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 ART TOP]
[UMBRELLA ART BOTTOM]
THE TRAVELERS SERIES TRUST:
TRAVELERS QUALITY BOND PORTFOLIO
LAZARD INTERNATIONAL STOCK PORTFOLIO
MFS EMERGING GROWTH PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
FEDERATED STOCK PORTFOLIO
DISCIPLINED MID CAP STOCK PORTFOLIO
[TRAVELERS LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Cityplace
Hartford, CT 06103
ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST
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WHAT'S INSIDE
<Table>
LETTER FROM THE CHAIRMAN.................................... 1
TRAVELERS QUALITY BOND PORTFOLIO:
MANAGER OVERVIEW....................................... 4
FUND AT A GLANCE....................................... 6
PERFORMANCE COMPARISON................................. 7
LAZARD INTERNATIONAL STOCK PORTFOLIO:
MANAGER OVERVIEW....................................... 8
FUND AT A GLANCE....................................... 10
PERFORMANCE COMPARISON................................. 11
MFS EMERGING GROWTH PORTFOLIO:
MANAGER OVERVIEW....................................... 12
FUND AT A GLANCE....................................... 14
PERFORMANCE COMPARISON................................. 15
FEDERATED HIGH YIELD PORTFOLIO:
MANAGER OVERVIEW....................................... 16
FUND AT A GLANCE....................................... 18
PERFORMANCE COMPARISON................................. 19
FEDERATED STOCK PORTFOLIO:
MANAGER OVERVIEW....................................... 20
FUND AT A GLANCE....................................... 22
PERFORMANCE COMPARISON................................. 23
DISCIPLINED MID CAP STOCK PORTFOLIO:
MANAGER OVERVIEW....................................... 24
FUND AT A GLANCE....................................... 26
PERFORMANCE COMPARISON................................. 27
FUND EXPENSES............................................... 28
SCHEDULES OF INVESTMENTS.................................... 30
STATEMENTS OF ASSETS AND LIABILITIES........................ 72
STATEMENTS OF OPERATIONS.................................... 73
STATEMENTS OF CHANGES IN NET ASSETS......................... 74
FINANCIAL HIGHLIGHTS........................................ 76
NOTES TO FINANCIAL STATEMENTS............................... 81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 89
ADDITIONAL INFORMATION...................................... 90
IMPORTANT TAX INFORMATION................................... 93
</Table>
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LETTER FROM THE CHAIRMAN
[R. JAY GERKEN PHOTO]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
DEAR SHAREHOLDER,
The stock market rallied at the start of the past year, but then slid into a
fairly limited trading range that endured for most of the year, only to rally
again sharply in the fourth quarter. Most major equity market indexes reported
reasonable gains for 2004 and several indexes recorded double-digit growth. In
many cases, most of those returns were achieved on the performance gains made in
November and December alone.
Record-high energy prices, rising short-term interest rates, a growing trade
deficit, uncertainty over the domestic employment situation, presidential
election politics, and the situation in Iraq all pressured the stock market for
much of the year. Strength in the domestic economy was fairly selective, with
stronger returns seen broadly in the energy, utilities and materials sectors
while the information technology, healthcare, consumer staples and financials
sectors languished for much of the period.
Small capitalization and value-oriented stocks tended to enjoy the strongest
performance over the past twelve months, while large-cap and more
growth-oriented stocks posted generally positive, but weaker, results.
International stocks typically outperformed the broad U.S. market, as foreign
returns were boosted by the weaker U.S. dollar, which set record lows against
some currencies. Stocks outperformed bonds in general, which suffered late in
the year as the U.S. Federal Reserve Board ("Fed")(i) continued to incrementally
raise the federal funds rate.(ii)
The U.S. economy has entered its fourth year of expansion since the 2001
recession. After a slow start in 2002 and the first half of 2003, the economic
expansion has gained traction over the past six quarters as corporations
repaired balance sheets and earlier cost-cutting began to pay dividends.
Although a series of one-off events -- surging oil prices, hurricanes, the
waning effects of 2002-2003 tax cuts, etc. -- undoubtedly restrained growth in
2004, the economy proved resilient enough to grow an average of 4.0% over the
past four quarters(iii) and the outlook going forward is for similar performance
in 2005.
Within this environment, the portfolios performed as follows:
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004
(UNAUDITED)
<Table>
<Caption>
6 MONTHS 12 MONTHS
Travelers Quality Bond Portfolio 3.43% 3.29%
Lehman Brothers Intermediate Government/Credit Bond Index 3.16% 3.04%
Lipper Variable Short-Intermediate Investment Grade Debt
Funds Category Average 1.55% 1.62%
Lazard International Stock Portfolio 13.92% 15.75%
MSCI EAFE GDP Weighted Index 16.07% 22.57%
Lipper Variable International Value Funds Category Average 14.43% 20.75%
MFS Emerging Growth Portfolio 7.33% 12.73%
Russell 3000 Growth Index 3.86% 6.93%
Lipper Variable Multi-Cap Growth Funds Category Average 6.09% 10.40%
Federated High Yield Portfolio 8.13% 10.38%
Lehman Brothers High-Yield Bond Index 9.64% 11.13%
Lehman Brothers Aggregate Bond Index 4.18% 4.34%
Lipper Variable High Current Yield Funds Category Average 8.73% 9.84%
Federated Stock Portfolio 7.14% 10.55%
S&P 500/Barra Value Index 11.08% 15.71%
Lipper Variable Multi-Cap Value Funds Category Average 9.52% 14.62%
</Table>
1
PERFORMANCE SNAPSHOT (CONTINUED)
AS OF DECEMBER 31, 2004
(UNAUDITED)
<Table>
<Caption>
6 MONTHS 12 MONTHS
Disciplined Mid Cap Stock Portfolio 9.19% 16.45%
S&P MidCap 400 Index 9.80% 16.48%
Lipper Variable Mid-Cap Core Funds Category Average 9.94% 16.47%
</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
GAINS DISTRIBUTIONS AT NET ASSET VALUE AND THE DEDUCTION OF ALL FUND
EXPENSES.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended December 31, 2004 and include
the reinvestment of dividends and capital gains, if any. Returns were
calculated among the 29 funds for the six-month period and among the
29 funds for the 12-month period in the variable short-intermediate
investment grade debt funds category. Returns were calculated among
the 29 funds for the six-month period and among the 29 funds for the
12-month period in the variable international value funds category.
Returns were calculated among the 114 funds for the six-month period
and among the 112 funds for the 12-month period in the variable
multi-cap growth funds category. Returns were calculated among the 87
funds for the six-month period and among the 85 funds for the 12-month
period in the variable high current yield funds category. Returns were
calculated among the 89 funds for the six-month period and among the
86 funds for the 12-month period in the variable multi-cap value funds
category. Returns were calculated among the 77 funds for the six-month
period and among the 77 funds for the 12-month period in the variable
mid-cap core funds category.
Please read on for a more detailed look at prevailing economic and market
conditions during the funds' fiscal year and to learn how those conditions have
affected fund performance.
INFORMATION ABOUT YOUR FUNDS
As you may be aware, several issues in the mutual fund and variable product
industry have recently come under the scrutiny of federal and state regulators.
Travelers Life & Annuity and some of its affiliates have received requests for
information from various government regulators regarding market timing, late
trading, fees, revenue sharing, producer compensation and other mutual fund and
variable product issues in connection with various investigations. The funds
have been informed that Travelers Life & Annuity and its affiliates are
responding to those information requests, but are not in a position to predict
the outcome of these requests and investigations.
As previously disclosed by Citigroup, the Staff of the Securities and Exchange
Commission ("SEC") has notified Citigroup Asset Management ("CAM") and Citicorp
Trust Bank ("CTB"), an affiliate of CAM, that the Staff is considering
recommending a civil injunctive action and/or an administrative proceeding
against CAM, CTB, the former CEO of CAM, two former employees and a current
employee of CAM, relating to the creation, operation and fees of an internal
transfer agent unit that serves various CAM-managed funds. Citigroup is
cooperating with the SEC and will seek to resolve this matter in discussion with
the SEC Staff. Although there can be no assurance, Citigroup does not believe
that this matter will have a material adverse effect on the funds. For further
information, please see the "Additional Information" note in the Notes to the
Financial Statements included in this report.
2
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
January 20, 2005
<Table>
(i) 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.
(ii) The federal funds rate is the interest rate that banks with
excess reserves at a Federal Reserve district bank charge
other banks that need overnight loans.
(iii) As measured by gross domestic product ("GDP"), a market
value of goods and services produced by labor and property
in a given country. Source: Bureau of Economic Analysis,
U.S. Department of Commerce, December 22, 2004.
</Table>
3
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MANAGER OVERVIEW
TRAVELERS QUALITY BOND PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Travelers Quality Bond
Portfolio returned 3.29%. In comparison, the portfolio's unmanaged benchmark,
the Lehman Brothers Intermediate Government/Credit Bond Index,(i) returned 3.04%
for the same period while the Lipper Variable Short-Intermediate Investment
Grade Debt Funds Category Average,(2) was 1.62%.
During the fiscal year, the portfolio's performance was aided by security
selection and the overall decline in credit risk reflected by the continued
tightening of credit spreads. Our shift in duration(ii) from being long, versus
the benchmark, early in the fiscal year to being short, as interest rates
increased, also contributed to performance.
MARKET/ECONOMIC OVERVIEW
The economic expansion entered its fourth year at the close of 2004. Led by
strong consumer and business demand, the balance of growth was quite healthy.
The employment picture improved during the year, as rising profits led to
increased corporate willingness to hire new employees. Strong consumer and
business fundamentals appear likely to continue into 2005 and consumer spending
looks to strengthen further relative to last year.
Inflation began to rise modestly in 2004 as shortages of certain goods and
commodities developed around the world. In 2005, inflation pressures look to
rise as healthy growth continues to improve corporate pricing power. The ongoing
economic recovery and rising price pressures caused the Fed(iii) to institute a
series of five 25 basis point(iv) rate hikes, beginning in mid-2004. This trend
looks to continue well into 2005. After the end of the fund's reporting period,
at their February meeting, the Fed once again raised the target rate by 0.25% to
2.50%.
CONTRIBUTORS TO PERFORMANCE
The portfolio's BBB-rated credit securities were its best performers during the
fiscal year. We believe the outlook for a sustained economic recovery should
result in further improvement in corporate fundamentals and may result in some
modest spread narrowing on selective issuers going forward. The prospect for a
further reduction of credit risks makes credit products attractive relative to
Treasuries in this environment.
Our relative overweight in corporate securities, especially utility and
industrial bonds, was another major contributor to results. Utilities and
industrials were the best performing sectors in the fixed income markets, and in
the portfolio. In anticipation of further curve flattening and yield increases,
we shifted the portfolio's overall duration to short of the benchmark as a
defensive measure. This adjustment added to returns over the period. Overall,
the curve structure of the portfolio was a significant driver of returns over
the period.
Conversely, our overweight in asset-backed securities relative to the benchmark
negatively impacted performance. While our overweight in collateralized
mortgage-backed securities outperformed Treasuries, they significantly
underperformed corporate securities.
Thank you for your investment in the Travelers Quality Bond Portfolio. As ever,
we appreciate that you have chosen us to manage your assets and we remain
focused on achieving the fund's investment goals.
Sincerely,
- -s- GENE C. COLLINS
Gene C. Collins
Travelers Asset Management International Company LLC
February 3, 2005
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity and variable life contracts, such as
administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 29 funds in the fund's Lipper category.
4
<Table>
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 sector holdings (as a percentage of
net assets) as of December 31, 2004 were: Corporate Bonds and
Notes (54.2%), U.S. Government Obligations and Agencies (28.8%),
Collateralized Obligations (6.3%), Asset-Backed Securities
(4.4%). The fund's portfolio composition is subject to change at
any time.
All index performance reflects no deduction for fees, expenses or
taxes. Please note that an investor cannot invest directly in an
index.
(i) The Lehman Brothers Intermediate Government/Credit Index is
a market value weighted performance benchmark for government
and corporate fixed-rate debt issues (rated Baa/BBB or
higher) with maturities between one and ten years.
(ii) Duration is a common gauge of the price sensitivity of a
fixed income asset or portfolio to a change in interest
rates.
(iii) The Fed is responsible for the formulation of a policy
designed to promote economic growth, full employment, stable
prices, and a sustainable pattern of international trade and
payments.
(iv) A basis point is one one-hundredth (1/100 or 0.01) of one
percent.
</Table>
5
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FUND AT A GLANCE -- TRAVELERS QUALITY BOND PORTFOLIO (UNAUDITED)
(GRAPH)
<Table>
December 31, 2004 June 30, 2004
Corporate Bonds and Notes 54.50 48.80
U.S. Government Obligations and Agencies 29.00 38.60
Collateralized Mortgage Obligations 6.30 4.50
Repurchase Agreement 5.80 2.90
Asset-Backed Securities 4.40 5.20
</Table>
6
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PERFORMANCE COMPARISON -- TRAVELERS QUALITY BOND PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
Twelve Months Ended 12/31/04 3.29%
Five Years Ended 12/31/04 6.03
8/30/96* through 12/31/04 6.04
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/30/96* through 12/31/04 63.03%
* 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 Lehman Brothers Intermediate Government/Credit
Bond Index. Index information is available at month-end only;
therefore, the closest month-end to inception date of the Portfolio
has been used. The Lehman Brothers Intermediate Government/Credit
Bond Index is a weighted composite of the Lehman Brothers
Government Bond Index, which is a broad-based index of all public
debt obligations of the U.S. government and its agencies and has an
average maturity of nine years and the Lehman Brothers Credit Bond
Index, which is comprised of all public fixed-rate non-convertible
investment-grade domestic corporate debt, excluding collateralized
mortgage obligations.
[Travelers Quality Performance Graph]
<Table>
<Caption>
LEHMAN BROTHERS INTERMEDIATE
TRAVELERS QUALITY BOND PORTFOLIO GOVERNMENT/CREDIT BOND INDEX
-------------------------------- ----------------------------
8/30/96 10000.00 10000.00
12/96 10356.00 10388.00
12/97 11095.00 11624.00
12/98 12036.00 13004.00
12/99 12168.00 13055.00
12/00 13015.00 14376.00
12/01 13944.00 15664.00
12/02 14753.00 16651.00
12/03 15784.00 17369.00
12/31/04 16303.00 17897.00
</Table>
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Assumes reinvestment of all dividends and capital gain distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. In the
absence of voluntary fee waivers and/or expense reimbursements, the total return
would have been lower.
7
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MANAGER OVERVIEW
LAZARD INTERNATIONAL STOCK PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
Effective September 1, 2004, the investment advisory fee for the fund was
revised from the annual rate of 0.825% of the average daily net assets of the
fund, to a fee calculated at an annual rate in accordance with the following
schedule:
<Table>
<Caption>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
- ------------------------ ------------
First $100 million.......................................... 0.825%
Next $400 million........................................... 0.775%
Next $500 million........................................... 0.725%
Over $1 billion............................................. 0.700%
</Table>
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Lazard International Stock
Portfolio, returned 15.75%. The portfolio underperformed its unmanaged
benchmark, the MSCI EAFE GDP Weighted Index,(i) which returned 22.57% for the
same period. The portfolio also underperformed the Lipper Variable International
Value Funds Category Average,(2) which was 20.75%.
MARKET/ECONOMIC OVERVIEW
International stocks spent most of 2004 in a fairly narrow trading range, as
strong earnings growth was offset by concerns over rising interest rates, higher
oil prices, and the sustainability of the global economic recovery. However,
stocks ended 2004 with their best quarterly performance of the year as oil
prices crested, easing concerns that higher energy costs would restrain earnings
and economic growth. The rally started right after the U.S. presidential
election, as uncertainty over the outcome, as well as its definitiveness,
abated. Energy stocks were strong during the year, as oil prices rose sharply
and utilities performed well as investors sought out higher yields in a low
interest rate environment. In contrast, technology stocks lagged as corporate
spending on information technology products didn't significantly rebound.
Healthcare stocks were hurt by concerns over drug safety following Merck's high
profile recall of Vioxx. On a regional basis, European markets generally
outperformed, helped by the rising Euro, while the Japanese market lagged the
broad index on concerns over the sustainability of its economic rebound.
CONTRIBUTORS TO PERFORMANCE
During 2004, stock selection in healthcare helped the portfolio, as we avoided
problem stocks like AstraZeneca. Holding SCHERING AG was also beneficial, as it
rose due to ongoing restructuring and product specific news. The fund's holding
in AVENTIS SA enhanced results, as its shares gained on expectations of revenue
and cost synergies from the proposed acquisition by Sanofi-Synthelabo Inc.
Conversely, stock selection in financials detracted from results when
re-insurers SWISS REINSURANCE CO. and MUNICH RE GROUP were hurt by the rash of
hurricanes hitting Florida. However, while the hurricanes caused near-term
costs, as payments are made to their reinsurance clients, the longer-term
outlook for these companies' earnings is positive. This is because the upfront
costs to the industry remove capacity and improve pricing discipline going
forward. Stock selection in consumer discretionary was also a drag on
performance, as NISSAN MOTOR CO., LTD. declined due to concerns regarding the
steel shortage caused by the increased demand for the metal in China. However,
the company stated that the shortage should have a relatively small impact on
sales in the U.S. -- its largest market.
(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 29 funds in the fund's Lipper category.
8
For 2004 overall, the portfolio was hurt by its overweight position in larger
stocks, while small- and mid-cap stocks continued to outperform. However, we
believe that the performance of large-cap stocks may improve, since the relative
valuation of large-caps versus small-caps is very attractive, based on
historical norms. In addition, smaller-cap stocks have been outperforming for
roughly five years and the duration of this outperformance, as well as its
magnitude, is similar to historical peaks in the capitalization cycle.
Thank you for your investment in the Lazard International Stock Portfolio. As
ever, we appreciate that you have chosen us to manage your assets and we remain
focused on achieving the fund's investment goals.
Sincerely,
The Portfolio Management Team
Lazard Asset Management LLC
January 20, 2005
<Table>
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 (25.5%),
Consumer Discretionary (11.6%), Energy (11.4%), Consumer Staples
(10.4%) and Healthcare (8.7%). 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) The MSCI EAFE GDP Weighted Index is an unmanaged index of
common stocks of companies located in Europe, Australasia
and the Far East, generally considered representative of
foreign markets.
</Table>
9
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FUND AT A GLANCE -- LAZARD INTERNATIONAL STOCK PORTFOLIO (UNAUDITED)
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Financials 25.4 30.8
Consumer Discretionary 11.6 8.4
Energy 11.4 11.1
Consumer Staples 10.4 9
Healthcare 8.7 9.1
Telecommunication Services 7.2 7.1
Information Technology 6.8 5.4
Industrials 5.8 4.8
Utilities 5.5 4.6
Materials 4.9 7.5
Other 2.3 2.2
</Table>
10
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PERFORMANCE COMPARISON -- LAZARD INTERNATIONAL STOCK PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
Twelve Months Ended 12/31/04 15.75%
Five Years Ended 12/31/04 (3.28)
8/1/96* through 12/31/04 3.70
<Caption>
CUMULATIVE TOTAL RETURN
-----------------------
8/1/96* through 12/31/04 35.73%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on August
1, 1996 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2004, with that of a similar
investment in the MSCI EAFE GDP Weighted Index. Index information
is available at month-end only; therefore, the closest month-end to
inception date of the Portfolio has been used. The MSCI EAFE GDP
Weighted Index is a composite portfolio consisting of equity total
returns for the countries of Europe, Australasia and the Far East,
weighted based on each country's gross domestic product.
[Lazard Int. Performance Graph]
<Table>
<Caption>
LAZARD INTERNATIONAL STOCK
PORTFOLIO MSCI EAFE GDP WEIGHTED INDEX
-------------------------- ----------------------------
8/1/96 10000.00 10000.00
12/96 10807.00 10515.00
12/97 11696.00 11122.00
12/98 13168.00 14092.00
12/99 16036.00 18460.00
12/00 14192.00 15593.00
12/01 10476.00 12132.00
12/02 9118.00 10197.00
12/03 11726.00 14576.00
12/31/04 13573.00 17866.00
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of all dividends and capital gain distributions, if any, at
net asset value. All figures represent past performance and are not a guarantee
of future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns. Performance figures
may reflect voluntary fee waivers and/or expense reimbursements. In the absence
of voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
11
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
MFS EMERGING GROWTH PORTFOLIO
SPECIAL SHAREHOLDER NOTICE
On February 18, 2005, the shareholders of MFS Emerging Growth Portfolio approved
a reorganization pursuant to which MFS Mid Cap Growth Portfolio would acquire
the assets and assume the liabilities of MFS Emerging Growth Portfolio in
exchange for shares of the MFS Mid Cap Growth Portfolio. The merger is expected
to be effective upon the close of business on February 25, 2005.
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the MFS Emerging Growth
Portfolio, returned 12.73%, outperforming its unmanaged benchmark, the Russell
3000 Growth Index,(i) which returned 6.93% for the same period. The portfolio
also outperformed the Lipper Variable Multi-Cap Growth Funds Category
Average,(2) which was 10.40%.
MARKET/ECONOMIC OVERVIEW
For stock investors, 2004 was a bumpy ride with a smooth finish. In the end,
improving fundamental factors, such as corporate spending and earnings growth,
triumphed and drove equity markets to solid gains for the year. During the
12-month reporting period, investors endured skyrocketing oil prices, rising
short-term interest rates, a volatile and retreating U.S. dollar, record budget
and trade deficits and war in Iraq. For a time, it seemed these factors would
lead to flat or negative annual performance for many investments. But, by the
last quarter of 2004, oil prices retreated, investors seemed to adopt a less
negative view of other broad economic issues, and markets appeared to recognize
that both corporate profits and economic growth were up solidly, if not
spectacularly, for the year. We believed that as the year came to a close, the
global economy was still in the midst of a sustainable broad-based recovery.
CONTRIBUTORS TO PERFORMANCE
During the fiscal year, the fund's holdings in the healthcare, technology,
utilities and communications sectors generated the strongest relative returns.
Conversely, its special products and services, retailing, and industrial goods
and services stocks detracted from relative results.
In the healthcare sector, the portfolio's holding in the medical test firm CYTYC
CORP. was beneficial, as it was one of the portfolio's strongest relative
performers over the fiscal year. In addition, avoiding pharmaceutical firm
Pfizer Inc. helped results, as its shares fell sharply over the period. In the
technology sector, stock selection drove relative performance. For example, the
fund's positions in EBAY INC., APPLE COMPUTER, INC., and MARVELL TECHNOLOGY
GROUP LTD. all rose sharply over the period. Underweighting semiconductor giant
INTEL CORP. also enhanced performance, as its stock declined over the period. In
the telecommunication services sector, an overweight and, to a lesser extent,
stock selection aided relative results. The strongest performers in this sector
were cellular tower operators AMERICAN TOWER CORP. and SPECTRASITE, INC.
Conversely, stock selection in the special products and services sector
detracted from results. Our position in post-secondary education company
CORINTHIAN COLLEGES, INC. was the largest detractor in the sector. We
subsequently eliminated it from the portfolio.
Stock selection and an underweighting in the retailing sector also hurt relative
performance. The most significant detractor in the sector was our position in
THE HOME DEPOT, INC. An underweighting in the industrial goods and services
sector was a
(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 112 funds in the fund's Lipper category.
12
drag on performance as well. For example, not owning GENERAL ELECTRIC CORP.,
which posted solid gains during the fiscal year, held back relative results.
Other holdings that hurt relative performance included Linux operating system
provider RED HAT INC., internet travel company IAC/INTERACTIVE CORP.,
semiconductor company PMC SIERRA, INC., radio operator and programming provider
firm WESTWOOD ONE, INC., and telecom equipment supplier ANDREW CORP. We
eliminated Andrew Corp. from the portfolio prior to the end of the reporting
period. Not owning cellular phone technology firm QUALCOMM INC. and healthcare
provider UNITEDHEALTH GROUP INC. also detracted from performance, as those
stocks advanced significantly during the fiscal year.
Thank you for your investment in the MFS Emerging Growth Portfolio. As ever, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the fund's investment goals.
Sincerely,
/s/ ERIC B. FISCHMAN
Eric B. Fischman
Massachusetts Financial Services
/s/ DAVID E. SETTE-DUCATI
David E. Sette-Ducati
Massachusetts Financial Services
/S/ CAMILLE H. LEE
Camille H. Lee
Massachusetts Financial Services
January 20, 2005
<Table>
The information provided is not intended to be a forecast of
future events, a guarantee of future results or investment
advice. Views expressed may differ from those of the firm as a
whole.
Portfolio holdings and breakdowns are as of December 31, 2004 and
are subject to change and may not be representative of the
portfolio manager's current or future investments. The fund's top
ten holdings (as a percentage of net assets) as of this date
were: Cytyc Corp. (2.6%), Dell Inc. (2.2%), American Tower Corp.
(2.1%), ebay Inc. (2.0%), Getty Images, Inc. (2.0%), Yahoo! Inc.
(1.8%), Genzyme Corp. (1.6%), Legg Mason, Inc. (1.6%), Amdocs
Ltd. (1.6%), Fisher Scientific International Inc. (1.5%). The
mention of sector breakdowns is for informational purposes only
and should not be construed as a recommendation to purchase or
sell any securities. The information provided regarding such
sectors is not a sufficient basis upon which to make an
investment decision. Investors seeking financial advice regarding
the appropriateness of investing in any securities or investment
strategies discussed should consult their financial professional.
Portfolio holdings are subject to change at any time and may not
be representative of the portfolio manager's current or future
investments. The fund's top five sector holdings (as a percentage
of net assets) as of December 31, 2004 were: Information
Technology (27.2%), Healthcare (23.3%), Consumer Discretionary
(20.1%), Industrials (9.2%), Telecommunications Services (9.0%).
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) The Russell 3000 Growth Index measures the performance of
those Russell 3000 Index companies with higher price-to-book
ratios and higher forecasted growth values.
</Table>
13
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- MFS EMERGING GROWTH PORTFOLIO (UNAUDITED)
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Information Technology 26.70 24.40
Healthcare 22.90 25.40
Consumer Discretionary 19.70 21.60
Industrials 9.00 11.60
Telecommunication Services 8.80 6.30
Financials 4.80 4.60
Consumer Staples 2.70 2.00
Short-Term Investment 2.40 2.20
Energy 2.20 1.80
Materials 0.60 0.10
Basic Materials 0.20 0.00
</Table>
14
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- MFS EMERGING GROWTH PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 12.73%
Five Years Ended 12/31/04 (13.37)
8/30/96* through 12/31/04 4.88
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/30/96* through 12/31/04 48.79%
* 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 Russell 3000 Growth Index. Index Information is
available at month-end only; therefore, the closest month-end to
inception date of the Portfolio has been used. The Russell 3000
Growth Index measures the performance of those Russell 3000 Index
companies with higher price-to-book ratios and higher forecasted
growth values.
[MFS Emerging Growth Portfolio Performance Graph]
<Table>
<Caption>
MFS EMERGING GROWTH PORTFOLIO RUSSELL 3000 GROWTH INDEX
----------------------------- -------------------------
8/30/96 10000 10000
12/96 10600 11291
12/97 12843 15508
12/98 17250 18950
12/99 30491 25361
12/00 24353 19675
12/01 15529 15814
12/02 10221 14322
12/03 13200 18758
12/31/04 14879 20058
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gain distributions, if any, at net
asset value. All figures represent past performance and are not a guarantee of
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. In the
absence of voluntary fee waivers and/or expense reimbursements, the total return
would have been lower.
15
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
FEDERATED HIGH YIELD PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Federated High Yield
Portfolio returned 10.38%. In comparison, the fund's unmanaged benchmarks, the
Lehman Brothers High-Yield Bond Index(i) and the Lehman Brothers Aggregate Bond
Index,(ii) returned 11.13% and 4.34%, respectively, for the same period. The
Lipper Variable High Current Yield Funds Category Average(2) was 9.84%.
