N-30D 1 y44714n-30d.txt ANNUAL REPORTS 1 THE TRAVELERS VARIABLE PRODUCTS FUNDS ANNUAL REPORTS December 31, 2000 [TRAVELERS GRAPHIC] 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 UTILITIES PORTFOLIO [TRAVELERS LIFE & ANNUITY LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Tower Square Hartford, CT 06183 2 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS -------------------------------------------------------------------------------- DEAR SHAREHOLDER: We are pleased to provide the annual report for the Travelers Variable Products Funds -- Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Money Market Portfolio ("Trust" or "Portfolio") and the Travelers Series Trust -- U.S. Government Securities, Social Awareness Stock and Utilities Portfolios ("Portfolio(s)")(1) for the year ended December 31, 2000. In this report, we have summarized the period's prevailing economic and market conditions and outlined each Portfolio's investment strategy. We hope you find this report to be useful and informative.
The Performance of the Travelers Variable Products Funds (December 31, 1999 - December 31, 2000)(2) --------------------------------------------------------------------------------------------------- Managed Assets Trust........................................... (1.62)% High Yield Bond Trust.......................................... 0.97 Capital Appreciation Fund...................................... (21.88) Money Market Portfolio......................................... 6.18 U.S. Government Securities Portfolio........................... 14.53 Social Awareness Stock Portfolio............................... (0.49) Utilities Portfolio............................................ 24.26
MARKET SCHEDULE OF SUBACCOUNT COMMENTARY INVESTMENTS ---------- ---------- ----------- Managed Assets Trust........................................ 3 9 High Yield Bond Trust....................................... 4 18 Capital Appreciation Fund................................... 4 25 Money Market Portfolio...................................... 5 27 U.S. Government Securities Portfolio........................ 40 45 Social Awareness Stock Portfolio............................ 40 46 Utilities Portfolio......................................... 42 49
MARKET AND ECONOMIC OVERVIEW Stock markets fell around the world in the fourth quarter of 2000. The more speculative the market, the harder the fall. Returns for calendar year 2000 followed the same pattern -- a startling contrast to 1999 when markets went up dramatically. --------------- (1) The Portfolios are underlying investment options of various variable annuity products. A variable annuity product is a contract issued by an insurance company where the annuity premium (a set amount of dollars) is immediately turned into units of a portfolio of securities. Upon retirement, the policy holder is paid according to accumulated units whose dollar value varies according to the performance of the securities within the sub accounts. Its objective is to preserve, through investment, the purchasing value of the annuity which otherwise is subject to erosion through inflation. (2) The performance returns do not reflect the reduction of initial 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 each Portfolio. Past performance is not indicative of future results. 1 3 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS -------------------------------------------------------------------------------- The broad stock market, as measured by the Standard and Poor's 500 Index ("S&P 500"),(3) declined 9.10% during the year ended December 31, 2000. The Russell 1000 Value Index(4) bucked the down trend that was prevalent in most market indices, rising a modest 7.01% during the same period. The generally faster growing stocks that comprise the Nasdaq Composite Index(5) however, fell 39.29% in 2000, its worst year since its inception in 1971. The Nasdaq Composite Index's heavy technology component exacerbated the decline, as many investors sold their technology-related issues due to concerns regarding the valuations assigned to most stocks in the sector. Past performance is not indicative of future results. This contrast is even more dramatic considering the performance of the Nasdaq Composite Index in 1999. In 1999, the Nasdaq Composite Index climbed 85.59% -- its best year since 1971. Technology stocks had a significantly positive impact. But with the rapid decline of this sector, the Nasdaq Composite Index gave back most of its 1999 gains. What caused this volatility? Why did the Nasdaq Composite Index swing from its best year ever to its worst performing year? We think the answer can be summed up in one word: earnings -- or in many cases their failure to materialize. Technology stocks went up in 1999 as current earnings and future earnings growth estimates rose. The sector hit its peak in March 2000, then dramatically weakened as it became clearer that the growth of the U.S. economy and earnings estimates were slowing. The price declines were accentuated by high valuations, but the fundamental cause of the downdraft was that most investors were concerned about the level and growth rate of future earnings. The stock market's attention to earnings is understandable, as estimates have been declining over the past year. For example, consensus 2001 estimates for the S&P 500 operating earnings have slipped from a high of $63.25 to $62.15 by year end. Earnings estimates have been trimmed because of declining expectations for sales. While corporate margins, or profitability per dollar of revenues, generally continue to be strong, revenues have been lower than many analysts originally anticipated. Although the stock market viewed a slowing U.S. economy unfavorably, the bond market saw it as a positive. A slowing economy generally decreases inflationary pressures and increases the probability that the Federal Reserve Board ("Fed") may ease interest rates. As a result, bond investors continued to enjoy strong performance in the fourth quarter of 2000. The overall investment-grade(6) bond market returned 4.20%, as measured by the Salomon Smith Barney Broad Investment Grade Bond Index ("Salomon Smith Barney Index"),(7) short-term investments, as represented by three-month U.S. Treasury Bills, returned 1.60% for the fourth quarter of 2000. High-yield bonds were the one segment of the bond market with negative performance for the fourth quarter of 2000. Because high-yield bond returns are inversely related to credit risk, a slowing economy and the implied increase in credit risk caused high-yield bond performance to lag other bond returns during the fourth quarter. Past performance is not indicative of future results. For 2000 overall, most sectors of the bond market performed better than most sectors of the stock market. The general bond market, again as reflected in the Salomon Smith Barney Index and the three-month U.S. Treasury Bills, returned 11.6% and 6.0%, respectively. So in this volatile year for the markets, those investors who assumed less risk and invested in bonds generally fared far better than those who ventured into the more speculative sectors of the stock market. The Fed's primary responsibility is monetary policy and the setting of short-term interest rates in the U.S. economy. We believe that under Chairman Alan Greenspan, the Fed has done a good job of managing the U.S. economy. It has brought down inflation while maintaining the longest modern economic expansion. The Fed has enabled the economy to grow rapidly -- quickly enough that some economists initially feared a resurgence of inflation. But the Fed recognized that one of --------------- (3) The S&P 500 is a market capitalization-weighted measure of 500 widely held common stocks. Please note that an investor cannot invest directly in an index. (4) The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. (A price-to-book ratio is the price of a stock compared to the difference between a company's assets and liabilities.) Please note that an investor cannot invest directly in an index. (5) The Nasdaq Composite Index is a market value-weighted index that measures all domestic and non-U.S. based securities listed on the NASDAQ stock market. Please note that an investor cannot invest directly in an index. (6) Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings Service, or that have an equivalent rating by any nationally recognized statistical rating organization, or are determined by the portfolio manager to be of equivalent quality. (7) The Salomon Smith Barney Index includes institutionally traded U.S. Treasury Bonds, government-sponsored bonds (U.S. Agency and supranational), mortgage-backed securities and corporate securities. Please note that an investor cannot invest directly an index. 2 4 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS -------------------------------------------------------------------------------- the primary drivers of this expansion, soaring capital investments, has in fact led to a jump in productivity. Higher productivity has in turn led the economy to grow more quickly without triggering inflation. In mid-1999, however, the Fed began to grow concerned that despite the benefits of higher productivity, the economy was growing too quickly. In response to this rate of growth, the Fed began to increase short-term interest rates, raising them six times, with the final interest rate hike in May 2000. Once again, the Fed appeared to be successful. The growth of the economy slowed, retail sales weakened and job growth declined, with 230,000 net new jobs created in the fourth quarter of 2000 versus 773,000 in the fourth quarter of 1999. Now the only debate among economists seems to be whether the economy in 2001 will have a "hard landing" (i.e., 1% or less gross domestic product "GDP"(8) growth) or a "soft landing" (i.e., 2% or more GDP growth). The Fed has acted decisively by lowering short-term interest rates by 50 basis points(9) on January 3, 2001. (On January 31, 2001, after this commentary was written, the Fed cut interest rates by an additional 50 basis points.) Presumably the Fed, too, was worried about the possibility of a "hard landing." And at least initially, the central bank's most recent action has been warmly received by stock investors, with a more muted response by bond buyers. MANAGED ASSETS TRUST Managed Assets Trust ("Trust") seeks to provide high total investment return through a fully managed investment policy. For the year ended December 31, 2000, the Trust returned a negative 1.62%. In comparison, the Lehman Brothers Government/ Corporate Bond Index(10) and the S&P 500 returned 11.85% and a negative 9.10%, respectively, for the same period. Past performance is not indicative of future results. The Trust underperformed its benchmark (which is a blend of 60% S&P 500 and 40% the Lehman Brothers Government/ Corporate Bond Index) by 0.96% in the fourth quarter of 2000 and for the period, the Trust returned a negative 1.01% and the Lehman Brothers Government/Corporate Bond Index benchmark returned a negative 0.91%. The Trust's fourth quarter performance was hurt by underperformance in both stocks and bonds offset by slightly less than 60% stock exposure and the Trust's holdings in Treasury Inflation Protected Securities ("TIPS")(11) and convertibles.(12) The stock portion of the Trust declined approximately 1.61% during the third quarter of 2000. For the period, the Trust's stock portion declined approximately 2.39%. The bond portion of the Trust underperformed in the fourth quarter by 0.98% due to weak performance in the corporate bond holdings. For the year, the Trust's bond portfolio outperformed by 0.61% helped by an early year exposure to U.S. Treasury strips(13) and a significant position all year in TIPS. The convertible bond holdings were down only 0.05% in the fourth quarter, almost 3% better than the 60/40 benchmark. For the year the convertible bond holdings in the Trust's portfolio were up 21.6%. Going into 2001, the manager is planning on maintaining the Trust's stock weighting at close to 60%. He extended many of the Trust's corporate bond positions in the 10-year area in December 2000 in order to possibly maximize exposure to spread(14) narrowing while remaining slightly short of its duration(15) target. --------------- (8) GDP is the market value of the goods and services produced by labor and property in the U.S. GDP is comprised of consumer and government purchases, private domestic investments and net exports of goods and services. (9) A basis point is 0.01% or one one-hundredth of a percent. (10) The Lehman Brothers Government/Corporate Bond Index tracks the performance of the overall bond market and is a broad measure of the performance of government and corporate fixed-rate debt issues. Please note that an investor cannot invest directly in an index. (11) TIPS are Treasury bonds that pay a fixed coupon, but with a principal value that is adjusted to the latest consumer price index. (12) Convertible securities are bonds or preferred stocks that may be converted into common stock or other equity interests in the issuer at a predetermined price or rate. (13) A strip bond is a bond separated into its two components: periodic interest payments and principal repayment. Each of the interest payments and the principal repayment are stripped apart from a brokerage firm and sold individually as zero-coupon securities. (14) Spread is the difference between yields on securities of the same quality but different maturities or the difference between yields on securities of the same maturity but different quality. (15) Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates. 3 5 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS -------------------------------------------------------------------------------- The manager also continues to hold a 15% position in TIPS, which still provide high real interest rates and are benefiting from the tight energy market's impact on total inflation. The manager is also increasing his weighting in convertible securities, as he believes the weak stock market has created opportunities. HIGH YIELD BOND TRUST The High Yield Bond Trust ("Trust") seeks generous income. The assets of the Trust will be invested in bonds which, as a class, sell at discounts from par value and are typically higher-risk securities. For the year ended December 31, 2000, the Trust returned 0.97%. In comparison, the Lehman Brothers Aggregate Bond Index(16) and First Boston Global High Yield Index Top Tier(17) returned 11.63% and a negative 5.21%, respectively, for the same period. Past performance is not indicative of future results. The high-yield bond market performed poorly in the fourth quarter of 2000. This was the worst performing quarter since 1990 marking the first year of negative returns since 1994. The Trust generated a gross return of negative 1.92% for the fourth quarter of 2000 outperforming the Lehman Brothers Aggregate Bond Index by 319 basis points. With the collapse of the U.S. stock market, most notably the Nasdaq Composite Index during the fourth quarter of 2000, the high-yield bond market experienced a tumultuous sell-off. The cyclicals, retail and telecommunication sectors took the brunt of the damage during the fourth quarter of 2000. Due to fact that the 10-Year U.S. Treasury yields decreased by 70 basis points in the fourth quarter, higher quality credits (BB) once again outperformed their lower-quality (B) counterparts. While the general economy appears to be slowing, the managers are still somewhat positive on the high-yield bond market in 2001. Absolute yields are at levels not seen since 1991 and the managers think there are compelling prospects for the long-term opportunities in the high yield bond market. In addition, the managers plan to continue to utilize their "bottom-up"(18) investment approach and purchase solid credits with what they deem to be competitive attractive yields in 2001. CAPITAL APPRECIATION FUND The Capital Appreciation Fund ("Portfolio") seeks growth of capital through the use of common stocks. Income is not an objective. The Portfolio invests principally in common stocks of small to large cap companies that are expected to experience wide fluctuations in price. For the year ended December 31, 2000, the Portfolio returned a negative 21.88%. In comparison, the S&P 500 returned negative 9.10% for the same period. Past performance is not indicative of future results. By just about any measure, the year 2000 was a difficult one for most stocks, with the S&P 500 declining by 9.10%, and the Nasdaq Composite Index declined 39.29%. The manager believes the performance of the stock market can be directly attributed to overvaluation. For all the explanations given to describe the performance of the stock market in 2000, the most compelling story in the manager's view, is that the mania of late 1999 that carried into February 2000 left the stock market vulnerable to a resounding drop. Among the lessons that most investors either learned or were reminded of during the period were: - Diversification can be better than betting the ranch on any one kind of investment; - Cash is not always trash; - Valuations do matter; and - Maybe most importantly, the belief that "this time is different" is still the most dangerous phrase in stock market lingo. --------------- (16) The Lehman Brothers Aggregate Bond Index is a broad based measure of the performance of taxable bonds in the U.S. market with maturities of at least one year. Please note that an investor cannot invest directly in an index. (17) The First Boston Global High Yield Index Top Tier is a broad-based market measure of high yield bonds, commonly known as "junk bonds." Please note that an investor cannot invest directly in an index. (18) Bottom-up approach investing is to search for outstanding performance of individual stocks before considering the impact of economic trends. 4 6 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS -------------------------------------------------------------------------------- In the manager's opinion, what may most impact the stock market in the coming year is whether the economy slips into a recession, defined as two quarters of declines in GDP, or whether the economy experiences a "soft landing" (i.e., slower growth but no recession) predicted by the manager six months ago as the most likely outcome. Unfortunately, at this time, the manager believes the odds of a recession have increased in the past two months, as the positive wealth effect from the 1999 stock market has turned negative, affecting many areas of the U.S. economy that have great multiplier effects, such as housing, autos and consumer spending. Energy costs have begun to act like a tax increase. Confidence has declined, and it remains to be seen if monetary easing by the Fed, a virtual certainty in the early months of 2001, is enough to overcome the malaise that has set in. MONEY MARKET PORTFOLIO The Money Market Portfolio ("Portfolio") seeks to provide investors with high current income from short-term money market instruments while emphasizing preservation of capital and maintaining a high degree of liquidity. The Portfolio pursues this objective by investing in securities maturing in one year or less. For the year ended December 31, 2000, the Portfolio returned 6.18%. Past performance is not indicative of future results. The Portfolio invests in high-quality U.S. dollar denominated short-term debt securities. These may include obligations issued by U.S. and foreign banks, the U.S. government, its agencies or instrumentalities, U.S. states and municipalities and U.S. and foreign corporate issuers. The Portfolio will invest at least 25% of its assets in obligations of domestic and foreign banks. Please note that the investment in the Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. For most of 2000 the U.S. economy continued to show strong growth. However, late in the fourth quarter the first signs of slowing began to appear and the topic of a possible recession in 2001 began to creep into the economic press. GDP growth for the fourth quarter is expected to be 2.7%, up from 2.2% in the third quarter of 2000, and growth for 2001 is expected to be 2.6%, well below the rampant growth of recent years. The unemployment rate for December remained at 4.0%. The yield on the long-term bonds ended the fourth quarter at 5.46%, down 43 basis points from the previous quarter and down 102 basis points for the year. The Federal Open Market Committee ("FOMC")(19) left the federal funds rate ("fed funds rate")(20) unchanged at its November 15, 2000 and December 19, 2000 meetings, but changed its bias from inflation to weakness at the latter meeting. In a rare surprise, the Fed cut interest rates by 50 basis points on January 3, 2001(21), citing slackening demand in the manufacturing sector and worries about a possible slowdown in consumer spending to follow. The fed funds rate finished 2000 at 6.50%, up 100 basis points for 2000, but with the recent cut now stands at 6.00%. Most signs point towards further rate cuts by the Fed in the near future in an effort to stave off recession. Many economists are calling for further cuts of 75 to 125 basis points by the Fed in 2001. The strategy in management of the Portfolio's short-term assets will be to slightly increase the current average life of the portfolio slightly from 30 days to approximately 35 days. --------------- (19) The FOMC is a policy-making body of the Federal Reserve System, the U.S. central bank, that is responsible for the formulation of policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. (20) The fed funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The fed funds rate often points to the direction of U.S. interest rates. (21) On January 31, 2001, after the commentary was written the Fed cut interest rates an additional 50 basis points. 5 7 ANNUAL REPORT FOR THE TRAVELERS VARIABLE PRODUCTS FUNDS -------------------------------------------------------------------------------- Thank you for your investment in Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman January 18, 2001 THE INFORMATION PROVIDED IN THIS COMMENTARY REPRESENTS THE OPINION OF THE MANAGERS AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE RESULTS OR INVESTMENT ADVICE. FURTHER, THERE IS NO ASSURANCE THAT CERTAIN SECURITIES WILL REMAIN IN OR OUT OF THE TRUSTS AND PORTFOLIOS. PLEASE REFER TO PAGES 9 THROUGH 27 FOR A LIST AND PERCENTAGE BREAKDOWN OF EACH TRUST'S AND PORTFOLIO'S HOLDINGS. ALSO, PLEASE NOTE ANY DISCUSSION OF THE PORTFOLIOS' HOLDINGS IS OF DECEMBER 31, 2000 AND IS SUBJECT TO CHANGE. 6 8 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/00 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------------------------- Year Ended 12/31/00 (1.62)% Five Years Ended 12/31/00 13.50% Ten Years Ended 12/31/00 12.59% CUMULATIVE TOTAL RETURN ---------------------------------------------- 12/31/90 through 12/31/00 227.47%
This chart assumes an initial investment of $10,000 made on December 31, 1990, assuming reinvestment of dividends, through December 31, 2000. The Lehman Brothers Government/Corporate 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 Corporate 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 Standard & Poor's 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 market. [PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST CHART]
LEHMAN BROTHERS GOVERNMENT/CORPORATE STANDARD & POOR'S MANAGED ASSETS TRUST BOND INDEX CONSUMER PRICE INDEX 500 INDEX -------------------- -------------------- -------------------- ----------------- 12/90 10000 10000 10000 10000 12/91 12170 11612 10306 13040 12/92 12796 12493 10605 14033 12/93 13990 13872 10897 15444 12/94 13676 13384 11188 15647 12/95 17385 15960 11472 19078 12/96 19780 16422 11853 23456 12/97 23996 18024 12054 31280 12/98 29141 19732 12247 40270 12/99 33285 18867 12612 48740 12/00 32747 21103 13040 44303
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 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. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 12/31/00 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Year Ended 12/31/00 0.97% Five Years Ended 12/31/00 8.73% Ten Years Ended 12/31/00 10.92% CUMULATIVE TOTAL RETURN ---------------------------------------------- 12/31/90 through 12/31/00 181.85%
[PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST] This chart assumes an initial investment of $10,000 made on December 31, 1990, assuming reinvestment of dividends, through December 31, 2000. The Lehman Brothers Aggregate Bond Index, an unmanaged index, is composed of the Lehman Brothers Intermediate Government/Corporate Bond Index and the Mortgage Backed Securities Index and includes treasury issues, agency issues, corporate bond issues and mortgage-backed securities. 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 First Boston Global High Yield Index Top Tier is a broad-based market measure of high yield bonds, commonly known as "junk bonds."
