N-CSR 1 y93570invcsr.txt MANAGED ASSETS TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3568 Managed Assets Trust (Exact name of registrant as specified in charter) 125 Broad Street, New York, NY 10004 (Address of principal executive offices) (Zip code) Robert I. Frenkel, Esq. Smith Barney Fund Management LLC 300 First Stamford Place Stamford, CT 06902 (Name and address of agent for service) Registrant's telephone number, including area code: (800) 451-2010 Date of fiscal year end: December 31 Date of reporting period: December 31, 2003 ITEM 1. REPORT TO STOCKHOLDERS. The Annual Report to Stockholders is filed herewith. ANNUAL REPORT DECEMBER 31, 2003 [UMBRELLA ART TOP] [UMBRELLA ART BOTTOM] MANAGED ASSETS TRUST HIGH YIELD BOND TRUST CAPITAL APPRECIATION FUND MONEY MARKET PORTFOLIO THE TRAVELERS SERIES TRUST: U.S. GOVERNMENT SECURITIES PORTFOLIO SOCIAL AWARENESS STOCK PORTFOLIO PIONEER FUND PORTFOLIO [TRAVELERS LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Cityplace Hartford, CT 06103 ANNUAL REPORT FOR MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- WHAT'S INSIDE LETTER FROM THE CHAIRMAN.................................... 1 MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND AND MONEY MARKET PORTFOLIO: MANAGER OVERVIEW AND FUND PERFORMANCE (IF APPLICABLE): MANAGED ASSETS TRUST................................... 3 HIGH YIELD BOND TRUST.................................. 7 CAPITAL APPRECIATION FUND.............................. 9 MONEY MARKET PORTFOLIO................................. 12 SCHEDULES OF INVESTMENTS.................................... 13 STATEMENTS OF ASSETS AND LIABILITIES........................ 40 STATEMENTS OF OPERATIONS.................................... 41 STATEMENTS OF CHANGES IN NET ASSETS......................... 42 NOTES TO FINANCIAL STATEMENTS............................... 46 FINANCIAL HIGHLIGHTS........................................ 51 INDEPENDENT AUDITORS' REPORT................................ 53 TAX INFORMATION............................................. 54 THE TRAVELERS SERIES TRUST - U.S. GOVERNMENT SECURITIES PORTFOLIO, SOCIAL AWARENESS STOCK PORTFOLIO AND PIONEER FUND PORTFOLIO: MANAGER OVERVIEW AND FUND PERFORMANCE: U.S. GOVERNMENT SECURITIES PORTFOLIO................... 55 SOCIAL AWARENESS STOCK PORTFOLIO....................... 57 PIONEER FUND PORTFOLIO................................. 60 SCHEDULES OF INVESTMENTS.................................... 63 STATEMENTS OF ASSETS AND LIABILITIES........................ 75 STATEMENTS OF OPERATIONS.................................... 76 STATEMENTS OF CHANGES IN NET ASSETS......................... 77 NOTES TO FINANCIAL STATEMENTS............................... 80 FINANCIAL HIGHLIGHTS........................................ 85 INDEPENDENT AUDITORS' REPORT................................ 87 ADDITIONAL INFORMATION...................................... 88 TAX INFORMATION............................................. 91
-------------------------------------------------------------------------------- LETTER FROM THE CHAIRMAN [R. JAY GERKEN PHOTO] R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer DEAR SHAREHOLDER, The year 2003 marked a sharp turning point in the investment world. After a three-year equity bear market, the worst since the 1930s, stocks of all sizes and styles made a strong comeback, making gains across all industries and sectors through the year. The greatest gains were made by small-cap, rather than large-cap stocks, and by those that had fallen the farthest since the market peaks of 2000, particularly technology stocks. Overall, bond performance was a story of contrasts, with high yield bonds significantly outperforming investment-grade corporate bonds and government-issued fixed-income securities. Notably, bond market performance paralleled stock performance in that the most volatile securities outperformed the most conservative. Investors clearly had increased appetites for risk. The turning point for stocks came in mid-March as the U.S. ended the uncertainty over the impending Iraq War and achieved a swift and decisive victory. Meanwhile, historically low interest rates and lowered income taxes combined to provide a strong economic stimulus, which first raised expectations for economic growth and then led to gains in consumer confidence and rapid expansion in the third quarter. Meanwhile, job growth remained sluggish. This led to some concerns over the sustainability of both the economic rebound and the market's strong performance. Within this environment, the funds performed as follows: Performance of the Funds as of December 31, 2003
6 MONTHS 12 MONTHS -------- --------- MANAGED ASSETS TRUST........................................ 9.54% 21.98% S&P 500 Index............................................... 15.14 28.67 Lehman Brothers Government/Credit Bond Index................ -0.53 4.67 Lipper Flexible Portfolio Variable Funds Category Average... 9.44 18.65 HIGH YIELD BOND TRUST....................................... 10.95 29.15 Credit Suisse First Boston High Yield Index................. 9.05 27.94 Lipper High Current Yield Variable Funds Category Average... 8.41 23.93 CAPITAL APPRECIATION FUND................................... 15.20 24.91 S&P 500 Index............................................... 15.14 28.67 Russell 2000 Index.......................................... 24.92 47.25 Lipper Large-Cap Growth Variable Funds Category Average..... 13.57 28.18 MONEY MARKET PORTFOLIO...................................... 0.34 0.78 Lipper Money Market Variable Funds Category Average......... 0.27 0.64 U.S. GOVERNMENT SECURITIES PORTFOLIO........................ -1.81 2.75 Merrill Lynch U.S. Treasury/Agency Master Index............. -1.11 2.36 Lipper General U.S. Government Variable Funds Category Average................................................... -0.76 2.33 SOCIAL AWARENESS STOCK PORTFOLIO............................ 14.85 28.85 S&P 500 Index............................................... 15.14 28.67 Lipper Specialty/Miscellaneous Variable Funds Category Average................................................... 18.50 40.40 PIONEER FUND PORTFOLIO...................................... 14.80 23.78 S&P 500 Index............................................... 15.14 28.67 Lipper Multi-Cap Core Variable Funds Category Average....... 15.82 31.84
1 ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE RESULTS. Principal value and investment returns will fluctuate and investors' shares, when redeemed may be worth more or less than their original cost. Each fund's returns reflect expenses incurred by that fund, but do not reflect any charges or expenses imposed by the variable annuity or life contract you own, and do not reflect the deduction of any taxes. Therefore, your actual returns would have been lower. An investor may not invest directly in the fund. Index returns are provided for comparison, but an investor cannot invest directly in an index. Additionally, these returns do not reflect any deduction for fees or expenses, as indices are unmanaged, and do not incur such expenses. Index returns also do not reflect any deduction for taxes. The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. The Russell 2000 Index measures the performance of the 2000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. The Credit Suisse First Boston High Yield Index is a market-weighted index that includes publicly traded bonds rated below BBB by S&P and Baa by Moody's. The Lehman Brothers Government/Credit Bond Index is a broad-based bond index composed of government and corporate debt issues that are investment grade (rated Baa/BBB or higher). The Merrill Lynch U.S. Treasury/Agency Master Index is an index comprises of U.S. Treasury and Agency securities. Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2003 and include the reinvestment of dividends and capital gains, if any. Returns were calculated among the 149 funds for the six-month period and among the 146 funds for the 12-month period in the Lipper large-cap growth variable funds category. Returns were calculated among the 88 funds for the six-month period and among the 86 funds for the 12-month period in the Lipper high current yield variable funds category. Returns were calculated among the 87 funds for the six-month period and among the 86 funds for the 12-month period in the Lipper flexible portfolio variable funds category. Returns were calculated among the 109 funds for the six-month period and among the 107 funds for the 12-month period in the Lipper money market variable funds category. Returns were calculated among the 135 funds for the six-month period and among the 130 funds for the 12-month period in the Lipper specialty/ miscellaneous variable funds category. Returns were calculated among the 54 funds for the six-month period and among the 51 funds for the 12-month period in the Lipper general U.S. Government variable funds category. Returns were calculated among the 124 funds for the six-month period and among the 121 funds for the 12-month period in the Lipper multi-cap core variable funds category. Please read on for a more detailed look at prevailing economic and market conditions during the funds' fiscal year and to learn how those conditions and changes made to the portfolio during this time may have affected fund performance. INFORMATION ABOUT YOUR FUND In recent months several issues in the mutual fund and variable insurance products industries have come under the scrutiny of federal and state regulators. Travelers Life & Annuity and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, and other mutual fund and variable product issues in connection with various investigations. The funds have been informed that Travelers Life & Annuity and its affiliates are responding to those information requests and cooperating with the regulators, but are not in a position to predict the outcome of these requests and investigations. As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals. Sincerely, /s/ R. Jay Gerken R. Jay Gerken, CFA Chairman, President and Chief Executive Officer January 20, 2004 2 -------------------------------------------------------------------------------- MANAGER OVERVIEW MANAGED ASSETS TRUST PERFORMANCE UPDATE During its fiscal year ended December 31, 2003, the fund generated a return of 21.98%. In comparison, the fund outperformed one of its unmanaged benchmarks, the Lehman Brothers Government/Credit Bond Index,(i) which advanced by 4.67%, but underperformed its other unmanaged benchmark, the S&P 500 Index,(ii) which gained 28.67% and for the same period. The fund outperformed its Lipper flexible portfolio variable funds category average, which was up 18.65% over the same time frame.(1) EQUITY MARKET OVERVIEW Optimistic forecasts for a strong economic rebound in 2003 have proven to be correct. With real gross domestic product ("GDP")(iii) growth of 3.3% in the second quarter and a surge of 8.2% in the third quarter, the economy gradually responded to the stimulus of aggressive monetary and fiscal policies. However, some investors continued to express concerns that the effects of these stimulative policies might wear off, and corporate revenue growth might not be sustainable. Other issues for the economy focus on weak employment data, sluggish capital spending, and the impact on consumer spending from a slowdown in mortgage refinancing. From the monetary perspective, the Federal Reserve Board appeared to be firmly committed to maintaining low interest rates, despite the widely discussed risk of a further decline in inflation. The nation's fiscal stimulus also seemed to be effective, and despite the scheduled expiration of recent tax cuts, most consumers apparently perceived the reduction in tax rates as permanent. The employment rate began to improve toward the end of 2003. Non-farm payrolls rose, and initial claims for unemployment insurance fell steadily. The industrial sector began to advance as well, with industrial production moving higher over the last four months of the year. Many major corporations have started to indicate some willingness to invest. Capital-goods orders have trended higher, and capital spending rose in the final three quarters of 2003. Consumer spending has clearly been a pillar for economic growth and any significant weakening could be detrimental to the overall recovery. With the recent slowdown in mortgage refinancing, there have been widespread concerns that consumer spending could be losing its momentum. Economic data released during 2003 showed evidence of a cyclical recovery and provided more hope late in the year as retail sales and initial unemployment claims were better than anticipated. With lower inventories and higher operating profits, many companies have finally begun to hire selectively and slowly boost capital expenditures. Along with continuing strength in consumer confidence, the increase in capital spending helped lift many stocks to produce their best returns in recent years. In addition, the gains were remarkably broad-based and every economic sector participated. With historically high oil and natural gas prices, energy stocks delivered exceptional performance in the past year. The technology and consumer discretionary sectors also traded much higher on improved capital investments and strong retail sales. However, during the past month, weaker sales from major department stores have led investors to begin gradually reduce their lofty expectations on the industry. The only exceptions were luxury item stores, which realized solid sales increases during the holiday season. Similarly, technology investors turned less bullish as well. When it became evident that major capital spending would not occur until later in 2004, most technology stocks came under pressure and traded lower. OVERVIEW OF FUND'S EQUITY INVESTMENTS Our stock selection models produced mixed results during the course of 2003. The strong market rally was primarily fueled by the tremendous gains of lower quality stocks, which typically perform well at the inflection point of a market recovery. Especially in industries such as semiconductors and telecommunications, many stocks surged significantly without any visible rebound in demand. Throughout the year, positive economic data continued to lead investors towards stocks with higher earnings leverage and sales growth in anticipation of a strong economic recovery. Consequently, we feel that the focus on management guidance and longer-term business outlook undermined the importance of earnings surprises and estimates revisions as stock selection factors in 2003. As a result, most of our (1) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2003, calculated among the 86 funds in the Lipper flexible portfolio variable funds category including the reinvestment of dividends and capital gains, if any. 3 earnings factors remained anemic. Among our valuation factors, operating cash flow remained a strong preference with investors, although its effectiveness has clearly diminished from the peak of the accounting crisis. Overall, our stock selection was modestly favorable in the producer durables, technology and transportation sectors, but adverse in the utilities sector. In the producer durables sector, the fund benefited from positions in Boeing Co., Centex Corp., and PerkinElmer, Inc. when the market rally began in the second quarter. Boeing reported quarterly earnings from operations above the consensus estimate. The company cited ongoing strength in the military business as the main reason for the upside surprise. Although the commercial business remained weak, the stock gained during the second quarter. Similarly, Centex reported higher earnings than expected. The upside was driven by strength in the homebuilding and financial services, despite losses in construction products and services. PerkinElmer reiterated its earnings guidance for the coming quarter. Management stated that revenues seemed to have stabilized and would be higher than the previous quarter. In the technology sector, fund positions in Avaya, Inc., Scientific-Atlanta, Inc., and Cisco Systems helped us during the third quarter. Avaya announced that its domestic operation grew faster than management had previously guided for, although its European group was slightly weaker. Analysts raised their earnings estimates based on the new guidance and the stock moved higher. Scientific-Atlanta posted robust financial results for the second quarter. Demand for its digital systems exceeded management's expectation, and the company guided for higher earnings growth for the coming year. Cisco continued to gain market share in the data networking industry. The company reaffirmed its earnings guidance and substantially strengthened its balance sheet. In the auto & transportation sector, fund positions in Norfolk Southern Corp., Ford Motor Co., and Eaton contributed positively to performance towards the end of the year. Norfolk Southern announced better earnings than the consensus estimate. Although revenue was below analysts' expectations, operating costs were also lower than expected. Its strength in cost control allowed the stock to trade at a relatively higher earnings multiple than its competitors. Ford Motor traded higher on reports that showed sales in Europe might be rebounding. The company also met its production schedule and succeeded in reducing its inventory level. Eaton, which manufactures power systems, benefited from an improvement in the capital goods markets. Management guided for higher sales and expected its market share to increase in the coming quarters. On the other hand, in the utilities sector, the fund was negatively impacted by its positions in AT&T Corp., Nicor, Inc., and Alltel Corp. at the beginning of the year. AT&T pre-announced that earnings would miss consensus expectation. Management acknowledged that consumer business remained weak and might take longer to improve. The stock traded lower after the news. Nicor posted lower earnings for the quarter due to a decline in utility revenue and higher operating costs. The company trimmed its earnings guidance for the coming year. Alltel missed its subscriber growth target in its wireless operation. Revenue growth in its wireless business was also weaker than expected. Although most analysts maintained their earnings estimates, they downgraded their rating on the stock. In our disciplined approach to stock selection, we screen our research universe of over 1,000 large cap securities for companies that offer improving earnings fundamentals at discounted stock valuations. We continued to focus on this dual theme of low valuations and improving earnings outlook as the basis of our stock selection. FIXED-INCOME MARKET AND FUND OVERVIEW By the end of 2003, equity prices rose for three consecutive quarters, giving credence to an ongoing economic recovery. The labor markets finally showed some long-awaited, albeit modest, strength and the U.S. economy continued its second year of expansion, mainly due to gains in productivity. Consumer spending was considerably stronger than first estimated. Although shrinking pay increases and higher inflation expectations have spawned some worries, consumer sentiment has held up surprisingly well. The dramatic improvement in stocks benefited the equity portion of the fund. The convertible portion of the fund continued to benefit from higher stock prices and tighter fixed-income spreads as well as investors increased willingness to take on more risk. The fixed income portion of the portfolio performed well even as a "flight from quality" continued in the bond markets. Despite some mixed signals from the economy, conventional wisdom suggests that real economic growth may continue to pick up in 2004. Tax cuts seem to be having their desired impact, interest rates are low and corporations are lean. Furthermore, a falling dollar is helping to improve pricing power and earnings for beaten-up manufacturing companies. Given this backdrop, interest rates may rise moderately as should equity prices. Accordingly, we maintained our asset allocation strategy of keeping the fund's investments close to 60% equities/40% fixed-income securities. 4 Thank you for your investment in the Managed Assets Trust. We appreciate that you have entrusted us to manage your money and value our relationship with you. Sincerely, [/s/ DAVID A. TYSON] [/s/ SANDIP A. BHAGAT] David Tyson Sandip A. Bhagat, CFA Travelers Asset Management International Travelers Investment Management Company Company LLC
January 21, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. The opinions expressed are current only through the end of the period of this report as stated on the cover and are subject to change at any time based on market or other conditions. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change and may not be representative of the portfolio managers' current or future investments. The fund's top ten holdings as of this date were: Freddie Mac Benchmark Notes, 2.125% due 11/15/05 (2.77%); U.S. Treasury Notes, 5.750% due 8/15/10 (2.41%); France Telecom S.A. (2.30%); PP&L Transition Bond Co. LLC (1.93%); U.S. Treasury Notes, 4.250% due 11/15/13 (1.89%); General Electric Co. (1.82%); Nationwide Health Properties, Inc. (1.76%); Microsoft Corp. (1.76%); Pfizer Inc. (1.63%); Clear Channel Communications, Inc. (1.53%). Please refer to pages 13 through 26 for a list and percentage breakdown of the fund's holdings. Fund performance reflects fund expenses, but does not reflect any charges or expenses imposed by your variable contract. Index performance does not reflect any deduction for fees or expenses. An investor may not invest directly in an index. RISK: The fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on fund performance. (i) The Lehman Brothers Government/Credit Bond Index is a broad-based bond index composed of government and corporate debt issues that are investment grade (rated Baa/BBB or higher). (ii) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. (iii) Gross domestic product is a market value of goods and services produced by labor and property in a given country. 5 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MANAGED ASSETS TRUST AS OF 12/31/03 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/03 21.98% Five Years Ended 12/31/03 3.53 Ten Years Ended 12/31/03 9.50 CUMULATIVE TOTAL RETURN ------------------------ 12/31/93 through 12/31/03 147.72%
This chart assumes an initial investment of $10,000 made on December 31, 1993, assuming reinvestment of dividends, through December 31, 2003. The Lehman Brothers Government/Credit Bond Index is a weighted composite of the Lehman Brothers Government Bond Index, which is a broad-based index of all public debt obligations of the U.S. Government and its agencies and has an average maturity of nine years and the Lehman Brothers Credit Bond Index, which is comprised of all public fixed-rate non-convertible investment grade domestic corporate debt, excluding collateralized mortgage obligations. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. [MANAGED ASSETS TRUST LINE GRAPH] Managed Assets Trust Lehman Brothers Government/Credit Bond Index 12/93 10000.00 10000.00 12/94 9776.00 9648.00 12/95 12427.00 11505.00 12/96 14139.00 11839.00 12/97 17152.00 12994.00 12/98 20830.00 14225.00 12/99 23792.00 13601.00 12/00 23407.00 15213.00 12/01 22218.00 16507.00 12/02 20307.00 18329.00 12/31/03 24772.00 19185.00 Consumer Price Index S&P 500 Index 12/93 10000.00 10000.00 12/94 10268.00 10132.00 12/95 10528.00 12353.00 12/96 10877.00 15188.00 12/97 11062.00 20254.00 12/98 11240.00 26075.00 12/99 11575.00 31559.00 12/00 11968.00 28687.00 12/01 12153.00 25279.00 12/02 12443.00 19694.00 12/31/03 12677.00 25340.00
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data represents past performance including the investment return and principal value of an investment, which 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 total returns and graph presented above do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 6 -------------------------------------------------------------------------------- MANAGER OVERVIEW HIGH YIELD BOND TRUST SPECIAL SHAREHOLDER NOTICE Effective February 6, 2004, Mr. Paul A. Mataras and Mr. David A. Nadeau began serving as Portfolio Managers to the fund. PERFORMANCE UPDATE During its fiscal year ended December 31, 2003, the fund returned 29.15%. In comparison, the fund outperformed its unmanaged benchmark, the Credit Suisse First Boston High Yield Index,(i) which returned 27.94% for the same period. The fund also outperformed its Lipper high current yield variable funds average, which was 23.93% over the same frame.(1) An improving economy, strong third quarter earnings, declining default rates and significant inflows of assets into high yield mutual funds propelled the high yield market during the fund's fiscal year. The lowest rated issues, those rated CCC, within the non-investment-grade universe outperformed again, as many investors sought higher yields. Our investment philosophy is based on finding total return opportunities on a bond-by-bond basis, investing in companies which meet a rigorous fundamental credit analysis. We continue to follow our bottom-up discipline. We focus on companies with superior market shares and/or high barriers to entry and also look for companies with catalysts to improving valuations and total return realizations. Key sectors which helped fund performance in 2003 included chemicals, utilities, wireless telecommunications, and domestic cable. Although almost all high yield bonds performed well, the past year's performance results for the whole market were led by weaker companies. Thank you for your investment in the High Yield Bond Trust. We appreciate that you have entrusted us to manage your money and value our relationship with you. Sincerely, Thomas L. Hajdukiewicz Travelers Asset Management International Company LLC January 21, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. The opinions expressed are current only through the end of the period of this report as stated on the cover and are subject to change at any time based on market or other conditions. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change. Please refer to pages 27 through 34 for a list and percentage breakdown of the fund's holdings. Fund performance reflects fund expenses, but does not reflect any charges or expenses imposed by your variable contract. Index performance does not reflect any deduction for fees or expenses. An investor may not invest directly in an index. RISK: High yield bonds involve greater credit and liquidity risks than investment grade bonds. Additionally, the fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on fund performance. (1) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2003, calculated among the 86 funds in the Lipper high current yield variable funds category including the reinvestment of dividends and capital gains, if any. (i) The Credit Suisse First Boston High Yield Index is a market-weighted index that includes publicly traded bonds rated below BBB by S&P and Baa by Moody's. 7 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- HIGH YIELD BOND TRUST AS OF 12/31/03 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/03 29.15% Five Years Ended 12/31/03 9.30 Ten Years Ended 12/31/03 9.87 CUMULATIVE TOTAL RETURN ------------------------ 12/31/93 through 12/31/03 156.35%
This chart assumes an initial investment of $10,000 made on December 31, 1993, assuming reinvestment of dividends, through December 31, 2003. The Credit Suisse First Boston High Yield Index (formerly known as Credit Suisse First Boston Global High Yield Index) is a broad-based market measure of high-yield bonds, commonly known as "junk bonds." The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [HIGH YIELD BOND TRUST LINE GRAPH] High Yield Bond Trust Comsumer Price Index 12/93 10000.00 10000.00 12/94 9874.00 10268.00 12/95 11401.00 10528.00 12/96 13231.00 10877.00 12/97 15422.00 11062.00 12/98 16433.00 11240.00 12/99 17160.00 11575.00 12/00 17326.00 11968.00 12/01 18981.00 12153.00 12/02 19849.00 12443.00 12/03 25635.00 12677.00 Credit Suisse First Boston High Yield Index 12/93 10000.00 12/94 9981.00 12/95 11845.00 12/96 13115.00 12/97 14772.00 12/98 14815.00 12/99 15473.00 12/00 14939.00 12/01 15805.00 12/02 16296.00 12/03 20849.00
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data represents past performance including the investment return and principal value of an investment, which 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 total returns and graph presented above do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 8 -------------------------------------------------------------------------------- MANAGER OVERVIEW CAPITAL APPRECIATION FUND PERFORMANCE UPDATE During its fiscal year ended December 31, 2003, the fund returned 24.91%. In comparison, the fund underperformed both of its benchmarks, the unmanaged S&P 500 Index,(i) which returned 28.67%, and the Russell 2000 Index,(ii) which returned 47.25% for the same period. The fund also underperformed its Lipper large-cap growth variable funds average, which was 28.18% for the same period.(1) MARKET OVERVIEW Broadly speaking, many equity investors enjoyed positive performance in 2003 as the major U.S. stock market indices ended the fiscal year with gains for the first time since 1999. Meanwhile, U.S. Treasury yields fluctuated with the daily headline news and fortunes of the stock market. The period began with a brief rally that was quickly overcome by worries of a looming conflict with Iraq. Rising unemployment, a persistent lack of new jobs and soaring oil prices also were causes for concern. After hitting a trough in the months leading up to the war, however, both the market and consumer confidence bounced back sharply by the time the hostilities began in mid-March. Later, signs that the manufacturing sector was emerging from a two-year slump and a tax-cut-driven increase in consumer spending also helped to lift investors' spirits. But the health of the economy still was in doubt as job losses mounted. The Federal Reserve acknowledged the mixed picture, cutting its benchmark federal funds rate to a 45-year low of 1% in an attempt to spur corporate investment and hiring. As the fiscal year came to a close, however, stocks added to their gains. Feelings of cautious optimism, fueled by an acceleration of quarterly earnings and better-than-expected economic growth, prevailed despite questions about whether the positive momentum could be sustained. INVESTMENT DECISIONS DURING THE PERIOD Similar to post-bear market trends throughout history, the equity markets spent much of 2003 bidding up small-capitalization stocks while dismissing large-cap issues. Consequently, as the fund's charter demands that it generally invest in larger companies, its short-term performance suffered slightly on a relative basis. While enduring the whims of the market, we worked diligently and monitored the volatility that naturally occurs within a concentrated fund. By exploring a larger universe and investing in a broader array of industries, we are striving for more consistent returns through the market's ups and downs. CONTRIBUTORS AND DETRACTORS TO PERFORMANCE Portfolio detractors included global beverage giant Coca Cola Co, and insurer American International Group Inc., more commonly known as AIG. Elsewhere, defense contractor General Dynamics Corp. slumped, as did apparel and housewares retailer Kohl's Corp., amid concerns over the durability of consumers' purchasing power. Also lagging was deep-discount retailer Dollar Tree Stores, Inc. One of the leaders of the broad Nasdaq rally was the fund's pacesetter -- innovative biotechnology interest Genentech, Inc., which benefited from numerous developments within its strong research and development pipeline. Other standouts included satellite radio provider XM Satellite Radio Holdings, Inc. and health insurance interest UnitedHealth Group, which launched an acquisition of health maintenance organization operator Mid-Atlantic Medical Services. Videogame creator Electronic Arts Inc. and athletic shoe and active wear manufacturer Nike, Inc. provided additional gains. (1) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2003, calculated among the 146 funds in the Lipper large-cap growth variable funds category including the reinvestment of dividends and capital gains, if any. 9 While investment decisions remained rooted in extensive company-level research, sector analysis offers some insight into the fund's performance. The biggest contributor on an absolute basis was the consumer discretionary sector, as standouts such as eBay, Inc. helped compensate for the Kohl's setback. The healthcare area, powered by companies such as Genentech, was another solid contributor. Further aiding performance was the fund's overweight position in both sectors, relative to the benchmark. The sole sector to generate a negative return on an absolute basis was the consumer staples sector, although the fund's underweight position actually helped results on a relative basis. Another leading laggard was the industrials area, even though minimal gains were generated by holdings in this sector. Thank you for your investment in the Capital Appreciation Fund. We appreciate that you have entrusted us to manage your money and value our relationship with you. Sincerely, Scott Schoelzel Janus Capital Management LLC January 21, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. The opinions expressed are current only through the end of the period of this report as stated on the cover and are subject to change at any time based on market or other conditions. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings as of this date were: UnitedHealth Group, Inc. (6.50%), Murphy Oil Corp. (5.30%), Microsoft Corp. (5.07%), Genentech, Inc. (4.66%), Electronic Arts Inc. (4.38%), XM Satellite Radio Holdings, Inc. (4.14%), Nike Inc. Class B Shares (3.96%), SLM Corp. (3.92%), The Goldman Sachs Group, Inc. (3.61%), Nextel Communications, Inc. (3.53%). Please refer to pages 35 through 37 for a list and percentage breakdown of the fund's holdings. Fund performance reflects fund expenses, but does not reflect any charges or expenses imposed by your variable contract. Index performance does not reflect any deduction for fees or expenses. An investor may not invest directly in an index. RISK: The fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on fund performance. (i) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. (ii) The Russell 2000 Index measures the performance of the 2000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. 10 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- CAPITAL APPRECIATION FUND AS OF 12/31/03 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/03 24.91% Five Years Ended 12/31/03 (3.67) Ten Years Ended 12/31/03 10.86 CUMULATIVE TOTAL RETURN -------------------------------------------- 12/31/93 through 12/31/03 180.50%
