N-CSR 1 dncsr.txt MANAGED ASSETS TRUST FORM N-CSR 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) One Cityplace, Hartford, CT 06103-3415 -------------------------------------------------------------------------------- (Address of principal executive offices)(Zip code) (Name and Address of Agent for Service) Copy to: Elizabeth M. Forget Robert N. Hickey, Esq. President Sullivan & Worcester LLP Managed Assets Trust 1666 K Street, N.W. 260 Madison Avenue, 10th Floor Washington, D.C. 20006 New York, NY 10016 Registrant's telephone number, including area code: (800) 842-9368 Date of fiscal year end: December 31 Date of reporting period: December 31, 2005 ITEM 1: REPORT TO SHAREHOLDERS. Capital Appreciation Fund High Yield Bond Trust Managed Assets Trust Money Market Portfolio ANNUAL REPORT DECEMBER 31, 2005 -------------------------------------------------------------------------------- February 1, 2006 LETTER TO POLICYHOLDERS: In 2005, the U.S. stock market experienced moderate growth while non-U.S. markets on average outperformed. For the year, the S&P 500 Index rose 4.9% while the MSCI EAFE Index rose 14.0%. In addition on average, mid-cap stock funds outperformed both large and small-cap funds and growth stock funds began to outperform value stock funds for the first time in six years. The Federal Reserve increased short term rates by 200 basis points during 2005 which impacted returns. The average U.S. Bond fund rose 1.9% during the year while the Lehman Aggregate Bond Index rose 2.4%. On the following pages you will find a complete review of your Portfolios and their investment performance. MetLife is committed to building your financial freedom. We appreciate your trust and will continue to focus our efforts to meet your financial goals. Sincerely, /s/ Elizabeth Forget Elizabeth M. Forget President Capital Appreciation Fund High Yield Bond Trust Managed Assets Trust Money Market Portfolio -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND FOR THE YEAR ENDED 12/31/05 MANAGED BY JANUS CAPITAL MANAGEMENT LLC -------------------------------------------------------------------------------- PERFORMANCE OVERVIEW For the 12 months ended December 31, 2005, the Fund returned 18.19% while its benchmark, the S&P 500 Index, returned 4.91%. The Fund's outperformance can be attributed in part to the strong results posted by several well-chosen stocks within the healthcare and information technology sectors. Meanwhile, there were only a few pockets of relative weakness, including consumer discretionary stocks, where we held an overweight position in this poor-performing sector, and financials, where select holdings turned in less-than-stellar results. TOP CONTRIBUTORS INCLUDED TECHNOLOGY AND HEALTHCARE HOLDINGS As for specific investments, some of the Fund's largest and longest-held securities contributed to the performance. Apple Computer, UnitedHealth and Genentech all made meaningfully positive contributions again this year. Our largest contributor, Apple Computer, continues to impress us with its pipeline of new products and operational excellence. Late in the third quarter the company announced its newest addition to the iPod line of digital music players, the "nano." The nano has been an instant hit with consumers, and many stores sold out within a few days of receiving their allotted shipments. The nano holds between 500 and 1,000 songs, has a color screen and is so small and lightweight that it will fit into the change pocket in a pair of blue jeans. The success of Apple's iPod and iTunes music software has also contributed meaningfully to an increase in sales of Apple desktop and laptop computers as more consumers are opting to make Apple computers the nexus of their personal computing needs. While there is a minimal chance Apple will ever threaten Microsoft's dominant position in PC operating system software, we continue to be impressed by the number of computer users who are, as Apple marketing implores, opting to make the "switch" to Apple. DETRACTORS INCLUDED SELECT INTERNET RETAILERS Of course, not everything went our way this year. In analyzing the Fund's performance, I am pleased to report that the few losses we sustained over the course of the year were quite small. One of the biggest detractors to the Fund's performance was our position in eBay, which occurred in the first half of the year. Since that time eBay has moved up nicely, and we believe the position is appropriately sized in the Fund. We were very disciplined about cutting losses quickly and, no doubt, this discipline has positively contributed to the Fund's performance. Thank you for your investment and continued confidence in Janus. The views expressed above are those of the investment subadvisory firm and are subject to change based on market and other conditions. Information about the Portfolio's holdings, asset allocation, industry allocation or country diversification is historical and is not an indication of future portfolio composition which will vary. TOP TEN HOLDINGS BY MARKET VALUE As of 12/31/05
Percent of Description Net Assets ----------------------------------- Apple Computer, Inc. 11.90% ----------------------------------- UnitedHealth Group, Inc. 8.10% ----------------------------------- Genentech, Inc. 6.65% ----------------------------------- Roche Holding AG 5.16% ----------------------------------- Lowe's Cos., Inc. 5.03% ----------------------------------- Murphy Oil Corp. 4.77% ----------------------------------- Electronic Arts, Inc. 4.16% ----------------------------------- NIKE, Inc.--Class B 4.01% ----------------------------------- eBay, Inc. 3.93% ----------------------------------- Wells Fargo & Co. 3.92% -----------------------------------
-------------------------------------------------------------------------------- PORTFOLIO COMPOSITION (% of portfolio market value) As of 12/31/05 [CHART] Financials 37.9% Non-Cyclical 13.1% Cyclical 10.2% Industrials 9.6% Technology 9.3% Energy 8.1% Communications 7.4% Basic Materials 4.1% Convertible 0.3% -------------------------------------------------------------------------------- 1 -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND FOR THE YEAR ENDED 12/31/05 MANAGED BY JANUS CAPITAL MANAGEMENT LLC -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND MANAGED BY JANUS CAPITAL MANAGEMENT LLC VS. S&P 500 INDEX/1/, AND RUSSELL 2000 INDEX/2/ Growth Based on $10,000 [CHART] CAPITAL APPRECIATION FUND S&P 500 INDEX RUSSELL 2000 ----------------- ------------- ------------ 12/95 $10,000 $10,000 $10,000 12/96 12,821 12,295 11,649 12/97 16,173 16,395 14,255 12/98 26,140 21,084 13,892 12/99 40,128 25,518 16,845 12/00 31,349 23,196 16,336 12/01 23,171 20,441 16,742 12/02 17,358 15,925 13,313 12/03 21,682 20,490 19,603 12/04 25,916 22,718 23,196 12/05 30,632 23,834 24,252
------------------------------------------------------------ Average Annual Return/3/ (for the period ended 12/31/05) ------------------------------------------------------------ 1 Year 3 Year 5 Year 10 Year Since Inception/4/ ------------------------------------------------------------ Capital Appreciation -- Fund 18.19% 20.84% -0.46% 11.84% 13.51% ------------------------------------------------------------ S&P 500 - - Index/1/ 4.91% 14.39% 0.54% 9.07% 12.49% ------------------------------------------------------------ Russell 2000 -- Index/2/ 4.55% 22.13% 8.22% 9.26% 13.36% ------------------------------------------------------------
/1/The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. The Index does not include fees and expenses and is not available for direct investment. /2/The Russell 2000 Index is a capitalization weighted total return index which is comprised of 2,000 of the smallest capitaled U.S. domiciled companies with less than average growth orientation whose common stock is traded in the United States on the New York Stock Exchange, American Stock Exchange and NASDAQ. The Index does not include fees and expenses and is not available for direct investment. /3/"Average Annual Return" is calculated including reinvestment of all income dividends and capital gains distributions. /4/Inception date of Portfolio is 03/19/1982. Past Performance does not guarantee future results. The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, on any given day or when redeemed, may be worth more or less than their original cost. Performance numbers are net of all Portfolio expenses but do not include any insurance, sales, or administration charges of variable annuity or life insurance contracts. If these charges were included, the returns would be lower. -------------------------------------------------------------------------------- 2 -------------------------------------------------------------------------------- HIGH YIELD BOND TRUST FOR THE YEAR ENDED 12/31/05 MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. -------------------------------------------------------------------------------- On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup, Inc. ("Citigroup") announced that they had completed their previously announced transaction that resulted in Legg Mason acquiring substantially all of Citigroup's asset management business. As part of this transaction, the investment subadviser for the Portfolio became a wholly owned subsidiary of Legg Mason. PERFORMANCE UPDATE For the 12 months ended December 31, 2005, the High Yield Bond Trust returned 1.32%. The fund underperformed its unmanaged benchmark, the Credit Suisse First Boston High Yield Index, which returned 2.26% for the same period. It also underperformed the Lipper Variable High Current Yield funds category average, which was 2.56%. Salomon Brothers Asset Management Inc. began managing the fund on July 1, 2005. MARKET/ECONOMIC OVERVIEW The high yield market returned 2.26% for the calendar year ended December 31, 2005, as represented by the CSFB High Yield Index. Although high yield debt markets ended 2004 on a positive note after an extended end-of-year rally, markets turned generally down through Spring 2005 as rising oil prices, weak equity markets and isolated hawkish comments from the Fed regarding inflation spooked investors. The steady stream of negative auto sector headlines also contributed to the negative tone, as reduced earnings, production cuts and downgrades to high yield status hit both General Motors and Ford Motor Co., causing spreads to widen dramatically within the auto sector and across fixed income credit markets. Markets began to recover in mid-May as technicals strengthened and economic news turned generally positive. S&P and Fitch's long-anticipated downgrades of Ford and GM to non-investment grade in early May improved the market's tone, as the rating agencies' actions removed some of the uncertainty in the market surrounding the credits' ultimate resting places, allowing both high yield and investment grade investors to shore up their positions. Improving technicals, better overall demand and the relative absence of further negative headlines continued to buoy markets through June and July, despite a stronger new issue calendar in June and renewed outflows from high yield mutual funds. Resurgent investor risk appetites on the back of strong U.S. economic news and positive second quarter earnings announcements also contributed to positive performance, allowing markets to outperform despite the July 7th terrorist bombings in London (and the July 21st reprise) and weaker consumer sentiment. However, markets again turned down in the last few months of the year amid volatility in the auto sector, stronger inflation, continued high energy prices and fears of a potentially slowing economy in the aftermath of Hurricanes Katrina and Rita. In addition, rising interest rates, with the Fed executing its 12th consecutive rate hike (8 times in 2005) to 4.25% at the December Federal Open Markets Committee meeting, and worsening investor sentiment on the back of increased risk aversion largely offset the surprisingly resilient economic data seen post-Hurricanes. Technicals weakened during 2005 versus the prior few years as the market entered redemption mode in light of the rising rate environment. While total new supply was significantly lighter versus calendar year 2004, with only $103.6 billion coming to market in 2005 versus $142.4 billion in 2004, overall demand also declined. For the year ended December 31, 2005, high yield mutual funds reported outflows of approximately $11.48 billion (according to AMG Data Services). Finally, while high yield fundamentals remain generally positive (i.e., strong corporate balance sheets, generally high cash levels), third quarter 2005's high profile airline bankruptcies pushed annual high yield default rates closer to historical averages, at 3.73% by principal amount/1/ Increased leveraged buyout activity and stock buybacks also relevered some corporate balance sheets and put pressure on the market. Spreads widened 42 basis points during 2005 to close at 388 basis points over U.S. Treasuries. Based on the 8.26% yield/i/ of the Citigroup High Market Yield Index as of December 31, 2005, high-yield bonds continued to offer competitive yields relative to U. S. Treasury notes./ii /However, high-yield issues are subject to additional risks, such as the increased possibility of default because of their lower credit quality, and yields and prices will fluctuate. CONTRIBUTORS TO PERFORMANCE Since takeover of this fund by the current management team, portfolio returns have been negatively impacted by the fund's security selection, specifically in the Automotive, Telecommunications and Energy sectors, and the higher-than-normal cash position. However, our sector overweight to Telecommunications and underweight to Automotive, as well as our security selection in Cable & Media and Utilities, helped make up some of the return. The views expressed above are those of the investment subadvisory firm and are subject to change based on market and other conditions. Information about the Portfolio's holdings, asset allocation, industry allocation or country diversification is historical and is not an indication of future portfolio composition which will vary. -------------------------------------------------------------------------------- 3 -------------------------------------------------------------------------------- HIGH YIELD BOND TRUST FOR THE YEAR ENDED 12/31/05 MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. -------------------------------------------------------------------------------- TOP TEN HOLDINGS BY MARKET VALUE As of 12/31/05
Percent of Description Net Assets -------------------------------------------------------------------- Targeted Return Index Securities Trust (7.651%, 06/15/15) 3.60% -------------------------------------------------------------------- General Motors Acceptance Corp. (8.000%, 11/01/31) 1.95% -------------------------------------------------------------------- Ford Motor Co. (7.450%, 07/16/31) 1.88% -------------------------------------------------------------------- Lyondell Chemical Co. (10.875%, 05/01/19) 1.18% -------------------------------------------------------------------- Tenet Healthcare Corp. (6.875%, 11/15/31) 1.14% -------------------------------------------------------------------- Ford Motor Credit Co. (6.625%, 6/16/08) 1.08% -------------------------------------------------------------------- CSC Holdings, Inc. Series B (7.625%, 04/01/11) 1.02% -------------------------------------------------------------------- General Motors Corp. (8.375%, 07/15/33) 1.01% -------------------------------------------------------------------- D.R. Horton, Inc. (6.125%, 01/15/14) 1.00% -------------------------------------------------------------------- Houghton Miffin Co. (7.200%, 03/15/11) 1.00% --------------------------------------------------------------------
/1/Source: Altman High Yield Bond Default ad Return Report, November 2, 2005. /i/As measured by the yield on the Citigroup High Yield Market Index as of the period's close. /ii/Yields are subject to change and will fluctuate. PORTFOLIO COMPOSITION (% of portfolio market value) As of 12/31/05 [CHART] Domestic Bonds & Debt Securities 98.8% Common Stocks 0.8% Convertible Preferred Stock 0.4% -------------------------------------------------------------------------------- 4 -------------------------------------------------------------------------------- HIGH YIELD BOND TRUST FOR THE YEAR ENDED 12/31/05 MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. -------------------------------------------------------------------------------- HIGH YIELD BOND TRUST MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. VS. CREDIT SUISSE FIRST BOSTON HIGH YIELD INDEX/1/ Growth Based on $10,000 [CHART] HIGH YIELD CREDIT SUISSE BOND TRUST 1ST BOSTON ---------- ------------- 12/95 $10,000 $10,000 12/96 11,605 11,242 12/97 13,527 12,662 12/98 14,414 12,735 12/99 15,051 13,153 12/00 15,197 12,468 12/01 16,649 13,191 12/02 17,410 13,600 12/03 22,485 17,400 12/04 24,452 19,479 12/05 24,773 19,919
------------------------------------------------------------- Average Annual Return/2/ (for the period ended 12/31/05) ------------------------------------------------------------- 1 Year 3 Year 5 Year 10 Year Since Inception/3/ ------------------------------------------------------------- High Yield -- Bond Trust 1.32% 12.48% 10.27% 9.50% 9.54% ------------------------------------------------------------- Credit Suisse First Boston High Yield - - Index/1/ 2.26% 13.56% 9.82% 7.13% 9.44% -------------------------------------------------------------
/1/The Credit Suisse First Boston High Yield Index is a broad-based market measure of high-yield bonds, commonly known as "junk bonds." The Index does not include fees and expenses and is not available for direct investment. /2/"Average Annual Return" is calculated including reinvestment of all income dividends and capital gains distributions. /3/Inception date of Portfolio is 03/19/1982. Past Performance does not guarantee future results. The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, on any given day or when redeemed, may be worth more or less than their original cost. Performance numbers are net of all Portfolio expenses but do not include any insurance, sales, or administration charges of variable annuity or life insurance contracts. If these charges were included, the returns would be lower. -------------------------------------------------------------------------------- 5 -------------------------------------------------------------------------------- MANAGED ASSETS TRUST FOR THE YEAR ENDED 12/31/05 MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. AND TIMCO ASSET MANAGEMENT, INC. -------------------------------------------------------------------------------- On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup, Inc. ("Citigroup") announced that they had completed their previously announced transaction that resulted in Legg Mason acquiring substantially all of Citigroup's asset management business. As part of this transaction, the investment subadviser for the Portfolio became a wholly owned subsidiary of Legg Mason. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD? During its fiscal year ended December 31, 2005, the Managed Assets Trust generated a return of 3.84%. In comparison, the Fund outperformed one of its unmanaged benchmarks, the Lehman Brothers Government/Credit Index,/v/ which advanced by 2.37%, and underperformed its other unmanaged benchmark, the S&P 500 Index, which gained 4.91% for the same period. The Fund underperformed its Lipper Variable Flexible Portfolio Funds Category Average,/vi/ which was up 4.88% over the same time frame. TIMCO ASSET MANAGEMENT, INC. COMMENTARY WHAT WERE THE OVERALL MARKET CONDITIONS DURING THE FUND'S REPORTING PERIOD? The U.S. economy overcame a number of challenges during the year and continued to grow at a solid pace. Given the economy's strength and inflationary concerns triggered by record high oil prices, the Federal Reserve Board ("Fed")/i/ continued to raise short-term interest rates over the period. Since the Fed began its tightening cycle in June 2004, it has raised the federal funds rate/ii/ thirteen times, bringing it from 1.00% to 4.25% at the end of 2005. The U.S. financial markets generated positive, but modest returns during the reporting period. The overall stock market, as measured by the S&P 500 Index,/iii/ returned 4.91% in 2005. Strong corporate profits were often overshadowed by rising oil prices and interest rates. During the period, the overall bond market, as measured by the Lehman Aggregate Bond Index,/iv/ gained 2.43%. For the second year in a row, the bond market surprised many investors, as it rose in spite of the economy's expansion, higher interest rates, and inflationary pressures. WHAT WERE THE LEADING CONTRIBUTORS TO PERFORMANCE? In 2005, corporate profit growth was expected to exceed 10% for the third consecutive year. However, this did not translate into superior stock market returns. That said, there were areas of the U.S. market that generated strong results. For example, the equity portion of the Fund benefited from its exposure to the energy sector, as it returned more than 30% for the year, far outdistancing all other sectors. Elsewhere, the financial and healthcare sectors of the market both advanced roughly 6.5% in 2005. The fixed income portion of the Fund's portfolio benefited from its holdings in select corporate securities. In particular, the Fund's industrial sector bonds enhanced results, as did our decision to lower the Fund's exposure to financials. The Fund's collateralized mortgage-backed securities also boosted returns. Elsewhere, our duration management techniques were positive for performance. By lengthening the Fund's overall duration in the second half of the year we benefited as longer-term interest rates fell. WHAT WERE THE LEADING DETRACTORS FROM PERFORMANCE? In terms of U.S. stocks, the Fund's holdings in the consumer discretionary and telecommunications sectors detracted from results, as they generated negative returns during the reporting period. From a fixed income perspective, our underweight in Treasuries hurt returns. In addition, our yield curve positioning was a drag on relative performance over the reporting period. While the Fund's underweight in 1-3 year securities was beneficial, this was overshadowed by an overexposure to 5-7 year securities as the yield curve flattened. In addition, being short 20-30 year securities detracted from performance, as this was the best performing part of the yield curve during the year. WERE THERE ANY SIGNIFICANT CHANGES MADE TO THE FUND DURING THE REPORTING PERIOD? Over the period, we increased the Fund's exposure to equities and lowered its exposure to fixed income securities. This was done to maintain a balanced portfolio. /i/The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. /ii/The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. /iii/The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note that an investor cannot invest directly in an index. /iv/The Lehman Brothers Aggregate Bond Index is a broad-based bond index comprised of Government, Corporate, Mortgage and Asset-backed issues, rated investment grade or higher, and having at least one year to maturity. Please note that an investor cannot invest directly in an index. /v/The Lehman Brothers Government/Credit Bond Index is a broad-based index composed of government and corporate debt issues that are investment grade (rated Baa/BBB or higher). Please note that an investor cannot invest directly in an index. /vi/Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2005, including the reinvestment of distributions, including returns of capital, if any, calculated among the 91 funds in the Fund's Lipper category, and excluding sales charges. -------------------------------------------------------------------------------- 6 -------------------------------------------------------------------------------- MANAGED ASSETS TRUST FOR THE YEAR ENDED 12/31/05 MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. AND TIMCO ASSET MANAGEMENT, INC. -------------------------------------------------------------------------------- SALOMON BROTHERS ASSET MANAGEMENT INC. COMMENTARY ECONOMIC OVERVIEW: The US economy ended 2005 on a stronger note as holiday sales appeared to meet expectations. Although the economy has been buffeted by several negative shocks - high-energy prices, hurricane losses, and rising interest rates - the full year 2005 results look to have been in line with the prior two years. Going forward, 2006 looks to be a watershed year for the U.S. economy as the recovery phase of the economic expansion finally moves the economy to full-employment. While the economy still faces significant headwinds in the form of high home heating costs, rising interest rates, a cooling housing market; there are significant strengths as well. Among these strengths are very strong corporate profit trends, continued productivity growth, strong global growth, and an accelerating impetus from the New Orleans region rebuilding effort. Stabilizing energy prices have helped overall inflation performance toward the end of 2005, but core CPI inflation continues to hover just over 2%. Although this has been very good news on the core CPI, there are reasons to expect increased pricing power among firms translates into higher core inflation in 2006. Chief among these factors is the economy's continued movement toward full-employment which looks to add pricing power and increase production bottlenecks. Shortages of construction materials and labor capacity due to the rebuilding of the Gulf region also look to add to price pressures in 2006. While the stronger dollar in 2005 was a contributing factor to the moderation of goods price inflation and has also been reflected in stabilizing non-energy commodity prices, the dollar began to weaken again toward the end of 2005. Going forward, a weaker dollar looks to add modestly to inflation pressures in 2006. While the Fed made it thirteen straight meetings followed by a 25 basis point tightening at the December Federal Open Markets Committee meeting, the language of the statement released following that meeting and the subsequent minutes of that same meeting made it clear that the sentiment of the committee is that the tightening job is nearly completed. With the federal funds rate now at 4.25%, the Fed is expected to raise rates once again at the January 31 FOMC meeting and to indicate in statement and the minutes following that meeting that future policy moves could be in either direction and would depend on evolving economic data and circumstances. We anticipate that the Fed will hold the funds rate target steady at 4.5% through mid-year, at a minimum. The views expressed above are those of the investment subadvisory firm and are subject to change based on market and other conditions. Information about the Portfolio's holdings, asset allocation, industry allocation or country diversification is historical and is not an indication of future portfolio composition which will vary. TOP TEN HOLDINGS BY MARKET VALUE As of 12/31/05
Percent of Description Net Assets ------------------------------------------------------ U.S. Treasury Note (4.125%, 08/15/08) 2.15% ------------------------------------------------------ U.S. Treasury Note (4.125%, 08/15/10) 2.11% ------------------------------------------------------ General Electric Co. (5.000%, 02/01/13) 2.07% ------------------------------------------------------ Exxon Mobil Corp. 1.99% ------------------------------------------------------ PP&L Transition Bond LLC (7.050%, 06/25/09) 1.77% ------------------------------------------------------ Microsoft Corp. 1.41% ------------------------------------------------------ Bank of America Corp. 1.27% ------------------------------------------------------ U.S. Treasury Note (3.250%, 08/15/08) 1.16% ------------------------------------------------------ U.S. Treasury Note (4.125%, 05/15/15) 1.13% ------------------------------------------------------ U.S. Treasury Note (3.625%, 07/15/09) 1.13% ------------------------------------------------------
-------------------------------------------------------------------------------- PORTFOLIO COMPOSITION (% of portfolio market value) As of 12/31/05 [CHART] Asset-Backed Securities 2.0% Collateralized Mortgage Obligations 2.1% Domestic Bonds & Debt Securities 14.2% Convertible Bonds 5.3% U.S. Government & Agency Obligations 11.8% Foreign Bonds & Debt Securities 0.2% Common Stock 63.6% Convertible Preferred Stock 0.8% -------------------------------------------------------------------------------- 7 -------------------------------------------------------------------------------- MANAGED ASSETS TRUST FOR THE YEAR ENDED 12/31/05 MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. AND TIMCO ASSET MANAGEMENT, INC. -------------------------------------------------------------------------------- MANAGED ASSETS TRUST MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. AND TIMCO ASSET MANAGEMENT, INC. VS. LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX/1/ AND S&P 500 INDEX/1/ Growth Based on $10,000 [CHART] MANAGED ASSETS S&P 500 LEHMAN BROTHERS GOVERNMENT/ TRUST INDEX CREDIT BOND INDEX ---------- ----- ----------------- 12/95 $10,000 $10,000 $10,000 12/96 11,379 12,295 10,405 12/97 13,804 16,395 11,224 12/98 16,763 21,084 12,171 12/99 19,147 25,518 12,219 12/00 18,838 23,196 13,455 12/01 17,881 20,441 14,661 12/02 16,343 15,925 16,103 12/03 19,936 20,490 16,797 12/04 21,816 22,718 17,308 12/05 22,651 23,834 17,581
------------------------------------------------------------ Average Annual Return/3/ (for the period ended 12/31/05) ------------------------------------------------------------ 1 Year 3 Year 5 Year 10 Year Since Inception/4/ ------------------------------------------------------------ Managed -- Assets Trust 3.84% 11.50% 3.76% 8.52% 8.93% ------------------------------------------------------------ Lehman Brothers Government/ Credit Bond -- Index/1/ 1.58% 2.97% 5.50% 5.80% 8.70% ------------------------------------------------------------ S&P 500 - - Index/2/ 4.91% 14.39% 0.54% 9.07% 13.12% ------------------------------------------------------------
/1/The Lehman Brothers Government/Credit Bond Index is a weighted composite of the Lehman Brothers Government Bond Index, which is a broad-based index of all public debt obligations of the U.S. Government and its agencies and has an average maturity of nine years and the Lehman Brothers Credit Bond Index, which is comprised of all public fixed-rate non-convertible investment grade domestic corporate debt, excluding collateralized mortgage obligations. The Index does not include fees and expenses and is not available for direct investment. /2/The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. The Index does not include fees and expenses and is not available for direct investment. /3/Average Annual Return" is calculated including reinvestment of all income dividends and capital gains distributions. /4/Inception date of Portfolio is 04/08/1983. Past Performance does not guarantee future results. The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, on any given day or when redeemed, may be worth more or less than their original cost. Performance numbers are net of all Portfolio expenses but do not include any insurance, sales, or administration charges of variable annuity or life insurance contracts. If these charges were included, the returns would be lower. -------------------------------------------------------------------------------- 8 -------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO FOR THE YEAR ENDED 12/31/05 MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC. -------------------------------------------------------------------------------- On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup, Inc. ("Citigroup") announced that they had completed their previously announced transaction that resulted in Legg Mason acquiring substantially all of Citigroup's asset management business. As part of this transaction, the investment subadviser for the Portfolio became a wholly owned subsidiary of Legg Mason. PERFORMANCE UPDATE: For the year ended December 31, 2005, the Money Market Portfolio returned 2.90%. The U.S. economy continued its steady growth in the fourth quarter, with strong manufacturing and industrial production data, low initial jobless claims and firm underlying corporate fundamentals. Consumer confidence, in particular, rebounded as declining gas prices improved sentiment ahead of the holiday season, rising to its highest level since Hurricanes Katrina and Rita. On the weaker side, the housing market began to exhibit signs of slowing as mortgage applications edged down, interest rates rose and home sales declined. Stabilizing energy prices helped overall inflation performance toward the end of 2005, but core CPI inflation continued to hover just over 2%. Continuing its measured pace of rate increases and in line with market expectations, the Fed raised the federal funds rate by 25 basis points at both its November and December Federal Open Market Committee (FOMC) meetings, bringing the target rate to 4.25%. However, in an important departure from previous FOMC statements, the committee removed its characterization of monetary policy as "accommodative" at their December meeting. The overall sentiment of the text also reinforced the market's view that future monetary policy decisions will become more data dependent as the Fed's tightening cycle nears completion. In response, money market yields rose over the quarter as the economy continued to expand solidly and holiday sales appeared to meet expectations. Three-month LIBOR climbed 47 basis points, to 4.54%, while one-year LIBOR increased 40 basis points, to 4.84%. Three-month Treasury bill yields increased 54 basis points, to 4.07%, while six-month Treasury bill yields rose 45 basis points, to 4.37%. ECONOMIC OVERVIEW: The US economy ended 2005 on a stronger note as holiday sales appeared to meet expectations. Although the economy has been buffeted by several negative shocks--high-energy prices, hurricane losses, and rising interest rates--the full year 2005 results look to have been in line with the prior two years. Going forward, 2006 looks to be a watershed year for the U.S. economy as the recovery phase of the economic expansion finally moves the economy to full-employment. While the economy still faces significant headwinds in the form of high home heating costs, rising interest rates, a cooling housing market; there are significant strengths as well. Among these strengths are very strong corporate profit trends, continued productivity growth, strong global growth, and an accelerating impetus from the New Orleans region rebuilding effort. Stabilizing energy prices have helped overall inflation performance toward the end of 2005, but core CPI inflation continues to hover just over 2%. Although this has been very good news on the core CPI, there are reasons to expect increased pricing power among firms translates into higher core inflation in 2006. Chief among these factors is the economy's continued movement toward full-employment which looks to add pricing power and increase production bottlenecks. Shortages of construction materials and labor capacity due to the rebuilding of the Gulf region also look to add to price pressures in 2006. While the stronger dollar in 2005 was a contributing factor to the moderation of goods price inflation and has also been reflected in stabilizing non-energy commodity prices, the dollar began to weaken again toward the end of 2005. Going forward, a weaker dollar looks to add modestly to inflation pressures in 2006. While the Fed made it thirteen straight meetings followed by a 25 basis point tightening at the December FOMC meeting, the language of the statement released following that meeting and the subsequent minutes of that same meeting made it clear that the sentiment of the committee is that the tightening job is nearly completed. With the federal funds rate now at 4.25%, the Fed is expected to raise rates once again at the January 31 FOMC meeting and to indicate in statement and the minutes following that meeting that future policy moves could be in either direction and would depend on evolving economic data and circumstances. We anticipate that the Fed will hold the funds rate target steady at 4.5% through mid-year, at a minimum. The views expressed above are those of the investment subadvisory firm and are subject to change based on market and other conditions. Information about the Portfolio's holdings, asset allocation, industry allocation or country diversification is historical and is not an indication of future portfolio composition which will vary. -------------------------------------------------------------------------------- TOP TEN HOLDINGS BY MARKET VALUE As of 12/31/05
Percent of Description Net Assets ----------------------------------------- Rabobank USA Financial Corp. 4.75% ----------------------------------------- Goldman Sachs Group, Inc. 4.75% ----------------------------------------- Dresdner U S Finance, Inc. 4.75% ----------------------------------------- Societe Generale N.A. 4.75% ----------------------------------------- General Electric Capital Corp. 4.75% ----------------------------------------- Gannett Co., Inc. 4.75% ----------------------------------------- Bank Ireland Governor & Co. 4.75% ----------------------------------------- Atlantic Asset Security Corp. 4.75% ----------------------------------------- Ormond Quay Funding LLC 4.75% ----------------------------------------- Ebury Finance Ltd. 4.75% -----------------------------------------
-------------------------------------------------------------------------------- PORTFOLIO COMPOSITION (% of portfolio market value) As of 12/31/05 [CHART] Financial - Diversified 56.9% Banks 23.5% Media 4.7% Foreign Government & Agency 4.7% Health Care Equipment & Supplies 4.4% Medium - Term Notes 4.3% Foreign Certificate of Deposit 1.5% -------------------------------------------------------------------------------- 9 UNDERSTANDING YOUR PORTFOLIO'S EXPENSES SHAREHOLDER EXPENSE EXAMPLE As a mutual fund shareholder you may incur two types of costs: (1) TRANSACTION COSTS, including sales charges (loads) on purchase payments and redemption fees and (2) ONGOING COSTS, including management fees, shareholder services fees and other Portfolio expenses. Sales charges and redemption fees do not apply. Costs are described in more detail in the Portfolio's prospectus. The examples below are intended to help you understand your ongoing costs of investing in the Portfolios and help you compare these with the ongoing costs of investing in other mutual funds. ACTUAL EXPENSES The first line in the table for each Portfolio shows the ACTUAL account values and ACTUAL Portfolio expenses you would have paid on a $1,000 investment in the Portfolio from July 1, 2005 through December 31, 2005. It also shows how much a $1,000 investment would be worth at the close of the period, assuming ACTUAL Portfolio returns and expenses. To estimate the expenses you paid over the period, simply divide your account by $1,000 (for example $8,600 account value divided by $1,000 = 8.6) and multiply the result by the number in the "Expenses Paid During Period" column as shown below for your Portfolio. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an ASSUMED rate of return of 5% per year before expenses, which is not the Portfolio's actual return. Thus, you should NOT use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are provided to enable you to compare the ongoing costs of investing in the Portfolio and other Portfolios. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Portfolios. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative TOTAL costs of owning different Portfolios. In addition, if these transaction costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* 6/30/05 12/31/05 7/1/05-12/31/05 CAPITAL APPRECIATION FUND ------------- ------------- --------------- Actual $1,000.00 $1,126.50 $4.18 Hypothetical (5% return before expenses) 1,000.00 1,021.27 3.97 ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.78%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* 6/30/05 12/31/05 7/1/05-12/31/05 HIGH YIELD BOND TRUST ------------- ------------- --------------- Actual $1,000.00 $1,013.10 $3.10 Hypothetical (5% return before expenses) 1,000.00 1,022.13 3.11 ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.61%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* 6/30/05 12/31/05 7/1/05-12/31/05 MANAGED ASSETS TRUST ------------- ------------- --------------- Actual $1,000.00 $1,040.50 $3.14 Hypothetical (5% return before expenses) 1,000.00 1,022.13 3.11 ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.61%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* 6/30/05 12/31/05 7/1/05-12/31/05 MONEY MARKET PORTFOLIO ------------- ------------- --------------- Actual $1,000.00 $1,017.10 $2.03 Hypothetical (5% return before expenses) 1,000.00 1,023.19 2.04 ------------------------------------------ ------------- ------------- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.40%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 10 CAPITAL APPRECIATION FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
----------------------------------------------------------------- SECURITY VALUE DESCRIPTION SHARES (NOTE 2) ----------------------------------------------------------------- COMMON STOCKS - 92.7% BANKS - 5.8% Commerce Bancorp, Inc............... 636,190 $ 21,891,298 Wells Fargo & Co.................... 709,220 44,560,293 --------------- 66,451,591 --------------- BIOTECHNOLOGY - 11.3% Genentech, Inc.*.................... 818,045 75,669,162 Gilead Sciences, Inc.*.............. 714,505 37,604,398 Invitrogen Corp.*................... 224,045 14,930,359 --------------- 128,203,919 --------------- CHEMICALS - 1.4% Huntsman Corp.*..................... 907,885 15,633,780 --------------- COMMUNICATIONS EQUIPMENT - 1.1% QUALCOMM, Inc....................... 287,440 12,382,915 --------------- COMPUTERS & PERIPHERALS - 13.5% Apple Computer, Inc.*............... 1,882,840 135,357,367 Sun Microsystems, Inc.*............. 4,358,210 18,260,900 --------------- 153,618,267 --------------- ELECTRIC UTILITIES - 1.9% AES Corp.*.......................... 1,350,210 21,373,824 --------------- FINANCIAL - DIVERSIFIED - 4.3% American Express Co................. 285,470 14,690,286 Ameriprise Financial, Inc........... 57,094 2,340,854 Goldman Sachs Group, Inc. (The)..... 172,875 22,077,866 SLM Corp............................ 183,095 10,086,704 --------------- 49,195,710 --------------- HEALTH CARE PROVIDERS & SERVICES - 8.1% UnitedHealth Group, Inc............. 1,482,960 92,151,134 --------------- INSURANCE - 1.0% Berkshire Hathaway, Inc. - Class B*. 3,901 11,451,386 --------------- INTERNET & CATALOG RETAIL - 3.9% eBay, Inc.*......................... 1,032,175 44,641,569 --------------- INTERNET SOFTWARE & SERVICES - 2.2% Yahoo!, Inc.*....................... 646,300 25,322,034 --------------- MEDIA - 3.8% XM Satellite Radio Holdings, Inc. - Class A*................... 1,568,785 42,796,455 --------------- OIL & GAS - 7.0% Murphy Oil Corp..................... 1,004,130 54,212,979 Suncor Energy, Inc.................. 397,580 25,099,225 --------------- 79,312,204 --------------- PHARMACEUTICALS - 8.7% Roche Holding AG.................... 391,314 58,714,211 Teva Pharmaceutical Industries, Ltd. (ADR)............................. 946,100 40,691,761 --------------- 99,405,972 ---------------
