7%
34,569 Altria Group, Inc. ......................................... 2,112,166
- -----------------------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 13,150,853
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
ENERGY -- 4.3%
ENERGY EQUIPMENT & SERVICES -- 0.6%
8,383 Baker Hughes Inc. .......................................... $ 357,703
7,077 Halliburton Co. ............................................ 277,701
11,645 Schlumberger Ltd. .......................................... 779,633
7,657 Transocean Inc. (a)......................................... 324,580
- -----------------------------------------------------------------------------------------------------
1,739,617
- -----------------------------------------------------------------------------------------------------
OIL & GAS -- 3.7%
5,200 Anadarko Petroleum Corp. ................................... 337,012
15,000 Burlington Resources Inc. .................................. 652,500
36,690 ChevronTexaco Corp. ........................................ 1,926,592
11,958 ConocoPhillips.............................................. 1,038,313
5,596 Devon Energy Corp. ......................................... 217,796
110,004 Exxon Mobil Corp. .......................................... 5,638,805
11,117 Marathon Oil Corp. ......................................... 418,110
6,700 Occidental Petroleum Corp. ................................. 391,012
2,778 Sunoco, Inc. ............................................... 226,991
6,578 Valero Energy Corp. ........................................ 298,641
- -----------------------------------------------------------------------------------------------------
11,145,772
- -----------------------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 12,885,389
- -----------------------------------------------------------------------------------------------------
FINANCIALS -- 12.6%
BANKS -- 3.6%
91,138 Bank of America Corp. ...................................... 4,282,575
69 First Horizon National Corp. ............................... 2,975
7,512 KeyCorp..................................................... 254,657
6,425 Marshall & Ilsley Corp. .................................... 283,985
23,293 National City Corp. ........................................ 874,652
17,970 U.S. Bancorp................................................ 562,820
37,249 Wachovia Corp. ............................................. 1,959,297
4,665 Washington Mutual, Inc. .................................... 197,236
34,645 Wells Fargo & Co. .......................................... 2,153,187
- -----------------------------------------------------------------------------------------------------
10,571,384
- -----------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 5.5%
31,011 American Express Co. (b).................................... 1,748,090
12,680 The Bear Stearns Cos. Inc. ................................. 1,297,291
14,913 Capital One Financial Corp. ................................ 1,255,824
29,036 Countrywide Financial Corp. ................................ 1,074,622
21,564 Fannie Mae.................................................. 1,535,572
11,446 Freddie Mac................................................. 843,570
14,428 The Goldman Sachs Group, Inc. .............................. 1,501,089
78,119 JPMorgan Chase & Co. ....................................... 3,047,422
10,548 Lehman Brothers Holdings Inc. .............................. 922,739
7,113 MBNA Corp. ................................................. 200,516
13,422 Merrill Lynch & Co., Inc. .................................. 802,233
23,469 Morgan Stanley.............................................. 1,302,999
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 5.5% (CONTINUED)
10,583 Principal Financial Group, Inc. ............................ $ 433,268
21,880 Providian Financial Corp. (a)............................... 360,364
- -----------------------------------------------------------------------------------------------------
16,325,599
- -----------------------------------------------------------------------------------------------------
INSURANCE -- 3.5%
5,050 ACE Ltd. ................................................... 215,887
9,150 AFLAC Inc. ................................................. 364,536
8,125 The Allstate Corp. ......................................... 420,225
9,864 Ambac Financial Group, Inc. ................................ 810,130
44,839 American International Group, Inc. ......................... 2,944,577
5,214 Aon Corp. .................................................. 124,406
11,015 The Chubb Corp. ............................................ 847,053
3,647 The Hartford Financial Services Group, Inc. ................ 252,774
2,492 Jefferson-Pilot Corp. ...................................... 129,484
3,328 Lincoln National Corp. ..................................... 155,351
8,918 Marsh & McLennan Cos., Inc. ................................ 293,402
12,515 MetLife, Inc. .............................................. 506,983
6,337 MGIC Investment Corp. ...................................... 436,683
9,721 The Progressive Corp. ...................................... 824,730
28,930 Prudential Financial, Inc. ................................. 1,589,993
4,762 WellPoint Inc. (a).......................................... 547,630
- -----------------------------------------------------------------------------------------------------
10,463,844
- -----------------------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 37,360,827
- -----------------------------------------------------------------------------------------------------
HEALTHCARE -- 7.6%
BIOTECHNOLOGY -- 1.1%
22,235 Amgen Inc. (a).............................................. 1,426,375
11,225 Biogen Idec Inc. (a)........................................ 747,697
7,054 Genentech, Inc. (a)......................................... 384,020
17,808 Gilead Sciences, Inc. (a)................................... 623,102
- -----------------------------------------------------------------------------------------------------
3,181,194
- -----------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES -- 0.8%
4,203 Becton, Dickinson & Co. .................................... 238,731
14,235 Boston Scientific Corp. (a)................................. 506,054
20,444 Medtronic, Inc. ............................................ 1,015,453
8,826 Zimmer Holdings, Inc. (a)................................... 707,139
- -----------------------------------------------------------------------------------------------------
2,467,377
- -----------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 1.4%
2,653 Aetna Inc. ................................................. 330,962
6,002 AmerisourceBergen Corp. .................................... 352,197
2,898 Cardinal Health, Inc. ...................................... 168,519
10,822 Caremark Rx, Inc. (a)....................................... 426,712
6,580 CIGNA Corp. ................................................ 536,731
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 1.4% (CONTINUED)
21,834 Humana Inc. (a)............................................. $ 648,251
18,639 UnitedHealth Group Inc. .................................... 1,640,791
- -----------------------------------------------------------------------------------------------------
4,104,163
- -----------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.3%
26,184 Abbott Laboratories......................................... 1,221,484
32,239 Bristol-Myers Squibb Co. ................................... 825,963
15,248 Eli Lilly and Co. .......................................... 865,324
11,998 Forest Laboratories, Inc. (a)............................... 538,230
1,503 Hospira, Inc. (a)........................................... 50,350
17,385 IVAX Corp. (a).............................................. 275,031
49,789 Johnson & Johnson........................................... 3,157,618
4,825 Medco Health Solutions, Inc. (a)............................ 200,720
36,890 Merck & Co., Inc. .......................................... 1,185,645
127,498 Pfizer Inc. ................................................ 3,428,421
24,504 Schering-Plough Corp. ...................................... 511,644
15,864 Wyeth....................................................... 675,648
- -----------------------------------------------------------------------------------------------------
12,936,078
- -----------------------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 22,688,812
- -----------------------------------------------------------------------------------------------------
INDUSTRIALS -- 7.3%
AEROSPACE & DEFENSE -- 1.2%
10,216 The Boeing Co. ............................................. 528,882
9,171 General Dynamics Corp. ..................................... 959,287
10,625 Lockheed Martin Corp. ...................................... 590,219
13,960 Northrop Grumman Corp. ..................................... 758,866
8,615 United Technologies Corp. .................................. 890,360
- -----------------------------------------------------------------------------------------------------
3,727,614
- -----------------------------------------------------------------------------------------------------
AIR FREIGHT & COURIERS -- 0.5%
19,243 United Parcel Service, Inc., Class B Shares................. 1,644,507
- -----------------------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.2%
12,565 Masco Corp. ................................................ 458,999
- -----------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 0.3%
4,600 Avery Dennison Corp. ....................................... 275,862
18,666 Cendant Corp. .............................................. 436,411
4,415 Fiserv, Inc. (a)............................................ 177,439
- -----------------------------------------------------------------------------------------------------
889,712
- -----------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.2%
15,618 Thomas & Betts Corp. (a).................................... 480,254
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.9%
9,076 3M Co. ..................................................... 744,867
166,457 General Electric Co. ....................................... 6,075,681
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.9% (CONTINUED)
14,320 Honeywell International Inc. ............................... $ 507,071
35,733 Tyco International Ltd. .................................... 1,277,097
- -----------------------------------------------------------------------------------------------------
8,604,716
- -----------------------------------------------------------------------------------------------------
MACHINERY -- 1.9%
15,616 Danaher Corp. .............................................. 896,515
12,441 Deere & Co. ................................................ 925,611
13,499 Dover Corp. ................................................ 566,148
3,470 Eaton Corp. ................................................ 251,089
10,421 Ingersoll-Rand Co., Class A Shares.......................... 836,806
5,834 ITT Industries, Inc. ....................................... 492,681
12,313 PACCAR Inc. ................................................ 990,950
8,110 Parker Hannifin Corp. ...................................... 614,251
- -----------------------------------------------------------------------------------------------------
5,574,051
- -----------------------------------------------------------------------------------------------------
ROAD & RAIL -- 0.1%
6,069 Norfolk Southern Corp. ..................................... 219,637
- -----------------------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 21,599,490
- -----------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 10.0%
COMMUNICATIONS EQUIPMENT -- 2.2%
114,038 Cisco Systems, Inc. (a)..................................... 2,200,934
29,606 Comverse Technology, Inc. (a)............................... 723,867
22,787 Corning Inc. (a)............................................ 268,203
74,755 Motorola, Inc. ............................................. 1,285,786
17,787 Polycom, Inc. (a)........................................... 414,793
25,068 QUALCOMM Inc. .............................................. 1,062,883
17,927 Scientific-Atlanta, Inc. ................................... 591,770
- -----------------------------------------------------------------------------------------------------
6,548,236
- -----------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.7%
6,496 Apple Computer, Inc. (a).................................... 418,342
42,209 Dell Inc. (a)............................................... 1,778,687
41,792 EMC Corp. (a)............................................... 621,447
51,373 Hewlett-Packard Co. ........................................ 1,077,292
30,245 International Business Machines Corp. ...................... 2,981,552
2,184 Lexmark International, Inc., Class A Shares (a)............. 185,640
9,335 NCR Corp. (a)............................................... 646,262
59,428 Sun Microsystems, Inc. (a).................................. 319,723
- -----------------------------------------------------------------------------------------------------
8,028,945
- -----------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.3%
16,515 Jabil Circuit, Inc. (a)..................................... 422,454
10,183 Waters Corp. (a)............................................ 476,462
- -----------------------------------------------------------------------------------------------------
898,916
- -----------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 0.3%
22,377 Yahoo! Inc. (a)............................................. 843,165
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 1.7%
30,371 Advanced Micro Devices, Inc. (a)............................ $ 668,770
6,487 Analog Devices, Inc. ....................................... 239,500
109,046 Intel Corp. ................................................ 2,550,586
3,428 KLA-Tencor Corp. (a)........................................ 159,676
5,372 Maxim Integrated Products, Inc. ............................ 227,719
36,129 Micron Technology, Inc. (a)................................. 446,193
33,941 Texas Instruments Inc. ..................................... 835,627
- -----------------------------------------------------------------------------------------------------
5,128,071
- -----------------------------------------------------------------------------------------------------
SOFTWARE -- 2.8%
11,877 Adobe Systems, Inc. ........................................ 745,163
24,088 Autodesk, Inc. ............................................. 914,140
84 Computer Associates International, Inc. .................... 2,609
3,666 Electronic Arts Inc. (a).................................... 226,119
181,861 Microsoft Corp. ............................................ 4,857,507
84,751 Oracle Corp. (a)............................................ 1,162,784
19,509 VERITAS Software Corp. (a).................................. 556,982
- -----------------------------------------------------------------------------------------------------
8,465,304
- -----------------------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 29,912,637
- -----------------------------------------------------------------------------------------------------
MATERIALS -- 2.3%
CHEMICALS -- 1.0%
19,810 The Dow Chemical Co. ....................................... 980,793
7,393 E.I. du Pont de Nemours & Co. .............................. 362,627
12,710 Ecolab Inc. ................................................ 446,502
19,406 Monsanto Co. ............................................... 1,078,003
- -----------------------------------------------------------------------------------------------------
2,867,925
- -----------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.4%
7,716 Ball Corp. ................................................. 339,350
17,960 Pactiv Corp. (a)............................................ 454,208
9,562 Sealed Air Corp. (a)........................................ 509,368
- -----------------------------------------------------------------------------------------------------
1,302,926
- -----------------------------------------------------------------------------------------------------
METALS & MINING -- 0.6%
37,591 Alcoa Inc. ................................................. 1,181,109
7,010 Newmont Mining Corp. ....................................... 311,314
4,540 Nucor Corp. ................................................ 237,624
- -----------------------------------------------------------------------------------------------------
1,730,047
- -----------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.3%
6,300 Georgia-Pacific Corp. ...................................... 236,124
8,532 International Paper Co. .................................... 358,344
3,635 Weyerhaeuser Co. ........................................... 244,345
- -----------------------------------------------------------------------------------------------------
838,813
- -----------------------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 6,739,711
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 2.2%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.0%
44,893 BellSouth Corp. ............................................ $ 1,247,576
4,563 CenturyTel, Inc. ........................................... 161,850
55,589 SBC Communications Inc. .................................... 1,432,528
24,903 Sprint Corp., (FON Group)................................... 618,840
59,697 Verizon Communications Inc. ................................ 2,418,325
- -----------------------------------------------------------------------------------------------------
5,879,119
- -----------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.2%
27,879 Nextel Partners, Inc., Class A Shares (a)................... 544,756
- -----------------------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 6,423,875
- -----------------------------------------------------------------------------------------------------
UTILITIES -- 2.0%
ELECTRIC UTILITIES -- 1.7%
45,907 The AES Corp. (a)........................................... 627,549
22,628 American Electric Power Co., Inc. .......................... 777,045
16,944 Constellation Energy Group.................................. 740,622
16,862 Edison International........................................ 540,090
20,414 Exelon Corp. ............................................... 899,645
19,243 FirstEnergy Corp. .......................................... 760,291
4,809 Public Service Enterprise Group Inc. ....................... 248,962
9,894 The Southern Co. ........................................... 331,647
- -----------------------------------------------------------------------------------------------------
4,925,851
- -----------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.3%
10,895 Kinder Morgan, Inc. ........................................ 796,752
4,433 National Fuel Gas Co. ...................................... 125,631
- -----------------------------------------------------------------------------------------------------
922,383
- -----------------------------------------------------------------------------------------------------
TOTAL UTILITIES............................................. 5,848,234
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $161,028,650)................... 186,194,377
- -----------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 2.2%
- -----------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 1.6%
AUTOMOBILES -- 0.9%
16,000 Ford Motor Co. Capital Trust II, 6.500% Cumulative Trust
Preferred Securities...................................... 844,640
General Motors Corp., Sr. Debentures:
37,000 5.250% Series B........................................... 853,590
33,000 6.250% Series C........................................... 879,780
- -----------------------------------------------------------------------------------------------------
2,578,010
- -----------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.1%
4,000 Amcor Ltd., 7.250% PRIDES(SM)............................... 229,500
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.3%
21,000 Newell Financial Trust I, 5.250% Cumulative QUIPS(SM)....... 989,625
- -----------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
27
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------------------
MEDIA -- 0.3%
10,500 Tribune Co., 2.000% PHONES(SM).............................. $ 953,925
- -----------------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 4,751,060
- -----------------------------------------------------------------------------------------------------
FINANCIALS -- 0.4%
BANKS -- 0.3%
3,000 Washington Mutual Capital Trust I, 5.375% Cumulative........ 167,250
13,000 Washington Mutual, Inc., 5.375% Cumulative (c).............. 733,148
- -----------------------------------------------------------------------------------------------------
900,398
- -----------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
7,000 Equity Office Properties Trust, 5.250% Cumulative, Series
B......................................................... 359,520
- -----------------------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 1,259,918
- -----------------------------------------------------------------------------------------------------
UTILITIES -- 0.2%
ELECTRIC UTILITIES -- 0.2%
10,000 CalEnergy Capital Trust II, 6.250% Trust Preferred
Securities................................................ 497,500
- -----------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $6,028,467)...... 6,508,478
- -----------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 6.6%
- --------------------------------------------------------------------------------------------------
$ 1,382,000 U.S. Treasury Bonds, 5.375% due 2/15/31........................... 1,494,828
U.S. Treasury Notes:
2,080,000 5.875% due 11/15/05............................................. 2,135,983
2,068,000 5.625% due 5/15/08.............................................. 2,218,739
3,300,000 3.250% due 8/15/08.............................................. 3,285,694
500,000 3.375% due 12/15/08............................................. 498,575
3,200,000 3.500% due 8/15/09.............................................. 3,192,253
6,225,000 5.750% due 8/15/10.............................................. 6,855,530
- --------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $20,120,391)........... 19,681,602
- --------------------------------------------------------------------------------------------------
</Table>
<Table>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.2%
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTES & BONDS -- 2.7%
Federal Home Loan Mortgage Corp. (FHLMC):
500,000 Medium-Term Notes, 2.900% due 2/27/19 (d)....................... 496,469
Reference Notes:
6,000,000 2.125% due 11/15/05........................................... 5,957,532
500,000 4.875% due 11/15/13........................................... 515,084
1,000,000 Federal National Mortgage Association (FNMA),
Benchmark Notes, 1.750% due 6/16/06............................. 980,945
- --------------------------------------------------------------------------------------------------
7,950,030
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGHS -- 0.5%
Federal National Mortgage Association (FNMA):
$ 291 8.500% due 3/1/05........................................ $ 296
525,107 6.000% due 1/1/13........................................ 551,714
34,998 6.500% due 12/1/27....................................... 36,813
139,860 6.000% due 3/1/28........................................ 145,161
25,679 6.000% due 4/1/28........................................ 26,667
118,402 6.000% due 5/1/28........................................ 122,888
66,513 6.000% due 6/1/28........................................ 69,034
102,668 6.000% due 7/1/28........................................ 106,559
331,870 5.500% due 8/1/28........................................ 338,409
129,372 6.000% due 8/1/28........................................ 134,275
Government National Mortgage Association (GNMA)
23,695 9.000% due 11/15/19...................................... 26,617
7,238 9.500% due 1/15/20....................................... 8,177
- --------------------------------------------------------------------------------------------------
1,566,610
- --------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost -- $9,471,734)....................................... 9,516,640
- --------------------------------------------------------------------------------------------------
<Caption>
RATING(e)
- -------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 14.1%
- -------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 2.4%
AUTOMOBILES -- 0.4%
600,000 BBB DaimlerChrylser North America Holding Corp., Notes, 7.300%
due 1/15/12............................................... 682,102
400,000 BBB- Ford Motor Co., Notes, 7.450% due 7/16/31................... 403,458
- -------------------------------------------------------------------------------------------------------
1,085,560
- -------------------------------------------------------------------------------------------------------
MEDIA -- 2.0%
2,000,000 BBB Comcast Cable Communications, Inc., Notes, 8.875% due 5/1/17
(b)....................................................... 2,629,528
800,000 BBB- Liberty Media Corp., Sr. Notes, 3.990% due 9/17/06 (d)...... 810,008
2,000,000 BBB+ Time Warner, Inc., Guaranteed Debentures, 7.625% due
4/15/31................................................... 2,427,126
- -------------------------------------------------------------------------------------------------------
5,866,662
- -------------------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY 6,952,222
- -------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 0.2%
TOBACCO -- 0.2%
700,000 BBB Altria Group, Inc., Notes, 5.625% due 11/4/08............... 728,120
- -------------------------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES................................................. 728,120
- -------------------------------------------------------------------------------------------------------
ENERGY -- 0.4%
OIL & GAS -- 0.4%
300,000 BBB+ Anadarko Finance Co., Sr. Notes, Series B, 6.750% due
5/1/11.................................................... 338,305
200,000 A- Cooper Cameron Corp., Sr. Notes, 2.650% due 4/15/07......... 194,871
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
29
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(e) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
OIL & GAS -- 0.4%(CONTINUED)
$ 400,000 BBB Devon Financing Corp ULC, Guaranteed Debentures, 7.875% due
9/30/31................................................... $ 505,228
200,000 BBB+ Kinder Morgan Energy Partners, Notes, 5.125% due 11/15/14... 199,985
- -------------------------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 1,238,389
- -------------------------------------------------------------------------------------------------------
FINANCIALS -- 6.6%
BANKS -- 1.1%
700,000 AA- ABN AMRO Bank NV, Sr. Notes, 2.334% due 5/11/07 (d)......... 700,674
500,000 A+ Bank of America Corp., Sr. Notes, 5.375% due 6/15/14........ 522,753
300,000 A+ HSBC Bank USA, Sub. Notes, 5.875% due 11/1/34............... 304,853
300,000 A Huntington National Bank, Sr. Notes, 4.650% due 6/30/09..... 306,036
500,000 A+ Royal Bank of Scotland PLC, Bonds, 5.050% due 1/8/15........ 506,355
200,000 A+ US Bank NA, Sub. Notes, Series BKNT, 4.950% due 10/30/14.... 201,116
200,000 A Wachovia Bank NA, Sub. Notes, 4.800% due 11/1/14............ 199,132
400,000 A- Washington Mutual Bank, FA, Sub. Notes, 5.650% due
8/15/14................................................... 414,521
337,585 NR Willmington Trust, 9.250% due 1/2/07........................ 232,933
- -------------------------------------------------------------------------------------------------------
3,388,373
- -------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 3.0%
