N-CSR 1 y05008anvcsr.txt CAPITAL APPRECIATION FUND 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 811-3429 CAPITAL APPRECIATION FUND (Exact name of registrant as specified in charter) 125 Broad Street, New York, NY 10004 (Address of principal executive offices) (Zip code) Robert I. Frenkel, Esq. Smith Barney Fund Management LLC 300 First Stamford Place Stamford, CT 06902 (Name and address of agent for service) Registrant's telephone number, including area code: (800) 451-2010 Date of fiscal year end: DECEMBER 31 Date of reporting period: DECEMBER 31, 2004 ITEM 1. REPORT TO STOCKHOLDERS. The Annual Report to Stockholders is filed herewith. ANNUAL REPORT DECEMBER 31, 2004 [UMBRTOP] [UMBRBTM] MANAGED ASSETS TRUST HIGH YIELD BOND TRUST CAPITAL APPRECIATION FUND MONEY MARKET PORTFOLIO THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO SOCIAL AWARENESS STOCK PORTFOLIO PIONEER FUND PORTFOLIO [TRAVELERS LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Cityplace Hartford, CT 06103 ANNUAL REPORT FOR MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- WHAT'S INSIDE LETTER FROM THE CHAIRMAN.................................... 1 MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND AND MONEY MARKET PORTFOLIO: MANAGER OVERVIEW, FUND AT A GLANCE AND PERFORMANCE COMPARISON (IF APPLICABLE): MANAGED ASSETS TRUST................................... 4 HIGH YIELD BOND TRUST.................................. 8 CAPITAL APPRECIATION FUND.............................. 12 MONEY MARKET PORTFOLIO................................. 16 FUND EXPENSES............................................... 18 SCHEDULES OF INVESTMENTS.................................... 20 STATEMENTS OF ASSETS AND LIABILITIES........................ 52 STATEMENTS OF OPERATIONS.................................... 53 STATEMENTS OF CHANGES IN NET ASSETS......................... 54 FINANCIAL HIGHLIGHTS........................................ 58 NOTES TO FINANCIAL STATEMENTS............................... 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 66 IMPORTANT TAX INFORMATION................................... 67 THE TRAVELERS SERIES TRUST - U.S. GOVERNMENT SECURITIES PORTFOLIO, SOCIAL AWARENESS STOCK PORTFOLIO AND PIONEER FUND PORTFOLIO: MANAGER OVERVIEW, FUND AT A GLANCE AND PERFORMANCE COMPARISON: U.S. GOVERNMENT SECURITIES PORTFOLIO................... 68 SOCIAL AWARENESS STOCK PORTFOLIO....................... 72 PIONEER FUND PORTFOLIO................................. 76 FUND EXPENSES............................................... 80 SCHEDULE OF INVESTMENTS..................................... 82 STATEMENTS OF ASSETS AND LIABILITIES........................ 95 STATEMENTS OF OPERATIONS.................................... 96 STATEMENTS OF CHANGES IN NET ASSETS......................... 97 FINANCIAL HIGHLIGHTS........................................ 100 NOTES TO FINANCIAL STATEMENTS............................... 102 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 108 IMPORTANT TAX INFORMATION................................... 109 ADDITIONAL INFORMATION...................................... 110
-------------------------------------------------------------------------------- LETTER FROM THE CHAIRMAN [R. JAY GERKEN PHOTO] R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer DEAR SHAREHOLDER, Despite sharply rising oil prices, threats of terrorism, geopolitical concerns and uncertainties surrounding the Presidential election, the U.S. economy continued to expand during the reporting period. Following a robust 4.5% gain in the first quarter of 2004, gross domestic product ("GDP")(i) growth was 3.3% in the second quarter of the year. This decline was largely attributed to higher energy prices. However, third quarter 2004 GDP rose a strong 4.0%. While fourth quarter GDP figures have not yet been released, continued growth is expected. Turning to the financial markets, stocks in both the U.S. and abroad rallied sharply during the fourth quarter of 2004, helping to produce solid gains for the year. With the uncertainty of the Presidential election behind them, coupled with falling oil prices, investors were drawn to the equity markets. The overall bond market also generated positive returns during the fiscal year. This was surprising to many, given the economic expansion and five interest rate hikes by the Federal Reserve Board ("Fed")(ii). Within this environment, the funds performed as follows: PERFORMANCE SNAPSHOT AS OF DECEMBER 31, 2004 (UNAUDITED)
6 MONTHS 12 MONTHS Managed Assets Trust 6.87% 9.44% S&P 500 Index 7.19% 10.87% Lehman Brothers Government/Credit Bond Index 4.39% 4.19% Lipper Variable Flexible Portfolio Funds Category Average 6.08% 8.25% High Yield Bond Trust 7.95% 8.75% Credit Suisse First Boston High Yield Index 9.25% 11.95% Lipper Variable High Current Yield Funds Category Average 8.73% 9.84% Capital Appreciation Fund 13.99% 19.53% S&P 500 Index 7.19% 10.87% Russell 2000 Index 10.83% 18.33% Lipper Variable Large-Cap Growth Funds Category Average 5.36% 8.04% U.S. Government Securities Portfolio 6.19% 6.13% Merrill Lynch U.S. Treasury/Agency Master Index 3.61% 3.42% Merrill Lynch U.S. Treasuries 15+ Years/Merrill Lynch Mortgage Master Index 6.24% 6.53% Lipper Variable General U.S. Government Funds Category Average 3.88% 3.92% Social Awareness Stock Portfolio 6.57% 6.23% S&P 500 Index 7.19% 10.87% Lipper Variable Specialty/Miscellaneous Funds Category Average 5.34% 7.82% Pioneer Fund Portfolio 9.13% 11.13% S&P 500 Index 7.19% 10.87% Lipper Variable Large-Cap Core Funds Category Average 6.18% 8.59%
1 PERFORMANCE SNAPSHOT AS OF DECEMBER 31, 2004 (CONTINUED) (UNAUDITED)
7-DAY 7-DAY CURRENT YIELD EFFECTIVE YIELD Money Market Portfolio 1.88% 1.89%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN ABOVE. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE AND INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE FIGURES OF THE MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, U.S. GOVERNMENT SECURITIES PORTFOLIO, SOCIAL AWARENESS PORTFOLIO, PIONEER STOCK PORTFOLIO MAY REFLECT REIMBURSEMENTS AND/OR FEE WAIVERS, WITHOUT WHICH THE PERFORMANCE WOULD HAVE BEEN LOWER. CURRENT REIMBURSEMENTS AND/OR FEE WAIVERS OF THE MONEY MARKET PORTFOLIO ARE VOLUNTARY, AND MAY BE REDUCED OR TERMINATED AT ANY TIME. ABSENT THESE REIMBURSEMENTS OR WAIVERS, PERFORMANCE WOULD HAVE BEEN LOWER. THE 7-DAY CURRENT YIELD WOULD HAVE BEEN 1.86% AND THE 7-DAY EFFECTIVE YIELD WOULD HAVE BEEN 1.87%. FUND RETURNS ASSUME THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AT NET ASSET VALUE AND THE DEDUCTION OF ALL FUND EXPENSES. Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2004 and include the reinvestment of dividends and capital gains, if any. Returns were calculated among the 79 funds for the six-month period and among the 78 funds for the 12-month period in the Variable Flexible Portfolio funds category. Returns were calculated among the 87 funds for the six-month period and among the 85 funds for the 12-month period in the Variable High Current Yield funds category. Returns were calculated among the 172 funds for the six-month period and among the 171 funds for the 12-month period in the Variable Large-Cap Growth funds category. Returns were calculated among the 56 funds for the six-month period and among the 56 funds for the 12-month period in the Variable General U.S. Government funds category. Returns were calculated among the 136 funds for the six-month period and among the 136 funds for the 12-month period in the Variable Specialty/Miscellaneous funds category. Returns were calculated among the 216 funds for the six-month period and among the 216 funds for the 12-month period in Variable Large-Cap Core funds category. Please read on for a more detailed look at prevailing economic and market conditions during the fund's fiscal year and to learn how those conditions have affected fund performance. INFORMATION ABOUT YOUR FUNDS As you may be aware, several issues in the mutual fund and variable product industry have recently come under the scrutiny of federal and state regulators. Travelers Life & Annuity and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees, revenue sharing, producer compensation and other mutual fund and variable product issues in connection with various investigations. The funds have been informed that Travelers Life & Annuity and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations. As previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup Asset Management ("CAM") and Citicorp Trust Bank ("CTB"), an affiliate of CAM, that the Staff is considering recommending a civil injunctive action and/or an administrative proceeding against CAM, CTB, the former CEO of CAM, two former employees and a current employee of CAM, relating to the creation, operation and fees of an internal transfer agent unit that serves various CAM-managed funds. Citigroup is cooperating with the SEC and will seek to resolve this matter in discussion with the SEC Staff. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. For further information, please see the "Additional Information" note in the Notes to the Financial Statements included in this report. 2 As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals. Sincerely, /s/ R. Jay Gerken R. Jay Gerken, CFA Chairman, President and Chief Executive Officer January 14, 2005 (i) Gross domestic product is a market value of goods and services produced by labor and property in a given country. (ii) The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. 3 MANAGER OVERVIEW MANAGED ASSETS TRUST SPECIAL SHAREHOLDER NOTICE Effective November 1, 2004, Mr. Gene Collins and Mr. Kurt Lin are responsible for the day-to-day management of the Fund. Mr. Collins is a Senior Vice President of Travelers Asset Management International Company LLC ("TAMIC"). Since 1986, he has been the Senior Portfolio Manager of the investment portfolios of Primerica Inc., the predecessor company of Citigroup Inc. Since 1998, Mr. Collins has also been the Senior Portfolio Manager of Primerica Life of Canada; a Canadian domiciled insurance company. Mr. Collins has 27 years of experience in investments covering all types of fixed income and equity securities. Mr. Lin is a Vice President of TAMIC and is responsible for managing US investment grade portfolios and structured products. He also trades corporate bonds, derivatives and currencies. Prior to joining TAMIC in 1997, Mr. Lin was the senior derivatives trader at Smith Barney. PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, Managed Assets Trust returned 9.44%. The fund outperformed its unmanaged benchmark, the Lehman Brothers Government/Credit Bond Index(i), which returned 4.19% for the same period. The fund underperformed its other unmanaged benchmark, the S&P 500 Index(ii), which returned 10.87% for the same period. It also outperformed its Lipper Variable Flexible Portfolio funds category average(2), which was 8.25%. ECONOMIC OVERVIEW The economic expansion entered its fourth year at the close of 2004. Led by strong consumer and business demand, the balance of growth was quite healthy. The employment picture improved during the year, as rising profits led to increased corporate willingness to hire new employees. Strong consumer and business fundamentals appear likely to continue into 2005 and consumer spending looks to strengthen further relative to last year. Inflation began to rise modestly in 2004 as shortages of certain goods and commodities developed around the world. In 2005, inflation pressures look to rise as healthy growth continues to improve corporate pricing power. The ongoing economic recovery and rising price pressures caused the Federal Reserve Board ("Fed")(iii) to institute a series of five 25 basis point(iv) rate hikes, beginning in mid-2004. This trend looks to continue well into 2005. OVERVIEW OF FUND'S EQUITY INVESTMENTS With improving earnings fundamentals, the equity portion of the fund performed well, particularly during the fourth quarter of the year. Energy stocks were among the biggest contributors to results, on the back of historically high oil prices and solid earnings. As investors began to focus their attention on higher quality stocks with solid dividends and strong cash flow, less-cyclical industries, such as foods, chemicals and building materials also realized substantial gains. The outcome of the presidential election removed some uncertainties surrounding the healthcare and defense industries. However, technology stocks were generally weak, despite an impressive start in January 2004. Concerns regarding terrorism, oil prices and weak profits also led to a significant decline in the auto and transportation sector, especially the airlines. In the next several weeks, as retail sales data from the holiday season trickles out, the equity market could potentially experience more volatility as investors reposition their portfolios for the new year. (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 78 funds in the fund's Lipper category, and excluding sales charges. 4 OVERVIEW OF FUND'S FIXED INCOME INVESTMENTS Our corporate security selection was the major driver of performance during the period, far exceeding the negative impact of a slight underweighting in the sector. In particular, the portfolio's utility, industrial and financial issues were the best performing industries in our portfolio. The next major driver of performance was our overweighting of mortgage-backed securities ("MBS") versus Treasuries in the benchmark. In anticipation of further curve flattening and higher yields, we shifted the portfolio's overall duration to short of the benchmark as a defensive measure. This adjustment added to returns over the period. From a corporate credit perspective, the portfolio's BBB-rated securities generated the best results. We believe the outlook for a sustained economic recovery should result in further improvement in corporate fundamentals and may result in some modest spread narrowing on selective issuers going forward. The prospect for a further reduction of credit risks makes credit products attractive relative to Treasuries in this environment. In the mortgage sector, MBS outperformed collateralized mortgage-backed securities ("CMBS"), asset-backed securities ("ABS") and Treasuries during the fiscal year. Our discount MBS generated the best total returns for both 15-year and 30-year maturities. Within the portfolio, our Federal National Mortgage Association(v) ("Fannie Mae") 30-year securities were the best performers. This was due to an increase in interest rates, yield curve flattening and a decline in volatility. Our overweighting in MBS versus agency securities also enhanced results. While our overweighting in CMBS was a negative versus MBS, it helped reduce our exposure to the short end of the yield curve. The portfolio's poorest performing sectors were MBS balloons (where the final loan payment is considerably higher than prior payments) and ABS, as both yield curve and spread changes of these securities led to underperformance. Thank you for your investment in the Managed Assets Trust. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ Gene Collins -s-Kurt Lin Gene C. Collins Kurt Lin Travelers Asset Management International Company LLC Travelers Asset Management International Company LLC
January 14, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five security type holdings (as a percentage of net assets) as of December 31, 2004 were: Common Stock (62.6%); Corporate Bonds and Notes (14.1%); U.S. Government Obligations (6.6%); Convertible Corporate Bonds (4.5%) and U.S. Government Agency Obligations (3.2%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The Lehman Government/Credit Bond Index is a broad-based bond index composed of government and corporate debt issues that are investment grade (rated Baa/BBB or higher). (ii) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. (iii) The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. (iv) A basis point is one one-hundredth (1/100 or 0.01) of one percent. (v) Federal National Mortgage Association obligations are securities consisting mostly of mortgages backed by the Federal Housing Administration. These obligations also include some mortgages that are not backed by the U.S. government. 5 -------------------------------------------------------------------------------- FUND AT A GLANCE -- MANAGED ASSETS TRUST (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT BREAKDOWN As a Percent of Total Investments (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Common Stock 62.80 62.20 Corporate Bonds and Notes 14.10 12.70 U.S. Government Obligations 6.60 7.50 Convertible Corporate Bonds 4.60 6.20 U.S. Government Agency Obligations 3.20 4.10 Collateralized Mortgage Obligations 2.40 1.50 Convertible Preferred Stock 2.20 3.20 Asset-Backed Securities 2.00 2.10 Repurchase Agreement 1.80 0.00 Sovereign Debt 0.20 0.20 U.S. Treasury Bills 0.10 0.30
6 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 9.44% Five Years Ended 12/31/04 2.64 Ten Years Ended 12/31/04 10.74 CUMULATIVE TOTAL RETURN ------------------------ Ten Years Ended 12/31/04 177.31%
This chart assumes an initial investment of $10,000 made on December 31, 1994, assuming reinvestment of dividends, through December 31, 2004. The Lehman Brothers Government/Credit Bond Index is a weighted composite of the Lehman Brothers Government Bond Index, which is a broad-based index of all public debt obligations of the U.S. Government and its agencies and has an average maturity of nine years and the Lehman Brothers Credit Bond Index, which is comprised of all public fixed-rate non-convertible investment grade domestic corporate debt, excluding collateralized mortgage obligations. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. [MANAGED ASSETS TRUST LINE GRAPH]
LEHMAN BROTHERS GOVERNMENT/CREDIT MANAGED ASSETS TRUST BOND INDEX CONSUMER PRICE INDEX S&P 500 INDEX -------------------- ----------------- -------------------- ------------- 12/94 10000 10000 10000 10000 12/95 12712 11925 10254 13753 12/96 14464 12270 10594 16910 12/97 17546 13467 10774 22550 12/98 21308 14743 10947 29031 12/99 24338 14097 11273 35137 12/00 23945 15767 11656 31939 12/01 22728 17109 11837 28145 12/02 20774 18997 12119 21926 12/03 25340 19884 12347 28213 12/04 27731 20718 12749 31279
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 7 -------------------------------------------------------------------------------- MANAGER OVERVIEW HIGH YIELD BOND TRUST PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, High Yield Bond Trust returned 8.75%. The fund underperformed its unmanaged benchmark, the Credit Suisse First Boston High Yield Index(i), which returned 11.95% for the same period. It also underperformed the Lipper Variable High Current Yield funds category average(2), which was 9.84%. MARKET/ECONOMIC OVERVIEW Improving credit quality, coupled with strong economic activity, low interest rates and supportive technical factors helped the high yield market sustain the momentum it generated in 2003 and again post double digit returns in 2004. The lowest rated issues within the non-investment grade universe, those rated CCC and below, outperformed again this year, as investors continued to seek higher yields. The fund's more conservative risk weightings and higher cash positions principally led to its underperformance during the fiscal year. CONTRIBUTORS TO PERFORMANCE Portfolio returns were positively impacted by the fund's holdings in chemicals and metals/steel, the best performing sectors in the high yield universe during 2004. These sectors' earnings benefited the most from the expanding economy and the resulting increase in volume and price, which more than offset energy and cost increases. Conversely, holdings in the cable and wireless telecommunication sectors negatively impacted the fund's returns. Cable valuations remained under pressure for most of 2004, driven by intense pricing competition, while rural wireless providers were negatively affected by the Cingular/AT&T Wireless merger. While we believe strong fundamentals and technicals will remain supportive of high yield in 2005, we remain cautious due to historically rich valuations. We are also wary of the potential impact of increased volatility in Treasury rates on the high yield asset class. Thank you for your investment in the High Yield Bond Trust. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, -s- Paul A. Mataras -s- David A. Nadeau Paul A. Mataras David A. Nadeau Travelers Asset Management International Travelers Asset Management International Company LLC Company LLC
January 14, 2005 (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 85 funds in the fund's Lipper category, and excluding sales charges. 8 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five industry holdings (as a percentage of net assets) as of December 31, 2004 were: Telecommunications (9.2%); Chemicals (7.3%); Repurchase Agreement (7.2%); Cable (7.2%) and Utilities (6.1%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The Credit Suisse First Boston High Yield Index is a market-weighted index that includes publicly traded bonds rated below BBB by S&P and Baa by Moody's. 9 -------------------------------------------------------------------------------- FUND AT A GLANCE -- HIGH YIELD BOND TRUST (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT BREAKDOWN As a Percent of Total Investments (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Telecommunications 9.2 6.8 Chemicals 7.4 7.4 Repurchase Agreement 7.3 18.1 Cable 7.3 7.9 Utilities 6.2 8.0 Gaming 6.0 4.8 Lodging & Leisure 5.1 5.6 Diversified 4.5 0.0 Healthcare 4.0 3.2 Energy 3.9 3.6 Industrial Products 3.5 3.1 Fabricated Glass, Plastic & Fiber 3.3 2.4 Retail 3.3 1.5 Building/Construction 3.3 1.6 Paper/Forestry Products 3.0 3.4 Printing/Publishing 2.9 2.5 Metal/Mining 2.9 2.4 Automotive 0.9 3.6 Other 16.0 14.1
10 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 8.75% Five Years Ended 12/31/04 10.19 Ten Years Ended 12/31/04 10.94 CUMULATIVE TOTAL RETURN ------------------------ Ten Years Ended 12/31/04 182.34%
This chart assumes an initial investment of $10,000 made on December 31, 1994, assuming reinvestment of dividends, through December 31, 2004. The Credit Suisse First Boston High Yield Index is a broad-based market measure of high-yield bonds, commonly known as "junk bonds." The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [HIGH YIELD BOND TRUST LINE GRAPH]
CREDIT SUISSE FIRST BOSTON HIGH YIELD BOND TRUST CONSUMER PRICE INDEX HIGH YIELD INDEX --------------------- -------------------- -------------------------- 12/94 10000 10000 10000 12/95 11547 10254 11868 12/96 13400 10594 13140 12/97 15619 10773 14800 12/98 16643 10946 14843 12/99 17379 11273 15503 12/00 17547 11655 14967 12/01 19224 11836 15836 12/02 20103 12118 16327 12/03 25963 12346 20889 12/04 28234 12749 23385
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 11 -------------------------------------------------------------------------------- MANAGER OVERVIEW CAPITAL APPRECIATION FUND SPECIAL SHAREHOLDER NOTICE The Board of Trustees of the trust, on behalf of Capital Appreciation Fund approved an amendment to the investment advisory agreement between the fund and Travelers Asset Management International Company LLC. Effective September 1, 2004, the investment advisory fee was revised from the annual rate of 0.75% of the daily net assets of the fund, to a fee calculated at an annual rate in accordance with the following schedule:
INVESTMENT AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ First $1.5 billion.......................................... 0.700% Over $1.5 billion........................................... 0.650%
PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, Capital Appreciation Fund returned 19.53%. The fund outperformed its unmanaged benchmarks, the S&P 500 Index(i) and the Russell 2000 Index(ii), which returned 10.87% and 18.33%, respectively, for the same period. The fund also outperformed its Lipper Variable Large-Cap Growth funds category average(2), which was 8.04%. Golfing great Ben Hogan once said, "The greatest pleasure is obtained in improving." I think Mr. Hogan was right; we take great pleasure in sharing with you your fund's improving results. Among the reasons the fund significantly outperformed the S&P 500 Index was our decision to maintain overweight positions in the consumer discretionary and information technology sectors. In addition, the exceptionally strong results posted by a number of our holdings in these two groups boosted returns. Weaker areas of investment included industrials and telecommunications services, where select fund holdings experienced setbacks. I credit the fund's impressive metrics to the outstanding quality and depth of the investment research performed by our analysts. Their work has given us the confidence to invest early and with conviction in some of our best ideas. In fact, our investments in strong performers such as APPLE COMPUTER, INC., EBAY INC. and UNITEDHEALTH GROUP INC., among others, are the result of long-term investment commitments. CONTRIBUTORS TO PERFORMANCE Our investment in Apple Computer, Inc. was the strongest contributor to performance during the period. Apple recently launched one of its most elegant products to date, the new G5 iMac. The early reviews have been overwhelmingly positive and we expect this to be an important product for the company. More importantly, Apple's wildly successful iPod music player continues to be the music-listening device of choice and sales continue to exceed most investors' expectations. Another strong-performing position in the fund was eBay Inc. Its management team, the sheer financial power of its business model and the global proliferation of the "eBay economy" have all continued to impress us. The eBay trading platform is well on its way to enabling the buying and selling of products worldwide with a gross merchandise value ("GMV") in excess of $34 billion dollars. Ebay's own revenues from those sales were in excess of $2.5 billion this year and we expect both to grow rapidly again next year. To give you an idea of the velocity of trade on eBay, a car is sold every six minutes, a digital camera is sold every 14 minutes and a piece of jewelry every eight minutes. Today, over 430,000 people are making a living buying and selling on eBay. Finally, we continue to be impressed with eBay's entire management team and their ability to guide the company's explosive growth. (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 171 funds in the fund's Lipper category, and excluding sales charges. 12 Investing in the managed care sector is not for the faint of heart; very few issues are as highly charged as healthcare. But, as consumers become increasingly responsible for the first dollars spent on their healthcare needs, it's clear to us that UnitedHealth Group Inc. is winning in the marketplace. The company's flexible plan designs, along with its increasing focus on making healthcare more affordable for larger and larger segments of the population, are a powerful financial combination. Janus' healthcare team continues to do an outstanding job monitoring medical and financial trends as well as anticipating the changes in this emotionally charged space. We continue to have the utmost confidence in Bill Maguire, Steve Hemsley and the entire UnitedHealth management team. Not all of our investments have met our expectations. Drugmaker FOREST LABORATORIES, INC. was a poor performer. While the stock will be faced with some issues over the next several quarters, including product competition and generic challenges to key drugs, we believe that the worst is priced into the stock and have maintained our stake for now. Meanwhile, we liquidated our position in NVIDIA CORP., a stock that was among our biggest detractors. While we like the longer-term prospects for graphic-intensive semiconductor manufacturers, we feel that better opportunities lie elsewhere. We are very pleased with the fund's continued improvement but recognize there is more work to be done. Our investment staff, while gratified, is certainly not satisfied. We can continue to improve and I am confident we will. As the fund's portfolio manager, I remain committed to further repairing the financial fortunes of the shareholders who have had the fortitude to stay invested in the fund and who have hopefully kept investing along the way. Thank you for your investment in the Capital Appreciation Fund. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, Scott Schoelzel Janus Capital Management LLC January 18, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: UnitedHealth Group Inc. (9.8%), Apple Computer (6.7%), Murphy Oil Corp. (6.5%), Electronic Arts Inc. (5.9%), eBay Inc. (5.7%), XM Satellite Radio Holdings Inc., Class A Shares (5.7%), Genentech Inc. (5.4%), Nike Inc., Class B Shares (5.1%), Wells Fargo & Co. (4.2%) and Nextel Communications Inc., Class A Shares (3.8%). Please refer to pages 47 through 49 for a list and percentage breakdown of the fund's holdings. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Consumer Discretionary (23.6%); Healthcare (21.8%); Information Technology (19.0%); Financials (15.1%) and Energy (7.8%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. (ii) The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. 13 -------------------------------------------------------------------------------- FUND AT A GLANCE -- CAPITAL APPRECIATION FUND (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT BREAKDOWN As a Percent of Total Investments (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Consumer Discretionary 23.40 20.30 Healthcare 21.70 22.70 Information Technology 18.90 23.80 Financials 15.10 13.60 Energy 7.80 7.10 Industrials 4.70 4.70 Telecommunication Services 3.80 5.40 Repurchase Agreement 4.60 2.20 U.S. Government Obligations 0.00 0.20
14 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/04 -- (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 19.53% Five Years Ended 12/31/04 (8.37) Ten Years Ended 12/31/04 13.46 CUMULATIVE TOTAL RETURN -------------------------------------------- Ten Years Ended 12/31/04 253.40%
This chart assumes an initial investment of $10,000 made on December 31, 1994, assuming reinvestment of dividends, through December 31, 2004. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitaled U.S. domiciled companies with less than average growth orientation whose common stock is traded in the United States on the New York Stock Exchange, American Stock Exchange and NASDAQ. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [CAPITAL APPRECIATION FUND LINE GRAPH]
CAPITAL APPRECIATION FUND S&P 500 INDEX RUSSELL 2000 INDEX CONSUMER PRICE INDEX -------------------- ------------- ------------------ -------------------- 12/94 10000 10000 10000 10000 12/95 13637 13753 12846 10254 12/96 17483 16910 14965 10594 12/97 22054 22550 18312 10773 12/98 35645 29031 17847 10946 12/99 54720 35137 21638 11273 12/00 42749 31939 20985 11655 12/01 31597 28145 21524 11836 12/02 23670 21926 17115 12118 12/03 29567 28213 25202 12346 12/04 35340 31279 29822 12749
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 15 -------------------------------------------------------------------------------- MANAGER OVERVIEW MONEY MARKET PORTFOLIO PERFORMANCE UPDATE(I) As of December 31, 2004, the seven-day current yield for Money Market Portfolio was 1.88% and its seven-day effective yield, which reflects compounding, was 1.89%(ii). These yields include both a voluntary waiver and expense reimbursement pursuant to an expense limitation agreement. Absent both the voluntary waiver and expense reimbursement, the seven-day current yield would have been 1.86% and the seven-day effective yield would have been 1.87%. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE FUND'S YIELDS WILL VARY. In addition, your investment is neither insured nor guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. MARKET/ECONOMIC OVERVIEW As the reporting period began, short term interest rates were at a four decade low. However, as expected, short-term yields moved markedly higher in 2004. This was due to continued broad based improvements in the economy and five interest rate hikes by the Federal Reserve Board ("Fed")(iii). After solid gains during the first three quarters of the year, fourth quarter gross domestic product ("GDP")(iv) is widely expected to mirror the 4% gain experienced in the third quarter of 2004. The labor markets continued to show improvement over the period and oil prices, after rising sharply to record highs in October 2004, reversed course toward the end of the period as forecasted warmer weather and increased reserves brought prices lower. We believe that lower oil prices should help lessen the negative impact to consumers and businesses in the coming months. Overall, inflation remains contained, but it is rising modestly at the core level. CONTRIBUTORS TO PERFORMANCE Throughout much of the reporting period, we remained cautious in our maturity stance for the fund. This strategy was used as we anticipated more attractive extension opportunities in the rising interest rate environment. We believe money market yields should continue to rise as the Fed moves short-term interest rates towards a more neutral policy level. Thank you for your investment in the Money Market Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ Emil Molinaro, Jr. /s/ Michele Mirabella Emil Molinaro, Jr. Michele Mirabella, CFA Portfolio Manager Portfolio Manager
January 13, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (ii) The seven-day effective yield is calculated similarly to the seven-day current yield, but when annualized, the income earned by an investment in the fund is assumed to be reinvested. The effective yield typically will be slightly higher than the current yield because of the compounding effect of the assumed reinvestment. (iii) The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. (iv) Gross domestic product is a market value of goods and services produced by labor and property in a given country. 16 -------------------------------------------------------------------------------- FUND AT A GLANCE -- MONEY MARKET PORTFOLIO (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT BREAKDOWN As a Percent of Total Investments (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Commercial Paper 94.7 90.3 Foreign Certificates of Deposit 3.7 0.0 U.S. Government Obligations and Agencies 1.6 9.7