------------------------------------------------------------------- SECURITY SHARES/PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ------------------------------------------------------------------- RETAIL - MULTILINE - 1.1% J.C. Penney Co., Inc................ 232,800 $ 12,943,680 --------------- RETAIL - SPECIALTY - 13.4% Advance Auto Parts*................. 692,647 30,102,439 Coach, Inc.*........................ 413,880 13,798,759 Lowe's Cos., Inc.................... 857,325 57,149,284 NIKE, Inc. - Class B................ 526,005 45,651,974 Staples, Inc........................ 236,670 5,374,776 --------------- 152,077,232 --------------- SOFTWARE - 4.2% Electronic Arts, Inc.*.............. 904,725 47,326,165 --------------- Total Common Stocks (Cost $617,809,882) 1,054,287,837 --------------- SHORT-TERM INVESTMENT - 7.6% State Street Bank & Trust Co., Repurchased Agreement, dated 12/30/05 at 2.800% to be repurchased at $86,411,875 on 01/03/06 collateralized by 78,740,000 U.S. Treasury Bond/Note 5.250% due 02/15/29 with a value of $88,116,044 (Cost $86,385,000)................ $86,385,000 $ 86,385,000 --------------- TOTAL INVESTMENTS - 100.3% (Cost $704,194,882) 1,140,672,837 Other Assets and Liabilities (net) - (0.3%) (3,405,776) --------------- TOTAL NET ASSETS - 100.0% $ 1,137,267,061 ===============
* Non-income producing security. ADR - American Depositary Receipt See notes to financial statements 11 HIGH YIELD BOND TRUST PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------ SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ------------------------------------------------------------------ DOMESTIC BONDS & DEBT SECURITIES - 89.1% AEROSPACE & DEFENSE - 1.6% Argo-Tech Corp. 9.250%, due 06/01/11... $ 75,000 $ 77,250 BE Aerospace, Inc., Series B 8.875%, due 05/01/11......................... 475,000 501,125 Moog, Inc. 6.250%, due 01/15/15........ 550,000 544,500 Sequa Corp. Series B 8.875%, due 04/01/08......................... 725,000 759,437 ------------- 1,882,312 ------------- ASSET-BACKED SECURITY - 3.6% Targeted Return Index Securities Trust, Series HY-2005 7.651%, due 06/15/15 (144A)(a)............................ 4,104,880 4,224,693 ------------- AUTO PARTS & EQUIPMENT - 0.0% Dura Operating Corp., Series B 8.625%, due 04/15/12......................... 57,000 47,310 ------------- AUTOMOBILES - 3.2% Ford Motor Co. 7.450%, due 07/16/31................. 3,225,000 2,209,125 8.900%, due 01/15/32.................. 275,000 202,812 General Motors Corp. 8.250%, due 07/15/23................. 175,000 113,313 8.375%, due 07/15/33.................. 1,775,000 1,180,375 ------------- 3,705,625 ------------- BUILDING MATERIALS - 0.7% Goodman Global Holding Co., Inc. 7.491%, due 06/15/12 (144A)(a)(b)....................... 125,000 124,375 7.875%, due 12/15/12 (144A)(a)........ 290,000 271,150 Nortek, Inc. 8.500%, due 09/01/14...... 275,000 266,750 Ply Gem Industries, Inc. 9.000%, due 02/15/12......................... 225,000 200,813 ------------- 863,088 ------------- CHEMICALS - 5.1% Borden U.S. Finance Corp./Nova Scotia Finance ULC 9.000%, due 07/15/14 (144A)(a)............................ 375,000 373,125 Crystal U.S. Holdings 3 LLC, Series B 0.000%/10.500%, due 10/01/14(c)...... 163,000 119,397 Foamex Cap Corp. 13.500%, due 08/15/06......................... 250,000 22,500 Huntsman International LLC 9.875%, due 03/01/09................. 450,000 477,000 10.125%, due 07/01/09................. 289,000 299,837 IMC Global, Inc., Series B 10.875%, due 06/01/08......................... 53,000 58,963 Innophos, Inc. 9.625%, due 08/15/14 (144A)(a)............................ 100,000 101,250
-------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) -------------------------------------------------------------------- CHEMICALS - CONTINUED ISP Holdings, Inc., Series B 10.625%, due 12/15/09........................... $ 275,000 $ 290,125 Lyondell Chemical Co. 10.875%, due 05/01/09........................... 1,325,000 1,382,969 Nalco Co. 7.750%, due 11/15/11................... 75,000 77,438 8.875%, due 11/15/13.................... 450,000 473,625 NOVA Chemicals Corp. 6.500%, due 01/15/12........................... 425,000 413,844 Resolution Performance Products LLC 8.000%, due 12/15/09................... 325,000 333,125 9.500%, due 04/15/10.................... 325,000 330,687 Rhodia SA 7.625%, due 06/01/10................... 950,000 959,500 8.875%, due 06/01/11.................... 175,000 180,250 Rockwood Specialties Group, Inc. 7.625%, due 11/15/14........................... 50,000 61,430 ------------- 5,955,065 ------------- COMMERCIAL SERVICES & SUPPLIES - 1.1% Alderwoods Group, Inc. 7.750%, due 09/15/12........................... 850,000 884,000 Carriage Services, Inc. 7.875%, due 01/15/15........................... 125,000 127,813 Iron Mountain, Inc. 7.750%, due 01/15/15........................... 295,000 298,687 ------------- 1,310,500 ------------- CONTAINERS & PACKAGING - 3.0% Crown Cork & Seal Co., Inc. 7.375%, due 12/15/26........................... 850,000 782,000 Crown Cork & Seal Finance PLC 7.000%, due 12/15/06........................... 75,000 76,125 Graphic Packaging International Corp. 8.500%, due 08/15/11.................... 75,000 75,563 9.500%, due 08/15/13.................... 525,000 504,000 Jefferson Smurfit Corp. 8.250%, due 10/01/12........................... 407,012 392,767 Owens-Brockway Glass Container, Inc. 8.875%, due 02/15/09.................... 575,000 603,031 7.750%, due 05/15/11.................... 300,000 314,625 6.750%, due 12/01/14.................... 225,000 219,375 Smurfit-Stone Container Enterprises, Inc. 8.375%, due 07/01/12................... 225,000 218,812 Solo Cup Co. 8.500%, due 02/15/14........ 400,000 352,000 ------------- 3,538,298 ------------- ELECTRIC UTILITIES - 1.5% AES Corp. 9.375%, due 09/15/10........... 1,025,000 1,124,937 Calpine Corp. 8.500%, due 07/15/10 (144A)(a)(d).............. 225,000 185,625
See notes to financial statements 12 HIGH YIELD BOND TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------------ SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ------------------------------------------------------------------------ ELECTRIC UTILITIES - CONTINUED Calpine Generating Co. LLC 8.140%, due 04/01/09(b)(d)................... $ 375,000 $ 390,938 ------------- 1,701,500 ------------- ELECTRIC UTILITIES - 0.8% Mirant North America LLC 7.375%, due 12/31/13 (144A)(a)............... 375,000 381,094 Reliant Energy, Inc. 9.250%, due 07/15/10.................. 150,000 150,750 9.500%, due 07/15/13.................. 425,000 428,187 ------------- 960,031 ------------- ELECTRONICS - 1.3% L-3 Communications Corp. 6.375%, due 10/15/15 (144A)(a)............... 1,150,000 1,152,875 Sanmina-SCI Corp. 6.750%, due 03/01/13......................... 150,000 143,438 Thomas & Betts Corp. 7.250%, due 06/01/13......................... 175,000 186,316 ------------- 1,482,629 ------------- ENERGY - 1.7% Dynegy Holdings, Inc. 10.125%, due 07/15/13(a).............. 325,000 368,875 7.125%, due 05/15/18.................. 400,000 358,000 NRG Energy, Inc. 8.000%, due 12/15/13.. 876,000 981,120 Reliant Energy, Inc. 6.750%, due 12/15/14......................... 300,000 263,250 ------------- 1,971,245 ------------- ENTERTAINMENT & LEISURE - 3.6% AMC Entertainment, Inc. 8.590%, due 08/15/10(b)............... 225,000 232,594 9.500%, due 02/01/11.................. 360,000 355,950 8.000%, due 03/01/14.................. 250,000 227,500 Series B 8.625%, due 08/15/12......... 175,000 183,750 Cinemark, Inc. 0.000%/9.750%, due 03/15/14(c)...................... 325,000 242,125 Gaylord Entertainment Co. 6.750%, due 11/15/14......................... 600,000 591,000 Herbst Gaming, Inc. 7.000%, due 11/15/14......................... 550,000 550,000 Isle of Capri Casinos, Inc. 7.000%, due 03/01/14......................... 550,000 539,000 Mohegan Tribal Gaming Authority 7.125%, due 08/15/14......................... 175,000 180,031 Penn National Gaming, Inc. 6.750%, due 03/01/15......................... 475,000 469,062 Pinnacle Entertainment, Inc. 8.750%, due 10/01/13......................... 550,000 588,500 ------------- 4,159,512 -------------
-------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) -------------------------------------------------------------------- ENVIRONMENTAL SERVICES - 1.0% Allied Waste North America, Inc. 6.500%, due 11/15/10................. $ 825,000 $ 820,875 9.250%, due 09/01/12.................. 83,000 90,263 6.125%, due 02/15/14.................. 225,000 213,187 --------------- 1,124,325 --------------- FINANCIAL - DIVERSIFIED - 4.9% AAC Group Holding Corp. 0.000%/ 10.250%, due 10/01/12(c)............. 50,000 36,375 Alamosa Delaware, Inc. 0.000%/ 12.000%, due 07/31/05(c)............. 574,000 630,682 BCP Crystal U.S. Holdings Corp. 9.625%, due 06/15/14......................... 439,000 490,583 CCM Merger, Inc. 8.000%, due 08/01/13 (144A)(a)............................ 275,000 265,375 Ford Motor Credit Co. 6.625%, due 06/16/08......................... 1,400,000 1,270,569 General Motors Acceptance Corp. 8.000%, due 11/01/31................. 2,375,000 2,280,995 Nell AF SARL 8.375%, due 08/15/15 (144A)(a)............................ 275,000 273,625 Vanguard Health Holdings II 9.000%, due 10/01/14......................... 500,000 533,750 --------------- 5,781,954 --------------- FOOD PRODUCTS - 1.9% Del Monte Corp. 6.750%, due 02/15/15......................... 125,000 122,500 Delhaize America, Inc. 9.000%, due 04/15/31......................... 425,000 501,763 Doane Pet Care Co. 10.750%, due 03/01/10......................... 500,000 546,250 Dole Food Co., Inc. 8.875%, due 03/15/11................. 19,000 19,570 8.750%, due 07/15/13.................. 400,000 414,000 Land O' Lakes, Inc. 9.000%, due 12/15/10......................... 50,000 54,500 Smithfield Foods, Inc. 7.000%, due 08/01/11......................... 475,000 486,875 Swift & Co. 10.125%, due 10/01/09...... 50,000 51,875 --------------- 2,197,333 --------------- HEALTH CARE PROVIDERS & SERVICES - 3.6% Accellent, Inc. 10.500%, due 12/01/13 (144A)(a)............................ 375,000 386,250 Community Health Systems, Inc. 6.500%, due 12/15/12......................... 150,000 146,813 IASIS Healthcare LLC 8.750%, due 06/15/14......................... 550,000 580,250 Radiologix, Inc., Series B 10.500%, due 12/15/08......................... 525,000 517,125
See notes to financial statements 13 HIGH YIELD BOND TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
-------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) -------------------------------------------------------------------- HEALTH CARE PROVIDERS & SERVICES - CONTINUED Select Medical Corp. 7.625%, due 02/01/15........................... $ 425,000 $ 411,187 Tenet Healthcare Corp. 7.375%, due 02/01/13................... 275,000 255,062 6.875%, due 11/15/31.................... 1,650,000 1,336,500 Triad Hospitals, Inc. 7.000%, due 11/15/13........................... 550,000 554,125 ------------- 4,187,312 ------------- HOMEBUILDERS - 3.0% D.R. Horton, Inc. 6.125%, due 01/15/14........................... 1,175,000 1,177,097 K Hovnanian Enterprises, Inc. 6.375%, due 12/15/14........................... 1,150,000 1,093,474 KB HOME 8.625%, due 12/15/08................... 125,000 133,397 9.500%, due 02/15/11.................... 325,000 343,499 6.375%, due 08/15/11.................... 425,000 427,444 William Lyon Homes, Inc. 10.750%, due 04/01/13........................... 350,000 363,125 ------------- 3,538,036 ------------- HOTELS, RESTAURANTS & LEISURE - 5.4% Aztar Corp. 7.875%, due 06/15/14......... 250,000 263,125 Boyd Gaming Corp. 6.750%, due 04/15/14........................... 725,000 723,187 Denny's Corp. 1.000%, due 09/21/10....... 83,333 85,365 Friendly Ice Cream Corp. 8.375%, due 06/15/12........................... 325,000 290,875 HMH Properties, Inc., Series B 7.875%, due 08/01/08........................... 71,000 72,154 Kerzner International, Ltd. 6.750%, due 10/01/15 (144A)(a)................. 450,000 439,875 Las Vegas Sands Corp 6.375%, due 02/15/15........................... 550,000 532,125 Mandalay Resort Group 9.375%, due 02/15/10........................... 53,000 58,300 MGM MIRAGE, Inc. 8.375%, due 02/01/11................... 375,000 403,125 6.750%, due 09/01/12.................... 750,000 764,062 Park Place Entertainment Corp. 7.875%, due 03/15/10........................... 800,000 864,000 Station Casinos, Inc. 6.000%, due 04/01/12................... 850,000 852,125 6.500%, due 02/01/14.................... 175,000 177,625 Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. 6.625%, due 12/01/14............. 800,000 782,000 ------------- 6,307,943 -------------
------------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ------------------------------------------------------------------------- HOUSEHOLD PRODUCTS - 1.9% Church & Dwight Co., Inc. 6.000%, due 12/15/12............................. $ 125,000 $ 123,750 Home Products International, Inc. 9.625%, due 05/15/08............................. 150,000 115,500 Norcraft Holdings LP/Norcraft Capital Corp. 0.000%/9.750%, due 09/01/12(c)........... 400,000 286,000 Playtex Products, Inc. 9.375%, due 06/01/11............................. 525,000 552,562 Sealy Mattress Co. 8.250%, due 06/15/14............................. 475,000 491,625 Spectrum Brands, Inc. 7.375%, due 02/01/15............................. 775,000 651,000 ------------- 2,220,437 ------------- INDUSTRIAL - DIVERSIFIED - 0.5% BGF Industries, Inc., Series B 10.250%, due 01/15/09............................. 275,000 281,188 Hexcel Corp. 6.750%, due 02/01/15.......... 350,000 339,500 ------------- 620,688 ------------- LEISURE EQUIPMENT & PRODUCTS - 0.2% Equinox Holdings, Inc. 9.000%, due 12/15/09............................. 250,000 268,438 ------------- MACHINERY - 0.8% Case New Holland, Inc. 9.250%, due 08/01/11............................. 375,000 403,125 Terex Corp. 7.375%, due 01/15/14........... 582,000 579,090 ------------- 982,215 ------------- MEDIA - 9.6% Clear Channel Communications 8.000%, due 11/01/08............................. 200,000 212,764 CCH I Holdings LLC 9.920%, due 04/01/14 (144A)(a)................................ 247,000 142,025 CCH I LLC 11.000%, due 10/01/15 (144A)(a)................................ 197,000 166,465 CCO Holdings LLC/CCO Holdings Capital Corp. 8.616%, due 12/15/10(b).................. 300,000 294,750 8.750%, due 11/15/13 (144A)(a)............ 1,000,000 957,500 8.750%, due 11/15/13...................... 75,000 71,813 Charter Communications Holdings LLC/ Charter Communications Holdings Capital Corp. 8.375%, due 04/30/14 (144A)(a)................................ 550,000 550,000 CSC Holdings, Inc., Series B 7.625%, due 04/01/11............................. 1,200,000 1,200,000 Dex Media, Inc. 8.000%, due 11/15/13..................... 625,000 640,625 0.000%/9.000%, due 11/15/13(c)............ 575,000 460,000
See notes to financial statements 14 HIGH YIELD BOND TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
---------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ---------------------------------------------------------------------- MEDIA - CONTINUED DirecTV Holdings LLC/DirectTV Financing Co. 8.375%, due 03/15/13..................... $ 81,000 $ 87,480 6.375%, due 06/15/15...................... 1,050,000 1,031,625 EchoStar DBS Corp. 6.625%, due 10/01/14............................. 575,000 554,156 Houghton Mifflin Co. 8.250%, due 02/01/11...................... 175,000 181,563 7.200%, due 03/15/11...................... 1,125,000 1,170,000 LIN Television Corp. 6.500%, due 05/15/13............................. 275,000 265,031 LodgeNet Entertainment Corp. 9.500%, due 06/15/13............................. 200,000 218,500 Mediacom LLC/Mediacom Capital Corp. 9.500%, due 01/15/13..................... 1,025,000 1,005,781 PRIMEDIA, Inc. 8.875%, due 05/15/11........ 550,000 510,125 Rogers Cable, Inc. 6.750%, due 03/15/15............................. 75,000 76,500 Shaw Communications, Inc. 7.250%, due 04/06/11............................. 375,000 392,812 Sinclair Broadcast Group, Inc. 8.000%, due 03/15/12............................. 1,000,000 1,035,000 ------------- 11,224,515 ------------- METALS & MINING - 2.1% IPSCO, Inc. 8.750%, due 06/01/13........... 300,000 330,000 Novelis, Inc. 7.500%, due 02/15/15......... 525,000 492,187 Steel Dynamics, Inc. 9.500%, due 03/15/09............................. 175,000 185,063 United States Steel LLC 10.750%, due 08/01/08............................. 504,000 559,440 USEC, Inc. 6.625%, due 01/20/06............ 775,000 775,000 Wolverine Tube, Inc. 10.500%, due 04/01/09............................. 100,000 78,000 ------------- 2,419,690 ------------- OFFICE FURNISHING & SUPPLIES - 0.5% IKON Office Solutions, Inc. 7.750%, due 09/15/15 (144A)(a)................... 200,000 196,000 Xerox Capital Trust I 8.000%, due 02/01/27............................. 325,000 336,375 ------------- 532,375 ------------- OIL & GAS - 5.1% Chesapeake Energy Corp 6.250%, due 01/15/18............................. 1,150,000 1,132,750 Chesapeake Energy Corp. 6.875%, due 11/15/20 (144A)(a)................... 300,000 305,250 Dresser-Rand Group, Inc. 7.625%, due 11/01/14 (144A)(a)................... 198,000 204,930 El Paso CGP Co. 6.700%, due 02/15/27....... 930 939
----------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ----------------------------------------------------------------------- OIL & GAS - CONTINUED El Paso Corp. 6.700%, due 02/15/27 (144A)(a).............. $ 62,000 $ 62,622 El Paso Production Holding Co. 7.750%, due 06/01/13........................ 650,000 677,625 Forest Oil Corp. 8.000%, due 12/15/11. 150,000 164,625 Kerr-McGee Corp. 7.000%, due 11/01/11........................ 550,000 552,750 Newfield Exploration Co. 6.625%, due 09/01/14........................ 225,000 230,063 Pogo Producing Co., Series B 8.250%, due 04/15/11........................ 325,000 341,250 Pride International, Inc. 7.375%, due 07/15/14........................ 125,000 134,688 Sonat, Inc. 6.625%, due 02/01/08...... 275,000 276,719 Southern Natural Gas Co. 7.350%, due 02/15/31........................ 575,000 592,770 Transcontinental Gas Pipe Line Corp., Series B 8.875%, due 07/15/12....... 375,000 431,250 Williams Companies., Inc. 7.125%, due 09/01/11........................ 850,000 887,187 ------------- 5,995,418 ------------- PAPER & FOREST PRODUCTS - 1.9% Abitibi-Consolidated, Inc. 7.750%, due 06/15/11........................ 650,000 622,375 Boise Cascade LLC 7.025%, due 10/15/12(b).............. 50,000 49,000 7.125%, due 10/15/14................. 550,000 515,625 Buckeye Technologies, Inc. 8.000%, due 10/15/10........................ 575,000 549,125 Catalyst Paper Corp., Series D 8.625%, due 06/15/11........................ 450,000 432,000 Neenah Paper, Inc. 7.375%, due 11/15/14........................ 50,000 45,375 Catalyst Paper Corp. 7.375%, due 03/01/14........................ 75,000 66,000 ------------- 2,279,500 ------------- PHARMACEUTICALS - 0.6% Valeant Pharmaceuticals International 7.000%, due 12/15/11................ 575,000 567,813 Warner Chilcott Corp. 8.750%, due 02/01/15 (144A)(a).............. 175,000 161,875 ------------- 729,688 ------------- REAL ESTATE - 2.0% Felcor Lodging LP 9.000%, due 06/01/11 (REIT).............................. 200,000 220,000 Host Marriott LP (REIT) 7.125%, due 11/01/13 (REIT).......... 100,000 104,500 6.375%, due 03/15/15 (REIT).......... 900,000 902,250
See notes to financial statements 15 HIGH YIELD BOND TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