This chart assumes an initial investment of $10,000 made on December 31, 1993, assuming reinvestment of dividends, through December 31, 2003. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitaled U.S. domiciled companies with less than average growth orientation whose common stock is traded in the United States on the New York Stock Exchange, American Stock Exchange and NASDAQ. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [CAPITAL APPRECIATION FUND LINE GRAPH] Capital Appreciation Fund S&P Index Russell 2000 Index 12/93 10000.00 10000.00 10000.00 12/94 9487.00 10132.00 4149.00 12/95 12937.00 12353.00 5330.00 12/96 16586.00 15188.00 6210.00 12/97 20922.00 20254.00 7599.00 12/98 33816.00 26075.00 7405.00 12/99 51913.00 31559.00 8979.00 12/00 40556.00 28687.00 8708.00 12/01 29976.00 25279.00 8931.00 12/02 22456.00 19694.00 7102.00 12/03 28050.00 25340.00 10458.00 Consumer Price Index 12/93 10000.00 12/94 10268.00 12/95 10528.00 12/96 10877.00 12/97 11062.00 12/98 11240.00 12/99 11575.00 12/00 11968.00 12/01 12153.00 12/02 12443.00 12/03 12677.00
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data represents past performance including the investment return and principal value of an investment, which 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 total returns and graph presented above do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 11 -------------------------------------------------------------------------------- MANAGER OVERVIEW MONEY MARKET PORTFOLIO PERFORMANCE UPDATE As of December 31, 2003, the seven-day current yield for the Money Market Portfolio was 0.69% and its seven-day effective yield, which reflects compounding, was 0.69%. These numbers are the same due to rounding. Both yields include a partial waiver of the management fee; the yields would have been lower had the full management fee been included. The seven-day effective yield is calculated similarly to the seven-day current yield but, when annualized, the income earned by an investment in the fund is assumed to be reinvested. The effective yield typically will be slightly higher than the current yield because of the compounding effect of the assumed reinvestment. Please note that the performance represents past performance, which is not a guarantee of future results and yields will vary. In addition, your investment is neither insured nor guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. INTEREST RATES HIT 45-YEAR LOW Short-term interest rates and yields of money market instruments declined during the fund's fiscal year ended December 31, 2003 as the Fed and Bush Administration implemented measures to stimulate renewed economic growth. When the fund's fiscal year began in January of 2003, views of the economy's prospects were mixed. U.S. corporations reigned in capital spending as the effects of a declining stock market and corporate accounting scandals took their toll on investor confidence and business activity. Corporations remained cautious as it became clearer early in 2003 that the United States and its allies were likely to go to war in Iraq. In effect, the economy adopted a "wait-and-see" attitude. Even the Fed indicated at its March 2003 meeting that it could not adequately assess prevailing economic risks because of the geopolitical situation. As a result, the U.S. economy expanded sluggishly. As major combat operations in Iraq wound down in the spring, consumers and businesses became increasingly optimistic. Improving sentiment was reinforced by legislation enacting federal tax cuts, including a reduction in taxes on capital gains and dividends. For its part, the Fed cut short-term interest rates by another 0.25% in late June, driving the federal funds rate to just 1%, its lowest level since the Eisenhower Administration. Money market yields continued to decline as well. By the end of August, evidence of sustainable economic improvement began to emerge. Stronger retail sales, rising domestic consumption and increasing export activity contributed to an improvement in gross domestic product(1) during the third calendar quarter of 2003, which grew at a rate not seen in over two decades. However, to forestall potential deflationary forces, the Fed indicated that it was likely to leave rates at prevailing low levels for the foreseeable future, which it did through the end of the period in December. OUR INVESTMENT STRATEGY IN THIS MARKET ENVIRONMENT Our strategy in management for the fund was to maintain a 20-40 day average life weighting. At the end of the fiscal year, the fund's asset size had decreased as many investors rebalanced their portfolios as a result of historically low money market yields and continued evidence of economic improvement. Thank you for your investment in the Money Market Portfolio. We appreciate that you have entrusted us to manage your money and value our relationship with you. Sincerely, /s/ Emil Molinaro, Jr. /s/ Michele Mirabella Emil Molinaro, Jr. Michele Mirabella, CFA Portfolio Manager Portfolio Manager
January 21, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. The opinions expressed are current only through the end of the period of this report as stated on the cover and are subject to change at any time based on market or other conditions. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change. Please refer to page 38 for a list and percentage breakdown of the fund's holdings. Fund performance reflects fund expenses, but does not reflect any charges or expenses imposed by your variable contract. RISK: An investment in a money market fund is neither insured nor guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at one dollar per share, it is possible to lose money by investing in the fund. (1) Gross domestic product is a market value of goods and services produced by labor and property in a given country. 12 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCK -- 60.6% ----------------------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 1.1% 20,904 The Boeing Co. ............................................. $ 880,895 2,299 L-3 Communications Holdings, Inc. (a)....................... 118,077 10,625 Lockheed Martin Corp. ...................................... 546,125 809 Northrop Grumman Corp. ..................................... 77,340 22,184 Raytheon Co. ............................................... 666,407 8,288 United Technologies Corp. .................................. 785,454 ----------------------------------------------------------------------------------------------------- 3,074,298 ----------------------------------------------------------------------------------------------------- AIR FREIGHT AND COURIERS -- 0.5% 19,243 United Parcel Service, Inc., Class B Shares................. 1,434,566 ----------------------------------------------------------------------------------------------------- AUTO COMPONENTS -- 0.2% 4,633 Dana Corp. ................................................. 85,016 4,167 Gentex Corp. ............................................... 184,015 1,903 Johnson Controls, Inc. ..................................... 220,976 ----------------------------------------------------------------------------------------------------- 490,007 ----------------------------------------------------------------------------------------------------- AUTOMOBILES -- 0.9% 34,912 Ford Motor Co. ............................................. 558,592 22,840 General Motors Corp. ....................................... 1,219,656 17,068 Harley-Davidson, Inc. ...................................... 811,242 ----------------------------------------------------------------------------------------------------- 2,589,490 ----------------------------------------------------------------------------------------------------- BANKS -- 4.5% 33,449 Bank of America Corp. ...................................... 2,690,303 11,407 Bank One Corp. ............................................. 520,045 12,321 BB&T Corp. ................................................. 476,083 69 First Tennessee National Corp. ............................. 3,043 20,373 FleetBoston Financial Corp. ................................ 889,281 8,766 HSBC Holdings PLC........................................... 690,936 7,512 KeyCorp..................................................... 220,252 6,425 Marshall & Ilsley Corp. .................................... 245,756 7,072 Mellon Financial Corp. ..................................... 227,082 23,293 National City Corp. ........................................ 790,564 10,766 PNC Financial Services Group................................ 589,223 10,336 Regions Financial Corp. .................................... 384,499 2,509 SunTrust Banks, Inc. ....................................... 179,394 17,970 U.S. Bancorp................................................ 535,147 4,363 United Bankshares Inc. ..................................... 136,126 37,249 Wachovia Corp. ............................................. 1,735,431 18,005 Washington Mutual, Inc. .................................... 722,361 36,111 Wells Fargo & Co. .......................................... 2,126,577 ----------------------------------------------------------------------------------------------------- 13,162,103 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 13 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- BEVERAGES -- 1.8% 19,888 Anheuser-Busch Co., Inc. ................................... $ 1,047,700 41,864 The Coca-Cola Co. .......................................... 2,124,598 23,041 Coca-Cola Enterprises Inc. ................................. 503,907 34,384 PepsiCo, Inc. .............................................. 1,602,982 ----------------------------------------------------------------------------------------------------- 5,279,187 ----------------------------------------------------------------------------------------------------- BIOTECHNOLOGY -- 0.9% 28,128 Amgen, Inc. (a)............................................. 1,738,310 11,225 Biogen, Inc. (a)............................................ 412,855 3,465 Cephalon, Inc. (a).......................................... 167,741 998 Chiron Corp. (a)............................................ 56,876 12,992 MedImmune, Inc. (a)......................................... 329,997 ----------------------------------------------------------------------------------------------------- 2,705,779 ----------------------------------------------------------------------------------------------------- BUILDING PRODUCTS -- 0.2% 9,993 Crane Co. .................................................. 307,185 12,565 Masco Corp. ................................................ 344,407 ----------------------------------------------------------------------------------------------------- 651,592 ----------------------------------------------------------------------------------------------------- CHEMICALS -- 0.9% 19,810 The Dow Chemical Co. ....................................... 823,502 7,393 E.I. du Pont de Nemours & Co. .............................. 339,265 12,710 Ecolab, Inc. ............................................... 347,873 10,412 International Flavors & Fragrances, Inc. ................... 363,587 24,982 Monsanto Co. ............................................... 718,982 ----------------------------------------------------------------------------------------------------- 2,593,209 ----------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 0.5% 4,600 Avery Dennison Corp. ....................................... 257,692 18,666 Cendant Corp. (a)........................................... 415,692 1,881 Paychex, Inc. .............................................. 69,973 11,907 Total System Services, Inc. ................................ 370,665 6,127 Weight Watchers International, Inc. (a)..................... 235,093 ----------------------------------------------------------------------------------------------------- 1,349,115 ----------------------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 2.1% 144,058 Cisco Systems, Inc. (a)..................................... 3,499,169 29,606 Comverse Technology, Inc. (a)............................... 520,770 24,096 Corning, Inc. (a)........................................... 251,321 45,406 McDATA Corp., Class A Shares (a)............................ 432,719 18,526 QUALCOMM, Inc............................................... 999,107 17,927 Scientific-Atlanta, Inc..................................... 489,407 ----------------------------------------------------------------------------------------------------- 6,192,493 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 2.0% 32,738 Dell Inc. (a)............................................... $ 1,111,782 22,555 EMC Corp. (a)............................................... 291,411 52,352 Hewlett-Packard Co. ........................................ 1,202,525 27,797 International Business Machines Corp. ...................... 2,576,226 21,138 NVIDIA Corp. (a)............................................ 491,458 ----------------------------------------------------------------------------------------------------- 5,673,402 ----------------------------------------------------------------------------------------------------- CONTAINERS AND PACKAGING -- 0.4% 3,858 Ball Corp. ................................................. 229,821 17,711 Pactiv Corp. (a)............................................ 423,293 9,562 Sealed Air Corp. (a)........................................ 517,687 ----------------------------------------------------------------------------------------------------- 1,170,801 ----------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 4.4% 31,011 American Express Co. ....................................... 1,495,661 4,172 The Bear Stearns Cos. Inc. ................................. 333,551 5,309 Capital One Financial Corp. ................................ 325,389 40,831 The Charles Schwab Corp. ................................... 483,439 13,685 Countrywide Credit Industries, Inc. ........................ 1,038,032 14,564 Fannie Mae.................................................. 1,093,174 12,942 Freddie Mac................................................. 754,777 10,528 The Goldman Sachs Group, Inc. .............................. 1,039,429 40,907 J.P. Morgan Chase & Co. .................................... 1,502,514 5,681 Lehman Brothers Holdings, Inc. ............................. 438,687 38,983 MBNA Corp. ................................................. 968,728 13,422 Merrill Lynch & Co., Inc. .................................. 787,200 23,469 Morgan Stanley ............................................. 1,358,151 17,537 Principal Financial Group, Inc. ............................ 579,949 21,880 Providian Financial Corp. (a) .............................. 254,683 7,519 SLM Corp. .................................................. 283,316 ----------------------------------------------------------------------------------------------------- 12,736,680 ----------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4% 5,321 Alltel Corp. ............................................... 247,852 15,341 BellSouth Corp. ............................................ 434,150 19,758 CenturyTel, Inc. ........................................... 644,506 40,710 Citizens Communications Co. (a)............................. 505,618 32,863 SBC Communications, Inc. ................................... 856,738 6,479 Sprint Corp. (FON Group).................................... 106,385 35,196 Verizon Communications Inc. ................................ 1,234,676 ----------------------------------------------------------------------------------------------------- 4,029,925 ----------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 1.6% 17,537 Alliant Energy Corp. ....................................... 436,671 12,230 Ameren Corp. ............................................... 562,580 18,068 CMS Energy Corp. (a)........................................ 153,939 14,209 Constellation Energy Group, Inc. ........................... 556,424 16,862 Edison International (a).................................... 369,784 14,015 Entergy Corp. .............................................. 800,677
SEE NOTES TO FINANCIAL STATEMENTS. 15 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 1.6% (CONTINUED) 15,216 Exelon Corp. ............................................... $ 1,009,734 12,569 Public Service Enterprise Group Inc. ....................... 550,522 9,894 The Southern Co. ........................................... 299,294 ----------------------------------------------------------------------------------------------------- 4,739,625 ----------------------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.4% 3,101 Cooper Industries, Inc. .................................... 179,641 10,363 Emerson Electric Co. ....................................... 671,004 9,966 Thomas & Betts Corp. (a).................................... 228,122 ----------------------------------------------------------------------------------------------------- 1,078,767 ----------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.3% 13,880 Avnet, Inc. (a)............................................. 300,641 27,379 Ingram Micro Inc., Class A Shares (a)....................... 435,326 2,632 Mettler-Toledo International Inc. (a)....................... 111,097 ----------------------------------------------------------------------------------------------------- 847,064 ----------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 0.3% 3,170 Baker Hughes, Inc. ......................................... 101,947 7,077 Halliburton Co. ............................................ 184,002 8,938 Schlumberger Ltd. .......................................... 489,087 7,657 Transocean Inc. (a)......................................... 183,845 ----------------------------------------------------------------------------------------------------- 958,881 ----------------------------------------------------------------------------------------------------- FOOD AND DRUG RETAILING -- 0.2% 8,112 CVS Corp. .................................................. 293,005 9,980 SYSCO Corp. ................................................ 371,555 ----------------------------------------------------------------------------------------------------- 664,560 ----------------------------------------------------------------------------------------------------- FOOD PRODUCTS -- 0.5% 13,404 Archer-Daniels-Midland Co. ................................. 204,009 28,817 Del Monte Foods Co. (a)..................................... 299,697 3,716 General Mills, Inc. ........................................ 168,335 3,698 Hershey Foods Corp. ........................................ 284,709 6,026 Hormel Foods Corp. ......................................... 155,531 12,598 Kellogg Co. ................................................ 479,732 ----------------------------------------------------------------------------------------------------- 1,592,013 ----------------------------------------------------------------------------------------------------- GAS UTILITIES -- 0.1% 16,388 National Fuel Gas Co. ...................................... 400,523 ----------------------------------------------------------------------------------------------------- HEALTHCARE - EQUIPMENT AND SUPPLIES -- 1.3% 19,147 Apogent Technologies, Inc. (a).............................. 441,147 15,471 Becton Dickinson & Co. ..................................... 636,477 29,356 Boston Scientific Corp. (a)................................. 1,079,127 12,361 Guidant Corp. .............................................. 744,132 15,415 Medtronic, Inc. ............................................ 749,323 2,926 St. Jude Medical, Inc. (a).................................. 179,510 ----------------------------------------------------------------------------------------------------- 3,829,716 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 16 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- HEALTHCARE - PROVIDERS AND SERVICES -- 0.9% 9,053 AETNA, Inc. ................................................ $ 611,802 8,769 AmerisourceBergen Corp. .................................... 492,379 2,048 Anthem, Inc. (a)............................................ 153,600 14,068 Lincare Holding Inc. (a).................................... 422,462 10,762 UnitedHealth Group Inc. .................................... 626,133 2,473 WellPoint Health Networks, Inc. (a)......................... 239,856 ----------------------------------------------------------------------------------------------------- 2,546,232 ----------------------------------------------------------------------------------------------------- HOTELS, RESTAURANTS AND LEISURE -- 0.8% 27,774 Darden Restaurants, Inc. ................................... 584,365 16,581 Marriott International Inc., Class A Shares................. 766,042 30,670 McDonald's Corp. ........................................... 761,536 3,024 Starwood Hotels & Resorts Worldwide, Inc. .................. 108,773 ----------------------------------------------------------------------------------------------------- 2,220,716 ----------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 0.7% 4,979 The Black & Decker Corp. ................................... 245,564 13,380 Fortune Brands, Inc. ....................................... 956,536 8,835 Furniture Brands International, Inc. ....................... 259,131 1,600 KB HOME..................................................... 116,032 10,374 Newell Rubbermaid Inc. ..................................... 236,216 1,554 Pulte Homes, Inc............................................ 145,485 ----------------------------------------------------------------------------------------------------- 1,958,964 ----------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 1.2% 16,138 Colgate-Palmolive Co. ...................................... 807,707 8,611 Kimberly-Clark Corp. ....................................... 508,824 22,278 The Procter & Gamble Co. ................................... 2,225,127 ----------------------------------------------------------------------------------------------------- 3,541,658 ----------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 2.8% 8,336 3M Co. ..................................................... 708,810 170,387 General Electric Co. ....................................... 5,278,589 26,062 Honeywell International Inc. ............................... 871,253 6,179 Teleflex Inc. .............................................. 298,631 35,733 Tyco International Ltd. .................................... 946,924 ----------------------------------------------------------------------------------------------------- 8,104,207 ----------------------------------------------------------------------------------------------------- INSURANCE -- 3.8% 5,050 ACE Ltd. ................................................... 209,171 9,150 AFLAC, Inc. ................................................ 331,047 25,368 Allstate Corp. ............................................. 1,091,331 9,864 Ambac Financial Group, Inc. ................................ 684,463 16,768 American Financial Group, Inc. ............................. 443,681 44,839 American International Group, Inc. ......................... 2,971,929 8,937 Aon Corp. .................................................. 213,952 11,365 The Chubb Corp. ............................................ 773,956 6,730 Fidelity National Financial, Inc. .......................... 260,989 1,943 The Hartford Financial Services Group, Inc. ................ 114,695
SEE NOTES TO FINANCIAL STATEMENTS. 17 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- INSURANCE -- 3.8% (CONTINUED) 7,461 Jefferson-Pilot Corp. ...................................... $ 377,900 3,328 Lincoln National Corp. ..................................... 134,351 16,565 Marsh & McLennan Cos., Inc. ................................ 793,298 15,013 MBIA, Inc. ................................................. 889,220 6,337 MGIC Investment Corp. ...................................... 360,829 8,610 The PMI Group, Inc. ........................................ 320,550 1,401 The Progressive Corp. ...................................... 117,110 10,246 Prudential Financial, Inc. ................................. 427,975 2,286 SAFECO Corp. ............................................... 88,994 8,072 The St. Paul Cos., Inc. .................................... 320,055 ----------------------------------------------------------------------------------------------------- 10,925,496 ----------------------------------------------------------------------------------------------------- INTERNET AND CATALOG RETAIL -- 0.4% 16,522 eBay Inc. (a)............................................... 1,067,156 ----------------------------------------------------------------------------------------------------- INTERNET SOFTWARE AND SERVICES -- 0.2% 13,019 Yahoo! Inc. (a)............................................. 588,068 ----------------------------------------------------------------------------------------------------- LEISURE EQUIPMENT AND PRODUCTS -- 0.2% 25,083 Hasbro, Inc. ............................................... 533,766 7,455 Mattel, Inc. ............................................... 143,658 ----------------------------------------------------------------------------------------------------- 677,424 ----------------------------------------------------------------------------------------------------- MACHINERY -- 0.8% 4,725 Deere & Co. ................................................ 307,361 1,735 Eaton Corp. ................................................ 187,345 9,831 Ingersoll-Rand Co. ......................................... 667,328 5,834 ITT Industries, Inc. ....................................... 432,941 2,830 PACCAR Inc. ................................................ 240,890 9,356 Pentair, Inc. .............................................. 427,569 ----------------------------------------------------------------------------------------------------- 2,263,434 ----------------------------------------------------------------------------------------------------- MEDIA -- 2.0% 49,503 Comcast Corp., Class A Shares (a)........................... 1,627,164 20,086 Fox Entertainment Group Inc., Class A Shares (a)............ 585,507 9,265 Scholastic Corp. (a)........................................ 315,381 55,819 Time Warner Inc. (a)........................................ 1,004,184 8,751 Tribune Co. ................................................ 451,552 32,796 Viacom Inc., Class B Shares ................................ 1,455,486 11,516 The Walt Disney Co. ........................................ 268,668 ----------------------------------------------------------------------------------------------------- 5,707,942 ----------------------------------------------------------------------------------------------------- METALS AND MINING -- 0.7% 37,591 Alcoa Inc. ................................................. 1,428,458 7,010 Newmont Mining Corp. ....................................... 340,756 2,270 Nucor Corp. ................................................ 127,120 ----------------------------------------------------------------------------------------------------- 1,896,334 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 18 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- MULTILINE RETAIL -- 2.3% 32,836 Big Lots, Inc. (a).......................................... $ 466,600 7,819 Costco Wholesale Corp. (a).................................. 290,710 35,067 Dollar General Corp. ....................................... 736,056 7,024 Dollar Tree Stores, Inc. (a)................................ 211,141 4,483 Federated Department Stores, Inc............................ 211,284 6,547 J.C. Penney Co., Inc. ...................................... 172,055 14,085 Target Corp. ............................................... 540,864 74,075 Wal-Mart Stores, Inc. ...................................... 3,929,679 ----------------------------------------------------------------------------------------------------- 6,558,389 ----------------------------------------------------------------------------------------------------- MULTI-UTILITIES -- 0.3% 37,054 Duke Energy Corp. .......................................... 757,754 ----------------------------------------------------------------------------------------------------- OFFICE ELECTRONICS -- 0.1% 23,088 Xerox Corp. (a)............................................. 