17 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) EXAMPLE As a shareholder of the Funds, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. This example is based on an investment of $1,000 invested on July 1, 2004 and held for the six months ended December 31, 2004. ACTUAL EXPENSES The table below titled "Based on Actual Total Return" provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During the Period". -------------------------------------------------------------------------------- BASED ON ACTUAL TOTAL RETURN(1)
EXPENSES BEGINNING ENDING ANNUALIZED PAID ACTUAL TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE RETURN(2) VALUE VALUE RATIO PERIOD(3) ------------------------------------------------------------------------------------------------------------------ Managed Assets Trust........................ 6.87% $1,000.00 $1,068.70 0.59% $3.07 ------------------------------------------------------------------------------------------------------------------ High Yield Bond Trust....................... 7.95 1,000.00 1,079.50 0.56 2.93 ------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund................... 13.99 1,000.00 1,139.90 0.79 4.25 ------------------------------------------------------------------------------------------------------------------ Money Market Portfolio...................... 0.67 1,000.00 1,006.70 0.40 2.02 ------------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Assumes reinvestment of dividends and capital gain distributions, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (3) Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. 18 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. -------------------------------------------------------------------------------- BASED ON HYPOTHETICAL TOTAL RETURN(1)
HYPOTHETICAL EXPENSES ANNUALIZED BEGINNING ENDING ANNUALIZED PAID TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE RETURN VALUE VALUE RATIO PERIOD(2) ----------------------------------------------------------------------------------------------------------------- Managed Assets Trust.......................... 5.00% $1,000.00 $1,022.17 0.59% $3.00 ----------------------------------------------------------------------------------------------------------------- High Yield Bond Trust......................... 5.00 1,000.00 1,022.32 0.56 2.85 ----------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund..................... 5.00 1,000.00 1,021.17 0.79 4.01 ----------------------------------------------------------------------------------------------------------------- Money Market Portfolio........................ 5.00 1,000.00 1,023.13 0.40 2.03 -----------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. 19 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCK -- 62.6% ----------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 10.0% AUTOMOBILES -- 0.8% 56,008 Ford Motor Co. ............................................. $ 819,957 22,840 General Motors Corp. ....................................... 914,970 10,588 Harley-Davidson, Inc. ...................................... 643,221 ----------------------------------------------------------------------------------------------------- 2,378,148 ----------------------------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE -- 1.1% 10,356 Carnival Corp. ............................................. 596,816 12,840 Marriott International, Inc., Class A Shares................ 808,663 35,306 McDonald's Corp. ........................................... 1,131,910 6,609 Starbucks Corp. (a)......................................... 412,137 3,024 Starwood Hotels & Resorts Worldwide, Inc. .................. 176,602 4,703 Yum! Brands, Inc. .......................................... 221,888 ----------------------------------------------------------------------------------------------------- 3,348,016 ----------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 0.5% 1,444 The Black & Decker Corp. ................................... 127,549 9,630 Fortune Brands, Inc. ....................................... 743,243 8,282 Pulte Homes, Inc. .......................................... 528,392 ----------------------------------------------------------------------------------------------------- 1,399,184 ----------------------------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL -- 0.4% 11,137 eBay Inc. (a)............................................... 1,295,010 ----------------------------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS -- 0.2% 16,328 Eastman Kodak Co. .......................................... 526,578 ----------------------------------------------------------------------------------------------------- MEDIA -- 2.7% 38,849 Comcast Corp., Class A Shares (a)........................... 1,292,895 20,086 Fox Entertainment Group, Inc., Class A Shares (a)........... 627,888 8,056 Gannett Co., Inc. .......................................... 658,175 8,230 Lamar Advertising Co., Class A Shares (a)................... 352,079 30,427 News Corp., Class A Shares.................................. 567,768 76,286 Time Warner Inc. (a)........................................ 1,483,000 16,201 Univision Communications Inc., Class A Shares (a)........... 474,203 29,025 Viacom Inc., Class B Shares................................. 1,056,220 58,696 The Walt Disney Co. ........................................ 1,631,749 ----------------------------------------------------------------------------------------------------- 8,143,977 ----------------------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 1.6% 7,819 Costco Wholesale Corp. ..................................... 378,518 4,483 Federated Department Stores, Inc. .......................... 259,073 4,844 Target Corp. ............................................... 251,549 72,020 Wal-Mart Stores, Inc. ...................................... 3,804,096 ----------------------------------------------------------------------------------------------------- 4,693,236 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 2.2% 2,060 AutoZone, Inc. (a).......................................... $ 188,099 11,079 Best Buy Co., Inc. ......................................... 658,314 16,588 Borders Group, Inc. ........................................ 421,335 5,517 GameStop Corp., Class B Shares (a).......................... 123,636 15,011 The Gap, Inc. .............................................. 317,032 57,789 The Home Depot, Inc. ....................................... 2,469,902 16,784 Limited Brands.............................................. 386,368 6,851 Lowe's Cos., Inc. .......................................... 394,549 28,518 Staples, Inc. .............................................. 961,342 25,629 Toys "R" Us, Inc. (a)....................................... 524,626 ----------------------------------------------------------------------------------------------------- 6,445,203 ----------------------------------------------------------------------------------------------------- TEXTILES & APPAREL -- 0.5% 2,525 Jones Apparel Group, Inc. .................................. 92,339 13,925 Nike, Inc., Class B Shares.................................. 1,262,858 ----------------------------------------------------------------------------------------------------- 1,355,197 ----------------------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 29,584,549 ----------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 4.3% BEVERAGES -- 1.5% 3,843 Anheuser-Busch Cos., Inc. .................................. 194,955 4,432 Brown-Forman Corp., Class B Shares.......................... 215,750 49,773 The Coca-Cola Co. .......................................... 2,072,050 7,645 Coca-Cola Enterprises Inc. ................................. 159,398 34,384 PepsiCo, Inc. .............................................. 1,794,845 ----------------------------------------------------------------------------------------------------- 4,436,998 ----------------------------------------------------------------------------------------------------- FOOD & DRUG RETAILING -- 0.2% 19,883 Walgreen Co. ............................................... 762,911 ----------------------------------------------------------------------------------------------------- FOOD PRODUCTS -- 0.7% 41,549 Archer-Daniels-Midland Co. ................................. 926,958 6,026 Hormel Foods Corp. ......................................... 188,915 3,549 Kellogg Co. ................................................ 158,498 36,154 Sara Lee Corp. ............................................. 872,758 ----------------------------------------------------------------------------------------------------- 2,147,129 ----------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 1.1% 5,750 Colgate-Palmolive Co. ...................................... 294,170 8,611 Kimberly-Clark Corp. ....................................... 566,690 44,556 The Procter & Gamble Co. ................................... 2,454,144 ----------------------------------------------------------------------------------------------------- 3,315,004 ----------------------------------------------------------------------------------------------------- PERSONAL PRODUCTS -- 0.1% 8,411 The Gillette Co. ........................................... 376,645 ----------------------------------------------------------------------------------------------------- TOBACCO -- 0.7% 34,569 Altria Group, Inc. ......................................... 2,112,166 ----------------------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES...................................... 13,150,853 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- ENERGY -- 4.3% ENERGY EQUIPMENT & SERVICES -- 0.6% 8,383 Baker Hughes Inc. .......................................... $ 357,703 7,077 Halliburton Co. ............................................ 277,701 11,645 Schlumberger Ltd. .......................................... 779,633 7,657 Transocean Inc. (a)......................................... 324,580 ----------------------------------------------------------------------------------------------------- 1,739,617 ----------------------------------------------------------------------------------------------------- OIL & GAS -- 3.7% 5,200 Anadarko Petroleum Corp. ................................... 337,012 15,000 Burlington Resources Inc. .................................. 652,500 36,690 ChevronTexaco Corp. ........................................ 1,926,592 11,958 ConocoPhillips.............................................. 1,038,313 5,596 Devon Energy Corp. ......................................... 217,796 110,004 Exxon Mobil Corp. .......................................... 5,638,805 11,117 Marathon Oil Corp. ......................................... 418,110 6,700 Occidental Petroleum Corp. ................................. 391,012 2,778 Sunoco, Inc. ............................................... 226,991 6,578 Valero Energy Corp. ........................................ 298,641 ----------------------------------------------------------------------------------------------------- 11,145,772 ----------------------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 12,885,389 ----------------------------------------------------------------------------------------------------- FINANCIALS -- 12.6% BANKS -- 3.6% 91,138 Bank of America Corp. ...................................... 4,282,575 69 First Horizon National Corp. ............................... 2,975 7,512 KeyCorp..................................................... 254,657 6,425 Marshall & Ilsley Corp. .................................... 283,985 23,293 National City Corp. ........................................ 874,652 17,970 U.S. Bancorp................................................ 562,820 37,249 Wachovia Corp. ............................................. 1,959,297 4,665 Washington Mutual, Inc. .................................... 197,236 34,645 Wells Fargo & Co. .......................................... 2,153,187 ----------------------------------------------------------------------------------------------------- 10,571,384 ----------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 5.5% 31,011 American Express Co. (b).................................... 1,748,090 12,680 The Bear Stearns Cos. Inc. ................................. 1,297,291 14,913 Capital One Financial Corp. ................................ 1,255,824 29,036 Countrywide Financial Corp. ................................ 1,074,622 21,564 Fannie Mae.................................................. 1,535,572 11,446 Freddie Mac................................................. 843,570 14,428 The Goldman Sachs Group, Inc. .............................. 1,501,089 78,119 JPMorgan Chase & Co. ....................................... 3,047,422 10,548 Lehman Brothers Holdings Inc. .............................. 922,739 7,113 MBNA Corp. ................................................. 200,516 13,422 Merrill Lynch & Co., Inc. .................................. 802,233 23,469 Morgan Stanley.............................................. 1,302,999
SEE NOTES TO FINANCIAL STATEMENTS. 22 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 5.5% (CONTINUED) 10,583 Principal Financial Group, Inc. ............................ $ 433,268 21,880 Providian Financial Corp. (a)............................... 360,364 ----------------------------------------------------------------------------------------------------- 16,325,599 ----------------------------------------------------------------------------------------------------- INSURANCE -- 3.5% 5,050 ACE Ltd. ................................................... 215,887 9,150 AFLAC Inc. ................................................. 364,536 8,125 The Allstate Corp. ......................................... 420,225 9,864 Ambac Financial Group, Inc. ................................ 810,130 44,839 American International Group, Inc. ......................... 2,944,577 5,214 Aon Corp. .................................................. 124,406 11,015 The Chubb Corp. ............................................ 847,053 3,647 The Hartford Financial Services Group, Inc. ................ 252,774 2,492 Jefferson-Pilot Corp. ...................................... 129,484 3,328 Lincoln National Corp. ..................................... 155,351 8,918 Marsh & McLennan Cos., Inc. ................................ 293,402 12,515 MetLife, Inc. .............................................. 506,983 6,337 MGIC Investment Corp. ...................................... 436,683 9,721 The Progressive Corp. ...................................... 824,730 28,930 Prudential Financial, Inc. ................................. 1,589,993 4,762 WellPoint Inc. (a).......................................... 547,630 ----------------------------------------------------------------------------------------------------- 10,463,844 ----------------------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 37,360,827 ----------------------------------------------------------------------------------------------------- HEALTHCARE -- 7.6% BIOTECHNOLOGY -- 1.1% 22,235 Amgen Inc. (a).............................................. 1,426,375 11,225 Biogen Idec Inc. (a)........................................ 747,697 7,054 Genentech, Inc. (a)......................................... 384,020 17,808 Gilead Sciences, Inc. (a)................................... 623,102 ----------------------------------------------------------------------------------------------------- 3,181,194 ----------------------------------------------------------------------------------------------------- HEALTHCARE EQUIPMENT & SUPPLIES -- 0.8% 4,203 Becton, Dickinson & Co. .................................... 238,731 14,235 Boston Scientific Corp. (a)................................. 506,054 20,444 Medtronic, Inc. ............................................ 1,015,453 8,826 Zimmer Holdings, Inc. (a)................................... 707,139 ----------------------------------------------------------------------------------------------------- 2,467,377 ----------------------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 1.4% 2,653 Aetna Inc. ................................................. 330,962 6,002 AmerisourceBergen Corp. .................................... 352,197 2,898 Cardinal Health, Inc. ...................................... 168,519 10,822 Caremark Rx, Inc. (a)....................................... 426,712 6,580 CIGNA Corp. ................................................ 536,731
SEE NOTES TO FINANCIAL STATEMENTS. 23 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 1.4% (CONTINUED) 21,834 Humana Inc. (a)............................................. $ 648,251 18,639 UnitedHealth Group Inc. .................................... 1,640,791 ----------------------------------------------------------------------------------------------------- 4,104,163 ----------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 4.3% 26,184 Abbott Laboratories......................................... 1,221,484 32,239 Bristol-Myers Squibb Co. ................................... 825,963 15,248 Eli Lilly and Co. .......................................... 865,324 11,998 Forest Laboratories, Inc. (a)............................... 538,230 1,503 Hospira, Inc. (a)........................................... 50,350 17,385 IVAX Corp. (a).............................................. 275,031 49,789 Johnson & Johnson........................................... 3,157,618 4,825 Medco Health Solutions, Inc. (a)............................ 200,720 36,890 Merck & Co., Inc. .......................................... 1,185,645 127,498 Pfizer Inc. ................................................ 3,428,421 24,504 Schering-Plough Corp. ...................................... 511,644 15,864 Wyeth....................................................... 675,648 ----------------------------------------------------------------------------------------------------- 12,936,078 ----------------------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 22,688,812 ----------------------------------------------------------------------------------------------------- INDUSTRIALS -- 7.3% AEROSPACE & DEFENSE -- 1.2% 10,216 The Boeing Co. ............................................. 528,882 9,171 General Dynamics Corp. ..................................... 959,287 10,625 Lockheed Martin Corp. ...................................... 590,219 13,960 Northrop Grumman Corp. ..................................... 758,866 8,615 United Technologies Corp. .................................. 890,360 ----------------------------------------------------------------------------------------------------- 3,727,614 ----------------------------------------------------------------------------------------------------- AIR FREIGHT & COURIERS -- 0.5% 19,243 United Parcel Service, Inc., Class B Shares................. 1,644,507 ----------------------------------------------------------------------------------------------------- BUILDING PRODUCTS -- 0.2% 12,565 Masco Corp. ................................................ 458,999 ----------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 0.3% 4,600 Avery Dennison Corp. ....................................... 275,862 18,666 Cendant Corp. .............................................. 436,411 4,415 Fiserv, Inc. (a)............................................ 177,439 ----------------------------------------------------------------------------------------------------- 889,712 ----------------------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.2% 15,618 Thomas & Betts Corp. (a).................................... 480,254 ----------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 2.9% 9,076 3M Co. ..................................................... 744,867 166,457 General Electric Co. ....................................... 6,075,681
SEE NOTES TO FINANCIAL STATEMENTS. 24 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 2.9% (CONTINUED) 14,320 Honeywell International Inc. ............................... $ 507,071 35,733 Tyco International Ltd. .................................... 1,277,097 ----------------------------------------------------------------------------------------------------- 8,604,716 ----------------------------------------------------------------------------------------------------- MACHINERY -- 1.9% 15,616 Danaher Corp. .............................................. 896,515 12,441 Deere & Co. ................................................ 925,611 13,499 Dover Corp. ................................................ 566,148 3,470 Eaton Corp. ................................................ 251,089 10,421 Ingersoll-Rand Co., Class A Shares.......................... 836,806 5,834 ITT Industries, Inc. ....................................... 492,681 12,313 PACCAR Inc. ................................................ 990,950 8,110 Parker Hannifin Corp. ...................................... 614,251 ----------------------------------------------------------------------------------------------------- 5,574,051 ----------------------------------------------------------------------------------------------------- ROAD & RAIL -- 0.1% 6,069 Norfolk Southern Corp. ..................................... 219,637 ----------------------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 21,599,490 ----------------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 10.0% COMMUNICATIONS EQUIPMENT -- 2.2% 114,038 Cisco Systems, Inc. (a)..................................... 2,200,934 29,606 Comverse Technology, Inc. (a)............................... 723,867 22,787 Corning Inc. (a)............................................ 268,203 74,755 Motorola, Inc. ............................................. 1,285,786 17,787 Polycom, Inc. (a)........................................... 414,793 25,068 QUALCOMM Inc. .............................................. 1,062,883 17,927 Scientific-Atlanta, Inc. ................................... 591,770 ----------------------------------------------------------------------------------------------------- 6,548,236 ----------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 2.7% 6,496 Apple Computer, Inc. (a).................................... 418,342 42,209 Dell Inc. (a)............................................... 1,778,687 41,792 EMC Corp. (a)............................................... 621,447 51,373 Hewlett-Packard Co. ........................................ 1,077,292 30,245 International Business Machines Corp. ...................... 2,981,552 2,184 Lexmark International, Inc., Class A Shares (a)............. 185,640 9,335 NCR Corp. (a)............................................... 646,262 59,428 Sun Microsystems, Inc. (a).................................. 319,723 ----------------------------------------------------------------------------------------------------- 8,028,945 ----------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.3% 16,515 Jabil Circuit, Inc. (a)..................................... 422,454 10,183 Waters Corp. (a)............................................ 476,462 ----------------------------------------------------------------------------------------------------- 898,916 ----------------------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 0.3% 22,377 Yahoo! Inc. (a)............................................. 843,165 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 25 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 1.7% 30,371 Advanced Micro Devices, Inc. (a)............................ $ 668,770 6,487 Analog Devices, Inc. ....................................... 239,500 109,046 Intel Corp. ................................................ 2,550,586 3,428 KLA-Tencor Corp. (a)........................................ 159,676 5,372 Maxim Integrated Products, Inc. ............................ 227,719 36,129 Micron Technology, Inc. (a)................................. 446,193 33,941 Texas Instruments Inc. ..................................... 835,627 ----------------------------------------------------------------------------------------------------- 5,128,071 ----------------------------------------------------------------------------------------------------- SOFTWARE -- 2.8% 11,877 Adobe Systems, Inc. ........................................ 745,163 24,088 Autodesk, Inc. ............................................. 914,140 84 Computer Associates International, Inc. .................... 2,609 3,666 Electronic Arts Inc. (a).................................... 226,119 181,861 Microsoft Corp. ............................................ 4,857,507 84,751 Oracle Corp. (a)............................................ 1,162,784 19,509 VERITAS Software Corp. (a).................................. 556,982 ----------------------------------------------------------------------------------------------------- 8,465,304 ----------------------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 29,912,637 ----------------------------------------------------------------------------------------------------- MATERIALS -- 2.3% CHEMICALS -- 1.0% 19,810 The Dow Chemical Co. ....................................... 980,793 7,393 E.I. du Pont de Nemours & Co. .............................. 362,627 12,710 Ecolab Inc. ................................................ 446,502 19,406 Monsanto Co. ............................................... 1,078,003 ----------------------------------------------------------------------------------------------------- 2,867,925 ----------------------------------------------------------------------------------------------------- CONTAINERS & PACKAGING -- 0.4% 7,716 Ball Corp. ................................................. 339,350 17,960 Pactiv Corp. (a)............................................ 454,208 9,562 Sealed Air Corp. (a)........................................ 509,368 ----------------------------------------------------------------------------------------------------- 1,302,926 ----------------------------------------------------------------------------------------------------- METALS & MINING -- 0.6% 37,591 Alcoa Inc. ................................................. 1,181,109 7,010 Newmont Mining Corp. ....................................... 311,314 4,540 Nucor Corp. ................................................ 237,624 ----------------------------------------------------------------------------------------------------- 1,730,047 ----------------------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS -- 0.3% 6,300 Georgia-Pacific Corp. ...................................... 236,124 8,532 International Paper Co. .................................... 358,344 3,635 Weyerhaeuser Co. ........................................... 244,345 ----------------------------------------------------------------------------------------------------- 838,813 ----------------------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 6,739,711 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 26 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 2.2% DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.0% 44,893 BellSouth Corp. ............................................ $ 1,247,576 4,563 CenturyTel, Inc. ........................................... 161,850 55,589 SBC Communications Inc. .................................... 1,432,528 24,903 Sprint Corp., (FON Group)................................... 618,840 59,697 Verizon Communications Inc. ................................ 2,418,325 ----------------------------------------------------------------------------------------------------- 5,879,119 ----------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.2% 27,879 Nextel Partners, Inc., Class A Shares (a)................... 544,756 ----------------------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 6,423,875 ----------------------------------------------------------------------------------------------------- UTILITIES -- 2.0% ELECTRIC UTILITIES -- 1.7% 45,907 The AES Corp. (a)........................................... 627,549 22,628 American Electric Power Co., Inc. .......................... 777,045 16,944 Constellation Energy Group.................................. 740,622 16,862 Edison International........................................ 540,090 20,414 Exelon Corp. ............................................... 899,645 19,243 FirstEnergy Corp. .......................................... 760,291 4,809 Public Service Enterprise Group Inc. ....................... 248,962 9,894 The Southern Co. ........................................... 331,647 ----------------------------------------------------------------------------------------------------- 4,925,851 ----------------------------------------------------------------------------------------------------- GAS UTILITIES -- 0.3% 10,895 Kinder Morgan, Inc. ........................................ 796,752 4,433 National Fuel Gas Co. ...................................... 125,631 ----------------------------------------------------------------------------------------------------- 922,383 ----------------------------------------------------------------------------------------------------- TOTAL UTILITIES............................................. 5,848,234 ----------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $161,028,650)................... 186,194,377 ----------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK -- 2.2% ----------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 1.6% AUTOMOBILES -- 0.9% 16,000 Ford Motor Co. Capital Trust II, 6.500% Cumulative Trust Preferred Securities...................................... 844,640 General Motors Corp., Sr. Debentures: 37,000 5.250% Series B........................................... 853,590 33,000 6.250% Series C........................................... 879,780 ----------------------------------------------------------------------------------------------------- 2,578,010 ----------------------------------------------------------------------------------------------------- CONTAINERS & PACKAGING -- 0.1% 4,000 Amcor Ltd., 7.250% PRIDES(SM)............................... 229,500 ----------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 0.3% 21,000 Newell Financial Trust I, 5.250% Cumulative QUIPS(SM)....... 989,625 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 27 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- MEDIA -- 0.3% 10,500 Tribune Co., 2.000% PHONES(SM).............................. $ 953,925 ----------------------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 4,751,060 ----------------------------------------------------------------------------------------------------- FINANCIALS -- 0.4% BANKS -- 0.3% 3,000 Washington Mutual Capital Trust I, 5.375% Cumulative........ 167,250 13,000 Washington Mutual, Inc., 5.375% Cumulative (c).............. 733,148 ----------------------------------------------------------------------------------------------------- 900,398 ----------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS -- 0.1% 7,000 Equity Office Properties Trust, 5.250% Cumulative, Series B......................................................... 359,520 ----------------------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 1,259,918 ----------------------------------------------------------------------------------------------------- UTILITIES -- 0.2% ELECTRIC UTILITIES -- 0.2% 10,000 CalEnergy Capital Trust II, 6.250% Trust Preferred Securities................................................ 497,500 ----------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $6,028,467)...... 6,508,478 -----------------------------------------------------------------------------------------------------
FACE AMOUNT -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 6.6% -------------------------------------------------------------------------------------------------- $ 1,382,000 U.S. Treasury Bonds, 5.375% due 2/15/31........................... 1,494,828 U.S. Treasury Notes: 2,080,000 5.875% due 11/15/05............................................. 2,135,983 2,068,000 5.625% due 5/15/08.............................................. 2,218,739 3,300,000 3.250% due 8/15/08.............................................. 3,285,694 500,000 3.375% due 12/15/08............................................. 498,575 3,200,000 3.500% due 8/15/09.............................................. 3,192,253 6,225,000 5.750% due 8/15/10.............................................. 6,855,530 -------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $20,120,391)........... 19,681,602 --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.2% -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY NOTES & BONDS -- 2.7% Federal Home Loan Mortgage Corp. (FHLMC): 500,000 Medium-Term Notes, 2.900% due 2/27/19 (d)....................... 496,469 Reference Notes: 6,000,000 2.125% due 11/15/05........................................... 5,957,532 500,000 4.875% due 11/15/13........................................... 515,084 1,000,000 Federal National Mortgage Association (FNMA), Benchmark Notes, 1.750% due 6/16/06............................. 980,945 -------------------------------------------------------------------------------------------------- 7,950,030 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 28 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGHS -- 0.5% Federal National Mortgage Association (FNMA): $ 291 8.500% due 3/1/05........................................ $ 296 525,107 6.000% due 1/1/13........................................ 551,714 34,998 6.500% due 12/1/27....................................... 36,813 139,860 6.000% due 3/1/28........................................ 145,161 25,679 6.000% due 4/1/28........................................ 26,667 118,402 6.000% due 5/1/28........................................ 122,888 66,513 6.000% due 6/1/28........................................ 69,034 102,668 6.000% due 7/1/28........................................ 106,559 331,870 5.500% due 8/1/28........................................ 338,409 129,372 6.000% due 8/1/28........................................ 134,275 Government National Mortgage Association (GNMA) 23,695 9.000% due 11/15/19...................................... 26,617 7,238 9.500% due 1/15/20....................................... 8,177 -------------------------------------------------------------------------------------------------- 1,566,610 -------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost -- $9,471,734)....................................... 9,516,640 -------------------------------------------------------------------------------------------------- RATING(e) ------------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 14.1% ------------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 2.4% AUTOMOBILES -- 0.4% 600,000 BBB DaimlerChrylser North America Holding Corp., Notes, 7.300% due 1/15/12............................................... 682,102 400,000 BBB- Ford Motor Co., Notes, 7.450% due 7/16/31................... 403,458 ------------------------------------------------------------------------------------------------------- 1,085,560 ------------------------------------------------------------------------------------------------------- MEDIA -- 2.0% 2,000,000 BBB Comcast Cable Communications, Inc., Notes, 8.875% due 5/1/17 (b)....................................................... 2,629,528 800,000 BBB- Liberty Media Corp., Sr. Notes, 3.990% due 9/17/06 (d)...... 810,008 2,000,000 BBB+ Time Warner, Inc., Guaranteed Debentures, 7.625% due 4/15/31................................................... 2,427,126 ------------------------------------------------------------------------------------------------------- 5,866,662 ------------------------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY 6,952,222 ------------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 0.2% TOBACCO -- 0.2% 700,000 BBB Altria Group, Inc., Notes, 5.625% due 11/4/08............... 728,120 ------------------------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES................................................. 728,120 ------------------------------------------------------------------------------------------------------- ENERGY -- 0.4% OIL & GAS -- 0.4% 300,000 BBB+ Anadarko Finance Co., Sr. Notes, Series B, 6.750% due 5/1/11.................................................... 338,305 200,000 A- Cooper Cameron Corp., Sr. Notes, 2.650% due 4/15/07......... 194,871
