UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6465
THE TRAVELERS SERIES TRUST
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: DECEMBER 31
Date of reporting period: DECEMBER 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
1 of 18
ANNUAL REPORT
DECEMBER 31, 2004
[UMBRELLA GRAPHIC]
THE TRAVELERS SERIES TRUST:
CONVERTIBLE SECURITIES PORTFOLIO
MFS MID CAP GROWTH PORTFOLIO
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
[TRAVELERS LIFE AND ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Cityplace
Hartford, CT 06103
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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WHAT'S INSIDE
<Table>
LETTER FROM THE CHAIRMAN.................................... 1
CONVERTIBLE SECURITIES PORTFOLIO:
MANAGER OVERVIEW.......................................... 3
FUND AT A GLANCE.......................................... 5
PERFORMANCE COMPARISON.................................... 6
MFS MID CAP GROWTH PORTFOLIO:
MANAGER OVERVIEW.......................................... 7
FUND AT A GLANCE.......................................... 9
PERFORMANCE COMPARISON.................................... 10
MERRILL LYNCH LARGE CAP CORE PORTFOLIO:
MANAGER OVERVIEW.......................................... 11
FUND AT A GLANCE.......................................... 13
PERFORMANCE COMPARISON.................................... 14
FUND EXPENSES............................................... 15
SCHEDULES OF INVESTMENTS.................................... 17
STATEMENTS OF ASSETS AND LIABILITIES........................ 32
STATEMENTS OF OPERATIONS.................................... 33
STATEMENTS OF CHANGES IN NET ASSETS......................... 34
FINANCIAL HIGHLIGHTS........................................ 37
NOTES TO FINANCIAL STATEMENTS............................... 40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 46
ADDITIONAL INFORMATION...................................... 47
IMPORTANT TAX INFORMATION................................... 50
</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 growth 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) At the end of the fund's reporting
period, at their February meeting, the Fed once again raised the target rate by
0.25% to 2.50%.
Within this environment, the portfolios performed as follows:
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004
(UNAUDITED)
<Table>
<Caption>
6 MONTHS 12 MONTHS
Convertible Securities Portfolio 3.99% 6.29%
Merrill Lynch Investment Grade Convertible Bond Index 3.76% 4.69%
Lipper Variable Specialty/Miscellaneous Funds Category
Average 5.34% 7.82%
MFS Mid Cap Growth Portfolio 5.65% 14.10%
Russell MidCap Growth Index 9.01% 15.48%
Russell 2000 Index 10.83% 18.33%
Lipper Variable Mid-Cap Growth Funds Category Average 8.33% 14.75%
Merrill Lynch Large Cap Core Portfolio 9.70% 15.89%
Russell 1000 Index 7.81% 11.40%
Lipper Variable Large-Cap Core Funds Category Average 6.18% 8.59%
</Table>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER
OR LOWER THAN THE PERFORMANCE SHOWN ABOVE. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE AND INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PERFORMANCE FIGURES MAY REFLECT REIMBURSEMENTS AND/OR FEE WAIVERS,
WITHOUT WHICH THE PERFORMANCE WOULD HAVE BEEN LOWER.
FUND RETURNS ASSUME THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL
GAIN DISTRIBUTIONS AT NET ASSET VALUE AND THE DEDUCTION OF 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 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 127 funds for the six-month period and among the 127 funds for the
12-month period in the variable mid-cap growth 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 the variable large-cap core
funds category.
Please read on for a more detailed look at prevailing economic and market
conditions during the funds' fiscal year and to learn how those conditions have
affected fund performance.
1
INFORMATION ABOUT YOUR FUND
As you may be aware, several issues in the mutual fund and variable product
industry have recently come under the scrutiny of federal and state regulators.
Travelers Life & Annuity and some of its affiliates have received requests for
information from various government regulators regarding market timing, late
trading, fees, revenue sharing, producer compensation and other mutual fund and
variable product issues in connection with various investigations. The funds
have been informed that Traveler's 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.
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
February 3, 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.
2
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MANAGER OVERVIEW
CONVERTIBLE SECURITIES PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
Effective November 1, 2004, Robert Simmons replaced David A. Tyson as Portfolio
Manager of the Convertible Securities Portfolio.
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Convertible Securities
Portfolio returned 6.29%. In comparison, the portfolio's unmanaged benchmark,
the Merrill Lynch Investment Grade Convertible Bond Index(i), returned 4.69% and
the Lipper Variable Specialty/Miscellaneous Funds Category Average(2) was 7.82%
for the same period.
MARKET/ECONOMIC OVERVIEW
For the year as a whole, convertibles generated solid investment results with
investors, driving the market higher during the fourth quarter. This reversed a
negative trend over the prior two quarters, as economic data was mixed and
interest rates rose. While the convertibles market participated in the year's
late rally, it underperformed the overall stock market, as measured by the S&P
500 Index(ii) which returned 10.87% during this period, and for the entire year.
CONTRIBUTORS TO PERFORMANCE
The portfolio's bias towards investment grade companies served to hold back its
performance during the fiscal year, as speculative grade issues returned roughly
two-and-a-half times as much as investment grade convertibles. However, the
portfolio did benefit from the rise in equity valuations during 2004, as well as
significant spread tightening in the corporate markets.
TYCO INTERNATIONAL GROUP, S.A. was the portfolio's top-performing convertible
security during the fiscal year. This global diversified manufacturing and
service company benefited as the economic recovery gained momentum in 2004. Tyco
also experienced many positive developments during the year, including rating
agency upgrades, as well as significant balance sheet, revenue, earnings, and
cash flow improvement. These factors helped the convertible to return 25.1% in
2004. Examples of other fund holdings that were strong performers were FOUR
SEASONS HOTELS INC., ANIXTER INTERNATIONAL INC., TRIBUNE CO., and ROYAL
CARIBBEAN CRUISES LTD.
The worst performing sectors in the index during the reporting period were in
the transportation and consumer staples sectors. We had no transportation
exposure in the portfolio and were significantly underweighted in consumer
staples versus the overall convertible bond universe. Our worst performing
convertible during the fiscal year was issued by GENERAL MOTORS CORP. This
convertible security was pressured as the company lost market share, had its
ratings lowered by credit agencies, and seemed to become "addicted" to sales
incentives, which significantly hurt the firm's profitability. Investors also
became increasingly concerned that the company would soon see its credit ratings
lowered to below investment grade, or "junk" status, as a result of its high
legacy costs (i.e., pensions) relative to its foreign competitors.
Thank you for your investment in the Convertible 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/ Robert Simmons
Robert Simmons
Travelers Asset Management International, LLC.
January 20, 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 and variable life contracts such as
administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 136 funds in the fund's Lipper category, and excluding sales charges.
3
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: American International Group Inc., (3.8%), Diamond
Offshore Drilling Inc. (3.7%), The Walt Disney Co. (3.6%), News America Inc.
(3.2%), Liberty Media Corp. (3.2%), Lincare Holdings Inc. (3.2%), Nabors
Industries Inc. (3.1%), Tyco International Group, S.A. (3.1%), General Motors
Corp. (2.9%) and Washington Mutual Inc. (2.8%). Please refer to pages 17 through
20 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: Media (14.8%); Oil &
Gas (13.1%); Telecommunications (7.7%); Healthcare (6.9%) and Insurance (6.5%).
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 Investment Grade Convertible Bond Index is an index
comprised of convertible bonds rated investment grade.
ii The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
4
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FUND AT A GLANCE -- CONVERTIBLE SECURITIES PORTFOLIO (UNAUDITED)
INVESTMENT BREAKDOWN
AS A PERCENT OF TOTAL INVESTMENTS
[BAR GRAPH]
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Media 14.8 12
Oil and Gas 13.2 9
Repurchase Agreement 9.4 11.1
Telecommunications 7.7 7.4
Healthcare 6.9 5.1
Insurance 6.6 3.3
Auto Manufacturers 5.3 6.5
Pharmaceuticals 4.6 5.4
Manufacturing 4.1 4.8
Leisure Time 4.1 6
Savings and Loans 2.8 3.1
Electronics 2.7 2.2
Computers 2.6 2.6
Housewares 2.4 2.6
Auto Parts and Equipment 2.4 2.6
Electric 2.1 1.8
Other 8.3 14.5
</Table>
5
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PERFORMANCE COMPARISON -- CONVERTIBLE SECURITIES PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
Twelve Months Ended 12/31/04 6.29%
Five Years Ended 12/31/04 6.85
5/1/98* through 12/31/04 7.99
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
5/1/98* through 12/31/04 66.95%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made at
inception on May 1, 1998, assuming reinvestment of dividends,
through December 31, 2004. The Merrill Lynch Investment Grade
Convertible Bond Index is comprised of 115 investment-grade
convertible bond issues. The Index excludes those issues that have
mandatory conversion features. (Investment-grade bonds are those
rated in one of the four highest rating categories by any
nationally recognized statistical rating organization.)
[LINE GRAPH]
<Table>
<Caption>
MERRILL LYNCH INVESTMENT GRADE
CONVERTIBLE SECURITIES PORTFOLIO CONVERTIBLE BOND INDEX
-------------------------------- ------------------------------
5/1/98 10000.00 10000.00
12/98 10098.00 10387.00
12/99 11987.00 11594.00
12/00 13486.00 13392.00
12/01 13376.00 13375.00
12/02 12440.00 12655.00
12/03 15707.00 14111.00
12/04 16695.00 14773.00
</Table>
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Assumes reinvestment of dividends and capital gain distributions, if any, at net
asset value. All figures represent past performance and are not a guarantee of
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. 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. In the
absence of fee voluntary waivers and/or expense reimbursements, the total return
would have been lower.
6
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MANAGER OVERVIEW
MFS MID CAP GROWTH PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the MFS Mid Cap Growth Portfolio
returned 14.10%. The portfolio underperformed its unmanaged benchmark, the
Russell MidCap Growth Index(i), and the Russell 2000 Index(ii), a secondary
benchmark, which returned 15.48% and 18.33%, respectively, for the same period.
The Lipper Variable Mid-Cap Growth Funds Category Average was 14.75% for the
same period.
MARKET/ECONOMIC OVERVIEW
For stock investors, 2004 was a bumpy ride with a smooth finish. In the end,
improving fundamental factors, such as corporate spending and earnings growth,
triumphed and drove equity markets to solid gains for the year. During the
12-month reporting period, investors endured skyrocketing oil prices, rising
short-term interest rates, a volatile and retreating U.S. dollar, record budget
and trade deficits, and war in Iraq. For some time it seemed these factors would
lead to flat or negative annual performance for many investments. But by the
last quarter of 2004, oil prices retreated, investors seemed to adopt a less
negative view of other broad economic issues and markets appeared to recognize
that both corporate profits and economic growth were up solidly, if not
spectacularly, for the year. We believed that as the year came to a close, the
global economy was still in the midst of a sustainable broad-based recovery.
CONTRIBUTORS TO PERFORMANCE
During the fiscal year, the fund's holdings in the healthcare, utilities and
communications, and special products and services sectors generated the
strongest relative returns. Conversely, its leisure, consumer staples and
industrial goods and services holdings detracted from relative results.
In the healthcare sector, the fund's holding in medical testing company CYTYC
CORP. was one of its strongest relative performers. Medical device firm C.R.
