UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6465
THE TRAVELERS SERIES TRUST
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: DECEMBER 31
Date of reporting period: DECEMBER 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
ANNUAL REPORT
DECEMBER 31, 2004
[UMBRELLA GRAPHIC]
THE TRAVELERS SERIES TRUST:
EQUITY INCOME PORTFOLIO
LARGE CAP 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
EQUITY INCOME PORTFOLIO
MANAGER OVERVIEW....................................... 3
FUND AT A GLANCE....................................... 5
PERFORMANCE COMPARISON................................. 6
LARGE CAP PORTFOLIO
MANAGER OVERVIEW....................................... 7
FUND AT A GLANCE....................................... 9
PERFORMANCE COMPARISON................................. 10
FUND EXPENSES............................................... 11
SCHEDULES OF INVESTMENTS.................................... 13
STATEMENTS OF ASSETS AND LIABILITIES........................ 25
STATEMENTS OF OPERATIONS.................................... 26
STATEMENTS OF CHANGES IN NET ASSETS......................... 27
FINANCIAL HIGHLIGHTS........................................ 29
NOTES TO FINANCIAL STATEMENTS............................... 31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 36
ADDITIONAL INFORMATION...................................... 37
IMPORTANT TAX INFORMATION................................... 40
</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). After the end of the
portfolios' 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
Equity Income Portfolio 9.31% 9.88%
Russell 3000 Value Index 12.19% 16.94%
Russell 1000 Value Index 12.08% 16.49%
Lipper Variable Equity Income Funds Category Average 9.66% 13.64%
Large Cap Portfolio 3.82% 6.52%
S&P 500 Index 7.19% 10.87%
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 ALL FUND
EXPENSES.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended December 31, 2004 and include
the reinvestment of dividends and capital gains, if any. Returns were
calculated among the 61 funds for the six-month period and among the
61 funds for the 12-month period in the variable equity income 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 fund's 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 fund has
been informed that Travelers Life & Annuity and its affiliates are responding to
those information requests, but are not in a position to predict the outcome of
these requests and investigations.
As previously disclosed by Citigroup, the Staff of the Securities and Exchange
Commission ("SEC") has notified Citigroup Asset Management ("CAM") and Citicorp
Trust Bank ("CTB"), an affiliate of CAM, that the Staff is considering
recommending a civil injunctive action and/or an administrative proceeding
against CAM, CTB, the former CEO of CAM, two former employees and a current
employee of CAM, relating to the creation, operation and fees of an internal
transfer agent unit that serves various CAM-managed funds. Citigroup is
cooperating with the SEC and will seek to resolve this matter in discussion with
the SEC Staff. Although there can be no assurance, Citigroup does not believe
that this matter will have a material adverse effect on the funds. For further
information, please see the "Additional Information" note in the Notes to the
Financial Statements included in this report.
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
2
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MANAGER OVERVIEW
EQUITY INCOME PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
Effective September 1, 2004, the investment advisory fee was revised from the
annual rate of 0.75% of the average daily net assets to a fee calculated at an
annual rate in accordance with the following schedule:
<Table>
<Caption>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
- ------------------------ ------------
First $250 million.......................................... 0.75%
Next $500 million........................................... 0.70%
Over $750 million........................................... 0.65%
</Table>
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Equity Income Portfolio
returned 9.88%. The portfolio underperformed its unmanaged benchmark, the
Russell 3000 Value Index(iii), and a comparative index, the Russell 1000 Value
Index(iv), which returned 16.94% and 16.49%, respectively, for the same period.
It also underperformed the Lipper Variable Equity Income Funds Category
Average(2), which was 13.64%.
MARKET/ECONOMIC OVERVIEW
U.S. equities generated positive results for the second consecutive year in
2004. The global economy continued to expand and overall corporate profits
improved at a strong, albeit slowing, rate. This expansion occurred despite
dramatically higher commodity prices, investor concerns about Fed tightening,
potential terrorist attacks, a tight U.S. presidential race and regulatory,
accounting and product liability issues at some major U.S. companies. Among
investment styles, smaller-cap stocks led large-cap, and value stocks outpaced
growth stocks. Fixed-income securities posted positive returns, led by double-
digit gains by high-yield bonds.
CONTRIBUTORS TO PERFORMANCE
In this investment climate, the portfolio underperformed its benchmark.
Below-average performance and underweighting in financials detracted the most
from the portfolio returns versus the index. A variety of factors hampered the
portfolio's stock positions, including regulatory and accounting issues
involving some high profile companies and lackluster equity market conditions.
In addition, the portfolio was underexposed to relatively strong-performing real
estate investment trusts and bank stocks. Other detractors from the portfolio's
relative results included below-average returns in the consumer discretionary
sector, including an online conglomerate that lowered its earnings guidance, and
weak performance from healthcare positions, particularly pharmaceuticals.
- ---------------
(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 61 funds in the fund's Lipper category, and excluding sales charges.
3
Conversely, good stock selection and an overweighting in the energy sector added
the most to the portfolio's relative returns amid a surge in crude oil and
natural gas prices and heightened Middle East security concerns. Select
telecommunications stocks with attractive valuations and growing wireless
operations also enhanced results, as did certain commodity-oriented materials
stocks with firmer supply/demand characteristics.
Thank you for your investment in the Equity Income 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,
The Portfolio Management Team
Fidelity Management & Research Company
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.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's top five sector holdings (as
a percentage of net assets) as of December 31, 2004 were: Financials (26.9%);
Industrials (14.0%); Information Technology (11.1%); Consumer Discretionary
(11.1%); Telecommunication Services (8.0%). 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) 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.
(iii) The Russell 3000 Value Index measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower 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.)
(iv) The Russell 1000 Value Index measures the performance of those Russell 1000
Index companies with lower price-to-book ratios and lower forecasted growth
rates.
4
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FUND AT A GLANCE -- EQUITY INCOME PORTFOLIO (UNAUDITED)
INVESTMENT BREAKDOWN
AS A PERCENT OF TOTAL INVESTMENTS
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Financials 27.0 25.1
Industrials 14.0 13.5
Consumer Discretionary 11.1 9.9
Information Technology 11.1 8.4
Telecommunication Services 8.0 7.6
Energy 8.0 14.1
Healthcare 7.2 6.3
Consumer Staples 4.8 5.7
Materials 4.2 5.0
Repurchase Agreement 1.7 2.9
Utilities 2.2 1.3
Technology 0.7 0.2
</Table>
5
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PERFORMANCE COMPARISON -- EQUITY INCOME PORTFOLIO AS OF 12/31/04 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
Year Ended 12/31/04 9.88%
Five Years Ended 12/31/04 4.80
8/30/96* through 12/31/04 9.91
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
8/30/96* through 12/31/04 119.82%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made at
inception on August 30, 1996, assuming reinvestment of dividends,
through December 31, 2004. Index information is available at
month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. The Russell 3000 Value Index
measures the performance of those Russell 3000 Index companies with
lower price-to-book ratios and lower 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.)
(LINE GRAPH)
<Table>
<Caption>
EQUITY INCOME PORTFOLIO RUSSELL 3000 VALUE INDEX
----------------------- ------------------------
8/30/96 10000.00 10000.00
12/96 11169.00 11421.00
12/97 14749.00 15399.00
12/98 16574.00 17478.00
12/99 17389.00 18640.00
12/00 18976.00 20139.00
12/01 17722.00 19267.00
12/02 15252.00 16342.00
12/03 20006.00 21431.00
12/31/04 21982.00 25061.00
</Table>
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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 voluntary fee waivers and/or expense reimbursements, the total return
would have been lower.
6
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
LARGE CAP PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
Effective September 1, 2004, the investment advisory fee was revised from the
annual rate of 0.75% of the average daily net assets to a fee calculated at an
annual rate in accordance with the following schedule:
<Table>
<Caption>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
- ------------------------ ------------
First $250 million.......................................... 0.75%
Next $500 million........................................... 0.70%
Over $750 million........................................... 0.65%
</Table>
PERFORMANCE UPDATE(3)
For the twelve months ended December 31, 2004, the Large Cap Portfolio returned
6.52%. The portfolio underperformed its unmanaged benchmark, the S&P 500
Index(iii), which returned 10.87% for the same period. It also underperformed
the Lipper Variable Large Cap Core Funds Category Average(4), which was 8.59%.