SEE NOTES TO FINANCIAL STATEMENTS. 29 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
FACE AMOUNT RATING(e) SECURITY VALUE ------------------------------------------------------------------------------------------------------- OIL & GAS -- 0.4%(CONTINUED) $ 400,000 BBB Devon Financing Corp ULC, Guaranteed Debentures, 7.875% due 9/30/31................................................... $ 505,228 200,000 BBB+ Kinder Morgan Energy Partners, Notes, 5.125% due 11/15/14... 199,985 ------------------------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 1,238,389 ------------------------------------------------------------------------------------------------------- FINANCIALS -- 6.6% BANKS -- 1.1% 700,000 AA- ABN AMRO Bank NV, Sr. Notes, 2.334% due 5/11/07 (d)......... 700,674 500,000 A+ Bank of America Corp., Sr. Notes, 5.375% due 6/15/14........ 522,753 300,000 A+ HSBC Bank USA, Sub. Notes, 5.875% due 11/1/34............... 304,853 300,000 A Huntington National Bank, Sr. Notes, 4.650% due 6/30/09..... 306,036 500,000 A+ Royal Bank of Scotland PLC, Bonds, 5.050% due 1/8/15........ 506,355 200,000 A+ US Bank NA, Sub. Notes, Series BKNT, 4.950% due 10/30/14.... 201,116 200,000 A Wachovia Bank NA, Sub. Notes, 4.800% due 11/1/14............ 199,132 400,000 A- Washington Mutual Bank, FA, Sub. Notes, 5.650% due 8/15/14................................................... 414,521 337,585 NR Willmington Trust, 9.250% due 1/2/07........................ 232,933 ------------------------------------------------------------------------------------------------------- 3,388,373 ------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 3.0% 400,000 AAA AIG SunAmerica Global Finance, Sr. Notes, 5.850% due 8/1/08 (c)....................................................... 426,455 800,000 A+ American General Finance, Notes, 3.875% due 10/1/09......... 788,054 520,000 BBB Capital One Bank, Notes, 5.000% due 6/15/09................. 535,979 480,000 A Countrywide Home Loans, Inc., Medium-Term Notes, Series L, 4.000% due 3/22/11........................................ 467,319 Credit Suisse First Boston (USA), Inc., Notes: 300,000 A+ 6.125% due 11/15/11....................................... 327,604 600,000 A+ 4.875% due 1/15/15........................................ 593,728 Ford Motor Credit Co., Global Landmark Securities(TM): 400,000 BBB- 6.500% due 1/25/07........................................ 416,138 100,000 BBB- 5.700% due 1/15/10........................................ 101,020 1,000,000 BBB- General Motors Acceptance Corp., Bonds, 8.000% due 11/1/31................................................... 1,030,762 300,000 BBB- Glencore Funding LLC, Guaranteed Debentures, 6.000% due 4/15/14 (c)............................................... 290,751 400,000 A- Goldman Sachs Capital I, Capital Securities, 6.345% due 2/15/34................................................... 417,931 1,100,000 A Household Finance Corp., Notes, 6.375% due 11/27/12......... 1,217,277 800,000 A JPMorgan Chase & Co., Sub. Notes, 5.250% due 5/1/15......... 810,668 500,000 A Lehman Brothers Holdings Inc., Medium-Term Notes, Series G, 4.800% due 3/13/14........................................ 494,088 Merrill Lynch & Co., Inc.: 600,000 A+ Medium-Term Notes, Series C, 4.125% due 9/10/09........... 600,223 300,000 A+ Notes, Series MTNC, 5.000% due 1/15/15.................... 299,408 200,000 AA Rabobank Capital Fund Trust III, Subordinated, 5.254% due 12/31/16 (c)(d)........................................... 199,346 ------------------------------------------------------------------------------------------------------- 9,016,751 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 30 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
FACE AMOUNT RATING(e) SECURITY VALUE ------------------------------------------------------------------------------------------------------- INSURANCE -- 0.6% $ 1,000,000 AA+ New York Life Global Funding, Notes, 5.375% due 9/15/13 (c)....................................................... $ 1,042,327 600,000 AA Principal Life Global Funding I, Bonds, 6.125% due 10/15/33 (c)....................................................... 627,683 ------------------------------------------------------------------------------------------------------- 1,670,010 ------------------------------------------------------------------------------------------------------- REAL ESTATE -- 1.9% 200,000 BBB HRPT Properties Trust, Sr. Notes, 6.250% due 8/15/16........ 211,397 100,000 A- Kimco Realty Corp., Medium-Term Notes, Series C, 2.360% due 8/1/06 (d)................................................ 100,028 5,000,000 BBB- Nationwide Health Properties, Inc., Medium-Term Notes, Series C, 6.900% due 10/1/37........................................ 5,407,905 ------------------------------------------------------------------------------------------------------- 5,719,330 ------------------------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 19,794,464 ------------------------------------------------------------------------------------------------------- HEALTHCARE -- 0.3% PHARMACEUTICALS -- 0.3% 300,000 BBB+ Anthem, Inc., Bonds, 6.800% due 8/1/12...................... 340,133 500,000 A Wyeth, Notes, 6.500% due 2/1/34............................. 535,247 ------------------------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 875,380 ------------------------------------------------------------------------------------------------------- INDUSTRIALS -- 0.4% AEROSPACE/DEFENSE -- 0.4% 400,000 BBB Lockheed Martin Corp., Debentures, 8.500% due 12/1/29....... 548,989 500,000 BBB Northrop Grumman Corp., Notes, 4.079% due 11/16/06.......... 505,278 ------------------------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 1,054,267 ------------------------------------------------------------------------------------------------------- MATERIALS -- 0.5% CONSTRUCTION SERVICES -- 0.1% 300,000 BBB- MDC Holdings, Inc., Sr. Notes, 5.500% due 5/15/13........... 305,102 ------------------------------------------------------------------------------------------------------- CONTAINERS & PACKAGING -- 0.2% 300,000 A+ Bottling Group LLC, Sr. Notes, 4.625% due 11/15/12.......... 305,183 300,000 BBB Sealed Air Corp., Bonds, 6.875% due 7/15/33 (c)............. 325,019 ------------------------------------------------------------------------------------------------------- 630,202 ------------------------------------------------------------------------------------------------------- METALS & MINING -- 0.1% 300,000 BBB- Phelps Dodge Corp., Sr. Notes, 8.750% due 6/1/11............ 366,246 ------------------------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS -- 0.1% 200,000 BBB International Paper Co., Notes, 5.300% due 4/1/15........... 202,744 ------------------------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 1,504,294 ------------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 1.4% DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4% 200,000 A BellSouth Corp., Notes, 4.750% due 11/15/12................. 201,556 800,000 BBB+ Deutsche Telekom International Finance BV, Bonds, 8.250% due 6/15/05................................................... 818,734 1,000,000 BBB+ France Telecom S.A., Sr. Notes, 9.250% due 3/1/31........... 1,359,600 300,000 A SBC Communications, Notes, 5.100% due 9/15/14............... 303,364
SEE NOTES TO FINANCIAL STATEMENTS. 31 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
FACE AMOUNT RATING(e) SECURITY VALUE ------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%(CONTINUED) Telecom Italia Capital SA,: $ 900,000 BBB+ Guaranteed Debentures, 6.000% due 9/30/34 (c)............. $ 882,895 400,000 BBB+ Notes, 4.000% due 1/15/10 (c)............................. 392,636 300,000 A+ Verizon New York Inc., Debentures, Series A, 6.875% due 4/1/12.................................................... 337,230 ------------------------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 4,296,015 ------------------------------------------------------------------------------------------------------- UTILITIES -- 1.9% ELECTRIC UTILITIES -- 1.6% 300,000 BBB+ Dominion Resources Inc., Sr. Notes, Series F, 5.250% due 8/1/33.................................................... 301,147 1,100,000 AAA General Electric Co., Notes, 5.000% due 2/1/13.............. 1,130,427 2,000,000 BB- PSEG Energy Holdings LLC, Sr. Notes, 8.500% due 6/15/11..... 2,292,500 700,000 AA- SP PowerAssets Ltd., Notes, 5.000% due 10/22/13 (c)......... 711,559 200,000 BBB- TransAlta Corp., Sr. Notes, 5.750% due 12/15/13............. 206,309 ------------------------------------------------------------------------------------------------------- 4,641,942 ------------------------------------------------------------------------------------------------------- GAS UTILITIES -- 0.3% 200,000 BBB+ Consolidated Natural Gas, Sr. Notes, 5.000% due 12/1/14..... 200,580 300,000 BBB- Duke Capital LLC, Sr. Notes, 4.331% due 11/16/06............ 303,899 300,000 A+ Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% due 1/15/11........................................ 301,307 ------------------------------------------------------------------------------------------------------- 805,786 ------------------------------------------------------------------------------------------------------- TOTAL UTILITIES............................................. 5,447,728 ------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $38,183,865)....... 41,890,879 ------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BONDS -- 4.5% ------------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 2.0% AUTO COMPONENTS -- 0.3% 25,000 BBB American Axle & Manufacturing Holdings, Inc., Sr. Notes, 2.000% due 2/15/24 (c).................................... 22,875 1,750,000 BBB- Lear Corp., Sr. Notes, zero coupon bond to yield 2.875% due 2/20/22................................................... 912,188 ------------------------------------------------------------------------------------------------------- 935,063 ------------------------------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE -- 0.5% 660,000 BBB- Four Seasons Hotels Inc., Sr. Notes, 1.875% due 7/30/24..... 847,275 1,050,000 BB+ Royal Caribbean Cruises Ltd., Sr. LYO(TM)Ns, zero coupon bond to yield 4.875% due 2/2/21......................................... 675,937 ------------------------------------------------------------------------------------------------------- 1,523,212 ------------------------------------------------------------------------------------------------------- MEDIA -- 0.9% Liberty Media Corp., Sr. Exchangeable Debentures: 500,000 BBB- 0.750% due 3/30/23 (c).................................... 604,375 650,000 BBB- 4.000% due 11/15/29....................................... 478,562 750,000 BBB- 3.500% due 1/15/31........................................ 711,563 850,000 BBB+ The Walt Disney Co., Sr. Notes, 2.125% due 4/15/23.......... 949,875 ------------------------------------------------------------------------------------------------------- 2,744,375 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 32 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
FACE AMOUNT RATING(e) SECURITY VALUE ------------------------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 0.3% $ 200,000 BB+ Best Buy Co., Inc., Sub. Debentures, 2.250% due 1/15/22 (c)....................................................... $ 217,750 459,000 BB+ The Gap, Inc., Sr. Notes, 5.750% due 3/15/09................ 611,044 ------------------------------------------------------------------------------------------------------- 828,794 ------------------------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 6,031,444 ------------------------------------------------------------------------------------------------------- ENERGY -- 1.2% ENERGY EQUIPMENT & SERVICES -- 1.2% 175,000 A- Cooper Cameron Corp., Sr. Debentures, 1.500% due 5/15/24 (c)....................................................... 185,281 915,000 A- Diamond Offshore Drilling, Inc., Sr. Debentures, 1.500% due 4/15/31................................................... 974,475 Global Marine Inc., Debentures: 300,000 A- Zero coupon bond to yield 3.500% due 6/23/20 (c).......... 177,375 1,000,000 A- Zero coupon bond to yield 4.203% due 6/23/20.............. 591,250 500,000 BBB Halliburton Co., Sr. Notes, 3.125% due 7/15/23 (c).......... 617,500 900,000 A+ Schlumberger Ltd., Sr. Notes, Series A, 1.500% due 6/1/23... 990,000 ------------------------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 3,535,881 ------------------------------------------------------------------------------------------------------- FINANCIALS -- 0.3% INSURANCE -- 0.3% 1,350,000 AAA American International Group, Inc., Sr. Debentures, zero coupon bond to yield 1.525% due 11/9/31................... 899,437 ------------------------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 899,437 ------------------------------------------------------------------------------------------------------- HEALTHCARE -- 0.5% HEALTHCARE PROVIDERS & SERVICES -- 0.4% Health Management Associates, Inc., Sr. Sub. Notes: 200,000 BBB+ 1.500% due 8/1/23......................................... 210,500 800,000 BBB+ 1.500% due 8/1/23 (c)..................................... 842,000 ------------------------------------------------------------------------------------------------------- 1,052,500 ------------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 0.1% 250,000 A Allergan, Inc., Sr. Notes, zero coupon bond to yield 1.250% due 11/6/22 (c)........................................... 245,625 140,000 BBB- Watson Pharmaceuticals, Inc., Sr. Debentures, 1.750% due 3/15/23 (c)............................................... 144,900 ------------------------------------------------------------------------------------------------------- 390,525 ------------------------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 1,443,025 ------------------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 0.4% ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.1% 440,000 BBB- Arrow Electronics, Inc., Sr. Debentures, zero coupon bond to yield 4.000% due 2/21/21........................................ 237,050 ------------------------------------------------------------------------------------------------------- IT CONSULTING & SERVICES -- 0.3% 955,000 BBB- Electronic Data Systems Corp., Sr. Notes, 3.875% due 7/15/23................................................... 1,013,494 ------------------------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 1,250,544 ------------------------------------------------------------------------------------------------------- MATERIALS -- 0.0% METALS & MINING -- 0.0% 50,000 BBB+ Placer Dome Inc., Sr. Notes, 2.750% due 10/15/23 (c)........ 61,563 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 33 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
FACE AMOUNT RATING(e) SECURITY VALUE ------------------------------------------------------------------------------------------------------- UTILITIES -- 0.1% ELECTRIC UTILITIES -- 0.1% $ 250,000 BBB PPL Energy Supply LLC, Sr. Notes, 2.625% due 5/15/23 (c).... $ 281,562 ------------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $12,030,847)..... 13,503,456 ------------------------------------------------------------------------------------------------------- SOVEREIGN DEBT -- 0.2% ------------------------------------------------------------------------------------------------------- CANADA -- 0.2% 500,000 AAA Canada Mortgage & Housing Corp., Notes, 3.375% due 12/1/08 (Cost -- $498,943).......................................... 494,953 ------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 2.0% 500,000 AAA Chase Funding Mortgage Loan, Series 2002-2, Class 1A5, 5.833% due 4/25/32........................................ 520,407 5,000,000 AAA PP&L Transition Bond Co. LLC, Series 1999-1, Class A7, 7.050% due 6/25/09........................................ 5,322,836 ------------------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (Cost -- $5,521,654).......... 5,843,243 ------------------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.4% Bank of America Commercial Mortgage, Inc.: 500,000 AAA Series 2004-2, Class A5, 4.580% due 11/10/38.............. 493,228 1,150,000 AAA Series 2004-6, Class AJ, 4.870% due 12/10/42 (d).......... 1,146,900 500,000 AAA CS First Boston Mortgage Securities Corp., Series 2003-C5, Class A4, 4.900% due 12/15/36............................. 505,234 2,000,000 Aaa* JPMorgan Chase Commercial Mortgage Securities, Series 2004-C3, Class AJ, 4.922% due 1/15/42 (d)................. 1,997,260 LB-UBS Commercial Mortgage Trust: 2,000,000 AAA Series 2003-C3, Class A2, 3.086% due 5/15/27.............. 1,950,799 1,000,000 AAA Series 2004-C2, Class A4, 4.367% due 3/15/36.............. 975,707 ------------------------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost -- $7,100,939)........................................ 7,069,128 ------------------------------------------------------------------------------------------------------- WARRANTS ------------------------------------------------------------------------------------------------------- WARRANTS (A) -- 0.0% ------------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 0.0% DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.0% 3,056 Lucent Technologies, Expires 12/10/07 (Cost -- $0).......... 4,828 ------------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $259,985,490)...................................... 290,707,584 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 34 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.9% -------------------------------------------------------------------------------------------------- U.S. TREASURY BILL -- 0.1% $ 150,000 U.S. Treasury Bill, 0.010% due 3/17/05 (f) (Cost -- $149,372)........................................ $ 149,366 -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.8% 5,475,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $5,475,639; (Fully collateralized by U.S. Treasury Bond, 8.125% due 8/15/21; Market value -- $5,587,932) (Cost -- $5,475,000).......... 5,475,000 -------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (Cost -- $5,624,372)........... 5,624,366 -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 99.7% (Cost -- $265,609,862**)......... 296,331,950 Other Assets in Excess of Liabilities -- 0.3%............... 917,001 -------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $297,248,951 --------------------------------------------------------------------------------------------------
(a) Non-income producing security. (b) All or a portion of this security is segregated for open futures contracts. (c) Security is exempt from registration under Rule 144A of the securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees. (d) Variable rate security. (e) All ratings are by Standard & Poor's Ratings Service, except for those that are identified by an asterisk (*), which are rated by Moody's Investors Service. (f) All or a portion of this security is held as collateral for open futures contracts. ** Aggregate cost for federal income tax purposes is $265,856,661. Abbreviations used in this schedule:
LYO(TM)Ns -- Liquid Yield Option(TM) Notes -- Trademark of Merrill Lynch & Co., Inc. PHONES(SM) -- Participation Hybrid Option Note Exchangeable Securities(SM) -- Service Mark of Merrill Lynch & Co., Inc. PRIDES(SM) -- Perpetual Redeemable Income Debt, Exchangeable for Stock(SM) -- Service Mark of Merrill Lynch & Co., Inc. QUIPS(SM) -- Quarterly Income Preferred Securities(SM) -- Service Mark of Goldman Sachs & Co.
See page 51 for definition of ratings SEE NOTES TO FINANCIAL STATEMENTS. 35 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 90.3% -------------------------------------------------------------------------------------------------- AEROSPACE/DEFENSE -- 1.0% $ 75,000 B Argo-Tech Corp., Sr. Notes, 9.250% due 6/1/11............... $ 82,687 475,000 B- BE Aerospace, Inc., Sr. Sub. Notes, Series B, 8.875% due 5/1/11.................................................... 498,750 500,000 CCC+ Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09............ 522,500 -------------------------------------------------------------------------------------------------- 1,103,937 -------------------------------------------------------------------------------------------------- AIRLINES -- 0.1% 150,000 Ba1* JetBlue Airways Corp., Pass Through Certificates, Series 2004-2 C, 5.390% due 5/15/10 (b).......................... 151,246 -------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 0.9% 50,000 B Affinia Group Inc., Sr. Sub. Notes, 9.000% due 11/30/14 (c)....................................................... 52,375 225,000 B- Collins & Aikman Products Co., Sr. Notes, 10.750% due 12/31/11.................................................. 230,625 50,000 B Dura Operating Corp., Guaranteed Debentures, Series B, 8.625% due 4/15/12........................................ 52,250 125,000 NR Intermet Corp., Sr. Notes, 9.750% due 6/15/09 (d)........... 61,875 625,000 B- Metaldyne Corp., Sr. Sub. Notes, 11.000% due 6/15/12........ 521,875 50,000 B- Tenneco Automotive Inc., Sr. Secured Notes, Series B, 10.250% due 7/15/13....................................... 59,250 -------------------------------------------------------------------------------------------------- 978,250 -------------------------------------------------------------------------------------------------- BROADCASTING -- 0.4% 200,000 BBB- Chancellor Media Corp., Sr. Notes, 8.000% due 11/1/08....... 224,744 250,000 CCC Granite Broadcasting Corp., Secured Notes, 9.750% due 12/1/10................................................... 240,000 -------------------------------------------------------------------------------------------------- 464,744 -------------------------------------------------------------------------------------------------- BUILDING/CONSTRUCTION -- 3.2% Armstrong World Industries, Inc., Sr. Notes: 250,000 NR 6.500% due 8/15/05 (d).................................... 181,875 175,000 NR 7.450% due 5/15/29 (d).................................... 127,750 D.R. Horton Inc.: 225,000 BB+ Guaranteed Debentures, 10.500% due 4/1/05................. 230,062 175,000 BB+ Notes, 6.125% due 1/15/14................................. 181,125 Goodman Global Holdings Co., Inc.: 125,000 B- Sr. Notes, 5.760% due 6/15/12 (b)(c)...................... 127,500 175,000 B- Sr. Sub. Notes, 7.875% due 12/15/12 (c)................... 174,125 150,000 B+ Hovnanian K Enterprises Inc., Guaranteed Debentures, 6.000% due 1/15/10 (c)........................................... 151,687 100,000 B- K&F Acquisition Inc., Sr. Sub Notes, 7.750% due 11/15/14 (c)....................................................... 103,750 KB Home: 425,000 BB+ Notes, 6.375% due 8/15/11................................. 448,375 Sr. Sub. Notes: 125,000 BB- 8.625% due 12/15/08..................................... 141,875 325,000 BB- 9.500% due 2/15/11...................................... 359,125 225,000 B- Ply Gem Industries Inc., Sr. Sub. Notes, 9.000% due 2/15/12 (c)....................................................... 229,500 275,000 B- THL Buildco Inc. (Nortek Inc.), Sr. Sub. Notes, 8.500% due 9/1/14 (c)................................................ 288,750 William Lyon Homes, Inc., Sr. Notes: 300,000 B 7.625% due 12/15/12 (c)................................... 294,375 350,000 B 10.750% due 4/1/13........................................ 395,062 -------------------------------------------------------------------------------------------------- 3,434,936 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 36 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- BUSINESS SERVICES -- 1.0% $ 525,000 B+ Danka Business Systems PLC, Sr. Notes, 11.000% due 6/15/10................................................... $ 559,125 450,000 B- Vertis, Inc., Sr. Notes, Series B, 10.875% due 6/15/09...... 490,500 -------------------------------------------------------------------------------------------------- 1,049,625 -------------------------------------------------------------------------------------------------- CABLE -- 7.2% Adelphia Communications Corp., Sr. Notes: 875,000 NR 10.250% due 6/15/11 (d)................................... 890,312 Series B: 725,000 NR 8.375% due 2/1/08 (d)................................... 686,937 250,000 NR 8.125% due 12/31/49 (d)................................. 236,250 CCO Holdings, LLC/CCO Holdings Capital Corp., Sr. Notes: 300,000 CCC- 6.615% due 12/15/10 (b)(c)................................ 301,500 75,000 CCC- 8.750% due 11/15/13....................................... 77,812 Charter Communications Holdings, LLC/Charter Communications Holdings Capital Corp: Sr. Discount Notes: 550,000 CCC- 9.920% due 4/1/11....................................... 471,625 450,000 CCC- Step bond to yield 18.487% due 5/15/11.................. 333,000 300,000 B- Sr. Notes, 8.375% due 4/30/14 (c)......................... 318,000 1,200,000 BB- CSC Holdings Inc., Sr. Notes, Series B, 7.625% due 4/1/11... 1,299,000 125,000 BB- Directv Holdings LLC, Sr. Notes, 8.375% due 3/15/13......... 140,781 100,000 NR Frontiervision Holdings LP, Sr. Discount Notes, 11.875% due 9/15/07 (d)............................................... 134,000 725,000 B+ Insight Midwest, LP/Insight Capital, Inc., Sr. Notes, 9.750% due 10/1/09............................................... 763,062 125,000 B- Kabel Deutschland GmbH, Sr. Notes, 10.625% due 7/1/14 (c)... 144,375 1,100,000 B Mediacom LLC/Mediacom Capital Corp., Sr. Notes, 9.500% due 1/15/13................................................... 1,109,625 75,000 BB+ Rogers Cable Inc., Secured Notes, 6.750% due 3/15/15 (c).... 77,063 375,000 BB+ Shaw Communications Inc., Sr. Notes, 7.250% due 4/6/11...... 415,313 175,000 B- Telenet Communications NV, Sr. Notes, 9.000% due 12/15/13 (c)....................................................... 265,325 -------------------------------------------------------------------------------------------------- 7,663,980 -------------------------------------------------------------------------------------------------- CHEMICALS -- 7.3% 325,000 BBB- Georgia Gulf Corp., Notes, 7.625% due 11/15/05.............. 337,187 291,000 CCC+ Huntsman ICI Chemicals LLC, Sr. Sub. Notes, 10.125% due 7/1/09.................................................... 307,732 450,000 B- Huntsman International LLC, Sr. Notes, 9.875% due 3/1/09.... 496,125 53,000 BB IMC Global Inc., Guaranteed Debentures, Series B, 10.875% due 6/1/08................................................ 63,865 100,000 B- Innophos Inc., Sr. Sub. Notes, 8.875% due 8/15/14 (c)....... 108,500 Lyondell Chemical Co.: 315,000 B+ Secured Notes, Series B, 9.875% due 5/1/07................ 331,537 1,175,000 B- Sub. Notes, 10.875% due 5/1/09............................ 1,248,438 Millennium America Inc., Sr. Notes: 1,175,000 B+ 7.000% due 11/15/06....................................... 1,227,875 603,198 B+ 9.250% due 6/15/08........................................ 689,153 Nalco Co.: 75,000 B- Sr. Notes, 7.750% due 11/15/11............................ 81,375 125,000 B- Sr. Sub. Notes, 8.875% due 11/15/13....................... 137,813 125,000 BB+ NOVA Chemicals Corp., Sr. Notes, 6.500% due 1/15/12......... 133,125 PolyOne Corp., Sr. Notes: 200,000 B+ 10.625%, due 5/15/10...................................... 226,000
SEE NOTES TO FINANCIAL STATEMENTS. 37 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- CHEMICALS -- 7.3% (CONTINUED) $ 175,000 B+ 8.875%, due 5/1/12........................................ $ 191,188 Resolution Performance Products LLC/RPP Capital Corp.: 325,000 CCC+ Second Secured Notes, 9.500% due 4/15/10.................. 353,438 325,000 B Secured Notes, 8.000% due 12/15/09........................ 351,000 Rhodia SA: 950,000 CCC+ Sr. Notes, 7.625% due 6/1/10.............................. 957,125 250,000 CCC+ Sr. Sub. Notes, 8.875% due 6/1/11......................... 253,125 Rockwood Specialties Group, Inc., Sr. Sub. Guaranteed Notes: 50,000 B- 7.500% due 11/15/14 (c)................................... 52,125 50,000 B- 7.625% due 11/15/14 (c)................................... 69,800 200,000 BBB- Union Carbide Corp., Debentures, 6.790% due 6/1/25.......... 204,500 -------------------------------------------------------------------------------------------------- 7,821,026 -------------------------------------------------------------------------------------------------- CONSUMER PRODUCTS & SERVICES -- 1.2% 100,000 B Alderwoods Group, Inc., Sr. Notes, 7.75% due 9/15/12 (c).... 108,500 125,000 B+ Church & Dwight Co. Inc., Sr. Sub. Notes, 6.000% due 12/15/12 (c).............................................. 127,812 175,000 CCC- Home Products International, Inc., Sr. Sub. Notes, 9.625% due 5/15/08............................................... 160,125 75,000 B- Norcraft Holdings, Sr. Discount Notes, zero coupon step bond to 9/1/08, then 9.740% to 9/1/12.......................... 56,625 525,000 CCC+ Playtex Products, Inc., Sr. Sub. Notes, 9.375% due 6/1/11... 563,063 225,000 B- Sealy Mattress Co., Sr. Sub. Notes, 8.250% due 6/15/14...... 239,625 -------------------------------------------------------------------------------------------------- 1,255,750 -------------------------------------------------------------------------------------------------- DIVERSIFIED -- 4.5% 4,362,209 BB- Targeted Return Index Sector, Trains HY-2004-1, Sr. Secured Notes, 8.211% due 8/1/15 (b)(c)........................... 4,779,777 -------------------------------------------------------------------------------------------------- ENERGY -- 3.9% 375,000 CCC+ Belden & Blake Corp., Sr. Secured Notes, 8.750% due 7/15/12 (c)....................................................... 382,500 225,000 BB Citgo Petroleum Corp., Sr. Notes, 6.000% due 10/15/11 (c)... 225,000 250,000 B- Crystal US Holdings LLC, Sr. Discount Notes, zero coupon to 10/1/09 then 10.500% to 10/1/14 (c)....................... 172,500 62,930 CCC+ El Paso Production Holding Co., Sr. Debentures, 6.700% due 2/15/27................................................... 64,785 50,000 B Encore Acquisition Co., Sr. Sub. Notes, 6.250% due 4/15/14................................................... 50,500 50,000 BBB- Evergreen Resources, Inc., Sr. Sub. Notes, 5.875% due 3/15/12................................................... 52,301 150,000 BB- Forest Oil Corp., Sr. Notes, 8.000% due 12/15/11............ 172,125 350,000 B- Harvest Operations Corp., Sr. Notes, 7.875% due 10/15/11 (c)....................................................... 354,375 Key Energy Services, Inc., Sr. Notes: 100,000 B 6.375% due 5/1/13......................................... 102,250 300,000 B Series C, 8.375% due 3/1/08............................... 315,750 225,000 BB- Newfield Exploration Co., Sr. Sub. Notes, 6.625% due 9/1/14 (c)....................................................... 239,063 325,000 BB Pogo Producing Co., Sr. Sub. Notes, Series B, 8.250% due 4/15/11................................................... 354,250 125,000 BB- Pride International, Inc., Sr. Notes, 7.375% due 7/15/14.... 137,188 225,000 B- Seitel, Inc., Sr. Notes, 11.750% due 7/15/11 (c)............ 238,500 50,000 B+ Stone Energy Corp., Sr. Sub. Notes, 6.750% due 12/15/14 (c)....................................................... 50,125