---------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ---------------------------------------------------------------------- REAL ESTATE - CONTINUED Series M 7.000%, due 08/15/12 (REIT).... $ 100,000 $ 103,000 La Quinta Properties, Inc. 7.000%, due 08/15/12 (REIT)....................... 75,000 81,562 MeriStar Hospitality Corp. (REIT) 9.000%, due 01/15/08 (REIT)............ 125,000 129,844 9.125%, due 01/15/11 (REIT)............ 725,000 793,875 ------------- 2,335,031 ------------- RETAIL - MULTILINE - 2.5% Carrols Corp. 9.000%, due 01/15/13...... 550,000 537,625 Denny's Corp. 1.000%, due 09/21/10...... 416,665 424,479 Harry & David Holdings, Inc. 9.000%, due 03/01/13.......................... 375,000 377,813 J.C. Penney Co., Inc. 8.125%, due 04/01/27.......................... 380,000 399,950 Jean Coutu Group PJC, Inc. 7.625%, due 08/01/12.................. 100,000 99,000 8.500%, due 08/01/14................... 450,000 414,000 Neiman Marcus Group, Inc. 10.375%, due 10/15/15 (144A)(a)................ 200,000 204,250 Rite Aid Corp. 6.125%, due 12/15/08 (144A)(a)......... 200,000 189,000 8.125%, due 05/01/10................... 250,000 255,625 7.500%, due 01/15/15................... 75,000 71,250 ------------- 2,972,992 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.8% Amkor Technologies, Inc. 7.125%, due 03/15/11................... 500,000 442,500 7.750%, due 05/15/13................... 157,000 137,375 Freescale Semiconductor, Inc. 6.900%, due 07/15/09(b)....................... 375,000 387,188 ------------- 967,063 ------------- TELECOMMUNICATION SERVICES - DIVERSIFIED - 11.8% American Tower Escrow Corp. 12.250%, due 08/01/08(g)....................... 300,000 236,250 Calpoint Receivable Structured Trust 7.440%, due 12/10/06 (144A)(a)........ 59,648 60,096 Centennial Communications Corp./Cellular Operating Co. LLC 10.125%, due 06/15/13.......................... 700,000 764,750 Cincinnati Bell, Inc. 8.375%, due 01/15/14................... 1,025,000 1,013,469 7.000%, due 02/15/15................... 650,000 640,250 Citizens Communications Co. 6.250%, due 01/15/13.......................... 500,000 486,250 Dobson Cellular Systems, Inc. 8.375%, due 11/01/11.......................... 275,000 293,219
------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ------------------------------------------------------------------- TELECOMMUNICATION SERVICES - DIVERSIFIED - CONTINUED Inmarsat Finance II PLC 0.000%/ 10.375%, due 11/15/12(c).............. $ 100,000 $ 83,875 Insight Midwest LP/Insight Capital, Inc. 9.750%, due 10/01/09.................. 725,000 750,250 Intelsat Bermuda, Ltd. 8.250%, due 01/15/13 (144A)(a).................... 675,000 685,125 Intelsat Bermuda, Ltd. 8.695%, due 01/15/12 (144A)(a)(b)................. 175,000 178,719 IWO Holdings, Inc. 7.900%, due 01/15/12(b)................ 100,000 104,250 0.000%/10.750%, due 01/15/15(c).......................... 400,000 291,000 Lucent Technologies, Inc. 6.450%, due 03/15/29.............................. 1,325,000 1,142,812 MCI, Inc. 6.908%, due 05/01/07................... 951,000 960,510 7.688%, due 05/01/09................... 176,000 182,160 8.735%, due 05/01/14................... 225,000 249,469 Nextel Communications, Inc. Series D 7.375%, due 08/01/15.......... 950,000 1,003,335 Series F 5.950%, due 03/15/14.......... 650,000 654,243 NTL Cable Plc 8.750%, due 04/15/14...... 175,000 220,187 PanAmSat Corp. 9.000%, due 08/15/14.......................... 175,000 184,187 Qwest Communications International, Inc. 7.500%, due 02/15/14 (144A)(a)........ 390,000 402,675 7.500%, due 02/15/14................... 95,000 98,087 Qwest Corp. 7.875%, due 09/01/11................... 550,000 595,375 7.500%, due 06/15/23................... 105,000 104,869 6.875%, due 09/15/33................... 785,000 741,825 Rogers Wireless Communications, Inc. 7.250%, due 12/15/12................... 475,000 501,719 8.000%, due 12/15/12................... 450,000 478,687 Rural Cellular Corp. 8.250%, due 03/15/12.......................... 700,000 742,000 ------------- 13,849,643 ------------- TEXTILES, APPAREL & LUXURY GOODS - 1.6% Collins & Aikman, Inc., Series B 9.750%, due 02/15/10.......................... 500,000 442,500 Levi Strauss & Co. 9.750%, due 01/15/15.............................. 825,000 862,125 Quiksilver, Inc. 6.875%, due 04/15/15.............................. 275,000 266,063 Simmons Co. 7.875%, due 01/15/14................... 225,000 209,250 0.000%/10.000%, due 12/15/14 (144A)(a)(c)......................... 175,000 95,375 ------------- 1,875,313 -------------
See notes to financial statements 16 HIGH YIELD BOND TRUST PORTFOLIO PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
----------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ----------------------------------------------------------------- TRANSPORTATION - 0.2% CHC Helicopter Corp. 7.375%, due 05/01/14............................ $ 200,000 $ 203,250 ------------- Total Domestic Bonds & Debt Securities (Cost $103,954,962) 104,414,967 ------------- SHARES ----------------------------------------------------------------- COMMON STOCKS - 0.7% ELECTRIC UTILITIES - 0.4% NorthWestern Corp..................... 17,382 540,059 ------------- MEDIA - 0.0% Classic Holdco LLC*(e)(f)............. 1,057 34,549 ------------- TELECOMMUNICATION SERVICES - DIVERSIFIED - 0.1% MCI, Inc.............................. 5,159 101,787 ------------- TELECOMMUNICATION SERVICES - WIRELESS - 0.2% Dobson Communications Corp. Class A*............................ 19,195 143,963 iPCS, Inc.*........................... 957 46,175 ------------- 190,138 ------------- Total Common Stocks (Cost $985,663) 866,533 ------------- CONVERTIBLE PREFERRED STOCK - 0.3% PAR AMOUNT ----------------------------------------------------------------- AUTO COMPONENTS - 0.0% HLI Operating Co., Inc., Series A* 8.000%.............................. $ 40 1,420 ------------- SHARES ----------------------------------------------------------------- TELECOMMUNICATION SERVICES - WIRELESS - 0.3% Alamosa Holdings, Inc., Series B 7.500%.............................. 284 389,470 ------------- Total Convertible Preferred Stock (Cost $94,181) 390,890 ------------- WARRANT - 0.0% ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.0% Viasystems Group, Inc., Expires 1/31/10*(e) (Cost $142,521)........... 9,411 0 -------------
---------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ---------------------------------------------------------------------- SHORT-TERM INVESTMENT - 8.2% State Street Bank & Trust Co., Repurchase Agreement, dated 12/30/05 at 2.80% to be repurchased at $9,602,987 on 01/03/06 collateralized by $9,930,000 U.S Treasury Note 4.000% due 11/15/12 with a value of $9,793,463 (Cost - $9,600,000).................... $ 9,600,000 $ 9,600,000 ------------- TOTAL INVESTMENTS - 98.3% (Cost $114,777,327) 115,272,390 Other Assets and Liabilities (net) - 1.7% 1,944,284 ------------- TOTAL NET ASSETS - 100.0% $ 117,216,674 =============
* Non-income producing security. (a) Securities that may be resold to "qualified institutional buyers" under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. These securities have been determined to be liquid under the guidelines established by the Board of Trustees. These securities represent in the aggregate 11.185% of net assets. (b) Variable rate securities. Coupon rates disclosed are those which are in effect at December 31, 2005. Maturity date shown is the date of the next coupon rate reset or actual maturity. (c) Security is a "step up" bond where coupon increases or steps up at a predetermined date. Rates shown are current coupon and next coupon rate when security steps up. (d) Security is in default. (e) Illiquid securities. Representing in the aggregate 0.000% of net assets. (f) Security is valued in good faith at fair value by or under the direction of the Board of Trustees. (g) Zero Coupon Bond. Interest rate represents current yield to maturity. See notes to financial statements 17 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ------------------------------------------------------------------- DOMESTIC BONDS & DEBT SECURITIES - 17.9% AEROSPACE & DEFENSE - 0.4% Lockheed Martin Corp. 8.500%, due 12/01/29.................. $ 400,000 $ 546,827 Northrop Grumman Corp. 4.079%, due 11/16/06................... 500,000 496,242 7.125%, due 02/15/11................... 100,000 109,086 ------------- 1,152,155 ------------- ASSET-BACKED SECURITIES - 1.9% Chase Funding Mortgage Loan Asset-Backed Certificates, Series 2002-2, Class 1A5 5.833%, due 04/25/32.................. 500,000 504,023 PP&L Transition Bond LLC, Series 1999-1, Class A7 7.050%, due 06/25/09......... 4,816,528 4,910,883 ------------- 5,414,906 ------------- AUTOMOBILES - 0.0% Ford Motor Co. 7.450%, due 07/16/31..... 200,000 137,000 ------------- AUTO MANUFACTURERS - 0.2% DaimlerChrysler North America Holding Corp. 7.300%, due 01/15/12............ 600,000 648,196 ------------- BANKS - 1.5% ABN AMRO Bank NV 4.390%, due 05/11/07(a)............... 700,000 700,706 Bank of America Corp. 5.375%, due 06/15/14.................. 500,000 509,112 HSBC Bank USA 5.875%, due 11/01/34...... 300,000 303,737 Huntington National Bank 4.650%, due 06/30/09.................. 300,000 298,235 Rabobank Capital Funding Trust III 5.254%, due 12/31/16 (144A)(b)........ 200,000 196,504 RBS Capital Trust I 4.709%, due 12/29/49.............................. 300,000 285,573 Royal Bank of Scotland Group Plc 5.050%, due 01/08/15.................. 300,000 298,366 U.S. Bank North America 4.950%, due 10/30/14.................. 200,000 198,248 Wachovia Bank North America 4.800%, due 11/01/14................... 200,000 194,451 4.641%, due 11/03/14(a)................ 700,000 707,433 Washington Mutual Bank FA. 5.125%, due 01/15/15.................. 400,000 391,516 ------------- 4,083,881 ------------- BEVERAGES - 0.3% Bottling Group LLC 4.625%, due 11/15/12.............................. 300,000 296,212 PepsiAmericas, Inc. 4.875%, due 01/15/15.................. 600,000 592,593 ------------- 888,805 -------------
---------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ---------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS - 2.1% Banc of America Commercial Mortgage, Inc., Series 2004-6, Class AJ 4.870%, due 12/10/42..................... $ 1,150,000 $ 1,116,539 Commercial Mortgage Pass Through Certificates 5.167%, due 06/10/44........ 1,400,000 1,397,020 JP Morgan Chase Commercial Mortgage Securities Corp. 2,000,000 1,947,137 Series 2004-C3, Class AJ 4.922%, due 01/15/42.................... Series 2005-CB124.948%, due 09/12/37................................ 950,000 930,759 Series 2005-LDP4, Class AM 4.999%, due 10/15/42.................... 430,000 422,009 ------------- 5,813,464 ------------- ELECTRIC UTILITIES - 1.1% Dominion Resources, Inc., Series F 5.250%, due 08/01/33..................... 300,000 294,659 PSEG Energy Holdings LLC 8.500%, due 06/15/11..................... 2,000,000 2,150,000 SP PowerAssets, Ltd. 5.000%, due 10/22/13 (144A)(b)................................ 700,000 700,575 ------------- 3,145,234 ------------- FINANCIAL - DIVERSIFIED - 3.6% AIG SunAmerica Global Financing VII 5.850%, due 08/01/08 (144A)(b)........... 400,000 408,655 American General Finance Corp. 3.875%, due 10/01/09..................... 800,000 766,878 Capital One Bank 5.000%, due 06/15/09................................. 520,000 518,184 Capital One Financial Corp. 5.500%, due 06/01/15..................... 300,000 298,786 Caterpillar Financial Services 4.700%, due 03/15/12..................... 700,000 694,107 Countrywide Financial Corp., Series A 4.500%, due 06/15/10..................... 500,000 485,822 Countrywide Home Loans, Inc., Series L 4.000%, due 03/22/11..................... 580,000 546,374 Credit Suisse First Boston USA, Inc. 3.875%, due 01/15/09...................... 500,000 485,717 6.125%, due 11/15/11...................... 300,000 315,310 Ford Motor Credit Co. 6.500%, due 01/25/07...................... 400,000 387,084 5.700%, due 01/15/10...................... 100,000 85,080 Glencore Funding LLC 6.000%, due 04/15/14 (144A)(b)....................... 300,000 282,612 Goldman Sachs Capital I, Capital Securities 6.345%, due 02/15/34..................... 400,000 421,623 HSBC Finance Corp. 6.375%, due 10/15/11................................. 1,100,000 1,164,189
See notes to financial statements 18 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ------------------------------------------------------------------- FINANCIAL - DIVERSIFIED - CONTINUED JP Morgan Chase & Co. 5.250%, due 05/01/15.................. $ 400,000 $ 398,561 Lehman Brothers Holdings, Inc., Series G 4.800%, due 03/13/14.................. 500,000 489,012 Merrill Lynch & Co., Inc., Series C 4.125%, due 09/10/09................... 300,000 291,333 4.250%, due 02/08/10................... 300,000 292,088 5.000%, due 01/15/15................... 300,000 296,025 Morgan Stanley 5.050%, due 01/21/11..... 600,000 600,840 Principal Life Global Funding I 6.125%, due 10/15/33 (144A)(b)........ 600,000 648,962 ------------- 9,877,242 ------------- HEALTH CARE PROVIDERS & SERVICES - 0.1% WellPoint, Inc. 6.800%, due 08/01/12.... 300,000 327,739 ------------- PHARMACEUTICALS - 0.2% Wyeth 6.500%, due 02/01/34.............. 500,000 552,281 ------------- INDUSTRIAL CONGLOMERATES - 0.4% General Electric Co. 5.000%, due 02/01/13.............................. 1,100,000 1,101,050 ------------- INSURANCE - 0.3% Berkshire Hathaway Finance Corp. 4.400%, due 05/16/08(a)................ 200,000 200,152 4.750%, due 05/15/12................... 400,000 395,953 GE Global Insurance Holding Corp. 7.000%, due 02/15/26.................. 100,000 112,733 ------------- 708,838 ------------- MEDIA - 2.1% Comcast Cable Communications, Inc. 8.875%, due 05/01/17.................. 2,000,000 2,465,270 COX Communications, Inc. 7.125%, due 10/01/12.................. 700,000 751,040 Liberty Media Corp. 5.991%, due 09/17/06(a)............... 352,000 354,485 Time Warner, Inc. 7.625%, due 04/15/31.............................. 2,000,000 2,233,900 ------------- 5,804,695 ------------- OIL & GAS - 0.8% Anadarko Finance Co., Series B 6.750%, due 05/01/11.................. 300,000 324,944 Consolidated Natural Gas Co., Series A 5.000%, due 12/01/14.................. 200,000 194,379 Cooper Cameron Corp. 2.650%, due 04/15/07.................. 200,000 193,432 Devon Financing Corp. ULC 7.875%, due 09/30/31.................. 400,000 509,873 Duke Capital LLC 4.331%, due 11/16/06... 300,000 297,974 Kinder Morgan Energy Partners LP 5.125%, due 11/15/14.................. 200,000 195,947
--------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) --------------------------------------------------------------------- OIL & GAS - CONTINUED Phelps Dodge Corp. 8.750%, due 06/01/11................................ $ 300,000 $ 345,324 Southern California Gas Co., Series II 4.375%, due 01/15/11.................... 300,000 292,244 ------------- 2,354,117 ------------- PAPER & FOREST PRODUCTS - 0.1% International Paper Co. 5.300%, due 04/01/15.................... 200,000 192,975 ------------- REAL ESTATE - 1.4% AvalonBay Communities, Inc., (REIT) 4.950%, due 03/15/13.................... 100,000 98,028 Colonial Realty LP 4.750%, due 02/01/10................................ 200,000 194,989 HRPT Properties Trust, (REIT) 6.250%, due 08/15/16.................... 200,000 204,201 iStar Financial, Inc., (REIT) 6.000%, due 12/15/10.................... 300,000 304,952 Kimco Realty Corp., (REIT) 4.450%, due 08/01/06(a)................. 100,000 100,106 Nationwide Health Properties, Inc., (REIT) 6.900%, due 10/01/37.................... 2,400,000 2,569,699 Simon Property Group LP, (REIT) 4.600%, due 06/15/10..................... 200,000 195,164 5.100%, due 06/15/15..................... 200,000 193,788 ------------- 3,860,927 ------------- TELECOMMUNICATION SERVICES - DIVERSIFIED - 1.1% Deutsche Telekom International Finance BV 8.250%, due 06/15/30.................... 400,000 510,267 France Telecom S.A. 8.500%, due 03/01/31................................ 1,000,000 1,338,318 SBC Communications, Inc. 6.450%, due 06/15/34.................... 300,000 313,208 Sprint Capital Corp. 8.375%, due 03/15/12................................ 500,000 580,197 Telecom Italia Capital S.A. 4.000%, due 01/15/10.................... 300,000 285,995 ------------- 3,027,985 ------------- TOBACCO - 0.3% Altria Group, Inc. 5.625%, due 11/04/08................................ 700,000 710,050 ------------- Total Domestic Bonds & Debt Securities (Cost $47,414,700) 49,801,540 ------------- CONVERTIBLE BONDS - 5.2% AEROSPACE & DEFENSE - 0.3% Armor Holdings, Inc., 2.000%/0.000%, due 11/01/24(c).......... 200,000 198,750 L-3 Communications Corp. 3.000%, due 08/01/35 (144A)(b)........... 300,000 298,125 3.000%, due 08/01/35..................... 50,000 49,688 Lockheed Martin Corp. 4.090%, due 08/15/33(a)................. 275,000 294,629 ------------- 841,192 -------------
See notes to financial statements 19 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
---------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ---------------------------------------------------------------- AIRLINES - 0.2% Continental Airlines, Inc. 4.500%, due 02/01/07............... $ 125,000 $ 117,188 Frontier Airlines, Inc. 5.000%, due 12/15/25............... 200,000 217,000 ------------- 334,188 ------------- BIOTECHNOLOGY - 0.3% Amgen, Inc. 0.778%, due 03/01/32(d).. 625,000 490,625 InterMune, Inc. 0.250%, due 03/01/11. 225,000 199,125 Invitrogen Corp. 3.250%, due 06/15/25................ 200,000 192,500 3.250%, due 06/15/25 (144A)(b)...... 50,000 48,125 ------------- 930,375 ------------- BUILDING MATERIALS - 0.2% Masco Corp., Series B 2.017%, due 07/20/31(d)............ 425,000 195,500 NCI Building Systems, Inc. 2.750%, due 11/15/24............... 225,000 266,625 ------------- 462,125 ------------- COMMERCIAL SERVICES & SUPPLIES - 0.1% Euronet Worldwide, Inc. 1.625%, due 12/15/24............... 300,000 307,875 ------------- COMPUTERS & PERIPHERALS - 0.1% Electronics For Imaging, Inc. 1.500%, due 06/01/23............... 175,000 194,469 Silicon Graphics, Inc. 6.500%, due 06/01/09........................... 125,000 85,937 ------------- 280,406 ------------- ENVIRONMENTAL SERVICES - 0.2% Waste Connections, Inc. 4.750%, due 05/01/22(a)............ 375,000 416,738 ------------- FINANCIAL - DIVERSIFIED - 0.0% Merrill Lynch & Co., Inc. 0.000%, due 03/13/32(d)............ 100,000 106,500 ------------- FINANCIAL SERVICES - 0.1% Sealed Air Corp. 3.000%, due 06/30/33 (144A)(b).......................... 350,000 350,875 ------------- HEALTH CARE PROVIDERS & SERVICES - 0.4% LifePoint Hospitals, Inc. 3.250%, due 08/15/25 (144A)(b)...... 275,000 251,969 3.250%, due 08/15/25................ 225,000 206,156 Omnicare, Inc. 3.250%, due 12/15/35.. 200,000 199,500 Pacificare Health Systems, Inc. 3.000%, due 10/15/32............... 125,000 541,094 ------------- 1,198,719 ------------- INDUSTRIAL - DIVERSIFIED - 0.5% Actuant Corp. 2.000%, due 11/15/23... 275,000 401,500 Danaher Corp. 1.407%, due 01/22/21(d)........................ 350,000 289,188
--------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) --------------------------------------------------------------- INDUSTRIAL - DIVERSIFIED - CONTINUED Roper Industries, Inc. 1.481%, due 01/15/34.......................... $ 525,000 $ 290,062 United Rentals Trust I 6.500%, due 08/01/28.......................... 8,100 346,275 ------------- 1,327,025 ------------- MEDIA - 0.3% Charter Communications, Inc. 5.875%, due 11/16/09.............. 275,000 205,907 Liberty Media Corp. 0.750%, due 03/30/23............... 250,000 268,750 4.000%, due 11/15/29............... 325,000 192,156 ------------- 666,813 ------------- OIL & GAS - 0.4% Grey Wolf, Inc. 4.004%, due 04/01/24(a)....................... 125,000 172,437 Halliburton Co. 3.125%, due 07/15/23 150,000 257,250 Nabors Industries, Inc., Series B 0.000%, due 06/15/23(d)........... 300,000 355,125 Pride International, Inc. 3.250%, due 05/01/33.............. 250,000 330,625 ------------- 1,115,437 ------------- PHARMACEUTICALS - 0.6% BioMarin Pharmaceutical, Inc. 3.500%, due 06/15/08.............. 300,000 283,500 CV Therapeutics, Inc. 2.750%, due 05/16/12.......................... 100,000 150,000 Enzon Pharmaceuticals, Inc. 4.500%, due 07/01/08.............. 150,000 135,375 Nektar Therapeutics, 3.250%, due 09/28/12 (144A)(b)................ 175,000 176,969 NPS Pharmaceuticals, Inc. 3.000%, due 06/15/08.............. 325,000 281,937 Oscient Pharmaceutical Corp. 3.500%, due 04/15/11.............. 250,000 193,750 Sepracor, Inc. 0.156%, due 10/15/24(d)....................... 225,000 214,313 Teva Pharmaceutical Industries, Ltd. 0.250%, due 02/01/24.............. 250,000 312,500 ------------- 1,748,344 ------------- RETAIL - MULTILINE - 0.5% Best Buy Co., Inc. 2.250%, due 01/15/22 (144A)(b)..... 175,000 186,812 2.250%, due 01/15/22............... 125,000 133,437 CBRL Group, Inc. 1.995%, due 04/03/32(d)....................... 950,000 441,750 CKE Restaurants, Inc. 4.000%, due 10/01/23.............. 50,000 80,188 Men's Wearhouse, Inc. 3.125%, due 10/15/23.............. 375,000 436,875 ------------- 1,279,062 -------------
See notes to financial statements 20 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
----------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) ----------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.1% Amkor Technology, Inc. 5.000%, due 03/15/07................ $ 200,000 $ 189,750 Intel Corp. 2.950%, due 12/15/35 (144A)(b)...... 200,000 196,250 ------------- 386,000 ------------- SOFTWARE - 0.3% Mentor Graphics Corp. 5.941%, due 08/06/23(a)............. 275,000 251,157 Open Solutions, Inc. 1.467%, due 02/02/35................ 520,000 274,950 SafeNet, Inc. (144A) 2.500%, due 12/15/10(b)............. 200,000 199,250 ------------- 725,357 ------------- SOFTWARE - 0.1% RealNetworks, Inc. 0.815%, due 07/01/10(d)............. 175,000 171,937 SINA Corp. 0.000%, due 07/15/23(d)............. 150,000 164,063 ------------- 336,000 ------------- TELECOMMUNICATION SERVICES - DIVERSIFIED - 0.5% ADC Telecommunications, Inc. 5.045%, due 06/15/13(a)............. 450,000 455,062 Amdocs, Ltd. 0.500%, due 03/15/24................ 150,000 135,188 Ciena Corp. 3.750%, due 02/01/08................ 300,000 276,750 Dobson Communications Corp. 1.500%, due 10/01/25 (144A)(b)...... 200,000 186,250 NII Holdings, Inc., 2.750%, due 08/15/25 (144A)(b)...... 350,000 381,937 RF Micro Devices, Inc. 1.500%, due 07/01/10................ 50,000 46,188 ------------- 1,481,375 ------------- Total Convertible Bonds (Cost $14,021,420) 14,294,406 ------------- U. S. GOVERNMENT AGENCY MORTGAGE BACKED SECURITIES - 0.8% Federal National Mortgage Assoc. 1.750%, due 06/16/06................. 1,000,000 987,429 6.000%, due 01/01/13 - 08/01/28...... 783,876 797,535 6.500%, due 12/01/27................. 24,092 24,833 5.500%, due 08/01/28................. 262,524 260,838 Government National Mortgage Assoc. 9.000%, due 11/15/19................. 12,245 13,348 9.500%, due 01/15/20................. 7,014 7,771 ------------- Total U. S. Government Agency Mortgage Backed Securities (Cost $2,069,688) 2,091,754 -------------