BARD, INC. was also a top contributor to results. In the telecommunication
services sector, an overweight position and strong stock selection both aided
relative results. The strongest performers in this sector were cellular tower
operators AMERICAN TOWER CORP., CLASS A SHARES and SPECTRASITE, INC. Stock
selection in the industrial sector boosted returns, thanks in part to the fund's
holding in Internet job search firm MONSTER WORLDWIDE, INC. Strong relative
contributors in other sectors included computer security firm MCAFEE, INC.,
vacation company ROYAL CARIBBEAN CRUISES LTD., multimedia software developer
COMVERSE TECHNOLOGY, INC. and semiconductor firm MARVELL TECHNOLOGY GROUP LTD.
Conversely, in the consumer discretionary sector, stock selection detracted from
relative performance. In particular, the fund's positions in CITADEL
BROADCASTING CO. and radio conglomerate WESTWOOD ONE, INC. were the largest
detractors from results. Stock selection in the consumer staples sector was also
detrimental to returns. The largest detractor in the sector was Canadian frozen
dessert purveyor COOLBRANDS INTERNATIONAL INC., whose stock fell sharply during
the period. As of period-end, Coolbrands was no longer held in the portfolio. In
the industrials sector, being relatively underweighted and, to some extent,
negative stock selection held back relative returns. Other stocks that hurt
relative results included post-secondary education company CORINTHIAN COLLEGES
INC., semiconductor company PMC-SIERRA, INC., Linux operating system provider
RED HAT, INC., and jewelry retailer TIFFANY & CO. Corinthian Colleges was
subsequently eliminated from the portfolio.
(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 and variable life contracts such as
administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 127 funds in the fund's Lipper category, and excluding sales charges.
7
Thank you for your investment in the MFS Mid Cap Growth 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/ ERIC B. FISCHMAN
Eric B. Fischman
Massachusetts Financial Services
/s/ DAVID E. SETTE-DUCATI
David E. Sette-Ducati
Massachusetts Financial Services
/s/ CAMILLE H. LEE
Camille H. Lee
Massachusetts Financial Services
January 20, 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: Cytyc Corp. (2.5%), Getty Images, Inc. (2.2%), Legg Mason,
Inc. (2.1%), Genzyme Corp. (2.0%), Citadel Broadcasting Co. (2.0%), Medicis
Pharmaceutical Corp. (1.9%), Waters Corp. (1.9%), Comverse Technology, Inc.
(1.7%), Amdocs Ltd. (1.7%) and American Tower Corp. (1.7%). Please refer to
pages 21 through 25 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
(27.7%); Healthcare (23.5%); Consumer Discretionary (21.2%); Industrials (11.4%)
and Telecommunications Services (5.4%). 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 Russell MidCap Growth Index measures the performance of those Russell
MidCap companies with higher price-to-book ratios and higher forecasted
growth values. (A price-to-book ratio is the price of a stock compared to
the difference between a company's assets and liabilities.)
(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.
8
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FUND AT A GLANCE -- MFS MID CAP GROWTH PORTFOLIO (UNAUDITED)
INVESTMENT BREAKDOWN
AS A PERCENT OF TOTAL INVESTMENTS
[BAR GRAPH]
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Information Technology 27.7 25.5
Healthcare 23.5 26.1
Consumer Discretionary 21.1 18.8
Industrials 11.3 12.4
Telecommunication Services 5.4 6.6
Financials 4.4 4.5
Short-Term Investment 2.8 2.4
Energy 2.7 1.9
Materials 1.1 0.8
Consumer Staple 0 1
</Table>
9
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PERFORMANCE COMPARISON -- MFS MID CAP GROWTH PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------
Twelve Months Ended 12/31/04 14.10%
Five Years Ended 12/31/04 (7.75)
3/23/98* through 12/31/04 1.44
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
3/23/98* through 12/31/04 10.21%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through December 31, 2004. The Russell MidCap Growth Index measures
the Mid Cap companies with higher price-to-book ratios and higher
forecasted growth values. 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.
[Line Graph]
<Table>
<Caption>
MFS MID CAP GROWTH RUSSELL MIDCAP GROWTH
PORTFOLIO INDEX RUSSELL 2000 INDEX
------------------ --------------------- ------------------
3/23/98 10000 10000 10000
12/98 10050 9935 8981
12/99 16499 11747 10891
12/00 18031 12716 10562
12/01 13772 10154 10824
12/02 7048 7372 8607
12/03 9659 10520 12674
12/04 11021 12149 14997
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gains, 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. In the
absence of fee voluntary waivers and/or expense reimbursements, the total return
would have been lower.
10
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Merrill Lynch Large Cap Core
Portfolio returned 15.89%. The portfolio outperformed its unmanaged benchmark,
the Russell 1000 Index(i), which returned 11.40% for the same period. It also
outperformed the Lipper Variable Large-Cap Core Funds Category Average(2), which
was 8.59%.
MARKET/ECONOMIC OVERVIEW
Thanks to a late year rally, prompted by the lifting of the uncertainty
surrounding the presidential election and falling oil prices, U.S. equities
produced solid results in 2004. Virtually all of the market's gains for the year
occurred in the fourth quarter.
CONTRIBUTORS TO PERFORMANCE
The portfolio's outperformance during the year came from positive stock
selection in the healthcare (especially managed care), consumer discretionary,
utilities, and materials (especially steel) sectors. From an individual stock
perspective, the largest positive contributors to results included TXU CORP.,
AUTODESK, INC., UNITED STATES STEEL CORP., SPRINT CORP., CUMMINS INC., VALERO
ENERGY CORP., MANDALAY RESORT GROUP, and PACIFICARE HEALTH SYSTEMS, INC. An
underweight position versus the benchmark in INTEL CORP. also enhanced relative
results, as its shares were weak during the year. This positive performance was
partially offset by declines in fund holdings: FOUNDRY NETWORKS INC., ATMEL
CORP., CYPRESS SEMICONDUCTOR CORP. and AMKOR TECHNOLOGY INC., as well as being
underweighted in IMCLONE SYSTEMS INC.
During the year, we increased the fund's weighting in the energy, industrials
and utilities sectors. Our largest purchases during the year were ADVANCED MICRO
DEVICES, INC., METLIFE, INC., JOHNSON & JOHNSON, and CHEVRONTEXACO CORP.
Conversely, our largest sales included LEHMAN BROTHERS HOLDINGS INC., ALTRIA
GROUP INC., CISCO SYSTEMS, INC., and QUALCOMM INC.
In managing the portfolio, we continue to emphasize a pro-cyclical approach to
the economy believing that, for now, economic and earnings growth will be
reasonably strong. Accordingly, the portfolio's largest overweighted sectors
include information technology, consumer discretionary, energy and materials.
Our largest underweight positions are in telecommunications, consumer staples,
and financial services.
Thank you for your investment in the Merrill Lynch Large Cap Core 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/ ROBERT C. DOLL, JR.
Robert C. Doll, Jr.
Merrill Lynch Investment Managers, L.P.
January 20, 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 and variable life contracts such as
administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 216 funds in the fund's Lipper category, and excluding sales charges.
11
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: Pfizer, Inc. (2.7%), Johnson & Johnson (2.6%), General
Electric Co. (2.2%), ChevronTexaco Corp. (1.9%), Dell Inc. (1.9%), Exxon Mobil
Corp. (1.8%), The Home Depot, Inc. (1.8%), ConocoPhillips (1.5%). Hewlett
Packard Co. (1.5%), and Oracle Corp. (1.5%). Please refer to pages 26 through 30
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
(23.0%); Consumer Discretionary (20.2%); Energy (13.7%); Healthcare (11.7%); and
Financials (11.6%). 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 Russell 1000 Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 92% of
the total market capitalization of the Russell 3000 Index.
12
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- MERRILL LYNCH LARGE CAP CORE PORTFOLIO (UNAUDITED)
INVESTMENT BREAKDOWN
AS A PERCENT OF TOTAL INVESTMENTS
[BAR GRAPH]
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Information Technology 23.00 22.00
Consumer Discretionary 20.20 21.60
Energy 13.70 10.70
Healthcare 11.70 11.60
Financials 11.70 12.20
Industrials 9.40 7.80
Materials 4.70 5.30
Utilities 3.30 2.20
Consumer Staples 2.30 4.60
Telecommunication Services 0.00 1.20
Repurchase Agreement 0.00 0.80
</Table>
13
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MERRILL LYNCH LARGE CAP CORE PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------
Twelve Months Ended 12/31/04 15.89%
Five Years Ended 12/31/04 (5.10)
3/23/98* through 12/31/04 (0.10)
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
3/23/98* through 12/31/04 0.67%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made at
inception on March 23, 1998, assuming reinvestment of dividends,
through December 31, 2004. The Russell 1000 Index measures the
performance of the 1,000 largest companies in the Russell 3000
Index, which represents approximately 92% of the total market
capitalization of the Russell 3000 Index.
(PERFORMANCE GRAPH)
<Table>
<Caption>
MERRILL LYNCH LARGE CAP CORE
PORTFOLIO RUSSELL 1000 INDEX
---------------------------- ------------------
3/23/98 10000.00 10000.00
12/98 10577.00 11204.00
12/99 13080.00 13547.00
12/00 12351.00 12491.00
12/01 9578.00 10936.00
12/02 7170.00 8569.00
12/03 8687.00 11130.00
12/04 10067.00 12399.00
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gains, 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 than 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. In the
absence of voluntary fee waivers and/or expense reimbursements, the total return
would have been lower.
14
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1)
transaction costs, including front-end and back-end sales charges (loads) on
purchase payments, reinvested dividends, or other distributions; and (2) ongoing
costs, including management fees; distribution and/or service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004
and held for the six months ended December 31, 2004.
ACTUAL EXPENSES
The table below titled "Based on Actual Total Return" provides information
about actual account values and actual expenses. You may use the information
provided in this table, together with the amount you invested, to estimate the
expenses that you paid over the period. To estimate the expenses you paid on
your account, divide your ending account value by $1,000 (for example, an $8,600
ending account value divided by $1,000 = 8.6), then multiply the result by the
number under the heading entitled "Expenses Paid During the Period".
- --------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------
Convertible Securities Portfolio 3.99% $1,000.00 $1,039.90 0.73% $3.74
MFS Mid Cap Growth Portfolio 5.65 1,000.00 1,056.50 0.89 4.60
Merrill Lynch Large Cap Core Portfolio 9.70 1,000.00 1,097.00 0.89 4.69
- ------------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Assumes reinvestment of dividends and capital gains distributions, if any,
at net asset value. Total return is not annualized, as it may not be
representative of the total return for the year. Total returns do not
reflect expenses associated with the separate account such as administrative
fees, account charges and surrender charges, which, if reflected, would
reduce the total returns. Performance figures may reflect voluntary fee
waivers and/or expense reimbursements. Past performance is no guarantee of
future results. In the absence of voluntary fee waivers and/or expense
reimbursements, the total return would have been lower.
(3) Expenses (net of 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.
15
- --------------------------------------------------------------------------------
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>
EXPENSES
HYPOTHETICAL BEGINNING ENDING ANNUALIZED PAID
TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE
RETURN VALUE VALUE RATIO PERIOD(2)
- -----------------------------------------------------------------------------------------------------------------
Convertible Securities Portfolio.............. 5.00% $1,000.00 $1,021.47 0.73% $3.71
MFS Mid Cap Growth Portfolio.................. 5.00 1,000.00 1,020.66 0.89 4.52
Merrill Lynch Large Cap Core Portfolio........ 5.00 1,000.00 1,020.66 0.89 4.52
- -----------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Expenses (net of voluntary fee waiver and/or expense reimbursement) are
equal 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.