318,614 ----------------------------------------------------------------------------------------------------- OIL AND GAS -- 2.5% 5,200 Anadarko Petroleum Corp. ................................... 265,252 7,500 Burlington Resources, Inc. ................................. 415,350 13,051 ChevronTexaco Corp. ........................................ 1,127,476 11,958 ConocoPhillips.............................................. 784,086 2,798 Devon Energy Corp. ......................................... 160,213 102,211 Exxon Mobil Corp. .......................................... 4,190,651 6,700 Occidental Petroleum Corp. ................................. 283,008 ----------------------------------------------------------------------------------------------------- 7,226,036 ----------------------------------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 0.1% 6,300 Georgia Pacific Corp. ...................................... 193,221 3,635 Weyerhaeuser Co. ........................................... 232,640 ----------------------------------------------------------------------------------------------------- 425,861 ----------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 4.6% 15,033 Abbott Laboratories......................................... 700,538 18,216 Bristol-Myers Squibb Co. ................................... 520,978 15,248 Eli Lilly & Co. ............................................ 1,072,392 52,707 Johnson & Johnson........................................... 2,722,844 4,825 Medco Health Solutions, Inc. (a)............................ 164,002 40,009 Merck & Co. Inc. ........................................... 1,848,416 16,880 Mylan Laboratories Inc. .................................... 426,389 134,061 Pfizer Inc. ................................................ 4,736,375 15,357 Schering-Plough Corp. ...................................... 267,058 19,440 Wyeth....................................................... 825,228 ----------------------------------------------------------------------------------------------------- 13,284,220 ----------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS -- 0.0% 7,067 Annaly Mortgage Management Inc. ............................ 130,033 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 19 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 2.6% 18,793 Analog Devices, Inc. (a).................................... $ 857,900 99,054 Intel Corp. ................................................ 3,189,539 10,758 KLA-Tencor Corp. (a)........................................ 631,172 7,999 Lam Research Corp. (a)...................................... 258,368 6,210 Maxim Integrated Products, Inc. ............................ 309,258 13,417 Micron Technology, Inc. (a)................................. 180,727 27,270 Teradyne, Inc. (a).......................................... 694,021 43,566 Texas Instruments Inc. ..................................... 1,279,969 ----------------------------------------------------------------------------------------------------- 7,400,954 ----------------------------------------------------------------------------------------------------- SOFTWARE -- 3.2% 18,537 Autodesk, Inc. ............................................. 455,639 12,554 BMC Software, Inc. (a)...................................... 234,132 26,453 Computer Associates International, Inc. .................... 723,225 13,940 Electronic Arts Inc. (a).................................... 666,053 3,659 Intuit Inc. (a)............................................. 193,598 185,393 Microsoft Corp. ............................................ 5,105,723 3,610 National Instruments Corp. ................................. 164,147 80,978 Oracle Corp. (a)............................................ 1,068,910 19,509 VERITAS Software Corp. (a).................................. 724,954 ----------------------------------------------------------------------------------------------------- 9,336,381 ----------------------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 2.2% 5,398 AutoNation, Inc. (a)........................................ 99,161 4,611 AutoZone, Inc. (a).......................................... 392,903 11,079 Best Buy Co., Inc. ......................................... 578,767 12,032 The Gap, Inc. .............................................. 279,263 52,811 The Home Depot, Inc. ....................................... 1,874,262 19,713 Lowe's Cos., Inc. .......................................... 1,091,903 18,615 PETsMART, Inc. ............................................. 443,037 12,997 Pier 1 Imports Inc. ........................................ 284,114 35,910 Staples, Inc. (a)........................................... 980,343 25,629 Toys "R" Us, Inc. (a)....................................... 323,951 ----------------------------------------------------------------------------------------------------- 6,347,704 ----------------------------------------------------------------------------------------------------- TEXTILES AND APPAREL -- 0.4% 2,525 Jones Apparel Group, Inc. .................................. 88,956 16,905 Liz Claiborne, Inc. ........................................ 599,451 3,969 NIKE Inc., Class B Shares................................... 271,718 2,809 Reebok International Ltd. .................................. 110,450 ----------------------------------------------------------------------------------------------------- 1,070,575 ----------------------------------------------------------------------------------------------------- TOBACCO -- 0.7% 34,589 Altria Group, Inc. ......................................... 1,881,245 -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.6% 41,781 American Tower Corp., Class A Shares (a).................... $ 452,070 81,535 AT&T Wireless Services Inc. (a)............................. 651,465 17,337 Nextel Communications, Inc. (a)............................. 486,476 ----------------------------------------------------------------------------------------------------- 1,590,011 ----------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $159,262,599)................... 175,069,204 ----------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK -- 3.4% ----------------------------------------------------------------------------------------------------- AUTOMOBILES -- 1.4% 36,000 Ford Motor Co. Capital Trust II, 6.500% Cumulative Trust Preferred Securities...................................... 2,010,600 General Motors Corp., Sr. Debentures: 37,000 5.250% Series B........................................... 994,190 33,000 6.250% Series C........................................... 1,065,900 ----------------------------------------------------------------------------------------------------- 4,070,690 ----------------------------------------------------------------------------------------------------- BANKS -- 0.5% 3,000(UNIT) Washington Mutual Capital Trust I, 5.375% Cumulative (b).... 166,980 25,000(UNIT) Washington Mutual Inc., 5.375% Cumulative (b)(c)............ 1,391,500 ----------------------------------------------------------------------------------------------------- 1,558,480 ----------------------------------------------------------------------------------------------------- CONTAINERS AND PACKAGING -- 0.4% 4,000 Amcor Ltd., 7.250% PRIDES(SM)............................... 250,000 21,000 Newell Financial Trust I, 5.250% Cumulative QUIPS(SM)....... 966,000 ----------------------------------------------------------------------------------------------------- 1,216,000 ----------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 0.2% 10,000 CalEnergy Capital Trust II, 6.250% Trust Preferred Securities................................................ 480,000 ----------------------------------------------------------------------------------------------------- GAS UTILITIES -- 0.2% 15,200 El Paso Energy Capital Trust I, 4.750% Trust Preferred Securities................................................ 513,000 ----------------------------------------------------------------------------------------------------- MEDIA -- 0.5% 17,000 Tribune Co., 2.000% PHONES(SM).............................. 1,381,250 ----------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS -- 0.2% 7,000 Equity Office Properties Trust, 5.250% Cumulative, Series B......................................................... 350,070 9,000 Reckson Associates Realty Corp., 7.625% Cumulative, Series A......................................................... 227,250 ----------------------------------------------------------------------------------------------------- 577,320 ----------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $9,011,032)...... 9,796,740 -----------------------------------------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 11.6% -------------------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS -- 7.8% U.S. Treasury Notes: $ 3,200,000 1.625% due 10/31/05............................................. 3,196,003 2,320,000 3.000% due 2/15/08.............................................. 2,331,510 3,500,000 2.625% due 5/15/08.............................................. 3,448,459 710,000 3.375% due 11/15/08............................................. 715,853 500,000 3.375% due 12/15/08............................................. 503,555
SEE NOTES TO FINANCIAL STATEMENTS. 21 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS -- 7.8% (CONTINUED) $ 6,225,000 5.750% due 8/15/10.............................................. $ 6,981,730 5,480,000 4.250% due 11/15/13............................................. 5,475,720 -------------------------------------------------------------------------------------------------- 22,652,830 -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES -- 3.8% Freddie Mac, Benchmark Notes: 8,000,000 2.125% due 11/15/05............................................. 8,038,936 500,000 4.875% due 11/15/13............................................. 506,390 Federal National Mortgage Association (FNMA): 3,470 8.500% due 3/1/05............................................... 3,621 791,053 6.000% due 1/1/13............................................... 831,767 80,218 6.500% due 12/1/27.............................................. 84,098 195,805 6.000% due 3/1/28............................................... 202,914 62,499 6.000% due 4/1/28............................................... 64,810 149,337 6.000% due 5/1/28............................................... 154,759 192,310 6.000% due 6/1/28............................................... 199,293 177,265 6.000% due 7/1/28............................................... 183,701 503,138 5.500% due 8/1/28............................................... 512,754 128,862 6.000% due 8/1/28............................................... 133,541 Government National Mortgage Association (GNMA): 25,280 9.000% due 11/15/19............................................. 28,329 7,442 9.500% due 1/15/20.............................................. 8,338 19,982 7.500% due 5/15/23.............................................. 21,566 -------------------------------------------------------------------------------------------------- 10,974,817 -------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCIES AND OBLIGATIONS (Cost -- $33,827,445)............................................. 33,627,647 --------------------------------------------------------------------------------------------------
FACE AMOUNT RATING(d) SECURITY VALUE ------------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 13.8% ------------------------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 0.1% $ 100,000 BBB- Bombardier Inc., Notes, 6.750% due 5/1/12 (c)............... 109,750 200,000 BBB- Raytheon Co., Notes, 5.375% due 4/1/13...................... 200,705 ------------------------------------------------------------------------------------------------------- 310,455 ------------------------------------------------------------------------------------------------------- BANKS -- 0.4% 1,000,000 A1* Fleet National Bank, Sub. Notes, 5.750% due 1/15/09......... 1,091,957 ------------------------------------------------------------------------------------------------------- CONSTRUCTION SERVICES -- 0.1% 300,000 BBB- MDC Holdings, Inc., Sr. Notes, 5.500% due 5/15/13........... 301,175 ------------------------------------------------------------------------------------------------------- CONTAINERS AND PACKAGING -- 0.1% 200,000 BBB Sealed Air Corp, Sr. Notes, 5.625% due 7/15/13 (c).......... 205,034 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
FACE AMOUNT RATING(d) SECURITY VALUE ------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 0.7% $ 300,000 Aa3* Credit Suisse First Boston (USA), Inc., Notes, 6.125% due 11/15/11.................................................. $ 327,133 1,000,000 A3* Ford Motor Credit Co., Global Landmark Securities, 7.000% due 10/1/13............................................... 1,056,547 600,000 Aa3* Merrill Lynch & Co., Inc., Medium-Term Notes, Series B, 3.375% due 9/14/07........................................ 608,275 ------------------------------------------------------------------------------------------------------- 1,991,955 ------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 3.0% 5,000,000 BBB France Telecom S.A., Sr. Notes, 8.500% due 3/1/31........... 6,666,200 800,000 BBB+ Deutsche Telekom International Finance BV, Bonds, 8.250% due 6/15/05................................................... 868,162 1,100,000 BBB+ Telecom Italia Capital SA, Sr. Global Notes, 5.250% due 11/15/13 (c).............................................. 1,104,716 ------------------------------------------------------------------------------------------------------- 8,639,078 ------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 1.8% 3,000,000 CCC+ Calpine Corp., Sr. Notes, 8.500% due 2/15/11................ 2,388,750 2,000,000 BB- PSEG Energy Holdings LLC, Sr. Notes, 8.500% due 6/15/11..... 2,227,500 700,000 AA+ SP PowerAssets Ltd., Notes, 5.000% due 10/22/13 (c)......... 705,343 ------------------------------------------------------------------------------------------------------- 5,321,593 ------------------------------------------------------------------------------------------------------- GAS UTILITIES -- 0.1% 300,000 A+ Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% due 1/15/11........................................ 300,383 ------------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 0.3% 800,000 A- Hutchison Whampoa International Ltd., Sr. Notes, 6.250% due 1/24/14 (c)............................................... 814,114 ------------------------------------------------------------------------------------------------------- INSURANCE -- 0.6% 1,000,000 AA+ New York Life Global Funding, Notes, 5.375% due 9/15/13 (c)....................................................... 1,033,617 600,000 AA Principal Life Global Funding I, Bonds, 6.125% due 10/15/33 (c)....................................................... 602,563 ------------------------------------------------------------------------------------------------------- 1,636,180 ------------------------------------------------------------------------------------------------------- MEDIA -- 3.7% 4,000,000 BBB- Clear Channel Communications, Inc., Sr. Notes, 6.625% due 6/15/08................................................... 4,448,228 2,000,000 BBB Comcast Cable Communications, Inc., Notes, 8.875% due 5/1/17.................................................... 2,579,536 800,000 BBB- Liberty Media Corp., Sr. Notes, 2.640% due 9/17/06 (e)...... 809,327 2,000,000 BBB+ Time Warner, Inc., Guaranteed Debentures, 7.625% due 4/15/31................................................... 2,316,148 1,500,000 NR WorldCom Inc., Notes, 8.250% due 5/15/31 (f)................ 506,250 ------------------------------------------------------------------------------------------------------- 10,659,489 ------------------------------------------------------------------------------------------------------- METALS AND MINING -- 0.2% 700,000 A- Alcan Inc., Notes, 6.125% due 12/15/33...................... 706,682 ------------------------------------------------------------------------------------------------------- OIL AND GAS -- 0.3% 600,000 BBB Amerada Hess Corp., Notes, 7.875% due 10/1/29............... 660,216 300,000 BBB+ Anadarko Finance Co., Sr. Notes, Series B, 6.750% due 5/1/11.................................................... 340,588 ------------------------------------------------------------------------------------------------------- 1,000,804 ------------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 0.2% 500,000 A Wyeth, Notes, 6.500% due 2/1/34............................. 512,971 ------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS -- 1.8% 5,000,000 BBB- Nationwide Health Properties, Inc., Medium-Term Notes, Series C, 6.900% due 10/1/37........................................ 5,112,820 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 23 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
FACE AMOUNT RATING(d) SECURITY VALUE ------------------------------------------------------------------------------------------------------- SOVEREIGN -- 0.2% $ 500,000 AAA Canada Mortgage and Housing Corp., Notes, 3.375% due 12/1/08................................................... $ 498,870 ------------------------------------------------------------------------------------------------------- TOBACCO -- 0.2% 700,000 BBB Altria Group, Inc., Notes, 5.625% due 11/4/08............... 718,841 ------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $34,917,192)....... 39,822,401 ------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BONDS -- 5.4% ------------------------------------------------------------------------------------------------------- AUTOMOBILES -- 0.4% Lear Corp., Sr. Notes: 1,150,000 BBB- Zero coupon due 2/20/22................................... 605,188 1,000,000 BBB- Zero coupon due 2/20/22 (c)............................... 526,250 ------------------------------------------------------------------------------------------------------- 1,131,438 ------------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 0.1% 400,000 BBB Electronic Data Systems Corp, Sr. Notes, 3.875% due 7/15/23 (c)....................................................... 419,500 ------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 0.3% 1,662,000 Aa3* Merrill Lynch & Co., Inc., LYO(TM)Ns, zero coupon due 5/23/31................................................... 916,178 ------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 0.1% 250,000 BBB PPL Energy Supply LLC, Sr. Notes, 2.625% due 5/15/23 (c).... 257,500 ------------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.1% 440,000 BBB- Arrow Electronics, Inc., Sr. Debentures, zero coupon due 2/21/21................................................... 231,000 ------------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 0.9% Diamond Offshore Drilling, Inc., Sr. Debentures: 915,000 A 1.500% due 4/15/31........................................ 841,800 300,000 A 1.500% due 4/15/31 (c).................................... 276,000 Global Marine Inc., Debentures: 1,000,000 A- Zero coupon due 6/23/20................................... 578,750 300,000 A- Zero coupon due 6/23/20 (c)............................... 173,625 500,000 BBB Halliburton Co., Sr. Notes, 3.125% due 7/15/23 (c).......... 520,625 100,000 B Hanover Compressor Co., Sr. Notes, 4.750% due 3/15/08....... 93,000 ------------------------------------------------------------------------------------------------------- 2,483,800 ------------------------------------------------------------------------------------------------------- GAS UTILITIES -- 0.1% 818,000 B- El Paso Corp., Debentures, zero coupon due 2/28/21.......... 380,370 ------------------------------------------------------------------------------------------------------- HEALTHCARE - PROVIDERS AND SERVICES -- 0.3% 800,000 BBB+ Health Management Associates, Inc., Sr. Sub. Notes, 1.500% due 8/1/23 (c)............................................ 884,000 ------------------------------------------------------------------------------------------------------- INSURANCE -- 0.5% 2,150,000 AAA American International Group, Inc., Sr. Debentures, zero coupon due 11/9/31........................................ 1,432,438 ------------------------------------------------------------------------------------------------------- LEISURE EQUIPMENT AND PRODUCTS -- 0.2% 1,050,000 BB+ Royal Caribbean Cruises Ltd., Sr. LYO(TM)Ns, zero coupon due 2/2/21.................................................... 509,250 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 24 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
FACE AMOUNT RATING(d) SECURITY VALUE ------------------------------------------------------------------------------------------------------- MEDIA -- 1.1% Liberty Media Corp., Sr. Exchangeable Debentures: $ 500,000 BBB- 0.750% due 3/30/23 (c).................................... $ 592,500 650,000 BBB- 4.000% due 11/15/29....................................... 459,063 650,000 BBB- 3.500% due 1/15/31........................................ 547,625 100,000 BBB- 3.500% due 1/15/31 (c).................................... 84,250 1,500,000 BBB+ The Walt Disney Co., Sr. Notes, 2.125% due 4/15/23.......... 1,595,625 ------------------------------------------------------------------------------------------------------- 3,279,063 ------------------------------------------------------------------------------------------------------- METALS AND MINING -- 0.0% 50,000 BBB+ Placer Dome Inc., Sr. Notes, 2.750% due 10/15/23 (c)........ 60,063 ------------------------------------------------------------------------------------------------------- MULTILINE RETAIL -- 0.5% J.C. Penney Co., Inc., Sub. Notes: 550,000 BB- 5.000% due 10/15/08....................................... 606,375 650,000 BB- 5.000% due 10/15/08 (c)................................... 716,625 ------------------------------------------------------------------------------------------------------- 1,323,000 ------------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 0.2% 250,000 A Allergan, Inc., Sr. Notes, zero coupon due 11/6/22 (c)...... 239,375 140,000 BBB- Watson Pharmaceuticals, Inc., Sr. Debentures, 1.750% due 3/15/23 (c)............................................... 184,975 ------------------------------------------------------------------------------------------------------- 424,350 ------------------------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 0.6% 200,000 BB+ Best Buy Co., Inc., Sub. Debentures, 2.250% due 1/15/22 (c)....................................................... 218,500 1,000,000 BB+ The Gap, Inc., Sr. Notes, 5.750% due 3/15/09................ 1,538,750 ------------------------------------------------------------------------------------------------------- 1,757,250 ------------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost -- $14,100,692)..... 15,489,200 ------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 2.9% Chase Funding Mortgage Loan: 500,000 AAA Series 2002-2, Class 1A5, 5.833% due 4/25/32.............. 525,575 2,000,000 AAA Series 2003-4, Class 2A2, 1.441% due 5/25/33.............. 2,001,302 444,956 NR Delta Funding Mortgage Corp., Series 1987-1, 9.250% due 7/2/07.................................................... 327,043 5,000,000 AAA PP&L Transition Bond Co. LLC, Series 1999-1, Class A7, 7.050% due 6/25/09........................................ 5,591,400 ------------------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (Cost -- $7,967,119).......... 8,445,320 ------------------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.8% 500,000 AAA CS First Boston Mortgage Securities Corp., Series 2003-C5, Class A4, 4.900% due 12/15/36....................................... 501,247 1,908,930 AAA Washington Mutual Inc., Series 2003-S8, Class A2, 5.000% due 9/25/18................................................... 1,911,629 ------------------------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost -- $2,422,938)...................................... 2,412,876 ------------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $261,509,017)................ 284,663,388 ------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.5% ------------------------------------------------------------------------------------------------------- U.S. TREASURY BILLS -- 0.2% 500,000 U.S. Treasury Bills, due 3/18/04 (Cost -- $499,054)......... 499,121 -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 25 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MANAGED ASSETS TRUST
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.3% $ 3,820,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds at maturity -- $3,820,170; Fully collateralized by U.S. Treasury Bonds, 7.500% due 11/15/16; Market value -- $3,896,736) (Cost -- $3,820,000)................. $ 3,820,000 -------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (Cost -- $4,319,054)........... 4,319,121 -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $265,828,071**)........ $288,982,509 --------------------------------------------------------------------------------------------------
(a) Non-income producing security. (b) Security issued with attached warrants. (c) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. These securities have been deemed liquid pursuant to guidelines established by the Board of Trustees. (d) 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. (e) Variable rate security. (f) Security is currently in default. ** Aggregate cost for Federal income tax purposes is $267,067,911. Abbreviations used in this schedule:
LYO(TM)Ns -- Liquid Yield Option(TM) Notes -- Trademark of Merrill Lynch & Co., Inc. PHONES(SM) -- Participation Hybrid Option Note Exchangeable Securities(SM) -- Service Mark of Merrill Lynch & Co., Inc. PRIDES(SM) -- Perpetual Redeemable Income Debt, Exchangeable for Stock(SM) -- Service Mark of Merrill Lynch & Co., Inc. QUIPS(SM) -- Quarterly Income Preferred Securities(SM) -- Service Mark of Goldman Sachs & Co. See page 39 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS. 26 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(A) SECURITY VALUE -------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 85.8% -------------------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 1.0% $ 450,000 B- BE Aerospace, Inc., Sr. Sub. Notes, Series B, 8.875% due 5/1/11.................................................... $ 424,125 500,000 CCC+ Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09............ 526,250 -------------------------------------------------------------------------------------------------- 950,375 -------------------------------------------------------------------------------------------------- AIRLINES -- 1.2% 1,650,000 B Delta Air Lines, Inc., Notes, 8.300% due 12/15/29........... 1,099,313 -------------------------------------------------------------------------------------------------- ALTERNATIVE VIDEO PROVIDERS -- 0.3% 300,000 BB- EchoStar DBS Corp., Sr. Notes, 9.375% due 2/1/09............ 315,375 -------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 3.9% Collins & Aikman Products Co., Sr. Sub. Notes: 975,000 B- 11.500% due 4/15/06....................................... 901,875 500,000 B2* 10.750% due 12/31/11...................................... 493,750 400,000 B+ Intermet Corp., Sr. Notes, 9.750% due 6/15/09............... 412,000 950,000 B Metaldyne Corp., Sr. Sub. Notes, 11.000% due 6/15/12........ 878,750 500,000 B1* RJ Tower Corp., Sr. Notes, 12.000% due 6/1/13 (b)........... 495,000 500,000 CCC+ Tenneco Automotive Inc., Sr. Notes, 11.625% due 10/15/09.... 542,500 -------------------------------------------------------------------------------------------------- 3,723,875 -------------------------------------------------------------------------------------------------- BROADBAND ACCESS AND INTERNET SERVICES -- 0.5% 400,000 B- TSI Telecommunications Services, Inc., Sr. Sub. Notes, 12.750% due 2/1/09........................................ 441,000 -------------------------------------------------------------------------------------------------- BUILDING MATERIALS -- 0.5% Armstrong World Industries, Inc., Sr. Notes: 550,000 NR 6.500% due 8/15/05 (c).................................... 308,000 300,000 NR 7.450% due 5/15/29 (c).................................... 168,000 -------------------------------------------------------------------------------------------------- 476,000 -------------------------------------------------------------------------------------------------- BUSINESS SERVICES -- 0.7% 425,000 B+ Danka Business Systems PLC, Sr. Notes, 11.000% due 6/15/10................................................... 423,937 250,000 Caa2* Foster Wheeler Ltd., Notes, 6.750% due 11/15/05............. 186,250 -------------------------------------------------------------------------------------------------- 610,187 -------------------------------------------------------------------------------------------------- CABLE -- 7.5% Adelphia Communications Corp., Sr. Notes: 875,000 NR 10.250% due 6/15/11 (c)................................... 831,250 Series B: 250,000 NR 8.125% due 7/15/03 (c)................................. 232,500 725,000 NR 8.375% due 2/1/08 (c).................................. 679,687 Charter Communications Holdings, LLC, Sr. Discount Notes: 550,000 CCC- Step bond to yield 10.736% due 4/1/11..................... 473,000 1,250,000 CCC- Step bond to yield 18.487% due 5/15/11.................... 843,750 1,200,000 BB- CSC Holdings Inc., Sr. Notes, Series B, 7.625% due 4/1/11... 1,269,000 100,000 NR Frontiervision Holdings LP, Sr. Discount Notes, 11.875% due 9/15/07 (c)............................................... 106,500 725,000 B+ Insight Midwest, L.P./Insight Capital, Inc., Sr. Notes, 9.750% due 10/1/09........................................ 770,312