--------------------------------------------------------------------- SECURITY SHARES/PAR VALUE DESCRIPTION AMOUNT (NOTE 2) --------------------------------------------------------------------- U. S. GOVERNMENT & AGENCY OBLIGATIONS - 10.8% Federal Home Loan Mortgage Corp. 4.875%, due 11/15/13.................. $ 500,000 $ 503,179 2.900%/7.000%, due 02/27/19(e)........ 500,000 498,507 U.S. Treasury Bond 4.500%, due 11/15/15.................. 200,000 201,703 5.250%, due 11/15/28.................. 2,100,000 2,291,134 U.S. Treasury Bonds 5.250%, due 02/15/29................. 100,000 109,152 U.S. Treasury Note 4.125%, due 05/15/15................. 3,200,000 3,130,877 U.S. Treasury Notes 4.000%, due 08/31/07.................. 1,500,000 1,490,508 5.625%, due 05/15/08.................. 2,068,000 2,125,033 3.250%, due 08/15/08.................. 3,300,000 3,209,640 4.125%, due 08/15/08 - 08/15/10....... 11,900,000 11,812,597 3.625%, due 07/15/09.................. 3,200,000 3,122,752 4.250%, due 10/15/10 - 08/15/15....... 1,500,000 1,481,844 ------------- Total U. S. Government & Agency Obligations (Cost $30,464,700) 29,976,926 ------------- FOREIGN BONDS & DEBT SECURITIES - 0.2% CANADA - 0.2% Canada Mortgage & Housing Corp. 3.375%, due 12/01/08 (Cost $499,200)...................... $ 500,000 484,097 ------------- COMMON STOCKS - 62.0% AEROSPACE & DEFENSE - 1.4% Boeing Co. (The)....................... 9,566 671,916 General Dynamics Corp.................. 8,588 979,461 Lockheed Martin Corp................... 9,950 633,118 Northrop Grumman Corp.................. 13,073 785,818 United Technologies Corp............... 16,136 902,164 ------------- 3,972,477 ------------- AIR FREIGHT & LOGISTICS - 0.5% United Parcel Service, Inc. - Class B.. 18,020 1,354,203 ------------- AUTOMOBILES - 0.1% Ford Motor Co.......................... 16,282 125,697 Harley-Davidson, Inc................... 4,682 241,076 ------------- 366,773 ------------- BANKS - 4.2% Bank of America Corp................... 76,490 3,530,014 Comerica, Inc.......................... 10,732 609,148 Commerce Bancorp, Inc.................. 11,300 388,833 First Horizon National Corp............ 64 2,460 KeyCorp................................ 7,034 231,630 Marshall & Ilsley Corp................. 6,017 258,972 National City Corp..................... 21,813 732,263 PNC Financial Services Group, Inc...... 6,728 415,992 SunTrust Banks, Inc.................... 15,678 1,140,731
See notes to financial statements 21 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
--------------------------------------------------------------- SECURITY VALUE DESCRIPTION SHARES (NOTE 2) --------------------------------------------------------------- BANKS - CONTINUED U.S. Bancorp......................... 22,726 $ 679,280 Wachovia Corp........................ 35,543 1,878,803 Wells Fargo & Co..................... 27,175 1,707,405 ------------- 11,575,531 ------------- BEVERAGES - 1.4% Brown-Forman Corp. - Class B......... 4,150 287,678 Coca-Cola Co......................... 26,965 1,086,959 Coca-Cola Enterprises, Inc........... 24,287 465,582 Molson Coors Brewing Co. - Class B... 5,665 379,498 PepsiCo, Inc......................... 26,082 1,540,925 ------------- 3,760,642 ------------- BIOTECHNOLOGY - 1.3% Amgen, Inc.*......................... 20,822 1,642,023 Biogen Idec, Inc.*................... 10,512 476,509 Enzon Pharmaceuticals, Inc.*......... 8,100 59,940 Genentech, Inc.*..................... 6,606 611,055 Gilead Sciences, Inc.*............... 16,677 877,710 ------------- 3,667,237 ------------- BUILDING PRODUCTS - 0.2% Masco Corp........................... 6,494 196,054 Pulte Homes, Inc..................... 11,472 451,538 ------------- 647,592 ------------- CHEMICALS - 0.5% Dow Chemical Co...................... 18,551 812,905 E.I. du Pont de Nemours & Co......... 6,923 294,227 Monsanto Co.......................... 4,104 318,183 ------------- 1,425,315 ------------- COMMERCIAL SERVICES & SUPPLIES - 0.3% Acco Brands Corp.*................... 2,119 51,916 Cendant Corp......................... 17,480 301,530 Fiserv, Inc.*........................ 4,135 178,921 Herman Miller, Inc................... 11,174 314,995 ------------- 847,362 ------------- COMMUNICATIONS EQUIPMENT - 2.1% Cisco Systems, Inc.*................. 106,792 1,828,279 Comverse Technology, Inc.*........... 27,725 737,208 Corning, Inc.*....................... 31,037 610,188 Motorola, Inc........................ 37,175 839,783 QUALCOMM, Inc........................ 23,475 1,011,303 Scientific-Atlanta, Inc.............. 16,788 723,059 ------------- 5,749,820 ------------- COMPUTERS & PERIPHERALS - 2.5% Apple Computer, Inc.*................ 17,297 1,243,481 Dell, Inc.*.......................... 39,528 1,185,445 EMC Corp.*........................... 39,137 533,046 Hewlett-Packard Co................... 48,109 1,377,361 International Business Machines Corp. 28,323 2,328,150
---------------------------------------------------------------- SECURITY VALUE DESCRIPTION SHARES (NOTE 2) ---------------------------------------------------------------- COMPUTERS & PERIPHERALS - CONTINUED Lexmark International, Inc. - Class A* 2,045 $ 91,677 Sun Microsystems, Inc.*............... 55,652 233,182 ------------- 6,992,342 ------------- CONTAINERS & PACKAGING - 0.3% Ball Corp............................. 7,225 286,977 Sealed Air Corp.*..................... 8,955 503,002 ------------- 789,979 ------------- ELECTRIC UTILITIES - 1.6% AES Corp.*............................ 42,990 680,532 American Electric Power Co., Inc...... 21,191 785,974 Edison International.................. 15,790 688,602 Exelon Corp........................... 6,488 344,772 FirstEnergy Corp...................... 16,501 808,384 Public Service Enterprise Group, Inc.. 4,503 292,560 Southern Co........................... 9,265 319,921 TXU Corp.............................. 12,202 612,418 ------------- 4,533,163 ------------- ELECTRICAL EQUIPMENT - 0.3% Energizer Holdings, Inc.*............. 4,270 212,603 Thomas & Betts Corp.*................. 14,626 613,707 ------------- 826,310 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.6% Jabil Circuit, Inc.*.................. 15,466 573,634 Waters Corp.*......................... 9,536 360,461 Xerox Corp.*.......................... 52,061 762,693 ------------- 1,696,788 ------------- ENERGY - 0.3% Constellation Energy Group, Inc....... 12,820 738,432 ------------- ENERGY EQUIPMENT & SERVICES - 0.9% Baker Hughes, Inc..................... 7,851 477,184 Halliburton Co........................ 6,627 410,609 Rowan Companies, Inc.................. 2,700 96,228 Schlumberger Ltd...................... 10,905 1,059,420 Transocean, Inc.*..................... 7,171 499,747 ------------- 2,543,188 ------------- FINANCIAL - DIVERSIFIED - 5.9% American Express Co................... 23,907 1,230,254 Ameriprise Financial, Inc............. 4,781 196,021 Bank of New York Co., Inc. (The)...... 11,670 371,690 Bear Stearns Cos., Inc................ 8,690 1,003,956 Capital One Financial Corp............ 11,982 1,035,245 CIT Group, Inc........................ 13,921 720,829 Countrywide Financial Corp............ 24,726 845,382 E*TRADE Financial Corp.*.............. 30,762 641,695 Fannie Mae............................ 17,834 870,478 Franklin Resources, Inc............... 4,692 441,095 Freddie Mac........................... 3,364 219,837
See notes to financial statements 22 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
------------------------------------------------------------------- SECURITY VALUE DESCRIPTION SHARES (NOTE 2) ------------------------------------------------------------------- FINANCIAL - DIVERSIFIED - CONTINUED Goldman Sachs Group, Inc. (The)....... 11,198 $ 1,430,097 JP Morgan Chase & Co.................. 65,916 2,616,206 Lehman Brothers Holdings, Inc......... 9,878 1,266,063 Marsh & McLennan Cos., Inc............ 8,352 265,260 MBNA Corp............................. 6,661 180,846 Merrill Lynch & Co., Inc.............. 17,137 1,160,689 Morgan Stanley........................ 19,664 1,115,735 Principal Financial Group, Inc........ 9,910 470,031 State Street Corp..................... 7,466 413,915 ------------- 16,495,324 ------------- FOOD & DRUG RETAILING - 0.6% Albertson's, Inc...................... 16,421 350,589 CVS Corp.............................. 21,786 575,586 SUPERVALU, Inc........................ 12,819 416,361 Walgreen Co........................... 8,096 358,329 ------------- 1,700,865 ------------- FOOD PRODUCTS - 0.8% Archer-Daniels-Midland Co............. 25,467 628,016 General Mills, Inc.................... 10,770 531,177 Hormel Foods Corp..................... 5,643 184,413 Kellogg Co............................ 3,323 143,620 Sara Lee Corp......................... 12,413 234,606 Smithfield Foods, Inc.*............... 18,655 570,843 ------------- 2,292,675 ------------- HEALTH CARE EQUIPMENT & SUPPLIES - 1.8% Becton, Dickinson & Co................ 3,936 236,475 Boston Scientific Corp.*.............. 13,330 326,452 Johnson & Johnson..................... 46,625 2,802,162 Medtronic, Inc........................ 19,145 1,102,178 Zimmer Holdings, Inc.*................ 8,265 557,391 ------------- 5,024,658 ------------- HEALTH CARE PROVIDERS & SERVICES - 2.1% Aetna, Inc............................ 8,352 787,677 AmerisourceBergen Corp................ 11,242 465,419 Cardinal Health, Inc.................. 2,714 186,587 Caremark Rx, Inc.*.................... 10,134 524,840 Humana, Inc.*......................... 16,326 886,992 UnitedHealth Group, Inc............... 34,908 2,169,183 WellPoint, Inc.*...................... 8,918 711,567 ------------- 5,732,265 ------------- HOTELS, RESTAURANTS & LEISURE - 1.0% Darden Restaurants, Inc............... 12,657 492,104 Marriott International, Inc. - Class A 12,025 805,314 McDonald's Corp....................... 31,752 1,070,677 Starwood Hotels & Resorts Worldwide, Inc................................. 2,832 180,852 Yum! Brands, Inc...................... 4,404 206,460 ------------- 2,755,407 -------------
-------------------------------------------------------------------- SECURITY VALUE DESCRIPTION SHARES (NOTE 2) -------------------------------------------------------------------- HOUSEHOLD DURABLES - 1.5% Black & Decker Corp.................... 4,277 $ 371,928 Fortune Brands, Inc.................... 9,018 703,584 KB HOME................................ 4,792 348,187 Procter & Gamble Co.................... 47,369 2,741,718 ------------- 4,165,417 ------------- HOUSEHOLD PRODUCTS - 0.3% Colgate-Palmolive Co................... 5,385 295,367 Kimberly-Clark Corp.................... 8,064 481,018 ------------- 776,385 ------------- INDUSTRIAL - DIVERSIFIED - 2.8% 3M Co.................................. 8,500 658,750 General Electric Co.................... 163,980 5,747,499 Honeywell International, Inc........... 13,410 499,523 Tyco International, Ltd................ 33,463 965,742 ------------- 7,871,514 ------------- INSURANCE - 3.5% ACE, Ltd............................... 4,729 252,718 AFLAC, Inc............................. 8,569 397,773 Allstate Corp. (The)................... 10,859 587,146 Ambac Financial Group, Inc............. 9,237 711,803 American International Group, Inc...... 43,485 2,966,982 Aon Corp............................... 4,883 175,544 Chubb Corp. (The)...................... 10,315 1,007,260 CIGNA Corp............................. 6,162 688,295 Hartford Financial Services Group, Inc. 3,415 293,314 Jefferson-Pilot Corp................... 2,333 132,818 Lincoln National Corp.................. 3,117 165,295 MGIC Investment Corp................... 5,934 390,576 Progressive Corp. (The)................ 7,216 842,684 Prudential Financial, Inc.............. 15,737 1,151,791 ------------- 9,763,999 ------------- INTERNET & CATALOG RETAIL - 0.3% eBay, Inc.*............................ 18,072 781,614 ------------- INTERNET SOFTWARE & SERVICES - 0.3% Sohu.com, Inc.*........................ 5,100 93,534 Yahoo!, Inc.*.......................... 20,955 821,017 ------------- 914,551 ------------- IT CONSULTING & SERVICES - 0.1% Affiliated Computer Services, Inc. - Class A*............................. 6,700 396,506 ------------- MACHINERY - 1.1% Danaher Corp........................... 3,559 198,521 Deere & Co............................. 8,886 605,226 Eaton Corp............................. 3,249 217,975 Ingersoll-Rand Co., Ltd. - Class A..... 19,516 787,861 Oshkosh Truck Corp..................... 8,760 390,608 PACCAR, Inc............................ 11,531 798,291 Parker Hannifin Corp................... 1,906 125,720 ------------- 3,124,202 -------------
See notes to financial statements 23 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
----------------------------------------------------------- SECURITY VALUE DESCRIPTION SHARES (NOTE 2) ----------------------------------------------------------- MEDIA - 2.0% Comcast Corp. - Class A*......... 33,766 $ 876,566 Gannett Co., Inc................. 7,544 456,940 McGraw-Hill Cos., Inc............ 5,711 294,859 News Corp. - Class A............. 39,975 621,611 Time Warner, Inc................. 97,173 1,694,697 Viacom, Inc. - Class B........... 20,328 662,693 Walt Disney Co. (The)............ 37,356 895,423 ------------- 5,502,789 ------------- METALS & MINING - 0.9% Allegheny Technologies, Inc...... 16,838 607,515 Newmont Mining Corp.............. 6,565 350,571 Nucor Corp....................... 10,583 706,098 Phelps Dodge Corp................ 5,563 800,349 ------------- 2,464,533 ------------- OIL & GAS - 4.9% Anadarko Petroleum Corp.......... 4,869 461,338 Burlington Resources, Inc........ 14,047 1,210,851 Chevron Corp..................... 34,664 1,967,875 ConocoPhillips................... 22,396 1,302,999 Devon Energy Corp................ 7,103 444,222 Exxon Mobil Corp................. 98,265 5,519,545 Marathon Oil Corp................ 10,410 634,698 National Fuel Gas Co............. 4,151 129,470 Occidental Petroleum Corp........ 12,047 962,314 Sunoco, Inc...................... 5,202 407,733 Valero Energy Corp............... 12,320 635,712 ------------- 13,676,757 ------------- PAPER & FOREST PRODUCTS - 0.2% International Paper Co........... 7,990 268,544 Weyerhaeuser Co.................. 3,404 225,821 ------------- 494,365 ------------- PHARMACEUTICALS - 2.7% Abbott Laboratories.............. 17,582 693,258 Bristol-Myers Squibb Co.......... 30,191 693,789 Eli Lilly & Co................... 14,279 808,049 Hospira, Inc.*................... 1,408 60,234 Medco Health Solutions, Inc.*.... 4,519 252,160 Merck & Co., Inc................. 34,546 1,098,908 Oscient Pharmaceuticals Corp.*... 20,000 45,400 Pfizer, Inc...................... 116,843 2,724,779 Schering-Plough Corp............. 22,947 478,445 Wyeth............................ 14,856 684,416 ------------- 7,539,438 ------------- RETAIL - MULTILINE - 1.1% Costco Wholesale Corp............ 7,322 362,219 Federated Department Stores, Inc. 4,198 278,453 Kohl's Corp.*.................... 11,226 545,584 Wal-Mart Stores, Inc............. 38,095 1,782,846 ------------- 2,969,102 -------------
------------------------------------------------------------- SECURITY VALUE DESCRIPTION SHARES (NOTE 2) ------------------------------------------------------------- RETAIL - SPECIALTY - 2.3% Abercrombie & Fitch Co. - Class A.. 5,822 $ 379,478 American Eagle Outfitters, Inc..... 9,019 207,257 AutoZone, Inc.*.................... 4,384 402,232 Best Buy Co., Inc.................. 8,772 381,407 GameStop Corp. - Class B*.......... 5,167 149,326 Gap, Inc. (The).................... 8,758 154,491 Home Depot, Inc. (The)............. 30,256 1,224,763 Lowe's Cos., Inc................... 15,525 1,034,897 NIKE, Inc. - Class B............... 2,014 174,795 Nordstrom, Inc..................... 15,546 581,420 Office Depot, Inc.*................ 4,801 150,751 Staples, Inc....................... 18,049 409,893 Target Corp........................ 19,464 1,069,936 ------------- 6,320,646 ------------- ROAD & RAIL - 0.6% Burlington Northern Santa Fe Corp.. 13,113 928,663 CSX Corp........................... 12,041 611,321 ------------- 1,539,984 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.8% Advanced Micro Devices, Inc.*...... 13,871 424,453 Analog Devices, Inc................ 6,075 217,910 Intel Corp......................... 102,117 2,548,840 KLA-Tencor Corp.................... 3,210 158,349 Maxim Integrated Products, Inc..... 5,030 182,287 Micron Technology, Inc.*........... 33,834 450,331 Texas Instruments, Inc............. 31,784 1,019,313 ------------- 5,001,483 ------------- SOFTWARE - 2.1% Autodesk, Inc...................... 3,518 151,098 Microsoft Corp..................... 149,807 3,917,453 Oracle Corp.*...................... 79,366 969,059 Sybase, Inc.*...................... 17,521 383,009 Symantec Corp.*.................... 20,539 359,433 ------------- 5,780,052 ------------- TELECOMMUNICATION SERVICES - DIVERSIFIED - 1.9% AT&T, Inc.*........................ 59,905 1,467,074 BellSouth Corp..................... 25,199 682,893 CenturyTel, Inc.................... 18,365 608,983 Sprint Nextel Corp................. 46,258 1,080,587 Verizon Communications, Inc........ 42,976 1,294,437 ------------- 5,133,974 ------------- TEXTILES, APPAREL & LUXURY GOODS - 0.0% Jones Apparel Group, Inc........... 1,775 54,528 ------------- TOBACCO - 0.9% Altria Group, Inc.................. 32,372 2,418,836 ------------- Total Common Stocks (Cost $147,249,923) 172,179,023 -------------
See notes to financial statements 24 MANAGED ASSETS TRUST PORTFOLIO OF INVESTMENTS - CONTINUED DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
-------------------------------------------------------------------- SECURITY SHARES/PAR VALUE DESCRIPTION AMOUNT (NOTE 2) -------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK - 0.8% BANKS - 0.2% Sovereign Capital Trust IV 4.375%, due 03/07/34................... 6,500 $ 286,000 Washington Mutual Capital Trust I 5.375%, due 05/03/41................... 3,000 162,750 Washington Mutual Capital Trust I (144A)(b) 5.375%, due 05/03/41......... 2,300 125,538 ------------- 574,288 ------------- ELECTRIC UTILITIES - 0.0% NRG Energy, Inc.......................... 175 227,916 ------------- FINANCIAL - DIVERSIFIED - 0.1% Doral Financial Corp. 4.750%............. 1,200 188,550 ------------- MEDIA - 0.1% Interpublic Group of Cos, Inc., Series B (144A)(b) 5.250%....................... 280 258,370 ------------- OIL & GAS - 0.1% Chesapeake Energy Corp. 5.000%........... 1,300 178,588 ------------- PHARMACEUTICALS - 0.1% Omnicare, Inc., Series B 4.000%, due 06/15/33................... 3,200 237,664 ------------- REAL ESTATE - 0.2% Host Marriott 6.750%, due 12/02/26....... 5,600 349,356 Simon Property Group, Inc. 6.000%........ 3,100 199,330 ------------- 548,686 ------------- Total Convertible Preferred Stock (Cost $2,236,727) 2,214,062 ------------- SHORT-TERM INVESTMENT - 2.0% State Street Bank & Trust Co., Repurchase Agreement, dated 12/30/05 at 2.80% to be repurchased at $5,519,717 on 01/03/06 collateralized by 4,050,000 U.S. Treasury Bond 8.125% due 08/15/19 with a value of $5,634,563. (Cost $5,518,000)...................... $ 5,518,000 5,518,000 ------------- TOTAL INVESTMENTS - 99.7% (Cost $249,474,358) 276,559,808 Other Assets and Liabilities (net) - 0.3% 927,277 ------------- TOTAL NET ASSETS - 100.0% $ 277,487,085 =============
* Non-income producing security. (a) Variable or floating rate security. The stated rate represents the rate at December 31, 2005. (b) Securities that may be resold to "qualified institutional buyers" under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. These securities have been determined to be liquid under the guidelines established by the Board of Trustees. These securities represent in the aggregate 1.77% of net assets. (c) Security is a "step-down" bond where the coupon decreases or steps down at a predetermined date. Rates shown are current coupon and next coupon rate when a security steps down. (d) Zero coupon bond - Interest rate represents current yield to maturity, (e) Security is a "step-up" bond where coupon increases or steps up at a predetermined date. Rates shown are current coupon and next coupon rate when security steps up. The following table summarizes the credit composition of the portfolio holdings of the Managed Assets Trust at December 31, 2005, based upon quality ratings issued by Standard & Poor's. For Securities not rated by Standard & Poor's, the equivalent Moody's rating is used.