FIRST BOSTON GLOBAL LEHMAN BROTHERS HIGH YIELD INDEX TOP HIGH YIELD BOND TRUST AGGREGATE BOND INDEX CONSUMER PRICE INDEX TIER --------------------- -------------------- -------------------- -------------------- 12/90 10000 10000 10000 10000 12/91 12610 11600 10306 12288 12/92 14269 12458 10605 13361 12/93 16268 13673 10897 15448 12/94 16063 13274 11188 15418 12/95 18547 15726 11472 18298 12/96 21542 16297 11853 20260 12/97 25089 17869 12054 22819 12/98 26734 19422 12247 22885 12/99 27916 19263 12612 23903 12/00 28185 21504 13040 23077
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 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. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 7 9 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/00 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Year Ended 12/31/00 (21.88)% Five Years Ended 12/31/00 25.67% Ten Years Ended 12/31/00 22.24% CUMULATIVE TOTAL RETURN ---------------------------------------------- 12/31/90 through 12/31/00 644.81%
[PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND CHART] This chart assumes an initial investment of $10,000 made on December 31, 1990, assuming reinvestment of dividends, through December 31, 2000. The Standard & Poor's 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 market. 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 STANDARD & POOR'S FUND 500 INDEX RUSSELL 2000 INDEX CONSUMER PRICE INDEX -------------------- ----------------- ------------------ -------------------- 12/90 10000 10000 10000 10000 12/91 13516 13040 14605 10306 12/92 15896 14033 17293 10605 12/93 18294 15444 20558 10897 12/94 17423 15647 8530 11188 12/95 23759 19078 10958 11472 12/96 30460 23456 12766 11853 12/97 38424 31301 15621 12054 12/98 62104 40296 15224 12247 12/99 95339 48772 18459 12612 12/00 74481 44303 17901 13040
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 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. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 8 10 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2000 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCK -- 55.7% ----------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 2.5% 16,800 Bed Bath & Beyond Inc.*..................................... $ 375,900 7,300 Best Buy Co., Inc.*......................................... 215,806 6,400 CDW Computer Centers, Inc.*................................. 178,400 6,427 CVS Corp.................................................... 385,218 25,595 Home Depot, Inc. ........................................... 1,169,372 8,900 Interpublic Group of Cos., Inc. ............................ 378,806 17,400 Kohl's Corp.*............................................... 1,061,400 11,800 McDonald's Corp. ........................................... 401,200 16,400 Walgreen Co. ............................................... 685,725 66,460 Wal-Mart Stores, Inc. ...................................... 3,530,688 ----------------------------------------------------------------------------------------------------- 8,382,515 ----------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 4.5% 8,900 Adolph Coors Co., Class B Shares............................ 714,781 10,300 Alberto-Culver Co., Class B Shares.......................... 440,969 21,454 Anheuser-Busch Cos., Inc. .................................. 976,157 4,600 Avery Dennison Corp. ....................................... 252,425 42,605 The Coca-Cola Co. .......................................... 2,596,242 14,684 Colgate Palmolive Co. ...................................... 947,852 12,700 Federated Department Stores, Inc.*.......................... 444,500 12,900 Keebler Foods Co. .......................................... 534,544 8,864 Kimberly-Clark Corp. ....................................... 626,596 33,200 The Kroger Co.*............................................. 898,475 32,080 PepsiCo, Inc. .............................................. 1,589,965 47,015 Philip Morris Cos. Inc. .................................... 2,068,660 13,932 Procter & Gamble Co. ....................................... 1,092,791 16,262 Safeway Inc.*............................................... 1,016,375 31,688 SYSCO Corp. ................................................ 950,640 12,800 Tricon Global Restaurants, Inc.*............................ 422,400 ----------------------------------------------------------------------------------------------------- 15,573,372 ----------------------------------------------------------------------------------------------------- ENTERTAINMENT/MEDIA -- 2.5% 17,700 Carnival Corp. ............................................. 545,381 9,742 Clear Channel Communications, Inc.*......................... 471,878 22,900 Comcast Corp., Special Class A Shares*...................... 956,075 7,511 Gannett Co., Inc. .......................................... 473,662 13,200 Harrah's Entertainment, Inc.*............................... 348,150 7,400 Knight-Ridder, Inc. ........................................ 420,875 9,800 The McGraw-Hill Cos., Inc. ................................. 574,525 11,000 Reader's Digest Association, Inc., Class A Shares........... 430,375 24,422 Time Warner Inc. ........................................... 1,275,805 13,000 Tribune Co. ................................................ 549,250 26,786 Viacom Inc., Class B Shares*................................ 1,252,246 41,595 The Walt Disney Co. ........................................ 1,203,655 ----------------------------------------------------------------------------------------------------- 8,501,877 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 9 11 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- FINANCIAL -- 7.2% 34,949 American Express Co. ....................................... $ 1,920,011 21,876 Bank of America Corp. ...................................... 1,003,562 21,300 The Bank of New York Co., Inc. ............................. 1,175,494 30,021 Bank One Corp. ............................................. 1,099,519 13,900 Bear Stearns Cos. Inc. ..................................... 704,556 8,108 Capital One Financial Corp. ................................ 533,608 18,900 Charles Schwab Corp. ....................................... 536,288 28,102 Chase Manhattan Corp.+...................................... 1,276,885 18,052 Fannie Mae.................................................. 1,566,011 6,450 Fifth Third Bancorp......................................... 385,388 36,500 Firstar Corp. .............................................. 848,625 32,223 FleetBoston Financial Corp. ................................ 1,210,382 14,250 Freddie Mac................................................. 981,469 14,200 Household International, Inc. .............................. 781,000 2,313 J.P. Morgan & Co.+.......................................... 382,802 31,300 Knight Trading Group, Inc.*................................. 436,244 17,562 Lehman Brothers Holdings Inc. .............................. 1,187,630 23,800 MBNA Corp. ................................................. 879,113 22,050 Merrill Lynch & Co., Inc. .................................. 1,503,534 28,682 Morgan Stanley Dean Witter & Co. ........................... 2,273,049 27,400 National City Corp. ........................................ 787,750 13,000 Providian Financial Corp. .................................. 747,500 4,948 State Street Corp. ......................................... 614,591 32,500 Wells Fargo & Co. .......................................... 1,809,844 ----------------------------------------------------------------------------------------------------- 24,644,855 ----------------------------------------------------------------------------------------------------- HEALTH CARE -- 7.2% 16,046 Abbott Laboratories......................................... 777,228 6,300 Allergan, Inc. ............................................. 609,919 13,200 ALZA Corp.*................................................. 561,000 9,113 American Home Products Corp. ............................... 579,131 4,900 Baxter International Inc. .................................. 432,731 10,800 Biomet, Inc. ............................................... 428,625 31,596 Bristol-Myers Squibb Co. ................................... 2,336,129 10,400 Cardinal Health, Inc. ...................................... 1,036,100 11,604 Eli Lilly & Co. ............................................ 1,079,897 4,600 Forest Laboratories, Inc.*.................................. 611,225 16,600 HCA - The Healthcare Corp. ................................. 730,566 25,211 Johnson & Johnson........................................... 2,648,731 3,300 MedImmune, Inc.*............................................ 157,369 9,866 Medtronic, Inc. ............................................ 595,660 38,138 Merck & Co., Inc. .......................................... 3,570,670 106,891 Pfizer Inc. ................................................ 4,916,986 20,492 Pharmacia Corp. ............................................ 1,250,012 8,668 Schering-Plough Corp. ...................................... 491,909 13,200 Tenet Healthcare Corp. ..................................... 586,575
SEE NOTES TO FINANCIAL STATEMENTS. 10 12 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- HEALTH CARE -- 7.2% (CONTINUED) 8,500 Trigon Healthcare, Inc.*.................................... $ 661,406 11,000 UnitedHealth Group Inc. .................................... 675,125 ----------------------------------------------------------------------------------------------------- 24,736,994 ----------------------------------------------------------------------------------------------------- HUMAN RESOURCES -- 0.5% 11,300 Manpower Inc. .............................................. 429,400 23,800 Paychex, Inc. .............................................. 1,157,275 ----------------------------------------------------------------------------------------------------- 1,586,675 ----------------------------------------------------------------------------------------------------- INSURANCE -- 2.4% 8,221 Ambac Financial Group, Inc. ................................ 479,387 3,800 American General Corp. ..................................... 309,700 36,945 American International Group, Inc. ......................... 3,641,397 8,400 The Chubb Corp. ............................................ 726,600 7,900 CIGNA Corp. ................................................ 1,045,170 12,500 Lincoln National Corp. ..................................... 591,406 6,900 MBIA, Inc. ................................................. 511,463 11,400 MGIC Investment Corp. ...................................... 768,788 ----------------------------------------------------------------------------------------------------- 8,073,911 ----------------------------------------------------------------------------------------------------- LODGING -- 0.2% 13,300 Marriott International, Inc., Class A Shares................ 561,925 ----------------------------------------------------------------------------------------------------- MATERIALS & PROCESSING -- 1.4% 3,300 Alcan Aluminum Ltd. ........................................ 112,819 15,940 Alcoa Inc. ................................................. 533,990 7,800 Applera Corp.-Applied Biosystems Group...................... 733,688 12,300 Barrick Gold Corp. ......................................... 201,474 11,257 The Dow Chemical Co. ....................................... 412,288 16,422 E.I. du Pont de Nemours & Co. .............................. 793,388 3,800 Eastman Chemical Co. ....................................... 185,250 6,084 Georgia-Pacific Group....................................... 189,365 13,502 International Paper Co. .................................... 551,050 5,106 The Mead Corp. ............................................. 160,201 2,700 Nucor Corp. ................................................ 107,156 4,200 Phelps Dodge Corp. ......................................... 234,413 2,600 Praxair, Inc. .............................................. 115,375 7,400 Rohm & Haas Co. ............................................ 268,713 2,000 Union Carbide Corp. ........................................ 107,625 3,635 Weyerhaeuser Co. ........................................... 184,476 ----------------------------------------------------------------------------------------------------- 4,891,271 ----------------------------------------------------------------------------------------------------- OIL/ENERGY -- 5.0% 5,200 Anadarko Petroleum Corp. ................................... 369,616 6,600 Apache Corp. ............................................... 462,413 5,400 Baker Hughes Inc. .......................................... 224,438 13,284 Chevron Corp. .............................................. 1,121,668 9,962 Conoco Inc., Class B Shares................................. 288,275 5,400 Dynegy Inc., Class A Shares................................. 302,738
SEE NOTES TO FINANCIAL STATEMENTS. 11 13 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- OIL/ENERGY -- 5.0% (CONTINUED) 18,188 Enron Corp. ................................................ $ 1,511,878 13,900 Exelon Corp. ............................................... 975,919 59,896 Exxon Mobil Corp. .......................................... 5,207,264 7,810 Halliburton Co. ............................................ 283,113 6,500 Kerr-McGee Corp. ........................................... 435,094 6,700 Occidental Petroleum Corp. ................................. 162,475 15,600 PG&E Corp. ................................................. 312,000 4,300 Phillips Petroleum Co. ..................................... 244,563 34,134 Royal Dutch Petroleum Co. ADR............................... 2,067,245 8,938 Schlumberger Ltd. .......................................... 714,481 8,700 Texaco Inc. ................................................ 540,488 4,500 Tosco Corp.................................................. 152,719 4,849 Transocean Sedco Forex Inc. ................................ 223,089 15,700 TXU Corp. .................................................. 695,706 7,200 Unocal Corp. ............................................... 278,550 5,000 USX-Marathon Group Inc. .................................... 138,750 12,054 The Williams Cos., Inc. .................................... 481,407 ----------------------------------------------------------------------------------------------------- 17,193,889 ----------------------------------------------------------------------------------------------------- PRODUCER DURABLES -- 4.3% 15,400 Agilent Technologies, Inc.*................................. 843,150 5,500 Ball Corp. ................................................. 253,344 4,200 Black & Decker Corp. ....................................... 164,850 171,902 General Electric Co. ....................................... 8,240,559 23,100 ITT Industries, Inc. ....................................... 895,125 12,565 Masco Corp. ................................................ 322,763 3,700 Minnesota Mining & Manufacturing Co. ....................... 445,850 10,200 PACCAR Inc. ................................................ 502,350 3,700 PerkinElmer, Inc. .......................................... 388,500 9,700 Solectron Corp.*............................................ 328,830 40,646 Tyco International Ltd. .................................... 2,255,853 ----------------------------------------------------------------------------------------------------- 14,641,174 ----------------------------------------------------------------------------------------------------- TECHNOLOGY -- 14.8% 10,200 Adobe Systems Inc. ......................................... 593,513 12,400 Altera Corp.*............................................... 326,275 36,736 America Online, Inc.*....................................... 1,278,413 13,240 Amgen Inc.*................................................. 846,533 21,000 Analog Devices, Inc.*....................................... 1,074,938 13,126 Applied Materials, Inc.*.................................... 501,249 2,600 Ariba, Inc.*................................................ 139,750 6,900 Automatic Data Processing, Inc. ............................ 436,856 2,800 Biogen, Inc.*............................................... 168,175 23,043 The Boeing Co. ............................................. 1,520,838 9,000 Broadcom Corp., Class A Shares*............................. 760,500 17,900 BroadVision, Inc.*.......................................... 211,444 123,528 Cisco Systems, Inc.*........................................ 4,724,946 28,082 Compaq Computer Corp. ...................................... 422,634
SEE NOTES TO FINANCIAL STATEMENTS. 12 14 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- TECHNOLOGY -- 14.8% (CONTINUED) 21,600 Corning Inc. ............................................... $ 1,140,750 31,516 EMC Corp.*.................................................. 2,095,814 13,200 First Data Corp. ........................................... 695,475 11,500 Global Crossing Ltd.*....................................... 164,594 21,100 Hewlett-Packard Co. ........................................ 665,969 113,672 Intel Corp. ................................................ 3,438,583 31,488 International Business Machines Corp. ...................... 2,676,480 22,000 JDS Uniphase Corp.*......................................... 917,125 12,100 Lam Research Corp.*......................................... 175,450 8,100 Linear Technology Corp. .................................... 374,625 18,100 Lockheed Martin Corp. ...................................... 614,495 40,645 Lucent Technologies Inc. ................................... 548,708 2,500 Mercury Interactive Corp.*.................................. 225,625 21,000 Micron Technology, Inc.*.................................... 745,500 85,434 Microsoft Corp.*............................................ 3,705,700 5,600 Network Appliance, Inc.*.................................... 359,713 30,900 Nextel Communications, Inc.*................................ 764,775 51,800 Nortel Networks Corp. ...................................... 1,660,838 106,760 Oracle Corp.*............................................... 3,102,713 14,900 Palm, Inc.*................................................. 421,856 13,200 QUALCOMM Inc.*.............................................. 1,084,875 28,872 Qwest Communications International Inc.*.................... 1,183,752 9,400 Sanmina Corp.*.............................................. 720,275 20,800 Scientific-Atlanta, Inc. ................................... 677,300 8,600 Siebel Systems, Inc.*....................................... 581,575 40,352 Sprint PCS Group*........................................... 824,694 73,200 Sun Microsystems, Inc.*..................................... 2,040,450 7,400 Telephone & Data Systems, Inc. ............................. 666,000 12,858 Tellabs, Inc.*.............................................. 726,477 21,568 Texas Instruments Inc. ..................................... 1,021,784 12,200 TranSwitch Corp.*........................................... 477,325 8,322 United Technologies Corp. .................................. 654,317 5,300 VERITAS Software Corp.*..................................... 463,750 35,493 Verizon Communications Inc. ................................ 1,779,087 4,500 Xilinx, Inc.*............................................... 207,563 ----------------------------------------------------------------------------------------------------- 50,610,076 ----------------------------------------------------------------------------------------------------- TRANSPORTATION -- 0.7% 14,374 AMR Corp.*.................................................. 563,281 36,566 Ford Motor Co. ............................................. 857,016 9,642 General Motors Corp. ....................................... 491,139 11,100 Harley-Davidson, Inc. ...................................... 441,225 ----------------------------------------------------------------------------------------------------- 2,352,661 ----------------------------------------------------------------------------------------------------- UTILITIES -- 2.5% 13,000 The AES Corp.*.............................................. 719,875 6,669 ALLTEL Corp. ............................................... 416,396 48,087 AT&T Corp. ................................................. 832,521
SEE NOTES TO FINANCIAL STATEMENTS. 13 15 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- UTILITIES -- 2.5% (CONTINUED) 24,618 BellSouth Corp. ............................................ $ 1,007,799 11,100 Dominion Resources, Inc. ................................... 743,700 20,600 FirstEnergy Corp. .......................................... 650,188 12,125 FPL Group, Inc. ............................................ 869,969 7,100 The Montana Power Co. ...................................... 147,325 45,246 SBC Communications Inc. .................................... 2,160,505 7,073 The Southern Co. ........................................... 235,177 50,352 WorldCom, Inc.*............................................. 704,935 ----------------------------------------------------------------------------------------------------- 8,488,390 ----------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $162,079,834)................... 190,239,585 ----------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK -- 1.1% ----------------------------------------------------------------------------------------------------- ENERGY -- 0.1% 3,924 Newfield Financial Trust, 6.500%............................ 284,000 2,000 SEI Trust, 6.250%........................................... 124,000 ----------------------------------------------------------------------------------------------------- 408,000 ----------------------------------------------------------------------------------------------------- FINANCIAL -- 0.7% 10,000 CalEnergy Capital II, 6.250%................................ 415,000 6,000 Equity Office Properties Trust, 5.250%...................... 282,750 18,564 Equity Residential Properties Trust, 7.250%................. 462,940 12,000 General Growth Properties, Inc., 7.250%..................... 294,000 12,000 National Australia Bank Ltd., 7.875%........................ 343,500 6,000 Newell Financial Trust, 5.250%.............................. 193,500 9,000 Reckson Associates Realty Corp., 7.625%..................... 212,625 2,245 Union Pacific Capital Trust, 6.250%......................... 104,954 ----------------------------------------------------------------------------------------------------- 2,309,269 ----------------------------------------------------------------------------------------------------- INDUSTRIAL -- 0.1% 4,000 Amcor Ltd., 7.250%.......................................... 132,000 4,000 Canadian National Railway Co., 5.250%....................... 181,250 ----------------------------------------------------------------------------------------------------- 313,250 ----------------------------------------------------------------------------------------------------- MEDIA -- 0.0% 1,000 Tribune Co., 2.000%......................................... 86,500 ----------------------------------------------------------------------------------------------------- UTILITIES -- 0.2% 4,000 AES Trust VII, 6.000%....................................... 272,500 6,000 Calpine Capital Trust II, 5.500%............................ 362,250 ----------------------------------------------------------------------------------------------------- 634,750 ----------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $3,751,531)...... 3,751,769 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 16 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