MARKET/ECONOMIC OVERVIEW
The combination of sustained economic growth and stable interest rates provided
a particularly good environment for the high yield market in 2004. During the
year, an increase in corporate profitability allowed companies the opportunity
to either reduce overall debt or to refinance at attractive rates. The
combination of improved profitability and balance sheet repair led the way for
credit quality improvement and the lowest default rate since the late 1990's.
The significant decline in corporate defaults led to a contraction of the risk
premium, or "credit spread," investors require for investing in the high yield
market. This, in turn, consequently led to the price appreciation experienced in
the high yield market.
The lower credit quality sector of the high yield market generated the strongest
performance during 2004. For example, CCC-rated bonds, the lowest credit
quality, returned 13.80%, versus higher rated B bonds, which returned 10.36%,
and BB-rated bonds, which returned 9.61%. From an industry perspective, the
financial institutions, metals & mining and natural gas utility sectors all had
good relative performance, while the airline, environmental and retail sectors
lagged the overall market. From a technical standpoint, demand for high yield
bonds remained strong throughout the reporting period. Although high yield
mutual funds experienced net cash outflows during 2004, increased allocations to
the high yield market from hedge funds, pension funds, and insurance companies
created more than ample demand for what was one of the busiest years for new
high yield bond issuance in recent years.
CONTRIBUTORS TO PERFORMANCE
The fund underperformed its benchmark during the fiscal year. The portfolio's
less aggressive positioning in the lower quality tier of the high yield market
and shorter duration(iii) negatively impacted its relative performance. From an
industry sector perspective, the fund benefited from its overweight position in
the building products and textile sectors and remained underweighted in the
airline sector. On the negative side, the fund's underweight in the metals and
mining and electric utility sectors and overweight in the gaming sector
detracted somewhat from relative performance.
Specific holdings that underperformed during the period included packaging
company TEKNI-PLEX, INC., retailer PCA INTERNATIONAL, INC., wireless
telecommunications firm AMERICAN CELLULAR CORP., industrial company EAGLE PICHER
INDUSTRIES, INC., and consumer product firm ICON HEALTH & FITNESS, INC.
Conversely, portfolio holdings that had a positive impact on overall portfolio
performance included natural gas company EL PASO CORP., textile firm LEVI
STRAUSS & CO. wireline telecommunications company AT&T CORP., chemical firm BCP
CAYLUX HOLDINGS and industrial company NEENAH CORP.
Thank you for your investment in the Federated High Yield 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
Federated Investment Management Company
January 20, 2005
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity and variable life contracts, such as
administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 85 funds in the fund's Lipper category.
16
<Table>
The information provided is not intended to be a forecast of
future events, a guarantee of future results or investment
advice. Views expressed may differ from those of the firm as a
whole.
Portfolio holdings and breakdowns are as of December 31, 2004 and
are subject to change and may not be representative of the
portfolio manager's current or future investments. The fund's top
ten holdings (as a percentage of net assets) as of this date
were: Targeted Return Index Sector, Trains HY-2004-1, Secured
Notes, 8.2105% due 8/1/15 (2.9%), AT&T Corp., Sr. Notes, 9.750%
due 11/15/31 (1.3%), Qwest Corp., Notes, 9.125% due 3/15/12
(1.1%),Qwest Services Corp., Sr. Sub. Notes, 14.000% due 12/15/10
(1.0%), Rogers Wireless, Inc., Secured Notes, 6.375% due 3/1/14
(0.8%), Allied Waste North America, Inc., Series B, Sr. Notes,
7.625% due 1/1/06 (0.7%), Nextel Communications, Inc., Sr. Notes,
7.375% due 8/1/15 (0.7%),Vertis, Inc, Notes, Series B, 10.875%
due 6/15/09 (0.7%), J.C. Penney Co., Inc., Notes, 9.000% due
8/1/12 (0.7%), MCI Inc., Sr. Notes, 8.375% due 5/1/14 (0.7%). The
mention of sector breakdowns is for informational purposes only
and should not be construed as a recommendation to purchase or
sell any securities. The information provided regarding such
sectors is not a sufficient basis upon which to make an
investment decision. Investors seeking financial advice regarding
the appropriateness of investing in any securities or investment
strategies discussed should consult their financial professional.
Portfolio holdings are subject to change at any time and may not
be representative of the portfolio manager's current or future
investments. The fund's top five sector holdings (as a percentage
of net assets) as of December 31, 2004 were: Media-Non-Cable
(9.7%), Food & Beverage (6.0%), Wireless Communications (5.8%),
Gaming (5.7%), Chemicals (5.7%). 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) The Lehman Brothers High-Yield Index covers the universe of
fixed rate, non-investment grade debt, including corporate
and non-corporate sectors. Pay-in-kind (PIK) bonds,
Eurobonds, and debt issues from countries designated as
emerging markets are excluded, but Canadian and global bonds
(SEC registered) of issuers in non-emerging market countries
are included. Original issue zero coupon bonds, step-up
coupon structures, and 144-As are also included.
(ii) The Lehman Brothers Aggregate Bond Index is a broad-based
bond index comprised of Government, Corporate, Mortgage and
Asset-backed issues, rated investment grade or higher, and
having at least one year to maturity.
(iii) Duration is a common gauge of the price sensitivity of a
fixed income asset or portfolio to a change in interest
rates.
</Table>
17
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- FEDERATED HIGH YIELD PORTFOLIO (UNAUDITED)
(GRAPH)
<Table>
December 31, 2004 June 30, 2004
Corporate Bonds & Notes 97.30 96.90
Repurchase Agreement 1.90 2.30
Preferred Stock 0.50 0.60
Commmon Stock 0.20 0.10
Warrants 0.10 0.10
</Table>
18
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- FEDERATED HIGH YIELD PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 10.38%
Five Years Ended 12/31/04 5.58
8/30/96* through 12/31/04 6.98
CUMULATIVE TOTAL RETURN
---------------------------------------------
8/30/96* through 12/31/04 75.55%
* 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 Lehman Brothers High-Yield Bond Index and Lehman
Brothers Aggregate Bond Index. Index information is available at
month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. The Lehman Brothers High-Yield Bond
Index is composed of fixed rate non-investment grade debt with at
least one year remaining to maturity that are dollar-denominated,
nonconvertible and have an outstanding par value of at least $100
million. The Lehman Brothers Aggregate Bond Index, an unmanaged
index, is composed of the Lehman Brothers Intermediate
Government/Credit Bond Index, formerly known as the Lehman Brothers
Intermediate Government/Corporate Bond Index, and the Mortgage
Backed Securities Index and includes treasury issues, agency
issues, corporate bond issues and mortgage-backed securities.
[Federated High Yield Portfolio Performance Graph]
<Table>
<Caption>
FEDERATED HIGH YIELD LEHMAN BROTHERS HIGH- LEHMAN BROTHERS
PORTFOLIO YIELD BOND INDEX AGGREGATE BOND INDEX
-------------------- --------------------- --------------------
8/30/96 10000.00 10000.00 10000.00
12/96 10761.00 10599.00 10480.00
12/97 12394.00 11952.00 11491.00
12/98 12978.00 12161.00 12490.00
12/99 13380.00 12452.00 12388.00
12/00 12289.00 11723.00 13829.00
12/01 12528.00 12342.00 14997.00
12/02 12994.00 12788.00 15932.00
12/03 15904.00 16493.00 16585.00
12/31/04 17555.00 18328.00 17305.00
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gain distributions, if any, at net
asset value. All figures represent past performance and are not a guarantee of
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges, which, if reflected, would reduce the total returns. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements. In the
absence of voluntary fee waivers and/or expense reimbursements, the total return
would have been lower.
19
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
FEDERATED STOCK PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Federated Stock Portfolio
returned 10.55%. The portfolio underperformed its unmanaged benchmark, the S&P
500/Barra Value Index,(i) which returned 15.71% for the same period. The
portfolio also underperformed the Lipper Variable Multi-Cap Value Funds Category
Average,(2) which was 14.62%.
MARKET/ECONOMIC OVERVIEW
2004 was another positive year for U.S. equity investors as a strong showing
toward the end of the year drove equity benchmarks higher. The S&P 500 Index(ii)
("S&P 500") returned 10.87% during the year, with 85% of the total return for
the year coming in the fourth quarter. This enabled the benchmark to post its
second year of double-digit returns. Earnings growth for the S&P 500 exceeded
analysts' expectations, but it appears that 2004 may be the peak year for profit
growth during this market cycle. Leading sectors included energy, utilities and
telecommunication services. Lagging sectors included healthcare, information
technology and consumer staples. Large-capitalization stocks underperformed
their mid- and small-cap counterparts during the year and value-oriented
equities outperformed growth across most market capitalizations.
CONTRIBUTORS TO PERFORMANCE
During the fiscal year, positive influences on performance relative to the S&P
500 included an underweight position and favorable security selection in
financials, with BANK OF AMERICA CORP., THE ALLSTATE CORP. and CAPITAL ONE
FINANCIAL CORP. boosting returns. In addition, an overweighted position in
industrials enhanced results. Favorable security selection in telecommunication
services also positively influenced relative performance, with SPRINT CORP. and
VERIZON COMMUNICATIONS INC. generating strong results.
Negative influences on relative performance included an overweighted position
and unfavorable security selection in the materials sector. Holdings in this
area that detracted from relative results included ALCOA INC., E.I. DU PONT DE
NEMOURS & CO., and INTERNATIONAL PAPER CO. An underweighted position and
unfavorable security selection in consumer discretionary also hurt results, with
VIACOM INC., GENERAL MOTORS CORP., and FORD MOTOR CO. all generating weak
results. Unfavorable security selection in healthcare, specifically PFIZER INC.
and TENET HEALTHCARE CORP., also negatively influenced relative performance.
Thank you for your investment in the Federated Stock Portfolio. As ever, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the fund's investment goals.
Sincerely,
The Portfolio Management Team
Equity Management Company of Pennsylvania Team
January 20, 2005
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with
investing in variable annuity and variable life contracts, such as
administrative fees, account charges and surrender charges, which, if
reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004, including
the reinvestment of dividends and capital gains, if any, calculated among
the 86 funds in the fund's Lipper category.
20
<Table>
The information provided is not intended to be a forecast of
future events, a guarantee of future results or investment
advice. Views expressed may differ from those of the firm as a
whole.
Portfolio holdings and breakdowns are as of December 31, 2004 and
are subject to change and may not be representative of the
portfolio manager's current or future investments. The fund's top
ten holdings (as a percentage of net assets) as of this date
were: Bank of America Corp. (4.3%), Tyco International Ltd.
(3.7%), JPMorgan Chase & Co. (3.6%), Altria Group, Inc. (3.1%),
ChevronTexaco Corp. (2.9%), Exxon Mobile Corp. (2.5%), The
Allstate Corp. (2.4%), BP PLC, Sponsored ADR (2.3%), Morgan
Stanley (2.2%), News Corp., Class A Shares (2.1%). 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 (31.2%),
Industrials (11.5%), Energy (11.3%), Consumer Discretionary
(11.1%), Information Technology (9.8%). The fund's portfolio
composition is subject to change at any time.
All index performance reflects no deduction for fees, expenses or
taxes. Please note that an investor cannot invest directly in an
index.
(i) The S&P 500 Barra Value is a market-capitalization weighted
index of stocks in the S&P 500 having lower price-to-book
ratios relative to the S&P 500 as a whole. (A price-to-book
ratio is the price of a stock compared to the difference
between a company's assets and liabilities.)
(ii) The S&P 500 Index is a market capitalization-weighted index
of 500 widely held common stocks.
</Table>
21
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- FEDERATED STOCK PORTFOLIO (UNAUDITED)
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Financials 31.30 28.40
Industrials 11.50 14.80
Energy 11.30 10.90
Consumer Discretionary 11.20 13.70
Information Technology 9.80 10.50
Consumer Staples 5.20 3.30
Healthcare 4.90 4.00
Utilities 4.90 2.40
Materials 4.80 6.50
Telecommunication Services 4.60 3.80
Repurchase Agreement 0.50 1.70
</Table>
22
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- FEDERATED STOCK PORTFOLIO AS OF 12/31/04 (UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 10.55%
Five Years Ended 12/31/04 3.73
8/30/96* through 12/31/04 10.15
CUMULATIVE TOTAL RETURN
--------------------------------------------
8/30/96* through 12/31/04 123.90%
* 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/Barra Value Index is a
market-capitalization weighted index of stocks in the S&P 500
having lower price-to-book ratios relative to the S&P 500 as a
whole. (A price-to-book ratio is the price of a stock compared to
the difference between a company's assets and liabilities.)
[Federated Stock Performance Graph]
<Table>
<Caption>
FEDERATED STOCK PORTFOLIO S&P 500/BARRA VALUE INDEX++
------------------------- ---------------------------
8/30/96 10000 10000
12/96 11261 11416
12/97 15021 14839
12/98 17700 17015
12/99 18646 19180
12/00 19349 20346
12/01 19672 17963
12/02 15871 14218
12/03 20253 18738
12/31/04 22390 21682
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gain distributions, if any, at net
asset value. All figures represent past performance and are not a guarantee of
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns. Performance figures
may reflect voluntary fee waivers and/or expense reimbursements. In the absence
of voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
23
- --------------------------------------------------------------------------------
MANAGER OVERVIEW
DISCIPLINED MID CAP STOCK PORTFOLIO
PERFORMANCE UPDATE(1)
For the twelve months ended December 31, 2004, the Disciplined Mid Cap Stock
Portfolio, returned 16.45%. In comparison, the portfolio's unmanaged benchmark,
S&P MidCap 400 Index,(i) returned 16.48% for the same period and the Lipper
Variable Mid-Cap Core Funds Category Average(2) was 16.47%.
MARKET OVERVIEW
The economic expansion entered its fourth year at the close of 2004. Led by
strong consumer and business investment demand, the balance of growth was quite
healthy. Job growth accelerated last year, as continued profit growth increased
corporate willingness to hire. With improving earnings fundamentals, the equity
market performed well, particularly during the fourth quarter of the year.
Energy stocks were among the biggest contributors because of historically high
oil prices and solid earnings. As investors began to focus their attention on
higher quality stocks with solid dividends and strong cash flow, less-cyclical
industries such as foods, chemicals and building materials also realized
substantial gains. The outcome of the presidential election removed some
uncertainties surrounding the healthcare and defense industries. However,
technology stocks were generally weak, despite an impressive start in January.
Concerns on terrorism, oil prices and weak profits also led to a significant
decline in the Auto & Transportation sector, especially the airlines. In the
next several weeks, as retail sales data from the holiday season trickle out,
the equity market could potentially experience more volatility as investors
re-position their portfolios for the coming year.
FUND PERFORMANCE
Stock selection, primarily in the consumer discretionary and industrials
sectors, contributed positively to the performance of the fund in comparison to
the benchmark during the period. However, in general, our holdings in the
consumer staples and materials sectors did not perform. The three biggest
individual contributors to performance were SEPRACOR, INC., MANDALAY RESORT
GROUP, and J.B. HUNT TRANSPORT SERVICES, INC. Sepracor, a biotech firm, received
an approval letter from the FDA for one of its new drugs during the first
quarter. Mandalay Resort agreed to be acquired by another major entertainment
company. Hunt Transport Services experienced strong business momentum in its
trucking segment. Both revenue and operating profit grew substantially and the
company gained market share during the second quarter. Conversely, SILICON
LABORATORIES INC., MILLENNIUM PHARMACEUTICALS, INC., and ATMEL CORP. negatively
impacted our performance. Silicon Laboratories traded lower due to weak demand
in wireless products in the networking communications industry. Millennium
Pharmaceuticals fell on concerns that the company might not meet its earnings
growth target. The company remained aggressive in its effort to reduce costs.
Atmel suffered from pricing pressure due to a slowdown in the semiconductor
industry. The stock fell sharply last year.
Thank you for your investment in the Disciplined Mid Cap Stock Portfolio. As
ever, we appreciate that you have chosen us to manage your assets and we remain
focused on seeking to achieve the fund's investment goals.
Sincerely,
The Portfolio Management Team
The Travelers Investment Management Company
January 20, 2005
(1) The fund is an underlying investment option of various variable annuity and
variable life products. The fund's performance returns do not reflect the
deduction of sales charges and expenses imposed in connection with investing
in variable annuity and variable life contracts such as administrative fees,
account charges and surrender charges, which, if reflected, would reduce the
performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
(2) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2004 including
the reinvestment of dividends and capital gains, if any, calculated among
the 77 funds in the fund's Lipper category.
24
<Table>
The information provided is not intended to be a forecast of
future events, a guarantee of future results or investment
advice. Views expressed may differ from those of the firm as a
whole.
All index performance reflects no deduction for fees, expenses or
taxes. Please note that an investor cannot invest directly in an
index.
Portfolio holdings and breakdowns are as of December 31, 2004 and
are subject to change and may not be representative of the
portfolio manager's current or future investments. The fund's top
ten holdings (as a percentage of net assets) as of this date
were: Lennar Corp., Class A Shares (1.1%), Fidelity National
Financial, Inc. (1.0%), D.R. Horton, Inc. (1.0%), Washington Post
Co., Class B Shares (0.8%), Precision Castparts Corp. (0.8%),
Coventry Health Care, Inc. (0.8%), Hibernia Corp., Class A Shares
(0.8%), Weatherford International Ltd. (0.8%), Constellation
Brands, Inc., Class A Shares (0.8%), J.B. Hunt Transport
Services, Inc. (0.8%). The mention of sector breakdowns is for
informational purposes only and should not be construed as a
recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient
basis upon which to make an investment decision. Investors
seeking financial advice regarding the appropriateness of
investing in any securities or investment strategies discussed
should consult their financial professional.
Portfolio holdings are subject to change at any time and may not
be representative of the portfolio manager's current or future
investments. The fund's top five sector holdings (as a percentage
of net assets) as of December 31, 2004 were: Consumer
Discretionary (21.8%), Financials (17.7%), Industrials (13.4%),
Information Technology (11.8%), Healthcare (10.2%). The fund's
portfolio composition is subject to change at any time.
(i) The S&P MidCap 400 Index is a market-value weighted index,
which consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation.
</Table>
25
- --------------------------------------------------------------------------------
FUND AT A GLANCE -- DISCIPLINED MID CAP STOCK PORTFOLIO (UNAUDITED)
(GRAPH)
<Table>
<Caption>
DECEMBER 31, 2004 JUNE 30, 2004
----------------- -------------
Consumer Discretionary 21.8 18.9
Financials 17.6 17.1
Industrials 13.4 14.1
Information Technology 11.8 12.9
Healthcare 10.2 10.5
Energy 6.5 6.7
Utilities 6.1 6.3
Materials 5.4 4.4
Consumer Staples 4.3 4.7
Other 2.9 4.4
</Table>
26
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- DISCIPLINED MID CAP STOCK PORTFOLIO AS OF 12/31/04
(UNAUDITED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
Twelve Months Ended 12/31/04 16.45%
Five Years Ended 12/31/04 8.35
4/1/97* through 12/31/04 13.47
CUMULATIVE TOTAL RETURN
--------------------------------------------
4/1/97* through 12/31/04 166.21%
* Commencement of operations.
</Table>
This chart assumes an initial investment of $10,000 made on April
1, 1997 (commencement of operations), assuming reinvestment of
dividends, through December 31, 2004, with that of a similar
investment in the S&P MidCap 400 Index. Index information is
available at month-end only; therefore, the closest month-end to
inception date of the Portfolio has been used. The S&P MidCap 400
Index is an unmanaged index composed of 400 widely held mid cap
common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter markets.
[Disciplined Mid Cap Stock Performance Graph]
<Table>
<Caption>
DISCIPLINED MID CAP STOCK
PORTFOLIO S&P MIDCAP 400 INDEX
------------------------- --------------------
4/1/97 10000 10000
12/97 13438 11512
12/98 15710 12603
12/99 17826 14459
12/00 20786 16989
12/01 19950 16885
12/02 17092 14913
12/03 22862 20225
12/31/04 26621 23558
</Table>
- --------------------------------------------------------------------------------
Assumes reinvestment of dividends and capital gain distributions, if any, at net
asset value. All figures represent past performance and are not a guarantee of
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns do not reflect expenses associated with
the separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns. Performance figures
may reflect voluntary fee waivers and/or expense reimbursements. In the absence
of voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
27
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED)
EXAMPLE
As a shareholder of the Funds, you may incur two types of costs: (1)
transaction costs, including front-end and back-end sales charges (loads) on
purchase payments, reinvested dividends, or other distributions; and (2) ongoing
costs, including management fees; distribution and/or service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004
and held for the six months ended December 31, 2004.
ACTUAL EXPENSES
The table below titled "Based on Actual Total Return" provides information
about actual account values and actual expenses. You may use the information
provided in this table, together with the amount you invested, to estimate the
expenses that you paid over the period. To estimate the expenses you paid on
your account, divide your ending account value by $1,000 (for example, an $8,600
ending account value divided by $1,000 = 8.6), then multiply the result by the
number under the heading entitled "Expenses Paid During the Period".
- --------------------------------------------------------------------------------
BASED ON ACTUAL TOTAL RETURN(1)
<Table>
<Caption>
EXPENSES
BEGINNING ENDING ANNUALIZED PAID
ACTUAL TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE
RETURN(2) VALUE VALUE RATIO PERIOD(3)
- ------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio 3.43% $1,000.00 $1,034.30 0.41% $2.10
- ------------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio 13.92 1,000.00 1,139.20 0.95 5.11
- ------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Portfolio 7.33 1,000.00 1,073.30 0.86 4.48
- ------------------------------------------------------------------------------------------------------------------
Federated High Yield Portfolio 8.13 1,000.00 1,081.30 0.79 4.13
- ------------------------------------------------------------------------------------------------------------------
Federated Stock Portfolio 7.14 1,000.00 1,071.40 0.78 4.06
- ------------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock Portfolio 9.19 1,000.00 1,091.90 0.79 4.15
- ------------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Assumes reinvestment of dividends and capital gains distributions, if any,
at net asset value. Total return is not annualized, as it may not be
representative of the total return for the year. Total returns do not
reflect expenses associated with the separate account such as administrative
fees, account charges and surrender charges, which, if reflected, would
reduce the total returns. Performance figures may reflect voluntary fee
waivers and/or expense reimbursements. Past performance is no guarantee of
future results. In the absence of voluntary fee waivers and/or expense
reimbursements, the total return would have been lower.
(3) Expenses (net of voluntary fee waiver and/or expense reimbursement) are
equal to each Fund's respective 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.
28
- --------------------------------------------------------------------------------
FUND EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below titled "Based on Hypothetical Total Return" provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio and an assumed rate of return of 5.00% per year before
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use the information provided in this
table to compare the ongoing costs of investing in the Fund and other funds. To
do so, compare the 5.00% hypothetical example relating to the Fund with the
5.00% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
such as front-end or back-end sales charges (loads). Therefore, the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transaction costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
BASED ON HYPOTHETICAL TOTAL RETURN(1)
<Table>
<Caption>
EXPENSES
HYPOTHETICAL BEGINNING ENDING ANNUALIZED PAID
TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE
RETURN VALUE VALUE RATIO PERIOD(2)
- -----------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio 5.00% $1,000.00 $1,023.08 0.41% $2.08
- -----------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio 5.00 1,000.00 1,020.36 0.95 4.82
- -----------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Portfolio 5.00 1,000.00 1,020.81 0.86 4.37
- -----------------------------------------------------------------------------------------------------------------
Federated High Yield Portfolio 5.00 1,000.00 1,021.17 0.79 4.01
- -----------------------------------------------------------------------------------------------------------------
Federated Stock Portfolio 5.00 1,000.00 1,021.20 0.78 3.96
- -----------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock Portfolio 5.00 1,000.00 1,021.17 0.79 4.01
- -----------------------------------------------------------------------------------------------------------------
</Table>
(1) For the six months ended December 31, 2004.
(2) Expenses (net of voluntary fee waiver and/or expense reimbursement) are
equal to each Fund's respective 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.