16
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2004
CONVERTIBLE SECURITIES PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 15.8%
- ---------------------------------------------------------------------------------------------------
AUTO MANUFACTURERS -- 5.3%
50,000 Ford Motor Co. Capital Trust II, 6.500%..................... $ 2,639,500
General Motors Corp.:
68,000 5.250%.................................................... 1,568,760
60,000 6.250%.................................................... 1,599,600
- ---------------------------------------------------------------------------------------------------
5,807,860
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.3%
3,150 Calenergy Capital Trust II, 6.250%.......................... 156,712
3,070 Calenergy Capital Trust III, 6.500%......................... 142,371
- ---------------------------------------------------------------------------------------------------
299,083
- ---------------------------------------------------------------------------------------------------
HOUSEWARES -- 2.4%
56,000 Newell Financial Trust I, 5.250%............................ 2,639,000
- ---------------------------------------------------------------------------------------------------
MEDIA -- 2.8%
33,250 Tribune Co., 2.000%......................................... 3,020,763
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 0.4%
8,000 Omnicare, Inc., 4.000%...................................... 441,280
- ---------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 1.8%
39,515 Equity Office Properties Trust, 5.250%...................... 2,029,490
- ---------------------------------------------------------------------------------------------------
SAVINGS & LOANS -- 2.8%
25,000 Washington Mutual Capital Trust I, 5.375% (a)............... 1,409,900
30,000 Washington Mutual Inc., 5.375%.............................. 1,672,500
- ---------------------------------------------------------------------------------------------------
3,082,400
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.0%
6,000 Loral Space & Communications Ltd., 6.000% (a)(b)............ 1,860
- ---------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $16,270,438)..... 17,321,736
- ---------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT RATING(C)
- ---------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS AND NOTES -- 74.5%
- ---------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT -- 2.4%
$ 75,000 BBB American Axle & Manufacturing Inc., 2.000% due 2/15/24
(a)(d).................................................... 68,625
50,000 B- The Goodyear Tire & Rubber Co., 4.000% due 6/15/34 (a)...... 72,250
4,760,000 BBB- Lear Corp., zero coupon to yield 3.180% due 2/20/22......... 2,481,150
- ---------------------------------------------------------------------------------------------------
2,622,025
- ---------------------------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.0%
600,000 NR Invitrogen Corp., 1.50% due 2/15/24......................... 565,500
550,000 NR Nektar Therapeutics, 3.500% due 10/17/07.................... 536,938
- ---------------------------------------------------------------------------------------------------
1,102,438
- ---------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
CONVERTIBLE SECURITIES PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(C)
- ---------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.3%
$ 923,000 BB- BearingPoint Inc. 2.500% due 12/15/24 (a)................... $ 974,919
462,000 BB- BearingPoint Inc. 2.750% due 12/15/24 (a)................... 489,720
- ---------------------------------------------------------------------------------------------------
1,464,639
- ---------------------------------------------------------------------------------------------------
COMPUTERS -- 2.6%
150,000 NR Ciber Inc., 2.875% due 12/15/23 (a)......................... 155,812
500,000 NR DST Systems, Inc., 4.125% due 8/15/23 (a)................... 653,750
1,916,000 BBB- Electronic Data Systems Corp., 3.875% due 7/15/23........... 2,033,355
- ---------------------------------------------------------------------------------------------------
2,842,917
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 0.1%
50,000 B Providian Financial Corp., 4.000% due 5/15/08............... 70,187
- ---------------------------------------------------------------------------------------------------
ELECTRIC -- 2.1%
900,000 BBB- CenterPoint Energy, Inc., 3.750% due 5/15/23 (a)............ 1,033,875
826,000 B+ CMS Energy Corp., 2.875% due 12/1/24........................ 832,195
350,000 BBB PPL Energy Supply LLC, 2.625% due 5/15/23 (a)............... 394,188
- ---------------------------------------------------------------------------------------------------
2,260,258
- ---------------------------------------------------------------------------------------------------
ELECTRONICS -- 2.7%
799,000 B Agere Systems Inc., 6.500% due 12/15/09..................... 848,938
800,000 BB Agilent Technologies Inc., 3.000% due 12/1/21 (d)........... 811,000
2,400,000 BBB- Arrow Electronics Inc., zero coupon to yield 4.211% due
2/21/21................................................... 1,293,000
- ---------------------------------------------------------------------------------------------------
2,952,938
- ---------------------------------------------------------------------------------------------------
HEALTHCARE -- 6.9%
Health Management Associates, Inc.:
1,400,000 BBB+ 1.500% due 8/1/23......................................... 1,473,500
1,200,000 BBB+ 1.500% due 8/1/23 (a)..................................... 1,263,000
3,254,000 NR Lincare Holdings Inc., 3.000% due 6/15/33................... 3,493,983
Universal Health Services, Inc.:
1,700,000 BBB 0.426% due 6/23/20........................................ 988,125
450,000 BBB 0.426% due 6/23/20 (a).................................... 261,563
- ---------------------------------------------------------------------------------------------------
7,480,171
- ---------------------------------------------------------------------------------------------------
HOME BUILDERS -- 1.3%
1,175,000 Ba1* Beazer Homes USA, Inc., 4.625% due 6/15/24 (a).............. 1,465,812
- ---------------------------------------------------------------------------------------------------
INSURANCE -- 6.5%
6,250,000 AAA American International Group, Inc., zero coupon to yield
1.937% due 11/09/31....................................... 4,164,062
3,000,000 A- Loews Corp., 3.125% due 09/15/07............................ 2,962,500
- ---------------------------------------------------------------------------------------------------
7,126,562
- ---------------------------------------------------------------------------------------------------
LEISURE TIME -- 4.1%
1,325,000 BBB- Four Seasons Hotels Inc., 1.875% due 7/30/24................ 1,700,969
1,270,000 B+ Host Marriott L.P., 3.250% due 3/15/24 (a).................. 1,466,850
1,950,000 BB+ Royal Caribbean Cruises Ltd., zero coupon to yield 4.875%
due 2/2/21................................................ 1,255,312
- ---------------------------------------------------------------------------------------------------
4,423,131
- ---------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
CONVERTIBLE SECURITIES PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(C)
- ---------------------------------------------------------------------------------------------------
MANUFACTURING -- 4.1%
$ 1,800,000 BB+ SPX Corp., zero coupon to yield 3.007% due 2/6/21........... $ 1,152,000
Tyco International Group, S.A.:
300,000 BBB 2.750% due 1/15/18 (a).................................... 477,000
1,700,000 BBB 3.125% due 1/15/23 (a).................................... 2,864,500
- ---------------------------------------------------------------------------------------------------
4,493,500
- ---------------------------------------------------------------------------------------------------
MEDIA -- 12.0%
1,000,000 NR Adelphia Communications Corp., 6.000% due 2/15/06 (e)....... 220,000
843,000 CCC- Charter Communications Inc., 4.750% due 6/1/06.............. 847,215
Liberty Media Corp.:
175,000 BBB- 0.750% due 3/30/23........................................ 211,531
500,000 BBB- 0.750% due 3/30/23 (a).................................... 604,375
2,100,000 BBB- 4.000% due 11/15/29....................................... 1,546,125
1,200,000 BBB- 3.500% due 1/15/31........................................ 1,138,500
6,000,000 BBB- News America Inc., zero coupon to yield 3.401% due
2/28/21................................................... 3,540,000
1,167,000 B Sinclair Broadcast Group, Inc., 4.875% due 7/15/18 (d)...... 1,124,696
3,500,000 BBB+ The Walt Disney Co., 2.125% due 4/15/23..................... 3,911,250
- ---------------------------------------------------------------------------------------------------
13,143,692
- ---------------------------------------------------------------------------------------------------
MINING -- 0.1%
100,000 BBB+ Placer Dome Inc., 2.750% due 10/15/23 (a)................... 123,125
- ---------------------------------------------------------------------------------------------------
OIL & GAS -- 13.1%
350,000 A- Cooper Cameron Corp., 1.500% due 5/15/24 (a)................ 370,562
Diamond Offshore Drilling Inc.:
2,130,000 A- 1.500% due 4/15/31........................................ 2,268,450
3,000,000 A- Zero coupon to yield 3.443% due 6/6/20.................... 1,777,500
Global Marine Inc.:
3,000,000 A- Zero coupon to yield 3.539% due 6/23/20................... 1,773,750
600,000 A- Zero coupon to yield 3.506% due 6/23/20 (a)............... 354,750
Halliburton Co.:
700,000 BBB 3.125% due 7/15/23........................................ 864,500
1,000,000 BBB 3.125% due 7/15/23 (a).................................... 1,235,000
Hanover Compressor Co.:
300,000 B 4.750% due 3/15/08........................................ 292,500
75,000 B 4.750% due 1/15/14........................................ 95,250
5,000,000 NR Nabors Industries Inc., zero coupon to yield 2.529% due
2/5/21.................................................... 3,350,000
1,800,000 A+ Schlumberger Ltd., 1.500% due 6/1/23........................ 1,980,000
- ---------------------------------------------------------------------------------------------------
14,362,262
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.2%
1,730,000 B Advanced Medical Optics, Inc., 2.500% due 7/15/24 (a)....... 1,890,025
400,000 A Allergan, Inc., zero coupon to yield 1.250% due 11/6/22
(a)....................................................... 393,000
Cephalon Inc.:
600,000 B- Tranche A, zero coupon due 6/15/33 (a)(b)................. 609,000
800,000 B- Tranche B, zero coupon due 6/15/33 (a)(b)................. 824,000
500,000 NR IVAX Corp., 1.500% due 3/1/24 (a)........................... 486,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
CONVERTIBLE SECURITIES PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(C)
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.2% (CONTINUED)
Valeant Pharmaceuticals International:
$ 75,000 B 3.000% due 8/16/10 (a).................................... $ 82,969
75,000 B 4.000% due 11/15/13 (a)................................... 82,781
200,000 BBB- Watson Pharmaceuticals, Inc., 1.750% due 3/15/23 (a)........ 207,000
- ---------------------------------------------------------------------------------------------------
4,575,025
- ---------------------------------------------------------------------------------------------------
RETAIL -- 1.8%
Best Buy Co., Inc.:
500,000 BB+ 2.250% due 1/15/22........................................ 544,375
300,000 BB+ 2.250% due 1/15/22 (a).................................... 326,625
835,000 BB+ The Gap, Inc., 5.750% due 3/15/09........................... 1,111,594
- ---------------------------------------------------------------------------------------------------
1,982,594
- ---------------------------------------------------------------------------------------------------
SOFTWARE -- 0.5%
576,000 B Red Hat, Inc., 0.500% due 1/15/2024......................... 531,360
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 7.7%
1,500,000 BBB- Amdocs Ltd., 0.500% due 3/15/24 (a)......................... 1,432,500
4,550,000 Ba2* Anixter International Inc., zero coupon to yield 3.068% due
7/7/33.................................................... 2,519,563
150,000 B+ CommScope, Inc., 1.000% due 3/15/24 (a)..................... 161,063
100,000 NR Tekelec Inc., 2.250% due 6/15/08 (a)........................ 128,250
945,000 NR UTStarcom, Inc., 0.875% due 3/1/08.......................... 1,110,375
5,000,000 A+ Verizon Global Funding Corp., zero coupon to yield 2.916%
due 5/15/21............................................... 3,081,250
- ---------------------------------------------------------------------------------------------------
8,433,001
- ---------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS AND NOTES (Cost -- $75,657,136)..... 81,455,637
- ---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 9.4%
10,225,000 State Street Bank & Trust Co., dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $10,226,193; (Fully
collateralized by U.S. Treasury Bonds, 8.125% due 8/15/21;
Market value -- $10,435,040) (Cost -- $10,225,000)........ 10,225,000
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.7% (Cost -- $102,152,574**)......... 109,002,373
Other Assets in Excess of Liabilities -- 0.3%............... 305,192
- ---------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $109,307,565
- ---------------------------------------------------------------------------------------------------
</Table>
(a) Security exempt from registration under rule 144A of the Securities Act of
1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid pursuant to guidelines established by the Board of
Trustees.