400,000 AAA AIG SunAmerica Global Finance, Sr. Notes, 5.850% due 8/1/08
(c)....................................................... 426,455
800,000 A+ American General Finance, Notes, 3.875% due 10/1/09......... 788,054
520,000 BBB Capital One Bank, Notes, 5.000% due 6/15/09................. 535,979
480,000 A Countrywide Home Loans, Inc., Medium-Term Notes, Series L,
4.000% due 3/22/11........................................ 467,319
Credit Suisse First Boston (USA), Inc., Notes:
300,000 A+ 6.125% due 11/15/11....................................... 327,604
600,000 A+ 4.875% due 1/15/15........................................ 593,728
Ford Motor Credit Co., Global Landmark Securities(TM):
400,000 BBB- 6.500% due 1/25/07........................................ 416,138
100,000 BBB- 5.700% due 1/15/10........................................ 101,020
1,000,000 BBB- General Motors Acceptance Corp., Bonds, 8.000% due
11/1/31................................................... 1,030,762
300,000 BBB- Glencore Funding LLC, Guaranteed Debentures, 6.000% due
4/15/14 (c)............................................... 290,751
400,000 A- Goldman Sachs Capital I, Capital Securities, 6.345% due
2/15/34................................................... 417,931
1,100,000 A Household Finance Corp., Notes, 6.375% due 11/27/12......... 1,217,277
800,000 A JPMorgan Chase & Co., Sub. Notes, 5.250% due 5/1/15......... 810,668
500,000 A Lehman Brothers Holdings Inc., Medium-Term Notes, Series G,
4.800% due 3/13/14........................................ 494,088
Merrill Lynch & Co., Inc.:
600,000 A+ Medium-Term Notes, Series C, 4.125% due 9/10/09........... 600,223
300,000 A+ Notes, Series MTNC, 5.000% due 1/15/15.................... 299,408
200,000 AA Rabobank Capital Fund Trust III, Subordinated, 5.254% due
12/31/16 (c)(d)........................................... 199,346
- -------------------------------------------------------------------------------------------------------
9,016,751
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
30
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(e) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
INSURANCE -- 0.6%
$ 1,000,000 AA+ New York Life Global Funding, Notes, 5.375% due 9/15/13
(c)....................................................... $ 1,042,327
600,000 AA Principal Life Global Funding I, Bonds, 6.125% due 10/15/33
(c)....................................................... 627,683
- -------------------------------------------------------------------------------------------------------
1,670,010
- -------------------------------------------------------------------------------------------------------
REAL ESTATE -- 1.9%
200,000 BBB HRPT Properties Trust, Sr. Notes, 6.250% due 8/15/16........ 211,397
100,000 A- Kimco Realty Corp., Medium-Term Notes, Series C, 2.360% due
8/1/06 (d)................................................ 100,028
5,000,000 BBB- Nationwide Health Properties, Inc., Medium-Term Notes,
Series C,
6.900% due 10/1/37........................................ 5,407,905
- -------------------------------------------------------------------------------------------------------
5,719,330
- -------------------------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 19,794,464
- -------------------------------------------------------------------------------------------------------
HEALTHCARE -- 0.3%
PHARMACEUTICALS -- 0.3%
300,000 BBB+ Anthem, Inc., Bonds, 6.800% due 8/1/12...................... 340,133
500,000 A Wyeth, Notes, 6.500% due 2/1/34............................. 535,247
- -------------------------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 875,380
- -------------------------------------------------------------------------------------------------------
INDUSTRIALS -- 0.4%
AEROSPACE/DEFENSE -- 0.4%
400,000 BBB Lockheed Martin Corp., Debentures, 8.500% due 12/1/29....... 548,989
500,000 BBB Northrop Grumman Corp., Notes, 4.079% due 11/16/06.......... 505,278
- -------------------------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 1,054,267
- -------------------------------------------------------------------------------------------------------
MATERIALS -- 0.5%
CONSTRUCTION SERVICES -- 0.1%
300,000 BBB- MDC Holdings, Inc., Sr. Notes, 5.500% due 5/15/13........... 305,102
- -------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.2%
300,000 A+ Bottling Group LLC, Sr. Notes, 4.625% due 11/15/12.......... 305,183
300,000 BBB Sealed Air Corp., Bonds, 6.875% due 7/15/33 (c)............. 325,019
- -------------------------------------------------------------------------------------------------------
630,202
- -------------------------------------------------------------------------------------------------------
METALS & MINING -- 0.1%
300,000 BBB- Phelps Dodge Corp., Sr. Notes, 8.750% due 6/1/11............ 366,246
- -------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.1%
200,000 BBB International Paper Co., Notes, 5.300% due 4/1/15........... 202,744
- -------------------------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 1,504,294
- -------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 1.4%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%
200,000 A BellSouth Corp., Notes, 4.750% due 11/15/12................. 201,556
800,000 BBB+ Deutsche Telekom International Finance BV, Bonds, 8.250% due
6/15/05................................................... 818,734
1,000,000 BBB+ France Telecom S.A., Sr. Notes, 9.250% due 3/1/31........... 1,359,600
300,000 A SBC Communications, Notes, 5.100% due 9/15/14............... 303,364
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
31
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(e) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%(CONTINUED)
Telecom Italia Capital SA,:
$ 900,000 BBB+ Guaranteed Debentures, 6.000% due 9/30/34 (c)............. $ 882,895
400,000 BBB+ Notes, 4.000% due 1/15/10 (c)............................. 392,636
300,000 A+ Verizon New York Inc., Debentures, Series A, 6.875% due
4/1/12.................................................... 337,230
- -------------------------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 4,296,015
- -------------------------------------------------------------------------------------------------------
UTILITIES -- 1.9%
ELECTRIC UTILITIES -- 1.6%
300,000 BBB+ Dominion Resources Inc., Sr. Notes, Series F, 5.250% due
8/1/33.................................................... 301,147
1,100,000 AAA General Electric Co., Notes, 5.000% due 2/1/13.............. 1,130,427
2,000,000 BB- PSEG Energy Holdings LLC, Sr. Notes, 8.500% due 6/15/11..... 2,292,500
700,000 AA- SP PowerAssets Ltd., Notes, 5.000% due 10/22/13 (c)......... 711,559
200,000 BBB- TransAlta Corp., Sr. Notes, 5.750% due 12/15/13............. 206,309
- -------------------------------------------------------------------------------------------------------
4,641,942
- -------------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.3%
200,000 BBB+ Consolidated Natural Gas, Sr. Notes, 5.000% due 12/1/14..... 200,580
300,000 BBB- Duke Capital LLC, Sr. Notes, 4.331% due 11/16/06............ 303,899
300,000 A+ Southern California Gas Co., First Mortgage Bonds, Series
II,
4.375% due 1/15/11........................................ 301,307
- -------------------------------------------------------------------------------------------------------
805,786
- -------------------------------------------------------------------------------------------------------
TOTAL UTILITIES............................................. 5,447,728
- -------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $38,183,865)....... 41,890,879
- -------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 4.5%
- -------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 2.0%
AUTO COMPONENTS -- 0.3%
25,000 BBB American Axle & Manufacturing Holdings, Inc., Sr. Notes,
2.000% due 2/15/24 (c).................................... 22,875
1,750,000 BBB- Lear Corp., Sr. Notes, zero coupon bond to yield 2.875% due
2/20/22................................................... 912,188
- -------------------------------------------------------------------------------------------------------
935,063
- -------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 0.5%
660,000 BBB- Four Seasons Hotels Inc., Sr. Notes, 1.875% due 7/30/24..... 847,275
1,050,000 BB+ Royal Caribbean Cruises Ltd., Sr. LYO(TM)Ns, zero coupon
bond to yield
4.875% due 2/2/21......................................... 675,937
- -------------------------------------------------------------------------------------------------------
1,523,212
- -------------------------------------------------------------------------------------------------------
MEDIA -- 0.9%
Liberty Media Corp., Sr. Exchangeable Debentures:
500,000 BBB- 0.750% due 3/30/23 (c).................................... 604,375
650,000 BBB- 4.000% due 11/15/29....................................... 478,562
750,000 BBB- 3.500% due 1/15/31........................................ 711,563
850,000 BBB+ The Walt Disney Co., Sr. Notes, 2.125% due 4/15/23.......... 949,875
- -------------------------------------------------------------------------------------------------------
2,744,375
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
32
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(e) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 0.3%
$ 200,000 BB+ Best Buy Co., Inc., Sub. Debentures, 2.250% due 1/15/22
(c)....................................................... $ 217,750
459,000 BB+ The Gap, Inc., Sr. Notes, 5.750% due 3/15/09................ 611,044
- -------------------------------------------------------------------------------------------------------
828,794
- -------------------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 6,031,444
- -------------------------------------------------------------------------------------------------------
ENERGY -- 1.2%
ENERGY EQUIPMENT & SERVICES -- 1.2%
175,000 A- Cooper Cameron Corp., Sr. Debentures, 1.500% due 5/15/24
(c)....................................................... 185,281
915,000 A- Diamond Offshore Drilling, Inc., Sr. Debentures, 1.500% due
4/15/31................................................... 974,475
Global Marine Inc., Debentures:
300,000 A- Zero coupon bond to yield 3.500% due 6/23/20 (c).......... 177,375
1,000,000 A- Zero coupon bond to yield 4.203% due 6/23/20.............. 591,250
500,000 BBB Halliburton Co., Sr. Notes, 3.125% due 7/15/23 (c).......... 617,500
900,000 A+ Schlumberger Ltd., Sr. Notes, Series A, 1.500% due 6/1/23... 990,000
- -------------------------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 3,535,881
- -------------------------------------------------------------------------------------------------------
FINANCIALS -- 0.3%
INSURANCE -- 0.3%
1,350,000 AAA American International Group, Inc., Sr. Debentures, zero
coupon bond to yield 1.525% due 11/9/31................... 899,437
- -------------------------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 899,437
- -------------------------------------------------------------------------------------------------------
HEALTHCARE -- 0.5%
HEALTHCARE PROVIDERS & SERVICES -- 0.4%
Health Management Associates, Inc., Sr. Sub. Notes:
200,000 BBB+ 1.500% due 8/1/23......................................... 210,500
800,000 BBB+ 1.500% due 8/1/23 (c)..................................... 842,000
- -------------------------------------------------------------------------------------------------------
1,052,500
- -------------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.1%
250,000 A Allergan, Inc., Sr. Notes, zero coupon bond to yield 1.250%
due 11/6/22 (c)........................................... 245,625
140,000 BBB- Watson Pharmaceuticals, Inc., Sr. Debentures, 1.750% due
3/15/23 (c)............................................... 144,900
- -------------------------------------------------------------------------------------------------------
390,525
- -------------------------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 1,443,025
- -------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 0.4%
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.1%
440,000 BBB- Arrow Electronics, Inc., Sr. Debentures, zero coupon bond to
yield
4.000% due 2/21/21........................................ 237,050
- -------------------------------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 0.3%
955,000 BBB- Electronic Data Systems Corp., Sr. Notes, 3.875% due
7/15/23................................................... 1,013,494
- -------------------------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 1,250,544
- -------------------------------------------------------------------------------------------------------
MATERIALS -- 0.0%
METALS & MINING -- 0.0%
50,000 BBB+ Placer Dome Inc., Sr. Notes, 2.750% due 10/15/23 (c)........ 61,563
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
33
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(e) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
UTILITIES -- 0.1%
ELECTRIC UTILITIES -- 0.1%
$ 250,000 BBB PPL Energy Supply LLC, Sr. Notes, 2.625% due 5/15/23 (c).... $ 281,562
- -------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $12,030,847)..... 13,503,456
- -------------------------------------------------------------------------------------------------------
SOVEREIGN DEBT -- 0.2%
- -------------------------------------------------------------------------------------------------------
CANADA -- 0.2%
500,000 AAA Canada Mortgage & Housing Corp., Notes, 3.375% due 12/1/08
(Cost -- $498,943).......................................... 494,953
- -------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 2.0%
500,000 AAA Chase Funding Mortgage Loan, Series 2002-2, Class 1A5,
5.833% due 4/25/32........................................ 520,407
5,000,000 AAA PP&L Transition Bond Co. LLC, Series 1999-1, Class A7,
7.050% due 6/25/09........................................ 5,322,836
- -------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (Cost -- $5,521,654).......... 5,843,243
- -------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.4%
Bank of America Commercial Mortgage, Inc.:
500,000 AAA Series 2004-2, Class A5, 4.580% due 11/10/38.............. 493,228
1,150,000 AAA Series 2004-6, Class AJ, 4.870% due 12/10/42 (d).......... 1,146,900
500,000 AAA CS First Boston Mortgage Securities Corp., Series 2003-C5,
Class A4, 4.900% due 12/15/36............................. 505,234
2,000,000 Aaa* JPMorgan Chase Commercial Mortgage Securities, Series
2004-C3, Class AJ, 4.922% due 1/15/42 (d)................. 1,997,260
LB-UBS Commercial Mortgage Trust:
2,000,000 AAA Series 2003-C3, Class A2, 3.086% due 5/15/27.............. 1,950,799
1,000,000 AAA Series 2004-C2, Class A4, 4.367% due 3/15/36.............. 975,707
- -------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $7,100,939)........................................ 7,069,128
- -------------------------------------------------------------------------------------------------------
<Caption>
WARRANTS
- -------------------------------------------------------------------------------------------------------
WARRANTS (A) -- 0.0%
- -------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 0.0%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.0%
3,056 Lucent Technologies, Expires 12/10/07 (Cost -- $0).......... 4,828
- -------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS
(Cost -- $259,985,490)...................................... 290,707,584
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
34
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MANAGED ASSETS TRUST
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.9%
- --------------------------------------------------------------------------------------------------
U.S. TREASURY BILL -- 0.1%
$ 150,000 U.S. Treasury Bill, 0.010% due 3/17/05 (f)
(Cost -- $149,372)........................................ $ 149,366
- --------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.8%
5,475,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $5,475,639; (Fully
collateralized by U.S. Treasury Bond, 8.125% due 8/15/21;
Market value -- $5,587,932) (Cost -- $5,475,000).......... 5,475,000
- --------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $5,624,372)........... 5,624,366
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.7% (Cost -- $265,609,862**)......... 296,331,950
Other Assets in Excess of Liabilities -- 0.3%............... 917,001
- --------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $297,248,951
- --------------------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
(b) All or a portion of this security is segregated for open futures contracts.
(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. This security has
been deemed liquid pursuant to guidelines approved by the Board of
Trustees.
(d) Variable rate security.
(e) All ratings are by Standard & Poor's Ratings Service, except for those that
are identified by an asterisk (*), which are rated by Moody's Investors
Service.
(f) All or a portion of this security is held as collateral for open futures
contracts.
** Aggregate cost for federal income tax purposes is $265,856,661.
<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.
</Table>
See page 51 for definition of ratings
SEE NOTES TO FINANCIAL STATEMENTS.
35
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 90.3%
- --------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE -- 1.0%
$ 75,000 B Argo-Tech Corp., Sr. Notes, 9.250% due 6/1/11............... $ 82,687
475,000 B- BE Aerospace, Inc., Sr. Sub. Notes, Series B, 8.875% due
5/1/11.................................................... 498,750
500,000 CCC+ Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09............ 522,500
- --------------------------------------------------------------------------------------------------
1,103,937
- --------------------------------------------------------------------------------------------------
AIRLINES -- 0.1%
150,000 Ba1* JetBlue Airways Corp., Pass Through Certificates, Series
2004-2 C, 5.390% due 5/15/10 (b).......................... 151,246
- --------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 0.9%
50,000 B Affinia Group Inc., Sr. Sub. Notes, 9.000% due 11/30/14
(c)....................................................... 52,375
225,000 B- Collins & Aikman Products Co., Sr. Notes, 10.750% due
12/31/11.................................................. 230,625
50,000 B Dura Operating Corp., Guaranteed Debentures, Series B,
8.625% due 4/15/12........................................ 52,250
125,000 NR Intermet Corp., Sr. Notes, 9.750% due 6/15/09 (d)........... 61,875
625,000 B- Metaldyne Corp., Sr. Sub. Notes, 11.000% due 6/15/12........ 521,875
50,000 B- Tenneco Automotive Inc., Sr. Secured Notes, Series B,
10.250% due 7/15/13....................................... 59,250
- --------------------------------------------------------------------------------------------------
978,250
- --------------------------------------------------------------------------------------------------
BROADCASTING -- 0.4%
200,000 BBB- Chancellor Media Corp., Sr. Notes, 8.000% due 11/1/08....... 224,744
250,000 CCC Granite Broadcasting Corp., Secured Notes, 9.750% due
12/1/10................................................... 240,000
- --------------------------------------------------------------------------------------------------
464,744
- --------------------------------------------------------------------------------------------------
BUILDING/CONSTRUCTION -- 3.2%
Armstrong World Industries, Inc., Sr. Notes:
250,000 NR 6.500% due 8/15/05 (d).................................... 181,875
175,000 NR 7.450% due 5/15/29 (d).................................... 127,750
D.R. Horton Inc.:
225,000 BB+ Guaranteed Debentures, 10.500% due 4/1/05................. 230,062
175,000 BB+ Notes, 6.125% due 1/15/14................................. 181,125
Goodman Global Holdings Co., Inc.:
125,000 B- Sr. Notes, 5.760% due 6/15/12 (b)(c)...................... 127,500
175,000 B- Sr. Sub. Notes, 7.875% due 12/15/12 (c)................... 174,125
150,000 B+ Hovnanian K Enterprises Inc., Guaranteed Debentures, 6.000%
due 1/15/10 (c)........................................... 151,687
100,000 B- K&F Acquisition Inc., Sr. Sub Notes, 7.750% due 11/15/14
(c)....................................................... 103,750
KB Home:
425,000 BB+ Notes, 6.375% due 8/15/11................................. 448,375
Sr. Sub. Notes:
125,000 BB- 8.625% due 12/15/08..................................... 141,875
325,000 BB- 9.500% due 2/15/11...................................... 359,125
225,000 B- Ply Gem Industries Inc., Sr. Sub. Notes, 9.000% due 2/15/12
(c)....................................................... 229,500
275,000 B- THL Buildco Inc. (Nortek Inc.), Sr. Sub. Notes, 8.500% due
9/1/14 (c)................................................ 288,750
William Lyon Homes, Inc., Sr. Notes:
300,000 B 7.625% due 12/15/12 (c)................................... 294,375
350,000 B 10.750% due 4/1/13........................................ 395,062
- --------------------------------------------------------------------------------------------------
3,434,936
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
36
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
BUSINESS SERVICES -- 1.0%
$ 525,000 B+ Danka Business Systems PLC, Sr. Notes, 11.000% due
6/15/10................................................... $ 559,125
450,000 B- Vertis, Inc., Sr. Notes, Series B, 10.875% due 6/15/09...... 490,500
- --------------------------------------------------------------------------------------------------
1,049,625
- --------------------------------------------------------------------------------------------------
CABLE -- 7.2%
Adelphia Communications Corp., Sr. Notes:
875,000 NR 10.250% due 6/15/11 (d)................................... 890,312
Series B:
725,000 NR 8.375% due 2/1/08 (d)................................... 686,937
250,000 NR 8.125% due 12/31/49 (d)................................. 236,250
CCO Holdings, LLC/CCO Holdings Capital Corp., Sr. Notes:
300,000 CCC- 6.615% due 12/15/10 (b)(c)................................ 301,500
75,000 CCC- 8.750% due 11/15/13....................................... 77,812
Charter Communications Holdings, LLC/Charter Communications
Holdings Capital Corp:
Sr. Discount Notes:
550,000 CCC- 9.920% due 4/1/11....................................... 471,625
450,000 CCC- Step bond to yield 18.487% due 5/15/11.................. 333,000
300,000 B- Sr. Notes, 8.375% due 4/30/14 (c)......................... 318,000
1,200,000 BB- CSC Holdings Inc., Sr. Notes, Series B, 7.625% due 4/1/11... 1,299,000
125,000 BB- Directv Holdings LLC, Sr. Notes, 8.375% due 3/15/13......... 140,781
100,000 NR Frontiervision Holdings LP, Sr. Discount Notes, 11.875% due
9/15/07 (d)............................................... 134,000
725,000 B+ Insight Midwest, LP/Insight Capital, Inc., Sr. Notes, 9.750%
due 10/1/09............................................... 763,062
125,000 B- Kabel Deutschland GmbH, Sr. Notes, 10.625% due 7/1/14 (c)... 144,375
1,100,000 B Mediacom LLC/Mediacom Capital Corp., Sr. Notes, 9.500% due
1/15/13................................................... 1,109,625
75,000 BB+ Rogers Cable Inc., Secured Notes, 6.750% due 3/15/15 (c).... 77,063
375,000 BB+ Shaw Communications Inc., Sr. Notes, 7.250% due 4/6/11...... 415,313
175,000 B- Telenet Communications NV, Sr. Notes, 9.000% due 12/15/13
(c)....................................................... 265,325
- --------------------------------------------------------------------------------------------------
7,663,980
- --------------------------------------------------------------------------------------------------
CHEMICALS -- 7.3%
325,000 BBB- Georgia Gulf Corp., Notes, 7.625% due 11/15/05.............. 337,187
291,000 CCC+ Huntsman ICI Chemicals LLC, Sr. Sub. Notes, 10.125% due
7/1/09.................................................... 307,732
450,000 B- Huntsman International LLC, Sr. Notes, 9.875% due 3/1/09.... 496,125
53,000 BB IMC Global Inc., Guaranteed Debentures, Series B, 10.875%
due 6/1/08................................................ 63,865
100,000 B- Innophos Inc., Sr. Sub. Notes, 8.875% due 8/15/14 (c)....... 108,500
Lyondell Chemical Co.:
315,000 B+ Secured Notes, Series B, 9.875% due 5/1/07................ 331,537
1,175,000 B- Sub. Notes, 10.875% due 5/1/09............................ 1,248,438
Millennium America Inc., Sr. Notes:
1,175,000 B+ 7.000% due 11/15/06....................................... 1,227,875
603,198 B+ 9.250% due 6/15/08........................................ 689,153
Nalco Co.:
75,000 B- Sr. Notes, 7.750% due 11/15/11............................ 81,375
125,000 B- Sr. Sub. Notes, 8.875% due 11/15/13....................... 137,813
125,000 BB+ NOVA Chemicals Corp., Sr. Notes, 6.500% due 1/15/12......... 133,125
PolyOne Corp., Sr. Notes:
200,000 B+ 10.625%, due 5/15/10...................................... 226,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
37
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
CHEMICALS -- 7.3% (CONTINUED)
$ 175,000 B+ 8.875%, due 5/1/12........................................ $ 191,188
Resolution Performance Products LLC/RPP Capital Corp.:
325,000 CCC+ Second Secured Notes, 9.500% due 4/15/10.................. 353,438
325,000 B Secured Notes, 8.000% due 12/15/09........................ 351,000
Rhodia SA:
950,000 CCC+ Sr. Notes, 7.625% due 6/1/10.............................. 957,125
250,000 CCC+ Sr. Sub. Notes, 8.875% due 6/1/11......................... 253,125
Rockwood Specialties Group, Inc., Sr. Sub. Guaranteed Notes:
50,000 B- 7.500% due 11/15/14 (c)................................... 52,125
50,000 B- 7.625% due 11/15/14 (c)................................... 69,800
200,000 BBB- Union Carbide Corp., Debentures, 6.790% due 6/1/25.......... 204,500
- --------------------------------------------------------------------------------------------------
7,821,026
- --------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES -- 1.2%
100,000 B Alderwoods Group, Inc., Sr. Notes, 7.75% due 9/15/12 (c).... 108,500
125,000 B+ Church & Dwight Co. Inc., Sr. Sub. Notes, 6.000% due
12/15/12 (c).............................................. 127,812
175,000 CCC- Home Products International, Inc., Sr. Sub. Notes, 9.625%
due 5/15/08............................................... 160,125
75,000 B- Norcraft Holdings, Sr. Discount Notes, zero coupon step bond
to 9/1/08, then 9.740% to 9/1/12.......................... 56,625
525,000 CCC+ Playtex Products, Inc., Sr. Sub. Notes, 9.375% due 6/1/11... 563,063
225,000 B- Sealy Mattress Co., Sr. Sub. Notes, 8.250% due 6/15/14...... 239,625
- --------------------------------------------------------------------------------------------------
1,255,750
- --------------------------------------------------------------------------------------------------
DIVERSIFIED -- 4.5%
4,362,209 BB- Targeted Return Index Sector, Trains HY-2004-1, Sr. Secured
Notes, 8.211% due 8/1/15 (b)(c)........................... 4,779,777
- --------------------------------------------------------------------------------------------------
ENERGY -- 3.9%
375,000 CCC+ Belden & Blake Corp., Sr. Secured Notes, 8.750% due 7/15/12
(c)....................................................... 382,500
225,000 BB Citgo Petroleum Corp., Sr. Notes, 6.000% due 10/15/11 (c)... 225,000
250,000 B- Crystal US Holdings LLC, Sr. Discount Notes, zero coupon to
10/1/09 then 10.500% to 10/1/14 (c)....................... 172,500
62,930 CCC+ El Paso Production Holding Co., Sr. Debentures, 6.700% due
2/15/27................................................... 64,785
50,000 B Encore Acquisition Co., Sr. Sub. Notes, 6.250% due
4/15/14................................................... 50,500
50,000 BBB- Evergreen Resources, Inc., Sr. Sub. Notes, 5.875% due
3/15/12................................................... 52,301
150,000 BB- Forest Oil Corp., Sr. Notes, 8.000% due 12/15/11............ 172,125
350,000 B- Harvest Operations Corp., Sr. Notes, 7.875% due 10/15/11
(c)....................................................... 354,375
Key Energy Services, Inc., Sr. Notes:
100,000 B 6.375% due 5/1/13......................................... 102,250
300,000 B Series C, 8.375% due 3/1/08............................... 315,750
225,000 BB- Newfield Exploration Co., Sr. Sub. Notes, 6.625% due 9/1/14
(c)....................................................... 239,063
325,000 BB Pogo Producing Co., Sr. Sub. Notes, Series B, 8.250% due
4/15/11................................................... 354,250
125,000 BB- Pride International, Inc., Sr. Notes, 7.375% due 7/15/14.... 137,188
225,000 B- Seitel, Inc., Sr. Notes, 11.750% due 7/15/11 (c)............ 238,500
50,000 B+ Stone Energy Corp., Sr. Sub. Notes, 6.750% due 12/15/14
(c)....................................................... 50,125
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
38
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
ENERGY -- 3.9% (CONTINUED)
Tesoro Petroleum Corp.:
$ 125,000 BBB- Sr. Secured Notes, 8.000% due 4/15/08..................... $ 136,563
225,000 BB- Sr. Sub. Notes, 9.625% due 4/1/12......................... 259,875
775,000 B USEC Inc., Sr. Notes, 6.625% due 1/20/06.................... 790,500
- --------------------------------------------------------------------------------------------------
4,098,150
- --------------------------------------------------------------------------------------------------
EQUIPMENT RENTAL -- 1.8%
150,000 BB- NationsRent, Inc., Sr. Secured Notes, 9.500% due 10/15/10... 168,750
500,000 BB- United Rentals North America, Inc., Sr. Notes, 6.500% due
2/15/12................................................... 490,000
Williams Scotsman, Inc.:
1,075,000 B- Sr. Notes, 9.875% due 6/1/07.............................. 1,080,375
200,000 B Sr. Secured Notes, 10.000% due 8/15/08.................... 223,000
- --------------------------------------------------------------------------------------------------
1,962,125
- --------------------------------------------------------------------------------------------------
FABRICATED GLASS, PLASTIC & FIBER -- 3.3%
Crown Cork & Seal Co. Inc.:
850,000 B Debentures, 7.375% due 12/15/26........................... 803,250
75,000 B Notes, 7.000% due 12/15/06................................ 79,125
Crown European Holdings SA:
300,000 BB Sr. Secured Notes, 6.250% due 9/1/11 (c).................. 434,538
150,000 B Third Priority Sr. Secured Notes, 10.875% due 3/1/13...... 178,125
350,000 B Jefferson Smurfit Corp., Sr. Notes, 8.250% due 10/1/12...... 383,250
Owens-Brockway Glass Container, Inc.:
225,000 B Sr. Notes, 6.750% due 12/1/14 (c)......................... 228,375
Sr. Secured Notes:
575,000 BB- 8.875% due 2/15/09...................................... 627,469
300,000 BB- 7.750% due 5/15/11...................................... 326,250
400,000 B- Solo Cup Co., Sr. Sub. Notes, 8.500% due 2/15/14............ 418,000
- --------------------------------------------------------------------------------------------------
3,478,382
- --------------------------------------------------------------------------------------------------
FINANCE -- 0.7%
675,000 B- BCP Caylux Holdings Luxembourg SCA, Sr. Sub. Notes, 9.625%
due 6/15/14 (c)........................................... 764,437
- --------------------------------------------------------------------------------------------------
FOOD/BEVERAGE/TOBACCO -- 0.7%
300,000 B B&G Foods Holding Corp., Sr. Notes, 8.000% due 10/1/11...... 321,000
50,000 B Land O'Lakes Inc., Secured Notes, 9.000% due 12/15/10....... 55,000
100,000 BB Premium Standard Farms Inc., Sr. Notes, 9.250% due
6/15/11................................................... 107,500
50,000 B+ Swift & Co., Sr. Notes, 10.125% due 10/1/09................. 56,000
150,000 B+ The Wornick Co., Sr. Second Secured Notes, 10.875% due
7/15/11................................................... 163,500
- --------------------------------------------------------------------------------------------------
703,000
- --------------------------------------------------------------------------------------------------
FREIGHT/CONTAINERS/SHIPPING -- 0.9%
200,000 B CHC Helicopter Corp., Sr. Sub. Notes, 7.375% due 5/1/14..... 212,000
175,000 CCC- Evergreen International Aviation, Inc., Sr. Second Secured
Notes, 12.000% due 5/15/10................................ 133,437
475,000 B2* TFM, S.A. de C.V., Sr. Notes, 12.500% due 6/15/12........... 556,938
- --------------------------------------------------------------------------------------------------
902,375
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
39
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
GAMING -- 5.9%
$ 250,000 B+ Argosy Gaming Co., Sr. Sub. Notes, 7.000% due 1/15/14....... $ 277,500
375,000 B+ Aztar Corp., Sr. Sub. Notes, 7.875% due 6/15/14............. 415,312
225,000 B+ Boyd Gaming Corp., Sr. Sub. Notes, 6.750% due 4/15/14....... 236,812
550,000 BB+ Harrah's Operating Co., Inc., Sr. Sub. Notes, 7.875% due
12/15/05.................................................. 573,375
550,000 B Isle of Capri Casinos, Inc., Sr. Sub. Notes, 7.000% due
3/1/14.................................................... 563,750
200,000 B Kerzner International Ltd., Sr. Sub. Notes, 8.875% due
8/15/11................................................... 219,500
MGM Mirage Inc.:
750,000 BB+ Sr. Notes, 6.750% due 9/1/12.............................. 793,125
475,000 BB- Sr. Sub. Notes, 8.375% due 2/1/11......................... 537,938
175,000 B+ Mohegan Tribal Gaming Authority, Sr. Sub. Notes, 7.125% due
8/15/14................................................... 185,063
Park Place Entertainment Corp., Sr. Sub. Notes:
325,000 BB- 7.875% due 12/15/05....................................... 338,000
800,000 BB- 7.875% due 3/15/10........................................ 905,000
52,000 B- Pinnacle Entertainment, Inc., Sr. Sub. Notes, Series B,
9.250% due 2/15/07........................................ 53,170
525,000 B Resorts International Hotel and Casino, Inc., First Mortgage
Notes, 11.500% due 3/15/09................................ 619,500
Station Casinos, Inc.:
350,000 BB- Sr. Notes, 6.000% due 4/1/12.............................. 358,313
225,000 B+ Sr. Sub. Notes, 6.500% due 2/1/14......................... 232,313
- --------------------------------------------------------------------------------------------------
6,308,671
- --------------------------------------------------------------------------------------------------
HEALTHCARE -- 4.0%
150,000 B Community Health Systems, Sr. Sub. Notes, 6.500% due
12/15/12 (c).............................................. 151,875
Elan Finance PLC, Sr. Notes, Inc.:
50,000 B 6.490% due 11/15/11 (b)(c)................................ 52,875
425,000 B 7.750% due 11/15/11 (c)................................... 454,750
HEALTHSOUTH Corp., Sr. Notes:
100,000 NR 7.000% due 6/15/08........................................ 102,000
1,200,000 NR 7.625% due 6/1/12......................................... 1,212,000
525,000 B Radiologix, Inc., Sr. Notes, Series B, 10.500% due
12/15/08.................................................. 580,125
Tenet Healthcare Corp.:
275,000 B- 7.375% due 2/1/13......................................... 268,125
1,650,000 B- Sr. Notes, 6.875% due 11/15/31............................ 1,414,875
- --------------------------------------------------------------------------------------------------
4,236,625
- --------------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS -- 3.4%
Allied Waste North America,
325,000 B+ Series B, Sr. Notes, 7.375% due 4/15/14................... 312,812
Sr. Secured Notes:
325,000 BB- 6.500% due 11/15/10..................................... 320,125
225,000 BB- 6.125% due 2/15/14...................................... 212,625
100,000 CCC+ Ames True Temper Inc., Sr. Sub. Notes, 10.000% due
7/15/12................................................... 103,000
275,000 CCC- BGF Industries, Inc., Sr. Sub. Notes, Series B, 10.250% due
1/15/09................................................... 269,500
375,000 BB- Case New Holland, Inc., Sr. Notes, 9.250% due 8/1/11 (c).... 419,062
50,000 B Cooper Standard Automotive Inc., Notes, 7.000% due 12/15/12
(c)....................................................... 51,000
Foamex L.P., Sr. Sub. Notes:
250,000 CCC+ 13.500% due 8/15/05....................................... 260,000
175,000 CCC+ 9.875% due 6/15/07........................................ 144,375
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
40
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS -- 3.4% (CONTINUED)
$ 925,000 B- The Goodyear Tire & Rubber Co., Notes, 7.857% due 8/15/11... $ 943,500
325,000 CCC+ MAAX Corp., Sr. Sub. Notes, 9.750% due 6/15/12 (c).......... 345,313
175,000 CCC+ MAAX Holdings Inc., Sr. Discount Notes, zero coupon step
bond to 12/1/08, then 11.254% to 12/15/12 (c)............. 110,688
50,000 BB- Trinity Industries Inc., Sr. Notes, 6.500% due 3/15/14...... 50,250
100,000 B+ Wolverine Tube, Inc., Sr. Notes, Series B, 10.500% due
4/1/09.................................................... 109,500
- --------------------------------------------------------------------------------------------------
3,651,750
- --------------------------------------------------------------------------------------------------
LODGING & LEISURE -- 5.0%
450,000 CCC+ Bally Total Fitness Holding Corp., Sr. Notes, 10.500% due
7/15/11................................................... 455,625
200,000 B- Felcor Lodging LP, Sr. Notes, 9.000% due 6/1/11............. 227,500
Host Marriott LP, Sr Notes:
100,000 B+ 7.000% due 8/15/12 (c).................................... 106,250
100,000 B+ 7.125% due 11/1/13........................................ 107,375
159,000 B+ HMH Properties, Inc., Sr. Notes, Series B, 7.875% due
8/1/08.................................................... 164,167
75,000 B+ Intrawest Corp., Sr. Notes, 7.500% due 10/15/13 (c)......... 80,156
650,000 BB+ ITT Corp., Notes, 6.750% due 11/15/05....................... 671,125
50,000 BB K2 Inc., Sr. Notes, 7.375% due 7/1/14 (c)................... 55,000
75,000 BB- LA Quinta Properties Inc., Sr. Notes, 7.000% due 8/15/12.... 79,687
MeriStar Hospitality Corp., Sr. Notes:
125,000 CCC+ 9.000% due 1/15/08........................................ 132,344
725,000 CCC+ 9.125% due 1/15/11........................................ 786,625
1,625,000 BB+ Royal Caribbean Cruises Ltd., Sr. Debentures, 7.500% due
10/15/27.................................................. 1,781,406
100,000 B+ Steinway Musical Instruments, Inc., Sr. Notes, 8.750% due
4/15/11................................................... 109,000
50,000 B- Universal City Florida, Sr. Notes, 7.200% due 5/1/10
(b)(c).................................................... 52,250
550,000 B+ Wynn Las Vegas LLC, First Mortgage, 6.625% due 12/1/14
(c)....................................................... 547,250
- --------------------------------------------------------------------------------------------------
5,355,760
- --------------------------------------------------------------------------------------------------
MACHINERY -- 0.2%
225,000 B- Dresser-Rand Group Inc., Sr. Sub Notes, 7.375% due 11/1/14
(c)....................................................... 230,625
- --------------------------------------------------------------------------------------------------
METAL/MINING -- 2.8%
1,700,000 B+ AK Steel Corp., Sr. Notes, 7.750% due 6/15/12 (e)........... 1,759,500
50,000 BB- Century Aluminum Co., Sr. Notes, 7.500% due 8/15/14 (c)..... 53,500
75,000 B Hawk Corp., Sr. Notes, 8.750% due 11/1/14 (c)............... 77,250
300,000 BB IPSCO Inc., Sr. Notes, 8.750% due 6/1/13.................... 345,000
175,000 B+ Steel Dynamics Inc., Sr. Notes, 9.500% due 3/15/09.......... 192,500
504,000 BB U.S. Steel LLC, Sr. Notes, 10.750% due 8/1/08............... 595,980
- --------------------------------------------------------------------------------------------------
3,023,730
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
41
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
MOTION PICTURES -- 1.2%
AMC Entertainment Inc.:
Sr. Notes:
$ 225,000 B- 6.540% due 8/15/10 (b)(c)............................... $ 237,937
175,000 B- 8.625% due 8/15/12 (c).................................. 194,250
Sr. Sub. Notes:
360,000 CCC+ 9.500% due 2/1/11....................................... 373,950
250,000 CCC+ 8.000% due 3/1/14....................................... 250,000
325,000 B- Cinemark, Inc., Sr. Discount Notes, Step bond to yield
9.739% due 3/15/14........................................ 247,000
- --------------------------------------------------------------------------------------------------
1,303,137
- --------------------------------------------------------------------------------------------------
PAPER/FORESTRY PRODUCTS -- 2.9%
Boise Cascade LLC:
50,000 B+ Sr. Notes, 5.005% due 10/15/12 (b)(c)..................... 52,125
50,000 B+ Sr. Sub Notes, 7.125% due 10/15/14 (c).................... 53,125
750,000 BB+ Fort James Corp., Sr. Notes, 6.875% due 9/15/07............. 800,625
300,000 BB+ Georgia-Pacific Corp., Sr. Notes, 9.375% due 2/1/13......... 351,000
50,000 B+ Neenah Paper Inc., Sr. Notes, 7.375% due 11/15/14 (c)....... 51,000
75,000 BB- Norske Skog Canada Ltd., Sr. Notes, 7.375% due 3/1/14....... 78,563
175,000 BB- Sino Forest Corp., Sr. Notes, 9.125% due 8/17/11 (c)........ 192,063
1,600,000 B Tembec Industries Inc., Sr. Notes, 7.750% due 3/15/12....... 1,556,000
- --------------------------------------------------------------------------------------------------
3,134,501
- --------------------------------------------------------------------------------------------------
PRINTING/PUBLISHING -- 2.9%
225,000 B- Advertising Direct Solution, Sr. Notes, 9.250% due 11/15/12
(c)....................................................... 237,375
Dex Media, Inc.:
575,000 B Discount Notes, step bond to yield 8.628% due 11/15/13.... 453,531
125,000 B Notes, 8.000% due 11/15/13................................ 135,937
Houghton Mifflin Co.:
1,125,000 BB- Notes, 7.200% due 3/15/11................................. 1,192,500
175,000 B- Sr. Notes, 8.250% due 2/1/11.............................. 187,250
50,000 B- Sr. Sub. Notes, 9.875% due 2/1/13......................... 55,000
725,000 B Primedia, Inc., Sr. Notes, 8.875% due 5/15/11............... 770,313
- --------------------------------------------------------------------------------------------------
3,031,906
- --------------------------------------------------------------------------------------------------
RECYCLING -- 0.0%
25,000 B- IMCO Recycling Escrow, Sr. Notes, 9.000% due 11/15/14 (c)... 26,125
- --------------------------------------------------------------------------------------------------
RETAIL -- 3.3%
100,000 B+ Blockbuster Inc., Sr. Sub. Notes, 9.000% due 9/1/12 (c)..... 99,250
50,000 B- Carrols Corp., Sr. Sub. Notes, 9.000% due 1/15/13 (c)....... 52,000
Denny's Corp., Sr. Notes:
500,000 NR 7.035% due 9/13/10........................................ 515,000
175,000 CCC+ 10.000% due 10/1/12 (c)................................... 189,219
175,000 B- Duane Reade Inc., Secured Notes, 7.010% due 12/15/10
(b)(c).................................................... 178,500
175,000 B- El Pollo Loco Inc., Secured Notes, 9.250% due 12/15/09...... 185,062
325,000 B- Friendly Ice Cream Corp., Sr. Notes, 8.375% due 6/15/12..... 320,531
380,000 BB+ J.C. Penney Co., Inc., Debentures, 8.125% due 4/1/27........ 415,150
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
42
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
RETAIL -- 3.3% (CONTINUED)
Jean Coutu Group PJC Inc.:
$ 100,000 B Sr. Notes 7.625% due 8/1/12 (c)........................... $ 106,250
125,000 B Sr. Sub. Notes 8.500% due 8/1/14 (c)...................... 128,750
250,000 B- The Pantry, Inc., Sr. Sub. Notes, 7.750% due 2/15/14........ 267,500
250,000 B+ Rite Aid Corp., Sr, Secured Second Lien Notes, 8.125% due
5/1/10.................................................... 265,625
700,000 BB Saks Inc., Notes, 7.500% due 12/1/10........................ 749,000
- --------------------------------------------------------------------------------------------------
3,471,837
- --------------------------------------------------------------------------------------------------
SUPERMARKETS & DISTRIBUTORS -- 2.5%
425,000 BB+ Delhaize America, Inc., Debentures, 9.000% due 4/15/31...... 551,989
The Great Atlantic & Pacific Tea Co., Inc.:
400,000 B- Notes, 7.750% due 4/15/07................................. 398,000
400,000 B- Sr. Notes, 9.125% due 12/15/11............................ 377,000
375,000 B Roundy's, Inc., Sr. Sub. Notes, Series B, 8.875% due
6/15/12................................................... 411,563
Smithfield Foods Inc., Sr. Notes:
325,000 BB 7.000% due 8/1/11......................................... 348,563
150,000 BB 7.000% due 8/1/11 (c)..................................... 160,875
350,000 BB- Stater Bros. Holdings Inc., Sr. Notes, 8.125% due 6/15/12... 371,875
- --------------------------------------------------------------------------------------------------
2,619,865
- --------------------------------------------------------------------------------------------------
TECHNOLOGY -- 2.7%
Amkor Technologies Inc., Sr. Notes:
500,000 B 7.125% due 3/15/11........................................ 472,500
125,000 B 7.750% due 5/15/13........................................ 118,125
375,000 BB+ Freescale Semiconductor Inc., Sr. Notes, 4.820% due 7/15/09
(b)....................................................... 392,344
1,325,000 B Lucent Technologies, Inc., Debentures, 6.450% due 3/15/29... 1,205,750
100,000 B+ Solectron Corp., Sr. Notes, 9.625% due 2/15/09.............. 110,500
175,000 BBB- Thomas & Betts Corp., Sr. Notes, 7.250% due 6/1/13.......... 192,836
325,000 BB+ Unisys Corp., Sr. Notes, 8.125% due 6/1/06.................. 343,688
- --------------------------------------------------------------------------------------------------
2,835,743
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 8.6%
574,000 CCC Alamosa (Delaware), Inc., Sr. Discount Notes, step bond to
yield 11.101% due 7/31/09................................. 625,660
19,000 CCC American Tower Corp., Sr. Notes, 9.375% due 2/1/09.......... 20,187
300,000 CCC American Tower Escrow Corp., Discount Notes, zero coupon
step bond to yield 10.240% due 8/1/08..................... 225,750
850,000 BB+ AT&T Corp., Sr. Notes, 9.050% due 11/15/11.................. 982,812
115,089 Caa2* Calpoint Receivables Structured Trust 2001, Notes, 7.440%
due 12/10/06 (c).......................................... 118,254
700,000 CCC Centennial Communications Corp./Centennial Cellular
Operating Co. LLC, Sr. Notes, 10.125% due 6/15/13......... 789,250
450,000 B- Cincinnati Bell Inc., Sr. Sub. Notes, 8.375% due 1/15/14.... 457,875
500,000 BB+ Citizens Communications Co., Sr. Notes, 6.250% due
1/15/13................................................... 506,250
275,000 B- Dobson Cellular Systems Inc., Secured Notes, 8.375% due
11/1/11 (c)............................................... 285,312
100,000 CCC+ Inmarsat Finance II PLC, Guaranteed Debentures, zero coupon
step bond to 11/1/08, then 10.379% to 11/15/12 (c)........ 72,500
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
43
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 8.6% (CONTINUED)
IWO Escrow Co.:
$ 100,000 CCC+ Secured Notes, 6.320% due 1/15/12 (b)(c).................. $ 101,250
400,000 CCC- Sr. Discount Notes, zero coupon step bond to 1/1/10, then
10.265% to 1/15/15 (c).................................... 250,000
MCI, Inc., Sr. Notes:
451,000 B+ 6.908% due 5/1/07......................................... 462,839
176,000 B+ 7.688% due 5/1/09......................................... 182,600
300,000 B+ 8.735% due 5/1/14......................................... 323,250
75,000 BB Nextel Communications, Inc., Sr. Serial Redeemable Notes,
5.950% due 3/15/14........................................ 78,000
175,000 B- NTL Cable PLC, Sr. Notes, 8.750% due 4/15/14 (c)............ 264,733
500,000 B+ Panamsat Corp., Sr. Unsecured Notes, 9.000% due 8/15/14
(c)....................................................... 560,625
125,000 B Qwest Capital Funding Inc., Guaranteed Debentures, 6.250%
due 7/15/05............................................... 127,500
550,000 BB- Qwest Corp., Sr. Notes, 7.875% due 9/1/11 (c)............... 599,500
175,000 B Qwest Services Corp., Notes 14.000% due 12/15/10 (b)(c)..... 211,313
Rogers Wireless Inc.:
225,000 BB Secured Notes, 7.250% due 12/15/12 (c).................... 239,625
450,000 B+ Sr. Sub. Notes, 8.000% due 12/15/12 (c)................... 478,125
Rural Cellular Corp.:
200,000 B- Secured Notes, 8.250% due 3/15/12......................... 212,500
375,000 CCC Sr. Sub. Notes, 9.750% due 1/15/10........................ 341,250
550,000 B- Syniverse Technologies Inc., Sr. Sub. Notes, Series B
12.750% due 2/1/09........................................ 629,750
- --------------------------------------------------------------------------------------------------
9,146,710
- --------------------------------------------------------------------------------------------------
TEXTILES/APPAREL -- 0.7%
225,000 B- Broder Brothers Co., Sr. Notes, 11.250% due 10/15/10 (c).... 236,250
275,000 B+ Invista, Notes, 9.250% due 5/1/12 (c)....................... 308,000
50,000 CCC Levi Strauss & Co., Notes, 7.000% due 11/1/06............... 52,750
175,000 B- Simmons Co., Sr. Discount Notes, zero coupon step bond to
12/1/09, 10.002% to 12/15/14 (c).......................... 107,625
- --------------------------------------------------------------------------------------------------
704,625
- --------------------------------------------------------------------------------------------------
UTILITIES -- 6.1%
Allegheny Energy Supply Co. LLC, Secured Bonds:
158,293 B+ Series A, 10.250% due 11/15/07 (c)........................ 180,454
16,706 B+ Series B, 13.000% due 11/15/07 (c)........................ 18,293
Calpine Corp., Sr. Secured Notes:
175,000 B 8.750% due 7/15/13 (c).................................... 145,250
400,000 B+ 9.625% due 9/30/14 (c).................................... 416,000
375,000 B+ Calpine Generating Co., Secured Notes, 6.030% due 4/1/09
(b)....................................................... 386,250
100,000 NR Consumers Energy Co., First Mortgage Bonds, 7.375% due
9/15/23................................................... 103,444
325,000 B- Dynegy Holdings Inc., Sr. Secured Notes, 10.125% due 7/15/13
(c)....................................................... 373,750
650,000 B- El Paso Production Holdings Co., Sr. Debentures, 7.750% due
6/1/13.................................................... 684,125
1,100,000 CCC+ NGC Corp., Sr. Debentures, 7.125% due 5/15/18............... 985,875
300,000 B+ Reliant Energy Inc., Secured Notes, 6.750% due 12/15/14..... 299,625
Reliant Resources, Inc., Sr. Secured Notes:
150,000 B+ 9.250% due 7/15/10........................................ 168,000
425,000 B+ 9.500% due 7/15/13........................................ 485,031
275,000 CCC+ Sonat Inc., Notes, 6.625% due 2/1/08........................ 280,844
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
44
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------
UTILITIES -- 6.1% (CONTINUED)
$ 575,000 B- Southern Natural Gas Co., Notes, 7.350% due 2/15/31......... $ 599,438
375,000 B+ Transcontinental Gas Pipe Line Corp., Sr. Notes, Series B,
8.875% due 7/15/12........................................ 457,969
850,000 B+ The Williams Cos., Inc., Notes, 7.125% due 9/1/11........... 932,875
- --------------------------------------------------------------------------------------------------
6,517,223
- --------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $88,153,532)....... 96,210,573
- --------------------------------------------------------------------------------------------------
<Caption>
SHARES
- --------------------------------------------------------------------------------------------------
COMMON STOCK -- 0.8%
- --------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 0.0%
4,812 Hayes Lemmerz International, Inc. (f)....................... 42,490
- --------------------------------------------------------------------------------------------------
CABLE -- 0.0%
1,057 Classic Holdco LLC (f)(g)................................... 34,500
- --------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.5%
17,186 NorthWestern Corp. (f)...................................... 481,208
- --------------------------------------------------------------------------------------------------
FREIGHT/CONTAINER/SHIPPING -- 0.0%
41 Atlas Air Worldwide Holdings, Inc. (f)(g)................... 984
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.3%
25,195 Dobson Communications Corp., Class A shares (f)............. 43,335
1,227 Horizon PCS Inc., Class A shares (f)........................ 30,368
9,809 MCI Inc. ................................................... 197,750
- --------------------------------------------------------------------------------------------------
271,453
- --------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $1,170,777)..................... 830,635
- --------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 0.5%
- --------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 0.0%
40 Hayes Lemmerz International Operating Co., 8.000% Cumulative
Exchangeable, Series A (f)(g)............................. 1,720
- --------------------------------------------------------------------------------------------------
BROADCASTING -- 0.2%
350 Granite Broadcasting Corp., 12.750% Cumulative Exchangeable
(f)....................................................... 168,875
1,100 Paxson Communications Corp., 14.250% Cumulative Jr.
Exchangeable (f).......................................... 81,125
- --------------------------------------------------------------------------------------------------
250,000
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.3%
284 Alamosa Holdings Inc., 7.500% Cumulative Exchangeable,
Series B.................................................. 266,463
400 Dobson Communications Corp., 6.000% Cumulative Exchangeable,
Series F (c)(h)........................................... 28,036
- --------------------------------------------------------------------------------------------------
294,499
- --------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $501,792).................... 546,219
- --------------------------------------------------------------------------------------------------
<Caption>
WARRANTS
- --------------------------------------------------------------------------------------------------
WARRANTS (c)(f) -- 0.0%
- --------------------------------------------------------------------------------------------------
TECHNOLOGY -- 0.0%
9,411 Viasystems Group, Inc., Expire 1/31/10 (g)(h)............... 0
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
45
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
HIGH YIELD BOND TRUST
<Table>
<Caption>
WARRANTS
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.0%
275 Horizon PCS Inc., Class A, Expire 10/1/10 (g)(h)............ $ 0
- --------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $147,600)........................... 0
- --------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $89,973,701)................. 97,587,427
- --------------------------------------------------------------------------------------------------
FACE
AMOUNT
- --------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 7.2%
$ 7,701,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $7,701,898; (Fully
collateralized by U.S. Treasury Bonds, 8.125% to 9.000%
due 11/15/18 to 8/15/21; Market value -- $7,859,467)
(Cost -- $7,701,000)...................................... 7,701,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.8% (Cost -- $97,674,701**).......... 105,288,427
Other Assets in Excess of Liabilities -- 1.2%............... 1,250,532
- --------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $106,538,959
- --------------------------------------------------------------------------------------------------
</Table>
(a) All ratings are by Standard & Poor's Service, except those identified by an
asterisk (*) which are rated by Moody's Investors Service Inc.