29
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 2004
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS AND AGENCIES -- 28.8%
U.S. Treasury Bonds:
$ 1,000,000 5.250% due 2/15/29........................................ $ 1,049,297
700,000 5.375% due 2/15/31........................................ 757,149
U.S. Treasury Notes:
9,760,000 5.875% due 11/15/05....................................... 10,022,690
21,350,000 3.500% due 11/15/06....................................... 21,536,834
2,600,000 2.750% due 8/15/07........................................ 2,572,274
1,920,000 3.375% due 11/15/08....................................... 1,915,427
4,550,000 4.750% due 11/15/08....................................... 4,767,017
1,000,000 3.500% due 11/15/09....................................... 995,626
4,400,000 5.750% due 8/15/10........................................ 4,845,676
Fannie Mae:
2,400,000 Benchmark Notes, 1.750% due 6/16/06....................... 2,354,268
2,600,000 Notes, 2.000% due 2/9/07 (a).............................. 2,588,791
1,200,000 Freddie Mac, Medium-Term Notes, 2.900% due 2/27/19 (a)...... 1,191,527
- --------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS AND AGENCIES
(Cost -- $55,311,785)....................................... 54,596,576
- --------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT RATING(B)
- --------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 54.2%
- --------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE -- 0.6%
1,100,000 BBB Northrop Grumman Corp., Notes, 4.079% due 11/16/06.......... 1,111,612
- --------------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 1.3%
1,300,000 BBB DaimlerChrysler North America Holding Corp., Notes, 7.300%
due 1/15/12............................................... 1,477,888
1,000,000 BBB- Lear Corp., Notes, Series B, 7.960% due 5/15/05............. 1,016,060
- --------------------------------------------------------------------------------------------------------
2,493,948
- --------------------------------------------------------------------------------------------------------
BANKING -- 7.9%
1,720,000 AA- ABN AMRO Bank N.V., Sr. Notes, 2.334% due 5/11/07 (a)....... 1,721,656
1,000,000 A+ Bank of America Corp., Sr. Notes, 5.375% due 6/15/14........ 1,045,507
1,170,000 BBB Capital One Bank, Notes, 5.000% due 6/15/09................. 1,205,952
Credit Suisse First Boston (USA), Inc., Notes:
600,000 A+ 6.125% due 11/15/11....................................... 655,207
1,400,000 A+ 4.875% due 1/15/15........................................ 1,385,364
700,000 A+ HSBC Bank (USA), Sub. Notes, 5.875% due 11/1/34............. 711,323
700,000 A Huntington National Bank, Sr. Notes, 4.650% due 6/30/09..... 714,085
1,700,000 A JPMorgan Chase & Co., Sub. Notes, 5.25% due 5/1/15.......... 1,722,670
300,000 AA Rabobank Capital Funding Trust III, Sub. Bonds, 5.254% due
12/31/16 (c).............................................. 299,019
1,200,000 A+ Royal Bank of Scotland PLC, Bonds, 5.050% due 1/8/15........ 1,215,251
US Bank NA:
1,800,000 AA- Notes, 2.870% due 2/1/07.................................. 1,785,308
1,000,000 A+ Sub. Notes, 4.950% due 10/30/14........................... 1,005,582
500,000 A Wachovia Bank NA, Sub. Notes, 4.800% due 11/1/14............ 497,829
900,000 A- Washington Mutual Bank, Sub. Notes, 5.650% due 8/15/14...... 932,673
- --------------------------------------------------------------------------------------------------------
14,897,426
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
30
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(B) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
BROKERAGE -- 3.8%
$ 600,000 BBB- Glencore Funding LLC, Notes, 6.000% due 4/15/14 (c)......... $ 581,501
2,100,000 A+ The Goldman Sachs Group, Inc., Notes, 5.250% due 10/15/13... 2,152,271
1,300,000 A Lehman Brothers Holdings Inc., Medium-Term Notes, Series G,
4.800% due 3/13/14........................................ 1,284,629
Merrill Lynch & Co., Inc., Notes, Series C:
1,400,000 A+ 4.125% due 9/10/09........................................ 1,400,519
700,000 A+ 5.000% due 1/15/15........................................ 698,618
1,000,000 A+ Morgan Stanley, Notes, 6.600% due 4/1/12.................... 1,116,941
- --------------------------------------------------------------------------------------------------------
7,234,479
- --------------------------------------------------------------------------------------------------------
CONGLOMERATES -- 1.0%
1,800,000 BBB Tyco International Group SA, Notes, 6.125% due 11/1/08...... 1,940,974
- --------------------------------------------------------------------------------------------------------
CONSTRUCTION -- 0.4%
800,000 BBB- MDC Holdings, Inc., Notes, 5.500% due 5/15/13............... 813,605
- --------------------------------------------------------------------------------------------------------
DISTRIBUTORS -- 0.4%
700,000 A+ Southern California Gas Co., First Mortgage Bonds, Series
II,
4.375% due 1/15/11........................................ 703,048
- --------------------------------------------------------------------------------------------------------
ENERGY -- 6.5%
700,000 BBB+ Anadarko Finance Co., Notes, Series B, 6.750% due 5/1/11.... 789,380
300,000 BBB+ Consolidated Natural Gas Co., Sr. Notes, 5.000% due
12/1/14................................................... 300,870
400,000 A- Cooper Cameron Corp., Sr. Notes, 2.650% due 4/15/07......... 389,742
700,000 BBB+ Dominion Resources, Inc., Sr. Notes, Series F, 5.250% due
8/1/33.................................................... 702,677
700,000 BBB- Duke Capital LLC, Sr. Notes, 4.331% due 11/16/06............ 709,098
870,000 BBB Duke Energy Field Services LLC, Notes, 7.500% due 8/16/05... 893,121
2,400,000 AAA General Electric Co., Notes, 5.000% due 2/1/13.............. 2,466,386
300,000 BBB+ Kinder Morgan Energy Partners L.P., Notes, 5.125% due
11/15/14.................................................. 299,978
3,600,000 B+ Transcontinental Gas Pipe Line Corp., Notes, 6.125% due
1/15/05................................................... 3,600,000
2,200,000 BBB- Xcel Energy Inc., Sr. Notes, 3.400% due 7/1/08.............. 2,158,666
- --------------------------------------------------------------------------------------------------------
12,309,918
- --------------------------------------------------------------------------------------------------------
FINANCE CAPTIVE -- 2.8%
1,000,000 BBB Devon Financing Corp., ULC, Notes, 6.875% due 9/30/11....... 1,134,106
Ford Motor Credit Co.:
Global Landmark Securities(TM):
1,900,000 BBB- 6.875% due 2/1/06....................................... 1,957,885
400,000 BBB- 7.450% due 7/16/31...................................... 403,458
200,000 BBB- Notes, 5.700% due 1/15/10................................. 202,039
General Motors Acceptance Corp., Notes:
1,200,000 BBB- 7.250% due 3/2/11......................................... 1,257,910
300,000 BBB- 6.875% due 9/15/11........................................ 307,847
- --------------------------------------------------------------------------------------------------------
5,263,245
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
31
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(B) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
FINANCE NON-CAPTIVE -- 3.6%
$ 1,000,000 AAA AIG Sunamerica Global Financing VII, Sr. Notes, 5.850% due
8/1/08 (c)................................................ $ 1,066,138
1,700,000 A+ American General Finance, Medium-Term Notes, Series I,
3.875% due 10/1/09........................................ 1,674,616
1,130,000 A Countrywide Home Loans, Inc., Medium-Term Notes, Series L,
4.000% due 3/22/11........................................ 1,100,147
2,590,000 A Household Finance Corp., Notes, 6.375% due 11/27/12......... 2,866,133
- --------------------------------------------------------------------------------------------------------
6,707,034
- --------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE -- 1.2%
700,000 A+ Bottling Group LLC, Notes, 4.625% due 11/15/12.............. 712,094
1,400,000 BBB Safeway Inc., Notes, 6.500% due 3/1/11...................... 1,535,215
- --------------------------------------------------------------------------------------------------------
2,247,309
- --------------------------------------------------------------------------------------------------------
HEALTHCARE -- 0.4%
700,000 BBB+ Anthem Inc., Bonds, 6.800% due 8/1/12....................... 793,645
- --------------------------------------------------------------------------------------------------------
INSURANCE -- 1.9%
1,700,000 AAA MassMutual Global Funding II, Notes, 2.550% due 7/15/08
(c)....................................................... 1,632,830
1,900,000 AA+ New York Life Global Funding, Medium-Term Notes,
5.375% due 9/15/13 (c).................................... 1,980,421
- --------------------------------------------------------------------------------------------------------
3,613,251
- --------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 0.5%
1,000,000 BBB- Computer Associates Inc., Sr. Notes, 4.750% due 12/1/09
(c)....................................................... 1,008,410
- --------------------------------------------------------------------------------------------------------
MEDIA -- 6.1%
400,000 BBB- Clear Channel Communications, Inc., Sr. Notes, 4.400% due
5/15/11................................................... 388,905
900,000 BBB Comcast Cable Communications, Inc., Exchange Notes, 8.500%
due 5/1/27................................................ 1,197,907
3,700,000 BB+ Cox Enterprises Inc., Notes, 7.875% due 9/15/10 (c)......... 4,170,807
2,000,000 BBB- Liberty Media Corp., Sr. Notes, 3.380% due 9/17/06 (a)...... 2,025,020
3,600,000 BBB+ Time Warner Inc., Notes, 6.150% due 5/1/07.................. 3,810,708
- --------------------------------------------------------------------------------------------------------
11,593,347
- --------------------------------------------------------------------------------------------------------
METALS -- 0.4%
600,000 BBB- Phelps Dodge Corp., Sr. Notes, 8.750% due 6/1/11............ 732,491
- --------------------------------------------------------------------------------------------------------
PAPER PRODUCTS -- 0.4%
700,000 BBB International Paper Co., Notes, 5.300% due 4/1/15........... 709,604
- --------------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.2%
2,200,000 A Wyeth, Notes, 5.500% due 2/1/14............................. 2,280,148
- --------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 3.4%
500,000 BBB HRPT Properties Trust, Sr. Notes, 6.250% due 8/15/16........ 528,492
460,000 BBB- iStar Financial Inc., Sr. Notes, 6.000% due 12/15/10........ 485,826
200,000 A- Kimco Realty Corp., Notes, 2.360% due 8/1/06 (a)............ 200,056
250,000 BBB- Nationwide Health Properties, Inc., Medium-Term Notes,
Series C,
6.900% due 10/1/37........................................ 270,395
5,000,000 BBB Post Apartment Homes, L.P., MOPPRS(SM), 6.850% due
3/16/15................................................... 5,024,585
- --------------------------------------------------------------------------------------------------------
6,509,354
- --------------------------------------------------------------------------------------------------------
SUPERMARKETS -- 0.8%
1,300,000 BBB Fred Meyer, Inc., Notes, 7.450% due 3/1/08.................. 1,434,311
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
32
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(B) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.4%
$ 400,000 A Bellsouth Corp., Notes, 4.750% due 11/15/12................. $ 403,111
2,000,000 BBB+ Deutsche Telekom International Finance B.V., Bonds, 7.750%
due 6/15/05............................................... 2,046,834
700,000 A SBC Communications, Notes, 5.100% due 9/15/14............... 707,848
1,350,000 BBB- Sprint Capital Corp., Notes, 6.125% due 11/15/08............ 1,449,018
Telecom Italia Capital SA, Global Notes:
300,000 BBB+ 4.000% due 1/15/10 (c).................................... 294,477
2,700,000 BBB+ 5.250% due 11/15/13 (c)................................... 2,733,785
600,000 A+ Verizon New York, Inc., Debentures, Series A, 6.875% due
4/1/12.................................................... 674,460
- --------------------------------------------------------------------------------------------------------
8,309,533
- --------------------------------------------------------------------------------------------------------
TOBACCO -- 0.9%
1,700,000 BBB Altria Group, Inc., Notes, 5.625% due 11/4/08............... 1,768,292
- --------------------------------------------------------------------------------------------------------
UTILITIES -- 4.3%
2,800,000 BBB Pepco Holdings, Inc., Notes, 5.500% due 8/15/07............. 2,913,532
750,000 BB- PSEG Energy Holdings Inc., Sr. Notes, 8.625% due 2/15/08.... 826,875
1,800,000 BBB+ SCANA Corp., Sr. Notes, 2.740% due 11/15/06 (a)............. 1,804,950
1,700,000 AA- SP PowerAssets Ltd., Notes, 5.000% due 10/22/13 (c)......... 1,728,072
800,000 BBB- TransAlta Corp., Notes, 5.750% due 12/15/13................. 825,237
- --------------------------------------------------------------------------------------------------------
8,098,666
- --------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $100,263,861)...... 102,573,650
- --------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 4.4%
1,031,836 AAA California Infrastructure PG&E-1, Series 1997-1, Class A7,
6.420% due 9/25/08........................................ 1,063,571
1,000,000 AAA Chase Funding Trust, Series 2002-2, Class 1A5, 5.833% due
4/25/32................................................... 1,040,813
1,352,894 AAA DaimlerChrysler Auto Trust, Series 2001-C, Class A4, 4.630%
due 12/6/06............................................... 1,360,327
1,700,000 AAA Discover Card Master Trust I, Series 1996-3, Class A, 6.050%
due 8/18/08............................................... 1,754,733
2,200,000 AAA Ford Credit Auto Owner Trust, Series 2002-B, Class A4,
4.750% due 8/15/06........................................ 2,218,394
795,269 AAA Toyota Auto Receivables Owner Trust, Series 2002-C, Class
A3,
2.650% due 11/15/06....................................... 795,241
- --------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (Cost -- $8,553,246).......... 8,233,079
- --------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 6.3%
2,800,000 AAA Banc of America Commercial Mortgage Inc., Series 2004-6,
Class AJ, 4.870% due 12/10/42............................. 2,792,453
1,500,000 AAA Credit Suisse First Boston Mortgage Securities Corp., Series
2003-C5, Class A4, 4.900% due 12/15/36.................... 1,515,701
3,000,000 AAA JPMorgan Chase Commercial Mortgage Securities Corp., Series
2004-C3, Class AJ, 4.922% due 1/15/42..................... 2,995,890
LB-UBS Commercial Mortgage Trust:
1,090,000 AAA Series 2002-C4, Class A5, 4.853% due 9/15/31.............. 1,111,124
2,000,000 AAA Series 2003-C3, Class A2, 3.086% due 5/15/27.............. 1,950,799
1,450,000 AAA Wachovia Bank Commercial Mortgage Trust, Series, 2003-C6,
Class A3, 4.957% due 8/15/35.............................. 1,491,861
- --------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $11,863,061) 11,857,828
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
33
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
TRAVELERS QUALITY BOND PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.7%
$10,862,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $10,863,267; (Fully
collateralized by U.S. Treasury Bond, 11.250% due 2/15/15;
Market value -- $11,084,865) (Cost -- $10,862,000)........ $ 10,862,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.4% (Cost -- $186,853,953*).......... 188,123,133
Other Assets in Excess of Liabilities -- 0.6%............... 1,191,854
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $189,314,987
- --------------------------------------------------------------------------------------------------------
</Table>
(a) Variable rate 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 $188,418,237.
Abbreviation used in this schedule:
MOPPRS(SM) -- MandatOry Par Put Remarketed Securities(SM) and MOPPRS(SM) are
service marks owned by Merrill Lynch & Co., Inc.
See page 71 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
34
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCK -- 98.1%
FINLAND -- 4.6%
377,200 Nokia Oyj................................................... $ 5,933,355
154,900 Stora Enso Oyj, Series R Shares (a)......................... 2,363,186
- -------------------------------------------------------------------------------------------
8,296,541
- -------------------------------------------------------------------------------------------
FRANCE -- 11.7%
55,000 Carrefour S.A. (a).......................................... 2,608,851
113,300 Credit Agricole S.A. (a).................................... 3,404,908
27,000 Lagardere S.C.A. (a)........................................ 1,940,800
55,185 Sanofi-Aventis (a).......................................... 4,392,592
12,800 Schneider Electric S.A. .................................... 887,161
23,251 Total S.A. (a).............................................. 5,058,014
91,400 Vivendi Universal S.A. (b).................................. 2,906,375
- -------------------------------------------------------------------------------------------
21,198,701
- -------------------------------------------------------------------------------------------
GERMANY -- 11.5%
235,000 Deutsche Telekom AG (a)(b).................................. 5,296,690
45,300 E.ON AG (a)................................................. 4,112,295
1,440 Porsche AG, Preferred Shares (a)............................ 915,210
53,200 Schering AG................................................. 3,961,647
37,900 Siemens AG (a).............................................. 3,200,421
75,600 Volkswagen AG............................................... 3,413,030
- -------------------------------------------------------------------------------------------
20,899,293
- -------------------------------------------------------------------------------------------
IRELAND -- 2.9%
193,400 Bank of Ireland............................................. 3,186,174
76,042 CRH PLC..................................................... 2,027,579
- -------------------------------------------------------------------------------------------
5,213,753
- -------------------------------------------------------------------------------------------
ITALY -- 4.1%
196,900 Enel S.p.A.................................................. 1,927,110
173,650 Eni S.p.A. (a).............................................. 4,329,990
414,000 Terna S.p.A. (b)............................................ 1,182,511
- -------------------------------------------------------------------------------------------
7,439,611
- -------------------------------------------------------------------------------------------
JAPAN -- 19.1%
20,650 ACOM CO., LTD. ............................................. 1,541,765
8,100 AIFUL CORP. ................................................ 888,611
309 East Japan Railway Co. ..................................... 1,714,494
43,700 FANUC LTD. ................................................. 2,850,093
359,000 FUJITSU LTD. (a)............................................ 2,330,897
214,000 Mitsubishi Estate Co., Ltd. ................................ 2,499,757
53,300 MURATA MANUFACTURING CO., LTD. ............................. 2,972,929
26,700 NEC Electronics Corp. (a)................................... 1,299,523
317,000 NISSAN MOTOR CO., LTD. (a).................................. 3,437,535
263,000 Nomura Holdings, Inc. ...................................... 3,824,803
1,173 NTT DoCoMo, Inc. (a)........................................ 2,158,055
67,000 Shin-Etsu Chemical Co., Ltd. ............................... 2,739,219
253,000 The Sumitomo Trust and Banking Co., Ltd. ................... 1,824,910
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
35
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------
JAPAN -- 19.1% (CONTINUED)
34,900 Takeda Pharmaceutical Co., Ltd. ............................ $ 1,752,984
683,000 TOKYO GAS CO., LTD. (a)..................................... 2,792,368
- -------------------------------------------------------------------------------------------
34,627,943
- -------------------------------------------------------------------------------------------
THE NETHERLANDS -- 6.3%
50,457 Heineken NV (a)............................................. 1,675,489
117,572 Koninklijke (Royal) Philips Electronics N.V. ............... 3,105,158
116,500 Royal Dutch Petroleum Co. (a)............................... 6,678,852
- -------------------------------------------------------------------------------------------
11,459,499
- -------------------------------------------------------------------------------------------
NORWAY -- 1.8%
123,000 DNB NOR ASA................................................. 1,208,202
129,500 Statoil ASA................................................. 2,022,506
- -------------------------------------------------------------------------------------------
3,230,708
- -------------------------------------------------------------------------------------------
SINGAPORE -- 1.2%
252,800 Oversea-Chinese Banking Corp., Ltd. ........................ 2,090,664
- -------------------------------------------------------------------------------------------
SWITZERLAND -- 6.8%
56,200 Compagnie Financiere Richemont AG, Class A Shares........... 1,864,303
111,030 Credit Suisse Group (b)..................................... 4,651,388
9,900 Nestle S.A. ................................................ 2,581,288
45,600 Swiss Reinsurance Co. ...................................... 3,241,157
- -------------------------------------------------------------------------------------------
12,338,136
- -------------------------------------------------------------------------------------------
UNITED KINGDOM -- 28.1%
378,800 Barclays PLC................................................ 4,252,739
260,800 BP PLC...................................................... 2,538,238
197,696 Cadbury Schweppes PLC....................................... 1,836,964
274,974 Diageo PLC.................................................. 3,914,187
72,100 EMAP PLC.................................................... 1,126,472
240,800 GlaxoSmithKline PLC......................................... 5,637,529
323,107 HSBC Holdings PLC........................................... 5,441,221
93,220 Imperial Tobacco Group PLC.................................. 2,548,556
148,260 Kesa Electricals PLC........................................ 802,423
241,700 Marks & Spencer Group PLC................................... 1,588,298
340,200 Prudential PLC.............................................. 2,952,525
640,500 Rentokil Initial PLC........................................ 1,813,041
61,700 Rio Tinto PLC............................................... 1,812,126
156,400 Royal Bank of Scotland Group PLC............................ 5,249,670
383,500 Unilever PLC................................................ 3,758,133
2,053,800 Vodafone Group PLC.......................................... 5,557,862
- -------------------------------------------------------------------------------------------
50,829,984
- -------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $147,714,557)................... 177,624,833
- -------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
36
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
LAZARD INTERNATIONAL STOCK PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.3%
$ 4,184,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $4,184,488; (Fully
collateralized by U.S. Treasury Bond, 8.125% due 8/15/21;
Market value -- $4,268,559) (Cost -- $4,184,000).......... $ 4,184,000
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.4% (Cost -- $151,898,557*)......... 181,808,833
Liabilities in Excess of Other Assets -- (0.4)%............. (634,659)
- -------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $181,174,174
- -------------------------------------------------------------------------------------------
<Caption>
SHARES
- -------------------------------------------------------------------------------------------
LOANED SECURITIES COLLATERAL
44,468,432 State Street Navigator Securities Lending Trust Prime
Portfolio (Cost -- $44,468,432)........................... $ 44,468,432
- -------------------------------------------------------------------------------------------
</Table>
(a) All or a portion of this security is on loan (See Notes 1 and 3).
(b) Non-income producing security.
* Aggregate cost for federal income tax purposes is $153,239,749.
SUMMARY OF INVESTMENTS BY SECTOR**
<Table>
- -----------------------------------------------------------------------
Financials.................................................. 25.4%
Consumer Discretionary...................................... 11.6
Energy...................................................... 11.4
Consumer Staples............................................ 10.4
Healthcare.................................................. 8.7
Telecommunication Services.................................. 7.2
Information Technology...................................... 6.8
Industrials................................................. 5.8
Utilities................................................... 5.5
Other....................................................... 7.2
- -----------------------------------------------------------------------
100.0%
- -----------------------------------------------------------------------
</Table>
** As a percentage of total investments. Please note that Fund holdings are as
of December 31, 2004 and are subject to change.
SEE NOTES TO FINANCIAL STATEMENTS.
37
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCK -- 99.5%
- -----------------------------------------------------------------------------------------
BASIC MATERIALS -- 0.2%
CHEMICALS -- 0.2%
13,730 Nalco Holding Co. (a)....................................... $ 268,010
- -----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 20.1%
HOTELS RESTAURANTS & LEISURE -- 4.3%
40,890 Carnival Corp. ............................................. 2,356,491
12,160 The Cheesecake Factory Inc. (a)............................. 394,835
5,920 Four Seasons Hotels, Inc. .................................. 484,197
19,070 International Game Technology............................... 655,627
40,180 Royal Caribbean Cruises Ltd. ............................... 2,187,399
6,900 Starbucks Corp. (a)......................................... 430,284
17,770 WMS Industries Inc. (a)..................................... 596,006
- -----------------------------------------------------------------------------------------
7,104,839
- -----------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.8%
13,160 Harman International Industries, Inc. ...................... 1,671,320
10,800 Nintendo Co., Ltd. ......................................... 1,353,022
- -----------------------------------------------------------------------------------------
3,024,342
- -----------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL -- 2.0%
28,840 eBay Inc. (a)............................................... 3,353,515
- -----------------------------------------------------------------------------------------
MEDIA -- 7.5%
44,230 Citadel Broadcasting Co. (a)................................ 715,641
10,280 DreamWorks Animation SKG, Inc. (a).......................... 385,603
54,640 EchoStar Communications Corp., Class A Shares (a)........... 1,816,234
46,790 Getty Images, Inc. (a)...................................... 3,221,492
21,990 Grupo Televisa, SA, Sponsored ADR........................... 1,330,395
49,480 News Corp., Class A Shares.................................. 923,297
21,200 Playboy Enterprises, Inc., Class B Shares (a)............... 260,548
40,730 Publishing & Broadcasting Ltd. ............................. 556,071
35,910 Telewest Global, Inc. (a)................................... 631,298
40,490 The Walt Disney Co. ........................................ 1,125,622
50,080 Westwood One, Inc. (a)...................................... 1,348,654
- -----------------------------------------------------------------------------------------
12,314,855
- -----------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.8%
38,010 Family Dollar Stores, Inc. ................................. 1,187,052
33,490 Target Corp. ............................................... 1,739,136
- -----------------------------------------------------------------------------------------
2,926,188
- -----------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 1.6%
34,240 The Home Depot, Inc. ....................................... 1,463,418
37,690 Tiffany & Co. .............................................. 1,204,949
- -----------------------------------------------------------------------------------------
2,668,367
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
38
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
TEXTILES & APPAREL -- 1.1%
9,480 Coach, Inc. (a)............................................. $ 534,672
14,570 Nike, Inc., Class B Shares.................................. 1,321,353
- -----------------------------------------------------------------------------------------
1,856,025
- -----------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 33,248,131
- -----------------------------------------------------------------------------------------
CONSUMER STAPLES -- 2.7%
BEVERAGES -- 1.2%
15,820 Anheuser-Busch Cos., Inc. .................................. 802,549
23,910 PepsiCo, Inc. .............................................. 1,248,102
- -----------------------------------------------------------------------------------------
2,050,651
- -----------------------------------------------------------------------------------------
FOOD & DRUG RETAILING -- 1.5%
26,000 CVS Corp. .................................................. 1,171,820
35,790 Walgreen Co. ............................................... 1,373,262
- -----------------------------------------------------------------------------------------
2,545,082
- -----------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 4,595,733
- -----------------------------------------------------------------------------------------
ENERGY -- 2.3%
ENERGY EQUIPMENT & SERVICES -- 2.3%
28,810 BJ Services Co. ............................................ 1,340,817
41,710 GlobalSantaFe Corp. ........................................ 1,381,018
18,840 Smith International, Inc. (a)............................... 1,025,084
- -----------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 3,746,919
- -----------------------------------------------------------------------------------------
FINANCIALS -- 4.9%
BANKS -- 0.5%
18,030 Investors Financial Services Corp. ......................... 901,139
- -----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 4.4%
37,650 American Express Co. ....................................... 2,122,331
57,350 Ameritrade Holding Corp. (a)................................ 815,517
8,020 The Goldman Sachs Group, Inc. .............................. 834,401
35,910 Legg Mason, Inc. ........................................... 2,630,767
9,610 Lehman Brothers Holdings Inc. .............................. 840,683
- -----------------------------------------------------------------------------------------
7,243,699
- -----------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 8,144,838
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
39
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
HEALTHCARE -- 23.3%
BIOTECHNOLOGY -- 6.2%
19,610 Amgen Inc. (a).............................................. $ 1,257,982
26,040 Celgene Corp. (a)........................................... 690,841
23,570 Gen-Probe Inc. (a).......................................... 1,065,600
45,690 Genzyme Corp. (a)........................................... 2,653,218
37,040 Gilead Sciences, Inc. (a)................................... 1,296,030
29,450 ImClone Systems Inc. (a).................................... 1,357,056
45,700 MedImmune, Inc. (a)......................................... 1,238,927
15,170 Neurocrine Biosciences, Inc. (a)............................ 747,881
- -----------------------------------------------------------------------------------------
10,307,535
- -----------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES -- 9.5%
38,010 Baxter International, Inc. ................................. 1,312,865
10,980 C.R. Bard, Inc. ............................................ 702,500
154,950 Cytyc Corp. (a)............................................. 4,271,972
14,610 DENTSPLY International Inc. ................................ 821,082
40,923 Fisher Scientific International Inc. (a).................... 2,552,777
23,260 Guidant Corp. .............................................. 1,677,046
47,620 Medtronic, Inc. ............................................ 2,365,285
33,810 Millipore Corp. (a)......................................... 1,684,076
3,700 Synthes, Inc. (a)........................................... 413,453
- -----------------------------------------------------------------------------------------
