-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OJpsevryecl4NEdX9ZPrtOhRzNf+4+XH3akuBt4QUZaZtCORL5z8XTt/BivUJ+He ZWV90y1Z4ItfvR/bWfPufA== 0000950123-05-002877.txt : 20050309 0000950123-05-002877.hdr.sgml : 20050309 20050309173000 ACCESSION NUMBER: 0000950123-05-002877 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050309 DATE AS OF CHANGE: 20050309 EFFECTIVENESS DATE: 20050309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS SERIES TRUST CENTRAL INDEX KEY: 0000880583 IRS NUMBER: 061346133 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06465 FILM NUMBER: 05670255 BUSINESS ADDRESS: STREET 1: CITIGROUP ASSET MANAGEMENT STREET 2: 125 BROAD STREET, 10TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10004 BUSINESS PHONE: 212-291-2556 MAIL ADDRESS: STREET 1: CITIGROUP ASSET MANAGEMENT STREET 2: 125 BROAD STREET, 10TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10004 N-CSR 1 y05012nvcsr.txt 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 811-6465 THE TRAVELERS SERIES TRUST (Exact name of registrant as specified in charter) 125 Broad Street, New York, NY 10004 (Address of principal executive offices) (Zip code) Robert I. Frenkel, Esq. Smith Barney Fund Management LLC 300 First Stamford Place Stamford, CT 06902 (Name and address of agent for service) Registrant's telephone number, including area code: (800) 451-2010 Date of fiscal year end: DECEMBER 31 Date of reporting period: DECEMBER 31, 2004 ITEM 1. REPORT TO STOCKHOLDERS. The Annual Report to Stockholders is filed herewith. 1 of 18 ANNUAL REPORT DECEMBER 31, 2004 [UMBRELLA GRAPHIC] THE TRAVELERS SERIES TRUST: CONVERTIBLE SECURITIES PORTFOLIO MFS MID CAP GROWTH PORTFOLIO MERRILL LYNCH LARGE CAP CORE PORTFOLIO [TRAVELERS LIFE AND ANNUITY LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Cityplace Hartford, CT 06103 ANNUAL REPORT FOR THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WHAT'S INSIDE LETTER FROM THE CHAIRMAN.................................... 1 CONVERTIBLE SECURITIES PORTFOLIO: MANAGER OVERVIEW.......................................... 3 FUND AT A GLANCE.......................................... 5 PERFORMANCE COMPARISON.................................... 6 MFS MID CAP GROWTH PORTFOLIO: MANAGER OVERVIEW.......................................... 7 FUND AT A GLANCE.......................................... 9 PERFORMANCE COMPARISON.................................... 10 MERRILL LYNCH LARGE CAP CORE PORTFOLIO: MANAGER OVERVIEW.......................................... 11 FUND AT A GLANCE.......................................... 13 PERFORMANCE COMPARISON.................................... 14 FUND EXPENSES............................................... 15 SCHEDULES OF INVESTMENTS.................................... 17 STATEMENTS OF ASSETS AND LIABILITIES........................ 32 STATEMENTS OF OPERATIONS.................................... 33 STATEMENTS OF CHANGES IN NET ASSETS......................... 34 FINANCIAL HIGHLIGHTS........................................ 37 NOTES TO FINANCIAL STATEMENTS............................... 40 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 46 ADDITIONAL INFORMATION...................................... 47 IMPORTANT TAX INFORMATION................................... 50
- -------------------------------------------------------------------------------- LETTER FROM THE CHAIRMAN [R. JAY GERKEN PHOTO] R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer DEAR SHAREHOLDER, Despite sharply rising oil prices, threats of terrorism, geopolitical concerns and uncertainties surrounding the presidential election, the U.S. economy continued to expand during the reporting period. Following a robust 4.5% gain in the first quarter of 2004, gross domestic product ("GDP")(i) growth was 3.3% in the second quarter of the year. This decline was largely attributed to higher energy prices. However, third quarter 2004 GDP growth rose a strong 4.0%. While fourth quarter GDP figures have not yet been released, continued growth is expected. Turning to the financial markets, stocks in both the U.S. and abroad rallied sharply during the fourth quarter of 2004, helping to produce solid gains for the year. With the uncertainty of the presidential election behind them, coupled with falling oil prices, investors were drawn to the equity markets. The overall bond market also generated positive returns during the fiscal year. This was surprising to many, given the economic expansion and five interest rate hikes by the Federal Reserve Board ("Fed").(ii) At the end of the fund's reporting period, at their February meeting, the Fed once again raised the target rate by 0.25% to 2.50%. Within this environment, the portfolios performed as follows: PERFORMANCE SNAPSHOT AS OF DECEMBER 31, 2004 (UNAUDITED)
6 MONTHS 12 MONTHS Convertible Securities Portfolio 3.99% 6.29% Merrill Lynch Investment Grade Convertible Bond Index 3.76% 4.69% Lipper Variable Specialty/Miscellaneous Funds Category Average 5.34% 7.82% MFS Mid Cap Growth Portfolio 5.65% 14.10% Russell MidCap Growth Index 9.01% 15.48% Russell 2000 Index 10.83% 18.33% Lipper Variable Mid-Cap Growth Funds Category Average 8.33% 14.75% Merrill Lynch Large Cap Core Portfolio 9.70% 15.89% Russell 1000 Index 7.81% 11.40% Lipper Variable Large-Cap Core Funds Category Average 6.18% 8.59%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN ABOVE. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE AND INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE FIGURES MAY REFLECT REIMBURSEMENTS AND/OR FEE WAIVERS, WITHOUT WHICH THE PERFORMANCE WOULD HAVE BEEN LOWER. FUND RETURNS ASSUME THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE AND THE DEDUCTION OF FUND EXPENSES. Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2004 and include the reinvestment of dividends and capital gains, if any. Returns were calculated among the 136 funds for the six-month period and among the 136 funds for the 12-month period in the variable specialty/miscellaneous funds category. Returns were calculated among the 127 funds for the six-month period and among the 127 funds for the 12-month period in the variable mid-cap growth funds category. Returns were calculated among the 216 funds for the six-month period and among the 216 funds for the 12-month period in the variable large-cap core funds category. Please read on for a more detailed look at prevailing economic and market conditions during the funds' fiscal year and to learn how those conditions have affected fund performance. 1 INFORMATION ABOUT YOUR FUND As you may be aware, several issues in the mutual fund and variable product industry have recently come under the scrutiny of federal and state regulators. Travelers Life & Annuity and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees, revenue sharing, producer compensation and other mutual fund and variable product issues in connection with various investigations. The funds have been informed that Traveler's Life & Annuity and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations. As previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup Asset Management ("CAM") and Citicorp Trust Bank ("CTB"), an affiliate of CAM, that the Staff is considering recommending a civil injunctive action and/or an administrative proceeding against CAM, CTB, the former CEO of CAM, two former employees and a current employee of CAM, relating to the creation, operation and fees of an internal transfer agent unit that serves various CAM-managed funds. Citigroup is cooperating with the SEC and will seek to resolve this matter in discussion with the SEC Staff. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. For further information, please see the "Additional Information" note in the Notes to the Financial Statements included in this report. As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals. Sincerely, /s/ R. Jay Gerken R. Jay Gerken, CFA Chairman, President, and Chief Executive Officer February 3, 2005 i Gross domestic product is a market value of goods and services produced by labor and property in a given country. ii The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. 2 - -------------------------------------------------------------------------------- MANAGER OVERVIEW CONVERTIBLE SECURITIES PORTFOLIO SPECIAL SHAREHOLDER NOTICE Effective November 1, 2004, Robert Simmons replaced David A. Tyson as Portfolio Manager of the Convertible Securities Portfolio. PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Convertible Securities Portfolio returned 6.29%. In comparison, the portfolio's unmanaged benchmark, the Merrill Lynch Investment Grade Convertible Bond Index(i), returned 4.69% and the Lipper Variable Specialty/Miscellaneous Funds Category Average(2) was 7.82% for the same period. MARKET/ECONOMIC OVERVIEW For the year as a whole, convertibles generated solid investment results with investors, driving the market higher during the fourth quarter. This reversed a negative trend over the prior two quarters, as economic data was mixed and interest rates rose. While the convertibles market participated in the year's late rally, it underperformed the overall stock market, as measured by the S&P 500 Index(ii) which returned 10.87% during this period, and for the entire year. CONTRIBUTORS TO PERFORMANCE The portfolio's bias towards investment grade companies served to hold back its performance during the fiscal year, as speculative grade issues returned roughly two-and-a-half times as much as investment grade convertibles. However, the portfolio did benefit from the rise in equity valuations during 2004, as well as significant spread tightening in the corporate markets. TYCO INTERNATIONAL GROUP, S.A. was the portfolio's top-performing convertible security during the fiscal year. This global diversified manufacturing and service company benefited as the economic recovery gained momentum in 2004. Tyco also experienced many positive developments during the year, including rating agency upgrades, as well as significant balance sheet, revenue, earnings, and cash flow improvement. These factors helped the convertible to return 25.1% in 2004. Examples of other fund holdings that were strong performers were FOUR SEASONS HOTELS INC., ANIXTER INTERNATIONAL INC., TRIBUNE CO., and ROYAL CARIBBEAN CRUISES LTD. The worst performing sectors in the index during the reporting period were in the transportation and consumer staples sectors. We had no transportation exposure in the portfolio and were significantly underweighted in consumer staples versus the overall convertible bond universe. Our worst performing convertible during the fiscal year was issued by GENERAL MOTORS CORP. This convertible security was pressured as the company lost market share, had its ratings lowered by credit agencies, and seemed to become "addicted" to sales incentives, which significantly hurt the firm's profitability. Investors also became increasingly concerned that the company would soon see its credit ratings lowered to below investment grade, or "junk" status, as a result of its high legacy costs (i.e., pensions) relative to its foreign competitors. Thank you for your investment in the Convertible Securities Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ Robert Simmons Robert Simmons Travelers Asset Management International, LLC. January 20, 2005 (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and variable life contracts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 136 funds in the fund's Lipper category, and excluding sales charges. 3 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: American International Group Inc., (3.8%), Diamond Offshore Drilling Inc. (3.7%), The Walt Disney Co. (3.6%), News America Inc. (3.2%), Liberty Media Corp. (3.2%), Lincare Holdings Inc. (3.2%), Nabors Industries Inc. (3.1%), Tyco International Group, S.A. (3.1%), General Motors Corp. (2.9%) and Washington Mutual Inc. (2.8%). Please refer to pages 17 through 20 for a list and percentage breakdown of the fund's holdings. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Media (14.8%); Oil & Gas (13.1%); Telecommunications (7.7%); Healthcare (6.9%) and Insurance (6.5%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. i The Merrill Lynch Investment Grade Convertible Bond Index is an index comprised of convertible bonds rated investment grade. ii The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. 4 - -------------------------------------------------------------------------------- FUND AT A GLANCE -- CONVERTIBLE SECURITIES PORTFOLIO (UNAUDITED) INVESTMENT BREAKDOWN AS A PERCENT OF TOTAL INVESTMENTS [BAR GRAPH]
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Media 14.8 12 Oil and Gas 13.2 9 Repurchase Agreement 9.4 11.1 Telecommunications 7.7 7.4 Healthcare 6.9 5.1 Insurance 6.6 3.3 Auto Manufacturers 5.3 6.5 Pharmaceuticals 4.6 5.4 Manufacturing 4.1 4.8 Leisure Time 4.1 6 Savings and Loans 2.8 3.1 Electronics 2.7 2.2 Computers 2.6 2.6 Housewares 2.4 2.6 Auto Parts and Equipment 2.4 2.6 Electric 2.1 1.8 Other 8.3 14.5
5 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- CONVERTIBLE SECURITIES PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------- Twelve Months Ended 12/31/04 6.29% Five Years Ended 12/31/04 6.85 5/1/98* through 12/31/04 7.99 CUMULATIVE TOTAL RETURN ----------------------- 5/1/98* through 12/31/04 66.95% * Commencement of operations.