(b) Variable rate security.
(c) Security is exempt from registration under 144A of the Securities Act of
1933. This security may be sold in transactions that are exempt from
registration, normally to qualified institutional buyers. This security has
been deemed liquid pursuant to guidelines approved by the Board of
Trustees.
(d) Security is in default.
(e) All or a portion of this security is held as collateral for open forward
foreign currency contracts.
(f) Non-income producing security.
(g) Security is valued in good faith at fair value by or under the direction of
the Board of Directors.
(h) This security has been deemed illiquid.
** Aggregate cost for federal income tax purposes is $97,779,284.
See page 51 for definition of ratings
SEE NOTES TO FINANCIAL STATEMENTS.
46
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------
COMMON STOCK -- 95.8%
- ----------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 23.6%
HOTELS, RESTAURANTS & LEISURE -- 0.4%
97,065 Outback Steakhouse, Inc. ................................... $ 4,443,636
- ----------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 7.6%
448,965 Amazon.com, Inc. (a)........................................ 19,884,660
511,480 eBay Inc. (a)............................................... 59,474,894
- ----------------------------------------------------------------------------------------------
79,359,554
- ----------------------------------------------------------------------------------------------
MEDIA -- 5.7%
1,568,785 XM Satellite Radio Holdings Inc., Class A Shares (a)........ 59,017,692
- ----------------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 3.0%
125,450 J. C. Penney Company, Inc. ................................. 5,193,630
536,485 Kohl's Corp. (a)............................................ 26,378,967
- ----------------------------------------------------------------------------------------------
31,572,597
- ----------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.7%
406,425 Advance Auto Parts (a)...................................... 17,752,644
- ----------------------------------------------------------------------------------------------
TEXTILES & APPAREL -- 5.2%
590,325 Nike, Inc., Class B Shares.................................. 53,536,574
- ----------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 245,682,697
- ----------------------------------------------------------------------------------------------
ENERGY -- 7.8%
OIL & GAS -- 7.8%
839,065 Murphy Oil Corp. ........................................... 67,502,779
397,580 Suncor Energy, Inc. ........................................ 14,074,332
- ----------------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 81,577,111
- ----------------------------------------------------------------------------------------------
FINANCIALS -- 15.1%
BANKS -- 7.9%
824,390 Bank of America Corp. ...................................... 38,738,086
709,220 Wells Fargo & Co. .......................................... 44,078,023
- ----------------------------------------------------------------------------------------------
82,816,109
- ----------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 6.1%
294,235 The Goldman Sachs Group, Inc. .............................. 30,612,209
613,265 SLM Corp. .................................................. 32,742,218
- ----------------------------------------------------------------------------------------------
63,354,427
- ----------------------------------------------------------------------------------------------
INSURANCE -- 1.1%
3,901 Berkshire Hathaway, Inc., Class B Shares (a)................ 11,453,336
- ----------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
47
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------
REAL ESTATE -- 0.0%
728 Corrections Corp. of America (a)............................ $ 29,448
- ----------------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 157,653,320
- ----------------------------------------------------------------------------------------------
HEALTHCARE -- 21.8%
BIOTECHNOLOGY -- 7.6%
1,029,915 Genentech, Inc. (a)......................................... 56,068,573
238,790 Gilead Sciences, Inc. (a)................................... 8,355,262
224,045 Invitrogen Corp. (a)........................................ 15,040,141
- ----------------------------------------------------------------------------------------------
79,463,976
- ----------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 9.8%
1,153,960 UnitedHealth Group Inc. .................................... 101,583,099
- ----------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.4%
183,065 Forest Laboratories, Inc. (a)............................... 8,212,296
326,849 Roche Holding AG............................................ 37,497,401
- ----------------------------------------------------------------------------------------------
45,709,697
- ----------------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 226,756,772
- ----------------------------------------------------------------------------------------------
INDUSTRIALS -- 4.7%
AEROSPACE & DEFENSE -- 1.1%
214,405 Lockheed Martin Corp. ...................................... 11,910,198
- ----------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 2.0%
422,060 Energizer Holdings, Inc. (a)................................ 20,972,161
- ----------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 1.6%
196,080 3M Co. ..................................................... 16,092,286
- ----------------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 48,974,645
- ----------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 19.0%
COMMUNICATIONS EQUIPMENT -- 2.0%
492,165 QUALCOMM, Inc. (a).......................................... 20,867,796
- ----------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 6.7%
1,087,990 Apple Computer, Inc. (a).................................... 70,066,556
- ----------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.3%
646,300 Yahoo! Inc. (a)............................................. 24,352,584
- ----------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 2.1%
891,890 Texas Instruments Inc. ..................................... 21,958,332
- ----------------------------------------------------------------------------------------------
SOFTWARE -- 5.9%
989,845 Electronic Arts Inc. (a).................................... 61,053,639
- ----------------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 198,298,907
- ----------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
48
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 3.8%
WIRELESS TELECOMMUNICATION SERVICES -- 3.8%
1,309,485 Nextel Communications, Inc., Class A Shares (a)............. $ 39,284,550
- ----------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $611,744,227)................... 998,228,002
- ----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT
- --------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.6%
$48,618,000 State Street Bank & Trust Co., dated 12/31/04 1.400% due
1/3/05; Proceeds at maturity $48,623,672 (Fully
collateralized by U.S. Treasury Bond,
8.750% due 8/15/20; Market value -- $49,590,603)
(Cost -- $48,618,000)..................................... 48,618,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.4% (Cost -- $660,362,227*)......... 1,046,846,002
Liabilities in Excess of Other Assets -- (0.4%)............. (4,502,329)
- --------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $1,042,343,673
- --------------------------------------------------------------------------------------------------
</Table>
<Table>
(a) Non-income producing security.
* Aggregate cost for federal income tax purposes is
$662,196,593.
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
49
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MONEY MARKET PORTFOLIO
<Table>
<Caption>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- --------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS AND AGENCIES -- 1.7%
$5,000,000 Federal National Mortgage Association matures 3/29/05..... 1.40% $5,000,000
- --------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS AND AGENCIES
(Cost -- $5,000,000)...................................... 5,000,000
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 94.9%
15,305,000 American Honda Finance Corp. mature 1/10/05 to 1/19/05.... 2.27 to 2.36 15,293,442
16,200,000 Atomium Funding Corp. matures 1/18/05..................... 2.27 16,182,941
5,000,000 Bryant Park Funding LLC matures 1/11/05................... 2.32 4,996,833
15,200,000 Canadian Imperial Bank of Commerce matures 2/14/05........ 2.39 15,156,342
16,100,000 Cobbler Funding LLC matures 1/25/05....................... 2.28 16,075,957
11,200,000 Coca-Cola Co. matures 1/11/05............................. 2.25 11,193,124
5,235,000 Coca-Cola Enterprises Inc. matures 1/10/05................ 2.30 5,232,042
9,561,000 Gannet Inc. matures 1/14/05............................... 2.23 9,553,439
15,736,000 General Electric Capital Corp. mature 1/14/05 to
1/18/05................................................. 2.24 to 2.29 15,720,498
15,852,000 Giro Balanced Funding Corp. matures 1/14/05............... 2.27 15,839,235
10,000,000 Goldman Sachs Group L.P. matures 1/19/05.................. 2.38 9,988,300
15,247,000 ING U.S. Funding LLC mature 1/13/05 to 1/28/05............ 2.29 to 2.32 15,227,343
15,900,000 Jupiter Securitization Corp. matures 1/20/05.............. 2.37 15,880,447
15,260,000 Morgan Stanley mature 1/5/05 to 1/18/05................... 2.21 to 2.36 15,253,108
12,000,000 Norddeutsche Landesbank matures 1/19/05................... 2.36 11,986,080
11,405,000 Province of Quebec matures 1/12/05........................ 2.29 11,397,159
16,300,000 Royal Bank of Scotland PLC matures 1/19/05................ 2.21 16,282,274
14,000,000 Shell Finance (UK) PLC matures 2/7/05..................... 2.35 13,966,762
15,800,000 Siemens Capital Corp. matures 1/31/05..................... 2.28 15,770,507
4,100,000 Toronto-Dominion Holdings matures 2/17/05................. 2.37 4,100,000
15,700,000 Toyota Motor Credit Corp. mature 1/18/05 to 2/2/05........ 2.22 to 2.32 15,678,154
8,308,000 UBS Finance Bank NY matures 1/3/05........................ 2.26 8,306,971
8,500,000 Victory Receivables Corp. matures 1/10/05................. 2.26 8,495,282
- --------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost -- $287,576,240).................................... 287,576,240
- --------------------------------------------------------------------------------------------------------------
FOREIGN CERTIFICATES OF DEPOSIT -- 3.7%
11,200,000 Toronto-Dominion Banking LLC matures 1/4/05
(Cost -- $11,200,000)..................................... 2.20 11,200,000
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.3%
(Cost -- $303,776,240*)................................... 303,776,240
Liabilities in Excess of Other Assets -- (0.3)%........... (829,544)
- --------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%................................ $302,946,696
- --------------------------------------------------------------------------------------------------------------
</Table>
* Aggregate cost for federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
50
- --------------------------------------------------------------------------------
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>
51
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
<Table>
<Caption>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost.......................... $259,985,490 $ 89,973,701 $ 611,744,227 --
Short-term investments, at cost............... 5,624,372 7,701,000 48,618,000 $303,776,240
Foreign currency, at cost..................... 9 78,927 -- --
- -------------------------------------------------------------------------------------------------------------
Investments, at value......................... $290,707,584 $ 97,587,427 $ 998,228,002 --
Short-term investments, at value.............. 5,624,366 7,701,000 48,618,000 $303,776,240
Foreign currency, at value.................... 12 78,345 -- --
Cash.......................................... 735 48 2,556 1,217
Dividends and interest receivable............. 1,225,289 1,653,232 244,660 48,817
Receivable for open forward foreign currency
contracts (Notes 1 and 3).................. -- 2,875 -- --
Receivable for Fund shares sold............... -- 18,985 -- 57,890
Prepaid expenses.............................. 3,986 729 4,806 875
Other receivables............................. 2,581 -- -- --
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................................. 297,564,553 107,042,641 1,047,098,024 303,885,039
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased.............. -- 414,271 -- --
Investment advisory fees payable.............. 111,370 37,004 608,321 79,184
Administrative fees payable................... 28,510 4,889 53,498 15,632
Payable for Fund shares reacquired............ 110,971 -- 3,967,191 546,348
Dividends payable............................. -- -- -- 234,231
Payable to broker -- variation margin......... 3,499 -- -- --
Trustees' fees payable........................ 2,500 2,000 2,100 2,000
Accrued expenses.............................. 58,752 45,518 123,241 60,948
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES............................. 315,602 503,682 4,754,351 938,343
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................ $297,248,951 $106,538,959 $1,042,343,673 $302,946,696
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital (Note 4)...................... $264,969,046 $ 99,333,222 $1,084,901,001 $302,946,536
Undistributed (overdistributed) net investment
income..................................... 48,121 (28,233) -- 7,965
Accumulated net realized gain (loss) from
investment transactions and foreign
currencies................................. 1,512,373 (379,741) (429,048,638) (7,805)
Net unrealized appreciation of investments,
futures contracts, and foreign
currencies................................. 30,719,411 7,613,711 386,491,310 --
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS................................ $297,248,951 $106,538,959 $1,042,343,673 $302,946,696
- -------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING.............................. 17,832,560 10,751,548 15,738,433 302,946,536
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE...................... $16.67 $9.91 $66.23 $1.00
- -------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
52
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
MANAGED HIGH YIELD CAPITAL MONEY
ASSETS BOND APPRECIATION MARKET
TRUST TRUST FUND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest............................................ $ 4,575,090 $7,461,887 $ 707,757 $4,725,801
Dividends........................................... 3,831,824 27,624 5,699,663 --
Less: Foreign withholding tax....................... (118) -- (83,325) --
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................. 8,406,796 7,489,511 6,324,095 4,725,801
- ------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2).................... 1,444,024 440,316 7,035,493 1,093,070
Administration fee (Note 2)......................... 173,283 58,547 575,794 202,859
Audit and legal..................................... 51,445 42,494 59,038 35,027
Custody............................................. 53,806 44,766 49,636 27,059
Shareholder communications.......................... 22,578 13,846 69,945 37,780
Trustees' fees...................................... 10,844 10,241 11,817 8,317
Transfer agency services (Note 2)................... 2,500 2,500 2,500 2,500
Other............................................... 3,887 3,091 17,086 2,396
- ------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES...................................... 1,762,367 615,801 7,821,309 1,409,008
Less: Fee waiver/expense reimbursements (Notes 2 and
6)............................................... (33,485) (33,438) (33,457) (58,323)
- ------------------------------------------------------------------------------------------------------------
NET EXPENSES........................................ 1,728,882 582,363 7,787,852 1,350,685
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS).......................... 6,677,914 6,907,148 (1,463,757) 3,375,116
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 1 AND
3):
Realized Gain (Loss) From:
Investment transactions.......................... 11,807,350 (291,730) (47,022,757) 16
Foreign currency transactions.................... -- (70,575) (16,222) --
- ------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)............................ 11,807,350 (362,305) (47,038,979) 16
- ------------------------------------------------------------------------------------------------------------
Net Change in Unrealized Appreciation/Depreciation
From:
Investments and futures contracts................ 7,564,971 1,617,958 223,213,276 --
Foreign currencies............................... -- -- 7,024 --
- ------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
OF INVESTMENTS, FUTURES CONTRACTS AND FOREIGN
CURRENCIES.......................................... 7,564,971 1,617,958 223,220,300 --
- ------------------------------------------------------------------------------------------------------------
NET INCREASE FROM PAYMENT BY AFFILIATES (NOTE 2).... -- 75,068 -- --
- ------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN
CURRENCIES............................................ 19,372,321 1,330,721 176,181,321 16
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS................ $26,050,235 $8,237,869 $174,717,564 $3,375,132
- ------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
53
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
MANAGED ASSETS TRUST 2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 6,677,914 $ 6,949,844
Net realized gain......................................... 11,807,350 2,083,564
Net change in unrealized appreciation/depreciation........ 7,564,971 43,648,703
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 26,050,235 52,682,111
- ------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (6,765,497) (6,863,313)
Net realized gains........................................ (2,452,309) --
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS........................................... (9,217,806) (6,863,313)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 7,924,859 9,228,282
Net asset value of shares issued for reinvestment of
dividends and distributions............................ 9,217,806 6,863,313
Cost of shares reacquired................................. (26,600,443) (22,946,314)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (9,457,778) (6,854,719)
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 7,374,651 38,964,079
NET ASSETS:
Beginning of year......................................... 289,874,300 250,910,221
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $297,248,951 $289,874,300
- ------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $48,121 $151,483
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
54
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
HIGH YIELD BOND TRUST 2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 6,907,148 $ 6,424,038
Net realized gain (loss).................................. (362,305) 4,327,306
Net change in unrealized appreciation/depreciation........ 1,617,958 8,815,307
Net increase from payment by affiliates (Note 2).......... 75,068 --
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 8,237,869 19,566,651
- ------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (6,987,891) (6,515,534)
Net realized gains........................................ (65,843) --
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS........................................... (7,053,734) (6,515,534)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 19,629,157 27,613,135
Net asset value of shares issued for reinvestment of
dividends and distributions............................ 7,053,734 6,515,534
Cost of shares reacquired................................. (17,180,397) (12,145,093)
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 9,502,494 21,983,576
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 10,686,629 35,034,693
NET ASSETS:
Beginning of year......................................... 95,852,330 60,817,637
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $106,538,959 $ 95,852,330
- ------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net investment
income of:................................................ $(28,233) $53,663
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
55
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31,
<Table>
<Caption>
CAPITAL APPRECIATION FUND 2004 2003
- ---------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss).............................. $ (1,463,757) $ 1,291,989
Net realized loss......................................... (47,038,979) (94,520,746)
Net change in unrealized appreciation/depreciation........ 223,220,300 297,635,244
- ---------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 174,717,564 204,406,487
- ---------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... -- (389,109)
Return of Capital......................................... -- (64,253)
- ---------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS........................................... -- (453,362)
- ---------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 4,387,734 14,007,803
Net asset value of shares issued for reinvestment of
dividends and distributions............................ -- 453,362
Cost of shares reacquired................................. (122,503,664) (97,001,290)
- ---------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (118,115,930) (82,540,125)
- ---------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 56,601,634 121,413,000
NET ASSETS:
Beginning of year......................................... 985,742,039 864,329,039
- ---------------------------------------------------------------------------------------------------
END OF YEAR............................................... $1,042,343,673 $985,742,039
- ---------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
56
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31,
<Table>
<Caption>
MONEY MARKET PORTFOLIO 2004 2003
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 3,375,116 $ 3,029,174
Net realized gain (loss).................................. 16 (146)
- --------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 3,375,132 3,029,028
- --------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income..................................... (3,375,116) (3,028,884)
- --------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (3,375,116) (3,028,884)
- --------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 183,076,228 265,892,702
Net asset value of shares issued for reinvestment of
dividends.............................................. 3,223,605 3,072,564
Cost of shares reacquired................................. (229,178,505) (316,384,220)
- --------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (42,878,672) (47,418,954)
- --------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS...................................... (42,878,656) (47,418,810)
NET ASSETS:
Beginning of year......................................... 345,825,352 393,244,162
- --------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $ 302,946,696 $ 345,825,352
- --------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $7,965 $7,965
- --------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
57
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
MANAGED ASSETS TRUST 2004(1) 2003 2002 2001(1) 2000(1)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............... $15.72 $13.20 $15.55 $17.94 $21.12
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.......................... 0.37 0.39 0.45 0.49 0.48
Net realized and unrealized gain (loss)........ 1.11 2.51 (1.79) (1.40) (0.71)
- --------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.............. 1.48 2.90 (1.34) (0.91) (0.23)
- --------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.......................... (0.39) (0.38) (0.92) (0.46) (0.41)
Net realized gains(2).......................... (0.14) -- (0.09) (1.02) (2.54)
- --------------------------------------------------------------------------------------------------------
Total Dividends and Distributions................ (0.53) (0.38) (1.01) (1.48) (2.95)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $16.67 $15.72 $13.20 $15.55 $17.94
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN(3).................................. 9.44% 21.98% (8.60)% (5.08)% (1.62)%
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................... $297,249 $289,874 $250,910 $307,520 $342,834
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................... 0.60%(5) 0.59% 0.61% 0.59% 0.59%
Net investment income.......................... 2.31 2.64 2.80 2.95 2.47
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 64% 84% 39% 59% 56%
- --------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
HIGH YIELD BOND TRUST(1) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............... $9.76 $8.11 $9.04 $8.77 $9.47
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.......................... 0.70 0.77 0.78 0.80 0.79
Net realized and unrealized gain (loss)........ 0.16 1.59 (0.40) 0.04 (0.70)
- --------------------------------------------------------------------------------------------------------
Total Income From Operations..................... 0.86 2.36 0.38 0.84 0.09
- --------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.......................... (0.70) (0.71) (1.31) (0.57) (0.79)
Net realized gains(2).......................... (0.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------
Total Dividends and Distributions................ (0.71) (0.71) (1.31) (0.57) (0.79)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $9.91 $9.76 $8.11 $9.04 $8.77
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN(3).................................. 8.75%(6) 29.15% 4.57% 9.55% 0.97%
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................... $106,539 $95,852 $60,818 $50,016 $34,678
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................... 0.60%(5) 0.65% 0.71% 0.73% 0.83%
Net investment income.......................... 7.08 8.28 8.81 8.79 8.74
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 79% 80% 100% 110% 80%
- --------------------------------------------------------------------------------------------------------
</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 the separate account
such as administrative fees, account charges and surrender charges, which,
if reflected, would reduce the total returns for all periods shown.
Performance figures may reflect voluntary fee waivers and/or expense
reimbursements. Past performance is no guarantee of future results. In the
absence of voluntary fee waivers and/or expense reimbursements, the total
return would have been lower.
(4) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 1.25%.
(5) During the year ended December 31, 2004, Smith Barney Fund Management LLC
voluntarily waived a portion of its fee and/or reimbursed the Fund for
certain expenses. If such fees were not voluntarily waived and/or expenses
reimbursed, actual expense ratios would have been 0.61% and 0.63% for
Managed Assets Trust and High Yield Bond Trust, respectively.
(6) The adviser fully reimbursed the Fund for losses incurred resulting from
violations of the Fund's investment restrictions. Without this
reimbursement, the Fund's total return would have been 8.64%.
SEE NOTES TO FINANCIAL STATEMENTS.
58
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
CAPITAL APPRECIATION FUND 2004(1) 2003(1) 2002(1) 2001(1) 2000
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $55.41 $44.38 $60.30 $82.01 $108.80
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss)................. (0.09) 0.07 0.14 0.61 0.29
Net realized and unrealized gain (loss)...... 10.91 10.99 (15.24) (22.01) (23.29)
- -------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............ 10.82 11.06 (15.10) (21.40) (23.00)
- -------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income........................ -- (0.03) (0.81) (0.31) (0.04)
Net realized gains(2)........................ -- -- -- -- (3.75)
Return of Capital............................ -- (0.00)* (0.01) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions.............. -- (0.03) (0.82) (0.31) (3.79)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $66.23 $55.41 $44.38 $60.30 $ 82.01
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 19.53% 24.91% (25.09)% (26.09)% (21.88)%
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)............. $1,042 $986 $864 $1,300 $1,797
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................. 0.81%(5) 0.82% 0.84% 0.84% 0.83%
Net investment income (loss)................. (0.15) 0.14 0.27 0.91 0.30
- -------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 16% 59% 52% 47% 30%
- -------------------------------------------------------------------------------------------------------------------------
<Caption>
MONEY MARKET PORTFOLIO 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
Net investment income.......................... 0.01 0.008 0.014 0.036 0.060
Dividends from net investment income........... (0.01) (0.008) (0.014) (0.036) (0.060)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 1.01% 0.78% 1.39% 3.71% 6.18%
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000s)................. $302,947 $345,825 $393,244 $353,269 $147,117
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(6)(7)............................... 0.40% 0.40% 0.40% 0.40% 0.40%
Net investment income........................ 1.00 0.78 1.38 3.46 6.04
- -------------------------------------------------------------------------------------------------------------------------
</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 the separate account
such as administrative fees, account charges and surrender charges, which,
if reflected, would reduce the total returns for all periods shown.
Performance figures may reflect voluntary fee waivers and/or expense
reimbursements. Past performance is no guarantee of future results. In the
absence of voluntary fee waivers and/or expense reimbursements, the total
return would have been lower.
(4) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 1.25%.
(5) During the year ended December 31, 2004, Smith Barney Fund Management LLC
voluntarily waived a portion of its fee and/or reimbursed the Fund for
certain expenses. If such fees were not voluntarily waived and/or expenses
reimbursed, actual expense ratio would have been 0.82%.
(6) The Travelers Insurance Company has agreed to reimburse the Fund for certain
expenses for the years ended December 31, 2004, 2003, 2002, 2001 and 2000,
respectively. In addition, Smith Barney Fund Management LLC voluntarily
waived a portion of its fee for the year ended December 31, 2004. If such
expenses were not reimbursed and/or fees voluntarily waived, actual expense
ratios would have been 0.42% for each of the years ended December 31, 2004,
2003, 2002, 2001 and 0.44% for the year ended December 31, 2000.
(7) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 0.40%.
* Amount represents less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
59
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND 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 following are significant accounting policies consistently followed by
the Funds and are in conformity with U.S. generally accepted accounting
principles ("GAAP"). Estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
(A) INVESTMENT VALUATION. Securities traded on national securities
markets are valued at the closing prices on such markets. Securities for which
no sales price was reported and U.S. government agencies and obligations are
valued at the mean between the quoted bid and asked prices or on the basis of
quotations received from unaffiliated reputable brokers or other recognized
sources. 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. 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. When market quotations or official
closing prices are not readily available, or are determined not to reflect fair
value, such as when the value of a security has been significantly affected by
events after the close of the exchange or market on which the security is
principally traded (for example, a foreign exchange or market), but before each
Fund calculates its net asset value, the Funds may value these investments at
fair value as determined in accordance with the procedures approved by the
Funds' Board of Trustees. Fair valuing of securities may be determined with the
assistance of a pricing service using calculations based on indices of domestic
securities and other appropriate indicators, such as prices of relevant ADRs and
futures contracts. Short-term obligations maturing within 60 days are valued at
amortized cost, which approximates value.
