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: 811-3568
MANAGED ASSETS TRUST
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(Exact name of registrant as specified in charter)
One Cityplace, Hartford, CT 06103-3415
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(Address of principal executive offices)(Zip code)
(Name and Address of Agent for Service) Copy to:
Elizabeth M. Forget Robert N. Hickey, Esq.
President Sullivan & Worcester LLP
Managed Assets Trust 1666 K Street, N.W.
260 Madison Avenue, 10th Floor Washington, D.C. 20006
New York, NY 10016
Registrant's telephone number, including area code: (800) 842-9368
Date of fiscal year end: December 31
Date of reporting period: December 31, 2005
ITEM 1: REPORT TO SHAREHOLDERS.
Capital Appreciation Fund
High Yield Bond Trust
Managed Assets Trust
Money Market Portfolio
ANNUAL REPORT
DECEMBER 31, 2005
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February 1, 2006
LETTER TO POLICYHOLDERS:
In 2005, the U.S. stock market experienced moderate growth while non-U.S.
markets on average outperformed. For the year, the S&P 500 Index rose 4.9%
while the MSCI EAFE Index rose 14.0%. In addition on average, mid-cap stock
funds outperformed both large and small-cap funds and growth stock funds began
to outperform value stock funds for the first time in six years.
The Federal Reserve increased short term rates by 200 basis points during 2005
which impacted returns. The average U.S. Bond fund rose 1.9% during the year
while the Lehman Aggregate Bond Index rose 2.4%.
On the following pages you will find a complete review of your Portfolios and
their investment performance.
MetLife is committed to building your financial freedom. We appreciate your
trust and will continue to focus our efforts to meet your financial goals.
Sincerely,
/s/ Elizabeth Forget
Elizabeth M. Forget
President
Capital Appreciation Fund
High Yield Bond Trust
Managed Assets Trust
Money Market Portfolio
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CAPITAL APPRECIATION FUND FOR THE YEAR ENDED 12/31/05
MANAGED BY JANUS CAPITAL MANAGEMENT LLC
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PERFORMANCE OVERVIEW
For the 12 months ended December 31, 2005, the Fund returned 18.19% while its
benchmark, the S&P 500 Index, returned 4.91%.
The Fund's outperformance can be attributed in part to the strong results
posted by several well-chosen stocks within the healthcare and information
technology sectors. Meanwhile, there were only a few pockets of relative
weakness, including consumer discretionary stocks, where we held an overweight
position in this poor-performing sector, and financials, where select holdings
turned in less-than-stellar results.
TOP CONTRIBUTORS INCLUDED TECHNOLOGY AND HEALTHCARE HOLDINGS
As for specific investments, some of the Fund's largest and longest-held
securities contributed to the performance. Apple Computer, UnitedHealth and
Genentech all made meaningfully positive contributions again this year. Our
largest contributor, Apple Computer, continues to impress us with its pipeline
of new products and operational excellence. Late in the third quarter the
company announced its newest addition to the iPod line of digital music
players, the "nano." The nano has been an instant hit with consumers, and many
stores sold out within a few days of receiving their allotted shipments. The
nano holds between 500 and 1,000 songs, has a color screen and is so small and
lightweight that it will fit into the change pocket in a pair of blue jeans.
The success of Apple's iPod and iTunes music software has also contributed
meaningfully to an increase in sales of Apple desktop and laptop computers as
more consumers are opting to make Apple computers the nexus of their personal
computing needs. While there is a minimal chance Apple will ever threaten
Microsoft's dominant position in PC operating system software, we continue to
be impressed by the number of computer users who are, as Apple marketing
implores, opting to make the "switch" to Apple.
DETRACTORS INCLUDED SELECT INTERNET RETAILERS
Of course, not everything went our way this year. In analyzing the Fund's
performance, I am pleased to report that the few losses we sustained over the
course of the year were quite small. One of the biggest detractors to the
Fund's performance was our position in eBay, which occurred in the first half
of the year. Since that time eBay has moved up nicely, and we believe the
position is appropriately sized in the Fund. We were very disciplined about
cutting losses quickly and, no doubt, this discipline has positively
contributed to the Fund's performance.
Thank you for your investment and continued confidence in Janus.
The views expressed above are those of the investment subadvisory firm and are
subject to change based on market and other conditions. Information about the
Portfolio's holdings, asset allocation, industry allocation or country
diversification is historical and is not an indication of future portfolio
composition which will vary.
TOP TEN HOLDINGS BY MARKET VALUE
As of 12/31/05
Percent of
Description Net Assets
-----------------------------------
Apple Computer, Inc. 11.90%
-----------------------------------
UnitedHealth Group, Inc. 8.10%
-----------------------------------
Genentech, Inc. 6.65%
-----------------------------------
Roche Holding AG 5.16%
-----------------------------------
Lowe's Cos., Inc. 5.03%
-----------------------------------
Murphy Oil Corp. 4.77%
-----------------------------------
Electronic Arts, Inc. 4.16%
-----------------------------------
NIKE, Inc.--Class B 4.01%
-----------------------------------
eBay, Inc. 3.93%
-----------------------------------
Wells Fargo & Co. 3.92%
-----------------------------------
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PORTFOLIO COMPOSITION (% of portfolio market value)
As of 12/31/05
[CHART]
Financials 37.9%
Non-Cyclical 13.1%
Cyclical 10.2%
Industrials 9.6%
Technology 9.3%
Energy 8.1%
Communications 7.4%
Basic Materials 4.1%
Convertible 0.3%
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1
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CAPITAL APPRECIATION FUND FOR THE YEAR ENDED 12/31/05
MANAGED BY JANUS CAPITAL MANAGEMENT LLC
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CAPITAL APPRECIATION FUND MANAGED BY
JANUS CAPITAL MANAGEMENT LLC VS. S&P 500 INDEX/1/, AND
RUSSELL 2000 INDEX/2/
Growth Based on $10,000
[CHART]
CAPITAL
APPRECIATION FUND S&P 500 INDEX RUSSELL 2000
----------------- ------------- ------------
12/95 $10,000 $10,000 $10,000
12/96 12,821 12,295 11,649
12/97 16,173 16,395 14,255
12/98 26,140 21,084 13,892
12/99 40,128 25,518 16,845
12/00 31,349 23,196 16,336
12/01 23,171 20,441 16,742
12/02 17,358 15,925 13,313
12/03 21,682 20,490 19,603
12/04 25,916 22,718 23,196
12/05 30,632 23,834 24,252
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Average Annual Return/3/
(for the period ended 12/31/05)
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1 Year 3 Year 5 Year 10 Year Since Inception/4/
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Capital
Appreciation
- -- Fund 18.19% 20.84% -0.46% 11.84% 13.51%
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S&P 500
- - - Index/1/ 4.91% 14.39% 0.54% 9.07% 12.49%
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Russell 2000
- -- Index/2/ 4.55% 22.13% 8.22% 9.26% 13.36%
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/1/The S&P 500 Index is an unmanaged index composed of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange and
over-the-counter markets. The Index does not include fees and expenses and is
not available for direct investment.
/2/The Russell 2000 Index is a capitalization weighted total return index which
is comprised of 2,000 of the smallest capitaled U.S. domiciled companies with
less than average growth orientation whose common stock is traded in the United
States on the New York Stock Exchange, American Stock Exchange and NASDAQ. The
Index does not include fees and expenses and is not available for direct
investment.
/3/"Average Annual Return" is calculated including reinvestment of all income
dividends and capital gains distributions.
/4/Inception date of Portfolio is 03/19/1982.
Past Performance does not guarantee future results. The investment return and
principal value of an investment in the Portfolio will fluctuate, so that
shares, on any given day or when redeemed, may be worth more or less than their
original cost. Performance numbers are net of all Portfolio expenses but do not
include any insurance, sales, or administration charges of variable annuity or
life insurance contracts. If these charges were included, the returns would be
lower.
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2
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HIGH YIELD BOND TRUST FOR THE YEAR ENDED 12/31/05
MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC.
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On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup, Inc.
("Citigroup") announced that they had completed their previously announced
transaction that resulted in Legg Mason acquiring substantially all of
Citigroup's asset management business. As part of this transaction, the
investment subadviser for the Portfolio became a wholly owned subsidiary of
Legg Mason.
PERFORMANCE UPDATE
For the 12 months ended December 31, 2005, the High Yield Bond Trust returned
1.32%. The fund underperformed its unmanaged benchmark, the Credit Suisse First
Boston High Yield Index, which returned 2.26% for the same period. It also
underperformed the Lipper Variable High Current Yield funds category average,
which was 2.56%.
Salomon Brothers Asset Management Inc. began managing the fund on July 1, 2005.
MARKET/ECONOMIC OVERVIEW
The high yield market returned 2.26% for the calendar year ended December 31,
2005, as represented by the CSFB High Yield Index. Although high yield debt
markets ended 2004 on a positive note after an extended end-of-year rally,
markets turned generally down through Spring 2005 as rising oil prices, weak
equity markets and isolated hawkish comments from the Fed regarding inflation
spooked investors. The steady stream of negative auto sector headlines also
contributed to the negative tone, as reduced earnings, production cuts and
downgrades to high yield status hit both General Motors and Ford Motor Co.,
causing spreads to widen dramatically within the auto sector and across fixed
income credit markets.
Markets began to recover in mid-May as technicals strengthened and economic
news turned generally positive. S&P and Fitch's long-anticipated downgrades of
Ford and GM to non-investment grade in early May improved the market's tone, as
the rating agencies' actions removed some of the uncertainty in the market
surrounding the credits' ultimate resting places, allowing both high yield and
investment grade investors to shore up their positions. Improving technicals,
better overall demand and the relative absence of further negative headlines
continued to buoy markets through June and July, despite a stronger new issue
calendar in June and renewed outflows from high yield mutual funds. Resurgent
investor risk appetites on the back of strong U.S. economic news and positive
second quarter earnings announcements also contributed to positive performance,
allowing markets to outperform despite the July 7th terrorist bombings in
London (and the July 21st reprise) and weaker consumer sentiment.
However, markets again turned down in the last few months of the year amid
volatility in the auto sector, stronger inflation, continued high energy prices
and fears of a potentially slowing economy in the aftermath of Hurricanes
Katrina and Rita. In addition, rising interest rates, with the Fed executing
its 12th consecutive rate hike (8 times in 2005) to 4.25% at the December
Federal Open Markets Committee meeting, and worsening investor sentiment on the
back of increased risk aversion largely offset the surprisingly resilient
economic data seen post-Hurricanes. Technicals weakened during 2005 versus the
prior few years as the market entered redemption mode in light of the rising
rate environment. While total new supply was significantly lighter versus
calendar year 2004, with only $103.6 billion coming to market in 2005 versus
$142.4 billion in 2004, overall demand also declined. For the year ended
December 31, 2005, high yield mutual funds reported outflows of approximately
$11.48 billion (according to AMG Data Services).
Finally, while high yield fundamentals remain generally positive (i.e., strong
corporate balance sheets, generally high cash levels), third quarter 2005's
high profile airline bankruptcies pushed annual high yield default rates closer
to historical averages, at 3.73% by principal amount/1/ Increased leveraged
buyout activity and stock buybacks also relevered some corporate balance sheets
and put pressure on the market.
Spreads widened 42 basis points during 2005 to close at 388 basis points over
U.S. Treasuries. Based on the 8.26% yield/i/ of the Citigroup High Market Yield
Index as of December 31, 2005, high-yield bonds continued to offer competitive
yields relative to U. S. Treasury notes./ii /However, high-yield issues are
subject to additional risks, such as the increased possibility of default
because of their lower credit quality, and yields and prices will fluctuate.
CONTRIBUTORS TO PERFORMANCE
Since takeover of this fund by the current management team, portfolio returns
have been negatively impacted by the fund's security selection, specifically in
the Automotive, Telecommunications and Energy sectors, and the
higher-than-normal cash position. However, our sector overweight to
Telecommunications and underweight to Automotive, as well as our security
selection in Cable & Media and Utilities, helped make up some of the return.
The views expressed above are those of the investment subadvisory firm and are
subject to change based on market and other conditions. Information about the
Portfolio's holdings, asset allocation, industry allocation or country
diversification is historical and is not an indication of future portfolio
composition which will vary.
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3
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HIGH YIELD BOND TRUST FOR THE YEAR ENDED 12/31/05
MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC.
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TOP TEN HOLDINGS BY MARKET VALUE
As of 12/31/05
Percent of
Description Net Assets
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Targeted Return Index Securities Trust (7.651%, 06/15/15) 3.60%
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General Motors Acceptance Corp. (8.000%, 11/01/31) 1.95%
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Ford Motor Co. (7.450%, 07/16/31) 1.88%
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Lyondell Chemical Co. (10.875%, 05/01/19) 1.18%
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Tenet Healthcare Corp. (6.875%, 11/15/31) 1.14%
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Ford Motor Credit Co. (6.625%, 6/16/08) 1.08%
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CSC Holdings, Inc. Series B (7.625%, 04/01/11) 1.02%
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General Motors Corp. (8.375%, 07/15/33) 1.01%
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D.R. Horton, Inc. (6.125%, 01/15/14) 1.00%
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Houghton Miffin Co. (7.200%, 03/15/11) 1.00%
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/1/Source: Altman High Yield Bond Default ad Return Report, November 2, 2005.
/i/As measured by the yield on the Citigroup High Yield Market Index as of the
period's close.
/ii/Yields are subject to change and will fluctuate.
PORTFOLIO COMPOSITION (% of portfolio market value)
As of 12/31/05
[CHART]
Domestic Bonds & Debt Securities 98.8%
Common Stocks 0.8%
Convertible Preferred Stock 0.4%
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4
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HIGH YIELD BOND TRUST FOR THE YEAR ENDED 12/31/05
MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC.
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HIGH YIELD BOND TRUST MANAGED BY
SALOMON BROTHERS ASSET MANAGEMENT INC. VS.
CREDIT SUISSE FIRST BOSTON HIGH YIELD INDEX/1/
Growth Based on $10,000
[CHART]
HIGH YIELD CREDIT SUISSE
BOND TRUST 1ST BOSTON
---------- -------------
12/95 $10,000 $10,000
12/96 11,605 11,242
12/97 13,527 12,662
12/98 14,414 12,735
12/99 15,051 13,153
12/00 15,197 12,468
12/01 16,649 13,191
12/02 17,410 13,600
12/03 22,485 17,400
12/04 24,452 19,479
12/05 24,773 19,919
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Average Annual Return/2/
(for the period ended 12/31/05)
-------------------------------------------------------------
1 Year 3 Year 5 Year 10 Year Since Inception/3/
-------------------------------------------------------------
High Yield
- -- Bond Trust 1.32% 12.48% 10.27% 9.50% 9.54%
-------------------------------------------------------------
Credit Suisse
First Boston
High Yield
- - - Index/1/ 2.26% 13.56% 9.82% 7.13% 9.44%
-------------------------------------------------------------
/1/The Credit Suisse First Boston High Yield Index is a broad-based market
measure of high-yield bonds, commonly known as "junk bonds." The Index does not
include fees and expenses and is not available for direct investment.
/2/"Average Annual Return" is calculated including reinvestment of all income
dividends and capital gains distributions.
/3/Inception date of Portfolio is 03/19/1982.
Past Performance does not guarantee future results. The investment return and
principal value of an investment in the Portfolio will fluctuate, so that
shares, on any given day or when redeemed, may be worth more or less than their
original cost. Performance numbers are net of all Portfolio expenses but do not
include any insurance, sales, or administration charges of variable annuity or
life insurance contracts. If these charges were included, the returns would be
lower.
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5
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MANAGED ASSETS TRUST FOR THE YEAR ENDED 12/31/05
MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC.
AND TIMCO ASSET MANAGEMENT, INC.
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On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup, Inc.
("Citigroup") announced that they had completed their previously announced
transaction that resulted in Legg Mason acquiring substantially all of
Citigroup's asset management business. As part of this transaction, the
investment subadviser for the Portfolio became a wholly owned subsidiary of
Legg Mason.
HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
During its fiscal year ended December 31, 2005, the Managed Assets Trust
generated a return of 3.84%. In comparison, the Fund outperformed one of its
unmanaged benchmarks, the Lehman Brothers Government/Credit Index,/v/ which
advanced by 2.37%, and underperformed its other unmanaged benchmark, the S&P
500 Index, which gained 4.91% for the same period. The Fund underperformed its
Lipper Variable Flexible Portfolio Funds Category Average,/vi/ which was up
4.88% over the same time frame.
TIMCO ASSET MANAGEMENT, INC. COMMENTARY
WHAT WERE THE OVERALL MARKET CONDITIONS DURING THE FUND'S REPORTING PERIOD?
The U.S. economy overcame a number of challenges during the year and continued
to grow at a solid pace. Given the economy's strength and inflationary concerns
triggered by record high oil prices, the Federal Reserve Board ("Fed")/i/
continued to raise short-term interest rates over the period. Since the Fed
began its tightening cycle in June 2004, it has raised the federal funds
rate/ii/ thirteen times, bringing it from 1.00% to 4.25% at the end of 2005.
The U.S. financial markets generated positive, but modest returns during the
reporting period. The overall stock market, as measured by the S&P 500
Index,/iii/ returned 4.91% in 2005. Strong corporate profits were often
overshadowed by rising oil prices and interest rates. During the period, the
overall bond market, as measured by the Lehman Aggregate Bond Index,/iv/ gained
2.43%. For the second year in a row, the bond market surprised many investors,
as it rose in spite of the economy's expansion, higher interest rates, and
inflationary pressures.
WHAT WERE THE LEADING CONTRIBUTORS TO PERFORMANCE?
In 2005, corporate profit growth was expected to exceed 10% for the third
consecutive year. However, this did not translate into superior stock market
returns. That said, there were areas of the U.S. market that generated strong
results. For example, the equity portion of the Fund benefited from its
exposure to the energy sector, as it returned more than 30% for the year, far
outdistancing all other sectors. Elsewhere, the financial and healthcare
sectors of the market both advanced roughly 6.5% in 2005.
The fixed income portion of the Fund's portfolio benefited from its holdings in
select corporate securities. In particular, the Fund's industrial sector bonds
enhanced results, as did our decision to lower the Fund's exposure to
financials. The Fund's collateralized mortgage-backed securities also boosted
returns. Elsewhere, our duration management techniques were positive for
performance. By lengthening the Fund's overall duration in the second half of
the year we benefited as longer-term interest rates fell.
WHAT WERE THE LEADING DETRACTORS FROM PERFORMANCE?
In terms of U.S. stocks, the Fund's holdings in the consumer discretionary and
telecommunications sectors detracted from results, as they generated negative
returns during the reporting period.
From a fixed income perspective, our underweight in Treasuries hurt returns. In
addition, our yield curve positioning was a drag on relative performance over
the reporting period. While the Fund's underweight in 1-3 year securities was
beneficial, this was overshadowed by an overexposure to 5-7 year securities as
the yield curve flattened. In addition, being short 20-30 year securities
detracted from performance, as this was the best performing part of the yield
curve during the year.
WERE THERE ANY SIGNIFICANT CHANGES MADE TO THE FUND DURING THE REPORTING PERIOD?
Over the period, we increased the Fund's exposure to equities and lowered its
exposure to fixed income securities. This was done to maintain a balanced
portfolio.
/i/The Federal Reserve Board 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/The S&P 500 Index is an unmanaged index of 500 stocks that is generally
representative of the performance of larger companies in the U.S. Please note
that an investor cannot invest directly in an index.
/iv/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. Please
note that an investor cannot invest directly in an index.
/v/The Lehman Brothers Government/Credit Bond Index is a broad-based index
composed of government and corporate debt issues that are investment grade
(rated Baa/BBB or higher). Please note that an investor cannot invest directly
in an index.
/vi/Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2005, including the
reinvestment of distributions, including returns of capital, if any, calculated
among the 91 funds in the Fund's Lipper category, and excluding sales charges.
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6
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MANAGED ASSETS TRUST FOR THE YEAR ENDED 12/31/05
MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC.
AND TIMCO ASSET MANAGEMENT, INC.
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SALOMON BROTHERS ASSET MANAGEMENT INC. COMMENTARY
ECONOMIC OVERVIEW:
The US economy ended 2005 on a stronger note as holiday sales appeared to meet
expectations. Although the economy has been buffeted by several negative shocks
- - high-energy prices, hurricane losses, and rising interest rates - the full
year 2005 results look to have been in line with the prior two years. Going
forward, 2006 looks to be a watershed year for the U.S. economy as the recovery
phase of the economic expansion finally moves the economy to full-employment.
While the economy still faces significant headwinds in the form of high home
heating costs, rising interest rates, a cooling housing market; there are
significant strengths as well. Among these strengths are very strong corporate
profit trends, continued productivity growth, strong global growth, and an
accelerating impetus from the New Orleans region rebuilding effort.
Stabilizing energy prices have helped overall inflation performance toward the
end of 2005, but core CPI inflation continues to hover just over 2%. Although
this has been very good news on the core CPI, there are reasons to expect
increased pricing power among firms translates into higher core inflation in
2006. Chief among these factors is the economy's continued movement toward
full-employment which looks to add pricing power and increase production
bottlenecks. Shortages of construction materials and labor capacity due to the
rebuilding of the Gulf region also look to add to price pressures in 2006.
While the stronger dollar in 2005 was a contributing factor to the moderation
of goods price inflation and has also been reflected in stabilizing non-energy
commodity prices, the dollar began to weaken again toward the end of 2005.
Going forward, a weaker dollar looks to add modestly to inflation pressures in
2006.
While the Fed made it thirteen straight meetings followed by a 25 basis point
tightening at the December Federal Open Markets Committee meeting, the language
of the statement released following that meeting and the subsequent minutes of
that same meeting made it clear that the sentiment of the committee is that the
tightening job is nearly completed.
With the federal funds rate now at 4.25%, the Fed is expected to raise rates
once again at the January 31 FOMC meeting and to indicate in statement and the
minutes following that meeting that future policy moves could be in either
direction and would depend on evolving economic data and circumstances. We
anticipate that the Fed will hold the funds rate target steady at 4.5% through
mid-year, at a minimum.