This chart assumes an initial investment of $10,000 made at inception on May 1, 1998, assuming reinvestment of dividends, through December 31, 2004. The Merrill Lynch Investment Grade Convertible Bond Index is comprised of 115 investment-grade convertible bond issues. The Index excludes those issues that have mandatory conversion features. (Investment-grade bonds are those rated in one of the four highest rating categories by any nationally recognized statistical rating organization.) [LINE GRAPH]
MERRILL LYNCH INVESTMENT GRADE CONVERTIBLE SECURITIES PORTFOLIO CONVERTIBLE BOND INDEX -------------------------------- ------------------------------ 5/1/98 10000.00 10000.00 12/98 10098.00 10387.00 12/99 11987.00 11594.00 12/00 13486.00 13392.00 12/01 13376.00 13375.00 12/02 12440.00 12655.00 12/03 15707.00 14111.00 12/04 16695.00 14773.00
- -------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gain distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of fee voluntary waivers and/or expense reimbursements, the total return would have been lower. 6 - -------------------------------------------------------------------------------- MANAGER OVERVIEW MFS MID CAP GROWTH PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the MFS Mid Cap Growth Portfolio returned 14.10%. The portfolio underperformed its unmanaged benchmark, the Russell MidCap Growth Index(i), and the Russell 2000 Index(ii), a secondary benchmark, which returned 15.48% and 18.33%, respectively, for the same period. The Lipper Variable Mid-Cap Growth Funds Category Average was 14.75% for the same period. MARKET/ECONOMIC OVERVIEW For stock investors, 2004 was a bumpy ride with a smooth finish. In the end, improving fundamental factors, such as corporate spending and earnings growth, triumphed and drove equity markets to solid gains for the year. During the 12-month reporting period, investors endured skyrocketing oil prices, rising short-term interest rates, a volatile and retreating U.S. dollar, record budget and trade deficits, and war in Iraq. For some time it seemed these factors would lead to flat or negative annual performance for many investments. But by the last quarter of 2004, oil prices retreated, investors seemed to adopt a less negative view of other broad economic issues and markets appeared to recognize that both corporate profits and economic growth were up solidly, if not spectacularly, for the year. We believed that as the year came to a close, the global economy was still in the midst of a sustainable broad-based recovery. CONTRIBUTORS TO PERFORMANCE During the fiscal year, the fund's holdings in the healthcare, utilities and communications, and special products and services sectors generated the strongest relative returns. Conversely, its leisure, consumer staples and industrial goods and services holdings detracted from relative results. In the healthcare sector, the fund's holding in medical testing company CYTYC CORP. was one of its strongest relative performers. Medical device firm C.R. BARD, INC. was also a top contributor to results. In the telecommunication services sector, an overweight position and strong stock selection both aided relative results. The strongest performers in this sector were cellular tower operators AMERICAN TOWER CORP., CLASS A SHARES and SPECTRASITE, INC. Stock selection in the industrial sector boosted returns, thanks in part to the fund's holding in Internet job search firm MONSTER WORLDWIDE, INC. Strong relative contributors in other sectors included computer security firm MCAFEE, INC., vacation company ROYAL CARIBBEAN CRUISES LTD., multimedia software developer COMVERSE TECHNOLOGY, INC. and semiconductor firm MARVELL TECHNOLOGY GROUP LTD. Conversely, in the consumer discretionary sector, stock selection detracted from relative performance. In particular, the fund's positions in CITADEL BROADCASTING CO. and radio conglomerate WESTWOOD ONE, INC. were the largest detractors from results. Stock selection in the consumer staples sector was also detrimental to returns. The largest detractor in the sector was Canadian frozen dessert purveyor COOLBRANDS INTERNATIONAL INC., whose stock fell sharply during the period. As of period-end, Coolbrands was no longer held in the portfolio. In the industrials sector, being relatively underweighted and, to some extent, negative stock selection held back relative returns. Other stocks that hurt relative results included post-secondary education company CORINTHIAN COLLEGES INC., semiconductor company PMC-SIERRA, INC., Linux operating system provider RED HAT, INC., and jewelry retailer TIFFANY & CO. Corinthian Colleges was subsequently eliminated from the portfolio. (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and variable life contracts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 127 funds in the fund's Lipper category, and excluding sales charges. 7 Thank you for your investment in the MFS Mid Cap Growth Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ ERIC B. FISCHMAN Eric B. Fischman Massachusetts Financial Services /s/ DAVID E. SETTE-DUCATI David E. Sette-Ducati Massachusetts Financial Services /s/ CAMILLE H. LEE Camille H. Lee Massachusetts Financial Services January 20, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: Cytyc Corp. (2.5%), Getty Images, Inc. (2.2%), Legg Mason, Inc. (2.1%), Genzyme Corp. (2.0%), Citadel Broadcasting Co. (2.0%), Medicis Pharmaceutical Corp. (1.9%), Waters Corp. (1.9%), Comverse Technology, Inc. (1.7%), Amdocs Ltd. (1.7%) and American Tower Corp. (1.7%). Please refer to pages 21 through 25 for a list and percentage breakdown of the fund's holdings. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Information Technology (27.7%); Healthcare (23.5%); Consumer Discretionary (21.2%); Industrials (11.4%) and Telecommunications Services (5.4%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The Russell MidCap Growth Index measures the performance of those Russell MidCap companies with higher price-to-book ratios and higher forecasted growth values. (A price-to-book ratio is the price of a stock compared to the difference between a company's assets and liabilities.) (ii) The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. 8 - -------------------------------------------------------------------------------- FUND AT A GLANCE -- MFS MID CAP GROWTH PORTFOLIO (UNAUDITED) INVESTMENT BREAKDOWN AS A PERCENT OF TOTAL INVESTMENTS [BAR GRAPH]
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Information Technology 27.7 25.5 Healthcare 23.5 26.1 Consumer Discretionary 21.1 18.8 Industrials 11.3 12.4 Telecommunication Services 5.4 6.6 Financials 4.4 4.5 Short-Term Investment 2.8 2.4 Energy 2.7 1.9 Materials 1.1 0.8 Consumer Staple 0 1
9 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MFS MID CAP GROWTH PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ------------------------------------------- Twelve Months Ended 12/31/04 14.10% Five Years Ended 12/31/04 (7.75) 3/23/98* through 12/31/04 1.44 CUMULATIVE TOTAL RETURN ----------------------- 3/23/98* through 12/31/04 10.21% * Commencement of operations.