(b) Non-income producing security.
(c) All ratings are by Standard & Poors Ratings Service, with the exception of
those identified by an asterisk (*), which are rated by Moody's Investors
Service Inc.
(d) Interest rate shown reflects current rate on instruments with multi-coupon
or variable rates.
(e) Security is currently in default.
** Aggregate cost for federal income tax purposes is $102,172,493.
See page 31 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
20
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS MID CAP GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
COMMON STOCK -- 97.4%
- ---------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 21.2%
HOTELS, RESTAURANTS & LEISURE -- 4.8%
68,190 The Cheesecake Factory Inc.(a).............................. $ 2,214,129
12,580 Four Seasons Hotels, Inc. .................................. 1,028,918
60,850 International Game Technology............................... 2,092,023
62,580 Royal Caribbean Cruises Ltd. ............................... 3,406,855
36,960 WMS Industries Inc.(a)...................................... 1,239,638
- ---------------------------------------------------------------------------------------
9,981,563
- ---------------------------------------------------------------------------------------
MEDIA -- 10.8%
254,120 Citadel Broadcasting Co.(a)................................. 4,111,662
77,850 EchoStar Communications Corp., Class A Shares............... 2,587,734
37,920 Entercom Communications Corp.(a)............................ 1,360,949
175,440 Gemstar-TV Guide International, Inc.(a)..................... 1,038,605
67,170 Getty Images, Inc.(a)....................................... 4,624,654
28,610 Grupo Televisa, S.A., Sponsored ADR......................... 1,730,905
96,000 The Interpublic Group of Cos., Inc.(a)...................... 1,286,400
10,980 Lamar Advertising Co., Class A Shares(a).................... 469,724
36,190 Meredith Corp. ............................................. 1,961,498
53,260 Radio One, Inc., Class A Shares(a).......................... 857,486
51,690 Univision Communications Inc., Class A Shares(a)............ 1,512,966
45,710 Westwood One, Inc.(a)....................................... 1,230,970
- ---------------------------------------------------------------------------------------
22,773,553
- ---------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.9%
137,180 99 Cents Only Stores(a)..................................... 2,216,829
57,030 Family Dollar Stores, Inc. ................................. 1,781,047
- ---------------------------------------------------------------------------------------
3,997,876
- ---------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.8%
58,850 PETsMART, Inc. ............................................. 2,090,940
62,900 The TJX Cos., Inc. ......................................... 1,580,677
68,340 Tiffany & Co. .............................................. 2,184,830
- ---------------------------------------------------------------------------------------
5,856,447
- ---------------------------------------------------------------------------------------
TEXTILES & APPAREL -- 0.9%
34,490 Coach, Inc.(a).............................................. 1,945,236
- ---------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 44,554,675
- ---------------------------------------------------------------------------------------
ENERGY -- 2.7%
ENERGY EQUIPMENT & SERVICES -- 2.7%
36,580 BJ Services Co. ............................................ 1,702,433
32,150 Cooper Cameron Corp.(a)..................................... 1,729,991
50,790 GlobalSantaFe Corp. ........................................ 1,681,657
15,740 Halliburton Co. ............................................ 617,638
- ---------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 5,731,719
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS MID CAP GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
FINANCIALS -- 4.4%
BANKS -- 1.3%
35,890 Investors Financial Services Corp. ......................... $ 1,793,782
45,340 Sovereign Bancorp, Inc. .................................... 1,022,417
- ---------------------------------------------------------------------------------------
2,816,199
- ---------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 3.1%
104,600 Ameritrade Holding Corp.(a)................................. 1,487,412
40,620 E*TRADE Financial Corp.(a).................................. 607,269
59,790 Legg Mason, Inc. ........................................... 4,380,215
- ---------------------------------------------------------------------------------------
6,474,896
- ---------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 9,291,095
- ---------------------------------------------------------------------------------------
HEALTHCARE -- 23.5%
BIOTECHNOLOGY -- 8.2%
32,900 Celgene Corp.(a)............................................ 872,837
38,340 Gen-Probe Inc.(a)........................................... 1,733,351
73,210 Genzyme Corp.(a)............................................ 4,251,305
84,370 Gilead Sciences, Inc.(a).................................... 2,952,106
48,770 ImClone Systems Inc.(a)..................................... 2,247,322
17,140 Invitrogen Corp.(a)......................................... 1,150,608
114,050 MedImmune, Inc.(a).......................................... 3,091,896
18,340 Neurocrine Biosciences, Inc.(a)............................. 904,162
- ---------------------------------------------------------------------------------------
17,203,587
- ---------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES -- 10.1%
52,450 C.R. Bard, Inc. ............................................ 3,355,751
192,650 Cytyc Corp.(a).............................................. 5,311,360
54,400 DENTSPLY International Inc. ................................ 3,057,280
53,710 Fisher Scientific International Inc.(a)..................... 3,350,430
21,660 Guidant Corp. .............................................. 1,561,686
59,010 Millipore Corp.(a).......................................... 2,939,288
6,280 Synthes, Inc. .............................................. 701,753
102,400 Thoratec Corp.(a)........................................... 1,067,008
- ---------------------------------------------------------------------------------------
21,344,556
- ---------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 1.3%
80,450 Community Health Systems Inc.(a)............................ 2,242,946
52,440 Tenet Healthcare Corp.(a)................................... 575,791
- ---------------------------------------------------------------------------------------
2,818,737
- ---------------------------------------------------------------------------------------
PHARMACEUTICALS -- 3.9%
31,880 Allergan, Inc. ............................................. 2,584,512
71,460 Endo Pharmaceuticals Holdings, Inc.(a)...................... 1,502,089
114,960 Medicis Pharmaceutical Corp., Class A Shares................ 4,036,246
- ---------------------------------------------------------------------------------------
8,122,847
- ---------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 49,489,727
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS MID CAP GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
INDUSTRIALS -- 11.4%
AIR FREIGHT & COURIERS -- 0.6%
21,840 Expeditors International of Washington, Inc. ............... $ 1,220,419
- ---------------------------------------------------------------------------------------
AIRLINES -- 1.0%
86,530 JetBlue Airways Corp.(a).................................... 2,009,227
- ---------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.4%
21,460 American Standard Cos. Inc.(a).............................. 886,727
- ---------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 8.7%
39,660 Alliance Data Systems Corp.(a).............................. 1,883,057
38,540 Apollo Group, Inc., Class A Shares(a)....................... 3,110,563
46,770 Career Education Corp.(a)................................... 1,870,800
77,340 Ceridian Corp.(a)........................................... 1,413,775
40,340 The Corporate Executive Board Co. .......................... 2,700,360
51,230 DST Systems, Inc.(a)........................................ 2,670,108
23,050 Manpower Inc. .............................................. 1,113,315
70,490 Monster Worldwide, Inc.(a).................................. 2,371,284
43,040 Robert Half International Inc. ............................. 1,266,667
- ---------------------------------------------------------------------------------------
18,399,929
- ---------------------------------------------------------------------------------------
MACHINERY -- 0.7%
19,210 Eaton Corp. ................................................ 1,390,036
- ---------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 23,906,338
- ---------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 27.7%
COMMUNICATIONS EQUIPMENT -- 4.0%
149,080 Comverse Technology, Inc.(a)................................ 3,645,006
20,850 F5 Networks, Inc.(a)........................................ 1,015,812
24,190 Harris Corp. ............................................... 1,494,700
81,544 Juniper Networks, Inc.(a)................................... 2,217,181
- ---------------------------------------------------------------------------------------
8,372,699
- ---------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 1.1%
28,610 Lexmark International, Inc., Class A Shares(a).............. 2,431,850
- ---------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 4.0%
38,260 Broadcom Corp., Class A Shares(a)........................... 1,235,033
26,000 Roper Industries, Inc. ..................................... 1,580,020
52,040 Thermo Electron Corp.(a).................................... 1,571,088
84,440 Waters Corp.(a)............................................. 3,950,948
- ---------------------------------------------------------------------------------------
8,337,089
- ---------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 3.1%
84,010 Check Point Software Technologies Ltd.(a)................... 2,069,166
103,936 IAC/InterActiveCorp(a)...................................... 2,870,712
57,440 McAfee Inc.(a).............................................. 1,661,739
- ---------------------------------------------------------------------------------------
6,601,617
- ---------------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 0.2%
11,150 NAVTEQ Corp.(a)............................................. 516,914
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS MID CAP GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 6.3%
42,500 Analog Devices, Inc. ....................................... $ 1,569,100
78,780 Integrated Circuit Systems, Inc.(a)......................... 1,648,078
28,390 KLA-Tencor Corp.(a)......................................... 1,322,406
34,790 Marvell Technology Group Ltd.(a)............................ 1,234,001
108,620 Novellus Systems, Inc.(a)................................... 3,029,412
218,660 PMC-Sierra, Inc.(a)......................................... 2,459,925
68,230 Xilinx, Inc. ............................................... 2,023,020
- ---------------------------------------------------------------------------------------
13,285,942
- ---------------------------------------------------------------------------------------
SOFTWARE -- 9.0%
136,710 Amdocs Ltd.(a).............................................. 3,588,638
70,400 Citrix Systems, Inc.(a)..................................... 1,726,912
41,570 Electronic Arts Inc.(a)..................................... 2,564,038
23,680 Intuit Inc.(a).............................................. 1,042,157
75,040 Mercury Interactive Corp.(a)................................ 3,418,072
77,740 Red Hat, Inc.(a)............................................ 1,037,829
77,500 Symantec Corp.(a)........................................... 1,996,400
123,580 VERITAS Software Corp.(a)................................... 3,528,209
- ---------------------------------------------------------------------------------------
18,902,255
- ---------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 58,448,366
- ---------------------------------------------------------------------------------------
MATERIALS -- 1.1%
CHEMICALS -- 0.8%
28,420 Monsanto Co. ............................................... 1,578,731
- ---------------------------------------------------------------------------------------
METALS & MINING -- 0.3%
20,400 Aber Dimond Corp. .......................................... 719,791
- ---------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 2,298,522
- ---------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 5.4%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.7%
3,980 Covad Communications Group, Inc.(a)......................... 8,557
37,070 NTL Inc.(a)................................................. 2,704,627
52,470 SpectraSite, Inc.(a)........................................ 3,038,013
- ---------------------------------------------------------------------------------------
5,751,197
- ---------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 2.7%
193,820 American Tower Corp., Class A Shares(a)..................... 3,566,287
127,750 Crown Castle International Corp.(a)......................... 2,125,761
- ---------------------------------------------------------------------------------------
5,692,048
- ---------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 11,443,245
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $164,779,651)................... 205,163,687
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS MID CAP GROWTH PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT
- ---------------------------------------------------------------------------------------
SHORT TERM INVESTMENT -- 2.8%
$5,825,000 Fannie Mae Discount Notes, zero coupon to yield 0.950% bond
due 1/3/05
(Cost -- $5,824,595)........................................ $ 5,824,595
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.2% (Cost -- $170,604,246*)......... 210,988,282
Liabilities in Excess of Other Assets -- (0.2)%............. (398,754)
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $210,589,528
- ---------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