PERCENT OF PORTFOLIO COMPOSITION BY CREDIT QUALITY PORTFOLIO -------------------------------------------------- AAA/Government/Government Agency 16.78% AA 1.17 A 5.88 BBB 6.86 BB 1.95 B 0.64 Below B 2.25 Equities/Other 64.47 ------ Total: 100.00% ======
25 MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (PERCENTAGE OF NET ASSETS)
--------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) --------------------------------------------------------- SHORT-TERM INVESTMENTS - 100.2% COMMERCIAL PAPER - 89.7% BANKS - 23.6% Abbey National North America LLC 4.260%, due 01/04/06.......... $ 2,000,000 $ 1,999,290 Fortis Funding LLC 4.260%, due 01/30/06.......... 4,426,000 4,410,811 KFW International Finance, Inc. 4.250%, due 01/26/06.......... 16,000,000 15,952,778 Rabobank USA Financial Corp. 4.270%, due 01/04/06.......... 16,000,000 15,994,307 Societe Generale N.A. 4.270%, due 01/10/06.......... 16,000,000 15,982,920 Toronto Dominion Holdings USA 4.275%, due 01/23/06.......... 16,000,000 15,958,200 UBS Financial LLC 4.190%, due 01/03/06.......... 9,000,000 8,997,905 ------------ 79,296,211 ------------ FINANCIAL - DIVERSIFIED - 56.9% American Express Credit Corp. 4.260%, due 01/25/06.......... 16,000,000 15,954,560 American General Finance Corp. 4.280%, due 01/23/06.......... 16,000,000 15,958,151 Atlantic Asset Security Corp. 4.320%, due 01/19/06.......... 16,000,000 15,965,440 Dresdner U S Finance, Inc. 4.300%, due 01/09/06.......... 16,000,000 15,984,711 Ebury Finance Ltd. 4.370%, due 01/19/06.......... 16,000,000 15,965,040 General Electric Capital Corp. 4.250%, due 01/13/06.......... 16,000,000 15,977,333 Goldman Sachs Group, Inc. 4.260%, due 01/09/06.......... 16,000,000 15,984,853 Hanover Funding Co. LLC 4.330%, due 01/30/06.......... 16,000,000 15,944,191 HSBC Finance Corp. 4.260%, due 02/02/06.......... 16,000,000 15,939,413 Koch Industries LLC 4.260%, due 01/27/06.......... 16,000,000 15,950,774 Ormond Quay Funding LLC 4.320%, due 01/19/06.......... 16,000,000 15,965,440 Toyota Motor Credit Corp. 4.280%, due 02/01/06.......... 16,000,000 15,941,031 ------------ 191,530,937 ------------ HEALTH CARE EQUIPMENT & SUPPLIES - 4.5% Becton Dickinson & Co. 4.250%, due 01/24/06.......... 15,000,000 14,959,271 ------------ 14,959,271 ------------
--------------------------------------------------------------------- SECURITY PAR VALUE DESCRIPTION AMOUNT (NOTE 2) --------------------------------------------------------------------- MEDIA - 4.7% Gannett Co., Inc. 4.250%, due 01/18/06..................... $16,000,000 $ 15,967,889 ------------ 15,967,889 ------------ 301,754,308 ------------ FOREIGN CERTIFICATE OF DEPOSIT - 1.5% Depfa Bank Plc 4.250%, due 01/06/06..................... 5,000,000 4,997,049 ------------ FOREIGN GOVERNMENT & AGENCY - 4.7% Bank Ireland Governor & Co. 4.275%, due 01/18/06..................... 16,000,000 15,967,700 ------------ MEDIUM-TERM NOTE - 4.3% Stanfield Victoria Finance Ltd. 4.330%, due 01/17/06..................... 14,423,000 14,395,244 ------------ Total Short-Term Investments (Cost $337,114,301) 337,114,301 ------------ TOTAL INVESTMENTS - 100.2% (Cost $337,114,301) 337,114,301 Other Assets and Liabilities (net) - (0.2)% (711,622) ------------ TOTAL NET ASSETS - 100.0% $336,402,679 ============
See notes to financial statements 26 STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2005
Capital Appreciation High Yield Bond Managed Assets Fund Trust Trust -------------------- --------------- -------------- ASSETS Investments, at value (Note 2)* $1,140,672,837 $115,272,390 $276,559,808 Cash 216 230 76,100 Cash denominated in foreign currencies** -- 123 10 Receivable for investments sold -- -- 501,735 Receivable for Trust shares sold 15,753 23,391 16,121 Dividends receivable 252,577 5,388 235,498 Interest receivable 13,438 2,225,070 1,006,229 Receivable from investment adviser (Note 4) -- -- -- Other assets 51,838 5,747 13,680 -------------------- --------------- -------------- Total assets 1,141,006,659 117,532,339 278,409,181 -------------------- --------------- -------------- LIABILITIES Payables for: Investments purchased -- 159,830 476,457 Trust shares redeemed 2,916,288 50,224 246,126 Income distribution payable -- -- -- Investment advisory fee payable (Note 4) 631,929 43,526 118,843 Administration fee payable (Note 4) 60,814 5,892 14,261 Custodian fees payable -- 16,457 6,878 Accrued expenses 130,567 39,736 59,531 -------------------- --------------- -------------- Total liabilities 3,739,598 315,665 922,096 -------------------- --------------- -------------- NET ASSETS $1,137,267,061 $117,216,674 $277,487,085 ==================== =============== ============== NET ASSETS REPRESENTED BY: Paid in surplus $1,000,454,001 $108,389,668 $236,679,484 Accumulated net realized gain (loss) (299,657,453) 584,692 7,638,125 Unrealized appreciation (depreciation) on investments, futures contracts and foreign currency 436,470,658 495,049 27,085,452 Accumulated undistributed (distributions in excess of) net investment income (145) 7,747,265 6,084,024 -------------------- --------------- -------------- NET ASSETS $1,137,267,061 $117,216,674 $277,487,085 ==================== =============== ============== CAPITAL SHARES OUTSTANDING 14,528,622 11,669,983 16,134,334 ==================== =============== ============== NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 78.28 $ 10.04 $ 17.20 ==================== =============== ============== --------------------------------------------------------------------------------------------------------------------- * Investments at cost $ 704,194,882 $114,777,327 $249,474,358 **Cost of cash denominated in foreign currencies -- 126 8
Money Market Portfolio ------------ ASSETS Investments, at value (Note 2)* $337,114,301 Cash 654 Cash denominated in foreign currencies** -- Receivable for investments sold -- Receivable for Trust shares sold 70,709 Dividends receivable -- Interest receivable -- Receivable from investment adviser (Note 4) 18,120 Other assets 14,153 ------------ Total assets 337,217,937 ------------ LIABILITIES Payables for: Investments purchased -- Trust shares redeemed 66,974 Income distribution payable 570,174 Investment advisory fee payable (Note 4) 90,207 Administration fee payable (Note 4) 16,736 Custodian fees payable 6,112 Accrued expenses 65,055 ------------ Total liabilities 815,258 ------------ NET ASSETS $336,402,679 ============ NET ASSETS REPRESENTED BY: Paid in surplus $336,402,733 Accumulated net realized gain (loss) (8,019) Unrealized appreciation (depreciation) on investments, futures contracts and foreign currency -- Accumulated undistributed (distributions in excess of) net investment income 7,965 ------------ NET ASSETS $336,402,679 ============ CAPITAL SHARES OUTSTANDING 336,402,733 ============ NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 1.00 ============ ----------------------------------------------------------------------------- * Investments at cost $337,114,301 **Cost of cash denominated in foreign currencies --
See notes to financial statements 27 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005
Capital High Yield Managed Money Appreciation Bond Assets Market Fund Trust Trust Portfolio ------------ ----------- ----------- ----------- INVESTMENT INCOME: Dividends (1) $ 5,547,953 $ 57,101 $ 3,220,681 $ -- Interest 2,064,135 8,296,219 4,593,464 10,765,858 ------------ ----------- ----------- ----------- Total investment income 7,612,088 8,353,320 7,814,145 10,765,858 ------------ ----------- ----------- ----------- EXPENSES: Investment advisory fee (Note 4) 7,347,893 501,713 1,412,933 1,064,045 Administration fees (Note 4) 634,624 67,757 169,552 197,472 Custody fees 58,717 47,924 42,561 28,601 Audit 29,333 21,543 27,923 20,941 Legal 32,631 20,509 21,640 25,360 Trustee fees and expenses 12,245 9,000 10,315 9,009 Shareholder reporting 105,960 14,064 33,861 40,740 Insurance 40,246 3,901 12,103 12,006 Other 2,079 1,861 2,284 -- ------------ ----------- ----------- ----------- Total expenses 8,263,728 688,272 1,733,172 1,398,174 Less fees waived and expenses reimbursed by the adviser -- -- -- (81,761) ------------ ----------- ----------- ----------- Net expenses 8,263,728 688,272 1,733,172 1,316,413 ------------ ----------- ----------- ----------- Net investment income (loss) (651,640) 7,665,048 6,080,973 9,449,445 ------------ ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY RELATED TRANSACTIONS Net realized gain (loss) on: Investments 129,519,570 1,080,675 7,976,681 (214) Futures contracts -- -- (94,393) -- Foreign currency related transactions (153,161) 87 -- -- ------------ ----------- ----------- ----------- Net realized gain (loss) on investments, futures contracts and foreign currency related transactions 129,366,409 1,080,762 7,882,288 (214) ------------ ----------- ----------- ----------- Unrealized appreciation (depreciation) on investments, futures contracts and foreign currency Beginning of year 386,491,310 7,613,711 30,719,411 -- End of year 436,470,658 495,049 27,085,452 -- ------------ ----------- ----------- ----------- Net change in unrealized appreciation (depreciation) on investments and foreign currency 49,979,348 (7,118,662) (3,633,959) -- ------------ ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency related transactions 179,345,757 (6,037,900) 4,248,329 (214) ------------ ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $178,694,117 $ 1,627,148 $10,329,302 $ 9,449,231 ============ =========== =========== =========== ---------------------------------------------------------------------------------------------------------------------------- (1)Dividend income is net of withholding taxes of: $ 75,878 $ -- $ 356 $ --
See notes to financial statements 28 (THIS PAGE INTENTIONALLY LEFT BLANK) 29 STATEMENTS OF CHANGES IN NET ASSETS
Capital Appreciation Fund High Yield Bond Trust ------------------------------ -------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004* 2005 2004* -------------------------------- --------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (651,640) $ (1,463,757) $ 7,665,048 $ 6,907,148 Net realized gain (loss) on investments, futures contracts and foreign currency related transactions 129,366,409 (47,038,979) 1,080,762 (362,305) Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency related transactions 49,979,348 223,220,300 (7,118,662) 1,617,958 Net increase from payment by affiliates (Note 4) -- -- -- 75,068 -------------- -------------- ------------ ------------ Net increase in net assets resulting from operations 178,694,117 174,717,564 1,627,148 8,237,869 -------------- -------------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- (5,879) (6,987,891) From net realized gains -- -- -- (65,843) -------------- -------------- ------------ ------------ Net decrease in net assets resulting from distributions -- -- (5,879) (7,053,734) -------------- -------------- ------------ ------------ CAPITAL SHARE TRANSACTIONS (NOTES 7): Proceeds from shares sold 17,215,233 4,387,734 23,441,319 19,629,157 Net asset value of shares issued through dividend reinvestment -- -- 5,879 7,053,734 Cost of shares repurchased (100,985,962) (122,503,664) (14,390,752) (17,180,397) -------------- -------------- ------------ ------------ Net increase (decrease) in net assets from capital share transactions (83,770,729) (118,115,930) 9,056,446 9,502,494 -------------- -------------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 94,923,388 56,601,634 10,677,715 10,686,629 Net assets at beginning of year 1,042,343,673 985,742,039 106,538,959 95,852,330 -------------- -------------- ------------ ------------ Net assets at end of year $1,137,267,061 $1,042,343,673 $117,216,674 $106,538,959 ============== ============== ============ ============ Net assets at end of year includes accumulated undistributed (distributions in excess of) net investment income $ (145) $ -- $ 7,747,265 $ (28,233) ============== ============== ============ ============
* Audited by other Independent Registered Public Accounting Firm. (Note 11) See notes to financial statements 30
Managed Assets Trust Money Market Portfolio ---------------------------- ----------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004* 2005 2004* ---------------------------- ----------------------------- $ 6,080,973 $ 6,677,914 $ 9,449,445 $ 3,375,116 7,882,288 11,807,350 (214) 16 (3,633,959) 7,564,971 -- -- -- -- -- -- ------------ ------------ ------------- ------------- 10,329,302 26,050,235 9,449,231 3,375,132 ------------ ------------ ------------- ------------- (45,070) (6,765,497) (9,449,445) (3,375,116) (1,756,536) (2,452,309) -- -- ------------ ------------ ------------- ------------- (1,801,606) (9,217,806) (9,449,445) (3,375,116) ------------ ------------ ------------- ------------- 5,388,198 7,924,859 210,694,050 183,076,228 1,801,606 9,217,806 9,113,502 3,223,605 (35,479,366) (26,600,443) (186,351,355) (229,178,505) ------------ ------------ ------------- ------------- (28,289,562) (9,457,778) 33,456,197 (42,878,672) ------------ ------------ ------------- ------------- (19,761,866) 7,374,651 33,455,983 (42,878,656) 297,248,951 289,874,300 302,946,696 345,825,352 ------------ ------------ ------------- ------------- $277,487,085 $297,248,951 $ 336,402,679 $ 302,946,696 ============ ============ ============= ============= $ 6,084,024 $ 48,121 $ 7,965 $ 7,965 ============ ============ ============= =============
See notes to financial statements 31 FINANCIAL HIGHLIGHTS
NET ASSET NET REALIZED/ DIVIDENDS DISTRIBUTIONS VALUE UNREALIZED TOTAL FROM FROM NET FROM NET BEGINNING OF NET INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED SELECTED PER SHARE DATA FOR THE YEAR ENDED: YEAR INCOME (LOSS) INVESTMENTS OPERATIONS INCOME CAPITAL GAINS CAPITAL APPRECIATION FUND ------------ -------------- -------------- ---------- ---------- ------------- 12/31/2005 $66.23 $ (0.04)(a) $ 12.09 (a) $ 12.05 $ -- $ -- 12/31/2004++ 55.41 (0.09)(a) 10.91 (a) 10.82 -- -- 12/31/2003++ 44.38 0.07 (a) 10.99 (a) 11.06 (0.03) -- 12/31/2002++ 60.30 0.14 (a) (15.24)(a) (15.10) (0.81) -- 12/31/2001++ 82.01 0.61 (a) (22.01)(a) (21.40) (0.31) -- ------------------------------------- ------------ -------------- -------------- ---------- ---------- ------------- HIGH YIELD BOND TRUST ------------ -------------- -------------- ---------- ---------- ------------- 12/31/2005 $ 9.91 $ 0.67 (a) $ (0.54)(a) $ 0.13 $ --+ $ -- 12/31/2004++ 9.76 0.70 (a) 0.16 (a) 0.86 (0.70) (0.01) 12/31/2003++ 8.11 0.77 (a) 1.59 (a) 2.36 (0.71) -- 12/31/2002++ 9.04 0.78 (a) (0.40)(a) 0.38 (1.31) -- 12/31/2001++ 8.77 0.80 (a) 0.04 (a) 0.84 (0.57) -- ------------------------------------- ------------ -------------- -------------- ---------- ---------- ------------- MANAGED ASSETS TRUST ------------ -------------- -------------- ---------- ---------- ------------- 12/31/2005 $16.67 $ 0.36 (a) $ 0.27 (a) $ 0.63 $ --+ $(0.10) 12/31/2004++ 15.72 0.37 (a) 1.11 (a) 1.48 (0.39) (0.14) 12/31/2003++ 13.20 0.39 2.51 2.90 (0.38) -- 12/31/2002++ 15.55 0.45 (1.79) (1.34) (0.92) (0.09) 12/31/2001++ 17.94 0.49 (a) (1.40)(a) (0.91) (0.46) (1.02) ------------------------------------- ------------ -------------- -------------- ---------- ---------- ------------- MONEY MARKET PORTFOLIO ------------ -------------- -------------- ---------- ---------- ------------- 12/31/2005 $ 1.00 $ 0.03 (a) $ -- (a) $ 0.03 $(0.03) $ -- 12/31/2004++ 1.00 0.01 (0.01) -- -- -- 12/31/2003++ 1.00 0.008 (0.008) -- -- -- 12/31/2002++ 1.00 0.014 (0.014) -- -- -- 12/31/2001++ 1.00 0.036 (0.036) -- -- -- ------------------------------------- ------------ -------------- -------------- ---------- ---------- -------------
* Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Total returns do not reflect expenses associated with the separate account such as administration fees, account charges and surrender charges which, if reflected, would reduce the total returns for all years shown. + Rounds to less than $0.005 per share N/A Not Applicable (a) Per share amounts based on average shares outstanding during the year. (b) The adviser fully reimbursed the Fund for losses incurred resulting from violations of the Fund's investment restrictions. Without this reimbursement, the Fund's total return would have been 8.64%. ++ Audited by other Independent Registered Public Accounting Firm. (Note 11) See notes to financial statements 32
RATIO OF RATIO OF NET RATIO OF EXPENSES TO INVESTMENT NET ASSET NET ASSETS EXPENSES TO AVERAGE NET INCOME (LOSS) RETURN OF TOTAL VALUE END END OF YEAR AVERAGE NET ASSETS BEFORE TO AVERAGE PORTFOLIO CAPITAL DISTRIBUTIONS OF YEAR TOTAL RETURN* (IN MILLIONS) ASSETS REIMBURSEMENT NET ASSETS TURNOVER RATE --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ------------- $-- $ -- $78.28 18.19% $1,137 0.78% 0.78% (0.06)% 30% (0.00)+ -- 66.23 19.53 1,042 0.81 0.82 (0.15) 16 (0.01) (0.03) 55.41 24.91 986 0.82 0.82 0.14 59 -- (0.82) 44.38 (25.09) 864 0.84 0.84 0.27 52 -- (0.31) 60.30 (26.09) 1,300 0.84 0.84 0.91 47 --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ------------- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ------------- $-- $ -- $10.04 1.32% $ 117 0.61% 0.61% 6.79% 103% -- (0.71) 9.91 8.75(b) 107 0.60 0.63 7.08 79 -- (0.71) 9.76 29.15 96 0.65 0.65 8.28 80 -- (1.31) 8.11 4.57 61 0.71 0.71 8.81 100 -- (0.57) 9.04 9.55 50 0.73 0.73 8.79 110 --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ------------- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ------------- $-- $(0.10) $17.20 3.84% $ 277 0.61% 0.61% 2.15% 56% -- (0.53) 16.67 9.44 297 0.60 0.61 2.31 64 -- (0.38) 15.72 21.98 290 0.59 0.59 2.64 84 -- (1.01) 13.20 (8.60) 251 0.61 0.61 2.80 39 -- (1.48) 15.55 (5.08) 308 0.59 0.59 2.95 59 --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ------------- --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- ------------- $-- $(0.03) $ 1.00 2.90% $ 336 0.40% 0.42% 2.87% N/A -- -- 1.00 1.01 303 0.40 0.42 1.00 N/A -- -- 1.00 0.78 346 0.40 0.42 0.78 N/A -- -- 1.00 1.39 393 0.40 0.42 1.38 N/A -- -- 1.00 3.71 353 0.40 0.42 3.46 N/A --------- ------------- --------- ------------- ------------- ----------- ------------- ------------- -------------
See notes to financial statements 33 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 1. ORGANIZATION Capital Appreciation Fund ("CAF"), High Yield Bond Trust ("HYBT"), Managed Assets Trust ("MAT") and Money Market Portfolio ("MMP") (collectively, the "Funds") are each a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end management investment companies. Shares of the Funds are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. 2. SIGNIFICANT ACCOUNTING POLICIES The following are significant accounting policies consistently followed by the Funds. These policies are in conformity with Accounting Principles generally accepted in the United States, hereinafter referred to as generally accepted accounting principles ("GAAP"). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. A. INVESTMENT VALUATION - Portfolio securities for which the primary market is on a domestic or foreign exchange (except the NASDAQ) will be valued at the last sale price on the day of valuation or, if there was no sale that day, at the last reported bid price, using prices as of the close of trading. Portfolio securities traded over-the-counter and quoted on NASDAQ are valued at the NASDAQ Official Closing Price. Portfolio securities not quoted on NASDAQ that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed to be over-the-counter, will be valued at the most recently quoted bid price provided by the principal market makers. Debt securities are valued at the mean between the bid and asked prices provided by an independent pricing service that are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various relationships between securities. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Funds calculate their net asset value, the Funds may value these investments at fair value as determined in accordance with the procedures approved by the Funds' Boards of Trustees. For CAF, HYBT, and MAT, short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair market value. For MMP, money market instruments are valued at amortized cost, in accordance with Rule 2a-7 under the 1940 Act, which approximates fair market value. This method involves valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. MMP's use of amortized cost is subject to its compliance with certain conditions as specified under Rule 2a-7 of the 1940 Act. B. REPURCHASE AGREEMENTS - When entering into repurchase agreements, it is the Funds' policy that their custodian or a third party custodian takes possession of the underlying collateral securities, the market value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Funds may be delayed or limited. C. FINANCIAL FUTURES CONTRACTS - The Funds may enter into financial futures contracts typically to hedge a portion of the portfolios. Upon entering into a financial futures contract, the Funds are required to deposit cash or securities as initial margin. Additional securities are also segregated up to the current market value of the financial futures contracts. Subsequent payments, known as variation margin, are made or received by the Funds each day, depending on the daily fluctuation in the value of the underlying financial instruments. The Funds recognize an unrealized gain or loss equal to the daily variation margin. When the financial futures contracts are closed, a realized gain or loss is recognized equal to the difference between the proceeds from (or cost of) the closing transactions and the Funds' basis in the contracts. The risks associated with entering into financial futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. In addition, investing in financial futures contracts involves the risk that the Funds could lose more than the original margin deposit and subsequent payments required for a futures transaction. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. D. FORWARD FOREIGN CURRENCY CONTRACTS - Certain Funds may enter into forward foreign currency contracts to hedge against foreign currency exchange rate risk on its non-US dollar denominated securities or to facilitate settlement of foreign currency denominated portfolio transactions. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The contract is marked-to-market daily and the change in value is recorded by the Funds as an unrealized gain or loss. When a forward foreign currency contract is extinguished, through either delivery or offset by entering into another forward foreign currency contract, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was extinguished. Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statements of Assets and Liabilities. The Funds bear the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. E. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. 34 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Funds determine the existence of a dividend declaration after exercising reasonable due diligence. Dividend income on foreign securities is recorded net of any applicable withholding tax. The cost of investments sold is determined by use of the specific identification method. F. FOREIGN CURRENCY TRANSLATION - Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities, at the date of valuation, resulting from changes in exchange rates. G. DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment income for CAF, HYBT and MAT, if any, are declared at least annually. Distributions from net investment income on shares of MMP are declared each business day to shareholders of record that day, and are paid on the last business day of the month. Distributions of net realized gains to shareholders of the Funds, if any, are declared at least annually. Distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP. H. FEDERAL AND OTHER TAXES - It is the Funds' policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended ("the Code"), applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required in the Funds' financial statements. It is also the Funds' policy to comply with the diversification requirements of the Code so that variable annuity and variable life contracts investing in a Fund will not fail to qualify as annuity and life insurance contracts for tax purposes. Distributions from net investment income and capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. As a result, distributions from net investment income and net realized capital gains may differ from their ultimate characterization for federal income tax purposes due to timing differences that relate to wash sales, treatment of passive foreign investment company marked to market, and book/tax differences in premium amortization. The Funds utilize the provisions of the federal income tax laws that provide for the carryforward of capital losses for eight years, offsetting such losses against any future net realized capital gains. At December 31, 2005, the accumulated capital loss carryforwards and expiration dates by the Funds were as follows:
Expiring Expiring Expiring Expiring Expiring Portfolio 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 Total --------- ----------- ----------- ------------ ----------- ---------- ------------ Capital Appreciation Fund $66,292,199 $74,123,366 $104,924,615 $52,569,301 $ -- $297,909,481 High Yield Bond Trust -- -- -- -- -- -- Managed Assets Trust -- -- -- -- -- -- Money Market Portfolio -- 7,645 146 -- 228 8,019
I. RECLASSIFICATION - GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. 3. INVESTMENT RISK HYBT invests in high-yield instruments that are subject to certain credit and market risks. The yields of high-yield instruments reflect, among other things, perceived credit risk. HYBT's investment in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. 35 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 3. INVESTMENT RISK - CONTINUED Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability. 4. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Travelers Asset Management International Company LLC ("TAMIC") acts as investment adviser to the Funds. TAMIC is a registered investment adviser that has provided investment advisory services since its incorporation in 1978. Effective July 1, 2005, TAMIC became an indirect wholly owned subsidiary of MetLife, Inc. Prior to that date, TAMIC was an indirect wholly-owned subsidiary of Citigroup, Inc. ("Citigroup"). Each Fund pays TAMIC an investment advisory fee calculated daily and paid monthly at the annual rate of their respective Fund's average daily net assets as follows:
Management Fees earned by TAMIC for the Year ended Portfolio December 31, 2005 % per annum Average Daily Assets --------- ------------------------- ----------- -------------------- Capital Appreciation Fund $7,347,893 0.65% First $1 Billion 0.60% Over $1 Billion High Yield Bond Trust 501,713 0.50% First $50 Million 0.40% Over $50 Million to $150 Million 0.30% Over $150 Million to $250 Million 0.25% Over $250 Million Managed Assets Trust 1,412,933 0.50% All Money Market Portfolio 1,064,045 0.3233% First $100 Million 0.3233% Over $100 Million
TAMIC has entered into a sub-advisory agreement with TIMCO Asset Management, Inc. ("TIMCO") (formerly The Travelers Investment Management Company), an indirect wholly-owned subsidiary of Citigroup. Pursuant to the sub-advisory agreement, TIMCO is responsible for the day-to-day portfolio operations and investment decisions for the equity portion of MAT and is compensated for such services by TAMIC at an annual rate of 0.30% of the average daily net assets of MAT. On July 1, 2005, TAMIC entered into a subadvisory agreement with Salomon Brothers Asset Management Inc. ("SaBAM"), an indirect wholly-owned subsidiary of Legg Mason, Inc. Prior to December 1, 2005, SaBAM was an indirect wholly-owned subsidiary of Citigroup. Pursuant to the sub-advisory agreement, SaBAM is responsible for the day-to-day portfolio operations and investment decisions for the fixed-income portion of MAT and is compensated for such services by TAMIC at an annual rate of 0.25% of the average daily net assets of MAT. Prior to July 1, 2005 the fixed-income portion of MAT was managed directly by TAMIC without a subadviser. TAMIC has also entered into a sub-advisory agreement with Janus Capital Management LLC ("Janus"). Pursuant to the sub-advisory agreement, Janus is responsible for the day-to-day portfolio operations and investment decisions for CAF and is compensated for such services by TAMIC at an annual rate of the Fund's average daily net assets as follows:
Average Daily Net Assets Sub Advisory Fee ------------------------ ---------------- First $50 Million 0.40% $50 Million to $150 Million 0.375% $150 Million to $750 Million 0.35% $750 Million to $1 Billion 0.325% Over $1 Billion 0.325%
36 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 4. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED On July 1, 2005, TAMIC entered into a sub-advisory agreement with SaBAM, an indirect wholly-owned subsidiary of Legg Mason, Inc. Prior to December 1, 2005, SaBAM was and indirect wholly-owned subsidiary of Citigroup. Pursuant to the sub-advisory agreement, SaBAM is responsible for the day to day portfolio operations and investment decisions for the HYBT, and MMP and is compensated for such services by TAMIC. Prior to July 1, 2005, HYBT and MMP were managed directly by TAMIC without a subadviser.