This chart assumes an initial investment of $10,000 made at inception on March 23, 1998, assuming reinvestment of dividends, through December 31, 2004. The Russell MidCap Growth Index measures the Mid Cap companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. [Line Graph]
MFS MID CAP GROWTH RUSSELL MIDCAP GROWTH PORTFOLIO INDEX RUSSELL 2000 INDEX ------------------ --------------------- ------------------ 3/23/98 10000 10000 10000 12/98 10050 9935 8981 12/99 16499 11747 10891 12/00 18031 12716 10562 12/01 13772 10154 10824 12/02 7048 7372 8607 12/03 9659 10520 12674 12/04 11021 12149 14997
- -------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of fee voluntary waivers and/or expense reimbursements, the total return would have been lower. 10 - -------------------------------------------------------------------------------- MANAGER OVERVIEW MERRILL LYNCH LARGE CAP CORE PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Merrill Lynch Large Cap Core Portfolio returned 15.89%. The portfolio outperformed its unmanaged benchmark, the Russell 1000 Index(i), which returned 11.40% for the same period. It also outperformed the Lipper Variable Large-Cap Core Funds Category Average(2), which was 8.59%. MARKET/ECONOMIC OVERVIEW Thanks to a late year rally, prompted by the lifting of the uncertainty surrounding the presidential election and falling oil prices, U.S. equities produced solid results in 2004. Virtually all of the market's gains for the year occurred in the fourth quarter. CONTRIBUTORS TO PERFORMANCE The portfolio's outperformance during the year came from positive stock selection in the healthcare (especially managed care), consumer discretionary, utilities, and materials (especially steel) sectors. From an individual stock perspective, the largest positive contributors to results included TXU CORP., AUTODESK, INC., UNITED STATES STEEL CORP., SPRINT CORP., CUMMINS INC., VALERO ENERGY CORP., MANDALAY RESORT GROUP, and PACIFICARE HEALTH SYSTEMS, INC. An underweight position versus the benchmark in INTEL CORP. also enhanced relative results, as its shares were weak during the year. This positive performance was partially offset by declines in fund holdings: FOUNDRY NETWORKS INC., ATMEL CORP., CYPRESS SEMICONDUCTOR CORP. and AMKOR TECHNOLOGY INC., as well as being underweighted in IMCLONE SYSTEMS INC. During the year, we increased the fund's weighting in the energy, industrials and utilities sectors. Our largest purchases during the year were ADVANCED MICRO DEVICES, INC., METLIFE, INC., JOHNSON & JOHNSON, and CHEVRONTEXACO CORP. Conversely, our largest sales included LEHMAN BROTHERS HOLDINGS INC., ALTRIA GROUP INC., CISCO SYSTEMS, INC., and QUALCOMM INC. In managing the portfolio, we continue to emphasize a pro-cyclical approach to the economy believing that, for now, economic and earnings growth will be reasonably strong. Accordingly, the portfolio's largest overweighted sectors include information technology, consumer discretionary, energy and materials. Our largest underweight positions are in telecommunications, consumer staples, and financial services. Thank you for your investment in the Merrill Lynch Large Cap Core Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ ROBERT C. DOLL, JR. Robert C. Doll, Jr. Merrill Lynch Investment Managers, L.P. January 20, 2005 (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and variable life contracts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 216 funds in the fund's Lipper category, and excluding sales charges. 11 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: Pfizer, Inc. (2.7%), Johnson & Johnson (2.6%), General Electric Co. (2.2%), ChevronTexaco Corp. (1.9%), Dell Inc. (1.9%), Exxon Mobil Corp. (1.8%), The Home Depot, Inc. (1.8%), ConocoPhillips (1.5%). Hewlett Packard Co. (1.5%), and Oracle Corp. (1.5%). Please refer to pages 26 through 30 for a list and percentage breakdown of the fund's holdings. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Information Technology (23.0%); Consumer Discretionary (20.2%); Energy (13.7%); Healthcare (11.7%); and Financials (11.6%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. 12 - -------------------------------------------------------------------------------- FUND AT A GLANCE -- MERRILL LYNCH LARGE CAP CORE PORTFOLIO (UNAUDITED) INVESTMENT BREAKDOWN AS A PERCENT OF TOTAL INVESTMENTS [BAR GRAPH]
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Information Technology 23.00 22.00 Consumer Discretionary 20.20 21.60 Energy 13.70 10.70 Healthcare 11.70 11.60 Financials 11.70 12.20 Industrials 9.40 7.80 Materials 4.70 5.30 Utilities 3.30 2.20 Consumer Staples 2.30 4.60 Telecommunication Services 0.00 1.20 Repurchase Agreement 0.00 0.80
13 - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MERRILL LYNCH LARGE CAP CORE PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ------------------------------------------ Twelve Months Ended 12/31/04 15.89% Five Years Ended 12/31/04 (5.10) 3/23/98* through 12/31/04 (0.10) CUMULATIVE TOTAL RETURN ----------------------- 3/23/98* through 12/31/04 0.67% * Commencement of operations.
This chart assumes an initial investment of $10,000 made at inception on March 23, 1998, assuming reinvestment of dividends, through December 31, 2004. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. (PERFORMANCE GRAPH)
MERRILL LYNCH LARGE CAP CORE PORTFOLIO RUSSELL 1000 INDEX ---------------------------- ------------------ 3/23/98 10000.00 10000.00 12/98 10577.00 11204.00 12/99 13080.00 13547.00 12/00 12351.00 12491.00 12/01 9578.00 10936.00 12/02 7170.00 8569.00 12/03 8687.00 11130.00 12/04 10067.00 12399.00
- -------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gains, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more than or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 14 - -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) EXAMPLE As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. This example is based on an investment of $1,000 invested on July 1, 2004 and held for the six months ended December 31, 2004. ACTUAL EXPENSES The table below titled "Based on Actual Total Return" provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During the Period". - -------------------------------------------------------------------------------- BASED ON ACTUAL TOTAL RETURN(1)
EXPENSES BEGINNING ENDING ANNUALIZED PAID ACTUAL TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE RETURN(2) VALUE VALUE RATIO PERIOD(3) - ------------------------------------------------------------------------------------------------------------------ Convertible Securities Portfolio 3.99% $1,000.00 $1,039.90 0.73% $3.74 MFS Mid Cap Growth Portfolio 5.65 1,000.00 1,056.50 0.89 4.60 Merrill Lynch Large Cap Core Portfolio 9.70 1,000.00 1,097.00 0.89 4.69 - ------------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (3) Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. 15 - -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- BASED ON HYPOTHETICAL TOTAL RETURN(1)
EXPENSES HYPOTHETICAL BEGINNING ENDING ANNUALIZED PAID TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE RETURN VALUE VALUE RATIO PERIOD(2) - ----------------------------------------------------------------------------------------------------------------- Convertible Securities Portfolio.............. 5.00% $1,000.00 $1,021.47 0.73% $3.71 MFS Mid Cap Growth Portfolio.................. 5.00 1,000.00 1,020.66 0.89 4.52 Merrill Lynch Large Cap Core Portfolio........ 5.00 1,000.00 1,020.66 0.89 4.52 - -----------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. 16 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2004 CONVERTIBLE SECURITIES PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK -- 15.8% - --------------------------------------------------------------------------------------------------- AUTO MANUFACTURERS -- 5.3% 50,000 Ford Motor Co. Capital Trust II, 6.500%..................... $ 2,639,500 General Motors Corp.: 68,000 5.250%.................................................... 1,568,760 60,000 6.250%.................................................... 1,599,600 - --------------------------------------------------------------------------------------------------- 5,807,860 - --------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES -- 0.3% 3,150 Calenergy Capital Trust II, 6.250%.......................... 156,712 3,070 Calenergy Capital Trust III, 6.500%......................... 142,371 - --------------------------------------------------------------------------------------------------- 299,083 - --------------------------------------------------------------------------------------------------- HOUSEWARES -- 2.4% 56,000 Newell Financial Trust I, 5.250%............................ 2,639,000 - --------------------------------------------------------------------------------------------------- MEDIA -- 2.8% 33,250 Tribune Co., 2.000%......................................... 3,020,763 - --------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 0.4% 8,000 Omnicare, Inc., 4.000%...................................... 441,280 - --------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST -- 1.8% 39,515 Equity Office Properties Trust, 5.250%...................... 2,029,490 - --------------------------------------------------------------------------------------------------- SAVINGS & LOANS -- 2.8% 25,000 Washington Mutual Capital Trust I, 5.375% (a)............... 1,409,900 30,000 Washington Mutual Inc., 5.375%.............................. 1,672,500 - --------------------------------------------------------------------------------------------------- 3,082,400 - --------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 0.0% 6,000 Loral Space & Communications Ltd., 6.000% (a)(b)............ 1,860 - --------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost -- $16,270,438)..... 17,321,736 - ---------------------------------------------------------------------------------------------------
FACE AMOUNT RATING(C) - --------------------------------------------------------------------------------------------------- CONVERTIBLE BONDS AND NOTES -- 74.5% - --------------------------------------------------------------------------------------------------- AUTO PARTS & EQUIPMENT -- 2.4% $ 75,000 BBB American Axle & Manufacturing Inc., 2.000% due 2/15/24 (a)(d).................................................... 68,625 50,000 B- The Goodyear Tire & Rubber Co., 4.000% due 6/15/34 (a)...... 72,250 4,760,000 BBB- Lear Corp., zero coupon to yield 3.180% due 2/20/22......... 2,481,150 - --------------------------------------------------------------------------------------------------- 2,622,025 - --------------------------------------------------------------------------------------------------- BIOTECHNOLOGY -- 1.0% 600,000 NR Invitrogen Corp., 1.50% due 2/15/24......................... 565,500 550,000 NR Nektar Therapeutics, 3.500% due 10/17/07.................... 536,938 - --------------------------------------------------------------------------------------------------- 1,102,438 - ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 17 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 CONVERTIBLE SECURITIES PORTFOLIO
FACE AMOUNT RATING(C) - --------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 1.3% $ 923,000 BB- BearingPoint Inc. 2.500% due 12/15/24 (a)................... $ 974,919 462,000 BB- BearingPoint Inc. 2.750% due 12/15/24 (a)................... 489,720 - --------------------------------------------------------------------------------------------------- 1,464,639 - --------------------------------------------------------------------------------------------------- COMPUTERS -- 2.6% 150,000 NR Ciber Inc., 2.875% due 12/15/23 (a)......................... 155,812 500,000 NR DST Systems, Inc., 4.125% due 8/15/23 (a)................... 653,750 1,916,000 BBB- Electronic Data Systems Corp., 3.875% due 7/15/23........... 2,033,355 - --------------------------------------------------------------------------------------------------- 2,842,917 - --------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES -- 0.1% 50,000 B Providian Financial Corp., 4.000% due 5/15/08............... 70,187 - --------------------------------------------------------------------------------------------------- ELECTRIC -- 2.1% 900,000 BBB- CenterPoint Energy, Inc., 3.750% due 5/15/23 (a)............ 1,033,875 826,000 B+ CMS Energy Corp., 2.875% due 12/1/24........................ 832,195 350,000 BBB PPL Energy Supply LLC, 2.625% due 5/15/23 (a)............... 394,188 - --------------------------------------------------------------------------------------------------- 2,260,258 - --------------------------------------------------------------------------------------------------- ELECTRONICS -- 2.7% 799,000 B Agere Systems Inc., 6.500% due 12/15/09..................... 848,938 800,000 BB Agilent Technologies Inc., 3.000% due 12/1/21 (d)........... 811,000 2,400,000 BBB- Arrow Electronics Inc., zero coupon to yield 4.211% due 2/21/21................................................... 1,293,000 - --------------------------------------------------------------------------------------------------- 2,952,938 - --------------------------------------------------------------------------------------------------- HEALTHCARE -- 6.9% Health Management Associates, Inc.: 1,400,000 BBB+ 1.500% due 8/1/23......................................... 1,473,500 1,200,000 BBB+ 1.500% due 8/1/23 (a)..................................... 1,263,000 3,254,000 NR Lincare Holdings Inc., 3.000% due 6/15/33................... 3,493,983 Universal Health Services, Inc.: 1,700,000 BBB 0.426% due 6/23/20........................................ 988,125 450,000 BBB 0.426% due 6/23/20 (a).................................... 261,563 - --------------------------------------------------------------------------------------------------- 7,480,171 - --------------------------------------------------------------------------------------------------- HOME BUILDERS -- 1.3% 1,175,000 Ba1* Beazer Homes USA, Inc., 4.625% due 6/15/24 (a).............. 1,465,812 - --------------------------------------------------------------------------------------------------- INSURANCE -- 6.5% 6,250,000 AAA American International Group, Inc., zero coupon to yield 1.937% due 11/09/31....................................... 4,164,062 3,000,000 A- Loews Corp., 3.125% due 09/15/07............................ 2,962,500 - --------------------------------------------------------------------------------------------------- 7,126,562 - --------------------------------------------------------------------------------------------------- LEISURE TIME -- 4.1% 1,325,000 BBB- Four Seasons Hotels Inc., 1.875% due 7/30/24................ 1,700,969 1,270,000 B+ Host Marriott L.P., 3.250% due 3/15/24 (a).................. 1,466,850 1,950,000 BB+ Royal Caribbean Cruises Ltd., zero coupon to yield 4.875% due 2/2/21................................................ 1,255,312 - --------------------------------------------------------------------------------------------------- 4,423,131 - ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 18 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 CONVERTIBLE SECURITIES PORTFOLIO