MARKET/ECONOMIC OVERVIEW
U.S. equities generated positive results for the second consecutive year in
2004. The global economy continued to expand and overall corporate profits
improved at a strong, albeit slowing, rate. This expansion occurred despite
dramatically higher commodity prices, investor concerns about Fed tightening,
potential terrorist attacks, a tight U.S. presidential race and regulatory,
accounting and product liability issues at some major U.S. companies. Among
investment styles, smaller-cap stocks led large-cap and value stocks outpaced
growth stocks. Fixed-income securities posted positive returns, led by double-
digit gains by high-yield bonds.
CONTRIBUTORS TO PERFORMANCE
While the portfolio generated positive returns during the fiscal year, it lagged
its benchmark on a relative basis. A large detractor to performance was the
portfolio's position in a major pharmaceutical company. The firm's shares fell
sharply after it was forced to remove one of its painkillers from the shelves.
The fund further suffered from an overweighting in technology stocks, as the
sector underperformed the overall market during the year. However, when compared
to technology stocks in the index, the portfolio's holdings outperformed, aiding
relative results. For example, the portfolio held a hardware maker that enjoyed
continued success from the strong demand for its portable digital music players.
The portfolio also benefited from strong security selection in the materials
sector, particularly its holdings in aluminum, agricultural-chemical and metals
companies.
- ---------------
(3) 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.
(4) 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.
7
Thank you for your investment in the Large Cap 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,
The Portfolio Management Team
Fidelity Management & Research Company
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.
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
(23.6%); Industrials (19.0%); Consumer Discretionary (14.1%); Financials (12.8%)
and Healthcare (10.7%). 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) 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.
(iii) The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
8
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FUND AT A GLANCE -- LARGE CAP PORTFOLIO (UNAUDITED)
INVESTMENT BREAKDOWN
AS A PERCENT OF TOTAL INVESTMENTS
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Information Technology 23.4 23.4
Industrials 18.9 11.9
Consumer Discretionary 14.0 16.3
Financials 12.7 12.4
Healthcare 10.6 16.2
Energy 6.1 5.6
Consumer Staples 5.7 6.8
Telecommunication Services 4.5 3.1
Materials 1.7 1.2
Utilities 0.4 0.0
Repurchase Agreement 2.0 3.1
</Table>
9
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PERFORMANCE COMPARISON -- LARGE CAP PORTFOLIO AS OF 12/31/04 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
Year Ended 12/31/04 6.52%
Five Years Ended 12/31/04 (6.23)
8/30/96* through 12/31/04 7.14
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
8/30/96* through 12/31/04 77.70%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on August
30, 1996 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2004, with that of a similar
investment in the S&P 500 Index. Index information is available at
month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. The S&P 500 Index is an unmanaged
index composed of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange and over-the-counter
markets.
[Line Graph]
<Table>
<Caption>
LARGE CAP PORTFOLIO S&P 500 INDEX
------------------- -------------
8/30/96 10000.00 10000.00
12/96 11330.00 11442.00
12/97 13982.00 15258.00
12/98 18966.00 19622.00
12/99 24513.00 23748.00
12/00 20964.00 21587.00
12/01 17332.00 19022.00
12/02 13382.00 14820.00
12/03 16682.00 19069.00
12/31/04 17770.00 21142.00
</Table>
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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 voluntary fee waivers and/or expense reimbursements, the total return
would have been lower.
10
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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)
- ------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio 9.31% $1,000.00 $1,093.10 0.84% $4.42
Large Cap Portfolio 3.82 1,000.00 1,038.20 0.85 4.35
- ------------------------------------------------------------------------------------------------------------------
</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) 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.
11
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below titled "Based on Hypothetical Total Return" provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio and an assumed rate of return of 5.00% per year before
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use the information provided in this
table to compare the ongoing costs of investing in the Fund and other funds. To
do so, compare the 5.00% hypothetical example relating to the Fund with the
5.00% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as front-end or back-end sales charges (loads). Therefore, the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transaction costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
BASED ON HYPOTHETICAL TOTAL RETURN(1)
<Table>
<Caption>
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING ANNUALIZED EXPENSES
TOTAL ACCOUNT ACCOUNT EXPENSE PAID DURING
RETURN VALUE VALUE RATIO THE PERIOD(2)
- -------------------------------------------------------------------------------------------------------------
Equity Income Portfolio................... 5.00% $1,000.00 $1,020.91 0.84% $4.27
Large Cap Portfolio....................... 5.00 1,000.00 1,020.86 0.85 4.32
- -------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Expenses (net of voluntary fee waiver) 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.
12
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2004
EQUITY INCOME PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
COMMON STOCK -- 97.3%
- --------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 11.1%
INTERNET & CATALOG RETAIL -- 0.3%
24,600 Amazon.com, Inc. (a)........................................ $ 1,089,534
- --------------------------------------------------------------------------------------------------
MEDIA -- 6.8%
15,100 Clear Channel Communications, Inc. ......................... 505,699
583,500 The News Corp., Ltd., Sponsored ADR......................... 11,203,200
53,900 Omnicom Group Inc. ......................................... 4,544,848
16,390 Tribune Co. ................................................ 690,675
44,900 The Walt Disney Co. ........................................ 1,248,220
330 The Washington Post Co., Class B Shares..................... 324,397
158,619 XM Satellite Radio Holdings Inc., Class A Shares (a)........ 5,967,247
- --------------------------------------------------------------------------------------------------
24,484,286
- --------------------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 3.4%
17,000 Dollar Tree Stores, Inc. (a)................................ 487,560
36,100 J.C. Penney Co., Inc. ...................................... 1,494,540
54,200 May Department Stores Co. .................................. 1,593,480
162,800 Wal-Mart Stores, Inc. ...................................... 8,599,096
- --------------------------------------------------------------------------------------------------
12,174,676
- --------------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 0.6%
45,900 The Home Depot, Inc. ....................................... 1,961,766
- --------------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 39,710,262
- --------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.8%
BEVERAGES -- 0.4%
35,200 The Coca-Cola Co. .......................................... 1,465,376
- --------------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.2%
28,200 Campbell Soup Co. .......................................... 842,898
24,500 General Mills, Inc. ........................................ 1,217,895
64,200 McCormick & Co., Inc. ...................................... 2,478,120
- --------------------------------------------------------------------------------------------------
4,538,913
- --------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.5%
11,300 Colgate-Palmolive Co. ...................................... 578,108
19,400 The Procter & Gamble Co. ................................... 1,068,552
- --------------------------------------------------------------------------------------------------
1,646,660
- --------------------------------------------------------------------------------------------------
TOBACCO -- 2.7%
150,200 Altria Group, Inc. ......................................... 9,177,220
15,800 Loews Corp -- Carolina Group................................ 457,410
- --------------------------------------------------------------------------------------------------
9,634,630
- --------------------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 17,285,579
- --------------------------------------------------------------------------------------------------
ENERGY -- 7.9%
ENERGY EQUIPMENT & SERVICES -- 1.3%
121,400 Halliburton Co. ............................................ 4,763,736
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
EQUITY INCOME PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
OIL & GAS -- 6.6%
14,800 Ashland, Inc. .............................................. $ 864,024
110,100 Burlington Resources, Inc. ................................. 4,789,350
350,010 Exxon Mobil Corp. .......................................... 17,941,513
- --------------------------------------------------------------------------------------------------
23,594,887
- --------------------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 28,358,623
- --------------------------------------------------------------------------------------------------
FINANCIALS -- 26.9%
BANKS -- 8.7%
281,300 Bank of America Corp. ...................................... 13,218,287
19,600 First Horizon National Corp. ............................... 844,956
5,700 M&T Bank Corp. ............................................. 614,688
149,948 Wachovia Corp. ............................................. 7,887,265
140,750 Wells Fargo & Co. .......................................... 8,747,612
- --------------------------------------------------------------------------------------------------
31,312,808
- --------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 10.7%
32,600 American Express Co. ....................................... 1,837,662
262,940 The Charles Schwab Corp. ................................... 3,144,762
62,600 Fannie Mae.................................................. 4,457,746
12,400 Freddie Mac................................................. 913,880
27,900 The Goldman Sachs Group, Inc. .............................. 2,902,716
105,728 JPMorgan Chase & Co. ....................................... 4,124,449
19,400 Lehman Brothers Holdings Inc. .............................. 1,697,112
113,900 Merrill Lynch & Co., Inc. .................................. 6,807,803
37,400 Morgan Stanley.............................................. 2,076,448
112,400 SLM Corp. .................................................. 6,001,036
88,300 State Street Corp. ......................................... 4,337,296
- --------------------------------------------------------------------------------------------------
38,300,910
- --------------------------------------------------------------------------------------------------
INSURANCE -- 4.7%
191,900 American International Group, Inc. ......................... 12,602,073
8,500 Fidelity National Financial, Inc. .......................... 388,195
19,300 The Hartford Financial Services Group, Inc. ................ 1,337,683
11,100 Marsh & McLennan Cos., Inc. ................................ 365,190
52,400 Willis Group Holdings Ltd. ................................. 2,157,308
- --------------------------------------------------------------------------------------------------