SEE NOTES TO FINANCIAL STATEMENTS. 27 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(A) SECURITY VALUE -------------------------------------------------------------------------------------------------- CABLE -- 7.5% (CONTINUED) $ 1,350,000 B+ Mediacom LLC/Mediacom Capital Corp., Sr. Notes, 9.500% due 1/15/13................................................... $ 1,437,750 375,000 BB+ Shaw Communications Inc., Sr. Notes, 7.250% due 4/6/11...... 407,344 -------------------------------------------------------------------------------------------------- 7,051,093 -------------------------------------------------------------------------------------------------- CELLULAR -- 3.0% Centennial Communications Corp./Centennial Cellular Operating Co. LLC: 700,000 Caa1* Sr. Notes, 10.125% due 6/15/13............................ 771,750 150,000 CCC Sr. Sub. Notes, 10.750% due 12/15/08...................... 159,000 Dobson Communications Corp., Sr. Notes: 425,000 B3* 10.875% due 7/1/10........................................ 465,375 700,000 B3* 8.875% due 10/1/13 (b).................................... 712,250 700,000 CCC Rural Cellular Corp., Sr. Sub. Notes, 9.750% due 1/15/10.... 687,750 -------------------------------------------------------------------------------------------------- 2,796,125 -------------------------------------------------------------------------------------------------- CHEMICALS -- 7.2% 325,000 BBB- Georgia Gulf Corp., Notes, 7.625% due 11/15/05.............. 343,687 475,000 CCC+ Huntsman ICI Chemicals LLC, Sr. Sub. Notes, 10.125% due 7/1/09.................................................... 491,625 450,000 B- Huntsman International LLC, Sr. Notes, 9.875% due 3/1/09.... 495,000 Lyondell Chemical Co.: 450,000 BB- Sr. Notes, Series B, 9.875% due 5/1/07.................... 477,000 825,000 B Sr. Sub. Notes, 10.875% due 5/1/09........................ 849,750 1,475,000 BB- Millennium America Inc., Sr. Notes, 7.000% due 11/15/06..... 1,519,250 Nalco Co.: 75,000 B Sr. Notes, 7.750% due 11/15/11 (b)........................ 80,625 125,000 B Sr. Sub. Notes, 8.875% due 11/15/13 (b)................... 133,125 325,000 BB- PolyOne Corp., Sr. Notes, 10.625% due 5/15/10............... 326,625 Resolution Performance Products LLC/RPP Capital Corp.: 400,000 B- Sr. Second Secured Notes, 9.500% due 4/15/10.............. 408,000 175,000 B+ Sr. Secured Notes, 8.000% due 12/15/09 (b)................ 182,000 Rhodia SA: 675,000 B3* Sr. Notes, 7.625% due 6/1/10 (b).......................... 651,375 400,000 CCC+ Sr. Sub. Notes, 8.875% due 6/1/11 (b)..................... 370,000 475,000 BBB- Union Carbide Corp., Debentures, 6.790% due 6/1/25.......... 470,250 50,000 B United Agri Products, Inc., Sr. Notes, 8.250% due 12/15/11 (b)....................................................... 51,625 -------------------------------------------------------------------------------------------------- 6,849,937 -------------------------------------------------------------------------------------------------- CLECS AND OTHER LOCAL CARRIERS -- 0.2% 150,000 B- Cincinnati Bell Inc., Sr. Sub. Notes, 8.375% due 1/15/14 (b)....................................................... 162,000 -------------------------------------------------------------------------------------------------- CONVENIENCE AND DRUG RETAILERS -- 0.7% 675,000 B- The Pantry, Inc., Sr. Sub. Notes, 10.250% due 10/15/07...... 702,000 -------------------------------------------------------------------------------------------------- EMITTING SERVICES MOBILE RADIO AND PERSONAL COMMUNICATIONS SYSTEMS -- 1.9% 549,444 Caa1* Alamosa (Delaware), Inc., Sr. Discount Notes, step bond to yield 11.482% due 7/31/09....................................... 497,247 300,000 D Horizon PCS, Inc., Sr. Discount Notes, step bond to yield 22.052% due 10/1/10....................................... 67,500
SEE NOTES TO FINANCIAL STATEMENTS. 28 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(A) SECURITY VALUE -------------------------------------------------------------------------------------------------- EMITTING SERVICES MOBILE RADIO AND PERSONAL COMMUNICATIONS SYSTEMS -- 1.9% (CONTINUED) $ 50,000 B+ Nextel Communications, Inc., Sr. Notes, 9.375% due 11/15/09.................................................. $ 54,750 1,225,000 B- Triton PCS, Inc., Sr. Sub. Notes, 8.750% due 11/15/11....... 1,212,750 -------------------------------------------------------------------------------------------------- 1,832,247 -------------------------------------------------------------------------------------------------- EQUIPMENT RENTAL -- 1.0% 150,000 BB- NationsRent, Inc., Sr. Secured Notes, 9.500% due 10/15/10 (b)....................................................... 162,000 Williams Scotsman, Inc.: 700,000 B Sr. Notes, 9.875% due 6/1/07.............................. 712,250 75,000 B+ Sr. Secured Notes, 10.000% due 8/15/08.................... 82,594 -------------------------------------------------------------------------------------------------- 956,844 -------------------------------------------------------------------------------------------------- EXPLORATION AND PRODUCTION -- 2.5% 175,000 CCC- Belden & Blake Corp., Sr. Sub. Notes, Series B, 9.875% due 6/15/07................................................... 173,250 875,000 B El Paso Production Holding, Sr. Notes, 7.750% due 6/1/13 (b)....................................................... 866,250 250,000 BB Forest Oil Corp., Sr. Notes, 8.000% due 12/15/11............ 274,375 300,000 BB Pogo Producing Co., Sr. Sub. Notes, Series B, 8.250% due 4/15/11................................................... 336,000 775,000 Ba2* USEC Inc., Sr. Notes, 6.625% due 1/20/06.................... 744,000 -------------------------------------------------------------------------------------------------- 2,393,875 -------------------------------------------------------------------------------------------------- FABRICATED GLASS, PLASTIC AND FIBER -- 2.3% Crown Cork & Seal Co. Inc.: 1,075,000 B Debentures, 7.375% due 12/15/26........................... 976,906 75,000 B Notes, 7.000% due 12/15/06................................ 77,063 150,000 B Crown European Holdings SA, Third Priority Sr. Secured Notes, 10.875% due 3/1/13........................................ 177,187 Owens-Brockway Glass Container, Inc., Sr. Secured Notes: 575,000 BB 8.875% due 2/15/09........................................ 633,219 300,000 BB 7.750% due 5/15/11........................................ 323,625 -------------------------------------------------------------------------------------------------- 2,188,000 -------------------------------------------------------------------------------------------------- FOOD/BEVERAGE/TOBACCO -- 0.3% 250,000 B Land O'Lakes Inc., Sr. Secured Notes, 9.000% due 12/15/10 (b)....................................................... 253,125 -------------------------------------------------------------------------------------------------- FOREST - PAPER PRODUCTS -- 4.3% 425,000 D Doman Industries Ltd., Sr. Notes, 12.000% due 7/1/04 (c).... 448,375 750,000 BB+ Fort James Corp., Sr. Notes, 6.875% due 9/15/07............. 795,000 Georgia-Pacific Corp., Sr. Notes: 300,000 BB+ 9.375% due 2/1/13......................................... 346,500 450,000 BB+ 8.875% due 5/15/31........................................ 497,250 350,000 B Smurfit-Stone Container Corp., Sr. Notes, 8.250% due 10/1/12................................................... 381,500 1,625,000 BB Tembec Inc., Sr. Notes, 7.750% due 3/15/12.................. 1,625,000 -------------------------------------------------------------------------------------------------- 4,093,625 -------------------------------------------------------------------------------------------------- FREIGHT/CONTAINERS/SHIPPING -- 1.0% 275,000 D Atlas Air, Inc., Sr. Notes, 10.750% due 8/1/05 (c).......... 103,125 375,000 B3* Evergreen International Aviation, Inc., Sr. Second Secured Notes, 12.000% due 5/15/10 (b)................................... 313,594 475,000 B1* TFM, S.A. de C.V., Sr. Notes, 12.500% due 6/15/12........... 543,875 -------------------------------------------------------------------------------------------------- 960,594 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 29 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(A) SECURITY VALUE -------------------------------------------------------------------------------------------------- GAMING -- 4.4% $ 675,000 Ba3* Aztar Corp., Sr. Sub. Notes, 8.875% due 5/15/07............. $ 707,906 450,000 B Isle of Capri Casinos, Inc., Sr. Sub. Notes, 8.750% due 4/15/09................................................... 474,750 Park Place Entertainment Corp., Sr. Sub. Notes: 325,000 Ba2* 7.875% due 12/15/05....................................... 348,969 800,000 Ba2* 7.875% due 3/15/10........................................ 890,000 875,000 CCC+ Pinnacle Entertainment, Inc., Sr. Sub. Notes, Series B, 9.250% due 2/15/07........................................ 910,000 550,000 B Resorts International Hotel and Casino, Inc., First Mortgage Notes, 11.500% due 3/15/09....................................... 600,875 200,000 B+ Sun International Hotels Ltd., Sr. Sub. Notes, 8.875% due 8/15/11................................................... 219,500 -------------------------------------------------------------------------------------------------- 4,152,000 -------------------------------------------------------------------------------------------------- HEALTHCARE -- 3.9% 450,000 B- Alliance Imaging Inc., Sr. Sub. Notes, 10.375% due 4/15/11................................................... 479,250 HEALTHSOUTH Corp.: 925,000 NR Sr. Notes, 7.625% due 6/1/12.............................. 869,500 250,000 NR Sr. Sub. Notes, 10.750% due 10/1/08....................... 237,500 525,000 B Radiologix, Inc., Notes, Series B, 10.500% due 12/15/08..... 527,625 Tenet Healthcare Corp., Sr. Notes: 250,000 BB- 7.375% due 2/1/13......................................... 252,500 1,425,000 BB- 6.875% due 11/15/31....................................... 1,282,500 -------------------------------------------------------------------------------------------------- 3,648,875 -------------------------------------------------------------------------------------------------- HOME BUILDERS -- 0.8% KB HOME, Sr. Sub. Notes: 125,000 Ba2* 8.625% due 12/15/08....................................... 140,625 325,000 Ba2* 9.500% due 2/15/11........................................ 364,000 225,000 B- William Lyon Homes, Sr. Notes, 10.750% due 4/1/13........... 257,062 -------------------------------------------------------------------------------------------------- 761,687 -------------------------------------------------------------------------------------------------- INDEPENDENT POWER PRODUCERS -- 1.3% Calpine Corp.: 600,000 CCC+ Sr. Notes, 8.500% due 2/15/11............................. 477,750 725,000 B Sr. Secured Notes, 8.750% due 7/15/13 (b)................. 710,500 -------------------------------------------------------------------------------------------------- 1,188,250 -------------------------------------------------------------------------------------------------- INDUSTRIAL PRODUCTS -- 3.7% 325,000 NR Advance Glassfiber Yarns LLC, Sr. Sub. Notes, 9.875% due 1/15/09 (c)............................................... 16,250 800,000 Ca* BGF Industries, Inc., Sr. Sub. Notes, Series B, 10.250% due 1/15/09................................................... 610,000 735,000 BB- Case Corp., Notes, 7.250% due 1/15/16....................... 749,700 375,000 BB- Case New Holland, Inc., Sr. Notes, 9.250% due 8/1/11 (b).... 421,875 Foamex L.P., Sr. Sub. Notes: 250,000 CCC+ 13.500% due 8/15/05....................................... 242,500 475,000 CCC+ 9.875% due 6/15/07........................................ 380,000 1,150,000 B+ The Goodyear Tire & Rubber Co., Notes, 7.857% due 8/15/11... 1,009,125 100,000 B+ Wolverine Tube, Inc., Sr. Notes, Series B, 10.500% due 4/1/09.................................................... 102,500 -------------------------------------------------------------------------------------------------- 3,531,950 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 30 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(A) SECURITY VALUE -------------------------------------------------------------------------------------------------- w LODGING AND LEISURE -- 6.0% Felcor Lodging LP, Sr. Notes: $ 400,000 B1* 9.500% due 9/15/08........................................ $ 434,000 200,000 B1* 8.500% due 6/1/11......................................... 218,000 525,000 Ba3* HMH Properties, Inc., Sr. Notes, Series B, 7.875% due 8/1/08.................................................... 548,625 650,000 BB+ ITT Corp., Notes, 6.750% due 11/15/05....................... 685,750 MeriStar Hospitality Corp., Sr. Notes: 125,000 B2* 9.000% due 1/15/08........................................ 131,250 725,000 B2* 9.125% due 1/15/11........................................ 772,125 1,375,000 BB+ Royal Caribbean Cruises Ltd., Sr. Debentures, 7.500% due 10/15/27.................................................. 1,354,375 1,350,000 B- Six Flags Inc., Sr. Notes, 9.750% due 4/15/13............... 1,427,625 100,000 Ba3* Steinway Musical Instruments, Inc., Sr. Notes, 8.750% due 4/15/11................................................... 106,500 -------------------------------------------------------------------------------------------------- 5,678,250 -------------------------------------------------------------------------------------------------- LONG DISTANCE TELECOMMUNICATIONS -- 1.3% 166,590 Caa1* Calpoint Receivables Structured Trust 2001, Notes, 7.440% due 12/10/06 (b).......................................... 167,007 Level 3 Communications, Inc.: 175,000 Caa2* Sr. Discount Notes, step bond to yield 13.442% due 3/15/10................................................... 147,437 525,000 Caa2* Sr. Notes, 9.125% due 5/1/08.............................. 480,375 1,275,000 NR WorldCom, Inc. -- WorldCom Group, Notes, 7.500% due 5/15/11 (c)....................................................... 430,313 -------------------------------------------------------------------------------------------------- 1,225,132 -------------------------------------------------------------------------------------------------- MOTION PICTURE EXHIBITION -- 0.6% 500,000 CCC+ AMC Entertainment Inc., Sr. Sub. Notes, 9.500% due 2/1/11... 527,500 75,000 CCC- Carmike Cinemas, Notes, 10.375% due 2/1/09.................. 79,125 -------------------------------------------------------------------------------------------------- 606,625 -------------------------------------------------------------------------------------------------- OIL SERVICES -- 1.1% 150,000 BB Pride International, Inc., Sr. Notes, 10.000% due 6/1/09.... 161,625 Tesoro Petroleum Corp.: 125,000 BB Sr. Secured Notes, Series B, 8.000% due 4/15/08........... 133,438 375,000 B Sr. Sub. Notes, 9.625% due 4/1/12......................... 412,500 450,000 Caa1* Trico Marine Services, Sr. Notes, 8.875% due 5/15/12........ 330,750 -------------------------------------------------------------------------------------------------- 1,038,313 -------------------------------------------------------------------------------------------------- OTHER CONSUMER CYCLICAL -- 0.9% 625,000 Caa2* Home Products International, Inc., Sr. Sub. Notes, 9.625% due 5/15/08............................................... 409,375 450,000 CCC+ Playtex Products, Inc., Sr. Sub. Notes, 9.375% due 6/1/11... 456,750 -------------------------------------------------------------------------------------------------- 866,125 -------------------------------------------------------------------------------------------------- OTHER CONSUMER NON-CYCLICAL -- 0.8% 675,000 NR Alderwoods Group, Inc., Sr. Notes, 12.250% due 1/2/09....... 762,750 -------------------------------------------------------------------------------------------------- PIPELINES -- 2.6% The Coastal Corp.: 350,000 B- Notes, 7.750% due 6/15/10................................. 332,062 250,000 B- Sr. Debentures, 6.700% due 2/15/27........................ 234,375 50,000 B- Sr. Notes, 6.375% due 2/1/09.............................. 44,875
SEE NOTES TO FINANCIAL STATEMENTS. 31 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(A) SECURITY VALUE -------------------------------------------------------------------------------------------------- PIPELINES -- 2.6% (CONTINUED) $ 1,400,000 B1* Southern Natural Gas Co., Notes, 7.350% due 2/15/31......... $ 1,389,500 375,000 B+ Transcontinental Gas Pipe Line Corp., Sr. Notes, Series B, 8.875% due 7/15/12........................................ 445,313 -------------------------------------------------------------------------------------------------- 2,446,125 -------------------------------------------------------------------------------------------------- PUBLISHING -- 2.6% 100,000 B American Color Graphics, Inc., Sr. Second Secured Notes, 10.000% due 6/15/10 (b)................................... 103,000 Dex Media, Inc.: 425,000 B Discount Notes, step bond to yield 8.603% due 11/15/13 (b)....................................................... 301,750 225,000 B Notes, 8.000% due 11/15/13 (b)............................ 237,375 700,000 BB- Houghton Mifflin Co., Notes, 7.200% due 3/15/11............. 755,125 125,000 CCC- Penton Media Inc., Sr. Sub. Notes, 10.375% due 6/15/11...... 87,500 900,000 B Primedia, Inc., Sr. Notes, 8.875% due 5/15/11............... 954,000 -------------------------------------------------------------------------------------------------- 2,438,750 -------------------------------------------------------------------------------------------------- RADIO BROADCASTING -- 1.0% 200,000 BBB- Chancellor Media Corp., Sr. Notes, 8.000% due 11/1/08....... 232,500 675,000 B2* Emmis Communications Corp., Sr. Sub. Notes, Series B, 8.125% due 3/15/09........................................ 711,281 -------------------------------------------------------------------------------------------------- 943,781 -------------------------------------------------------------------------------------------------- RETAILERS -- 1.3% 380,000 BB+ J.C. Penney Co., Inc., Debentures, 8.125% due 4/1/27........ 414,675 775,000 BB Saks Inc., Notes, 7.500% due 12/1/10........................ 844,750 -------------------------------------------------------------------------------------------------- 1,259,425 -------------------------------------------------------------------------------------------------- STEEL/METALS/MINING -- 2.9% 1,725,000 B+ AK Steel Corp., Sr. Notes, 7.750% due 6/15/12............... 1,483,500 350,000 BB+ IPSCO Inc., Sr. Notes, 8.750% due 6/1/13.................... 388,500 775,000 BB- U.S. Steel LLC, Sr. Notes, 10.750% due 8/1/08............... 910,625 -------------------------------------------------------------------------------------------------- 2,782,625 -------------------------------------------------------------------------------------------------- SUPERMARKETS AND DISTRIBUTORS -- 2.7% 725,000 BB- Ahold Finance U.S.A., Inc., Sr. Notes, 6.875% due 5/1/29.... 650,687 425,000 BB+ Delhaize America, Inc., Debentures, 9.000% due 4/15/31...... 518,500 625,000 B The Great Atlantic & Pacific Tea Co., Inc., Sr. Notes, 9.125% due 12/15/11....................................... 575,000 375,000 B Roundy's, Inc., Sr. Sub. Notes, Series B, 8.875% due 6/15/12................................................... 402,188 400,000 B2* Stater Bros. Holdings Inc., Sr. Notes, 10.750% due 8/15/06................................................... 423,500 -------------------------------------------------------------------------------------------------- 2,569,875 -------------------------------------------------------------------------------------------------- TECHNOLOGY -- 1.4% 1,400,000 B- Lucent Technologies, Inc., Debentures, 6.450% due 3/15/29... 1,107,750 175,000 BBB- Thomas & Betts Corp., Sr. Notes, 7.250% due 6/1/13.......... 181,125 -------------------------------------------------------------------------------------------------- 1,288,875 -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS - TOWERS -- 0.2% 325,000 B3* American Tower Escrow Corp., Discount Notes, zero coupon bond to yield 10.265% due 8/1/08........................................ 225,875 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 32 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
FACE AMOUNT RATING(A) SECURITY VALUE -------------------------------------------------------------------------------------------------- TELEVISION BROADCASTING -- 0.3% $ 250,000 B3* Granite Broadcasting Corp., Sr. Secured Notes, 9.750% due 12/1/10 (b)............................................... $ 250,625 -------------------------------------------------------------------------------------------------- TEXTILES/APPAREL -- 0.8% 1,050,000 CCC Levi Strauss & Co., Sr. Notes, 12.250% due 12/15/12......... 687,750 125,000 Caa1* Tropical Sportswear International Corp., Sr. Sub. Notes, Series A, 11.000% due 6/15/08....................................... 101,875 -------------------------------------------------------------------------------------------------- 789,625 -------------------------------------------------------------------------------------------------- UTILITIES -- 5.2% Allegheny Energy Supply Co. LLC, Secured Bonds: 158,293 B Series A, 10.250% due 11/15/07 (b)........................ 165,416 16,706 B Series B, 13.000% due 11/15/07 (b)........................ 16,622 100,000 BBB- Consumers Energy Co., First Mortgage Bonds, 7.375% due 9/15/23................................................... 102,526 325,000 B- Dynegy Holdings Inc., Sr. Secured Notes, 10.125% due 7/15/13 (b)....................................................... 375,375 1,100,000 CCC+ NGC Corp., Sr. Debentures, 7.125% due 5/15/18............... 948,750 Northwestern Corp., Notes: 575,000 D 7.875% due 3/15/07 (c).................................... 521,813 250,000 D 8.750% due 3/15/12 (c).................................... 226,875 Reliant Resources Inc., Sr. Secured Notes: 250,000 B1* 9.250% due 7/15/10 (b).................................... 266,250 425,000 B1* 9.500% due 7/15/13 (b).................................... 456,875 275,000 B- Sonat Inc., Notes, 6.625% due 2/1/08........................ 253,688 The Williams Cos., Inc., Notes: 650,000 B+ 6.625% due 11/15/04....................................... 669,500 850,000 B+ 7.125% due 9/1/11......................................... 903,125 -------------------------------------------------------------------------------------------------- 4,906,815 -------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $74,529,127)....... 81,217,943 -------------------------------------------------------------------------------------------------- SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------- COMMON STOCK (d) -- 0.3% -------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 0.1% 7,290 Hayes Lemmerz International, Inc. .......................... 132,095 -------------------------------------------------------------------------------------------------- CABLE -- 0.0% 1,057 Classic Holdco LLC.......................................... 34,500 -------------------------------------------------------------------------------------------------- CELLULAR -- 0.2% 25,745 Dobson Communications Corp., Class A Shares................. 169,145 -------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $586,479)....................... 335,740 -------------------------------------------------------------------------------------------------- PREFERRED STOCK -- 0.7% -------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 0.0% 40 Hayes Lemmerz International Operating Co., Series A, 8.000% Cumulative Exchangeable............................ 3,279 -------------------------------------------------------------------------------------------------- CELLULAR -- 0.1% 400 Dobson Communications Corp., 6.000% Cumulative Exchangeable, Series F (b).............................................. 72,000 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 33 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 HIGH YIELD BOND TRUST
SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------- EMITTING SERVICES MOBILE RADIO & PERSONAL COMMUNICATIONS SYSTEMS -- 0.2% 534 Alamosa Holdings Inc., 7.500% Cumulative Exchangeable, Series B.................................................. $ 165,540 -------------------------------------------------------------------------------------------------- TELEVISION BROADCASTING -- 0.4% 350 Granite Broadcasting Corp., 12.750% Cumulative Exchangeable.............................................. 224,907 2,035 Paxson Communications Corp., 14.250% Cumulative Jr. Exchangeable.............................................. 187,763 -------------------------------------------------------------------------------------------------- 412,670 -------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost -- $972,066).................... 653,489 -------------------------------------------------------------------------------------------------- WARRANTS SECURITY VALUE -------------------------------------------------------------------------------------------------- WARRANTS (d) -- 0.1% -------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS - TOWERS -- 0.1% 400 American Tower Escrow Corp., Expires 8/1/08 (b) (Cost -- $173,947)........................................ 50,200 -------------------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $76,261,619)................. 82,257,372 -------------------------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 13.1% $12,414,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds at maturity -- $12,414,552; (Fully collateralized by U.S. Treasury Bonds, 6.125% due 11/15/27; Market value -- $12,666,235) (Cost -- $12,414,000)............... 12,414,000 -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $88,675,619**)......... $94,671,372 --------------------------------------------------------------------------------------------------
(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. (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. These securities have been deemed liquid pursuant to guidelines established by the Board of Trustees. (c) Security is currently in default. (d) Non-income producing security. ** Aggregate cost for Federal income tax purposes is $88,769,276. Abbreviation used in this schedule: CLECs -- Common Local Exchange Carriers See page 39 for definitions of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 34 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE ---------------------------------------------------------------------------------------- COMMON STOCK -- 94.8% ---------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 1.0% 203,200 Lockheed Martin Corp. ...................................... $ 10,444,480 ---------------------------------------------------------------------------------------- BANKS -- 6.3% 390,650 Bank of America Corp. ...................................... 31,419,979 529,990 Wells Fargo & Co. .......................................... 31,211,111 ---------------------------------------------------------------------------------------- 62,631,090 ---------------------------------------------------------------------------------------- BIOTECHNOLOGY -- 5.7% 491,290 Genentech, Inc.+............................................ 45,970,005 156,335 Invitrogen Corp.+........................................... 10,943,450 ---------------------------------------------------------------------------------------- 56,913,455 ---------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 2.3% 590,180 Nokia Oyj, Sponsored ADR.................................... 10,033,060 233,220 QUALCOMM Inc. .............................................. 12,577,555 ---------------------------------------------------------------------------------------- 22,610,615 ---------------------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 4.2% 1,031,120 Apple Computer, Inc.+....................................... 22,035,034 866,840 NVIDIA Corp.+............................................... 20,154,030 ---------------------------------------------------------------------------------------- 42,189,064 ---------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 7.5% 360,865 The Goldman Sachs Group, Inc. .............................. 35,628,201 1,026,750 SLM Corp. .................................................. 38,687,940 ---------------------------------------------------------------------------------------- 74,316,141 ---------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 1.5% 400,000 Energizer Holdings, Inc.+................................... 15,024,000 ---------------------------------------------------------------------------------------- HEALTH CARE PROVIDERS AND SERVICES -- 8.1% 125,745 Anthem, Inc.+............................................... 9,430,875 1,100,920 UnitedHealth Group Inc. .................................... 64,051,526 76,895 WellPoint Health Networks, Inc.+............................ 7,458,046 ---------------------------------------------------------------------------------------- 80,940,447 ---------------------------------------------------------------------------------------- HOTELS, RESTAURANTS AND LEISURE -- 0.4% 91,990 Outback Steakhouse, Inc. ................................... 4,066,878 ---------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 1.6% 185,830 3M Co. ..................................................... 15,801,125 ---------------------------------------------------------------------------------------- INSURANCE -- 1.0% 3,697 Berkshire Hathaway, Inc.+................................... 10,407,055 ---------------------------------------------------------------------------------------- INTERNET AND CATALOG RETAIL -- 5.5% 425,500 Amazon.com, Inc.+........................................... 22,398,320 497,700 eBay Inc.+.................................................. 32,146,443 ---------------------------------------------------------------------------------------- 54,544,763 ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 35 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 CAPITAL APPRECIATION FUND
SHARES SECURITY VALUE ---------------------------------------------------------------------------------------- INTERNET SOFTWARE AND SERVICES -- 1.4% 306,260 Yahoo! Inc.+................................................ $ 13,833,764 ---------------------------------------------------------------------------------------- MEDIA -- 8.5% 754,905 EchoStar Communications Corp., Class A Shares+.............. 25,666,770 1,007,697 Time Warner Inc.+........................................... 18,128,469 1,549,745 XM Satellite Radio Holdings Inc.+........................... 40,851,278 ---------------------------------------------------------------------------------------- 84,646,517 ---------------------------------------------------------------------------------------- MULTILINE RETAIL -- 3.2% 373,895 Dollar Tree Stores, Inc.+................................... 11,239,284 457,090 Kohl's Corp.+............................................... 20,541,625 ---------------------------------------------------------------------------------------- 31,780,909 ---------------------------------------------------------------------------------------- OIL AND GAS -- 5.3% 800,500 Murphy Oil Corp. ........................................... 52,280,655 ---------------------------------------------------------------------------------------- PHARMACEUTICALS -- 2.0% 318,595 Forest Laboratories, Inc., Class A Shares+.................. 19,689,171 ---------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 8.7% 1,542,985 Applied Materials, Inc.+.................................... 34,640,013 531,450 KLA-Tencor Corp.+........................................... 31,180,171 693,945 Texas Instruments Inc. ..................................... 20,388,104 ---------------------------------------------------------------------------------------- 86,208,288 ---------------------------------------------------------------------------------------- SOFTWARE -- 9.4% 903,910 Electronic Arts Inc.+....................................... 43,188,820 1,814,875 Microsoft Corp. ............................................ 49,981,657 ---------------------------------------------------------------------------------------- 93,170,477 ---------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 1.6% 192,590 Advance Auto Parts+......................................... 15,676,826 ---------------------------------------------------------------------------------------- TEXTILES AND APPAREL -- 3.9% 569,510 NIKE Inc., Class B Shares................................... 38,988,655 ---------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 5.7% 1,241,040 Nextel Communications, Inc.+................................ 34,823,582 708,250 Vodafone Group PLC, GBP..................................... 1,751,004 804,640 Vodafone Group PLC, Sponsored ADR........................... 20,148,186 ---------------------------------------------------------------------------------------- 56,722,772 ---------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $779,624,624)................... 942,887,147 ---------------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE ---------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 0.2% $ 2,195,000 U.S. Treasury Notes, 1.875% due 9/30/04 (Cost -- $2,200,144)...................................... 2,208,120 ---------------------------------------------------------------------------------------- SUB-TOTAL INVESTMENTS (Cost -- $781,824,768)................ 945,095,267 ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 36 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 CAPITAL APPRECIATION FUND