(B) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it
is the Funds' policy that a custodian takes possession of the underlying
collateral securities, the value of which at least equals the principal amount
of the repurchase transaction, including accrued interest. To the extent that
any repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market to ensure the adequacy of the collateral. If the seller
defaults and the value of the collateral declines or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Funds may be delayed or limited.
(C) FUTURES CONTRACTS. The Funds may enter into futures contracts to the
extent permitted by their investment policies and objectives. Upon entering into
a futures contract, the Funds are required to deposit cash or securities as
initial margin. Additional securities are also segregated up to the current
market value of the futures contracts. Subsequent payments, which are dependent
on the daily fluctuations in the value of the underlying financial instrument,
are made or received by the Funds each day (daily variation margin) and are
recorded as unrealized gains or losses until the contracts are closed. When the
contracts are 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 Fund's basis in the contracts. The Funds enter into such contracts typically
to hedge a portion of the portfolio. The risks associated with entering into
futures contracts include the possibility that a change in the value of the
contract may not correlate with the changes in the value of the underlying
instruments. In addition, investing in futures contracts involves the risk that
the Funds could lose more than the original margin deposit and subsequent
payments required for a futures transaction.
(D) FORWARD FOREIGN CURRENCY CONTRACTS. Certain Funds 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 Funds 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 Funds record a realized gain
or loss equal to the difference between the value of the contract at the time it
was opened and the value of the contract at the time it was extinguished or
offset. The Funds bear the market risk that arises from changes in foreign
currency exchange rates and the credit risk should a counterparty fail to meet
the terms of such contracts.
60
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(E) CREDIT AND MARKET RISK. 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. The Fund's
investment in securities rated below investment-grade typically involves risks
not associated with higher rated securities including, among others, greater
risk of timely and ultimate payment of interest and principal, greater market
price volatility and less liquid secondary market trading.
(F) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions
are accounted for on a trade date basis. Interest income, adjusted for
amortization of premium and accretion of discount is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Foreign dividend
income is recorded on the ex-dividend date or as soon as practical after the
Funds determine the existence of a dividend declaration after exercising
reasonable due diligence. The cost of investments sold is determined by use of
the specific identification method.
(G) FOREIGN CURRENCY TRANSLATION. The books and records of the Funds are
maintained in U.S. dollars. Transactions denominated in foreign currencies are
recorded at the current prevailing exchange rates. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollar amounts at the
current exchange rates at the end of the period. Translation gains or losses
resulting from changes in the exchange rates during the reporting period and
realized gains and losses on the settlement of foreign currency transactions are
reported in the statement of operations for the current period. The Funds do not
isolate that portion of realized gains and losses on investments in securities,
which are due to changes in the foreign exchange rates from that which is due to
changes in market prices of equity securities.
(H) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net
investment income for MAT, HYBT and CAF, if any, are declared on an annual
basis. Dividends on the shares of MMP are declared each business day to
shareholders of record that day, and are paid on the last business day of the
month. Distributions of net realized gains to shareholders of the Funds, if any,
are declared at least annually. Dividends and distributions to shareholders of
the Funds are recorded on the ex-dividend date and are determined in accordance
with income tax regulations which may differ from GAAP.
(I) FEDERAL AND OTHER TAXES. It is the Funds' policy to comply with the
federal income and excise tax requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies. Accordingly, the Funds
intend to distribute substantially all of their taxable income and net realized
gains on investments, if any, to shareholders each year. Therefore, no federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates.
(J) RECLASSIFICATION. GAAP requires that certain components of net assets
be adjusted to reflect permanent differences between financial and tax
reporting. Accordingly, during the current year, $15,779 has been reclassified
between undistributed net investment income and accumulated net realized gain
from investment transactions as a result of permanent differences attributable
to the tax treatment of distributions from real estate investment trust
securities for MAT. Additionally, $215,382 has been reclassified between paid-in
capital and accumulated net realized loss from investment transactions as a
result of other permanent differences between book and tax, and $1,153 has been
reclassified between undistributed net investment income and accumulated net
realized loss from investment transactions due to differences between book
foreign currency transactions treated as ordinary income for tax purposes and
income from mortgage backed securities treated as capital gains for tax purposes
for HYBT. Also $1,479,979 has been reclassified between paid-in capital and net
investment loss due to a net operating loss and $16,222 has been reclassified
between net investment loss and accumulated net realized loss from investment
transactions due to differences between book foreign currency transactions
treated as ordinary income for tax purposes for CAF. These reclassifications
have no effect on net assets or net asset values per share.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to MAT, HYBT, CAF and MMP. MAT and MMP pay TAMIC an investment advisory
fee calculated at the annual rate of 0.50% and 0.3233%, respectively, of their
average daily net assets. Prior to September 1, 2004, CAF paid TAMIC an
investment advisory fee calculated at the annual rate of 0.75% of its 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.
61
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the year ended December 31, 2004, TAMIC reimbursed HYBT in the
amount of $75,068 for losses incurred resulting from violations of the Fund's
investment restrictions.
Effective September 1, 2004, the investment advisory fee for CAF was
revised from the annual rate of 0.75% of the daily net assets of the fund, to a
fee calculated at an annual rate in accordance with the following schedule:
<Table>
<Caption>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
- ------------------------ ------------
First $1.5 billion.......................................... 0.700%
Over $1.5 billion........................................... 0.650%
</Table>
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, an advisory fee calculated at an
annual rate of 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,
prior to September 1, 2004, TAMIC paid Janus, as sub-adviser, 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. Effective September 1, 2004, the advisory fee TAMIC pays
Janus was revised to a fee calculated at an annual rate of 0.50% on the first
$100 million, 0.45% on the next $400 million, 0.40% on the next $1 billion and
0.35% on the amount over $1.5 billion 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, 2004, the Funds had in place contractual
expense limitations of 1.25% for each of the Funds MAT, HYBT and CAF and 0.40%
for MMP. As a result, TIC has agreed to reimburse MMP for expenses in the amount
of $56,597. These expense limitations are renewed annually and can be terminated
at any time by TIC with 60 days' notice.
During the year ended December 31, 2004, SBFM voluntarily waived a portion
of its fee in the amount of $1,726, $1,679, $1,698 and $1,726 for MAT, HYBT, CAF
and MMP, respectively. In addition, for the year ended December 31, 2004, SBFM
reimbursed expenses in the amount of $31,759 for each of the Funds MAT, HYBT and
CAF, in connection with the overpayment of transfer agent fees relating to the
period from June 1999 through June 2004.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as
the Funds' transfer agent. For the year ended December 31, 2004, each Fund paid
transfer agent fees of $2,500 to CTB.
One Trustee and all officers of the Funds are employees of Citigroup or its
affiliates and do not receive compensation from the Funds.
3. INVESTMENTS
During the year ended December 31, 2004, the aggregate cost of purchases
and proceeds from sales of investments (excluding short-term investments and
proceeds from paydowns) were as follows:
<Table>
<Caption>
MAT HYBT CAF
- -------------------------------------------------------------------------------------------------------
Purchases................................................... $183,091,187 $78,813,239 $148,908,135
- -------------------------------------------------------------------------------------------------------
Sales....................................................... 195,426,565 65,387,042 271,525,921
- -------------------------------------------------------------------------------------------------------
</Table>
62
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2004, 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............................... $ 41,538,817 $ 8,583,112 $390,636,644
Gross unrealized depreciation............................... (11,063,528) (1,073,969) (5,987,235)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation................................. $ 30,475,289 $ 7,509,143 $384,649,409
- -------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2004, MAT had the following open futures contracts:
<Table>
<Caption>
NUMBER OF EXPIRATION BASIS MARKET UNREALIZED
CONTRACTS DATE VALUE VALUE LOSS
- ----------------------------------------------------------------------------------------------------------------
CONTRACTS TO BUY:
S&P 500 Index.............................. 10 3/05 $3,036,930 $3,034,250 $(2,680)
- ----------------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2004, HYBT had the following open forward foreign currency
contracts. The unrealized gain on the contract reflected in the accompanying
financial statements was as follows:
<Table>
<Caption>
LOCAL MARKET SETTLEMENT UNREALIZED
FORWARD FOREIGN CURRENCY CONTRACTS CURRENCY VALUE DATE GAIN
- --------------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL:
Euro...................................................... 350,000 $474,126 3/9/05 $2,875
- --------------------------------------------------------------------------------------------------------------
TOTAL UNREALIZED GAIN ON OPEN FORWARD FOREIGN CURRENCY CONTRACTS................................ $2,875
- --------------------------------------------------------------------------------------------------------------
</Table>
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- ---------------------------------------------------------------------------------------------------
MANAGED ASSETS TRUST
Shares sold................................................. 494,356 620,844
Shares issued on reinvestment............................... 553,631 437,644
Shares reacquired........................................... (1,652,149) (1,625,662)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (604,162) (567,174)
- ---------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST
Shares sold................................................. 1,945,067 2,977,348
Shares issued on reinvestment............................... 712,609 668,649
Shares reacquired........................................... (1,725,432) (1,324,438)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 932,244 2,321,559
- ---------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION FUND
Shares sold................................................. 76,603 308,890
Shares issued on reinvestment............................... -- 8,160
Shares reacquired........................................... (2,128,640) (2,001,426)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (2,052,037) (1,684,376)
- ---------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Shares sold................................................. 183,076,228 265,892,702
Shares issued on reinvestment............................... 3,223,605 3,072,564
Shares reacquired........................................... (229,178,505) (316,384,220)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (42,878,672) (47,418,954)
- ---------------------------------------------------------------------------------------------------
</Table>
63
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal year ended
December 31, 2004 was as follows:
<Table>
<Caption>
MAT HYBT CAF MMP
- ----------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income........................................ $6,765,497 $6,987,891 $ -- $3,375,116
Net Long-term Capital Gains............................ 2,452,309 65,843 -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions Paid................................. $9,217,806 $7,053,734 $ -- $3,375,116
- ----------------------------------------------------------------------------------------------------------
</Table>
The tax character of distributions paid during the fiscal year ended
December 31, 2003 was as follows:
<Table>
<Caption>
MAT HYBT CAF MMP
- ----------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income........................................ $6,863,313 $6,515,534 $389,109 $3,028,884
Return of Capital...................................... -- -- 64,253 --
- ----------------------------------------------------------------------------------------------------------
Total Distributions Paid................................. $6,863,313 $6,515,534 $453,362 $3,028,884
- ----------------------------------------------------------------------------------------------------------
</Table>
As of December 31, 2004, the components of accumulated earnings (losses) on
a tax basis was as follows:
<Table>
<Caption>
MAT HYBT CAF MMP
- -----------------------------------------------------------------------------------------------------------
Undistributed ordinary income.......................... $ 48,121 $ 5,877 $ -- $ 7,965
Undistributed long-term capital gains.................. 1,756,492 -- -- --
- -----------------------------------------------------------------------------------------------------------
Total undistributed earnings........................... 1,804,613 5,877 -- 7,965
Capital loss carryforward(1)........................... -- (306,393) (425,085,640) (7,791)
Other book/tax temporary differences(2)................ 2,680 (2,875) (2,128,632) (14)
Unrealized appreciation(3)............................. 30,472,612 7,509,128 384,656,944 --
- -----------------------------------------------------------------------------------------------------------
Total accumulated earnings (losses).................... $32,279,905 $7,205,737 $ (42,557,328) $ 160
- -----------------------------------------------------------------------------------------------------------
</Table>
(1) On December 31, 2004 the Funds had net capital loss carryforwards as
follows:
<Table>
<Caption>
YEAR OF EXPIRATION HYBT CAF MMP
- ----------------------------------------------------------------------------------------------
12/31/2008.................................................. -- $ 41,615,373 --
12/31/2009.................................................. -- 151,852,985 --
12/31/2010.................................................. -- 74,123,366 $7,645
12/31/2011.................................................. -- 104,924,615 146
12/31/2012.................................................. $306,393 52,569,301 --
- ----------------------------------------------------------------------------------------------
$306,393 $425,085,640 $7,791
- ----------------------------------------------------------------------------------------------
</Table>
These amounts will be available to offset any future taxable capital gains.
(2) Other book/tax temporary differences are attributable primarily to the
difference between the realization for tax purposes of unrealized
gains(losses) on certain futures contracts for MAT, the realization for tax
purposes of unrealized gains(losses) on certain foreign currency contracts
for HYBT, the deferral of post-October capital losses for tax purposes for
CAF and MMP.
(3) The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales.
6. ADDITIONAL INFORMATION
In connection with an investigation previously disclosed by Citigroup, the
Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup
Asset Management ("CAM"), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are
64
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
former employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through voluntary fee waivers, a total of
approximately $17 million (plus interest), which is the amount of the revenue
received by Citigroup relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering
recommending action based on the adequacy of the disclosures made to the fund
boards that approved the transfer agency arrangement, CAM's initiation and
operation of, and compensation for, the transfer agent business and CAM's
retention of, and agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC Staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are ongoing and any settlement of this matter with the SEC will require approval
by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance
that any amount reserved by Citigroup will be distributed. Nor is there at this
time any certainty as to how the proceeds of any settlement would be
distributed, to whom any such distribution would be made, the methodology by
which such distribution would be allocated, and when such distribution would be
made.
Although there can be no assurance, Citigroup does not believe that this
matter will have a material adverse effect on the funds.
7. SUBSEQUENT EVENT
On January 31, 2005, Citigroup announced that it has reached an agreement
with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TAMIC currently an indirect wholly owned subsidiary of Citigroup, would become
an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser
to the Funds.
The transaction is subject to certain regulatory approvals, as well as
other customary conditions to closing. The transaction is expected to close this
summer.
In connection with this transaction, the Trust's Board of Trustees will be
asked to approve new investment advisory and administrative services contracts,
and, to the extent required by law, variable annuity and variable life contract
owners, who beneficially own the shares of the funds, will be asked to approve
new investment advisory agreements.
65
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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 the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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
Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money
Market Portfolio as of December 31, 2004, 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 the financial highlights for each of the
years in the five-year period then ended, in conformity with U.S. generally
accepted accounting principles.
[KPMG LLP SIGNATURE]
New York, New York
February 18, 2005
66
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
The following information is provided with respect to the distributions
paid during the taxable year ended December 31, 2004:
<Table>
<Caption>
MANAGED ASSETS HIGH YIELD MONEY MARKET
TRUST BOND TRUST FUND
- -----------------------------------------------------------------------------------------------------
Record Date.............................................. 12/27/2004 6/24/2004 Daily
Payable Date............................................. 12/28/2004 6/25/2004 Monthly
- -----------------------------------------------------------------------------------------------------
Dividends Qualifying for the Dividends Received Deduction
for Corporations....................................... 52.30% -- --
- -----------------------------------------------------------------------------------------------------
Interest from Federal Obligations........................ 8.40% -- 2.31%
- -----------------------------------------------------------------------------------------------------
Long-Term Capital Gain per share......................... $ 0.141700 $0.006800 $ --
- -----------------------------------------------------------------------------------------------------
</Table>
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult with your tax adviser to determine if any portion of
the dividends you received is exempt from state income taxes.
Please retain this information for your records.
67
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
U.S. GOVERNMENT SECURITIES PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, U.S. Government Securities
Portfolio returned 6.13%. The fund outperformed its unmanaged benchmark, the
Merrill Lynch U.S. Treasury/Agency Master Index(i), which returned 3.42%, for
the same period. The fund underperformed its other unmanaged composite
benchmark, the Merrill Lynch U.S. Treasuries 15+ Years/Merrill Lynch Mortgage
Master Index(ii), which returned 6.53%, for the same period. The fund
outperformed the fund's Lipper Variable General U.S. Government funds category
average(2), which was 3.92%.
MARKET/ECONOMIC OVERVIEW
The economic expansion entered its fourth year at the close of 2004. Led by
strong consumer and business demand, the balance of growth was quite healthy.
The employment picture improved during the year, as rising profits led to
increased corporate willingness to hire new employees. Strong consumer and
business fundamentals appear likely to continue into 2005 and consumer spending
looks to strengthen further relative to last year.
Inflation began to rise modestly in 2004 as shortages of certain goods and
commodities developed around the world. In 2005, inflation pressures look to
rise as healthy growth continues to improve corporate pricing power. The ongoing
economic recovery and rising price pressures caused the Federal Reserve Board
("Fed")(iii) to institute a series of five 25 basis point(iv) rate hikes,
beginning in mid-2004. This trend looks to continue well into 2005.
CONTRIBUTORS TO PERFORMANCE
In the credit market, the mortgage sector posted the second highest return
behind corporate securities during the period. Mortgage-backed securities
("MBS") outperformed collateralized mortgage-backed securities ("CMBS"),
asset-backed securities, and Treasuries. 15-years MBS underperformed 30-years as
the yield curve(v) flattened and 3-year Treasuries were the worst performer on
the yield curve. Our discount MBS generated the best total returns for both
15-year and 30-year maturities. Within the portfolio, our Federal Home Loan
Mortgage Corporation(vi) ("Freddie Mac") and Federal National Mortgage
Association(vii) ("Fannie Mae") 30-year securities were the best performers, as
30-years outperformed 15-year absolute returns. This occurred due to an increase
in interest rates, yield curve flattening, and a decline in volatility.
Our discount Government National Mortgage Association(viii) ("Ginnie Mae")
position outperformed conventional 30-year maturities. In addition, overall
performance was enhanced by an overweight in discount 30-year securities versus
15-year issues with high coupons. Our underweight in Treasuries and elimination
of all Treasuries with maturities less than five years also contributed to
results. An overweight in agency securities versus Treasuries was also
beneficial, despite the volatility in agency spreads during the fiscal year.
While our overweight in CMBS was a negative versus MBS, it helped reduce our
exposure to the short end of the yield curve. The portfolio's poorest performing
sectors were MBS balloons (where the final loan payment is considerably higher
than prior payments) and CMOs, as both yield curve and spread changes of these
securities led to underperformance.
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity contracts, such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce
the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 56 funds in the fund's Lipper category, and excluding sales charges.
68
Thank you for your investment in the U.S. Government Securities Portfolio. As
ever, we appreciate that you have chosen us to manage your assets and we remain
focused on achieving the fund's investment goals.
Sincerely,
/s/ Gene Collins
Gene C. Collins
Travelers Asset Management International Company LLC
January 14, 2005
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's security type holdings (as a
percentage of net assets) as of December 31, 2004 were: U.S. Government Agency
Obligations (55.4%); U.S. Government Obligations (25.4%); Repurchase Agreement
(23.9%) and Collateralized Mortgage Obligations (13.8%). The fund's portfolio
composition is subject to change at any time.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) The Merrill Lynch U.S. Treasury/Agency Master Index is an index comprised
of U.S. Treasury and Agency securities.
(ii) 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.)
(iii) The Fed is responsible for the formulation of a policy designed to
promote economic growth, full employment, stable prices and a sustainable
pattern of international trade and payments.
(iv) A basis point is one one-hundredth (1/100 or 0.01) of one percent.
(v) The yield curve is the graphical depiction of the relationship between the
yield on bonds of the same credit quality, but different maturities.
(vi) Federal Home Loan Mortgage Corporation obligations are mortgage-backed
securities, issued in minimum denominations of $25,000, that are packaged,
guaranteed and sold by the Federal Home Loan Mortgage Corporation.
(vii) Federal National Mortgage Association obligations are securities
consisting mostly of mortgages backed by the Federal Housing
Administration. These obligations also include some mortgages that are
not backed by the U.S. government.
(viii) Government National Mortgage Association obligations are pass-through
mortgage-backed securities consisting of a pool of residential mortgage
loans. All payments of principal and interest are passed through to
investors each month.
69
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- U.S. GOVERNMENT SECURITIES PORTFOLIO (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT BREAKDOWN
As a Percent of Total Investments
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
U.S. Government Agency Obligations 46.80 58.00
U.S. Government Obligations 21.40 22.80
Collateralized Mortgage Obligations 11.70 10.60
Repurchase Agreement 20.10 8.60
</Table>
70
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended
12/31/04 6.13%
Five Years Ended 12/31/04 8.47
Ten Years Ended 12/31/04 8.46
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
Ten Years Ended 12/31/04 125.32%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1994, assuming reinvestment of dividends, through
December 31, 2004. 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+
YEARS INDEX AND 50%
MERRILL LYNCH U.S. MERRILL LYNCH
U.S. GOVERNMENT TREASURY/AGENCY MORTGAGE MASTER
SECURITIES PORTFOLIO CONSUMER PRICE INDEX MASTER INDEX INDEX
-------------------- -------------------- ------------------ -------------------
12/94 10000 10000 10000 10000
12/95 12442 10254 11831 12423
12/96 12623 10594 12158 12684
12/97 14216 10774 13325 14250
12/98 15666 10947 14637 15745
12/99 15004 11273 14328 15143
12/00 17185 11656 16207 17588
12/01 18185 11837 17370 18635
12/02 20663 12119 19328 21106
12/03 21231 12347 19784 21688
12/04 22532 12749 20460 23103
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gains distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of voluntary fee
waivers and/or expense reimbursements, the total return would have been lower.
71
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
SOCIAL AWARENESS STOCK PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, Social Awareness Stock Portfolio
returned 6.23%. The fund underperformed its unmanaged benchmark, the S&P 500
Index(i), which returned 10.87% for the same period. It also underperformed its
Lipper Variable Specialty/Miscellaneous funds category average(2), which was
7.82%.
The fiscal year was one in which energy and other commodity-related, or
so-called "dirtier" industries from a social investing standpoint, outperformed
significantly as a result of several factors. Energy and commodity supply had
been constrained as a result of the economic downturn. However, demand,
particularly from fast growing economies such as China, grew rapidly at the same
time that geopolitical issues in the Middle East caused lower oil inventories
and higher premiums for the commodity. The fund's underperformance relative to
its benchmark can be primarily attributed to lower exposure to energy and
commodity-related sectors. In addition, the fund's larger exposure and weak
stock selection in underperforming sectors such as technology and consumer
discretionary detracted from results. However, the fund's performance was helped
by strong stock selection in the financial, healthcare, and transportation
sectors.
MARKET/ECONOMIC OVERVIEW
During 2004, domestic economic growth continued to show clear signs of
improvement but the stock market traded in a narrow range due to several issues.
The U.S. presidential election, the war in Iraq, energy prices, trade
imbalances, U.S. dollar depreciation, lackluster job growth, and a growing
budget deficit took precedence over positive factors such as continued gross
domestic product ("GDP")(ii) growth and strong corporate earnings. However,
following the resolution of the presidential election and, combined with
declining oil prices, stocks moved sharply higher in the fourth quarter.
We believe that interest rates and earnings will be the main determinants of
stock prices in 2005. We continue to see the Federal Reserve Board ("Fed")(iii)
raising interest rates in a measured fashion throughout the first part of the
year. The Fed will then likely begin to moderate this stance to provide a
balance between a growing economy and a very interest rate sensitive consumer.
This scenario has historically been a good environment for stocks in general and
high quality large cap growth stocks in particular.
We feel that a transition in equity marketplace leadership is starting to take
hold as fundamental factors begin to take precedence in the later stages of the
current economic recovery. With our focus on fundamental investing, we believe
shareholders can participate in the potential growth and revaluation of
companies that offer the most attractive attributes. With interest rates still
at low levels, we feel that companies that are competitively well positioned and
conservatively financed offer compelling investment opportunities.
CONTRIBUTORS TO PERFORMANCE
The biggest contributor to the fund's performance for the period was its
position in financial services stock SLM CORP. SLM Corp.'s shares benefited from
the U.S. presidential election as the Kerry platform was viewed as potentially
detrimental to the student loan business model. The fund's other two top
contributors were TYCO INTERNATIONAL LTD. in the industrials sector and NETWORK
APPLIANCE, INC. in the information technology sector. Tyco International Ltd.
has benefited from the infusion of a new management team. The company has
restructured its operations and balance sheet significantly and is now better
positioned to benefit from the economic recovery. Network Appliance, Inc.
continues to gain market share and grow at a very strong rate in its storage
systems business.
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity contracts, such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce
the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 136 funds in the fund's Lipper category, and excluding sales charges.
72
On the negative side, the largest single detractor from performance during the
period was INTEL CORP. in the information technology sector. Intel suffered a
considerable drop in its share price due to concerns that the recovery in
technology spending would not be as robust as investors had expected. We
continue to own Intel as we expect the longer term growth for the company to
outweigh this short term issue. The other two largest detractors from
performance were PFIZER INC. and VISHAY INTERTECHNOLOGY, INC. Pfizer's shares
fell sharply as a result of its disclosure of research that showed an increase
in heart attacks in patients who were using an elevated dosage of their product
Celebrex. We continue to own Pfizer, as we believe the stock has sold off more
than the situation warrants. However, we'll continue to monitor the issue
closely. Vishay suffered the same issues confronted by Intel and we also expect
its longer term growth potential and high quality franchise outweigh the short
term issues confronting the company.