16,850,449
- --------------------------------------------------------------------------------------------------
REAL ESTATE -- 2.8%
8,445 Capital Automotive REIT..................................... 300,008
19,000 CenterPoint Properties Trust................................ 909,910
6,800 Equity Lifestyle Properties, Inc. .......................... 243,100
59,400 Equity Office Properties Trust.............................. 1,729,728
193,604 General Growth Properties, Inc. ............................ 7,000,721
- --------------------------------------------------------------------------------------------------
10,183,467
- --------------------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 96,647,634
- --------------------------------------------------------------------------------------------------
HEALTHCARE -- 7.2%
HEALTHCARE EQUIPMENT & SUPPLIES -- 0.2%
11,800 Medtronic, Inc. ............................................ 586,106
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
14
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
EQUITY INCOME PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 2.3%
8,400 Aetna Inc. ................................................. $ 1,047,900
34,400 Cardinal Health, Inc. ...................................... 2,000,360
16,000 McKesson Corp. ............................................. 503,360
54,400 UnitedHealth Group Inc. .................................... 4,788,832
- --------------------------------------------------------------------------------------------------
8,340,452
- --------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 4.7%
78,600 Bristol-Myers Squibb Co. ................................... 2,013,732
44,400 Johnson & Johnson........................................... 2,815,848
79,700 Merck & Co. Inc. ........................................... 2,561,558
255,630 Pfizer Inc. ................................................ 6,873,891
12,300 Roche Holding AG, Sponsored ADR............................. 1,415,944
27,900 Wyeth....................................................... 1,188,261
- --------------------------------------------------------------------------------------------------
16,869,234
- --------------------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 25,795,792
- --------------------------------------------------------------------------------------------------
INDUSTRIALS -- 14.0%
AEROSPACE & DEFENSE -- 1.7%
63,300 Goodrich Corp. ............................................. 2,066,112
15,755 Lockheed Martin Corp. ...................................... 875,190
24,100 Northrop Grumman Corp. ..................................... 1,310,076
28,700 Precision Castparts Corp. .................................. 1,885,016
- --------------------------------------------------------------------------------------------------
6,136,394
- --------------------------------------------------------------------------------------------------
AIRLINES -- 0%
35 Continental Airlines, Inc., Class B Shares (a).............. 474
- --------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 4.8%
469,900 General Electric Co. ....................................... 17,151,350
- --------------------------------------------------------------------------------------------------
MACHINERY -- 4.2%
33,300 Caterpillar Inc. ........................................... 3,247,083
183,100 Dover Corp. ................................................ 7,679,214
23,100 Eaton Corp. ................................................ 1,671,516
36,800 Navistar International Corp. (a)............................ 1,618,464
20,600 Volvo AB, Sponsored ADR..................................... 816,790
- --------------------------------------------------------------------------------------------------
15,033,067
- --------------------------------------------------------------------------------------------------
MARINE -- 0.1%
3,916 Alexander & Baldwin, Inc. .................................. 166,117
- --------------------------------------------------------------------------------------------------
ROAD & RAIL -- 3.2%
25,440 Landstar System, Inc. (a)................................... 1,873,402
266,300 Norfolk Southern Corp. ..................................... 9,637,396
- --------------------------------------------------------------------------------------------------
11,510,798
- --------------------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 49,998,200
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
EQUITY INCOME PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 11.1%
COMMUNICATIONS EQUIPMENT -- 1.0%
70,800 Cisco Systems, Inc. (a)..................................... $ 1,366,440
20,600 Emulex Corp. (a)............................................ 346,904
81,100 Nokia Oyj, Sponsored ADR.................................... 1,270,837
15,800 QUALCOMM Inc. .............................................. 669,920
- --------------------------------------------------------------------------------------------------
3,654,101
- --------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 0.2%
14,500 Dell Inc.(a)................................................ 611,030
- --------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.9%
72,600 Agilent Technologies, Inc. (a).............................. 1,749,660
28,000 Arrow Electronics, Inc. (a)................................. 680,400
45,000 Avnet, Inc. (a)............................................. 820,800
- --------------------------------------------------------------------------------------------------
3,250,860
- --------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 0.2%
29,633 IAC/InterActiveCorp. (a).................................... 818,463
- --------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 6.5%
36,700 Altera Corp. (a)............................................ 759,690
79,300 Analog Devices, Inc. ....................................... 2,927,756
140,100 Applied Materials, Inc. (a)................................. 2,395,710
52,121 Axcelis Technologies, Inc. (a).............................. 423,744
12,100 Credence Systems Corp. (a).................................. 110,715
23,100 Fairchild Semiconductor International, Inc. (a)............. 375,606
49,300 Freescale Semiconductor Inc. (a)............................ 905,148
172,500 Intel Corp. ................................................ 4,034,775
84,500 KLA-Tencor Corp. (a)........................................ 3,936,010
25,600 Kulicke & Soffa Industries, Inc. (a)........................ 220,672
68,500 Lam Research Corp. (a)...................................... 1,980,335
38,900 LTX Corp. (a)............................................... 299,141
17,700 MKS Instruments, Inc. (a)................................... 328,335
128,600 National Semiconductor Corp. ............................... 2,308,370
61,400 Novellus Systems, Inc. (a).................................. 1,712,446
33,700 Teradyne, Inc. (a).......................................... 575,259
- --------------------------------------------------------------------------------------------------
23,293,712
- --------------------------------------------------------------------------------------------------
SOFTWARE -- 2.3%
309,800 Microsoft Corp. ............................................ 8,274,758
- --------------------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 39,902,924
- --------------------------------------------------------------------------------------------------
MATERIALS -- 4.2%
CHEMICALS -- 4.2%
17,800 Air Products & Chemicals, Inc. ............................. 1,031,866
50,300 E.I. du Pont de Nemours & Co. .............................. 2,467,215
112,400 Eastman Chemical Co. ....................................... 6,488,852
46,400 FMC Corp. (a)............................................... 2,241,120
28,900 The Lubrizol Corp. ......................................... 1,065,254
57,100 Lyondell Chemical Co. ...................................... 1,651,332
- --------------------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 14,945,639
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
EQUITY INCOME PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 8.0%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 7.6%
18,300 Citizens Communications Co. ................................ $ 252,357
429,300 Sprint Corp. ............................................... 10,668,105
402,600 Verizon Communications Inc. ................................ 16,309,326
- --------------------------------------------------------------------------------------------------
27,229,788
- --------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.4%
54,700 Vodafone Group PLC, Sponsored ADR........................... 1,497,686
- --------------------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 28,727,474
- --------------------------------------------------------------------------------------------------
UTILITIES -- 2.1%
ELECTRIC UTILITIES -- 2.0%
3,800 American Electric Power Co., Inc. .......................... 130,492
27,700 Edison International........................................ 887,231
43,500 Entergy Corp. .............................................. 2,940,165
44,400 Exelon Corp. ............................................... 1,956,708
44,300 The Southern Co. ........................................... 1,484,936
- --------------------------------------------------------------------------------------------------
7,399,532
- --------------------------------------------------------------------------------------------------
GAS UTILITIES -- 0.1%
8,400 AGL Resources Inc. ......................................... 279,216
- --------------------------------------------------------------------------------------------------
TOTAL UTILITIES............................................. 7,678,748
- --------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $313,450,480)................... 349,050,875
- --------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 0.6%
- --------------------------------------------------------------------------------------------------
TECHNOLOGY -- 0.6%
OFFICE & BUSINESS EQUIPMENT -- 0.6%
14,600 Xerox Corp., 6.250% (Cost -- $2,069,846).................... 2,158,026
- --------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT RATING(B)
- --------------------------------------------------------------------------------------------------
CONVERTIBLE BOND -- 0.1%
- --------------------------------------------------------------------------------------------------
TECHNOLOGY -- 0.1%
SEMICONDUCTOR EQUIPMENT -- 0.1%
$ 240,000 B- ASM International N.V., Sub. Notes, 4.250% due 12/6/11(c)
(Cost -- $246,065)........................................ $ 254,100
- --------------------------------------------------------------------------------------------------
<Caption>
WARRANTS
- --------------------------------------------------------------------------------------------------
WARRANTS(A) -- 0.00%
- --------------------------------------------------------------------------------------------------
COMMUNICATIONS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
1,715 Lucent Technologies Inc., Expire 12/10/07 (Cost -- $0)...... 2,710
- --------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
EQUITY INCOME PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.7%
$6,174,000 State Street Bank & Trust Co. dated 12/31/04, 2.050% due
1/3/05; Proceeds at maturity -- $6,175,055; (Fully
collateralized by Federal Home Loan Bank Notes, 1.625% due
6/17/05; Market value -- $6,299,599)
(Cost -- $6,174,000)...................................... $ 6,174,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.7% (Cost -- $321,940,391*).......... 357,639,711
Assets in Excess of Other Liabilities -- 0.3%............... 1,202,750
- --------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $358,842,461
- --------------------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
(b) All ratings are by Standard & Poor's Ratings Service.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid pursuant to guidelines established by the Board of
Trustees.