* Aggregate cost for federal income tax purposes is $172,142,274.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
25
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCK -- 100.0%
- -----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 20.2%
AUTOMOBILES -- 1.1%
93,000 Ford Motor Co. ............................................. $ 1,361,520
- -----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 2.4%
51,000 McDonald's Corp. ........................................... 1,635,060
24,000 Starwood Hotels & Resorts Worldwide, Inc. .................. 1,401,600
- -----------------------------------------------------------------------------------------
3,036,660
- -----------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 2.0%
15,000 The Black & Decker Corp. ................................... 1,324,950
10,000 Harman International Industries, Inc. ...................... 1,270,000
- -----------------------------------------------------------------------------------------
2,594,950
- -----------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 1.0%
37,000 Eastman Kodak Co. .......................................... 1,193,250
- -----------------------------------------------------------------------------------------
MEDIA -- 1.0%
18,000 Getty Images, Inc.(a)....................................... 1,239,300
- -----------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 3.6%
31,000 Costco Wholesale Corp. ..................................... 1,500,710
36,000 J.C. Penney Co., Inc. ...................................... 1,490,400
30,000 Nordstrom, Inc. ............................................ 1,401,900
3,000..... Wal-Mart Stores, Inc. ...................................... 158,460
- -----------------------------------------------------------------------------------------
4,551,470
- -----------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 9.1%
28,000 Abercrombie & Fitch Co., Class A Shares..................... 1,314,600
30,000 American Eagle Outfitters, Inc. ............................ 1,413,000
59,000 The Gap, Inc. .............................................. 1,246,080
52,000 The Home Depot, Inc. ....................................... 2,222,480
56,000 Limited Brands.............................................. 1,289,120
36,000 PETsMART, Inc. ............................................. 1,279,080
44,000 Staples, Inc. .............................................. 1,483,240
26,000 Urban Outfitters, Inc.(a)................................... 1,154,400
- -----------------------------------------------------------------------------------------
11,402,000
- -----------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 25,379,150
- -----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 2.4%
FOOD PRODUCTS -- 2.1%
66,000 Archer-Daniels-Midland Co. ................................. 1,472,460
62,000 Tyson Foods, Inc., Class A Shares........................... 1,140,800
- -----------------------------------------------------------------------------------------
2,613,260
- -----------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.3%
6,000 The Procter & Gamble Co. ................................... 330,480
- -----------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES 2,943,740
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
ENERGY -- 13.7%
OIL & GAS -- 13.7%
15,000.... Amerada Hess Corp. $ 1,235,700
20,000 Anadarko Petroleum Corp. ................................... 1,296,200
33,000 Burlington Resources, Inc. ................................. 1,435,500
46,000 ChevronTexaco Corp. ........................................ 2,415,460
22,000 ConocoPhillips.............................................. 1,910,260
38,000 Devon Energy Corp. ......................................... 1,478,960
45,000 Exxon Mobil Corp. .......................................... 2,306,700
14,000 Newfield Exploration Co.(a)................................. 826,700
26,000 Occidental Petroleum Corp. ................................. 1,517,360
16,000 Sunoco, Inc. ............................................... 1,307,360
31,000 Valero Energy Corp. ........................................ 1,407,400
- -----------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 17,137,600
- -----------------------------------------------------------------------------------------
FINANCIALS -- 11.6%
BANKS -- 0.8%
17,000.... Bank of America Corp. ...................................... 798,830
6,000..... KeyCorp..................................................... 203,400
- -----------------------------------------------------------------------------------------
1,002,230
- -----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 1.4%
40,000.... Countrywide Financial Corp. ................................ 1,480,400
8,000..... JPMorgan Chase & Co. ....................................... 312,080
- -----------------------------------------------------------------------------------------
1,792,480
- -----------------------------------------------------------------------------------------
INSURANCE -- 9.4%
26,000.... ACE Ltd. ................................................... 1,111,500
30,000.... Allstate Corp. ............................................. 1,551,600
5,000..... American International Group, Inc. ......................... 328,350
18,000.... The Chubb Corp. ............................................ 1,384,200
28,000.... Lincoln National Corp. ..................................... 1,307,040
9,000..... Loews Corp. ................................................ 632,700
34,000.... MetLife, Inc. .............................................. 1,377,340
22,000.... Nationwide Financial Services, Inc., Class A Shares......... 841,060
28,000.... Prudential Financial, Inc. ................................. 1,538,880
26,000.... SAFECO Corp. ............................................... 1,358,240
23,000.... UnumProvident Corp. ........................................ 412,620
- -----------------------------------------------------------------------------------------
11,843,530
- -----------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 14,638,240
- -----------------------------------------------------------------------------------------
HEALTHCARE -- 11.7%
BIOTECHNOLOGY -- 0.9%
41,000.... Celgene Corp.(a)............................................ 1,087,730
- -----------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES -- 1.1%
24,000 Becton Dickinson & Co. ..................................... 1,363,200
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
27
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 4.4%
12,000 Aetna, Inc. ................................................ $ 1,497,000
18,000 CIGNA Corp. ................................................ 1,468,260
23,000 PacifiCare Health Systems, Inc.(a).......................... 1,299,960
14,000 Quest Diagnostics Inc. ..................................... 1,337,700
- -----------------------------------------------------------------------------------------
5,602,920
- -----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 5.3%
52,000 Johnson & Johnson........................................... 3,297,840
124,000 Pfizer Inc. ................................................ 3,334,360
- -----------------------------------------------------------------------------------------
6,632,200
- -----------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 14,686,050
- -----------------------------------------------------------------------------------------
INDUSTRIALS -- 9.4%
AEROSPACE & DEFENSE -- 1.3%
31,000 The Boeing Co. ............................................. 1,604,870
- -----------------------------------------------------------------------------------------
AIR FREIGHT & COURIERS -- 1.5%
16,000 FedEx Corp. ................................................ 1,575,840
6,000 Ryder Systems, Inc. ........................................ 286,620
- -----------------------------------------------------------------------------------------
1,862,460
- -----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.2%
30,000 Rockwell Automation, Inc. .................................. 1,486,500
- -----------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 3.3%
77,000 General Electric Co. ....................................... 2,810,500
18,000 Textron, Inc. .............................................. 1,328,400
- -----------------------------------------------------------------------------------------
4,138,900
- -----------------------------------------------------------------------------------------
MACHINERY -- 1.0%
15,000 Cummins Inc. ............................................... 1,256,850
- -----------------------------------------------------------------------------------------
ROAD & RAIL -- 1.1%
39,000 Norfolk Southern Corp. ..................................... 1,411,410
- -----------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 11,760,990
- -----------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 23.0%
COMMUNICATIONS EQUIPMENT -- 4.6%
74,000 Avaya Inc.(a)............................................... 1,272,800
10,000 Cisco Systems, Inc.(a)...................................... 193,000
347,000 Lucent Technologies Inc.(a)................................. 1,304,720
100,000 Motorola, Inc. ............................................. 1,720,000
152,000 Tellabs, Inc.(a)............................................ 1,305,680
- -----------------------------------------------------------------------------------------
5,796,200
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 5.0%
24,000 Apple Computer, Inc.(a)..................................... $ 1,545,600
57,000 Dell Inc.(a)................................................ 2,401,980
91,000 Hewlett-Packard Co.......................................... 1,908,270
5,000 International Business Machines Corp........................ 492,900
- -----------------------------------------------------------------------------------------
6,348,750
- -----------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 1.1%
47,000 McAfee Inc.(a).............................................. 1,359,710
- -----------------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 0.7%
11,000 Affiliated Computer Services, Inc., Class A Shares(a)....... 662,090
3,000 Computer Sciences Corp.(a).................................. 169,110
- -----------------------------------------------------------------------------------------
831,200
- -----------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 1.2%
89,000 Xerox Corp.(a).............................................. 1,513,890
- -----------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 4.4%
60,000 Advanced Micro Devices, Inc.(a)............................. 1,321,200
33,000 Cree, Inc.(a)............................................... 1,322,640
74,000 Intel Corp.................................................. 1,730,860
41,000 Microchip Technology Inc.................................... 1,093,060
- -----------------------------------------------------------------------------------------
5,467,760
- -----------------------------------------------------------------------------------------
SOFTWARE -- 6.0%
22,000 Adobe Systems Inc........................................... 1,380,280
36,000 Autodesk, Inc............................................... 1,366,200
90 Computer Associates International, Inc...................... 2,795
55,000 Microsoft Corp.............................................. 1,469,050
134,000 Oracle Corp.(a)............................................. 1,838,480
56,000 Symantec Corp.(a)........................................... 1,442,560
- -----------------------------------------------------------------------------------------
7,499,365
- -----------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY 28,816,875
- -----------------------------------------------------------------------------------------
MATERIALS -- 4.7%
CHEMICALS -- 0.4%
7,000 Lyondell Chemical Co........................................ 202,440
14,000 RPM International, Inc...................................... 275,240
- -----------------------------------------------------------------------------------------
477,680
- -----------------------------------------------------------------------------------------
METALS & MINING -- 3.3%
26,000 Nucor Corp.................................................. 1,360,840
14,000 Phelps Dodge Corp........................................... 1,384,880
27,000 United States Steel Corp.................................... 1,383,750
- -----------------------------------------------------------------------------------------
4,129,470
- -----------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.0%
36,000 Georgia-Pacific Corp........................................ 1,349,280
- -----------------------------------------------------------------------------------------
TOTAL MATERIALS 5,956,430
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
29
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
UTILITIES -- 3.3%
ELECTRIC UTILITIES -- 2.2%
42,000 Edison International........................................ $ 1,345,260
23,000 TXU Corp. .................................................. 1,484,880
- -----------------------------------------------------------------------------------------
2,830,140
- -----------------------------------------------------------------------------------------
MULTI-UTILITIES -- 1.1%
83,000 The Williams Cos., Inc. .................................... 1,352,070
- -----------------------------------------------------------------------------------------
TOTAL UTILITIES 4,182,210
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $105,752,732)................... 125,501,285
- -----------------------------------------------------------------------------------------
ESCROW SHARES -- 0.0%
27,200 ESC Seagate Technology (a)(b)(c)............................ 0
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $105,752,732*)......... 125,501,285
Liabilities in Excess of Other Assets -- (0.0%)............. (1,571)
- -----------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $125,499,714
- -----------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
(b) Security is fair valued in good faith by or under the direction of the
Board of Trustees.
(c) This security has been deemed illiquid.
* Aggregate cost for federal income tax purposes is $106,182,675.
SEE NOTES TO FINANCIAL STATEMENTS.