FACE AMOUNT RATING(C) - --------------------------------------------------------------------------------------------------- MANUFACTURING -- 4.1% $ 1,800,000 BB+ SPX Corp., zero coupon to yield 3.007% due 2/6/21........... $ 1,152,000 Tyco International Group, S.A.: 300,000 BBB 2.750% due 1/15/18 (a).................................... 477,000 1,700,000 BBB 3.125% due 1/15/23 (a).................................... 2,864,500 - --------------------------------------------------------------------------------------------------- 4,493,500 - --------------------------------------------------------------------------------------------------- MEDIA -- 12.0% 1,000,000 NR Adelphia Communications Corp., 6.000% due 2/15/06 (e)....... 220,000 843,000 CCC- Charter Communications Inc., 4.750% due 6/1/06.............. 847,215 Liberty Media Corp.: 175,000 BBB- 0.750% due 3/30/23........................................ 211,531 500,000 BBB- 0.750% due 3/30/23 (a).................................... 604,375 2,100,000 BBB- 4.000% due 11/15/29....................................... 1,546,125 1,200,000 BBB- 3.500% due 1/15/31........................................ 1,138,500 6,000,000 BBB- News America Inc., zero coupon to yield 3.401% due 2/28/21................................................... 3,540,000 1,167,000 B Sinclair Broadcast Group, Inc., 4.875% due 7/15/18 (d)...... 1,124,696 3,500,000 BBB+ The Walt Disney Co., 2.125% due 4/15/23..................... 3,911,250 - --------------------------------------------------------------------------------------------------- 13,143,692 - --------------------------------------------------------------------------------------------------- MINING -- 0.1% 100,000 BBB+ Placer Dome Inc., 2.750% due 10/15/23 (a)................... 123,125 - --------------------------------------------------------------------------------------------------- OIL & GAS -- 13.1% 350,000 A- Cooper Cameron Corp., 1.500% due 5/15/24 (a)................ 370,562 Diamond Offshore Drilling Inc.: 2,130,000 A- 1.500% due 4/15/31........................................ 2,268,450 3,000,000 A- Zero coupon to yield 3.443% due 6/6/20.................... 1,777,500 Global Marine Inc.: 3,000,000 A- Zero coupon to yield 3.539% due 6/23/20................... 1,773,750 600,000 A- Zero coupon to yield 3.506% due 6/23/20 (a)............... 354,750 Halliburton Co.: 700,000 BBB 3.125% due 7/15/23........................................ 864,500 1,000,000 BBB 3.125% due 7/15/23 (a).................................... 1,235,000 Hanover Compressor Co.: 300,000 B 4.750% due 3/15/08........................................ 292,500 75,000 B 4.750% due 1/15/14........................................ 95,250 5,000,000 NR Nabors Industries Inc., zero coupon to yield 2.529% due 2/5/21.................................................... 3,350,000 1,800,000 A+ Schlumberger Ltd., 1.500% due 6/1/23........................ 1,980,000 - --------------------------------------------------------------------------------------------------- 14,362,262 - --------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 4.2% 1,730,000 B Advanced Medical Optics, Inc., 2.500% due 7/15/24 (a)....... 1,890,025 400,000 A Allergan, Inc., zero coupon to yield 1.250% due 11/6/22 (a)....................................................... 393,000 Cephalon Inc.: 600,000 B- Tranche A, zero coupon due 6/15/33 (a)(b)................. 609,000 800,000 B- Tranche B, zero coupon due 6/15/33 (a)(b)................. 824,000 500,000 NR IVAX Corp., 1.500% due 3/1/24 (a)........................... 486,250
SEE NOTES TO FINANCIAL STATEMENTS. 19 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 CONVERTIBLE SECURITIES PORTFOLIO
FACE AMOUNT RATING(C) - --------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 4.2% (CONTINUED) Valeant Pharmaceuticals International: $ 75,000 B 3.000% due 8/16/10 (a).................................... $ 82,969 75,000 B 4.000% due 11/15/13 (a)................................... 82,781 200,000 BBB- Watson Pharmaceuticals, Inc., 1.750% due 3/15/23 (a)........ 207,000 - --------------------------------------------------------------------------------------------------- 4,575,025 - --------------------------------------------------------------------------------------------------- RETAIL -- 1.8% Best Buy Co., Inc.: 500,000 BB+ 2.250% due 1/15/22........................................ 544,375 300,000 BB+ 2.250% due 1/15/22 (a).................................... 326,625 835,000 BB+ The Gap, Inc., 5.750% due 3/15/09........................... 1,111,594 - --------------------------------------------------------------------------------------------------- 1,982,594 - --------------------------------------------------------------------------------------------------- SOFTWARE -- 0.5% 576,000 B Red Hat, Inc., 0.500% due 1/15/2024......................... 531,360 - --------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 7.7% 1,500,000 BBB- Amdocs Ltd., 0.500% due 3/15/24 (a)......................... 1,432,500 4,550,000 Ba2* Anixter International Inc., zero coupon to yield 3.068% due 7/7/33.................................................... 2,519,563 150,000 B+ CommScope, Inc., 1.000% due 3/15/24 (a)..................... 161,063 100,000 NR Tekelec Inc., 2.250% due 6/15/08 (a)........................ 128,250 945,000 NR UTStarcom, Inc., 0.875% due 3/1/08.......................... 1,110,375 5,000,000 A+ Verizon Global Funding Corp., zero coupon to yield 2.916% due 5/15/21............................................... 3,081,250 - --------------------------------------------------------------------------------------------------- 8,433,001 - --------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE BONDS AND NOTES (Cost -- $75,657,136)..... 81,455,637 - --------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 9.4% 10,225,000 State Street Bank & Trust Co., dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $10,226,193; (Fully collateralized by U.S. Treasury Bonds, 8.125% due 8/15/21; Market value -- $10,435,040) (Cost -- $10,225,000)........ 10,225,000 - --------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 99.7% (Cost -- $102,152,574**)......... 109,002,373 Other Assets in Excess of Liabilities -- 0.3%............... 305,192 - --------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $109,307,565 - ---------------------------------------------------------------------------------------------------
(a) Security exempt from registration under rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. These securities have been deemed liquid pursuant to guidelines established by the Board of Trustees. (b) Non-income producing security. (c) All ratings are by Standard & Poors Ratings Service, with the exception of those identified by an asterisk (*), which are rated by Moody's Investors Service Inc. (d) Interest rate shown reflects current rate on instruments with multi-coupon or variable rates. (e) Security is currently in default. ** Aggregate cost for federal income tax purposes is $102,172,493. See page 31 for definitions of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 20 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- COMMON STOCK -- 97.4% - --------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 21.2% HOTELS, RESTAURANTS & LEISURE -- 4.8% 68,190 The Cheesecake Factory Inc.(a).............................. $ 2,214,129 12,580 Four Seasons Hotels, Inc. .................................. 1,028,918 60,850 International Game Technology............................... 2,092,023 62,580 Royal Caribbean Cruises Ltd. ............................... 3,406,855 36,960 WMS Industries Inc.(a)...................................... 1,239,638 - --------------------------------------------------------------------------------------- 9,981,563 - --------------------------------------------------------------------------------------- MEDIA -- 10.8% 254,120 Citadel Broadcasting Co.(a)................................. 4,111,662 77,850 EchoStar Communications Corp., Class A Shares............... 2,587,734 37,920 Entercom Communications Corp.(a)............................ 1,360,949 175,440 Gemstar-TV Guide International, Inc.(a)..................... 1,038,605 67,170 Getty Images, Inc.(a)....................................... 4,624,654 28,610 Grupo Televisa, S.A., Sponsored ADR......................... 1,730,905 96,000 The Interpublic Group of Cos., Inc.(a)...................... 1,286,400 10,980 Lamar Advertising Co., Class A Shares(a).................... 469,724 36,190 Meredith Corp. ............................................. 1,961,498 53,260 Radio One, Inc., Class A Shares(a).......................... 857,486 51,690 Univision Communications Inc., Class A Shares(a)............ 1,512,966 45,710 Westwood One, Inc.(a)....................................... 1,230,970 - --------------------------------------------------------------------------------------- 22,773,553 - --------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 1.9% 137,180 99 Cents Only Stores(a)..................................... 2,216,829 57,030 Family Dollar Stores, Inc. ................................. 1,781,047 - --------------------------------------------------------------------------------------- 3,997,876 - --------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 2.8% 58,850 PETsMART, Inc. ............................................. 2,090,940 62,900 The TJX Cos., Inc. ......................................... 1,580,677 68,340 Tiffany & Co. .............................................. 2,184,830 - --------------------------------------------------------------------------------------- 5,856,447 - --------------------------------------------------------------------------------------- TEXTILES & APPAREL -- 0.9% 34,490 Coach, Inc.(a).............................................. 1,945,236 - --------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 44,554,675 - --------------------------------------------------------------------------------------- ENERGY -- 2.7% ENERGY EQUIPMENT & SERVICES -- 2.7% 36,580 BJ Services Co. ............................................ 1,702,433 32,150 Cooper Cameron Corp.(a)..................................... 1,729,991 50,790 GlobalSantaFe Corp. ........................................ 1,681,657 15,740 Halliburton Co. ............................................ 617,638 - --------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 5,731,719 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- FINANCIALS -- 4.4% BANKS -- 1.3% 35,890 Investors Financial Services Corp. ......................... $ 1,793,782 45,340 Sovereign Bancorp, Inc. .................................... 1,022,417 - --------------------------------------------------------------------------------------- 2,816,199 - --------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 3.1% 104,600 Ameritrade Holding Corp.(a)................................. 1,487,412 40,620 E*TRADE Financial Corp.(a).................................. 607,269 59,790 Legg Mason, Inc. ........................................... 4,380,215 - --------------------------------------------------------------------------------------- 6,474,896 - --------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 9,291,095 - --------------------------------------------------------------------------------------- HEALTHCARE -- 23.5% BIOTECHNOLOGY -- 8.2% 32,900 Celgene Corp.(a)............................................ 872,837 38,340 Gen-Probe Inc.(a)........................................... 1,733,351 73,210 Genzyme Corp.(a)............................................ 4,251,305 84,370 Gilead Sciences, Inc.(a).................................... 2,952,106 48,770 ImClone Systems Inc.(a)..................................... 2,247,322 17,140 Invitrogen Corp.(a)......................................... 1,150,608 114,050 MedImmune, Inc.(a).......................................... 3,091,896 18,340 Neurocrine Biosciences, Inc.(a)............................. 904,162 - --------------------------------------------------------------------------------------- 17,203,587 - --------------------------------------------------------------------------------------- HEALTHCARE EQUIPMENT & SUPPLIES -- 10.1% 52,450 C.R. Bard, Inc. ............................................ 3,355,751 192,650 Cytyc Corp.