* Aggregate cost for federal income tax purposes is $322,142,423.
Abbreviations used in this schedule:
ADR -- American Depositary Receipt
REIT -- Real Estate Investment Trust
Bond Ratings (unaudited):
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>
B -- Bonds rated "B" are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the
obligation. "BB" represents a lower degree of speculation
than "B", "CCC" and "CC" the highest degree of speculation.
While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LARGE CAP PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
COMMON STOCK -- 98.8%
- ---------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 14.1%
HOTELS, RESTAURANTS & LEISURE -- 0.6%
117,603 Hilton Group PLC............................................ $ 641,005
190,321 Rank Group PLC.............................................. 962,613
- ---------------------------------------------------------------------------------------
1,603,618
- ---------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 0.7%
16,600 eBay Inc. (a)............................................... 1,930,248
- ---------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.2%
40,500 Konica Minolta Holdings, Inc. .............................. 536,163
- ---------------------------------------------------------------------------------------
MEDIA -- 6.9%
16,348 Antena 3 de Television SA (a)............................... 1,176,225
28,324 British Sky Broadcasting PLC, Sponsored ADR................. 1,236,909
53,650 Citadel Broadcasting Co. (a)................................ 868,057
36,900 Comcast Corp., Special Class A Shares (a)................... 1,211,796
319,800 Time Warner Inc. (a)........................................ 6,216,912
19,280 Tribune Co. ................................................ 812,459
29,900 Vivendi Universal SA, Sponsored ADR......................... 958,893
219,100 The Walt Disney Co. ........................................ 6,090,980
- ---------------------------------------------------------------------------------------
18,572,231
- ---------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.8%
14,000 Tuesday Morning Corp. (a)................................... 428,820
83,400 Wal-Mart Stores, Inc. ...................................... 4,405,188
- ---------------------------------------------------------------------------------------
4,834,008
- ---------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.3%
10,600 CDW Corp. .................................................. 703,310
40,200 The Gap, Inc. .............................................. 849,024
104,900 The Home Depot, Inc. ....................................... 4,483,426
- ---------------------------------------------------------------------------------------
6,035,760
- ---------------------------------------------------------------------------------------
TEXTILES & APPAREL -- 1.6%
27,400 Nike, Inc., Class B Shares.................................. 2,484,906
44,900 Polo Ralph Lauren Corp. .................................... 1,912,740
- ---------------------------------------------------------------------------------------
4,397,646
- ---------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 37,909,674
- ---------------------------------------------------------------------------------------
CONSUMER STAPLES -- 5.8%
BEVERAGES -- 1.2%
36,700 The Coca-Cola Co. .......................................... 1,527,821
33,700 PepsiCo, Inc. .............................................. 1,759,140
- ---------------------------------------------------------------------------------------
3,286,961
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LARGE CAP PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
FOOD & DRUG RETAILING -- 1.1%
71,800 Safeway Inc. (a)............................................ $ 1,417,332
39,100 Walgreen Co. ............................................... 1,500,267
- ---------------------------------------------------------------------------------------
2,917,599
- ---------------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.6%
35,200 Kellogg Co. ................................................ 1,572,032
- ---------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.0%
50,500 The Procter & Gamble Co. ................................... 2,781,540
- ---------------------------------------------------------------------------------------
PERSONAL PRODUCTS -- 1.9%
49,050 Alberto-Culver Co., Class B Shares.......................... 2,382,359
57,400 The Gillette Co. ........................................... 2,570,372
- ---------------------------------------------------------------------------------------
4,952,731
- ---------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 15,510,863
- ---------------------------------------------------------------------------------------
ENERGY -- 6.2%
ENERGY EQUIPMENT & SERVICES -- 2.2%
27,100 Baker Hughes Inc. .......................................... 1,156,357
68,700 Schlumberger Ltd. .......................................... 4,599,465
- ---------------------------------------------------------------------------------------
5,755,822
- ---------------------------------------------------------------------------------------
OIL & GAS -- 4.0%
49,700 ChevronTexaco Corp. ........................................ 2,609,747
99,700 Exxon Mobil Corp. .......................................... 5,110,622
23,300 Occidental Petroleum Corp. ................................. 1,359,788
36,100 Valero Energy Corp. ........................................ 1,638,940
- ---------------------------------------------------------------------------------------
10,719,097
- ---------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 16,474,919
- ---------------------------------------------------------------------------------------
FINANCIALS -- 12.8%
BANKS -- 3.4%
66,600 Bank of America Corp. ...................................... 3,129,534
37,300 The Bank of New York Co., Inc. ............................. 1,246,566
45,900 Wachovia Corp. ............................................. 2,414,340
38,100 Wells Fargo & Co. .......................................... 2,367,915
- ---------------------------------------------------------------------------------------
9,158,355
- ---------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 6.7%
93,300 American Express Co. ....................................... 5,259,321
48,500 Ameritrade Holding Corp. (a)................................ 689,670
83,500 The Charles Schwab Corp. ................................... 998,660
19,455 Deutsche Boerse AG.......................................... 1,166,169
52,296 JPMorgan Chase & Co. ....................................... 2,040,067
47,100 Knight Trading Group, Inc. (a).............................. 515,745
85,600 MBNA Corp. ................................................. 2,413,064
88,400 Morgan Stanley.............................................. 4,907,968
- ---------------------------------------------------------------------------------------
17,990,664
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LARGE CAP PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
INSURANCE -- 2.7%
15,100 AFLAC Inc. ................................................. $ 601,584
20,300 Ambac Financial Group, Inc. ................................ 1,667,239
75,390 American International Group, Inc. ......................... 4,950,861
- ---------------------------------------------------------------------------------------
7,219,684
- ---------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 34,368,703
- ---------------------------------------------------------------------------------------
HEALTHCARE -- 10.7%
BIOTECHNOLOGY -- 2.8%
42,800 Biogen Idec Inc. (a)........................................ 2,850,908
38,200 Cephalon, Inc. (a).......................................... 1,943,616
23,100 Genentech, Inc. (a)......................................... 1,257,564
48,000 Millennium Pharmaceuticals, Inc. (a)........................ 581,760
43,120 Protein Design Labs, Inc. (a)............................... 890,859
- ---------------------------------------------------------------------------------------
7,524,707
- ---------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES -- 1.4%
28,400 Baxter International, Inc. ................................. 980,936
55,400 Medtronic, Inc. ............................................ 2,751,718
- ---------------------------------------------------------------------------------------
3,732,654
- ---------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 0.9%
28,600 UnitedHealth Group Inc. .................................... 2,517,658
- ---------------------------------------------------------------------------------------
PHARMACEUTICALS -- 5.6%
24,200 Allergan, Inc. ............................................. 1,961,894
49,100 Johnson & Johnson........................................... 3,113,922
37,380 Merck & Co. Inc. ........................................... 1,201,393
163,160 Pfizer Inc. ................................................ 4,387,372
24,041 Roche Holding AG............................................ 2,758,078
35,100 Wyeth....................................................... 1,494,909
- ---------------------------------------------------------------------------------------
14,917,568
- ---------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 28,692,587
- ---------------------------------------------------------------------------------------
INDUSTRIALS -- 19.0%
AEROSPACE & DEFENSE -- 3.3%
22,200 Armor Holdings, Inc. (a).................................... 1,043,844
58,300 The Boeing Co. ............................................. 3,018,191
14,000 L-3 Communications Holdings, Inc. .......................... 1,025,360
11,000 Precision Castparts Corp. .................................. 722,480
29,300 United Technologies Corp. .................................. 3,028,155
- ---------------------------------------------------------------------------------------
8,838,030
- ---------------------------------------------------------------------------------------
AIR FREIGHT & COURIERS -- 0.3%
19,000 Ryder Systems, Inc. ........................................ 907,630
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LARGE CAP PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
AIRLINES -- 0.6%
17,000 Ryanair Holdings PLC, Sponsored ADR (a)..................... $ 692,750
59,400 Southwest Airlines Co. ..................................... 967,032
- ---------------------------------------------------------------------------------------
1,659,782
- ---------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 0.8%
48,900 American Standard Cos. Inc. (a)............................. 2,020,548
- ---------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 1.0%
29,600 DST Systems, Inc. (a)....................................... 1,542,752
35,800 Monster Worldwide Inc. (a).................................. 1,204,312