FACE AMOUNT RATING(a) SECURITY VALUE ----------------------------------------------------------------------------------------------------------------- CORPORATE BONDS & NOTES -- 14.0% ----------------------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 2.0% $ 5,000,000 A Lowe's Cos. Inc., Notes, 8.250% due 6/1/10.................. $ 5,268,750 1,000,000 BBB- R.J. Reynolds Tobacco Holdings, Inc., Company Guaranteed, 7.750% due 5/15/06........................................ 942,500 1,000,000 BB+ Saks Inc., Company Guaranteed, 8.250% due 11/15/08.......... 605,000 ----------------------------------------------------------------------------------------------------------------- 6,816,250 ----------------------------------------------------------------------------------------------------------------- FINANCIAL -- 1.3% 5,000,000 BBB Nationwide Health Properties, Inc., Notes, 6.900% due 10/1/37..................................................... 4,587,500 ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL -- 0.9% 3,000,000 BBB CSX Corp., Notes, 6.950% due 5/1/27......................... 3,018,750 ----------------------------------------------------------------------------------------------------------------- MEDIA -- 1.1% 4,000,000 BBB- Clear Channel Communications, Inc., Sr. Notes, 6.625% due 6/15/08..................................................... 3,855,000 ----------------------------------------------------------------------------------------------------------------- TECHNOLOGY -- 7.2% 5,000,000 A British Telecom PLC, Notes, 8.125% due 12/15/10............. 5,075,000 5,000,000 BBB+ Computer Associates International, Inc., Sr. Notes, 6.375% due 4/15/05................................................. 4,625,000 5,000,000 A- Deutsche Telekom International Finance Inc., Bonds, 8.000% due 6/15/10................................................. 5,100,000 5,000,000 A- Koninklijke KPN NV, Sr. Unsubordinated Notes, 8.000% due 10/1/10 (b)................................................. 4,687,500 5,000,000 A+ Verizon Global Funding Corp., Notes, 7.250% due 12/1/10 (b)......................................................... 5,087,505 ----------------------------------------------------------------------------------------------------------------- 24,575,005 ----------------------------------------------------------------------------------------------------------------- UTILITIES -- 1.5% 5,000,000 AA- BellSouth Capital Funding Corp., Debentures, 6.040% due 11/15/26.................................................... 4,981,250 ----------------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS & NOTES (Cost -- $47,996,903)......... 47,833,755 ----------------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BONDS -- 1.7% ----------------------------------------------------------------------------------------------------------------- ENERGY -- 0.2% 600,000 A- Diamond Offshore Drilling, Inc., Sub. Notes, zero coupon due 6/6/20 (b).................................................. 305,250 300,000 BBB+ Global Marine Inc., Debentures, zero coupon due 6/23/20 (b)......................................................... 154,500 175,000 A Transocean Sedco Forex Inc., Debentures, zero coupon due 5/24/20..................................................... 102,813 ----------------------------------------------------------------------------------------------------------------- 562,563 ----------------------------------------------------------------------------------------------------------------- ENTERTAINMENT/MEDIA -- 0.1% 150,000 BBB- AT&T Corp.-Liberty Media Group, Debentures, 4.000% due 11/15/29.................................................... 100,500 150,000 BBB- Clear Channel Communications, Inc., Unsecured Notes, 1.500% due 12/1/02................................................. 134,250 350,000 BBB+ Cox Communications, Inc., Notes, 0.425% due 4/19/20......... 133,438 ----------------------------------------------------------------------------------------------------------------- 368,188 ----------------------------------------------------------------------------------------------------------------- FINANCIAL -- 0.4% Bell Atlantic Financial Services, Bonds: 297,000 A+ 5.750% due 4/1/03 (b)....................................... 290,874 283,000 A+ 4.250% due 9/15/05 (b)...................................... 293,966 253,000 BBB Elan International Finance Ltd., Company Guaranteed, zero coupon due 12/14/18....................................... 185,639 300,000 A- Hellenic Finance, 2.000% due 7/15/03 (b).................... 274,125
SEE NOTES TO FINANCIAL STATEMENTS. 15 17 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
FACE AMOUNT RATING(a) SECURITY VALUE ----------------------------------------------------------------------------------------------------------------- FINANCIAL -- 0.4% (CONTINUED) $ 200,000 A Hutchison Whampoa International, Notes, 2.875% due 9/15/03 (b)......................................................... $ 204,125 300,000 Baa3* Security Capital U.S. Realty, Bonds, 2.000% due 5/22/03 (b)......................................................... 255,938 ----------------------------------------------------------------------------------------------------------------- 1,504,667 ----------------------------------------------------------------------------------------------------------------- HEALTH CARE -- 0.1% 75,000 BB- AmeriSource Health Corp., Notes, 5.000% due 12/1/07 (b)..... 88,219 300,000 NR Roche Holding AG, Notes, zero coupon due 1/19/15 (b)........ 271,125 ----------------------------------------------------------------------------------------------------------------- 359,344 ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL -- 0.4% 300,000 AA- Indian Petrochemicals Corp. Ltd., Bonds, 2.500% due 3/11/02 (b)......................................................... 319,500 300,000 BB+ Interim Services Inc., Sub. Notes, 4.500% due 6/1/05........ 204,000 124,000 BBB+ Koninklijke Ahold, Sub. Notes, 3.000% due 9/30/03........... 66,509 431,000 BB+ Lennar Corp., Notes, zero coupon due 7/29/18................ 238,128 200,000 BBB+ PerkinElmer, Inc., Bonds, zero coupon due 8/7/20............ 141,750 Solectron Corp., Notes: 410,000 BBB Zero coupon due 5/8/20...................................... 232,675 190,000 BBB Zero coupon due 11/20/20.................................... 97,850 100,000 BBB Thermo Electron Corp., Sub. Debentures, 4.250% due 1/1/03 (b)......................................................... 99,375 100,000 BBB+ Thermo Instrument Systems Inc., Company Guaranteed, 4.000% due 1/15/05................................................. 93,375 ----------------------------------------------------------------------------------------------------------------- 1,493,162 ----------------------------------------------------------------------------------------------------------------- TECHNOLOGY -- 0.3% 300,000 BBB Analog Devices Inc., Notes, 4.750% due 10/1/05.............. 264,750 150,000 BB Comverse Technology Inc., Notes, 1.500% due 12/1/05 (b)..... 168,563 400,000 A Corning Inc., Bonds, zero coupon due 11/8/15................ 285,500 220,000 A- ST Microelectronics NV, Notes, zero coupon due 11/16/10 (b)......................................................... 147,125 ----------------------------------------------------------------------------------------------------------------- 865,938 ----------------------------------------------------------------------------------------------------------------- UTILITIES -- 0.2% 600,000 A- Potomac Electric Power Co., Debentures, 5.000% due 9/1/02... 586,500 ----------------------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $5,815,528)...... 5,740,362 ----------------------------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.7% 5,000,000 PP&L Transition Bond Co. LLC, 7.050% due 6/25/09............ 5,185,477 713,398 Wilmington Trust, 9.250% due 1/2/07......................... 713,428 ----------------------------------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost -- $5,712,960)........................................ 5,898,905 ----------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 20.9% 345,000 U.S. Treasury Bills, due 3/15/01............................ 340,788 U.S. Treasury Notes: 7,000,000 6.750% due 5/15/05.......................................... 7,452,970 16,151,850 3.625% due 1/15/08.......................................... 16,040,730 6,453,360 3.625% due 4/15/28.......................................... 6,335,715
SEE NOTES TO FINANCIAL STATEMENTS. 16 18 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE ----------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 20.9% (CONTINUED) U.S. Treasury Bonds: $10,000,000 11.750% due 2/15/10...................................................... $ 12,342,500 4,500,000 12.000% due 8/15/13...................................................... 6,354,135 22,222,200 U.S. Treasury Inflation Index Bonds, 3.875% due 4/15/29.................. 22,785,088 ----------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $66,983,335).................. 71,651,926 ----------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES -- 2.9% Federal Home Loan Mortgage Corp. (FHLMC): 24,864 8.500% due 9/1/02........................................................ 25,455 860,866 8.000% due 9/1/04........................................................ 886,418 Federal National Mortgage Association (FNMA): 59,781 8.500% due 3/1/05........................................................ 61,668 2,582,578 6.000% due 1/1/13........................................................ 2,549,475 843,826 6.500% due 12/1/27....................................................... 832,485 938,142 6.000% due 3/1/28........................................................ 908,235 158,101 6.000% due 4/1/28........................................................ 153,062 128,511 5.500% due 5/1/28........................................................ 121,202 469,598 6.000% due 5/1/28........................................................ 454,627 840,002 5.500% due 6/1/28........................................................ 792,224 401,338 6.000% due 6/1/28........................................................ 388,545 404,458 6.000% due 7/1/28........................................................ 391,564 1,018,420 5.500% due 8/1/28........................................................ 960,493 1,121,087 6.000% due 8/1/28........................................................ 1,085,348 Government National Mortgage Association (GNMA): 102,901 9.000% due 11/15/19...................................................... 106,792 76,684 9.500% due 1/15/20....................................................... 79,895 62,984 9.500% due 3/15/20....................................................... 65,622 143,925 7.500% due 5/15/23....................................................... 146,398 ----------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $10,091,744)..................... 10,009,508 ----------------------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $302,431,835)............................. 335,125,810 ----------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 2.0% 6,936,000 Morgan Stanley Dean Witter & Co., 5.900% due 1/2/01; Proceeds at maturity -- $6,940,547; (Fully collateralized by U.S. Treasury Notes, 5.250% due 8/15/03; Market value -- $7,078,823) (Cost -- $6,936,000)..... 6,936,000 ----------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $309,367,835**)....................... $342,061,810 -----------------------------------------------------------------------------------------------------------------
* Non-income producing security. + On January 2, 2001, Chase Manhattan Corp. and J.P. Morgan & Co. merged to form J.P. Morgan Chase & Co. (a) All ratings are by Standard & Poor's Ratings Service, except for those which are identified by an asterisk (*), are rated by Moody's Investors Service, Inc. (b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. ** Aggregate cost for Federal income tax purposes is substantially the same.
See page 24 for definitions of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 17 19 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE ----------------------------------------------------------------------------------------------------- CORPORATE BONDS & NOTES -- 82.7% ----------------------------------------------------------------------------------------------------- AUTO/TRUCK PARTS & EQUIPMENT - ORIGINAL -- 2.3% $ 475,000 B- Advance Stores Co., Inc., Company Guaranteed, Series B, 10.250% due 4/15/08....................................... $ 358,625 35,000 B Diamond Triumph Auto, Company Guaranteed, 9.250% due 4/1/08.................................................... 25,725 400,000 BB- Lear Corp., Sub. Notes, 8.250% due 2/1/02................... 394,000 ----------------------------------------------------------------------------------------------------- 778,350 ----------------------------------------------------------------------------------------------------- BUILDING - RESIDENTIAL/COMMERCIAL -- 0.6% 200,000 BB+ Lennar Corp., Company Guaranteed, Series B, 9.950% due 5/1/10.................................................... 205,000 ----------------------------------------------------------------------------------------------------- CASINO HOTELS -- 6.4% 150,000 BB HMH Properties, Company Guaranteed, 7.875% due 8/1/05....... 145,125 250,000 BB Host Marriott LP, Sr. Notes, 9.250% due 10/1/07 (b)......... 250,000 75,000 BBB- ITT Corp., Notes, 6.750% due 11/15/05....................... 72,937 Mandalay Resort Group, Series B: 200,000 BB+ Sr. Notes, 9.500% due 8/1/08................................ 199,000 100,000 BB- Sr. Sub. Notes, 6.750% due 7/15/03.......................... 92,250 250,000 BB- Sr. Sub. Notes, 10.250% due 8/1/07.......................... 248,125 Park Place Entertainment, Sr. Sub. Notes: 450,000 BB+ 7.875% due 12/15/05......................................... 442,125 150,000 BB+ 8.875% due 9/15/08.......................................... 152,250 Prime Hospitality Corp.: 50,000 BB First Mortgage, 9.250% due 1/15/06.......................... 51,000 175,000 B+ Sr. Sub. Notes, Series B, 9.750% due 4/1/07................. 176,750 Venetian Casino Resort LLC/Las Vegas Sands, Inc., Company Guaranteed: 250,000 B- 12.250% due 11/15/04........................................ 246,250 100,000 CCC+ Step bond to yield 14.250% due 11/15/05..................... 98,000 ----------------------------------------------------------------------------------------------------- 2,173,812 ----------------------------------------------------------------------------------------------------- CHEMICALS -- 2.2% 150,000 BB- Georgia Gulf Corp., Company Guaranteed, 10.375% due 11/1/07................................................... 141,000 625,000 BB Lyondell Chemical Co., Secured Notes, Series B, 9.875% due 5/1/07.................................................... 607,812 ----------------------------------------------------------------------------------------------------- 748,812 ----------------------------------------------------------------------------------------------------- CONTAINERS - PAPER/PLASTIC -- 0.5% 175,000 B Four M Corp., Sr. Notes, Series B, 12.000% due 6/1/06....... 168,875 ----------------------------------------------------------------------------------------------------- ELECTRONICS -- 1.1% 400,000 B+ Flextronics International Ltd., Sr. Sub. Notes, Series B, 8.750% due 10/15/07....................................... 382,000 ----------------------------------------------------------------------------------------------------- ENERGY -- 2.0% 300,000 BB Pride International, Inc., Sr. Notes, 10.000% due 6/1/09.... 316,500 135,000 BBB- PSE&G Energy Holdings, Inc., Sr. Notes, 10.000% due 10/1/09................................................... 143,437 250,000 BBB- Tuscon Electric Power Co., Collateral Trust, Series B, 7.500% due 8/1/08......................................... 235,937 ----------------------------------------------------------------------------------------------------- 695,874 ----------------------------------------------------------------------------------------------------- FOOD & DRUG -- 1.1% 250,000 B- Archibald Candy Corp., Company Guaranteed, 10.250% due 7/1/04.................................................... 123,750 275,000 B- Duane Reade Inc., Company Guaranteed, 9.250% due 2/15/08.... 237,875 ----------------------------------------------------------------------------------------------------- 361,625 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 18 20 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE ----------------------------------------------------------------------------------------------------- FORESTRY -- 0.7% $ 300,000 B+ Millar Western Forest Products, Sr. Notes, 9.875% due 5/15/08................................................... $ 238,500 ----------------------------------------------------------------------------------------------------- GAMING/LEISURE -- 5.6% 500,000 B- Bally Total Fitness Holding Corp., Sr. Sub. Notes, Series D, 9.875% due 10/15/07....................................... 466,250 400,000 BB+ Harrah's Operating Co. Inc., Company Guaranteed, 7.875% due 12/15/05.................................................. 399,000 400,000 B Isle of Capri Casinos, Inc., Company Guaranteed, 8.750% due 4/15/09................................................... 356,000 525,000 B+ Station Casinos, Inc., Sr. Sub. Notes, 10.125% due 3/15/06................................................... 546,000 200,000 B- Trump Atlantic City Associate Funding, Inc., Company Guaranteed, 11.250% due 5/1/06............................ 132,000 ----------------------------------------------------------------------------------------------------- 1,899,250 ----------------------------------------------------------------------------------------------------- HEALTH CARE -- 3.6% HCA - The Healthcare Corp., Notes: 350,000 BB+ 7.000% due 7/1/07........................................... 332,062 200,000 BB+ 8.750% due 9/1/10........................................... 211,500 350,000 BB+ HEALTHSOUTH Corp., Sr. Sub. Notes, 10.750% due 10/1/08 (b)....................................................... 367,938 300,000 BB+ Tenet Healthcare Corp., Sr. Notes, Series B, 9.250% due 9/1/10.................................................... 327,375 ----------------------------------------------------------------------------------------------------- 1,238,875 ----------------------------------------------------------------------------------------------------- HOUSING -- 2.0% 375,000 B- Atrium Cos., Inc., Company Guaranteed, Series B, 10.500% due 5/1/09.................................................... 292,500 400,000 BB- Beazer Homes USA, Inc., Company Guaranteed, 8.875% due 4/1/08.................................................... 371,000 ----------------------------------------------------------------------------------------------------- 663,500 ----------------------------------------------------------------------------------------------------- INFORMATION/TECHNOLOGY -- 1.0% Viasystems Group, Inc., Sr. Sub. Notes: 225,000 B 9.750% due 6/1/07........................................... 179,438 200,000 B Series B, 9.750% due 6/1/07................................. 159,500 ----------------------------------------------------------------------------------------------------- 338,938 ----------------------------------------------------------------------------------------------------- MANUFACTURING -- 3.5% 350,000 B+ American Axle & Manufacturing Holdings, Inc., Company Guaranteed, 9.750% due 3/1/09............................. 297,500 500,000 B BGF Industries, Inc., Sr. Sub. Notes, Series B, 10.250% due 1/15/09................................................... 437,500 200,000 B- Cherokee International LLC, Sr. Sub. Notes, Series B, 10.500% due 5/1/09........................................ 174,500 300,000 B- TransDigm Inc., Company Guaranteed, 10.375% due 12/1/08..... 271,500 ----------------------------------------------------------------------------------------------------- 1,181,000 ----------------------------------------------------------------------------------------------------- MEDIA/ENTERTAINMENT -- 12.6% Adelphia Communications Corp., Sr. Notes, Series B: 100,000 B2* 8.125% due 7/15/03.......................................... 93,500 475,000 B+ 8.375% due 2/1/08........................................... 410,875 50,900 NR AMFM Inc., Debentures, 12.625% due 10/31/06................. 56,626 250,000 BBB- Chancellor Media Corp., Company Guaranteed, 8.000% due 11/1/08................................................... 252,188 150,000 B- Citadel Broadcasting Corp., Sr. Sub. Notes, 10.250% due 7/1/07.................................................... 152,250 400,000 B Echostar Broadband Corp., Sr. Notes, 10.375% due 10/1/07 (b)....................................................... 395,000 300,000 B+ Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09............ 292,500 375,000 B- Paxson Communications Corp., Sr. Sub. Notes, 11.625% due 10/1/02................................................... 380,625