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 positions in the marketplace. With interest rates still at
low historical levels, we believe that well positioned and conservatively
financed companies could once again sell at a premium to the overall market.
Thank you for your investment in the Social Awareness Stock Portfolio. As ever,
we appreciate that you have chosen us to manage your assets and we remain
focused on achieving the fund's investment goals.
Sincerely,
/s/ Bill Theriault
William Theriault
Smith Barney Fund Management LLC
January 12, 2005
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2004 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 a percentage of net assets)
as of this date were: Mocrosoft Corp. (2.9%), Tyco International Ltd. (2.7%),
VERITAS Software Corp. (2.6%), SLM Corp. (2.6%), Teva Pharmaceutical Industries
Ltd., Sponsored ADR (2.2%), Intel Corp. (2.2%), Amgen Inc. (2.2%), BP PLC,
Sponsored ADR (2.0%), Nokia oyj, Sponsored ADR (1.9%) and Pfizer Inc. (1.9%).
Please refer to pages 84 through 88 for a list and percentage breakdown of the
fund's holdings.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's top five sector holdings (as
a percentage of net assets) as of December 31, 2004 were: Information Technology
(24.7%); Financials (19.7%); Healthcare (14.4%); Industrials (11.7%) and
Consumer Discretionary (11.1%). The fund's portfolio composition is subject to
change at any time.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
(ii) Gross domestic product is a market value of goods and services produced by
labor and property in a given country.
(iii) The Fed is responsible for the formulation of a policy designed to
promote economic growth, full employment, stable prices and a sustainable
pattern of international trade and payments.
73
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- SOCIAL AWARENESS STOCK PORTFOLIO (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT BREAKDOWN
As a Percent of Total Investments
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Information Technology 24.60 23.50
Financials 19.60 18.30
Healthcare 14.40 15.10
Industrials 11.70 11.50
Consumer Discretionary 11.00 12.80
Energy 6.30 5.70
Materials 6.00 6.00
Consumer Staples 5.30 6.00
Utilities 0.80 0.80
Repurchase Agreement 0.30 0.30
</Table>
74
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended
12/31/04 6.23%
Five Years Ended 12/31/04 (2.90)
Ten Years Ended 12/31/04 10.42
CUMULATIVE TOTAL RETURN
------------------------
Ten Years Ended 12/31/04 169.40%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1994, assuming reinvestment of dividends, through
December 31, 2004. 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
---------------------- ------------- --------------------
12/94 10000.00 10000.00 10000.00
12/95 13337.00 13753.00 10254.00
12/96 16002.00 16910.00 10594.00
12/97 20368.00 22550.00 10774.00
12/98 26940.00 29031.00 10947.00
12/99 31206.00 35137.00 11273.00
12/00 31054.00 31939.00 11656.00
12/01 26177.00 28145.00 11837.00
12/02 19682.00 21926.00 12119.00
12/03 25360.00 28213.00 12347.00
12/04 26940.00 31279.00 12749.00
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gains distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. Past
performance is no guarantee of future results. In the absence of voluntary fee
waivers and/or expense reimbursements, the total return would have been lower.
75
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
PIONEER FUND PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
The Board of Trustees of the trust, on behalf of the fund, approved an amendment
to the investment advisory agreement between the fund and Travelers Asset
Management International Company LLC. Effective December 1, 2004, the investment
advisory fee was revised from the annual rate of 0.75% of the average daily net
assets of the fund to a fee calculated at an annual rate in accordance with the
following schedule:
<Table>
<Caption>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
- ------------------------ ------------
First $250 million.......................................... 0.750%
Next $250 million........................................... 0.700%
Next $500 million........................................... 0.675%
Next $1 billion............................................. 0.650%
Amounts over $2 billion..................................... 0.600%
</Table>
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, Pioneer Fund Portfolio returned
11.13%. The fund outperformed its unmanaged benchmark, the S&P 500 Index(i),
which returned 10.87% for the same period. They also outperformed the fund's
Lipper Variable Large-Cap Core funds category average(2), which was 8.59%.
MARKET/ECONOMIC OVERVIEW
A quick resolution to the presidential election, generally upbeat economic news,
a strong bond market, and the absence of an "external shock" helped the U.S.
stock market break out of its year-long trading range and rally sharply during
the fourth quarter of 2004. For the year as a whole, the broad market, as
measured by the S&P 500 Index, returned 10.87%. Our outlook on the economy over
the next two years is positive and, as a result, we think there will continue to
be good opportunities for profitable investment in stocks. We're monitoring,
among other factors, the interest rate scenario and the probability of further
rate increases, as well as the dollar weakness and its impact on both U.S. and
international companies. At the same time, we're closely following the
possibility of profit-taking and a rotation out of cyclical stocks and
industrials into consumer, healthcare, and technology companies. As always,
we'll strive to position the fund to capitalize on these trends and will remain
substantially fully invested at all times.
CONTRIBUTORS TO PERFORMANCE
Both security selection and sector weighting decisions contributed positively to
performance during the fiscal year. From a stock selection perspective, the
fund's holdings in the healthcare and industrials sectors generated the
strongest results, while selection in consumer staples and financials also
contributed materially.
In healthcare, the portfolio benefited from gains by JOHNSON & JOHNSON, ABBOTT
LABORATORIES, and ROCHE HOLDING AG. In the industrials sector, our holdings in
machinery companies CATERPILLAR INC. and DEERE & CO. proved beneficial, as did
our overweight in heavy truck manufacturer, PACCAR INC. In the road & rail
industry, railroad NORFOLK SOUTHERN CORP. reported strong earnings and the
fund's overweight position in the stock provided an additional boost to relative
performance.
In financials, T. ROWE PRICE GROUP INC. was strong, due in part to its solid
third quarter earnings. The company posted an 11% annualized organic growth
figure and is currently hiring more employees to keep up with the successful
growth of assets under management. Strong returns from MERRILL LYNCH & CO.,
INC., STATE STREET CORP., and THE BANK OF NEW YORK CO., INC. also enhanced
results.
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity contracts, such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce
the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 216 funds in the fund's Lipper category, and excluding sales charges.
76
Conversely, returns were held back slightly by stock selection in the
telecommunication services and utilities sectors. In telecommunications, both
BELLSOUTH CORP. and SBC COMMUNICATIONS INC. underperformed the broader sector on
a relative basis.
Thank you for your investment in the Pioneer Fund Portfolio. As ever, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the fund's investment goals.
<Table>
Respectfully Submitted,
/s/ John Carey /s/ Walter Hunnewell, Jr.
John A. Carey Walter Hunnewell, Jr.
Pioneer Investment Management, Inc. Pioneer Investment Management, Inc.
</Table>
January 11, 2005
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2004 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 a percentage of net assets)
as of this date were: ChevronTexaco Corp. (2.3%), Exxon Mobil Corp. (2.3%), The
McGraw Hill Cos., Inc. (2.2%), Target Corp. (2.1%), Norfolk Southern Corp
(2.0%), T. Rowe Price Group Inc. (1.9%), Johnson & Johnson (1.8%), Rio Tinto
PLC, Sponsored ADR (1.8%), SBC Communications Inc. (1.7%) and Walgreen Co.
(1.6%). Please refer to pages 89 through 94 for a list and percentage breakdown
of the fund's holdings.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's top five sector holdings (as
a percentage of net assets) as of December 31, 2004 were: Financials (15.6%);
Consumer Discretionary (13.9%); Industrials (13.4%); Information Technology
(13.2%) and Healthcare (11.2%). The fund's portfolio composition is subject to
change at any time.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
77
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- PIONEER FUND PORTFOLIO (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT BREAKDOWN
As a Percent of Total Investments
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Financials 15.60 16.50
Consumer Discretionary 13.80 13.30
Industrials 13.40 12.90
Information Technology 13.10 13.30
Healthcare 11.20 12.80
Consumer Staples 10.00 10.90
Energy 7.70 8.10
Materials 6.70 5.40
Telecommunications Services 3.60 3.40
Utilities 1.90 2.10
Repurchase Agreement 3.00 1.30
</Table>
78
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- PIONEER FUND PORTFOLIO AS OF 12/31/04 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 11.13%
Five Years Ended 12/31/04 (1.68)
Ten Years Ended 12/31/04 6.94
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
Ten Years Ended 12/31/04 95.66%
</Table>
This chart assumes an initial investment of $10,000 made on
December 31, 1994, assuming reinvestment of dividends, through
December 31, 2004. 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
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 CONSUMER PRICE INDEX
---------------------- ------------- --------------------
12/94 10000 10000 10000
12/95 12929 13753 10254
12/96 14394 16910 10594
12/97 18034 22550 10774
12/98 21318 29031 10947
12/99 21300 35137 11273
12/00 26467 31939 11656
12/01 20381 28145 11837
12/02 14223 21926 12119
12/03 17606 28213 12347
12/04 19566 31279 12749
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gains distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect 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 have been lower.
79
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED)
EXAMPLE
As a shareholder of the Funds, you may incur two types of costs: (1)
transaction costs, including front-end and back-end sales charges (loads) on
purchase payments, reinvested dividends, or other distributions; and (2) ongoing
costs, including management fees; distribution and/or service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004
and held for the six months ended December 31, 2004.
ACTUAL EXPENSES
The table below titled "Based on Actual Total Return" provides information
about actual account values and actual expenses. You may use the information
provided in this table, together with the amount you invested, to estimate the
expenses that you paid over the period. To estimate the expenses you paid on
your account, divide your ending account value by $1,000 (for example, an $8,600
ending account value divided by $1,000 = 8.6), then multiply the result by the
number under the heading entitled "Expenses Paid During the Period".
- --------------------------------------------------------------------------------
BASED ON ACTUAL TOTAL RETURN(1)
<Table>
<Caption>
EXPENSES
BEGINNING ENDING ANNUALIZED PAID
ACTUAL TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE
RETURN(2) VALUE VALUE RATIO PERIOD(3)
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Portfolio........ 6.19% $1,000.00 $1,061.90 0.40% $2.07
- ------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio............ 6.57 1,000.00 1,065.70 0.69 3.58
- ------------------------------------------------------------------------------------------------------------------
Pioneer Fund Portfolio...................... 9.13 1,000.00 1,091.30 0.82 4.31
- ------------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Assumes reinvestment of dividends and capital gain distributions, if any, at
net asset value. Total return is not annualized, as it may not be
representative of the total return for the year. Total returns do not
reflect expenses associated with the separate account such as administrative
fees, account charges and surrender charges, which, if reflected, would
reduce the total returns. Performance figures may reflect voluntary fee
waivers and/or expense reimbursements. Past performance is no guarantee of
future results. In the absence of voluntary fee waivers and/or expense
reimbursements, the total return would have been lower.
(3) Expenses (net of voluntary fee waiver and/or expense reimbursements) are
equal to the Fund's annualized expense ratio multiplied by the average
account value over the period, multiplied by the number of days in the most
recent fiscal half-year, then divided by 366.
80
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below titled "Based on Hypothetical Total Return" provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio and an assumed rate of return of 5.00% per year before
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use the information provided in this
table to compare the ongoing costs of investing in the Fund and other funds. To
do so, compare the 5.00% hypothetical example relating to the Fund with the
5.00% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as front-end or back-end sales charges (loads). Therefore, the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transaction costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
BASED ON HYPOTHETICAL TOTAL RETURN(1)
<Table>
<Caption>
HYPOTHETICAL EXPENSES
ANNUALIZED BEGINNING ENDING ANNUALIZED PAID
TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE
RETURN VALUE VALUE RATIO PERIOD(2)
- -----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Portfolio.......... 5.00% $1,000.00 $1,023.13 0.40% $2.03
- -----------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio.............. 5.00 1,000.00 1,021.67 0.69 3.51
- -----------------------------------------------------------------------------------------------------------------
Pioneer Fund Portfolio........................ 5.00 1,000.00 1,021.01 0.82 4.17
- -----------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Expenses (net of voluntary fee waiver and/or expense reimbursements) are
equal to the Fund's annualized expense ratio multiplied by the average
account value over the period, multiplied by the number of days in the most
recent fiscal half-year, then divided by 366.
81
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2004
U.S. GOVERNMENT SECURITIES PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 25.4%
$ 5,145,000 U.S. Treasury Notes, 4.250% due 11/15/14.................... $ 5,160,075
U.S. Treasury Bonds:
8,000,000 8.875% due 8/15/17 (a).................................... 11,339,376
7,500,000 6.000% due 2/15/26 (a).................................... 8,593,657
13,000,000 6.375% due 8/15/27 (a).................................... 15,614,222
1,000,000 5.250% due 2/15/29........................................ 1,049,297
U.S. Treasury Strip:
4,680,000 Zero Coupon bond to yield 3.789% due 5/15/09.............. 4,013,409
28,000,000 Zero Coupon bond to yield 5.660% due 2/15/27 (a).......... 9,113,608
- ----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $51,930,010)..... 54,883,644
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 55.4%
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGHS -- 38.5%
Federal Home Loan Mortgage Corp. (FHLMC):
228,632 4.000% due 5/1/19......................................... 223,757
1,964,049 5.000% due 7/1/19......................................... 1,996,145
4,779,187 5.000% due 8/1/19 (b)..................................... 4,857,288
251,913 7.000% due 7/1/29......................................... 263,760
56,501 8.000% due 9/1/30......................................... 61,247
573,530 7.500% due 5/1/32......................................... 614,430
2,662,206 4.500% due 4/1/33......................................... 2,576,563
Federal National Mortgage Association (FNMA):
7,309,240 4.500% due 9/1/19 (b)..................................... 7,307,037
1,476,494 4.000% due 1/19/20 (c)(d)................................. 1,441,427
650,000 4.500% due 1/19/20 (c)(d)................................. 647,969
671,269 7.500% due 11/1/29 (b).................................... 714,638
1,035,170 6.500% due 5/1/32 (b)..................................... 1,087,789
4,444,133 4.000% due 5/1/33 (b)..................................... 4,372,450
18,579,633 5.000% due 8/1/34 (b)..................................... 18,449,463
11,500,000 5.000% due 1/13/35 (c)(d)................................. 11,410,162
20,998,956 5.500% due 1/13/35 (c)(d)................................. 21,320,492
5,300,000 6.000% due 1/13/35 (c)(d)................................. 5,480,529
Government National Mortgage Association (GNMA):
325,765 9.000% due 9/15/09 (b).................................... 352,690
58,904 8.500% due 5/15/18 (b).................................... 64,981
- ----------------------------------------------------------------------------------------
83,242,817
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTES AND BONDS -- 16.9%
3,000,000 Federal National Mortgage Association (FNMA), 6.250% due
5/15/29................................................... 3,425,307
13,949,000 Financing Corp. (FICO) Strips, Series 13, Zero coupon bond
to yield 6.373% due 6/27/11............................... 10,615,872
5,639,303 National Archives Facility Trust, COP, 8.500% due 9/1/19.... 6,945,332
10,000,000 Resolution Funding Corp. Strips, Zero coupon bond to yield
5.030% due 1/15/21........................................ 4,389,850
9,000,000 Tennessee Valley Authority, Global Power Bonds 2000, Series
G, 7.125% due 5/1/30 (a).................................. 11,231,442
- ----------------------------------------------------------------------------------------
36,607,803
- ----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost -- $116,577,547).................................... 119,850,620
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
82
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
U.S. GOVERNMENT SECURITIES PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 13.8%
$ 2,680,000 CS First Boston Mortgage Securities Corp.,
Series 2004-C5, Class AJ, 4.889% due 11/15/37............. $ 2,676,594
461,865 Federal Home Loan Mortgage Corp. (FHLMC),
Series 1103, Class J, 8.500% due 6/15/21.................. 463,156
5,399,000 Federal National Mortgage Association (FNMA),
Series 1999-15, Class PD, 6.000% due 4/25/19.............. 5,696,781
4,950,000 JPMorgan Chase Commercial Mortgage Securities Corp.,
Series 2004-CBX, Class AJ, 4.951% due 1/12/37............. 4,982,116
LB-UBS Commercial Mortgage Trust:
500,000 Series 2004-C2, Class A4, 4.367% due 3/15/36.............. 487,854
5,500,000 Series 2004-C8, Class AJ, 4.858% due 12/15/39............. 5,504,905
10,000,000 Morgan Stanley Capital I, Series 2004-HQ4, Class A7, 4.970%
due 4/14/40............................................... 10,120,417
- ----------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $29,835,851)..................................... 29,931,823
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 23.9%
51,615,000 State Street Bank & Trust Co., dated 12/31/04, 1.400% due
1/3/05;
Proceeds at maturity -- $51,621,022; (Fully collateralized
by U.S. Treasury Bond,
8.750% due 5/15/20; Market value -- $52,650,408)
(Cost -- $51,615,000)..................................... 51,615,000
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 118.5% (Cost -- $249,958,408*)......... 256,281,087
Liabilities in Excess of Other Assets -- (18.5)%............ (39,960,168)
- ----------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $216,320,919
- ----------------------------------------------------------------------------------------
</Table>
<Table>
(a) All or a portion of this security is segregated for "to be
announced" securities.
(b) Date shown represents the last in range of maturity dates.
(c) Security is traded on a "to be announced" basis.
(d) Security acquired under mortgage dollar roll agreement (See
Note 3).
* Aggregate cost for federal income tax purposes is
substantially the same.
Abbreviation used in this schedule:
COP -- Certificate of Participation
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
83
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCK -- 100.0%
- -----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 11.1%
HOUSEHOLD DURABLES -- 1.8%
6,900 The Black & Decker Corp. ................................... $ 609,477
6,000 Centex Corp. ............................................... 357,480
7,117 KB Home..................................................... 743,015
- -----------------------------------------------------------------------------------------
1,709,972
- -----------------------------------------------------------------------------------------
MEDIA -- 6.5%
24,400 Cablevision Systems Corp., NY Group Class A Shares (a)...... 607,560
4,700 Clear Channel Communications, Inc. ......................... 157,403
18,600 Comcast Corp., Special Class A Shares (a)................... 610,824
13,400 Omnicom Group Inc. ......................................... 1,129,888
73,300 Time Warner Inc. (a)........................................ 1,424,952
41,950 Viacom Inc., Class B Shares................................. 1,526,561
22,900 Westwood One, Inc. (a)...................................... 616,697
- -----------------------------------------------------------------------------------------
6,073,885
- -----------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 0.6%
10,000 Target Corp. ............................................... 519,300
- -----------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.2%
28,000 The Home Depot, Inc. ....................................... 1,196,720
15,200 Lowe's Cos., Inc. .......................................... 875,368
- -----------------------------------------------------------------------------------------
2,072,088
- -----------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 10,375,245
- -----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 5.3%
BEVERAGES -- 1.9%
22,400 The Coca-Cola Co. .......................................... 932,512
17,500 PepsiCo, Inc. .............................................. 913,500
- -----------------------------------------------------------------------------------------
1,846,012
- -----------------------------------------------------------------------------------------
FOOD & DRUG RETAILING -- 0.8%
19,000 Sysco Corp. ................................................ 725,230
- -----------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.1%
7,700 The Clorox Co. ............................................. 453,761
29,500 Colgate-Palmolive Co. ...................................... 1,509,220
- -----------------------------------------------------------------------------------------
1,962,981
- -----------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.5%
10,500 The Gillette Co. ........................................... 470,190
- -----------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 5,004,413
- -----------------------------------------------------------------------------------------
ENERGY -- 6.3%
ENERGY EQUIPMENT & SERVICES -- 1.5%
17,300 GlobalSantaFe Corp. ........................................ 572,803
17,400 Noble Corp. (a)............................................. 865,476
- -----------------------------------------------------------------------------------------
1,438,279
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
84
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
OIL & GAS -- 4.8%
23,100 Apache Corp................................................. $ 1,168,167
32,726 BP PLC, Sponsored ADR....................................... 1,911,198
24,800 Royal Dutch Petroleum Co., NY Shares........................ 1,423,024
- -----------------------------------------------------------------------------------------
4,502,389
- -----------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 5,940,668
- -----------------------------------------------------------------------------------------
FINANCIALS -- 19.7%
BANKS -- 3.2%
45,000 The Bank of New York Co., Inc. ............................. 1,503,900
7,200 Comerica Inc. .............................................. 439,344
6,500 Fifth Third Bancorp......................................... 307,320
11,500 Wells Fargo & Co. .......................................... 714,725
- -----------------------------------------------------------------------------------------
2,965,289
- -----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 10.8%
28,900 American Express Co. ....................................... 1,629,093
7,100 The Bear Stearns Cos. Inc. ................................. 726,401
5,100 Capital One Financial Corp. ................................ 429,471
16,200 The Charles Schwab Corp. ................................... 193,752
41,648 JPMorgan Chase & Co. ....................................... 1,624,688
29,750 MBNA Corp. ................................................. 838,653
10,000 Merrill Lynch & Co., Inc. .................................. 597,700
16,500 Morgan Stanley.............................................. 916,080
44,900 SLM Corp. .................................................. 2,397,211
11,100 State Street Corp. ......................................... 545,232
4,500 T. Rowe Price Group Inc. ................................... 279,900
- -----------------------------------------------------------------------------------------
10,178,181
- -----------------------------------------------------------------------------------------
INSURANCE -- 5.7%
19,600 Ambac Financial Group, Inc. ................................ 1,609,748
22,460 American International Group, Inc. ......................... 1,474,948
14,000 Prudential Financial, Inc. ................................. 769,440
5,000 WellPoint Inc. (a).......................................... 575,000
11,300 XL Capital Ltd., Class A Shares............................. 877,445
- -----------------------------------------------------------------------------------------
5,306,581
- -----------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 18,450,051
- -----------------------------------------------------------------------------------------
HEALTHCARE -- 14.4%
BIOTECHNOLOGY -- 3.6%
31,800 Amgen Inc. (a).............................................. 2,039,970
15,400 Genzyme Corp. (a)........................................... 894,278
15,600 MedImmune, Inc. (a)......................................... 422,916
- -----------------------------------------------------------------------------------------
3,357,164
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
85
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES -- 2.6%
11,900 Guidant Corp. .............................................. $ 857,990
22,200 Medtronic, Inc. ............................................ 1,102,674
11,200 St. Jude Medical, Inc. (a).................................. 469,616
- -----------------------------------------------------------------------------------------
2,430,280
- -----------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 1.2%
6,000 Aetna, Inc. ................................................ 748,500
5,000 HCA Inc. ................................................... 199,800
16,200 Tenet Healthcare Corp. (a).................................. 177,876
- -----------------------------------------------------------------------------------------
1,126,176
- -----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 7.0%
8,000 Eli Lilly and Co. .......................................... 454,000
14,000 Johnson & Johnson........................................... 887,880
65,000 Pfizer Inc. ................................................ 1,747,850
68,800 Teva Pharmaceutical Industries Ltd., Sponsored ADR.......... 2,054,368
34,200 Wyeth....................................................... 1,456,578
- -----------------------------------------------------------------------------------------
6,600,676
- -----------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 13,514,296
- -----------------------------------------------------------------------------------------
INDUSTRIALS -- 11.7%
AIR FREIGHT & COURIERS -- 1.0%
10,800 United Parcel Service, Inc., Class B Shares................. 922,968
- -----------------------------------------------------------------------------------------
AIRLINES -- 1.4%
81,430 Southwest Airlines Co. ..................................... 1,325,680
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.4%
10,200 First Data Corp. ........................................... 433,908
24,500 Paychex, Inc. .............................................. 834,960
- -----------------------------------------------------------------------------------------
1,268,868
- -----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.7%
76,700 American Power Conversion Corp. ............................ 1,641,380
- -----------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 3.2%
12,800 Honeywell International Inc. ............................... 453,248
72,000 Tyco International Ltd. .................................... 2,573,280
- -----------------------------------------------------------------------------------------
3,026,528
- -----------------------------------------------------------------------------------------
MACHINERY -- 2.0%
9,000 Illinois Tool Works, Inc. .................................. 834,120
23,200 Navistar International Corp. (a)............................ 1,020,336
- -----------------------------------------------------------------------------------------
1,854,456
- -----------------------------------------------------------------------------------------
ROAD & RAIL -- 1.0%
26,800 Norfolk Southern Corp. ..................................... 969,892
- -----------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 11,009,772
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
86
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 24.7%
COMMUNICATIONS EQUIPMENT -- 5.9%
57,500 Cisco Systems, Inc. (a)..................................... $ 1,109,750
63,300 Juniper Networks, Inc. (a).................................. 1,721,127
44,300 Motorola, Inc. ............................................. 761,960
112,200 Nokia Oyj, Sponsored ADR.................................... 1,758,174
49,100 Nortel Networks Corp. (a)................................... 171,359
- -----------------------------------------------------------------------------------------
5,522,370
- -----------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 3.7%
33,300 Dell Inc. (a)............................................... 1,403,262
54,900 EMC Corp. (a)............................................... 816,363
38,300 Network Appliance, Inc. (a)................................. 1,272,326
- -----------------------------------------------------------------------------------------
3,491,951
- -----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.7%
33,100 Agilent Technologies, Inc. (a).............................. 797,710
50,000 Vishay Intertechnology, Inc. (a)............................ 751,000
- -----------------------------------------------------------------------------------------
1,548,710
- -----------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.7%
59,300 IAC/InterActiveCorp (a)..................................... 1,637,866
- -----------------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 1.1%
38,600 Accenture Ltd., Class A Shares (a).......................... 1,042,200
- -----------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 2.6%
17,700 Applied Materials, Inc. (a)................................. 302,670
4,891 Freescale Semiconductor Inc. Class B Shares (a)............. 89,799
87,500 Intel Corp. ................................................ 2,046,625
- -----------------------------------------------------------------------------------------
2,439,094
- -----------------------------------------------------------------------------------------
SOFTWARE -- 8.0%
25,000 Amdocs Ltd. (a)............................................. 656,250
55,300 BEA Systems, Inc. (a)....................................... 489,958
52 Computer Associates International, Inc. .................... 1,615
100,300 Microsoft Corp. ............................................ 2,679,013
64,900 Oracle Corp. (a)............................................ 890,428
35,500 Siebel Systems, Inc. (a).................................... 372,750
85,100 VERITAS Software Corp. (a).................................. 2,429,605
- -----------------------------------------------------------------------------------------
7,519,619
- -----------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 23,201,810
- -----------------------------------------------------------------------------------------
MATERIALS -- 6.0%
CHEMICALS -- 3.6%
22,400 Air Products & Chemicals, Inc. ............................. 1,298,528
25,000 E.I. du Pont de Nemours & Co. .............................. 1,226,250
20,000 Praxair, Inc. .............................................. 883,000
- -----------------------------------------------------------------------------------------
3,407,778
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
87
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
SOCIAL AWARENESS STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
METALS & MINING -- 1.6%
46,400 Alcoa Inc. ................................................. $ 1,457,888
- -----------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.8%
10,000 International Paper Co. .................................... 420,000
5,000 Weyerhaeuser Co. ........................................... 336,100
- -----------------------------------------------------------------------------------------
756,100
- -----------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 5,621,766
- -----------------------------------------------------------------------------------------
UTILITIES -- 0.8%
ELECTRIC UTILITIES -- 0.8%
10,000 Consolidated Edison, Inc. .................................. 437,500
10,000 The Southern Co. ........................................... 335,200
- -----------------------------------------------------------------------------------------
TOTAL UTILITIES............................................. 772,700
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $77,663,796)....................................... 93,890,721
- -----------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.3%
$286,000 Morgan Stanley dated 12/31/04, 2.180% due 1/3/05; Proceeds
at maturity -- $286,052;
(Fully collateralized by U.S. Treasury Notes, 1.400% to
6.300%
due 4/1/05 to 2/7/28; Market value -- $294,469)
(Cost -- $286,000)........................................ 286,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.3% (Cost -- $77,949,796*).......... 94,176,721
Liabilities in Excess of Other Assets -- (0.3)%............. (332,098)
- -----------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $93,844,623
- -----------------------------------------------------------------------------------------
</Table>
<Table>
(a) Non-income producing security.