The views expressed above are those of the investment subadvisory firm and are
subject to change based on market and other conditions. Information about the
Portfolio's holdings, asset allocation, industry allocation or country
diversification is historical and is not an indication of future portfolio
composition which will vary.
TOP TEN HOLDINGS BY MARKET VALUE
As of 12/31/05
Percent of
Description Net Assets
------------------------------------------------------
U.S. Treasury Note (4.125%, 08/15/08) 2.15%
------------------------------------------------------
U.S. Treasury Note (4.125%, 08/15/10) 2.11%
------------------------------------------------------
General Electric Co. (5.000%, 02/01/13) 2.07%
------------------------------------------------------
Exxon Mobil Corp. 1.99%
------------------------------------------------------
PP&L Transition Bond LLC (7.050%, 06/25/09) 1.77%
------------------------------------------------------
Microsoft Corp. 1.41%
------------------------------------------------------
Bank of America Corp. 1.27%
------------------------------------------------------
U.S. Treasury Note (3.250%, 08/15/08) 1.16%
------------------------------------------------------
U.S. Treasury Note (4.125%, 05/15/15) 1.13%
------------------------------------------------------
U.S. Treasury Note (3.625%, 07/15/09) 1.13%
------------------------------------------------------
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PORTFOLIO COMPOSITION (% of portfolio market value)
As of 12/31/05
[CHART]
Asset-Backed Securities 2.0%
Collateralized Mortgage Obligations 2.1%
Domestic Bonds & Debt Securities 14.2%
Convertible Bonds 5.3%
U.S. Government & Agency Obligations 11.8%
Foreign Bonds & Debt Securities 0.2%
Common Stock 63.6%
Convertible Preferred Stock 0.8%
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7
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MANAGED ASSETS TRUST FOR THE YEAR ENDED 12/31/05
MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC.
AND TIMCO ASSET MANAGEMENT, INC.
- --------------------------------------------------------------------------------
MANAGED ASSETS TRUST MANAGED BY
SALOMON BROTHERS ASSET MANAGEMENT INC. AND TIMCO ASSET
MANAGEMENT, INC. VS. LEHMAN BROTHERS
GOVERNMENT/CREDIT BOND INDEX/1/ AND S&P 500 INDEX/1/
Growth Based on $10,000
[CHART]
MANAGED ASSETS S&P 500 LEHMAN BROTHERS GOVERNMENT/
TRUST INDEX CREDIT BOND INDEX
---------- ----- -----------------
12/95 $10,000 $10,000 $10,000
12/96 11,379 12,295 10,405
12/97 13,804 16,395 11,224
12/98 16,763 21,084 12,171
12/99 19,147 25,518 12,219
12/00 18,838 23,196 13,455
12/01 17,881 20,441 14,661
12/02 16,343 15,925 16,103
12/03 19,936 20,490 16,797
12/04 21,816 22,718 17,308
12/05 22,651 23,834 17,581
------------------------------------------------------------
Average Annual Return/3/
(for the period ended 12/31/05)
------------------------------------------------------------
1 Year 3 Year 5 Year 10 Year Since Inception/4/
------------------------------------------------------------
Managed
- -- Assets Trust 3.84% 11.50% 3.76% 8.52% 8.93%
------------------------------------------------------------
Lehman
Brothers
Government/
Credit Bond
- -- Index/1/ 1.58% 2.97% 5.50% 5.80% 8.70%
------------------------------------------------------------
S&P 500
- - - Index/2/ 4.91% 14.39% 0.54% 9.07% 13.12%
------------------------------------------------------------
/1/The Lehman Brothers Government/Credit Bond Index is a weighted composite of
the Lehman Brothers Government Bond Index, which is a broad-based index of all
public debt obligations of the U.S. Government and its agencies and has an
average maturity of nine years and the Lehman Brothers Credit Bond Index, which
is comprised of all public fixed-rate non-convertible investment grade domestic
corporate debt, excluding collateralized mortgage obligations. The Index does
not include fees and expenses and is not available for direct investment.
/2/The S&P 500 Index is an unmanaged index composed of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange and
over-the-counter markets. The Index does not include fees and expenses and is
not available for direct investment.
/3/Average Annual Return" is calculated including reinvestment of all income
dividends and capital gains distributions.
/4/Inception date of Portfolio is 04/08/1983.
Past Performance does not guarantee future results. The investment return and
principal value of an investment in the Portfolio will fluctuate, so that
shares, on any given day or when redeemed, may be worth more or less than their
original cost. Performance numbers are net of all Portfolio expenses but do not
include any insurance, sales, or administration charges of variable annuity or
life insurance contracts. If these charges were included, the returns would be
lower.
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO FOR THE YEAR ENDED 12/31/05
MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC.
- --------------------------------------------------------------------------------
On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup, Inc.
("Citigroup") announced that they had completed their previously announced
transaction that resulted in Legg Mason acquiring substantially all of
Citigroup's asset management business. As part of this transaction, the
investment subadviser for the Portfolio became a wholly owned subsidiary of
Legg Mason.
PERFORMANCE UPDATE:
For the year ended December 31, 2005, the Money Market Portfolio returned
2.90%. The U.S. economy continued its steady growth in the fourth quarter, with
strong manufacturing and industrial production data, low initial jobless claims
and firm underlying corporate fundamentals. Consumer confidence, in particular,
rebounded as declining gas prices improved sentiment ahead of the holiday
season, rising to its highest level since Hurricanes Katrina and Rita. On the
weaker side, the housing market began to exhibit signs of slowing as mortgage
applications edged down, interest rates rose and home sales declined.
Stabilizing energy prices helped overall inflation performance toward the end
of 2005, but core CPI inflation continued to hover just over 2%.
Continuing its measured pace of rate increases and in line with market
expectations, the Fed raised the federal funds rate by 25 basis points at both
its November and December Federal Open Market Committee (FOMC) meetings,
bringing the target rate to 4.25%. However, in an important departure from
previous FOMC statements, the committee removed its characterization of
monetary policy as "accommodative" at their December meeting. The overall
sentiment of the text also reinforced the market's view that future monetary
policy decisions will become more data dependent as the Fed's tightening cycle
nears completion. In response, money market yields rose over the quarter as the
economy continued to expand solidly and holiday sales appeared to meet
expectations. Three-month LIBOR climbed 47 basis points, to 4.54%, while
one-year LIBOR increased 40 basis points, to 4.84%. Three-month Treasury bill
yields increased 54 basis points, to 4.07%, while six-month Treasury bill
yields rose 45 basis points, to 4.37%.
ECONOMIC OVERVIEW:
The US economy ended 2005 on a stronger note as holiday sales appeared to meet
expectations. Although the economy has been buffeted by several negative
shocks--high-energy prices, hurricane losses, and rising interest rates--the
full year 2005 results look to have been in line with the prior two years.
Going forward, 2006 looks to be a watershed year for the U.S. economy as the
recovery phase of the economic expansion finally moves the economy to
full-employment.
While the economy still faces significant headwinds in the form of high home
heating costs, rising interest rates, a cooling housing market; there are
significant strengths as well. Among these strengths are very strong corporate
profit trends, continued productivity growth, strong global growth, and an
accelerating impetus from the New Orleans region rebuilding effort.
Stabilizing energy prices have helped overall inflation performance toward the
end of 2005, but core CPI inflation continues to hover just over 2%. Although
this has been very good news on the core CPI, there are reasons to expect
increased pricing power among firms translates into higher core inflation in
2006. Chief among these factors is the economy's continued movement toward
full-employment which looks to add pricing power and increase production
bottlenecks. Shortages of construction materials and labor capacity due to the
rebuilding of the Gulf region also look to add to price pressures in 2006.
While the stronger dollar in 2005 was a contributing factor to the moderation
of goods price inflation and has also been reflected in stabilizing non-energy
commodity prices, the dollar began to weaken again toward the end of 2005.
Going forward, a weaker dollar looks to add modestly to inflation pressures in
2006.
While the Fed made it thirteen straight meetings followed by a 25 basis point
tightening at the December FOMC meeting, the language of the statement released
following that meeting and the subsequent minutes of that same meeting made it
clear that the sentiment of the committee is that the tightening job is nearly
completed.
With the federal funds rate now at 4.25%, the Fed is expected to raise rates
once again at the January 31 FOMC meeting and to indicate in statement and the
minutes following that meeting that future policy moves could be in either
direction and would depend on evolving economic data and circumstances. We
anticipate that the Fed will hold the funds rate target steady at 4.5% through
mid-year, at a minimum.
The views expressed above are those of the investment subadvisory firm and are
subject to change based on market and other conditions. Information about the
Portfolio's holdings, asset allocation, industry allocation or country
diversification is historical and is not an indication of future portfolio
composition which will vary.
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS BY MARKET VALUE
As of 12/31/05
Percent of
Description Net Assets
-----------------------------------------
Rabobank USA Financial Corp. 4.75%
-----------------------------------------
Goldman Sachs Group, Inc. 4.75%
-----------------------------------------
Dresdner U S Finance, Inc. 4.75%
-----------------------------------------
Societe Generale N.A. 4.75%
-----------------------------------------
General Electric Capital Corp. 4.75%
-----------------------------------------
Gannett Co., Inc. 4.75%
-----------------------------------------
Bank Ireland Governor & Co. 4.75%
-----------------------------------------
Atlantic Asset Security Corp. 4.75%
-----------------------------------------
Ormond Quay Funding LLC 4.75%
-----------------------------------------
Ebury Finance Ltd. 4.75%
-----------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION (% of portfolio market value)
As of 12/31/05
[CHART]
Financial - Diversified 56.9%
Banks 23.5%
Media 4.7%
Foreign Government & Agency 4.7%
Health Care Equipment & Supplies 4.4%
Medium - Term Notes 4.3%
Foreign Certificate of Deposit 1.5%
- --------------------------------------------------------------------------------
9
UNDERSTANDING YOUR PORTFOLIO'S EXPENSES
SHAREHOLDER EXPENSE EXAMPLE
As a mutual fund shareholder you may incur two types of costs: (1) TRANSACTION
COSTS, including sales charges (loads) on purchase payments and redemption fees
and (2) ONGOING COSTS, including management fees, shareholder services fees and
other Portfolio expenses. Sales charges and redemption fees do not apply. Costs
are described in more detail in the Portfolio's prospectus. The examples below
are intended to help you understand your ongoing costs of investing in the
Portfolios and help you compare these with the ongoing costs of investing in
other mutual funds.
ACTUAL EXPENSES
The first line in the table for each Portfolio shows the ACTUAL account values
and ACTUAL Portfolio expenses you would have paid on a $1,000 investment in the
Portfolio from July 1, 2005 through December 31, 2005. It also shows how much a
$1,000 investment would be worth at the close of the period, assuming ACTUAL
Portfolio returns and expenses. To estimate the expenses you paid over the
period, simply divide your account by $1,000 (for example $8,600 account value
divided by $1,000 = 8.6) and multiply the result by the number in the "Expenses
Paid During Period" column as shown below for your Portfolio.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Portfolio's actual
expense ratio and an ASSUMED rate of return of 5% per year before expenses,
which is not the Portfolio's actual return. Thus, you should NOT use the
hypothetical account values and expenses to estimate the actual ending account
balance or your expenses for the period. Rather, these figures are provided to
enable you to compare the ongoing costs of investing in the Portfolio and other
Portfolios. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other
Portfolios.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second line of the table is useful in
comparing ongoing costs only, and will not help you determine the relative
TOTAL costs of owning different Portfolios. In addition, if these transaction
costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
6/30/05 12/31/05 7/1/05-12/31/05
CAPITAL APPRECIATION FUND ------------- ------------- ---------------
Actual $1,000.00 $1,126.50 $4.18
Hypothetical (5% return before expenses) 1,000.00 1,021.27 3.97
- ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.78%,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
6/30/05 12/31/05 7/1/05-12/31/05
HIGH YIELD BOND TRUST ------------- ------------- ---------------
Actual $1,000.00 $1,013.10 $3.10
Hypothetical (5% return before expenses) 1,000.00 1,022.13 3.11
- ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.61%,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
6/30/05 12/31/05 7/1/05-12/31/05
MANAGED ASSETS TRUST ------------- ------------- ---------------
Actual $1,000.00 $1,040.50 $3.14
Hypothetical (5% return before expenses) 1,000.00 1,022.13 3.11
- ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.61%,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
6/30/05 12/31/05 7/1/05-12/31/05
MONEY MARKET PORTFOLIO ------------- ------------- ---------------
Actual $1,000.00 $1,017.10 $2.03
Hypothetical (5% return before expenses) 1,000.00 1,023.19 2.04
- ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.40%,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
10
CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
-----------------------------------------------------------------
SECURITY VALUE
DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------
COMMON STOCKS - 92.7%
BANKS - 5.8%
Commerce Bancorp, Inc............... 636,190 $ 21,891,298
Wells Fargo & Co.................... 709,220 44,560,293
---------------
66,451,591
---------------
BIOTECHNOLOGY - 11.3%
Genentech, Inc.*.................... 818,045 75,669,162
Gilead Sciences, Inc.*.............. 714,505 37,604,398
Invitrogen Corp.*................... 224,045 14,930,359
---------------
128,203,919
---------------
CHEMICALS - 1.4%
Huntsman Corp.*..................... 907,885 15,633,780
---------------
COMMUNICATIONS EQUIPMENT - 1.1%
QUALCOMM, Inc....................... 287,440 12,382,915
---------------
COMPUTERS & PERIPHERALS - 13.5%
Apple Computer, Inc.*............... 1,882,840 135,357,367
Sun Microsystems, Inc.*............. 4,358,210 18,260,900
---------------
153,618,267
---------------
ELECTRIC UTILITIES - 1.9%
AES Corp.*.......................... 1,350,210 21,373,824
---------------
FINANCIAL - DIVERSIFIED - 4.3%
American Express Co................. 285,470 14,690,286
Ameriprise Financial, Inc........... 57,094 2,340,854
Goldman Sachs Group, Inc. (The)..... 172,875 22,077,866
SLM Corp............................ 183,095 10,086,704
---------------
49,195,710
---------------
HEALTH CARE PROVIDERS & SERVICES - 8.1%
UnitedHealth Group, Inc............. 1,482,960 92,151,134
---------------
INSURANCE - 1.0%
Berkshire Hathaway, Inc. - Class B*. 3,901 11,451,386
---------------
INTERNET & CATALOG RETAIL - 3.9%
eBay, Inc.*......................... 1,032,175 44,641,569
---------------
INTERNET SOFTWARE & SERVICES - 2.2%
Yahoo!, Inc.*....................... 646,300 25,322,034
---------------
MEDIA - 3.8%
XM Satellite Radio Holdings,
Inc. - Class A*................... 1,568,785 42,796,455
---------------
OIL & GAS - 7.0%
Murphy Oil Corp..................... 1,004,130 54,212,979
Suncor Energy, Inc.................. 397,580 25,099,225
---------------
79,312,204
---------------
PHARMACEUTICALS - 8.7%
Roche Holding AG.................... 391,314 58,714,211
Teva Pharmaceutical Industries, Ltd.
(ADR)............................. 946,100 40,691,761
---------------
99,405,972
---------------
-------------------------------------------------------------------
SECURITY SHARES/PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-------------------------------------------------------------------
RETAIL - MULTILINE - 1.1%
J.C. Penney Co., Inc................ 232,800 $ 12,943,680
---------------
RETAIL - SPECIALTY - 13.4%
Advance Auto Parts*................. 692,647 30,102,439
Coach, Inc.*........................ 413,880 13,798,759
Lowe's Cos., Inc.................... 857,325 57,149,284
NIKE, Inc. - Class B................ 526,005 45,651,974
Staples, Inc........................ 236,670 5,374,776
---------------
152,077,232
---------------
SOFTWARE - 4.2%
Electronic Arts, Inc.*.............. 904,725 47,326,165
---------------
Total Common Stocks
(Cost $617,809,882) 1,054,287,837
---------------
SHORT-TERM INVESTMENT - 7.6%
State Street Bank & Trust Co.,
Repurchased Agreement, dated
12/30/05 at 2.800% to be
repurchased at $86,411,875 on
01/03/06 collateralized by
78,740,000 U.S. Treasury Bond/Note
5.250% due 02/15/29 with a value
of $88,116,044
(Cost $86,385,000)................ $86,385,000 $ 86,385,000
---------------
TOTAL INVESTMENTS - 100.3%
(Cost $704,194,882) 1,140,672,837
Other Assets and Liabilities (net) - (0.3%) (3,405,776)
---------------
TOTAL NET ASSETS - 100.0% $ 1,137,267,061
===============
* Non-income producing security.
ADR - American Depositary Receipt
See notes to financial statements
11
HIGH YIELD BOND TRUST
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
------------------------------------------------------------------
DOMESTIC BONDS & DEBT SECURITIES - 89.1%
AEROSPACE & DEFENSE - 1.6%
Argo-Tech Corp. 9.250%, due 06/01/11... $ 75,000 $ 77,250
BE Aerospace, Inc., Series B 8.875%,
due 05/01/11......................... 475,000 501,125
Moog, Inc. 6.250%, due 01/15/15........ 550,000 544,500
Sequa Corp. Series B 8.875%,
due 04/01/08......................... 725,000 759,437
-------------
1,882,312
-------------
ASSET-BACKED SECURITY - 3.6%
Targeted Return Index Securities Trust,
Series HY-2005 7.651%, due 06/15/15
(144A)(a)............................ 4,104,880 4,224,693
-------------
AUTO PARTS & EQUIPMENT - 0.0%
Dura Operating Corp., Series B 8.625%,
due 04/15/12......................... 57,000 47,310
-------------
AUTOMOBILES - 3.2%
Ford Motor Co.
7.450%, due 07/16/31................. 3,225,000 2,209,125
8.900%, due 01/15/32.................. 275,000 202,812
General Motors Corp.
8.250%, due 07/15/23................. 175,000 113,313
8.375%, due 07/15/33.................. 1,775,000 1,180,375
-------------
3,705,625
-------------
BUILDING MATERIALS - 0.7%
Goodman Global Holding Co., Inc.
7.491%, due 06/15/12
(144A)(a)(b)....................... 125,000 124,375
7.875%, due 12/15/12 (144A)(a)........ 290,000 271,150
Nortek, Inc. 8.500%, due 09/01/14...... 275,000 266,750
Ply Gem Industries, Inc. 9.000%,
due 02/15/12......................... 225,000 200,813
-------------
863,088
-------------
CHEMICALS - 5.1%
Borden U.S. Finance Corp./Nova Scotia
Finance ULC 9.000%, due 07/15/14
(144A)(a)............................ 375,000 373,125
Crystal U.S. Holdings 3 LLC, Series B
0.000%/10.500%, due 10/01/14(c)...... 163,000 119,397
Foamex Cap Corp. 13.500%,
due 08/15/06......................... 250,000 22,500
Huntsman International LLC
9.875%, due 03/01/09................. 450,000 477,000
10.125%, due 07/01/09................. 289,000 299,837
IMC Global, Inc., Series B 10.875%,
due 06/01/08......................... 53,000 58,963
Innophos, Inc. 9.625%, due 08/15/14
(144A)(a)............................ 100,000 101,250
--------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
--------------------------------------------------------------------
CHEMICALS - CONTINUED
ISP Holdings, Inc., Series B 10.625%,
due 12/15/09........................... $ 275,000 $ 290,125
Lyondell Chemical Co. 10.875%,
due 05/01/09........................... 1,325,000 1,382,969
Nalco Co.
7.750%, due 11/15/11................... 75,000 77,438
8.875%, due 11/15/13.................... 450,000 473,625
NOVA Chemicals Corp. 6.500%,
due 01/15/12........................... 425,000 413,844
Resolution Performance Products LLC
8.000%, due 12/15/09................... 325,000 333,125
9.500%, due 04/15/10.................... 325,000 330,687
Rhodia SA
7.625%, due 06/01/10................... 950,000 959,500
8.875%, due 06/01/11.................... 175,000 180,250
Rockwood Specialties Group, Inc. 7.625%,
due 11/15/14........................... 50,000 61,430
-------------
5,955,065
-------------
COMMERCIAL SERVICES & SUPPLIES - 1.1%
Alderwoods Group, Inc. 7.750%,
due 09/15/12........................... 850,000 884,000
Carriage Services, Inc. 7.875%,
due 01/15/15........................... 125,000 127,813
Iron Mountain, Inc. 7.750%,
due 01/15/15........................... 295,000 298,687
-------------
1,310,500
-------------
CONTAINERS & PACKAGING - 3.0%
Crown Cork & Seal Co., Inc. 7.375%,
due 12/15/26........................... 850,000 782,000
Crown Cork & Seal Finance PLC 7.000%,
due 12/15/06........................... 75,000 76,125
Graphic Packaging International Corp.
8.500%, due 08/15/11.................... 75,000 75,563
9.500%, due 08/15/13.................... 525,000 504,000
Jefferson Smurfit Corp. 8.250%,
due 10/01/12........................... 407,012 392,767
Owens-Brockway Glass Container, Inc.
8.875%, due 02/15/09.................... 575,000 603,031
7.750%, due 05/15/11.................... 300,000 314,625
6.750%, due 12/01/14.................... 225,000 219,375
Smurfit-Stone Container Enterprises, Inc.
8.375%, due 07/01/12................... 225,000 218,812
Solo Cup Co. 8.500%, due 02/15/14........ 400,000 352,000
-------------
3,538,298
-------------
ELECTRIC UTILITIES - 1.5%
AES Corp. 9.375%, due 09/15/10........... 1,025,000 1,124,937
Calpine Corp. 8.500%,
due 07/15/10 (144A)(a)(d).............. 225,000 185,625
See notes to financial statements
12
HIGH YIELD BOND TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
------------------------------------------------------------------------
ELECTRIC UTILITIES - CONTINUED
Calpine Generating Co. LLC 8.140%,
due 04/01/09(b)(d)................... $ 375,000 $ 390,938
-------------
1,701,500
-------------
ELECTRIC UTILITIES - 0.8%
Mirant North America LLC 7.375%,
due 12/31/13 (144A)(a)............... 375,000 381,094
Reliant Energy, Inc.