FACE AMOUNT SECURITY VALUE ---------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 5.0% $49,282,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds at maturity -- $49,284,190; (Fully collateralized by U.S. Treasury Bonds, 6.125% due 8/15/29; Market value -- $50,273,402) (Cost -- $49,282,000)........................ $ 49,282,000 ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $831,106,768*)......... $994,377,267 ----------------------------------------------------------------------------------------
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is $832,941,134. Abbreviations used in this schedule: --------------------------------------- ADR -- American Depositary Receipt GBP -- British Pound SEE NOTES TO FINANCIAL STATEMENTS. 37 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 MONEY MARKET PORTFOLIO
FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE -------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY INSTRUMENTALITIES -- 4.3% $15,000,000 Federal Home Loan Mortgage Corp. matures 1/27/04 (Cost -- $14,989,058)....................................... 1.03% $ 14,989,058 -------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 95.7% 17,600,000 Aegon Funding Corp. matures 1/13/04......................... 1.11 17,593,605 15,500,000 Alpine Securitization Corp. matures 1/16/04................. 1.10 15,493,025 15,950,000 American Express Credit Corp. matures 2/5/04................ 1.07 15,933,718 17,400,000 American General Financial Corp. matures 1/29/04............ 1.07 17,385,790 17,000,000 American Honda Finance Corp. mature 1/8/04 to 8/4/04........ 1.04 to 1.14 16,997,620 16,000,000 Beethoven Funding Corp. matures 1/27/04..................... 1.16 15,986,827 15,400,000 CIT Cap Corp. mature 2/6/04 to 12/1/04...................... 1.11 to 1.28 15,388,664 16,100,000 Coca-Cola Co. matures 1/30/04............................... 1.12 16,085,734 15,950,000 General Electric Capital Corp. matures 1/28/04.............. 1.10 15,937,080 15,983,000 Household Financial Corp. matures 1/22/04................... 1.10 15,972,931 17,400,000 Knight Ridder Inc. matures 1/7/04........................... 1.05 17,397,013 15,900,000 Morgan Stanley Dean Witter matures 1/23/04.................. 1.10 15,889,506 17,000,000 Nestle Capital Corp. matures 2/3/04......................... 1.06 16,983,793 16,000,000 Norddeutsche Landesbank matures 1/21/04..................... 1.12 15,990,267 17,000,000 Nordea North America Inc. matures 1/15/04................... 1.11 16,992,794 16,000,000 Prudential Funding Corp. matures 1/10/04.................... 1.07 15,981,333 17,700,000 State Street Bank & Trust Co. matures 1/14/04............... 1.08 17,700,000 15,363,000 UBS Finance Inc. mature 1/2/04 to 1/5/04.................... 0.97 to 1.00 15,362,017 18,300,000 Victory Receivable Corp. matures 1/12/04.................... 1.14 18,293,737 17,400,000 Wells Fargo Bank San Francisco CA matures 1/20/04........... 1.06 17,400,000 -------------------------------------------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (Cost -- $330,765,454)............... 330,765,454 -------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $345,754,512*)......... $345,754,512 --------------------------------------------------------------------------------------------------------
* Aggregate cost for Federal income tax purposes is substantially the same. SEE NOTES TO FINANCIAL STATEMENTS. 38 -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or a minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay principal and differs from the highest rated issue only in a small degree. A -- Bonds rated "A" have a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB -- Bonds rated "BBB" have an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B -- Bonds rated "BB", "B", "CCC" and "CC" are regarded, on CCC and balance, as predominantly speculative with respect to CC capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents the lowest degree of speculation and "CC" the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C -- Bonds rated "C" are income bonds on which no interest is being paid. D -- Bonds rated "D" are in default, and payment of interest and/or repayment of principal is in arrears.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "Caa", where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A -- Bonds rated "A" are judged to have many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that is, they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. These bonds lack outstanding investment characteristics and may have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. Ca -- Bonds rated "Ca" are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
39 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2003
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost........................... $261,509,017 $76,261,619 $ 781,824,768 -- Short-term investments, at cost................ 4,319,054 12,414,000 49,282,000 $345,754,512 Foreign currency, at cost...................... 9 -- -- -- ------------------------------------------------------------------------------------------------------------- Investments, at value.......................... $284,663,388 $82,257,372 $ 945,095,267 -- Short-term investments, at value............... 4,319,121 12,414,000 49,282,000 $345,754,512 Foreign currency, at value..................... 11 -- -- -- Cash........................................... 939 790 284 1,130 Dividends and interest receivable.............. 1,232,401 1,537,636 267,943 67,260 Receivable for securities sold................. 350,538 14,142 -- -- Receivable for Fund shares sold................ -- 15,852 -- 281,528 ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS................................... 290,566,398 96,239,792 994,645,494 346,104,430 ------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for Fund shares reacquired............. 507,632 104,194 3,456,644 33,666 Investment advisory fees payable............... 120,230 33,376 610,782 89,047 Administration fees payable.................... 14,460 4,367 48,386 17,575 Payable for securities purchased............... -- 212,350 4,687,420 -- Dividends payable.............................. -- -- -- 82,854 Accrued expenses............................... 49,776 33,175 100,223 55,936 ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.............................. 692,098 387,462 8,903,455 279,078 ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................. $289,874,300 $95,852,330 $ 985,742,039 $345,825,352 ------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital................................ $274,426,824 $90,046,110 $1,204,496,910 $345,825,208 Undistributed net investment income............ 151,483 53,663 -- 7,965 Accumulated net realized loss from investment transactions and futures contracts.......... (7,858,447) (243,196) (382,025,881) (7,821) Net unrealized appreciation of investments and foreign currencies.......................... 23,154,440 5,995,753 163,271,010 -- ------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS................................. $289,874,300 $95,852,330 $ 985,742,039 $345,825,352 ------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING............................... 18,436,722 9,819,304 17,790,470 345,825,208 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE....................... $15.72 $9.76 $55.41 $1.00 -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 40 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
MANAGED HIGH YIELD CAPITAL MONEY ASSETS BOND APPRECIATION MARKET TRUST TRUST FUND PORTFOLIO ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Interest........................................... $ 5,255,171 $ 6,913,216 $ 1,351,693 $4,573,178 Dividends.......................................... 3,256,529 13,787 7,376,753 -- Less: Foreign withholding tax...................... (1,092) -- (82,945) -- ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME............................ 8,510,608 6,927,003 8,645,501 4,573,178 ------------------------------------------------------------------------------------------------------------ EXPENSES: Investment advisory fees (Note 3).................. 1,315,694 360,258 6,734,977 1,247,941 Administration fees (Note 3)....................... 157,883 46,539 538,798 231,601 Audit and legal.................................... 32,451 29,034 9,482 27,375 Custody............................................ 25,571 44,909 12,310 33,690 Shareholder communications......................... 17,273 7,079 46,945 50,852 Shareholder servicing fees......................... 5,002 4,994 5,000 5,000 Trustees' fees..................................... 4,884 6,154 4,000 4,380 Registration fees.................................. -- -- -- 2,900 Other.............................................. 2,006 3,998 2,000 3,581 ------------------------------------------------------------------------------------------------------------ TOTAL EXPENSES..................................... 1,560,764 502,965 7,353,512 1,607,320 Less: Expense reimbursement (Note 3)............... -- -- -- (63,316) ------------------------------------------------------------------------------------------------------------ NET EXPENSES....................................... 1,560,764 502,965 7,353,512 1,544,004 ------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME................................ 6,949,844 6,424,038 1,291,989 3,029,174 ------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 4, 6 AND 7): Realized Gain (Loss) From: Investment transactions......................... 364,494 4,327,306 (93,618,396) (146) Futures contracts............................... 1,719,070 -- -- -- Foreign currency transactions................... -- -- (902,350) -- ------------------------------------------------------------------------------------------------------------ NET REALIZED GAIN (LOSS)........................... 2,083,564 4,327,306 (94,520,746) (146) ------------------------------------------------------------------------------------------------------------ Change in Net Unrealized Appreciation From: Investments..................................... 43,602,644 8,815,307 297,278,645 -- Foreign currencies.............................. 46,059 -- 356,599 -- ------------------------------------------------------------------------------------------------------------ INCREASE IN NET UNREALIZED APPRECIATION............ 43,648,703 8,815,307 297,635,244 -- ------------------------------------------------------------------------------------------------------------ NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES............................. 45,732,267 13,142,613 203,114,498 (146) ------------------------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS............... $52,682,111 $19,566,651 $204,406,487 $3,029,028 ------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 41 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
MANAGED ASSETS TRUST 2003 2002 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 6,949,844 $ 7,777,250 Net realized gain (loss).................................. 2,083,564 (9,479,626) Increase (decrease) in net unrealized appreciation........ 43,648,703 (24,694,612) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 52,682,111 (26,396,988) ------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income..................................... (6,863,313) (17,095,483) Net realized gains........................................ -- (1,692,616) ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (6,863,313) (18,788,099) ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 9): Net proceeds from sale of shares.......................... 9,228,282 5,690,077 Net asset value of shares issued for reinvestment of dividends.............................................. 6,863,313 18,788,099 Cost of shares reacquired................................. (22,946,314) (35,902,871) ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (6,854,719) (11,424,695) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS........................... 38,964,079 (56,609,782) NET ASSETS: Beginning of year......................................... 250,910,221 307,520,003 ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $289,874,300 $250,910,221 ------------------------------------------------------------------------------------------ * Includes undistributed net investment income of:.......... $151,483 $144,147 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 42 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
HIGH YIELD BOND TRUST 2003 2002 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 6,424,038 $ 5,045,971 Net realized gain (loss).................................. 4,327,306 (691,927) Increase (decrease) in net unrealized appreciation........ 8,815,307 (1,958,851) ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS.................... 19,566,651 2,395,193 ------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income..................................... (6,515,534) (8,752,260) ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (6,515,534) (8,752,260) ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 9): Net proceeds from sale of shares.......................... 27,613,135 24,795,881 Net asset value of shares issued for reinvestment of dividends.............................................. 6,515,534 8,752,260 Cost of shares reacquired................................. (12,145,093) (16,389,171) ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 21,983,576 17,158,970 ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS...................................... 35,034,693 10,801,903 NET ASSETS: Beginning of year......................................... 60,817,637 50,015,734 ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $ 95,852,330 $ 60,817,637 ------------------------------------------------------------------------------------------ * Includes undistributed net investment income of:.......... $53,663 $150,365 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 43 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
CAPITAL APPRECIATION FUND 2003 2002 --------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 1,291,989 $ 2,873,120 Net realized loss......................................... (94,520,746) (94,939,657) Increase (decrease) in net unrealized appreciation........ 297,635,244 (223,318,883) --------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 204,406,487 (315,385,420) --------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income..................................... (389,109) (16,146,199) Capital................................................... (64,253) (124,893) --------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (453,362) (16,271,092) --------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 9): Net proceeds from sale of shares.......................... 14,007,803 62,309,750 Net asset value of shares issued for reinvestment of dividends.............................................. 453,362 16,271,092 Cost of shares reacquired................................. (97,001,290) (182,668,729) --------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (82,540,125) (104,087,887) --------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS........................... 121,413,000 (435,744,399) NET ASSETS: Beginning of year......................................... 864,329,039 1,300,073,438 --------------------------------------------------------------------------------------------------- END OF YEAR*.............................................. $985,742,039 $ 864,329,039 --------------------------------------------------------------------------------------------------- * Includes overdistributed net investment income of:........ -- $(530) ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 44 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
MONEY MARKET PORTFOLIO 2003 2002 ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 3,029,174 $ 5,440,330 Net realized loss......................................... (146) (7,675) ---------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 3,029,028 5,432,655 ---------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2): Net investment income..................................... (3,028,884) (5,432,655) ---------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (3,028,884) (5,432,655) ---------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 9): Net proceeds from sale of shares.......................... 265,892,702 1,270,701,166 Net asset value of shares issued for reinvestment of dividends.............................................. 3,072,564 5,477,804 Cost of shares reacquired................................. (316,384,220) (1,236,204,304) ---------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... (47,418,954) 39,974,666 ---------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS........................... (47,418,810) 39,974,666 NET ASSETS: Beginning of year......................................... 393,244,162 353,269,496 ---------------------------------------------------------------------------------------------- END OF YEAR*.............................................. $ 345,825,352 $ 393,244,162 ---------------------------------------------------------------------------------------------- * Includes undistributed net investment income of:.......... $7,965 $7,675 ----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 45 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Managed Assets Trust ("MAT"), High Yield Bond Trust ("HYBT"), Capital Appreciation Fund ("CAF") and Money Market Portfolio ("MMP") (collectively, "Fund(s)") are each a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as diversified, open-end management investment companies. Shares of the Funds are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. The 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 unaffiliated reputable brokers or other recognized sources; securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sale price; (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 more than 60 days 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 an 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 Funds 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 is determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. At December 31, 2003, reclassifications were made to the capital accounts of MAT and HYBT to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Net investment income, net realized gains and net assets were not affected by these changes; (k) the Funds intend to comply with the applicable provisions 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. HYBT invests in high-yield instruments that are subject to certain credit and market risks. The yields of high yield debt obligations reflect, among other things, perceived credit risk. HYBT's investment in securities rated below investment-grade typically involve risks not associated with higher rated securities including, among others, greater risk of timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. In addition, HYBT and CAF may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked to market daily, by recognizing the difference between the contract exchange rate and the current forward rate as an unrealized gain or loss. Realized gains or losses are recognized when the contracts are settled or offset by entering into another forward exchange contract. 2. DIVIDENDS MMP 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. In addition, MAT, HYBT and CAF distribute dividends and capital gains, if any, at least annually. 46 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 adviser to MAT, HYBT, CAF and MMP. MAT, CAF and MMP pay TAMIC an investment advisory fee calculated at the annual rate of 0.50%, 0.75% and 0.3233%, respectively, of their average daily net assets. HYBT pays TAMIC an investment advisory fee calculated at an annual rate of 0.50% on the first $50 million, 0.40% on the next $100 million, 0.30% on the next $100 million and 0.25% on the amount over $250 million of the average daily net assets of HYBT. These fees are calculated daily and paid monthly. TAMIC has a sub-advisory agreement with The Travelers Investment Management Company ("TIMCO"), another indirect wholly-owned subsidiary of Citigroup. Pursuant to the sub-advisory agreement, TIMCO is responsible for the day-to-day portfolio operations and investment decisions for the equity portion of MAT. As a result, TAMIC pays TIMCO, as sub-adviser, 0.25% of the average daily net assets of MAT. TAMIC also has a sub-advisory agreement with Janus Capital Management LLC ("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the day-to-day portfolio operations and investment decisions for CAF. As a result, TAMIC pays Janus an advisory fee calculated at an annual rate of 0.55% on the first $100 million, 0.50% on the next $400 million and 0.45% on the amount over $500 million of the average daily net assets of CAF. The Travelers Insurance Company ("TIC"), another indirect wholly-owned subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC an administration fee calculated at an annual rate of 0.06% of the average daily net assets of each respective Fund. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative services agreement with Smith Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund's average daily net assets. During the year ended December 31, 2003, MMP had a voluntary expense limitation in place of 0.40% of the average daily net assets of MMP, resulting in an expense reimbursement of $63,316. This expense limitation can be terminated at any time by TIC. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Funds' transfer agent. CTB receives account fees and asset-based fees that vary according to the size and type of account. For the year ended December 31, 2003, each Fund paid transfer agent fees of $5,000 to CTB. For the year ended December 31, 2003, Citigroup Global Markets Inc. (formerly known as Salomon Smith Barney Inc.), another indirect wholly-owned subsidiary of Citigroup, and its affiliates did not receive any brokerage commissions from the Funds. One Trustee and all officers of the Funds are employees of Citigroup or its affiliates. 4. INVESTMENTS During the year ended December 31, 2003, the aggregate cost of purchases and proceeds from sales of investments (including maturities of long-term investments, but excluding short-term investments and proceeds from paydowns) were as follows:
MAT HYBT CAF ------------------------------------------------------------------------------------------------------- Purchases................................................... $218,524,277 $65,097,861 $471,390,239 ------------------------------------------------------------------------------------------------------- Sales....................................................... 223,914,499 54,651,021 464,115,384 -------------------------------------------------------------------------------------------------------
At December 31, 2003, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were as follows:
MAT HYBT CAF ------------------------------------------------------------------------------------------------------ Gross unrealized appreciation............................... $31,849,484 $ 7,837,750 $199,217,428 Gross unrealized depreciation............................... (9,934,886) (1,935,654) (37,781,295) ------------------------------------------------------------------------------------------------------ Net unrealized appreciation................................. $21,914,598 $ 5,902,096 $161,436,133 ------------------------------------------------------------------------------------------------------
47 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. REPURCHASE AGREEMENTS The Funds purchase (and the custodian takes possession of) U.S. government securities from 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. At December 31, 2003, MMP did not have any repurchase agreements outstanding. 6. FUTURES CONTRACTS The Funds may from time to time enter into futures contracts. Securities or cash equal to the initial margin amount are either deposited with the broker or segregated by the custodian upon entering into the futures contract. Additional securities are also segregated up to the current market value of the futures contracts. 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 received or made 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. The Funds enter into such contracts typically 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. At December 31, 2003, the Funds did not have any open futures contracts. 7. FORWARD FOREIGN CURRENCY CONTRACTS HYBT and CAF may enter into forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is extinguished, through either delivery or offset by entering into another forward foreign currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was extinguished or offset. The Fund bears the market risk that arises from changes in foreign currency exchange rates and the credit risk should a counterparty be unable to meet the terms of such contracts. At December 31, 2003, HYBT and CAF did not have any open forward foreign currency contracts. 8. 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 normally settle 15 to 45 days after the trade date. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At December 31, 2003, the Funds did not hold any TBA securities. 9. 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, 2003 DECEMBER 31, 2002 --------------------------------------------------------------------------------------------------- MANAGED ASSETS TRUST Shares sold................................................. 620,844 386,025 Shares issued on reinvestment............................... 437,644 1,397,610 Shares reacquired........................................... (1,625,662) (2,559,554) --------------------------------------------------------------------------------------------------- Net Decrease................................................ (567,174) (775,919) ---------------------------------------------------------------------------------------------------
48 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED YEAR ENDED DECEMBER 31, 2003 DECEMBER 31, 2002 --------------------------------------------------------------------------------------------------- HIGH YIELD BOND TRUST Shares sold................................................. 2,977,348 2,743,180 Shares issued on reinvestment............................... 668,649 1,061,672 Shares reacquired........................................... (1,324,438) (1,842,703) --------------------------------------------------------------------------------------------------- Net Increase................................................ 2,321,559 1,962,149 --------------------------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND Shares sold................................................. 308,890 1,162,480 Shares issued on reinvestment............................... 8,160 351,774 Shares reacquired........................................... (2,001,426) (3,599,104) --------------------------------------------------------------------------------------------------- Net Decrease................................................ (1,684,376) (2,084,850) --------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO Shares sold................................................. 265,892,702 1,270,701,166 Shares issued on reinvestment............................... 3,072,564 5,477,804 Shares reacquired........................................... (316,384,220) (1,236,204,304) --------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... (47,418,954) 39,974,666 ---------------------------------------------------------------------------------------------------
10. CAPITAL LOSS CARRYFORWARD At December 31, 2003, MAT, CAF and MMP had, for Federal income tax purposes, approximately $6,609,000, $372,516,000 and $8,000, respectively, of unused capital loss carryforwards available to offset future capital gains. To the extent that these carryforward losses are used to offset capital gains, it is probable that the gains so offset will not be distributed. The amount and year of expiration for each carryforward loss is indicated below. Expiration occurs on December 31 of the year indicated:
2008 2009 2010 2011 --------------------------------------------------------------------------------------------------------- Managed Assets Trust........................... -- -- $ 6,609,000 -- Capital Appreciation Fund...................... $41,615,000 $151,853,000 74,123,000 $104,925,000 Money Market Portfolio......................... -- -- 8,000 -- ---------------------------------------------------------------------------------------------------------
In addition, CAF had $7,675,176 of capital losses realized after October 31, 2003, which were deferred for tax purposes to the first day of the following fiscal year. 11. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS At December 31, 2003, the tax basis components of distributable earnings were:
MAT HYBT CAF MMP ---------------------------------------------------------------------------------------------------------- Undistributed ordinary income.................... $ 142,183 $ 53,663 -- $ 13,904 ---------------------------------------------------------------------------------------------------------- Accumulated capital gains (losses)............... (6,609,307) 65,843 $(372,516,339) (7,821) ---------------------------------------------------------------------------------------------------------- Unrealized appreciation.......................... 21,914,600 5,902,096 161,436,644 -- ----------------------------------------------------------------------------------------------------------
At December 31, 2003, the difference between book basis and tax basis unrealized appreciation and depreciation was attributable primarily to wash sale loss deferrals. 49 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) The tax character of distributions paid during the year ended December 31, 2003 was:
MAT HYBT CAF MMP ---------------------------------------------------------------------------------------------------------- Ordinary income.................................. $ 6,863,313 $ 6,515,534 $ 389,109 $3,028,884 Capital.......................................... -- -- 64,253 -- ---------------------------------------------------------------------------------------------------------- Total............................................ $ 6,863,313 $ 6,515,534 $ 453,362 $3,028,884 ----------------------------------------------------------------------------------------------------------
At December 31, 2002, the tax basis components of distributable earnings were:
MAT HYBT CAF MMP ---------------------------------------------------------------------------------------------------------- Undistributed ordinary income.................... $ 123,509 $ 150,365 -- $ 13,614 ---------------------------------------------------------------------------------------------------------- Accumulated capital losses....................... (9,305,019) (4,132,529) $(267,591,724) (7,675) ---------------------------------------------------------------------------------------------------------- Unrealized depreciation.......................... (20,792,163) (3,047,351) (137,842,146) -- ----------------------------------------------------------------------------------------------------------