* Aggregate cost for federal income tax purposes is
$77,950,352.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
88
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
COMMON STOCK -- 97.2%
- --------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 13.9%
AUTO COMPONENTS -- 1.1%
5,401 Johnson Controls, Inc. ..................................... $ 342,639
- --------------------------------------------------------------------------------------
AUTOMOBILES -- 1.1%
24,323 Ford Motor Co. ............................................. 356,089
- --------------------------------------------------------------------------------------
MEDIA -- 6.5%
4,819 Gannett Co., Inc. .......................................... 393,712
7,754 The McGraw Hill Cos., Inc. ................................. 709,801
4,268 Omnicom Group Inc. ......................................... 359,878
18,557 Reed Elsevier NV, Sponsored ADR............................. 509,390
5,102 The Walt Disney Co. ........................................ 141,836
- --------------------------------------------------------------------------------------
2,114,617
- --------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 3.3%
3,354 Family Dollar Stores, Inc. ................................. 104,745
8,342 The May Department Stores Co. .............................. 245,255
900 Nordstrom, Inc. ............................................ 42,057
13,247 Target Corp. ............................................... 687,917
- --------------------------------------------------------------------------------------
1,079,974
- --------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.6%
2,912 Barnes & Noble, Inc. (a).................................... 93,970
1,237 GameStop Corp.-Class B (a).................................. 27,721
5,798 The Gap, Inc. .............................................. 122,454
4,824 Lowe's Cos., Inc. .......................................... 277,814
- --------------------------------------------------------------------------------------
521,959
- --------------------------------------------------------------------------------------
TEXTILES & APPAREL -- 0.3%
2,414 Liz Claiborne, Inc. ........................................ 101,895
- --------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 4,517,173
- --------------------------------------------------------------------------------------
CONSUMER STAPLES -- 10.0%
BEVERAGES -- 1.0%
6,519 PepsiCo, Inc. .............................................. 340,292
- --------------------------------------------------------------------------------------
FOOD & DRUG RETAILING -- 2.6%
8,333 Sysco Corp. ................................................ 318,071
13,741 Walgreen Co. ............................................... 527,242
- --------------------------------------------------------------------------------------
845,313
- --------------------------------------------------------------------------------------
FOOD PRODUCTS -- 3.8%
8,455 Campbell Soup Co. .......................................... 252,720
4,584 General Mills, Inc. ........................................ 227,871
7,203 H.J. Heinz Co. ............................................. 280,845
5,258 Hershey Foods Corp. ........................................ 292,029
7,538 Sara Lee Corp. ............................................. 181,967
- --------------------------------------------------------------------------------------
1,235,432
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
89
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.3%
1,410 The Clorox Co. ............................................. $ 83,091
6,534 Colgate-Palmolive Co. ...................................... 334,279
6,207 The Procter & Gamble Co. ................................... 341,881
- --------------------------------------------------------------------------------------
759,251
- --------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 0.3%
2,170 The Estee Lauder Cos. Inc., Class A Shares.................. 99,321
- --------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 3,279,609
- --------------------------------------------------------------------------------------
ENERGY -- 7.7%
ENERGY EQUIPMENT & SERVICES -- 0.2%
949 Schlumberger Ltd. .......................................... 63,536
- --------------------------------------------------------------------------------------
OIL & GAS -- 7.5%
2,293 Apache Corp. ............................................... 115,957
1,628 BP PLC, Sponsored ADR....................................... 95,075
14,190 ChevronTexaco Corp. ........................................ 745,117
3,207 ConocoPhillips.............................................. 278,464
14,457 Exxon Mobil Corp. .......................................... 741,066
4,176 Occidental Petroleum Corp. ................................. 243,711
6,678 Pioneer Natural Resources Co. .............................. 234,398
- --------------------------------------------------------------------------------------
2,453,788
- --------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 2,517,324
- --------------------------------------------------------------------------------------
FINANCIALS -- 15.6%
BANKS -- 7.4%
5,160 The Bank of New York Co., Inc. ............................. 172,447
3,635 First Horizon National Corp. ............................... 156,705
13,781 National City Corp. ........................................ 517,476
5,515 SunTrust Banks, Inc. ....................................... 407,448
9,388 U.S. Bancorp................................................ 294,032
3,570 Wachovia Corp. ............................................. 187,782
6,518 Washington Mutual, Inc. .................................... 275,581
4,335 Wells Fargo & Co. .......................................... 269,420
2,124 Zions Bancorp............................................... 144,496
- --------------------------------------------------------------------------------------
2,425,387
- --------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 5.4%
4,336 American Express Co. ....................................... 244,420
4,894 Federated Investors, Inc., Class B Shares................... 148,778
6,006 Merrill Lynch & Co., Inc. .................................. 358,979
7,789 State Street Corp. ......................................... 382,596
10,082 T. Rowe Price Group Inc. ................................... 627,100
- --------------------------------------------------------------------------------------
1,761,873
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
90
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
INSURANCE -- 2.8%
4,649 American International Group, Inc. ......................... $ 305,300
3,165 SAFECO Corp. ............................................... 165,340
5,670 The Chubb Corp. ............................................ 436,023
- --------------------------------------------------------------------------------------
906,663
- --------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 5,093,923
- --------------------------------------------------------------------------------------
HEALTHCARE -- 11.2%
HEALTHCARE EQUIPMENT & SUPPLIES -- 2.1%
7,391 Becton Dickinson & Co. ..................................... 419,809
3,086 Guidant Corp. .............................................. 222,501
1,100 Stryker Corp. .............................................. 53,075
- --------------------------------------------------------------------------------------
695,385
- --------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 1.0%
2,365 Cardinal Health, Inc. ...................................... 137,525
2,297 UnitedHealth Group Inc. .................................... 202,205
- --------------------------------------------------------------------------------------
339,730
- --------------------------------------------------------------------------------------
PHARMACEUTICALS -- 8.1%
5,929 Abbott Laboratories......................................... 276,588
5,430 Barr Pharmaceuticals, Inc. (a).............................. 247,282
4,612 Eli Lilly and Co. .......................................... 261,731
9,171 Johnson & Johnson........................................... 581,625
4,152 Merck & Co., Inc. .......................................... 133,445
10,171 Mylan Laboratories Inc. .................................... 179,823
5,785 Novartis AG, Sponsored ADR.................................. 292,374
2,300 Pfizer Inc. ................................................ 61,847
1,843 Roche Holding AG, Sponsored ADR............................. 212,161
18,289 Schering-Plough Corp. ...................................... 381,874
- --------------------------------------------------------------------------------------
2,628,750
- --------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 3,663,865
- --------------------------------------------------------------------------------------
INDUSTRIALS -- 13.4%
AEROSPACE & DEFENSE -- 2.7%
4,845 General Dynamics Corp. ..................................... 506,787
3,615 United Technologies Corp. .................................. 373,610
- --------------------------------------------------------------------------------------
880,397
- --------------------------------------------------------------------------------------
AIR FREIGHT & COURIERS -- 0.6%
2,171 United Parcel Service, Inc., Class B Shares................. 185,534
- --------------------------------------------------------------------------------------
AIRLINES -- 0.8%
17,043 Southwest Airlines Co. ..................................... 277,460
- --------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.4%
4,869 Automatic Data Processing Inc. ............................. 215,940
2,717 DST Systems, Inc. (a)....................................... 141,610
2,640 Fiserv, Inc. (a)............................................ 106,102
- --------------------------------------------------------------------------------------
463,652
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
91
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.5%
2,156 Emerson Electric Co. ....................................... $ 151,136
- --------------------------------------------------------------------------------------
MACHINERY -- 4.7%
3,821 Caterpillar Inc. ........................................... 372,586
6,272 Deere & Co. ................................................ 466,637
2,321 Illinois Tool Works, Inc. .................................. 215,110
5,962 PACCAR Inc. ................................................ 479,822
- --------------------------------------------------------------------------------------
1,534,155
- --------------------------------------------------------------------------------------
ROAD & RAIL -- 2.7%
5,113 Burlington Northern Santa Fe Corp. ......................... 241,896
18,076 Norfolk Southern Corp. ..................................... 654,170
- --------------------------------------------------------------------------------------
896,066
- --------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 4,388,400
- --------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 13.2%
COMMUNICATIONS EQUIPMENT -- 2.0%
21,253 Motorola, Inc. ............................................. 365,552
17,428 Nokia Oyj, Sponsored ADR.................................... 273,097
- --------------------------------------------------------------------------------------
638,649
- --------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 2.8%
7,794 Dell Inc. (a)............................................... 328,439
5,874 Hewlett-Packard Co. ........................................ 123,178
3,007 International Business Machines Corp. ...................... 296,430
31,247 Sun Microsystems, Inc. (a).................................. 168,109
- --------------------------------------------------------------------------------------
916,156
- --------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.4%
2,630 Diebold, Inc. .............................................. 146,570
- --------------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 1.0%
3,744 Computer Sciences Corp. (a)................................. 211,049
3,718 SunGard Data Systems Inc. (a)............................... 105,331
- --------------------------------------------------------------------------------------
316,380
- --------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 1.0%
5,982 Canon Inc., Sponsored ADR................................... 324,583
- --------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 3.1%
14,889 Applied Materials, Inc. (a)................................. 254,602
2,346 Freescale Semiconductor Inc. (a)............................ 43,072
15,612 Intel Corp. ................................................ 365,165
13,829 Texas Instruments Inc. ..................................... 340,470
- --------------------------------------------------------------------------------------
1,003,309
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
92
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
SOFTWARE -- 2.9%
4,423 Adobe Systems, Inc. ........................................ $ 277,499
14,827 Microsoft Corp. ............................................ 396,029
5,726 Symantec Corp. (a).......................................... 147,502
4,600 VERITAS Software Corp. (a).................................. 131,330
- --------------------------------------------------------------------------------------
952,360
- --------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 4,298,007
- --------------------------------------------------------------------------------------
MATERIALS -- 6.7%
CHEMICALS -- 1.8%
2,372 Air Products & Chemicals, Inc. ............................. 137,505
4,452 E.I. du Pont de Nemours & Co. .............................. 218,371
3,146 Ecolab Inc. ................................................ 110,519
1,926 PPG Industries, Inc. ....................................... 131,276
- --------------------------------------------------------------------------------------
597,671
- --------------------------------------------------------------------------------------
METALS & MINING -- 4.3%
6,918 Alcoa Inc. ................................................. 217,363
2,440 BHP Billiton Ltd., Sponsored ADR............................ 58,609
3,372 Inco Ltd. (a)............................................... 124,022
1,159 Newmont Mining Corp. ....................................... 51,471
3,858 Phelps Dodge Corp. ......................................... 381,633
4,793 Rio Tinto PLC, Sponsored ADR................................ 571,374
- --------------------------------------------------------------------------------------
1,404,472
- --------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.6%
5,226 MeadWestvaco Corp. ......................................... 177,109
- --------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 2,179,252
- --------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 3.6%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.4%
2,433 ALLTEL Corp. ............................................... 142,963
14,723 BellSouth Corp. ............................................ 409,152
21,724 SBC Communications Inc. .................................... 559,827
- --------------------------------------------------------------------------------------
1,111,942
- --------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.2%
1,700 Nextel Communications, Inc., Class A Shares (a)............. 51,000
- --------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 1,162,942
- --------------------------------------------------------------------------------------
UTILITIES -- 1.9%
ELECTRIC UTILITIES -- 1.4%
3,441 American Electric Power Co., Inc. .......................... 118,164
3,584 Consolidated Edison, Inc. .................................. 156,800
5,732 The Southern Co. ........................................... 192,137
- --------------------------------------------------------------------------------------
467,101
- --------------------------------------------------------------------------------------
GAS UTILITIES -- 0.3%
2,667 KeySpan Corp. .............................................. 105,213
- --------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
93
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
PIONEER FUND PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------
WATER UTILITIES -- 0.2%
1,775 Aqua America, Inc. ......................................... $ 43,647
- --------------------------------------------------------------------------------------
TOTAL UTILITIES............................................. 615,961
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $24,772,228).................... 31,716,456
- --------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT
- --------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.0%
$ 982,000 State Street Bank and Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $982,115; (Fully
collateralized by U.S. Treasury Bond, 8.125% due 8/15/21;
Market value -- $1,001,877) (Cost -- $982,000)............ 982,000
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.2% (Cost -- $25,754,228*).......... 32,698,456
Liabilities in Excess of Other Assets -- (0.2)%............. (65,201)
- --------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $32,633,255
- --------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
* Aggregate cost for federal income tax purposes is $25,762,861.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
94
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
<Table>
<Caption>
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER
SECURITIES STOCK FUND
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost................................. $198,343,408 $ 77,663,796 $ 24,772,228
Repurchase agreements, at cost....................... 51,615,000 286,000 982,000
- --------------------------------------------------------------------------------------------------------------
Investments, at value................................ $204,666,087 $ 93,890,721 $ 31,716,456
Repurchase agreements, at value...................... 51,615,000 286,000 982,000
Cash................................................. 943 598 649
Dividends and interest receivable.................... 1,464,283 45,972 48,630
Receivable for Fund shares sold...................... -- 1,776 --
Prepaid Expenses..................................... 2,231 884 310
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................... 257,748,544 94,225,951 32,748,045
- --------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased..................... 40,409,461 -- --
Payable for Fund shares reacquired................... 850,501 291,518 56,447
Investment advisory fees payable..................... 59,228 48,054 20,704
Deferred mortgage dollar roll income................. 39,686 -- --
Administration fees payable.......................... 10,967 4,720 1,340
Trustees' fees payable............................... 2,300 1,500 1,500
Accrued expenses..................................... 55,482 35,536 34,799
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................... 41,427,625 381,328 114,790
- --------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $216,320,919 $ 93,844,623 $ 32,633,255
- --------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital (Note 4)............................. $209,758,995 $ 89,023,912 $ 39,734,522
Undistributed net investment income.................. 186 2,728 --
Accumulated net realized gain (loss) from investment
transactions...................................... 239,059 (11,408,942) (14,045,495)
Net unrealized appreciation of investments........... 6,322,679 16,226,925 6,944,228
- --------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....................................... $216,320,919 $ 93,844,623 $ 32,633,255
- --------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING..................................... 16,961,234 3,861,752 2,713,234
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE............................. $12.75 $24.30 $12.03
- --------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
95
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER
SECURITIES STOCK FUND
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest................................................ $10,302,173 $ 9,166 $ 7,819
Dividends............................................... -- 1,260,729 568,632
Less: Foreign withholding tax........................... -- (14,130) (3,954)
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................. 10,302,173 1,255,765 572,497
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management and advisory fees (Note 2)........ 680,899 516,531 217,848
Administration fees (Note 2)............................ 126,365 50,894 17,428
Audit and legal......................................... 42,460 35,950 50,000
Shareholder communications.............................. 26,906 8,427 5,474
Custody................................................. 23,966 11,104 17,223
Trustees' fees.......................................... 9,728 9,863 13,031
Transfer agency services (Note 2)....................... 2,500 2,500 2,500
Other................................................... 1,784 1,132 1,227
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................... 914,608 636,401 324,731
Less: Fee waivers/expense reimbursements (Notes 2 and
6)................................................... (33,485) (33,411) (36,416)
- -------------------------------------------------------------------------------------------------------------
NET EXPENSES............................................ 881,123 602,990 288,315
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................... 9,421,050 652,775 284,182
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND
3):
NET REALIZED GAIN FROM INVESTMENT TRANSACTIONS.......... 409,444 2,407,317 655,645
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION OF
INVESTMENTS.......................................... 3,571,197 2,810,650 2,315,841
- -------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS................................... 3,980,641 5,217,967 2,971,486
- -------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... $13,401,691 $5,870,742 $3,255,668
- -------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
96
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES PORTFOLIO 2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 9,421,050 $ 10,080,394
Net realized gain......................................... 409,444 3,472,252
Net change in unrealized appreciation/depreciation........ 3,571,197 (7,330,998)
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 13,401,691 6,221,648
- ------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (9,496,007) (10,812,735)
Net realized gains........................................ (413,800) (3,572,312)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS........................................... (9,909,807) (14,385,047)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 33,869,285 29,246,982
Net asset value of shares issued for reinvestment of
dividends and distributions............................ 9,909,807 14,385,047
Cost of shares reacquired................................. (40,832,013) (69,457,633)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... 2,947,079 (25,825,604)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... 6,438,963 (33,989,003)
NET ASSETS:
Beginning of year......................................... 209,881,956 243,870,959
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $216,320,919 $209,881,956
- ------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $186 --
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
97
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
SOCIAL AWARENESS STOCK PORTFOLIO 2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 652,775 $ 404,628
Net realized gain (loss).................................. 2,407,317 (903,133)
Net change in unrealized appreciation/depreciation........ 2,810,650 18,313,058
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 5,870,742 17,814,553
- ----------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income..................................... (672,844) (392,136)
- ----------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (672,844) (392,136)
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 15,844,946 5,724,855
Net asset value of shares issued for reinvestment of
dividends.............................................. 672,844 392,136
Cost of shares reacquired................................. (7,549,496) (6,158,720)
- ----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... 8,968,294 (41,729)
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 14,166,192 17,380,688
NET ASSETS:
Beginning of year......................................... 79,678,431 62,297,743
- ----------------------------------------------------------------------------------------
END OF YEAR*.............................................. $93,844,623 $79,678,431
- ----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: ......... $2,728 $22,797
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
98
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
PIONEER FUND PORTFOLIO 2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 284,182 $ 357,895
Net realized gain (loss).................................. 655,645 (562,398)
Net change in unrealized appreciation/depreciation........ 2,315,841 5,280,877
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 3,255,668 5,076,374
- ----------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income..................................... (285,115) (360,254)
- ----------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (285,115) (360,254)
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 5,455,069 4,118,215
Net asset value of shares issued for reinvestment of
dividends.............................................. 285,115 360,254
Cost of shares reacquired................................. (3,478,475) (3,354,880)
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 2,261,709 1,123,589
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 5,232,262 5,839,709
NET ASSETS:
Beginning of year......................................... 27,400,993 21,561,284
- ----------------------------------------------------------------------------------------
END OF YEAR*.............................................. $32,633,255 $27,400,993
- ----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: ......... -- $303
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
99
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
U.S. GOVERNMENT SECURITIES PORTFOLIO 2004 2003(1) 2002(1) 2001(1) 2000(1)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $12.59 $13.14 $12.44 $12.22 $11.30
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................ 0.58 0.56 0.63 0.69 0.74
Net realized and unrealized gain (loss)...... 0.18 (0.20) 1.05 0.02 0.84
- --------------------------------------------------------------------------------------------------------
Total Income From Operations................... 0.76 0.36 1.68 0.71 1.58
- --------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income........................ (0.58) (0.68) (0.89) (0.49) (0.66)
Net realized gains(2)........................ (0.02) (0.23) (0.09) -- --
- --------------------------------------------------------------------------------------------------------
Total Dividends and Distributions.............. (0.60) (0.91) (0.98) (0.49) (0.66)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $12.75 $12.59 $13.14 $12.44 $12.22
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 6.13% 2.75% 13.63% 5.82% 14.53%
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................. $216,321 $209,882 $243,871 $126,491 $90,970
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................. 0.42%(5) 0.42% 0.44% 0.45% 0.48%
Net investment income........................ 4.47 4.23 4.82 5.55 6.46
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 150%* 143%* 165% 327% 289%
- --------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SOCIAL AWARENESS STOCK PORTFOLIO 2004 2003(1) 2002 2001(1) 2000(1)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............. $23.04 $17.97 $24.14 $28.76 $29.42
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................ 0.17 0.12 0.08 0.11 0.14
Net realized and unrealized gain (loss)...... 1.26 5.06 (6.06) (4.63) (0.29)
- --------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............ 1.43 5.18 (5.98) (4.52) (0.15)
- --------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income........................ (0.17) (0.11) (0.19) (0.10) (0.16)
Net realized gains(2)........................ -- -- -- -- (0.35)
- --------------------------------------------------------------------------------------------------------
Total Dividends and Distributions.............. (0.17) (0.11) (0.19) (0.10) (0.51)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................... $24.30 $23.04 $17.97 $24.14 $28.76
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................ 6.23% 28.85% (24.81)% (15.71)% (0.49)%
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................. $93,845 $79,678 $62,298 $83,344 $81,184
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................. 0.71%(5) 0.78% 0.78% 0.74% 0.75%
Net investment income........................ 0.77 0.59 0.40 0.45 0.48
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................ 18% 38% 37% 22% 33%
- --------------------------------------------------------------------------------------------------------
</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 the separate account
such as administrative fees, account charges and surrender charges, which,
if reflected, would reduce the total returns for all periods shown.
Performance figures may reflect voluntary fee waivers and/or expense
reimbursements. Past performance is no guarantee of future results. In the
absence of voluntary fee waivers and/or expense reimbursements, the total
return would have been lower.
(4) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 1.25%.
(5) During the year ended December 31, 2004, Smith Barney Fund Management LLC
voluntarily waived a portion its fee and/or reimbursed the Fund for certain
expenses. If such fees were not voluntarily waived and/or expenses
reimbursed, the actual expense ratios would have been 0.43% and 0.75% for
U.S. Government Securities Portfolio and Social Awareness Stock Portfolio,
respectively.