9.250%, due 07/15/10.................. 150,000 150,750
9.500%, due 07/15/13.................. 425,000 428,187
-------------
960,031
-------------
ELECTRONICS - 1.3%
L-3 Communications Corp. 6.375%,
due 10/15/15 (144A)(a)............... 1,150,000 1,152,875
Sanmina-SCI Corp. 6.750%,
due 03/01/13......................... 150,000 143,438
Thomas & Betts Corp. 7.250%,
due 06/01/13......................... 175,000 186,316
-------------
1,482,629
-------------
ENERGY - 1.7%
Dynegy Holdings, Inc.
10.125%, due 07/15/13(a).............. 325,000 368,875
7.125%, due 05/15/18.................. 400,000 358,000
NRG Energy, Inc. 8.000%, due 12/15/13.. 876,000 981,120
Reliant Energy, Inc. 6.750%,
due 12/15/14......................... 300,000 263,250
-------------
1,971,245
-------------
ENTERTAINMENT & LEISURE - 3.6%
AMC Entertainment, Inc.
8.590%, due 08/15/10(b)............... 225,000 232,594
9.500%, due 02/01/11.................. 360,000 355,950
8.000%, due 03/01/14.................. 250,000 227,500
Series B 8.625%, due 08/15/12......... 175,000 183,750
Cinemark, Inc. 0.000%/9.750%,
due 03/15/14(c)...................... 325,000 242,125
Gaylord Entertainment Co. 6.750%,
due 11/15/14......................... 600,000 591,000
Herbst Gaming, Inc. 7.000%,
due 11/15/14......................... 550,000 550,000
Isle of Capri Casinos, Inc. 7.000%,
due 03/01/14......................... 550,000 539,000
Mohegan Tribal Gaming Authority 7.125%,
due 08/15/14......................... 175,000 180,031
Penn National Gaming, Inc. 6.750%,
due 03/01/15......................... 475,000 469,062
Pinnacle Entertainment, Inc. 8.750%,
due 10/01/13......................... 550,000 588,500
-------------
4,159,512
-------------
--------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
--------------------------------------------------------------------
ENVIRONMENTAL SERVICES - 1.0%
Allied Waste North America, Inc.
6.500%, due 11/15/10................. $ 825,000 $ 820,875
9.250%, due 09/01/12.................. 83,000 90,263
6.125%, due 02/15/14.................. 225,000 213,187
---------------
1,124,325
---------------
FINANCIAL - DIVERSIFIED - 4.9%
AAC Group Holding Corp. 0.000%/
10.250%, due 10/01/12(c)............. 50,000 36,375
Alamosa Delaware, Inc. 0.000%/
12.000%, due 07/31/05(c)............. 574,000 630,682
BCP Crystal U.S. Holdings Corp. 9.625%,
due 06/15/14......................... 439,000 490,583
CCM Merger, Inc. 8.000%, due 08/01/13
(144A)(a)............................ 275,000 265,375
Ford Motor Credit Co. 6.625%,
due 06/16/08......................... 1,400,000 1,270,569
General Motors Acceptance Corp.
8.000%, due 11/01/31................. 2,375,000 2,280,995
Nell AF SARL 8.375%, due 08/15/15
(144A)(a)............................ 275,000 273,625
Vanguard Health Holdings II 9.000%,
due 10/01/14......................... 500,000 533,750
---------------
5,781,954
---------------
FOOD PRODUCTS - 1.9%
Del Monte Corp. 6.750%,
due 02/15/15......................... 125,000 122,500
Delhaize America, Inc. 9.000%,
due 04/15/31......................... 425,000 501,763
Doane Pet Care Co. 10.750%,
due 03/01/10......................... 500,000 546,250
Dole Food Co., Inc.
8.875%, due 03/15/11................. 19,000 19,570
8.750%, due 07/15/13.................. 400,000 414,000
Land O' Lakes, Inc. 9.000%,
due 12/15/10......................... 50,000 54,500
Smithfield Foods, Inc. 7.000%,
due 08/01/11......................... 475,000 486,875
Swift & Co. 10.125%, due 10/01/09...... 50,000 51,875
---------------
2,197,333
---------------
HEALTH CARE PROVIDERS & SERVICES - 3.6%
Accellent, Inc. 10.500%, due 12/01/13
(144A)(a)............................ 375,000 386,250
Community Health Systems, Inc. 6.500%,
due 12/15/12......................... 150,000 146,813
IASIS Healthcare LLC 8.750%,
due 06/15/14......................... 550,000 580,250
Radiologix, Inc., Series B 10.500%,
due 12/15/08......................... 525,000 517,125
See notes to financial statements
13
HIGH YIELD BOND TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
--------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
--------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - CONTINUED
Select Medical Corp. 7.625%,
due 02/01/15........................... $ 425,000 $ 411,187
Tenet Healthcare Corp.
7.375%, due 02/01/13................... 275,000 255,062
6.875%, due 11/15/31.................... 1,650,000 1,336,500
Triad Hospitals, Inc. 7.000%,
due 11/15/13........................... 550,000 554,125
-------------
4,187,312
-------------
HOMEBUILDERS - 3.0%
D.R. Horton, Inc. 6.125%,
due 01/15/14........................... 1,175,000 1,177,097
K Hovnanian Enterprises, Inc. 6.375%,
due 12/15/14........................... 1,150,000 1,093,474
KB HOME
8.625%, due 12/15/08................... 125,000 133,397
9.500%, due 02/15/11.................... 325,000 343,499
6.375%, due 08/15/11.................... 425,000 427,444
William Lyon Homes, Inc. 10.750%,
due 04/01/13........................... 350,000 363,125
-------------
3,538,036
-------------
HOTELS, RESTAURANTS & LEISURE - 5.4%
Aztar Corp. 7.875%, due 06/15/14......... 250,000 263,125
Boyd Gaming Corp. 6.750%,
due 04/15/14........................... 725,000 723,187
Denny's Corp. 1.000%, due 09/21/10....... 83,333 85,365
Friendly Ice Cream Corp. 8.375%,
due 06/15/12........................... 325,000 290,875
HMH Properties, Inc., Series B 7.875%,
due 08/01/08........................... 71,000 72,154
Kerzner International, Ltd. 6.750%,
due 10/01/15 (144A)(a)................. 450,000 439,875
Las Vegas Sands Corp 6.375%,
due 02/15/15........................... 550,000 532,125
Mandalay Resort Group 9.375%,
due 02/15/10........................... 53,000 58,300
MGM MIRAGE, Inc.
8.375%, due 02/01/11................... 375,000 403,125
6.750%, due 09/01/12.................... 750,000 764,062
Park Place Entertainment Corp. 7.875%,
due 03/15/10........................... 800,000 864,000
Station Casinos, Inc.
6.000%, due 04/01/12................... 850,000 852,125
6.500%, due 02/01/14.................... 175,000 177,625
Wynn Las Vegas LLC/Wynn Las Vegas Capital
Corp. 6.625%, due 12/01/14............. 800,000 782,000
-------------
6,307,943
-------------
-------------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.9%
Church & Dwight Co., Inc. 6.000%,
due 12/15/12............................. $ 125,000 $ 123,750
Home Products International, Inc. 9.625%,
due 05/15/08............................. 150,000 115,500
Norcraft Holdings LP/Norcraft Capital Corp.
0.000%/9.750%, due 09/01/12(c)........... 400,000 286,000
Playtex Products, Inc. 9.375%,
due 06/01/11............................. 525,000 552,562
Sealy Mattress Co. 8.250%,
due 06/15/14............................. 475,000 491,625
Spectrum Brands, Inc. 7.375%,
due 02/01/15............................. 775,000 651,000
-------------
2,220,437
-------------
INDUSTRIAL - DIVERSIFIED - 0.5%
BGF Industries, Inc., Series B 10.250%,
due 01/15/09............................. 275,000 281,188
Hexcel Corp. 6.750%, due 02/01/15.......... 350,000 339,500
-------------
620,688
-------------
LEISURE EQUIPMENT & PRODUCTS - 0.2%
Equinox Holdings, Inc. 9.000%,
due 12/15/09............................. 250,000 268,438
-------------
MACHINERY - 0.8%
Case New Holland, Inc. 9.250%,
due 08/01/11............................. 375,000 403,125
Terex Corp. 7.375%, due 01/15/14........... 582,000 579,090
-------------
982,215
-------------
MEDIA - 9.6%
Clear Channel Communications 8.000%,
due 11/01/08............................. 200,000 212,764
CCH I Holdings LLC 9.920%, due 04/01/14
(144A)(a)................................ 247,000 142,025
CCH I LLC 11.000%, due 10/01/15
(144A)(a)................................ 197,000 166,465
CCO Holdings LLC/CCO Holdings Capital
Corp.
8.616%, due 12/15/10(b).................. 300,000 294,750
8.750%, due 11/15/13 (144A)(a)............ 1,000,000 957,500
8.750%, due 11/15/13...................... 75,000 71,813
Charter Communications Holdings LLC/
Charter Communications Holdings
Capital Corp. 8.375%, due 04/30/14
(144A)(a)................................ 550,000 550,000
CSC Holdings, Inc., Series B 7.625%,
due 04/01/11............................. 1,200,000 1,200,000
Dex Media, Inc.
8.000%, due 11/15/13..................... 625,000 640,625
0.000%/9.000%, due 11/15/13(c)............ 575,000 460,000
See notes to financial statements
14
HIGH YIELD BOND TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
----------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
----------------------------------------------------------------------
MEDIA - CONTINUED
DirecTV Holdings LLC/DirectTV Financing Co.
8.375%, due 03/15/13..................... $ 81,000 $ 87,480
6.375%, due 06/15/15...................... 1,050,000 1,031,625
EchoStar DBS Corp. 6.625%,
due 10/01/14............................. 575,000 554,156
Houghton Mifflin Co.
8.250%, due 02/01/11...................... 175,000 181,563
7.200%, due 03/15/11...................... 1,125,000 1,170,000
LIN Television Corp. 6.500%,
due 05/15/13............................. 275,000 265,031
LodgeNet Entertainment Corp. 9.500%,
due 06/15/13............................. 200,000 218,500
Mediacom LLC/Mediacom Capital Corp.
9.500%, due 01/15/13..................... 1,025,000 1,005,781
PRIMEDIA, Inc. 8.875%, due 05/15/11........ 550,000 510,125
Rogers Cable, Inc. 6.750%,
due 03/15/15............................. 75,000 76,500
Shaw Communications, Inc. 7.250%,
due 04/06/11............................. 375,000 392,812
Sinclair Broadcast Group, Inc. 8.000%,
due 03/15/12............................. 1,000,000 1,035,000
-------------
11,224,515
-------------
METALS & MINING - 2.1%
IPSCO, Inc. 8.750%, due 06/01/13........... 300,000 330,000
Novelis, Inc. 7.500%, due 02/15/15......... 525,000 492,187
Steel Dynamics, Inc. 9.500%,
due 03/15/09............................. 175,000 185,063
United States Steel LLC 10.750%,
due 08/01/08............................. 504,000 559,440
USEC, Inc. 6.625%, due 01/20/06............ 775,000 775,000
Wolverine Tube, Inc. 10.500%,
due 04/01/09............................. 100,000 78,000
-------------
2,419,690
-------------
OFFICE FURNISHING & SUPPLIES - 0.5%
IKON Office Solutions, Inc. 7.750%,
due 09/15/15 (144A)(a)................... 200,000 196,000
Xerox Capital Trust I 8.000%,
due 02/01/27............................. 325,000 336,375
-------------
532,375
-------------
OIL & GAS - 5.1%
Chesapeake Energy Corp 6.250%,
due 01/15/18............................. 1,150,000 1,132,750
Chesapeake Energy Corp. 6.875%,
due 11/15/20 (144A)(a)................... 300,000 305,250
Dresser-Rand Group, Inc. 7.625%,
due 11/01/14 (144A)(a)................... 198,000 204,930
El Paso CGP Co. 6.700%, due 02/15/27....... 930 939
-----------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-----------------------------------------------------------------------
OIL & GAS - CONTINUED
El Paso Corp. 6.700%,
due 02/15/27 (144A)(a).............. $ 62,000 $ 62,622
El Paso Production Holding Co. 7.750%,
due 06/01/13........................ 650,000 677,625
Forest Oil Corp. 8.000%, due 12/15/11. 150,000 164,625
Kerr-McGee Corp. 7.000%,
due 11/01/11........................ 550,000 552,750
Newfield Exploration Co. 6.625%,
due 09/01/14........................ 225,000 230,063
Pogo Producing Co., Series B 8.250%,
due 04/15/11........................ 325,000 341,250
Pride International, Inc. 7.375%,
due 07/15/14........................ 125,000 134,688
Sonat, Inc. 6.625%, due 02/01/08...... 275,000 276,719
Southern Natural Gas Co. 7.350%,
due 02/15/31........................ 575,000 592,770
Transcontinental Gas Pipe Line Corp.,
Series B 8.875%, due 07/15/12....... 375,000 431,250
Williams Companies., Inc. 7.125%,
due 09/01/11........................ 850,000 887,187
-------------
5,995,418
-------------
PAPER & FOREST PRODUCTS - 1.9%
Abitibi-Consolidated, Inc. 7.750%,
due 06/15/11........................ 650,000 622,375
Boise Cascade LLC
7.025%, due 10/15/12(b).............. 50,000 49,000
7.125%, due 10/15/14................. 550,000 515,625
Buckeye Technologies, Inc. 8.000%,
due 10/15/10........................ 575,000 549,125
Catalyst Paper Corp., Series D 8.625%,
due 06/15/11........................ 450,000 432,000
Neenah Paper, Inc. 7.375%,
due 11/15/14........................ 50,000 45,375
Catalyst Paper Corp. 7.375%,
due 03/01/14........................ 75,000 66,000
-------------
2,279,500
-------------
PHARMACEUTICALS - 0.6%
Valeant Pharmaceuticals International
7.000%, due 12/15/11................ 575,000 567,813
Warner Chilcott Corp. 8.750%,
due 02/01/15 (144A)(a).............. 175,000 161,875
-------------
729,688
-------------
REAL ESTATE - 2.0%
Felcor Lodging LP 9.000%, due 06/01/11
(REIT).............................. 200,000 220,000
Host Marriott LP (REIT)
7.125%, due 11/01/13 (REIT).......... 100,000 104,500
6.375%, due 03/15/15 (REIT).......... 900,000 902,250
See notes to financial statements
15
HIGH YIELD BOND TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
----------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
----------------------------------------------------------------------
REAL ESTATE - CONTINUED
Series M 7.000%, due 08/15/12 (REIT).... $ 100,000 $ 103,000
La Quinta Properties, Inc. 7.000%, due
08/15/12 (REIT)....................... 75,000 81,562
MeriStar Hospitality Corp. (REIT)
9.000%, due 01/15/08 (REIT)............ 125,000 129,844
9.125%, due 01/15/11 (REIT)............ 725,000 793,875
-------------
2,335,031
-------------
RETAIL - MULTILINE - 2.5%
Carrols Corp. 9.000%, due 01/15/13...... 550,000 537,625
Denny's Corp. 1.000%, due 09/21/10...... 416,665 424,479
Harry & David Holdings, Inc. 9.000%,
due 03/01/13.......................... 375,000 377,813
J.C. Penney Co., Inc. 8.125%,
due 04/01/27.......................... 380,000 399,950
Jean Coutu Group PJC, Inc.
7.625%, due 08/01/12.................. 100,000 99,000
8.500%, due 08/01/14................... 450,000 414,000
Neiman Marcus Group, Inc. 10.375%,
due 10/15/15 (144A)(a)................ 200,000 204,250
Rite Aid Corp.
6.125%, due 12/15/08 (144A)(a)......... 200,000 189,000
8.125%, due 05/01/10................... 250,000 255,625
7.500%, due 01/15/15................... 75,000 71,250
-------------
2,972,992
-------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.8%
Amkor Technologies, Inc.
7.125%, due 03/15/11................... 500,000 442,500
7.750%, due 05/15/13................... 157,000 137,375
Freescale Semiconductor, Inc. 6.900%,
due 07/15/09(b)....................... 375,000 387,188
-------------
967,063
-------------
TELECOMMUNICATION SERVICES - DIVERSIFIED - 11.8%
American Tower Escrow Corp. 12.250%,
due 08/01/08(g)....................... 300,000 236,250
Calpoint Receivable Structured Trust
7.440%, due 12/10/06 (144A)(a)........ 59,648 60,096
Centennial Communications Corp./Cellular
Operating Co. LLC 10.125%,
due 06/15/13.......................... 700,000 764,750
Cincinnati Bell, Inc.
8.375%, due 01/15/14................... 1,025,000 1,013,469
7.000%, due 02/15/15................... 650,000 640,250
Citizens Communications Co. 6.250%,
due 01/15/13.......................... 500,000 486,250
Dobson Cellular Systems, Inc. 8.375%,
due 11/01/11.......................... 275,000 293,219
-------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-------------------------------------------------------------------
TELECOMMUNICATION SERVICES - DIVERSIFIED - CONTINUED
Inmarsat Finance II PLC 0.000%/
10.375%, due 11/15/12(c).............. $ 100,000 $ 83,875
Insight Midwest LP/Insight Capital, Inc.
9.750%, due 10/01/09.................. 725,000 750,250
Intelsat Bermuda, Ltd. 8.250%, due
01/15/13 (144A)(a).................... 675,000 685,125
Intelsat Bermuda, Ltd. 8.695%, due
01/15/12 (144A)(a)(b)................. 175,000 178,719
IWO Holdings, Inc.
7.900%, due 01/15/12(b)................ 100,000 104,250
0.000%/10.750%, due
01/15/15(c).......................... 400,000 291,000
Lucent Technologies, Inc. 6.450%, due
03/15/29.............................. 1,325,000 1,142,812
MCI, Inc.
6.908%, due 05/01/07................... 951,000 960,510
7.688%, due 05/01/09................... 176,000 182,160
8.735%, due 05/01/14................... 225,000 249,469
Nextel Communications, Inc.
Series D 7.375%, due 08/01/15.......... 950,000 1,003,335
Series F 5.950%, due 03/15/14.......... 650,000 654,243
NTL Cable Plc 8.750%, due 04/15/14...... 175,000 220,187
PanAmSat Corp. 9.000%,
due 08/15/14.......................... 175,000 184,187
Qwest Communications International, Inc.
7.500%, due 02/15/14 (144A)(a)........ 390,000 402,675
7.500%, due 02/15/14................... 95,000 98,087
Qwest Corp.
7.875%, due 09/01/11................... 550,000 595,375
7.500%, due 06/15/23................... 105,000 104,869
6.875%, due 09/15/33................... 785,000 741,825
Rogers Wireless Communications, Inc.
7.250%, due 12/15/12................... 475,000 501,719
8.000%, due 12/15/12................... 450,000 478,687
Rural Cellular Corp. 8.250%,
due 03/15/12.......................... 700,000 742,000
-------------
13,849,643
-------------
TEXTILES, APPAREL & LUXURY GOODS - 1.6%
Collins & Aikman, Inc., Series B 9.750%,
due 02/15/10.......................... 500,000 442,500
Levi Strauss & Co. 9.750%, due
01/15/15.............................. 825,000 862,125
Quiksilver, Inc. 6.875%, due
04/15/15.............................. 275,000 266,063
Simmons Co.
7.875%, due 01/15/14................... 225,000 209,250
0.000%/10.000%, due 12/15/14
(144A)(a)(c)......................... 175,000 95,375
-------------
1,875,313
-------------
See notes to financial statements
16
HIGH YIELD BOND TRUST PORTFOLIO
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
-----------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-----------------------------------------------------------------
TRANSPORTATION - 0.2%
CHC Helicopter Corp. 7.375%, due
05/01/14............................ $ 200,000 $ 203,250
-------------
Total Domestic Bonds & Debt Securities
(Cost $103,954,962) 104,414,967
-------------
SHARES
-----------------------------------------------------------------
COMMON STOCKS - 0.7%
ELECTRIC UTILITIES - 0.4%
NorthWestern Corp..................... 17,382 540,059
-------------
MEDIA - 0.0%
Classic Holdco LLC*(e)(f)............. 1,057 34,549
-------------
TELECOMMUNICATION SERVICES - DIVERSIFIED - 0.1%
MCI, Inc.............................. 5,159 101,787
-------------
TELECOMMUNICATION SERVICES - WIRELESS - 0.2%
Dobson Communications Corp.
Class A*............................ 19,195 143,963
iPCS, Inc.*........................... 957 46,175
-------------
190,138
-------------
Total Common Stocks
(Cost $985,663) 866,533
-------------
CONVERTIBLE PREFERRED STOCK - 0.3%
PAR
AMOUNT
-----------------------------------------------------------------
AUTO COMPONENTS - 0.0%
HLI Operating Co., Inc., Series A*
8.000%.............................. $ 40 1,420
-------------
SHARES
-----------------------------------------------------------------
TELECOMMUNICATION SERVICES - WIRELESS - 0.3%
Alamosa Holdings, Inc., Series B
7.500%.............................. 284 389,470
-------------
Total Convertible Preferred Stock
(Cost $94,181) 390,890
-------------
WARRANT - 0.0%
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.0%
Viasystems Group, Inc., Expires
1/31/10*(e) (Cost $142,521)........... 9,411 0
-------------
----------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
----------------------------------------------------------------------
SHORT-TERM INVESTMENT - 8.2%
State Street Bank & Trust Co., Repurchase
Agreement, dated 12/30/05 at 2.80% to
be repurchased at $9,602,987 on
01/03/06 collateralized by $9,930,000
U.S Treasury Note 4.000% due 11/15/12
with a value of $9,793,463
(Cost - $9,600,000).................... $ 9,600,000 $ 9,600,000
-------------
TOTAL INVESTMENTS - 98.3%
(Cost $114,777,327) 115,272,390
Other Assets and Liabilities (net) - 1.7% 1,944,284
-------------
TOTAL NET ASSETS - 100.0% $ 117,216,674
=============
* Non-income producing security.