15,801,056
- -----------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 1.3%
21,090 Community Health Systems Inc. (a)........................... 587,989
37,640 HCA Inc. ................................................... 1,504,094
- -----------------------------------------------------------------------------------------
2,092,083
- -----------------------------------------------------------------------------------------
PHARMACEUTICALS -- 6.3%
23,650 Allergan, Inc. ............................................. 1,917,306
21,510 Endo Pharmaceuticals Holdings Inc. (a)...................... 452,140
24,440 Johnson & Johnson........................................... 1,549,985
64,680 Medicis Pharmaceutical Corp., Class A Shares................ 2,270,915
24,460 Novartis AG................................................. 1,228,359
14,190 Roche Holding AG............................................ 1,627,933
10,440 Watson Pharmaceuticals, Inc. (a)............................ 342,536
24,710 Wyeth....................................................... 1,052,399
- -----------------------------------------------------------------------------------------
10,441,573
- -----------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 38,642,247
- -----------------------------------------------------------------------------------------
INDUSTRIALS -- 9.2%
AIR FREIGHT & COURIERS -- 0.4%
11,840 Expeditors International of Washington, Inc. ............... 661,619
- -----------------------------------------------------------------------------------------
AIRLINES -- 0.4%
31,150 JetBlue Airways Corp. (a)................................... 723,303
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
40
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 6.5%
36,260 Alliance Data Systems Corp. (a)............................. $ 1,721,625
14,090 Apollo Group, Inc., Class A Shares (a)...................... 1,137,204
41,090 Career Education Corp. (a).................................. 1,643,600
40,010 Ceridian Corp. (a).......................................... 731,383
10,880 The Corporate Executive Board Co. .......................... 728,307
44,450 DST Systems, Inc. (a)....................................... 2,316,734
484 Employee Solutions, Inc. (a)................................ 0
10,240 Hewitt Associates, Inc. (a)................................. 327,782
15,530 Manpower Inc. .............................................. 750,099
21,280 Paychex, Inc. .............................................. 725,222
5,480 Strayer Education, Inc. .................................... 601,649
- -----------------------------------------------------------------------------------------
10,683,605
- -----------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.8%
38,040 Tyco International Ltd. .................................... 1,359,550
- -----------------------------------------------------------------------------------------
MACHINERY -- 1.1%
2,930 Caterpillar Inc. ........................................... 285,704
15,720 Illinois Tool Works Inc. ................................... 1,456,930
- -----------------------------------------------------------------------------------------
1,742,634
- -----------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 15,170,711
- -----------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 27.2%
COMMUNICATIONS EQUIPMENT -- 3.6%
15,530 AudioCodes Ltd. (a)......................................... 257,953
102,378 Cisco Systems, Inc. (a)..................................... 1,975,895
74,180 Comverse Technology, Inc. (a)............................... 1,813,701
13,920 Harris Corp. ............................................... 860,117
41,011 Juniper Networks, Inc. (a).................................. 1,115,089
- -----------------------------------------------------------------------------------------
6,022,755
- -----------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 3.7%
10,650 Apple Computer, Inc. (a).................................... 685,860
84,670 Dell Inc. (a)............................................... 3,567,994
63,340 EMC Corp. (a)............................................... 941,866
10,480 Lexmark International, Inc., Class A Shares (a)............. 890,800
- -----------------------------------------------------------------------------------------
6,086,520
- -----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.5%
26,230 Symbol Technologies, Inc. .................................. 453,779
44,620 Waters Corp. (a)............................................ 2,087,770
- -----------------------------------------------------------------------------------------
2,541,549
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
41
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 5.0%
35,190 Akamai Technologies, Inc. (a)............................... $ 458,526
40,340 Check Point Software Technologies (a)....................... 993,574
11,860 Google Inc., Class A Shares (a)............................. 2,290,166
25,710 IAC/InterActiveCorp. (a).................................... 710,110
18,100 Softbank Corp. ............................................. 879,188
78,150 Yahoo! Inc. (a)............................................. 2,944,692
- -----------------------------------------------------------------------------------------
8,276,256
- -----------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 3.7%
29,630 Analog Devices, Inc. ....................................... 1,093,940
13,840 Integrated Circuit Systems, Inc. (a)........................ 289,533
27,590 Marvell Technology Group Ltd. (a)........................... 978,617
56,740 PMC-Sierra, Inc. (a)........................................ 638,325
5,180 Samsung Electronics Co., Ltd. .............................. 1,134,420
30,060 Silicon Laboratories Inc. (a)............................... 1,061,419
32,140 Xilinx, Inc. ............................................... 952,951
- -----------------------------------------------------------------------------------------
6,149,205
- -----------------------------------------------------------------------------------------
SOFTWARE -- 9.7%
29,850 Activision, Inc. (a)........................................ 602,373
98,800 Amdocs Ltd. (a)............................................. 2,593,500
10,120 Business Objects S.A., Sponsored ADR (a).................... 256,441
36,290 Citrix Systems, Inc. (a).................................... 890,194
784 Computer Associates International, Inc. .................... 24,351
39,390 Electronic Arts Inc. (a).................................... 2,429,575
19,600 Macromedia, Inc. (a)........................................ 609,952
47,360 Mercury Interactive Corp. (a)............................... 2,157,248
16,930 National Instruments Corp. ................................. 461,342
161,860 Oracle Corp. (a)............................................ 2,220,719
32,040 Red Hat, Inc. (a)........................................... 427,734
39,340 Symantec Corp. (a).......................................... 1,013,398
81,740 VERITAS Software Corp. (a).................................. 2,333,677
- -----------------------------------------------------------------------------------------
16,020,504
- -----------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 45,096,789
- -----------------------------------------------------------------------------------------
MATERIALS -- 0.6%
METALS & MINING -- 0.6%
7,400 Aber Diamond Corp. (a)...................................... 261,100
23,230 Companhia Vale do Rio Doce, ADR............................. 673,902
- -----------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 935,002
- -----------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 9.0%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.3%
32,987 NTL Inc. (a)................................................ 2,406,732
53,900 Sprint Corp. ............................................... 1,339,415
- -----------------------------------------------------------------------------------------
3,746,147
- -----------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
42
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
MFS EMERGING GROWTH PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 6.7%
39,960 America Movil S.A. de C.V., ADR, Series L Shares............ $ 2,091,906
190,410 American Tower Corp., Class A Shares (a).................... 3,503,544
61,290 Crown Castle International Corp. (a)........................ 1,019,866
43,220 SpectraSite, Inc. (a)....................................... 2,502,438
72,813 Vodafone Group PLC, Sponsored ADR........................... 1,993,620
- -----------------------------------------------------------------------------------------
11,111,374
- -----------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 14,857,521
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $131,038,785)................... 164,705,901
- -----------------------------------------------------------------------------------------
<Caption>
WARRANTS
- -----------------------------------------------------------------------------------------
WARRANTS (A) -- 0.0%
COMMUNICATIONS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
174 Lucent Technologies Inc. Expire 12/10/07 (Cost -- $0)....... 275
- -----------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 2.4%
$ 3,950,000 Fannie Mae Discount Notes, zero coupon bond to yield 1.270%
due 1/3/05
(Cost -- $3,949,726)........................................ 3,949,726
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 101.9% (Cost -- $134,988,511*)......... 168,655,902
Liabilities in Excess of Other Assets -- (1.9%)............. (3,211,272)
- -----------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $165,444,630
- -----------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
* Aggregate cost for federal income tax purposes is $136,867,777.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
43
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 95.8%
- ----------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE -- 2.0%
$ 175,000 B Alliant Techsystems, Inc., 8.500% due 5/15/11.................... $ 192,500
150,000 B Argo-Tech Corp., Sr. Notes, 9.250% due 6/1/11.................... 165,375
Hexcel Corp.:
50,000 B Sr. Secured Notes, 9.875% due 10/1/08.......................... 55,750
350,000 CCC+ Sr. Sub. Notes, 9.750% due 1/15/09............................. 365,750
75,000 B- K & F Acquisition, Inc., Sr. Sub. Notes, 7.750% due 11/15/14
(b)............................................................ 77,813
425,000 BB+ L-3 Communications Corp., Sr. Sub. Notes, 6.125% due 1/15/14..... 439,875
150,000 B- Standard Aero Holdings, Inc., Sr. Sub. Notes, 8.250% due 9/1/14
(b)............................................................ 162,750
225,000 B- Transdigm, Inc., Sr. Sub. Notes, 8.375% due 7/15/11.............. 242,437
- ----------------------------------------------------------------------------------------------------------
1,702,250
- ----------------------------------------------------------------------------------------------------------
AUTOMOTIVE -- 3.8%
200,000 CCC+ Accuride Corp., Sr. Sub. Notes, Series B, 9.250% due 2/1/08...... 204,000
250,000 CCC+ Advanced Accessory Systems LLC, Sr. Notes, 10.750% due 6/15/11... 238,750
100,000 B Affinia Group, Inc., 9.000% due 11/30/14 (b)..................... 104,750
250,000 B Cooper Standard Auto, Notes, 8.375% due 12/15/14 (b)............. 250,625
General Motors, Corp.:
325,000 BBB- Debentures, 8.375% due 7/15/33................................. 337,659
275,000 BBB- Sr. Notes, 7.125% due 7/15/13.................................. 281,863
100,000 BBB- Lear Corp., Sr. Notes, Series B, 7.960% due 5/15/05.............. 101,606
Stanadyne Corp.:
125,000 B- Sr. Discount Notes, step bond to yield 8.904% due 2/15/15
(b)............................................................ 74,531
250,000 B- Sr. Sub. Notes, 10.000% due 8/15/14 (b)........................ 271,250
275,000 B+ Stoneridge, Inc., Sr. Notes, 11.500% due 5/1/12.................. 321,062
175,000 B- Tenneco Automotive Inc., Sr. Sub. Notes, 8.625% due 11/15/14
(b)............................................................ 182,875
225,000 CCC+ Transportation Technologies Industries, Inc., Sr. Sub. Notes,
12.500% due 3/31/10 (b)........................................ 232,313
385,000 BB- TRW Automotive, Inc., Sr. Sub. Notes, 11.000% due 2/15/13........ 465,850
225,000 B United Components, Inc., Sr. Sub. Notes, 9.375% due 6/15/13...... 245,250
- ----------------------------------------------------------------------------------------------------------
3,312,384
- ----------------------------------------------------------------------------------------------------------
BUILDING MATERIALS -- 2.1%
275,000 B- AMH Holdings Inc., Sr. Discount Notes, step bond to yield 10.957%
due 3/1/14..................................................... 199,375
125,000 B- Associated Materials, Inc., Sr. Sub. Notes, 9.750% due 4/15/12... 140,312
200,000 B- Collins & Aikman Floorcovering, Inc., Sr. Sub. Notes,
Series B, 9.750% due 2/15/10................................... 216,000
Goodman Global Holdings Co., Inc.:
100,000 B- Sr. Notes, 5.760% due 6/15/12 (b)(c)........................... 102,000
200,000 B- Sr. Sub. Notes, 7.875% due 12/15/12 (b)........................ 199,000
150,000 B- Norcraft Cos LP/Norcraft Finance Corp., Sr. Sub. Notes,
9.000% due 11/1/11............................................. 162,750
425,000 B- Norcraft Holdings LP/Norcraft Capital Corp., Sr. Discount Notes,
step bond to yield 9.746% due 9/1/12........................... 320,875
200,000 B- Ply Gem Industries, Inc., Sr. Sub. Notes, 9.000% due 2/15/12..... 204,000
100,000 B- THL BuildCo Inc., Sr. Sub. Notes, 8.500% due 9/1/14 (b).......... 105,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
44
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
BUILDING MATERIALS -- 2.1% (CONTINUED)
$ 200,000 B- U.S. Concrete, Inc., Sr. Sub. Notes, 8.375% due 4/1/14........... $ 216,500
- ----------------------------------------------------------------------------------------------------------
1,865,812
- ----------------------------------------------------------------------------------------------------------
CHEMICALS -- 5.7%
100,000 CCC+ Aventine Renewable Energy, Secured Notes, 8.50125% due 12/15/11
(b)(c)......................................................... 101,500
275,000 B- BCP Caylux Holding Luxembourg SCA, Sr. Sub. Notes, 9.625% due
6/15/14 (b).................................................... 311,438
250,000 B- Borden U.S. Finance Corp./Nova Scotia Finance ULC, Secured Notes,
9.000% due 7/15/14 (b)......................................... 278,750
225,000 B- Compass Minerals Group, Inc., Sr. Sub. Notes, 10.000% due
8/15/11........................................................ 254,250
Compass Minerals International, Inc.:
275,000 B- Sr. Discount Notes, Series B, step bond to yield 11.980% due
6/1/13......................................................... 224,125
150,000 B- Sr. Notes, step bond to yield 12.740% due 12/15/12............. 129,000
500,000 B- Crystal U.S. Holdings 3 LLC/Crystal U.S. Sub. 3 Corp., Sr.
Discount Notes,
step bond to yield 9.919% due 10/1/14 (b)...................... 345,000
250,000 B+ Equistar Chemical, LP/Equistar Funding Corp., Sr. Notes, 10.125%
due 9/1/08..................................................... 289,375
125,000 BB+ FMC Corp., Secured Notes, 10.250% due 11/1/09.................... 144,063
150,000 B Huntsman Advanced Materials LLC, Sr. Secured Notes, 11.000% due
7/15/10 (b).................................................... 179,250
260,000 CCC+ Huntsman International LLC, Sr. Sub. Notes, 10.125% due 7/1/09... 274,950
27,000 BB IMC Global, Inc., Sr. Notes, Series B, 10.875% due 6/1/08........ 32,535
225,000 B+ INVISTA, Notes, 9.250% due 5/1/12 (b)............................ 252,000
150,000 B Koppers Inc., Sr. Notes, 9.875% due 10/15/13..................... 171,750
Lyondell Chemical Co.:
Sr. Secured Notes:
275,000 B+ 9.500% due 12/15/08.......................................... 299,750
50,000 B+ 10.500% due 6/1/13........................................... 59,750
75,000 B+ Series A, 9.625% due 5/1/07.................................. 82,875
105,000 B+ Series B, 9.875% due 5/1/07.................................. 110,513
250,000 B- Sr. Sub. Notes, 10.875% due 5/1/09............................. 265,625
27,616 B+ Millennium America Inc., Sr. Notes, 9.250% due 6/15/08........... 31,552
175,000 B- Nalco Co., Sr. Sub. Notes, 8.875% due 11/15/13................... 192,938
216,000 B- Nalco Finance Holdings, Inc., Sr. Notes, step bond to yield
9.711% due 2/1/14.............................................. 160,920
250,000 CCC+ Polypore Inc., Sr. Sub. Notes, 8.750% due 5/15/12................ 262,500
75,000 B- Rockwood Specialties Group, Inc., Sub. Notes, 7.500% due 11/15/14
(b)............................................................ 78,188
Union Carbide Chemicals & Plastics Co. Inc.:
50,000 BBB- Debentures, 7.875% due 4/1/23.................................. 52,750
200,000 BBB- Sr. Notes, 8.750% due 8/1/22................................... 211,750
Union Carbide Corp., Debentures:
75,000 BBB- 6.790% due 6/1/25.............................................. 76,688
50,000 BBB- 7.500% due 6/1/25.............................................. 51,250
- ----------------------------------------------------------------------------------------------------------
4,925,035
- ----------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY -- 1.6%
175,000 BB- AGCO Corp., Sr. Notes, 9.500% due 5/1/08......................... 187,250
400,000 BB- Case New Holland, Inc., Sr. Notes, 9.250% due 8/1/11 (b)......... 447,000
150,000 NR Clark Material Handling Co., Sr. Notes, Series D, 10.750% due
11/15/06 (d)(e)+............................................... 0
Columbus McKinnon Corp.:
50,000 B- Sr. Secured Notes, 10.000% due 8/1/10.......................... 56,500
275,000 CCC+ Sr. Sub. Notes, 8.500% due 4/1/08.............................. 277,750
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
45
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY -- 1.6% (CONTINUED)
$ 300,000 BB- NationsRent Co., Inc., Secured Notes, 9.500% due 10/15/10........ $ 337,500
125,000 BB- United Rentals North America Inc., Sr. Notes, 6.500% due
2/15/12........................................................ 122,500
- ----------------------------------------------------------------------------------------------------------
1,428,500
- ----------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 4.8%
225,000 B- AAC Group Holding Corp., Sr. Discount Notes, step bond to yield
8.904% due 10/1/12 (b)......................................... 152,437
75,000 B- American Achievement Corp., Sr. Sub. Notes, 8.250% due 4/1/12.... 78,187
200,000 CCC+ Ames True Temper, Inc., Sr. Sub. Notes, 10.000% due 7/15/12...... 206,000
150,000 B Chattem, Inc., Sr. Sub. Notes, 7.000% due 3/1/14................. 155,250
125,000 B+ Church & Dwight Co. Inc., Sr. Sub. Notes, 6.000% due 12/15/12
(b)............................................................ 127,813
50,000 NR Diamond Brands Operating Corp., Sr. Sub. Notes, 10.125% due
4/15/08 (d)(e)+................................................ 3,475
200,000 B- Icon Health & Fitness, Inc., Sr. Sub. Notes, 11.250% due
4/1/12......................................................... 169,000
325,000 B- Jarden Corp., Sr. Sub. Notes, 9.750% due 5/1/12.................. 362,375
475,000 B- Jostens Holding Corp., Sr. Discount Notes, step bond to yield
10.039% due 12/1/13............................................ 339,625
250,000 B- Jostens IH Corp., 7.625% due 10/1/12 (b)......................... 261,250
50,000 BB K2, Inc., Sr. Notes, 7.375% due 7/1/14 (b)....................... 55,000
200,000 CCC+ Leiner Health Products, Inc., Sr. Sub. Notes, 11.000% due
6/1/12......................................................... 219,500
275,000 CCC+ Playtex Products, Inc., Sr. Sub. Notes, 9.375% due 6/1/11........ 294,937
250,000 B- Sealy Mattress Co., Sr. Sub. Notes, 8.250% due 6/15/14........... 266,250
Simmons Bedding Co.:
275,000 B- Sr. Discount Notes, step bond to yield 11.323% due 12/15/14
(b)............................................................ 169,125
350,000 B- Sr. Sub. Notes, 7.875% due 1/15/14............................. 364,000
205,000 B Tempur-Pedic, Inc./Tempur Production U.S.A. Inc., Sr. Sub. Notes,
10.250% due 8/15/10............................................ 236,775
150,000 CCC+ True Temper Sports, Inc., Sr. Sub. Notes, 8.375% due 9/15/11..... 140,250
350,000 B- United Industries Corp., Sr. Sub. Notes, Series D, 9.875% due
4/1/09......................................................... 367,937
150,000 B WH Holdings Ltd./WH Capital Corp., Sr. Notes, 9.500% due
4/1/11......................................................... 165,750
- ----------------------------------------------------------------------------------------------------------
4,134,936
- ----------------------------------------------------------------------------------------------------------
DIVERSIFIED -- 2.9%
2,264,535 BB- Targeted Return Index Sector, Trains HY-2004-1, Secured Notes,
8.2105% due 8/1/15 (b)(c)...................................... 2,481,305
- ----------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING -- 0.4%
375,000 BBB Tyco International Group S.A., Notes, 5.800% due 8/1/06.......... 388,409
- ----------------------------------------------------------------------------------------------------------
ENERGY -- 1.1%
225,000 B Compton Petroleum Corp., Sr. Notes, 9.900% due 5/15/09........... 249,750
125,000 B- Inergy LP/Inergy Finance Corp., Sr. Notes, 6.875% due 12/15/14
(b)............................................................ 126,250
50,000 B- Lone Star Technologies, Inc., Sr. Sub. Notes, Series B, 9.000%
due 6/1/11..................................................... 53,750
150,000 BB- Petroleum Helicopters, Inc., Sr. Notes, Series B, 9.375% due
5/1/09......................................................... 165,000
75,000 B Range Resources, Corp., Sr. Sub. Notes, 7.375% due 7/15/13....... 80,812
250,000 B Swift Energy Co., Sr. Sub. Notes, 9.375% due 5/1/12.............. 281,250
- ----------------------------------------------------------------------------------------------------------
956,812
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
46
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 2.4%
$ 300,000 CCC+ AMC Entertainment, Inc., Sr. Sub. Notes, 9.875% due 2/1/12....... $ 328,500
525,000 B- Cinemark, Inc., Sr. Discount Notes, step bond to yield 9.474% due
3/15/14........................................................ 399,000
150,000 B- Cinemark U.S.A. Inc., Sr. Sub. Notes, 9.000% due 2/1/13.......... 171,937
200,000 B+ Intrawest Corp., Sr. Notes, 7.500% due 10/15/13 (b).............. 213,750
325,000 CCC+ LCE Acquisition Corp., Sr. Sub. Notes, 9.000% due 8/1/014 (b).... 353,438
425,000 B- Universal City Development Partners, Sr. Notes, 11.750% due
4/1/10......................................................... 504,156
Universal City Florida Holdings UCD, Sr. Notes:
50,000 B- 8.375% due 5/1/10 (b).......................................... 52,125
75,000 B- Step bond to yield 10.234% due 5/1/10 (b)(c)................... 78,375
- ----------------------------------------------------------------------------------------------------------
2,101,281
- ----------------------------------------------------------------------------------------------------------
ENVIRONMENTAL -- 1.4%
Allied Waste North America, Inc., Series B:
175,000 BB- 9.250% due 9/1/12.............................................. 190,313
625,000 BB- Sr. Notes, 7.625% due 1/1/06................................... 646,875
200,000 B Clean Harbors, Inc., Sr. Secured Notes, 11.250% due 7/15/12
(b)............................................................ 225,000
125,000 B Synagro Technologies, Inc., Sr. Sub. Notes, 9.500% due 4/1/09.... 136,875
- ----------------------------------------------------------------------------------------------------------
1,199,063
- ----------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE -- 6.0%
63,000 B- AgriLink Foods, Inc., Sr. Sub. Notes, 11.875% due 11/1/08........ 65,914
300,000 B- American Seafood Group LLC, Sr. Sub. Notes, 10.125% due
4/15/10........................................................ 322,500
425,000 B- ASG Consolidated LLC/ASG Finance Inc., Sr. Discount Notes,
step bond to yield 11.505% due 11/1/11 (b)..................... 273,062
150,000 B B&G Foods, Inc., Sr. Notes, 8.000% due 10/1/11................... 160,500
150,000 BB Constellation Brands, Inc., Sr. Notes, Series B, 8.000% due
2/15/08........................................................ 163,875
200,000 B+ Cott Beverages, Inc., Sr. Sub. Notes, 8.000% due 12/15/11........ 218,750
Del Monte Corp.:
150,000 B Series B, 9.250% due 5/15/11................................... 165,000
400,000 B Sr. Sub. Notes, 8.625% due 12/15/12............................ 450,000
Dole Foods Co., Sr. Notes:
275,000 B+ 8.625% due 5/1/09.............................................. 300,438
275,000 B+ 7.250% due 6/15/10............................................. 283,938
175,000 CCC Eagle Family Foods Holdings, Inc., Sr. Sub. Notes, Series B,
8.750% due 1/15/08............................................. 135,625
98,000 B Gold Kist, Inc., Sr. Notes, 10.250% due 3/15/14.................. 115,150
275,000 B- Michael Foods, Inc., Sr. Sub. Notes, 8.000% due 11/15/13......... 291,500
150,000 B- National Beef Packing Co./NB Finance Corp., LLC, Sr. Notes,
10.500% due 8/1/11............................................. 158,250
100,000 NR Nebco Evans Holding Co., Sr. Discount Notes, 12.375% due 7/15/07
(d)(e)+........................................................ 0
275,000 B- Pierre Foods, Inc., Sr. Sub. Notes, 9.875% due 7/15/12 (b)....... 286,000
Pilgrim's Pride Corp.:
100,000 BB- Sr. Notes, 9.625% due 9/15/11.................................. 113,000
175,000 B+ Sr. Sub. Notes, 9.250% due 11/15/13............................ 196,875
Reddy Ice Group, Inc.:
325,000 B- Sr. Discount Notes, step bond to yield 11.013% due 11/1/12
(b)............................................................ 225,875
200,000 B- Sr. Sub. Notes, 8.875% due 8/1/11.............................. 217,000
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
47
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE -- 6.0% (CONTINUED)
Smithfield Foods, Inc., Sr. Notes, Series B:
$ 250,000 BB 8.000% due 10/15/09............................................ $ 278,125
200,000 BB 7.750% due 5/15/13............................................. 223,500
Swift & Co.:
100,000 B+ Sr. Notes, 10.125% due 10/1/09................................. 112,000
125,000 B Sr. Sub. Notes, 12.500% due 1/1/10............................. 141,875
300,000 B- UAP Holding Corp., Sr. Discount Notes, step bond to yield
10.750% due 7/15/12 (b)........................................ 237,000
67,000 B United Agricultural Products Inc., Sr. Notes, 8.250% due 12/15/11
(b)(c)......................................................... 72,193
- ----------------------------------------------------------------------------------------------------------
5,207,945
- ----------------------------------------------------------------------------------------------------------
GAMING -- 5.7%
Boyd Gaming Corp., Sr. Sub. Notes:
100,000 B+ 8.750% due 4/15/12............................................. 111,750
175,000 B+ 7.750% due 12/15/12............................................ 191,844
Caesars Entertainment Inc., Sr. Sub. Notes:
275,000 BB- 7.875% due 3/15/10............................................. 311,094
300,000 BB- 8.125% due 5/15/11............................................. 348,000
500,000 BB+ Harrah's Operating Co., Inc., Sr. Sub. Notes, 7.875% due
12/15/05....................................................... 521,250
75,000 B- Herbst Gaming Inc., Sr. Sub. Notes, 7.000% due 11/15/14 (b)...... 76,313
Isle of Capri Casinos, Inc., Sr. Sub. Notes:
225,000 B 9.000% due 3/15/12............................................. 249,187
50,000 B 7.000% due 3/1/14.............................................. 51,250
225,000 B Kerzner International Ltd., Sr. Sub. Notes, 8.875% due 8/15/11... 246,937
150,000 B Majestic Star Casino LLC, Sr. Secured Notes, 9.500% due
10/15/10....................................................... 159,750
Mandalay Resort Group:
125,000 BB+ Sr. Notes, 9.500% due 8/1/08................................... 143,437
475,000 BB- Sr. Sub. Notes, Series B, 10.250% due 8/1/07................... 539,125
MGM MIRAGE:
150,000 BB+ Sr. Notes, 8.500% due 9/15/10.................................. 171,375
500,000 BB- Sr. Sub. Notes, 9.750% due 6/1/07.............................. 557,500
175,000 B+ Mohegan Tribal Gaming Authority, Sr. Sub. Notes, 8.000% due
4/1/12......................................................... 190,750
225,000 B+ MTR Gaming Group, Inc., Sr. Notes, Series B, 9.750% due 4/1/10... 248,625
Penn National Gaming, Inc., Sr. Sub. Notes:
50,000 B 8.875% due 3/15/10............................................. 54,813
175,000 B Series B, 11.125% due 3/1/08................................... 187,688
Station Casinos, Inc.:
50,000 BB- Sr. Notes, 6.000% due 4/1/12................................... 51,188
200,000 B+ Sr. Sub. Notes, 6.500% due 2/1/14.............................. 206,500
225,000 B Venetian Casino Resort LLC/Las Vegas Sands Inc., Mortgage Notes,
11.000% due 6/15/10............................................ 257,906
50,000 B Virgin River Casino Corp., Secured Notes, 9.000% due 1/15/12
(b)............................................................ 52,250
- ----------------------------------------------------------------------------------------------------------
4,928,532
- ----------------------------------------------------------------------------------------------------------
HEALTHCARE -- 4.7%
300,000 B- AmeriPath, Inc., Sr. Sub. Notes, 10.500% due 4/1/13.............. 320,250
225,000 B- Ardent Health Services Inc., Sr. Sub. Notes, 10.000% due
8/15/13........................................................ 237,375
125,000 BB- Bio-Rad Laboratories, Inc., Sr. Sub. Notes, 6.125% due 12/15/14
(b)............................................................ 126,562
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
48
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
HEALTHCARE -- 4.7% (CONTINUED)
$ 600,000 B- CDRV Investors, Inc., Sr. Discount Notes, step bond to yield
9.297% due 1/1/15 (b).......................................... $ 375,750
350,000 BB+ Columbia HCA Healthcare Co., Notes, 6.910% due 6/15/05........... 355,167
Concentra Operating Corp., Sr. Sub. Notes:
175,000 B- 9.500% due 8/15/10............................................. 198,625
50,000 NR 9.125% due 6/1/12 (b).......................................... 56,750
Fisher Scientific International Inc., Sr. Sub. Notes:
325,000 BB+ 8.000% due 9/1/13.............................................. 370,500
50,000 BB+ 6.750% due 8/15/14 (b)......................................... 53,875
100,000 CCC+ Hanger Orthopedic Group, Inc., Sr. Notes, 10.375% due 2/15/09.... 103,750
HCA Inc., Notes:
375,000 BB+ 8.750% due 9/1/10.............................................. 429,143
200,000 BB+ 6.750% due 7/15/13............................................. 208,201
175,000 BB+ 7.500% due 11/6/33............................................. 179,055
143,382 B+ Magellan Health Services, Inc., Sr. Notes, Series A, 9.375% due
11/15/08....................................................... 156,824
275,000 B- Medical Device Manufacturing, Inc., Sr. Sub. Notes, 10.000% due
7/15/12 (b).................................................... 297,687
250,000 B- National Mentor Inc., Sr. Sub. Notes, 9.625% due 12/1/12 (b)..... 266,875
150,000 BB- Sybron Dental Specialties, Inc., Sr. Sub. Notes, 8.125% due
6/15/12........................................................ 164,250
75,000 BB Ventas Realty LP, Sr. Notes, 6.625% due 10/15/14 (b)............. 77,063
75,000 B- VWR International, Inc., Sr. Sub. Notes, 8.000% due 4/15/14...... 80,438
- ----------------------------------------------------------------------------------------------------------
4,058,140
- ----------------------------------------------------------------------------------------------------------
INDUSTRIAL - OTHER -- 4.7%
250,000 B- Aearo Co. I., Sr. Sub. Notes, 8.250% due 4/15/12................. 258,750
100,000 B Amsted Industries, Inc., Sr. Notes, 10.250% due 10/15/11 (b)..... 113,500
300,000 CCC+ Brand Services, Inc., Sr. Sub. Notes, 12.000% due 10/15/12....... 337,500
175,000 B- Coleman Cable, Inc., Sr. Notes, 9.875% due 10/1/12 (b)........... 186,812
150,000 B- Da-Lite Screen Co., Inc., Sr. Notes, 9.500% due 5/15/11.......... 165,750
350,000 B- Eagle-Picher Industries, Inc., Sr. Notes, 9.750% due 9/1/13...... 351,750
50,000 NR Glenoit Corp., Sr. Sub. Notes, 11.000% due 4/15/07 (d)(e)........ 0
200,000 B Hawk Corp., Sr. Notes, 8.750% due 11/1/14 (b).................... 206,000
225,000 B Interline Brands, Inc., Sr. Sub. Notes, 11.500% due 5/15/11...... 254,250
175,000 B- Mueller Group, Inc., Sr. Sub. Notes, 10.000% due 5/1/12.......... 191,625
Neenah Corp.:
191,000 CCC+ Sr. Secured Notes, 11.000% due 9/30/10 (b)..................... 212,010
159,574 CCC+ Sr. Sub. Notes, 13.000% due 9/30/13 (b)........................ 164,361
250,000 B- Norcross Safety Products LLC/Norcross Capital Co., Sr. Sub.