30
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CCC" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
<Table>
AAA -- Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest
and repay principal and differ from the highest rated issue
only in a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than in higher
rated categories.
BB, B, CCC and CC -- Bonds rated "BB", "B", "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates
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.
</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 ranking 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 an issue.
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 in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and 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. Such issues may be
in default, or there may be present elements of danger with
respect to principal or interest.
Ca -- Bonds rated "Ca" represent obligations which 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>
31
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
<Table>
<Caption>
MFS MERRILL LYNCH
CONVERTIBLE MID CAP LARGE CAP
SECURITIES GROWTH CORE
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost...................................... $102,152,574 $ 170,604,246 $105,752,732
- ----------------------------------------------------------------------------------------------------------
Investments, at value..................................... $109,002,373 $ 210,988,282 $125,501,285
Cash...................................................... 128 157 63,501
Dividends and interest receivable......................... 427,895 42,124 200,634
Receivable for Fund shares sold........................... 141,399 -- --
Prepaid expense........................................... 434 9,617 1,944
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 109,572,229 211,040,180 125,767,364
- ----------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased.......................... -- 87,828 --
Payable for Fund shares reacquired........................ 159,180 147,757 119,599
Investment advisory fees payable.......................... 53,184 138,785 79,711
Administration fees payable............................... 7,209 12,234 8,029
Trustees' fees payable.................................... 2,100 2,300 2,100
Accrued expenses.......................................... 42,991 61,748 58,211
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 264,664 450,652 267,650
- ----------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $109,307,565 $ 210,589,528 $125,499,714
- ----------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital (Note 4).................................. $103,552,804 $ 400,101,074 $183,373,632
Undistributed net investment income....................... 40,111 -- --
Accumulated net realized loss from investment
transactions............................................ (1,135,149) (229,895,582) (77,623,009)
Net unrealized appreciation of investments and foreign
currencies.............................................. 6,849,799 40,384,036 19,749,091
- ----------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $109,307,565 $ 210,589,528 $125,499,714
- ----------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 8,853,796 26,829,852 13,864,753
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE............................................. $12.35 $7.85 $9.05
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
32
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
MFS MERRILL LYNCH
CONVERTIBLE MID CAP LARGE CAP
SECURITIES GROWTH CORE
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................. $2,101,608 $ 63,136 $ 4,430
Dividends................................................. 931,676 476,603 1,656,107
Less: Foreign withholding tax............................. -- (1,602) (768)
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 3,033,284 538,137 1,659,769
- -------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)......................... 561,951 1,593,939 920,627
Administration fees (Note 2).............................. 56,195 119,546 69,784
Audit and legal........................................... 38,176 44,458 62,216
Custody................................................... 18,487 40,050 14,784
Shareholder communications................................ 15,010 33,936 20,772
Trustees' fees............................................ 11,533 9,973 9,973
Transfer agency services (Note 2)......................... 2,500 2,500 2,500
Other..................................................... 2,750 3,102 2,946
- -------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 706,602 1,847,504 1,103,602
Less: Fee waivers and expense reimbursement (Note 2 and
6)...................................................... (16,100) (28,992) (33,485)
- -------------------------------------------------------------------------------------------------------
NET EXPENSES.............................................. 690,502 1,818,512 1,070,117
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)................................ 2,342,782 (1,280,375) 589,652
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES (NOTE 1 AND 3):
Realized Gain From:
Investment transactions................................. 976,485 21,204,709 3,313,193
Foreign currency transactions........................... -- 5,665 2,189
- -------------------------------------------------------------------------------------------------------
NET REALIZED GAIN......................................... 976,485 21,210,374 3,315,382
- -------------------------------------------------------------------------------------------------------
Net Change in Unrealized Appreciation/Depreciation From:
Investments............................................. 2,664,418 6,181,210 13,606,634
Foreign currencies...................................... -- (339) (2,424)
- -------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION........ 2,664,418 6,180,871 13,604,210
- -------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCIES.............. 3,640,903 27,391,245 16,919,592
- -------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $5,983,685 $26,110,870 $17,509,244
- -------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
33
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
CONVERTIBLE SECURITIES PORTFOLIO 2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 2,342,782 $ 2,126,998
Net realized gain (loss).................................. 976,485 (200,129)
Net change in unrealized appreciation/depreciation........ 2,664,418 11,848,955
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 5,983,685 13,775,824
- ----------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income..................................... (2,307,074) (2,082,494)
- ----------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (2,307,074) (2,082,494)
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 33,647,713 21,865,525
Net asset value of shares issued for reinvestment of
dividends............................................... 2,307,074 2,082,494
Cost of shares reacquired................................. (6,655,212) (8,131,457)
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 29,299,575 15,816,562
- ----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 32,976,186 27,509,892
NET ASSETS:
Beginning of Year......................................... 76,331,379 48,821,487
- ----------------------------------------------------------------------------------------
END OF YEAR*.............................................. $109,307,565 $76,331,379
- ----------------------------------------------------------------------------------------
* Includes undistributed net investment income of:.......... $40,111 $20,038
- ----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
34
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
MFS MID CAP GROWTH PORTFOLIO 2004 2003
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss....................................... $ (1,280,375) $ (783,038)
Net realized gain......................................... 21,210,374 11,062,320
Net change in unrealized appreciation/depreciation........ 6,180,871 39,853,745
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 26,110,870 50,133,027
- -----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 16,179,515 18,867,585
Cost of shares reacquired................................. (24,308,636) (14,613,961)
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS............................................ (8,129,121) 4,253,624
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 17,981,749 54,386,651
NET ASSETS:
Beginning of year......................................... 192,607,779 138,221,128
- -----------------------------------------------------------------------------------------
END OF YEAR............................................... $210,589,528 $192,607,779
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
35
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
MERRILL LYNCH LARGE CAP CORE PORTFOLIO 2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 589,652 $ 721,954
Net realized gain......................................... 3,315,382 4,686,105
Net change in unrealized appreciation/depreciation........ 13,604,210 15,255,608
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 17,509,244 20,663,667
- ------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income..................................... (649,324) (723,790)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (649,324) (723,790)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 6,563,038 2,493,380
Net asset value of shares issued for reinvestment of
dividends............................................... 649,324 723,790
Cost of shares reacquired................................. (13,772,846) (13,967,138)
- ------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (6,560,484) (10,749,968)
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 10,299,436 9,189,909
NET ASSETS:
Beginning of year......................................... 115,200,278 106,010,369
- ------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $125,499,714 $115,200,278
- ------------------------------------------------------------------------------------------
* Includes undistributed net investment income (loss)
of: ...................................................... -- $42,557
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
36
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
CONVERTIBLE SECURITIES PORTFOLIO 2004 2003(1) 2002(1) 2001(1) 2000(1)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................ $11.87 $ 9.67 $11.32 $12.06 $11.69
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................... 0.27 0.39 0.45 0.47(2) 0.58
Net realized and unrealized gain (loss)......... 0.48 2.15 (1.26) (0.56)(2) 0.85
- -----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............... 0.75 2.54 (0.81) (0.09) 1.43
- -----------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income........................... (0.27) (0.34) (0.77) (0.21) (0.25)
Net realized gains.............................. -- -- (0.07) (0.44) (0.81)
- -----------------------------------------------------------------------------------------------------------
Total Dividends and Distributions................. (0.27) (0.34) (0.84) (0.65) (1.06)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR...................... $12.35 $11.87 $ 9.67 $11.32 $12.06
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)................................... 6.29% 26.26% (6.99)% (0.82)% 12.51%
- -----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................... $109,308 $76,331 $48,821 $50,356 $26,294
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)..................................... 0.74%(5) 0.78% 0.80%(6) 0.79% 0.80%(6)
Net investment income........................... 2.50 3.61 4.36 3.95(2) 4.76
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................... 32% 44% 46% 56% 48%
- -----------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective January 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended December
31, 2001, the ratio of net investment income to average net assets would
have been 3.99%. Per share information, ratios and supplemental data for the
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation. In addition, the impact of this change to net
investment income and net realized and unrealized loss was less than $0.01
per share.
(3) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect 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 0.80%.
(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 0.75%.
(6) The Travelers Insurance Company has agreed to reimburse the Fund for certain
expenses for the years ended December 31, 2002 and December 31, 2000. If
such expenses were not reimbursed, the actual expense ratios would have been
0.81% and 0.90% for the years ended December 31, 2002 and 2000,
respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
37
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
MFS MID CAP GROWTH PORTFOLIO 2004(1) 2003 2002(1) 2001(1) 2000(1)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR........... $6.88 $5.02 $9.81 $16.75 $16.43
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss........................ (0.05) (0.03) (0.04) (0.06) (0.05)
Net realized and unrealized gain (loss).... 1.02 1.89 (4.75) (3.90) 1.69
- ------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.......... 0.97 1.86 (4.79) (3.96) 1.64
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains......................... -- -- -- (2.98) (1.32)
- ------------------------------------------------------------------------------------------------------
Total Distributions.......................... -- -- -- (2.98) (1.32)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................. $7.85 $6.88 $5.02 $ 9.81 $16.75
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN(2).............................. 14.10% 37.05% (48.83)% (23.62)% 9.29%
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).............. $210,590 $192,608 $138,221 $278,504 $314,150
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)................................ 0.91%(4) 0.92% 0.93% 0.92% 0.90%
Net investment loss........................ (0.64) (0.49) (0.56) (0.49) (0.30)
- ------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE...................... 81% 98% 167% 96% 143%
- ------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of
voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
(3) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 1.00%.
(4) 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 0.93%.
SEE NOTES TO FINANCIAL STATEMENTS.
38
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
MERRILL LYNCH LARGE CAP CORE
PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR......................... $7.85 $6.52 $8.77 $12.15 $13.06
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss).............. 0.04 0.05 0.03 0.01 (0.01)
Net realized and unrealized
gain (loss)............................ 1.21 1.33 (2.23) (2.74) (0.70)
- ------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations......... 1.25 1.38 (2.20) (2.73) (0.71)
- ------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income..................... (0.05) (0.05) (0.05) (0.00)* --
Net realized gains........................ -- -- -- (0.65) (0.20)
- ------------------------------------------------------------------------------------------------------
Total Dividends and Distributions........... (0.05) (0.05) (0.05) (0.65) (0.20)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................ $9.05 $7.85 $6.52 $ 8.77 $12.15
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)............................. 15.89% 21.16% (25.14)% (22.45)% (5.58)%
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)............. $125,500 $115,200 $106,010 $165,928 $222,953
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)............................... 0.92%(4) 0.99% 0.94% 0.92% 0.94%
Net investment income (loss).............. 0.51 0.67 0.44 0.10 (0.07)
- ------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE..................... 136% 182% 104% 98% 86%
- ------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of
voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
(3) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 1.00%.
(4) 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 0.95%.