SEE NOTES TO FINANCIAL STATEMENTS. 19 21 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE ----------------------------------------------------------------------------------------------------- MEDIA/ENTERTAINMENT -- 12.6% (CONTINUED) $ 500,000 CCC+ Pegasus Media & Communications Corp., Sr. Sub. Notes, Series B, 12.500% due 7/1/05..................................... $ 505,000 200,000 B- Phoenix Color Corp., Company Guaranteed, 10.375% due 2/1/09.................................................... 143,000 350,000 B Sinclair Broadcast Group, Inc., Sr. Sub. Notes, 10.000% due 9/30/05................................................... 341,250 Telewest Communications PLC: 650,000 B+ Debentures, step bond to yield 11.000% due 10/1/07.......... 581,750 225,000 B+ Sr. Discount Notes, step bond to yield 9.250% due 4/15/09... 106,313 375,000 B- T/SF Communications Corp., Company Guaranteed, Series B, 10.375% due 11/1/07....................................... 313,125 300,000 B- United International Holdings Inc., Sr. Discount Notes, Series B, step bond to yield 10.750% due 2/15/08.......... 124,500 200,000 B United Pan-Europe Communications NV, Sr. Notes, Series B, 11.250% due 2/1/10........................................ 130,000 ----------------------------------------------------------------------------------------------------- 4,278,502 ----------------------------------------------------------------------------------------------------- METALS/MINERALS -- 1.2% 500,000 B Diamond Holdings PLC, Company Guaranteed, 9.125% due 2/1/08.................................................... 410,000 ----------------------------------------------------------------------------------------------------- MISCELLANEOUS MANUFACTURER -- 1.7% 125,000 B Jostens, Inc., Sr. Sub. Notes, 12.750% due 5/1/10........... 113,125 125,000 B Polymer Group, Inc., Company Guaranteed, Series B, 9.000% due 7/1/07................................................ 83,125 150,000 CCC+ Samsonite Corp., Sr. Sub. Notes, 10.750% due 6/15/08........ 100,500 225,000 B- Tekni-Plex, Inc., Company Guaranteed, Series B, 12.750% due 6/15/10 (b)............................................... 181,125 250,000 B Venture Holdings Trust, Sr. Notes, Series B, 9.500% due 7/1/05.................................................... 102,500 ----------------------------------------------------------------------------------------------------- 580,375 ----------------------------------------------------------------------------------------------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.8% 275,000 B+ Allied Waste North America Co., Company Guaranteed, Series B, 10.000% due 8/1/09..................................... 260,562 ----------------------------------------------------------------------------------------------------- OIL & GAS DRILLING -- 4.5% 225,000 CCC- Belden & Blake Corp., Company Guaranteed, Series B, 9.875% due 6/15/07............................................... 195,750 Cross Timbers Oil Co., Sr. Sub. Notes, Series B: 125,000 B+ 9.250% due 4/1/07........................................... 128,438 450,000 B+ 8.750% due 11/1/09.......................................... 459,000 100,000 B+ Nuevo Energy Co., Sr. Sub. Notes, 9.375% due 10/1/10 (b).... 100,750 R&B Falcon Corp., Sr. Notes, Series B: 150,000 B+ 6.500% due 4/15/03.......................................... 143,250 50,000 B+ 6.750% due 4/15/05.......................................... 47,250 200,000 B- Range Resources Corp., Company Guaranteed, 8.750% due 1/15/07................................................... 189,500 250,000 BB- Triton Energy Ltd., Sr. Notes, 8.875% due 10/1/07........... 254,063 ----------------------------------------------------------------------------------------------------- 1,518,001 ----------------------------------------------------------------------------------------------------- PUBLISHING - PERIODICALS -- 0.8% 350,000 B- Ziff Davis Media Inc., Sr. Sub. Notes, 12.000% due 7/15/10 (b)....................................................... 276,500 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 22 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE ----------------------------------------------------------------------------------------------------- RETAIL -- 4.4% $ 390,000 B Advance Glassfiber Yarns Inc., Sr. Sub. Notes, 9.875% due 1/15/09................................................... $ 313,950 575,000 CCC+ J. Crew Operating Corp., Sr. Sub. Notes, 10.375% due 10/15/07.................................................. 497,375 250,000 BB- Levi Strauss & Co., Notes, 6.800% due 11/1/03............... 216,250 300,000 B Pantry Inc., Company Guaranteed, 10.250% due 10/15/07....... 283,500 300,000 BB+ Saks Inc., Company Guaranteed, 8.250% due 11/15/08.......... 181,500 ----------------------------------------------------------------------------------------------------- 1,492,575 ----------------------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 1.2% 425,000 BB- Amkor Technology, Inc., Sr. Notes, 9.250% due 5/1/06........ 402,687 ----------------------------------------------------------------------------------------------------- SERVICES -- 3.0% 325,000 B- Advance Holding Corp., Debentures, Series B, step bond to yield 12.875% due 4/15/09................................. 112,125 525,000 B AFC Enterprises, Sr. Sub. Notes, 10.250% due 5/15/07........ 496,125 310,896 CCC- FRD Acquisition Co., Sr. Notes, Series B, 12.500% due 7/15/04................................................... 108,813 125,000 BB+ Tembec Finance Corp., Sr. Notes, 9.875% due 9/30/05......... 128,125 225,000 B- Williams Scotsman, Inc., Company Guaranteed, 9.875% due 6/1/07.................................................... 178,875 ----------------------------------------------------------------------------------------------------- 1,024,063 ----------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 13.7% 425,000 B- Centennial Communications Corp., Sr. Sub. Notes, 10.750% due 12/15/08.................................................. 401,625 1,000,000 B+ Charter Communications Holdings LLC, Sr. Discount Notes, step bond to yield 9.920% due 4/1/11...................... 582,500 Classic Cable Inc., Company Guaranteed: 125,000 CCC+ 10.500% due 3/1/10.......................................... 56,875 275,000 CCC+ Series B, 9.375% due 8/1/09................................. 125,125 300,000 B Dobson Communications Corp., Sr. Notes, 10.875% due 7/1/10.................................................... 297,000 400,000 B Exodus Communications, Inc., Sr. Notes, 10.750% due 12/15/09.................................................. 346,000 450,000 BB Global Crossing Holdings Ltd., Company Guaranteed, 9.500% due 11/15/09.............................................. 427,500 225,000 CCC Horizon PCS Inc., Units, step bond to yield 14.000% due 10/1/10................................................... 93,375 200,000 B+ Insight Midwest, Sr. Notes, 10.500% due 11/1/10 (b)......... 208,500 375,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/09............... 323,438 850,000 B Nextel Communications, Inc., Sr. Notes, 9.375% due 11/15/09 (c)....................................................... 794,750 450,000 B NTL Inc., Sr. Notes, Series B, step bond to yield 9.750% due 4/1/08.................................................... 248,625 250,000 BBB+ Qwest Communications Corp., Sr. Discount Notes, Series B, step bond to yield 8.290% due 2/1/08...................... 218,437 350,000 B- VoiceStream Wireless Corp., Sr. Notes, 10.375% due 11/15/09.................................................. 376,688 100,000 B+ Williams Communications Group, Inc., Sr. Notes, 11.700% due 8/1/08.................................................... 80,500 300,000 B- Winstar Communications, Inc., Sr. Discount Notes, step bond to yield 14.750% due 4/15/10.............................. 85,500 ----------------------------------------------------------------------------------------------------- 4,666,438 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 23 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(a) SECURITY VALUE ----------------------------------------------------------------------------------------------------- TEXTILES -- 4.2% $ 600,000 B+ Avondale Mills, Inc., Company Guaranteed, 10.250% due 5/1/06.................................................... $ 561,000 150,000 B Dan River Inc., Sr. Sub. Notes, 10.125% due 12/15/03........ 116,250 300,000 B- Supreme International Corp., Company Guaranteed, Series B, 12.250% due 4/1/06........................................ 246,000 275,000 B- Tropical Sportswear International Corp., Company Guaranteed, Series A, 11.000% due 6/15/08............................. 235,125 350,000 BB- Westpoint Stevens Inc., Sr. Notes, 7.875% due 6/15/05....... 262,500 ----------------------------------------------------------------------------------------------------- 1,420,875 ----------------------------------------------------------------------------------------------------- TRANSPORTATION -- 2.0% 325,000 B Atlas Air, Inc., Sr. Notes, 10.750% due 8/1/05.............. 336,375 375,000 B- Pacer International, Inc., Company Guaranteed, Series B, 11.750% due 6/1/07........................................ 354,375 ----------------------------------------------------------------------------------------------------- 690,750 ----------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS & NOTES (Cost -- $30,347,567)......... 28,095,739 ----------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BOND -- 0.2% SEMICONDUCTOR EQUIPMENT -- 0.2% 100,000 B Amkor Technology, Inc., 5.000% due 3/15/07 (Cost -- $83,630)......................................... 66,625 ----------------------------------------------------------------------------------------------------- FOREIGN CORPORATE BOND -- 0.7% TRANSPORTATION SERVICES -- 0.7% 250,000 B CHC Helicopter Corp., 11.750% due 7/15/07 (Cost -- $234,312)........................................ 248,808 ----------------------------------------------------------------------------------------------------- SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- PREFERRED STOCK -- 2.5% ----------------------------------------------------------------------------------------------------- INDUSTRIAL -- 0.2% 3,500 Eagle-Picher Industries, Inc., 11.750% Exchangeable 3/1/08.................................................... 57,313 ----------------------------------------------------------------------------------------------------- TECHNOLOGY -- 0.5% 9,494 Viasystems Group, Inc., Series B, 8.000%*................... 170,903 ----------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 1.8% 150 Broadwing Communications, Corp., 12.500%.................... 144,000 5,500 Global Crossing Holdings Ltd., 10.500%...................... 485,375 ----------------------------------------------------------------------------------------------------- 629,375 ----------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost -- $1,030,204).................. 857,591 ----------------------------------------------------------------------------------------------------- WARRANTS -- 0.0% 125 Jostens, Inc., Expires 5/1/10* (Cost -- $2,479)............. 2,515 ----------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $31,698,192)................. 29,271,278 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 24 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 HIGH YIELD BOND TRUST
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 13.9% $4,718,000 CS First Boston Corp., 6.000% due 1/2/01; Proceeds at maturity -- $4,721,145; (Fully collateralized by U.S. Treasury Notes, 6.625% due 6/30/01; Market value -- $4,812,826) (Cost -- $4,718,000)............ $ 4,718,000 -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $36,416,192**)........... $33,989,278 --------------------------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Ratings Service, except for those which are identified by an asterisk (*), are rated by Moody's Investors Service, Inc. (b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. (c) All or a portion of this security is segregated for open forward foreign currency contracts. * Non-income producing security. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 24 for definitions of ratings. SUMMARY OF BONDS BY COMBINED RATINGS
STANDARD & % OF TOTAL CORPORATE POOR'S AND/OR MOODY'S BONDS & NOTES ------------------------------------------------- BBB Baa 3.3% BB Ba 25.4 B B 64.8 CCC Caa 6.3 NR NR 0.2 ------------------------------------------------- 100.0% -------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 23 25 -------------------------------------------------------------------------------- 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 "C" 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" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" has 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" has 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" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as and CCC predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents a lower degree of speculation than "B", and "CCC" 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 -- The rating "C" is reserved for 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, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "C", 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" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered 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" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
24 26 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------- COMMON STOCK -- 63.7% ------------------------------------------------------------------------------------------- BEVERAGE -- 1.8% 534,040 Coca-Cola Co. .............................................. $ 32,543,063 ------------------------------------------------------------------------------------------- BROADCASTING -- 1.2% 77,475 Infinity Broadcasting Corp.*................................ 2,164,458 429,015 Viacom Inc., Class B Shares*................................ 20,056,451 ------------------------------------------------------------------------------------------- 22,220,909 ------------------------------------------------------------------------------------------- COMMUNICATIONS -- 0.8% 597,970 Nextel Communications, Inc.*................................ 14,799,758 ------------------------------------------------------------------------------------------- COMPUTERS -- 2.0% 1,276,323 Palm, Inc.*................................................. 36,135,895 ------------------------------------------------------------------------------------------- DIVERSIFIED OPERATIONS -- 7.9% 1,754,487 General Electric Co. ....................................... 84,105,721 1,080,580 Time Warner Inc. ........................................... 56,449,499 ------------------------------------------------------------------------------------------- 140,555,220 ------------------------------------------------------------------------------------------- DRUGS & HEALTH CARE -- 2.3% 67,899 MedImmune, Inc.*............................................ 3,237,934 841,565 Pfizer Inc. ................................................ 38,711,990 ------------------------------------------------------------------------------------------- 41,949,924 ------------------------------------------------------------------------------------------- ELECTRONICS -- 7.9% 702,720 EMC Corp.*.................................................. 46,730,880 1,266,420 General Motors Corp., Class H Shares*....................... 29,127,660 1,399,915 Texas Instruments Inc. ..................................... 66,320,973 ------------------------------------------------------------------------------------------- 142,179,513 ------------------------------------------------------------------------------------------- ENTERTAINMENT -- 0.0% 84 Acclaim Entertainment, Inc.*................................ 8 ------------------------------------------------------------------------------------------- FINANCIAL SERVICES -- 9.6% 2,171,760 Charles Schwab Corp. ....................................... 61,623,690 1,400,000 Morgan Stanley Dean Witter & Co. ........................... 110,950,000 ------------------------------------------------------------------------------------------- 172,573,690 ------------------------------------------------------------------------------------------- INSURANCE -- 2.9% 532,786 American International Group, Inc. ......................... 52,512,757 ------------------------------------------------------------------------------------------- INTERNET -- 8.0% 1,857,200 America Online, Inc.*....................................... 64,630,560 2,032,980 Cisco Systems, Inc.*........................................ 77,761,484 ------------------------------------------------------------------------------------------- 142,392,044 ------------------------------------------------------------------------------------------- RETAIL -- 1.4% 560,107 Home Depot, Inc. ........................................... 25,589,911 -------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 25 27 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------- SOFTWARE -- 7.7% 445,900 Intuit Inc.*................................................ $ 17,585,181 1,363,920 VERITAS Software Corp.*..................................... 119,343,000 ------------------------------------------------------------------------------------------- 136,928,181 ------------------------------------------------------------------------------------------- TECHNOLOGY -- 1.1% 372,780 Corning Inc. ............................................... 19,687,444 ------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 9.1% 617,765 Level 3 Communications, Inc.*............................... 20,270,414 2,956,160 Nokia Oyj, Sponsored ADR.................................... 128,592,960 292,205 Telefonos de Mexico SA de CV................................ 13,185,751 ------------------------------------------------------------------------------------------- 162,049,125 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $719,011,422)................... 1,142,117,442 ------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 11.2% 200,000,000 Federal Home Loan Mortgage Corp. (FHLMC), Discount Note, 6.200% due 1/5/01 (Cost -- $199,793,333).................. 199,793,333 ------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $918,804,755)................ 1,341,910,775 ------------------------------------------------------------------------------------------- FACE SECURITY VALUE ------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 25.1% $200,000,000 Chase Manhattan Corp., 5.700% due 1/2/01; Proceeds at maturity -- $200,126,667; (Fully collateralized by U.S. Treasury Bonds, 7.500% to 8.125% due 11/15/16 to 8/15/19; Market value -- $204,000,937)............................. 200,000,000 249,000,000 Morgan Stanley Dean Witter & Co., 5.900% due 1/2/01; Proceeds at maturity -- $249,163,233; (Fully collateralized by U.S. Treasury Notes, 6.250% due 7/31/02; Market value -- $253,987,100)............................. 249,000,000 ------------------------------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENTS (Cost -- $449,000,000).......... 449,000,000 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $1,367,804,755**)........ $1,790,910,775 -------------------------------------------------------------------------------------------
* Non-income producing security. ** Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 26 28 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 MONEY MARKET PORTFOLIO
FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE ------------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER -- 89.9% $6,500,000 Alcoa Inc. mature 1/18/01 to 1/23/01........................ 6.58% to 6.68% $ 6,475,487 6,500,000 American Express Credit Corp. matures 2/8/01................ 6.50 6,455,883 6,000,000 Asset Securitization Corp. matures 1/24/01.................. 6.66 5,974,815 6,500,000 Boeing Capital Corp. matures 1/5/01......................... 6.54 6,495,291 6,500,000 The Coca-Cola Co. matures 1/16/01........................... 6.62 6,482,260 6,500,000 Ford Motor Credit Corp. matures 1/8/01...................... 6.62 6,491,721 5,000,000 France Telecommunications matures 2/5/01.................... 6.63 4,968,305 6,500,000 Gannet Corp. matures 1/11/01................................ 6.61 6,488,192 6,500,000 General Electric Capital Corp. matures 1/5/01............... 6.57 6,495,276 6,700,000 Household Finance Corp. matures 1/2/01...................... 6.60 6,698,772 6,700,000 J.P. Morgan & Co. matures 1/2/01+........................... 6.55 6,698,781 7,000,000 Morgan Stanley Dean Witter & Co. matures 1/18/01............ 6.57 6,978,414 6,500,000 New Castle Corp. matures 1/19/01............................ 6.50 6,479,001 6,500,000 Pfizer Inc. matures 1/17/01................................. 6.55 6,481,223 6,000,000 Preferred Receivable Funding matures 1/26/01................ 6.69 5,972,417 6,700,000 Sherwin Williams Corp. matures 1/12/01...................... 6.55 6,686,632 6,205,000 Tampa Electric Corp. matures 1/2/01......................... 6.48 6,203,883 5,000,000 Tribune Corp. matures 2/12/01............................... 6.62 4,962,025 6,500,000 Verizon Global Funding matures 1/16/01...................... 6.60 6,482,342 6,500,000 Vodafone Air PLC matures 1/24/01............................ 6.58 6,472,841 6,000,000 Windmill Funding Corp. matures 1/6/01....................... 6.66 5,983,500 ------------------------------------------------------------------------------------------------------------------ TOTAL COMMERCIAL PAPER (Cost -- $132,427,061)............... 132,427,061 ------------------------------------------------------------------------------------------------------------------ MEDIUM-TERM NOTES -- 6.8% 5,000,000 General Motors Acceptance Corp. matures 12/17/01............ 6.55 5,009,248 5,000,000 Merrill Lynch & Co. matures 9/13/01......................... 6.59 5,000,853 ------------------------------------------------------------------------------------------------------------------ TOTAL MEDIUM-TERM NOTES (Cost -- $10,010,101)............... 10,010,101 ------------------------------------------------------------------------------------------------------------------ SUB-TOTAL INVESTMENTS (Cost -- $142,437,162)................ 142,437,162 ------------------------------------------------------------------------------------------------------------------ REPURCHASE AGREEMENT -- 3.3% 4,902,000 CS First Boston Corp., 6.000% due 1/2/01; Proceeds at maturity -- $4,905,266; (Fully collateralized by U.S. Treasury Notes, 6.625% due 6/30/01; Market value -- $5,000,486) (Cost -- $4,902,000)................. 4,902,000 ------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100% (Cost -- $147,339,162**).......... $147,339,162 ------------------------------------------------------------------------------------------------------------------