Notes, Series B, 9.875% due 8/15/11............................ 277,500
100,000 B- NSP Holdings/NSP Capital Corp., Sr. Notes, 11.750% due 1/1/12
(b)(g)......................................................... 101,500
200,000 B- Rexnord Corp., Sr. Sub. Notes, 10.125% due 12/15/12.............. 227,000
300,000 B- Sensus Metering Systems, Inc., Sr. Sub. Notes, 8.625% due
12/15/13....................................................... 309,000
250,000 B Superior Essex Communications LLC/Essex Group., Inc., Sr. Notes,
9.000% due 4/15/12............................................. 258,750
200,000 B- Thermadyne Holdings Corp., Sr. Sub. Notes, 9.250% due 2/1/14..... 196,000
100,000 B+ Valmont Industries, Inc., Sr. Sub. Notes, 6.875% due 5/1/14...... 104,500
125,000 B Wesco Distribution, Inc., Sr. Sub. Notes, 9.125% due 6/1/08...... 129,375
- ----------------------------------------------------------------------------------------------------------
4,045,933
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
49
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
LODGING -- 1.7%
$ 150,000 B Gaylord Entertainment Co., Sr. Notes, 6.750% due 11/15/14 (b).... $ 151,500
63,000 B+ HMH Properties, Inc., Sr. Notes, Series B, 7.875% due 8/1/08..... 65,047
325,000 B+ Host Marriott L.P., Sr. Notes, 7.125% due 11/1/13................ 348,969
175,000 B- Lodgenet Entertainment Corp., Sr. Sub. Debentures, 9.500% due
6/15/13........................................................ 194,250
175,000 BB+ Royal Caribbean Cruises Ltd., Sr. Notes, 8.000% due 5/15/10...... 198,625
Starwood Hotels & Resorts Worldwide, Inc., Sr. Notes:
350,000 BB+ 7.375% due 5/1/07.............................................. 374,937
100,000 BB+ 7.875% due 5/1/12.............................................. 114,750
- ----------------------------------------------------------------------------------------------------------
1,448,078
- ----------------------------------------------------------------------------------------------------------
MEDIA - CABLE -- 2.5%
400,000 B+ Cablevision Systems Corp., Sr. Notes, 8.000% due 4/15/12 (b)..... 429,000
425,000 CCC- Charter Communications Holdings LLC/Charter Communications
Holdings Capital Corp., Sr. Discount Notes, step bond to yield
11.397% due 4/1/11............................................. 364,438
425,000 CCC- Charter Communications Holdings II LLC/Charter Communications
Holdings II Capital Corp., Sr. Notes, 10.250% due 9/15/10...... 452,625
375,000 BB- CSC Holdings, Inc., Sr. Notes, 7.875% due 12/15/07............... 404,063
450,000 B- Kabel Deutschland GMBH, Sr. Notes, 10.625% due 7/1/14 (b)........ 519,750
- ----------------------------------------------------------------------------------------------------------
2,169,876
- ----------------------------------------------------------------------------------------------------------
MEDIA - NON-CABLE -- 9.7%
Advanstar Communications, Inc.:
125,000 B- Sr. Secured Notes, 10.750% due 8/15/10......................... 141,719
250,000 CCC+ Sr. Sub. Notes, Series B, 12.000% due 2/15/11.................. 270,937
175,000 NR Advanstar, Inc., Sr. Sub. Notes, Series B, step bond to yield
14.681% due 10/15/11 (f)....................................... 148,969
50,000 B- Advertising Direct Solutions, Sr. Notes, 9.250% due 11/15/12
(b)............................................................ 52,750
150,000 B- Affinity Group, Inc., Sr. Sub. Notes, 9.000% due 2/15/12......... 163,125
American Media Operations, Inc., Sr. Sub. Notes:
200,000 B- 8.875% due 1/15/11............................................. 213,750
175,000 B- Series B, 10.250% due 5/1/09................................... 185,281
150,000 B- Block Communications, Inc., Sr. Sub. Notes, 9.250% due 4/15/09... 164,250
100,000 B Cadmus Communication, Corp., Sr. Sub. Notes, 8.375% due
6/15/14........................................................ 109,375
225,000 CCC+ CBD Media Holdings LLC & Finance Inc., Sr. Notes, 9.250% due
7/15/12 (b).................................................... 232,594
276,000 B Dex Media East, LLC/Dex Media East Finance Co., Sr. Sub. Notes,
12.125% due 11/15/12........................................... 337,755
275,000 B Dex Media Inc., Discount Notes, step bond to yield 9.371% due
11/15/13....................................................... 216,906
488,000 B Dex Media West, LLC/Dex Media East Finance Co., Sr. Sub. Notes,
Series B, 9.875% due 8/15/13................................... 564,860
325,000 BB- DirectTV Holdings, LLC/DirectTV Financing Co., Sr. Notes, 8.375%
due 3/15/13.................................................... 366,031
Echostar DBS Corp., Sr. Notes:
225,000 BB- 5.750% due 10/1/08............................................. 228,937
200,000 BB- 6.375% due 10/1/11............................................. 205,500
100,000 BB- 6.625% due 10/1/14 (b)......................................... 101,750
75,000 B- Fisher Communications, Inc., Sr. Notes, 8.625% due 9/15/14 (b)... 81,375
150,000 B- Houghton Mifflin Co., Sr. Discount Notes,
step bond to yield 11.536% due 10/15/13........................ 111,000
175,000 B Lamar Media Corp., Sr. Sub. Notes, 7.250% due 1/1/13............. 189,875
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
50
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
MEDIA - NON-CABLE -- 9.7% (CONTINUED)
$ 150,000 CCC+ Liberty Group Operating, Inc., Sr. Sub. Notes, 9.375% due
2/1/08......................................................... $ 153,000
175,000 CCC+ NBC Acquisition Corp., Sr. Discount Notes, step bond to yield
11.013% due 3/15/13............................................ 128,625
150,000 CCC+ Nebraska Book Co., Inc., Sr. Sub. Notes, 8.625% due 3/15/12...... 154,500
250,000 B+ PanAmSat Corp., Sr. Notes, 9.000% due 8/15/14 (b)................ 280,312
575,000 B+ PanAmSat Holding Corp., Sr. Discount Notes, step bond to yield
10.513% due 11/1/14 (b)........................................ 398,187
200,000 B Primedia, Inc., Sr. Notes, 8.875% due 5/15/11.................... 212,500
300,000 B Quebecor Media, Inc., Sr. Notes, 11.125% due 7/15/11............. 344,250
325,000 CCC+ Rainbow National Services LLC, Sr. Sub. Debentures, 10.375% due
9/1/14 (b)..................................................... 368,062
200,000 BB- The Reader's Digest Association, Inc., Sr. Notes, 6.500% due
3/1/11......................................................... 210,000
275,000 B+ R. H. Donnelley Finance Corp. I, Sr. Sub. Notes, 10.875% due
12/15/12 (b)................................................... 327,938
Sinclair Broadcast Group, Inc., Sr. Sub. Notes:
300,000 B 8.750% due 12/15/11............................................ 328,125
50,000 B 8.000% due 3/15/12............................................. 53,375
Vertis, Inc.:
550,000 B- Notes, Series B, 10.875% due 6/15/09........................... 599,500
50,000 B- Sr. Secured Notes, 9.750% due 4/1/09........................... 54,500
125,000 CCC+ WDAC Subsidiary Corp., Sr. Notes, 8.375% due 12/1/14 (b)......... 123,906
XM Satellite Radio, Inc.:
186,747 CCC+ Sr. Discount Notes, step bond to yield 21.777% due 12/31/09.... 191,416
94,000 CCC+ Sr. Secured Notes, 12.000% due 6/15/10 (f)..................... 111,508
Yell Finance B.V.:
179,000 BB- Sr. Discount Notes, step bond to yield 16.740% due 8/1/11...... 176,763
97,000 BB- Sr. Notes, 10.750% due 8/1/11.................................. 112,520
- ----------------------------------------------------------------------------------------------------------
8,415,726
- ----------------------------------------------------------------------------------------------------------
METALS & MINING -- 1.4%
175,000 BB- California Steel Industries, Inc., Sr. Notes, 6.125% due
3/15/14........................................................ 174,563
100,000 B- IMCO Recycling Escrow, Inc., Sr. Notes, 9.000% due 11/15/14
(b)............................................................ 104,500
225,000 B IMCO Recycling, Inc., Sr. Secured Notes, 10.375% due 10/15/10.... 256,500
97,000 BBB Ispat Inland ULC., Sr. Secured Notes, 9.750% due 4/1/14.......... 120,280
150,000 NR Republic Technology International, LLC/RTI Capital Corp., Sr.
Secured Notes, 13.750% due 7/15/09 (d)(e)(f)+.................. 0
150,000 B Ryerson Tull, Inc., Notes, 9.125% due 7/15/06.................... 153,750
210,000 BB United States Steel Corp., Sr. Notes, 9.750% due 5/15/10......... 240,450
150,000 B- Wise Metals Group LLC, Sr. Secured Notes, 10.250% due 5/15/12.... 152,250
- ----------------------------------------------------------------------------------------------------------
1,202,293
- ----------------------------------------------------------------------------------------------------------
PACKAGING -- 2.4%
225,000 B- Berry Plastics Corp., Sr. Sub. Notes, 10.750% due 7/15/12........ 258,750
150,000 CCC+ Graham Packaging Co., Inc., Sr. Sub. Notes, 8.500% due 10/15/12
(b)............................................................ 158,250
200,000 B+ Greif Bros. Corp., Sr. Sub. Notes, 8.875% due 8/1/12............. 223,500
Owens-Brockway Glass Containers, Sr. Secured Notes:
250,000 BB- 8.875% due 2/15/09............................................. 272,812
150,000 BB- 7.750% due 5/15/11............................................. 163,125
100,000 B 8.250% due 5/15/13............................................. 110,500
350,000 B Owens Illinois, Inc., Sr. Notes, 8.100% due 5/15/07.............. 374,500
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
51
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
PACKAGING -- 2.4% (CONTINUED)
Pliant Corp.:
$ 50,000 CCC+ Sr. Secured Notes, 11.125% due 9/1/09.......................... $ 54,750
300,000 CCC+ Sr. Secured Sub. Notes, 13.000% due 6/1/10..................... 293,250
17,465 NR Russell-Stanley Holdings, Inc., Sr. Sub. Notes, 9.000% due
11/30/08 (b)(e)(g)+............................................ 10,105
200,000 CCC Tekni-Plex, Inc., Sr. Sub. Notes, Series B, 12.750% due
6/15/10........................................................ 191,000
- ----------------------------------------------------------------------------------------------------------
2,110,542
- ----------------------------------------------------------------------------------------------------------
PAPER -- 3.7%
Boise Cascade LLC:
75,000 B+ Sr. Notes, 5.005% due 10/15/12 (b)(c).......................... 78,188
100,000 B+ Sr. Sub. Notes, 7.125% due 10/15/14 (b)........................ 106,250
Georgia-Pacific Corp.:
500,000 BB+ Notes, 7.500% due 5/15/06...................................... 526,250
Sr. Notes:
250,000 BB+ 8.125% due 5/15/11........................................... 288,750
400,000 BB+ 9.375% due 2/1/13............................................ 468,000
250,000 B- Graphic Packaging International, Corp., Sr. Sub. Notes, 9.500%
due 8/15/13.................................................... 285,625
300,000 B Jefferson Smurfit Corp., Sr. Notes, 8.250% due 10/1/12........... 328,500
JSG Fund PLC:
250,000 B- Sr. Notes, 9.625% due 10/1/12.................................. 280,000
230,309 B- Sub. Notes, 15.500% due 10/1/13 (g)............................ 270,613
150,000 B+ Riverside Forest Products Ltd., Sr. Notes, 7.875% due 3/1/14..... 165,750
225,000 B Stone Container Corp., Sr. Notes, 9.750% due 2/1/11.............. 247,500
200,000 B Tembec Industries, Inc., Sr. Notes, 8.500% due 2/1/11............ 202,000
- ----------------------------------------------------------------------------------------------------------
3,247,426
- ----------------------------------------------------------------------------------------------------------
RESTAURANTS -- 0.6%
50,000 CCC+ Buffets, Inc., Sr. Sub. Notes, 11.250% due 7/15/10............... 53,750
150,000 B- Carrols Corp., Sr. Sub. Notes, 9.000% due 1/15/13 (b)............ 156,000
128,000 B- Domino's, Inc., Sr. Sub. Notes, 8.250% due 7/1/11................ 140,480
200,000 B Landry's Restaurants Inc., Sr. Notes, 7.500% due 12/15/14 (b).... 199,500
- ----------------------------------------------------------------------------------------------------------
549,730
- ----------------------------------------------------------------------------------------------------------
RETAILERS -- 3.5%
250,000 B Couche-Tard U.S. L.P./Couche-Tard Finance Corp., Sr. Sub. Notes,
7.500% due 12/15/13............................................ 269,375
75,000 B+ Finlay Fine Jewelry Corp., Sr. Notes, 8.375% due 6/1/12.......... 81,375
200,000 B- FTD, Inc., Sr. Sub. Notes, 7.750% due 2/15/14.................... 207,000
125,000 CCC+ General Nutritions Center, Sr. Sub. Notes, 8.500% due 12/1/10.... 118,750
175,000 B Hines Nurseries, Inc., Sr. Notes, 10.250% due 10/1/11............ 192,063
J.C. Penney Co., Inc., Notes:
50,000 BB+ 7.600% due 4/1/07.............................................. 54,250
476,000 BB+ 9.000% due 8/1/12.............................................. 589,050
350,000 B Jean Coutu Group PJC, Sr. Sub. Notes, 8.500% due 8/1/14 (b)...... 360,500
200,000 B- Lazydays RV Center, Inc., Sr. Notes, 11.750% due 5/15/12......... 218,500
150,000 BB+ Michaels Stores, Inc., Sr. Notes, 9.250% due 7/1/09.............. 161,486
250,000 B- PCA LLC/PCA Finance Corp., Sr. Notes, 11.875% due 8/1/09......... 221,250
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
52
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
RETAILERS -- 3.5% (CONTINUED)
Rite Aid Corp.:
$ 100,000 B+ Sr. Notes, 9.500% due 2/15/11.................................. $ 110,250
300,000 B+ Sr. Secured Notes, 8.125% due 5/1/10........................... 318,750
150,000 B United Auto Group, Inc., Sr. Sub. Notes, 9.625% due 3/15/12...... 166,500
400,000 NR U.S. Office Products Co., Sr. Sub. Notes, 9.750% due 6/15/08
(d)(e)+........................................................ 0
- ----------------------------------------------------------------------------------------------------------
3,069,099
- ----------------------------------------------------------------------------------------------------------
SERVICES -- 1.0%
225,000 B Brickman Group, Ltd., Sr. Sub. Notes, Series B, 11.750% due
12/15/09....................................................... 264,375
114,000 B+ CB Richard Ellis Services Inc., Sr. Notes, 9.750% due 5/15/10.... 130,530
275,000 B- Global Cash Access LLC/Global Cash Finance Corp., Sr. Sub. Notes,
8.750% due 3/15/12............................................. 297,688
157,000 CCC SITEL Corp., Sr. Sub. Notes, 9.250% due 3/15/06.................. 159,355
- ----------------------------------------------------------------------------------------------------------
851,948
- ----------------------------------------------------------------------------------------------------------
SUPERMARKETS -- 0.0%
150,000 NR Jitney-Jungle Stores of America, Inc., Sr. Sub. Notes,
10.375% due 9/15/07 (d)(e)+.................................... 0
- ----------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 2.7%
250,000 B+ Activant Solutions, Inc., Sr. Notes, 10.500% due 6/15/11......... 270,000
155,000 B AMI Semiconductor, Inc., Sr. Sub. Notes, 10.750% due 2/1/13...... 182,900
125,000 B+ Danka Business Systems PLC, Sr. Notes, 11.000% due 6/15/10....... 133,125
175,000 BB+ Freescale Semiconductor, Inc., Sr. Notes, 7.125% due 7/15/14..... 190,750
250,000 BB- Ingram Micro Inc., Sr. Sub. Notes, 9.875% due 8/15/08............ 273,125
225,000 BB+ Seagate Technology HDD Holdings, Sr. Notes, 8.000% due 5/15/09... 244,125
225,000 BB+ Unisys Corp., Sr. Notes, 6.875% due 3/15/10...................... 241,875
Xerox Corp., Sr. Notes:
450,000 B+ 9.750% due 1/15/09............................................. 531,000
225,000 B+ 7.625% due 6/15/13............................................. 248,063
- ----------------------------------------------------------------------------------------------------------
2,314,963
- ----------------------------------------------------------------------------------------------------------
TEXTILES -- 0.8%
125,000 Caa1* GFSI, Inc., Sr. Sub. Notes, Series B, 9.625% due 3/1/07.......... 121,875
150,000 BB- Phillips Van-Heusen Corp., Sr. Notes, 8.125% due 5/1/13.......... 163,500
225,000 B Warnaco, Inc., Sr. Notes, 8.875% due 6/15/13..................... 248,625
162,000 B+ The William Carter Co., Sr. Sub. Notes, Series B, 10.875% due
8/15/11........................................................ 182,250
- ----------------------------------------------------------------------------------------------------------
716,250
- ----------------------------------------------------------------------------------------------------------
TOBACCO -- 0.8%
225,000 NR Commonwealth Brands, Inc., Secured, 10.625% due 9/1/08 (b)....... 237,375
DIMON, Inc., Sr. Notes:
50,000 BB 7.750% due 6/1/13.............................................. 52,750
200,000 BB Series B, 9.625% due 10/15/11.................................. 220,000
200,000 BB+ Standard Commercial Corp., Sr. Notes, 8.000% due 4/15/12......... 206,500
- ----------------------------------------------------------------------------------------------------------
716,625
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.6%
150,000 CCC+ Allied Holdings, Inc., Sr. Notes, Series B, 8.625% due 10/1/07... 120,937
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
53
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.6% (CONTINUED)
$ 100,000 NR The Holt Group, Inc., Sr. Sub. Notes, 9.750% due 1/15/06
(d)(e)+........................................................ $ 0
Stena AB, Sr. Notes:
250,000 BB- 9.625% due 12/1/12............................................. 283,750
150,000 BB- 7.500% due 11/1/13............................................. 157,875
- ----------------------------------------------------------------------------------------------------------
562,562
- ----------------------------------------------------------------------------------------------------------
UTILITY - ELECTRIC -- 3.1%
256,758 BB+ Caithness Coso Fund Corp., Secured Notes, Series B, 9.050% due
12/15/09....................................................... 283,717
375,000 CCC+ Calpine Corp., Sr. Notes, 8.500% due 2/15/11..................... 287,812
200,000 B+ CMS Energy Corp., Sr. Notes, 8.900% due 7/15/08.................. 221,750
Nevada Power Co.:
General and Refunding Mortgage Notes, Series I:
50,000 BB 6.500% due 4/15/12........................................... 53,125
50,000 BB 5.875% due 1/15/15 (b)....................................... 50,625
400,000 BB 2nd Mortgage, 9.000% due 8/15/13............................... 470,000
75,000 BB Northwestern Corp., Secured Notes, 5.875% due 11/1/14 (b)........ 77,097
175,000 B NRG Energy, Inc., Sr. Secured Notes, 8.000% due 12/15/13 (b)..... 191,625
PSEG Energy Holdings LLC, Sr. Notes:
200,000 BB- 8.625% due 2/15/08............................................. 220,500
250,000 BB- 10.000% due 10/1/09............................................ 296,875
Reliant Resources, Inc., Sr. Secured Notes:
125,000 B+ 9.250% due 7/15/10............................................. 140,000
325,000 B+ 9.500% due 7/15/13............................................. 370,906
- ----------------------------------------------------------------------------------------------------------
2,664,032
- ----------------------------------------------------------------------------------------------------------
UTILITY - NATURAL GAS -- 3.9%
El Paso Corp.:
175,000 CCC+ Medium-Term Notes, 6.950% due 12/15/07......................... 184,188
Sr. Medium-Term Notes:
325,000 Caa1* 8.050% due 10/15/30.......................................... 316,063
450,000 CCC+ 7.800% due 8/1/31............................................ 434,250
225,000 CCC+ Sr. Notes, 6.750% due 5/15/09.................................. 229,500
175,000 B- El Paso Production Holding Co., 7.750% due 6/1/13................ 184,188
150,000 BB- Ferrellgas Escrow LLC, Sr. Notes, 6.750% due 5/1/14.............. 154,875
50,000 B+ Markwest Energy Partners LLC., Sr. Notes, 6.875% due 11/1/14
(b)............................................................ 51,000
175,000 BB- Pacific Energy Partners L.P./Pacific Energy Finance Corp., Sr.
Notes,
7.125% due 6/15/14............................................. 187,250
125,000 BB- SEMCO Energy, Inc., Sr. Notes, 7.125% due 5/15/08................ 134,409
Tennesse Gas Pipeline Co.:
150,000 B- Debentures, 7.500% due 4/1/17.................................. 166,125
450,000 B- Notes, 8.375% due 6/15/32...................................... 509,625
150,000 B+ Transcontinental Gas Pipe Line Corp., Sr. Notes, Series B, 8.875%
due 7/15/12.................................................... 183,187
The Williams Cos., Inc., Notes:
200,000 B+ 7.625% due 7/15/19............................................. 221,000
425,000 B+ 7.875% due 9/1/21.............................................. 476,000
- ----------------------------------------------------------------------------------------------------------
3,431,660
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
54
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT RATING(A) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
WIRELESS COMMUNICATIONS -- 2.3%
$ 50,000 B- Inmarsat Finance PLC, Sr. Notes, 7.625% due 6/30/12.............. $ 52,250
125,000 CCC+ Inmarsat Finance II PLC, step bond to yield 10.379% due 11/15/12
(b)............................................................ 90,625
100,000 B- New Skies Satellites N.V., Sr. Sub. Notes, 9.125% due 11/1/12
(b)............................................................ 102,500
575,000 BB Nextel Communications, Inc., Sr. Notes, 7.375% due 8/1/15........ 635,375
Nextel Partners, Inc., Sr. Notes:
95,000 B- 12.500% due 11/15/09........................................... 108,062
50,000 B- 8.125% due 7/1/11.............................................. 55,750
700,000 BB Rogers Wireless, Inc., Secured Notes, 6.375% due 3/1/14.......... 696,500
200,000 CCC- U.S. Unwired, Inc., Sr. Secured Notes, Series B, 10.000% due
6/15/12........................................................ 226,500
- ----------------------------------------------------------------------------------------------------------
1,967,562
- ----------------------------------------------------------------------------------------------------------
WIRELINE COMMUNICATIONS -- 5.8%
250,000 B- Alaska Communications Systems Holdings, Inc., Sr. Notes, 9.875%
due 8/15/11.................................................... 270,000
950,000 BB+ AT&T Corp., Sr. Notes, 9.750% due 11/15/31....................... 1,138,812
Cincinnati Bell, Inc.:
250,000 B- Sr. Notes, 7.250% due 7/15/13.................................. 258,125
200,000 B- Sr. Sub. Notes, 8.375% due 1/15/14............................. 203,500
Citizens Communications Co.:
75,000 BB+ Notes, 9.250% due 5/15/11...................................... 88,125
Sr. Notes:
150,000 BB+ 6.250% due 1/15/13........................................... 151,875
200,000 BB+ 9.000% due 8/15/31........................................... 229,500
125,000 BB- Eircom Funding, Sr. Sub. Notes, 8.250% due 8/15/13............... 138,750
525,000 B+ MCI Inc., Sr. Notes, 8.735% due 5/1/14........................... 565,688
200,000 CCC Primus Telecommunications Group, Inc., Sr. Notes, 8.000% due
1/15/14........................................................ 177,000
850,000 BB- Qwest Corp., Notes, 9.125% due 3/15/12 (b)....................... 986,000
725,000 B Qwest Services Corp., Sr. Sub. Notes, 14.000% due 12/15/10 (b)... 875,438
- ----------------------------------------------------------------------------------------------------------
5,082,813
- ----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $78,622,289)............ 83,257,522
- ----------------------------------------------------------------------------------------------------------
<Caption>
SHARES
- ----------------------------------------------------------------------------------------------------------
COMMON STOCK (h) -- 0.2%
- ----------------------------------------------------------------------------------------------------------
CHEMICALS -- 0.0%
45 General Chemical Industrial Products, Inc. (e)+.................. 8,349
- ----------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.0%
2,000 Russell-Stanley Holdings, Inc. (b)(e)+........................... 1,000
- ----------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE -- 0.1%
5,715 B&G Food Inc. ................................................... 85,611
- ----------------------------------------------------------------------------------------------------------
MEDIA - CABLE -- 0.1%
710 NTL, Inc. ....................................................... 51,802
- ----------------------------------------------------------------------------------------------------------
WIRELINE COMMUNICATIONS -- 0.0%
1,237 Viatel Holding Bermuda Ltd. ..................................... 1,484
- ----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $588,225) 148,246
- ----------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
55
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 0.5%
- --------------------------------------------------------------------------------------------------------
MEDIA - NON-CABLE -- 0.3%
PRIMEDIA, Inc.:
1,150 Series F, 9.200%............................................... $ 110,975
1,500 Series H, 8.625%............................................... 138,000
- --------------------------------------------------------------------------------------------------------
248,975
- --------------------------------------------------------------------------------------------------------
RETAILERS -- 0.2%
200 General Nutrition Center Holding Co., Series A (b)............... 194,000
- --------------------------------------------------------------------------------------------------------
WIRELINE COMMUNICATIONS -- 0.0%
1,878 McLeodUSA, Inc., Series A (f).................................... 6,845
- --------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $915,705)......................... 449,820
- --------------------------------------------------------------------------------------------------------
<Caption>
WARRANTS
- --------------------------------------------------------------------------------------------------------
WARRANTS (H) -- 0.1%
- --------------------------------------------------------------------------------------------------------
CHEMICALS -- 0.0%
General Chemical Industrial Products, Inc:
26 Series A, Expire 4/30/11 (e)+.................................. 0
19 Series B, Expire 4/30/11 (e)+.................................. 0
- --------------------------------------------------------------------------------------------------------
0
- --------------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 0.0%
901 AMF Bowling Worldwide, Inc., Class B Shares, Expire 3/9/09 (e)... 0
- --------------------------------------------------------------------------------------------------------
INDUSTRIAL - OTHER -- 0.1%
30,652 ACP Holdings Corp., Expire 10/7/13 (b)........................... 54,407
- --------------------------------------------------------------------------------------------------------
MEDIA - NON-CABLE -- 0.0%
75 Advanstar Holdings Corp., Expire 10/15/11 (b).................... 2
125 XM Satellite Radio Holdings, Inc., Expire 3/15/10 (b)............ 10,750
- --------------------------------------------------------------------------------------------------------
10,752
- --------------------------------------------------------------------------------------------------------
PAPER -- 0.0%
100 MDP Acquisitions PLC, Expire 10/1/13 (b)......................... 3,500
- --------------------------------------------------------------------------------------------------------
PACKAGING -- 0.0%
100 Pliant Corp., Expire 6/1/10 (b)+................................. 1
- --------------------------------------------------------------------------------------------------------
WIRELINE COMMUNICATIONS -- 0.0%
4,162 McLeodUSA, Inc., Class A Shares, Expire 4/16/07.................. 874
- --------------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $105,613)................................ 69,534
- --------------------------------------------------------------------------------------------------------
<Caption>
SHARES
- --------------------------------------------------------------------------------------------------------
ESCROW SHARES (E)(H)+ -- 0.0%
175,000 Pillowtex Corp., 9.000% due 12/15/49 (Cost -- $0)................ 0
- --------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
56
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED HIGH YIELD PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.8%
$1,632,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05;
Proceeds
at maturity -- $1,632,190; (Fully collateralized by U.S.