SEE NOTES TO FINANCIAL STATEMENTS. 38 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- ENERGY -- 3.9% (CONTINUED) Tesoro Petroleum Corp.: $ 125,000 BBB- Sr. Secured Notes, 8.000% due 4/15/08..................... $ 136,563 225,000 BB- Sr. Sub. Notes, 9.625% due 4/1/12......................... 259,875 775,000 B USEC Inc., Sr. Notes, 6.625% due 1/20/06.................... 790,500 -------------------------------------------------------------------------------------------------- 4,098,150 -------------------------------------------------------------------------------------------------- EQUIPMENT RENTAL -- 1.8% 150,000 BB- NationsRent, Inc., Sr. Secured Notes, 9.500% due 10/15/10... 168,750 500,000 BB- United Rentals North America, Inc., Sr. Notes, 6.500% due 2/15/12................................................... 490,000 Williams Scotsman, Inc.: 1,075,000 B- Sr. Notes, 9.875% due 6/1/07.............................. 1,080,375 200,000 B Sr. Secured Notes, 10.000% due 8/15/08.................... 223,000 -------------------------------------------------------------------------------------------------- 1,962,125 -------------------------------------------------------------------------------------------------- FABRICATED GLASS, PLASTIC & FIBER -- 3.3% Crown Cork & Seal Co. Inc.: 850,000 B Debentures, 7.375% due 12/15/26........................... 803,250 75,000 B Notes, 7.000% due 12/15/06................................ 79,125 Crown European Holdings SA: 300,000 BB Sr. Secured Notes, 6.250% due 9/1/11 (c).................. 434,538 150,000 B Third Priority Sr. Secured Notes, 10.875% due 3/1/13...... 178,125 350,000 B Jefferson Smurfit Corp., Sr. Notes, 8.250% due 10/1/12...... 383,250 Owens-Brockway Glass Container, Inc.: 225,000 B Sr. Notes, 6.750% due 12/1/14 (c)......................... 228,375 Sr. Secured Notes: 575,000 BB- 8.875% due 2/15/09...................................... 627,469 300,000 BB- 7.750% due 5/15/11...................................... 326,250 400,000 B- Solo Cup Co., Sr. Sub. Notes, 8.500% due 2/15/14............ 418,000 -------------------------------------------------------------------------------------------------- 3,478,382 -------------------------------------------------------------------------------------------------- FINANCE -- 0.7% 675,000 B- BCP Caylux Holdings Luxembourg SCA, Sr. Sub. Notes, 9.625% due 6/15/14 (c)........................................... 764,437 -------------------------------------------------------------------------------------------------- FOOD/BEVERAGE/TOBACCO -- 0.7% 300,000 B B&G Foods Holding Corp., Sr. Notes, 8.000% due 10/1/11...... 321,000 50,000 B Land O'Lakes Inc., Secured Notes, 9.000% due 12/15/10....... 55,000 100,000 BB Premium Standard Farms Inc., Sr. Notes, 9.250% due 6/15/11................................................... 107,500 50,000 B+ Swift & Co., Sr. Notes, 10.125% due 10/1/09................. 56,000 150,000 B+ The Wornick Co., Sr. Second Secured Notes, 10.875% due 7/15/11................................................... 163,500 -------------------------------------------------------------------------------------------------- 703,000 -------------------------------------------------------------------------------------------------- FREIGHT/CONTAINERS/SHIPPING -- 0.9% 200,000 B CHC Helicopter Corp., Sr. Sub. Notes, 7.375% due 5/1/14..... 212,000 175,000 CCC- Evergreen International Aviation, Inc., Sr. Second Secured Notes, 12.000% due 5/15/10................................ 133,437 475,000 B2* TFM, S.A. de C.V., Sr. Notes, 12.500% due 6/15/12........... 556,938 -------------------------------------------------------------------------------------------------- 902,375 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 39 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- GAMING -- 5.9% $ 250,000 B+ Argosy Gaming Co., Sr. Sub. Notes, 7.000% due 1/15/14....... $ 277,500 375,000 B+ Aztar Corp., Sr. Sub. Notes, 7.875% due 6/15/14............. 415,312 225,000 B+ Boyd Gaming Corp., Sr. Sub. Notes, 6.750% due 4/15/14....... 236,812 550,000 BB+ Harrah's Operating Co., Inc., Sr. Sub. Notes, 7.875% due 12/15/05.................................................. 573,375 550,000 B Isle of Capri Casinos, Inc., Sr. Sub. Notes, 7.000% due 3/1/14.................................................... 563,750 200,000 B Kerzner International Ltd., Sr. Sub. Notes, 8.875% due 8/15/11................................................... 219,500 MGM Mirage Inc.: 750,000 BB+ Sr. Notes, 6.750% due 9/1/12.............................. 793,125 475,000 BB- Sr. Sub. Notes, 8.375% due 2/1/11......................... 537,938 175,000 B+ Mohegan Tribal Gaming Authority, Sr. Sub. Notes, 7.125% due 8/15/14................................................... 185,063 Park Place Entertainment Corp., Sr. Sub. Notes: 325,000 BB- 7.875% due 12/15/05....................................... 338,000 800,000 BB- 7.875% due 3/15/10........................................ 905,000 52,000 B- Pinnacle Entertainment, Inc., Sr. Sub. Notes, Series B, 9.250% due 2/15/07........................................ 53,170 525,000 B Resorts International Hotel and Casino, Inc., First Mortgage Notes, 11.500% due 3/15/09................................ 619,500 Station Casinos, Inc.: 350,000 BB- Sr. Notes, 6.000% due 4/1/12.............................. 358,313 225,000 B+ Sr. Sub. Notes, 6.500% due 2/1/14......................... 232,313 -------------------------------------------------------------------------------------------------- 6,308,671 -------------------------------------------------------------------------------------------------- HEALTHCARE -- 4.0% 150,000 B Community Health Systems, Sr. Sub. Notes, 6.500% due 12/15/12 (c).............................................. 151,875 Elan Finance PLC, Sr. Notes, Inc.: 50,000 B 6.490% due 11/15/11 (b)(c)................................ 52,875 425,000 B 7.750% due 11/15/11 (c)................................... 454,750 HEALTHSOUTH Corp., Sr. Notes: 100,000 NR 7.000% due 6/15/08........................................ 102,000 1,200,000 NR 7.625% due 6/1/12......................................... 1,212,000 525,000 B Radiologix, Inc., Sr. Notes, Series B, 10.500% due 12/15/08.................................................. 580,125 Tenet Healthcare Corp.: 275,000 B- 7.375% due 2/1/13......................................... 268,125 1,650,000 B- Sr. Notes, 6.875% due 11/15/31............................ 1,414,875 -------------------------------------------------------------------------------------------------- 4,236,625 -------------------------------------------------------------------------------------------------- INDUSTRIAL PRODUCTS -- 3.4% Allied Waste North America, 325,000 B+ Series B, Sr. Notes, 7.375% due 4/15/14................... 312,812 Sr. Secured Notes: 325,000 BB- 6.500% due 11/15/10..................................... 320,125 225,000 BB- 6.125% due 2/15/14...................................... 212,625 100,000 CCC+ Ames True Temper Inc., Sr. Sub. Notes, 10.000% due 7/15/12................................................... 103,000 275,000 CCC- BGF Industries, Inc., Sr. Sub. Notes, Series B, 10.250% due 1/15/09................................................... 269,500 375,000 BB- Case New Holland, Inc., Sr. Notes, 9.250% due 8/1/11 (c).... 419,062 50,000 B Cooper Standard Automotive Inc., Notes, 7.000% due 12/15/12 (c)....................................................... 51,000 Foamex L.P., Sr. Sub. Notes: 250,000 CCC+ 13.500% due 8/15/05....................................... 260,000 175,000 CCC+ 9.875% due 6/15/07........................................ 144,375
SEE NOTES TO FINANCIAL STATEMENTS. 40 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- INDUSTRIAL PRODUCTS -- 3.4% (CONTINUED) $ 925,000 B- The Goodyear Tire & Rubber Co., Notes, 7.857% due 8/15/11... $ 943,500 325,000 CCC+ MAAX Corp., Sr. Sub. Notes, 9.750% due 6/15/12 (c).......... 345,313 175,000 CCC+ MAAX Holdings Inc., Sr. Discount Notes, zero coupon step bond to 12/1/08, then 11.254% to 12/15/12 (c)............. 110,688 50,000 BB- Trinity Industries Inc., Sr. Notes, 6.500% due 3/15/14...... 50,250 100,000 B+ Wolverine Tube, Inc., Sr. Notes, Series B, 10.500% due 4/1/09.................................................... 109,500 -------------------------------------------------------------------------------------------------- 3,651,750 -------------------------------------------------------------------------------------------------- LODGING & LEISURE -- 5.0% 450,000 CCC+ Bally Total Fitness Holding Corp., Sr. Notes, 10.500% due 7/15/11................................................... 455,625 200,000 B- Felcor Lodging LP, Sr. Notes, 9.000% due 6/1/11............. 227,500 Host Marriott LP, Sr Notes: 100,000 B+ 7.000% due 8/15/12 (c).................................... 106,250 100,000 B+ 7.125% due 11/1/13........................................ 107,375 159,000 B+ HMH Properties, Inc., Sr. Notes, Series B, 7.875% due 8/1/08.................................................... 164,167 75,000 B+ Intrawest Corp., Sr. Notes, 7.500% due 10/15/13 (c)......... 80,156 650,000 BB+ ITT Corp., Notes, 6.750% due 11/15/05....................... 671,125 50,000 BB K2 Inc., Sr. Notes, 7.375% due 7/1/14 (c)................... 55,000 75,000 BB- LA Quinta Properties Inc., Sr. Notes, 7.000% due 8/15/12.... 79,687 MeriStar Hospitality Corp., Sr. Notes: 125,000 CCC+ 9.000% due 1/15/08........................................ 132,344 725,000 CCC+ 9.125% due 1/15/11........................................ 786,625 1,625,000 BB+ Royal Caribbean Cruises Ltd., Sr. Debentures, 7.500% due 10/15/27.................................................. 1,781,406 100,000 B+ Steinway Musical Instruments, Inc., Sr. Notes, 8.750% due 4/15/11................................................... 109,000 50,000 B- Universal City Florida, Sr. Notes, 7.200% due 5/1/10 (b)(c).................................................... 52,250 550,000 B+ Wynn Las Vegas LLC, First Mortgage, 6.625% due 12/1/14 (c)....................................................... 547,250 -------------------------------------------------------------------------------------------------- 5,355,760 -------------------------------------------------------------------------------------------------- MACHINERY -- 0.2% 225,000 B- Dresser-Rand Group Inc., Sr. Sub Notes, 7.375% due 11/1/14 (c)....................................................... 230,625 -------------------------------------------------------------------------------------------------- METAL/MINING -- 2.8% 1,700,000 B+ AK Steel Corp., Sr. Notes, 7.750% due 6/15/12 (e)........... 1,759,500 50,000 BB- Century Aluminum Co., Sr. Notes, 7.500% due 8/15/14 (c)..... 53,500 75,000 B Hawk Corp., Sr. Notes, 8.750% due 11/1/14 (c)............... 77,250 300,000 BB IPSCO Inc., Sr. Notes, 8.750% due 6/1/13.................... 345,000 175,000 B+ Steel Dynamics Inc., Sr. Notes, 9.500% due 3/15/09.......... 192,500 504,000 BB U.S. Steel LLC, Sr. Notes, 10.750% due 8/1/08............... 595,980 -------------------------------------------------------------------------------------------------- 3,023,730 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 41 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- MOTION PICTURES -- 1.2% AMC Entertainment Inc.: Sr. Notes: $ 225,000 B- 6.540% due 8/15/10 (b)(c)............................... $ 237,937 175,000 B- 8.625% due 8/15/12 (c).................................. 194,250 Sr. Sub. Notes: 360,000 CCC+ 9.500% due 2/1/11....................................... 373,950 250,000 CCC+ 8.000% due 3/1/14....................................... 250,000 325,000 B- Cinemark, Inc., Sr. Discount Notes, Step bond to yield 9.739% due 3/15/14........................................ 247,000 -------------------------------------------------------------------------------------------------- 1,303,137 -------------------------------------------------------------------------------------------------- PAPER/FORESTRY PRODUCTS -- 2.9% Boise Cascade LLC: 50,000 B+ Sr. Notes, 5.005% due 10/15/12 (b)(c)..................... 52,125 50,000 B+ Sr. Sub Notes, 7.125% due 10/15/14 (c).................... 53,125 750,000 BB+ Fort James Corp., Sr. Notes, 6.875% due 9/15/07............. 800,625 300,000 BB+ Georgia-Pacific Corp., Sr. Notes, 9.375% due 2/1/13......... 351,000 50,000 B+ Neenah Paper Inc., Sr. Notes, 7.375% due 11/15/14 (c)....... 51,000 75,000 BB- Norske Skog Canada Ltd., Sr. Notes, 7.375% due 3/1/14....... 78,563 175,000 BB- Sino Forest Corp., Sr. Notes, 9.125% due 8/17/11 (c)........ 192,063 1,600,000 B Tembec Industries Inc., Sr. Notes, 7.750% due 3/15/12....... 1,556,000 -------------------------------------------------------------------------------------------------- 3,134,501 -------------------------------------------------------------------------------------------------- PRINTING/PUBLISHING -- 2.9% 225,000 B- Advertising Direct Solution, Sr. Notes, 9.250% due 11/15/12 (c)....................................................... 237,375 Dex Media, Inc.: 575,000 B Discount Notes, step bond to yield 8.628% due 11/15/13.... 453,531 125,000 B Notes, 8.000% due 11/15/13................................ 135,937 Houghton Mifflin Co.: 1,125,000 BB- Notes, 7.200% due 3/15/11................................. 1,192,500 175,000 B- Sr. Notes, 8.250% due 2/1/11.............................. 187,250 50,000 B- Sr. Sub. Notes, 9.875% due 2/1/13......................... 55,000 725,000 B Primedia, Inc., Sr. Notes, 8.875% due 5/15/11............... 770,313 -------------------------------------------------------------------------------------------------- 3,031,906 -------------------------------------------------------------------------------------------------- RECYCLING -- 0.0% 25,000 B- IMCO Recycling Escrow, Sr. Notes, 9.000% due 11/15/14 (c)... 26,125 -------------------------------------------------------------------------------------------------- RETAIL -- 3.3% 100,000 B+ Blockbuster Inc., Sr. Sub. Notes, 9.000% due 9/1/12 (c)..... 99,250 50,000 B- Carrols Corp., Sr. Sub. Notes, 9.000% due 1/15/13 (c)....... 52,000 Denny's Corp., Sr. Notes: 500,000 NR 7.035% due 9/13/10........................................ 515,000 175,000 CCC+ 10.000% due 10/1/12 (c)................................... 189,219 175,000 B- Duane Reade Inc., Secured Notes, 7.010% due 12/15/10 (b)(c).................................................... 178,500 175,000 B- El Pollo Loco Inc., Secured Notes, 9.250% due 12/15/09...... 185,062 325,000 B- Friendly Ice Cream Corp., Sr. Notes, 8.375% due 6/15/12..... 320,531 380,000 BB+ J.C. Penney Co., Inc., Debentures, 8.125% due 4/1/27........ 415,150
SEE NOTES TO FINANCIAL STATEMENTS. 42 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- RETAIL -- 3.3% (CONTINUED) Jean Coutu Group PJC Inc.: $ 100,000 B Sr. Notes 7.625% due 8/1/12 (c)........................... $ 106,250 125,000 B Sr. Sub. Notes 8.500% due 8/1/14 (c)...................... 128,750 250,000 B- The Pantry, Inc., Sr. Sub. Notes, 7.750% due 2/15/14........ 267,500 250,000 B+ Rite Aid Corp., Sr, Secured Second Lien Notes, 8.125% due 5/1/10.................................................... 265,625 700,000 BB Saks Inc., Notes, 7.500% due 12/1/10........................ 749,000 -------------------------------------------------------------------------------------------------- 3,471,837 -------------------------------------------------------------------------------------------------- SUPERMARKETS & DISTRIBUTORS -- 2.5% 425,000 BB+ Delhaize America, Inc., Debentures, 9.000% due 4/15/31...... 551,989 The Great Atlantic & Pacific Tea Co., Inc.: 400,000 B- Notes, 7.750% due 4/15/07................................. 398,000 400,000 B- Sr. Notes, 9.125% due 12/15/11............................ 377,000 375,000 B Roundy's, Inc., Sr. Sub. Notes, Series B, 8.875% due 6/15/12................................................... 411,563 Smithfield Foods Inc., Sr. Notes: 325,000 BB 7.000% due 8/1/11......................................... 348,563 150,000 BB 7.000% due 8/1/11 (c)..................................... 160,875 350,000 BB- Stater Bros. Holdings Inc., Sr. Notes, 8.125% due 6/15/12... 371,875 -------------------------------------------------------------------------------------------------- 2,619,865 -------------------------------------------------------------------------------------------------- TECHNOLOGY -- 2.7% Amkor Technologies Inc., Sr. Notes: 500,000 B 7.125% due 3/15/11........................................ 472,500 125,000 B 7.750% due 5/15/13........................................ 118,125 375,000 BB+ Freescale Semiconductor Inc., Sr. Notes, 4.820% due 7/15/09 (b)....................................................... 392,344 1,325,000 B Lucent Technologies, Inc., Debentures, 6.450% due 3/15/29... 1,205,750 100,000 B+ Solectron Corp., Sr. Notes, 9.625% due 2/15/09.............. 110,500 175,000 BBB- Thomas & Betts Corp., Sr. Notes, 7.250% due 6/1/13.......... 192,836 325,000 BB+ Unisys Corp., Sr. Notes, 8.125% due 6/1/06.................. 343,688 -------------------------------------------------------------------------------------------------- 2,835,743 -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 8.6% 574,000 CCC Alamosa (Delaware), Inc., Sr. Discount Notes, step bond to yield 11.101% due 7/31/09................................. 625,660 19,000 CCC American Tower Corp., Sr. Notes, 9.375% due 2/1/09.......... 20,187 300,000 CCC American Tower Escrow Corp., Discount Notes, zero coupon step bond to yield 10.240% due 8/1/08..................... 225,750 850,000 BB+ AT&T Corp., Sr. Notes, 9.050% due 11/15/11.................. 982,812 115,089 Caa2* Calpoint Receivables Structured Trust 2001, Notes, 7.440% due 12/10/06 (c).......................................... 118,254 700,000 CCC Centennial Communications Corp./Centennial Cellular Operating Co. LLC, Sr. Notes, 10.125% due 6/15/13......... 789,250 450,000 B- Cincinnati Bell Inc., Sr. Sub. Notes, 8.375% due 1/15/14.... 457,875 500,000 BB+ Citizens Communications Co., Sr. Notes, 6.250% due 1/15/13................................................... 506,250 275,000 B- Dobson Cellular Systems Inc., Secured Notes, 8.375% due 11/1/11 (c)............................................... 285,312 100,000 CCC+ Inmarsat Finance II PLC, Guaranteed Debentures, zero coupon step bond to 11/1/08, then 10.379% to 11/15/12 (c)........ 72,500
SEE NOTES TO FINANCIAL STATEMENTS. 43 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 8.6% (CONTINUED) IWO Escrow Co.: $ 100,000 CCC+ Secured Notes, 6.320% due 1/15/12 (b)(c).................. $ 101,250 400,000 CCC- Sr. Discount Notes, zero coupon step bond to 1/1/10, then 10.265% to 1/15/15 (c).................................... 250,000 MCI, Inc., Sr. Notes: 451,000 B+ 6.908% due 5/1/07......................................... 462,839 176,000 B+ 7.688% due 5/1/09......................................... 182,600 300,000 B+ 8.735% due 5/1/14......................................... 323,250 75,000 BB Nextel Communications, Inc., Sr. Serial Redeemable Notes, 5.950% due 3/15/14........................................ 78,000 175,000 B- NTL Cable PLC, Sr. Notes, 8.750% due 4/15/14 (c)............ 264,733 500,000 B+ Panamsat Corp., Sr. Unsecured Notes, 9.000% due 8/15/14 (c)....................................................... 560,625 125,000 B Qwest Capital Funding Inc., Guaranteed Debentures, 6.250% due 7/15/05............................................... 127,500 550,000 BB- Qwest Corp., Sr. Notes, 7.875% due 9/1/11 (c)............... 599,500 175,000 B Qwest Services Corp., Notes 14.000% due 12/15/10 (b)(c)..... 211,313 Rogers Wireless Inc.: 225,000 BB Secured Notes, 7.250% due 12/15/12 (c).................... 239,625 450,000 B+ Sr. Sub. Notes, 8.000% due 12/15/12 (c)................... 478,125 Rural Cellular Corp.: 200,000 B- Secured Notes, 8.250% due 3/15/12......................... 212,500 375,000 CCC Sr. Sub. Notes, 9.750% due 1/15/10........................ 341,250 550,000 B- Syniverse Technologies Inc., Sr. Sub. Notes, Series B 12.750% due 2/1/09........................................ 629,750 -------------------------------------------------------------------------------------------------- 9,146,710 -------------------------------------------------------------------------------------------------- TEXTILES/APPAREL -- 0.7% 225,000 B- Broder Brothers Co., Sr. Notes, 11.250% due 10/15/10 (c).... 236,250 275,000 B+ Invista, Notes, 9.250% due 5/1/12 (c)....................... 308,000 50,000 CCC Levi Strauss & Co., Notes, 7.000% due 11/1/06............... 52,750 175,000 B- Simmons Co., Sr. Discount Notes, zero coupon step bond to 12/1/09, 10.002% to 12/15/14 (c).......................... 107,625 -------------------------------------------------------------------------------------------------- 704,625 -------------------------------------------------------------------------------------------------- UTILITIES -- 6.1% Allegheny Energy Supply Co. LLC, Secured Bonds: 158,293 B+ Series A, 10.250% due 11/15/07 (c)........................ 180,454 16,706 B+ Series B, 13.000% due 11/15/07 (c)........................ 18,293 Calpine Corp., Sr. Secured Notes: 175,000 B 8.750% due 7/15/13 (c).................................... 145,250 400,000 B+ 9.625% due 9/30/14 (c).................................... 416,000 375,000 B+ Calpine Generating Co., Secured Notes, 6.030% due 4/1/09 (b)....................................................... 386,250 100,000 NR Consumers Energy Co., First Mortgage Bonds, 7.375% due 9/15/23................................................... 103,444 325,000 B- Dynegy Holdings Inc., Sr. Secured Notes, 10.125% due 7/15/13 (c)....................................................... 373,750 650,000 B- El Paso Production Holdings Co., Sr. Debentures, 7.750% due 6/1/13.................................................... 684,125 1,100,000 CCC+ NGC Corp., Sr. Debentures, 7.125% due 5/15/18............... 985,875 300,000 B+ Reliant Energy Inc., Secured Notes, 6.750% due 12/15/14..... 299,625 Reliant Resources, Inc., Sr. Secured Notes: 150,000 B+ 9.250% due 7/15/10........................................ 168,000 425,000 B+ 9.500% due 7/15/13........................................ 485,031 275,000 CCC+ Sonat Inc., Notes, 6.625% due 2/1/08........................ 280,844
SEE NOTES TO FINANCIAL STATEMENTS. 44 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE -------------------------------------------------------------------------------------------------- UTILITIES -- 6.1% (CONTINUED) $ 575,000 B- Southern Natural Gas Co., Notes, 7.350% due 2/15/31......... $ 599,438 375,000 B+ Transcontinental Gas Pipe Line Corp., Sr. Notes, Series B, 8.875% due 7/15/12........................................ 457,969 850,000 B+ The Williams Cos., Inc., Notes, 7.125% due 9/1/11........... 932,875 -------------------------------------------------------------------------------------------------- 6,517,223 -------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $88,153,532)....... 96,210,573 -------------------------------------------------------------------------------------------------- SHARES -------------------------------------------------------------------------------------------------- COMMON STOCK -- 0.8% -------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 0.0% 4,812 Hayes Lemmerz International, Inc. (f)....................... 42,490 -------------------------------------------------------------------------------------------------- CABLE -- 0.0% 1,057 Classic Holdco LLC (f)(g)................................... 34,500 -------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 0.5% 17,186 NorthWestern Corp. (f)...................................... 481,208 -------------------------------------------------------------------------------------------------- FREIGHT/CONTAINER/SHIPPING -- 0.0% 41 Atlas Air Worldwide Holdings, Inc. (f)(g)................... 984 -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 0.3% 25,195 Dobson Communications Corp., Class A shares (f)............. 43,335 1,227 Horizon PCS Inc., Class A shares (f)........................ 30,368 9,809 MCI Inc. ................................................... 197,750 -------------------------------------------------------------------------------------------------- 271,453 -------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $1,170,777)..................... 830,635 -------------------------------------------------------------------------------------------------- PREFERRED STOCK -- 0.5% -------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 0.0% 40 Hayes Lemmerz International Operating Co., 8.000% Cumulative Exchangeable, Series A (f)(g)............................. 1,720 -------------------------------------------------------------------------------------------------- BROADCASTING -- 0.2% 350 Granite Broadcasting Corp., 12.750% Cumulative Exchangeable (f)....................................................... 168,875 1,100 Paxson Communications Corp., 14.250% Cumulative Jr. Exchangeable (f).......................................... 81,125 -------------------------------------------------------------------------------------------------- 250,000 -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 0.3% 284 Alamosa Holdings Inc., 7.500% Cumulative Exchangeable, Series B.................................................. 266,463 400 Dobson Communications Corp., 6.000% Cumulative Exchangeable, Series F (c)(h)........................................... 28,036 -------------------------------------------------------------------------------------------------- 294,499 -------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost -- $501,792).................... 546,219 -------------------------------------------------------------------------------------------------- WARRANTS -------------------------------------------------------------------------------------------------- WARRANTS (c)(f) -- 0.0% -------------------------------------------------------------------------------------------------- TECHNOLOGY -- 0.0% 9,411 Viasystems Group, Inc., Expire 1/31/10 (g)(h)............... 0 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 45 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 HIGH YIELD BOND TRUST
WARRANTS -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 0.0% 275 Horizon PCS Inc., Class A, Expire 10/1/10 (g)(h)............ $ 0 -------------------------------------------------------------------------------------------------- TOTAL WARRANTS (Cost -- $147,600)........................... 0 -------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $89,973,701)................. 97,587,427 -------------------------------------------------------------------------------------------------- FACE AMOUNT -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 7.2% $ 7,701,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $7,701,898; (Fully collateralized by U.S. Treasury Bonds, 8.125% to 9.000% due 11/15/18 to 8/15/21; Market value -- $7,859,467) (Cost -- $7,701,000)...................................... 7,701,000 -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 98.8% (Cost -- $97,674,701**).......... 105,288,427 Other Assets in Excess of Liabilities -- 1.2%............... 1,250,532 -------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $106,538,959 --------------------------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Service, except those identified by an asterisk (*) which are rated by Moody's Investors Service Inc. (b) Variable rate security. (c) Security is exempt from registration under 144A of the Securities Act of 1933. This security may be sold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees. (d) Security is in default. (e) All or a portion of this security is held as collateral for open forward foreign currency contracts. (f) Non-income producing security. (g) Security is valued in good faith at fair value by or under the direction of the Board of Directors. (h) This security has been deemed illiquid. ** Aggregate cost for federal income tax purposes is $97,779,284. See page 51 for definition of ratings SEE NOTES TO FINANCIAL STATEMENTS. 46 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE ---------------------------------------------------------------------------------------------- COMMON STOCK -- 95.8% ---------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 23.6% HOTELS, RESTAURANTS & LEISURE -- 0.4% 97,065 Outback Steakhouse, Inc. ................................... $ 4,443,636 ---------------------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL -- 7.6% 448,965 Amazon.com, Inc. (a)........................................ 19,884,660 511,480 eBay Inc. (a)............................................... 59,474,894 ---------------------------------------------------------------------------------------------- 79,359,554 ---------------------------------------------------------------------------------------------- MEDIA -- 5.7% 1,568,785 XM Satellite Radio Holdings Inc., Class A Shares (a)........ 59,017,692 ---------------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 3.0% 125,450 J. C. Penney Company, Inc. ................................. 5,193,630 536,485 Kohl's Corp. (a)............................................ 26,378,967 ---------------------------------------------------------------------------------------------- 31,572,597 ---------------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 1.7% 406,425 Advance Auto Parts (a)...................................... 17,752,644 ---------------------------------------------------------------------------------------------- TEXTILES & APPAREL -- 5.2% 590,325 Nike, Inc., Class B Shares.................................. 53,536,574 ---------------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 245,682,697 ---------------------------------------------------------------------------------------------- ENERGY -- 7.8% OIL & GAS -- 7.8% 839,065 Murphy Oil Corp. ........................................... 67,502,779 397,580 Suncor Energy, Inc. ........................................ 14,074,332 ---------------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 81,577,111 ---------------------------------------------------------------------------------------------- FINANCIALS -- 15.1% BANKS -- 7.9% 824,390 Bank of America Corp. ...................................... 38,738,086 709,220 Wells Fargo & Co. .......................................... 44,078,023 ---------------------------------------------------------------------------------------------- 82,816,109 ---------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 6.1% 294,235 The Goldman Sachs Group, Inc. .............................. 30,612,209 613,265 SLM Corp. .................................................. 32,742,218 ---------------------------------------------------------------------------------------------- 63,354,427 ---------------------------------------------------------------------------------------------- INSURANCE -- 1.1% 3,901 Berkshire Hathaway, Inc., Class B Shares (a)................ 11,453,336 ----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 47 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE ---------------------------------------------------------------------------------------------- REAL ESTATE -- 0.0% 728 Corrections Corp. of America (a)............................ $ 29,448 ---------------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 157,653,320 ---------------------------------------------------------------------------------------------- HEALTHCARE -- 21.8% BIOTECHNOLOGY -- 7.6% 1,029,915 Genentech, Inc. (a)......................................... 56,068,573 238,790 Gilead Sciences, Inc. (a)................................... 8,355,262 224,045 Invitrogen Corp. (a)........................................ 15,040,141 ---------------------------------------------------------------------------------------------- 79,463,976 ---------------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 9.8% 1,153,960 UnitedHealth Group Inc. .................................... 101,583,099 ---------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 4.4% 183,065 Forest Laboratories, Inc. (a)............................... 8,212,296 326,849 Roche Holding AG............................................ 37,497,401 ---------------------------------------------------------------------------------------------- 45,709,697 ---------------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 226,756,772 ---------------------------------------------------------------------------------------------- INDUSTRIALS -- 4.7% AEROSPACE & DEFENSE -- 1.1% 214,405 Lockheed Martin Corp. ...................................... 11,910,198 ---------------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 2.0% 422,060 Energizer Holdings, Inc. (a)................................ 20,972,161 ---------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 1.6% 196,080 3M Co. ..................................................... 16,092,286 ---------------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 48,974,645 ---------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 19.0% COMMUNICATIONS EQUIPMENT -- 2.0% 492,165 QUALCOMM, Inc. (a).......................................... 20,867,796 ---------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 6.7% 1,087,990 Apple Computer, Inc. (a).................................... 70,066,556 ---------------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 2.3% 646,300 Yahoo! Inc. (a)............................................. 24,352,584 ---------------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 2.1% 891,890 Texas Instruments Inc. ..................................... 21,958,332 ---------------------------------------------------------------------------------------------- SOFTWARE -- 5.9% 989,845 Electronic Arts Inc. (a).................................... 61,053,639 ---------------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 198,298,907 ----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 48 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE ---------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 3.8% WIRELESS TELECOMMUNICATION SERVICES -- 3.8% 1,309,485 Nextel Communications, Inc., Class A Shares (a)............. $ 39,284,550 ---------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $611,744,227)................... 998,228,002 ----------------------------------------------------------------------------------------------
FACE AMOUNT -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.6% $48,618,000 State Street Bank & Trust Co., dated 12/31/04 1.400% due 1/3/05; Proceeds at maturity $48,623,672 (Fully collateralized by U.S. Treasury Bond, 8.750% due 8/15/20; Market value -- $49,590,603) (Cost -- $48,618,000)..................................... 48,618,000 -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.4% (Cost -- $660,362,227*)......... 1,046,846,002 Liabilities in Excess of Other Assets -- (0.4%)............. (4,502,329) -------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $1,042,343,673 --------------------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for federal income tax purposes is $662,196,593.