* Excluding mortgage dollar roll transactions. If mortgage dollar roll
transactions had been included, the portfolio turnover rate would have been
276% and 168% for the years ended December 31, 2004 and 2003, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
100
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
PIONEER FUND PORTFOLIO(1) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............... $10.92 $ 8.94 $13.87 $19.22 $15.91
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.......................... 0.11 0.15 0.32 0.37 0.43
Net realized and unrealized gain (loss)........ 1.11 1.98 (4.47) (4.65) 3.36
- --------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.............. 1.22 2.13 (4.15) (4.28) 3.79
- --------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.......................... (0.11) (0.15) (0.78) (0.30) (0.45)
Net realized gains(2).......................... -- -- -- (0.77) (0.03)
- --------------------------------------------------------------------------------------------------------
Total Dividends and Distributions................ (0.11) (0.15) (0.78) (1.07) (0.48)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $12.03 $10.92 $ 8.94 $13.87 $19.22
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN(3).................................. 11.13% 23.78% (30.21)% (23.00)% 24.26%
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)................... $32,633 $27,401 $21,561 $39,433 $48,456
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4).................................... 0.99%(5) 1.12% 0.90% 0.81% 0.84%
Net investment income.......................... 0.98 1.56 2.88 2.18 2.47
- --------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 19% 98% 25% 20% 22%
- --------------------------------------------------------------------------------------------------------
</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 the separate account
such as administrative fees, account charges and surrender charges, which,
if reflected, would reduce the total returns for all periods shown.
Performance figures may reflect voluntary fee waivers and/or expense
reimbursements. Past performance is no guarantee of future results. In the
absence of voluntary fee waivers and/or expense reimbursements, the total
return would have been lower.
(4) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 1.25%.
(5) During the year ended December 31, 2004, Smith Barney Fund Management LLC
voluntarily waived a portion of its fee and/or reimbursed the Fund for
certain expenses. If such fees were not voluntarily waived and/or expenses
reimbursed, the actual expense ratio would have been 1.12%
SEE NOTES TO FINANCIAL STATEMENTS.
101
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Government Securities Portfolio ("USGS"), Social Awareness Stock
Portfolio ("SAS") and Pioneer Fund Portfolio ("PFP") (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. 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 following are significant accounting policies consistently followed by
the Funds and are in conformity with U.S. generally accepted accounting
principles ("GAAP"). Estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
(A) INVESTMENT VALUATION. Securities traded on national securities markets
are valued at the closing prices on such markets. Securities for which no sales
price was reported and U.S. government agencies and 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, 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. 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. When market quotations or official
closing prices are not readily available, or are determined not to reflect fair
value, such as when the value of a security has been significantly affected by
events after the close of the exchange or market on which the security is
principally traded but before each Fund calculates its net asset value, the
Funds may value these investments at fair value as determined in accordance with
the procedures approved by the Funds' Board of Trustees. Fair valuing of
securities may be determined with the assistance of a pricing service using
calculations based on indices of domestic securities and other appropriate
indicators, such as prices of relevant ADRs and futures contracts. Short-term
obligations maturing within 60 days are valued at amortized cost, which
approximates value.
(B) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is
the Funds' policy that a custodian takes possession of the underlying collateral
securities, the value of which at least equals the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market to ensure the adequacy of the collateral. If the seller
defaults and the value of the collateral declines or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Funds may be delayed or limited.
(C) 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, particularly the face amount and maturity date in U.S. government
agency mortgage pass-through transactions. Securities purchased on a TBA basis
are not settled until they are delivered to the Funds, normally 15 to 45 days
later. Beginning on the date the Funds enter into a TBA transaction, cash, U.S.
government securities or other liquid high-grade debt obligations are segregated
in an amount equal in value to the purchase price of the TBA security. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
(D) MORTGAGE DOLLAR ROLLS. The Funds enter into dollar rolls in which the
Funds sell mortgage-backed securities for delivery in the current month and
simultaneously contract to repurchase substantially similar (same type, coupon
and maturity) securities to settle on a specified future date. During the roll
period, the Funds forgo principal and interest paid on the securities. The Funds
are compensated by a fee paid by the counterparty, often in the form of a drop
in the repurchase price of the securities. Dollar rolls are accounted for as
financing arrangements; the fee is accrued into interest income ratably over the
term of the dollar roll and any gain or loss on the roll is deferred and
realized upon disposition of the rolled security. Dollar roll transactions
involve the risk that the market value of the securities sold by the Funds may
decline below the repurchase price of the similar securities.
102
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(E) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are
accounted for on a trade date basis. Interest income, adjusted for amortization
of premium and accretion of discount, is recorded on the accrual basis. Dividend
income is recorded on the ex-dividend date. Foreign dividend income is recorded
on the ex-dividend date or as soon as practical after the Funds determine the
existence of a dividend declaration after exercising reasonable due diligence.
The cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes.
(F) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net
investment income and distributions of net realized gains to shareholders of the
Funds, if any, are declared at least annually. Dividends and distributions to
shareholders of the Funds are recorded on the ex-dividend date and are
determined in accordance with income tax regulations which may differ from GAAP.
(G) FEDERAL AND OTHER TAXES. It is the Funds' policy to comply with the
federal income and excise tax requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies. Accordingly, the Funds
intend to distribute substantially all of their taxable income and net realized
gains on investments, if any, to shareholders each year. Therefore, no federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates.
(H) RECLASSIFICATIONS. GAAP requires that certain components of net assets
be adjusted to reflect permanent differences between financial and tax
reporting. Accordingly, during the current year, $75,143 has been reclassified
between accumulated net realized gain from investment transactions and
undistributed net investment income due to book income from mortgage backed
securities treated as capital gains for tax purposes for USGS. Additionally,
$630 has been reclassified between paid-in capital and undistributed net
investment income due to permanent differences attributable to a taxable
overdistribution of net investment income for PFP. There were no
reclassifications for SAS during the current year. These reclassifications have
no effect on net assets or net asset values per share.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc., ("Citigroup"), acts as investment
adviser to USGS and 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. These fees are calculated daily and paid monthly.
Effective December 1, 2004, the investment advisory fee for PFP was revised
from the annual rate of 0.75% of the average daily net assets of the fund to a
fee calculated at an annual rate in accordance with the following schedule:
<Table>
<Caption>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
- ------------------------ ------------
First $250 million.......................................... 0.750%
Next $250 million........................................... 0.700%
Next $500 million........................................... 0.675%
Next $1 billion............................................. 0.650%
Amounts over $2 billion..................................... 0.600%
</Table>
Smith Barney Fund Management LLC ("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.
TAMIC has 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, an advisory fee calculated at an annual rate of
0.375% of the average daily net assets of PFP.
103
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective December 1, 2004, the sub-advisory fee was revised from the
annual rate of 0.375% of the average daily net assets of the fund to a fee
calculated at an annual rate in accordance with the following schedule:
<Table>
<Caption>
SUB-ADVISORY
AVERAGE DAILY NET ASSETS FEE
- ------------------------ ------------
First $250 million.......................................... 0.375%
Next $250 million........................................... 0.325%
Next $500 million........................................... 0.300%
Next $1 billion............................................. 0.275%
Amounts over $2 billion..................................... 0.225%
</Table>
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.
During the year ended December 31, 2004, the Funds had in place contractual
expense limitations of 1.25% for each of the Funds USGS, SAS and PFP. These
expense limitations are renewed annually and can be terminated at any time by
TIC with 60 days' notice.
During the year ended December 31, 2004, SBFM voluntarily waived a portion
of its fee in the amount of $1,726, $1,652, and $1,707 for USGS, SAS and PFP,
respectively. In addition, for the year ended December 31, 2004, SBFM reimbursed
expenses in the amount of $31,759 for each of the Funds USGS and SAS, and
$34,709 for PFP, in connection with the overpayment of transfer agent fees
relating to the period from June 1999 through June 2004.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as
the Funds' transfer agent. For the year ended December 31, 2004, each Fund paid
transfer agent fees of $2,500 to CTB.
For the year ended December 31, 2004, Citigroup Global Markets Inc.,
another indirect wholly-owned subsidiary of Citigroup, and its affiliates
received brokerage commissions of $326 from PFP.
One Trustee and all officers of the Trust are employees of Citigroup or its
affiliates and do not receive compensation from the Trust.
3. INVESTMENTS
During the year ended December 31, 2004, the aggregate cost of purchases
and proceeds from sales of investments (excluding short-term investments and
mortgage dollar rolls) were as follows:
<Table>
<Caption>
USGS SAS PFP
- -----------------------------------------------------------------------------------------------------
Purchases................................................... $311,942,046 $26,488,675 $7,203,268
- -----------------------------------------------------------------------------------------------------
Sales....................................................... 309,465,246 15,246,726 5,521,436
- -----------------------------------------------------------------------------------------------------
</Table>
At December 31, 2004, 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............................... $6,933,403 $20,409,440 $7,206,062
Gross unrealized depreciation............................... (610,724) (4,183,071) (270,467)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation................................. $6,322,679 $16,226,369 $6,935,595
- ---------------------------------------------------------------------------------------------------
</Table>
104
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the year ended December 31, 2004, USGS entered into mortgage dollar
roll transactions in the aggregate amount of $260,892,443. For the year ended
December 31, 2004, USGS recorded interest income of $729,412 related to dollar
rolls. SAS and PFP did not have any outstanding mortgage dollar rolls.
At December 31, 2004, USGS had outstanding mortgage dollar rolls with a
total cost of $40,018,610 for scheduled settlements on January 13, 2005 and
January 19, 2005.
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- ---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
Shares sold................................................. 2,694,130 2,193,616
Shares issued on reinvestment............................... 782,509 1,138,891
Shares reacquired........................................... (3,182,023) (5,229,809)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... 294,616 (1,897,302)
- ---------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO
Shares sold................................................. 708,617 283,273
Shares issued on reinvestment............................... 27,780 17,094
Shares reacquired........................................... (332,976) (309,569)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... 403,421 (9,202)
- ---------------------------------------------------------------------------------------------------
PIONEER FUND PORTFOLIO
Shares sold................................................. 490,843 418,833
Shares issued on reinvestment............................... 23,720 33,048
Shares reacquired........................................... (309,976) (354,955)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 204,587 96,926
- ---------------------------------------------------------------------------------------------------
</Table>
5. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal year ended
December 31, 2004 was as follows:
<Table>
<Caption>
USGS SAS PFP
- ----------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income........................................... $9,527,237 $672,844 $285,115
Net Long-term Capital Gains............................... 382,570 -- --
- ----------------------------------------------------------------------------------------------
Total Distributions Paid.................................... $9,909,807 $672,844 $285,115
- ----------------------------------------------------------------------------------------------
</Table>
The tax character of distributions paid during the fiscal year ended
December 31, 2003 was as follows:
<Table>
<Caption>
USGS SAS PFP
- -----------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income........................................... $11,912,557 $392,136 $360,254
Net Long-term Capital Gains............................... 2,472,490 -- --
- -----------------------------------------------------------------------------------------------
Total Distributions Paid.................................... $14,385,047 $392,136 $360,254
- -----------------------------------------------------------------------------------------------
</Table>
105
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 2004, the components of accumulated earnings (losses) on
a tax basis was as follows:
<Table>
<Caption>
USGS SAS PFP
- ------------------------------------------------------------------------------------------------------
Undistributed ordinary income............................... $ 239,245 $ 2,728 $ --
- ------------------------------------------------------------------------------------------------------
Total undistributed earnings................................ 239,245 2,728 --
Capital loss carryforward(1)................................ -- (11,408,386) (14,036,862)
Unrealized appreciation(2).................................. 6,322,679 16,226,369 6,935,595
- ------------------------------------------------------------------------------------------------------
Total accumulated earnings (losses)......................... $6,561,924 $ 4,820,711 $ (7,101,267)
- ------------------------------------------------------------------------------------------------------
</Table>
(1) On December 31, 2004 the Funds had net capital loss carryforwards as
follows:
<Table>
<Caption>
YEAR OF EXPIRATION SAS PFP
- ---------------------------------------------------------------------------------------
12/31/2009.................................................. 1,710,995 389,670
12/31/2010.................................................. 8,136,777 12,362,910
12/31/2011.................................................. 1,560,614 1,284,282
- ---------------------------------------------------------------------------------------
$11,408,386 $14,036,862
- ---------------------------------------------------------------------------------------
</Table>
These amounts will be available to offset any future taxable capital gains.
(2) The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales.
6. ADDITIONAL INFORMATION
In connection with an investigation previously disclosed by Citigroup, the
Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup
Asset Management ("CAM"), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through voluntary fee waivers, a total of
approximately $17 million (plus interest), which is the amount of the revenue
received by Citigroup relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering
recommending action based on the adequacy of the disclosures made to the fund
boards that approved the transfer agency arrangement, CAM's initiation and
operation of, and compensation for, the transfer agent business and CAM's
retention of, and agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC Staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are ongoing and any settlement of this matter with the SEC will require approval
by the Citigroup Board and acceptance by the Commission.
106
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Unless and until any settlement is consummated, there can be no assurance
that any amount reserved by Citigroup will be distributed. Nor is there at this
time any certainty as to how the proceeds of any settlement would be
distributed, to whom any such distribution would be made, the methodology by
which such distribution would be allocated, and when such distribution would be
made.
Although there can be no assurance, Citigroup does not believe that this
matter will have a material adverse effect on the funds.
7. SUBSEQUENT EVENT
On January 31, 2005, Citigroup announced that it has reached an agreement
with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TAMIC currently an indirect wholly owned subsidiary of Citigroup, would become
an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser
to the Funds except Social Awareness Stock Portfolio.
The transaction is subject to certain regulatory approvals, as well as
other customary conditions to closing. The transaction is expected to close this
summer.
In connection with this transaction, the Trust's Board of Trustees will be
asked to approve new investment advisory and administrative services contracts,
and, to the extent required by law, variable annuity and variable life contract
owners, who beneficially own the shares of the funds, will be asked to approve
new investment advisory agreements.
107
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 U.S. Government Securities Portfolio, Social
Awareness Stock Portfolio and Pioneer Fund Portfolio of The Travelers Series
Trust ("Trust") as of December 31, 2004, 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 the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. 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 U.S.
Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer
Fund Portfolio of The Travelers Series Trust as of December 31, 2004, 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 U.S. generally accepted accounting principles.
[KPMG LLP SIGNATURE]
New York, New York
February 18, 2005
108
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
The following information is provided with respect to the distributions
paid during the taxable year ended December 31, 2004:
<Table>
<Caption>
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER FUND
SECURITIES PORTFOLIO STOCK PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
Record Date:................................... 6/24/2004 12/27/2004 12/28/2004 12/28/2004
Payable Date:.................................. 6/25/2004 12/28/2004 12/29/2004 12/29/2004
- -----------------------------------------------------------------------------------------------------------
Dividends Qualifying for the Dividends Received
Deduction for Corporations................... -- -- 100.00% 100.00%
- -----------------------------------------------------------------------------------------------------------
Interest from Federal Obligations.............. -- 35.27% -- --
- -----------------------------------------------------------------------------------------------------------
Long-Term Capital Gain Dividend................ $ 0.022600 $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------
</Table>
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult with your tax adviser to determine if any portion of
the dividends you received is exempt from state income taxes.
Please retain this information for your records.
109
- --------------------------------------------------------------------------------
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 BIRTH YEAR TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES:
Frances M. Hawk, CFA, CFP Trustee Since Private Investor 5 Board of
108 Oxford Hill Lane 1991 Managers of 6
Downingtown, PA Variable
Birth Year: 1948 Annuity
Separate
Accounts of
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
Birth Year: 1943 Annuity
Separate
Accounts of
TIC
Robert E. McGill, III Trustee Since Retired 5 Lydall Inc.;
295 Hancock Road 1990 Board of
Williamstown, MA Managers of 6
Birth Year: 1931 Variable
Annuity
Separate
Accounts of
The Travelers
Insurance Co.
("TIC")
INTERESTED TRUSTEE:
R. Jay Gerken, CFA(2) Chairman, Since Managing Director 219 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
Birth Year: 1951 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>
110
- --------------------------------------------------------------------------------
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 BIRTH YEAR TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS:
Andrew B. Shoup Senior Vice Since Director of CAM; N/A N/A
CAM President 2004 Senior Vice
125 Broad Street, 11th Floor and Chief President and
New York, NY 10004 Administrative Chief
Birth Year: 1956 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)
Kaprel Ozsolak Chief Since Vice President of N/A N/A
CAM Financial 2004 CGM; Chief
125 Broad Street, 11th Floor Officer and Financial Officer
New York, NY 10004 Treasurer and Treasurer of
Birth Year: 1965 certain mutual
funds associated
with Citigroup;
Controller of
certain mutual
funds associated
with Citigroup
(from 2002 to
2004)
William D. Wilcox Chief Since Counsel and Chief N/A N/A
One Cityplace Compliance 2004 Compliance Officer
Hartford, CT Officer (since 1999), TIC;
Birth Year: 1964 Chief Anti- Money
Laundering
Compliance Officer
(since 2002), 6
Variable Annuity
Separate Accounts
of TIC; Chief
Compliance Officer
(since 2004), 5
Mutual Funds and 6
Variable Separate
Accounts sponsored
by TIC.
Andrew Beagley Chief Anti- Since Director of CGM N/A N/A
CAM Money 2002 (since 2000);
399 Park Avenue, 4th Floor Laundering Director of
New York, NY 10022 Compliance Compliance, North
Birth Year: 1962 Officer America, CAM
(since 2000);
Chief Anti-Money
Laundering
Compliance
Officer, Chief
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, SBFM,
CFM, TIA, Salomon
Brothers Asset
Management
Limited, Smith
Barney Global
Capital Management
Inc.
</Table>
111
- --------------------------------------------------------------------------------
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 BIRTH YEAR TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------------
Kathleen A. McGah Secretary Since Deputy General N/A N/A
Travelers Life & Annuity One 2004 Counsel of TIC;
Cityplace Assistant
Hartford, CT 06103 Secretary of 5
Birth year: 1950 Mutual Funds and 6
Variable Separate
Accounts sponsored
by TIC (from 1995
to 2004)
Ernest J. Wright Assistant Since Vice President and N/A N/A
Travelers Life & Annuity One Secretary 2004 Secretary of TIC;
Cityplace Secretary of 5
Hartford, CT 06103 Mutual Funds and 6
Birth Year: 1940 Variable Separate
Accounts sponsored
by TIC (from 1994
to 2004)
</Table>
- ---------------
(1) Each Trustee and Officer serves until his or her successor has been duly
elected and qualified.
(2) 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.
112
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
Kaprel Ozsolak
Chief Financial Officer and Treasurer
William D. Wilcox
Chief Compliance Officer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
Kathleen A. McGah
Secretary
Ernest J. Wright
Assistant Secretary
INVESTMENT 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.
Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money
Market Portfolio are each a Massachusetts business trust. 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 variable annuity or life
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 and is not for use with the general
public. All the funds contained in this report may not be available under your
variable annuity or life contract.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS
SHOULD CONSIDER THE FUNDS' INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION
ABOUT THE FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Funds' Form N-Q are available on the Commission's
website at www.sec.gov. The Funds' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, D.C. and information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. To obtain information on Form N-Q from the Funds, shareholders
can call 1-800-451-2010.
Information on how the Funds voted proxies relating to portfolio securities
during the 12-month period ended June 30, 2004 and a description of the policies
and procedures that the Funds use to determine how to vote proxies relating to
portfolio securities is available (1) without charge, upon request, by calling
1-800-451-2010, (2) on the Fund's website at www.citigroupam.com and (3) on the
Sec's website at www.sec.gov.
A description of the policies that the Funds use to determine how to vote
proxies relating to portfolio securities is available without charge, upon
request, by telephoning the Fund (toll-free) at 1-800-842-9368 and by visiting
the SEC's website at www.sec.gov.
VG-181 (Annual) (2-05) Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Robert E.
McGill, a member of the Board's Audit Committee, possesses the technical
attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to
qualify as an "audit committee financial expert," and has designated Mr.
McGill as the Audit Committee's financial expert. Mr. McGill is an
"independent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees for The Travelers Series Trust were $276,000 and $276,000
for the years ended 12/31/04 and 12/31/03.
(b) Audit-Related Fees for The Travelers Series Trust were $0 and $0 for
the years ended 12/31/04 and 12/31/03.
(c) Tax Fees for The Travelers Series Trust of $36,400 and $36,400 for the
years ended 12/31/04 and 12/31/03. These amounts represent aggregate
fees paid for tax compliance, tax advice and tax planning services,
which include (the filing and amendment of federal, state and local
income tax returns, timely RIC qualification review and tax
distribution and analysis planning) rendered by the Accountant to
Travelers Series Trust.
(d) All Other Fees for The Travelers Series Trust of $0 and $0 for the
years ended 12/31/04 and 12/31/03.
(e) (1) Audit Committee's pre-approval policies and procedures described
in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the Board of
each registered investment company (the "Fund") advised by Smith
Barney Fund Management LLC or Salomon Brothers Asset Management Inc or
one of their affiliates (each, an "Adviser") requires that the
Committee shall approve (a) all audit and permissible non-audit
services to be provided to the Fund and (b) all permissible non-audit
services to be provided by the Fund's independent auditors to the
Adviser and any Covered Service Providers if the engagement relates
directly to the operations and financial reporting of the Fund. The
Committee may implement policies and procedures by which such services
are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee
believes may impair the independence of the auditors. As of the date
of the approval of this Audit Committee Charter, permissible non-audit
services include any professional services (including tax services),
that are not prohibited services as described below, provided to the
Fund by the independent auditors, other than those provided to the
Fund in connection with an audit or a review of the financial
statements of the Fund. Permissible non-audit services may not
include: (i) bookkeeping or other services related to the accounting
records or financial statements of the Fund; (ii) financial
information systems design and implementation; (iii) appraisal or
valuation services, fairness opinions or contribution-in-kind reports;
(iv) actuarial services; (v) internal audit outsourcing services; (vi)
management functions or human resources; (vii) broker or dealer,
investment adviser or investment banking services; (viii) legal
services and expert services unrelated to the audit; and (ix) any
other service the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is
not required so long as: (i) the aggregate amount of all such
permissible non-audit services provided to the Fund, the Adviser and
any service providers controlling, controlled by or under common
control with the Adviser that provide ongoing services to the Fund
("Covered Service Providers") constitutes not more than 5% of the
total amount of revenues paid to the independent auditors during the
fiscal year in which the permissible non-audit services are provided
to (a) the Fund, (b) the Adviser and (c) any entity controlling,
controlled by or under common control with the Adviser that provides
ongoing services to the Fund during the fiscal year in which the
services are provided that would have to be approved by the Committee;
(ii) the permissible non-audit services were not recognized by the
Fund at the time of the engagement to be non-audit services; and (iii)
such services are promptly brought to the attention of the Committee
and approved by the Committee (or its delegate(s)) prior to the
completion of the audit.
(2) For The Travelers Series Trust, the percentage of fees that were
approved by the audit committee, with respect to: Audit-Related Fees
were 100% and 100% for the years ended 12/31/04 and 12/31/03; Tax Fees
were 100% and 100% for the years ended 12/31/04 and 12/31/03; and
Other Fees were 100% and 100% for the years ended 12/31/04 and
12/31/03.
(f) N/A
(g) Non-audit fees billed by the Accountant for services rendered to
Travelers Series Trust and CAM and any entity controlling, controlled
by, or under common control with CAM that provides ongoing services to
Travelers Series Trust. Fees billed to and paid by Citigroup Global
Markets, Inc. related to the transfer agent matter as fully described
in the notes to the financial statements titled "additional
information" were $75,000 and $0 for the years ended 12/31/04 and
12/31/03.
(h) Yes. The Travelers Series Trust's Audit Committee has considered
whether the provision of non-audit services that were rendered to
Service Affiliates which were not pre-approved (not requiring
pre-approval) is compatible with maintaining the Accountant's
independence. All services provided by the Accountant to the Travelers
Series Trust or to Service Affiliates which were required to be
pre-approved were pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a- 3(c) under the Investment Company
Act of 1940, as amended (the "1940 Act")) are effective as of a date
within 90 days of the filing date of this report that includes the
disclosure required by this paragraph, based on their evaluation of
the disclosure controls and procedures required by Rule 30a-3(b) under
the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report)
that have materially affected, or are likely to materially affect the
registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
THE TRAVELERS SERIES TRUST
By: /s/ R. Jay Gerken
---------------------------------
(R. Jay Gerken)
Chief Executive Officer of
THE TRAVELERS SERIES TRUST
Date: March 9, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
---------------------------------
(R. Jay Gerken)
Chief Executive Officer of
THE TRAVELERS SERIES TRUST
Date: March 9, 2005
By: /s/ KAPREL OZSOLAK
---------------------------------
(KAPREL OZSOLAK)
Chief Financial Officer of
THE TRAVELERS SERIES TRUST
Date: March 9, 2005