(a).............................................. 5,311,360 54,400 DENTSPLY International Inc. ................................ 3,057,280 53,710 Fisher Scientific International Inc.(a)..................... 3,350,430 21,660 Guidant Corp. .............................................. 1,561,686 59,010 Millipore Corp.(a).......................................... 2,939,288 6,280 Synthes, Inc. .............................................. 701,753 102,400 Thoratec Corp.(a)........................................... 1,067,008 - --------------------------------------------------------------------------------------- 21,344,556 - --------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 1.3% 80,450 Community Health Systems Inc.(a)............................ 2,242,946 52,440 Tenet Healthcare Corp.(a)................................... 575,791 - --------------------------------------------------------------------------------------- 2,818,737 - --------------------------------------------------------------------------------------- PHARMACEUTICALS -- 3.9% 31,880 Allergan, Inc. ............................................. 2,584,512 71,460 Endo Pharmaceuticals Holdings, Inc.(a)...................... 1,502,089 114,960 Medicis Pharmaceutical Corp., Class A Shares................ 4,036,246 - --------------------------------------------------------------------------------------- 8,122,847 - --------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 49,489,727 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- INDUSTRIALS -- 11.4% AIR FREIGHT & COURIERS -- 0.6% 21,840 Expeditors International of Washington, Inc. ............... $ 1,220,419 - --------------------------------------------------------------------------------------- AIRLINES -- 1.0% 86,530 JetBlue Airways Corp.(a).................................... 2,009,227 - --------------------------------------------------------------------------------------- BUILDING PRODUCTS -- 0.4% 21,460 American Standard Cos. Inc.(a).............................. 886,727 - --------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 8.7% 39,660 Alliance Data Systems Corp.(a).............................. 1,883,057 38,540 Apollo Group, Inc., Class A Shares(a)....................... 3,110,563 46,770 Career Education Corp.(a)................................... 1,870,800 77,340 Ceridian Corp.(a)........................................... 1,413,775 40,340 The Corporate Executive Board Co. .......................... 2,700,360 51,230 DST Systems, Inc.(a)........................................ 2,670,108 23,050 Manpower Inc. .............................................. 1,113,315 70,490 Monster Worldwide, Inc.(a).................................. 2,371,284 43,040 Robert Half International Inc. ............................. 1,266,667 - --------------------------------------------------------------------------------------- 18,399,929 - --------------------------------------------------------------------------------------- MACHINERY -- 0.7% 19,210 Eaton Corp. ................................................ 1,390,036 - --------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 23,906,338 - --------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 27.7% COMMUNICATIONS EQUIPMENT -- 4.0% 149,080 Comverse Technology, Inc.(a)................................ 3,645,006 20,850 F5 Networks, Inc.(a)........................................ 1,015,812 24,190 Harris Corp. ............................................... 1,494,700 81,544 Juniper Networks, Inc.(a)................................... 2,217,181 - --------------------------------------------------------------------------------------- 8,372,699 - --------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 1.1% 28,610 Lexmark International, Inc., Class A Shares(a).............. 2,431,850 - --------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 4.0% 38,260 Broadcom Corp., Class A Shares(a)........................... 1,235,033 26,000 Roper Industries, Inc. ..................................... 1,580,020 52,040 Thermo Electron Corp.(a).................................... 1,571,088 84,440 Waters Corp.(a)............................................. 3,950,948 - --------------------------------------------------------------------------------------- 8,337,089 - --------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 3.1% 84,010 Check Point Software Technologies Ltd.(a)................... 2,069,166 103,936 IAC/InterActiveCorp(a)...................................... 2,870,712 57,440 McAfee Inc.(a).............................................. 1,661,739 - --------------------------------------------------------------------------------------- 6,601,617 - --------------------------------------------------------------------------------------- IT CONSULTING & SERVICES -- 0.2% 11,150 NAVTEQ Corp.(a)............................................. 516,914 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 23 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS MID CAP GROWTH PORTFOLIO
SHARES SECURITY VALUE - --------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 6.3% 42,500 Analog Devices, Inc. ....................................... $ 1,569,100 78,780 Integrated Circuit Systems, Inc.(a)......................... 1,648,078 28,390 KLA-Tencor Corp.(a)......................................... 1,322,406 34,790 Marvell Technology Group Ltd.(a)............................ 1,234,001 108,620 Novellus Systems, Inc.(a)................................... 3,029,412 218,660 PMC-Sierra, Inc.(a)......................................... 2,459,925 68,230 Xilinx, Inc. ............................................... 2,023,020 - --------------------------------------------------------------------------------------- 13,285,942 - --------------------------------------------------------------------------------------- SOFTWARE -- 9.0% 136,710 Amdocs Ltd.(a).............................................. 3,588,638 70,400 Citrix Systems, Inc.(a)..................................... 1,726,912 41,570 Electronic Arts Inc.(a)..................................... 2,564,038 23,680 Intuit Inc.(a).............................................. 1,042,157 75,040 Mercury Interactive Corp.(a)................................ 3,418,072 77,740 Red Hat, Inc.(a)............................................ 1,037,829 77,500 Symantec Corp.(a)........................................... 1,996,400 123,580 VERITAS Software Corp.(a)................................... 3,528,209 - --------------------------------------------------------------------------------------- 18,902,255 - --------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 58,448,366 - --------------------------------------------------------------------------------------- MATERIALS -- 1.1% CHEMICALS -- 0.8% 28,420 Monsanto Co. ............................................... 1,578,731 - --------------------------------------------------------------------------------------- METALS & MINING -- 0.3% 20,400 Aber Dimond Corp. .......................................... 719,791 - --------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 2,298,522 - --------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 5.4% DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.7% 3,980 Covad Communications Group, Inc.(a)......................... 8,557 37,070 NTL Inc.(a)................................................. 2,704,627 52,470 SpectraSite, Inc.(a)........................................ 3,038,013 - --------------------------------------------------------------------------------------- 5,751,197 - --------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 2.7% 193,820 American Tower Corp., Class A Shares(a)..................... 3,566,287 127,750 Crown Castle International Corp.(a)......................... 2,125,761 - --------------------------------------------------------------------------------------- 5,692,048 - --------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 11,443,245 - --------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $164,779,651)................... 205,163,687 - ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 24 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS MID CAP GROWTH PORTFOLIO
FACE AMOUNT - --------------------------------------------------------------------------------------- SHORT TERM INVESTMENT -- 2.8% $5,825,000 Fannie Mae Discount Notes, zero coupon to yield 0.950% bond due 1/3/05 (Cost -- $5,824,595)........................................ $ 5,824,595 - --------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.2% (Cost -- $170,604,246*)......... 210,988,282 Liabilities in Excess of Other Assets -- (0.2)%............. (398,754) - --------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $210,589,528 - ---------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for federal income tax purposes is $172,142,274. Abbreviation used in this schedule: ADR -- American Depositary Receipt. SEE NOTES TO FINANCIAL STATEMENTS. 25 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MERRILL LYNCH LARGE CAP CORE PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- COMMON STOCK -- 100.0% - ----------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 20.2% AUTOMOBILES -- 1.1% 93,000 Ford Motor Co. ............................................. $ 1,361,520 - ----------------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE -- 2.4% 51,000 McDonald's Corp. ........................................... 1,635,060 24,000 Starwood Hotels & Resorts Worldwide, Inc. .................. 1,401,600 - ----------------------------------------------------------------------------------------- 3,036,660 - ----------------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 2.0% 15,000 The Black & Decker Corp. ................................... 1,324,950 10,000 Harman International Industries, Inc. ...................... 1,270,000 - ----------------------------------------------------------------------------------------- 2,594,950 - ----------------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS -- 1.0% 37,000 Eastman Kodak Co. .......................................... 1,193,250 - ----------------------------------------------------------------------------------------- MEDIA -- 1.0% 18,000 Getty Images, Inc.(a)....................................... 1,239,300 - ----------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 3.6% 31,000 Costco Wholesale Corp. ..................................... 1,500,710 36,000 J.C. Penney Co., Inc. ...................................... 1,490,400 30,000 Nordstrom, Inc. ............................................ 1,401,900 3,000..... Wal-Mart Stores, Inc. ...................................... 158,460 - ----------------------------------------------------------------------------------------- 4,551,470 - ----------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 9.1% 28,000 Abercrombie & Fitch Co., Class A Shares..................... 1,314,600 30,000 American Eagle Outfitters, Inc. ............................ 1,413,000 59,000 The Gap, Inc. .............................................. 1,246,080 52,000 The Home Depot, Inc. ....................................... 2,222,480 56,000 Limited Brands.............................................. 1,289,120 36,000 PETsMART, Inc. ............................................. 1,279,080 44,000 Staples, Inc. .............................................. 1,483,240 26,000 Urban Outfitters, Inc.(a)................................... 1,154,400 - ----------------------------------------------------------------------------------------- 11,402,000 - ----------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 25,379,150 - ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 2.4% FOOD PRODUCTS -- 2.1% 66,000 Archer-Daniels-Midland Co. ................................. 1,472,460 62,000 Tyson Foods, Inc., Class A Shares........................... 1,140,800 - ----------------------------------------------------------------------------------------- 2,613,260 - ----------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 0.3% 6,000 The Procter & Gamble Co. ................................... 330,480 - ----------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES 2,943,740 - -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 26 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MERRILL LYNCH LARGE CAP CORE PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- ENERGY -- 13.7% OIL & GAS -- 13.7% 15,000.... Amerada Hess Corp. $ 1,235,700 20,000 Anadarko Petroleum Corp. ................................... 1,296,200 33,000 Burlington Resources, Inc. ................................. 1,435,500 46,000 ChevronTexaco Corp. ........................................ 2,415,460 22,000 ConocoPhillips.............................................. 1,910,260 38,000 Devon Energy Corp. ......................................... 1,478,960 45,000 Exxon Mobil Corp. .......................................... 2,306,700 14,000 Newfield Exploration Co.(a)................................. 826,700 26,000 Occidental Petroleum Corp. ................................. 1,517,360 16,000 Sunoco, Inc. ............................................... 1,307,360 31,000 Valero Energy Corp. ........................................ 1,407,400 - ----------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 17,137,600 - ----------------------------------------------------------------------------------------- FINANCIALS -- 11.6% BANKS -- 0.8% 17,000.... Bank of America Corp. ...................................... 798,830 6,000..... KeyCorp..................................................... 203,400 - ----------------------------------------------------------------------------------------- 1,002,230 - ----------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 1.4% 40,000.... Countrywide Financial Corp. ................................ 