- ---------------------------------------------------------------------------------------
2,747,064
- ---------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 7.4%
14,900 3M Co. ..................................................... 1,222,843
248,600 General Electric Co. ....................................... 9,073,900
112,300 Honeywell International Inc. ............................... 3,976,543
158,400 Tyco International Ltd. .................................... 5,661,216
- ---------------------------------------------------------------------------------------
19,934,502
- ---------------------------------------------------------------------------------------
MACHINERY -- 3.8%
54,500 AGCO Corp. (a).............................................. 1,193,005
51,600 Caterpillar Inc. ........................................... 5,031,516
26,500 Deere & Co. ................................................ 1,971,600
50,125 Graco Inc. ................................................. 1,872,169
- ---------------------------------------------------------------------------------------
10,068,290
- ---------------------------------------------------------------------------------------
MARINE -- 0.0%
2,200 Alexander & Baldwin, Inc.................................... 93,324
- ---------------------------------------------------------------------------------------
ROAD & RAIL -- 1.1%
78,100 Norfolk Southern Corp. ..................................... 2,826,439
- ---------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 0.7%
17,700 MSC Industrial Direct Co., Inc. Class A Shares.............. 636,846
17,900 W.W. Grainger, Inc. ........................................ 1,192,498
- ---------------------------------------------------------------------------------------
1,829,344
- ---------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 50,924,953
- ---------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 23.6%
COMMUNICATIONS EQUIPMENT -- 3.7%
283,361 Cisco Systems, Inc. (a)..................................... 5,468,867
53,200 Juniper Networks, Inc. (a).................................. 1,446,508
93,000 Motorola, Inc. ............................................. 1,599,600
35,100 QUALCOMM Inc. .............................................. 1,488,240
- ---------------------------------------------------------------------------------------
10,003,215
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LARGE CAP PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 5.6%
49,300 Apple Computer, Inc. (a).................................... $ 3,174,920
145,000 Dell Inc. (a)............................................... 6,110,300
160,900 EMC Corp. (a)............................................... 2,392,583
26,700 International Business Machines Corp. ...................... 2,632,086
22,400 Storage Technology Corp. (a)................................ 708,064
- ---------------------------------------------------------------------------------------
15,017,953
- ---------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.8%
198,000 Hon Hai Precision Industry Co., Ltd. ....................... 915,571
31,300 Molex, Inc. ................................................ 939,000
223,800 Solectron Corp. (a)......................................... 1,192,854
27,100 Thermo Electron Corp. (a)................................... 818,149
53,700 Vishay Intertechnology, Inc. (a)............................ 806,574
- ---------------------------------------------------------------------------------------
4,672,148
- ---------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.0%
102,786 CNET Networks, Inc. (a)..................................... 1,154,287
114,500 Yahoo! Inc. (a)............................................. 4,314,360
- ---------------------------------------------------------------------------------------
5,468,647
- ---------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 5.8%
68,700 Altera Corp. (a)............................................ 1,422,090
70,000 Analog Devices, Inc. ....................................... 2,584,400
50,800 Applied Materials, Inc. (a)................................. 868,680
179,900 Intel Corp. ................................................ 4,207,861
12,300 KLA-Tencor Corp. (a)........................................ 572,934
56,500 Marvell Technology Group Ltd. (a)........................... 2,004,055
22,600 Microchip Technology Inc. .................................. 602,516
77,800 Texas Instruments Inc. ..................................... 1,915,436
12,500 Tokyo Electron Ltd. ........................................ 767,789
20,300 Xilinx, Inc. ............................................... 601,895
- ---------------------------------------------------------------------------------------
15,547,656
- ---------------------------------------------------------------------------------------
SOFTWARE -- 4.7%
57,150 Ascential Software Corp. (a)................................ 932,117
381,900 Microsoft Corp. ............................................ 10,200,549
106,800 Oracle Corp. (a)............................................ 1,465,296
- ---------------------------------------------------------------------------------------
12,597,962
- ---------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 63,307,581
- ---------------------------------------------------------------------------------------
MATERIALS -- 1.7%
CHEMICALS -- 1.4%
68,400 Monsanto Co. ............................................... 3,799,620
- ---------------------------------------------------------------------------------------
METALS & MINING -- 0.3%
17,600 Newmont Mining Corp. ....................................... 781,616
- ---------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 4,581,236
- ---------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LARGE CAP PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 4.5%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.2%
31,100 Philippine Long Distance Telephone Co. (a).................. $ 775,323
38,200 PT Indonesian Satellite Corp., ADR.......................... 1,191,076
62,900 PT Telekomunikasi Indonesia, Sponsored ADR.................. 1,322,158
50,800 SBC Communications Inc. .................................... 1,309,116
97,400 Verizon Communications Inc. ................................ 3,945,674
- ---------------------------------------------------------------------------------------
8,543,347
- ---------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 1.3%
67,800 Nextel Communications, Inc., Class A Shares (a)............. 2,034,000
74,300 Nextel Partners, Inc. (a)................................... 1,451,822
- ---------------------------------------------------------------------------------------
3,485,822
- ---------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 12,029,169
- ---------------------------------------------------------------------------------------
UTILITIES -- 0.4%
ELECTRIC UTILITIES -- 0.4%
23,100 Exelon Corp. ............................................... 1,018,017
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $243,909,178)................... 264,817,702
- ---------------------------------------------------------------------------------------
WARRANTS
- ---------------------------------------------------------------------------------------
WARRANTS -- 0.0%
- ---------------------------------------------------------------------------------------
COMMUNICATIONS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
9,536 Lucent Technologies Inc. Expire 12/10/07 (Cost -- $0)....... 15,067
- ---------------------------------------------------------------------------------------
FACE
AMOUNT
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.0%
$5,488,000 State Street Bank & Trust Co., dated 12/31/04, 2.050% due
1/3/05; Proceeds at maturity -- $5,488,938; (Fully
collateralized by Fannie Mae Floating Rate Notes, 2.590%
due 7/3/18; Market value -- $5,599,781)
(Cost -- $5,488,000)...................................... 5,488,000
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.8% (Cost -- $249,397,178*)......... 270,320,769
Liabilities in Excess of Other Assets -- (0.8%)............. (2,160,347)
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $268,160,422
- ---------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
* Aggregate cost for federal income tax purposes is $250,069,987.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
24
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
<Table>
<Caption>
EQUITY INCOME LARGE CAP
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost...................................... $321,940,391 $249,397,178
Foreign currency, at cost................................. 664 123,628
- ------------------------------------------------------------------------------------------
Investments, at value..................................... $357,639,711 $270,320,769
Foreign currency, at value................................ 723 127,620
Cash...................................................... 274 49
Receivable for securities sold............................ 2,915,358 1,050,757
Dividends and interest receivable......................... 459,219 236,975
Other receivables......................................... 43,600 13,960
Prepaid expenses.......................................... 1,759 --
Receivable for Fund shares sold........................... -- 250
- ------------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 361,060,644 271,750,380
- ------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased.......................... 1,404,566 1,934,474
Payable for Fund shares reacquired........................ 506,490 1,415,039
Investment advisory fees payable.......................... 203,756 168,067
Administration fees payable............................... 34,100 13,492
Trustees' fees payable.................................... 2,300 2,000
Payable for foreign currency contracts.................... -- 135
Accrued expenses.......................................... 66,971 56,751
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 2,218,183 3,589,958
- ------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $358,842,461 $268,160,422
- ------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital (Note 4).................................. $318,162,766 $348,842,230
Undistributed net investment income....................... 78,439 135
Accumulated net realized gain (loss) from investment
transactions and foreign currencies..................... 4,901,877 (101,611,678)
Net unrealized appreciation of investments and foreign
currencies.............................................. 35,699,379 20,929,735
- ------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $358,842,461 $268,160,422
- ------------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 20,903,670 19,247,574
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................. $17.17 $13.93
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
EQUITY INCOME LARGE CAP
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 6,932,019 $ 4,044,026