SEE NOTES TO FINANCIAL STATEMENTS. 49 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MONEY MARKET PORTFOLIO
FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE -------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS AND AGENCIES -- 1.7% $5,000,000 Federal National Mortgage Association matures 3/29/05..... 1.40% $5,000,000 -------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS AND AGENCIES (Cost -- $5,000,000)...................................... 5,000,000 -------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 94.9% 15,305,000 American Honda Finance Corp. mature 1/10/05 to 1/19/05.... 2.27 to 2.36 15,293,442 16,200,000 Atomium Funding Corp. matures 1/18/05..................... 2.27 16,182,941 5,000,000 Bryant Park Funding LLC matures 1/11/05................... 2.32 4,996,833 15,200,000 Canadian Imperial Bank of Commerce matures 2/14/05........ 2.39 15,156,342 16,100,000 Cobbler Funding LLC matures 1/25/05....................... 2.28 16,075,957 11,200,000 Coca-Cola Co. matures 1/11/05............................. 2.25 11,193,124 5,235,000 Coca-Cola Enterprises Inc. matures 1/10/05................ 2.30 5,232,042 9,561,000 Gannet Inc. matures 1/14/05............................... 2.23 9,553,439 15,736,000 General Electric Capital Corp. mature 1/14/05 to 1/18/05................................................. 2.24 to 2.29 15,720,498 15,852,000 Giro Balanced Funding Corp. matures 1/14/05............... 2.27 15,839,235 10,000,000 Goldman Sachs Group L.P. matures 1/19/05.................. 2.38 9,988,300 15,247,000 ING U.S. Funding LLC mature 1/13/05 to 1/28/05............ 2.29 to 2.32 15,227,343 15,900,000 Jupiter Securitization Corp. matures 1/20/05.............. 2.37 15,880,447 15,260,000 Morgan Stanley mature 1/5/05 to 1/18/05................... 2.21 to 2.36 15,253,108 12,000,000 Norddeutsche Landesbank matures 1/19/05................... 2.36 11,986,080 11,405,000 Province of Quebec matures 1/12/05........................ 2.29 11,397,159 16,300,000 Royal Bank of Scotland PLC matures 1/19/05................ 2.21 16,282,274 14,000,000 Shell Finance (UK) PLC matures 2/7/05..................... 2.35 13,966,762 15,800,000 Siemens Capital Corp. matures 1/31/05..................... 2.28 15,770,507 4,100,000 Toronto-Dominion Holdings matures 2/17/05................. 2.37 4,100,000 15,700,000 Toyota Motor Credit Corp. mature 1/18/05 to 2/2/05........ 2.22 to 2.32 15,678,154 8,308,000 UBS Finance Bank NY matures 1/3/05........................ 2.26 8,306,971 8,500,000 Victory Receivables Corp. matures 1/10/05................. 2.26 8,495,282 -------------------------------------------------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (Cost -- $287,576,240).................................... 287,576,240 -------------------------------------------------------------------------------------------------------------- FOREIGN CERTIFICATES OF DEPOSIT -- 3.7% 11,200,000 Toronto-Dominion Banking LLC matures 1/4/05 (Cost -- $11,200,000)..................................... 2.20 11,200,000 -------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.3% (Cost -- $303,776,240*)................................... 303,776,240 Liabilities in Excess of Other Assets -- (0.3)%........... (829,544) -------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%................................ $302,946,696 --------------------------------------------------------------------------------------------------------------
* Aggregate cost for federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 50 -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or a minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay principal and differs from the highest rated issue only in a small degree. A -- Bonds rated "A" have a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB -- Bonds rated "BBB" have an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B -- Bonds rated "BB", "B", "CCC" and "CC" are regarded, on CCC and balance, as predominantly speculative with respect to CC capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents the lowest degree of speculation and "CC" the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C -- Bonds rated "C" are income bonds on which no interest is being paid. D -- Bonds rated "D" are in default, and payment of interest and/or repayment of principal is in arrears.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "Caa", where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A -- Bonds rated "A" are judged to have many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that is, they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. These bonds lack outstanding investment characteristics and may have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. Ca -- Bonds rated "Ca" are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
51 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost.......................... $259,985,490 $ 89,973,701 $ 611,744,227 -- Short-term investments, at cost............... 5,624,372 7,701,000 48,618,000 $303,776,240 Foreign currency, at cost..................... 9 78,927 -- -- ------------------------------------------------------------------------------------------------------------- Investments, at value......................... $290,707,584 $ 97,587,427 $ 998,228,002 -- Short-term investments, at value.............. 5,624,366 7,701,000 48,618,000 $303,776,240 Foreign currency, at value.................... 12 78,345 -- -- Cash.......................................... 735 48 2,556 1,217 Dividends and interest receivable............. 1,225,289 1,653,232 244,660 48,817 Receivable for open forward foreign currency contracts (Notes 1 and 3).................. -- 2,875 -- -- Receivable for Fund shares sold............... -- 18,985 -- 57,890 Prepaid expenses.............................. 3,986 729 4,806 875 Other receivables............................. 2,581 -- -- -- ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS.................................. 297,564,553 107,042,641 1,047,098,024 303,885,039 ------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased.............. -- 414,271 -- -- Investment advisory fees payable.............. 111,370 37,004 608,321 79,184 Administrative fees payable................... 28,510 4,889 53,498 15,632 Payable for Fund shares reacquired............ 110,971 -- 3,967,191 546,348 Dividends payable............................. -- -- -- 234,231 Payable to broker -- variation margin......... 3,499 -- -- -- Trustees' fees payable........................ 2,500 2,000 2,100 2,000 Accrued expenses.............................. 58,752 45,518 123,241 60,948 ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES............................. 315,602 503,682 4,754,351 938,343 ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................ $297,248,951 $106,538,959 $1,042,343,673 $302,946,696 ------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital (Note 4)...................... $264,969,046 $ 99,333,222 $1,084,901,001 $302,946,536 Undistributed (overdistributed) net investment income..................................... 48,121 (28,233) -- 7,965 Accumulated net realized gain (loss) from investment transactions and foreign currencies................................. 1,512,373 (379,741) (429,048,638) (7,805) Net unrealized appreciation of investments, futures contracts, and foreign currencies................................. 30,719,411 7,613,711 386,491,310 -- ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................ $297,248,951 $106,538,959 $1,042,343,673 $302,946,696 ------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING.............................. 17,832,560 10,751,548 15,738,433 302,946,536 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE...................... $16.67 $9.91 $66.23 $1.00 -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 52 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Interest............................................ $ 4,575,090 $7,461,887 $ 707,757 $4,725,801 Dividends........................................... 3,831,824 27,624 5,699,663 -- Less: Foreign withholding tax....................... (118) -- (83,325) -- ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME............................. 8,406,796 7,489,511 6,324,095 4,725,801 ------------------------------------------------------------------------------------------------------------ EXPENSES: Investment advisory fee (Note 2).................... 1,444,024 440,316 7,035,493 1,093,070 Administration fee (Note 2)......................... 173,283 58,547 575,794 202,859 Audit and legal..................................... 51,445 42,494 59,038 35,027 Custody............................................. 53,806 44,766 49,636 27,059 Shareholder communications.......................... 22,578 13,846 69,945 37,780 Trustees' fees...................................... 10,844 10,241 11,817 8,317 Transfer agency services (Note 2)................... 2,500 2,500 2,500 2,500 Other............................................... 3,887 3,091 17,086 2,396 ------------------------------------------------------------------------------------------------------------ TOTAL EXPENSES...................................... 1,762,367 615,801 7,821,309 1,409,008 Less: Fee waiver/expense reimbursements (Notes 2 and 6)............................................... (33,485) (33,438) (33,457) (58,323) ------------------------------------------------------------------------------------------------------------ NET EXPENSES........................................ 1,728,882 582,363 7,787,852 1,350,685 ------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS).......................... 6,677,914 6,907,148 (1,463,757) 3,375,116 ------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 1 AND 3): Realized Gain (Loss) From: Investment transactions.......................... 11,807,350 (291,730) (47,022,757) 16 Foreign currency transactions.................... -- (70,575) (16,222) -- ------------------------------------------------------------------------------------------------------------ NET REALIZED GAIN (LOSS)............................ 11,807,350 (362,305) (47,038,979) 16 ------------------------------------------------------------------------------------------------------------ Net Change in Unrealized Appreciation/Depreciation From: Investments and futures contracts................ 7,564,971 1,617,958 223,213,276 -- Foreign currencies............................... -- -- 7,024 -- ------------------------------------------------------------------------------------------------------------ NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION OF INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES.......................................... 7,564,971 1,617,958 223,220,300 -- ------------------------------------------------------------------------------------------------------------ NET INCREASE FROM PAYMENT BY AFFILIATES (NOTE 2).... -- 75,068 -- -- ------------------------------------------------------------------------------------------------------------ NET GAIN ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES............................................ 19,372,321 1,330,721 176,181,321 16 ------------------------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS................ $26,050,235 $8,237,869 $174,717,564 $3,375,132 ------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 53 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
MANAGED ASSETS TRUST 2004 2003 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 6,677,914 $ 6,949,844 Net realized gain......................................... 11,807,350 2,083,564 Net change in unrealized appreciation/depreciation........ 7,564,971 43,648,703 ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS.................... 26,050,235 52,682,111 ------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (6,765,497) (6,863,313) Net realized gains........................................ (2,452,309) -- ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS........................................... (9,217,806) (6,863,313) ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 7,924,859 9,228,282 Net asset value of shares issued for reinvestment of dividends and distributions............................ 9,217,806 6,863,313 Cost of shares reacquired................................. (26,600,443) (22,946,314) ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (9,457,778) (6,854,719) ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS...................................... 7,374,651 38,964,079 NET ASSETS: Beginning of year......................................... 289,874,300 250,910,221 ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $297,248,951 $289,874,300 ------------------------------------------------------------------------------------------ * Includes undistributed net investment income of:.......... $48,121 $151,483 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 54 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
HIGH YIELD BOND TRUST 2004 2003 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 6,907,148 $ 6,424,038 Net realized gain (loss).................................. (362,305) 4,327,306 Net change in unrealized appreciation/depreciation........ 1,617,958 8,815,307 Net increase from payment by affiliates (Note 2).......... 75,068 -- ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS.................... 8,237,869 19,566,651 ------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (6,987,891) (6,515,534) Net realized gains........................................ (65,843) -- ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS........................................... (7,053,734) (6,515,534) ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 19,629,157 27,613,135 Net asset value of shares issued for reinvestment of dividends and distributions............................ 7,053,734 6,515,534 Cost of shares reacquired................................. (17,180,397) (12,145,093) ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 9,502,494 21,983,576 ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS...................................... 10,686,629 35,034,693 NET ASSETS: Beginning of year......................................... 95,852,330 60,817,637 ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $106,538,959 $ 95,852,330 ------------------------------------------------------------------------------------------ * Includes undistributed (overdistributed) net investment income of:................................................ $(28,233) $53,663 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 55 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31,
CAPITAL APPRECIATION FUND 2004 2003 --------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss).............................. $ (1,463,757) $ 1,291,989 Net realized loss......................................... (47,038,979) (94,520,746) Net change in unrealized appreciation/depreciation........ 223,220,300 297,635,244 --------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 174,717,564 204,406,487 --------------------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... -- (389,109) Return of Capital......................................... -- (64,253) --------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS........................................... -- (453,362) --------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 4,387,734 14,007,803 Net asset value of shares issued for reinvestment of dividends and distributions............................ -- 453,362 Cost of shares reacquired................................. (122,503,664) (97,001,290) --------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (118,115,930) (82,540,125) --------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 56,601,634 121,413,000 NET ASSETS: Beginning of year......................................... 985,742,039 864,329,039 --------------------------------------------------------------------------------------------------- END OF YEAR............................................... $1,042,343,673 $985,742,039 ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 56 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31,
MONEY MARKET PORTFOLIO 2004 2003 -------------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 3,375,116 $ 3,029,174 Net realized gain (loss).................................. 16 (146) -------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 3,375,132 3,029,028 -------------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income..................................... (3,375,116) (3,028,884) -------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (3,375,116) (3,028,884) -------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 183,076,228 265,892,702 Net asset value of shares issued for reinvestment of dividends.............................................. 3,223,605 3,072,564 Cost of shares reacquired................................. (229,178,505) (316,384,220) -------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (42,878,672) (47,418,954) -------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS...................................... (42,878,656) (47,418,810) NET ASSETS: Beginning of year......................................... 345,825,352 393,244,162 -------------------------------------------------------------------------------------------- END OF YEAR*.............................................. $ 302,946,696 $ 345,825,352 -------------------------------------------------------------------------------------------- * Includes undistributed net investment income of:.......... $7,965 $7,965 --------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 57 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31:
MANAGED ASSETS TRUST 2004(1) 2003 2002 2001(1) 2000(1) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............... $15.72 $13.20 $15.55 $17.94 $21.12 -------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income.......................... 0.37 0.39 0.45 0.49 0.48 Net realized and unrealized gain (loss)........ 1.11 2.51 (1.79) (1.40) (0.71) -------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations.............. 1.48 2.90 (1.34) (0.91) (0.23) -------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income.......................... (0.39) (0.38) (0.92) (0.46) (0.41) Net realized gains(2).......................... (0.14) -- (0.09) (1.02) (2.54) -------------------------------------------------------------------------------------------------------- Total Dividends and Distributions................ (0.53) (0.38) (1.01) (1.48) (2.95) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR..................... $16.67 $15.72 $13.20 $15.55 $17.94 -------------------------------------------------------------------------------------------------------- TOTAL RETURN(3).................................. 9.44% 21.98% (8.60)% (5.08)% (1.62)% -------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000S)................... $297,249 $289,874 $250,910 $307,520 $342,834 -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................... 0.60%(5) 0.59% 0.61% 0.59% 0.59% Net investment income.......................... 2.31 2.64 2.80 2.95 2.47 -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.......................... 64% 84% 39% 59% 56% --------------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST(1) 2004 2003 2002 2001 2000 -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............... $9.76 $8.11 $9.04 $8.77 $9.47 -------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income.......................... 0.70 0.77 0.78 0.80 0.79 Net realized and unrealized gain (loss)........ 0.16 1.59 (0.40) 0.04 (0.70) -------------------------------------------------------------------------------------------------------- Total Income From Operations..................... 0.86 2.36 0.38 0.84 0.09 -------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income.......................... (0.70) (0.71) (1.31) (0.57) (0.79) Net realized gains(2).......................... (0.01) -- -- -- -- -------------------------------------------------------------------------------------------------------- Total Dividends and Distributions................ (0.71) (0.71) (1.31) (0.57) (0.79) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR..................... $9.91 $9.76 $8.11 $9.04 $8.77 -------------------------------------------------------------------------------------------------------- TOTAL RETURN(3).................................. 8.75%(6) 29.15% 4.57% 9.55% 0.97% -------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000S)................... $106,539 $95,852 $60,818 $50,016 $34,678 -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................... 0.60%(5) 0.65% 0.71% 0.73% 0.83% Net investment income.......................... 7.08 8.28 8.81 8.79 8.74 -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.......................... 79% 80% 100% 110% 80% --------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (4) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 1.25%. (5) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion of its fee and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or expenses reimbursed, actual expense ratios would have been 0.61% and 0.63% for Managed Assets Trust and High Yield Bond Trust, respectively. (6) The adviser fully reimbursed the Fund for losses incurred resulting from violations of the Fund's investment restrictions. Without this reimbursement, the Fund's total return would have been 8.64%. SEE NOTES TO FINANCIAL STATEMENTS. 58 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
CAPITAL APPRECIATION FUND 2004(1) 2003(1) 2002(1) 2001(1) 2000 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $55.41 $44.38 $60.30 $82.01 $108.80 ------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income (loss)................. (0.09) 0.07 0.14 0.61 0.29 Net realized and unrealized gain (loss)...... 10.91 10.99 (15.24) (22.01) (23.29) ------------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............ 10.82 11.06 (15.10) (21.40) (23.00) ------------------------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income........................ -- (0.03) (0.81) (0.31) (0.04) Net realized gains(2)........................ -- -- -- -- (3.75) Return of Capital............................ -- (0.00)* (0.01) -- -- ------------------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions.............. -- (0.03) (0.82) (0.31) (3.79) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $66.23 $55.41 $44.38 $60.30 $ 82.01 ------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................ 19.53% 24.91% (25.09)% (26.09)% (21.88)% ------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (MILLIONS)............. $1,042 $986 $864 $1,300 $1,797 ------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................. 0.81%(5) 0.82% 0.84% 0.84% 0.83% Net investment income (loss)................. (0.15) 0.14 0.27 0.91 0.30 ------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................ 16% 59% 52% 47% 30% ------------------------------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------------------------------------------------- Net investment income.......................... 0.01 0.008 0.014 0.036 0.060 Dividends from net investment income........... (0.01) (0.008) (0.014) (0.036) (0.060) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................ 1.01% 0.78% 1.39% 3.71% 6.18% ------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000s)................. $302,947 $345,825 $393,244 $353,269 $147,117 ------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(6)(7)............................... 0.40% 0.40% 0.40% 0.40% 0.40% Net investment income........................ 1.00 0.78 1.38 3.46 6.04 -------------------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (4) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 1.25%. (5) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion of its fee and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or expenses reimbursed, actual expense ratio would have been 0.82%. (6) The Travelers Insurance Company has agreed to reimburse the Fund for certain expenses for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively. In addition, Smith Barney Fund Management LLC voluntarily waived a portion of its fee for the year ended December 31, 2004. If such expenses were not reimbursed and/or fees voluntarily waived, actual expense ratios would have been 0.42% for each of the years ended December 31, 2004, 2003, 2002, 2001 and 0.44% for the year ended December 31, 2000. (7) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 0.40%. * Amount represents less than $0.01 per share. SEE NOTES TO FINANCIAL STATEMENTS. 59 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT"), Capital Appreciation Fund ("CAF") and Money Market Portfolio ("MMP") (collectively, "Fund(s)") are each a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as diversified, open-end management investment companies. Shares of the Funds are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. The following are significant accounting policies consistently followed by the Funds and are in conformity with U.S. generally accepted accounting principles ("GAAP"). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. (A) INVESTMENT VALUATION. Securities traded on national securities markets are valued at the closing prices on such markets. Securities for which no sales price was reported and U.S. government agencies and obligations are valued at the mean between the quoted bid and asked prices or on the basis of quotations received from unaffiliated reputable brokers or other recognized sources. Securities, other than U.S. government agencies and obligations, that have a maturity of more than 60 days are valued at prices based on market quotations for securities of similar type, yield and maturity. Securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sale price. When market quotations or official closing prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before each Fund calculates its net asset value, the Funds may value these investments at fair value as determined in accordance with the procedures approved by the Funds' Board of Trustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. Short-term obligations maturing within 60 days are valued at amortized cost, which approximates value. (B) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is the Funds' policy that a custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Funds may be delayed or limited. (C) FUTURES CONTRACTS. The Funds may enter into futures contracts to the extent permitted by their investment policies and objectives. Upon entering into a futures contract, the Funds are required to deposit cash or securities as initial margin. Additional securities are also segregated up to the current market value of the futures contracts. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying financial instrument, are made or received by the Funds each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Funds record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund's basis in the contracts. The Funds enter into such contracts typically to hedge a portion of the portfolio. The risks associated with entering into futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. In addition, investing in futures contracts involves the risk that the Funds could lose more than the original margin deposit and subsequent payments required for a futures transaction. (D) FORWARD FOREIGN CURRENCY CONTRACTS. Certain Funds may enter into forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The contract is marked-to-market daily and the change in value is recorded by the Funds as an unrealized gain or loss. When a forward foreign currency contract is extinguished, through either delivery or offset by entering into another forward foreign currency contract, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was extinguished or offset. The Funds bear the market risk that arises from changes in foreign currency exchange rates and the credit risk should a counterparty fail to meet the terms of such contracts. 60 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) (E) CREDIT AND MARKET RISK. HYBT invests in high-yield instruments that are subject to certain credit and market risks. The yields of high-yield debt obligations reflect, among other things, perceived credit risk. The Fund's investment in securities rated below investment-grade typically involves risks not associated with higher rated securities including, among others, greater risk of timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. (F) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Funds determine the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. (G) FOREIGN CURRENCY TRANSLATION. The books and records of the Funds are maintained in U.S. dollars. Transactions denominated in foreign currencies are recorded at the current prevailing exchange rates. All assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the current exchange rates at the end of the period. Translation gains or losses resulting from changes in the exchange rates during the reporting period and realized gains and losses on the settlement of foreign currency transactions are reported in the statement of operations for the current period. The Funds do not isolate that portion of realized gains and losses on investments in securities, which are due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities. (H) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net investment income for MAT, HYBT and CAF, if any, are declared on an annual basis. Dividends on the shares of MMP are declared each business day to shareholders of record that day, and are paid on the last business day of the month. Distributions of net realized gains to shareholders of the Funds, if any, are declared at least annually. Dividends and distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from GAAP. (I) FEDERAL AND OTHER TAXES. It is the Funds' policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (J) RECLASSIFICATION. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $15,779 has been reclassified between undistributed net investment income and accumulated net realized gain from investment transactions as a result of permanent differences attributable to the tax treatment of distributions from real estate investment trust securities for MAT. Additionally, $215,382 has been reclassified between paid-in capital and accumulated net realized loss from investment transactions as a result of other permanent differences between book and tax, and $1,153 has been reclassified between undistributed net investment income and accumulated net realized loss from investment transactions due to differences between book foreign currency transactions treated as ordinary income for tax purposes and income from mortgage backed securities treated as capital gains for tax purposes for HYBT. Also $1,479,979 has been reclassified between paid-in capital and net investment loss due to a net operating loss and $16,222 has been reclassified between net investment loss and accumulated net realized loss from investment transactions due to differences between book foreign currency transactions treated as ordinary income for tax purposes for CAF. These reclassifications have no effect on net assets or net asset values per share. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment adviser to MAT, HYBT, CAF and MMP. MAT and MMP pay TAMIC an investment advisory fee calculated at the annual rate of 0.50% and 0.3233%, respectively, of their average daily net assets. Prior to September 1, 2004, CAF paid TAMIC an investment advisory fee calculated at the annual rate of 0.75% of its average daily net assets. HYBT pays TAMIC an investment advisory fee calculated at an annual rate of 0.50% on the first $50 million, 0.40% on the next $100 million, 0.30% on the next $100 million and 0.25% on the amount over $250 million of the average daily net assets of HYBT. These fees are calculated daily and paid monthly. 61 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) During the year ended December 31, 2004, TAMIC reimbursed HYBT in the amount of $75,068 for losses incurred resulting from violations of the Fund's investment restrictions. Effective September 1, 2004, the investment advisory fee for CAF was revised from the annual rate of 0.75% of the daily net assets of the fund, to a fee calculated at an annual rate in accordance with the following schedule:
INVESTMENT AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ First $1.5 billion.......................................... 0.700% Over $1.5 billion........................................... 0.650%
TAMIC has a sub-advisory agreement with The Travelers Investment Management Company ("TIMCO"), another indirect wholly-owned subsidiary of Citigroup. Pursuant to the sub-advisory agreement, TIMCO is responsible for the day-to-day portfolio operations and investment decisions for the equity portion of MAT. As a result, TAMIC pays TIMCO, as sub-adviser, an advisory fee calculated at an annual rate of 0.25% of the average daily net assets of MAT. TAMIC also has a sub-advisory agreement with Janus Capital Management LLC ("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the day-to-day portfolio operations and investment decisions for CAF. As a result, prior to September 1, 2004, TAMIC paid Janus, as sub-adviser, an advisory fee calculated at an annual rate of 0.55% on the first $100 million, 0.50% on the next $400 million and 0.45% on the amount over $500 million of the average daily net assets of CAF. Effective September 1, 2004, the advisory fee TAMIC pays Janus was revised to a fee calculated at an annual rate of 0.50% on the first $100 million, 0.45% on the next $400 million, 0.40% on the next $1 billion and 0.35% on the amount over $1.5 billion of the average daily net assets of CAF. The Travelers Insurance Company ("TIC"), another indirect wholly-owned subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC an administration fee calculated at an annual rate of 0.06% of the average daily net assets of each respective Fund. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative services agreement with Smith Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund's average daily net assets. During the year ended December 31, 2004, the Funds had in place contractual expense limitations of 1.25% for each of the Funds MAT, HYBT and CAF and 0.40% for MMP. As a result, TIC has agreed to reimburse MMP for expenses in the amount of $56,597. These expense limitations are renewed annually and can be terminated at any time by TIC with 60 days' notice. During the year ended December 31, 2004, SBFM voluntarily waived a portion of its fee in the amount of $1,726, $1,679, $1,698 and $1,726 for MAT, HYBT, CAF and MMP, respectively. In addition, for the year ended December 31, 2004, SBFM reimbursed expenses in the amount of $31,759 for each of the Funds MAT, HYBT and CAF, in connection with the overpayment of transfer agent fees relating to the period from June 1999 through June 2004. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Funds' transfer agent. For the year ended December 31, 2004, each Fund paid transfer agent fees of $2,500 to CTB. One Trustee and all officers of the Funds are employees of Citigroup or its affiliates and do not receive compensation from the Funds. 3. INVESTMENTS During the year ended December 31, 2004, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments and proceeds from paydowns) were as follows:
MAT HYBT CAF ------------------------------------------------------------------------------------------------------- Purchases................................................... $183,091,187 $78,813,239 $148,908,135 ------------------------------------------------------------------------------------------------------- Sales....................................................... 195,426,565 65,387,042 271,525,921 -------------------------------------------------------------------------------------------------------
62 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) At December 31, 2004, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
MAT HYBT CAF ------------------------------------------------------------------------------------------------------- Gross unrealized appreciation............................... $ 41,538,817 $ 8,583,112 $390,636,644 Gross unrealized depreciation............................... (11,063,528) (1,073,969) (5,987,235) ------------------------------------------------------------------------------------------------------- Net unrealized appreciation................................. $ 30,475,289 $ 7,509,143 $384,649,409 -------------------------------------------------------------------------------------------------------
At December 31, 2004, MAT had the following open futures contracts:
NUMBER OF EXPIRATION BASIS MARKET UNREALIZED CONTRACTS DATE VALUE VALUE LOSS ---------------------------------------------------------------------------------------------------------------- CONTRACTS TO BUY: S&P 500 Index.............................. 10 3/05 $3,036,930 $3,034,250 $(2,680) ----------------------------------------------------------------------------------------------------------------
At December 31, 2004, HYBT had the following open forward foreign currency contracts. The unrealized gain on the contract reflected in the accompanying financial statements was as follows:
LOCAL MARKET SETTLEMENT UNREALIZED FORWARD FOREIGN CURRENCY CONTRACTS CURRENCY VALUE DATE GAIN -------------------------------------------------------------------------------------------------------------- CONTRACTS TO SELL: Euro...................................................... 350,000 $474,126 3/9/05 $2,875 -------------------------------------------------------------------------------------------------------------- TOTAL UNREALIZED GAIN ON OPEN FORWARD FOREIGN CURRENCY CONTRACTS................................ $2,875 --------------------------------------------------------------------------------------------------------------
4. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Fund were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 --------------------------------------------------------------------------------------------------- MANAGED ASSETS TRUST Shares sold................................................. 494,356 620,844 Shares issued on reinvestment............................... 553,631 437,644 Shares reacquired........................................... (1,652,149) (1,625,662) --------------------------------------------------------------------------------------------------- Net Decrease................................................ (604,162) (567,174) --------------------------------------------------------------------------------------------------- HIGH YIELD BOND TRUST Shares sold................................................. 1,945,067 2,977,348 Shares issued on reinvestment............................... 712,609 668,649 Shares reacquired........................................... (1,725,432) (1,324,438) --------------------------------------------------------------------------------------------------- Net Increase................................................ 932,244 2,321,559 --------------------------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND Shares sold................................................. 76,603 308,890 Shares issued on reinvestment............................... -- 8,160 Shares reacquired........................................... (2,128,640) (2,001,426) --------------------------------------------------------------------------------------------------- Net Decrease................................................ (2,052,037) (1,684,376) --------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO Shares sold................................................. 183,076,228 265,892,702 Shares issued on reinvestment............................... 3,223,605 3,072,564 Shares reacquired........................................... (229,178,505) (316,384,220) --------------------------------------------------------------------------------------------------- Net Decrease................................................ (42,878,672) (47,418,954) ---------------------------------------------------------------------------------------------------
63 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal year ended December 31, 2004 was as follows:
MAT HYBT CAF MMP ---------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income........................................ $6,765,497 $6,987,891 $ -- $3,375,116 Net Long-term Capital Gains............................ 2,452,309 65,843 -- -- ---------------------------------------------------------------------------------------------------------- Total Distributions Paid................................. $9,217,806 $7,053,734 $ -- $3,375,116 ----------------------------------------------------------------------------------------------------------
The tax character of distributions paid during the fiscal year ended December 31, 2003 was as follows:
MAT HYBT CAF MMP ---------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income........................................ $6,863,313 $6,515,534 $389,109 $3,028,884 Return of Capital...................................... -- -- 64,253 -- ---------------------------------------------------------------------------------------------------------- Total Distributions Paid................................. $6,863,313 $6,515,534 $453,362 $3,028,884 ----------------------------------------------------------------------------------------------------------
As of December 31, 2004, the components of accumulated earnings (losses) on a tax basis was as follows:
MAT HYBT CAF MMP ----------------------------------------------------------------------------------------------------------- Undistributed ordinary income.......................... $ 48,121 $ 5,877 $ -- $ 7,965 Undistributed long-term capital gains.................. 1,756,492 -- -- -- ----------------------------------------------------------------------------------------------------------- Total undistributed earnings........................... 1,804,613 5,877 -- 7,965 Capital loss carryforward(1)........................... -- (306,393) (425,085,640) (7,791) Other book/tax temporary differences(2)................ 2,680 (2,875) (2,128,632) (14) Unrealized appreciation(3)............................. 30,472,612 7,509,128 384,656,944 -- ----------------------------------------------------------------------------------------------------------- Total accumulated earnings (losses).................... $32,279,905 $7,205,737 $ (42,557,328) $ 160 -----------------------------------------------------------------------------------------------------------
(1) On December 31, 2004 the Funds had net capital loss carryforwards as follows:
YEAR OF EXPIRATION HYBT CAF MMP ---------------------------------------------------------------------------------------------- 12/31/2008.................................................. -- $ 41,615,373 -- 12/31/2009.................................................. -- 151,852,985 -- 12/31/2010.................................................. -- 74,123,366 $7,645 12/31/2011.................................................. -- 104,924,615 146 12/31/2012.................................................. $306,393 52,569,301 -- ---------------------------------------------------------------------------------------------- $306,393 $425,085,640 $7,791 ----------------------------------------------------------------------------------------------
These amounts will be available to offset any future taxable capital gains. (2) Other book/tax temporary differences are attributable primarily to the difference between the realization for tax purposes of unrealized gains(losses) on certain futures contracts for MAT, the realization for tax purposes of unrealized gains(losses) on certain foreign currency contracts for HYBT, the deferral of post-October capital losses for tax purposes for CAF and MMP. (3) The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales. 6. ADDITIONAL INFORMATION In connection with an investigation previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup Asset Management ("CAM"), the Citigroup business unit that includes the funds' investment manager and other investment advisory companies; Citicorp Trust Bank ("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three other individuals, one of whom is an employee and two of whom are 64 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) former employees of CAM, that the SEC Staff is considering recommending a civil injunctive action and/or an administrative proceeding against each of them relating to the creation and operation of an internal transfer agent unit to serve various CAM-managed funds. In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated subcontractor to perform some of the transfer agent services. The subcontractor, in exchange, had signed a separate agreement with CAM in 1998 that guaranteed investment management revenue to CAM and investment banking revenue to a CAM affiliate. The subcontractor's business was later taken over by PFPC Inc., and at that time the revenue guarantee was eliminated and a one-time payment was made by the subcontractor to a CAM affiliate. CAM did not disclose the revenue guarantee when the boards of various CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the boards of the various CAM-managed funds the one-time payment received by the CAM affiliate when it was made. As previously disclosed, CAM has already paid the applicable funds, primarily through voluntary fee waivers, a total of approximately $17 million (plus interest), which is the amount of the revenue received by Citigroup relating to the revenue guarantee. In addition, the SEC Staff has indicated that it is considering recommending action based on the adequacy of the disclosures made to the fund boards that approved the transfer agency arrangement, CAM's initiation and operation of, and compensation for, the transfer agent business and CAM's retention of, and agreements with, the subcontractor. Citigroup is cooperating fully in the SEC's investigation and is seeking to resolve the matter in discussions with the SEC Staff. On January 20, 2005, Citigroup stated that it had established an aggregate reserve of $196 million ($25 million in the third quarter of 2004 and $171 million in the fourth quarter of 2004) related to its discussions with the SEC Staff. Settlement negotiations are ongoing and any settlement of this matter with the SEC will require approval by the Citigroup Board and acceptance by the Commission. Unless and until any settlement is consummated, there can be no assurance that any amount reserved by Citigroup will be distributed. Nor is there at this time any certainty as to how the proceeds of any settlement would be distributed, to whom any such distribution would be made, the methodology by which such distribution would be allocated, and when such distribution would be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. 7. SUBSEQUENT EVENT On January 31, 2005, Citigroup announced that it has reached an agreement with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction, TAMIC currently an indirect wholly owned subsidiary of Citigroup, would become an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser to the Funds. The transaction is subject to certain regulatory approvals, as well as other customary conditions to closing. The transaction is expected to close this summer. In connection with this transaction, the Trust's Board of Trustees will be asked to approve new investment advisory and administrative services contracts, and, to the extent required by law, variable annuity and variable life contract owners, who beneficially own the shares of the funds, will be asked to approve new investment advisory agreements. 65 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE SHAREHOLDERS AND BOARD OF TRUSTEES OF MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND AND MONEY MARKET PORTFOLIO: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio ("Funds") as of December 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio as of December 31, 2004, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles. [KPMG LLP SIGNATURE] New York, New York February 18, 2005 66 -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION (UNAUDITED) The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2004:
MANAGED ASSETS HIGH YIELD MONEY MARKET TRUST BOND TRUST FUND ----------------------------------------------------------------------------------------------------- Record Date.............................................. 12/27/2004 6/24/2004 Daily Payable Date............................................. 12/28/2004 6/25/2004 Monthly ----------------------------------------------------------------------------------------------------- Dividends Qualifying for the Dividends Received Deduction for Corporations....................................... 52.30% -- -- ----------------------------------------------------------------------------------------------------- Interest from Federal Obligations........................ 8.40% -- 2.31% ----------------------------------------------------------------------------------------------------- Long-Term Capital Gain per share......................... $ 0.141700 $0.006800 $ -- -----------------------------------------------------------------------------------------------------
The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult with your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes. Please retain this information for your records. 67 -------------------------------------------------------------------------------- MANAGER OVERVIEW U.S. GOVERNMENT SECURITIES PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, U.S. Government Securities Portfolio returned 6.13%. The fund outperformed its unmanaged benchmark, the Merrill Lynch U.S. Treasury/Agency Master Index(i), which returned 3.42%, for the same period. The fund underperformed its other unmanaged composite benchmark, the Merrill Lynch U.S. Treasuries 15+ Years/Merrill Lynch Mortgage Master Index(ii), which returned 6.53%, for the same period. The fund outperformed the fund's Lipper Variable General U.S. Government funds category average(2), which was 3.92%. MARKET/ECONOMIC OVERVIEW The economic expansion entered its fourth year at the close of 2004. Led by strong consumer and business demand, the balance of growth was quite healthy. The employment picture improved during the year, as rising profits led to increased corporate willingness to hire new employees. Strong consumer and business fundamentals appear likely to continue into 2005 and consumer spending looks to strengthen further relative to last year. Inflation began to rise modestly in 2004 as shortages of certain goods and commodities developed around the world. In 2005, inflation pressures look to rise as healthy growth continues to improve corporate pricing power. The ongoing economic recovery and rising price pressures caused the Federal Reserve Board ("Fed")(iii) to institute a series of five 25 basis point(iv) rate hikes, beginning in mid-2004. This trend looks to continue well into 2005. CONTRIBUTORS TO PERFORMANCE In the credit market, the mortgage sector posted the second highest return behind corporate securities during the period. Mortgage-backed securities ("MBS") outperformed collateralized mortgage-backed securities ("CMBS"), asset-backed securities, and Treasuries. 15-years MBS underperformed 30-years as the yield curve(v) flattened and 3-year Treasuries were the worst performer on the yield curve. Our discount MBS generated the best total returns for both 15-year and 30-year maturities. Within the portfolio, our Federal Home Loan Mortgage Corporation(vi) ("Freddie Mac") and Federal National Mortgage Association(vii) ("Fannie Mae") 30-year securities were the best performers, as 30-years outperformed 15-year absolute returns. This occurred due to an increase in interest rates, yield curve flattening, and a decline in volatility. Our discount Government National Mortgage Association(viii) ("Ginnie Mae") position outperformed conventional 30-year maturities. In addition, overall performance was enhanced by an overweight in discount 30-year securities versus 15-year issues with high coupons. Our underweight in Treasuries and elimination of all Treasuries with maturities less than five years also contributed to results. An overweight in agency securities versus Treasuries was also beneficial, despite the volatility in agency spreads during the fiscal year. While our overweight in CMBS was a negative versus MBS, it helped reduce our exposure to the short end of the yield curve. The portfolio's poorest performing sectors were MBS balloons (where the final loan payment is considerably higher than prior payments) and CMOs, as both yield curve and spread changes of these securities led to underperformance. (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 56 funds in the fund's Lipper category, and excluding sales charges. 68 Thank you for your investment in the U.S. Government Securities Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ Gene Collins Gene C. Collins Travelers Asset Management International Company LLC January 14, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's security type holdings (as a percentage of net assets) as of December 31, 2004 were: U.S. Government Agency Obligations (55.4%); U.S. Government Obligations (25.4%); Repurchase Agreement (23.9%) and Collateralized Mortgage Obligations (13.8%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The Merrill Lynch U.S. Treasury/Agency Master Index is an index comprised of U.S. Treasury and Agency securities. (ii) The Merrill Lynch U.S. Treasuries 15+ Years Index tracks the performance of the direct Sovereign debt of the U.S. Government. It includes all U.S. dollar-denominated U.S. Treasury Notes and Bonds having at least 15 years remaining term to maturity and a minimum amount outstanding of $1 billion. The Merrill Lynch Mortgage Master Index (also called the Mortgage Backed Securities Index) tracks the performance of the U.S. dollar-denominated 30-year, 15-year and balloon pass through mortgage securities having at least $150 million outstanding per generic production year (defined as the aggregation of all mortgage pools having a common issuer, type, coupon and production year.) (iii) The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. (iv) A basis point is one one-hundredth (1/100 or 0.01) of one percent. (v) The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality, but different maturities. (vi) Federal Home Loan Mortgage Corporation obligations are mortgage-backed securities, issued in minimum denominations of $25,000, that are packaged, guaranteed and sold by the Federal Home Loan Mortgage Corporation. (vii) Federal National Mortgage Association obligations are securities consisting mostly of mortgages backed by the Federal Housing Administration. These obligations also include some mortgages that are not backed by the U.S. government. (viii) Government National Mortgage Association obligations are pass-through mortgage-backed securities consisting of a pool of residential mortgage loans. All payments of principal and interest are passed through to investors each month. 69 -------------------------------------------------------------------------------- FUND AT A GLANCE -- U.S. GOVERNMENT SECURITIES PORTFOLIO (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT BREAKDOWN As a Percent of Total Investments (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- U.S. Government Agency Obligations 46.80 58.00 U.S. Government Obligations 21.40 22.80 Collateralized Mortgage Obligations 11.70 10.60 Repurchase Agreement 20.10 8.60
70 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 6.13% Five Years Ended 12/31/04 8.47 Ten Years Ended 12/31/04 8.46 CUMULATIVE TOTAL RETURN ----------------------- Ten Years Ended 12/31/04 125.32%
This chart assumes an initial investment of $10,000 made on December 31, 1994, assuming reinvestment of dividends, through December 31, 2004. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. The Merrill Lynch U.S. Treasury/Agency Master Index (also known as the U.S. Government Index) tracks the performance of the combined U.S. Treasury and U.S. Agency markets. The Merrill Lynch U.S. Treasuries 15+ Years Index tracks the performance of the direct Sovereign debt of the U.S. Government. It includes all U.S. dollar-denominated U.S. Treasury Notes and Bonds having at least 15 years remaining term to maturity and a minimum amount outstanding of $1 billion. The Merrill Lynch Mortgage Master Index (also called the Mortgage Backed Securities Index) tracks the performance of the U.S. dollar-denominated 30-year, 15-year and balloon pass-through mortgage securities having at least $150 million outstanding per generic production year (defined as the aggregation of all mortgage pools having a common issuer, type, coupon and production year.) (LINE GRAPH)
50% MERRILL LYNCH U.S. TREASURIES 15+ YEARS INDEX AND 50% MERRILL LYNCH U.S. MERRILL LYNCH U.S. GOVERNMENT TREASURY/AGENCY MORTGAGE MASTER SECURITIES PORTFOLIO CONSUMER PRICE INDEX MASTER INDEX INDEX -------------------- -------------------- ------------------ ------------------- 12/94 10000 10000 10000 10000 12/95 12442 10254 11831 12423 12/96 12623 10594 12158 12684 12/97 14216 10774 13325 14250 12/98 15666 10947 14637 15745 12/99 15004 11273 14328 15143 12/00 17185 11656 16207 17588 12/01 18185 11837 17370 18635 12/02 20663 12119 19328 21106 12/03 21231 12347 19784 21688 12/04 22532 12749 20460 23103
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 71 -------------------------------------------------------------------------------- MANAGER OVERVIEW SOCIAL AWARENESS STOCK PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, Social Awareness Stock Portfolio returned 6.23%. The fund underperformed its unmanaged benchmark, the S&P 500 Index(i), which returned 10.87% for the same period. It also underperformed its Lipper Variable Specialty/Miscellaneous funds category average(2), which was 7.82%. The fiscal year was one in which energy and other commodity-related, or so-called "dirtier" industries from a social investing standpoint, outperformed significantly as a result of several factors. Energy and commodity supply had been constrained as a result of the economic downturn. However, demand, particularly from fast growing economies such as China, grew rapidly at the same time that geopolitical issues in the Middle East caused lower oil inventories and higher premiums for the commodity. The fund's underperformance relative to its benchmark can be primarily attributed to lower exposure to energy and commodity-related sectors. In addition, the fund's larger exposure and weak stock selection in underperforming sectors such as technology and consumer discretionary detracted from results. However, the fund's performance was helped by strong stock selection in the financial, healthcare, and transportation sectors. MARKET/ECONOMIC OVERVIEW During 2004, domestic economic growth continued to show clear signs of improvement but the stock market traded in a narrow range due to several issues. The U.S. presidential election, the war in Iraq, energy prices, trade imbalances, U.S. dollar depreciation, lackluster job growth, and a growing budget deficit took precedence over positive factors such as continued gross domestic product ("GDP")(ii) growth and strong corporate earnings. However, following the resolution of the presidential election and, combined with declining oil prices, stocks moved sharply higher in the fourth quarter. We believe that interest rates and earnings will be the main determinants of stock prices in 2005. We continue to see the Federal Reserve Board ("Fed")(iii) raising interest rates in a measured fashion throughout the first part of the year. The Fed will then likely begin to moderate this stance to provide a balance between a growing economy and a very interest rate sensitive consumer. This scenario has historically been a good environment for stocks in general and high quality large cap growth stocks in particular. We feel that a transition in equity marketplace leadership is starting to take hold as fundamental factors begin to take precedence in the later stages of the current economic recovery. With our focus on fundamental investing, we believe shareholders can participate in the potential growth and revaluation of companies that offer the most attractive attributes. With interest rates still at low levels, we feel that companies that are competitively well positioned and conservatively financed offer compelling investment opportunities. CONTRIBUTORS TO PERFORMANCE The biggest contributor to the fund's performance for the period was its position in financial services stock SLM CORP. SLM Corp.'s shares benefited from the U.S. presidential election as the Kerry platform was viewed as potentially detrimental to the student loan business model. The fund's other two top contributors were TYCO INTERNATIONAL LTD. in the industrials sector and NETWORK APPLIANCE, INC. in the information technology sector. Tyco International Ltd. has benefited from the infusion of a new management team. The company has restructured its operations and balance sheet significantly and is now better positioned to benefit from the economic recovery. Network Appliance, Inc. continues to gain market share and grow at a very strong rate in its storage systems business. (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 136 funds in the fund's Lipper category, and excluding sales charges. 72 On the negative side, the largest single detractor from performance during the period was INTEL CORP. in the information technology sector. Intel suffered a considerable drop in its share price due to concerns that the recovery in technology spending would not be as robust as investors had expected. We continue to own Intel as we expect the longer term growth for the company to outweigh this short term issue. The other two largest detractors from performance were PFIZER INC. and VISHAY INTERTECHNOLOGY, INC. Pfizer's shares fell sharply as a result of its disclosure of research that showed an increase in heart attacks in patients who were using an elevated dosage of their product Celebrex. We continue to own Pfizer, as we believe the stock has sold off more than the situation warrants. However, we'll continue to monitor the issue closely. Vishay suffered the same issues confronted by Intel and we also expect its longer term growth potential and high quality franchise outweigh the short term issues confronting the company. In summary, our core philosophy continues to be based on investing in leading companies across a broad cross section of sectors and industries. Our selection process focuses on companies that we perceive to have significant advantages and excellent competitive positions in the marketplace. With interest rates still at low historical levels, we believe that well positioned and conservatively financed companies could once again sell at a premium to the overall market. Thank you for your investment in the Social Awareness Stock Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ Bill Theriault William Theriault Smith Barney Fund Management LLC January 12, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: Mocrosoft Corp. (2.9%), Tyco International Ltd. (2.7%), VERITAS Software Corp. (2.6%), SLM Corp. (2.6%), Teva Pharmaceutical Industries Ltd., Sponsored ADR (2.2%), Intel Corp. (2.2%), Amgen Inc. (2.2%), BP PLC, Sponsored ADR (2.0%), Nokia oyj, Sponsored ADR (1.9%) and Pfizer Inc. (1.9%). Please refer to pages 84 through 88 for a list and percentage breakdown of the fund's holdings. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Information Technology (24.7%); Financials (19.7%); Healthcare (14.4%); Industrials (11.7%) and Consumer Discretionary (11.1%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. (ii) Gross domestic product is a market value of goods and services produced by labor and property in a given country. (iii) The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. 73 -------------------------------------------------------------------------------- FUND AT A GLANCE -- SOCIAL AWARENESS STOCK PORTFOLIO (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT BREAKDOWN As a Percent of Total Investments (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Information Technology 24.60 23.50 Financials 19.60 18.30 Healthcare 14.40 15.10 Industrials 11.70 11.50 Consumer Discretionary 11.00 12.80 Energy 6.30 5.70 Materials 6.00 6.00 Consumer Staples 5.30 6.00 Utilities 0.80 0.80 Repurchase Agreement 0.30 0.30
74 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 6.23% Five Years Ended 12/31/04 (2.90) Ten Years Ended 12/31/04 10.42 CUMULATIVE TOTAL RETURN ------------------------ Ten Years Ended 12/31/04 169.40%
This chart assumes an initial investment of $10,000 made on December 31, 1994, assuming reinvestment of dividends, through December 31, 2004. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and the over-the-counter markets. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [LINE GRAPH]
SOCIAL AWARENESS STOCK PORTFOLIO S&P 500 INDEX CONSUMER PRICE INDEX ---------------------- ------------- -------------------- 12/94 10000.00 10000.00 10000.00 12/95 13337.00 13753.00 10254.00 12/96 16002.00 16910.00 10594.00 12/97 20368.00 22550.00 10774.00 12/98 26940.00 29031.00 10947.00 12/99 31206.00 35137.00 11273.00 12/00 31054.00 31939.00 11656.00 12/01 26177.00 28145.00 11837.00 12/02 19682.00 21926.00 12119.00 12/03 25360.00 28213.00 12347.00 12/04 26940.00 31279.00 12749.00
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 75 -------------------------------------------------------------------------------- MANAGER OVERVIEW PIONEER FUND PORTFOLIO SPECIAL SHAREHOLDER NOTICE The Board of Trustees of the trust, on behalf of the fund, approved an amendment to the investment advisory agreement between the fund and Travelers Asset Management International Company LLC. Effective December 1, 2004, the investment advisory fee was revised from the annual rate of 0.75% of the average daily net assets of the fund to a fee calculated at an annual rate in accordance with the following schedule:
INVESTMENT AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ First $250 million.......................................... 0.750% Next $250 million........................................... 0.700% Next $500 million........................................... 0.675% Next $1 billion............................................. 0.650% Amounts over $2 billion..................................... 0.600%
PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, Pioneer Fund Portfolio returned 11.13%. The fund outperformed its unmanaged benchmark, the S&P 500 Index(i), which returned 10.87% for the same period. They also outperformed the fund's Lipper Variable Large-Cap Core funds category average(2), which was 8.59%. MARKET/ECONOMIC OVERVIEW A quick resolution to the presidential election, generally upbeat economic news, a strong bond market, and the absence of an "external shock" helped the U.S. stock market break out of its year-long trading range and rally sharply during the fourth quarter of 2004. For the year as a whole, the broad market, as measured by the S&P 500 Index, returned 10.87%. Our outlook on the economy over the next two years is positive and, as a result, we think there will continue to be good opportunities for profitable investment in stocks. We're monitoring, among other factors, the interest rate scenario and the probability of further rate increases, as well as the dollar weakness and its impact on both U.S. and international companies. At the same time, we're closely following the possibility of profit-taking and a rotation out of cyclical stocks and industrials into consumer, healthcare, and technology companies. As always, we'll strive to position the fund to capitalize on these trends and will remain substantially fully invested at all times. CONTRIBUTORS TO PERFORMANCE Both security selection and sector weighting decisions contributed positively to performance during the fiscal year. From a stock selection perspective, the fund's holdings in the healthcare and industrials sectors generated the strongest results, while selection in consumer staples and financials also contributed materially. In healthcare, the portfolio benefited from gains by JOHNSON & JOHNSON, ABBOTT LABORATORIES, and ROCHE HOLDING AG. In the industrials sector, our holdings in machinery companies CATERPILLAR INC. and DEERE & CO. proved beneficial, as did our overweight in heavy truck manufacturer, PACCAR INC. In the road & rail industry, railroad NORFOLK SOUTHERN CORP. reported strong earnings and the fund's overweight position in the stock provided an additional boost to relative performance. In financials, T. ROWE PRICE GROUP INC. was strong, due in part to its solid third quarter earnings. The company posted an 11% annualized organic growth figure and is currently hiring more employees to keep up with the successful growth of assets under management. Strong returns from MERRILL LYNCH & CO., INC., STATE STREET CORP., and THE BANK OF NEW YORK CO., INC. also enhanced results. (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 216 funds in the fund's Lipper category, and excluding sales charges. 76 Conversely, returns were held back slightly by stock selection in the telecommunication services and utilities sectors. In telecommunications, both BELLSOUTH CORP. and SBC COMMUNICATIONS INC. underperformed the broader sector on a relative basis. Thank you for your investment in the Pioneer Fund Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Respectfully Submitted, /s/ John Carey /s/ Walter Hunnewell, Jr. John A. Carey Walter Hunnewell, Jr. Pioneer Investment Management, Inc. Pioneer Investment Management, Inc.