1,480,400 8,000..... JPMorgan Chase & Co. ....................................... 312,080 - ----------------------------------------------------------------------------------------- 1,792,480 - ----------------------------------------------------------------------------------------- INSURANCE -- 9.4% 26,000.... ACE Ltd. ................................................... 1,111,500 30,000.... Allstate Corp. ............................................. 1,551,600 5,000..... American International Group, Inc. ......................... 328,350 18,000.... The Chubb Corp. ............................................ 1,384,200 28,000.... Lincoln National Corp. ..................................... 1,307,040 9,000..... Loews Corp. ................................................ 632,700 34,000.... MetLife, Inc. .............................................. 1,377,340 22,000.... Nationwide Financial Services, Inc., Class A Shares......... 841,060 28,000.... Prudential Financial, Inc. ................................. 1,538,880 26,000.... SAFECO Corp. ............................................... 1,358,240 23,000.... UnumProvident Corp. ........................................ 412,620 - ----------------------------------------------------------------------------------------- 11,843,530 - ----------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 14,638,240 - ----------------------------------------------------------------------------------------- HEALTHCARE -- 11.7% BIOTECHNOLOGY -- 0.9% 41,000.... Celgene Corp.(a)............................................ 1,087,730 - ----------------------------------------------------------------------------------------- HEALTHCARE EQUIPMENT & SUPPLIES -- 1.1% 24,000 Becton Dickinson & Co. ..................................... 1,363,200 - -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 27 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MERRILL LYNCH LARGE CAP CORE PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 4.4% 12,000 Aetna, Inc. ................................................ $ 1,497,000 18,000 CIGNA Corp. ................................................ 1,468,260 23,000 PacifiCare Health Systems, Inc.(a).......................... 1,299,960 14,000 Quest Diagnostics Inc. ..................................... 1,337,700 - ----------------------------------------------------------------------------------------- 5,602,920 - ----------------------------------------------------------------------------------------- PHARMACEUTICALS -- 5.3% 52,000 Johnson & Johnson........................................... 3,297,840 124,000 Pfizer Inc. ................................................ 3,334,360 - ----------------------------------------------------------------------------------------- 6,632,200 - ----------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 14,686,050 - ----------------------------------------------------------------------------------------- INDUSTRIALS -- 9.4% AEROSPACE & DEFENSE -- 1.3% 31,000 The Boeing Co. ............................................. 1,604,870 - ----------------------------------------------------------------------------------------- AIR FREIGHT & COURIERS -- 1.5% 16,000 FedEx Corp. ................................................ 1,575,840 6,000 Ryder Systems, Inc. ........................................ 286,620 - ----------------------------------------------------------------------------------------- 1,862,460 - ----------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 1.2% 30,000 Rockwell Automation, Inc. .................................. 1,486,500 - ----------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 3.3% 77,000 General Electric Co. ....................................... 2,810,500 18,000 Textron, Inc. .............................................. 1,328,400 - ----------------------------------------------------------------------------------------- 4,138,900 - ----------------------------------------------------------------------------------------- MACHINERY -- 1.0% 15,000 Cummins Inc. ............................................... 1,256,850 - ----------------------------------------------------------------------------------------- ROAD & RAIL -- 1.1% 39,000 Norfolk Southern Corp. ..................................... 1,411,410 - ----------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 11,760,990 - ----------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 23.0% COMMUNICATIONS EQUIPMENT -- 4.6% 74,000 Avaya Inc.(a)............................................... 1,272,800 10,000 Cisco Systems, Inc.(a)...................................... 193,000 347,000 Lucent Technologies Inc.(a)................................. 1,304,720 100,000 Motorola, Inc. ............................................. 1,720,000 152,000 Tellabs, Inc.(a)............................................ 1,305,680 - ----------------------------------------------------------------------------------------- 5,796,200 - -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 28 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MERRILL LYNCH LARGE CAP CORE PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 5.0% 24,000 Apple Computer, Inc.(a)..................................... $ 1,545,600 57,000 Dell Inc.(a)................................................ 2,401,980 91,000 Hewlett-Packard Co.......................................... 1,908,270 5,000 International Business Machines Corp........................ 492,900 - ----------------------------------------------------------------------------------------- 6,348,750 - ----------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 1.1% 47,000 McAfee Inc.(a).............................................. 1,359,710 - ----------------------------------------------------------------------------------------- IT CONSULTING & SERVICES -- 0.7% 11,000 Affiliated Computer Services, Inc., Class A Shares(a)....... 662,090 3,000 Computer Sciences Corp.(a).................................. 169,110 - ----------------------------------------------------------------------------------------- 831,200 - ----------------------------------------------------------------------------------------- OFFICE ELECTRONICS -- 1.2% 89,000 Xerox Corp.(a).............................................. 1,513,890 - ----------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 4.4% 60,000 Advanced Micro Devices, Inc.(a)............................. 1,321,200 33,000 Cree, Inc.(a)............................................... 1,322,640 74,000 Intel Corp.................................................. 1,730,860 41,000 Microchip Technology Inc.................................... 1,093,060 - ----------------------------------------------------------------------------------------- 5,467,760 - ----------------------------------------------------------------------------------------- SOFTWARE -- 6.0% 22,000 Adobe Systems Inc........................................... 1,380,280 36,000 Autodesk, Inc............................................... 1,366,200 90 Computer Associates International, Inc...................... 2,795 55,000 Microsoft Corp.............................................. 1,469,050 134,000 Oracle Corp.(a)............................................. 1,838,480 56,000 Symantec Corp.(a)........................................... 1,442,560 - ----------------------------------------------------------------------------------------- 7,499,365 - ----------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY 28,816,875 - ----------------------------------------------------------------------------------------- MATERIALS -- 4.7% CHEMICALS -- 0.4% 7,000 Lyondell Chemical Co........................................ 202,440 14,000 RPM International, Inc...................................... 275,240 - ----------------------------------------------------------------------------------------- 477,680 - ----------------------------------------------------------------------------------------- METALS & MINING -- 3.3% 26,000 Nucor Corp.................................................. 1,360,840 14,000 Phelps Dodge Corp........................................... 1,384,880 27,000 United States Steel Corp.................................... 1,383,750 - ----------------------------------------------------------------------------------------- 4,129,470 - ----------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS -- 1.0% 36,000 Georgia-Pacific Corp........................................ 1,349,280 - ----------------------------------------------------------------------------------------- TOTAL MATERIALS 5,956,430 - -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 29 - -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MERRILL LYNCH LARGE CAP CORE PORTFOLIO
SHARES SECURITY VALUE - ----------------------------------------------------------------------------------------- UTILITIES -- 3.3% ELECTRIC UTILITIES -- 2.2% 42,000 Edison International........................................ $ 1,345,260 23,000 TXU Corp. .................................................. 1,484,880 - ----------------------------------------------------------------------------------------- 2,830,140 - ----------------------------------------------------------------------------------------- MULTI-UTILITIES -- 1.1% 83,000 The Williams Cos., Inc. .................................... 1,352,070 - ----------------------------------------------------------------------------------------- TOTAL UTILITIES 4,182,210 - ----------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $105,752,732)................... 125,501,285 - ----------------------------------------------------------------------------------------- ESCROW SHARES -- 0.0% 27,200 ESC Seagate Technology (a)(b)(c)............................ 0 - ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $105,752,732*)......... 125,501,285 Liabilities in Excess of Other Assets -- (0.0%)............. (1,571) - ----------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $125,499,714 - -----------------------------------------------------------------------------------------
(a) Non-income producing security. (b) Security is fair valued in good faith by or under the direction of the Board of Trustees. (c) This security has been deemed illiquid. * Aggregate cost for federal income tax purposes is $106,182,675. SEE NOTES TO FINANCIAL STATEMENTS. 30 - -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay principal and differ from the highest rated issue only in a small degree. A -- Bonds rated "A" have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories. BB, B, CCC and CC -- Bonds rated "BB", "B", "CCC" and "CC" are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and "CC" the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "Caa", where 1 is the highest and 3 the lowest ranking within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such an issue. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. Such issues may be in default, or there may be present elements of danger with respect to principal or interest. Ca -- Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
31 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
MFS MERRILL LYNCH CONVERTIBLE MID CAP LARGE CAP SECURITIES GROWTH CORE PORTFOLIO PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost...................................... $102,152,574 $ 170,604,246 $105,752,732 - ---------------------------------------------------------------------------------------------------------- Investments, at value..................................... $109,002,373 $ 210,988,282 $125,501,285 Cash...................................................... 128 157 63,501 Dividends and interest receivable......................... 427,895 42,124 200,634 Receivable for Fund shares sold........................... 141,399 -- -- Prepaid expense........................................... 434 9,617 1,944 - ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS.............................................. 109,572,229 211,040,180 125,767,364 - ---------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased.......................... -- 87,828 -- Payable for Fund shares reacquired........................ 159,180 147,757 119,599 Investment advisory fees payable.......................... 53,184 138,785 79,711 Administration fees payable............................... 7,209 12,234 8,029 Trustees' fees payable.................................... 2,100 2,300 2,100 Accrued expenses.......................................... 42,991 61,748 58,211 - ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES......................................... 264,664 450,652 267,650 - ---------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $109,307,565 $ 210,589,528 $125,499,714 - ---------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital (Note 4).................................. $103,552,804 $ 400,101,074 $183,373,632 Undistributed net investment income....................... 40,111 -- -- Accumulated net realized loss from investment transactions............................................ (1,135,149) (229,895,582) (77,623,009) Net unrealized appreciation of investments and foreign currencies.............................................. 6,849,799 40,384,036 19,749,091 - ---------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS............................................ $109,307,565 $ 210,589,528 $125,499,714 - ---------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING.......................................... 8,853,796 26,829,852 13,864,753 - ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE............................................. $12.35 $7.85 $9.05 - ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 32 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