At December 31, 2002, the difference between book basis and tax basis of unrealized appreciation and depreciation was attributable primarily to wash sale and other loss deferrals. The tax character of distributions paid during the year ended December 31, 2002 was:
MAT HYBT CAF MMP ---------------------------------------------------------------------------------------------------------- Ordinary income.................................. $ 17,095,483 $ 8,752,260 $ 16,146,199 $5,432,655 Long-term capital gains.......................... 1,692,616 -- -- -- Capital.......................................... -- -- 124,893 -- ---------------------------------------------------------------------------------------------------------- Total............................................ $ 18,788,099 $ 8,752,260 $ 16,271,092 $5,432,655 ----------------------------------------------------------------------------------------------------------
12. ADDITIONAL INFORMATION The Funds have received the following information from Citigroup Asset Management ("CAM"), the Citigroup business unit which includes the Funds' Investment Manager and other investment advisory companies, all of which are indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an affiliate, into the transfer agent business in the period 1997-1999. As CAM currently understands the facts, at the time CAM decided to enter the transfer agent business, CAM sub-contracted for a period of five years certain of the transfer agency services to a third party and also concluded a revenue guarantee agreement with this sub-contractor providing that the sub-contractor would guarantee certain benefits to CAM or its affiliates (the "Revenue Guarantee Agreement"). In connection with the subsequent purchase of the sub-contractor's business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee Agreement was amended eliminating those benefits in exchange for arrangements that included a one-time payment from the sub-contractor. The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue Guarantee Agreement with the sub-contractor at the time the Boards considered and approved the transfer agent arrangements. Nor were the Boards informed of the subsequent amendment to the Revenue Guarantee Agreement when that occurred. CAM has begun to take corrective actions. CAM will pay to the applicable funds approximately $17 million (plus interest) that CAM and its affiliates received from the Revenue Guarantee Agreement and its amendment. CAM also plans an independent review to verify that the transfer agency fees charged by CAM were fairly priced as compared to competitive alternatives. CAM is instituting new procedures and making changes designed to ensure no similar arrangements are entered into in the future. CAM has briefed the SEC, the New York State Attorney General and other regulators with respect to this matter, as well as the U.S. Attorney who is investigating the matter. CAM is cooperating with governmental authorities on this matter, the ultimate outcome of which is not yet determinable. 50 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
MANAGED ASSETS TRUST 2003 2002 2001()(1) 2000()(1) 1999 ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR............... $13.20 $15.55 $17.94 $21.12 $19.99 ------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income.......................... 0.39 0.45 0.49 0.48 0.39 Net realized and unrealized gain (loss)........ 2.51 (1.79) (1.40) (0.71) 2.30 ------------------------------------------------------------------------------------------------------------ Total Income (Loss) From Operations.............. 2.90 (1.34) (0.91) (0.23) 2.69 ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income.......................... (0.38) (0.92) (0.46) (0.41) (0.39) Net realized gains(2).......................... -- (0.09) (1.02) (2.54) (1.17) ------------------------------------------------------------------------------------------------------------ Total Distributions.............................. (0.38) (1.01) (1.48) (2.95) (1.56) ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR..................... $15.72 $13.20 $15.55 $17.94 $21.12 ------------------------------------------------------------------------------------------------------------ TOTAL RETURN(3).................................. 21.98% (8.60)% (5.08)% (1.62)% 14.22% ------------------------------------------------------------------------------------------------------------ NET ASSETS, END OF YEAR (000S)................... $289,874 $250,910 $307,520 $342,834 $339,438 ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................... 0.59% 0.61% 0.59% 0.59% 0.60% Net investment income.......................... 2.64 2.80 2.95 2.47 2.17 ------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE.......................... 84% 39% 59% 56% 51% ------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND TRUST 2003()(1) 2002()(1) 2001()(1) 2000()(1) 1999 ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............... $8.11 $9.04 $8.77 $9.47 $9.85 ---------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income.......................... 0.77 0.78 0.80 0.79 0.81 Net realized and unrealized gain (loss)........ 1.59 (0.40) 0.04 (0.70) (0.38) ---------------------------------------------------------------------------------------------------------------- Total Income From Operations..................... 2.36 0.38 0.84 0.09 0.43 ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income.......................... (0.71) (1.31) (0.57) (0.79) (0.81) ---------------------------------------------------------------------------------------------------------------- Total Distributions.............................. (0.71) (1.31) (0.57) (0.79) (0.81) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR..................... $9.76 $8.11 $9.04 $8.77 $9.47 ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN(3).................................. 29.15% 4.57% 9.55% 0.97% 4.42% ---------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000S)................... $95,852 $60,818 $50,016 $34,678 $30,317 ---------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................... 0.65% 0.71% 0.73% 0.83% 0.81% Net investment income.......................... 8.28 8.81 8.79 8.74 8.85 ---------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.......................... 80% 100% 110% 80% 112% ----------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. (4) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25%. 51 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
CAPITAL APPRECIATION FUND 2003(1) 2002(1) 2001(1) 2000 1999 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $44.38 $60.30 $82.01 $108.80 $ 72.74 ------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................ 0.07 0.14 0.61 0.29 0.04 Net realized and unrealized gain (loss)...... 10.99 (15.24) (22.01) (23.29) 38.08 ------------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............ 11.06 (15.10) (21.40) (23.00) 38.12 ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income........................ (0.03) (0.81) (0.31) (0.04) (0.07) Net realized gains(2)........................ -- -- -- (3.75) (1.99) Capital...................................... (0.00)* (0.01) -- -- -- ------------------------------------------------------------------------------------------------------------------------- Total Distributions............................ (0.03) (0.82) (0.31) (3.79) (2.06) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $55.41 $44.38 $60.30 $ 82.01 $108.80 ------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................ 24.91% (25.09)% (26.09)% (21.88)% 53.52% ------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (MILLIONS)............. $986 $864 $1,300 $1,797 $1,915 ------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................. 0.82% 0.84% 0.84% 0.83% 0.83% Net investment income........................ 0.14 0.27 0.91 0.30 0.07 ------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................ 59% 52% 47% 30% 37% ------------------------------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------------------------------------------------- Net investment income(5)....................... 0.008 0.014 0.036 0.060 0.049 Distributions from net investment income....... (0.008) (0.014) (0.036) (0.060) (0.049) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)(6)............................. 0.78% 1.39% 3.71% 6.18% 4.96% ------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000S)................. $345,825 $393,244 $353,269 $147,117 $119,970 ------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(5)(7)............................... 0.40% 0.40% 0.40% 0.40% 0.37% Net investment income........................ 0.78 1.38 3.46 6.04 4.96 -------------------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. (4) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25%. (5) The Travelers Insurance Company has reimbursed Money Market Portfolio for $63,316, $71,805, $44,028, $47,023 and $85,612 in expenses for the years ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively. If such expenses were not reimbursed, the per share decreases to net investment income and the actual expense ratios would have been:
DECREASES TO EXPENSE RATIO NET INVESTMENT INCOME WITHOUT REIMBURSEMENTS ------------------------------------------------------ ----------------- 2003 2002 2001 2000 1999 2003 2002 ------ ------ ------ ------ ------ ------ ----- MMP $0.000** $0.000** $0.000** $0.000** $0.001 0.42% 0.42% EXPENSE RATIO WITHOUT REIMBURSEMENTS --------------------------- 2001 2000 1999 ----- ----- ----- MMP 0.42% 0.44% 0.50%
(6) Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be reduced. (7) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 0.40%. * Amount represents less than $0.01 per share. ** Amount represents less than $0.001 per share. 52 -------------------------------------------------------------------------------- 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 ("Funds") as of December 31, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with 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, 2003, by correspondence with the custodian and broker. 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 Funds as of December 31, 2003, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America. [KPMG LLP SIGNATURE] New York, New York February 13, 2004 53 -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) For Federal tax purposes, the Funds hereby designate for the fiscal year ended December 31, 2003: - For corporate shareholders, the percentages of ordinary dividends that qualify for the dividends received deduction are: Managed Assets Trust........................................ 40.99% Capital Appreciation Fund................................... 100.00%
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........................................ 14.91% Capital Appreciation Fund................................... 0.53 Money Market Portfolio...................................... 2.84
54 -------------------------------------------------------------------------------- MANAGER OVERVIEW U.S. GOVERNMENT SECURITIES PORTFOLIO PERFORMANCE UPDATE During its fiscal year ended December 31, 2003, the fund returned 2.75%. In comparison, the fund outperformed its unmanaged benchmark, the Merrill Lynch U.S. Treasury/Agency Master Index,(i) which returned 2.36% for the same period. The fund also outperformed its Lipper general U.S. Government variable funds average, which was 2.33% for the same period.(1) MARKET OVERVIEW When the period began, concerns about a faltering economy and stock market volatility, coupled with expectations that interest rates would drop, triggered investor demand for higher-rated fixed-income securities. Because bond prices typically move opposite to interest rate movements, many longer-term fixed-income securities appreciated over the first five months of the period. The Fed proceeded to reduce its interest rate targets in June to their lowest levels since the Eisenhower Administration. Shortly after the Fed's rate reduction, signs suggesting that gross domestic product ("GDP")(ii) growth was stronger than expected generated concerns that inflation could pick up. This led investors to question whether the Fed's rate-cutting cycle had run its course, which contributed to a decline in prices of bonds. The decline was exacerbated due to selling from investors holding mortgage-backed securities ("MBS") in their portfolios. Many institutional investors who had previously bought U.S. Treasuries when long-term yields were dropping to help hedge their portfolios' exposure to MBS sold Treasuries as long-term rates rose to help lower their portfolios' duration, a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates, to better preserve their value against a further rise in long-term rates. Prices of Treasuries bounced back to an extent in September. Rate concerns resurfaced after the Commerce Department released preliminary third-quarter data stating that the economy grew at its fastest pace in almost 20 years. According to estimates that were revised higher later in the quarter, real GDP increased 8.2% over the quarter.(iii) However, selling in the Treasury markets was more contained than it was in July as some of this growth was attributable to one-time factors, such as the tax cuts and end of major combat in Iraq, and many analysts and investors felt that the Fed appeared to be in a holding pattern from adjusting its rate targets. In this environment we reduced the fund's duration by trading in its longer-term U.S. Treasury and Collateralized Mortgage Obligations for those with shorter maturities. This allowed us to benefit from the decline in fixed income volatility and the reduction of short-term interest rates. Thank you for your investment in the U.S. Government Securities Portfolio. We appreciate that you have entrusted us to manage your money and value our relationship with you. Sincerely, /s/ Gene Collins Gene Collins Travelers Asset Management International Company LLC January 26, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. The opinions expressed are current only through the end of the period of this report as stated on the cover and are subject to change at any time based on market or other conditions. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change. Please refer to pages 63 through 64 for a list and percentage breakdown of the fund's holdings. Fund performance reflects fund expenses, but does not reflect any charges or expenses imposed by your variable contract. Index performance does not reflect any deduction for fees or expenses. An investor may not invest directly in an index. (1) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2003, calculated among the 51 funds in the Lipper general U.S. Government variable funds category including the reinvestment of dividends and capital gains, if any. (i) The Merrill Lynch U.S. Treasury/Agency Master Index is an index comprised of U.S. Treasury and Agency securities. (ii) Gross domestic product is a market value of goods and services produced by labor and property in a given country. (iii) Source: Bureau of Economic Analysis 55 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- U.S. GOVERNMENT SECURITIES PORTFOLIO AS OF 12/31/03 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/03 2.75% Five Years Ended 12/31/03 6.27 Ten Years Ended 12/31/03 7.20 CUMULATIVE TOTAL RETURN ----------------------- 12/31/93 through 12/31/03 100.33%
This chart assumes an initial investment of $10,000 made on December 31, 1993, assuming reinvestment of dividends, through December 31, 2003. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. The Merrill Lynch U.S. Treasury/Agency Master Index (also known as the U.S. Government Index) tracks the performance of the combined U.S. Treasury and U.S. Agency markets. The Merrill Lynch U.S. Treasuries 15+ Years Index tracks the performance of the direct Sovereign debt of the U.S. Government. It includes all U.S. dollar-denominated U.S. Treasury Notes and Bonds having at least 15 years remaining term to maturity and a minimum amount outstanding of $1 billion. The Merrill Lynch Mortgage Master Index (also called the Mortgage Backed Securities Index) tracks the performance of the U.S. dollar-denominated 30-year, 15-year and balloon pass-through mortgage securities having at least $150 million outstanding per generic production year (defined as the aggregation of all mortgage pools having a common issuer, type, coupon and production year.) (LINE GRAPH)
50% MERRILL LYNCH U.S. TREASURIES 15+ MERRILL LYNCH U.S. YEARS INDEX AND 50% U.S. GOVERNMENT TREASURY/AGENCY MORTGAGE MASTER SECURITIES PORTFOLIO CONSUMER PRICE INDEX MASTER INDEX INDEX -------------------- -------------------- ------------------ ------------------- 12/93 10000.00 10000.00 10000.00 10000.00 12/94 9436.00 10268.00 9677.00 8815.00 12/95 11740.00 10529.00 11449.00 10950.00 12/96 11911.00 10878.00 11765.00 11181.00 12/97 13414.00 11062.00 12895.00 12562.00 12/98 14783.00 11240.00 14164.00 13879.00 12/99 14157.00 11575.00 13866.00 13349.00 12/00 16215.00 11968.00 15683.00 15504.00 12/01 17159.00 12433.00 16809.00 16426.00 12/02 19497.00 12729.00 18703.00 18605.00 12/03 20033.00 12968.00 19145.00 19118.00
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data represents past performance including the investment return and principal value of an investment, which 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 total returns and graph presented above do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 56 -------------------------------------------------------------------------------- MANAGER OVERVIEW SOCIAL AWARENESS STOCK PORTFOLIO PERFORMANCE UPDATE During its fiscal year ended December 31, 2003, the fund returned 28.85%. In comparison, the fund outperformed its benchmark, the unmanaged S&P 500 Index,(i) which returned 28.67% for the same period. The fund underperformed its Lipper specialty/miscellaneous variable funds average, which was 40.40% for the same period.(1) MARKET OVERVIEW This year has been one where lower quality, low-priced, high volatility stocks outperformed companies with good balance sheets, sound business plans and favorable long-term outlooks. Early this year, the economy did not show any clear signs of improvement and the stock market tested multi-year lows. Aggressive monetary and fiscal policies finally manifested themselves in the third quarter with the best domestic economic growth the U.S. had seen in almost two decades. Corporate expenses were cautiously controlled during the economic downturn, which allowed for dramatic operating leverage as modest revenue increases started to translate into positive earnings surprises in the second and third quarters. This was the backdrop for the dramatic bounce in the equity markets since the end of the first quarter. Many of the biggest gainers were single-digit stocks that had been oversold and were the worst performers over the previous three years. FUND PERFORMANCE Not surprisingly, the largest contributors to the fund's performance came from the technology sector. The biggest contributor to performance for the period was the fund's position in Intel Corporation. Intel is the largest semiconductor manufacturer in the world and was a big beneficiary in the recovery in demand for semiconductors used in personal computers, laptops and corporate network servers. The company has been reaping the benefit of significant investments made in research and development and manufacturing over the last several years. The other two top contributors were EMC Corporation and Cisco Systems, Inc. Cisco manufactures and sells networking and communications products worldwide. Cisco benefited from market share gains in the network router and switch segments, growth of emerging technologies such as VOIP (Voice Over Internet Protocol) telephony and a general improvement in the business environment. EMC manufactures and sells a wide range of network storage platforms, software and services. During 2003, they benefited from market share gains in the high-end storage market, resurgence in mid-range storage devices driven by EMC's relationship with Dell and a general pickup in business spending as well. On the negative side, the largest single detractor from fund performance during the period was Kraft Foods Inc in the consumer staples sector. The company's stock suffered during the period in part because of investor concerns over ties to its parent company, Altria Group, Inc. (formerly Phillip Morris), and its exposure to ongoing tobacco litigation issues and a decline in the company's long-term growth expectations. The fund no longer holds Kraft. HCA Inc. in the Health Care sector was the second largest detractor from fund performance during the period. HCA suffered a considerable drop in share price, falling from a five-year high of $52.05 per share in June of 2002 (before the start of the period) to a low of $27.30 per share on April 16, 2003. The company has been the focus of a number of government investigations as well as civil and criminal suits brought against it, alleging fraud and accounting irregularities. The third biggest detractor from fund performance in 2003 was Hartford Financial Services Group, Inc. ("HIG") in the financial services sector. HIG provides multiple lines of insurance coverage and financial services. The insurance industry was hit hard by losses related to terrorism in 2001 and by the stock market's difficulties in much of 2002. The fund no longer holds HIG. (1) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2003, calculated among the 130 funds in the Lipper specialty/miscellaneous variable funds category including the reinvestment of dividends and capital gains, if any. 57 In summary, our core philosophy continues to be based on investing in leading companies across a broad cross-section of sectors and industries. Our selection process focuses on companies that we perceive to have significant advantages and excellent competitive market positions. With interest rates at relatively low historical levels, we believe that well-positioned and conservatively-financed companies could once again sell at a premium to the overall market, offering a relatively compelling investment opportunity as part of a diversified portfolio. Thank you for your investment in the Social Awareness Stock Portfolio. We appreciate that you have entrusted us to manage your money and value our relationship with you. Sincerely, /s/ Bill Theriault Bill Theriault, CFA Portfolio Manager January 21, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. The opinions expressed are current only through the end of the period of this report as stated on the cover and are subject to change at any time based on market or other conditions. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings as of this date were: Intel Corp. (3.07%), Microsoft Corp. (3.07%), Pfizer, Inc. (2.88%), American International Group, Inc. (2.48%), Viacom, Inc. (2.14%), Cisco Systems, Inc. (2.06%), American Express Co. (1.99%), Ambac Financial Group, Inc. (1.92%), Alcoa, Inc. (1.91%), Bank of New York, Inc. (1.87%). Please refer to pages 65 through 69 for a list and percentage breakdown of the fund's holdings. Fund performance reflects fund expenses, but does not reflect any charges or expenses imposed by your variable contract. Index performance does not reflect any deduction for fees or expenses. An investor may not invest directly in an index. RISK: The fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on fund performance. (i) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. 58 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- SOCIAL AWARENESS STOCK PORTFOLIO AS OF 12/31/03 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/03 28.85% Five Years Ended 12/31/03 (1.20) Ten Years Ended 12/31/03 9.45 CUMULATIVE TOTAL RETURN ------------------------ 12/31/93 through 12/31/03 146.79%
This chart assumes an initial investment of $10,000 made on December 31, 1993, assuming reinvestment of dividends, through December 31, 2003. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and the over-the-counter markets. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [LINE GRAPH]
SOCIAL AWARENESS STOCK PORTFOLIO S&P 500 INDEX CONSUMER PRICE INDEX ---------------------- ------------- -------------------- 12/93 10000 10000 10000 12/94 9731 10132 10268 12/95 12979 12353 10529 12/96 15572 15188 10878 12/97 19821 20254 11062 12/98 26217 26075 11240 12/99 30368 31559 11575 12/00 30220 28687 11968 12/01 25474 23588 12433 12/02 19153 18376 12729 12/03 24679 23644 12968
-------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data represents past performance including the investment return and principal value of an investment, which 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 total returns and graph presented above do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 59 -------------------------------------------------------------------------------- MANAGER OVERVIEW PIONEER FUND PORTFOLIO SPECIAL SHAREHOLDER NOTICE Please note that the Utilities Portfolio has changed its name to Pioneer Fund Portfolio and modified its investment objective and strategy. Now advised by Travelers Asset Management International Company LLC and sub-advised by Pioneer Investment Management, Inc., the fund's revised investment objective is to seek reasonable income and capital growth and it invests substantially in equity securities, primarily those of U.S. issuers. Pioneer has been the fund's sub-adviser since May 1, 2003. PERFORMANCE REVIEW During its fiscal year ended December 31, 2003, the fund returned 23.78%. In comparison, the fund underperformed its unmanaged benchmark, the S&P 500 Index,(i) which returned 28.67% for the same period. The fund also underperformed its Lipper multi-cap core variable funds category average, which was 31.84% over the same time frame.(1) MARKET OVERVIEW Strong corporate-earnings comparisons led investors to push share prices higher during 2003. Confidence in the economic recovery built gradually during the year, as the positive effects of historically low interest rates, Federal income-tax cuts, and the weak U.S. dollar converged to revive corporate profits. Growth in capital spending, especially in information technology, accompanied continued strong consumer activity to support big gains in the gross domestic product numbers in the second half of the year. While some of the worries that investors have had over the past couple of years -- namely, corporate scandals, the terrorist threat, and government budget deficits -- threatened to bubble over from time to time, they evidently did not seem to discourage too many people from buying shares once again. So, after approximately three years of "bearish" market conditions, the U.S. stock market generated large gains in 2003. PORTFOLIO PERFORMANCE For the period managed, the fund's strongest performance contribution came from its investment exposure to materials, particularly metals and mining. Phelps Dodge Corporation (copper), Alcoa, Inc. (aluminum), and Rio Tinto, PLC. (diversified mining) all did extremely well for the portfolio. The fund also realized a large percentage gain on its position in Newmont Mining (gold) when we sold it in the fourth quarter. In industrials, an above-average performing sector where the fund was overweight, the fund had exceptional performance from General Dynamics Corp. in the aerospace & defense sector and from agricultural machinery maker, Deere & Co. The fund's underweight position in General Electric also contributed significantly to relative performance. With respect to sector investments that detracted from relative performance, utilities were the major culprit, followed by consumer staples, consumer discretionary, and information technology. The fund was overweight utilities as a result of the transition from the prior utilities-concentrated manager, and the sector underperformed during the period, detracting from the fund's relative performance. Both of the consumer sectors saw the biggest returns from turnaround stories; we favored, as we usually do, the stronger and steadier consumer businesses. For instance, retailers that had struggled during the recession came back to life and excited investors as the economy recovered. The fund had positions in companies that had held up relatively well in the recession and then did not show such dramatic improvement. Technology was a profitable area for the portfolio in the period. The fund was approximately equal-weighted with the S&P 500 Index, and the fund's investments in technology rose similarly in value. Although the fund owned many of the top- performing technology companies, its smaller positions relative to their market weights in two of the very biggest large-cap winners, Cisco Systems, Inc. and Intel Corp., impaired relative returns. The fund was underweight healthcare, a sector that generally underperformed during the period. We added four stocks to the portfolio in the second half, and we deleted six. Biomet, Inc. is a leading manufacturer of orthopedic implants, principally artificial knees and hips, and impresses us with its outstanding management and strong future earnings potential. Charter One Financial, Inc., an Ohio-based bank, has a conservative lending record, tight cost controls, (1) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2003, calculated among the 121 funds in the Lipper multi-cap core variable funds category including the reinvestment of dividends and capital gains, if any. 60 attractive returns, and dividend yield above 3%. Philadelphia Suburban Corp. is one of the most important remaining publicly traded water utilities in the U.S., with an unbroken record of annual dividend payments going back to 1939. Shareowners will also note a small holding in Medco Health Solutions, Inc., a pharmacy benefit manager "spun out" to us by its former parent, Merck. In conclusion, Pioneer Investments appreciates your continued confidence. Respectfully Submitted, /s/ John Carey John Carey Pioneer Investment Management, Inc. The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. The opinions expressed are current only through the end of the period of this report as stated on the cover and are subject to change at any time based on market or other conditions. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings as of this date were: Chevron Texaco, Corp. (3.07%), International Business Machines (2.35%), Exxon Mobil Corp. (1.92%), SBC Communications, Inc. (1.84%), McGraw Hill Companies, Inc. (1.76%), Rio Tinto PLC (1.73%), Target Corp. (1.65%), Intel Corp. (1.63%), Walgreen Co. (1.62%), Reed Elsevier N.V. (1.57%). Please refer to pages 70 through 74 for a list and percentage breakdown of the fund's holdings. Fund performance reflects fund expenses, but does not reflect any charges or expenses imposed by your variable contract. Index performance does not reflect any deduction for fees or expenses. An investor may not invest directly in an index. RISK: The fund invests in REITS, which are significantly affected by the market for real estate and the fund indirectly bears its proportionate share of any management and other expenses paid by the REITS in which it invests. Additionally, the fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on fund performance. (i) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. 61 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- PIONEER FUND PORTFOLIO AS OF 12/31/03 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/03 23.78% Five Years Ended 12/31/03 (3.75) 2/4/94* through 12/31/03 6.06 CUMULATIVE TOTAL RETURN ----------------------- 2/4/94* through 12/31/03 79.05% * Commencement of operations.