+ On January 2, 2001, Chase Manhattan Corp. and J.P. Morgan & Co. merged to form J.P. Morgan Chase & Co. ** Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 27 29 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2000
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost........................... $302,431,835 $31,698,192 $ 918,804,755 $142,437,162 Repurchase agreements, at cost................. 6,936,000 4,718,000 449,000,000 4,902,000 ------------------------------------------------------------------------------------------------------------- Investments, at value.......................... $335,125,810 $29,271,278 $1,341,910,775 $142,437,162 Repurchase agreements, at value................ 6,936,000 4,718,000 449,000,000 4,902,000 Cash........................................... 333 1,902 982,517 691 Dividends and interest receivable.............. 1,932,071 739,509 420,952 33,611 Receivable for securities sold................. 836,170 13,437 8,695,836 -- Receivable for Fund shares sold................ -- 8,119 30,325 -- Receivable from affiliate...................... -- -- -- 71,197 ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS................................... 344,830,384 34,752,245 1,801,040,405 147,444,661 ------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased............... 1,493,385 -- 1,317,470 -- Payable for Fund shares purchased.............. 180,013 -- 870,020 -- Investment advisory fee payable................ 135,529 13,386 1,124,917 38,251 Payable to broker -- variation margin.......... 90,340 -- -- -- Administration fee payable..................... 16,299 1,606 89,516 7,441 Payable for open forward foreign currency contracts (Note 7).......................... -- 18,804 -- -- Dividends payable.............................. -- -- -- 245,396 Accrued expenses............................... 80,892 40,699 196,084 36,498 ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.............................. 1,996,458 74,495 3,598,007 327,586 ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................. $342,833,926 $34,677,750 $1,797,442,398 $147,117,075 ------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital................................ $282,954,406 $36,566,530 $1,409,115,072 $147,117,075 Undistributed net investment income............ 8,531,235 2,823,838 6,831,093 -- Accumulated net realized gain (loss) from security transactions, futures contracts and foreign currencies.......................... 18,823,129 (2,263,814) (41,615,373) -- Net unrealized appreciation (depreciation) of investments, futures contracts and foreign currencies.................................. 32,525,156 (2,448,804) 423,111,606 -- ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................. $342,833,926 $34,677,750 $1,797,442,398 $147,117,075 ------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING............................... 19,110,882 3,953,773 21,917,921 147,117,075 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE....................... $17.94 $8.77 $82.01 $1.00 -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 28 30 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest.......................................... $ 8,167,784 $ 2,987,193 $ 19,726,127 $7,731,400 Dividends......................................... 2,406,314 62,438 4,375,792 -- Less: Foreign withholding tax..................... (9,820) -- (194,719) -- ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME........................... 10,564,278 3,049,631 23,907,200 7,731,400 ------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee (Note 3).................. 1,723,390 158,785 15,845,307 389,257 Administration fee (Note 3)....................... 206,807 19,054 1,267,625 72,241 Audit and legal................................... 29,917 32,340 56,376 20,051 Custody........................................... 23,841 12,426 88,821 13,473 Shareholder communications........................ 21,826 9,944 160,571 6,669 Shareholder and system servicing fees............. 14,904 16,921 15,710 16,109 Pricing service fees.............................. 5,973 9,417 -- -- Trustees' fees.................................... 3,978 3,969 3,979 4,199 Registration fees................................. -- -- 33,800 -- Other............................................. 1,989 1,964 6,055 5,696 ------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES.................................... 2,032,625 264,820 17,478,244 527,695 Less: Expense reimbursement....................... -- -- -- (47,023) ------------------------------------------------------------------------------------------------------------- NET EXPENSES...................................... 2,032,625 264,820 17,478,244 480,672 ------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME............................... 8,531,653 2,784,811 6,428,956 7,250,728 ------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 4, 6 AND 7): Realized Gain (Loss) From: Security transactions (excluding short-term securities*)................................. 18,092,468 (959,714) (31,205,148) (1,418) Futures contracts.............................. 518,893 -- -- -- Foreign currency transactions.................. -- 39,038 66,956 -- ------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS).......................... 18,611,361 (920,676) (31,138,192) (1,418) ------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments, Futures Contracts and Foreign Currencies: Beginning of year.............................. 65,550,577 (836,216) 905,748,863 -- End of year.................................... 32,525,156 (2,448,804) 423,111,606 -- ------------------------------------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION).................................... (33,025,421) (1,612,588) (482,637,257) -- ------------------------------------------------------------------------------------------------------------- NET LOSS ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES............................ (14,414,060) (2,533,264) (513,775,449) (1,418) ------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... $ (5,882,407) $ 251,547 $(507,346,493) $7,249,310 -------------------------------------------------------------------------------------------------------------
* Except for Money Market Portfolio where the net realized losses are only from the sale of short-term securities. SEE NOTES TO FINANCIAL STATEMENTS. 29 31 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2000
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income......................... $ 8,531,653 $ 2,784,811 $ 6,428,956 $ 7,250,728 Net realized gain (loss)...................... 18,611,361 (920,676) (31,138,192) (1,418) Change in net unrealized appreciation (depreciation)............................. (33,025,421) (1,612,588) (482,637,257) -- ------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS................................. (5,882,407) 251,547 (507,346,493) 7,249,310 ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income......................... (6,657,915) (2,577,225) (753,754) (7,249,310) Net realized gains............................ (40,976,346) -- (76,132,705) -- ------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS............................... (47,634,261) (2,577,225) (76,886,459) (7,249,310) ------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 12): Net proceeds from sale of shares.............. 28,254,932 9,771,762 460,465,288 936,232,989 Net asset value of shares issued for reinvestment of dividends.................. 47,634,261 2,577,225 76,886,459 7,258,897 Cost of shares reacquired..................... (18,976,553) (5,662,151) (70,837,568) (916,344,695) ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS............................... 56,912,640 6,686,836 466,514,179 27,147,191 ------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS............... 3,395,972 4,361,158 (117,718,773) 27,147,191 NET ASSETS: Beginning of year............................. 339,437,954 30,316,592 1,915,161,171 119,969,884 ------------------------------------------------------------------------------------------------------------- END OF YEAR*.................................. $342,833,926 $34,677,750 $1,797,442,398 $ 147,117,075 ------------------------------------------------------------------------------------------------------------- * Includes undistributed net investment income of:........................................... $8,531,235 $2,823,838 $6,831,093 -- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 30 32 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1999
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income......................... $ 6,636,925 $ 2,585,031 $ 915,746 $ 3,230,152 Net realized gain (loss)...................... 40,472,567 (471,386) 66,040,552 (256) Change in net unrealized appreciation (depreciation)............................. (5,721,663) (884,302) 540,542,954 -- ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS........ 41,387,829 1,229,343 607,499,252 3,229,896 ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income......................... (5,732,184) (2,318,362) (1,059,153) (3,229,896) Net realized gains............................ (17,063,313) -- (30,268,189) -- ------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS............................... (22,795,497) (2,318,362) (31,327,342) (3,229,896) ------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 12): Net proceeds from sale of shares.............. 33,514,225 7,595,331 470,330,702 388,474,577 Net asset value of shares issued for reinvestment of dividends.................. 22,795,497 2,318,362 31,327,342 3,049,209 Cost of shares reacquired..................... (11,645,774) (6,596,523) (53,529,706) (313,623,231) ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS............................... 44,663,948 3,317,170 448,128,338 77,900,555 ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS.......................... 63,256,280 2,228,151 1,024,300,248 77,900,555 NET ASSETS: Beginning of year............................. 276,181,674 28,088,441 890,860,923 42,069,329 ------------------------------------------------------------------------------------------------------------- END OF YEAR*.................................. $339,437,954 $30,316,592 $1,915,161,171 $ 119,969,884 ------------------------------------------------------------------------------------------------------------- * Includes undistributed net investment income of:........................................... $6,657,380 $2,577,214 $752,718 -- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 31 33 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio (collectively, "Fund(s)") are each a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment companies. Shares of the Funds are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The significant accounting policies consistently followed by the Funds are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing prices on such markets; securities for which no sales price were reported and U.S. government and agency obligations are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from reputable brokers or other recognized sources; (c) securities for which market quotations are not available will be valued in good faith at fair value by or under the direction of the Board of Trustees; (d) securities maturing within 60 days are valued at cost plus accreted discount, or minus amortized premium, which approximates value; (e) securities, other than U.S. government agencies and obligations, that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (f) interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis and dividend income is recorded on the ex-dividend date; foreign dividends are recorded on the ex-dividend date or as soon as practical after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence; (g) gains or losses on the sale of securities are calculated by using the specific identification method; (h) dividends and distributions to shareholders are recorded on the ex-dividend date; (i) the accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars on the date of valuation. Purchases and sales of securities and income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income and expense amounts recorded and collected or paid are adjusted when reported by the custodian; (j) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. At December 31, 2000, reclassifications were made to the capital accounts of the Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund and Money Market Portfolio to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Accordingly, for the High Yield Bond Trust, a portion of accumulated net realized loss amounting to $47,677 was reclassified to paid-in capital. Net investment income, net realized gains and net assets were not affected by this change; (k) the Funds intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; and (l) 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. 2. DIVIDENDS Money Market Portfolio declares and records a dividend of substantially all of its net investment income on each business day. Such dividends are paid or reinvested on the payable date. 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment manager and advisor to Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT"), Capital Appreciation Fund ("CAF") and Money Market Portfolio ("MMP"). MAT, CAF and MMP pay TAMIC an investment management and advisory fee calculated at the annual rate of 0.50%, 0.75% and 0.3233%, respectively of its average daily net assets. HYBT pays TAMIC an investment management and advisory fee calculated at an annual rate of 0.50% on the first $50,000,000, 0.40% on the next $100,000,000, 0.30% on the next $100,000,000 and 0.25% on the amount over $250,000,000 of its average daily net assets. This fee is calculated daily and paid monthly. TAMIC has a sub-advisory agreement with The Travelers Investment Management Company, Inc. ("TIMCO"), an indirect wholly owned subsidiary of Citigroup. Pursuant to the sub-advisory agreement, TIMCO is responsible for the day-to-day portfolio operations and investment decisions for MAT. As a result, TAMIC pays TIMCO, as sub-advisor, 0.25% of the average daily net assets of MAT. 32 34 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) TAMIC also has a sub-advisory agreement with Janus Capital Corporation ("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, TAMIC pays Janus, as sub-advisor, 0.55% of the average daily net assets of CAF. Travelers Insurance Company ("Travelers Insurance") acts as administrator to the Funds. The Funds pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of the average daily net assets. Travelers Insurance has entered into a sub-administrative services agreement with SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"). Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% for the average daily net assets of each Fund. This fee is calculated daily and paid monthly. Citi Fiduciary Trust Company ("CFTC"), another subsidiary of Citigroup, acts as the Funds' transfer agent. CFTC receives account fees and asset-based fees that vary according to the size and type of account. For the year ended December 31, 2000, each Portfolio paid transfer agent fees of $5,000 to CFTC. For the year ended December 31, 2000, Travelers Insurance reimbursed expenses of $47,023 for MMP. For the year ended December 31, 2000, Salomon Smith Barney Inc. and its affiliates received brokerage commissions of $22,800. One Trustee and all officers of the Funds are employees of Citigroup or its subsidiaries. 4. INVESTMENTS During the year ended December 31, 2000, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows:
MANAGED HIGH CAPITAL ASSETS YIELD BOND APPRECIATION TRUST TRUST FUND ======================================================================================================= Purchases................................................... $203,987,942 $27,746,248 $523,467,434 ------------------------------------------------------------------------------------------------------- Sales....................................................... 188,528,234 19,841,286 563,184,585 =======================================================================================================
At December 31, 2000, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
MANAGED HIGH CAPITAL ASSETS YIELD BOND APPRECIATION TRUST TRUST FUND ======================================================================================================= Gross unrealized appreciation............................... $ 47,719,712 $ 354,536 $507,858,386 Gross unrealized depreciation............................... (15,025,737) (2,781,450) (84,752,366) ------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation).................. $ 32,693,975 $(2,426,914) $423,106,020 =======================================================================================================
5. REPURCHASE AGREEMENTS The Funds purchase (and their custodian takes possession of) U.S. Government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Funds require continual maintenance of the market value (plus accrued interest) of the collateral in amounts at least equal to the repurchase price. 6. FUTURES CONTRACTS Initial margin deposits made upon entering into futures contracts are recognized as assets. The initial margin is segregated by the custodian and is noted in the schedule of investments. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Funds' basis in the contract. 33 35 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Funds enter into such contracts to hedge portions of their respective portfolios. The Funds bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At December 31, 2000, MAT had purchased one financial futures contract on the Standard & Poor's 500 Index expiring in March 2001. The basis value of the contract was $8,512,569. The market value of the contract on December 31, 2000, was $8,343,750, resulting in an unrealized loss of $168,819. 7. FORWARD FOREIGN CURRENCY CONTRACTS HYBT may enter into forward foreign currency contracts. At December 31, 2000, HYBT had open forward foreign currency contracts as described below. The Fund bears the market risk that arises from changes in foreign currency exchange rates. The unrealized loss on the contracts reflected in the accompanying financial statements were as follows: HIGH YIELD BOND TRUST
LOCAL MARKET SETTLEMENT UNREALIZED FOREIGN CURRENCY CURRENCY VALUE DATE LOSS ======================================================================================================== TO SELL: Euro................................................. 247,063 $232,884 4/6/01 $(18,804) ========================================================================================================
8. OPTION CONTRACTS Premiums paid when put or call options are purchased by the Funds, represent investments, which are "marked-to-market" daily. When a purchased option expires, the Funds will realize a loss in the amount of the premium paid. When the Funds enter into closing sales transactions, the Funds will realize a gain or loss depending on whether the proceeds from the closing sales transactions are greater or less than the premium paid for the option. When the Funds exercise a put option, they will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Funds exercise a call option, the cost of the security which the Funds purchase upon exercise will be increased by the premium originally paid. At December 31, 2000, the Funds held no purchased call or put option contracts. 9. 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 at the time of the trade, particularly the face amount and maturity date in GNMA/FNMA transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Funds, normally 15 to 45 days later. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At December 31, 2000, the Funds held no TBA securities. 10. CAPITAL LOSS CARRYFORWARD At December 31, 2000, HYBT, CAF and MMP had, for Federal income tax purposes, approximately $1,854,000, $41,615,000 and $1,358, respectively, of capital loss carryforwards available to offset future realized gains. To the extent that these carryforward losses can be used to offset net realized capital gains, it is probable that such gains will not be distributed. The amount and expiration of the carryforwards are indicated below. Expiration occurs on December 31 of the year indicated:
FUND 2001 2002 2004 2005 2006 2007 2008 ============================================================================================================== High Yield Bond Trust................... $134,500 $37,500 $343,000 -- -- $142,000 $ 1,197,000 Capital Appreciation Fund............... -- -- -- -- -- -- 41,615,000 Money Market Portfolio.................. -- -- -- $72 $215 256 815 ==============================================================================================================