MFS MERRILL LYNCH CONVERTIBLE MID CAP LARGE CAP SECURITIES GROWTH CORE PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest.................................................. $2,101,608 $ 63,136 $ 4,430 Dividends................................................. 931,676 476,603 1,656,107 Less: Foreign withholding tax............................. -- (1,602) (768) - ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................... 3,033,284 538,137 1,659,769 - ------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2)......................... 561,951 1,593,939 920,627 Administration fees (Note 2).............................. 56,195 119,546 69,784 Audit and legal........................................... 38,176 44,458 62,216 Custody................................................... 18,487 40,050 14,784 Shareholder communications................................ 15,010 33,936 20,772 Trustees' fees............................................ 11,533 9,973 9,973 Transfer agency services (Note 2)......................... 2,500 2,500 2,500 Other..................................................... 2,750 3,102 2,946 - ------------------------------------------------------------------------------------------------------- TOTAL EXPENSES............................................ 706,602 1,847,504 1,103,602 Less: Fee waivers and expense reimbursement (Note 2 and 6)...................................................... (16,100) (28,992) (33,485) - ------------------------------------------------------------------------------------------------------- NET EXPENSES.............................................. 690,502 1,818,512 1,070,117 - ------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS)................................ 2,342,782 (1,280,375) 589,652 - ------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES (NOTE 1 AND 3): Realized Gain From: Investment transactions................................. 976,485 21,204,709 3,313,193 Foreign currency transactions........................... -- 5,665 2,189 - ------------------------------------------------------------------------------------------------------- NET REALIZED GAIN......................................... 976,485 21,210,374 3,315,382 - ------------------------------------------------------------------------------------------------------- Net Change in Unrealized Appreciation/Depreciation From: Investments............................................. 2,664,418 6,181,210 13,606,634 Foreign currencies...................................... -- (339) (2,424) - ------------------------------------------------------------------------------------------------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION........ 2,664,418 6,180,871 13,604,210 - ------------------------------------------------------------------------------------------------------- NET GAIN ON INVESTMENTS AND FOREIGN CURRENCIES.............. 3,640,903 27,391,245 16,919,592 - ------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS...................... $5,983,685 $26,110,870 $17,509,244 - -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 33 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
CONVERTIBLE SECURITIES PORTFOLIO 2004 2003 - ---------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 2,342,782 $ 2,126,998 Net realized gain (loss).................................. 976,485 (200,129) Net change in unrealized appreciation/depreciation........ 2,664,418 11,848,955 - ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 5,983,685 13,775,824 - ---------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income..................................... (2,307,074) (2,082,494) - ---------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (2,307,074) (2,082,494) - ---------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 33,647,713 21,865,525 Net asset value of shares issued for reinvestment of dividends............................................... 2,307,074 2,082,494 Cost of shares reacquired................................. (6,655,212) (8,131,457) - ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 29,299,575 15,816,562 - ---------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 32,976,186 27,509,892 NET ASSETS: Beginning of Year......................................... 76,331,379 48,821,487 - ---------------------------------------------------------------------------------------- END OF YEAR*.............................................. $109,307,565 $76,331,379 - ---------------------------------------------------------------------------------------- * Includes undistributed net investment income of:.......... $40,111 $20,038 - ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 34 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
MFS MID CAP GROWTH PORTFOLIO 2004 2003 - ----------------------------------------------------------------------------------------- OPERATIONS: Net investment loss....................................... $ (1,280,375) $ (783,038) Net realized gain......................................... 21,210,374 11,062,320 Net change in unrealized appreciation/depreciation........ 6,180,871 39,853,745 - ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 26,110,870 50,133,027 - ----------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 16,179,515 18,867,585 Cost of shares reacquired................................. (24,308,636) (14,613,961) - ----------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS............................................ (8,129,121) 4,253,624 - ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 17,981,749 54,386,651 NET ASSETS: Beginning of year......................................... 192,607,779 138,221,128 - ----------------------------------------------------------------------------------------- END OF YEAR............................................... $210,589,528 $192,607,779 - -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 35 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
MERRILL LYNCH LARGE CAP CORE PORTFOLIO 2004 2003 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income..................................... $ 589,652 $ 721,954 Net realized gain......................................... 3,315,382 4,686,105 Net change in unrealized appreciation/depreciation........ 13,604,210 15,255,608 - ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS.................... 17,509,244 20,663,667 - ------------------------------------------------------------------------------------------ DIVIDENDS TO SHAREHOLDERS FROM: Net investment income..................................... (649,324) (723,790) - ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (649,324) (723,790) - ------------------------------------------------------------------------------------------ FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 6,563,038 2,493,380 Net asset value of shares issued for reinvestment of dividends............................................... 649,324 723,790 Cost of shares reacquired................................. (13,772,846) (13,967,138) - ------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... (6,560,484) (10,749,968) - ------------------------------------------------------------------------------------------ INCREASE IN NET ASSETS...................................... 10,299,436 9,189,909 NET ASSETS: Beginning of year......................................... 115,200,278 106,010,369 - ------------------------------------------------------------------------------------------ END OF YEAR*.............................................. $125,499,714 $115,200,278 - ------------------------------------------------------------------------------------------ * Includes undistributed net investment income (loss) of: ...................................................... -- $42,557 - ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 36 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31:
CONVERTIBLE SECURITIES PORTFOLIO 2004 2003(1) 2002(1) 2001(1) 2000(1) - ----------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................ $11.87 $ 9.67 $11.32 $12.06 $11.69 - ----------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income........................... 0.27 0.39 0.45 0.47(2) 0.58 Net realized and unrealized gain (loss)......... 0.48 2.15 (1.26) (0.56)(2) 0.85 - ----------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations............... 0.75 2.54 (0.81) (0.09) 1.43 - ----------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income........................... (0.27) (0.34) (0.77) (0.21) (0.25) Net realized gains.............................. -- -- (0.07) (0.44) (0.81) - ----------------------------------------------------------------------------------------------------------- Total Dividends and Distributions................. (0.27) (0.34) (0.84) (0.65) (1.06) - ----------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR...................... $12.35 $11.87 $ 9.67 $11.32 $12.06 - ----------------------------------------------------------------------------------------------------------- TOTAL RETURN(3)................................... 6.29% 26.26% (6.99)% (0.82)% 12.51% - ----------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)................... $109,308 $76,331 $48,821 $50,356 $26,294 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)..................................... 0.74%(5) 0.78% 0.80%(6) 0.79% 0.80%(6) Net investment income........................... 2.50 3.61 4.36 3.95(2) 4.76 - ----------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE........................... 32% 44% 46% 56% 48% - -----------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Effective January 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended December 31, 2001, the ratio of net investment income to average net assets would have been 3.99%. Per share information, ratios and supplemental data for the periods prior to January 1, 2001 have not been restated to reflect this change in presentation. In addition, the impact of this change to net investment income and net realized and unrealized loss was less than $0.01 per share. (3) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (4) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 0.80%. (5) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion of its fee and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or expenses reimbursed, the actual expense ratio would have been 0.75%. (6) The Travelers Insurance Company has agreed to reimburse the Fund for certain expenses for the years ended December 31, 2002 and December 31, 2000. If such expenses were not reimbursed, the actual expense ratios would have been 0.81% and 0.90% for the years ended December 31, 2002 and 2000, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 37 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
MFS MID CAP GROWTH PORTFOLIO 2004(1) 2003 2002(1) 2001(1) 2000(1) - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR........... $6.88 $5.02 $9.81 $16.75 $16.43 - ------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment loss........................ (0.05) (0.03) (0.04) (0.06) (0.05) Net realized and unrealized gain (loss).... 1.02 1.89 (4.75) (3.90) 1.69 - ------------------------------------------------------------------------------------------------------ Total Income (Loss) From Operations.......... 0.97 1.86 (4.79) (3.96) 1.64 - ------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net realized gains......................... -- -- -- (2.98) (1.32) - ------------------------------------------------------------------------------------------------------ Total Distributions.......................... -- -- -- (2.98) (1.32) - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR................. $7.85 $6.88 $5.02 $ 9.81 $16.75 - ------------------------------------------------------------------------------------------------------ TOTAL RETURN(2).............................. 14.10% 37.05% (48.83)% (23.62)% 9.29% - ------------------------------------------------------------------------------------------------------ NET ASSETS, END OF YEAR (000'S).............. $210,590 $192,608 $138,221 $278,504 $314,150 - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses(3)................................ 0.91%(4) 0.92% 0.93% 0.92% 0.90% Net investment loss........................ (0.64) (0.49) (0.56) (0.49) (0.30) - ------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE...................... 81% 98% 167% 96% 143% - ------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (3) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 1.00%. (4) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion of its fee and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or expenses reimbursed, the actual expense ratio would have been 0.93%. SEE NOTES TO FINANCIAL STATEMENTS. 38 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