* Amount represents less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
39
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Convertible Securities, MFS Mid Cap Growth and Merrill Lynch Large Cap
Core Portfolios ("Fund(s)") are separate investment funds of The Travelers
Series Trust ("Trust"). The Convertible Securities Portfolio and the Merrill
Lynch Large Cap Core Portfolio are separate diversified investment funds of the
Trust. The MFS Mid Cap Growth Portfolio is a separate non-diversified investment
fund of the 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. The Funds and the other investment funds 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. 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 price on such markets or, if there were no sales
during the day, at the mean between the closing bid and asked prices. Securities
primarily traded on foreign exchanges are generally valued at the closing values
of such securities on their respective exchanges. Securities listed on the
NASDAQ National Market System for which market quotations are available are
valued at the official closing price or, if there is no official closing price
on that day, at the last sale price. Securities traded in the over-the-counter
market are valued at prices based on market quotations for securities of similar
type. U.S. government agencies and obligations are valued at the mean between
the last reported bid and asked prices. Securities other than U.S. government
agencies that have a maturity of 60 days or more are valued at prices based on
market quotations for securities of similar type, yield and maturity. 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 the Funds calculate
their net asset values, the Funds may value these investments at fair value as
determined in accordance with the procedures approved by the Funds' Board of
Trustees. Short-term obligations with maturities of 60 days or less are valued
at amortized cost, which approximates value.
(B) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is
the 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 of 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) 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 dividends are 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.
(D) 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
(E) 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.
40
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(F) 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.
(G) RECLASSIFICATION. GAAP requires that certain components of net assets
be adjusted to reflect permanent differences between financial and tax
reporting. Accordingly, during the current year, $15,635 has been reclassified
between undistributed net investment income and accumulated net realized loss
from investment transactions due to the tax treatment of distributions from Real
Estate Investment Trusts and the differences between book and tax amortization
of premium on fixed income securities for Convertible Securities Portfolio.
Additionally, $1,274,710 has been reclassified between paid-in capital and
accumulated net investment loss as a result of permanent differences
attributable to a tax net operating loss, $5,927 has been reclassified between
accumulated net realized loss and paid-in capital as a result of the different
book/tax treatment of various items and $5,665 has been reclassified between
accumulated net realized loss from investment transactions and net investment
loss due to differences between book foreign currency transactions treated as
ordinary income for tax purposes for the MFS Mid Cap Growth Portfolio. Finally,
$14,926 has been reclassified between paid-in capital and accumulated net
investment loss as a result of permanent differences attributable to an
overdistribution of net investment income and $2,189 has been reclassified
between accumulated net realized loss from investment transactions and options
and accumulated net investment loss as a result of permanent differences due to
book foreign currency transactions treated as ordinary income for tax purposes
for the Merrill Lynch Large Cap Core Portfolio. 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 the Convertible Securities ("CS"), MFS Mid Cap Growth ("MMCG") and
Merrill Lynch Large Cap Core ("MLLCC") Portfolios. CS pays TAMIC an investment
advisory fee calculated at annual rate of 0.60% of the Fund's average daily net
assets. Prior to September 1, 2004, MMCG and MLLCC each paid TAMIC an investment
advisory fee calculated at an annual rate of 0.80% of each Fund's respective
average daily net assets. These fees are calculated daily and paid monthly.
TAMIC has entered into a sub-advisory agreement with Massachusetts
Financial Services ("MFS"). Pursuant to the sub-advisory agreement, MFS is
responsible for the day-to-day fund operations and investment decisions for
MMCG. As a result, prior to September 1, 2004 TAMIC paid MFS a sub-advisory fee
at an annual rate of 0.375% of the average daily net assets of MMCG.
Effective September 1, 2004, the investment advisory fee and sub-advisory
fee was revised from the annual rates of 0.80% and 0.375%, respectively, of the
average daily net assets of MMCG to a fee calculated at the annual rates in
accordance with the following schedule:
<Table>
<Caption>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
- ------------------------------------------------------------------------------------------
First $600 million.......................................... 0.800% 0.370%
Next $300 million........................................... 0.775% 0.350%
Next $600 million........................................... 0.750% 0.325%
Next $1 billion............................................. 0.725% 0.300%
Over $2.5 billion........................................... 0.675% 0.250%
- ------------------------------------------------------------------------------------------
</Table>
TAMIC has also entered into a sub-advisory agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). Pursuant to the sub-advisory agreement, MLIM
is responsible for the day-to-day fund operations and investment decisions and
prior to September 1, 2004 was compensated by TAMIC for such services at an
annual rate of 0.375% of the average daily net assets of MLLCC.
41
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective September 1, 2004, the investment advisory fee and sub-advisory
fee was revised from the annual rates of 0.80% and 0.375%, respectively, of the
average daily net assets of MLLCC to a fee calculated at the annual rates in
accordance with the following schedule:
<Table>
<Caption>
INVESTMENT SUB-ADVISORY
AVERAGE DAILY NET ASSETS ADVISORY FEE FEE
- -----------------------------------------------------------------------------------------
First $250 million.......................................... 0.775% 0.350%
Next $250 million........................................... 0.750% 0.325%
Next $500 million........................................... 0.725% 0.300%
Next $1 billion............................................. 0.700% 0.275%
Over $2 billion............................................. 0.650% 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 respective Fund. This fee is calculated daily and paid
monthly. TIC has entered into a sub-administrative service agreement with Smith
Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of
Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual
rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per
Fund, subject to a maximum of 0.06% of each Fund's average daily net assets.
During the year ended December 31, 2004, the Funds had a contractual
expense limitation in place of 0.80% for CS and 1.00% for each of MMCG and
MLLCC. 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 fees in the amounts of $1,726, $1,707, and $1,726 for CS, MMCG and MLLCC,
respectively. In addition, for the year ended December 31, 2004, SBFM reimbursed
expenses in the amounts of $14,374, $27,285 and $31,759 for CS, MMCG and MLLCC,
respectively, 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.
All officers and one Trustee of the Trust are employees of Citigroup or its
subsidiaries and do not receive compensation from the Trust.
3. INVESTMENTS
During the year ended December 31, 2004, the aggregate cost of purchases
and proceeds from sales of investments excluding short-term investments) were as
follows:
<Table>
<Caption>
PURCHASES SALES
- -----------------------------------------------------------------------------------------
Convertible Securities Portfolio............................ $ 49,083,820 $26,819,432
MFS Mid Cap Growth Portfolio................................ 159,174,718 167,048,854
Merrill Lynch Large Cap Core Portfolio...................... 157,622,549 163,252,048
- -----------------------------------------------------------------------------------------
</Table>
At December 31, 2004, the aggregate gross unrealized appreciation and
depreciation of investments for federal income tax purposes were as follows:
<Table>
<Caption>
NET
UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
- ----------------------------------------------------------------------------------------------------------
Convertible Securities Portfolio............................ $ 8,310,001 $(1,480,121) $ 6,829,880
MFS Mid Cap Growth Portfolio................................ 43,362,004 (4,515,996) 38,846,008
Merrill Lynch Large Cap Core Portfolio...................... 20,857,308 (1,538,698) 19,318,610
- ----------------------------------------------------------------------------------------------------------
</Table>
42
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
- ---------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES PORTFOLIO
Shares sold................................................. 2,781,519 1,960,310
Shares issued on reinvestment............................... 187,144 175,782
Shares reacquired........................................... (546,738) (754,259)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 2,421,925 1,381,833
- ---------------------------------------------------------------------------------------------------
MFS MID CAP GROWTH PORTFOLIO
Shares sold................................................. 2,230,189 3,078,239
Shares reacquired........................................... (3,381,260) (2,635,504)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (1,151,071) 442,735
- ---------------------------------------------------------------------------------------------------
MERRILL LYNCH LARGE CAP CORE PORTFOLIO
Shares sold................................................. 798,563 347,978
Shares issued on reinvestment............................... 72,126 92,361
Shares reacquired........................................... (1,675,002) (2,023,282)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (804,313) (1,582,943)
- ---------------------------------------------------------------------------------------------------
</Table>
5. INCOME TAX INFORMATION & DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal year ended
December 31, 2004 was as follows:
<Table>
<Caption>
CONVERTIBLE MERRILL LYNCH
SECURITIES LARGE CAP CORE
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income............................................. $2,307,074 $649,324
- ------------------------------------------------------------------------------------------
</Table>
The tax character of distributions paid during the fiscal year ended
December 31, 2003 was as follows:
<Table>
<Caption>
CONVERTIBLE MERRILL LYNCH
SECURITIES LARGE CAP CORE
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income............................................. $2,082,494 $723,790
- ------------------------------------------------------------------------------------------
</Table>
For the fiscal years ended December 31, 2004 and 2003, the MFS Mid Cap
Growth Portfolio did not make any distributions.
As of December 31, 2004, the components of accumulated earnings on a tax
basis were as follows:
<Table>
<Caption>
CONVERTIBLE MERRILL LYNCH
SECURITIES MFS MID CAP LARGE CAP CORE
PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
Undistributed ordinary income -- net.................. $ 60,030 -- --
- -------------------------------------------------------------------------------------------------------
Capital loss carryforward*............................ $(1,135,149) $(228,357,554) $(77,193,066)
Unrealized appreciation**............................. 6,829,880 38,846,008 19,319,148
- -------------------------------------------------------------------------------------------------------
Total accumulated earnings/(losses)................... $5,754,761 $(189,511,546) $(57,873,918)
- -------------------------------------------------------------------------------------------------------
</Table>
43
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
* On December 31, 2004 the Funds had net capital loss carryforwards as follows:
<Table>
<Caption>
CONVERTIBLE MERRILL LYNCH
SECURITIES MFS MID CAP LARGE CAP CORE
YEAR OF EXPIRATION PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------
12/31/2009 -- $ 7,213,977 $ 38,357,682
12/31/2010 $ 995,983 221,143,577 38,835,384
12/31/2011 139,166 -- --
- ------------------------------------------------------------------------------------------------------
$1,135,149 $228,357,554 $ 77,193,066
- ------------------------------------------------------------------------------------------------------
</Table>
These amounts will be available to offset any future taxable capital gains.
** The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales and the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities.
The Funds are liable for excise tax payments resulting from the timing of
required distribution payments made to taxable shareholders for the years
1999-2001. The actual amount of the liability is not yet determinable. However,
the Funds have been indemnified by SBFM for any associated excise tax liability
as well as any interest and penalties or any other costs. Accordingly, the net
asset values of the Funds will not be impacted by the outcome of this matter.
6. ADDITIONAL INFORMATION
In connection with an investigation previously disclosed by Citigroup, the
Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup
Asset Management ("CAM"), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through voluntary fee waivers, a total of
approximately $17 million (plus interest), which is the amount of the revenue
received by Citigroup relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering
recommending action based on the adequacy of the disclosures made to the fund
boards that approved the transfer agency arrangement, CAM's initiation and
operation of, and compensation for, the transfer agent business and CAM's
retention of, and agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC Staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are ongoing and any settlement of this matter with the SEC will require approval
by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance
that any amount reserved by Citigroup will be distributed. Nor is there at this
time any certainty as to how the proceeds of any settlement would be
distributed, to whom any such distribution would be made, the methodology by
which such distribution would be allocated, and when such distribution would be
made.
Although there can be no assurance, Citigroup does not believe that this
matter will have a material adverse effect on the funds.
44
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
45
- --------------------------------------------------------------------------------
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 Convertible Securities Portfolio, MFS Mid Cap
Growth Portfolio, and Merrill Lynch Large Cap Core 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 auditing 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 position of
Convertible Securities Portfolio, MFS Mid Cap Growth Portfolio, and Merrill
Lynch Large Cap Core 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
the financial highlights for each of the years in the five-year period then
ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 18, 2005
46
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
INFORMATION ABOUT TRUSTEES AND OFFICERS
The business and affairs of The Travelers Series Trust ("Trust") are
managed under the direction of the Trust's Board of Trustees. Information
pertaining to the Trustees and Officers of the Trust is set forth below. The
Statement of Additional Information includes additional information about the
Trustees and is available, without charge, upon request by calling the Trust's
administrator at 1-800-842-9368.