Treasury Notes, 1.875% due 12/31/05; Market
value -- $1,665,590) (Cost -- $1,632,000)...................... $ 1,632,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.4% (Cost -- $81,863,832*)................ 85,557,122
Other Assets in Excess of Liabilities -- 1.6%.................... 1,380,169
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%....................................... $86,937,291
- --------------------------------------------------------------------------------------------------------
</Table>
<Table>
(a) All ratings are by Standard & Poor's Ratings Service, except
for those identified by an asterisk (*), which are rated by
Moody's Investors Service.
(b) Security is exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in
transactions that are exempt from registration, normally to
qualified institutional buyers. This security has been
deemed liquid pursuant to guidelines approved by the Board
of Trustees.
(c) Interest rate shown reflects current rate on instrument
which is a floater or has a variable rate.
(d) Security is currently in default.
(e) Security is fair valued in good faith by or under the
direction of the Board of Trustees.
(f) Security has been issued with attached warrants.
(g) Payment-in-kind security for which all or part of the
dividend earned is paid by the issuance of additional
security.
(h) Non-income producing security.
+ This security has been deemed illiquid.
* Aggregate cost for federal income tax purposes is
$82,135,674.
See page 71 for definitions of ratings.
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
57
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK -- 99.2%
- ------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 11.1%
AUTO COMPONENTS -- 1.0%
5,400 Johnson Controls, Inc. ..................................... $ 342,576
- ------------------------------------------------------------------------------------
AUTOMOBILES -- 0.8%
16,857 Ford Motor Co. ............................................. 246,786
- ------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 1.1%
13,875 Koninklijke Philips Electronics N.V., Sponsored ADR......... 367,688
- ------------------------------------------------------------------------------------
MEDIA -- 5.4%
22,900 The Interpublic Group of Cos., Inc. (a)..................... 306,860
36,800 News Corp., Class A Shares.................................. 686,688
12,000 Viacom Inc., Class B Shares................................. 436,680
11,700 The Walt Disney Co. ........................................ 325,260
- ------------------------------------------------------------------------------------
1,755,488
- ------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 2.8%
15,900 The Gap, Inc. .............................................. 335,808
13,300 The Home Depot, Inc. ....................................... 568,442
- ------------------------------------------------------------------------------------
904,250
- ------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 3,616,788
- ------------------------------------------------------------------------------------
CONSUMER STAPLES -- 5.2%
FOOD & DRUG RETAILING -- 1.1%
24,100 Rite Aid Corp. (a).......................................... 88,206
7,600 SUPERVALU Inc. ............................................. 262,352
- ------------------------------------------------------------------------------------
350,558
- ------------------------------------------------------------------------------------
FOOD PRODUCTS -- 1.0%
17,300 Tyson Foods, Inc., Class A Shares........................... 318,320
- ------------------------------------------------------------------------------------
TOBACCO -- 3.1%
16,700 Altria Group, Inc. ......................................... 1,020,370
- ------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 1,689,248
- ------------------------------------------------------------------------------------
ENERGY -- 11.3%
ENERGY EQUIPMENT & SERVICES -- 1.7%
14,100 Halliburton Co. ............................................ 553,284
- ------------------------------------------------------------------------------------
OIL & GAS -- 9.6%
12,700 BP PLC, Sponsored ADR....................................... 741,680
17,902 ChevronTexaco Corp. ........................................ 940,034
3,000 ConocoPhillips.............................................. 260,490
15,600 Exxon Mobil Corp. .......................................... 799,656
9,800 Marathon Oil Corp. ......................................... 368,578
- ------------------------------------------------------------------------------------
3,110,438
- ------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 3,663,722
- ------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
58
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
FINANCIALS -- 31.2%
BANKS -- 8.4%
29,400 Bank of America Corp. ...................................... $ 1,381,506
21,700 U.S. Bancorp................................................ 679,644
6,700 Wachovia Corp. ............................................. 352,420
5,200 Wells Fargo & Co. .......................................... 323,180
- ------------------------------------------------------------------------------------
2,736,750
- ------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 13.8%
5,600 Capital One Financial Corp. ................................ 471,576
8,000 Fannie Mae.................................................. 569,680
4,600 Freddie Mac................................................. 339,020
4,300 The Goldman Sachs Group, Inc. .............................. 447,372
29,900 JPMorgan Chase & Co. ....................................... 1,166,399
15,200 MBNA Corp. ................................................. 428,488
6,000 Merrill Lynch & Co., Inc. .................................. 358,620
13,000 Morgan Stanley.............................................. 721,760
- ------------------------------------------------------------------------------------
4,502,915
- ------------------------------------------------------------------------------------
INSURANCE -- 9.0%
11,500 ACE Ltd. ................................................... 491,625
15,300 The Allstate Corp. ......................................... 791,316
7,900 American International Group, Inc. ......................... 518,793
12,600 Aon Corp. .................................................. 300,636
6,800 The Hartford Financial Services Group, Inc. ................ 471,308
9,200 Nationwide Financial Services, Inc., Class A Shares......... 351,716
- ------------------------------------------------------------------------------------
2,925,394
- ------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 10,165,059
- ------------------------------------------------------------------------------------
HEALTHCARE -- 4.9%
HEALTHCARE PROVIDERS & SERVICES -- 2.5%
10,300 McKesson Corp. ............................................. 324,038
29,700 Tenet Healthcare Corp. (a).................................. 326,106
2,000 UnitedHealth Group Inc. .................................... 176,060
- ------------------------------------------------------------------------------------
826,204
- ------------------------------------------------------------------------------------
PHARMACEUTICALS -- 2.4%
5,800 Johnson & Johnson........................................... 367,836
15,200 Pfizer Inc. ................................................ 408,728
- ------------------------------------------------------------------------------------
776,564
- ------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 1,602,768
- ------------------------------------------------------------------------------------
INDUSTRIALS -- 11.5%
AEROSPACE & DEFENSE -- 1.1%
6,234 Northrop Grumman Corp. ..................................... 338,880
- ------------------------------------------------------------------------------------
BUILDING PRODUCTS -- 1.3%
11,400 Masco Corp. ................................................ 416,442
- ------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
59
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 4.2%
27,570 Cendant Corp. .............................................. $ 644,587
5,100 H&R Block, Inc. ............................................ 249,900
10,200 Pitney Bowes, Inc. ......................................... 472,056
- ------------------------------------------------------------------------------------
1,366,543
- ------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 3.7%
33,891 Tyco International Ltd. .................................... 1,211,264
- ------------------------------------------------------------------------------------
MACHINERY -- 1.2%
5,400 Eaton Corp. ................................................ 390,744
- ------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 3,723,873
- ------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 9.8%
COMMUNICATIONS EQUIPMENT -- 1.3%
25,100 Motorola, Inc. ............................................. 431,720
- ------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 3.4%
12,493 Hewlett-Packard Co. ........................................ 261,978
3,500 International Business Machines Corp. ...................... 345,030
15,600 Storage Technology Corp. (a)................................ 493,116
- ------------------------------------------------------------------------------------
1,100,124
- ------------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 1.9%
4,900 Computer Sciences Corp. (a)................................. 276,213
11,700 SunGard Data Systems Inc. (a)............................... 331,461
- ------------------------------------------------------------------------------------
607,674
- ------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 1.2%
23,300 Applied Materials, Inc. (a)................................. 398,430
- ------------------------------------------------------------------------------------
SOFTWARE -- 2.0%
17,800 BMC Software, Inc. (a)...................................... 331,080
11,900 Microsoft Corp. ............................................ 317,849
- ------------------------------------------------------------------------------------
648,929
- ------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 3,186,877
- ------------------------------------------------------------------------------------
MATERIALS -- 4.7%
CHEMICALS -- 2.8%
6,800 Air Products & Chemicals, Inc. ............................. 394,196
7,800 PPG Industries, Inc. ....................................... 531,648
- ------------------------------------------------------------------------------------
925,844
- ------------------------------------------------------------------------------------
METALS & MINING -- 1.1%
11,800 Alcoa Inc. ................................................. 370,756
- ------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.8%
6,500 Georgia-Pacific Corp. ...................................... 243,620
- ------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 1,540,220
- ------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
60
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
FEDERATED STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 4.6%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.6%
20,600 SBC Communications Inc. .................................... $ 530,862
14,000 Sprint Corp. ............................................... 347,900
15,450 Verizon Communications Inc. ................................ 625,880
- ------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 1,504,642
- ------------------------------------------------------------------------------------
UTILITIES -- 4.9%
ELECTRIC UTILITIES -- 3.3%
11,700 American Electric Power Co., Inc. .......................... 401,778
14,300 Edison International........................................ 458,029
5,700 FirstEnergy Corp. .......................................... 225,207
- ------------------------------------------------------------------------------------
1,085,014
- ------------------------------------------------------------------------------------
MULTI-UTILITIES -- 1.6%
22,200 NiSource Inc. .............................................. 505,716
- ------------------------------------------------------------------------------------
TOTAL UTILITIES............................................. 1,590,730
- ------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $27,149,749).................... 32,283,927
- ------------------------------------------------------------------------------------
ESCROW SHARES (A)(B)(C) -- 0.0%
10,300 ESC Seagate Technology (Cost -- $0) ........................ 0
- ------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.5%
$173,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $173,020; (Fully
collateralized by U.S. Treasury Bonds, 6.125% due 8/15/29;
Market value -- $178,875) (Cost -- $173,000).............. 173,000
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.7% (Cost -- $27,322,749*)........... 32,456,927
Other Assets in Excess of Liabilities -- 0.3%............... 81,968
- ------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $32,538,895
- ------------------------------------------------------------------------------------
</Table>
<Table>
(a) Non-income producing security.
(b) Security is fair valued in good faith by or under the
direction of the Board of Trustees.
(c) This security has been deemed illiquid.
* Aggregate cost for federal income tax purposes is
$27,333,284.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
61
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
COMMON STOCK -- 97.8%
- ------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 21.8%
AUTO COMPONENTS -- 1.8%
51,536 ArvinMeritor, Inc. ......................................... $ 1,152,860
12,029 Autoliv, Inc. .............................................. 581,001
23,178 BorgWarner, Inc. ........................................... 1,255,552
9,094 Johnson Controls, Inc. ..................................... 576,923
- ------------------------------------------------------------------------------------------
3,566,336
- ------------------------------------------------------------------------------------------
AUTOMOBILES -- 0.2%
10,133 Thor Industries, Inc. ...................................... 375,428
- ------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 2.6%
15,419 Boyd Gaming Corp. .......................................... 642,201
56,523 Caesars Entertainment, Inc. (a)............................. 1,138,373
19,725 CBRL Group, Inc. ........................................... 825,491
32,154 Darden Restaurants, Inc. ................................... 891,952
17,253 International Speedway Corp., Class A Shares................ 910,959
11,646 Mandalay Resort Group....................................... 820,228
- ------------------------------------------------------------------------------------------
5,229,204
- ------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES -- 6.0%
27,811 American Greetings Corp., Class A Shares.................... 705,009
46,980 D.R. Horton, Inc. .......................................... 1,893,764
6,390 Harman International Industries, Inc. ...................... 811,530
23,304 HNI Corp. .................................................. 1,003,237
17,381 Lancaster Colony Corp. ..................................... 745,124
39,596 Lennar Corp., Class A Shares................................ 2,244,301
11,650 Mohawk Industries Inc. (a).................................. 1,063,063
1,021 NVR, Inc. (a)............................................... 785,557
17,100 The Ryland Group, Inc. ..................................... 983,934
13,071 Toll Brothers, Inc. (a)..................................... 896,801
33,635 Tupperware Corp. ........................................... 696,917
- ------------------------------------------------------------------------------------------
11,829,237
- ------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS -- 0.3%
12,740 Brunswick Corp. ............................................ 630,630
- ------------------------------------------------------------------------------------------
MEDIA -- 2.4%
20,148 Belo Corp., Class A Shares.................................. 528,684
20,384 Catalina Marketing Corp. ................................... 603,978
23,704 Emmis Communications Corp., Class A Shares (a).............. 454,880
22,774 Harte-Hanks, Inc. .......................................... 591,668
33,863 Macrovision Corp. (a)....................................... 870,956
1,693 Washington Post Co., Class B Shares......................... 1,664,253
- ------------------------------------------------------------------------------------------
4,714,419
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
62
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
MULTI-LINE RETAIL -- 1.1%
38,446 BJ's Wholesale Club, Inc. (a)............................... $ 1,119,932
13,554 The Neiman Marcus Group, Inc., Class A Shares............... 969,653
- ------------------------------------------------------------------------------------------
2,089,585
- ------------------------------------------------------------------------------------------
SPECIALTY RETAIL -- 6.9%
29,371 Abercrombie & Fitch Co., Class A Shares..................... 1,378,968
26,688 Aeropostale, Inc. (a)....................................... 785,428
16,471 American Eagle Outfitters, Inc. ............................ 775,784
12,835 AnnTaylor Stores Corp. (a).................................. 276,338
35,099 AutoNation, Inc. (a)........................................ 674,252
19,209 Barnes & Noble, Inc. (a).................................... 619,874
22,525 Borders Group, Inc. (b)..................................... 572,135
11,611 CDW Corp. .................................................. 770,390
22,881 Chico's FAS, Inc. (a)....................................... 1,041,772
47,223 Claire's Stores, Inc. ...................................... 1,003,489
23,178 Copart, Inc. (a)............................................ 610,045
8,161 GameStop Corp., Class B Shares (a).......................... 182,888
43,440 Michaels Stores, Inc. ...................................... 1,301,897
31,119 Pacific Sunwear of California, Inc. (a)..................... 692,709
31,717 PETsMART, Inc. ............................................. 1,126,905
20,843 RadioShack Corp. ........................................... 685,318
16,723 Rent-A-Center, Inc. (a)..................................... 443,159
20,529 Williams-Sonoma, Inc. (a)................................... 719,336
- ------------------------------------------------------------------------------------------
13,660,687
- ------------------------------------------------------------------------------------------
TEXTILES & APPAREL -- 0.5%
16,696 The Timberland Co., Class A Shares (a)...................... 1,046,338
- ------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY................................ 43,141,864
- ------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 4.4%
BEVERAGES -- 1.2%
32,704 Constellation Brands, Inc., Class A Shares (a).............. 1,521,063
40,945 PepsiAmericas Inc. ......................................... 869,672
- ------------------------------------------------------------------------------------------
2,390,735
- ------------------------------------------------------------------------------------------
FOOD & DRUG RETAILING -- 0.7%
20,829 SUPERVALU Inc. ............................................. 719,017
7,460 Whole Foods Market, Inc. ................................... 711,311
- ------------------------------------------------------------------------------------------
1,430,328
- ------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 2.0%
26,596 Archer-Daniels-Midland Co. ................................. 593,357
20,133 Dean Foods Co. (a).......................................... 663,382
18,809 Pilgrim's Pride Corp. ...................................... 577,060
33,127 Sensient Technologies Corp. ................................ 794,717
19,969 Smithfield Foods, Inc. (a).................................. 590,883
33,345 Tyson Foods, Inc., Class A Shares........................... 613,548
- ------------------------------------------------------------------------------------------
3,832,947
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
63
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.5%
28,584 Church & Dwight, Inc. ...................................... $ 960,994
- ------------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES...................................... 8,615,004
- ------------------------------------------------------------------------------------------
ENERGY -- 6.5%
ENERGY EQUIPMENT & SERVICES -- 3.8%
13,974 BJ Services Co. ............................................ 650,350
14,865 Cooper Cameron Corp. (a).................................... 799,886
34,392 FMC Technologies, Inc. (a).................................. 1,107,422
36,677 Grant Prideco, Inc. (a)..................................... 735,374
42,525 Patterson-UTI Energy, Inc. ................................. 827,111
12,084 Smith International, Inc. (a)............................... 657,490
43,259 Varco International, Inc. (a)............................... 1,261,000
30,149 Weatherford International Ltd. (a).......................... 1,546,644
- ------------------------------------------------------------------------------------------
7,585,277
- ------------------------------------------------------------------------------------------
OIL & GAS -- 2.7%
6,013 Amerada Hess Corp. ......................................... 495,351
10,843 Equitable Resources, Inc. .................................. 657,736
18,300 Forest Oil Corp. (a)........................................ 580,476
9,626 Murphy Oil Corp. ........................................... 774,412
9,814 Newfield Exploration Co. (a)................................ 579,517
16,444 Noble Energy, Inc. ......................................... 1,013,937
24,423 Plains Exploration & Production Co. (a)..................... 634,998
17,910 Western Gas Resources, Inc. ................................ 523,867
- ------------------------------------------------------------------------------------------
5,260,294
- ------------------------------------------------------------------------------------------
TOTAL ENERGY................................................ 12,845,571
- ------------------------------------------------------------------------------------------
FINANCIALS -- 17.7%
BANKS -- 5.9%
28,024 Associated Banc-Corp. ...................................... 930,677
22,216 Banco Popular, Inc. ........................................ 640,487
9,470 Bank of Hawaii Corp. ....................................... 480,508
15,621 Banknorth Group, Inc. (b)................................... 571,729
55,479 The Colonial BancGroup, Inc. ............................... 1,177,819
13,606 Commerce Bancorp, Inc. ..................................... 876,226
53,107 Hibernia Corp., Class A Shares.............................. 1,567,188
20,723 Huntington Bancshares Inc. ................................. 513,516
28,431 Independence Community Bank Corp. .......................... 1,210,592
23,916 Investors Financial Services Corp. ......................... 1,195,322
16,142 New York Community Bancorp, Inc. ........................... 332,041
30,495 Sovereign Bancorp, Inc. .................................... 687,662
31,614 W Holding Co., Inc. ........................................ 725,222
16,034 Westcorp.................................................... 736,442
- ------------------------------------------------------------------------------------------
11,645,431
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
64
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 3.1%
28,181 AmeriCredit Corp. (a)....................................... $ 689,025
6,775 The Bear Stearns Cos. Inc. ................................. 693,150
38,236 E*TRADE Financial Corp. (a)................................. 571,628
12,092 Eaton Vance Corp. .......................................... 630,598
27,181 IndyMac Bancorp, Inc. ...................................... 936,385
29,460 Jefferies Group, Inc. ...................................... 1,186,649
7,699 Legg Mason, Inc. ........................................... 564,029
18,277 SEI Investments Co. ........................................ 766,355
- ------------------------------------------------------------------------------------------
6,037,819
- ------------------------------------------------------------------------------------------
INSURANCE -- 7.2%
21,515 American Financial Group, Inc. ............................. 673,635
8,021 AmerUs Group Co. ........................................... 363,351
14,817 Brown & Brown, Inc. ........................................ 645,280
12,984 Everest Re Group, Ltd. ..................................... 1,162,847
45,412 Fidelity National Financial, Inc. .......................... 2,073,966
32,077 First American Corp. ....................................... 1,127,186
11,344 HCC Insurance Holdings, Inc. ............................... 375,713
34,683 Ohio Casualty Corp. (a)..................................... 804,993
50,344 Old Republic International Corp. ........................... 1,273,703
6,715 The PMI Group, Inc. ........................................ 280,351
25,106 Protective Life Corp. ...................................... 1,071,775
28,274 Radian Group Inc. .......................................... 1,505,308
16,738 Stancorp Financial Group, Inc. ............................. 1,380,885
18,462 Unitrin, Inc. .............................................. 839,098
14,835 W.R. Berkley Corp. (b)...................................... 699,767
- ------------------------------------------------------------------------------------------
14,277,858
- ------------------------------------------------------------------------------------------
REAL ESTATE -- 1.5%
21,598 General Growth Properties, Inc. ............................ 780,984
28,481 Highwoods Properties, Inc. ................................. 788,924
19,597 Mack-Cali Realty Corp. ..................................... 902,050
18,481 New Plan Excel Realty Trust, Inc. .......................... 500,465
- ------------------------------------------------------------------------------------------
2,972,423
- ------------------------------------------------------------------------------------------
TOTAL FINANCIALS............................................ 34,933,531
- ------------------------------------------------------------------------------------------
HEALTHCARE -- 10.2%
BIOTECHNOLOGY -- 1.5%
22,101 Cephalon, Inc. (a).......................................... 1,124,499
25,659 Charles River Laboratories International, Inc. (a).......... 1,180,571
9,242 Invitrogen Corp. (a)........................................ 620,415
- ------------------------------------------------------------------------------------------
2,925,485
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
65
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES -- 2.6%
9,111 Bausch & Lomb Inc. ......................................... $ 587,295
10,749 Beckman Coulter, Inc. ...................................... 720,075
9,907 Dade Behring Holdings Inc. (a).............................. 554,792
23,099 DENTSPLY International Inc. ................................ 1,298,164
10,791 Edwards Lifesciences Corp. (a).............................. 445,237
11,436 Patterson Cos. Inc. (a)..................................... 496,208
24,133 Varian Medical Systems, Inc. (a)............................ 1,043,511
- ------------------------------------------------------------------------------------------
5,145,282
- ------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES -- 4.9%
10,146 AmerisourceBergen Corp. .................................... 595,367
22,080 Apria Healthcare Group Inc. (a)............................. 727,536
27,239 Community Health Systems Inc. (a)........................... 759,423
29,681 Covance Inc. (a)............................................ 1,150,139
30,132 Coventry Health Care, Inc. (a).............................. 1,599,407
24,207 Health Net, Inc. (a)........................................ 698,856
28,871 LifePoint Hospitals, Inc. (a)............................... 1,005,288
17,970 Lincare Holdings Inc. (a)................................... 766,420
15,209 PacifiCare Health Systems, Inc. (a)......................... 859,613
14,330 Pharmaceutical Product Development, Inc. (a)................ 591,686
28,708 Triad Hospitals, Inc. (a)................................... 1,068,225
- ------------------------------------------------------------------------------------------
9,821,960
- ------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.2%
10,721 American Pharmaceutical Partners, Inc. (a).................. 401,073
18,427 Barr Pharmaceuticals Inc. (a)............................... 839,165
20,767 Eon Labs, Inc. (a).......................................... 560,709
15,307 Medicis Pharmaceutical Corp., Class A Shares................ 537,429
- ------------------------------------------------------------------------------------------
2,338,376
- ------------------------------------------------------------------------------------------
TOTAL HEALTHCARE............................................ 20,231,103
- ------------------------------------------------------------------------------------------
INDUSTRIALS -- 13.4%
AEROSPACE & DEFENSE -- 1.4%
6,577 Alliant Techsystems Inc. (a)................................ 430,005
9,113 L-3 Communications Holdings, Inc. .......................... 667,436
25,315 Precision Castparts Corp. .................................. 1,662,689
- ------------------------------------------------------------------------------------------
2,760,130
- ------------------------------------------------------------------------------------------
AIR FREIGHT & COURIERS -- 0.9%
22,000 CNF Inc. ................................................... 1,102,200
11,801 Expeditors International of Washington, Inc. ............... 659,440
- ------------------------------------------------------------------------------------------
1,761,640
- ------------------------------------------------------------------------------------------
AIRLINES -- 0.3%
19,076 Alaska Air Group, Inc. (a).................................. 638,855
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
66
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES -- 4.9%
25,507 Alliance Data Systems Corp. (a)............................. $ 1,211,072
27,881 Career Education Corp. (a).................................. 1,115,240
21,604 CheckFree Corp. (a)......................................... 822,680
14,947 DST Systems, Inc. (a)....................................... 779,038
29,307 Education Management Corp. (a).............................. 967,424
24,504 ITT Educational Services, Inc. (a).......................... 1,165,165
36,013 Korn/Ferry International (a)................................ 747,270
17,534 Laureate Education, Inc. (a)................................ 773,074
23,191 Manpower Inc. .............................................. 1,120,125
20,582 Valassis Communications, Inc. (a)........................... 720,576
7,205 West Corp. (a).............................................. 238,558
- ------------------------------------------------------------------------------------------
9,660,222
- ------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING -- 0.7%
25,463 Dycom Industries, Inc. (a).................................. 777,131
21,883 Granite Construction, Inc. ................................. 582,088
- ------------------------------------------------------------------------------------------
1,359,219
- ------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.1%
26,034 Ametek, Inc. ............................................... 928,633
10,655 Hubbell Inc., Class B Shares................................ 557,256
25,845 Thomas & Betts Corp. (a).................................... 794,734
- ------------------------------------------------------------------------------------------
2,280,623
- ------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 0.2%
5,670 Carlisle Cos. Inc. ......................................... 368,096
- ------------------------------------------------------------------------------------------
MACHINERY -- 1.9%
51,976 AGCO Corp. (a).............................................. 1,137,755
9,816 Flowserve Corp. (a)......................................... 270,333
16,006 Graco Inc. ................................................. 597,824
17,294 Harsco Corp. ............................................... 963,967
13,083 Oshkosh Truck Corp. ........................................ 894,615
- ------------------------------------------------------------------------------------------
3,864,494
- ------------------------------------------------------------------------------------------
MARINE -- 0.6%
20,841 Overseas Shipholding Group, Inc. ........................... 1,150,423
- ------------------------------------------------------------------------------------------
ROAD & RAIL -- 1.2%
33,691 J.B. Hunt Transport Services, Inc. ......................... 1,511,041
36,673 Swift Transportation Co., Inc. (a).......................... 787,736
- ------------------------------------------------------------------------------------------
2,298,777
- ------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 0.2%
6,378 Fastenal Co. ............................................... 392,630
- ------------------------------------------------------------------------------------------
TOTAL INDUSTRIALS........................................... 26,535,109
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
67
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 11.8%
COMMUNICATIONS EQUIPMENT -- 1.7%
8,994 Avocent Corp. (a)........................................... $ 364,437
18,729 Harris Corp................................................. 1,157,265
22,853 Plantronics Inc. ........................................... 947,714
38,717 Polycom, Inc. (a)........................................... 902,880
- ------------------------------------------------------------------------------------------
3,372,296
- ------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 1.3%
27,334 SanDisk Corp. (a)........................................... 682,530
41,057 Storage Technology Corp. (a)................................ 1,297,812
55,480 Western Digital Corp. (a)................................... 601,403
- ------------------------------------------------------------------------------------------
2,581,745
- ------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.1%
30,711 Amphenol Corp., Class A Shares (a).......................... 1,128,322
9,684 Diebold, Inc. .............................................. 539,689
28,196 Ingram Micro Inc., Class A Shares (a)....................... 586,477
27,011 Tech Data Corp. (a)......................................... 1,226,299
20,184 Tektronix, Inc. ............................................ 609,759
- ------------------------------------------------------------------------------------------
4,090,546
- ------------------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 1.4%
32,946 Acxiom Corp. ............................................... 866,480
22,996 Cognizant Technology Solutions Corp., Class A Shares (a).... 973,421
10,724 Computer Sciences Corp. (a)................................. 604,512
28,642 Keane, Inc. (a)............................................. 421,037
- ------------------------------------------------------------------------------------------
2,865,450
- ------------------------------------------------------------------------------------------
OFFICE ELECTRONICS -- 0.4%
40,788 Xerox Corp. (a)............................................. 693,804
- ------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 2.7%
20,645 Cabot Microelectronics Corp. (a)............................ 826,832
29,885 Cree, Inc. (a).............................................. 1,197,791
26,283 International Rectifier Corp. (a)........................... 1,171,433
44,706 Lam Research Corp. (a)...................................... 1,292,451
67,154 MEMC Electronic Materials, Inc. (a)......................... 889,791
- ------------------------------------------------------------------------------------------
5,378,298
- ------------------------------------------------------------------------------------------
SOFTWARE -- 2.2%
66,969 Activision Inc. (a)......................................... 1,351,434
36,065 Jack Henry & Associates, Inc. .............................. 718,054
12,426 Macromedia, Inc. (a)........................................ 386,697
31,756 RSA Security Inc. (a)....................................... 637,025
37,011 Sybase, Inc. (a)............................................ 738,370
26,648 Transaction Systems Architects, Inc., Class A Shares (a).... 528,963
- ------------------------------------------------------------------------------------------
4,360,543
- ------------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY................................ 23,342,682
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
68
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
MATERIALS -- 5.4%
CHEMICALS -- 2.7%
21,458 Albemarle Corp. ............................................ $ 830,639
18,299 Cytec Industries, Inc. ..................................... 940,935
17,466 FMC Corp. (a)............................................... 843,608
9,896 PPG Industries, Inc. ....................................... 674,511
54,442 RPM International Inc. ..................................... 1,070,330
12,567 The Scotts Co., Class A Shares (a).......................... 923,926
- ------------------------------------------------------------------------------------------
5,283,949
- ------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.5%
25,699 Longview Fibre Co. ......................................... 466,180
17,307 Sonoco Products Co. ........................................ 513,152
- ------------------------------------------------------------------------------------------
979,332
- ------------------------------------------------------------------------------------------
METALS & MINING -- 1.7%
8,840 Arch Coal, Inc. ............................................ 314,173
9,654 Nucor Corp. ................................................ 505,290
17,092 Peabody Energy Corp. ....................................... 1,382,914
13,047 Southern Peru Copper Corp. ................................. 615,949
25,496 Worthington Industries, Inc. ............................... 499,212
- ------------------------------------------------------------------------------------------
3,317,538
- ------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.5%
17,836 Georgia-Pacific Corp. ...................................... 668,494
9,075 Rayonier, Inc. ............................................. 443,858
- ------------------------------------------------------------------------------------------
1,112,352
- ------------------------------------------------------------------------------------------
TOTAL MATERIALS............................................. 10,693,171
- ------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 0.5%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3%
145,047 Cincinnati Bell, Inc. (a)................................... 601,945
- ------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.2%
4,423 Telephone & Data Systems, Inc. ............................. 340,350
- ------------------------------------------------------------------------------------------
TOTAL TELECOMMUNICATION SERVICES............................ 942,295
- ------------------------------------------------------------------------------------------
UTILITIES -- 6.1%
ELECTRIC UTILITIES -- 2.8%
34,270 Alliant Energy Corp. ....................................... 980,122
23,540 IDACORP, Inc. .............................................. 719,618
57,779 Pepco Holdings, Inc. ....................................... 1,231,848
13,939 PPL Corp. .................................................. 742,670
38,963 Puget Energy, Inc. ......................................... 962,386
28,659 Wisconsin Energy Corp. ..................................... 966,095
- ------------------------------------------------------------------------------------------
5,602,739
- ------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
69
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004
DISCIPLINED MID CAP STOCK PORTFOLIO
<Table>
<Caption>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------
ii(x
GAS UTILITIES -- 2.1%
35,328 AGL Resources, Inc. ........................................ $ 1,174,303
41,393 MDU Resources Group, Inc. .................................. 1,104,365
38,490 National Fuel Gas Co. ...................................... 1,090,807
28,298 ONEOK, Inc. ................................................ 804,229
- ------------------------------------------------------------------------------------------
4,173,704
- ------------------------------------------------------------------------------------------
MULTI-UTILITIES -- 1.2%
23,377 Questar Corp. .............................................. 1,191,292
29,999 SCANA Corp. ................................................ 1,181,960
- ------------------------------------------------------------------------------------------
2,373,252
- ------------------------------------------------------------------------------------------
TOTAL UTILITIES............................................. 12,149,695
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $155,363,858)................... 193,430,025
- ------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT
- ------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.4%
U.S. TREASURY BILLS -- 0.2%
$ 300,000 U.S. Treasury Bills due 3/17/05 (c) (Cost -- $298,644)...... $ 298,733
- ------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.2%
4,420,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due
1/3/05; Proceeds at maturity -- $4,420,516; (Fully
collateralized by U.S. Treasury Bonds, 8.125% due 8/15/21;
Market value -- $4,508,445) (Cost -- $4,420,000).......... 4,420,000
- ------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $4,718,644)........... 4,718,733
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.2% (Cost -- $160,082,502*)......... 198,148,758
Liabilities in Excess of Other Assets -- (0.2%)............. (320,700)
- ------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0%.................................. $197,828,058
- ------------------------------------------------------------------------------------------
</Table>
(a)Non-income producing security.