This chart assumes an initial investment of $10,000 made on February 4, 1994, assuming reinvestment of dividends, through December 31, 2003. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. The S&P Utility Index is an unmanaged market cap-weighted index of natural gas and electric companies. The Consumer Price Index is a measure of the average change in prices over time in a fixed market basket of goods and services. [LINE GRAPH]
PIONEER FUND PORTFOLIO S&P 500 INDEX+ S&P UTILITY INDEX+ CONSUMER PRICE INDEX ---------------------- -------------- ------------------ -------------------- 2/4/94 10000 10000 10000 10000 12/94 10170 10072 9500 10205 12/95 13149 13852 12611 10464 12/96 14638 17031 13328 10811 12/97 18340 22712 16613 10995 12/98 21680 29240 19078 11171 12/99 21662 35390 17327 11504 12/00 26917 32168 27236 11895 12/01 20728 26450 18945 12357 12/02 14465 20606 13263 12651 12/31/03 17905 26514 16746 12889
+ Due to the change in the Fund's adviser, sub-adviser, investment objective and strategy, it is the opinion of management that the S&P 500 Index more accurately reflects the current composition of the Pioneer Fund Portfolio than the S&P Utility Index. In future reporting, the S&P 500 Index will be used as the sole basis of comparison of total return performance and the S&P Utility Index will no longer be shown. -------------------------------------------------------------------------------- PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The performance data represents past performance including the investment return and principal value of an investment, which 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 total returns and graph presented above do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance shown. 62 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2003 U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE AMOUNT SECURITY VALUE ---------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS -- 20.6% U.S. Treasury Notes: $ 1,500,000 2.625% due 5/15/08........................................ $ 1,477,911 4,000,000 5.000% due 8/15/11........................................ 4,281,876 1,000,000 4.250% due 8/15/13........................................ 1,001,563 U.S. Treasury Bonds: 4,000,000 8.875% due 8/15/17........................................ 5,666,252 10,000,000 6.000% due 2/15/26........................................ 11,092,580 4,000,000 6.375% due 8/15/27........................................ 4,646,876 15,000,000 5.500% due 8/15/28 (a).................................... 15,628,725 ---------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $43,974,189)..... 43,795,783 ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 64.5% ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGHS -- 33.1% Federal Home Loan Mortgage Corp. (FHLMC): 3,595,553 4.000% due 4/1/10......................................... 3,618,125 7,859,270 4.000% due 1/15/19 (b)(c)................................. 7,677,524 786,823 7.000% due 7/1/29......................................... 822,722 99,106 8.000% due 9/1/30......................................... 106,927 1,710,614 6.500% due 6/1/31......................................... 1,792,292 971,911 7.500% due 5/1/32......................................... 1,044,011 9,801,038 4.500% due 4/1/33......................................... 9,391,520 Federal National Mortgage Association (FNMA): 2,946,453 5.500% due 6/1/16 (d)..................................... 3,060,335 3,029,155 5.000% due 1/1/17 (d)..................................... 3,094,389 1,701,153 6.000% due 5/1/17......................................... 1,786,953 4,962,353 4.500% due 10/1/23........................................ 4,856,414 1,573,194 6.500% due 5/1/32 (d)..................................... 1,652,410 3,925,320 7.500% due 7/1/32 (d)..................................... 4,075,716 27,522,272 4.000% due 5/1/33 (d)..................................... 26,918,289 Government National Mortgage Association (GNMA): 448,431 9.000% due 9/15/09 (d).................................... 491,670 136,143 8.500% due 5/15/18 (d).................................... 150,770 ---------------------------------------------------------------------------------------- 70,540,067 ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY NOTES AND BONDS -- 31.4% 1,000,000 Federal Farm Credit Bank, 6.800% due 10/12/07............... 1,132,368 Federal Home Loan Bank (FHLB): 5,000,000 4.500% due 8/14/09........................................ 5,176,965 3,000,000 5.875% due 2/15/11........................................ 3,276,819 8,000,000 5.750% due 5/15/12........................................ 8,727,832 Federal Home Loan Mortgage Corp. (FHLMC): 1,500,000 4.875% due 11/15/13....................................... 1,519,169 4,330,000 6.000% due 6/27/17........................................ 4,573,069 Federal National Mortgage Association (FNMA): 5,000,000 5.500% due 7/18/12........................................ 5,123,015 3,000,000 6.250% due 5/15/29........................................ 3,260,544 13,949,000 Financing Corp. (FICO) Strips, Series 13, due 6/27/11....... 10,025,913 5,820,515 National Archives Facility Trust, COP, 8.500% due 9/1/19.... 7,203,079
SEE NOTES TO FINANCIAL STATEMENTS. 63 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE AMOUNT SECURITY VALUE ---------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY NOTES AND BONDS -- 31.4% (CONTINUED) $10,000,000 Resolution Funding Corp. Strips, due 1/15/21................ $ 3,866,970 4,680,000 Student Loan Marketing Association (SLMA), zero coupon due 5/15/14................................................... 2,153,142 9,000,000 Tennessee Valley Authority Certificates, 7.125% due 5/1/30.................................................... 10,831,734 ---------------------------------------------------------------------------------------- 66,870,619 ---------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost -- $134,685,189)...................................... 137,410,686 ---------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 11.6% Federal Home Loan Mortgage Corp. (FHLMC): 687,830 Series 1103, Class J, 8.500% due 6/15/21.................. 691,294 3,000,000 Series 2422, Class CH, 6.500% due 2/15/32................. 3,131,817 5,000,000 Series 2451, Class QB, 6.500% due 3/15/30................. 5,243,927 Federal National Mortgage Association (FNMA): 5,593,000 Series 2002-52, Class PC, 6.000% due 9/25/32.............. 5,871,657 5,000,000 Series 2003-63, Class GU, 4.000% due 7/25/33.............. 5,100,737 4,000,000 GNMA, Series 2001-21, Class PE, 6.500% due 5/16/31.......... 4,250,368 500,000 LB-UBS Commercial Mortgage Trust, Series 2003-C8, Class A4, 5.124% due 11/15/32 (e)......................... 509,675 ---------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost -- $24,595,084)....................................... 24,799,475 ---------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.3% 6,994,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds at maturity -- $6,994,311; (Fully collateralized by U.S. Treasury Bonds, 6.125% due 11/15/27; Market value -- $7,135,747) (Cost -- $6,994,000).......................... 6,994,000 ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $210,248,462*)......... $212,999,944 ----------------------------------------------------------------------------------------
(a) All or a portion of this security is segregated for "to be announced" securities. (b) Security acquired under mortgage dollar roll agreement (See Note 5). (c) Security is traded on a "to be announced" basis (See Note 6). (d) Date shown represents the last in range of maturity dates. (e) Variable rate security. * Aggregate cost for Federal income tax purposes is $210,312,474. Abbreviation used in this schedule: COP -- Certificate of Participation SEE NOTES TO FINANCIAL STATEMENTS. 64 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- COMMON STOCK -- 96.7% -------------------------------------------------------------------------------------- AIR FREIGHT AND COURIERS -- 1.3% 13,600 United Parcel Service, Inc., Class B Shares................. $ 1,013,880 -------------------------------------------------------------------------------------- AIRLINES -- 0.5% 25,230 Southwest Airlines Co. ..................................... 407,212 -------------------------------------------------------------------------------------- BANKS -- 6.5% 45,000 The Bank of New York Co., Inc. ............................. 1,490,400 31,500 Bank One Corp. ............................................. 1,436,085 7,200 Comerica Inc. .............................................. 403,632 6,500 Fifth Third Bancorp......................................... 384,150 25,000 Wells Fargo & Co. .......................................... 1,472,250 -------------------------------------------------------------------------------------- 5,186,517 -------------------------------------------------------------------------------------- BEVERAGES -- 2.4% 22,400 The Coca-Cola Co. .......................................... 1,136,800 17,500 PepsiCo, Inc. .............................................. 815,850 -------------------------------------------------------------------------------------- 1,952,650 -------------------------------------------------------------------------------------- BIOTECHNOLOGY -- 2.0% 19,500 Amgen, Inc.+................................................ 1,205,100 15,600 MedImmune, Inc.+............................................ 396,240 -------------------------------------------------------------------------------------- 1,601,340 -------------------------------------------------------------------------------------- CHEMICALS -- 3.9% 22,400 Air Products & Chemicals, Inc. ............................. 1,183,392 25,000 E.I. du Pont de Nemours & Co. .............................. 1,147,250 20,000 Praxair, Inc. .............................................. 764,000 -------------------------------------------------------------------------------------- 3,094,642 -------------------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 2.6% 18,100 Automatic Data Processing Inc. ............................. 716,941 10,200 First Data Corp. ........................................... 419,118 24,500 Paychex, Inc. .............................................. 911,400 -------------------------------------------------------------------------------------- 2,047,459 -------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 4.1% 67,600 Cisco Systems, Inc.+........................................ 1,642,004 44,300 Motorola, Inc. ............................................. 623,301 60,400 Nokia Oyj, Sponsored ADR.................................... 1,026,800 -------------------------------------------------------------------------------------- 3,292,105 -------------------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 3.8% 35,300 Dell Inc.+.................................................. 1,198,788 85,800 EMC Corp.+.................................................. 1,108,536 32,200 Hewlett-Packard Co. ........................................ 739,634 -------------------------------------------------------------------------------------- 3,046,958 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 65 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 9.3% 6,200 Alliance Capital Management Holding LP...................... $ 209,250 32,900 American Express Co. ....................................... 1,586,767 8,000 Capital One Financial Corp. ................................ 490,320 16,200 The Charles Schwab Corp. ................................... 191,808 20,000 J.P. Morgan Chase & Co. .................................... 734,600 29,750 MBNA Corp. ................................................. 739,288 10,000 Merrill Lynch & Co., Inc. .................................. 586,500 24,000 Morgan Stanley.............................................. 1,388,880 9,900 SLM Corp. .................................................. 373,032 17,500 State Street Corp. ......................................... 911,400 4,500 T. Rowe Price Group Inc. ................................... 213,345 -------------------------------------------------------------------------------------- 7,425,190 -------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.0% 22,800 Verizon Communications Inc. ................................ 799,824 -------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 0.9% 10,000 Consolidated Edison, Inc. .................................. 430,100 10,000 The Southern Co. ........................................... 302,500 -------------------------------------------------------------------------------------- 732,600 -------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 1.9% 14,100 Jabil Circuit, Inc.+........................................ 399,030 50,000 Vishay Intertechnology, Inc.+............................... 1,145,000 -------------------------------------------------------------------------------------- 1,544,030 -------------------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 0.8% 17,300 GlobalSantaFe Corp. ........................................ 429,559 5,000 Noble Corp.+................................................ 178,900 -------------------------------------------------------------------------------------- 608,459 -------------------------------------------------------------------------------------- FOOD AND DRUG RETAILING -- 0.9% 19,000 SYSCO Corp. ................................................ 707,370 -------------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT AND SUPPLIES -- 1.6% 27,000 Medtronic, Inc. ............................................ 1,312,470 -------------------------------------------------------------------------------------- HEALTH CARE PROVIDERS AND SERVICES -- 1.7% 6,000 Aetna Inc. ................................................. 405,480 5,000 HCA Inc. ................................................... 214,800 3,700 Oxford Health Plans, Inc. .................................. 160,950 2,800 PacifiCare Health Systems, Inc.+............................ 189,280 7,200 Sierra Health Services, Inc.+............................... 197,640 4,600 WellChoice Inc.+............................................ 158,700 -------------------------------------------------------------------------------------- 1,326,850 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 66 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 1.6% 13,900 The Black & Decker Corp. ................................... $ 685,548 150 Cavco Industries, Inc.+..................................... 3,600 3,000 Centex Corp. ............................................... 322,950 3,717 KB HOME..................................................... 269,557 -------------------------------------------------------------------------------------- 1,281,655 -------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 1.2% 18,800 Colgate-Palmolive Co. ...................................... 940,940 -------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 2.3% 12,800 Honeywell International Inc. ............................... 427,904 52,700 Tyco International Ltd. .................................... 1,396,550 -------------------------------------------------------------------------------------- 1,824,454 -------------------------------------------------------------------------------------- INSURANCE -- 5.6% 22,000 Ambac Financial Group, Inc. ................................ 1,526,580 29,860 American International Group, Inc. ......................... 1,979,121 16,962 Marsh & McLennan Cos., Inc. ................................ 812,310 5,100 Prudential Financial, Inc. ................................. 213,027 -------------------------------------------------------------------------------------- 4,531,038 -------------------------------------------------------------------------------------- INTERNET AND CATALOG RETAIL -- 1.8% 42,600 InterActiveCorp+............................................ 1,445,418 -------------------------------------------------------------------------------------- MACHINERY -- 2.7% 12,800 Illinois Tool Works Inc. ................................... 1,074,048 23,200 Navistar International Corp.+............................... 1,111,048 -------------------------------------------------------------------------------------- 2,185,096 -------------------------------------------------------------------------------------- MEDIA -- 7.7% 40,000 Cablevision Systems -- NY Group, Class A Shares+............ 935,600 18,600 Comcast Corp., Special Class A Shares+...................... 581,808 10,000 Omnicom Group, Inc.......................................... 873,300 73,300 Time Warner Inc.+........................................... 1,318,667 9,000 Univision Communications Inc., Class A Shares+.............. 357,210 38,450 Viacom Inc., Class B Shares................................. 1,706,411 12,100 Westwood One, Inc.+......................................... 413,941 -------------------------------------------------------------------------------------- 6,186,937 -------------------------------------------------------------------------------------- METALS AND MINING -- 1.9% 40,000 Alcoa Inc. ................................................. 1,520,000 -------------------------------------------------------------------------------------- MULTILINE RETAIL -- 1.9% 10,000 Target Corp. ............................................... 384,000 20,900 Wal-Mart Stores Inc. ....................................... 1,108,745 -------------------------------------------------------------------------------------- 1,492,745 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 67 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 SOCIAL AWARENESS STOCK PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- OIL AND GAS -- 3.7% 6,300 Apache Corp. ............................................... $ 510,930 24,026 BP PLC, Sponsored ADR....................................... 1,185,683 24,800 Royal Dutch Petroleum Co., NY Shares........................ 1,299,272 -------------------------------------------------------------------------------------- 2,995,885 -------------------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 0.9% 10,000 International Paper Co. .................................... 431,100 5,000 Weyerhaeuser Co. ........................................... 320,000 -------------------------------------------------------------------------------------- 751,100 -------------------------------------------------------------------------------------- PERSONAL PRODUCTS -- 0.7% 15,000 The Gillette Co. ........................................... 550,950 -------------------------------------------------------------------------------------- PHARMACEUTICALS -- 6.2% 8,000 Eli Lilly & Co. ............................................ 562,640 14,000 Johnson & Johnson........................................... 723,240 65,000 Pfizer Inc. ................................................ 2,296,450 11,600 Teva Pharmaceutical Industries Ltd., Sponsored ADR.......... 657,836 17,800 Wyeth....................................................... 755,610 -------------------------------------------------------------------------------------- 4,995,776 -------------------------------------------------------------------------------------- ROAD AND RAIL -- 1.4% 11,300 CSX Corp. .................................................. 406,122 30,100 Norfolk Southern Corp. ..................................... 711,865 -------------------------------------------------------------------------------------- 1,117,987 -------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 4.1% 17,700 Applied Materials, Inc.+.................................... 397,365 76,000 Intel Corp. ................................................ 2,447,200 10,000 Linear Technology Corp. .................................... 420,700 -------------------------------------------------------------------------------------- 3,265,265 -------------------------------------------------------------------------------------- SOFTWARE -- 5.4% 25,000 Amdocs Ltd.+................................................ 562,000 23,200 BMC Software, Inc.+......................................... 432,680 88,800 Microsoft Corp. ............................................ 2,445,552 64,900 Oracle Corp.+............................................... 856,680 -------------------------------------------------------------------------------------- 4,296,912 -------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 1.9% 28,000 The Home Depot, Inc. ....................................... 993,720 10,000 Lowe's Cos., Inc. .......................................... 553,900 -------------------------------------------------------------------------------------- 1,547,620 -------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.5% 52,900 AT&T Wireless Services Inc.+................................ 422,671 -------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $64,035,730).................... 77,452,005 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 68 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 SOCIAL AWARENESS STOCK PORTFOLIO
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.3% $2,624,000 Merrill Lynch & Co., Inc., 0.820% due 1/2/04; Proceeds at maturity -- $2,624,120; (Fully collateralized by U.S. Treasury Bonds and Notes, 6.125% to 8.125% due 8/15/07 to 2/15/23; Market value -- $2,676,487) (Cost -- $2,624,000)................. $ 2,624,000 -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $66,659,730*).......... $80,076,005 --------------------------------------------------------------------------------------
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is $66,661,939. Abbreviation used in this schedule: ADR -- American Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. 69 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- COMMON STOCK -- 98.9% -------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 3.6% 2,576 The Boeing Co. ............................................. $ 108,553 4,305 General Dynamics Corp. ..................................... 389,129 3,434 Lockheed Martin Corp. ...................................... 176,508 3,212 United Technologies Corp. .................................. 304,401 -------------------------------------------------------------------------------------- 978,591 -------------------------------------------------------------------------------------- AIR FREIGHT AND COURIERS -- 0.5% 1,929 United Parcel Service, Inc., Class B Shares................. 143,807 -------------------------------------------------------------------------------------- AIRLINES -- 0.9% 15,142 Southwest Airlines Co. ..................................... 244,392 -------------------------------------------------------------------------------------- AUTO COMPONENTS -- 1.0% 2,399 Johnson Controls, Inc. ..................................... 278,572 -------------------------------------------------------------------------------------- BANKS -- 7.4% 2,355 Bank of America Corp. ...................................... 189,413 9,569 The Bank of New York Co., Inc. ............................. 316,925 1,200 Charter One Financial, Inc. ................................ 41,460 3,230 First Tennessee National Corp. ............................. 142,443 12,244 National City Corp. ........................................ 415,561 4,900 SunTrust Banks, Inc. ....................................... 350,350 5,791 Washington Mutual, Inc. .................................... 232,335 3,851 Wells Fargo & Co. .......................................... 226,785 1,887 Zions Bancorp. ............................................. 115,730 -------------------------------------------------------------------------------------- 2,031,002 -------------------------------------------------------------------------------------- BEVERAGES -- 1.0% 5,792 PepsiCo, Inc. .............................................. 270,023 -------------------------------------------------------------------------------------- CHEMICALS -- 1.5% 2,107 Air Products & Chemicals, Inc. ............................. 111,313 3,956 E.I. du Pont de Nemours & Co. .............................. 181,541 1,711 PPG Industries, Inc. ....................................... 109,538 -------------------------------------------------------------------------------------- 402,392 -------------------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 2.1% 4,326 Automatic Data Processing Inc. ............................. 171,353 2,414 DST Systems, Inc.+.......................................... 100,809 2,345 Fiserv, Inc.+............................................... 92,651 9,170 Robert Half International Inc.+............................. 214,028 -------------------------------------------------------------------------------------- 578,841 -------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 2.6% 4,241 Cisco Systems, Inc.+........................................ 103,014 18,883 Motorola, Inc. ............................................. 265,684 13,277 Nokia Oyj, Sponsored ADR.................................... 225,709 2,162 QUALCOMM, Inc. ............................................. 116,597 -------------------------------------------------------------------------------------- 711,004 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 70 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 3.9% 6,925 Dell Inc.+.................................................. $ 235,173 2,102 Hewlett-Packard Co. ........................................ 48,283 6,953 International Business Machines Corp. ...................... 644,404 30,783 Sun Microsystems, Inc.+..................................... 138,216 -------------------------------------------------------------------------------------- 1,066,076 -------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 5.2% 3,852 American Express Co. ....................................... 185,782 4,348 Federated Investors, Inc., Class B Shares................... 127,657 5,336 Merrill Lynch & Co., Inc. .................................. 312,956 6,920 State Street Corp. ......................................... 360,394 8,957 T. Rowe Price Group Inc. ................................... 424,651 -------------------------------------------------------------------------------------- 1,411,440 -------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.6% 2,162 ALLTEL Corp. ............................................... 100,706 13,081 BellSouth Corp. ............................................ 370,192 19,302 SBC Communications, Inc. ................................... 503,203 -------------------------------------------------------------------------------------- 974,101 -------------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 1.2% 3,057 American Electric Power Co., Inc. .......................... 93,269 3,185 Consolidated Edison, Inc. .................................. 136,987 2,971 The Southern Co. ........................................... 89,873 -------------------------------------------------------------------------------------- 320,129 -------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.5% 1,914 Emerson Electric Co. ....................................... 123,932 -------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.5% 2,336 Diebold, Inc. .............................................. 125,840 -------------------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 0.9% 4,834 Smith International, Inc.+.................................. 200,708 1,924 Transocean Inc.+............................................ 46,195 -------------------------------------------------------------------------------------- 246,903 -------------------------------------------------------------------------------------- FOOD AND DRUG RETAILING -- 2.6% 7,405 Sysco Corp. ................................................ 275,688 12,209 Walgreen Co. ............................................... 444,163 -------------------------------------------------------------------------------------- 719,851 -------------------------------------------------------------------------------------- FOOD PRODUCTS -- 3.8% 7,513 Campbell Soup Co. .......................................... 201,348 4,073 General Mills, Inc. ........................................ 184,507 6,399 H.J. Heinz Co. ............................................. 233,116 2,336 Hershey Foods Corp. ........................................ 179,849 10,993 Sara Lee Corp. ............................................. 238,658 -------------------------------------------------------------------------------------- 1,037,478 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 71 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- GAS UTILITIES -- 0.3% 2,369 KeySpan Corp. .............................................. $ 87,179 -------------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT AND SUPPLIES -- 1.5% 6,567 Becton Dickinson & Co. ..................................... 270,166 3,857 Biomet, Inc. ............................................... 140,433 -------------------------------------------------------------------------------------- 410,599 -------------------------------------------------------------------------------------- HEALTH CARE PROVIDERS AND SERVICES -- 0.5% 1,366 UnitedHealth Group Inc. .................................... 79,474 720 WellPoint Health Networks, Inc.+............................ 69,833 -------------------------------------------------------------------------------------- 149,307 -------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 2.5% 5,806 Colgate-Palmolive Co. ...................................... 290,590 3,868 The Procter & Gamble Co. ................................... 386,336 -------------------------------------------------------------------------------------- 676,926 -------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 0.2% 1,351 General Electric Co. ....................................... 41,854 -------------------------------------------------------------------------------------- INSURANCE -- 3.5% 4,130 American International Group, Inc. ......................... 273,736 5,038 The Chubb Corp. ............................................ 343,088 2,918 SAFECO Corp. ............................................... 113,598 5,727 The St. Paul Cos., Inc. .................................... 227,076 -------------------------------------------------------------------------------------- 957,498 -------------------------------------------------------------------------------------- IT CONSULTING AND SERVICES -- 1.4% 5,061 Computer Sciences Corp.+.................................... 223,848 4,373 Electronic Data Systems Corp. .............................. 107,313 1,761 SunGard Data Systems Inc.+.................................. 48,797 -------------------------------------------------------------------------------------- 379,958 -------------------------------------------------------------------------------------- LEISURE EQUIPMENT AND PRODUCTS -- 0.1% 1,000 Eastman Kodak Co. .......................................... 25,670 -------------------------------------------------------------------------------------- MACHINERY -- 4.2% 3,859 Caterpillar Inc. ........................................... 320,374 5,572 Deere & Co. ................................................ 362,459 2,063 Illinois Tool Works, Inc. .................................. 173,106 3,532 PACCAR Inc. ................................................ 300,644 -------------------------------------------------------------------------------------- 1,156,583 -------------------------------------------------------------------------------------- MEDIA -- 6.3% 1,886 Dow Jones & Co., Inc. ...................................... 94,017 4,282 Gannett Co., Inc. .......................................... 381,783 6,889 The McGraw Hill Cos., Inc. ................................. 481,679 3,792 Omnicom Group, Inc. ........................................ 331,155 17,374 Reed Elsevier NV, Sponsored ADR............................. 430,006 -------------------------------------------------------------------------------------- 1,718,640 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 72 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- METALS AND MINING -- 3.6% 6,971 Alcoa Inc. ................................................. $ 264,898 4 Newmont Mining Corp. ....................................... 194 3,401 Phelps Dodge Corp.+......................................... 258,782 4,258 Rio Tinto PLC, Sponsored ADR................................ 473,958 -------------------------------------------------------------------------------------- 997,832 -------------------------------------------------------------------------------------- MULTILINE RETAIL -- 3.5% 2,980 Family Dollar Stores, Inc. ................................. 106,922 5,204 The May Department Stores Co. .............................. 151,280 11,769 Target Corp. ............................................... 451,930 4,495 Wal-Mart Stores, Inc. ...................................... 238,460 -------------------------------------------------------------------------------------- 948,592 -------------------------------------------------------------------------------------- MULTI-UTILITIES -- 0.3% 3,374 Vectren Corp. .............................................. 83,169 -------------------------------------------------------------------------------------- OFFICE ELECTRONICS -- 0.9% 5,315 Canon, Inc., Sponsored ADR.................................. 253,207 -------------------------------------------------------------------------------------- OIL AND GAS -- 6.9% 9,733 ChevronTexaco Corp. ........................................ 840,834 2,850 ConocoPhillips.............................................. 186,874 12,845 Exxon Mobil Corp. .......................................... 526,645 3,873 Royal Dutch Petroleum Co., NY Shares........................ 202,906 2,932 Shell Transport & Trading Co. PLC, Sponsored ADR............ 132,028 -------------------------------------------------------------------------------------- 1,889,287 -------------------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 0.5% 4,643 MeadWestvaco Corp. ......................................... 138,129 -------------------------------------------------------------------------------------- PHARMACEUTICALS -- 8.2% 5,268 Abbott Laboratories......................................... 245,489 4,098 Eli Lilly & Co. ............................................ 288,212 8,148 Johnson & Johnson........................................... 420,926 733 Medco Health Solutions, Inc.+............................... 24,915 5,999 Merck & Co. Inc. ........................................... 277,154 5,139 Novartis AG, ADR............................................ 235,829 6,878 Pfizer Inc. ................................................ 243,000 1,638 Roche Holding AG, Sponsored ADR............................. 165,224 20,534 Schering-Plough Corp. ...................................... 357,086 -------------------------------------------------------------------------------------- 2,257,835 -------------------------------------------------------------------------------------- ROAD AND RAIL -- 2.3% 4,543 Burlington Northern Santa Fe Corp. ......................... 146,966 16,059 Norfolk Southern Corp. ..................................... 379,795 1,383 Union Pacific Corp. ........................................ 96,091 -------------------------------------------------------------------------------------- 622,852 --------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 73 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 PIONEER FUND PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 4.8% 1,936 Altera Corp.+............................................... $ 43,947 13,228 Applied Materials, Inc.+.................................... 296,969 13,870 Intel Corp. ................................................ 446,614 4,193 Novellus Systems, Inc.+..................................... 176,316 12,287 Texas Instruments Inc. ..................................... 360,992 -------------------------------------------------------------------------------------- 1,324,838 -------------------------------------------------------------------------------------- SOFTWARE -- 3.5% 3,930 Adobe Systems, Inc. ........................................ 154,449 3,884 BMC Software, Inc.+......................................... 72,437 13,173 Microsoft Corp. ............................................ 362,784 2,544 Symantec Corp.+............................................. 88,150 8,536 Synopsys, Inc.+............................................. 288,175 -------------------------------------------------------------------------------------- 965,995 -------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 1.0% 1,239 Barnes & Noble, Inc.+....................................... 40,701 4,285 Lowe's Cos., Inc. .......................................... 237,346 -------------------------------------------------------------------------------------- 278,047 -------------------------------------------------------------------------------------- WATER UTILITIES -- 0.1% 1,576 Philadelphia Suburban Corp. ................................ 34,835 -------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $22,434,819).................... 27,063,206 -------------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.1% $ 311,000 State Street Bank and Trust Co., 0.800% due 1/2/04; Proceeds at maturity -- $311,014; (Fully collateralized by U.S. Treasury Bonds, 8.875% due 2/15/19; Market value -- $321,750) (Cost -- $311,000).............................. 311,000 -------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $22,745,819*).......... $27,374,206 --------------------------------------------------------------------------------------
+ Non-income producing security. * Aggregate cost for Federal income tax purposes is $22,748,960. Abbreviation used in this schedule: ADR -- American Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. 74 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2003
U.S. GOVERNMENT SOCIAL AWARENESS SECURITIES STOCK PIONEER FUND PORTFOLIO PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost................................. $210,248,462 $ 66,659,730 $ 22,745,819 -------------------------------------------------------------------------------------------------------------- Investments, at value................................ $212,999,944 $ 80,076,005 $ 27,374,206 Cash................................................. 363 11 981 Receivable for securities sold....................... 2,824,261 -- -- Dividends and interest receivable.................... 1,922,668 63,286 33,027 Receivable for Fund shares sold...................... -- -- 94,633 Prepaid expenses..................................... 194 -- -- -------------------------------------------------------------------------------------------------------------- TOTAL ASSETS......................................... 217,747,430 80,139,302 27,502,847 -------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased..................... 7,640,084 -- 50,995 Payable for Fund shares reacquired................... 113,099 371,936 -- Investment management and advisory fees payable...... 57,190 41,018 16,883 Administration fees payable.......................... 10,619 3,968 1,047 Accrued expenses..................................... 44,482 43,949 32,929 -------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.................................... 7,865,474 460,871 101,854 -------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $209,881,956 $ 79,678,431 $ 27,400,993 -------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital...................................... $206,811,916 $80,055,618 $37,473,443 Undistributed net investment income.................. -- 22,797 303 Accumulated net realized gain (loss) from investment transactions...................................... 318,558 (13,816,259) (14,701,140) Net unrealized appreciation of investments........... 2,751,482 13,416,275 4,628,387 -------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS....................................... $209,881,956 $ 79,678,431 $ 27,400,993 -------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING..................................... 16,666,618 3,458,331 2,508,647 -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE............................. $12.59 $23.04 $10.92 --------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 75 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