(a) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under the guidelines established by the Board of Trustees. These securities
represent in the aggregate 11.185% of net assets.
(b) Variable rate securities. Coupon rates disclosed are those which are in
effect at December 31, 2005. Maturity date shown is the date of the next
coupon rate reset or actual maturity.
(c) Security is a "step up" bond where coupon increases or steps up at a
predetermined date. Rates shown are current coupon and next coupon rate
when security steps up.
(d) Security is in default.
(e) Illiquid securities. Representing in the aggregate 0.000% of net assets.
(f) Security is valued in good faith at fair value by or under the direction of
the Board of Trustees.
(g) Zero Coupon Bond. Interest rate represents current yield to maturity.
See notes to financial statements
17
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
-------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-------------------------------------------------------------------
DOMESTIC BONDS & DEBT SECURITIES - 17.9%
AEROSPACE & DEFENSE - 0.4%
Lockheed Martin Corp.
8.500%, due 12/01/29.................. $ 400,000 $ 546,827
Northrop Grumman Corp.
4.079%, due 11/16/06................... 500,000 496,242
7.125%, due 02/15/11................... 100,000 109,086
-------------
1,152,155
-------------
ASSET-BACKED SECURITIES - 1.9%
Chase Funding Mortgage Loan Asset-Backed
Certificates, Series 2002-2, Class 1A5
5.833%, due 04/25/32.................. 500,000 504,023
PP&L Transition Bond LLC, Series 1999-1,
Class A7 7.050%, due 06/25/09......... 4,816,528 4,910,883
-------------
5,414,906
-------------
AUTOMOBILES - 0.0%
Ford Motor Co. 7.450%, due 07/16/31..... 200,000 137,000
-------------
AUTO MANUFACTURERS - 0.2%
DaimlerChrysler North America Holding
Corp. 7.300%, due 01/15/12............ 600,000 648,196
-------------
BANKS - 1.5%
ABN AMRO Bank NV
4.390%, due 05/11/07(a)............... 700,000 700,706
Bank of America Corp.
5.375%, due 06/15/14.................. 500,000 509,112
HSBC Bank USA 5.875%, due 11/01/34...... 300,000 303,737
Huntington National Bank
4.650%, due 06/30/09.................. 300,000 298,235
Rabobank Capital Funding Trust III
5.254%, due 12/31/16 (144A)(b)........ 200,000 196,504
RBS Capital Trust I 4.709%, due
12/29/49.............................. 300,000 285,573
Royal Bank of Scotland Group Plc
5.050%, due 01/08/15.................. 300,000 298,366
U.S. Bank North America
4.950%, due 10/30/14.................. 200,000 198,248
Wachovia Bank North America
4.800%, due 11/01/14................... 200,000 194,451
4.641%, due 11/03/14(a)................ 700,000 707,433
Washington Mutual Bank FA.
5.125%, due 01/15/15.................. 400,000 391,516
-------------
4,083,881
-------------
BEVERAGES - 0.3%
Bottling Group LLC 4.625%, due
11/15/12.............................. 300,000 296,212
PepsiAmericas, Inc.
4.875%, due 01/15/15.................. 600,000 592,593
-------------
888,805
-------------
----------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
----------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 2.1%
Banc of America Commercial Mortgage,
Inc., Series 2004-6, Class AJ
4.870%, due 12/10/42..................... $ 1,150,000 $ 1,116,539
Commercial Mortgage Pass Through
Certificates 5.167%, due 06/10/44........ 1,400,000 1,397,020
JP Morgan Chase Commercial Mortgage
Securities Corp. 2,000,000 1,947,137
Series 2004-C3, Class AJ
4.922%, due 01/15/42....................
Series 2005-CB124.948%, due
09/12/37................................ 950,000 930,759
Series 2005-LDP4, Class AM
4.999%, due 10/15/42.................... 430,000 422,009
-------------
5,813,464
-------------
ELECTRIC UTILITIES - 1.1%
Dominion Resources, Inc., Series F
5.250%, due 08/01/33..................... 300,000 294,659
PSEG Energy Holdings LLC
8.500%, due 06/15/11..................... 2,000,000 2,150,000
SP PowerAssets, Ltd. 5.000%, due 10/22/13
(144A)(b)................................ 700,000 700,575
-------------
3,145,234
-------------
FINANCIAL - DIVERSIFIED - 3.6%
AIG SunAmerica Global Financing VII
5.850%, due 08/01/08 (144A)(b)........... 400,000 408,655
American General Finance Corp.
3.875%, due 10/01/09..................... 800,000 766,878
Capital One Bank 5.000%, due
06/15/09................................. 520,000 518,184
Capital One Financial Corp.
5.500%, due 06/01/15..................... 300,000 298,786
Caterpillar Financial Services
4.700%, due 03/15/12..................... 700,000 694,107
Countrywide Financial Corp., Series A
4.500%, due 06/15/10..................... 500,000 485,822
Countrywide Home Loans, Inc., Series L
4.000%, due 03/22/11..................... 580,000 546,374
Credit Suisse First Boston USA, Inc.
3.875%, due 01/15/09...................... 500,000 485,717
6.125%, due 11/15/11...................... 300,000 315,310
Ford Motor Credit Co.
6.500%, due 01/25/07...................... 400,000 387,084
5.700%, due 01/15/10...................... 100,000 85,080
Glencore Funding LLC 6.000%, due
04/15/14 (144A)(b)....................... 300,000 282,612
Goldman Sachs Capital I, Capital Securities
6.345%, due 02/15/34..................... 400,000 421,623
HSBC Finance Corp. 6.375%, due
10/15/11................................. 1,100,000 1,164,189
See notes to financial statements
18
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
-------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-------------------------------------------------------------------
FINANCIAL - DIVERSIFIED - CONTINUED
JP Morgan Chase & Co.
5.250%, due 05/01/15.................. $ 400,000 $ 398,561
Lehman Brothers Holdings, Inc., Series G
4.800%, due 03/13/14.................. 500,000 489,012
Merrill Lynch & Co., Inc., Series C
4.125%, due 09/10/09................... 300,000 291,333
4.250%, due 02/08/10................... 300,000 292,088
5.000%, due 01/15/15................... 300,000 296,025
Morgan Stanley 5.050%, due 01/21/11..... 600,000 600,840
Principal Life Global Funding I
6.125%, due 10/15/33 (144A)(b)........ 600,000 648,962
-------------
9,877,242
-------------
HEALTH CARE PROVIDERS & SERVICES - 0.1%
WellPoint, Inc. 6.800%, due 08/01/12.... 300,000 327,739
-------------
PHARMACEUTICALS - 0.2%
Wyeth 6.500%, due 02/01/34.............. 500,000 552,281
-------------
INDUSTRIAL CONGLOMERATES - 0.4%
General Electric Co. 5.000%, due
02/01/13.............................. 1,100,000 1,101,050
-------------
INSURANCE - 0.3%
Berkshire Hathaway Finance Corp.
4.400%, due 05/16/08(a)................ 200,000 200,152
4.750%, due 05/15/12................... 400,000 395,953
GE Global Insurance Holding Corp.
7.000%, due 02/15/26.................. 100,000 112,733
-------------
708,838
-------------
MEDIA - 2.1%
Comcast Cable Communications, Inc.
8.875%, due 05/01/17.................. 2,000,000 2,465,270
COX Communications, Inc.
7.125%, due 10/01/12.................. 700,000 751,040
Liberty Media Corp.
5.991%, due 09/17/06(a)............... 352,000 354,485
Time Warner, Inc. 7.625%, due
04/15/31.............................. 2,000,000 2,233,900
-------------
5,804,695
-------------
OIL & GAS - 0.8%
Anadarko Finance Co., Series B
6.750%, due 05/01/11.................. 300,000 324,944
Consolidated Natural Gas Co., Series A
5.000%, due 12/01/14.................. 200,000 194,379
Cooper Cameron Corp.
2.650%, due 04/15/07.................. 200,000 193,432
Devon Financing Corp. ULC
7.875%, due 09/30/31.................. 400,000 509,873
Duke Capital LLC 4.331%, due 11/16/06... 300,000 297,974
Kinder Morgan Energy Partners LP
5.125%, due 11/15/14.................. 200,000 195,947
---------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
---------------------------------------------------------------------
OIL & GAS - CONTINUED
Phelps Dodge Corp. 8.750%, due
06/01/11................................ $ 300,000 $ 345,324
Southern California Gas Co., Series II
4.375%, due 01/15/11.................... 300,000 292,244
-------------
2,354,117
-------------
PAPER & FOREST PRODUCTS - 0.1%
International Paper Co.
5.300%, due 04/01/15.................... 200,000 192,975
-------------
REAL ESTATE - 1.4%
AvalonBay Communities, Inc., (REIT)
4.950%, due 03/15/13.................... 100,000 98,028
Colonial Realty LP 4.750%, due
02/01/10................................ 200,000 194,989
HRPT Properties Trust, (REIT)
6.250%, due 08/15/16.................... 200,000 204,201
iStar Financial, Inc., (REIT)
6.000%, due 12/15/10.................... 300,000 304,952
Kimco Realty Corp., (REIT)
4.450%, due 08/01/06(a)................. 100,000 100,106
Nationwide Health Properties, Inc., (REIT)
6.900%, due 10/01/37.................... 2,400,000 2,569,699
Simon Property Group LP, (REIT)
4.600%, due 06/15/10..................... 200,000 195,164
5.100%, due 06/15/15..................... 200,000 193,788
-------------
3,860,927
-------------
TELECOMMUNICATION SERVICES - DIVERSIFIED - 1.1%
Deutsche Telekom International Finance BV
8.250%, due 06/15/30.................... 400,000 510,267
France Telecom S.A. 8.500%, due
03/01/31................................ 1,000,000 1,338,318
SBC Communications, Inc.
6.450%, due 06/15/34.................... 300,000 313,208
Sprint Capital Corp. 8.375%, due
03/15/12................................ 500,000 580,197
Telecom Italia Capital S.A.
4.000%, due 01/15/10.................... 300,000 285,995
-------------
3,027,985
-------------
TOBACCO - 0.3%
Altria Group, Inc. 5.625%, due
11/04/08................................ 700,000 710,050
-------------
Total Domestic Bonds & Debt Securities
(Cost $47,414,700) 49,801,540
-------------
CONVERTIBLE BONDS - 5.2%
AEROSPACE & DEFENSE - 0.3%
Armor Holdings, Inc.,
2.000%/0.000%, due 11/01/24(c).......... 200,000 198,750
L-3 Communications Corp.
3.000%, due 08/01/35 (144A)(b)........... 300,000 298,125
3.000%, due 08/01/35..................... 50,000 49,688
Lockheed Martin Corp.
4.090%, due 08/15/33(a)................. 275,000 294,629
-------------
841,192
-------------
See notes to financial statements
19
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
----------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
----------------------------------------------------------------
AIRLINES - 0.2%
Continental Airlines, Inc.
4.500%, due 02/01/07............... $ 125,000 $ 117,188
Frontier Airlines, Inc.
5.000%, due 12/15/25............... 200,000 217,000
-------------
334,188
-------------
BIOTECHNOLOGY - 0.3%
Amgen, Inc. 0.778%, due 03/01/32(d).. 625,000 490,625
InterMune, Inc. 0.250%, due 03/01/11. 225,000 199,125
Invitrogen Corp.
3.250%, due 06/15/25................ 200,000 192,500
3.250%, due 06/15/25 (144A)(b)...... 50,000 48,125
-------------
930,375
-------------
BUILDING MATERIALS - 0.2%
Masco Corp., Series B
2.017%, due 07/20/31(d)............ 425,000 195,500
NCI Building Systems, Inc.
2.750%, due 11/15/24............... 225,000 266,625
-------------
462,125
-------------
COMMERCIAL SERVICES & SUPPLIES - 0.1%
Euronet Worldwide, Inc.
1.625%, due 12/15/24............... 300,000 307,875
-------------
COMPUTERS & PERIPHERALS - 0.1%
Electronics For Imaging, Inc.
1.500%, due 06/01/23............... 175,000 194,469
Silicon Graphics, Inc. 6.500%, due
06/01/09........................... 125,000 85,937
-------------
280,406
-------------
ENVIRONMENTAL SERVICES - 0.2%
Waste Connections, Inc.
4.750%, due 05/01/22(a)............ 375,000 416,738
-------------
FINANCIAL - DIVERSIFIED - 0.0%
Merrill Lynch & Co., Inc.
0.000%, due 03/13/32(d)............ 100,000 106,500
-------------
FINANCIAL SERVICES - 0.1%
Sealed Air Corp. 3.000%, due 06/30/33
(144A)(b).......................... 350,000 350,875
-------------
HEALTH CARE PROVIDERS & SERVICES - 0.4%
LifePoint Hospitals, Inc.
3.250%, due 08/15/25 (144A)(b)...... 275,000 251,969
3.250%, due 08/15/25................ 225,000 206,156
Omnicare, Inc. 3.250%, due 12/15/35.. 200,000 199,500
Pacificare Health Systems, Inc.
3.000%, due 10/15/32............... 125,000 541,094
-------------
1,198,719
-------------
INDUSTRIAL - DIVERSIFIED - 0.5%
Actuant Corp. 2.000%, due 11/15/23... 275,000 401,500
Danaher Corp. 1.407%, due
01/22/21(d)........................ 350,000 289,188
---------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
---------------------------------------------------------------
INDUSTRIAL - DIVERSIFIED - CONTINUED
Roper Industries, Inc. 1.481%, due
01/15/34.......................... $ 525,000 $ 290,062
United Rentals Trust I 6.500%, due
08/01/28.......................... 8,100 346,275
-------------
1,327,025
-------------
MEDIA - 0.3%
Charter Communications, Inc.
5.875%, due 11/16/09.............. 275,000 205,907
Liberty Media Corp.
0.750%, due 03/30/23............... 250,000 268,750
4.000%, due 11/15/29............... 325,000 192,156
-------------
666,813
-------------
OIL & GAS - 0.4%
Grey Wolf, Inc. 4.004%, due
04/01/24(a)....................... 125,000 172,437
Halliburton Co. 3.125%, due 07/15/23 150,000 257,250
Nabors Industries, Inc., Series B
0.000%, due 06/15/23(d)........... 300,000 355,125
Pride International, Inc.
3.250%, due 05/01/33.............. 250,000 330,625
-------------
1,115,437
-------------
PHARMACEUTICALS - 0.6%
BioMarin Pharmaceutical, Inc.
3.500%, due 06/15/08.............. 300,000 283,500
CV Therapeutics, Inc. 2.750%, due
05/16/12.......................... 100,000 150,000
Enzon Pharmaceuticals, Inc.
4.500%, due 07/01/08.............. 150,000 135,375
Nektar Therapeutics, 3.250%, due
09/28/12 (144A)(b)................ 175,000 176,969
NPS Pharmaceuticals, Inc.
3.000%, due 06/15/08.............. 325,000 281,937
Oscient Pharmaceutical Corp.
3.500%, due 04/15/11.............. 250,000 193,750
Sepracor, Inc. 0.156%, due
10/15/24(d)....................... 225,000 214,313
Teva Pharmaceutical Industries, Ltd.
0.250%, due 02/01/24.............. 250,000 312,500
-------------
1,748,344
-------------
RETAIL - MULTILINE - 0.5%
Best Buy Co., Inc.
2.250%, due 01/15/22 (144A)(b)..... 175,000 186,812
2.250%, due 01/15/22............... 125,000 133,437
CBRL Group, Inc. 1.995%, due
04/03/32(d)....................... 950,000 441,750
CKE Restaurants, Inc.
4.000%, due 10/01/23.............. 50,000 80,188
Men's Wearhouse, Inc.
3.125%, due 10/15/23.............. 375,000 436,875
-------------
1,279,062
-------------
See notes to financial statements
20
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
-----------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
-----------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.1%
Amkor Technology, Inc.
5.000%, due 03/15/07................ $ 200,000 $ 189,750
Intel Corp.
2.950%, due 12/15/35 (144A)(b)...... 200,000 196,250
-------------
386,000
-------------
SOFTWARE - 0.3%
Mentor Graphics Corp.
5.941%, due 08/06/23(a)............. 275,000 251,157
Open Solutions, Inc.
1.467%, due 02/02/35................ 520,000 274,950
SafeNet, Inc. (144A)
2.500%, due 12/15/10(b)............. 200,000 199,250
-------------
725,357
-------------
SOFTWARE - 0.1%
RealNetworks, Inc.
0.815%, due 07/01/10(d)............. 175,000 171,937
SINA Corp.
0.000%, due 07/15/23(d)............. 150,000 164,063
-------------
336,000
-------------
TELECOMMUNICATION SERVICES - DIVERSIFIED - 0.5%
ADC Telecommunications, Inc.
5.045%, due 06/15/13(a)............. 450,000 455,062
Amdocs, Ltd.
0.500%, due 03/15/24................ 150,000 135,188
Ciena Corp.
3.750%, due 02/01/08................ 300,000 276,750
Dobson Communications Corp.
1.500%, due 10/01/25 (144A)(b)...... 200,000 186,250
NII Holdings, Inc.,
2.750%, due 08/15/25 (144A)(b)...... 350,000 381,937
RF Micro Devices, Inc.
1.500%, due 07/01/10................ 50,000 46,188
-------------
1,481,375
-------------
Total Convertible Bonds
(Cost $14,021,420) 14,294,406
-------------
U. S. GOVERNMENT AGENCY MORTGAGE BACKED SECURITIES - 0.8%
Federal National Mortgage Assoc.
1.750%, due 06/16/06................. 1,000,000 987,429
6.000%, due 01/01/13 - 08/01/28...... 783,876 797,535
6.500%, due 12/01/27................. 24,092 24,833
5.500%, due 08/01/28................. 262,524 260,838
Government National Mortgage Assoc.
9.000%, due 11/15/19................. 12,245 13,348
9.500%, due 01/15/20................. 7,014 7,771
-------------
Total U. S. Government Agency Mortgage
Backed Securities
(Cost $2,069,688) 2,091,754
-------------
---------------------------------------------------------------------
SECURITY SHARES/PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
---------------------------------------------------------------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS - 10.8%
Federal Home Loan Mortgage Corp.