% per annum Average Daily Assets - ----------- -------------------- High Yield Bond Trust 0.40% All Money Market Portfolio 0.15% First $100 Million 0.075% Over $100 Million
The Travelers Insurance Company ("TIC"), an indirect wholly-owned subsidiary of MetLife, acts as the Funds' administrator. As compensation for its services, the Funds pay TIC an administration fee calculated at the annual rate of 0.06% of each Fund's average daily net assets. The fee is calculated daily and paid monthly. Effective July 1, 2005, TIC entered into a sub-administrative service agreement with State Street Bank and Trust Company ("State Street"), to serve as sub-administrator to the Funds. Smith Barney Fund Management LLC ("SBFM") served as sub-administrator to the Funds until June 30, 2005 and was paid a fee calculated at an annual rate of 0.02% of the respective average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each respective Fund's average daily net assets. PFPC Inc. acts as the transfer agent for the Funds. Prior to July 1, 2005, Citigroup Trust Bank, fsb. ("CTB"), a subsidiary of Citigroup, acted as the Funds' transfer agent. For the year ended December 31, 2005, the Funds did not pay transfer agent fees to CTB. During the year ended December 31, 2005, the Funds had a contractual expense limitation in place of 1.25% for MAT, HYBT and CAF and 0.40% for MMP. As a result, TIC has agreed to reimburse MMP for certain expenses in the amount of $81,761. This expense limitation is renewed annually and can be terminated at any time by TIC with 60 days' notice. During the year ended December 31, 2004, TAMIC reimbursed HYBT in the amount of $75,068 for losses incurred resulting from violations of HYBT's investment restrictions. Prior to July 1, 2005, all officers and one Trustee of the Funds were employees of Citigroup or its affiliates and did not receive compensation from the Funds. 5. INVESTMENTS During the year ended December 31, 2005, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:
Purchase Sales ----------------------- ----------------------- Portfolio US Gov't Non-Gov't US Gov't Non-Gov't --------- ---------- ------------ ---------- ------------ Capital Appreciation Fund -- $291,891,393 -- $415,216,921 High Yield Bond Trust -- 119,386,011 -- 105,400,151 Managed Assets Trust 53,949,967 100,301,638 50,037,011 126,825,221
At December 31, 2005, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:
Gross Gross Net Unrealized Federal Income Unrealized Unrealized Appreciation/ Portfolio Tax Cost Appreciation Depreciation (Depreciation) --------- -------------- ------------ ------------ -------------- Capital Appreciation Fund $705,942,854 $436,716,422 $ (1,986,439) $434,729,983 High Yield Bond Trust 114,810,417 3,452,201 (2,990,228) 461,973 Managed Assets Trust 250,065,163 39,842,827 (13,348,182) 26,494,645 Money Market Portfolio 337,114,301 -- -- --
37 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 6. DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the year ended December 31, 2005 and 2004 were as follows:
Long Term Long Term Ordinary Income Ordinary Income Cap Gain Cap Gain Portfolio 2005 2004 2005 2004 Total 2005 Total 2004 --------- --------------- --------------- ---------- ---------- ---------- ---------- Capital Appreciation Fund $ -- $ -- $ -- $ -- $ -- $ -- High Yield Bond Trust 5,879 6,987,891 -- 65,843 5,879 7,053,734 Managed Assets Trust 45,070 6,765,497 1,756,536 2,452,309 1,801,606 9,217,806 Money Market Portfolio 9,449,445 3,375,116 -- -- 9,449,445 3,375,116
As of December 31, 2005, the components of distributable earnings (accumulated losses) on a federal income tax basis were as follows:
Undistributed Undistributed Unrealized Ordinary Long-Term Appreciation Loss Carryforward Portfolio Income Gain (Depreciation) and Deferrals Total --------- ------------- ------------- -------------- ----------------- ------------ Capital Appreciation Fund $ -- $ -- $434,722,686 $(297,909,626) $136,813,060 High Yield Bond Trust 7,747,265 617,782 461,959 -- 8,827,006 Managed Assets Trust 6,698,506 7,614,448 26,494,647 -- 40,807,601 Money Market Portfolio 7,965 -- -- (8,019) (54)
7. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest. The shares of the Funds, with the exception of MMP, are authorized and issued without par value. MMP shares are authorized and issued with a par value of $0.10 per share. Transactions in shares of each Fund were as follows:
SHARES ISSUED NET INCREASE THROUGH (DECREASE) BEGINNING SHARES DIVIDEND SHARES IN SHARES ENDING SHARES SOLD REINVESTMENT REPURCHASED OUTSTANDING SHARES CAPITAL APPRECIATION FUND ----------- ----------- ------------- ------------- ------------ ----------- 12/31/2005 15,738,433 240,764 -- (1,450,575) (1,209,811) 14,528,622 12/31/2004 17,790,470 76,603 -- (2,128,640) (2,052,037) 15,738,433 ------------------------- ----------- ----------- ------------- ------------- ------------ ----------- HIGH YIELD BOND TRUST ----------- ----------- ------------- ------------- ------------ ----------- 12/31/2005 10,751,548 2,368,775 595 (1,450,935) 918,435 11,669,983 12/31/2004 9,819,304 1,945,067 712,609 (1,725,432) 932,244 10,751,548 ------------------------- ----------- ----------- ------------- ------------- ------------ ----------- MANAGED ASSETS TRUST ----------- ----------- ------------- ------------- ------------ ----------- 12/31/2005 17,832,560 322,952 108,990 (2,130,168) (1,698,226) 16,134,334 12/31/2004 18,436,722 494,356 553,631 (1,652,149) (604,162) 17,832,560 ------------------------- ----------- ----------- ------------- ------------- ------------ ----------- MONEY MARKET PORTFOLIO ----------- ----------- ------------- ------------- ------------ ----------- 12/31/2005 302,946,536 210,694,050 9,113,502 (186,351,355) 33,456,197 336,402,733 12/31/2004 345,825,208 183,076,228 3,223,605 (229,178,505) (42,878,672) 302,946,536 ------------------------- ----------- ----------- ------------- ------------- ------------ -----------
8. ADDITIONAL INFORMATION On May 31, 2005, the U.S. Securities and Exchange Commission ("SEC") issued an order in connection with the settlement of an administrative proceeding against Smith Barney Fund Management LLC ("SBFM") and Citigroup Global Markets Inc. ("CGMI") relating to the appointment of an affiliated transfer agent for the Smith Barney family of mutual funds (the "Funds"), which included the Funds ("TL&A Funds") until July 1, 2005. The SEC order finds that SBFM and CGMI willfully violated Section 206(1) of the Investment Advisers Act of 1940 ("Advisers Act"). Specifically, the order finds that SBFM and CGMI knowingly or recklessly failed to disclose to the Boards of the Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that First Data Investors Services Group ("First Data"), the Funds' then-existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before. Additionally, the SEC order finds that Citigroup Asset Management ("CAM"), the Citigroup business unit that includes each Fund's sub-administrator, SBFM, had entered into a side 38 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 8. ADDITIONAL INFORMATION - CONTINUED letter with First Data under which CAM agreed to recommend the appointment of First Data as sub-transfer agent to the affiliated transfer agent in exchange, among other things, for a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGMI. The order also finds that SBFM and CGMI willfully violated Section 206(2) of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Funds' boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the transfer agent functions, and the suggestion that the proposed arrangement was in the Funds' best interests and that no viable alternatives existed. SBFM and CGMI do not admit or deny any wrongdoing or liability. The settlement does not establish wrongdoing or liability for purposes of any other proceeding. The SEC censured SBFM and CGMI and ordered them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act. The order requires Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Funds, primarily through fee waivers. In addition, Travelers Life & Annuity and CAM reviewed the adequacy and accuracy of the disclosure provided to the TL&A Fund boards at the time the revised transfer agency arrangement was discussed with the boards and concluded that the transfer agency fees paid to CTB, for the period from June 1, 1999 to August 23, 2004, by the TL&A Funds that did not have expense caps in effect should be reimbursed with interest to the TL&A Funds. The reimbursement occurred on November 1, 2004. The remaining $183.7 million to be paid under the SEC order, including the penalty, has been paid to the U.S. Treasury and will be distributed pursuant to a plan to be prepared by Citigroup and submitted within 90 days of the entry of the order for approval by the SEC. The order also requires that transfer agency fees received from the Funds since December 1, 2004 less certain expenses be placed in escrow and provides that a portion of such fees may be subsequently distributed in accordance with the terms of the order. The order requires SBFM to recommend a new transfer agent contract to the Fund boards within 180 days of the entry of the order. At this time, there is no certainty as to how the proceeds of the settlement will be distributed, to whom such distributions will be made, the methodology by which such distributions will be allocated, and when such distributions will be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the Funds. 9. OTHER MATTERS On July 1, 2005, MetLife, Inc., a Delaware corporation ("MetLife"), acquired all of the outstanding shares of capital stock of certain indirect subsidiaries held by Citigroup, including TIC, The Travelers Life and Annuity Company, a wholly owned subsidiary of TIC and certain other domestic insurance companies of Citigroup and substantially all of Citigroup's international insurance businesses for $11.8 billion. The sale also included TIC's affiliated investment adviser, TAMIC, which serves as the investment adviser to the Funds. TIC filed a Form 8-K Current Report with The United States Securities and Exchange Commission on July 8, 2005, with additional information about the transaction. On December 1, 2005, Legg Mason, Inc. ("Legg Mason") and Citigroup announced that they had completed their previously announced transaction that resulted in Legg Mason acquiring substantially all of Citigroup's asset management business. As a result, SaBAM, which serves as subadviser to HYBT, MAT and MMP, and TIMCO, which also serves as subadviser for MAT, has each become a wholly-owned subsidiary of Legg Mason. Under the Investment Company Act of 1940, consummation of the transaction resulted in automatic termination of the subadvisory agreements between SaBAM and TAMIC for HYBT, MAT and MMP, and TIMCO and TAMIC for MAT. 10. REORGANIZATIONS The following Fund reorganization was approved by the Board of Trustees of the MMP on November 10, 2005. The reorganization will be presented to shareholders on or about March 14, 2006. If approved by shareholders, the reorganization will occur on or about May 1, 2006. The proposed reorganization provides for the acquisition of all the assets of MMP in exchange for shares of BlackRock Money Market Portfolio (a series of Metropolitan Series Fund, Inc.). The following Fund reorganization was approved by the Board of Trustees of the CAF on January 25, 2006. The reorganization will be presented to shareholders on or about April 12, 2006. If approved by shareholders, the reorganization will occur on or about May 1, 2006. The proposed reorganization provides for the acquisition of all the assets of CAF in exchange for shares of Janus Capital Appreciation Portfolio (a series of Met Investors Series Trust). The following Fund reorganization was approved by the Board of Trustees of the HYBT on January 25, 2006. The reorganization will be presented to shareholders on or about April 12, 2006. If approved by shareholders, the reorganization will occur on or about May 1, 2006. The proposed reorganization provides for the acquisition of all the assets of HYBT in exchange for shares of Western Asset Management High Yield Bond Portfolio (a series of Metropolitan Series Fund, Inc.). 39 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 10. REORGANIZATIONS - CONTINUED The following Fund reorganization was approved by the Board of Trustees of MAT on January 25, 2006. The reorganization will be presented to shareholders on or about April 12, 2006. If approved by shareholders, the reorganization will occur on or about May 1, 2006. The proposed reorganization provides for the acquisition of all the assets of MAT in exchange for shares of Legg Mason Partners Managed Assets Portfolio (a series of Met Investors Series Trust). 11. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Based on the recommendation of the Audit Committee of the Funds, the Board of Trustees determined not to retain KPMG LLP ("KPMG") as the Funds' Independent Auditor, and voted to appoint Deloitte & Touche LLP as the Funds' Independent Auditor for the fiscal year ended December 31, 2005, effective July 1, 2005. During the two most recent fiscal years and through June 30, 2005, the date the Board of Trustees notified KPMG of their decision not to retain them as the Funds' auditor, KPMG's audit reports contained no adverse opinion or disclaimer of opinion; nor were their reports qualified as to uncertainty, audit scope or accounting principles. Further, there were no disagreements between the Funds and KPMG on accounting principles, financial statements disclosure or audit scope, which, if not resolved to the satisfaction of KPMG, would have caused them to make reference to the disagreement in their reports. 12. SUBSEQUENT EVENT Effective February 1, 2006, TIMCO employs a team approach to manage the equity portion of MAT. The portfolio management team is dually employed by TIMCO and Batterymarch Financial Management, Inc. ("Batterymarch"), 200 Clarendon Street, Boston, Massachusetts 02116. Batterymarch was founded in 1969 and is a subsidiary of Legg Mason, Inc. Batterymarch provides asset management services to corporations, pension plans, mutual funds and trusts and as of December 31, 2005 manages approximately $15 billion of assets. 40 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of: Capital Appreciation Fund, High Yield Bond Trust, Managed Assets Trust, and Money Market Portfolio (individually a "Fund" and collectively the "Funds") We have audited the accompanying statements of assets and liabilities, including the schedules of investments of the above referenced Funds, as of December 31, 2005, and the related statements of operations, statements of changes in net assets and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The statements of changes in net assets for the year ended December 31, 2004 and the financial highlights for each of the four years in the period ended December 31, 2004 were audited by other auditors whose report, dated February 18 2005, expressed an unqualified opinion on those statements. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each Fund as of December 31, 2005, the results of their operations, the changes in their net assets and their financial highlights for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Boston, Massachusetts February 17, 2006 41 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 (UNAUDITED) FACTORS CONSIDERED BY THE BOARDS OF TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AND THE SUBADVISORY AGREEMENTS At an in person meeting on July 20, 2005, the Boards of Trustees, including the Independent Trustees (together, the "Board") of CAP, HYBT, MAT, and MMP approved the investment advisory agreements (the "Agreements") between TAMIC and each Fund. In addition, the Board, at the in person meeting on July 20, 2005, approved the investment subadvisory agreements ("Subadvisory Agreements") between TAMIC and Janus for CAF, between TAMIC and Salomon for HYBT, MAT and MMP, and between TAMIC and TIMCO for MAT. In voting to approve the Agreements and the Subadvisory Agreements, the Board considered whether the approval of the Agreements and the Subadvisory Agreements would be in the best interests of the Funds and their shareholders, an evaluation largely based on the nature and quality of the services provided under the Agreements and the Subadvisory Agreements and the overall fairness of the Agreement and the Subadvisory Agreements to the shareholders. As part of the process, legal counsel to the Funds requested certain information from TAMIC and from Janus, Salomon and TIMCO (the "subadvisors"), and in response such parties provided certain written and oral information to the Board in its consideration of the Agreements and Subadvisory Agreements. The Board did not identify any one factor, piece of information or written document as all important or controlling, and each Board Member attributed different weight to different factors. Prior to voting, the Board reviewed the proposed continuance of the Agreements and the Subadvisory Agreements with management and with experienced independent and fund counsel and received materials from counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and the Subadvisory Agreements. The Independent Trustees also reviewed the proposed continuation of the Agreements and the Subadvisory Agreements in private sessions alone and with their independent counsel at which no representatives of management were present. Based on an evaluation of all material factors including those described below, the Board concluded that the Agreements and the Subadvisory Agreements were reasonable and fair and in the best interest of the Funds and their shareholders. Specifically, the Board considered, among other factors: (a) the nature, extent and quality of the services to be provided by TAMIC and the subadvisors under the Agreements and the Subadvisory Agreements; (b) the investment performance of the Funds; (c) the cost of services to be provided and the profit realized by TAMIC and its affiliates; (d) the extent to which TAMIC and the subadvisors realize economies of scale as each Fund grows; and (e) whether the fee levels reflect these economies of scale for the benefit of the shareholders. CONSIDERATIONS RELEVANT TO ALL FUNDS With respect to the nature, scope and quality of the services to be provided by TAMIC, the Board considered, and expressed its satisfaction with, the level and depth of knowledge of TAMIC, including the professional experience and qualifications of its personnel as well as current staffing levels and overall resources. The Board also noted that TAMIC had been acquired by MetLife, effective on July 1, 2005, and took into account the information that the Board had received at earlier meetings in connection with its consideration of this change in control of TAMIC. The Board also noted the responsibilities that TAMIC has to the Funds, including oversight of the subadvisors' compliance with Fund policies and objectives, review of brokerage matters, oversight of general Fund compliance with federal and state laws, and the implementation of Board directives as they relate to the Funds. Based on its consideration and review of the foregoing information, the Board determined that the Funds were likely to benefit from the nature and quality of these services, as well as TAMIC's ability to render such services based on its experience, operations and resources. With respect to the nature, scope and quality of the services to be provided by the subadvisors, the Board considered the level and depth of knowledge of each subadvisor, including the professional experience and qualifications of their personnel as well as current staffing levels and overall resources. The Board also considered each subadvisor's management style and long-term performance record with respect to each Fund; the subadvisor's financial condition; the subadvisor's compliance systems and any disciplinary history. Based on its consideration and review of the foregoing information, the Board determined that the Funds were likely to benefit from the nature and quality of these services, as well as the subadvisors' ability to render such services based on their experience, operations and resources. The Board also examined the fees paid by each Fund in light of fees paid to other investment managers by comparable funds and the method of computing each Fund's advisory and subadvisory fee. The Board considered the Funds' advisory fees and total expenses as compared to investment companies deemed to be comparable to the Funds as determined by an independent third party (the "expense group"), as well as to a broader group of investment companies with the same investment classification as each Fund, also as selected by the independent third party. The Board also noted the overall expense limitations that TAMIC has agreed to for the Funds. The Board noted that TAMIC's revenues, and its resulting profitability, from each Fund is the difference between the amount TAMIC receives from the Fund and what it pays to the subadvisor for that Fund. The Board also considered that each Fund pays a separate fee to an affiliate of TAMIC for administrative services performed or arranged for by that affiliate. After comparing the fees with those of comparable funds as described below and in light of the quality and extent of services to be provided, the costs to be incurred by TAMIC and the subadvisors, and the other factors considered, the Board concluded that the level of the fees paid to TAMIC and each subadvisor with respect to each Fund was fair and reasonable. The Board reviewed the Funds' performance record and TAMIC's and the subadvisors' management styles and long-term performance records with the Funds and comparable funds. The Board noted that it reviews on a quarterly basis detailed information about the Funds' performance results and investment strategies. The Board also reviewed various comparative performance data provided to it in connection with its consideration of the renewal of the Agreements and Subadvisory Agreements, including, among other information, a comparison of each Fund's total return with its respective Lipper index and with that of other mutual funds deemed to be comparable by an independent third party in its report. 