Interest.................................................. 108,529 82,990
Less: Foreign withholding tax............................. (3,753) (20,560)
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 7,036,795 4,106,456
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)......................... 2,383,119 1,848,132
Administration fees (Note 2).............................. 191,813 147,939
Custody................................................... 68,734 38,264
Audit and legal........................................... 50,173 54,642
Shareholder communications................................ 27,269 20,687
Trustees' fees............................................ 9,327 6,777
Transfer agency services (Note 2)......................... 2,500 2,500
Other..................................................... 2,549 1,184
- -----------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 2,735,484 2,120,125
Less: Expense reimbursement and fee waiver (Notes 2 and
7)...................................................... (5,362) (5,362)
- -----------------------------------------------------------------------------------------
NET EXPENSES.............................................. 2,730,122 2,114,763
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 4,306,673 1,991,693
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES (NOTES 1 AND 3):
Realized Gain (Loss) From:
Investment transactions................................. 14,556,084 7,903,448
Foreign currency transactions........................... (46) 2,018
- -----------------------------------------------------------------------------------------
NET REALIZED GAIN......................................... 14,556,038 7,905,466
- -----------------------------------------------------------------------------------------
Net Change in Unrealized Appreciation/Depreciation From:
Investments............................................. 13,069,515 7,148,654
Foreign currencies...................................... 50 4,741
- -----------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION........ 13,069,565 7,153,395
- -----------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCIES.............. 27,625,603 15,058,861
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $31,932,276 $17,050,554
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
26
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
EQUITY INCOME PORTFOLIO 2004 2003
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 4,306,673 $ 2,400,537
Net realized gain......................................... 14,556,038 21,170,113
Net change in unrealized appreciation/depreciation........ 13,069,565 41,407,182
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 31,932,276 64,977,832
- -----------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (4,384,748) (2,393,549)
Net realized gains........................................ (15,860,220) --
- -----------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS............................................ (20,244,968) (2,393,549)
- -----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 49,762,623 54,800,464
Net asset value of shares issued for reinvestment of
dividends and distributions............................. 20,244,968 2,393,549
Cost of shares reacquired................................. (20,346,265) (13,294,129)
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 49,661,326 43,899,884
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 61,348,634 106,484,167
NET ASSETS:
Beginning of year......................................... 297,493,827 191,009,660
- -----------------------------------------------------------------------------------------
END OF YEAR*.............................................. $358,842,461 $297,493,827
- -----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: ......... $78,439 $207,403
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
27
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
LARGE CAP PORTFOLIO 2004 2003
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income..................................... $ 1,991,693 $ 795,435
Net realized gain (loss).................................. 7,905,466 (4,045,358)
Net change in unrealized appreciation/depreciation........ 7,153,395 47,412,211
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 17,050,554 44,162,288
- -----------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income..................................... (2,103,304) (808,832)
- -----------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (2,103,304) (808,832)
- -----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.......................... 54,371,360 25,978,086
Net asset value of shares issued for reinvestment of
dividends............................................... 2,103,304 808,832
Cost of shares reacquired................................. (31,061,137) (22,203,616)
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 25,413,527 4,583,302
- -----------------------------------------------------------------------------------------
INCREASE IN NET ASSETS...................................... 40,360,777 47,936,758
NET ASSETS:
Beginning of year......................................... 227,799,645 179,862,887
- -----------------------------------------------------------------------------------------
END OF YEAR*.............................................. $268,160,422 $227,799,645
- -----------------------------------------------------------------------------------------
* Includes undistributed net investment income of: ......... $135 $39,202
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
28
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
EQUITY INCOME PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................... $16.59 $12.75 $14.99 $16.26 $15.05
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.............................. 0.21 0.14 0.16 0.20 0.13
Net realized and unrealized gain (loss)............ 1.39 3.83 (2.25) (1.27) 1.24
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 1.60 3.97 (2.09) (1.07) 1.37
- ---------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.............................. (0.22) (0.13) (0.15) (0.16) (0.16)
Net realized gains................................. (0.80) -- -- (0.04) --
- ---------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions.................... (1.02) (0.13) (0.15) (0.20) (0.16)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $17.17 $16.59 $12.75 $14.99 $16.26
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)...................................... 9.88% 31.17% (13.94)% (6.61)% 9.13%
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $358,842 $297,494 $191,010 $200,389 $170,727
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)........................................ 0.85%(4) 0.87% 0.84% 0.85% 0.87%
Net investment income.............................. 1.35 1.11 1.14 1.28 1.17
- ---------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 119% 141% 131% 121% 151%
- ---------------------------------------------------------------------------------------------------------------
</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 0.95%.
(4) During the year ended December 31, 2004, Smith Barney Fund Management LLC
voluntarily waived a portion of its fees and/or reimbursed the Fund for
certain expenses. If such fees were not voluntarily waived and/or
reimbursed, the actual expense ratio would have been 0.86%.
SEE NOTES TO FINANCIAL STATEMENTS.
29
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31, unless otherwise noted:
<Table>
<Caption>
LARGE CAP PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................. $13.18 $10.61 $13.82 $16.81 $21.11
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............................ 0.10 0.05 0.05 0.07 0.03
Net realized and unrealized gain (loss).......... 0.76 2.57 (3.20) (2.98) (3.05)
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................ 0.86 2.62 (3.15) (2.91) (3.02)
- -------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income............................ (0.11) (0.05) (0.06) (0.07) (0.02)
In excess of net investment income............... -- -- -- -- (0.01)
Net realized gains............................... -- -- -- (0.01) (0.94)
In excess of net realized gains.................. -- -- -- -- (0.31)
- -------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions.................. (0.11) (0.05) (0.06) (0.08) (1.28)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR....................... $13.93 $13.18 $10.61 $13.82 $16.81
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2).................................... 6.52% 24.67% (22.79)% (17.33)% (14.48)%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).................... $268,160 $227,800 $179,863 $249,292 $277,897
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)...................................... 0.86%(4) 0.86% 0.85% 0.83% 0.84%
Net investment income............................ 0.81 0.43 0.44 0.50 0.15
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................ 56% 60% 95% 131% 96%
- -------------------------------------------------------------------------------------------------------------
</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 0.95%.
(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
reimbursed, the actual expense ratio would have been the same.
SEE NOTES TO FINANCIAL STATEMENTS.
30
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Equity Income and Large Cap Portfolios ("Fund(s)") are separate
diversified investment funds of The Travelers Series Trust ("Trust"). The Trust
is a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Shares of the
Trust are offered exclusively for use with certain variable annuity and variable
life insurance contracts offered through separate accounts of various 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
traded in the over-the-counter market and listed securities for which no sales
prices were reported are valued at the mean between the bid and asked prices.
Securities listed on the NASDAQ National Market System for which market
quotations are available are valued at the official closing price or, if there
is no official closing price on that day, at the last sale price. Securities
primarily traded on foreign exchanges are generally valued at the closing values
of such securities on their respective exchanges. Bonds and other fixed income
securities (other than short-term obligations) are valued on the basis of
valuations furnished by a pricing service, which has been approved by the Board
of Trustees. When market quotations or official closing prices are not readily
available, or are determined not to reflect fair value, such as when the value
of a security has been significantly affected by events after the close of the
exchange or market on which the security is principally traded (for example, a
foreign exchange or market), but before 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 or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Funds may be delayed or limited.