U.S. GOVERNMENT SOCIAL AWARENESS PIONEER SECURITIES STOCK FUND PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest............................................... $ 11,084,823 $ 23,088 $ 9,228 Dividends.............................................. -- 926,442 608,063 Less: Foreign withholding tax.......................... -- (13,431) (1,568) ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................ 11,084,823 936,099 615,723 ------------------------------------------------------------------------------------------------------------- EXPENSES: Investment management and advisory fees (Note 2)....... 770,679 427,155 165,533 Administration fees (Note 2)........................... 143,027 41,144 13,786 Audit and legal........................................ 29,011 29,368 30,667 Custody................................................ 25,365 11,627 12,298 Shareholder communications............................. 24,109 10,026 23,831 Trustees' fees......................................... 6,154 6,155 6,152 Shareholder servicing fees............................. 5,003 4,994 4,997 Other.................................................. 1,081 1,002 564 ------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES......................................... 1,004,429 531,471 257,828 ------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME.................................... 10,080,394 404,628 357,895 ------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3): Realized Gain (Loss) From Investment Transactions (excluding short-term investments): Proceeds from sales................................. 327,522,195 25,069,999 22,136,165 Cost of securities sold............................. 324,049,943 25,973,132 22,698,563 ------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS)............................... 3,472,252 (903,133) (562,398) ------------------------------------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments: Beginning of year................................... 10,082,480 (4,896,783) (652,490) End of year......................................... 2,751,482 13,416,275 4,628,387 ------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION..... (7,330,998) 18,313,058 5,280,877 ------------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS........................... (3,858,746) 17,409,925 4,718,479 ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS................... $ 6,221,648 $17,814,553 $ 5,076,374 -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 76 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
U.S. GOVERNMENT SECURITIES PORTFOLIO 2003 2002 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 10,080,394 $ 8,313,886 Net realized gain......................................... 3,472,252 3,331,447 Increase (decrease) in net unrealized appreciation........ (7,330,998) 10,623,543 ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS.................... 6,221,648 22,268,876 ------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (10,812,735) (14,482,356) Net realized gains........................................ (3,572,312) (1,567,341) ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (14,385,047) (16,049,697) ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 7): Net proceeds from sale of shares.......................... 29,246,982 125,224,139 Net asset value of shares issued for reinvestment of dividends.............................................. 14,385,047 16,049,697 Cost of shares reacquired................................. (69,457,633) (30,112,939) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... (25,825,604) 111,160,897 ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS........................... (33,989,003) 117,380,076 NET ASSETS: Beginning of year......................................... 243,870,959 126,490,883 ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $209,881,956 $243,870,959 ------------------------------------------------------------------------------------------ * Includes undistributed net investment income of:.......... -- $329,492 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 77 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
SOCIAL AWARENESS STOCK PORTFOLIO 2003 2002 ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 404,628 $ 288,889 Net realized loss......................................... (903,133) (8,155,464) Increase (decrease) in net unrealized appreciation........ 18,313,058 (13,723,733) ----------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 17,814,553 (21,590,308) ----------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (392,136) (642,498) ----------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (392,136) (642,498) ----------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 7): Net proceeds from sale of shares.......................... 5,724,855 8,483,608 Net asset value of shares issued for reinvestment of dividends.............................................. 392,136 642,498 Cost of shares reacquired................................. (6,158,720) (7,939,606) ----------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... (41,729) 1,186,500 ----------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS........................... 17,380,688 (21,046,306) NET ASSETS: Beginning of year......................................... 62,297,743 83,344,049 ----------------------------------------------------------------------------------------- END OF YEAR*.............................................. $79,678,431 $ 62,297,743 ----------------------------------------------------------------------------------------- * Includes undistributed net investment income of: ......... $22,797 $10,305 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 78 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
PIONEER FUND PORTFOLIO 2003 2002 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 357,895 $ 813,462 Net realized loss......................................... (562,398) (11,177,209) Increase (decrease) in net unrealized appreciation........ 5,280,877 (701,900) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......... 5,076,374 (11,065,647) ------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (360,254) (1,848,406) ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........................................... (360,254) (1,848,406) ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 7): Net proceeds from sale of shares.......................... 4,118,215 2,027,881 Net asset value of shares issued for reinvestment of dividends.............................................. 360,254 1,848,406 Cost of shares reacquired................................. (3,354,880) (8,833,615) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................................... 1,123,589 (4,957,328) ------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS........................... 5,839,709 (17,871,381) NET ASSETS: Beginning of year......................................... 21,561,284 39,432,665 ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $ 27,400,993 $ 21,561,284 ------------------------------------------------------------------------------------------ * Includes undistributed net investment income of: ......... $303 $2,662 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 79 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The U.S. Government Securities Portfolio ("USGS"), Social Awareness Stock Portfolio ("SAS") and Pioneer Fund Portfolio ("PFP") (formerly known as Utilities Portfolio), (collectively, "Fund(s)") are separate diversified investment funds of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company and consists of these funds and 13 other separate investment funds: Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, Large Cap, Equity Income, Disciplined Mid Cap Stock, Convertible Securities, MFS Mid Cap Growth, Merrill Lynch Large Cap Core (formerly known as MFS Research), MFS Value, and Zero Coupon Bond Fund (Series 2005) Portfolios. Shares of the Trust are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. The financial statements and financial highlights for the other funds are presented in separate shareholder reports. 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 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 unaffiliated reputable brokers or other recognized sources; securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sale price; (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 more than 60 days 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 an 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; the Funds distribute dividends and capital gains, if any, at least annually; (i) the accounting records of the Funds 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 Funds intend to comply with the applicable provisions 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; (k) the character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. At December 31, 2003, reclassifications were made to the capital accounts of USGS to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Net investment income, net realized gains and net assets were not affected by this change; 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. 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 adviser to USGS and PFP. Prior to May 1, 2003, Smith Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of Citigroup, acted as investment manager and adviser to PFP. USGS and PFP pay TAMIC an investment advisory fee calculated at the annual rate of 0.3233% and 0.75% of its average daily net assets, respectively. Under the previous agreement, PFP paid SBFM an investment management and advisory fee calculated at an annual rate of 0.65% of PFP's average daily net assets. These fees are calculated daily and paid monthly. 80 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) SBFM acts as investment manager and adviser to SAS. SAS pays SBFM an investment management and advisory fee calculated at an annual rate of: 0.65% on the first $50 million, 0.55% on the next $50 million, 0.45% on the next $100 million and 0.40% on amounts over $200 million of the average daily net assets of SAS. This fee is calculated daily and paid monthly. With shareholder approval, effective May 1, 2003, TAMIC entered into a sub-advisory agreement with Pioneer Investment Management, Inc. ("Pioneer"). Pursuant to the sub-advisory agreement, Pioneer is responsible for the day-to-day operations and investment decisions for PFP. As a result, TAMIC pays Pioneer, as sub-adviser, 0.375% of the average daily net assets of PFP. Prior to May 1, 2003, PFP did not have a sub-adviser. The Travelers Insurance Company ("TIC"), another indirect wholly-owned subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC an administration fee calculated at an annual rate of 0.06% of the average daily net assets of each Fund. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative services agreement with SBFM. TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund's average daily net assets. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Funds' transfer agent. CTB receives account fees and asset-based fees that vary according to the size and type of account. For the year ended December 31, 2003, each Fund paid transfer agent fees of $5,000 to CTB. For the year ended December 31, 2003, Citigroup Global Markets Inc. (formerly known as Salomon Smith Barney Inc.), another indirect wholly-owned subsidiary of Citigroup, and its affiliates received brokerage commissions of $2,465 and $332 from SAS and PFP, respectively. One Trustee and all officers of the Trust are employees of Citigroup or its affiliates. 3. INVESTMENTS During the year ended December 31, 2003, the aggregate cost of purchases and proceeds from sales of investments (including maturities of long-term investments, but excluding short-term investments and mortgage dollar rolls) were as follows:
USGS SAS PFP ------------------------------------------------------------------------------------------------------ Purchases................................................... $333,456,809 $25,037,185 $23,198,486 ------------------------------------------------------------------------------------------------------ Sales....................................................... 327,522,195 25,069,999 22,136,165 ------------------------------------------------------------------------------------------------------
At December 31, 2003, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were as follows:
USGS SAS PFP ---------------------------------------------------------------------------------------------------- Gross unrealized appreciation............................... $ 4,801,186 $16,030,925 $4,802,161 Gross unrealized depreciation............................... (2,113,716) (2,616,859) (176,915) ---------------------------------------------------------------------------------------------------- Net unrealized appreciation................................. $ 2,687,470 $13,414,066 $4,625,246 ----------------------------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS The Funds purchase (and the custodian takes possession of) U.S. Government securities from 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. 81 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. MORTGAGE DOLLAR ROLLS The Funds may enter into mortgage dollar roll transactions. A mortgage dollar roll transaction involves a sale by the Fund of mortgage related securities that it holds with an agreement by the Fund to repurchase similar securities at an agreed upon price and date. The securities purchased will bear the same interest rate as those sold, but generally will be collateralized by pools of mortgages with different prepayment histories than those securities sold. Proceeds from the sale will be reinvested and the income from these investments, together with any additional income received on the sale, is included in investment income. Losses may arise due to changes in the value of the securities or if the counterparty does not perform under the terms of the agreement. If the counterparty files for bankruptcy or becomes insolvent, the Fund's right to repurchase the securities may be limited. During the year ended December 31, 2003, USGS entered into mortgage dollar roll transactions in the aggregate amount of $58,180,474. At December 31, 2003, USGS had outstanding mortgage dollar rolls with a total cost of $7,574,371. SAS and PFP did not have any outstanding mortgage dollar rolls. 6. 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 normally settle 15 to 45 days after the trade date. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At December 31, 2003, USGS held TBA securities with a total cost amounting to $7,574,371. 7. 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, 2003 DECEMBER 31, 2002 --------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES PORTFOLIO Shares sold................................................. 2,193,616 9,502,251 Shares issued on reinvestment............................... 1,138,891 1,220,920 Shares reacquired........................................... (5,229,809) (2,325,219) --------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... (1,897,302) 8,397,952 --------------------------------------------------------------------------------------------------- SOCIAL AWARENESS STOCK PORTFOLIO Shares sold................................................. 283,273 396,282 Shares issued on reinvestment............................... 17,094 34,690 Shares reacquired........................................... (309,569) (415,324) --------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... (9,202) 15,648 --------------------------------------------------------------------------------------------------- PIONEER FUND PORTFOLIO Shares sold................................................. 418,833 190,341 Shares issued on reinvestment............................... 33,048 193,234 Shares reacquired........................................... (354,955) (815,007) --------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... 96,926 (431,432) ---------------------------------------------------------------------------------------------------
82 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. CAPITAL LOSS CARRYFORWARD At December 31, 2003, SAS and PFP had, for Federal income tax purposes, approximately $13,740,000 and $14,591,000, respectively, of unused capital loss carryforwards available to offset future capital gains. To the extent that these carryforward losses are used to offset capital gains, it is probable that the gains so offset will not be distributed. The amount and year of expiration for each carryforward loss is indicated below. Expiration occurs on December 31 of the year indicated:
2008 2009 2010 2011 --------------------------------------------------------------------------------------------------------- Social Awareness Stock Portfolio....................... $774,000 $3,269,000 $ 8,137,000 $1,560,000 Pioneer Fund Portfolio................................. -- 944,000 12,363,000 1,284,000 ---------------------------------------------------------------------------------------------------------
In addition, SAS and PFP had $73,819 and $106,626, respectively, of capital losses realized after October 31, 2003, which were deferred for tax purposes to the first day of the following fiscal year. 9. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS At December 31, 2003, the tax basis components of distributable earnings were:
USGS SAS PFP ------------------------------------------------------------------------------------------------------ Undistributed ordinary income............................... -- $ 22,797 $ 303 ------------------------------------------------------------------------------------------------------ Accumulated capital gains (losses).......................... $ 382,570 (13,740,231) (14,591,373) ------------------------------------------------------------------------------------------------------ Unrealized appreciation..................................... 2,687,470 13,414,066 4,625,246 ------------------------------------------------------------------------------------------------------
At December 31, 2003, the difference between book basis and tax basis unrealized appreciation and depreciation is attributable primarily to wash sale loss deferrals. The tax character of distributions paid during the year ended December 31, 2003 was:
USGS SAS PFP ------------------------------------------------------------------------------------------------------- Ordinary income............................................. $11,912,557 $392,136 $360,254 Long-term capital gains..................................... 2,472,490 -- -- ------------------------------------------------------------------------------------------------------- Total....................................................... $14,385,047 $392,136 $360,254 -------------------------------------------------------------------------------------------------------
At December 31, 2002, the tax basis components of distributable earnings were:
USGS SAS PFP ------------------------------------------------------------------------------------------------------ Undistributed ordinary income............................... $1,055,276 $ 10,305 $ 2,662 ------------------------------------------------------------------------------------------------------ Accumulated capital gains (losses).......................... 211,631 (12,179,617) (13,307,091) ------------------------------------------------------------------------------------------------------ Unrealized appreciation (depreciation)...................... 9,966,531 (4,898,992) (652,490) ------------------------------------------------------------------------------------------------------
At December 31, 2002, the difference between book basis and tax basis unrealized appreciation and depreciation was attributable primarily to wash sale and other loss deferrals. The tax character of distributions paid during the year ended December 31, 2002 was:
USGS SAS PFP ------------------------------------------------------------------------------------------------------- Ordinary income............................................. $15,201,304 $642,498 $1,848,406 Long-term capital gains..................................... 848,393 -- -- ------------------------------------------------------------------------------------------------------- Total....................................................... $16,049,697 $642,498 $1,848,406 -------------------------------------------------------------------------------------------------------
83 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. ADDITIONAL INFORMATION The Funds have received the following information from Citigroup Asset Management ("CAM"), the Citigroup business unit which includes the Funds' Investment Manager and other investment advisory companies, all of which are indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an affiliate, into the transfer agent business in the period 1997-1999. As CAM currently understands the facts, at the time CAM decided to enter the transfer agent business, CAM sub-contracted for a period of five years certain of the transfer agency services to a third party and also concluded a revenue guarantee agreement with this sub-contractor providing that the sub-contractor would guarantee certain benefits to CAM or its affiliates (the "Revenue Guarantee Agreement"). In connection with the subsequent purchase of the sub-contractor's business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee Agreement was amended eliminating those benefits in exchange for arrangements that included a one-time payment from the sub-contractor. The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue Guarantee Agreement with the sub-contractor at the time the Boards considered and approved the transfer agent arrangements. Nor were the Boards informed of the subsequent amendment to the Revenue Guarantee Agreement when that occurred. CAM has begun to take corrective actions. CAM will pay to the applicable funds approximately $17 million (plus interest) that CAM and its affiliates received from the Revenue Guarantee Agreement and its amendment. CAM also plans an independent review to verify that the transfer agency fees charged by CAM were fairly priced as compared to competitive alternatives. CAM is instituting new procedures and making changes designed to ensure no similar arrangements are entered into in the future. CAM has briefed the SEC, the New York State Attorney General and other regulators with respect to this matter, as well as the U.S. Attorney who is investigating the matter. CAM is cooperating with governmental authorities on this matter, the ultimate outcome of which is not yet determinable. 84 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
U.S. GOVERNMENT SECURITIES PORTFOLIO 2003(1) 2002(1) 2001(1) 2000(1) 1999(1) ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $13.14 $12.44 $12.22 $11.30 $11.80 ---------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................ 0.56 0.63 0.69 0.74 0.68 Net realized and unrealized gain (loss)...... (0.20) 1.05 0.02 0.84 (1.18) ---------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............ 0.36 1.68 0.71 1.58 (0.50) ---------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income........................ (0.68) (0.89) (0.49) (0.66) (0.00)* Net realized gains........................... (0.23) (0.09) -- -- -- ---------------------------------------------------------------------------------------------------------- Total Distributions............................ (0.91) (0.98) (0.49) (0.66) (0.00)* ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $12.59 $13.14 $12.44 $12.22 $11.30 ---------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................ 2.75% 13.63% 5.82% 14.53% (4.23)% ---------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)................ $209,882 $243,871 $126,491 $90,970 $61,623 ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................. 0.42% 0.44% 0.45% 0.48% 0.48% Net investment income........................ 4.23 4.82 5.55 6.46 5.97 ---------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................ 143%** 165% 327% 289% 164% ----------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS STOCK PORTFOLIO 2003(1) 2002 2001(1) 2000(1) 1999(1) ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............. $17.97 $24.14 $28.76 $29.42 $25.92 ---------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................ 0.12 0.08 0.11 0.14 0.13 Net realized and unrealized gain (loss)...... 5.06 (6.06) (4.63) (0.29) 3.93 ---------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............ 5.18 (5.98) (4.52) (0.15) 4.06 ---------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income........................ (0.11) (0.19) (0.10) (0.16) (0.09) Net realized gains........................... -- -- -- (0.35) (0.47) ---------------------------------------------------------------------------------------------------------- Total Distributions............................ (0.11) (0.19) (0.10) (0.51) (0.56) ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................... $23.04 $17.97 $24.14 $28.76 $29.42 ---------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................ 28.85% (24.81)% (15.71)% (0.49)% 15.84% ---------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)................ $79,678 $62,298 $83,344 $81,184 $68,239 ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4).................................. 0.78% 0.78% 0.74% 0.75% 0.80% Net investment income........................ 0.59 0.40 0.45 0.48 0.69 ---------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................ 38% 37% 22% 33% 12% ----------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. (4) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25%. * Amount represents less than $0.01 per share. ** Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 168%. 85 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
PIONEER FUND PORTFOLIO 2003(1) 2002(1) 2001(1) 2000(1) 1999(1) ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................ $8.94 $13.87 $19.22 $15.91 $17.18 ---------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................... 0.15 0.32 0.37 0.43 0.41 Net realized and unrealized gain (loss)......... 1.98 (4.47) (4.65) 3.36 (0.36) ---------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............... 2.13 (4.15) (4.28) 3.79 0.05 ---------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM:(2) Net investment income........................... (0.15) (0.78) (0.30) (0.45) (0.40) Net realized gains.............................. -- -- (0.77) (0.03) (0.92) ---------------------------------------------------------------------------------------------------------- Total Distributions............................... (0.15) (0.78) (1.07) (0.48) (1.32) ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR...................... $10.92 $ 8.94 $13.87 $19.22 $15.91 ---------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................... 23.78% (30.21)% (23.00)% 24.26% (0.08)% ---------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)................... $27,401 $21,561 $39,433 $48,456 $31,413 ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)..................................... 1.12% 0.90% 0.81% 0.84% 0.88% Net investment income........................... 1.56 2.88 2.18 2.47 2.41 ---------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................... 98% 25% 20% 22% 10% ----------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Distributions from realized gains include both net realized short-term and long-term capital gains. (3) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. (4) As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25%. 86 -------------------------------------------------------------------------------- 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 Pioneer Fund Portfolio (formerly known as Utilities Portfolio) ("Funds") of The Travelers Series Trust ("Trust") as of December 31, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with 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, 2003, by correspondence with the custodian and brokers. 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 Funds of the Trust as of December 31, 2003, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America. [KPMG LLP SIGNATURE] New York, New York February 13, 2004 87 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) INFORMATION ABOUT TRUSTEES AND OFFICERS The business and affairs of the Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Money Market Portfolio and The Travelers Series Trust (each a "Trust" and together, the "Trusts") are managed under the direction of the Board of Trustees. Information pertaining to the Trustees and Officers of the Trusts is set forth below. Unless otherwise noted, each person listed below holds his or her position with all of the Trusts. The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Trusts' administrator (Travelers Insurance Company at 1-800-842-9368).
TERM OF NUMBER OF OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS HELD WITH OF TIME DURING PAST OVERSEEN HELD BY NAME, ADDRESS AND AGE TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE ---------------------------------------------------------------------------------------------------------------- NON-INTERESTED TRUSTEES:(2) Robert E. McGill, III Trustee Since Retired 5 Lydall Inc.; 295 Hancock Road 1990 Board of Williamstown, MA Managers of 6 Age 72 Variable Annuity Separate Accounts of The Travelers Insurance Co. ("TIC") Lewis Mandell Trustee Since Professor, 5 Delaware North University of Buffalo 1990 University of Corp.; Board 160 Jacobs Hall Buffalo of Managers of Buffalo, NY 6 Variable Age 60 Annuity Separate Accounts of TIC Frances M. Hawk, CFA, CFP Trustee Since Private Investor 5 Board of 108 Oxford Hill Lane 1991 Managers of 6 Downingtown, PA Variable Age 55 Annuity Separate Accounts of TIC INTERESTED TRUSTEE: R. Jay Gerken, CFA(3) Chairman, Since Managing Director 221 Chairman, Citigroup Asset Management President, 2002 of Citigroup Board of ("CAM") Chief Global Markets Managers of 6 399 Park Avenue, 4th Floor Executive Inc. ("CGM"); Variable New York, NY 10022 Officer and Chairman, Annuity Age 52 Trustee President and Separate Chief Executive Accounts of Officer of Smith TIC Barney Fund Management LLC ("SBFM"), Travelers Investment Adviser, Inc. ("TIA") and Citi Fund Management Inc. ("CFM"); President and Chief Executive Officer of certain mutual funds associated with Citigroup Inc. ("Citigroup"); Formerly, Portfolio Manager of Smith Barney Allocation Series Inc. (from 1996 to 2001) and Smith Barney Growth and Income Fund (from 1996 to 2000)
88 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
TERM OF NUMBER OF OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS HELD WITH OF TIME DURING PAST OVERSEEN HELD BY NAME, ADDRESS AND AGE TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE ---------------------------------------------------------------------------------------------------------------- EXECUTIVE OFFICERS: Andrew B. Shoup(4) Senior Vice Since Director of CAM; N/A N/A CAM President 2004 Senior Vice 125 Broad Street, 10th Floor and Chief President and New York, NY 10004 Administrative Chief Age 47 Officer Administrative Officer of mutual funds associated with Citigroup; Treasurer of certain mutual funds associated with Citigroup; Head of International Funds Administration of CAM (from 2001 to 2003); Director of Global Funds Administration of CAM (from 2000 to 2001); Head of U.S. Citibank Funds Administration of CAM (from 1998 to 2000) Richard L. Peteka Treasurer Since Director of CGM; N/A N/A CAM 2002 Chief Financial 125 Broad Street, 11th Floor Officer and New York, NY 10004 Treasurer of Age 42 certain mutual funds associated with Citigroup; Director and Head of Internal Control for CAM U.S. Mutual Fund Administration (from 1999 to 2002); Vice President, Head of Mutual Fund Administration and Treasurer at Oppenheimer Capital (from 1996 to 1999) Andrew Beagley Chief Since Director of CGM N/A N/A CAM Anti-Money 2002 (since 2000); 399 Park Avenue, 4th Floor Laundering Director of New York, NY 10022 Compliance Compliance, North Age 40 Officer America, CAM (since 2000); Chief Anti-Money Laundering Compliance Officer and Vice President of certain mutual funds associated with Citigroup; Director of Compliance, Europe, the Middle East and Africa, CAM (from 1999 to 2000); Compliance Officer, Salomon Brothers Asset Management Limited, Smith Barney Global Capital Management Inc., Salomon Brothers Asset Management Asia Pacific Limited (from 1997 to 1999) Kaprel Ozsolak Controller Since Vice President of N/A N/A CAM 2002 CGM; Controller of 125 Broad Street, 11th Floor certain mutual New York, NY 10004 funds associated Age 38 with Citigroup
89 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
TERM OF NUMBER OF OFFICE(1) AND PRINCIPAL PORTFOLIOS IN OTHER BOARD POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX MEMBERSHIPS HELD WITH OF TIME DURING PAST OVERSEEN HELD BY NAME, ADDRESS AND AGE TRUST SERVED FIVE YEARS BY TRUSTEE TRUSTEE ---------------------------------------------------------------------------------------------------------------- Ernest J. Wright Secretary Since Vice President and N/A N/A Travelers Life & Annuity One 1994 Secretary of TIC Cityplace Hartford, CT 06103 Age 63 Kathleen A. McGah Assistant Since Deputy General N/A N/A Travelers Life & Annuity One Secretary 1995 Counsel of Cityplace Travelers Hartford, CT 06103 Age 53
--------------- (1) Each Trustee and Officer serves until his or her successor has been duly elected and qualified. (2) Mr. Knight Edwards is an Emeritus Trustee. An Emeritus Trustee is permitted to attend meetings, but has no voting power. (3) Mr. Gerken is an "interested person" as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is Managing Director of CGM, an indirect wholly owned subsidiary of Citigroup, and his ownership shares and options to purchase shares of Citigroup, the indirect parent of TIC. (4) As of January 21, 2004. 90 -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) For Federal tax purposes, the Trust hereby designates for the fiscal year ended December 31, 2003: - For corporate shareholders, the percentages of ordinary dividends that qualify for the dividends received deduction are: Social Awareness Stock Portfolio.......................... 100% Pioneer Fund Portfolio.................................... 100% - Total long-term capital gain distributions paid: U.S. Government Securities Portfolio...................... $2,472,490
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........................ 20.04%
91 (This page intentionally left blank.) MANAGED ASSETS TRUST, HIGH YIELD BOND TRUST, CAPITAL APPRECIATION FUND, MONEY MARKET PORTFOLIO AND THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- TRUSTEES R. Jay Gerken, CFA Chairman Frances M. Hawk, CFA, CFP Lewis Mandell Robert E. McGill, III OFFICERS R. Jay Gerken, CFA President and Chief Executive Officer Andrew B. Shoup* Senior Vice President and Chief Administrative Officer Richard L. Peteka Treasurer Andrew Beagley Chief Anti-Money Laundering Compliance Officer Kaprel Ozsolak Controller Ernest J. Wright Secretary Kathleen A. McGah Assistant Secretary INVESTMENT MANAGER AND ADVISERS Travelers Asset Management International Company LLC Smith Barney Fund Management LLC (Social Awareness Stock Portfolio) ADMINISTRATOR The Travelers Insurance Company CUSTODIAN State Street Bank and Trust Company TRANSFER AGENT Citicorp Trust Bank, fsb. ------------------ * As of January 21, 2004. U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer Fund Portfolio are separate investment funds of The Travelers Series Trust, a Massachusetts business trust. This report is prepared for the general information of contract owners and is not an offer of shares of Managed Assets Trust, High Yield Bond Trust, Capital Appreciation Fund, Money Market Portfolio, The Travelers Series Trust: U.S. Government Securities Portfolio, Social Awareness Stock Portfolio and Pioneer Fund Portfolio. 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 and Annuity Company and the Prospectuses for the underlying funds, which collectively contain all pertinent information, including more complete information on charges and expenses. All the Funds contained in this report may not be available under your variable annuity or life contract. VG-181 (Annual) (2-04) Printed in U.S.A. ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees of the registrant has determined that Robert E. McGill, a member of the Board's Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert," and has designated Mr. McGill as the Audit Committee's financial expert. Mr. McGill is an "independent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees for Managed Assets Trust were $28,000 and $26,000 for the years ended 12/31/03 and 12/31/02. (b) Audit-Related Fees for Managed Assets Trust were $0 and $0 for the years ended 12/31/03 and 12/31/02. (c) Tax Fees for Managed Assets Trust were $2,000 and $2,000 for the years ended 12/31/03 and 12/31/02. These amounts represent aggregate fees paid for tax compliance, tax advice and tax planning services, which include (the filing and amendment of federal, state and local income tax returns, timely RIC qualification review and tax distribution and analysis planning) rendered by the Accountant to Managed Assets Trust. (d) All Other Fees for Managed Assets Trust were $0 and $0 for the years ended 12/31/03 and 12/31/02. (e) (1) Audit Committee's pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X. The Audit Committee ("Committee") has adopted policies and procedures to, among other purposes, approve all audit and non-audit services provided to the Registrant and certain other persons by the Registrant's independent auditors. The Committee shall not approve non-audit services that the Committee believes may taint the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible. The policies and procedures require the Committee to approve (a) all audit and permissible non-audit services to be provided to the Registrant and (b) all permissible non-audit services to be provided by the Fund's independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Registrant. In carrying out this responsibility, the Committee shall seek periodically from the Adviser and from the independent auditors a list of audit and permissible non-audit services that can be expected to be rendered to the Registrant, the Adviser or any Covered Service Providers by the Registrant's independent auditors, and an estimate of the fees sought to be paid in connection with such services. The Committee may delegate its responsibility to approve any such audit and permissible non-audit services to a sub-committee consisting of the Chairperson of the Committee (the "Chairperson") and at least one other member of the Committee, as the Chairperson, from time to time, may determine and appoint, and such sub-committee shall report to the Committee, at its next meeting after the sub-committee's meeting, its decision(s). From year to year, and at such other times as the Committee deems appropriate, the Committee shall report to the Board whether this system of approval has been effective and efficient or whether this Charter should be amended to allow for pre-approval pursuant to such policies and procedures as the Committee shall approve, including the delegation of some or all of the Committee's per-approval responsibilities to other persons (other than the Adviser or the Fund's officers). Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund ("Covered Service Providers") constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided by (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. (f) N/A (g) Non-audit fees billed - $100,000 and $1.2 million for the years ended 12/31/2003 and 12/31/2002. (h) Yes. Managed Assets Trust's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining the Accountant's independence. All services provided by the Accountant to the Managed Assets Trust or to Service Affiliates which were required to be pre-approved were pre-approved as required. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a) Code of Ethics attached hereto. Exhibit 99.CODE ETH (b) Attached hereto. Exhibit 99.CERT Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 99.906CERT Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. Managed Assets Trust By: /s/ R. Jay Gerken R. Jay Gerken Chief Executive Officer of Managed Assets Trust Date: March 8, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ R. Jay Gerken R. Jay Gerken Chief Executive Officer of Managed Assets Trust Date: March 8, 2004 By: /s/ Richard L. Peteka Richard L. Peteka Chief Financial Officer of Managed Assets Trust Date: March 8, 2004