4.875%, due 11/15/13.................. $ 500,000 $ 503,179
2.900%/7.000%, due 02/27/19(e)........ 500,000 498,507
U.S. Treasury Bond
4.500%, due 11/15/15.................. 200,000 201,703
5.250%, due 11/15/28.................. 2,100,000 2,291,134
U.S. Treasury Bonds
5.250%, due 02/15/29................. 100,000 109,152
U.S. Treasury Note
4.125%, due 05/15/15................. 3,200,000 3,130,877
U.S. Treasury Notes
4.000%, due 08/31/07.................. 1,500,000 1,490,508
5.625%, due 05/15/08.................. 2,068,000 2,125,033
3.250%, due 08/15/08.................. 3,300,000 3,209,640
4.125%, due 08/15/08 - 08/15/10....... 11,900,000 11,812,597
3.625%, due 07/15/09.................. 3,200,000 3,122,752
4.250%, due 10/15/10 - 08/15/15....... 1,500,000 1,481,844
-------------
Total U. S. Government & Agency
Obligations
(Cost $30,464,700) 29,976,926
-------------
FOREIGN BONDS & DEBT SECURITIES - 0.2%
CANADA - 0.2%
Canada Mortgage & Housing Corp. 3.375%,
due 12/01/08
(Cost $499,200)...................... $ 500,000 484,097
-------------
COMMON STOCKS - 62.0%
AEROSPACE & DEFENSE - 1.4%
Boeing Co. (The)....................... 9,566 671,916
General Dynamics Corp.................. 8,588 979,461
Lockheed Martin Corp................... 9,950 633,118
Northrop Grumman Corp.................. 13,073 785,818
United Technologies Corp............... 16,136 902,164
-------------
3,972,477
-------------
AIR FREIGHT & LOGISTICS - 0.5%
United Parcel Service, Inc. - Class B.. 18,020 1,354,203
-------------
AUTOMOBILES - 0.1%
Ford Motor Co.......................... 16,282 125,697
Harley-Davidson, Inc................... 4,682 241,076
-------------
366,773
-------------
BANKS - 4.2%
Bank of America Corp................... 76,490 3,530,014
Comerica, Inc.......................... 10,732 609,148
Commerce Bancorp, Inc.................. 11,300 388,833
First Horizon National Corp............ 64 2,460
KeyCorp................................ 7,034 231,630
Marshall & Ilsley Corp................. 6,017 258,972
National City Corp..................... 21,813 732,263
PNC Financial Services Group, Inc...... 6,728 415,992
SunTrust Banks, Inc.................... 15,678 1,140,731
See notes to financial statements
21
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
---------------------------------------------------------------
SECURITY VALUE
DESCRIPTION SHARES (NOTE 2)
---------------------------------------------------------------
BANKS - CONTINUED
U.S. Bancorp......................... 22,726 $ 679,280
Wachovia Corp........................ 35,543 1,878,803
Wells Fargo & Co..................... 27,175 1,707,405
-------------
11,575,531
-------------
BEVERAGES - 1.4%
Brown-Forman Corp. - Class B......... 4,150 287,678
Coca-Cola Co......................... 26,965 1,086,959
Coca-Cola Enterprises, Inc........... 24,287 465,582
Molson Coors Brewing Co. - Class B... 5,665 379,498
PepsiCo, Inc......................... 26,082 1,540,925
-------------
3,760,642
-------------
BIOTECHNOLOGY - 1.3%
Amgen, Inc.*......................... 20,822 1,642,023
Biogen Idec, Inc.*................... 10,512 476,509
Enzon Pharmaceuticals, Inc.*......... 8,100 59,940
Genentech, Inc.*..................... 6,606 611,055
Gilead Sciences, Inc.*............... 16,677 877,710
-------------
3,667,237
-------------
BUILDING PRODUCTS - 0.2%
Masco Corp........................... 6,494 196,054
Pulte Homes, Inc..................... 11,472 451,538
-------------
647,592
-------------
CHEMICALS - 0.5%
Dow Chemical Co...................... 18,551 812,905
E.I. du Pont de Nemours & Co......... 6,923 294,227
Monsanto Co.......................... 4,104 318,183
-------------
1,425,315
-------------
COMMERCIAL SERVICES & SUPPLIES - 0.3%
Acco Brands Corp.*................... 2,119 51,916
Cendant Corp......................... 17,480 301,530
Fiserv, Inc.*........................ 4,135 178,921
Herman Miller, Inc................... 11,174 314,995
-------------
847,362
-------------
COMMUNICATIONS EQUIPMENT - 2.1%
Cisco Systems, Inc.*................. 106,792 1,828,279
Comverse Technology, Inc.*........... 27,725 737,208
Corning, Inc.*....................... 31,037 610,188
Motorola, Inc........................ 37,175 839,783
QUALCOMM, Inc........................ 23,475 1,011,303
Scientific-Atlanta, Inc.............. 16,788 723,059
-------------
5,749,820
-------------
COMPUTERS & PERIPHERALS - 2.5%
Apple Computer, Inc.*................ 17,297 1,243,481
Dell, Inc.*.......................... 39,528 1,185,445
EMC Corp.*........................... 39,137 533,046
Hewlett-Packard Co................... 48,109 1,377,361
International Business Machines Corp. 28,323 2,328,150
----------------------------------------------------------------
SECURITY VALUE
DESCRIPTION SHARES (NOTE 2)
----------------------------------------------------------------
COMPUTERS & PERIPHERALS - CONTINUED
Lexmark International, Inc. - Class A* 2,045 $ 91,677
Sun Microsystems, Inc.*............... 55,652 233,182
-------------
6,992,342
-------------
CONTAINERS & PACKAGING - 0.3%
Ball Corp............................. 7,225 286,977
Sealed Air Corp.*..................... 8,955 503,002
-------------
789,979
-------------
ELECTRIC UTILITIES - 1.6%
AES Corp.*............................ 42,990 680,532
American Electric Power Co., Inc...... 21,191 785,974
Edison International.................. 15,790 688,602
Exelon Corp........................... 6,488 344,772
FirstEnergy Corp...................... 16,501 808,384
Public Service Enterprise Group, Inc.. 4,503 292,560
Southern Co........................... 9,265 319,921
TXU Corp.............................. 12,202 612,418
-------------
4,533,163
-------------
ELECTRICAL EQUIPMENT - 0.3%
Energizer Holdings, Inc.*............. 4,270 212,603
Thomas & Betts Corp.*................. 14,626 613,707
-------------
826,310
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.6%
Jabil Circuit, Inc.*.................. 15,466 573,634
Waters Corp.*......................... 9,536 360,461
Xerox Corp.*.......................... 52,061 762,693
-------------
1,696,788
-------------
ENERGY - 0.3%
Constellation Energy Group, Inc....... 12,820 738,432
-------------
ENERGY EQUIPMENT & SERVICES - 0.9%
Baker Hughes, Inc..................... 7,851 477,184
Halliburton Co........................ 6,627 410,609
Rowan Companies, Inc.................. 2,700 96,228
Schlumberger Ltd...................... 10,905 1,059,420
Transocean, Inc.*..................... 7,171 499,747
-------------
2,543,188
-------------
FINANCIAL - DIVERSIFIED - 5.9%
American Express Co................... 23,907 1,230,254
Ameriprise Financial, Inc............. 4,781 196,021
Bank of New York Co., Inc. (The)...... 11,670 371,690
Bear Stearns Cos., Inc................ 8,690 1,003,956
Capital One Financial Corp............ 11,982 1,035,245
CIT Group, Inc........................ 13,921 720,829
Countrywide Financial Corp............ 24,726 845,382
E*TRADE Financial Corp.*.............. 30,762 641,695
Fannie Mae............................ 17,834 870,478
Franklin Resources, Inc............... 4,692 441,095
Freddie Mac........................... 3,364 219,837
See notes to financial statements
22
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
-------------------------------------------------------------------
SECURITY VALUE
DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------
FINANCIAL - DIVERSIFIED - CONTINUED
Goldman Sachs Group, Inc. (The)....... 11,198 $ 1,430,097
JP Morgan Chase & Co.................. 65,916 2,616,206
Lehman Brothers Holdings, Inc......... 9,878 1,266,063
Marsh & McLennan Cos., Inc............ 8,352 265,260
MBNA Corp............................. 6,661 180,846
Merrill Lynch & Co., Inc.............. 17,137 1,160,689
Morgan Stanley........................ 19,664 1,115,735
Principal Financial Group, Inc........ 9,910 470,031
State Street Corp..................... 7,466 413,915
-------------
16,495,324
-------------
FOOD & DRUG RETAILING - 0.6%
Albertson's, Inc...................... 16,421 350,589
CVS Corp.............................. 21,786 575,586
SUPERVALU, Inc........................ 12,819 416,361
Walgreen Co........................... 8,096 358,329
-------------
1,700,865
-------------
FOOD PRODUCTS - 0.8%
Archer-Daniels-Midland Co............. 25,467 628,016
General Mills, Inc.................... 10,770 531,177
Hormel Foods Corp..................... 5,643 184,413
Kellogg Co............................ 3,323 143,620
Sara Lee Corp......................... 12,413 234,606
Smithfield Foods, Inc.*............... 18,655 570,843
-------------
2,292,675
-------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.8%
Becton, Dickinson & Co................ 3,936 236,475
Boston Scientific Corp.*.............. 13,330 326,452
Johnson & Johnson..................... 46,625 2,802,162
Medtronic, Inc........................ 19,145 1,102,178
Zimmer Holdings, Inc.*................ 8,265 557,391
-------------
5,024,658
-------------
HEALTH CARE PROVIDERS & SERVICES - 2.1%
Aetna, Inc............................ 8,352 787,677
AmerisourceBergen Corp................ 11,242 465,419
Cardinal Health, Inc.................. 2,714 186,587
Caremark Rx, Inc.*.................... 10,134 524,840
Humana, Inc.*......................... 16,326 886,992
UnitedHealth Group, Inc............... 34,908 2,169,183
WellPoint, Inc.*...................... 8,918 711,567
-------------
5,732,265
-------------
HOTELS, RESTAURANTS & LEISURE - 1.0%
Darden Restaurants, Inc............... 12,657 492,104
Marriott International, Inc. - Class A 12,025 805,314
McDonald's Corp....................... 31,752 1,070,677
Starwood Hotels & Resorts Worldwide,
Inc................................. 2,832 180,852
Yum! Brands, Inc...................... 4,404 206,460
-------------
2,755,407
-------------
--------------------------------------------------------------------
SECURITY VALUE
DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.5%
Black & Decker Corp.................... 4,277 $ 371,928
Fortune Brands, Inc.................... 9,018 703,584
KB HOME................................ 4,792 348,187
Procter & Gamble Co.................... 47,369 2,741,718
-------------
4,165,417
-------------
HOUSEHOLD PRODUCTS - 0.3%
Colgate-Palmolive Co................... 5,385 295,367
Kimberly-Clark Corp.................... 8,064 481,018
-------------
776,385
-------------
INDUSTRIAL - DIVERSIFIED - 2.8%
3M Co.................................. 8,500 658,750
General Electric Co.................... 163,980 5,747,499
Honeywell International, Inc........... 13,410 499,523
Tyco International, Ltd................ 33,463 965,742
-------------
7,871,514
-------------
INSURANCE - 3.5%
ACE, Ltd............................... 4,729 252,718
AFLAC, Inc............................. 8,569 397,773
Allstate Corp. (The)................... 10,859 587,146
Ambac Financial Group, Inc............. 9,237 711,803
American International Group, Inc...... 43,485 2,966,982
Aon Corp............................... 4,883 175,544
Chubb Corp. (The)...................... 10,315 1,007,260
CIGNA Corp............................. 6,162 688,295
Hartford Financial Services Group, Inc. 3,415 293,314
Jefferson-Pilot Corp................... 2,333 132,818
Lincoln National Corp.................. 3,117 165,295
MGIC Investment Corp................... 5,934 390,576
Progressive Corp. (The)................ 7,216 842,684
Prudential Financial, Inc.............. 15,737 1,151,791
-------------
9,763,999
-------------
INTERNET & CATALOG RETAIL - 0.3%
eBay, Inc.*............................ 18,072 781,614
-------------
INTERNET SOFTWARE & SERVICES - 0.3%
Sohu.com, Inc.*........................ 5,100 93,534
Yahoo!, Inc.*.......................... 20,955 821,017
-------------
914,551
-------------
IT CONSULTING & SERVICES - 0.1%
Affiliated Computer Services, Inc. -
Class A*............................. 6,700 396,506
-------------
MACHINERY - 1.1%
Danaher Corp........................... 3,559 198,521
Deere & Co............................. 8,886 605,226
Eaton Corp............................. 3,249 217,975
Ingersoll-Rand Co., Ltd. - Class A..... 19,516 787,861
Oshkosh Truck Corp..................... 8,760 390,608
PACCAR, Inc............................ 11,531 798,291
Parker Hannifin Corp................... 1,906 125,720
-------------
3,124,202
-------------
See notes to financial statements
23
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
-----------------------------------------------------------
SECURITY VALUE
DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------
MEDIA - 2.0%
Comcast Corp. - Class A*......... 33,766 $ 876,566
Gannett Co., Inc................. 7,544 456,940
McGraw-Hill Cos., Inc............ 5,711 294,859
News Corp. - Class A............. 39,975 621,611
Time Warner, Inc................. 97,173 1,694,697
Viacom, Inc. - Class B........... 20,328 662,693
Walt Disney Co. (The)............ 37,356 895,423
-------------
5,502,789
-------------
METALS & MINING - 0.9%
Allegheny Technologies, Inc...... 16,838 607,515
Newmont Mining Corp.............. 6,565 350,571
Nucor Corp....................... 10,583 706,098
Phelps Dodge Corp................ 5,563 800,349
-------------
2,464,533
-------------
OIL & GAS - 4.9%
Anadarko Petroleum Corp.......... 4,869 461,338
Burlington Resources, Inc........ 14,047 1,210,851
Chevron Corp..................... 34,664 1,967,875
ConocoPhillips................... 22,396 1,302,999
Devon Energy Corp................ 7,103 444,222
Exxon Mobil Corp................. 98,265 5,519,545
Marathon Oil Corp................ 10,410 634,698
National Fuel Gas Co............. 4,151 129,470
Occidental Petroleum Corp........ 12,047 962,314
Sunoco, Inc...................... 5,202 407,733
Valero Energy Corp............... 12,320 635,712
-------------
13,676,757
-------------
PAPER & FOREST PRODUCTS - 0.2%
International Paper Co........... 7,990 268,544
Weyerhaeuser Co.................. 3,404 225,821
-------------
494,365
-------------
PHARMACEUTICALS - 2.7%
Abbott Laboratories.............. 17,582 693,258
Bristol-Myers Squibb Co.......... 30,191 693,789
Eli Lilly & Co................... 14,279 808,049
Hospira, Inc.*................... 1,408 60,234
Medco Health Solutions, Inc.*.... 4,519 252,160
Merck & Co., Inc................. 34,546 1,098,908
Oscient Pharmaceuticals Corp.*... 20,000 45,400
Pfizer, Inc...................... 116,843 2,724,779
Schering-Plough Corp............. 22,947 478,445
Wyeth............................ 14,856 684,416
-------------
7,539,438
-------------
RETAIL - MULTILINE - 1.1%
Costco Wholesale Corp............ 7,322 362,219
Federated Department Stores, Inc. 4,198 278,453
Kohl's Corp.*.................... 11,226 545,584
Wal-Mart Stores, Inc............. 38,095 1,782,846
-------------
2,969,102
-------------
-------------------------------------------------------------
SECURITY VALUE
DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------
RETAIL - SPECIALTY - 2.3%
Abercrombie & Fitch Co. - Class A.. 5,822 $ 379,478
American Eagle Outfitters, Inc..... 9,019 207,257
AutoZone, Inc.*.................... 4,384 402,232
Best Buy Co., Inc.................. 8,772 381,407
GameStop Corp. - Class B*.......... 5,167 149,326
Gap, Inc. (The).................... 8,758 154,491
Home Depot, Inc. (The)............. 30,256 1,224,763
Lowe's Cos., Inc................... 15,525 1,034,897
NIKE, Inc. - Class B............... 2,014 174,795
Nordstrom, Inc..................... 15,546 581,420
Office Depot, Inc.*................ 4,801 150,751
Staples, Inc....................... 18,049 409,893
Target Corp........................ 19,464 1,069,936
-------------
6,320,646
-------------
ROAD & RAIL - 0.6%
Burlington Northern Santa Fe Corp.. 13,113 928,663
CSX Corp........................... 12,041 611,321
-------------
1,539,984
-------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.8%
Advanced Micro Devices, Inc.*...... 13,871 424,453
Analog Devices, Inc................ 6,075 217,910
Intel Corp......................... 102,117 2,548,840
KLA-Tencor Corp.................... 3,210 158,349
Maxim Integrated Products, Inc..... 5,030 182,287
Micron Technology, Inc.*........... 33,834 450,331
Texas Instruments, Inc............. 31,784 1,019,313
-------------
5,001,483
-------------
SOFTWARE - 2.1%
Autodesk, Inc...................... 3,518 151,098
Microsoft Corp..................... 149,807 3,917,453
Oracle Corp.*...................... 79,366 969,059
Sybase, Inc.*...................... 17,521 383,009
Symantec Corp.*.................... 20,539 359,433
-------------
5,780,052
-------------
TELECOMMUNICATION SERVICES - DIVERSIFIED - 1.9%
AT&T, Inc.*........................ 59,905 1,467,074
BellSouth Corp..................... 25,199 682,893
CenturyTel, Inc.................... 18,365 608,983
Sprint Nextel Corp................. 46,258 1,080,587
Verizon Communications, Inc........ 42,976 1,294,437
-------------
5,133,974
-------------
TEXTILES, APPAREL & LUXURY GOODS - 0.0%
Jones Apparel Group, Inc........... 1,775 54,528
-------------
TOBACCO - 0.9%
Altria Group, Inc.................. 32,372 2,418,836
-------------
Total Common Stocks
(Cost $147,249,923) 172,179,023
-------------
See notes to financial statements
24
MANAGED ASSETS TRUST
PORTFOLIO OF INVESTMENTS - CONTINUED
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
--------------------------------------------------------------------
SECURITY SHARES/PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
--------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 0.8%
BANKS - 0.2%
Sovereign Capital Trust IV
4.375%, due 03/07/34................... 6,500 $ 286,000
Washington Mutual Capital Trust I
5.375%, due 05/03/41................... 3,000 162,750
Washington Mutual Capital Trust I
(144A)(b) 5.375%, due 05/03/41......... 2,300 125,538
-------------
574,288
-------------
ELECTRIC UTILITIES - 0.0%
NRG Energy, Inc.......................... 175 227,916
-------------
FINANCIAL - DIVERSIFIED - 0.1%
Doral Financial Corp. 4.750%............. 1,200 188,550
-------------
MEDIA - 0.1%
Interpublic Group of Cos, Inc., Series B
(144A)(b) 5.250%....................... 280 258,370
-------------
OIL & GAS - 0.1%
Chesapeake Energy Corp. 5.000%........... 1,300 178,588
-------------
PHARMACEUTICALS - 0.1%
Omnicare, Inc., Series B
4.000%, due 06/15/33................... 3,200 237,664
-------------
REAL ESTATE - 0.2%
Host Marriott 6.750%, due 12/02/26....... 5,600 349,356
Simon Property Group, Inc. 6.000%........ 3,100 199,330
-------------
548,686
-------------
Total Convertible Preferred Stock
(Cost $2,236,727) 2,214,062
-------------
SHORT-TERM INVESTMENT - 2.0%
State Street Bank & Trust Co., Repurchase
Agreement, dated 12/30/05 at 2.80% to
be repurchased at $5,519,717 on
01/03/06 collateralized by 4,050,000
U.S. Treasury Bond 8.125% due
08/15/19 with a value of $5,634,563.
(Cost $5,518,000)...................... $ 5,518,000 5,518,000
-------------
TOTAL INVESTMENTS - 99.7%
(Cost $249,474,358) 276,559,808
Other Assets and Liabilities (net) - 0.3% 927,277
-------------
TOTAL NET ASSETS - 100.0% $ 277,487,085
=============
* Non-income producing security.
(a) Variable or floating rate security. The stated rate represents the rate at
December 31, 2005.
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under the guidelines established by the Board of Trustees. These securities
represent in the aggregate 1.77% of net assets.
(c) Security is a "step-down" bond where the coupon decreases or steps down at
a predetermined date. Rates shown are current coupon and next coupon rate
when a security steps down.
(d) Zero coupon bond - Interest rate represents current yield to maturity,
(e) Security is a "step-up" bond where coupon increases or steps up at a
predetermined date. Rates shown are current coupon and next coupon rate
when security steps up.
The following table summarizes the credit composition of the portfolio holdings
of the Managed Assets Trust at December 31, 2005, based upon quality ratings
issued by Standard & Poor's. For Securities not rated by Standard & Poor's, the
equivalent Moody's rating is used.
PERCENT OF
PORTFOLIO COMPOSITION BY CREDIT QUALITY PORTFOLIO
--------------------------------------------------
AAA/Government/Government Agency 16.78%
AA 1.17
A 5.88
BBB 6.86
BB 1.95
B 0.64
Below B 2.25
Equities/Other 64.47
------
Total: 100.00%
======
25
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2005
(PERCENTAGE OF NET ASSETS)
---------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
---------------------------------------------------------
SHORT-TERM INVESTMENTS - 100.2%
COMMERCIAL PAPER - 89.7%
BANKS - 23.6%
Abbey National North America LLC
4.260%, due 01/04/06.......... $ 2,000,000 $ 1,999,290
Fortis Funding LLC
4.260%, due 01/30/06.......... 4,426,000 4,410,811
KFW International Finance, Inc.
4.250%, due 01/26/06.......... 16,000,000 15,952,778
Rabobank USA Financial Corp.
4.270%, due 01/04/06.......... 16,000,000 15,994,307
Societe Generale N.A.
4.270%, due 01/10/06.......... 16,000,000 15,982,920
Toronto Dominion Holdings USA
4.275%, due 01/23/06.......... 16,000,000 15,958,200
UBS Financial LLC
4.190%, due 01/03/06.......... 9,000,000 8,997,905
------------
79,296,211
------------
FINANCIAL - DIVERSIFIED - 56.9%
American Express Credit Corp.
4.260%, due 01/25/06.......... 16,000,000 15,954,560
American General Finance Corp.
4.280%, due 01/23/06.......... 16,000,000 15,958,151
Atlantic Asset Security Corp.
4.320%, due 01/19/06.......... 16,000,000 15,965,440
Dresdner U S Finance, Inc.
4.300%, due 01/09/06.......... 16,000,000 15,984,711
Ebury Finance Ltd.
4.370%, due 01/19/06.......... 16,000,000 15,965,040
General Electric Capital Corp.
4.250%, due 01/13/06.......... 16,000,000 15,977,333
Goldman Sachs Group, Inc.
4.260%, due 01/09/06.......... 16,000,000 15,984,853
Hanover Funding Co. LLC
4.330%, due 01/30/06.......... 16,000,000 15,944,191
HSBC Finance Corp.
4.260%, due 02/02/06.......... 16,000,000 15,939,413
Koch Industries LLC
4.260%, due 01/27/06.......... 16,000,000 15,950,774
Ormond Quay Funding LLC
4.320%, due 01/19/06.......... 16,000,000 15,965,440
Toyota Motor Credit Corp.
4.280%, due 02/01/06.......... 16,000,000 15,941,031
------------
191,530,937
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 4.5%
Becton Dickinson & Co.
4.250%, due 01/24/06.......... 15,000,000 14,959,271
------------
14,959,271
------------
---------------------------------------------------------------------
SECURITY PAR VALUE
DESCRIPTION AMOUNT (NOTE 2)
---------------------------------------------------------------------
MEDIA - 4.7%
Gannett Co., Inc.
4.250%, due 01/18/06..................... $16,000,000 $ 15,967,889
------------
15,967,889
------------
301,754,308
------------
FOREIGN CERTIFICATE OF DEPOSIT - 1.5%
Depfa Bank Plc
4.250%, due 01/06/06..................... 5,000,000 4,997,049
------------
FOREIGN GOVERNMENT & AGENCY - 4.7%
Bank Ireland Governor & Co.
4.275%, due 01/18/06..................... 16,000,000 15,967,700
------------
MEDIUM-TERM NOTE - 4.3%
Stanfield Victoria Finance Ltd.