(C) FORWARD FOREIGN CURRENCY CONTRACTS. A forward foreign currency
contract is an agreement between two parties to buy and sell a currency at a set
price on a future date. The contract is marked-to-market daily and the change in
value is recorded by the Funds as an unrealized gain or loss. When a forward
foreign currency contract is extinguished, through either delivery or offset by
entering into another forward foreign currency contract, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value of the contract at the time it was
extinguished or offset. The Funds bear the market risk that arises from changes
in foreign currency exchange rates and the credit risk should a counterparty
fail to meet the terms of such contracts.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are
accounted for on a trade date basis. Interest income, adjusted for amortization
of premium and accretion of discount, is recorded on the accrual basis. Dividend
income is recorded on the ex-dividend date. Foreign dividend income is recorded
on the ex-dividend date or as soon as practical after the Funds determine the
existence of a dividend declaration after exercising reasonable due diligence.
The cost of investments sold is determined by use of the specific identification
method.
(E) 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.
(F) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net
investment income and distributions of net realized gains to shareholders of the
Funds, if any, are declared at least annually. Dividends and distributions to
shareholders of the Funds are recorded on the ex-dividend date and are
determined in accordance with income tax regulations, which may differ from
GAAP.
31
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(G) FEDERAL AND OTHER TAXES. It is the Funds' policy to comply with the
federal income and excise tax requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies. Accordingly, the Funds
intend to distribute substantially all of their taxable income and net realized
gains on investments, if any, to shareholders each year. Therefore, no federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates.
(H) 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, $50,889 has been reclassified
between accumulated net investment income and accumulated net realized gain from
investment transactions due to book/tax differences attributed to distributions
from Real Estate Investment Trusts and differences between book foreign currency
transactions treated as ordinary income for tax purposes for Equity Income
Portfolio. Additionally, $70,526 has been reclassified between paid-in capital
and accumulated net investment income as a result of permanent differences
attributable to an overdistribution of net investment income, and $2,018 has
been reclassified between accumulated net realized loss from investment
transactions and accumulated net investment income due to differences between
book foreign currency transactions treated as ordinary income for tax purposes
for Large Cap Portfolio. These reclassifications have no effect on net assets or
net asset values per share.
2. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly owned subsidiary of Citigroup, Inc. provides the Funds with investment
management related services. Prior to September 1, 2004, TAMIC received an
investment advisory fee calculated at the annual rate of 0.75% 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 Fidelity
Management & Research Company ("FMR"). Pursuant to the sub-advisory agreement
FMR is responsible for the day-to-day fund operations and investment decisions.
Prior to September 1, 2004, for its services as each Fund's sub-adviser, FMR was
paid a portion of TAMIC's management fee computed at an annual rate of 0.45% of
each Fund's respective average daily net assets.
Effective September 1, 2004, the investment advisory fee and sub-advisory
fee were revised from the annual rates of 0.75% and 0.45%, respectively, of the
average daily net assets of each Fund, to a fee calculated at the annual rates
in accordance with the following schedule:
<Table>
<Caption>
INVESTMENT SUB-ADVISORY
ADVISORY FEE FEE
- -----------------------------------------------------------------------------------------
AVERAGE DAILY NET ASSETS
First $250 million.......................................... 0.75% 0.45%
Next $500 million........................................... 0.70% 0.40%
Over $750 million........................................... 0.65% 0.35%
- -----------------------------------------------------------------------------------------
</Table>
The Travelers Insurance Company ("TIC"), another wholly-owned subsidiary of
Citigroup, acts as administrator to the Funds. The Funds pay TIC an
administration fee calculated at an annual rate of 0.06% of each respective
Fund's average daily net assets. The fee is calculated daily and paid monthly.
TIC has entered into a sub-administration 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 respective average daily net assets of each Fund, plus
$30,000 per Fund, subject to a maximum of 0.06% of each Fund's respective
average daily net assets. Previously, Fidelity Service Company, Inc., an
affiliate of FMR, maintained each Fund's accounting records.
During the year ended December 31, 2004, Equity Income Portfolio and Large
Cap Portfolio both had a contractual expense limitation in place of 0.95%. This
expense limitation is renewed annually and can be terminated at any time by TIC
with 60 days' notice.
During the year ended December 31, 2004, SBFM voluntarily waived a portion
of its fee payable from both the Equity Income Portfolio and Large Cap Portfolio
in the amount of $111 from each fund. In addition, SBFM reimbursed expenses in
the amount of $5,251 for each Fund in connection with the overpayment of
transfer agency 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 approximately $2,500 to CTB.
32
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended December 31, 2004, Citigroup Global Markets Inc.,
another indirect wholly-owned subsidiary of Citigroup, or its affiliates
received brokerage commissions of $168 for Large Cap Portfolio.
One Trustee and all officers 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
- ------------------------------------------------------------------------------------------
Equity Income Portfolio..................................... $400,419,507 $371,999,807
Large Cap Portfolio......................................... 162,587,860 134,965,491
- ------------------------------------------------------------------------------------------
</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
- --------------------------------------------------------------------------------------------------------
Equity Income Portfolio..................................... $42,496,072 $(6,998,784) $35,497,288
Large Cap Portfolio......................................... 35,741,992 (15,491,210) 20,250,782
- --------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2004, Large Cap Portfolio had open forward foreign currency
contracts as described below. The unrealized loss on the contracts reflected in
the financial statements was as follows:
<Table>
<Caption>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE LOSS
- -----------------------------------------------------------------------------------------------------------
CONTRACTS TO BUY:
Japanese Yen................................................ 677,675 $ 6,597 1/4/05 $ (17)
Japanese Yen................................................ 675,500 6,575 1/5/05 (71)
Japanese Yen................................................ 1,358,627 13,225 1/6/05 (47)
- -----------------------------------------------------------------------------------------------------------
NET UNREALIZED LOSS ON OPEN FORWARD FOREIGN CURRENCY CONTRACTS................................ $(135)
- -----------------------------------------------------------------------------------------------------------
</Table>
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- ---------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
Shares sold................................................. 2,991,545 3,752,047
Shares issued on reinvestment............................... 1,203,210 144,451
Shares reacquired........................................... (1,225,319) (944,979)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 2,969,436 2,951,519
- ---------------------------------------------------------------------------------------------------
LARGE CAP PORTFOLIO
Shares sold................................................. 4,158,997 2,190,153
Shares issued on reinvestment............................... 150,788 61,461
Shares reacquired........................................... (2,340,686) (1,928,969)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 1,969,099 322,645
- ---------------------------------------------------------------------------------------------------
</Table>
33
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMISSION RECAPTURE PROGRAM
In addition to trade execution, many of the brokers with whom FMR places
trades pay for certain expenses of these Funds or provide other services. During
the year ended December 31, 2004, the Funds received cash rebates from these
brokers in lieu of additional services or expense reductions. The amounts of
these rebates, included in realized gains in the statement of operations, are
noted below.
<Table>
<Caption>
BROKERAGE
SERVICE
ARRANGEMENTS
- --------------------------------------------------------------------------
Equity Income Portfolio..................................... $139,976
Large Cap Portfolio......................................... 44,824
- --------------------------------------------------------------------------
</Table>
Certain amounts on the prior year statements of changes in net assets with
respect to these arrangements have been reclassified to conform with the current
year presentation.
6. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal year ended
December 31, 2004 was as follows:
<Table>
<Caption>
EQUITY INCOME LARGE CAP
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income........................................... $12,673,525 $2,103,304
Net Long-term Capital Gains............................... 7,571,443 --
- -------------------------------------------------------------------------------------------
Total Distributions Paid.................................... $20,244,968 $2,103,304
- -------------------------------------------------------------------------------------------
</Table>
The tax character of distributions paid during the fiscal year ended
December 31, 2003 was as follows:
<Table>
<Caption>
EQUITY INCOME LARGE CAP
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------
Ordinary Income............................................. $ 2,393,549 $ 808,832
- -------------------------------------------------------------------------------------------
</Table>
As of December 31, 2004, the components of accumulated earnings on a tax
basis were as follows:
<Table>
<Caption>
EQUITY INCOME LARGE CAP
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------
Undistributed ordinary income -- net........................ $ 881,261 $ --
Undistributed long-term capital gains -- net................ 4,301,088 --
- ----------------------------------------------------------------------------------------------
Total undistributed earnings................................ $ 5,182,349 --
Capital loss carryforward(1)................................ -- $(100,628,014)
Other book/tax temporary differences(2)..................... -- (310,720)
Unrealized appreciation(3).................................. 35,497,347 20,256,926
- ----------------------------------------------------------------------------------------------
Total accumulated earnings/(losses) -- net.................. $40,679,696 $ (80,681,808)
- ----------------------------------------------------------------------------------------------
</Table>
(1) On December 31, 2004 the Fund had net capital loss carryforwards as follows:
<Table>
<Caption>
YEAR OF LARGE CAP
EXPIRATION PORTFOLIO
- ------------------------
12/31/2009.. 34,154,428
12/31/2010.. 52,058,326
12/31/2011.. 14,415,260
- ------------------------
$100,628,014
- ------------------------
</Table>
These amounts will be available to offset any future capital gains.
34
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) Other book/tax temporary differences are attributable primarily to the
realization for tax purposes of unrealized gains/(losses) on certain foreign
currency contracts and the deferral of post-October capital losses for tax
purposes.
(3) The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on
wash sales, the difference between book & tax amortization methods for
premiums and discounts on fixed income securities and the difference between
book & tax cost basis on real-estate investment trusts.
7. 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.
8. 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.
35
- --------------------------------------------------------------------------------
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 Equity Income Portfolio and Large Cap Portfolio
of The Travelers Series Trust (the "Trust"), as of December 31, 2004 and the
related statements of operations for the year then ended, and the statements of
changes in net assets and the financial highlights for each of the years in the
two-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. The financial highlights for each of the years in the three-year
period ended December 31, 2002 were audited by other auditors whose report
thereon dated February 12, 2003, expressed an unqualified opinion on the
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Equity
Income Portfolio and Large Cap Portfolio of The Travelers Series Trust as of
December 31, 2004, and the results of their operations for the year then ended,
and the changes in their net assets and the financial highlights for each of the
years in the two-year period then ended, in conformity with U.S. generally
accepted accounting principles.
[KPMG LLP SIGNATURE]
New York, New York
February 18, 2005
36
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
INFORMATION ABOUT TRUSTEES AND OFFICERS
The business and affairs of The Travelers Series Trust ("Trust") are
managed under the direction of the Trust's Board of Trustees. Information
pertaining to the Trustees and Officers of the Trust is set forth below. The
Statement of Additional Information includes additional information about 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, CFA, CFP Trustee Since 1991 Private Investor 5 Board of Managers of 6
108 Oxford Hill Lane Variable Annuity
Downingtown, PA Separate Accounts of TIC
Birth Year: 1948
Lewis Mandell Trustee Since 1990 Professor, University of 5 Delaware North Corp.;
160 Jacobs Hall Buffalo Board of Managers of 6
Buffalo, NY Variable Annuity
Birth Year: 1943 Separate Accounts of TIC
Robert E. McGill, III Trustee Since 1990 Retired 5 Lydall Inc.; Board of
295 Hancock Road Managers of 6 Variable
Williamstown, MA Annuity Separate
Birth Year: 1931 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 ("CGM"); Managers of 6 Variable
("CAM") Chief Chairman, President and Chief Annuity Separate
399 Park Avenue, 4th Floor Executive Executive Officer of Smith Accounts of TIC
New York, NY 10022 Officer and Barney Fund Management LLC
Birth Year: 1951 Trustee ("SBFM"), Travelers Investment
Adviser, Inc. ("TIA") and Citi
Fund Management Inc. ("CFM");
President and Chief Executive
Officer of certain mutual
funds associated with
Citigroup Inc. ("Citigroup");
formerly, Portfolio Manager of
Smith Barney Allocation Series
Inc. (from 1996 to 2001) and
Smith Barney Growth and Income
Fund (from 1996 to 2000)
</Table>
37
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (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 2004 Director of CAM; Senior Vice N/A N/A
CAM President and President and Chief
125 Broad Street Chief Administrative Officer of
11th 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 Officer and Treasurer of certain mutual
11th 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)
William D. Wilcox Chief Anti- Since 2004 Counsel and Chief Compliance N/A N/A
Travelers Life & Money Officer (since 1999); The
Annuity Laundering Travelers Insurance Company;
One Cityplace Compliance Chief AML Compliance (since
Hartford, CT 06103 Officer and 2002), six Variable Annuity
Birth Year: 1964 Chief Separate Accounts of The
Compliance Travelers Insurance Company;
Officer Chief Compliance Officer
(since 2004), 5 Mutual Funds
and 6 variable separate
accounts sponsored by TIC.
</Table>
38
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (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
- ---------------------------------------------------------------------------------------------------------------------------
Andrew Beagley Chief Anti- Since 2002 Director of CGM (since 2000); N/A N/A
CAM Money Director of Compliance, North
399 Park Avenue, Laundering America, CAM (since 2000);
4th Floor Compliance Chief Anti-Money Laundering
New York, NY 10022 Officer Compliance Officer Chief
Birth Year: 1962 Compliance Officer and Vice
President of certain mutual
funds associated with
Citigroup; Director of
Compliance, Europe, the Middle
East and Africa, Citigroup
Asset Management (from 1999 to
2000); Compliance Officer,
SBFM, CFM, TIA, Salomon
Brothers Asset Management
Limited, Smith Barney Global
Capital Management Inc.
Kathleen A. McGah Secretary Since 2004 Deputy General Counsel of TIC; N/A N/A
Travelers Life & Assistant Secretary of 5
Annuity mutual funds and 6 variable
One Cityplace separate accounts sponsored by
Hartford, CT 06103 TIC (from 1995 to 2004)
Birth Year: 1950
Ernest J. Wright Assistant Since 2004 Vice President and Secretary N/A N/A
Travelers Life & Secretary of TIC; Secretary of 5 mutual
Annuity funds and 6 variable separate
One Cityplace accounts sponsored by TIC
Hartford, CT 06103 (from 1994 to 2004)
Birth Year: 1940
</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.
39
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
The following information is provided with respect to the distributions paid
during the taxable year ended December 31, 2004:
<Table>
<Caption>
EQUITY INCOME LARGE CAP
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
Record Date: 6/24/2004 6/24/2004
Payable Date: 6/25/2004 6/25/2004
- --------------------------------------------------------------------------------------
Dividends Qualifying for the Dividends
Received Deduction for Corporations 44.96% 100.00%
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Record Date: 12/27/2004 12/27/2004
Payable Date: 12/28/2004 12/28/2004
- --------------------------------------------------------------------------------------
Dividends Qualifying for the Dividends Received
Deduction for Corporations 97.73% 100.00%
- --------------------------------------------------------------------------------------
Long-Term Capital Gain Dividend $ 0.375600 $ --
- --------------------------------------------------------------------------------------
</Table>
Please retain this information for your records.
40
THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
<Table>
TRUSTEES INVESTMENT ADVISER
R. Jay Gerken, CFA Travelers Asset Management International Company LLC
Chairman
Frances M. Hawk, CFA, CFP ADMINISTRATOR
Lewis Mandell
Robert E. McGill, III The Travelers Insurance Company
OFFICERS CUSTODIAN
R. Jay Gerken, CFA State Street Bank and Trust Company
President and
Chief Executive Officer TRANSFER AGENT
Andrew B. Shoup Citicorp Trust Bank, fsb.
Senior Vice President and
Chief Administrative Officer
Kaprel Ozsolak
Chief Financial Officer
and Treasurer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
William D. Wilcox
Chief 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 and life
contract owners and is not an offer of shares of The Travelers Series Trust:
Equity Income and Large Cap Portfolios. All the Funds contained in this report
may not be available under your variable annuity or life contract.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS
SHOULD CONSIDER THE FUNDS' INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION
ABOUT THE FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Funds file their complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Funds' 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 Funds' website at www.citigroupAM.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.
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 10, 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 10, 2005
By: /s/ KAPREL OZSOLAK
(KAPREL OZSOLAK)
Chief Financial Officer of
THE TRAVELERS SERIES TRUST
Date: March 10, 2005