34 36 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 11. FOREIGN SECURITIES Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and the U.S. Government. 12. 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, 2000 DECEMBER 31, 1999 =================================================================================================== MANAGED ASSETS TRUST Shares sold................................................. 1,445,154 1,654,617 Share issued on reinvestment................................ 2,556,858 1,187,265 Shares reacquired........................................... (964,060) (581,353) --------------------------------------------------------------------------------------------------- Net Increase................................................ 3,037,952 2,260,529 =================================================================================================== HIGH YIELD BOND TRUST Shares sold................................................. 1,076,429 776,247 Shares issued on reinvestment............................... 292,866 245,327 Shares reacquired........................................... (616,716) (671,120) --------------------------------------------------------------------------------------------------- Net Increase................................................ 752,579 350,454 =================================================================================================== CAPITAL APPRECIATION FUND Shares sold................................................. 4,294,198 5,582,389 Share issued on reinvestment................................ 739,364 400,399 Shares reacquired........................................... (718,555) (626,790) --------------------------------------------------------------------------------------------------- Net Increase................................................ 4,315,007 5,355,998 =================================================================================================== MONEY MARKET PORTFOLIO Shares sold................................................. 936,232,989 388,474,577 Share issued on reinvestment................................ 7,258,897 3,049,209 Shares reacquired........................................... (916,344,695) (313,623,231) --------------------------------------------------------------------------------------------------- Net Increase................................................ 27,147,191 77,900,555 ===================================================================================================
35 37 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31:
MANAGED ASSETS TRUST 2000(1) 1999 1998 1997 1996 =============================================================================================================== NET ASSET VALUE, BEGINNING OF YEAR........... $21.12 $19.99 $17.65 $14.98 $15.50 --------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income...................... 0.48 0.39 0.41 0.48 0.46 Net realized and unrealized gain (loss).... (0.71) 2.30 3.27 2.70 1.50 --------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations.......... (0.23) 2.69 3.68 3.18 1.96 --------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income...................... (0.41) (0.39) (0.47) (0.12) (0.89) Net realized gains......................... (2.54) (1.17) (0.87) (0.39) (1.59) --------------------------------------------------------------------------------------------------------------- Total Distributions.......................... (2.95) (1.56) (1.34) (0.51) (2.48) --------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................. $17.94 $21.12 $19.99 $17.65 $14.98 --------------------------------------------------------------------------------------------------------------- TOTAL RETURN................................. (1.62)% 14.22% 21.44% 21.31% 13.78% --------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S).............. $342,834 $339,438 $276,182 $223,870 $188,610 --------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)................................ 0.59% 0.60% 0.60% 0.63% 0.58% Net investment income...................... 2.47 2.17 2.30 2.91 3.51 --------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE...................... 56% 51% 74% 90% 108% ===============================================================================================================
HIGH YIELD BOND TRUST 2000(1) 1999 1998 1997 1996 =============================================================================================================== NET ASSET VALUE, BEGINNING OF YEAR........... $9.47 $9.85 $9.89 $8.49 $9.00 --------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income...................... 0.79 0.81 0.77 0.76 0.91 Net realized and unrealized gain (loss).... (0.70) (0.38) (0.13) 0.65 0.41 --------------------------------------------------------------------------------------------------------------- Total Income From Operations................. 0.09 0.43 0.64 1.41 1.32 --------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income...................... (0.79) (0.81) (0.68) (0.01) (1.83) --------------------------------------------------------------------------------------------------------------- Total Distributions.......................... (0.79) (0.81) (0.68) (0.01) (1.83) --------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................. $8.77 $9.47 $9.85 $9.89 $8.49 --------------------------------------------------------------------------------------------------------------- TOTAL RETURN................................. 0.97% 4.42% 6.56% 16.56% 16.05% --------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S).............. $34,678 $30,317 $28,088 $25,272 $17,291 --------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)................................ 0.83% 0.81% 0.82% 0.84% 0.97% Net investment income...................... 8.74 8.85 8.42 9.04 11.01 --------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE...................... 80% 112% 147% 137% 84% ===============================================================================================================
(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) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25%. 36 38 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
CAPITAL APPRECIATION FUND 2000 1999 1998 1997 1996 ================================================================================================================================= NET ASSET VALUE, BEGINNING OF YEAR............ $108.80 $72.74 $46.32 $36.72 $33.18 --------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income....................... 0.29 0.04 0.06 0.19 0.23 Net realized and unrealized gain (loss)..... (23.29) 38.08 28.07 9.41 8.49 --------------------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations........... (23.00) 38.12 28.13 9.60 8.72 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(1) Net investment income....................... (0.04) (0.07) (0.18) -- (0.41) Net realized gains.......................... (3.75) (1.99) (1.53) (0.00)* (4.77) --------------------------------------------------------------------------------------------------------------------------------- Total Distributions........................... (3.79) (2.06) (1.71) (0.00)* (5.18) --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR.................. $82.01 $108.80 $72.74 $46.32 $36.72 --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN.................................. (21.88)% 53.52% 61.63% 26.14% 28.21% --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (MILLIONS)............ $1,797 $1,915 $891 $408 $224 --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(2)................................. 0.83% 0.83% 0.85% 0.84% 0.83% Net investment income....................... 0.30 0.07 0.18 0.54 0.69 --------------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE....................... 30% 37% 53% 89% 84% =================================================================================================================================
MONEY MARKET PORTFOLIO 2000 1999 1998 1997 1996 ================================================================================================================================= NET ASSET VALUE, BEGINNING OF YEAR............ $1.00 $1.00 $1.00 $1.00 $1.00 --------------------------------------------------------------------------------------------------------------------------------- Net investment income(3)...................... 0.060 0.049 0.049 0.049 0.0412 Distributions from net investment income...... (0.060) (0.049) (0.049) (0.049) (0.0412) --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR.................. $1.00 $1.00 $1.00 $1.00 $1.00 --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN.................................. 6.18% 4.96% 5.08% 5.03% 4.20% --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)............... $147,117 $119,970 $42,069 $13,494 $3,543 --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)(4).............................. 0.40% 0.37% 0.65% 0.57% 0.78% Net investment income....................... 6.04 4.96 5.37 5.03 3.72 =================================================================================================================================
(1) Distributions from realized gains include both net realized short-term and long-term capital gains. (2) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25%. (3) Travelers Insurance reimbursed Money Market Portfolio for $47,023, $85,612, $31,300 and $43,376 in expenses for the years ended December 31, 2000, 1999, 1997, and 1996, respectively. If expenses were not reimbursed, the per share decreases to net investment income would have been $0.000, $0.001, $0.002 and $0.02, respectively, and the actual expense ratios would have been 0.44%, 0.50%, 1.39% and 1.71%, respectively. (4) For the years ended December 31, 2000 and 1999, there was a voluntary expense limitation. As a result of the voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.40%. * Amount represents less than $0.01 per share. 37 39 -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT 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 as of December 31, 2000, and the related statements of operations for the year then ended, statements of changes in net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended December 31, 1996 were audited by other auditors whose report thereon, dated February 24, 1997, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2000, by correspondence with the custodian. As to securities purchased or sold but not yet received or delivered, we performed other appropriate auditing procedures. 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, 2000, 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 four-year period then ended, in conformity with accounting principles generally accepted in the United States of America. [KPMG LOGO] New York, New York February 9, 2001 38 40 -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) For Federal tax purposes the Trust or Fund hereby designates for the fiscal year ended December 31, 2000: - Percentages of ordinary dividends paid as qualifying for the corporate dividends received deduction: Managed Assets Trust................................... 25.89% Capital Appreciation Fund.............................. 99.93
- Total long-term capital gain distributions paid: Managed Assets Trust................................... $38,162,998 Capital Appreciation Fund.............................. 76,132,705
The following percentages of ordinary dividends paid from net investment income are derived from Federal obligations and may be exempt from taxation at the state level: Managed Assets Trust........................................ 22.27% Capital Appreciation Fund................................... 0.18
39 41 ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO The U.S. Government Securities Portfolio ("Portfolio") seeks to select investments from the point of view of an investor who is primarily concerned with highest credit quality, current income and total return. The assets of the Portfolio will be invested in direct obligations of the U.S., its agencies and instrumentalities. For the year ended December 31, 2000, the Portfolio returned 14.53%. In comparison, the Lehman Brothers Government Bond Index(1) returned 13.24% for the same period. Past performance is not indicative of future results. The period started with a market neutral-view of the Federal Reserve Board ("Fed"), however, by December, the bond market was pricing in several Fed interest rate eases. Shortly after the period ended, the Fed did reduce rates by 50 basis points.(2) There was still surprise in the move as the market had not anticipated any decision by the Fed until the Federal Open Market Committee ("FOMC")(3) meeting January 31, 2001.(4) The low point on the U.S. Treasury yield curve(5) moved from the 10-year U.S. Treasury bond when the fourth quarter began, to the 5-year U.S. Treasury note as the fourth quarter ended. The whole yield curve rallied with the 2-year and 5-year notes rallying by 88 basis points and the longer-term U.S. Treasuries only rallying by 43 basis points. As of year-end, although the 2-year U.S. Treasury note was slightly higher in yield than the 5-year U.S. Treasury note, the 2-year Treasury note was lower yielding than the 10-year U.S. Treasury bond, so the perception is the yield curve inversion(6) appears to be over. The U.S. economy slowed in the third quarter of 2000 to a 2.2% growth in Gross Domestic Product ("GDP"),(7) and seemed to become even weaker in the fourth quarter. Job creation for the fourth quarter averaged only 100,000 per month. Consumer spending increased only 0.2% and 0.3% in October and November 2000. The early read on Christmas sales was weak. The Fed saw this and other economic data and moved quickly to help the quickly weakening economy with the rate ease. SOCIAL AWARENESS STOCK PORTFOLIO The Social Awareness Stock Portfolio ("Portfolio") seeks long-term capital appreciation by selecting investments, primarily common stocks, that meet the social criteria established for the Portfolio. The Portfolio's social criteria currently excludes companies that derive a significant portion of their revenues from the production of tobacco, tobacco products, alcohol, or military defense related services or gambling services. For the year ended December 31, 2000, the Portfolio returned a negative 0.49%. In comparison, the Standard and Poor's 500 Index ("S&P 500")(8) returned a negative 9.10% for the same period. Past performance is not indicative of future results. The manager was pleased that the Portfolio posted a positive return for the first nine months through September 30, 2000 when the overall market was down slightly. The manager was also pleased that the Portfolio declined only slightly during the fourth quarter of 2000 when most major broad indices dramatically declined. --------------- (1) The Lehman Brothers Government Bond Index is a broad-based index of all public debt obligations of the U.S. government and its agencies that has an average maturity of roughly nine years. Please note that an investor cannot invest directly in an index. (2) A basis point is 0.01% or one one-hundredth of a percent. (3) The FOMC is a policy-making body of the Federal Reserve System, the U.S. central bank, that is responsible for the formulation of policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. (4) On January 31, 2001, after the commentary was written the Fed cut interest rates an additional 50 basis points. (5) The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities. (6) An inverted yield curve is an unusual situation where short-term interest rates are higher than long-term rates. (7) GDP is the market value of the goods and services produced by labor and property in the U.S. GDP is comprised of consumer and government purchases, private domestic investments and net exports of goods and services. (8) The S&P 500 is a market capitalization-weighted measure of 500 widely held common stocks. Please note that an investor cannot invest directly in an index. 40 42 ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- The Portfolio continued to experience positive cash inflows, with total assets increasing from $68.6 million as of December 31, 1999 to approximately $81.2 million as of December 31, 2000, despite a flat investment return. As the stock market retreated sharply in the second half of 2000, during that period, the manager increased his investment activity, employing some of the cash reserves that were building through inflows. Whereas in the first six months of the period the manager's buy and sell activity was almost evenly split (47 buy trades and 39 sell tickets), the manager emphasized the buy side (153 versus 30) in the last half of the period. Yet, those numbers somewhat exaggerate the facts, since the manager did numerous trades in several sectors in August, October and again in November 2000. But there is no denying the manager's preference to buy into the weakness, rather than chasing earlier strength. The Portfolio ended the year with more money at work in fewer individual stocks (76 versus 86 a year earlier). And while the past is no guarantee of future results, the manager's commitment to "Old Economy" stocks paid off in spades in the second half of the period, with the best relative performance coming from companies such as: - SYSCO CORP. -- Engaged in the marketing and distribution of a wide range of food and food related products to the foodservice or 'food-prepared-away-from-home' industry; - ALCOA INC. -- The world's leading producer of primary aluminum, fabricated aluminum and a major participant in all segments of the industry: mining, refining, smelting, fabricating and recycling; - KIMBERLY-CLARK CORP. -- A company that creates quality products, born of continual innovation and technology leadership. The company is focused on three global businesses: tissue, personal care and health care; - BRINKER INTERNATIONAL, INC. -- Engaged in the ownership, operation, development & franchising of restaurants including Chili's Grill & Bar, Romano's Macaroni Grill, On The Border Mexican Grill & Cantina, Cozymel's Coastal Mexican Grill, Maggiano's Little Italy and Corner Bakery Cafe; - MERCK & CO., INC. -- A global research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, and that provides pharmaceutical benefit services through Merck-Medco Managed Care LLC; - SCHERING-PLOUGH CORP. -- A holding company whose subsidiaries are engaged in the discovery, development, manufacturing and marketing of pharmaceutical products worldwide; - SOUTHWEST AIRLINES CO. -- Major domestic airline that provides primarily high-frequency, point-to-point and low-fare service; - THE KROGER CO. -- One of the largest grocery retailers in the United States. The company also manufactures and processes food for sale by its supermarkets and operates retail drug stores, multi-department stores, jewelry stores and convenience stores in the Midwest, South and West; and - TENET HEALTHCARE CORP. -- An investor-owned health care services company that owns or operates, through its subsidiaries and affiliates, general hospitals and related health care facilities and holds investments in other companies, including health care companies. In the manager's view, as of December 31, 2000, the Portfolio was well diversified, with 76 stocks and with approximately 6.6% of the Portfolio's total net assets allocated to cash equivalents. From a sector exposure and a valuation comparison, the Portfolio closely mirrors the S&P 500. The manager's strategy during the early part of 2001 will be to utilize market volatility created by the temporary reversal of recent economic fortunes, by putting the Portfolio's cash reserves to work in what the manager believes are good long-term investments. The manager is most likely to increase the Portfolio's weighting in growth(9) companies, since growth companies price/earnings ("P/E")(10) valuations have compressed, bringing out some improved values. --------------- (9) Growth stocks are shares of companies with the potential for faster-than-average growth within their industries. (10) A P/E ratio is the price of a stock divided by its earnings per share. 41 43 ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- UTILITIES PORTFOLIO The Utilities Portfolio ("Portfolio") seeks to provide current income by investing in equity and debt securities of companies in the utility industries. For the year ended December 31, 2000, the Portfolio returned 24.26%. In comparison, the S&P 500 returned a negative 9.10% for the same period. Past performance is not indicative of future results. The manager is pleased to report that the Portfolio performed well during the period, despite a flat performance for the fourth quarter of 2000. This was especially favorable in a year when most general, non-utility, stock market indices declined noticeably. During the period, the manager has pursued a diversified investment approach including not only electric utility companies, but also infrastructure telecommunication firms. In the two years prior to 2000, the manager's diversification strategy served the Portfolio well when telecommunications holdings showed investment returns of about 100%, while pure utilities were flat. But in 2000, the reverse occurred. Electric utilities scored very strong gains, bursting out of their malaise in late summer. Unfortunately, the telecommunications stocks held in the Portfolio declined steeply during the period. Consequently, almost 20% of the Portfolio was invested in an area of the market that declined nearly 45% during the period, an area of the market that increased 50% in 1999. In addition, the manager was slow to invest new capital inflows due to a hesitancy to chase uncharacteristically strong utility stock price action, and uncertainty as to the sustainability of those improved cash flows. As the manager looks forward into 2001, he believes that telecommunications may again regain investor interest and therefore have a real opportunity to enhance their relative investment performance. In addition, the manager will be working to employ the excess cash reserves diligently. Thank you for your investment in The Travelers Series Trust. Sincerely, /s/ HEATH B. MCLENDON Heath B. McLendon Chairman January 18, 2001 THE INFORMATION PROVIDED IN THIS COMMENTARY REPRESENTS THE OPINION OF THE MANAGERS AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE RESULTS OR INVESTMENT ADVICE. FURTHER, THERE IS NO ASSURANCE THAT CERTAIN SECURITIES WILL REMAIN IN OR OUT OF THE PORTFOLIOS. PLEASE REFER TO PAGES 45 THROUGH 50 FOR A LIST AND PERCENTAGE BREAKDOWN OF EACH PORTFOLIO'S HOLDINGS. ALSO, PLEASE NOTE ANY DISCUSSION OF THE PORTFOLIOS' HOLDINGS IS OF DECEMBER 31, 2000 AND IS SUBJECT TO CHANGE. 42 44 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/00 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Year Ended 12/31/00 14.53% Five Years Ended 12/31/00 6.67% 1/24/92* through 12/31/00 7.54% CUMULATIVE TOTAL RETURN ---------------------------------------------- 1/24/92* through 12/31/00 91.55% * Commencement of operations.
[PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO CHART] This chart assumes an initial investment of $10,000 made on January 24, 1992, assuming reinvestment of dividends, through December 31, 2000. The Lehman Brothers Government Bond Index 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. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services.