4.330%, due 01/17/06..................... 14,423,000 14,395,244
------------
Total Short-Term Investments
(Cost $337,114,301) 337,114,301
------------
TOTAL INVESTMENTS - 100.2%
(Cost $337,114,301) 337,114,301
Other Assets and Liabilities (net) - (0.2)% (711,622)
------------
TOTAL NET ASSETS - 100.0% $336,402,679
============
See notes to financial statements
26
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
Capital Appreciation High Yield Bond Managed Assets
Fund Trust Trust
-------------------- --------------- --------------
ASSETS
Investments, at value (Note 2)* $1,140,672,837 $115,272,390 $276,559,808
Cash 216 230 76,100
Cash denominated in foreign currencies** -- 123 10
Receivable for investments sold -- -- 501,735
Receivable for Trust shares sold 15,753 23,391 16,121
Dividends receivable 252,577 5,388 235,498
Interest receivable 13,438 2,225,070 1,006,229
Receivable from investment adviser (Note 4) -- -- --
Other assets 51,838 5,747 13,680
-------------------- --------------- --------------
Total assets 1,141,006,659 117,532,339 278,409,181
-------------------- --------------- --------------
LIABILITIES
Payables for:
Investments purchased -- 159,830 476,457
Trust shares redeemed 2,916,288 50,224 246,126
Income distribution payable -- -- --
Investment advisory fee payable (Note 4) 631,929 43,526 118,843
Administration fee payable (Note 4) 60,814 5,892 14,261
Custodian fees payable -- 16,457 6,878
Accrued expenses 130,567 39,736 59,531
-------------------- --------------- --------------
Total liabilities 3,739,598 315,665 922,096
-------------------- --------------- --------------
NET ASSETS $1,137,267,061 $117,216,674 $277,487,085
==================== =============== ==============
NET ASSETS REPRESENTED BY:
Paid in surplus $1,000,454,001 $108,389,668 $236,679,484
Accumulated net realized gain (loss) (299,657,453) 584,692 7,638,125
Unrealized appreciation (depreciation) on investments,
futures contracts and foreign currency 436,470,658 495,049 27,085,452
Accumulated undistributed (distributions in excess of)
net investment income (145) 7,747,265 6,084,024
-------------------- --------------- --------------
NET ASSETS $1,137,267,061 $117,216,674 $277,487,085
==================== =============== ==============
CAPITAL SHARES OUTSTANDING 14,528,622 11,669,983 16,134,334
==================== =============== ==============
NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 78.28 $ 10.04 $ 17.20
==================== =============== ==============
- ---------------------------------------------------------------------------------------------------------------------
* Investments at cost $ 704,194,882 $114,777,327 $249,474,358
**Cost of cash denominated in foreign currencies -- 126 8
Money Market
Portfolio
------------
ASSETS
Investments, at value (Note 2)* $337,114,301
Cash 654
Cash denominated in foreign currencies** --
Receivable for investments sold --
Receivable for Trust shares sold 70,709
Dividends receivable --
Interest receivable --
Receivable from investment adviser (Note 4) 18,120
Other assets 14,153
------------
Total assets 337,217,937
------------
LIABILITIES
Payables for:
Investments purchased --
Trust shares redeemed 66,974
Income distribution payable 570,174
Investment advisory fee payable (Note 4) 90,207
Administration fee payable (Note 4) 16,736
Custodian fees payable 6,112
Accrued expenses 65,055
------------
Total liabilities 815,258
------------
NET ASSETS $336,402,679
============
NET ASSETS REPRESENTED BY:
Paid in surplus $336,402,733
Accumulated net realized gain (loss) (8,019)
Unrealized appreciation (depreciation) on investments,
futures contracts and foreign currency --
Accumulated undistributed (distributions in excess of)
net investment income 7,965
------------
NET ASSETS $336,402,679
============
CAPITAL SHARES OUTSTANDING 336,402,733
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 1.00
============
- -----------------------------------------------------------------------------
* Investments at cost $337,114,301
**Cost of cash denominated in foreign currencies --
See notes to financial statements
27
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
Capital High Yield Managed Money
Appreciation Bond Assets Market
Fund Trust Trust Portfolio
------------ ----------- ----------- -----------
INVESTMENT INCOME:
Dividends (1) $ 5,547,953 $ 57,101 $ 3,220,681 $ --
Interest 2,064,135 8,296,219 4,593,464 10,765,858
------------ ----------- ----------- -----------
Total investment income 7,612,088 8,353,320 7,814,145 10,765,858
------------ ----------- ----------- -----------
EXPENSES:
Investment advisory fee (Note 4) 7,347,893 501,713 1,412,933 1,064,045
Administration fees (Note 4) 634,624 67,757 169,552 197,472
Custody fees 58,717 47,924 42,561 28,601
Audit 29,333 21,543 27,923 20,941
Legal 32,631 20,509 21,640 25,360
Trustee fees and expenses 12,245 9,000 10,315 9,009
Shareholder reporting 105,960 14,064 33,861 40,740
Insurance 40,246 3,901 12,103 12,006
Other 2,079 1,861 2,284 --
------------ ----------- ----------- -----------
Total expenses 8,263,728 688,272 1,733,172 1,398,174
Less fees waived and expenses reimbursed by the adviser -- -- -- (81,761)
------------ ----------- ----------- -----------
Net expenses 8,263,728 688,272 1,733,172 1,316,413
------------ ----------- ----------- -----------
Net investment income (loss) (651,640) 7,665,048 6,080,973 9,449,445
------------ ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain (loss) on:
Investments 129,519,570 1,080,675 7,976,681 (214)
Futures contracts -- -- (94,393) --
Foreign currency related transactions (153,161) 87 -- --
------------ ----------- ----------- -----------
Net realized gain (loss) on investments, futures
contracts and foreign currency related transactions 129,366,409 1,080,762 7,882,288 (214)
------------ ----------- ----------- -----------
Unrealized appreciation (depreciation) on investments, futures
contracts and foreign currency
Beginning of year 386,491,310 7,613,711 30,719,411 --
End of year 436,470,658 495,049 27,085,452 --
------------ ----------- ----------- -----------
Net change in unrealized appreciation (depreciation) on
investments and foreign currency 49,979,348 (7,118,662) (3,633,959) --
------------ ----------- ----------- -----------
Net realized and unrealized gain (loss) on investments, futures
contracts and foreign currency related transactions 179,345,757 (6,037,900) 4,248,329 (214)
------------ ----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $178,694,117 $ 1,627,148 $10,329,302 $ 9,449,231
============ =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
(1)Dividend income is net of withholding taxes of: $ 75,878 $ -- $ 356 $ --
See notes to financial statements
28
(THIS PAGE INTENTIONALLY LEFT BLANK)
29
STATEMENTS OF CHANGES IN NET ASSETS
Capital Appreciation Fund High Yield Bond Trust
------------------------------ --------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2005 2004* 2005 2004*
-------------------------------- ---------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (651,640) $ (1,463,757) $ 7,665,048 $ 6,907,148
Net realized gain (loss) on investments,
futures contracts and foreign
currency related transactions 129,366,409 (47,038,979) 1,080,762 (362,305)
Net change in unrealized appreciation
(depreciation) on investments,
futures contracts and foreign
currency related transactions 49,979,348 223,220,300 (7,118,662) 1,617,958
Net increase from payment by affiliates
(Note 4) -- -- -- 75,068
-------------- -------------- ------------ ------------
Net increase in net assets resulting from
operations 178,694,117 174,717,564 1,627,148 8,237,869
-------------- -------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- (5,879) (6,987,891)
From net realized gains -- -- -- (65,843)
-------------- -------------- ------------ ------------
Net decrease in net assets resulting from
distributions -- -- (5,879) (7,053,734)
-------------- -------------- ------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTES 7):
Proceeds from shares sold 17,215,233 4,387,734 23,441,319 19,629,157
Net asset value of shares issued through
dividend reinvestment -- -- 5,879 7,053,734
Cost of shares repurchased (100,985,962) (122,503,664) (14,390,752) (17,180,397)
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets
from capital share transactions (83,770,729) (118,115,930) 9,056,446 9,502,494
-------------- -------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 94,923,388 56,601,634 10,677,715 10,686,629
Net assets at beginning of year 1,042,343,673 985,742,039 106,538,959 95,852,330
-------------- -------------- ------------ ------------
Net assets at end of year $1,137,267,061 $1,042,343,673 $117,216,674 $106,538,959
============== ============== ============ ============
Net assets at end of year includes
accumulated undistributed
(distributions in excess of) net
investment income $ (145) $ -- $ 7,747,265 $ (28,233)
============== ============== ============ ============
* Audited by other Independent Registered Public Accounting Firm. (Note 11)
See notes to financial statements
30
Managed Assets Trust Money Market Portfolio
- ---------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2005 2004* 2005 2004*
- ---------------------------- -----------------------------
$ 6,080,973 $ 6,677,914 $ 9,449,445 $ 3,375,116
7,882,288 11,807,350 (214) 16
(3,633,959) 7,564,971 -- --
-- -- -- --
- ------------ ------------ ------------- -------------
10,329,302 26,050,235 9,449,231 3,375,132
- ------------ ------------ ------------- -------------
(45,070) (6,765,497) (9,449,445) (3,375,116)
(1,756,536) (2,452,309) -- --
- ------------ ------------ ------------- -------------
(1,801,606) (9,217,806) (9,449,445) (3,375,116)
- ------------ ------------ ------------- -------------
5,388,198 7,924,859 210,694,050 183,076,228
1,801,606 9,217,806 9,113,502 3,223,605
(35,479,366) (26,600,443) (186,351,355) (229,178,505)
- ------------ ------------ ------------- -------------
(28,289,562) (9,457,778) 33,456,197 (42,878,672)
- ------------ ------------ ------------- -------------
(19,761,866) 7,374,651 33,455,983 (42,878,656)
297,248,951 289,874,300 302,946,696 345,825,352
- ------------ ------------ ------------- -------------
$277,487,085 $297,248,951 $ 336,402,679 $ 302,946,696
============ ============ ============= =============
$ 6,084,024 $ 48,121 $ 7,965 $ 7,965
============ ============ ============= =============
See notes to financial statements
31
FINANCIAL HIGHLIGHTS
NET ASSET NET REALIZED/ DIVIDENDS DISTRIBUTIONS
VALUE UNREALIZED TOTAL FROM FROM NET FROM NET
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED
SELECTED PER SHARE DATA FOR THE YEAR ENDED: YEAR INCOME (LOSS) INVESTMENTS OPERATIONS INCOME CAPITAL GAINS
CAPITAL APPRECIATION FUND ------------ -------------- -------------- ---------- ---------- -------------
12/31/2005 $66.23 $ (0.04)(a) $ 12.09 (a) $ 12.05 $ -- $ --
12/31/2004++ 55.41 (0.09)(a) 10.91 (a) 10.82 -- --
12/31/2003++ 44.38 0.07 (a) 10.99 (a) 11.06 (0.03) --
12/31/2002++ 60.30 0.14 (a) (15.24)(a) (15.10) (0.81) --
12/31/2001++ 82.01 0.61 (a) (22.01)(a) (21.40) (0.31) --
- ------------------------------------- ------------ -------------- -------------- ---------- ---------- -------------
HIGH YIELD BOND TRUST ------------ -------------- -------------- ---------- ---------- -------------
12/31/2005 $ 9.91 $ 0.67 (a) $ (0.54)(a) $ 0.13 $ --+ $ --
12/31/2004++ 9.76 0.70 (a) 0.16 (a) 0.86 (0.70) (0.01)
12/31/2003++ 8.11 0.77 (a) 1.59 (a) 2.36 (0.71) --
12/31/2002++ 9.04 0.78 (a) (0.40)(a) 0.38 (1.31) --
12/31/2001++ 8.77 0.80 (a) 0.04 (a) 0.84 (0.57) --
- ------------------------------------- ------------ -------------- -------------- ---------- ---------- -------------
MANAGED ASSETS TRUST ------------ -------------- -------------- ---------- ---------- -------------
12/31/2005 $16.67 $ 0.36 (a) $ 0.27 (a) $ 0.63 $ --+ $(0.10)
12/31/2004++ 15.72 0.37 (a) 1.11 (a) 1.48 (0.39) (0.14)
12/31/2003++ 13.20 0.39 2.51 2.90 (0.38) --
12/31/2002++ 15.55 0.45 (1.79) (1.34) (0.92) (0.09)
12/31/2001++ 17.94 0.49 (a) (1.40)(a) (0.91) (0.46) (1.02)
- ------------------------------------- ------------ -------------- -------------- ---------- ---------- -------------
MONEY MARKET PORTFOLIO ------------ -------------- -------------- ---------- ---------- -------------
12/31/2005 $ 1.00 $ 0.03 (a) $ -- (a) $ 0.03 $(0.03) $ --
12/31/2004++ 1.00 0.01 (0.01) -- -- --
12/31/2003++ 1.00 0.008 (0.008) -- -- --
12/31/2002++ 1.00 0.014 (0.014) -- -- --
12/31/2001++ 1.00 0.036 (0.036) -- -- --
- ------------------------------------- ------------ -------------- -------------- ---------- ---------- -------------
* Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would have been lower.
Total returns do not reflect expenses associated with the separate account such
as administration fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all years shown.
+ Rounds to less than $0.005 per share
N/A Not Applicable
(a) Per share amounts based on average shares outstanding during the year.
(b) The adviser fully reimbursed the Fund for losses incurred resulting from
violations of the Fund's investment restrictions. Without this reimbursement,
the Fund's total return would have been 8.64%.
++ Audited by other Independent Registered Public Accounting Firm. (Note 11)
See notes to financial statements
32
RATIO OF RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT
NET ASSET NET ASSETS EXPENSES TO AVERAGE NET INCOME (LOSS)
RETURN OF TOTAL VALUE END END OF YEAR AVERAGE NET ASSETS BEFORE TO AVERAGE PORTFOLIO
CAPITAL DISTRIBUTIONS OF YEAR TOTAL RETURN* (IN MILLIONS) ASSETS REIMBURSEMENT NET ASSETS TURNOVER RATE
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
$-- $ -- $78.28 18.19% $1,137 0.78% 0.78% (0.06)% 30%
(0.00)+ -- 66.23 19.53 1,042 0.81 0.82 (0.15) 16
(0.01) (0.03) 55.41 24.91 986 0.82 0.82 0.14 59
-- (0.82) 44.38 (25.09) 864 0.84 0.84 0.27 52
-- (0.31) 60.30 (26.09) 1,300 0.84 0.84 0.91 47
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
$-- $ -- $10.04 1.32% $ 117 0.61% 0.61% 6.79% 103%
-- (0.71) 9.91 8.75(b) 107 0.60 0.63 7.08 79
-- (0.71) 9.76 29.15 96 0.65 0.65 8.28 80
-- (1.31) 8.11 4.57 61 0.71 0.71 8.81 100
-- (0.57) 9.04 9.55 50 0.73 0.73 8.79 110
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
$-- $(0.10) $17.20 3.84% $ 277 0.61% 0.61% 2.15% 56%
-- (0.53) 16.67 9.44 297 0.60 0.61 2.31 64
-- (0.38) 15.72 21.98 290 0.59 0.59 2.64 84
-- (1.01) 13.20 (8.60) 251 0.61 0.61 2.80 39
-- (1.48) 15.55 (5.08) 308 0.59 0.59 2.95 59
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
$-- $(0.03) $ 1.00 2.90% $ 336 0.40% 0.42% 2.87% N/A
-- -- 1.00 1.01 303 0.40 0.42 1.00 N/A
-- -- 1.00 0.78 346 0.40 0.42 0.78 N/A
-- -- 1.00 1.39 393 0.40 0.42 1.38 N/A
-- -- 1.00 3.71 353 0.40 0.42 3.46 N/A
- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
See notes to financial statements
33
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
1. ORGANIZATION
Capital Appreciation Fund ("CAF"), High Yield Bond Trust ("HYBT"), Managed
Assets Trust ("MAT") and Money Market Portfolio ("MMP") (collectively, the
"Funds") are each a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as diversified,
open-end management investment companies. Shares of the Funds are offered
exclusively for use with certain variable annuity and variable life insurance
contracts offered through the separate accounts of various affiliated life
insurance companies.
2. SIGNIFICANT ACCOUNTING POLICIES
The following are significant accounting policies consistently followed by the
Funds. These policies are in conformity with Accounting Principles generally
accepted in the United States, hereinafter referred to as 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 - Portfolio securities for which the primary market is
on a domestic or foreign exchange (except the NASDAQ) will be valued at the
last sale price on the day of valuation or, if there was no sale that day, at
the last reported bid price, using prices as of the close of trading. Portfolio
securities traded over-the-counter and quoted on NASDAQ are valued at the
NASDAQ Official Closing Price. Portfolio securities not quoted on NASDAQ that
are actively traded in the over-the-counter market, including listed securities
for which the primary market is believed to be over-the-counter, will be valued
at the most recently quoted bid price provided by the principal market makers.
Debt securities are valued at the mean between the bid and asked prices
provided by an independent pricing service that are based on transactions in
debt obligations, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities. When prices
are not readily available, or are determined not to reflect fair value, such as
when the value of a security has been significantly affected by events after
the close of the exchange or market on which the security is principally
traded, but before the Funds calculate their net asset value, the Funds may
value these investments at fair value as determined in accordance with the
procedures approved by the Funds' Boards of Trustees. For CAF, HYBT, and MAT,
short-term obligations with maturities of 60 days or less are valued at
amortized cost, which approximates fair market value. For MMP, money market
instruments are valued at amortized cost, in accordance with Rule 2a-7 under
the 1940 Act, which approximates fair market value. This method involves
valuing a portfolio security at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. MMP's use of amortized
cost is subject to its compliance with certain conditions as specified under
Rule 2a-7 of the 1940 Act.
B. REPURCHASE AGREEMENTS - When entering into repurchase agreements, it is the
Funds' policy that their custodian or a third party custodian takes possession
of the underlying collateral securities, the market 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 market 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. FINANCIAL FUTURES CONTRACTS - The Funds may enter into financial futures
contracts typically to hedge a portion of the portfolios. Upon entering into a
financial futures contract, the Funds are required to deposit cash or
securities as initial margin. Additional securities are also segregated up to
the current market value of the financial futures contracts. Subsequent
payments, known as variation margin, are made or received by the Funds each
day, depending on the daily fluctuation in the value of the underlying
financial instruments. The Funds recognize an unrealized gain or loss equal to
the daily variation margin. When the financial futures contracts are closed, a
realized gain or loss is recognized equal to the difference between the
proceeds from (or cost of) the closing transactions and the Funds' basis in the
contracts.
The risks associated with entering into financial 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 financial futures contracts involves the risk that the Funds could lose more
than the original margin deposit and subsequent payments required for a futures
transaction. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
D. FORWARD FOREIGN CURRENCY CONTRACTS - Certain Funds may enter into forward
foreign currency contracts to hedge against foreign currency exchange rate risk
on its non-US dollar denominated securities or to facilitate settlement of
foreign currency denominated portfolio transactions. 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. Forward foreign currency contracts involve elements of market
risk in excess of the amounts reflected in the Statements of Assets and
Liabilities. The Funds bear the risk of an unfavorable change in the foreign
exchange rate underlying the forward foreign currency contract. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on a trade date basis. Interest income, adjusted for amortization
of premium and accretion of discount, is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date.
34
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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. Dividend income on foreign
securities is recorded net of any applicable withholding tax. The cost of
investments sold is determined by use of the specific identification method.
F. FOREIGN CURRENCY TRANSLATION - Investment securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts based upon prevailing exchange rates on the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts based
upon prevailing exchange rates on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies, including gains and losses on forward foreign currency contracts,
currency gains or losses realized between the trade and settlement dates on
securities transactions and the difference between the amounts of dividends,
interest and foreign withholding taxes recorded on the Funds' books and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities, at the date of
valuation, resulting from changes in exchange rates.
G. DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment income for
CAF, HYBT and MAT, if any, are declared at least annually. Distributions from
net investment income on shares of MMP are declared each business day to
shareholders of record that day, and are paid on the last business day of the
month. Distributions of net realized gains to shareholders of the Funds, if
any, are declared at least annually. 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.
H. 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 ("the Code"), applicable to regulated investment companies.
Accordingly, the Funds intend to distribute substantially all of their taxable
income and net realized gains on investments, if any, to shareholders each
year. Therefore, no federal income tax provision is required in the Funds'
financial statements. It is also the Funds' policy to comply with the
diversification requirements of the Code so that variable annuity and variable
life contracts investing in a Fund will not fail to qualify as annuity and life
insurance contracts for tax purposes.
Distributions from net investment income and capital gains are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles. As a result, distributions from net investment
income and net realized capital gains may differ from their ultimate
characterization for federal income tax purposes due to timing differences that
relate to wash sales, treatment of passive foreign investment company marked to
market, and book/tax differences in premium amortization.
The Funds utilize the provisions of the federal income tax laws that provide
for the carryforward of capital losses for eight years, offsetting such losses
against any future net realized capital gains. At December 31, 2005, the
accumulated capital loss carryforwards and expiration dates by the Funds were
as follows:
Expiring Expiring Expiring Expiring Expiring
Portfolio 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 Total
- --------- ----------- ----------- ------------ ----------- ---------- ------------
Capital Appreciation Fund $66,292,199 $74,123,366 $104,924,615 $52,569,301 $ -- $297,909,481
High Yield Bond Trust -- -- -- -- -- --
Managed Assets Trust -- -- -- -- -- --
Money Market Portfolio -- 7,645 146 -- 228 8,019
I. RECLASSIFICATION - GAAP requires that certain components of net assets be
adjusted to reflect permanent differences between financial and tax reporting.
These reclassifications have no effect on net assets or net asset values per
share.
3. INVESTMENT RISK
HYBT invests in high-yield instruments that are subject to certain credit and
market risks. The yields of high-yield instruments reflect, among other things,
perceived credit risk. HYBT's investment in securities rated below investment
grade typically involve risks not associated with higher rated securities
including, among others, greater risk related to timely and ultimate payment of
interest and principal, greater market price volatility and less liquid
secondary market trading.
35
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
3. INVESTMENT RISK - CONTINUED
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
4. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS WITH AFFILIATES
Travelers Asset Management International Company LLC ("TAMIC") acts as
investment adviser to the Funds. TAMIC is a registered investment adviser that
has provided investment advisory services since its incorporation in 1978.