42 In terms of the profits realized by TAMIC from its relationship with the Funds, the Board noted that it was satisfied that TAMIC's profits had not been excessive in the past, and that it was not possible to predict how the recent acquisition of TAMIC by MetLife would affect its future profitability. Because the fees paid to the subadvisors are paid by TAMIC and not directly by the Funds, the Board determined that the profitability of the subadvisors was not material to the consideration of the Subadvisory Agreements. For similar reasons, while the Board did consider whether subadvisory fee breakpoints were in place for each Fund, the Board did not consider the potential economies of scale in the subadvisors' management of the Funds to be a substantial factor in its considerations. The Board also considered the effect of the Funds' size and growth on their performance and fees. The Board considered the effective fees under the Agreement for each Fund as a percentage of assets at different asset levels and possible economies of scale that may be realized if the assets of the Fund grow. Specifically, the Board noted that if the Funds' assets increase over time, the Funds may realize economies of scale if assets increase proportionally more than certain expenses. The Board also considered the fact that TAMIC pays subadvisory fees out of the advisory fees it receives from the Funds. The Board considered, among other data, the specific factors and related conclusions set forth below with respect to each Fund. CAPITAL APPRECIATION FUND The Board noted that the performance of the Fund over both the short and long term had been very good compared to similar funds. In light of certain legal issues faced by Janus (among other mutual fund complexes) with respect to market timing activity by fund shareholders, the Board expressed satisfaction with the efforts Janus had been taking to prevent future legal and compliance issues, but noted that such efforts should continue to be monitored by TAMIC. The Board also requested that TAMIC monitor the financial health of Janus' parent company as it relates to Janus' ability to provide services to the Fund. The Board also noted that the Fund's actual advisory fees and total expenses were near the median for its expense group, although the Fund's subadvisory fees were somewhat above its subadviser expense group median. The Board further considered that the advisory and subadvisory fees for the Fund had been reduced during the past year, and that Janus had expressed willingness to agree to a further reduction in subadvisory fees that could be passed on to shareholders in a corresponding reduction of advisory fees, and requested that TAMIC pursue such a fee reduction. In addition, the Board noted that the advisory and subadvisory fees included breakpoints reducing such fees at higher asset levels that were appropriate in light of the economies of scale involved in managing a fund of the Fund's size. HIGH YIELD BOND TRUST The Board noted that the performance of the Fund had been very good compared to similar funds, especially over the longer term. The Board also noted that the Fund's advisory fees and total expenses were below the median of its expense group and, while the Board was not provided with subadvisory fee information for comparable funds, the Board concluded that the Fund's subadvisory fees were reasonable in light of the quality and nature of services provided by Salomon. The Board requested, however, that TAMIC monitor whether personnel changes at Salomon relating to its pending acquisition by Legg Mason might harm the Fund. The Board noted certain minor compliance problems that had occurred recently with respect to the Fund, but concluded that the appropriate steps had been taken to prevent these or similar problems from recurring. In addition, the Board noted that the advisory fees included breakpoints reducing such fees at higher asset levels that were appropriate in light of the economies of scale involved in managing a fund of the Fund's size. MANAGED ASSETS TRUST The Board noted that the performance of the Fund had been above average compared to similar funds over the three-, five- and ten-year time periods. The Board also noted that the Fund's advisory fees and total expenses were below the median of its expense group and, while the Board was not provided with subadvisory fee information for comparable funds, the Board concluded that the Fund's subadvisory fees were reasonable in light of the quality and nature of services provided by Salomon and TIMCO. The Board requested, however, that TAMIC monitor whether personnel changes at Salomon and TIMCO relating to their pending acquisition by Legg Mason might harm the Fund. In addition, the Board noted that the advisory and subadvisory fees did not include breakpoints reducing such fees at higher asset levels, but concluded that breakpoints were not necessary at the time in light of the Fund's relatively low advisory fees and its current assets. MONEY MARKET PORTFOLIO The Board noted that the performance of the Fund had generally been above average compared to similar funds. The Board also noted that the Fund's advisory fees and total expenses were below the median of its expense group and, while the Board was not provided with subadvisory fee information for comparable funds, the Board concluded that the Fund's subadvisory fees were reasonable in light of the quality and nature of services provided by Salomon. The Board requested, however, that TAMIC monitor whether personnel changes at Salomon relating to its pending acquisition by Legg Mason might harm the Fund. In addition, the Board noted that the advisory fees did not include breakpoints reducing such fees at higher asset levels, but noted that economies of scale may be less pronounced, and therefore that breakpoints may be less common, for money market fund than for other types of funds as fund assets increase. CERTAIN MATTERS RELATING TO THE CAF, HYBT, MAT AND MMP On June 23, 2005, Citigroup Inc., the parent company of SaBAM and TIMCO, agreed to sell substantially all of its asset management business, including SaBAM and TIMCO, to Legg Mason. SaBAM is the subadviser to the CAF, HYBT and MMP (collectively the "Trusts") while both SaBAM and TIMCO are subadvisers to the MAT, and the consummation of the aforementioned transactions would result in a change of control of SaBAM and TIMCO and the automatic termination of the Trusts' and the MAT's subadvisory agreements. In connection with the anticipated change of control of SaBAM and TIMCO, the Boards approved new subadvisory agreements between TAMIC and SaBAM for the Trusts and between TAMIC and both SaBAM and TIMCO for the MAT at a special meeting of the Boards held on November 10, 2005. In considering the new subadvisory agreements for the Trusts and the MAT, the Boards met with representatives from SaBAM and TIMCO and received information regarding the proposed transactions, Legg Mason and its asset management affiliates, and Legg Mason's plans for SaBAM and TIMCO 43 after the closing of the transactions. In approving the new subadvisory agreements, the Boards also took into consideration the factors they considered at a joint meeting held on July 20, 2005, where the Boards approved the previous subadvisory agreements with SaBAM and TIMCO, with respect to the Trusts and the MAT. In addition to these factors, the Boards also considered: . that the new subadvisory agreements are substantially similar to the Trusts' and the MAT's previous subadvisory agreements; and . the business, experience and reputation of Legg Mason and its asset management affiliates and the prominence of the Legg Mason name in the marketplace for investment advice. Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Trustees, including the Independent Trustees, unanimously voted to approve the new subadvisory agreements between TAMIC and SaBAM for the Trusts and between TAMIC and both SaBAM and TIMCO for the MAT. 44 TRUSTEES AND OFFICERS (UNAUDITED) The Trustees and executive officers of the Funds, their ages and their principal occupations during the past five years are set forth below. Each Trustee who is deemed an "interested person," as such term is defined in the Investment Company Act of 1940, as amended (the "1940 Act"), is indicated by an asterisk. Those Trustees who are not "interested persons" as defined in the 1940 Act are referred to as "Disinterested Trustees."
The Trustees ------------ Number of Portfolios in Fund Other Public Position(s) Term of Office Complex Company Held with and Length of Principal Occupation Overseen Directorships Name Address and Age Funds Time Served During Last Five Years by Trustee** Held by Trustee -------------------- ------------- -------------- ---------------------------------------- ------------ --------------- Interested Trustees ------------------- Elizabeth M. Forget* Chairperson Since July President, Met Investors Advisory LLC 67 None 260 Madison Ave. of the Board, 2005 (2000 to present); Executive Vice 10/th/ Floor Chief President (2000 to present) and Chief New York, NY Executive Marketing Officer (2003 to present), Age 39 Officer and MetLife Investors Group, Inc; President, President TAMIC (July 2005-present); Senior Vice President, Equitable Distributors, Inc. and Vice President, Equitable Life Assurance Society of the United States (1996 to 2000). Disinterested Trustees ---------------------- Robert E. McGill, III Trustee Since 1991 Retired manufacturing executive. 39 None 295 Hancock Street Director (1983-1995), Executive Vice Williamstown, MA President (1989-1994) and Senior Vice Age 74 President, Finance and Administration (1983-1989), The Dexter Corporation (manufacturer of specialty chemicals and materials); Vice Chairman (1990- 1992), Director (1983-1995), Life Technologies, Inc. (life science/ biotechnology products); Director, (1994-1999), The Connecticut Surety Corporation (insurance); Director (1995-2000), Chemfab Corporation (specialty materials manufacturer); Director (1999-2001), Ravenwood Winery, Inc.; Director (1999-2003), Lydall Inc. (manufacturer of fiber materials); Member, Board of Managers (1974-present), six Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee (1990- present), five Mutual Funds sponsored by The Travelers Insurance Company.++
45 TRUSTEES AND OFFICERS (UNAUDITED) - CONTINUED
Number of Portfolios in Fund Other Public Position(s) Term of Office Complex Company Held with and Length of Principal Occupation Overseen Directorships Name Address and Age Funds Time Served During Last Five Years by Trustee Held by Trustee -------------------- ----------- -------------- ---------------------------------------- ---------- ------------------ Disinterested Trustees (cont.) ------------------------------ Lewis Mandell Trustee Since 1991 Professor of Finance and Managerial 39 Director 160 Jacobs Hall Economics, University at Buffalo since (2000-present), Buffalo, NY 1998. Dean, School of Management Delaware North Age 62 (1998-2001), University at Buffalo; Corp. (hospitality Dean, College of Business business) Administration (1995-1998), Marquette University; Professor of Finance (1980- 1995) and Associate Dean (1993- 1995), School of Business Administration, and Director, Center for Research and Development in Financial Services (1980-1995), University of Connecticut; Member, Board of Managers (1990-present), six Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee (1990-present), five Mutual Funds sponsored by The Travelers Insurance Company.++ Frances M. Hawk, Trustee Since 1991 Private Investor, (1997-present); 39 None CFA, CFP Portfolio Manager (1992-1997), HLM 108 Oxford Hill Lane Management Company, Inc. (investment Downingtown, PA management); Assistant Treasurer, Age 57 Pensions and Benefits. Management (1989-1992), United Technologies Corporation (broad-based designer and manufacturer of high technology products); Member, Board of Managers (1991-present), six Variable Annuity Separate Accounts of The Travelers Insurance Company+; Trustee (1991- present), five Mutual Funds sponsored by The Travelers Insurance Company.++
46 TRUSTEES AND OFFICERS (UNAUDITED) - CONTINUED
Number of Portfolios in Fund Other Public Position(s) Term of Office Complex Company Held with and Length of Principal Occupation Overseen Directorships Name Address and Age Funds Time Served During Last Five Years by Trustee Held by Trustee -------------------- ------------- -------------- ---------------------------------------- ---------- --------------- Officers -------- Paul Cellupica Secretary and Since July Chief Counsel, Securities Products and N/A N/A MetLife, Inc. Chief Legal 2005 Regulation, MetLife, Inc. (2004- One MetLife Plaza Officer present); Vice President and Chief Legal 27-01 Queens Plaza Officer, TAMIC (July 2005-present); North Long Island City, Assistant Director, Division of NY 11101 Investment Management, U.S. Securities Age 41 and Exchange Commission (2001- 2003), Senior Special Counsel, Division of Investment Management, Securities and Exchange Commission (2000- 2001). Peter Duffy Chief Since July Senior Vice President, MetLife Advisers, N/A N/A MetLife Advisers LLC Financial 2005 since December 1998; Senior Vice 501 Boylston Street Officer and President; NELICO; Vice President, Boston, MA 02116 Treasurer MetLife; Vice President, Travelers Asset Age 50 Management International Company LLC and Travelers Investment Adviser, Inc., since 2005; Treasurer and Chief Financial Officer, Metropolitan Series Fund, Inc., since 2000; Treasurer, Chief Financial Officer and Chief Accounting Officer, CitiStreet Funds, Inc., since 2005; formerly, Vice President and Treasurer, Zenith Fund. Jeffrey P . Halperin Interim Since Assistant Vice President, Corporate N/A N/A Metropolitan Life Chief November Ethics and Compliance Department, Insurance Company Compliance 2005 MetLife, Inc. (October 2002-present); One MetLife Plaza Officer Interim Chief Compliance Officer of 27-01 Queens Plaza funds sponsored by MetLife and its North Long Island City, affiliates (November 2005-present); NY 11101 Associate, Goldman Sachs & Co. Age 37 (May 2000-July 2001).
-------- * "Interested person" of the Funds (as that term is defined in the 1940 Act). Ms. Forget is an interested person of the Trust as a result of her affiliation with TAMIC. ** The Fund Complex consists of 29 series of Met Investors Series Trust, six variable annuity separate accounts and five mutual Funds. The six variable annuity accounts and five mutual funds are referenced in the footnote below. + The six Variable Annuity Separate Accounts are: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, Tactical Growth and Income Stock Account for Variable Annuities, Tactical Short-Term Bond Account for Variable Annuities and Tactical Aggressive Stock Account for Variable Annuities. ++ The five Mutual Funds are: CAF, HYBT, MAT, MMP and The Travelers Series Trust. 47 Capital Appreciation Fund, High Yield Bond Trust, Managed Assets Trust, and Money Market Portfolio are each a Massachusetts business trust. This report is prepared for the general information of variable annuity or life contract owners and is not an offer of shares of Capital Appreciation Fund, High Yield Bond Trust, Managed Assets Trust, Money Market Portfolio and is not for use with the general public. All the funds contained in this report may not be available under your variable annuity or life contract. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS SHOULD CONSIDER THE FUNDS' INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the Commission's website at www.sec.gov. The Funds' Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Funds, shareholders can call 1-800-842-9406. Information on how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 and a description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-842-9406 and (2) on the SEC's website at www.sec.gov. 48 CAPITAL APPRECIATION FUND, HIGH YIELD BOND TRUST, MANAGED ASSETS TRUST, AND MONEY MARKET PORTFOLIO TRUSTEES Elizabeth M. Forget* CHAIRPERSON Frances M. Hawk, CFA, CFP Lewis Mandell Robert E. McGill, III OFFICERS* Elizabeth M. Forget PRESIDENT AND CHIEF EXECUTIVE OFFICER Peter H. Duffy CHIEF FINANCIAL OFFICER AND TREASURER Jeffrey Halperin CHIEF COMPLIANCE OFFICER AND CHIEF ANTI-MONEY LAUNDERING COMPLIANCE OFFICER Paul G. Cellupica SECRETARY Jack P. Huntington ASSISTANT SECRETARY * As of July 1, 2005 INVESTMENT MANAGER* AND ADVISERS Travelers Asset Management International Company LLC ADMINISTRATOR Travelers Insurance Company SUB-ADMINISTRATOR AND CUSTODIAN* State Street Bank and Trust Company TRANSFER AGENT* PFPC Inc. 49 ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party (the "Code of Ethics"). During the period covered by this report, no amendments were made to the provisions of the Code of Ethics, nor did the registrant grant any waivers, including any implicit waivers, from any provision of the Code of Ethics. The Code of Ethics is attached hereto as Exhibit 12(a)(1). ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Trustees has determined that Mr. Robert E. McGill, a member of the Board's Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert," and has designated Mr. McGill as the Audit Committee's financial expert. Mr. McGill is an "independent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Information provided in response to Item 4 includes amounts billed during the applicable time period for services rendered by Deloitte & Touche LLP ("D&T"), the registrant's principal accountant. KPMG LLP ("KPMG") was the registrant's principal accountant for the fiscal year ended December 31, 2004. Information provided in response to Item 4 for the fiscal year ended December 31, 2004 reflects amounts billed by KPMG. (a) Audit Fees The aggregate fees billed for professional services rendered by the principal accountant to the registrant for the audit of the registrant's annual financial statements and for services normally provided by the accountant in connection with statutory and regulatory filings or engagements were $25,000 for services rendered by KPMG for the fiscal year ended December 31, 2004 and $24,000 for services rendered by D&T for the fiscal year ended December 31, 2005. (b) Audit Related Fees The registrant was not billed any fees by KPMG for the fiscal year ended December 31, 2004, for assurance and related services that were reasonably related to the performance of the audit of the registrant's financial statements. The registrant was not billed any fees by D&T for the fiscal year ended December 31, 2005 for assurance and related services that were reasonably related to the performance of the audit of the registrant's financial statements. During the fiscal year ended December 31, 2004, no fees for assurance and related services that relate directly to the operations and financial reporting of the registrant were billed by KPMG to the registrant's investment adviser or any other entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. During the fiscal year ended December 31, 2005, no fees for assurance and related services that relate directly to the operations and financial reporting of the registrant were billed by D&T to the registrant's investment adviser or any other entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. (c) Tax Fees The aggregate fees billed for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice, tax planning and tax return preparation which include (the filing and amendment of federal, state and local income tax returns, timely RIC qualification review and tax distribution and analysis planning) were $2,100 for services rendered by KPMG for the fiscal year ended December 31, 2004 and $3,250 for services rendered by D&T for the fiscal year ended December 31, 2005. During the fiscal year ended December 31, 2004, no fees for tax compliance, tax advice or tax planning services that relate directly to the operations and financial reporting of the registrant were billed by KPMG to the registrant's investment adviser or any other entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. During the fiscal year ended December 31, 2005, no fees for tax compliance, tax advice or tax planning services that relate directly to the operations and financial reporting of the registrant were billed by D&T to the registrant's investment adviser or any other entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. (d) All Other Fees The registrant was not billed for any other products or services provided by D&T for the fiscal year ended December 31, 2005 or KPMG for the fiscal year ended December 31, 2004, other than the services reported in paragraphs (a) through (c) above. During the fiscal year ended December 31, 2004, no fees for other services that relate directly to the operations and financial reporting of the registrant were billed by KPMG to the registrant's investment adviser or any other entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. During the fiscal year ended December 31, 2005, no fees for other services that relate directly to the operations and financial reporting of the registrant were billed by D&T to the registrant's investment adviser or any other entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. (e) Pre-Approval Policies and Procedures ____________________________________ (1) The Audit Committee's pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X are set forth below. The Charter for the Audit Committee (the "Committee") of the Board of the registrant requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the registrant and (b) all permissible non-audit services to be provided by the registrant's independent auditors to the advisers and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the registrant. The Committee may implement policies and procedures by which such services are approved other than by the full Committee. The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of the Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the registrant by the independent auditors, other than those provided to the registrant in connection with an audit or a review of the financial statements of the registrant. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the registrant; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible. Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the registrant, the advisers and any service providers controlling, controlled by or under common control with the advisers that provide ongoing services to the registrant ("Covered Service Providers") constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the registrant, (b) the advisers and (c) any entity controlling, controlled by or under common control with the advisers that provides ongoing services to the registrant during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the registrant at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. (2) None of the services described under the categories, "Audit-Related Fees," "Tax Fees" or "All Other Fees," were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) Fees billed by KMPG for services rendered to the registrant and the registrant's investment advisers and any entity controlling, controlled by, or under common control with the investment advisers that provide ongoing services to the registrant were $75,000 for the fiscal year ended December 31, 2004. These fees were paid by Citigroup Global Markets, Inc. and related to the transfer agent matter as fully described in the notes to the financial statements titled "additional information" for the fiscal year ended December 31, 2004. The registrant and the registrant's investment advisers or any other entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were not billed for any aggregate non-audit fees by D&T for the fiscal year ended December 31, 2005. (h) The registrant's Audit Committee has considered whether the provision of non-audit services that were rendered to service affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining KMPG's or D&T's independence. All services provided by KMPG or D&T to the registrant or to service affiliates which were required to be pre-approved were pre-approved as required. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Schedule of Investments is included as a part of the report to shareholders filed under Item 1 of this Form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant does not have procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. ITEM 11. CONTROLS AND PROCEDURES. (a) Within 90 days of the filing date of this Form N-CSR, Elizabeth M. Forget, the registrant's President and Peter Duffy, the registrant's Chief Financial Officer and Treasurer, reviewed the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) (the "Procedures") and evaluated their effectiveness. Based on their review, Ms. Forget and Mr. Duffy determined that the Procedures adequately ensure that information required to be disclosed by the registrant on Form N-CSR and Form N-Q is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission. (b) There were no significant changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS (a)(1) Code of Ethics is attached hereto. (a)(2) The certifications required by Rule 30a-2(a) of the 1940 Act are attached hereto. (a)(3) Not applicable. (b) The certifications required by Rule 30a-2(b) of the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MANAGED ASSETS TRUST By: /s/ Elizabeth M. Forget ------------------------ Elizabeth M. Forget President Date: February 24, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Elizabeth M. Forget ------------------------ Elizabeth M. Forget President Date: February 24, 2006 By: /s/ Peter Duffy ------------------------ Peter Duffy Chief Financial Officer and Treasurer Date: February 24, 2006