January 11, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: ChevronTexaco Corp. (2.3%), Exxon Mobil Corp. (2.3%), The McGraw Hill Cos., Inc. (2.2%), Target Corp. (2.1%), Norfolk Southern Corp (2.0%), T. Rowe Price Group Inc. (1.9%), Johnson & Johnson (1.8%), Rio Tinto PLC, Sponsored ADR (1.8%), SBC Communications Inc. (1.7%) and Walgreen Co. (1.6%). Please refer to pages 89 through 94 for a list and percentage breakdown of the fund's holdings. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Financials (15.6%); Consumer Discretionary (13.9%); Industrials (13.4%); Information Technology (13.2%) and Healthcare (11.2%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. 77 -------------------------------------------------------------------------------- FUND AT A GLANCE -- PIONEER FUND PORTFOLIO (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT BREAKDOWN As a Percent of Total Investments (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Financials 15.60 16.50 Consumer Discretionary 13.80 13.30 Industrials 13.40 12.90 Information Technology 13.10 13.30 Healthcare 11.20 12.80 Consumer Staples 10.00 10.90 Energy 7.70 8.10 Materials 6.70 5.40 Telecommunications Services 3.60 3.40 Utilities 1.90 2.10 Repurchase Agreement 3.00 1.30
78 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- PIONEER FUND PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 11.13% Five Years Ended 12/31/04 (1.68) Ten Years Ended 12/31/04 6.94 CUMULATIVE TOTAL RETURN ----------------------- Ten Years Ended 12/31/04 95.66%
This chart assumes an initial investment of $10,000 made on December 31, 1994, assuming reinvestment of dividends, through December 31, 2004. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [LINE GRAPH]
PIONEER FUND PORTFOLIO S&P 500 INDEX CONSUMER PRICE INDEX ---------------------- ------------- -------------------- 12/94 10000 10000 10000 12/95 12929 13753 10254 12/96 14394 16910 10594 12/97 18034 22550 10774 12/98 21318 29031 10947 12/99 21300 35137 11273 12/00 26467 31939 11656 12/01 20381 28145 11837 12/02 14223 21926 12119 12/03 17606 28213 12347 12/04 19566 31279 12749
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. 79 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) EXAMPLE As a shareholder of the Funds, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. This example is based on an investment of $1,000 invested on July 1, 2004 and held for the six months ended December 31, 2004. ACTUAL EXPENSES The table below titled "Based on Actual Total Return" provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During the Period". -------------------------------------------------------------------------------- BASED ON ACTUAL TOTAL RETURN(1)
EXPENSES BEGINNING ENDING ANNUALIZED PAID ACTUAL TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE RETURN(2) VALUE VALUE RATIO PERIOD(3) ------------------------------------------------------------------------------------------------------------------ U.S. Government Securities Portfolio........ 6.19% $1,000.00 $1,061.90 0.40% $2.07 ------------------------------------------------------------------------------------------------------------------ Social Awareness Stock Portfolio............ 6.57 1,000.00 1,065.70 0.69 3.58 ------------------------------------------------------------------------------------------------------------------ Pioneer Fund Portfolio...................... 9.13 1,000.00 1,091.30 0.82 4.31 ------------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Assumes reinvestment of dividends and capital gain distributions, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (3) Expenses (net of voluntary fee waiver and/or expense reimbursements) are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. 80 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. -------------------------------------------------------------------------------- BASED ON HYPOTHETICAL TOTAL RETURN(1)
HYPOTHETICAL EXPENSES ANNUALIZED BEGINNING ENDING ANNUALIZED PAID TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE RETURN VALUE VALUE RATIO PERIOD(2) ----------------------------------------------------------------------------------------------------------------- U.S. Government Securities Portfolio.......... 5.00% $1,000.00 $1,023.13 0.40% $2.03 ----------------------------------------------------------------------------------------------------------------- Social Awareness Stock Portfolio.............. 5.00 1,000.00 1,021.67 0.69 3.51 ----------------------------------------------------------------------------------------------------------------- Pioneer Fund Portfolio........................ 5.00 1,000.00 1,021.01 0.82 4.17 -----------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Expenses (net of voluntary fee waiver and/or expense reimbursements) are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. 81 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2004 U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE AMOUNT SECURITY VALUE ---------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 25.4% $ 5,145,000 U.S. Treasury Notes, 4.250% due 11/15/14.................... $ 5,160,075 U.S. Treasury Bonds: 8,000,000 8.875% due 8/15/17 (a).................................... 11,339,376 7,500,000 6.000% due 2/15/26 (a).................................... 8,593,657 13,000,000 6.375% due 8/15/27 (a).................................... 15,614,222 1,000,000 5.250% due 2/15/29........................................ 1,049,297 U.S. Treasury Strip: 4,680,000 Zero Coupon bond to yield 3.789% due 5/15/09.............. 4,013,409 28,000,000 Zero Coupon bond to yield 5.660% due 2/15/27 (a).......... 9,113,608 ---------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $51,930,010)..... 54,883,644 ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 55.4% ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGHS -- 38.5% Federal Home Loan Mortgage Corp. (FHLMC): 228,632 4.000% due 5/1/19......................................... 223,757 1,964,049 5.000% due 7/1/19......................................... 1,996,145 4,779,187 5.000% due 8/1/19 (b)..................................... 4,857,288 251,913 7.000% due 7/1/29......................................... 263,760 56,501 8.000% due 9/1/30......................................... 61,247 573,530 7.500% due 5/1/32......................................... 614,430 2,662,206 4.500% due 4/1/33......................................... 2,576,563 Federal National Mortgage Association (FNMA): 7,309,240 4.500% due 9/1/19 (b)..................................... 7,307,037 1,476,494 4.000% due 1/19/20 (c)(d)................................. 1,441,427 650,000 4.500% due 1/19/20 (c)(d)................................. 647,969 671,269 7.500% due 11/1/29 (b).................................... 714,638 1,035,170 6.500% due 5/1/32 (b)..................................... 1,087,789 4,444,133 4.000% due 5/1/33 (b)..................................... 4,372,450 18,579,633 5.000% due 8/1/34 (b)..................................... 18,449,463 11,500,000 5.000% due 1/13/35 (c)(d)................................. 11,410,162 20,998,956 5.500% due 1/13/35 (c)(d)................................. 21,320,492 5,300,000 6.000% due 1/13/35 (c)(d)................................. 5,480,529 Government National Mortgage Association (GNMA): 325,765 9.000% due 9/15/09 (b).................................... 352,690 58,904 8.500% due 5/15/18 (b).................................... 64,981 ---------------------------------------------------------------------------------------- 83,242,817 ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY NOTES AND BONDS -- 16.9% 3,000,000 Federal National Mortgage Association (FNMA), 6.250% due 5/15/29................................................... 3,425,307 13,949,000 Financing Corp. (FICO) Strips, Series 13, Zero coupon bond to yield 6.373% due 6/27/11............................... 10,615,872 5,639,303 National Archives Facility Trust, COP, 8.500% due 9/1/19.... 6,945,332 10,000,000 Resolution Funding Corp. Strips, Zero coupon bond to yield 5.030% due 1/15/21........................................ 4,389,850 9,000,000 Tennessee Valley Authority, Global Power Bonds 2000, Series G, 7.125% due 5/1/30 (a).................................. 11,231,442 ---------------------------------------------------------------------------------------- 36,607,803 ---------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost -- $116,577,547).................................... 119,850,620 ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 82 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE AMOUNT SECURITY VALUE ---------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 13.8% $ 2,680,000 CS First Boston Mortgage Securities Corp., Series 2004-C5, Class AJ, 4.889% due 11/15/37............. $ 2,676,594 461,865 Federal Home Loan Mortgage Corp. (FHLMC), Series 1103, Class J, 8.500% due 6/15/21.................. 463,156 5,399,000 Federal National Mortgage Association (FNMA), Series 1999-15, Class PD, 6.000% due 4/25/19.............. 5,696,781 4,950,000 JPMorgan Chase Commercial Mortgage Securities Corp., Series 2004-CBX, Class AJ, 4.951% due 1/12/37............. 4,982,116 LB-UBS Commercial Mortgage Trust: 500,000 Series 2004-C2, Class A4, 4.367% due 3/15/36.............. 487,854 5,500,000 Series 2004-C8, Class AJ, 4.858% due 12/15/39............. 5,504,905 10,000,000 Morgan Stanley Capital I, Series 2004-HQ4, Class A7, 4.970% due 4/14/40............................................... 10,120,417 ---------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost -- $29,835,851)..................................... 29,931,823 ---------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 23.9% 51,615,000 State Street Bank & Trust Co., dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $51,621,022; (Fully collateralized by U.S. Treasury Bond, 8.750% due 5/15/20; Market value -- $52,650,408) (Cost -- $51,615,000)..................................... 51,615,000 ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 118.5% (Cost -- $249,958,408*)......... 256,281,087 Liabilities in Excess of Other Assets -- (18.5)%............ (39,960,168) ---------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $216,320,919 ----------------------------------------------------------------------------------------
(a) All or a portion of this security is segregated for "to be announced" securities. (b) Date shown represents the last in range of maturity dates. (c) Security is traded on a "to be announced" basis. (d) Security acquired under mortgage dollar roll agreement (See Note 3). * Aggregate cost for federal income tax purposes is substantially the same. Abbreviation used in this schedule: COP -- Certificate of Participation
SEE NOTES TO FINANCIAL STATEMENTS. 83 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- COMMON STOCK -- 100.0% ----------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 11.1% HOUSEHOLD DURABLES -- 1.8% 6,900 The Black & Decker Corp. ................................... $ 609,477 6,000 Centex Corp. ............................................... 357,480 7,117 KB Home..................................................... 743,015 ----------------------------------------------------------------------------------------- 1,709,972 ----------------------------------------------------------------------------------------- MEDIA -- 6.5% 24,400 Cablevision Systems Corp., NY Group Class A Shares (a)...... 607,560 4,700 Clear Channel Communications, Inc. ......................... 157,403 18,600 Comcast Corp., Special Class A Shares (a)................... 610,824 13,400 Omnicom Group Inc. ......................................... 1,129,888 73,300 Time Warner Inc. (a)........................................ 1,424,952 41,950 Viacom Inc., Class B Shares................................. 1,526,561 22,900 Westwood One, Inc. (a)...................................... 616,697 ----------------------------------------------------------------------------------------- 6,073,885 ----------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 0.6% 10,000 Target Corp. ............................................... 519,300 ----------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 2.2% 28,000 The Home Depot, Inc. ....................................... 1,196,720 15,200 Lowe's Cos., Inc. .......................................... 875,368 ----------------------------------------------------------------------------------------- 2,072,088 ----------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 10,375,245 ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 5.3% BEVERAGES -- 1.9% 22,400 The Coca-Cola Co. .......................................... 932,512 17,500 PepsiCo, Inc. .............................................. 913,500 ----------------------------------------------------------------------------------------- 1,846,012 ----------------------------------------------------------------------------------------- FOOD & DRUG RETAILING -- 0.8% 19,000 Sysco Corp. ................................................ 725,230 ----------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 2.1% 7,700 The Clorox Co. ............................................. 453,761 29,500 Colgate-Palmolive Co. ...................................... 1,509,220 ----------------------------------------------------------------------------------------- 1,962,981 ----------------------------------------------------------------------------------------- PERSONAL PRODUCTS -- 0.5% 10,500 The Gillette Co. ........................................... 470,190 ----------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES...................................... 5,004,413 ----------------------------------------------------------------------------------------- ENERGY -- 6.3% ENERGY EQUIPMENT & SERVICES -- 1.5% 17,300 GlobalSantaFe Corp. ........................................ 572,803 17,400 Noble Corp. (a)............................................. 865,476 ----------------------------------------------------------------------------------------- 1,438,279 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 84 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- OIL & GAS -- 4.8% 23,100 Apache Corp................................................. $ 1,168,167 32,726 BP PLC, Sponsored ADR....................................... 1,911,198 24,800 Royal Dutch Petroleum Co., NY Shares........................ 1,423,024 ----------------------------------------------------------------------------------------- 4,502,389 ----------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 5,940,668 ----------------------------------------------------------------------------------------- FINANCIALS -- 19.7% BANKS -- 3.2% 45,000 The Bank of New York Co., Inc. ............................. 1,503,900 7,200 Comerica Inc. .............................................. 439,344 6,500 Fifth Third Bancorp......................................... 307,320 11,500 Wells Fargo & Co. .......................................... 714,725 ----------------------------------------------------------------------------------------- 2,965,289 ----------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 10.8% 28,900 American Express Co. ....................................... 1,629,093 7,100 The Bear Stearns Cos. Inc. ................................. 726,401 5,100 Capital One Financial Corp. ................................ 429,471 16,200 The Charles Schwab Corp. ................................... 193,752 41,648 JPMorgan Chase & Co. ....................................... 1,624,688 29,750 MBNA Corp. ................................................. 838,653 10,000 Merrill Lynch & Co., Inc. .................................. 597,700 16,500 Morgan Stanley.............................................. 916,080 44,900 SLM Corp. .................................................. 2,397,211 11,100 State Street Corp. ......................................... 545,232 4,500 T. Rowe Price Group Inc. ................................... 279,900 ----------------------------------------------------------------------------------------- 10,178,181 ----------------------------------------------------------------------------------------- INSURANCE -- 5.7% 19,600 Ambac Financial Group, Inc. ................................ 1,609,748 22,460 American International Group, Inc. ......................... 1,474,948 14,000 Prudential Financial, Inc. ................................. 769,440 5,000 WellPoint Inc. (a).......................................... 575,000 11,300 XL Capital Ltd., Class A Shares............................. 877,445 ----------------------------------------------------------------------------------------- 5,306,581 ----------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 18,450,051 ----------------------------------------------------------------------------------------- HEALTHCARE -- 14.4% BIOTECHNOLOGY -- 3.6% 31,800 Amgen Inc. (a).............................................. 2,039,970 15,400 Genzyme Corp. (a)........................................... 894,278 15,600 MedImmune, Inc. (a)......................................... 422,916 ----------------------------------------------------------------------------------------- 3,357,164 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 85 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- HEALTHCARE EQUIPMENT & SUPPLIES -- 2.6% 11,900 Guidant Corp. .............................................. $ 857,990 22,200 Medtronic, Inc. ............................................ 1,102,674 11,200 St. Jude Medical, Inc. (a).................................. 469,616 ----------------------------------------------------------------------------------------- 2,430,280 ----------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 1.2% 6,000 Aetna, Inc. ................................................ 748,500 5,000 HCA Inc. ................................................... 199,800 16,200 Tenet Healthcare Corp. (a).................................. 177,876 ----------------------------------------------------------------------------------------- 1,126,176 ----------------------------------------------------------------------------------------- PHARMACEUTICALS -- 7.0% 8,000 Eli Lilly and Co. .......................................... 454,000 14,000 Johnson & Johnson........................................... 887,880 65,000 Pfizer Inc. ................................................ 1,747,850 68,800 Teva Pharmaceutical Industries Ltd., Sponsored ADR.......... 2,054,368 34,200 Wyeth....................................................... 1,456,578 ----------------------------------------------------------------------------------------- 6,600,676 ----------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 13,514,296 ----------------------------------------------------------------------------------------- INDUSTRIALS -- 11.7% AIR FREIGHT & COURIERS -- 1.0% 10,800 United Parcel Service, Inc., Class B Shares................. 922,968 ----------------------------------------------------------------------------------------- AIRLINES -- 1.4% 81,430 Southwest Airlines Co. ..................................... 1,325,680 ----------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 1.4% 10,200 First Data Corp. ........................................... 433,908 24,500 Paychex, Inc. .............................................. 834,960 ----------------------------------------------------------------------------------------- 1,268,868 ----------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 1.7% 76,700 American Power Conversion Corp. ............................ 1,641,380 ----------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 3.2% 12,800 Honeywell International Inc. ............................... 453,248 72,000 Tyco International Ltd. .................................... 2,573,280 ----------------------------------------------------------------------------------------- 3,026,528 ----------------------------------------------------------------------------------------- MACHINERY -- 2.0% 9,000 Illinois Tool Works, Inc. .................................. 834,120 23,200 Navistar International Corp. (a)............................ 1,020,336 ----------------------------------------------------------------------------------------- 1,854,456 ----------------------------------------------------------------------------------------- ROAD & RAIL -- 1.0% 26,800 Norfolk Southern Corp. ..................................... 969,892 ----------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 11,009,772 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 86 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 24.7% COMMUNICATIONS EQUIPMENT -- 5.9% 57,500 Cisco Systems, Inc. (a)..................................... $ 1,109,750 63,300 Juniper Networks, Inc. (a).................................. 1,721,127 44,300 Motorola, Inc. ............................................. 761,960 112,200 Nokia Oyj, Sponsored ADR.................................... 1,758,174 49,100 Nortel Networks Corp. (a)................................... 171,359 ----------------------------------------------------------------------------------------- 5,522,370 ----------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 3.7% 33,300 Dell Inc. (a)............................................... 1,403,262 54,900 EMC Corp. (a)............................................... 816,363 38,300 Network Appliance, Inc. (a)................................. 1,272,326 ----------------------------------------------------------------------------------------- 3,491,951 ----------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.7% 33,100 Agilent Technologies, Inc. (a).............................. 797,710 50,000 Vishay Intertechnology, Inc. (a)............................ 751,000 ----------------------------------------------------------------------------------------- 1,548,710 ----------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 1.7% 59,300 IAC/InterActiveCorp (a)..................................... 1,637,866 ----------------------------------------------------------------------------------------- IT CONSULTING & SERVICES -- 1.1% 38,600 Accenture Ltd., Class A Shares (a).......................... 1,042,200 ----------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 2.6% 17,700 Applied Materials, Inc. (a)................................. 302,670 4,891 Freescale Semiconductor Inc. Class B Shares (a)............. 89,799 87,500 Intel Corp. ................................................ 2,046,625 ----------------------------------------------------------------------------------------- 2,439,094 ----------------------------------------------------------------------------------------- SOFTWARE -- 8.0% 25,000 Amdocs Ltd. (a)............................................. 656,250 55,300 BEA Systems, Inc. (a)....................................... 489,958 52 Computer Associates International, Inc. .................... 1,615 100,300 Microsoft Corp. ............................................ 2,679,013 64,900 Oracle Corp. (a)............................................ 890,428 35,500 Siebel Systems, Inc. (a).................................... 372,750 85,100 VERITAS Software Corp. (a).................................. 2,429,605 ----------------------------------------------------------------------------------------- 7,519,619 ----------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 23,201,810 ----------------------------------------------------------------------------------------- MATERIALS -- 6.0% CHEMICALS -- 3.6% 22,400 Air Products & Chemicals, Inc. ............................. 1,298,528 25,000 E.I. du Pont de Nemours & Co. .............................. 1,226,250 20,000 Praxair, Inc. .............................................. 883,000 ----------------------------------------------------------------------------------------- 3,407,778 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 87 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- METALS & MINING -- 1.6% 46,400 Alcoa Inc. ................................................. $ 1,457,888 ----------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS -- 0.8% 10,000 International Paper Co. .................................... 420,000 5,000 Weyerhaeuser Co. ........................................... 336,100 ----------------------------------------------------------------------------------------- 756,100 ----------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 5,621,766 ----------------------------------------------------------------------------------------- UTILITIES -- 0.8% ELECTRIC UTILITIES -- 0.8% 10,000 Consolidated Edison, Inc. .................................. 437,500 10,000 The Southern Co. ........................................... 335,200 ----------------------------------------------------------------------------------------- TOTAL UTILITIES............................................. 772,700 ----------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $77,663,796)....................................... 93,890,721 ----------------------------------------------------------------------------------------- FACE AMOUNT ----------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 0.3% $286,000 Morgan Stanley dated 12/31/04, 2.180% due 1/3/05; Proceeds at maturity -- $286,052; (Fully collateralized by U.S. Treasury Notes, 1.400% to 6.300% due 4/1/05 to 2/7/28; Market value -- $294,469) (Cost -- $286,000)........................................ 286,000 ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.3% (Cost -- $77,949,796*).......... 94,176,721 Liabilities in Excess of Other Assets -- (0.3)%............. (332,098) ----------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $93,844,623 -----------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for federal income tax purposes is $77,950,352. Abbreviation used in this schedule: ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 88 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- COMMON STOCK -- 97.2% -------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 13.9% AUTO COMPONENTS -- 1.1% 5,401 Johnson Controls, Inc. ..................................... $ 342,639 -------------------------------------------------------------------------------------- AUTOMOBILES -- 1.1% 24,323 Ford Motor Co. ............................................. 356,089 -------------------------------------------------------------------------------------- MEDIA -- 6.5% 4,819 Gannett Co., Inc. .......................................... 393,712 7,754 The McGraw Hill Cos., Inc. ................................. 709,801 4,268 Omnicom Group Inc. ......................................... 359,878 18,557 Reed Elsevier NV, Sponsored ADR............................. 509,390 5,102 The Walt Disney Co. ........................................ 141,836 -------------------------------------------------------------------------------------- 2,114,617 -------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 3.3% 3,354 Family Dollar Stores, Inc. ................................. 104,745 8,342 The May Department Stores Co. .............................. 245,255 900 Nordstrom, Inc. ............................................ 42,057 13,247 Target Corp. ............................................... 687,917 -------------------------------------------------------------------------------------- 1,079,974 -------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 1.6% 2,912 Barnes & Noble, Inc. (a).................................... 93,970 1,237 GameStop Corp.-Class B (a).................................. 27,721 5,798 The Gap, Inc. .............................................. 122,454 4,824 Lowe's Cos., Inc. .......................................... 277,814 -------------------------------------------------------------------------------------- 521,959 -------------------------------------------------------------------------------------- TEXTILES & APPAREL -- 0.3% 2,414 Liz Claiborne, Inc. ........................................ 101,895 -------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 4,517,173 -------------------------------------------------------------------------------------- CONSUMER STAPLES -- 10.0% BEVERAGES -- 1.0% 6,519 PepsiCo, Inc. .............................................. 340,292 -------------------------------------------------------------------------------------- FOOD & DRUG RETAILING -- 2.6% 8,333 Sysco Corp. ................................................ 318,071 13,741 Walgreen Co. ............................................... 527,242 -------------------------------------------------------------------------------------- 845,313 -------------------------------------------------------------------------------------- FOOD PRODUCTS -- 3.8% 8,455 Campbell Soup Co. .......................................... 252,720 4,584 General Mills, Inc. ........................................ 227,871 7,203 H.J. Heinz Co. ............................................. 280,845 5,258 Hershey Foods Corp. ........................................ 292,029 7,538 Sara Lee Corp. ............................................. 181,967 -------------------------------------------------------------------------------------- 1,235,432 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 89 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 2.3% 1,410 The Clorox Co. ............................................. $ 83,091 6,534 Colgate-Palmolive Co. ...................................... 334,279 6,207 The Procter & Gamble Co. ................................... 341,881 -------------------------------------------------------------------------------------- 759,251 -------------------------------------------------------------------------------------- PERSONAL PRODUCTS -- 0.3% 2,170 The Estee Lauder Cos. Inc., Class A Shares.................. 99,321 -------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES...................................... 3,279,609 -------------------------------------------------------------------------------------- ENERGY -- 7.7% ENERGY EQUIPMENT & SERVICES -- 0.2% 949 Schlumberger Ltd. .......................................... 63,536 -------------------------------------------------------------------------------------- OIL & GAS -- 7.5% 2,293 Apache Corp. ............................................... 115,957 1,628 BP PLC, Sponsored ADR....................................... 95,075 14,190 ChevronTexaco Corp. ........................................ 745,117 3,207 ConocoPhillips.............................................. 278,464 14,457 Exxon Mobil Corp. .......................................... 741,066 4,176 Occidental Petroleum Corp. ................................. 243,711 6,678 Pioneer Natural Resources Co. .............................. 234,398 -------------------------------------------------------------------------------------- 2,453,788 -------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 2,517,324 -------------------------------------------------------------------------------------- FINANCIALS -- 15.6% BANKS -- 7.4% 5,160 The Bank of New York Co., Inc. ............................. 172,447 3,635 First Horizon National Corp. ............................... 156,705 13,781 National City Corp. ........................................ 517,476 5,515 SunTrust Banks, Inc. ....................................... 407,448 9,388 U.S. Bancorp................................................ 294,032 3,570 Wachovia Corp. ............................................. 187,782 6,518 Washington Mutual, Inc. .................................... 275,581 4,335 Wells Fargo & Co. .......................................... 269,420 2,124 Zions Bancorp............................................... 144,496 -------------------------------------------------------------------------------------- 2,425,387 -------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 5.4% 4,336 American Express Co. ....................................... 244,420 4,894 Federated Investors, Inc., Class B Shares................... 148,778 6,006 Merrill Lynch & Co., Inc. .................................. 358,979 7,789 State Street Corp. ......................................... 382,596 10,082 T. Rowe Price Group Inc. ................................... 627,100 -------------------------------------------------------------------------------------- 1,761,873 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 90 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- INSURANCE -- 2.8% 4,649 American International Group, Inc. ......................... $ 305,300 3,165 SAFECO Corp. ............................................... 165,340 5,670 The Chubb Corp. ............................................ 436,023 -------------------------------------------------------------------------------------- 906,663 -------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 5,093,923 -------------------------------------------------------------------------------------- HEALTHCARE -- 11.2% HEALTHCARE EQUIPMENT & SUPPLIES -- 2.1% 7,391 Becton Dickinson & Co. ..................................... 419,809 3,086 Guidant Corp. .............................................. 222,501 1,100 Stryker Corp. .............................................. 53,075 -------------------------------------------------------------------------------------- 695,385 -------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 1.0% 2,365 Cardinal Health, Inc. ...................................... 137,525 2,297 UnitedHealth Group Inc. .................................... 202,205 -------------------------------------------------------------------------------------- 339,730 -------------------------------------------------------------------------------------- PHARMACEUTICALS -- 8.1% 5,929 Abbott Laboratories......................................... 276,588 5,430 Barr Pharmaceuticals, Inc. (a).............................. 247,282 4,612 Eli Lilly and Co. .......................................... 261,731 9,171 Johnson & Johnson........................................... 581,625 4,152 Merck & Co., Inc. .......................................... 133,445 10,171 Mylan Laboratories Inc. .................................... 179,823 5,785 Novartis AG, Sponsored ADR.................................. 292,374 2,300 Pfizer Inc. ................................................ 61,847 1,843 Roche Holding AG, Sponsored ADR............................. 212,161 18,289 Schering-Plough Corp. ...................................... 381,874 -------------------------------------------------------------------------------------- 2,628,750 -------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 3,663,865 -------------------------------------------------------------------------------------- INDUSTRIALS -- 13.4% AEROSPACE & DEFENSE -- 2.7% 4,845 General Dynamics Corp. ..................................... 506,787 3,615 United Technologies Corp. .................................. 373,610 -------------------------------------------------------------------------------------- 880,397 -------------------------------------------------------------------------------------- AIR FREIGHT & COURIERS -- 0.6% 2,171 United Parcel Service, Inc., Class B Shares................. 185,534 -------------------------------------------------------------------------------------- AIRLINES -- 0.8% 17,043 Southwest Airlines Co. ..................................... 277,460 -------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 1.4% 4,869 Automatic Data Processing Inc. ............................. 215,940 2,717 DST Systems, Inc. (a)....................................... 141,610 2,640 Fiserv, Inc. (a)............................................ 106,102 -------------------------------------------------------------------------------------- 463,652 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 91 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.5% 2,156 Emerson Electric Co. ....................................... $ 151,136 -------------------------------------------------------------------------------------- MACHINERY -- 4.7% 3,821 Caterpillar Inc. ........................................... 372,586 6,272 Deere & Co. ................................................ 466,637 2,321 Illinois Tool Works, Inc. .................................. 215,110 5,962 PACCAR Inc. ................................................ 479,822 -------------------------------------------------------------------------------------- 1,534,155 -------------------------------------------------------------------------------------- ROAD & RAIL -- 2.7% 5,113 Burlington Northern Santa Fe Corp. ......................... 241,896 18,076 Norfolk Southern Corp. ..................................... 654,170 -------------------------------------------------------------------------------------- 896,066 -------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 4,388,400 -------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 13.2% COMMUNICATIONS EQUIPMENT -- 2.0% 21,253 Motorola, Inc. ............................................. 365,552 17,428 Nokia Oyj, Sponsored ADR.................................... 273,097 -------------------------------------------------------------------------------------- 638,649 -------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 2.8% 7,794 Dell Inc. (a)............................................... 328,439 5,874 Hewlett-Packard Co. ........................................ 123,178 3,007 International Business Machines Corp. ...................... 296,430 31,247 Sun Microsystems, Inc. (a).................................. 168,109 -------------------------------------------------------------------------------------- 916,156 -------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.4% 2,630 Diebold, Inc. .............................................. 146,570 -------------------------------------------------------------------------------------- IT CONSULTING & SERVICES -- 1.0% 3,744 Computer Sciences Corp. (a)................................. 211,049 3,718 SunGard Data Systems Inc. (a)............................... 105,331 -------------------------------------------------------------------------------------- 316,380 -------------------------------------------------------------------------------------- OFFICE ELECTRONICS -- 1.0% 5,982 Canon Inc., Sponsored ADR................................... 324,583 -------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 3.1% 14,889 Applied Materials, Inc. (a)................................. 254,602 2,346 Freescale Semiconductor Inc. (a)............................ 43,072 15,612 Intel Corp. ................................................ 365,165 13,829 Texas Instruments Inc. ..................................... 340,470 -------------------------------------------------------------------------------------- 1,003,309 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 92 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- SOFTWARE -- 2.9% 4,423 Adobe Systems, Inc. ........................................ $ 277,499 14,827 Microsoft Corp. ............................................ 396,029 5,726 Symantec Corp. (a).......................................... 147,502 4,600 VERITAS Software Corp. (a).................................. 131,330 -------------------------------------------------------------------------------------- 952,360 -------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 4,298,007 -------------------------------------------------------------------------------------- MATERIALS -- 6.7% CHEMICALS -- 1.8% 2,372 Air Products & Chemicals, Inc. ............................. 137,505 4,452 E.I. du Pont de Nemours & Co. .............................. 218,371 3,146 Ecolab Inc. ................................................ 110,519 1,926 PPG Industries, Inc. ....................................... 131,276 -------------------------------------------------------------------------------------- 597,671 -------------------------------------------------------------------------------------- METALS & MINING -- 4.3% 6,918 Alcoa Inc. ................................................. 217,363 2,440 BHP Billiton Ltd., Sponsored ADR............................ 58,609 3,372 Inco Ltd. (a)............................................... 124,022 1,159 Newmont Mining Corp. ....................................... 51,471 3,858 Phelps Dodge Corp. ......................................... 381,633 4,793 Rio Tinto PLC, Sponsored ADR................................ 571,374 -------------------------------------------------------------------------------------- 1,404,472 -------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS -- 0.6% 5,226 MeadWestvaco Corp. ......................................... 177,109 -------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 2,179,252 -------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 3.6% DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.4% 2,433 ALLTEL Corp. ............................................... 142,963 14,723 BellSouth Corp. ............................................ 409,152 21,724 SBC Communications Inc. .................................... 559,827 -------------------------------------------------------------------------------------- 1,111,942 -------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.2% 1,700 Nextel Communications, Inc., Class A Shares (a)............. 51,000 -------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 1,162,942 -------------------------------------------------------------------------------------- UTILITIES -- 1.9% ELECTRIC UTILITIES -- 1.4% 3,441 American Electric Power Co., Inc. .......................... 118,164 3,584 Consolidated Edison, Inc. .................................. 156,800 5,732 The Southern Co. ........................................... 192,137 -------------------------------------------------------------------------------------- 467,101 -------------------------------------------------------------------------------------- GAS UTILITIES -- 0.3% 2,667 KeySpan Corp. .............................................. 105,213 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 93 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- WATER UTILITIES -- 0.2% 1,775 Aqua America, Inc. ......................................... $ 43,647 -------------------------------------------------------------------------------------- TOTAL UTILITIES............................................. 615,961 -------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $24,772,228).................... 31,716,456 -------------------------------------------------------------------------------------- FACE AMOUNT -------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.0% $ 982,000 State Street Bank and Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $982,115; (Fully collateralized by U.S. Treasury Bond, 8.125% due 8/15/21; Market value -- $1,001,877) (Cost -- $982,000)............ 982,000 -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.2% (Cost -- $25,754,228*).......... 32,698,456 Liabilities in Excess of Other Assets -- (0.2)%............. (65,201) -------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $32,633,255 --------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for federal income tax purposes is $25,762,861. Abbreviation used in this schedule: ADR -- American Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. 94 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER SECURITIES STOCK FUND PORTFOLIO PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost................................. $198,343,408 $ 77,663,796 $ 24,772,228 Repurchase agreements, at cost....................... 51,615,000 286,000 982,000 -------------------------------------------------------------------------------------------------------------- Investments, at value................................ $204,666,087 $ 93,890,721 $ 31,716,456 Repurchase agreements, at value...................... 51,615,000 286,000 982,000 Cash................................................. 943 598 649 Dividends and interest receivable.................... 1,464,283 45,972 48,630 Receivable for Fund shares sold...................... -- 1,776 -- Prepaid Expenses..................................... 2,231 884 310 -------------------------------------------------------------------------------------------------------------- TOTAL ASSETS......................................... 257,748,544 94,225,951 32,748,045 -------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased..................... 40,409,461 -- -- Payable for Fund shares reacquired................... 850,501 291,518 56,447 Investment advisory fees payable..................... 59,228 48,054 20,704 Deferred mortgage dollar roll income................. 39,686 -- -- Administration fees payable.......................... 10,967 4,720 1,340 Trustees' fees payable............................... 2,300 1,500 1,500 Accrued expenses..................................... 55,482 35,536 34,799 -------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.................................... 41,427,625 381,328 114,790 -------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $216,320,919 $ 93,844,623 $ 32,633,255 -------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital (Note 4)............................. $209,758,995 $ 89,023,912 $ 39,734,522 Undistributed net investment income.................. 186 2,728 -- Accumulated net realized gain (loss) from investment transactions...................................... 239,059 (11,408,942) (14,045,495) Net unrealized appreciation of investments........... 6,322,679 16,226,925 6,944,228 -------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $216,320,919 $ 93,844,623 $ 32,633,255 -------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING..................................... 16,961,234 3,861,752 2,713,234 -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE............................. $12.75 $24.30 $12.03 --------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 95 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER SECURITIES STOCK FUND PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest................................................ $10,302,173 $ 9,166 $ 7,819 Dividends............................................... -- 1,260,729 568,632 Less: Foreign withholding tax........................... -- (14,130) (3,954) ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................. 10,302,173 1,255,765 572,497 ------------------------------------------------------------------------------------------------------------- EXPENSES: Investment management and advisory fees (Note 2)........ 680,899 516,531 217,848 Administration fees (Note 2)............................ 126,365 50,894 17,428 Audit and legal......................................... 42,460 35,950 50,000 Shareholder communications.............................. 26,906 8,427 5,474 Custody................................................. 23,966 11,104 17,223 Trustees' fees.......................................... 9,728 9,863 13,031 Transfer agency services (Note 2)....................... 2,500 2,500 2,500 Other................................................... 1,784 1,132 1,227 ------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES.......................................... 914,608 636,401 324,731 Less: Fee waivers/expense reimbursements (Notes 2 and 6)................................................... (33,485) (33,411) (36,416) ------------------------------------------------------------------------------------------------------------- NET EXPENSES............................................ 881,123 602,990 288,315 ------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME..................................... 9,421,050 652,775 284,182 ------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 3): NET REALIZED GAIN FROM INVESTMENT TRANSACTIONS.......... 409,444 2,407,317 655,645 NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION OF INVESTMENTS.......................................... 3,571,197 2,810,650 2,315,841 ------------------------------------------------------------------------------------------------------------- NET GAIN ON INVESTMENTS................................... 3,980,641 5,217,967 2,971,486 ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... $13,401,691 $5,870,742 $3,255,668 -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 96 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