Effective July 1, 2005, TAMIC became an indirect wholly owned subsidiary of
MetLife, Inc. Prior to that date, TAMIC was an indirect wholly-owned subsidiary
of Citigroup, Inc. ("Citigroup"). Each Fund pays TAMIC an investment advisory
fee calculated daily and paid monthly at the annual rate of their respective
Fund's average daily net assets as follows:
Management Fees earned by
TAMIC for the Year ended
Portfolio December 31, 2005 % per annum Average Daily Assets
- --------- ------------------------- ----------- --------------------
Capital Appreciation Fund $7,347,893 0.65% First $1 Billion
0.60% Over $1 Billion
High Yield Bond Trust 501,713 0.50% First $50 Million
0.40% Over $50 Million to $150 Million
0.30% Over $150 Million to $250 Million
0.25% Over $250 Million
Managed Assets Trust 1,412,933 0.50% All
Money Market Portfolio 1,064,045 0.3233% First $100 Million
0.3233% Over $100 Million
TAMIC has entered into a sub-advisory agreement with TIMCO Asset Management,
Inc. ("TIMCO") (formerly The Travelers Investment Management Company), an
indirect wholly-owned subsidiary of Citigroup. Pursuant to the sub-advisory
agreement, TIMCO is responsible for the day-to-day portfolio operations and
investment decisions for the equity portion of MAT and is compensated for such
services by TAMIC at an annual rate of 0.30% of the average daily net assets of
MAT. On July 1, 2005, TAMIC entered into a subadvisory agreement with Salomon
Brothers Asset Management Inc. ("SaBAM"), an indirect wholly-owned subsidiary
of Legg Mason, Inc. Prior to December 1, 2005, SaBAM was an indirect
wholly-owned subsidiary of Citigroup. Pursuant to the sub-advisory agreement,
SaBAM is responsible for the day-to-day portfolio operations and investment
decisions for the fixed-income portion of MAT and is compensated for such
services by TAMIC at an annual rate of 0.25% of the average daily net assets of
MAT. Prior to July 1, 2005 the fixed-income portion of MAT was managed directly
by TAMIC without a subadviser.
TAMIC has also entered into a sub-advisory agreement with Janus Capital
Management LLC ("Janus"). Pursuant to the sub-advisory agreement, Janus is
responsible for the day-to-day portfolio operations and investment decisions
for CAF and is compensated for such services by TAMIC at an annual rate of the
Fund's average daily net assets as follows:
Average Daily Net Assets Sub Advisory Fee
------------------------ ----------------
First $50 Million 0.40%
$50 Million to $150 Million 0.375%
$150 Million to $750 Million 0.35%
$750 Million to $1 Billion 0.325%
Over $1 Billion 0.325%
36
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
4. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS WITH AFFILIATES - CONTINUED
On July 1, 2005, TAMIC entered into a sub-advisory agreement with SaBAM, an
indirect wholly-owned subsidiary of Legg Mason, Inc. Prior to December 1, 2005,
SaBAM was and indirect wholly-owned subsidiary of Citigroup. Pursuant to the
sub-advisory agreement, SaBAM is responsible for the day to day portfolio
operations and investment decisions for the HYBT, and MMP and is compensated
for such services by TAMIC. Prior to July 1, 2005, HYBT and MMP were managed
directly by TAMIC without a subadviser.
% per annum Average Daily Assets
- ----------- --------------------
High Yield Bond Trust 0.40% All
Money Market Portfolio 0.15% First $100 Million
0.075% Over $100 Million
The Travelers Insurance Company ("TIC"), an indirect wholly-owned subsidiary of
MetLife, acts as the Funds' administrator. As compensation for its services,
the Funds pay TIC an administration fee calculated at the annual rate of 0.06%
of each Fund's average daily net assets. The fee is calculated daily and paid
monthly.
Effective July 1, 2005, TIC entered into a sub-administrative service agreement
with State Street Bank and Trust Company ("State Street"), to serve as
sub-administrator to the Funds. Smith Barney Fund Management LLC ("SBFM")
served as sub-administrator to the Funds until June 30, 2005 and was paid a fee
calculated at an annual rate of 0.02% of the respective average daily net
assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of
each respective Fund's average daily net assets.
PFPC Inc. acts as the transfer agent for the Funds. Prior to July 1, 2005,
Citigroup Trust Bank, fsb. ("CTB"), a subsidiary of Citigroup, acted as the
Funds' transfer agent. For the year ended December 31, 2005, the Funds did not
pay transfer agent fees to CTB.
During the year ended December 31, 2005, the Funds had a contractual expense
limitation in place of 1.25% for MAT, HYBT and CAF and 0.40% for MMP. As a
result, TIC has agreed to reimburse MMP for certain expenses in the amount of
$81,761. This expense limitation is renewed annually and can be terminated at
any time by TIC with 60 days' notice.
During the year ended December 31, 2004, TAMIC reimbursed HYBT in the amount of
$75,068 for losses incurred resulting from violations of HYBT's investment
restrictions.
Prior to July 1, 2005, all officers and one Trustee of the Funds were employees
of Citigroup or its affiliates and did not receive compensation from the Funds.
5. INVESTMENTS
During the year ended December 31, 2005, the aggregate cost of purchases and
proceeds from sales of investments (excluding short-term investments) and U.S.
Government & Agency Obligations were as follows:
Purchase Sales
----------------------- -----------------------
Portfolio US Gov't Non-Gov't US Gov't Non-Gov't
--------- ---------- ------------ ---------- ------------
Capital Appreciation Fund -- $291,891,393 -- $415,216,921
High Yield Bond Trust -- 119,386,011 -- 105,400,151
Managed Assets Trust 53,949,967 100,301,638 50,037,011 126,825,221
At December 31, 2005, the aggregate gross unrealized appreciation and
depreciation of investments for federal income tax purposes were substantially
as follows:
Gross Gross Net Unrealized
Federal Income Unrealized Unrealized Appreciation/
Portfolio Tax Cost Appreciation Depreciation (Depreciation)
- --------- -------------- ------------ ------------ --------------
Capital Appreciation Fund $705,942,854 $436,716,422 $ (1,986,439) $434,729,983
High Yield Bond Trust 114,810,417 3,452,201 (2,990,228) 461,973
Managed Assets Trust 250,065,163 39,842,827 (13,348,182) 26,494,645
Money Market Portfolio 337,114,301 -- -- --
37
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
6. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the year ended December 31, 2005
and 2004 were as follows:
Long Term Long Term
Ordinary Income Ordinary Income Cap Gain Cap Gain
Portfolio 2005 2004 2005 2004 Total 2005 Total 2004
- --------- --------------- --------------- ---------- ---------- ---------- ----------
Capital Appreciation Fund $ -- $ -- $ -- $ -- $ -- $ --
High Yield Bond Trust 5,879 6,987,891 -- 65,843 5,879 7,053,734
Managed Assets Trust 45,070 6,765,497 1,756,536 2,452,309 1,801,606 9,217,806
Money Market Portfolio 9,449,445 3,375,116 -- -- 9,449,445 3,375,116
As of December 31, 2005, the components of distributable earnings (accumulated
losses) on a federal income tax basis were as follows:
Undistributed Undistributed Unrealized
Ordinary Long-Term Appreciation Loss Carryforward
Portfolio Income Gain (Depreciation) and Deferrals Total
- --------- ------------- ------------- -------------- ----------------- ------------
Capital Appreciation Fund $ -- $ -- $434,722,686 $(297,909,626) $136,813,060
High Yield Bond Trust 7,747,265 617,782 461,959 -- 8,827,006
Managed Assets Trust 6,698,506 7,614,448 26,494,647 -- 40,807,601
Money Market Portfolio 7,965 -- -- (8,019) (54)
7. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest. The shares of the Funds, with the exception of
MMP, are authorized and issued without par value. MMP shares are authorized and
issued with a par value of $0.10 per share. Transactions in shares of each Fund
were as follows:
SHARES ISSUED NET INCREASE
THROUGH (DECREASE)
BEGINNING SHARES DIVIDEND SHARES IN SHARES ENDING
SHARES SOLD REINVESTMENT REPURCHASED OUTSTANDING SHARES
CAPITAL APPRECIATION FUND ----------- ----------- ------------- ------------- ------------ -----------
12/31/2005 15,738,433 240,764 -- (1,450,575) (1,209,811) 14,528,622
12/31/2004 17,790,470 76,603 -- (2,128,640) (2,052,037) 15,738,433
- ------------------------- ----------- ----------- ------------- ------------- ------------ -----------
HIGH YIELD BOND TRUST ----------- ----------- ------------- ------------- ------------ -----------
12/31/2005 10,751,548 2,368,775 595 (1,450,935) 918,435 11,669,983
12/31/2004 9,819,304 1,945,067 712,609 (1,725,432) 932,244 10,751,548
- ------------------------- ----------- ----------- ------------- ------------- ------------ -----------
MANAGED ASSETS TRUST ----------- ----------- ------------- ------------- ------------ -----------
12/31/2005 17,832,560 322,952 108,990 (2,130,168) (1,698,226) 16,134,334
12/31/2004 18,436,722 494,356 553,631 (1,652,149) (604,162) 17,832,560
- ------------------------- ----------- ----------- ------------- ------------- ------------ -----------
MONEY MARKET PORTFOLIO ----------- ----------- ------------- ------------- ------------ -----------
12/31/2005 302,946,536 210,694,050 9,113,502 (186,351,355) 33,456,197 336,402,733
12/31/2004 345,825,208 183,076,228 3,223,605 (229,178,505) (42,878,672) 302,946,536
- ------------------------- ----------- ----------- ------------- ------------- ------------ -----------
8. ADDITIONAL INFORMATION
On May 31, 2005, the U.S. Securities and Exchange Commission ("SEC") issued an
order in connection with the settlement of an administrative proceeding against
Smith Barney Fund Management LLC ("SBFM") and Citigroup Global Markets Inc.
("CGMI") relating to the appointment of an affiliated transfer agent for the
Smith Barney family of mutual funds (the "Funds"), which included the Funds
("TL&A Funds") until July 1, 2005.
The SEC order finds that SBFM and CGMI willfully violated Section 206(1) of the
Investment Advisers Act of 1940 ("Advisers Act"). Specifically, the order finds
that SBFM and CGMI knowingly or recklessly failed to disclose to the Boards of
the Funds in 1999 when proposing a new transfer agent arrangement with an
affiliated transfer agent that First Data Investors Services Group ("First
Data"), the Funds' then-existing transfer agent, had offered to continue as
transfer agent and do the same work for substantially less money than before.
Additionally, the SEC order finds that Citigroup Asset Management ("CAM"), the
Citigroup business unit that includes each Fund's sub-administrator, SBFM, had
entered into a side
38
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
8. ADDITIONAL INFORMATION - CONTINUED
letter with First Data under which CAM agreed to recommend the appointment of
First Data as sub-transfer agent to the affiliated transfer agent in exchange,
among other things, for a guarantee by First Data of specified amounts of asset
management and investment banking fees to CAM and CGMI. The order also finds
that SBFM and CGMI willfully violated Section 206(2) of the Advisers Act by
virtue of the omissions discussed above and other misrepresentations and
omissions in the materials provided to the Funds' boards, including the failure
to make clear that the affiliated transfer agent would earn a high profit for
performing limited functions while First Data continued to perform almost all
of the transfer agent functions, and the suggestion that the proposed
arrangement was in the Funds' best interests and that no viable alternatives
existed. SBFM and CGMI do not admit or deny any wrongdoing or liability. The
settlement does not establish wrongdoing or liability for purposes of any other
proceeding.
The SEC censured SBFM and CGMI and ordered them to cease and desist from
violations of Sections 206(1) and 206(2) of the Advisers Act. The order
requires Citigroup to pay $208.1 million, including $109 million in
disgorgement of profits, $19.1 million in interest, and a civil money penalty
of $80 million. Approximately $24.4 million has already been paid to the Funds,
primarily through fee waivers. In addition, Travelers Life & Annuity and CAM
reviewed the adequacy and accuracy of the disclosure provided to the TL&A Fund
boards at the time the revised transfer agency arrangement was discussed with
the boards and concluded that the transfer agency fees paid to CTB, for the
period from June 1, 1999 to August 23, 2004, by the TL&A Funds that did not
have expense caps in effect should be reimbursed with interest to the TL&A
Funds. The reimbursement occurred on November 1, 2004.
The remaining $183.7 million to be paid under the SEC order, including the
penalty, has been paid to the U.S. Treasury and will be distributed pursuant to
a plan to be prepared by Citigroup and submitted within 90 days of the entry of
the order for approval by the SEC. The order also requires that transfer agency
fees received from the Funds since December 1, 2004 less certain expenses be
placed in escrow and provides that a portion of such fees may be subsequently
distributed in accordance with the terms of the order.
The order requires SBFM to recommend a new transfer agent contract to the Fund
boards within 180 days of the entry of the order.
At this time, there is no certainty as to how the proceeds of the settlement
will be distributed, to whom such distributions will be made, the methodology
by which such distributions will be allocated, and when such distributions will
be made. Although there can be no assurance, Citigroup does not believe that
this matter will have a material adverse effect on the Funds.
9. OTHER MATTERS
On July 1, 2005, MetLife, Inc., a Delaware corporation ("MetLife"), acquired
all of the outstanding shares of capital stock of certain indirect subsidiaries
held by Citigroup, including TIC, The Travelers Life and Annuity Company, a
wholly owned subsidiary of TIC and certain other domestic insurance companies
of Citigroup and substantially all of Citigroup's international insurance
businesses for $11.8 billion. The sale also included TIC's affiliated
investment adviser, TAMIC, which serves as the investment adviser to the Funds.
TIC filed a Form 8-K Current Report with The United States Securities and
Exchange Commission on July 8, 2005, with additional information about the
transaction.
On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup announced
that they had completed their previously announced transaction that resulted in
Legg Mason acquiring substantially all of Citigroup's asset management
business. As a result, SaBAM, which serves as subadviser to HYBT, MAT and MMP,
and TIMCO, which also serves as subadviser for MAT, has each become a
wholly-owned subsidiary of Legg Mason. Under the Investment Company Act of
1940, consummation of the transaction resulted in automatic termination of the
subadvisory agreements between SaBAM and TAMIC for HYBT, MAT and MMP, and TIMCO
and TAMIC for MAT.
10. REORGANIZATIONS
The following Fund reorganization was approved by the Board of Trustees of the
MMP on November 10, 2005. The reorganization will be presented to shareholders
on or about March 14, 2006. If approved by shareholders, the reorganization
will occur on or about May 1, 2006. The proposed reorganization provides for
the acquisition of all the assets of MMP in exchange for shares of BlackRock
Money Market Portfolio (a series of Metropolitan Series Fund, Inc.).
The following Fund reorganization was approved by the Board of Trustees of the
CAF on January 25, 2006. The reorganization will be presented to shareholders
on or about April 12, 2006. If approved by shareholders, the reorganization
will occur on or about May 1, 2006. The proposed reorganization provides for
the acquisition of all the assets of CAF in exchange for shares of Janus
Capital Appreciation Portfolio (a series of Met Investors Series Trust).
The following Fund reorganization was approved by the Board of Trustees of the
HYBT on January 25, 2006. The reorganization will be presented to shareholders
on or about April 12, 2006. If approved by shareholders, the reorganization
will occur on or about May 1, 2006. The proposed reorganization provides for
the acquisition of all the assets of HYBT in exchange for shares of Western
Asset Management High Yield Bond Portfolio (a series of Metropolitan Series
Fund, Inc.).
39
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
10. REORGANIZATIONS - CONTINUED
The following Fund reorganization was approved by the Board of Trustees of MAT
on January 25, 2006. The reorganization will be presented to shareholders on or
about April 12, 2006. If approved by shareholders, the reorganization will
occur on or about May 1, 2006. The proposed reorganization provides for the
acquisition of all the assets of MAT in exchange for shares of Legg Mason
Partners Managed Assets Portfolio (a series of Met Investors Series Trust).
11. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Based on the recommendation of the Audit Committee of the Funds, the Board of
Trustees determined not to retain KPMG LLP ("KPMG") as the Funds' Independent
Auditor, and voted to appoint Deloitte & Touche LLP as the Funds' Independent
Auditor for the fiscal year ended December 31, 2005, effective July 1, 2005.
During the two most recent fiscal years and through June 30, 2005, the date the
Board of Trustees notified KPMG of their decision not to retain them as the
Funds' auditor, KPMG's audit reports contained no adverse opinion or disclaimer
of opinion; nor were their reports qualified as to uncertainty, audit scope or
accounting principles. Further, there were no disagreements between the Funds
and KPMG on accounting principles, financial statements disclosure or audit
scope, which, if not resolved to the satisfaction of KPMG, would have caused
them to make reference to the disagreement in their reports.
12. SUBSEQUENT EVENT
Effective February 1, 2006, TIMCO employs a team approach to manage the equity
portion of MAT. The portfolio management team is dually employed by TIMCO and
Batterymarch Financial Management, Inc. ("Batterymarch"), 200 Clarendon Street,
Boston, Massachusetts 02116. Batterymarch was founded in 1969 and is a
subsidiary of Legg Mason, Inc. Batterymarch provides asset management services
to corporations, pension plans, mutual funds and trusts and as of December 31,
2005 manages approximately $15 billion of assets.
40
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of:
Capital Appreciation Fund,
High Yield Bond Trust,
Managed Assets Trust, and
Money Market Portfolio
(individually a "Fund" and collectively the "Funds")
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of the above referenced Funds, as of
December 31, 2005, and the related statements of operations, statements of
changes in net assets and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
statements of changes in net assets for the year ended December 31, 2004 and
the financial highlights for each of the four years in the period ended
December 31, 2004 were audited by other auditors whose report, dated February
18 2005, expressed an unqualified opinion on those statements.
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. The Funds are not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2005, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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 each
Fund as of December 31, 2005, the results of their operations, the changes in
their net assets and their financial highlights for the year ended December 31,
2005 in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Boston, Massachusetts
February 17, 2006
41
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
(UNAUDITED)
FACTORS CONSIDERED BY THE BOARDS OF TRUSTEES IN APPROVING THE INVESTMENT
ADVISORY AND THE SUBADVISORY AGREEMENTS
At an in person meeting on July 20, 2005, the Boards of Trustees, including the
Independent Trustees (together, the "Board") of CAP, HYBT, MAT, and MMP
approved the investment advisory agreements (the "Agreements") between TAMIC
and each Fund. In addition, the Board, at the in person meeting on July 20,
2005, approved the investment subadvisory agreements ("Subadvisory Agreements")
between TAMIC and Janus for CAF, between TAMIC and Salomon for HYBT, MAT and
MMP, and between TAMIC and TIMCO for MAT. In voting to approve the Agreements
and the Subadvisory Agreements, the Board considered whether the approval of
the Agreements and the Subadvisory Agreements would be in the best interests of
the Funds and their shareholders, an evaluation largely based on the nature and
quality of the services provided under the Agreements and the Subadvisory
Agreements and the overall fairness of the Agreement and the Subadvisory
Agreements to the shareholders.
As part of the process, legal counsel to the Funds requested certain
information from TAMIC and from Janus, Salomon and TIMCO (the "subadvisors"),
and in response such parties provided certain written and oral information to
the Board in its consideration of the Agreements and Subadvisory Agreements.
The Board did not identify any one factor, piece of information or written
document as all important or controlling, and each Board Member attributed
different weight to different factors. Prior to voting, the Board reviewed the
proposed continuance of the Agreements and the Subadvisory Agreements with
management and with experienced independent and fund counsel and received
materials from counsel discussing the legal standards for their consideration
of the proposed continuation of the Agreements and the Subadvisory Agreements.
The Independent Trustees also reviewed the proposed continuation of the
Agreements and the Subadvisory Agreements in private sessions alone and with
their independent counsel at which no representatives of management were
present. Based on an evaluation of all material factors including those
described below, the Board concluded that the Agreements and the Subadvisory
Agreements were reasonable and fair and in the best interest of the Funds and
their shareholders.
Specifically, the Board considered, among other factors: (a) the nature, extent
and quality of the services to be provided by TAMIC and the subadvisors under
the Agreements and the Subadvisory Agreements; (b) the investment performance
of the Funds; (c) the cost of services to be provided and the profit realized
by TAMIC and its affiliates; (d) the extent to which TAMIC and the subadvisors
realize economies of scale as each Fund grows; and (e) whether the fee levels
reflect these economies of scale for the benefit of the shareholders.
CONSIDERATIONS RELEVANT TO ALL FUNDS
With respect to the nature, scope and quality of the services to be provided by
TAMIC, the Board considered, and expressed its satisfaction with, the level and
depth of knowledge of TAMIC, including the professional experience and
qualifications of its personnel as well as current staffing levels and overall
resources. The Board also noted that TAMIC had been acquired by MetLife,
effective on July 1, 2005, and took into account the information that the Board
had received at earlier meetings in connection with its consideration of this
change in control of TAMIC. The Board also noted the responsibilities that
TAMIC has to the Funds, including oversight of the subadvisors' compliance with
Fund policies and objectives, review of brokerage matters, oversight of general
Fund compliance with federal and state laws, and the implementation of Board
directives as they relate to the Funds. Based on its consideration and review
of the foregoing information, the Board determined that the Funds were likely
to benefit from the nature and quality of these services, as well as TAMIC's
ability to render such services based on its experience, operations and
resources.
With respect to the nature, scope and quality of the services to be provided by
the subadvisors, the Board considered the level and depth of knowledge of each
subadvisor, including the professional experience and qualifications of their
personnel as well as current staffing levels and overall resources. The Board
also considered each subadvisor's management style and long-term performance
record with respect to each Fund; the subadvisor's financial condition; the
subadvisor's compliance systems and any disciplinary history. Based on its
consideration and review of the foregoing information, the Board determined
that the Funds were likely to benefit from the nature and quality of these
services, as well as the subadvisors' ability to render such services based on
their experience, operations and resources.
The Board also examined the fees paid by each Fund in light of fees paid to
other investment managers by comparable funds and the method of computing each
Fund's advisory and subadvisory fee. The Board considered the Funds' advisory
fees and total expenses as compared to investment companies deemed to be
comparable to the Funds as determined by an independent third party (the
"expense group"), as well as to a broader group of investment companies with
the same investment classification as each Fund, also as selected by the
independent third party. The Board also noted the overall expense limitations
that TAMIC has agreed to for the Funds. The Board noted that TAMIC's revenues,
and its resulting profitability, from each Fund is the difference between the
amount TAMIC receives from the Fund and what it pays to the subadvisor for that
Fund. The Board also considered that each Fund pays a separate fee to an
affiliate of TAMIC for administrative services performed or arranged for by
that affiliate. After comparing the fees with those of comparable funds as
described below and in light of the quality and extent of services to be
provided, the costs to be incurred by TAMIC and the subadvisors, and the other
factors considered, the Board concluded that the level of the fees paid to
TAMIC and each subadvisor with respect to each Fund was fair and reasonable.