(b)All or a portion of this security is segregated as collateral for open
futures contracts.
(c)All or a portion of this security is held as collateral for open futures
contracts.
* Aggregate cost for federal income tax purposes is $160,144,420.
SEE NOTES TO FINANCIAL STATEMENTS.
70
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CCC" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
<Table>
AAA -- Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest
and repay principal and differ from the highest rated issue
only in a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than in higher
rated categories.
BB, B, CCC and CC -- Bonds rated "BB" and "B" are regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. "BB" represents a lower degree of
speculation than "B", "CCC" and "CC" the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
C -- Bonds rated "C" are bonds on which no interest is being
paid.
D -- Bonds rated "D" are in default, and payment of interest
and/or repayment of principal is in arrears.
</Table>
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2, and 3 may be
applied to each generic rating from "Aa" to "Caa," where 1 is the highest and 3
the lowest rating within its generic category.
<Table>
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective
elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate, and therefore not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payment or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with
respect to principal or interest.
Ca and C -- Bonds rated "Ca" and "C" represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
NR -- Indicates that the bond is not rated by Standard & Poor's,
Moody's or Fitch.
</Table>
71
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
<Table>
<Caption>
TRAVELERS LAZARD MFS DISCIPLINED
QUALITY INTERNATIONAL EMERGING FEDERATED FEDERATED MID CAP
BOND STOCK GROWTH HIGH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost............ $186,853,953 $151,898,557 $ 134,988,511 $ 81,863,832 $27,322,749 $160,082,502
Loaned securities collateral, at
cost.......................... -- 44,468,432 -- -- -- --
Foreign currency, at cost....... -- -- 1,873 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Investments, at value........... $188,123,133 $181,808,833 $ 168,655,902 $ 85,557,122 $32,456,927 $198,148,758
Loaned securities collateral, at
value (Notes 1 and 3)......... -- 44,468,432 -- -- -- --
Foreign currency, at value...... -- -- 1,901 -- -- --
Cash............................ 934 9 707 769 218 505
Dividends and interest
receivable.................... 1,882,464 257,298 75,138 1,660,577 50,986 101,448
Receivable for Fund shares
sold.......................... -- 15,522 -- 15,005 18,146 --
Receivable for securities
sold.......................... -- -- 268,908 76,467 198,383 --
Receivable for open forward
foreign currency contracts
(Notes 1 and 3)............... -- -- 101 -- -- --
Receivable from
broker -- variation margin for
open futures contracts........ -- -- -- -- -- 2,775
Other receivables............... -- -- 147 -- 5,347 --
Prepaid expenses................ 2,215 1,450 1,007 472 203 1,781
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................... 190,008,746 226,551,544 169,003,811 87,310,412 32,730,210 198,255,267
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares
reacquired.................... 573,715 721,266 854,458 89,293 24,654 250,296
Payable for loaned securities
collateral (Notes 1 and 3).... -- 44,468,432 -- -- -- --
Investment advisory fees
payable....................... 52,490 120,485 104,284 47,628 15,496 114,578
Administration fees payable..... 9,354 9,881 8,345 4,382 3,367 9,819
Payable for securities
purchased..................... -- -- 2,527,486 185,058 114,193 --
Payable for open forward foreign
currency contracts (Notes 1
and 3)........................ -- -- 381 -- -- --
Trustees' fees payable.......... 2,000 2,300 2,300 2,300 2,300 2,300
Accrued expenses................ 56,200 55,006 61,927 44,460 31,305 50,216
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES............... 693,759 45,377,370 3,559,181 373,121 191,315 427,209
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................. $189,314,987 $181,174,174 $ 165,444,630 $ 86,937,291 $32,538,895 $197,828,058
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital................. $191,295,023 $186,409,786 $ 323,913,565 $ 95,981,473 $28,191,483 $157,598,303
Undistributed (overdistributed)
net investment income......... (1,564,284) (547,069) 280 (263,984) -- 7,623
Accumulated net realized gain
(loss) from investment
transactions and futures
contracts..................... (1,684,932) (34,603,797) (192,136,917) (12,473,488) (786,766) 2,131,750
Net unrealized appreciation of
investments, futures contracts
and foreign currencies........ 1,269,180 29,915,254 33,667,702 3,693,290 5,134,178 38,090,382
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.................. $189,314,987 $181,174,174 $ 165,444,630 $ 86,937,291 $32,538,895 $197,828,058
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING................ 17,169,941 15,868,394 15,700,343 10,090,819 1,965,275 10,011,726
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE........ $11.03 $11.42 $10.54 $8.62 $16.56 $19.76
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
72
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
TRAVELERS LAZARD MFS DISCIPLINED
QUALITY INTERNATIONAL EMERGING FEDERATED FEDERATED MID CAP
BOND STOCK GROWTH HIGH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest............................... $ 8,030,237 $ 59,899 $ 45,434 $6,584,771 $ 19,483 $ 52,490
Dividends.............................. -- 3,956,515 873,090 27,118 688,118 1,865,624
Securities lending..................... -- 102,085 -- -- -- --
Less: Foreign withholding tax.......... -- (450,997) (17,139) -- (1,717) (859)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................ 8,030,237 3,667,502 901,385 6,611,889 705,884 1,917,255
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)...... 642,159 1,264,681 1,217,061 520,768 196,073 1,237,113
Administration fees (Note 2)........... 119,176 92,801 97,365 48,071 18,823 106,038
Audit and legal........................ 42,962 42,454 46,946 43,092 48,626 41,897
Custody................................ 28,997 116,900 66,791 57,960 11,919 27,302
Shareholder communications............. 27,561 18,046 24,136 13,468 5,177 22,498
Trustees' fees......................... 10,096 9,564 10,173 11,798 10,283 9,718
Transfer agency services (Note 2)...... 2,500 2,500 2,500 2,500 2,500 2,500
Other.................................. 2,103 15,575 2,782 1,473 1,028 1,673
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES......................... 875,554 1,562,521 1,467,754 699,130 294,429 1,448,739
Less: Expense reimbursements and fee
waivers (Notes 2 and 6).............. (33,485) (33,485) (33,448) (33,485) (33,485) (29,011)
- ---------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES........................... 842,069 1,529,036 1,434,306 665,645 260,944 1,419,728
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)........... 7,188,168 2,138,466 (532,921) 5,946,244 444,940 497,527
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES
(NOTES 1 AND 3):
Realized Gain (Loss) From:
Investment transactions.............. 865,318 14,092,075 15,461,217 1,202,342 1,268,513 14,922,089
Futures contracts.................... -- -- -- -- -- 271,038
Foreign currency transactions........ -- (230,809) (1,562) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN...................... 865,318 13,861,266 15,459,655 1,202,342 1,268,513 15,193,127
- ---------------------------------------------------------------------------------------------------------------------------------
Net Change in Unrealized
Appreciation/Depreciation From:
Investments and futures contracts.... (1,671,033) 8,417,220 4,395,319 749,397 1,454,617 11,904,347
Foreign currencies................... -- (7,013) (185) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION............ (1,671,033) 8,410,207 4,395,134 749,397 1,454,617 11,904,347
- ---------------------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCIES....... (805,715) 22,271,473 19,854,789 1,951,739 2,723,130 27,097,474
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS... $ 6,382,453 $24,409,939 $19,321,868 $7,897,983 $3,168,070 $27,595,001
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
73
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
TRAVELERS QUALITY LAZARD INTERNATIONAL MFS EMERGING
BOND PORTFOLIO STOCK PORTFOLIO GROWTH PORTFOLIO
---------------------------- ----------------------------- ----------------------------
2004 2003 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss).... $ 7,188,168 $ 8,841,220 $ 2,138,466 $ 1,877,744 $ (532,921) $ (468,854)
Net realized gain (loss)........ 865,318 (813,388) 13,861,266 (4,181,788) 15,459,655 3,125,140
Net change in unrealized
appreciation/depreciation..... (1,671,033) 6,204,698 8,410,207 30,563,454 4,395,134 36,792,310
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS.................... 6,382,453 14,232,530 24,409,939 28,259,410 19,321,868 39,448,596
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 1):
Net investment income........... (8,995,106) (10,103,492) (2,613,383) (2,035,977) -- --
Net realized gains.............. -- (474,419) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS.................. (8,995,106) (10,577,911) (2,613,383) (2,035,977) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of
shares........................ 16,645,993 43,240,349 53,475,176 104,649,317 5,697,473 8,640,718
Net asset value of shares issued
for reinvestment of dividends
and distributions............. 8,995,106 10,577,911 2,613,383 2,035,977 -- --
Cost of shares reacquired....... (42,786,580) (54,268,288) (24,585,856) (102,506,397) (27,632,701) (24,103,589)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM FUND SHARE
TRANSACTIONS.................. (17,145,481) (450,028) 31,502,703 4,178,897 (21,935,228) (15,462,871)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS............................ (19,758,134) 3,204,591 53,299,259 30,402,330 (2,613,360) 23,985,725
NET ASSETS:
Beginning of year............... 209,073,121 205,868,530 127,874,915 97,472,585 168,057,990 144,072,265
- ---------------------------------------------------------------------------------------------------------------------------------
END OF YEAR*.................... $189,314,987 $209,073,121 $181,174,174 $ 127,874,915 $165,444,630 $168,057,990
- ---------------------------------------------------------------------------------------------------------------------------------
*Includes undistributed
(overdistributed) net
investment income of:......... $(1,564,284) $(650,983) $(547,069) $(237,139) $280 --
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
74
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER
31,
<Table>
<Caption>
FEDERATED HIGH FEDERATED DISCIPLINED MID CAP
YIELD PORTFOLIO STOCK PORTFOLIO STOCK PORTFOLIO
--------------------------- -------------------------- ----------------------------
2004 2003 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............... $ 5,946,244 $ 4,932,912 $ 444,940 $ 421,055 $ 497,527 $ 492,767
Net realized gain (loss)............ 1,202,342 (800,373) 1,268,513 27,649 15,193,127 3,281,954
Net change in unrealized
appreciation/depreciation......... 749,397 8,350,883 1,454,617 6,552,918 11,904,347 35,315,211
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................ 7,897,983 12,483,422 3,168,070 7,001,622 27,595,001 39,089,932
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 1):
Net investment income............... (6,213,875) (5,110,185) (451,992) (414,269) (508,893) (426,728)
Net realized gains.................. -- -- -- -- (5,360,391) --
- ---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DIVIDENDS AND
DISTRIBUTIONS TO SHAREHOLDERS..... (6,213,875) (5,110,185) (451,992) (414,269) (5,869,284) (426,728)
- ---------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from sale of shares.... 14,459,403 45,580,198 2,342,984 2,031,831 24,387,730 27,684,956
Net asset value of shares issued for
reinvestment
of dividends and distributions.... 6,213,875 5,110,185 451,992 414,269 5,869,284 426,728
Cost of shares reacquired........... (11,216,237) (30,064,428) (4,775,545) (4,280,218) (19,071,361) (12,959,405)
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS...... 9,457,041 20,625,955 (1,980,569) (1,834,118) 11,185,653 15,152,279
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS................ 11,141,149 27,999,192 735,509 4,753,235 32,911,370 53,815,483
NET ASSETS:
Beginning of year................... 75,796,142 47,796,950 31,803,386 27,050,151 164,916,688 111,101,205
- ---------------------------------------------------------------------------------------------------------------------------------
END OF YEAR*........................ $86,937,291 $ 75,796,142 $32,538,895 $31,803,386 $197,828,058 $164,916,688
- ---------------------------------------------------------------------------------------------------------------------------------
*Includes undistributed
(overdistributed) net investment
income of:........................ $(263,984) $(99,971) -- $6,786 $7,623 $69,223
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
75
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
TRAVELERS QUALITY BOND PORTFOLIO(1) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............ $11.21 $11.03 $11.39 $11.00 $10.82
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income....................... 0.41 0.48 0.51 0.59(2) 0.73
Net realized and unrealized gain (loss)..... (0.04) 0.29 0.14 0.20(2) 0.00*
- ------------------------------------------------------------------------------------------------------
Total Income From Operations.................. 0.37 0.77 0.65 0.79 0.73
- ------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................... (0.55) (0.56) (0.85) (0.40) (0.55)
Net realized gains.......................... -- (0.03) (0.16) -- --
- ------------------------------------------------------------------------------------------------------
Total Dividends and Distributions............. (0.55) (0.59) (1.01) (0.40) (0.55)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $11.03 $11.21 $11.03 $11.39 $11.00
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN(3)............................... 3.29% 6.98% 5.81% 7.13% 6.97%
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)............ $189 $209 $206 $152 $73
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)................................. 0.42%(5) 0.43% 0.44% 0.45% 0.49%
Net investment income....................... 3.62 4.15 4.48 5.14(2) 6.81
- ------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE....................... 90% 191% 176% 225% 157%
- ------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective January 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended December
31, 2001, these amounts would have been $0.61, $0.18 and 5.31% for net
investment income, net realized and unrealized gain and the ratio of net
investment income to average net assets, respectively. Per share
information, ratios and supplemental data for the periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(3) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of
voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
(4) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 0.75%.
(5) 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 expenses
not reimbursed, the actual expense ratio would have been 0.44%.
* Amount represents less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
76
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
LAZARD INTERNATIONAL STOCK PORTFOLIO(1) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............ $10.01 $7.91 $9.30 $13.15 $15.65
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income....................... 0.14 0.15 0.11 0.11 0.13
Net realized and unrealized gain (loss)..... 1.44 2.11 (1.31) (3.50) (1.88)
- ------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations........... 1.58 2.26 (1.20) (3.39) (1.75)
- ------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................... (0.17) (0.16) (0.19) (0.02) (0.32)
Net realized gains.......................... -- -- -- (0.44) (0.43)
- ------------------------------------------------------------------------------------------------------
Total Dividends and Distributions............. (0.17) (0.16) (0.19) (0.46) (0.75)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $11.42 $10.01 $7.91 $ 9.30 $13.15
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)............................... 15.75% 28.60% (12.96)% (26.19)% (11.50)%
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)............ $181 $128 $97 $120 $141
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)................................. 0.99%(4) 1.00% 1.06% 1.01% 1.02%
Net investment income....................... 1.38 1.79 1.32 1.01 0.92
- ------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE....................... 59% 44% 55% 81% 39%
- ------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MFS EMERGING GROWTH PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............ $9.35 $7.24 $11.00 $22.60 $29.82
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss......................... (0.03) (0.03) (0.03) (0.02) (0.05)
Net realized and unrealized gain (loss)..... 1.22 2.14 (3.73) (8.20) (5.70)
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations........... 1.19 2.11 (3.76) (8.22) (5.75)
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains.......................... -- -- -- (3.38) (1.47)
- -------------------------------------------------------------------------------------------------------------
Total Distributions........................... -- -- -- (3.38) (1.47)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $10.54 $9.35 $7.24 $11.00 $22.60
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)............................... 12.73% 29.14% (34.18)% (36.18)% (20.13)%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)............ $165 $168 $144 $258 $420
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(5)................................. 0.88%(6) 0.89% 0.89% 0.89% 0.90%
Net investment loss......................... (0.33) (0.30) (0.32) (0.12) (0.18)
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE....................... 99% 106% 114% 266% 203%
- -------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of
voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
(3) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 1.25%.
(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 expenses
not reimbursed, the actual expense ratio would have been 1.01%.
(5) As a result of an expense limitation, the ratio of expenses to average net
assets (excluding interest expense) will not exceed 0.95%.
(6) 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 expenses
not reimbursed, the actual expense ratio would have been 0.90%.
SEE NOTES TO FINANCIAL STATEMENTS.
77
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
FEDERATED HIGH YIELD PORTFOLIO 2004(1) 2003(1) 2002(1) 2001(1) 2000
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR........... $8.41 $7.37 $8.55 $9.50 $11.44
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income...................... 0.64 0.65 0.74 0.97(2) 1.25
Net realized and unrealized gain (loss).... 0.23 1.00 (0.46) (0.77)(2) (2.11)
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.......... 0.87 1.65 0.28 0.20 (0.86)
- -------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS FROM:
Net investment income...................... (0.66) (0.61) (1.46) (1.15) (1.08)
- -------------------------------------------------------------------------------------------------------------
Total Dividends.............................. (0.66) (0.61) (1.46) (1.15) (1.08)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................. $8.62 $8.41 $7.37 $8.55 $9.50
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3).............................. 10.38% 22.39% 3.72% 1.94% (8.15)%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)........... $87 $76 $48 $40 $39
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)................................ 0.83%(5) 0.90% 0.89% 0.89% 0.88%
Net investment income...................... 7.42 7.93 9.09 10.45(2) 10.61
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE...................... 38% 57% 58% 44% 19%
- -------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective January 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended December
31, 2001, these amounts would have been $0.98, $0.78 and 10.51% for net
investment income, net realized and unrealized loss and the ratio of net
investment income to average net assets, respectively. Per share
information, ratios and supplemental data for the periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(3) Total returns do not reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect voluntary fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of
voluntary fee waivers and/or expense reimbursements, the total return would
have been lower.
(4) As a result of an expense limitation, the ratio of expenses to average net
assets will not exceed 0.95%.
(5) 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 expenses
not reimbursed, the actual expense ratio would have been 0.87%.
SEE NOTES TO FINANCIAL STATEMENTS.
78
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
FEDERATED STOCK PORTFOLIO 2004 2003(1) 2002(1) 2001(1) 2000
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............ $15.19 $12.06 $15.40 $15.99 $16.34
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income....................... 0.23 0.20 0.16 0.16 0.21
Net realized and unrealized gain (loss)..... 1.37 3.13 (3.13) 0.11 0.33
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations........... 1.60 3.33 (2.97) 0.27 0.54
- ----------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................... (0.23) (0.20) (0.37) (0.20) (0.18)
Net realized gains.......................... -- -- -- (0.66) (0.71)
- ----------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions............. (0.23) (0.20) (0.37) (0.86) (0.89)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................. $16.56 $15.19 $12.06 $15.40 $15.99
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)............................... 10.55% 27.61% (19.32)% 1.67% 3.77%
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)............ $33 $32 $27 $44 $45
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3)................................. 0.83%(4) 0.91% 0.84% 0.81% 0.82%
Net investment income....................... 1.42 1.50 1.14 0.99 1.23
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE....................... 31% 41% 13% 14% 24%
- ----------------------------------------------------------------------------------------------------------------------
</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 expenses
not reimbursed, the actual expense ratio would have been 0.94%.
SEE NOTES TO FINANCIAL STATEMENTS.
79
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<Table>
<Caption>
DISCIPLINED MID CAP STOCK PORTFOLIO 2004(1) 2003 2002 2001(1) 2000(1)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR......... $17.49 $13.11 $15.41 $17.26 $15.61
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.................... 0.05 0.05 0.03 0.06 0.08
Net realized and unrealized gain
(loss)................................ 2.82 4.38 (2.23) (0.78) 2.46
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations........ 2.87 4.43 (2.20) (0.72) 2.54
- ----------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.................... (0.05) (0.05) (0.08) (0.04) (0.03)
Net realized gains....................... (0.55) -- (0.02) (1.09) (0.86)
- ----------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions.......... (0.60) (0.05) (0.10) (1.13) (0.89)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR............... $19.76 $17.49 $13.11 $15.41 $17.26
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2)............................ 16.45% 33.75% (14.32)% (4.02)% 16.61%
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)......... $198 $165 $111 $113 $95
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3).............................. 0.80%(4) 0.82% 0.85% 0.83% 0.88%
Net investment income.................... 0.28 0.38 0.23 0.37 0.49
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.................... 91% 61% 67% 40% 67%
- ----------------------------------------------------------------------------------------------------------------------
</Table>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Total returns do no reflect expenses associated with your variable contract
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Performance
figures may reflect 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 expenses
not reimbursed, the actual expense ratio would have been 0.82%.
SEE NOTES TO FINANCIAL STATEMENTS.
80
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Travelers Quality Bond, Lazard International Stock, MFS Emerging
Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock
Portfolios ("Fund(s)") are separate diversified investment funds of The
Travelers Series Trust ("Trust"). The Trust, a Massachusetts business trust, is
registered under the Investment Company Act of 1940 ("1940 Act"), as amended, as
an open-end management investment company. Shares of the Trust are offered
exclusively for use with certain variable annuity and variable life insurance
contracts offered through the separate accounts of various affiliated life
insurance companies.
The following are significant accounting policies consistently followed by
the Funds and are in conformity with U.S. generally accepted accounting
principles ("GAAP"). Estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
(A) INVESTMENT VALUATION. Securities traded on national securities markets
are valued at the closing price on such markets. 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
primarily traded on foreign exchanges are generally valued at the closing values
of such securities on their respective exchanges. Securities listed on the
NASDAQ National Market System for which market quotations are available are
valued at the official closing price or, if there is no official closing price
on that day, at the last sale price. 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. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques that take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices since such valuations are believed to reflect the market value of
such securities. 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. Fair
valuing of securities may be determined with the assistance of a pricing service
using calculations based on indices of domestic securities and other appropriate
indicators, such as prices of relevant ADRs and futures contracts. Short-term
obligations 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) FUTURES CONTRACTS. Certain Funds may enter into futures contracts to
the extent permitted by their investment policies and objectives. Upon entering
into a futures contract, the Funds are required to deposit cash or pledge
securities as initial margin. Additional securities are also segregated up to
the current market value of the futures contracts. Subsequent payments, which
are dependent on the daily fluctuations in the value of the underlying financial
instrument, are made or received by the Funds each day (daily variation margin)
and are recorded as unrealized gains or losses until the contracts are closed.
When the contracts are closed, the Funds record a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transactions
and the Funds' basis in the contracts. The Funds typically enter into such
contracts as a substitution for buying or selling securities and as a cash flow
management technique, or to hedge a portion of the portfolio. The risks
associated with entering into futures contracts include the possibility that a
change in the value of the contract may not correlate with the changes in the
value of the underlying instruments. In addition, investing in futures contracts
involves the risk that the Funds could lose more than the original margin
deposit and subsequent payments required for a futures transaction.
81
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FORWARD FOREIGN CURRENCY CONTRACTS. Certain Funds may enter into
forward foreign currency contracts. A forward foreign currency contract is an
agreement between two parties to buy and sell a currency at a set price on a
future date. The contract is marked-to-market daily and the change in value is
recorded by the Funds as an unrealized gain or loss. When a forward foreign
currency contract is extinguished, through either delivery or offset by entering
into another forward foreign currency contract, the Funds record a realized gain
or loss equal to the difference between the value of the contract at the time it
was opened and the value of the contract at the time it was extinguished or
offset. The Funds bear the market risk that arises from changes in foreign
currency exchange rates and the credit risk should a counterparty fail to meet
the terms of such contracts.
(E) LENDING OF PORTFOLIO SECURITIES. The Funds have an agreement with
their custodian whereby the custodian may lend securities owned by the Funds to
brokers, dealers and other financial organizations, and receive a lender's fee.
Loans of securities by the Funds are collateralized by cash, U.S. government
securities or high quality money market instruments that are maintained at all
times in an amount at least equal to the current market value of the loaned
securities, plus a margin which may vary depending on the type of securities
loaned. The custodian establishes and maintains the collateral in a segregated
account. The Funds maintain exposure for the risk of any losses in the
investment of amounts received as collateral. The Funds also maintain exposure
for the risk of any loss in the investment securities loaned. The Funds have the
right under the lending agreement to recover the securities from the borrower on
demand.