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PORTFOLIOS IN
POSITION(S) LENGTH FUND COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES:
Frances M. Hawk, Trustee Since 1991 Private Investor 5 Board of Managers of
CFA, CFP 6 Variable Annuity
108 Oxford Hill Lane Separate Accounts of
Downingtown, PA TIC
Birth Year: 1948
Lewis Mandell Trustee Since 1990 Professor, University of 5 Delaware North
160 Jacobs Hall Buffalo Corp.; Board of
Buffalo, NY Managers of 6
Birth Year: 1943 Variable Annuity
Separate Accounts of
TIC
Robert E. McGill, III Trustee Since 1990 Retired 5 Lydall Inc.; Board
295 Hancock Road of Managers of 6
Williamstown, MA Variable Annuity
Birth Year: 1931 Separate Accounts of
The Travelers
Insurance Co.
("TIC")
INTERESTED TRUSTEE:
R. Jay Gerken, CFA(2) Chairman, Since 2002 Managing Director of Citigroup 219 Chairman, Board of
Citigroup Asset Management President Global Markets Inc. ("CGM"); Managers of 6
("CAM") and Chief Chairman, President and Chief Variable Annuity
399 Park Avenue, 4th Floor Executive Executive Officer of Smith Separate Accounts of
New York, NY 10022 Officer Barney Fund Management LLC TIC
Birth Year: 1951 ("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>
47
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PORTFOLIOS IN
POSITION(S) LENGTH FUND COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
Andrew B. Shoup Senior Vice Since 2003 Director of CAM; Senior Vice N/A N/A
CAM President and President and Chief
125 Broad Street, 11th Chief Administrative Officer of
Floor Administrative mutual funds associated with
New York, NY 10004 Officer Citigroup; Head of
Birth Year: 1956 International Funds
Administration of CAM (from
2001 to 2003); Director of
Global Funds Administration of
CAM (from 2000 to 2001); Head
of U.S. Citibank Funds
Administration of CAM (from
1998 to 2000)
Kaprel Ozsolak Chief Since 2004 Vice President of CGM; Chief N/A N/A
CAM Financial Financial Officer and
125 Broad Street, 11th Officer and Treasurer of certain mutual
Floor Treasurer funds associated with
New York, NY 10004 Citigroup, Controller of
Birth Year: 1965 certain mutual funds
associated with Citigroup from
(2002 to 2004)
Andrew Beagley Chief Anti- Since 2002 Director of CGM (since 2000); N/A N/A
CAM Money Director of Compliance, North
399 Park Avenue, 4th Floor Laundering America, CAM (since 2000);
New York, NY 10022 Compliance Chief Anti-Money Laundering
Birth Year: 1962 Officer Compliance Officer and Vice
President of certain mutual
funds associated with
Citigroup; Director of
Compliance, Europe, the Middle
East and Africa, CAM (from
1999 to 2000); Compliance
Officer: SBFM, CFM, TIA,
Salomon Brothers Asset
Management Limited, Smith
Barney Global Capital
Management Inc.
</Table>
48
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
<Table>
<Caption>
TERM OF NUMBER OF
OFFICE(1) AND PORTFOLIOS IN
POSITION(S) LENGTH FUND COMPLEX OTHER
NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
William D. Wilcox Chief Since 2004 Counsel and Chief Compliance N/A N/A
Travelers Life Annuity Compliance Officer (since 1999); TIC
One Cityplace Officer Chief Compliance Officer
Hartford, CT 06103 (since 2002), 6 Variable
Birth Year: 1964 Annuity Separate Accounts of
The Travelers Insurance
Company; Chief Compliance
Officer (since 2004), 5 Mutual
Funds sponsored by TIC and 6
Variable Separate Accounts
Kathleen A. McGah Secretary Since 2004 Deputy General Counsel of TIC; N/A N/A
Travelers Life & Annuity Assistant Secretary of 5
One Cityplace Mutual Funds and 6 Variable
Hartford, CT 06103 Separate Accounts sponsored by
Birth Year: 1950 TIC (from 1995 to 2004)
Ernest J. Wright Assistant Since 2004 Vice President and Secretary N/A N/A
Travelers Life & Annuity Secretary of TIC; Secretary of 5 Mutual
One Cityplace Funds and 6 Variable Separate
Hartford, CT 06103 Accounts sponsored by TIC
Birth Year: 1940 (from 1974 to 2004)
</Table>
- ---------------
(1) Each Trustee and officer serves until his or her respective successor has
been duly elected and qualified.
(2) Mr. Gerken is an "interested person" of the Trust as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is Managing
Director of CGM, an indirect wholly owned subsidiary of Citigroup, and his
ownership shares and options to purchase shares of Citigroup, the indirect
parent of TIC.
49
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
The following information is provided with respect to the distributions paid by
Merrill Lynch Large Cap Core Portfolio during the taxable year ended December
31, 2004:
<Table>
<Caption>
MERRILL LYNCH MERRILL LYNCH
LARGE CAP CORE LARGE CAP CORE
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------
Record Date:................................................ 6/24/2004 12/27/2004
Payable Date:............................................... 6/25/2004 12/28/2004
- ---------------------------------------------------------------------------------------------
Dividends Qualifying for the Dividends Received Deduction
for Corporations.......................................... 100.00% 100.00%
- ---------------------------------------------------------------------------------------------
</Table>
50
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(This page intentionally left blank.)
THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
<Table>
TRUSTEES INVESTMENT ADVISER
R. Jay Gerken, CFA Travelers Asset Management International Company LLC
Chairman
Frances M. Hawk, CFA, CFP ADMINISTRATOR
Lewis Mandell
Robert E. McGill, III The Travelers Insurance Company
OFFICERS CUSTODIAN
State Street Bank and Trust Company
R. Jay Gerken, CFA
President and TRANSFER AGENT
Chief Executive Officer
Citicorp Trust Bank, fsb.
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
</Table>
The Funds 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 The Travelers Series Trust:
Convertible Securities Portfolio, MFS Mid Cap Growth Portfolio, and Merrill
Lynch Large Cap Core Portfolio.
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 schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarter of each fiscal year on
Form N-Q. The Funds' Forms 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 1-800-842-9368.
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
1-800-842-9368, (2) on the Fund's website at www.citgroupAM.com and (3) on the
SEC's website at www.sec.gov.
Series Trust (Annual) (2-05) Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Robert E.
McGill, a member of the Board's Audit Committee, possesses the technical
attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to
qualify as an "audit committee financial expert," and has designated Mr.
McGill as the Audit Committee's financial expert. Mr. McGill is an
"independent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form
N-CSR.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees for The Travelers Series Trust were $276,000 and
$276,000 for the years ended 12/31/04 and 12/31/03.
(b) Audit-Related Fees for The Travelers Series Trust were $0 and
$0 for the years ended 12/31/04 and 12/31/03.
(c) Tax Fees for The Travelers Series Trust of $36,400 and $36,400
for the years ended 12/31/04 and 12/31/03. These amounts represent
aggregate fees paid for tax compliance, tax advice and tax planning
services, which include (the filing and amendment of federal, state and
local income tax returns, timely RIC qualification review and tax
distribution and analysis planning) rendered by the Accountant to
Travelers Series Trust.
(d) All Other Fees for The Travelers Series Trust of $0 and $0 for
the years ended 12/31/04 and 12/31/03.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the Board of
each registered investment company (the "Fund") advised by Smith Barney
Fund Management LLC or Salomon Brothers Asset Management Inc or one of
their affiliates (each, an "Adviser") requires that the Committee shall
approve (a) all audit and permissible non-audit services to be provided
to the Fund and (b) all permissible non-audit services to be provided
by the Fund's independent auditors to the Adviser and any Covered
Service Providers if the engagement relates directly to the operations
and financial reporting of the Fund. The Committee may implement
policies and procedures by which such services are approved other than
by the full Committee.
The Committee shall not approve non-audit services that the Committee
believes may impair the independence of the auditors. As of the date of
the approval of this Audit Committee Charter, permissible non-audit
services include any professional services (including tax services),
that are not prohibited services as described below, provided to the
Fund by the independent auditors, other than those provided to the Fund
in connection with an audit or a review of the financial statements of
the Fund. Permissible non-audit services may not include: (i)
bookkeeping or other services related to the accounting records or
financial statements of the Fund; (ii) financial information systems
design and implementation; (iii) appraisal or valuation services,
fairness opinions or contribution-in-kind reports; (iv) actuarial
services; (v) internal audit outsourcing services; (vi) management
functions or human resources; (vii) broker or dealer, investment
adviser or investment banking services; (viii) legal services and
expert services unrelated to the audit; and (ix) any other service the
Public Company Accounting Oversight Board determines, by regulation, is
impermissible.
Pre-approval by the Committee of any permissible non-audit services is
not required so long as: (i) the aggregate amount of all such
permissible non-audit services provided to the Fund, the Adviser and
any service providers controlling, controlled by or under common
control with the Adviser that provide ongoing services to the Fund
("Covered Service Providers") constitutes not more than 5% of the total
amount of revenues paid to the independent auditors during the fiscal
year in which the permissible non-audit services are provided to (a)
the Fund, (b) the Adviser and (c) any entity controlling, controlled by
or under common control with the Adviser that provides ongoing services
to the Fund during the fiscal year in which the services are provided
that would have to be approved by the Committee; (ii) the permissible
non-audit services were not recognized by the Fund at the time of the
engagement to be non-audit services; and (iii) such services are
promptly brought to the attention of the Committee and approved by the
Committee (or its delegate(s)) prior to the completion of the audit.
(2) For The Travelers Series Trust, the percentage of fees that were
approved by the audit committee, with respect to: Audit-Related Fees
were 100% and 100% for the years ended 12/31/04 and 12/31/03; Tax Fees
were 100% and 100% for the years ended 12/31/04 and 12/31/03; and Other
Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03.
(f) N/A
(g) Non-audit fees billed by the Accountant for services rendered
to Travelers Series Trust and CAM and any entity controlling,
controlled by, or under common control with CAM that provides ongoing
services to Travelers Series Trust. Fees billed to and paid by
Citigroup Global Markets, Inc. related to the transfer agent matter as
fully described in the notes to the financial statements titled
"additional information" were $75,000 and $0 for the years ended
12/31/04 and 12/31/03.
(h) Yes. The Travelers Series Trust's Audit Committee has
considered whether the provision of non-audit services that were
rendered to Service Affiliates which were not pre-approved (not
requiring pre-approval) is compatible with maintaining the Accountant's
independence. All services provided by the Accountant to the Travelers
Series Trust or to Service Affiliates which were required to be
pre-approved were pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a- 3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are
effective as of a date within 90 days of the filing date of this
report that includes the disclosure required by this paragraph,
based on their evaluation of the disclosure controls and
procedures required by Rule 30a-3(b) under the 1940 Act and
15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the registrant's last fiscal half-year
(the registrant's second fiscal half-year in the case of an
annual report) that have materially affected, or are likely to
materially affect the registrant's internal control over
financial reporting.
2 of 18
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
3 of 18