The Board reviewed the Funds' performance record and TAMIC's and the
subadvisors' management styles and long-term performance records with the Funds
and comparable funds. The Board noted that it reviews on a quarterly basis
detailed information about the Funds' performance results and investment
strategies. The Board also reviewed various comparative performance data
provided to it in connection with its consideration of the renewal of the
Agreements and Subadvisory Agreements, including, among other information, a
comparison of each Fund's total return with its respective Lipper index and
with that of other mutual funds deemed to be comparable by an independent third
party in its report.
42
In terms of the profits realized by TAMIC from its relationship with the Funds,
the Board noted that it was satisfied that TAMIC's profits had not been
excessive in the past, and that it was not possible to predict how the recent
acquisition of TAMIC by MetLife would affect its future profitability. Because
the fees paid to the subadvisors are paid by TAMIC and not directly by the
Funds, the Board determined that the profitability of the subadvisors was not
material to the consideration of the Subadvisory Agreements. For similar
reasons, while the Board did consider whether subadvisory fee breakpoints were
in place for each Fund, the Board did not consider the potential economies of
scale in the subadvisors' management of the Funds to be a substantial factor in
its considerations.
The Board also considered the effect of the Funds' size and growth on their
performance and fees. The Board considered the effective fees under the
Agreement for each Fund as a percentage of assets at different asset levels and
possible economies of scale that may be realized if the assets of the Fund
grow. Specifically, the Board noted that if the Funds' assets increase over
time, the Funds may realize economies of scale if assets increase
proportionally more than certain expenses. The Board also considered the fact
that TAMIC pays subadvisory fees out of the advisory fees it receives from the
Funds.
The Board considered, among other data, the specific factors and related
conclusions set forth below with respect to each Fund.
CAPITAL APPRECIATION FUND
The Board noted that the performance of the Fund over both the short and long
term had been very good compared to similar funds. In light of certain legal
issues faced by Janus (among other mutual fund complexes) with respect to
market timing activity by fund shareholders, the Board expressed satisfaction
with the efforts Janus had been taking to prevent future legal and compliance
issues, but noted that such efforts should continue to be monitored by TAMIC.
The Board also requested that TAMIC monitor the financial health of Janus'
parent company as it relates to Janus' ability to provide services to the Fund.
The Board also noted that the Fund's actual advisory fees and total expenses
were near the median for its expense group, although the Fund's subadvisory
fees were somewhat above its subadviser expense group median. The Board further
considered that the advisory and subadvisory fees for the Fund had been reduced
during the past year, and that Janus had expressed willingness to agree to a
further reduction in subadvisory fees that could be passed on to shareholders
in a corresponding reduction of advisory fees, and requested that TAMIC pursue
such a fee reduction. In addition, the Board noted that the advisory and
subadvisory fees included breakpoints reducing such fees at higher asset levels
that were appropriate in light of the economies of scale involved in managing a
fund of the Fund's size.
HIGH YIELD BOND TRUST
The Board noted that the performance of the Fund had been very good compared to
similar funds, especially over the longer term. The Board also noted that the
Fund's advisory fees and total expenses were below the median of its expense
group and, while the Board was not provided with subadvisory fee information
for comparable funds, the Board concluded that the Fund's subadvisory fees were
reasonable in light of the quality and nature of services provided by Salomon.
The Board requested, however, that TAMIC monitor whether personnel changes at
Salomon relating to its pending acquisition by Legg Mason might harm the Fund.
The Board noted certain minor compliance problems that had occurred recently
with respect to the Fund, but concluded that the appropriate steps had been
taken to prevent these or similar problems from recurring. In addition, the
Board noted that the advisory fees included breakpoints reducing such fees at
higher asset levels that were appropriate in light of the economies of scale
involved in managing a fund of the Fund's size.
MANAGED ASSETS TRUST
The Board noted that the performance of the Fund had been above average
compared to similar funds over the three-, five- and ten-year time periods. The
Board also noted that the Fund's advisory fees and total expenses were below
the median of its expense group and, while the Board was not provided with
subadvisory fee information for comparable funds, the Board concluded that the
Fund's subadvisory fees were reasonable in light of the quality and nature of
services provided by Salomon and TIMCO. The Board requested, however, that
TAMIC monitor whether personnel changes at Salomon and TIMCO relating to their
pending acquisition by Legg Mason might harm the Fund. In addition, the Board
noted that the advisory and subadvisory fees did not include breakpoints
reducing such fees at higher asset levels, but concluded that breakpoints were
not necessary at the time in light of the Fund's relatively low advisory fees
and its current assets.
MONEY MARKET PORTFOLIO
The Board noted that the performance of the Fund had generally been above
average compared to similar funds. The Board also noted that the Fund's
advisory fees and total expenses were below the median of its expense group
and, while the Board was not provided with subadvisory fee information for
comparable funds, the Board concluded that the Fund's subadvisory fees were
reasonable in light of the quality and nature of services provided by Salomon.
The Board requested, however, that TAMIC monitor whether personnel changes at
Salomon relating to its pending acquisition by Legg Mason might harm the Fund.
In addition, the Board noted that the advisory fees did not include breakpoints
reducing such fees at higher asset levels, but noted that economies of scale
may be less pronounced, and therefore that breakpoints may be less common, for
money market fund than for other types of funds as fund assets increase.
CERTAIN MATTERS RELATING TO THE CAF, HYBT, MAT AND MMP On June 23, 2005,
Citigroup Inc., the parent company of SaBAM and TIMCO, agreed to sell
substantially all of its asset management business, including SaBAM and TIMCO,
to Legg Mason. SaBAM is the subadviser to the CAF, HYBT and MMP (collectively
the "Trusts") while both SaBAM and TIMCO are subadvisers to the MAT, and the
consummation of the aforementioned transactions would result in a change of
control of SaBAM and TIMCO and the automatic termination of the Trusts' and the
MAT's subadvisory agreements. In connection with the anticipated change of
control of SaBAM and TIMCO, the Boards approved new subadvisory agreements
between TAMIC and SaBAM for the Trusts and between TAMIC and both SaBAM and
TIMCO for the MAT at a special meeting of the Boards held on November 10, 2005.
In considering the new subadvisory agreements for the Trusts and the MAT, the
Boards met with representatives from SaBAM and TIMCO and received information
regarding the proposed transactions, Legg Mason and its asset management
affiliates, and Legg Mason's plans for SaBAM and TIMCO
43
after the closing of the transactions. In approving the new subadvisory
agreements, the Boards also took into consideration the factors they considered
at a joint meeting held on July 20, 2005, where the Boards approved the
previous subadvisory agreements with SaBAM and TIMCO, with respect to the
Trusts and the MAT. In addition to these factors, the Boards also considered:
. that the new subadvisory agreements are substantially similar to the
Trusts' and the MAT's previous subadvisory agreements; and
. the business, experience and reputation of Legg Mason and its asset
management affiliates and the prominence of the Legg Mason name in the
marketplace for investment advice.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees,
unanimously voted to approve the new subadvisory agreements between TAMIC and
SaBAM for the Trusts and between TAMIC and both SaBAM and TIMCO for the MAT.
44
TRUSTEES AND OFFICERS (UNAUDITED)
The Trustees and executive officers of the Funds, their ages and their
principal occupations during the past five years are set forth below. Each
Trustee who is deemed an "interested person," as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), is indicated by an
asterisk. Those Trustees who are not "interested persons" as defined in the
1940 Act are referred to as "Disinterested Trustees."
The Trustees
- ------------
Number of
Portfolios
in Fund Other Public
Position(s) Term of Office Complex Company
Held with and Length of Principal Occupation Overseen Directorships
Name Address and Age Funds Time Served During Last Five Years by Trustee** Held by Trustee
- -------------------- ------------- -------------- ---------------------------------------- ------------ ---------------
Interested Trustees
- -------------------
Elizabeth M. Forget* Chairperson Since July President, Met Investors Advisory LLC 67 None
260 Madison Ave. of the Board, 2005 (2000 to present); Executive Vice
10/th/ Floor Chief President (2000 to present) and Chief
New York, NY Executive Marketing Officer (2003 to present),
Age 39 Officer and MetLife Investors Group, Inc; President,
President TAMIC (July 2005-present); Senior Vice
President, Equitable Distributors, Inc.
and Vice President, Equitable Life
Assurance Society of the United States
(1996 to 2000).
Disinterested Trustees
- ----------------------
Robert E. McGill, III Trustee Since 1991 Retired manufacturing executive. 39 None
295 Hancock Street Director (1983-1995), Executive Vice
Williamstown, MA President (1989-1994) and Senior Vice
Age 74 President, Finance and Administration
(1983-1989), The Dexter Corporation
(manufacturer of specialty chemicals
and materials); Vice Chairman (1990-
1992), Director (1983-1995), Life
Technologies, Inc. (life science/
biotechnology products); Director,
(1994-1999), The Connecticut Surety
Corporation (insurance); Director
(1995-2000), Chemfab Corporation
(specialty materials manufacturer);
Director (1999-2001), Ravenwood
Winery, Inc.; Director (1999-2003),
Lydall Inc. (manufacturer of fiber
materials); Member, Board of Managers
(1974-present), six Variable Annuity
Separate Accounts of The Travelers
Insurance Company+; Trustee (1990-
present), five Mutual Funds sponsored
by The Travelers Insurance Company.++
45
TRUSTEES AND OFFICERS (UNAUDITED) - CONTINUED
Number of
Portfolios
in Fund Other Public
Position(s) Term of Office Complex Company
Held with and Length of Principal Occupation Overseen Directorships
Name Address and Age Funds Time Served During Last Five Years by Trustee Held by Trustee
- -------------------- ----------- -------------- ---------------------------------------- ---------- ------------------
Disinterested Trustees (cont.)
- ------------------------------
Lewis Mandell Trustee Since 1991 Professor of Finance and Managerial 39 Director
160 Jacobs Hall Economics, University at Buffalo since (2000-present),
Buffalo, NY 1998. Dean, School of Management Delaware North
Age 62 (1998-2001), University at Buffalo; Corp. (hospitality
Dean, College of Business business)
Administration (1995-1998), Marquette
University; Professor of Finance (1980-
1995) and Associate Dean (1993-
1995), School of Business
Administration, and Director, Center for
Research and Development in Financial
Services (1980-1995), University of
Connecticut; Member, Board of
Managers (1990-present), six Variable
Annuity Separate Accounts of The
Travelers Insurance Company+; Trustee
(1990-present), five Mutual Funds
sponsored by The Travelers Insurance
Company.++
Frances M. Hawk, Trustee Since 1991 Private Investor, (1997-present); 39 None
CFA, CFP Portfolio Manager (1992-1997), HLM
108 Oxford Hill Lane Management Company, Inc. (investment
Downingtown, PA management); Assistant Treasurer,
Age 57 Pensions and Benefits. Management
(1989-1992), United Technologies
Corporation (broad-based designer and
manufacturer of high technology
products); Member, Board of Managers
(1991-present), six Variable Annuity
Separate Accounts of The Travelers
Insurance Company+; Trustee (1991-
present), five Mutual Funds sponsored
by The Travelers Insurance Company.++
46
TRUSTEES AND OFFICERS (UNAUDITED) - CONTINUED
Number of
Portfolios
in Fund Other Public
Position(s) Term of Office Complex Company
Held with and Length of Principal Occupation Overseen Directorships
Name Address and Age Funds Time Served During Last Five Years by Trustee Held by Trustee
- -------------------- ------------- -------------- ---------------------------------------- ---------- ---------------
Officers
- --------
Paul Cellupica Secretary and Since July Chief Counsel, Securities Products and N/A N/A
MetLife, Inc. Chief Legal 2005 Regulation, MetLife, Inc. (2004-
One MetLife Plaza Officer present); Vice President and Chief Legal
27-01 Queens Plaza Officer, TAMIC (July 2005-present);
North Long Island City, Assistant Director, Division of
NY 11101 Investment Management, U.S. Securities
Age 41 and Exchange Commission (2001-
2003), Senior Special Counsel, Division
of Investment Management, Securities
and Exchange Commission (2000-
2001).
Peter Duffy Chief Since July Senior Vice President, MetLife Advisers, N/A N/A
MetLife Advisers LLC Financial 2005 since December 1998; Senior Vice
501 Boylston Street Officer and President; NELICO; Vice President,
Boston, MA 02116 Treasurer MetLife; Vice President, Travelers Asset
Age 50 Management International Company LLC
and Travelers Investment Adviser, Inc.,
since 2005; Treasurer and Chief
Financial Officer, Metropolitan Series
Fund, Inc., since 2000; Treasurer, Chief
Financial Officer and Chief Accounting
Officer, CitiStreet Funds, Inc., since
2005; formerly, Vice President and
Treasurer, Zenith Fund.
Jeffrey P . Halperin Interim Since Assistant Vice President, Corporate N/A N/A
Metropolitan Life Chief November Ethics and Compliance Department,
Insurance Company Compliance 2005 MetLife, Inc. (October 2002-present);
One MetLife Plaza Officer Interim Chief Compliance Officer of
27-01 Queens Plaza funds sponsored by MetLife and its
North Long Island City, affiliates (November 2005-present);
NY 11101 Associate, Goldman Sachs & Co.
Age 37 (May 2000-July 2001).
- --------
* "Interested person" of the Funds (as that term is defined in the 1940 Act).
Ms. Forget is an interested person of the Trust as a result of her
affiliation with TAMIC.
** The Fund Complex consists of 29 series of Met Investors Series Trust, six
variable annuity separate accounts and five mutual Funds. The six variable
annuity accounts and five mutual funds are referenced in the footnote below.
+ The six Variable Annuity Separate Accounts are: The Travelers Growth and
Income Stock Account for Variable Annuities, The Travelers Quality Bond
Account for Variable Annuities, The Travelers Money Market Account for
Variable Annuities, Tactical Growth and Income Stock Account for Variable
Annuities, Tactical Short-Term Bond Account for Variable Annuities and
Tactical Aggressive Stock Account for Variable Annuities.
++ The five Mutual Funds are: CAF, HYBT, MAT, MMP and The Travelers Series
Trust.
47
Capital Appreciation Fund, High Yield Bond Trust, Managed Assets Trust, and
Money Market Portfolio are each 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 Capital Appreciation Fund,
High Yield Bond Trust, Managed Assets Trust, Money Market Portfolio and is not
for use with the general public. All the funds contained in this report may not
be available under your variable annuity or life contract.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS
SHOULD CONSIDER THE FUNDS' INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION
ABOUT THE FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Funds' 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
SEC'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 1-800-842-9406.
Information on how the Funds voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 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 1-800-842-9406 and (2) on the SEC's website at www.sec.gov.
48
CAPITAL APPRECIATION FUND, HIGH YIELD BOND TRUST, MANAGED ASSETS TRUST, AND
MONEY MARKET PORTFOLIO
TRUSTEES
Elizabeth M. Forget*
CHAIRPERSON
Frances M. Hawk, CFA, CFP
Lewis Mandell
Robert E. McGill, III
OFFICERS*
Elizabeth M. Forget
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Peter H. Duffy
CHIEF FINANCIAL OFFICER AND TREASURER
Jeffrey Halperin
CHIEF COMPLIANCE OFFICER AND
CHIEF ANTI-MONEY LAUNDERING
COMPLIANCE OFFICER
Paul G. Cellupica
SECRETARY
Jack P. Huntington
ASSISTANT SECRETARY
* As of July 1, 2005
INVESTMENT MANAGER* AND ADVISERS
Travelers Asset Management International Company LLC
ADMINISTRATOR
Travelers Insurance Company
SUB-ADMINISTRATOR AND CUSTODIAN*
State Street Bank and Trust Company
TRANSFER AGENT*
PFPC Inc.
49
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, 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, or
persons performing similar functions, regardless of whether these individuals
are employed by the registrant or a third party (the "Code of Ethics"). During
the period covered by this report, no amendments were made to the provisions of
the Code of Ethics, nor did the registrant grant any waivers, including any
implicit waivers, from any provision of the Code of Ethics.
The Code of Ethics is attached hereto as Exhibit 12(a)(1).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Mr. 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.
Information provided in response to Item 4 includes amounts billed during the
applicable time period for services rendered by Deloitte & Touche LLP ("D&T"),
the registrant's principal accountant. KPMG LLP ("KPMG") was the registrant's
principal accountant for the fiscal year ended December 31, 2004. Information
provided in response to Item 4 for the fiscal year ended December 31, 2004
reflects amounts billed by KPMG.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal
accountant to the registrant for the audit of the registrant's annual financial
statements and for services normally provided by the accountant in connection
with statutory and regulatory filings or engagements were $25,000 for services
rendered by KPMG for the fiscal year ended December 31, 2004 and $24,000 for
services rendered by D&T for the fiscal year ended December 31, 2005.
(b) Audit Related Fees
The registrant was not billed any fees by KPMG for the fiscal year ended
December 31, 2004, for assurance and related services that were reasonably
related to the performance of the audit of the registrant's financial
statements.
The registrant was not billed any fees by D&T for the fiscal year ended
December 31, 2005 for assurance and related services that were reasonably
related to the performance of the audit of the registrant's financial
statements.
During the fiscal year ended December 31, 2004, no fees for assurance and
related services that relate directly to the operations and financial reporting
of the registrant were billed by KPMG to the registrant's investment adviser or
any other entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant.
During the fiscal year ended December 31, 2005, no fees for assurance and
related services that relate directly to the operations and financial reporting
of the registrant were billed by D&T to the registrant's investment adviser or
any other entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant.
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal
accountant to the registrant for tax compliance, tax advice, tax planning and
tax return preparation which include (the filing and amendment of federal,
state and local income tax returns, timely RIC qualification review and tax
distribution and analysis planning) were $2,100 for services rendered by KPMG
for the fiscal year ended December 31, 2004 and $3,250 for services rendered by
D&T for the fiscal year ended December 31, 2005.
During the fiscal year ended December 31, 2004, no fees for tax compliance, tax
advice or tax planning services that relate directly to the operations and
financial reporting of the registrant were billed by KPMG to the registrant's
investment adviser or any other entity controlling, controlled by, or under
common control with the investment adviser that provides ongoing services to
the registrant.
During the fiscal year ended December 31, 2005, no fees for tax compliance, tax
advice or tax planning services that relate directly to the operations and
financial reporting of the registrant were billed by D&T to the registrant's
investment adviser or any other entity controlling, controlled by, or under
common control with the investment adviser that provides ongoing services to
the registrant.
(d) All Other Fees
The registrant was not billed for any other products or services provided by
D&T for the fiscal year ended December 31, 2005 or KPMG for the fiscal year
ended December 31, 2004, other than the services reported in paragraphs
(a) through (c) above.
During the fiscal year ended December 31, 2004, no fees for other services that
relate directly to the operations and financial reporting of the registrant
were billed by KPMG to the registrant's investment adviser or any other entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant.
During the fiscal year ended December 31, 2005, no fees for other services that
relate directly to the operations and financial reporting of the registrant
were billed by D&T to the registrant's investment adviser or any other entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant.
(e) Pre-Approval Policies and Procedures
____________________________________
(1) The Audit Committee's pre-approval policies and procedures described in
paragraph (c) (7) of Rule 2-01 of Regulation S-X are set forth below.
The Charter for the Audit Committee (the "Committee") of the Board of the
registrant requires that the Committee shall approve (a) all audit and
permissible non-audit services to be provided to the registrant and (b) all
permissible non-audit services to be provided by the registrant's independent
auditors to the advisers and any Covered Service Providers if the engagement
relates directly to the operations and financial reporting of the registrant.
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
the 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 registrant by the independent
auditors, other than those provided to the registrant in connection with an
audit or a review of the financial statements of the registrant. Permissible
non-audit services may not include: (i) bookkeeping or other services related
to the accounting records or financial statements of the registrant;
(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 registrant, the advisers and any service providers
controlling, controlled by or under common control with the advisers that
provide ongoing services to the registrant ("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 registrant, (b) the advisers and (c) any
entity controlling, controlled by or under common control with the advisers
that provides ongoing services to the registrant 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
registrant 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) None of the services described under the categories, "Audit-Related Fees,"
"Tax Fees" or "All Other Fees," were approved by the audit committee pursuant
to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) Fees billed by KMPG for services rendered to the registrant and the
registrant's investment advisers and any entity controlling, controlled by, or
under common control with the investment advisers that provide ongoing services
to the registrant were $75,000 for the fiscal year ended December 31, 2004.
These fees were paid by Citigroup Global Markets, Inc. and related to the
transfer agent matter as fully described in the notes to the financial
statements titled "additional information" for the fiscal year ended
December 31, 2004.
The registrant and the registrant's investment advisers or any other entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant were not billed for any
aggregate non-audit fees by D&T for the fiscal year ended December 31, 2005.
(h) The registrant'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 KMPG's
or D&T's independence. All services provided by KMPG or D&T to the registrant
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. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as a part of the report to shareholders
filed under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant does not have procedures by which shareholders may recommend
nominees to the registrant's Board of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Within 90 days of the filing date of this Form N-CSR, Elizabeth M. Forget,
the registrant's President and Peter Duffy, the registrant's Chief Financial
Officer and Treasurer, reviewed 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")) (the "Procedures") and evaluated their
effectiveness. Based on their review, Ms. Forget and Mr. Duffy determined that
the Procedures adequately ensure that information required to be disclosed by
the registrant on Form N-CSR and Form N-Q is recorded, processed, summarized
and reported within the time periods required by the Securities and Exchange
Commission.
(b) There were no significant 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 second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) Code of Ethics is attached hereto.
(a)(2) The certifications required by Rule 30a-2(a) of the 1940 Act are
attached hereto.
(a)(3) Not applicable.
(b) The certifications required by Rule 30a-2(b) of the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
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, thereunto duly authorized.
MANAGED ASSETS TRUST
By: /s/ Elizabeth M. Forget
------------------------
Elizabeth M. Forget
President
Date: February 24, 2006
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/ Elizabeth M. Forget
------------------------
Elizabeth M. Forget
President
Date: February 24, 2006
By: /s/ Peter Duffy
------------------------
Peter Duffy
Chief Financial Officer
and Treasurer
Date: February 24, 2006