(F) CREDIT AND MARKET RISK. Certain Funds may invest in high-yield
instruments that are subject to certain credit and market risks. The yields of
high-yield debt obligations reflect, among other things, perceived credit risk.
The Funds' investments in securities rated below investment-grade typically
involve risks not associated with higher rated securities including, among
others, greater risk of timely and ultimate payment of interest and principal,
greater market price volatility and less liquid secondary market trading. In
addition, certain Funds may invest in foreign securities. The Funds' investments
in foreign securities may involve risks not present in domestic investments.
Since securities may be denominated in a foreign currency and may require
settlement in foreign currencies and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Funds. Foreign investments may also subject the Funds to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, all of which could affect the market and/or credit risk
of the investments.
(G) 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. To the extent that any issuer defaults on an expected interest payment,
the Funds' policy is to generally halt any additional interest income accruals
and consider the realization of interest accrued up to the date of default.
(H) 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 is due to changes in the foreign exchange rates from that which is due to
changes in market prices of equity securities.
(I) 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.
(J) 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,
82
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
(K) 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, $887,596 has been reclassified
between accumulated net realized gain from investment transactions and futures
contracts and accumulated net investment loss as a result of permanent
differences between book and tax amortization of premium on fixed income
securities, tax treatment of consent fees and income from mortgage backed
securities treated as capital gains for tax and $6,041 has been reclassified
between paid-in capital and accumulated net investment loss as a result of a
taxable overdistribution paid by Travelers Quality Bond Portfolio. Additionally,
$164,987 has been reclassified between accumulated net realized loss from
investment transactions and futures contracts and accumulated net investment
loss as a result of permanent differences due to book foreign currency
transactions treated as ordinary income for tax purposes and the realization for
tax purposes of gains on investments in passive foreign investment companies for
Lazard International Stock Portfolio. Additionally, $534,762 has been
reclassified between paid-in capital and accumulated net investment loss as a
result of permanent differences attributable to a tax net operating loss and
$1,561 has been reclassified between accumulated net realized gain from
investment transactions and futures contracts and accumulated net investment
loss due to foreign currency transactions treated as ordinary income for tax for
MFS Emerging Growth Portfolio. Additionally, $95,907 has been reclassified
between accumulated net realized loss from investment transactions and futures
contracts and accumulated net investment loss due to book/tax differences in the
recognition of market premium on securities sold and $7,711 has been
reclassified between paid-in capital and accumulated net investment loss due to
a taxable overdistribution by Federated High Yield Portfolio. Additionally, $266
has been reclassified between paid-in capital and accumulated net investment
loss due to a taxable overdistribution by Federated Stock Portfolio. Finally,
$50,234 has been reclassified between accumulated net investment income and
accumulated net realized gain from investment transactions and futures contracts
due to the tax treatment of distributions from real estate investment trusts for
Disciplined Mid Cap Stock Portfolio. These reclassifications have no effect on
net assets or net asset values per share.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Travelers Asset Management International Company LLC ("TAMIC"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Travelers Quality Bond ("TQB"), Lazard International Stock
("LIS"), MFS Emerging Growth ("MEG"), Federated High Yield ("FHY"), Federated
Stock ("FSP") and Disciplined Mid Cap Stock ("DMCS") Portfolios. TQB, FHY, FSP
and DMCS each pay TAMIC an investment advisory fee calculated at the annual rate
of 0.3233%, 0.65%, 0.625% and 0.70%, respectively, of each Fund's respective
average daily net assets. These fees are calculated daily and paid monthly.
TAMIC has entered into sub-advisory agreements with Lazard Asset Management
LLC ("Lazard"), Massachusetts Financial Services ("MFS"), Federated Investment
Management Company ("Federated") and The Travelers Investment Management Company
("TIMCO"), another indirect wholly-owned subsidiary of Citigroup. Pursuant to
each sub-advisory agreement, Lazard, MFS and TIMCO are responsible for the
day-to-day fund operations and investment decisions for LIS, MEG and DMCS,
respectively. Federated is responsible for the day-to-day fund operations and
investment decisions for FHY and FSP. As a result, the following fees are
calculated and paid at an annual rate:
- TAMIC pays Federated 0.40% and 0.375% of the average daily net
assets of FHY and FSP, respectively.
- TAMIC pays TIMCO 0.35% of DMCS's average daily net assets.
The Board of Trustees of the Trust, on behalf of LIS, has approved an
amendment to the investment advisory agreement between LIS and TAMIC, and an
amendment to the sub-advisory agreement between TAMIC and Lazard.
83
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Prior to September 1, 2004, the investment advisory fee and sub-advisory
fee for LIS were calculated at the annual rates of 0.825% and 0.475%,
respectively, of the average daily net assets of LIS. Effective September 1,
2004 the investment advisory fee and sub-advisory fee were revised to a fee
calculated at the annual rates in accordance with the following schedule:
<Table>
<Caption>
INVESTMENT ADVISORY SUB-ADVISORY
AVERAGE DAILY NET ASSETS FEE RATE FEE RATE
- ---------------------------------------------------------------------------------------------------
First $100 million.......................................... 0.825% 0.475%
Next $400 million........................................... 0.775 0.425
Next $500 million........................................... 0.725 0.375
Over $1 billion............................................. 0.700 0.350
- ---------------------------------------------------------------------------------------------------
</Table>
The Board of Trustees of the Trust, on behalf of MEG, has approved an
amendment to the investment advisory agreement between MEG and TAMIC, and an
amendment to the sub-advisory agreement between TAMIC and MFS.
Prior to September 1, 2004, the investment advisory fee and sub-advisory
fee for MEG were calculated at the annual rates of 0.750% and 0.375%,
respectively, of the average daily net assets of MEG. Effective September 1,
2004, the investment advisory fee and sub-advisory fee were revised to a fee
calculated at the annual rates in accordance with the following schedule:
<Table>
<Caption>
INVESTMENT ADVISORY SUB-ADVISORY
AVERAGE DAILY NET ASSETS FEE RATE FEE RATE
- ---------------------------------------------------------------------------------------------------
First $600 million.......................................... 0.750% 0.375%
Next $300 million........................................... 0.725 0.350
Next $600 million........................................... 0.700 0.325
Next $1 billion............................................. 0.675 0.300
Over $2.5 billion........................................... 0.625 0.250
- ---------------------------------------------------------------------------------------------------
</Table>
The Travelers Insurance Company ("TIC"), another indirect wholly-owned
subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC
an administration fee calculated at an annual rate of 0.06% of each Fund's
respective average daily net assets. This fee is calculated daily and paid
monthly. TIC has entered into a sub-administrative service agreement with Smith
Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of
Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual
rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per
Fund, subject to a maximum of 0.06% of each Fund's respective average daily net
assets.
During the year ended December 31, 2004, TQB, LIS, MEG, FHY, FSP and DMCS
had contractual expense limitations in place of 0.75%, 1.25%, 0.95%, 0.95%,
0.95% and 0.95%, respectively. These expense limitations are renewed annually
and can be terminated at any time by TIC with 60 days' notice.
During the year ended December 31, 2004, SBFM voluntarily waived a portion
of its fee in the amount of $1,726, $1,726, $1,689, $1,726, $1,726 and $1,726
for TQB, LIS, MEG, FHY, FSP and DMS, respectively. In addition, SBFM reimbursed
expenses in the amount of $31,759, $31,759, $31,759, $31,759, $31,759 and
$27,285 for TQB, LIS, MEG, FHY, FSP and DMS, respectively, for the year ended
December 31, 2004, in connection with the overpayment of transfer agent fees
relating to the period from June 1999 through June 2004.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as
the Funds' transfer agent. For the year ended December 31, 2004, each Fund paid
transfer agent fees of $2,500 to CTB.
For the year ended December 31, 2004, Citigroup Global Markets Inc.,
another indirect wholly-owned subsidiary of Citigroup, did not receive any
brokerage commissions from the Funds.
One Trustee and all officers of the Trust are employees of Citigroup or its
subsidiaries and do not receive compensation from the Trust.
84
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
- -----------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio............................ $172,007,799 $186,660,849
Lazard International Stock Portfolio........................ 119,877,867 88,610,760
MFS Emerging Growth Portfolio............................... 157,571,834 180,864,306
Federated High Yield Portfolio.............................. 38,469,474 29,146,404
Federated Stock Portfolio................................... 9,505,814 11,518,125
Disciplined Mid Cap Stock Portfolio......................... 166,586,136 157,544,682
- -----------------------------------------------------------------------------------------
</Table>
At December 31, 2004, the aggregate gross unrealized appreciation and
depreciation of investments for federal income tax purposes were as follows:
<Table>
<Caption>
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio............................ $ 2,624,206 $(2,919,310) $ (295,104)
Lazard International Stock Portfolio........................ 30,400,990 (1,831,906) 28,569,084
MFS Emerging Growth Portfolio............................... 34,907,262 (3,119,137) 31,788,125
Federated High Yield Portfolio.............................. 6,071,987 (2,650,539) 3,421,448
Federated Stock Portfolio................................... 5,860,880 (737,237) 5,123,643
Disciplined Mid Cap Stock Portfolio......................... 38,661,153 (656,815) 38,004,338
- ----------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2004, DMCS had the following open futures contracts:
<Table>
<Caption>
NUMBER OF EXPIRATION BASIS MARKET UNREALIZED
CONTRACTS DATE VALUE VALUE GAIN
- -------------------------------------------------------------------------------------------------------
PURCHASED CONTRACTS:
S&P MidCap 400.............................. 3 3/05 $973,899 $998,025 $24,126
- -------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2004, MEG had open forward foreign currency contracts as
described below. The unrealized gain (loss) on the contracts reflected in the
financial statements was as follows:
<Table>
<Caption>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE (GAIN) LOSS
- ------------------------------------------------------------------------------------------------------------
CONTRACTS TO BUY:
Australian Dollar........................................... 9,298 $ 7,254 1/5/05 $ 19
Canadian Dollar............................................. 4,241 3,525 1/5/05 4
Canadian Dollar............................................. 8,487 7,054 1/6/05 (18)
Swiss Franc................................................. 49,014 42,957 1/4/05 (363)
Japanese Yen................................................ 2,279,088 22,185 1/6/05 78
- ------------------------------------------------------------------------------------------------------------
NET UNREALIZED LOSS ON OPEN FORWARD FOREIGN CURRENCY CONTRACTS................................ $(280)
- ------------------------------------------------------------------------------------------------------------
</Table>
At December 31, 2004, LIS loaned securities having a market value of
$42,146,155. LIS received cash collateral amounting to $44,468,432 which was
invested in the State Street Navigator Securities Lending Trust Prime Portfolio,
a Rule 2a-7 money market fund, under the 1940 Act.
85
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of each
Fund were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- ------------------------------------------------------------------------------------------------------
TRAVELERS QUALITY BOND PORTFOLIO
Shares sold................................................. 1,465,860 3,799,891
Shares issued on reinvestment............................... 817,628 943,628
Shares reacquired........................................... (3,769,397) (4,753,702)
- ------------------------------------------------------------------------------------------------------
Net Decrease................................................ (1,485,909) (10,183)
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL STOCK PORTFOLIO
Shares sold................................................. 5,246,816 13,041,118
Shares issued on reinvestment............................... 228,579 204,469
Shares reacquired........................................... (2,381,102) (12,799,010)
- ------------------------------------------------------------------------------------------------------
Net Increase................................................ 3,094,293 446,577
- ------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO
Shares sold................................................. 598,883 1,024,938
Shares reacquired........................................... (2,869,644) (2,951,286)
- ------------------------------------------------------------------------------------------------------
Net Decrease................................................ (2,270,761) (1,926,348)
- ------------------------------------------------------------------------------------------------------
FEDERATED HIGH YIELD PORTFOLIO
Shares sold................................................. 1,653,448 5,705,531
Shares issued on reinvestment............................... 721,724 607,710
Shares reacquired........................................... (1,293,767) (3,792,186)
- ------------------------------------------------------------------------------------------------------
Net Increase................................................ 1,081,405 2,521,055
- ------------------------------------------------------------------------------------------------------
FEDERATED STOCK PORTFOLIO
Shares sold................................................. 151,666 152,214
Shares issued on reinvestment............................... 27,337 27,308
Shares reacquired........................................... (307,228) (328,610)
- ------------------------------------------------------------------------------------------------------
Net Decrease................................................ (128,225) (149,088)
- ------------------------------------------------------------------------------------------------------
DISCIPLINED MID CAP STOCK PORTFOLIO
Shares sold................................................. 1,329,948 1,842,815
Shares issued on reinvestment............................... 297,265 24,260
Shares reacquired........................................... (1,043,953) (913,912)
- ------------------------------------------------------------------------------------------------------
Net Increase................................................ 583,260 953,163
- ------------------------------------------------------------------------------------------------------
</Table>
5. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal year ended
December 31, 2004 was as follows:
<Table>
<Caption>
TRAVELERS LAZARD DISCIPLINED
QUALITY INTERNATIONAL FEDERATED FEDERATED MID CAP
BOND STOCK HIGH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income...................... $ 8,995,106 $2,613,383 $6,213,875 $451,992 $ 508,893
Net long-term capital gains.......... -- -- -- -- 5,360,391
- ---------------------------------------------------------------------------------------------------------------
Total Distributions Paid............... $ 8,995,106 $2,613,383 $6,213,875 $451,992 $5,869,284
- ---------------------------------------------------------------------------------------------------------------
</Table>
86
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax character of distributions paid during the fiscal year ended
December 31, 2003 was as follows:
<Table>
<Caption>
TRAVELERS LAZARD DISCIPLINED
QUALITY INTERNATIONAL FEDERATED FEDERATED MID CAP
BOND STOCK HIGH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
Ordinary income......................... $10,577,911 $2,035,977 $5,110,185 $414,269 $426,728
- ----------------------------------------------------------------------------------------------------------------
</Table>
For the years ended December 31, 2004 and 2003, MFS Emerging Growth
Portfolio did not make any distributions.
As of December 31, 2004, the components of accumulated earnings (losses) on
a tax basis were as follows:
<Table>
<Caption>
TRAVELERS LAZARD MFS EMERGING
QUALITY BOND INTERNATIONAL GROWTH
PORTFOLIO STOCK PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
Undistributed ordinary income -- net........................ $ -- $ 104,081 $ --
- -------------------------------------------------------------------------------------------------------------
Total undistributed earnings................................ -- 104,081 --
Capital loss carryforward(1)................................ (1,684,932) (33,913,755) (190,257,651)
Other book/tax temporary differences(2)..................... -- -- 280
Unrealized appreciation (depreciation)(3)................... (295,104) 28,574,062 31,788,436
- -------------------------------------------------------------------------------------------------------------
Total accumulated losses.................................... $(1,980,036) $ (5,235,612) $(158,468,935)
- -------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
DISCIPLINED
FEDERATED FEDERATED MID CAP
HIGH YIELD STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------
Undistributed long-term capital gains -- net................ $ -- $ -- $ 2,217,795
- ------------------------------------------------------------------------------------------------------
Total undistributed earnings................................ -- -- 2,217,795
Capital loss carryforward(1)................................ (12,465,630) (776,231) --
Other book/tax temporary differences(2)..................... -- -- (16,504)
Unrealized appreciation(4).................................. 3,421,448 5,123,643 38,028,464
- ------------------------------------------------------------------------------------------------------
Total accumulated earnings (losses)......................... $ (9,044,182) $4,347,412 $40,229,755
- ------------------------------------------------------------------------------------------------------
</Table>
(1) On December 31, 2004, the Funds had net capital loss carryforwards as
follows:
<Table>
<Caption>
TRAVELERS LAZARD
QUALITY INTERNATIONAL MFS EMERGING FEDERATED FEDERATED
YEAR OF BOND STOCK GROWTH HIGH YIELD STOCK
EXPIRATION PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------
12/31/2009......................... $ -- $ 3,632,501 $109,972,382 $ 4,648,588 $ --
12/31/2010......................... -- 22,825,140 75,063,731 6,217,956 --
12/31/2011......................... 1,232,729 7,456,114 5,221,538 1,599,086 776,231
12/31/2012......................... 452,203 -- -- -- --
---------------------------------------------------------------------------------------------------------
$1,684,932 $33,913,755 $190,257,651 $12,465,630 $776,231
---------------------------------------------------------------------------------------------------------
</Table>
These amounts will be available to offset any future taxable capital gains.
(2) Other book/tax temporary differences are attributable primarily to the
realization for tax purposes of unrealized gains/(losses) on certain futures
and foreign currency contracts.
(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 and tax amortization methods for
premiums and discounts on fixed income securities and the realization for
tax purposes of unrealized gains on investments in passive foreign
investment companies.
(4) 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 and tax amortization methods for
premiums and discounts on fixed income securities, and the difference
between book and tax cost basis on Real Estate Investment Trusts.
87
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TQB, LIS, FHY, FSP and DMCS are liable for excise tax payments resulting
from the timing of required distribution payments made to taxable shareholders
for the years 1999-2001. The actual amount of the liability is not yet
determinable. However, the Funds have been indemnified by SBFM for any
associated excise tax liability as well as any interest and penalties or any
other costs. Accordingly, the Funds' net asset values will not be impacted by
the outcome of this matter.
6. ADDITIONAL INFORMATION
In connection with an investigation previously disclosed by Citigroup, the
Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup
Asset Management ("CAM"), the Citigroup business unit that includes the funds'
investment manager and other investment advisory companies; Citicorp Trust Bank
("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three
other individuals, one of whom is an employee and two of whom are former
employees of CAM, that the SEC Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against each of them
relating to the creation and operation of an internal transfer agent unit to
serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated
subcontractor to perform some of the transfer agent services. The subcontractor,
in exchange, had signed a separate agreement with CAM in 1998 that guaranteed
investment management revenue to CAM and investment banking revenue to a CAM
affiliate. The subcontractor's business was later taken over by PFPC Inc., and
at that time the revenue guarantee was eliminated and a one-time payment was
made by the subcontractor to a CAM affiliate.
CAM did not disclose the revenue guarantee when the boards of various
CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the
boards of the various CAM-managed funds the one-time payment received by the CAM
affiliate when it was made. As previously disclosed, CAM has already paid the
applicable funds, primarily through voluntary fee waivers, a total of
approximately $17 million (plus interest), which is the amount of the revenue
received by Citigroup relating to the revenue guarantee.
In addition, the SEC Staff has indicated that it is considering
recommending action based on the adequacy of the disclosures made to the fund
boards that approved the transfer agency arrangement, CAM's initiation and
operation of, and compensation for, the transfer agent business and CAM's
retention of, and agreements with, the subcontractor.
Citigroup is cooperating fully in the SEC's investigation and is seeking to
resolve the matter in discussions with the SEC Staff. On January 20, 2005,
Citigroup stated that it had established an aggregate reserve of $196 million
($25 million in the third quarter of 2004 and $171 million in the fourth quarter
of 2004) related to its discussions with the SEC Staff. Settlement negotiations
are ongoing and any settlement of this matter with the SEC will require approval
by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance
that any amount reserved by Citigroup will be distributed. Nor is there at this
time any certainty as to how the proceeds of any settlement would be
distributed, to whom any such distribution would be made, the methodology by
which such distribution would be allocated, and when such distribution would be
made.
Although there can be no assurance, Citigroup does not believe that this
matter will have a material adverse effect on the funds.
7. SUBSEQUENT EVENT
On January 31, 2005, Citigroup announced that it has reached an agreement
with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity
businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction,
TAMIC currently an indirect wholly owned subsidiary of Citigroup, would become
an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser
to the Funds.
The transaction is subject to certain regulatory approvals, as well as
other customary conditions to closing. The transaction is expected to close this
summer.
In connection with this transaction, the Trust's Board of Trustees will be
asked to approve new investment advisory and administrative services contracts,
and, to the extent required by law, variable annuity and variable life contract
owners, who beneficially own the shares of the funds, will be asked to approve
new investment advisory agreements.
On February 18, 2005, the shareholders of MFS Emerging Growth Portfolio
approved a reorganization pursuant to which MFS Mid Cap Growth Portfolio would
acquire the assets and assume the liabilities of MFS Emerging Growth Portfolio
in exchange for shares of the MFS Mid Cap Growth Portfolio. The merger is
expected to be effective upon the close of business on February 25, 2005.
88
- --------------------------------------------------------------------------------
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 Travelers Quality Bond, Lazard International
Stock, MFS Emerging Growth, Federated High Yield, Federated Stock and
Disciplined Mid Cap Stock Portfolios of The Travelers Series Trust ("Trust") as
of December 31, 2004, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth,
Federated High Yield, Federated Stock, and Disciplined Mid Cap Stock Portfolios
of The Travelers Series Trust as of December 31, 2004, and the results of their
operations for the year then ended, the changes in their net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with U.S.
generally accepted accounting principles.
[KPMG LLP SIGNATURE]
New York, New York
February 18, 2005
89
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
INFORMATION ABOUT TRUSTEES AND OFFICERS
The business and affairs of The Travelers Series Trust ("Trust") are
managed under the direction of the Trust's Board of Trustees. Information
pertaining to the Trustees and Officers of the Trust is set forth below. The
Statement of Additional Information includes additional information about
Trustees and is available, without charge, upon request by calling the Trust's
administrator at 1-800-842-9368.
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE(1) AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND BIRTH YEAR TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- ---------------------------- ------------ ------------- ------------------------------ ----------- ------------------------
NON-INTERESTED TRUSTEES:(2)
Robert E. McGill, III Trustee Since Retired 5 Lydall Inc.; Board of
295 Hancock Road 1990 Managers of 6 Variable
Williamstown, MA Annuity Separate
Birth Year: 1931 Accounts of The
Travelers Insurance
Company ("TIC")
Lewis Mandell Trustee Since Professor, University of 5 Delaware North Corp.;
160 Jacobs Hall 1990 Buffalo Board of Managers of 6
Buffalo, NY Variable Annuity
Birth Year: 1943 Separate Accounts of TIC
Frances M. Hawk, CFA, CFP Trustee Since Private Investor 5 Board of Managers of 6
108 Oxford Hill Lane 1991 Variable Annuity
Downingtown, PA Separate Accounts of TIC
Birth Year: 1948
INTERESTED TRUSTEE:
R. Jay Gerken, CFA(3) Chairman, Since Managing Director of Citigroup 219 Chairman, Board of
Citigroup Asset Management President 2002 Global Markets Inc. ("CGM"); Managers of 6 Variable
("CAM") and 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>
90
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE(1) AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND BIRTH YEAR TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- ---------------------------- ------------ ------------- ------------------------------ ----------- ------------------------
OFFICERS:
Andrew B. Shoup Senior Vice Since Director of CAM; Senior Vice N/A N/A
CAM President 2004 President and Chief
125 Broad Street and Chief Administrative Officer of
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, 11th Floor Officer and Treasurer of certain mutual
New York, NY 10004 Treasurer funds associated with
Birth Year: 1965 Citigroup; Controller of
certain mutual funds
associated with Citigroup
(since 2002)
William D. Wilcox Chief Since 2004 Counsel and Chief Compliance N/A N/A
One Cityplace Compliance Officer (since 1999), TIC;
Hartford, CT 06103 Officer Chief Anti-Money Laundering
Birth Year: 1964 Compliance Officer (since
2002), 6 Variable Annuity
Separate Accounts of TIC;
Chief Compliance Officer
(since 2004), 5 mutual funds
and 6 Variable Separate
Accounts sponsored by TIC
</Table>
91
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE(1) AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND BIRTH YEAR TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- ---------------------------- ------------ ------------- ------------------------------ ----------- ------------------------
Andrew Beagley Chief Since Director of CGM (since 2000); N/A N/A
CAM Anti-Money 2002 Director of Compliance, North
399 Park Avenue, 4th Floor Laundering America, CAM (since 2000);
New York, NY 10022 Compliance Chief Anti-Money Laundering
Birth Year: 1962 Officer Compliance Officer, Chief
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); Chief Compliance
Officer, Salomon Brothers
Asset Management Limited,
Smith Barney Global Capital
Management Inc.
Kathleen A. McGah Secretary Since Deputy General Counsel of TIC; N/A N/A
Travelers Life & Annuity 2004 Assistant Secretary of 5
One Cityplace mutual funds and 6 Variable
Hartford, CT 06103 Separate Accounts sponsored by
Birth Year: 1950 TIC (from 1995 to 2004)
Ernest J. Wright Assistant Since Vice President and Secretary N/A N/A
Travelers Life & Annuity Secretary 2004 of TIC; Secretary of 5 mutual
One Cityplace funds and 6 Variable Separate
Hartford, CT 06103 Accounts sponsored by TIC
Birth Year: 1940 (from 1995 to 2004)
</Table>
- ---------------
(1) Each Trustee and officer serves until his or her successor has been duly
elected and qualified.
(2) Mr. Knight Edwards is an Emeritus Trustee. An Emeritus Trustee is permitted
to attend meetings, but has no voting power.
(3) Mr. Gerken is an "interested person" of the Company as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is an
officer of SBFM and certain of its affiliates.
92
- --------------------------------------------------------------------------------
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>
LAZARD TRAVELERS
INTERNATIONAL STOCK QUALITY BOND
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------
Record Date................................................. 12/27/2004 12/27/2004
Payable Date................................................ 12/28/2004 12/28/2004
- -------------------------------------------------------------------------------------------------
Interest from Federal Obligations........................... -- 26.56%
- -------------------------------------------------------------------------------------------------
Foreign Source Income....................................... 100%* --
- -------------------------------------------------------------------------------------------------
Foreign Taxes Paid Per Share................................ $0.0287 --
- -------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
DISCIPLINED
FEDERATED STOCK MID CAP STOCK
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------
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.......................................... 100.00% 100.00%
- -------------------------------------------------------------------------------------------------
Long-Term Capital Gains Per Share........................... -- $0.553
- -------------------------------------------------------------------------------------------------
</Table>
* Expressed as a percentage of the cash distribution grossed-up for foreign
taxes.
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult with your tax adviser to determine if any portion of
the dividends you received is exempt from state income taxes.
The foreign taxes paid represent taxes incurred by the Fund on income received
by the Fund from foreign sources. Foreign taxes paid may be included in taxable
income with an offsetting deduction from gross income or may be taken as a
credit for taxes paid to foreign governments. You should consult your tax
adviser regarding the appropriate treatment of foreign taxes paid.
Please retain this information for your records.
93
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THE TRAVELERS SERIES TRUST
- --------------------------------------------------------------------------------
<Table>
TRUSTEES INVESTMENT ADVISER
R. Jay Gerken, CFA Travelers Asset Management International Company LLC
Chairman ADMINISTRATOR
Frances M. Hawk, CFA, CFP
Lewis Mandell The Travelers Insurance Company
Robert E. McGill, III
CUSTODIAN
OFFICERS
State Street Bank and Trust Company
R. Jay Gerken, CFA
President and TRANSFER AGENT
Chief Executive Officer
Citicorp Trust Bank, fsb.
Andrew B. Shoup
Senior Vice President and
Chief Administrative
Officer
Kaprel Ozsolak
Chief Financial Officer
and Treasurer
William D. Wilcox
Chief Compliance Officer
Andrew Beagley
Chief Anti-Money
Laundering
Compliance Officer
Kathleen McGah
Secretary
Ernest J. Wright
Assistant Secretary
</Table>
The Funds are separate investment funds of The Travelers Series Trust, a
Massachusetts business trust.
This report is prepared for the general information of variable annuity or life
contract owners and is not an offer of shares of the Travelers Quality Bond
Portfolio, Lazard International Stock Portfolio, MFS Emerging Growth Portfolio,
Federated High Yield Portfolio, Federated Stock Portfolio, and Disciplined Mid
Cap Stock Portfolio and is not for use with the general public. All the Funds
contained in this report may not be available under our variance 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 11, 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 11, 2005
By: /s/ Kaprel Ozsolak
(Kaprel Ozsolak)
Chief Financial Officer of
THE TRAVELERS SERIES TRUST
Date: March 11, 2005