U.S. GOVERNMENT SECURITIES PORTFOLIO 2004 2003 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 9,421,050 $ 10,080,394 Net realized gain......................................... 409,444 3,472,252 Net change in unrealized appreciation/depreciation........ 3,571,197 (7,330,998) ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS.................... 13,401,691 6,221,648 ------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (9,496,007) (10,812,735) Net realized gains........................................ (413,800) (3,572,312) ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS........................................... (9,909,807) (14,385,047) ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 33,869,285 29,246,982 Net asset value of shares issued for reinvestment of dividends and distributions............................ 9,909,807 14,385,047 Cost of shares reacquired................................. (40,832,013) (69,457,633) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... 2,947,079 (25,825,604) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS........................... 6,438,963 (33,989,003) NET ASSETS: Beginning of year......................................... 209,881,956 243,870,959 ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $216,320,919 $209,881,956 ------------------------------------------------------------------------------------------ * Includes undistributed net investment income of:.......... $186 -- ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 97 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
SOCIAL AWARENESS STOCK PORTFOLIO 2004 2003 ---------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 652,775 $ 404,628 Net realized gain (loss).................................. 2,407,317 (903,133) Net change in unrealized appreciation/depreciation........ 2,810,650 18,313,058 ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 5,870,742 17,814,553 ---------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income..................................... (672,844) (392,136) ---------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (672,844) (392,136) ---------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 15,844,946 5,724,855 Net asset value of shares issued for reinvestment of dividends.............................................. 672,844 392,136 Cost of shares reacquired................................. (7,549,496) (6,158,720) ---------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... 8,968,294 (41,729) ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 14,166,192 17,380,688 NET ASSETS: Beginning of year......................................... 79,678,431 62,297,743 ---------------------------------------------------------------------------------------- END OF YEAR*.............................................. $93,844,623 $79,678,431 ---------------------------------------------------------------------------------------- * Includes undistributed net investment income of: ......... $2,728 $22,797 ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 98 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
PIONEER FUND PORTFOLIO 2004 2003 ---------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 284,182 $ 357,895 Net realized gain (loss).................................. 655,645 (562,398) Net change in unrealized appreciation/depreciation........ 2,315,841 5,280,877 ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 3,255,668 5,076,374 ---------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income..................................... (285,115) (360,254) ---------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (285,115) (360,254) ---------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 5,455,069 4,118,215 Net asset value of shares issued for reinvestment of dividends.............................................. 285,115 360,254 Cost of shares reacquired................................. (3,478,475) (3,354,880) ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 2,261,709 1,123,589 ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 5,232,262 5,839,709 NET ASSETS: Beginning of year......................................... 27,400,993 21,561,284 ---------------------------------------------------------------------------------------- END OF YEAR*.............................................. $32,633,255 $27,400,993 ---------------------------------------------------------------------------------------- * Includes undistributed net investment income of: ......... -- $303 ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 99 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31:
U.S. GOVERNMENT SECURITIES PORTFOLIO 2004 2003(1) 2002(1) 2001(1) 2000(1) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $12.59 $13.14 $12.44 $12.22 $11.30 -------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................ 0.58 0.56 0.63 0.69 0.74 Net realized and unrealized gain (loss)...... 0.18 (0.20) 1.05 0.02 0.84 -------------------------------------------------------------------------------------------------------- Total Income From Operations................... 0.76 0.36 1.68 0.71 1.58 -------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income........................ (0.58) (0.68) (0.89) (0.49) (0.66) Net realized gains(2)........................ (0.02) (0.23) (0.09) -- -- -------------------------------------------------------------------------------------------------------- Total Dividends and Distributions.............. (0.60) (0.91) (0.98) (0.49) (0.66) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $12.75 $12.59 $13.14 $12.44 $12.22 -------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................ 6.13% 2.75% 13.63% 5.82% 14.53% -------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000S)................. $216,321 $209,882 $243,871 $126,491 $90,970 -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................. 0.42%(5) 0.42% 0.44% 0.45% 0.48% Net investment income........................ 4.47 4.23 4.82 5.55 6.46 -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................ 150%* 143%* 165% 327% 289% --------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO 2004 2003(1) 2002 2001(1) 2000(1) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $23.04 $17.97 $24.14 $28.76 $29.42 -------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................ 0.17 0.12 0.08 0.11 0.14 Net realized and unrealized gain (loss)...... 1.26 5.06 (6.06) (4.63) (0.29) -------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............ 1.43 5.18 (5.98) (4.52) (0.15) -------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income........................ (0.17) (0.11) (0.19) (0.10) (0.16) Net realized gains(2)........................ -- -- -- -- (0.35) -------------------------------------------------------------------------------------------------------- Total Dividends and Distributions.............. (0.17) (0.11) (0.19) (0.10) (0.51) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $24.30 $23.04 $17.97 $24.14 $28.76 -------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................ 6.23% 28.85% (24.81)% (15.71)% (0.49)% -------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000S)................. $93,845 $79,678 $62,298 $83,344 $81,184 -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................. 0.71%(5) 0.78% 0.78% 0.74% 0.75% Net investment income........................ 0.77 0.59 0.40 0.45 0.48 -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................ 18% 38% 37% 22% 33% --------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (4) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 1.25%. (5) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion its fee and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or expenses reimbursed, the actual expense ratios would have been 0.43% and 0.75% for U.S. Government Securities Portfolio and Social Awareness Stock Portfolio, respectively. * Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 276% and 168% for the years ended December 31, 2004 and 2003, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 100 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
PIONEER FUND PORTFOLIO(1) 2004 2003 2002 2001 2000 -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............... $10.92 $ 8.94 $13.87 $19.22 $15.91 -------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income.......................... 0.11 0.15 0.32 0.37 0.43 Net realized and unrealized gain (loss)........ 1.11 1.98 (4.47) (4.65) 3.36 -------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations.............. 1.22 2.13 (4.15) (4.28) 3.79 -------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income.......................... (0.11) (0.15) (0.78) (0.30) (0.45) Net realized gains(2).......................... -- -- -- (0.77) (0.03) -------------------------------------------------------------------------------------------------------- Total Dividends and Distributions................ (0.11) (0.15) (0.78) (1.07) (0.48) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR..................... $12.03 $10.92 $ 8.94 $13.87 $19.22 -------------------------------------------------------------------------------------------------------- TOTAL RETURN(3).................................. 11.13% 23.78% (30.21)% (23.00)% 24.26% -------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000S)................... $32,633 $27,401 $21,561 $39,433 $48,456 -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................... 0.99%(5) 1.12% 0.90% 0.81% 0.84% Net investment income.......................... 0.98 1.56 2.88 2.18 2.47 -------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.......................... 19% 98% 25% 20% 22% --------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (4) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 1.25%. (5) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion of its fee and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or expenses reimbursed, the actual expense ratio would have been 1.12% SEE NOTES TO FINANCIAL STATEMENTS. 101 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The U.S. Government Securities Portfolio ("USGS"), Social Awareness Stock Portfolio ("SAS") and Pioneer Fund Portfolio ("PFP") (collectively, "Fund(s)") are separate diversified investment funds of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Shares of the Trust are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. The following are significant accounting policies consistently followed by the Funds and are in conformity with U.S. generally accepted accounting principles ("GAAP"). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. (A) INVESTMENT VALUATION. Securities traded on national securities markets are valued at the closing prices on such markets. Securities for which no sales price was reported and U.S. government agencies and obligations are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from unaffiliated reputable brokers or other recognized sources. Securities, other than U.S. government agencies and obligations, that have a maturity of more than 60 days are valued at prices based on market quotations for securities of similar type, yield and maturity. Securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sale price. When market quotations or official closing prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded but before each Fund calculates its net asset value, the Funds may value these investments at fair value as determined in accordance with the procedures approved by the Funds' Board of Trustees. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. Short-term obligations maturing within 60 days are valued at amortized cost, which approximates value. (B) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is the Funds' policy that a custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Funds may be delayed or limited. (C) SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS. The Funds may trade securities on a to-be-announced ("TBA") basis. In a TBA transaction, the Funds commit to purchasing or selling securities, for which specific information is not yet known, particularly the face amount and maturity date in U.S. government agency mortgage pass-through transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Funds, normally 15 to 45 days later. Beginning on the date the Funds enter into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. (D) MORTGAGE DOLLAR ROLLS. The Funds enter into dollar rolls in which the Funds sell mortgage-backed securities for delivery in the current month and simultaneously contract to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date. During the roll period, the Funds forgo principal and interest paid on the securities. The Funds are compensated by a fee paid by the counterparty, often in the form of a drop in the repurchase price of the securities. Dollar rolls are accounted for as financing arrangements; the fee is accrued into interest income ratably over the term of the dollar roll and any gain or loss on the roll is deferred and realized upon disposition of the rolled security. Dollar roll transactions involve the risk that the market value of the securities sold by the Funds may decline below the repurchase price of the similar securities. 102 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) (E) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Funds determine the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. (F) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net investment income and distributions of net realized gains to shareholders of the Funds, if any, are declared at least annually. Dividends and distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from GAAP. (G) FEDERAL AND OTHER TAXES. It is the Funds' policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (H) RECLASSIFICATIONS. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $75,143 has been reclassified between accumulated net realized gain from investment transactions and undistributed net investment income due to book income from mortgage backed securities treated as capital gains for tax purposes for USGS. Additionally, $630 has been reclassified between paid-in capital and undistributed net investment income due to permanent differences attributable to a taxable overdistribution of net investment income for PFP. There were no reclassifications for SAS during the current year. These reclassifications have no effect on net assets or net asset values per share. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly-owned subsidiary of Citigroup Inc., ("Citigroup"), acts as investment adviser to USGS and PFP. USGS and PFP pay TAMIC an investment advisory fee calculated at the annual rate of 0.3233% and 0.75% of its average daily net assets, respectively. These fees are calculated daily and paid monthly. Effective December 1, 2004, the investment advisory fee for PFP was revised from the annual rate of 0.75% of the average daily net assets of the fund to a fee calculated at an annual rate in accordance with the following schedule:
INVESTMENT AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ First $250 million.......................................... 0.750% Next $250 million........................................... 0.700% Next $500 million........................................... 0.675% Next $1 billion............................................. 0.650% Amounts over $2 billion..................................... 0.600%
Smith Barney Fund Management LLC ("SBFM") acts as investment manager and adviser to SAS. SAS pays SBFM an investment management and advisory fee calculated at an annual rate of: 0.65% on the first $50 million, 0.55% on the next $50 million, 0.45% on the next $100 million and 0.40% on amounts over $200 million of the average daily net assets of SAS. This fee is calculated daily and paid monthly. TAMIC has a sub-advisory agreement with Pioneer Investment Management, Inc. ("Pioneer"). Pursuant to the sub-advisory agreement, Pioneer is responsible for the day-to-day operations and investment decisions for PFP. As a result, TAMIC pays Pioneer, as sub-adviser, an advisory fee calculated at an annual rate of 0.375% of the average daily net assets of PFP. 103 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) Effective December 1, 2004, the sub-advisory fee was revised from the annual rate of 0.375% of the average daily net assets of the fund to a fee calculated at an annual rate in accordance with the following schedule:
SUB-ADVISORY AVERAGE DAILY NET ASSETS FEE ------------------------ ------------ First $250 million.......................................... 0.375% Next $250 million........................................... 0.325% Next $500 million........................................... 0.300% Next $1 billion............................................. 0.275% Amounts over $2 billion..................................... 0.225%
The Travelers Insurance Company ("TIC"), another indirect wholly-owned subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC an administration fee calculated at an annual rate of 0.06% of the average daily net assets of each Fund. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative services agreement with SBFM. TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund's average daily net assets. During the year ended December 31, 2004, the Funds had in place contractual expense limitations of 1.25% for each of the Funds USGS, SAS and PFP. These expense limitations are renewed annually and can be terminated at any time by TIC with 60 days' notice. During the year ended December 31, 2004, SBFM voluntarily waived a portion of its fee in the amount of $1,726, $1,652, and $1,707 for USGS, SAS and PFP, respectively. In addition, for the year ended December 31, 2004, SBFM reimbursed expenses in the amount of $31,759 for each of the Funds USGS and SAS, and $34,709 for PFP, in connection with the overpayment of transfer agent fees relating to the period from June 1999 through June 2004. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Funds' transfer agent. For the year ended December 31, 2004, each Fund paid transfer agent fees of $2,500 to CTB. For the year ended December 31, 2004, Citigroup Global Markets Inc., another indirect wholly-owned subsidiary of Citigroup, and its affiliates received brokerage commissions of $326 from PFP. One Trustee and all officers of the Trust are employees of Citigroup or its affiliates and do not receive compensation from the Trust. 3. INVESTMENTS During the year ended December 31, 2004, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments and mortgage dollar rolls) were as follows:
USGS SAS PFP ----------------------------------------------------------------------------------------------------- Purchases................................................... $311,942,046 $26,488,675 $7,203,268 ----------------------------------------------------------------------------------------------------- Sales....................................................... 309,465,246 15,246,726 5,521,436 -----------------------------------------------------------------------------------------------------
At December 31, 2004, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
USGS SAS PFP --------------------------------------------------------------------------------------------------- Gross unrealized appreciation............................... $6,933,403 $20,409,440 $7,206,062 Gross unrealized depreciation............................... (610,724) (4,183,071) (270,467) --------------------------------------------------------------------------------------------------- Net unrealized appreciation................................. $6,322,679 $16,226,369 $6,935,595 ---------------------------------------------------------------------------------------------------
104 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) During the year ended December 31, 2004, USGS entered into mortgage dollar roll transactions in the aggregate amount of $260,892,443. For the year ended December 31, 2004, USGS recorded interest income of $729,412 related to dollar rolls. SAS and PFP did not have any outstanding mortgage dollar rolls. At December 31, 2004, USGS had outstanding mortgage dollar rolls with a total cost of $40,018,610 for scheduled settlements on January 13, 2005 and January 19, 2005. 4. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Fund were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 --------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO Shares sold................................................. 2,694,130 2,193,616 Shares issued on reinvestment............................... 782,509 1,138,891 Shares reacquired........................................... (3,182,023) (5,229,809) --------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... 294,616 (1,897,302) --------------------------------------------------------------------------------------------------- SOCIAL AWARENESS STOCK PORTFOLIO Shares sold................................................. 708,617 283,273 Shares issued on reinvestment............................... 27,780 17,094 Shares reacquired........................................... (332,976) (309,569) --------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... 403,421 (9,202) --------------------------------------------------------------------------------------------------- PIONEER FUND PORTFOLIO Shares sold................................................. 490,843 418,833 Shares issued on reinvestment............................... 23,720 33,048 Shares reacquired........................................... (309,976) (354,955) --------------------------------------------------------------------------------------------------- Net Increase................................................ 204,587 96,926 ---------------------------------------------------------------------------------------------------
5. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal year ended December 31, 2004 was as follows:
USGS SAS PFP ---------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income........................................... $9,527,237 $672,844 $285,115 Net Long-term Capital Gains............................... 382,570 -- -- ---------------------------------------------------------------------------------------------- Total Distributions Paid.................................... $9,909,807 $672,844 $285,115 ----------------------------------------------------------------------------------------------
The tax character of distributions paid during the fiscal year ended December 31, 2003 was as follows:
USGS SAS PFP ----------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income........................................... $11,912,557 $392,136 $360,254 Net Long-term Capital Gains............................... 2,472,490 -- -- ----------------------------------------------------------------------------------------------- Total Distributions Paid.................................... $14,385,047 $392,136 $360,254 -----------------------------------------------------------------------------------------------
105 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) As of December 31, 2004, the components of accumulated earnings (losses) on a tax basis was as follows:
USGS SAS PFP ------------------------------------------------------------------------------------------------------ Undistributed ordinary income............................... $ 239,245 $ 2,728 $ -- ------------------------------------------------------------------------------------------------------ Total undistributed earnings................................ 239,245 2,728 -- Capital loss carryforward(1)................................ -- (11,408,386) (14,036,862) Unrealized appreciation(2).................................. 6,322,679 16,226,369 6,935,595 ------------------------------------------------------------------------------------------------------ Total accumulated earnings (losses)......................... $6,561,924 $ 4,820,711 $ (7,101,267) ------------------------------------------------------------------------------------------------------
(1) On December 31, 2004 the Funds had net capital loss carryforwards as follows:
YEAR OF EXPIRATION SAS PFP --------------------------------------------------------------------------------------- 12/31/2009.................................................. 1,710,995 389,670 12/31/2010.................................................. 8,136,777 12,362,910 12/31/2011.................................................. 1,560,614 1,284,282 --------------------------------------------------------------------------------------- $11,408,386 $14,036,862 ---------------------------------------------------------------------------------------
These amounts will be available to offset any future taxable capital gains. (2) The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales. 6. ADDITIONAL INFORMATION In connection with an investigation previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup Asset Management ("CAM"), the Citigroup business unit that includes the funds' investment manager and other investment advisory companies; Citicorp Trust Bank ("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three other individuals, one of whom is an employee and two of whom are former employees of CAM, that the SEC Staff is considering recommending a civil injunctive action and/or an administrative proceeding against each of them relating to the creation and operation of an internal transfer agent unit to serve various CAM-managed funds. In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated subcontractor to perform some of the transfer agent services. The subcontractor, in exchange, had signed a separate agreement with CAM in 1998 that guaranteed investment management revenue to CAM and investment banking revenue to a CAM affiliate. The subcontractor's business was later taken over by PFPC Inc., and at that time the revenue guarantee was eliminated and a one-time payment was made by the subcontractor to a CAM affiliate. CAM did not disclose the revenue guarantee when the boards of various CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the boards of the various CAM-managed funds the one-time payment received by the CAM affiliate when it was made. As previously disclosed, CAM has already paid the applicable funds, primarily through voluntary fee waivers, a total of approximately $17 million (plus interest), which is the amount of the revenue received by Citigroup relating to the revenue guarantee. In addition, the SEC Staff has indicated that it is considering recommending action based on the adequacy of the disclosures made to the fund boards that approved the transfer agency arrangement, CAM's initiation and operation of, and compensation for, the transfer agent business and CAM's retention of, and agreements with, the subcontractor. Citigroup is cooperating fully in the SEC's investigation and is seeking to resolve the matter in discussions with the SEC Staff. On January 20, 2005, Citigroup stated that it had established an aggregate reserve of $196 million ($25 million in the third quarter of 2004 and $171 million in the fourth quarter of 2004) related to its discussions with the SEC Staff. Settlement negotiations are ongoing and any settlement of this matter with the SEC will require approval by the Citigroup Board and acceptance by the Commission. 106 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) Unless and until any settlement is consummated, there can be no assurance that any amount reserved by Citigroup will be distributed. Nor is there at this time any certainty as to how the proceeds of any settlement would be distributed, to whom any such distribution would be made, the methodology by which such distribution would be allocated, and when such distribution would be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. 7. SUBSEQUENT EVENT On January 31, 2005, Citigroup announced that it has reached an agreement with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction, TAMIC currently an indirect wholly owned subsidiary of Citigroup, would become an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser to the Funds except Social Awareness Stock Portfolio. The transaction is subject to certain regulatory approvals, as well as other customary conditions to closing. The transaction is expected to close this summer. In connection with this transaction, the Trust's Board of Trustees will be asked to approve new investment advisory and administrative services contracts, and, to the extent required by law, variable annuity and variable life contract owners, who beneficially own the shares of the funds, will be asked to approve new investment advisory agreements. 107 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE TRAVELERS SERIES TRUST: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer Fund Portfolio of The Travelers Series Trust ("Trust") as of December 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer Fund Portfolio of The Travelers Series Trust as of December 31, 2004, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles. [KPMG LLP SIGNATURE] New York, New York February 18, 2005 108 -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION (UNAUDITED) The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2004:
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER FUND SECURITIES PORTFOLIO STOCK PORTFOLIO PORTFOLIO ----------------------------------------------------------------------------------------------------------- Record Date:................................... 6/24/2004 12/27/2004 12/28/2004 12/28/2004 Payable Date:.................................. 6/25/2004 12/28/2004 12/29/2004 12/29/2004 ----------------------------------------------------------------------------------------------------------- Dividends Qualifying for the Dividends Received Deduction for Corporations................... -- -- 100.00% 100.00% ----------------------------------------------------------------------------------------------------------- Interest from Federal Obligations.............. -- 35.27% -- -- ----------------------------------------------------------------------------------------------------------- Long-Term Capital Gain Dividend................ $ 0.022600 $ -- $ -- $ -- -----------------------------------------------------------------------------------------------------------
The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult with your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes. Please retain this information for your records. 109 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) INFORMATION ABOUT TRUSTEES AND OFFICERS The business and affairs of the Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Money Market Portfolio and The Travelers Series Trust (each a "Trust" and together, the "Trusts") are managed under the direction of the Board of Trustees. Information pertaining to the Trustees and Officers of the Trusts is set forth below. Unless otherwise noted, each person listed below holds his or her position with all of the Trusts. The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Trusts' administrator (Travelers Insurance Company at 1-800-842-9368).
TERM OF NUMBER OF OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS HELD WITH OF TIME DURING PAST OVERSEEN HELD BY NAME, ADDRESS AND BIRTH YEAR TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE ---------------------------------------------------------------------------------------------------------------- NON-INTERESTED TRUSTEES: Frances M. Hawk, CFA, CFP Trustee Since Private Investor 5 Board of 108 Oxford Hill Lane 1991 Managers of 6 Downingtown, PA Variable Birth Year: 1948 Annuity Separate Accounts of TIC Lewis Mandell Trustee Since Professor, 5 Delaware North University of Buffalo 1990 University of Corp.; Board 160 Jacobs Hall Buffalo of Managers of Buffalo, NY 6 Variable Birth Year: 1943 Annuity Separate Accounts of TIC Robert E. McGill, III Trustee Since Retired 5 Lydall Inc.; 295 Hancock Road 1990 Board of Williamstown, MA Managers of 6 Birth Year: 1931 Variable Annuity Separate Accounts of The Travelers Insurance Co. ("TIC") INTERESTED TRUSTEE: R. Jay Gerken, CFA(2) Chairman, Since Managing Director 219 Chairman, Citigroup Asset Management President, 2002 of Citigroup Board of ("CAM") Chief Global Markets Managers of 6 399 Park Avenue, 4th Floor Executive Inc. ("CGM"); Variable New York, NY 10022 Officer and Chairman, Annuity Birth Year: 1951 Trustee President and Separate Chief Executive Accounts of Officer of Smith TIC Barney Fund Management LLC ("SBFM"), Travelers Investment Adviser, Inc. ("TIA") and Citi Fund Management Inc. ("CFM"); President and Chief Executive Officer of certain mutual funds associated with Citigroup Inc. ("Citigroup"); Formerly, Portfolio Manager of Smith Barney Allocation Series Inc. (from 1996 to 2001) and Smith Barney Growth and Income Fund (from 1996 to 2000)
110 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
TERM OF NUMBER OF OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS HELD WITH OF TIME DURING PAST OVERSEEN HELD BY NAME, ADDRESS AND BIRTH YEAR TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE ---------------------------------------------------------------------------------------------------------------- EXECUTIVE OFFICERS: Andrew B. Shoup Senior Vice Since Director of CAM; N/A N/A CAM President 2004 Senior Vice 125 Broad Street, 11th Floor and Chief President and New York, NY 10004 Administrative Chief Birth Year: 1956 Officer Administrative Officer of mutual funds associated with Citigroup; Treasurer of certain mutual funds associated with Citigroup; Head of International Funds Administration of CAM (from 2001 to 2003); Director of Global Funds Administration of CAM (from 2000 to 2001); Head of U.S. Citibank Funds Administration of CAM (from 1998 to 2000) Kaprel Ozsolak Chief Since Vice President of N/A N/A CAM Financial 2004 CGM; Chief 125 Broad Street, 11th Floor Officer and Financial Officer New York, NY 10004 Treasurer and Treasurer of Birth Year: 1965 certain mutual funds associated with Citigroup; Controller of certain mutual funds associated with Citigroup (from 2002 to 2004) William D. Wilcox Chief Since Counsel and Chief N/A N/A One Cityplace Compliance 2004 Compliance Officer Hartford, CT Officer (since 1999), TIC; Birth Year: 1964 Chief Anti- Money Laundering Compliance Officer (since 2002), 6 Variable Annuity Separate Accounts of TIC; Chief Compliance Officer (since 2004), 5 Mutual Funds and 6 Variable Separate Accounts sponsored by TIC. Andrew Beagley Chief Anti- Since Director of CGM N/A N/A CAM Money 2002 (since 2000); 399 Park Avenue, 4th Floor Laundering Director of New York, NY 10022 Compliance Compliance, North Birth Year: 1962 Officer America, CAM (since 2000); Chief Anti-Money Laundering Compliance Officer, Chief Compliance Officer and Vice President of certain mutual funds associated with Citigroup; Director of Compliance, Europe, the Middle East and Africa, CAM (from 1999 to 2000); Compliance Officer, SBFM, CFM, TIA, Salomon Brothers Asset Management Limited, Smith Barney Global Capital Management Inc.
111 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
TERM OF NUMBER OF OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS HELD WITH OF TIME DURING PAST OVERSEEN HELD BY NAME, ADDRESS AND BIRTH YEAR TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE ---------------------------------------------------------------------------------------------------------------- Kathleen A. McGah Secretary Since Deputy General N/A N/A Travelers Life & Annuity One 2004 Counsel of TIC; Cityplace Assistant Hartford, CT 06103 Secretary of 5 Birth year: 1950 Mutual Funds and 6 Variable Separate Accounts sponsored by TIC (from 1995 to 2004) Ernest J. Wright Assistant Since Vice President and N/A N/A Travelers Life & Annuity One Secretary 2004 Secretary of TIC; Cityplace Secretary of 5 Hartford, CT 06103 Mutual Funds and 6 Birth Year: 1940 Variable Separate Accounts sponsored by TIC (from 1994 to 2004)
--------------- (1) Each Trustee and Officer serves until his or her successor has been duly elected and qualified. (2) Mr. Gerken is an "interested person" as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is Managing Director of CGM, an indirect wholly owned subsidiary of Citigroup, and his ownership shares and options to purchase shares of Citigroup, the indirect parent of TIC. 112 MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- TRUSTEES R. Jay Gerken, CFA Chairman Frances M. Hawk, CFA, CFP Lewis Mandell Robert E. McGill, III OFFICERS R. Jay Gerken, CFA President and Chief Executive Officer Andrew B. Shoup Senior Vice President and Chief Administrative Officer Kaprel Ozsolak Chief Financial Officer and Treasurer William D. Wilcox Chief Compliance Officer Andrew Beagley Chief Anti-Money Laundering Compliance Officer Kathleen A. McGah Secretary Ernest J. Wright Assistant Secretary INVESTMENT MANAGER AND ADVISERS Travelers Asset Management International Company LLC Smith Barney Fund Management LLC (Social Awareness Stock Portfolio) ADMINISTRATOR The Travelers Insurance Company CUSTODIAN State Street Bank and Trust Company TRANSFER AGENT Citicorp Trust Bank, fsb. Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio are each a Massachusetts business trust. U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer Fund Portfolio are separate investment funds of The Travelers Series Trust, a Massachusetts business trust. This report is prepared for the general information of variable annuity or life contract owners and is not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Money Market Portfolio, The Travelers Series Trust: U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer Fund Portfolio and is not for use with the general public. All the funds contained in this report may not be available under your variable annuity or life contract. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS SHOULD CONSIDER THE FUNDS' INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q are available on the Commission's website at www.sec.gov. The Funds' Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Funds, shareholders can call 1-800-451-2010. Information on how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 and a description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-451-2010, (2) on the Fund's website at www.citigroupam.com and (3) on the Sec's website at www.sec.gov. A description of the policies that the Funds use to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by telephoning the Fund (toll-free) at 1-800-842-9368 and by visiting the SEC's website at www.sec.gov. VG-181 (Annual) (2-05) Printed in U.S.A. ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees of the registrant has determined that Robert E. McGill, a member of the Board's Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert," and has designated Mr. McGill as the Audit Committee's financial expert. Mr. McGill is an "independent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. Item 4. Principal Accountant Fees and Services (a) Audit Fees for Capital Appreciation Fund were $28,000 and $28,000 for the years ended 12/31/04 and 12/31/03. (b) Audit-Related Fees for Capital Appreciation Fund were $0 and $0 for the years ended 12/31/04 and 12/31/03. (c) Tax Fees for Capital Appreciation Fund of $2,100 and $2,100 for the years ended 12/31/04 and 12/31/03. These amounts represent aggregate fees paid for tax compliance, tax advice and tax planning services, which include (the filing and amendment of federal, state and local income tax returns, timely RIC qualification review and tax distribution and analysis planning) rendered by the Accountant to Capital Appreciation Fund. (d) All Other Fees for Capital Appreciation Fund of $0 and $0 for the years ended 12/31/04 and 12/31/03. (e) (1) Audit Committee's pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X. The Charter for the Audit Committee (the "Committee") of the Board of each registered investment company (the "Fund") advised by Smith Barney Fund Management LLC or Salomon Brothers Asset Management Inc or one of their affiliates (each, an "Adviser") requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund's independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee. The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible. Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund ("Covered Service Providers") constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. (2) For Capital Appreciation Fund, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03; Tax Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03; and Other Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03. (f) N/A (g) Non-audit fees billed by the Accountant for services rendered to Capital Appreciation Fund and CAM and any entity controlling, controlled by, or under common control with CAM that provides ongoing services to Capital Appreciation Fund. Fees billed to and paid by Citigroup Global Markets, Inc. related to the transfer agent matter as fully described in the notes to the financial statements titled "additional information" were $75,000 and $0 for the years ended 12/31/04 and 12/31/03. (h) Yes. Capital Appreciation Fund's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining the Accountant's independence. All services provided by the Accountant to Capital Appreciation Fund or to Service Affiliates which were required to be pre-approved were pre-approved as required. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a) Code of Ethics attached hereto. Exhibit 99.CODE ETH (b) Attached hereto. Exhibit 99.CERT Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 99.906CERT Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. CAPITAL APPRECIATION FUND By: /s/ R. Jay Gerken ------------------------------------ (R. Jay Gerken) Chief Executive Officer of CAPITAL APPRECIATION FUND Date: March 9, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ R. Jay Gerken ------------------------------------ (R. Jay Gerken) Chief Executive Officer of CAPITAL APPRECIATION FUND Date: March 9, 2005 By: /s/ KAPREL OZSOLAK ------------------------------------ (KAPREL OZSOLAK) Chief Financial Officer of CAPITAL APPRECIATION FUND Date: March 9, 2005