U.S. GOVERNMENT SECURITIES LEHMAN BROTHERS PORTFOLIO GOVERNMENT BOND INDEX CONSUMER PRICE INDEX -------------------------- --------------------- -------------------- 1/24/92 10000 10000 10000 12/92 10790 10723 10275 12/93 11813 11866 10557 12/94 11147 11464 10840 12/95 13869 13567 11115 12/96 14071 13943 11484 12/97 15846 15280 11679 12/98 17463 16785 11866 12/99 16724 16411 12220 12/31/00 19155 18584 12635
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 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. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 12/31/00 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Year Ended 12/31/00 (0.49)% Five Years Ended 12/31/00 18.42% 5/1/92* through 12/31/00 15.77% CUMULATIVE TOTAL RETURN ---------------------------------------------- 5/1/92* through 12/31/00 255.90% * Commencement of operations.
[PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO CHART] This chart assumes an initial investment of $10,000 made on May 1, 1992, assuming reinvestment of dividends, through December 31, 2000. The Standard & Poor's 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 market. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services.
SOCIAL AWARENESS PORTFOLIO STANDARD & POOR'S INDEX CONSUMER PRICE INDEX -------------------------- ----------------------- -------------------- 5/1/92 10000 10000 10000 12/92 10950 10673 10157 12/93 11777 11745 10436 12/94 11461 11900 10716 12/95 15285 14509 10988 12/96 18339 17838 11353 12/97 23343 23789 11545 12/98 30875 30626 11731 12/99 35765 37067 12080 12/31/00 35590 33693 12490
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 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. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 43 45 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO AS OF 12/31/00 (UNAUDITED) AVERAGE ANNUAL TOTAL RETURNS ---------------------------------------------- Year Ended 12/31/00 24.26% Five Years Ended 12/31/00 15.41% 2/4/94* through 12/31/00 15.42% CUMULATIVE TOTAL RETURN ---------------------------------------------- 2/4/94* through 12/31/00 169.17% * Commencement of operations.
[PERFORMANCE COMPARISON -- UTILITIES PORTFOLIO CHART] This chart assumes an initial investment of $10,000 made on February 4, 1994, assuming reinvestment of dividends, through December 31, 2000. The Standard & Poor's 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 market. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services.
STANDARD & POOR'S 500 UTILITIES PORTFOLIO INDEX CONSUMER PRICE INDEX ------------------- --------------------- -------------------- 2/4/94 10000 10000 10000 12/94 10170 10072 10205 12/95 13149 13852 10464 12/96 14638 17031 10811 12/97 18340 22712 10995 12/98 21680 29240 11171 12/99 21662 35390 11504 12/31/00 26917 32168 11895
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 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. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends. The returns do not reflect expenses associated with the subaccount such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 44 46 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2000 U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE AMOUNT SECURITY VALUE ---------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 35.6% $ 6,000,000 U.S. Treasury Notes, 5.750% due 8/15/10*.................... $ 6,290,160 U.S. Treasury Bonds: 2,000,000 12.000% due 8/15/13*...................................... 2,824,060 5,000,000 7.500% due 11/15/16*...................................... 6,032,300 5,000,000 8.750% due 8/15/20*+...................................... 6,868,420 15,000,000 U.S. REFCO Strips, zero coupon due 4/15/18.................. 5,345,400 25,000,000 U.S. Treasury Strips, zero coupon due 5/15/19*+............. 9,264,100 ---------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $35,560,729)..... 36,624,440 ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES -- 47.6% 3,000,000 Federal Home Loan Bank Certificates, 5.705% due 3/2/09*..... 2,941,200 Federal Home Loan Mortgage Corp. (FHLMC) Certificates: 4,458,852 6.500% due 7/1/06......................................... 4,468,572 2,413,038 8.500% due 6/15/21........................................ 2,429,034 4,968,359 7.500% due 12/1/30+....................................... 5,040,798 Federal National Mortgage Association (FNMA) Certificates: 3,719,259 7.500% due 11/1/29........................................ 3,772,706 969,000 7.500% due 12/13/30++..................................... 982,925 6,531,478 6.500% due 1/1/31+........................................ 6,443,695 Government National Mortgage Association (GNMA) Certificates: 1,306,772 9.000% due 9/15/09+....................................... 1,356,182 528,974 8.500% due 7/15/18+....................................... 545,007 1,216,694 7.000% due 3/15/28+....................................... 1,222,778 6,695,832 6.000% due 2/20/29........................................ 5,920,316 11,651,000 7.500% due 1/23/31++...................................... 11,847,553 2,000,000 Tennessee Valley Authority Debentures, 6.250% due 12/15/17.................................................... 1,968,120 ---------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCIES (Cost -- $48,700,668)........ 48,938,886 ---------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $84,261,397)................. 85,563,326 ---------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 16.8% 17,208,000 CS First Boston Corp., 6.000% due 1/2/01; Proceeds at maturity -- $17,219,470; (Fully collateralized by U.S. Treasury Notes, 6.625% due 6/30/01; Market value -- $17,553,024) (Cost -- $17,208,000)........................ 17,208,000 ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $101,469,397**).......... $102,771,326 ----------------------------------------------------------------------------------------
* All or a portion of this security is segregated for "to-be-announced" trades. + Date shown represents the last in range of maturity dates. ++ Security is traded on a "to-be-announced" basis (See Note 7). ** Aggregate cost for Federal income tax purpose is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 45 47 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- COMMON STOCK -- 93.4% ----------------------------------------------------------------------------------------- AUTOMOTIVE -- 0.4% 14,485 Ford Motor Co. ............................................. $ 339,492 ----------------------------------------------------------------------------------------- BASIC MATERIALS -- 4.4% 53,500 Alcoa Inc. ................................................. 1,792,250 5,400 E.I. du Pont de Nemours & Co. .............................. 260,887 25,900 Engelhard Corp. ............................................ 527,713 21,400 Praxair, Inc. .............................................. 949,625 ----------------------------------------------------------------------------------------- 3,530,475 ----------------------------------------------------------------------------------------- CAPITAL GOODS -- 0.7% 24,123 Anixter International Inc.*................................. 521,660 1,047 Visteon Corp. .............................................. 12,040 ----------------------------------------------------------------------------------------- 533,700 ----------------------------------------------------------------------------------------- COMMUNICATION -- 2.4% 14,800 AT&T Wireless Group......................................... 256,225 5,075 Avici Systems Inc.*......................................... 124,972 350 Inrange Technologies Corp., Class B Shares*................. 5,928 9,300 Nortel Networks Corp. ...................................... 298,181 15,150 Time Warner Telecom Inc.*................................... 961,078 5,825 TyCom, Ltd.*................................................ 130,335 13,164 WorldCom, Inc.*............................................. 184,296 ----------------------------------------------------------------------------------------- 1,961,015 ----------------------------------------------------------------------------------------- CONSUMER CYCLICALS -- 16.5% 33,500 Black & Decker Corp. ....................................... 1,314,875 11,800 Convergys Corp. ............................................ 534,688 44,800 Home Depot, Inc. ........................................... 2,046,800 30,017 Kaufman & Broad Home Corp. ................................. 1,011,198 18,821 Koninklijke Philips Electronics NV ADR...................... 682,261 22,500 Liz Claiborne, Inc. ........................................ 936,563 20,300 Lowe's Cos., Inc. .......................................... 903,350 35,700 Reader's Digest Association, Inc. .......................... 1,396,763 57,800 Staples, Inc.*.............................................. 682,762 15,439 Tribune Co. ................................................ 652,298 35,500 Tyco International Ltd. .................................... 1,970,250 23,700 Wal-Mart Stores, Inc. ...................................... 1,259,062 ----------------------------------------------------------------------------------------- 13,390,870 ----------------------------------------------------------------------------------------- CONSUMER NON-CYCLICALS -- 0.9% 7,500 Eli Lilly & Co. ............................................ 697,969 ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 9.9% 25,900 Brinker International, Inc.*................................ 1,094,275 22,300 Kimberly-Clark Corp. ....................................... 1,576,387 49,500 The Kroger Co.*............................................. 1,339,594 37,100 Sara Lee Corp. ............................................. 911,269
SEE NOTES TO FINANCIAL STATEMENTS. 46 48 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 9.9% (CONTINUED) 74,800 SYSCO Corp. ................................................ $ 2,244,000 33,300 Wendy's International, Inc. ................................ 874,125 ----------------------------------------------------------------------------------------- 8,039,650 ----------------------------------------------------------------------------------------- ENERGY -- 6.4% 10,000 Active Power, Inc.*......................................... 219,375 6,800 Anadarko Petroleum Corp. ................................... 483,344 35,926 BP Amoco PLC ADR............................................ 1,719,958 10,200 Capstone Turbine Corp.*..................................... 285,600 12,100 Coastal Corp. .............................................. 1,068,581 23,300 Royal Dutch Petroleum Co. ADR............................... 1,411,106 ----------------------------------------------------------------------------------------- 5,187,964 ----------------------------------------------------------------------------------------- FINANCIAL -- 11.6% 30,800 American Express Co. ....................................... 1,692,075 13,860 American International Group, Inc. ......................... 1,366,076 14,300 The Bank of New York Co., Inc. ............................. 789,181 18,600 Bank One Corp. ............................................. 681,225 36,450 Chase Manhattan Corp.+...................................... 1,656,197 6,300 Freddie Mac................................................. 433,913 8,915 Hartford Financial Services Group, Inc. .................... 629,622 6,231 Marsh & McLennan Cos., Inc. ................................ 729,027 14,000 PNC Financial Services Group................................ 1,022,875 8,200 St. Paul Cos., Inc. ........................................ 445,362 ----------------------------------------------------------------------------------------- 9,445,553 ----------------------------------------------------------------------------------------- HEALTH CARE -- 11.0% 24,000 Amgen Inc.*................................................. 1,534,500 7,400 C.R. Bard, Inc. ............................................ 344,563 13,600 Johnson & Johnson........................................... 1,428,850 17,000 Medtronic, Inc. ............................................ 1,026,375 17,200 Merck & Co., Inc. .......................................... 1,610,350 29,100 Schering-Plough Corp. ...................................... 1,651,425 29,400 Tenet Healthcare Corp. ..................................... 1,306,462 ----------------------------------------------------------------------------------------- 8,902,525 ----------------------------------------------------------------------------------------- TECHNOLOGY -- 17.9% 29,100 America Online, Inc.*....................................... 1,012,680 23,500 Automatic Data Processing, Inc. ............................ 1,487,844 23,000 Cisco Systems, Inc.*........................................ 879,750 30,800 Compaq Computer Corp. ...................................... 463,540 17,800 Computer Associates International, Inc. .................... 347,100 17,000 Electronic Data Systems Corp. .............................. 981,750 46,500 EMC Corp.*.................................................. 3,092,250 700 Infineon Technologies AG ADR................................ 25,200 25,400 Intel Corp. ................................................ 768,350 23,300 International Business Machines Corp. ...................... 1,980,500 8,900 Microsoft Corp.*............................................ 386,037 35,600 Oracle Corp.*............................................... 1,034,625
SEE NOTES TO FINANCIAL STATEMENTS. 47 49 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- TECHNOLOGY -- 17.9% (CONTINUED) 38,300 Solectron Corp. ............................................ $ 1,298,370 28,400 Sun Microsystems, Inc.*..................................... 791,650 ----------------------------------------------------------------------------------------- 14,549,646 ----------------------------------------------------------------------------------------- TRANSPORTATION -- 2.5% 27,887 Southwest Airlines Co. ..................................... 935,051 18,800 United Parcel Service, Inc., Class B Shares................. 1,105,675 ----------------------------------------------------------------------------------------- 2,040,726 ----------------------------------------------------------------------------------------- UTILITIES -- 8.8% 55,600 The AES Corp.*.............................................. 3,078,850 20,400 Enron Corp. ................................................ 1,695,750 34,400 Southern Energy, Inc.*...................................... 973,950 33,800 The Williams Cos., Inc. .................................... 1,349,887 ----------------------------------------------------------------------------------------- 7,098,437 ----------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $56,489,639).................... 75,718,022 ----------------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE ----------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 6.6% $5,352,000 CS First Boston Corp., 6.000% due 1/2/01; Proceeds at maturity -- $5,355,568; (Fully collateralized by U.S. Treasury Notes, 6.625% due 6/30/01; Market value -- $5,459,789) (Cost -- $5,352,000)................. 5,352,000 ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (Cost -- $61,841,639**)........... $81,070,022 -----------------------------------------------------------------------------------------
* Non-income producing security. + On January 2, 2001, Chase Manhattan Corp. and J.P. Morgan & Co. merged to form J.P. Morgan Chase & Co. ** Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 48 50 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 UTILITIES PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------------------ COMMON STOCK -- 83.9% ------------------------------------------------------------------------------------------------------ ELECTRIC - UTILITY -- 54.5% 10,000 Active Power, Inc.*...................................................... $ 219,375 10,000 The AES Corp.*........................................................... 553,750 20,000 Allegheny Energy, Inc. .................................................. 963,750 60,000 Calpine Corp.*........................................................... 2,703,750 10,000 Capstone Turbine Corp.*.................................................. 280,000 25,000 Cinergy Corp. ........................................................... 878,125 12,106 Dominion Resources, Inc. ................................................ 811,127 30,000 DQE, Inc. ............................................................... 982,500 11,000 Duke Energy Corp. ....................................................... 937,750 16,800 Edison International..................................................... 262,500 35,000 Energy East Corp. ....................................................... 689,063 10,000 Enron Corp. ............................................................. 831,250 47,250 Exelon Corp. ............................................................ 3,317,423 34,000 FirstEnergy Corp. ....................................................... 1,073,125 10,000 FPL Group, Inc. ......................................................... 717,500 20,000 GPU, Inc. ............................................................... 736,250 20,000 Montana Power Co. ....................................................... 415,000 53,000 Niagara Mohawk Holdings Inc.*............................................ 884,438 20,000 NiSource Inc. ........................................................... 615,000 30,000 Northeast Utilities...................................................... 727,500 14,766 NSTAR.................................................................... 633,091 25,000 Pinnacle West Capital Corp. ............................................. 1,190,625 20,000 Progress Energy, Inc. CVO*............................................... 9,000 20,000 Public Service Enterprise Group, Inc. ................................... 972,500 30,000 SCANA Corp. ............................................................. 886,875 36,000 Sierra Pacific Resources................................................. 578,250 30,000 Southern Energy, Inc.*................................................... 849,375 20,000 TXU Corp. ............................................................... 886,250 52,050 Xcel Energy, Inc. ....................................................... 1,512,703 ------------------------------------------------------------------------------------------------------ 26,117,845 ------------------------------------------------------------------------------------------------------ NATURAL GAS -- 19.3% 16,000 Coastal Corp. ........................................................... 1,413,000 30,000 Dynegy Inc., Class A Shares.............................................. 1,681,875 22,000 Energen Corp. ........................................................... 708,125 30,000 MCN Energy Group Inc. ................................................... 830,625 17,000 National Fuel Gas Co. ................................................... 1,069,938 30,000 NRG Energy, Inc.*........................................................ 834,375 40,000 Sempra Energy............................................................ 930,000 35,000 Southwest Gas Corp. ..................................................... 765,625 26,000 The Williams Cos., Inc. ................................................. 1,038,374 ------------------------------------------------------------------------------------------------------ 9,271,937 ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 49 51 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2000 UTILITIES PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------------------ TELEPHONE -- 10.1% 27,359 AT&T Corp. .............................................................. $ 473,661 25,000 AT&T Wireless Group*..................................................... 432,813 12,000 Qwest Communications International Inc.*................................. 492,000 20,000 SBC Communications Inc. ................................................. 955,000 24,000 Sprint Corp. ............................................................ 487,500 22,200 Verizon Communications Inc. ............................................. 1,112,775 40,000 WorldCom, Inc.*.......................................................... 560,000 17,595 XO Communications, Inc.*................................................. 313,411 ------------------------------------------------------------------------------------------------------ 4,827,160 ------------------------------------------------------------------------------------------------------ TOTAL COMMON STOCK (Cost -- $29,749,235)................................. 40,216,942 ------------------------------------------------------------------------------------------------------
FACE AMOUNT RATING(a) SECURITY VALUE ------------------------------------------------------------------------------------------------------ CORPORATE BONDS -- 0.9% ------------------------------------------------------------------------------------------------------ ELECTRIC - UTILITY -- 0.4% $200,000 A- Arizona Public Service Co., 7.250% due 8/1/23............... 188,000 ------------------------------------------------------------------------------------------------------ TELEPHONE -- 0.5% 230,000 A- MCI Communications Corp., 7.750% due 3/23/25................ 218,500 ------------------------------------------------------------------------------------------------------ TOTAL CORPORATE BONDS (Cost -- $405,337).................... 406,500 ------------------------------------------------------------------------------------------------------ SUB-TOTAL INVESTMENTS (Cost -- $30,154,572)................. 40,623,442 ------------------------------------------------------------------------------------------------------ REPURCHASE AGREEMENT -- 15.2% 7,294,000 CS First Boston Corp., 6.000% due 1/2/01; Proceeds at maturity -- $7,298,863; (Fully collateralized by U.S. Treasury Notes, 6.625% due 6/30/01; Market value -- $7,440,077) (Cost -- $7,294,000)......... 7,294,000 ------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100% (Cost -- $37,448,572**)........... $47,917,442 ------------------------------------------------------------------------------------------------------
* Non-income producing security. (a) All ratings are by Standard & Poor's Ratings Service, except for those which are identified by an asterisk (*), are rated by Moody's Investors Service, Inc. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 51 for definitions of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 50 52 -------------------------------------------------------------------------------- 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 "C" 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" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" has 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" has 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" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as and CCC predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents a lower degree of speculation than "B", and "CCC" 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 -- The rating "C" is reserved for 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, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating from "Aa" to "C", 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" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered 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" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
51 53 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2000
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost................................. $ 84,261,397 $56,489,639 $30,154,572 Repurchase agreements, at cost....................... 17,208,000 5,352,000 7,294,000 ------------------------------------------------------------------------------------------------------------- Investments, at value................................ $ 85,563,326 $75,718,022 $40,623,442 Repurchase agreements, at value...................... 17,208,000 5,352,000 7,294,000 Cash................................................. 1,945 5,585 97 Receivable for securities sold....................... 7,824,560 -- 234,643 Dividends and interest receivable.................... 624,526 44,207 84,921 Receivable for Fund shares sold...................... 434,674 147,459 279,837 ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS......................................... 111,657,031 81,267,273 48,516,940 ------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased..................... 20,632,451 -- -- Investment advisory fee payable...................... 21,849 38,977 22,894 Administration fee payable........................... 4,030 3,776 1,774 Payable for Fund shares purchased.................... -- -- 2,959 Accrued expenses..................................... 28,744 40,675 32,938 ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.................................... 20,687,074 83,428 60,565 ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $ 90,969,957 $81,183,845 $48,456,375 ------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital...................................... $ 87,495,177 $62,460,793 $34,958,320 Undistributed net investment income.................. 4,358,876 345,636 854,971 Accumulated net realized gain (loss) from security transactions...................................... (2,186,025) (850,967) 2,174,214 Net unrealized appreciation of investments........... 1,301,929 19,228,383 10,468,870 ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $ 90,969,957 $81,183,845 $48,456,375 ------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING..................................... 7,443,617 2,823,159 2,521,592 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE............................. $12.22 $28.76 $19.22 -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 52 54 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest................................................ $ 4,795,795 $ 279,515 $ 216,070 Dividends............................................... -- 612,443 929,016 Less: Foreign withholding tax........................... -- (7,901) -- ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................. 4,795,795 884,057 1,145,086 ------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee (Note 2)........................ 223,855 443,684 223,375 Administration fee (Note 2)............................. 41,238 42,962 20,619 Audit and legal......................................... 30,059 20,167 21,037 Shareholder and system servicing fees................... 16,932 16,043 14,951 Custody................................................. 4,677 5,613 2,517 Shareholder communications.............................. 4,000 4,572 2,094 Trustees' fees.......................................... 3,979 3,995 3,979 Pricing service fees.................................... 1,890 -- 197 Other................................................... 7,267 1,196 1,017 ------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES.......................................... 333,897 538,232 289,786 ------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME..................................... 4,461,898 345,825 855,300 ------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3): Realized Gain (Loss) From Security Transactions (excluding short-term securities): Proceeds from sales.................................. 195,442,937 22,321,545 7,089,195 Cost of securities sold.............................. 194,754,768 23,085,239 4,831,048 ------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)................................ 688,169 (763,694) 2,258,147 ------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments: Beginning of year.................................... (3,259,091) 19,320,275 5,942,842 End of year.......................................... 1,301,929 19,228,383 10,468,870 ------------------------------------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION).... 4,561,020 (91,892) 4,526,028 ------------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS............................ 5,249,189 (855,586) 6,784,175 ------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... $ 9,711,087 $ (509,761) $7,639,475 -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 53 55 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2000
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income.............................. $ 4,461,898 $ 345,825 $ 855,300 Net realized gain (loss)........................... 688,169 (763,694) 2,258,147 Change in net unrealized appreciation (depreciation).................................. 4,561,020 (91,892) 4,526,028 -------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS...................................... 9,711,087 (509,761) 7,639,475 -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.............................. (3,702,667) (378,231) (823,875) Net realized gains................................. -- (843,976) (53,040) -------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS................... (3,702,667) (1,222,207) (876,915) -------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sale of shares................... 37,854,892 18,903,761 16,435,486 Net asset value of shares issued for reinvestment of dividends....................... 3,702,667 1,222,207 876,915 Cost of shares reacquired.......................... (18,218,713) (5,448,872) (7,031,666) -------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS......................... 23,338,846 14,677,096 10,280,735 -------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS............................... 29,347,266 12,945,128 17,043,295 NET ASSETS: Beginning of year.................................. 61,622,691 68,238,717 31,413,080 -------------------------------------------------------------------------------------------------------- END OF YEAR*....................................... $ 90,969,957 $81,183,845 $48,456,375 -------------------------------------------------------------------------------------------------------- * Includes undistributed net investment income of:... $4,358,876 $345,636 $854,971 --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 54 56 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1999
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK UTILITIES PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income............................ $ 3,766,648 $ 379,966 $ 823,725 Net realized gain (loss)......................... (2,696,924) 765,721 (30,893) Change in net unrealized appreciation (depreciation)................................ (3,730,793) 6,847,079 (754,466) ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.................................... (2,661,069) 7,992,766 38,366 ------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income............................ (5,416) (185,510) (791,288) Net realized gains............................... -- (952,059) (1,799,094) ------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.................................. (5,416) (1,137,569) (2,590,382) ------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 8): Net proceeds from sale of shares................. 14,321,630 22,265,700 6,945,662 Net asset value of shares issued for reinvestment of dividends.................................. 5,416 1,137,569 2,590,382 Cost of shares reacquired........................ (16,491,880) (1,502,002) (8,479,998) ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS....................... (2,164,834) 21,901,267 1,056,046 ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS.................. (4,831,319) 28,756,464 (1,495,970) NET ASSETS: Beginning of year................................ 66,454,010 39,482,253 32,909,050 ------------------------------------------------------------------------------------------------------- END OF YEAR*..................................... $ 61,622,691 $68,238,717 $31,413,080 ------------------------------------------------------------------------------------------------------- * Includes undistributed net investment income of:........................................... $3,702,189 $378,042 $823,546 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 55 57 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The U.S. Government Securities, Social Awareness Stock and Utilities Portfolios (collectively, "Portfolio(s)") are separate investment portfolios of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and consists of these portfolios and 16 other separate investment portfolios: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Large Cap, Equity Income, Disciplined Mid Cap Stock, Convertible Bond, Strategic Stock, Disciplined Small Cap Stock, MFS Mid Cap Growth, MFS Research, NWQ Large Cap, Jurika & Voyles Core Equity and Zero Coupon Bond Fund Portfolio Series 2005 Portfolios. Shares of the Trust are offered only to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts. The financial statements and financial highlights for the other portfolios are presented in separate shareholder reports. The significant accounting policies consistently followed by the Portfolios are: (a) security transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing prices on such markets; securities for which no sales prices were reported and U.S. Government and Agency obligations are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from reputable brokers or other recognized sources; (c) securities for which market quotations are not available will be valued in good faith at fair value by or under the direction of the Board of Trustees; (d) securities maturing within 60 days are valued at cost plus accreted discount, or minus amortized premium, which approximates value; (e) securities, other than U.S. government agencies and obligations, that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity; (f) interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis and dividend income is recorded on the ex-dividend date; (g) gains or losses on the sale of securities are calculated by using the specific identification method; (h) dividends and distributions to shareholders are recorded on the ex-dividend date; (i) the Portfolios intend to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; (j) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. At December 31, 2000, reclassifications were made to the capital accounts of the U.S. Government Securities Portfolio to reflect permanent book/tax differences and income and gains available for distribution under income tax regulations. Net investment income, net realized gains and net assets for each Portfolio were not affected by these changes; and (k) 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. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly owned subsidiary of Citigroup Inc., ("Citigroup"), acts as investment manager and advisor to U.S. Government Securities Portfolio ("USGS"). USGS pays TAMIC an investment management and advisory fee calculated at the annual rate of 0.3257% of its average daily net assets. This fee is calculated daily and paid monthly. SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH") and an indirect wholly owned subsidiary of Citigroup, acts as investment manager and advisor to the Social Awareness Stock ("SAS") and Utilities ("Utilities") Portfolios. SAS pays SSBC 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. Utilities pays SSBC investment management and advisory fees calculated at an annual rate of 0.65% of the average daily net assets. These fees are calculated daily and paid monthly. 56 58 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) Travelers Insurance Company ("Travelers Insurance") acts as administrator to the Portfolios. The Portfolios pay Travelers Insurance an administration fee calculated at an annual rate of 0.06% of the average daily net assets. Travelers Insurance has entered into a sub-administrative services agreement with SSBC. Travelers Insurance pays SSBC, as sub-administrator, a fee calculated at an annual rate of 0.06% of the average daily net assets of each Portfolio. This fee is calculated daily and paid monthly. Citi Fiduciary Trust Company ("CFTC"), another subsidiary of Citigroup, acts as the Portfolios' transfer agent. CFTC receives account fees and asset-based fees that vary according to the size and type of account. For the year ended December 31, 2000, each Portfolio paid transfer agent fees of $5,000 to CFTC. For the year ended December 31, 2000, Salomon Smith Barney Inc. and its affiliates received brokerage commissions of $1,375. One Trustee and all officers of the Trust are employees of Citigroup or its subsidiaries. 3. INVESTMENTS During the year ended December 31, 2000, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows:
USGS SAS UTILITIES ----------------------------------------------------------------------------------------------------- Purchases................................................... $220,439,758 $35,597,413 $9,550,099 ----------------------------------------------------------------------------------------------------- Sales....................................................... 195,442,937 22,321,545 7,089,195
-------------------------------------------------------------------------------- At December 31, 2000, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
USGS SAS UTILITIES ---------------------------------------------------------------------------------------------------- Gross unrealized appreciation............................... $1,463,313 $22,275,979 $12,575,853 Gross unrealized depreciation............................... (161,384) (3,047,596) (2,106,983) ---------------------------------------------------------------------------------------------------- Net unrealized appreciation................................. $1,301,929 $19,228,383 $10,468,870 ----------------------------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS The Portfolios purchase (and their custodian takes possession of) U.S. Government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Portfolios require continual maintenance of the market value (plus accrued interest) of the collateral in amounts at least equal to the repurchase price. 5. FUTURES CONTRACTS Initial margin deposits made upon entering into futures contracts are recognized as assets. The initial margin is segregated by the custodian and is noted in the schedule of investments. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Portfolios record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Portfolios' basis in the contract. The Portfolios enter into such contracts to hedge portions of their respective portfolios. The Portfolios bear the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At December 31, 2000, the Portfolios had no open futures contracts. 57 59 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. OPTION CONTRACTS Premiums paid when put or call options are purchased by the Portfolios, represent investments, which are "marked-to-market" daily. When a purchased option expires, the Portfolios will realize a loss in the amount of the premium paid. When the Portfolios enter into closing sales transactions, the Portfolios will realize a gain or loss depending on whether the proceeds from the closing sales transactions are greater or less than the premium paid for the option. When the Portfolios exercise a put option, they will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Portfolios exercise a call option, the cost of the security which the Portfolios purchase upon exercise will be increased by the premium originally paid. At December 31, 2000, the Portfolios held no purchased call or put option contracts. 7. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS The Portfolios may trade securities on a "to-be-announced" ("TBA") basis. In a TBA transaction, the Portfolios commit to purchasing or selling securities for which specific information is not yet known at the time of the trade, particularly the face amount and maturity date in GNMA/FNMA transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Portfolios, normally 15 to 45 days later. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At December 31, 2000, USGS held TBA securities with a total cost of $12,843,085. 8. 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 Portfolio were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO Shares sold................................................. 3,246,763 1,246,566 Shares issued on reinvestment............................... 330,595 484 Shares reacquired........................................... (1,585,139) (1,427,742) -------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... 1,992,219 (180,692) -------------------------------------------------------------------------------------------------- SOCIAL AWARENESS STOCK PORTFOLIO Shares sold................................................. 649,867 808,161 Shares issued on reinvestment............................... 43,051 40,998 Shares reacquired........................................... (188,862) (53,531) -------------------------------------------------------------------------------------------------- Net Increase................................................ 504,056 795,628 -------------------------------------------------------------------------------------------------- UTILITIES PORTFOLIO Shares sold................................................. 912,236 414,864 Shares issued on reinvestment............................... 52,890 154,823 Shares reacquired........................................... (417,997) (510,525) -------------------------------------------------------------------------------------------------- Net Increase................................................ 547,129 59,162 --------------------------------------------------------------------------------------------------
58 60 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. CAPITAL LOSS CARRYFORWARD At December 31, 2000, USGS and SAS had, for Federal income tax purposes approximately $1,979,000 and $774,000, respectively, of capital loss carryforwards available to offset future realized gains. To the extent that these carryforward losses can be used to offset net realized capital gains, it is probable that such gains will not be distributed. The amount and expiration of the carryforwards are indicated below. Expiration occurs on December 31 of the year indicated:
PORTFOLIO 2007 2008 ---------------------------------------------------------------------------------- U.S. Government Securities Portfolio........................ $1,979,000 -- Social Awareness Stock Portfolio............................ -- $774,000 ----------------------------------------------------------------------------------
59 61 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31:
U.S. GOVERNMENT SECURITIES PORTFOLIO 2000(1) 1999(1) 1998 1997 1996 -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................ $11.30 $11.80 $11.65 $10.86 $12.43 -------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................... 0.74 0.68 0.49 0.58 0.68 Net realized and unrealized gain (loss)......... 0.84 (1.18) 0.70 0.79 (0.52) -------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............... 1.58 (0.50) 1.19 1.37 0.16 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income........................... (0.66) (0.00)* (0.50) (0.58) (1.55) Net realized gains.............................. -- -- (0.54) -- (0.18) -------------------------------------------------------------------------------------------------------------- Total Distributions............................... (0.66) (0.00)* (1.04) (0.58) (1.73) -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR...................... $12.22 $11.30 $11.80 $11.65 $10.86 -------------------------------------------------------------------------------------------------------------- TOTAL RETURN...................................... 14.53% (4.23)% 10.20% 12.62% 1.46% -------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)................... $90,970 $61,623 $66,454 $35,279 $26,009 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)..................................... 0.48% 0.48% 0.45% 0.49% 0.62% Net investment income........................... 6.46 5.97 5.31 6.10 5.68 -------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................... 289% 164% 349% 208% 501% --------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO 2000(1) 1999(1) 1998 1997 1996 -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................ $29.42 $25.92 $20.06 $15.76 $14.32 -------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(4)........................ 0.14 0.13 0.10 0.15 0.31 Net realized and unrealized gain (loss)......... (0.29) 3.93 6.30 4.15 2.42 -------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............... (0.15) 4.06 6.40 4.30 2.73 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income........................... (0.16) (0.09) (0.12) -- (0.43) Net realized gains.............................. (0.35) (0.47) (0.42) -- (0.86) -------------------------------------------------------------------------------------------------------------- Total Distributions............................... (0.51) (0.56) (0.54) -- (1.29) -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR...................... $28.76 $29.42 $25.92 $20.06 $15.76 -------------------------------------------------------------------------------------------------------------- TOTAL RETURN...................................... (0.49)% 15.84% 32.27% 27.28% 19.98% -------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)................... $81,184 $68,239 $39,482 $21,013 $11,040 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)..................................... 0.75% 0.80% 0.84% 0.98% 1.25% Net investment income........................... 0.48 0.69 0.63 0.97 0.43 -------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................... 33% 12% 14% 19% 26% --------------------------------------------------------------------------------------------------------------
(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) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25%. (4) For the year ended December 31, 1996, Travelers Insurance reimbursed the Social Awareness Stock Portfolio for $25,093 in expenses. If such fees were not waived and expenses not reimbursed, the per share decrease of net investment income would have been $0.06 and the actual expense ratio would have been 1.69%. * Amount represents less than $0.01 per share. 60 62 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
UTILITIES PORTFOLIO 2000(1) 1999(1) 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................. $15.91 $17.18 $15.29 $12.22 $12.85 ---------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income............................ 0.43 0.41 0.37 0.46 0.47 Net realized and unrealized gain (loss).......... 3.36 (0.36) 2.33 2.63 0.47 ---------------------------------------------------------------------------------------------------------------- Total Income From Operations....................... 3.79 0.05 2.70 3.09 0.94 ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income............................ (0.45) (0.40) (0.42) (0.01) (0.84) Net realized gains............................... (0.03) (0.92) (0.39) (0.01) (0.73) ---------------------------------------------------------------------------------------------------------------- Total Distributions................................ (0.48) (1.32) (0.81) (0.02) (1.57) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR....................... $19.22 $15.91 $17.18 $15.29 $12.22 ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN....................................... 24.26% (0.08)% 18.21% 25.29% 7.47% ---------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S).................... $48,456 $31,413 $32,909 $21,413 $18,214 ---------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses......................................... 0.84% 0.88% 0.80% 1.06% 1.07% Net investment income............................ 2.47 2.41 3.06 3.58 3.88 ---------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............................ 22% 10% 51% 68% 39% ----------------------------------------------------------------------------------------------------------------
(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. 61 63 -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT 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 the U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Utilities Portfolio of The Travelers Series Trust as of December 31, 2000, and the related statements of operations for the year then ended, statements of changes in net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended December 31, 1996, were audited by other auditors whose report thereon, dated February 24, 1997, expressed an unqualified opinion on those financial statements financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2000, by correspondence with the custodian. As to securities purchased or sold but not yet received or delivered, we performed other appropriate auditing procedures. 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 the U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Utilities Portfolio of The Travelers Series Trust as of December 31, 2000, 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 four-year period then ended, in conformity with accounting principles generally accepted in the United States of America. [KPMG LOGO] New York, New York February 9, 2001 62 64 -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) For Federal tax purposes the Trust hereby designates for the fiscal year ended December 31, 2000: - Percentages of ordinary dividends paid as qualifying for the corporate dividends received deduction: Utilities Portfolio.................................... 67.86%
- Total long-term capital gain distributions paid: Social Awareness Stock Portfolio....................... $780,484 Utilities Portfolio.................................... 53,040
The following percentage of ordinary dividends paid from net investment income is derived from Federal obligations and may be exempt from taxation at the state level: U.S. Government Securities Portfolio........................ 39.08%
63 65 (This page intentionally left blank) 66 Investment Advisers -------------------- MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC Hartford, Connecticut THE TRAVELERS SERIES TRUST: SOCIAL AWARENESS STOCK PORTFOLIO AND UTILITIES PORTFOLIO SSB CITI FUND MANAGEMENT LLC New York, New York Independent Auditors --------------------- KPMG LLP New York, New York Custodian ---------- PFPC TRUST COMPANY This report is prepared for the general information of 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 or Utilities Portfolio. It should not be used in connection with any offer except in conjunction with the Prospectuses for the Variable Annuity and Variable Universal Life Insurance products offered by The Travelers Insurance Company or Travelers Life & Annuity Company and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including the applicable sales commissions. Printed in U.S.A. VG-181 (Annual)(2-01)