MERRILL LYNCH LARGE CAP CORE PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1) - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR......................... $7.85 $6.52 $8.77 $12.15 $13.06 - ------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income (loss).............. 0.04 0.05 0.03 0.01 (0.01) Net realized and unrealized gain (loss)............................ 1.21 1.33 (2.23) (2.74) (0.70) - ------------------------------------------------------------------------------------------------------ Total Income (Loss) From Operations......... 1.25 1.38 (2.20) (2.73) (0.71) - ------------------------------------------------------------------------------------------------------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income..................... (0.05) (0.05) (0.05) (0.00)* -- Net realized gains........................ -- -- -- (0.65) (0.20) - ------------------------------------------------------------------------------------------------------ Total Dividends and Distributions........... (0.05) (0.05) (0.05) (0.65) (0.20) - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR................ $9.05 $7.85 $6.52 $ 8.77 $12.15 - ------------------------------------------------------------------------------------------------------ TOTAL RETURN(2)............................. 15.89% 21.16% (25.14)% (22.45)% (5.58)% - ------------------------------------------------------------------------------------------------------ NET ASSETS, END OF YEAR (000'S)............. $125,500 $115,200 $106,010 $165,928 $222,953 - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses(3)............................... 0.92%(4) 0.99% 0.94% 0.92% 0.94% Net investment income (loss).............. 0.51 0.67 0.44 0.10 (0.07) - ------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE..................... 136% 182% 104% 98% 86% - ------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (3) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 1.00%. (4) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion of its fee and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or expenses reimbursed, the actual expense ratio would have been 0.95%. * Amount represents less than $0.01 per share. SEE NOTES TO FINANCIAL STATEMENTS. 39 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Convertible Securities, MFS Mid Cap Growth and Merrill Lynch Large Cap Core Portfolios ("Fund(s)") are separate investment funds of The Travelers Series Trust ("Trust"). The Convertible Securities Portfolio and the Merrill Lynch Large Cap Core Portfolio are separate diversified investment funds of the Trust. The MFS Mid Cap Growth Portfolio is a separate non-diversified investment fund of the Trust. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Funds and the other investment funds of the Trust are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. Shares of the Trust are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through the separate accounts of various affiliated life insurance companies. The following are significant accounting policies consistently followed by the Funds and are in conformity with U.S. generally accepted accounting principles ("GAAP"). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. (A) INVESTMENT VALUATION. Securities traded on national securities markets are valued at the closing price on such markets or, if there were no sales during the day, at the mean between the closing bid and asked prices. Securities primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges. Securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sale price. Securities traded in the over-the-counter market are valued at prices based on market quotations for securities of similar type. U.S. government agencies and obligations are valued at the mean between the last reported bid and asked prices. Securities other than U.S. government agencies that have a maturity of 60 days or more are valued at prices based on market quotations for securities of similar type, yield and maturity. When market quotations or official closing prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Funds calculate their net asset values, the Funds may value these investments at fair value as determined in accordance with the procedures approved by the Funds' Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates value. (B) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is the Funds' policy that a custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines of 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) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or as soon as practical after the Funds determine the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. (D) FOREIGN CURRENCY TRANSLATION. The books and records of the Funds are maintained in U.S. dollars. Transactions denominated in foreign currencies are recorded at the current prevailing exchange rates. All assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the current exchange rates at the end of the period. Translation gains or losses resulting from changes in the exchange rates during the reporting period and realized gains and losses on the settlement of foreign currency transactions are reported in the statement of operations for the current period. The Funds do not isolate that portion of realized gains and losses on investments in securities, which are due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities (E) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net investment income and distributions of net realized gains to shareholders of the Funds, if any, are declared at least annually. Dividends and distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from GAAP. 40 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) (F) FEDERAL AND OTHER TAXES. It is the Funds' policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (G) RECLASSIFICATION. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $15,635 has been reclassified between undistributed net investment income and accumulated net realized loss from investment transactions due to the tax treatment of distributions from Real Estate Investment Trusts and the differences between book and tax amortization of premium on fixed income securities for Convertible Securities Portfolio. Additionally, $1,274,710 has been reclassified between paid-in capital and accumulated net investment loss as a result of permanent differences attributable to a tax net operating loss, $5,927 has been reclassified between accumulated net realized loss and paid-in capital as a result of the different book/tax treatment of various items and $5,665 has been reclassified between accumulated net realized loss from investment transactions and net investment loss due to differences between book foreign currency transactions treated as ordinary income for tax purposes for the MFS Mid Cap Growth Portfolio. Finally, $14,926 has been reclassified between paid-in capital and accumulated net investment loss as a result of permanent differences attributable to an overdistribution of net investment income and $2,189 has been reclassified between accumulated net realized loss from investment transactions and options and accumulated net investment loss as a result of permanent differences due to book foreign currency transactions treated as ordinary income for tax purposes for the Merrill Lynch Large Cap Core Portfolio. These reclassifications have no effect on net assets or net asset values per share. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment adviser to the Convertible Securities ("CS"), MFS Mid Cap Growth ("MMCG") and Merrill Lynch Large Cap Core ("MLLCC") Portfolios. CS pays TAMIC an investment advisory fee calculated at annual rate of 0.60% of the Fund's average daily net assets. Prior to September 1, 2004, MMCG and MLLCC each paid TAMIC an investment advisory fee calculated at an annual rate of 0.80% of each Fund's respective average daily net assets. These fees are calculated daily and paid monthly. TAMIC has entered into a sub-advisory agreement with Massachusetts Financial Services ("MFS"). Pursuant to the sub-advisory agreement, MFS is responsible for the day-to-day fund operations and investment decisions for MMCG. As a result, prior to September 1, 2004 TAMIC paid MFS a sub-advisory fee at an annual rate of 0.375% of the average daily net assets of MMCG. Effective September 1, 2004, the investment advisory fee and sub-advisory fee was revised from the annual rates of 0.80% and 0.375%, respectively, of the average daily net assets of MMCG to a fee calculated at the annual rates in accordance with the following schedule:
INVESTMENT SUB-ADVISORY AVERAGE DAILY NET ASSETS ADVISORY FEE FEE - ------------------------------------------------------------------------------------------ First $600 million.......................................... 0.800% 0.370% Next $300 million........................................... 0.775% 0.350% Next $600 million........................................... 0.750% 0.325% Next $1 billion............................................. 0.725% 0.300% Over $2.5 billion........................................... 0.675% 0.250% - ------------------------------------------------------------------------------------------
TAMIC has also entered into a sub-advisory agreement with Merrill Lynch Investment Managers, L.P. ("MLIM"). Pursuant to the sub-advisory agreement, MLIM is responsible for the day-to-day fund operations and investment decisions and prior to September 1, 2004 was compensated by TAMIC for such services at an annual rate of 0.375% of the average daily net assets of MLLCC. 41 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) Effective September 1, 2004, the investment advisory fee and sub-advisory fee was revised from the annual rates of 0.80% and 0.375%, respectively, of the average daily net assets of MLLCC to a fee calculated at the annual rates in accordance with the following schedule:
INVESTMENT SUB-ADVISORY AVERAGE DAILY NET ASSETS ADVISORY FEE FEE - ----------------------------------------------------------------------------------------- First $250 million.......................................... 0.775% 0.350% Next $250 million........................................... 0.750% 0.325% Next $500 million........................................... 0.725% 0.300% Next $1 billion............................................. 0.700% 0.275% Over $2 billion............................................. 0.650% 0.225% - -----------------------------------------------------------------------------------------
The Travelers Insurance Company ("TIC"), another indirect wholly-owned subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC an administration fee calculated at an annual rate of 0.06% of the average daily net assets of each respective Fund. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative service agreement with Smith Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund's average daily net assets. During the year ended December 31, 2004, the Funds had a contractual expense limitation in place of 0.80% for CS and 1.00% for each of MMCG and MLLCC. These expense limitations are renewed annually and can be terminated at any time by TIC with 60 days' notice. During the year ended December 31, 2004, SBFM voluntarily waived a portion of its fees in the amounts of $1,726, $1,707, and $1,726 for CS, MMCG and MLLCC, respectively. In addition, for the year ended December 31, 2004, SBFM reimbursed expenses in the amounts of $14,374, $27,285 and $31,759 for CS, MMCG and MLLCC, respectively, in connection with the overpayment of transfer agent fees relating to the period from June 1999 through June 2004. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Funds' transfer agent. For the year ended December 31, 2004, each Fund paid transfer agent fees of $2,500 to CTB. All officers and one Trustee of the Trust are employees of Citigroup or its subsidiaries and do not receive compensation from the Trust. 3. INVESTMENTS During the year ended December 31, 2004, the aggregate cost of purchases and proceeds from sales of investments excluding short-term investments) were as follows:
PURCHASES SALES - ----------------------------------------------------------------------------------------- Convertible Securities Portfolio............................ $ 49,083,820 $26,819,432 MFS Mid Cap Growth Portfolio................................ 159,174,718 167,048,854 Merrill Lynch Large Cap Core Portfolio...................... 157,622,549 163,252,048 - -----------------------------------------------------------------------------------------
At December 31, 2004, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
NET UNREALIZED APPRECIATION DEPRECIATION APPRECIATION - ---------------------------------------------------------------------------------------------------------- Convertible Securities Portfolio............................ $ 8,310,001 $(1,480,121) $ 6,829,880 MFS Mid Cap Growth Portfolio................................ 43,362,004 (4,515,996) 38,846,008 Merrill Lynch Large Cap Core Portfolio...................... 20,857,308 (1,538,698) 19,318,610 - ----------------------------------------------------------------------------------------------------------
42 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Fund were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 - --------------------------------------------------------------------------------------------------- CONVERTIBLE SECURITIES PORTFOLIO Shares sold................................................. 2,781,519 1,960,310 Shares issued on reinvestment............................... 187,144 175,782 Shares reacquired........................................... (546,738) (754,259) - --------------------------------------------------------------------------------------------------- Net Increase................................................ 2,421,925 1,381,833 - --------------------------------------------------------------------------------------------------- MFS MID CAP GROWTH PORTFOLIO Shares sold................................................. 2,230,189 3,078,239 Shares reacquired........................................... (3,381,260) (2,635,504) - --------------------------------------------------------------------------------------------------- Net Increase (Decrease)..................................... (1,151,071) 442,735 - --------------------------------------------------------------------------------------------------- MERRILL LYNCH LARGE CAP CORE PORTFOLIO Shares sold................................................. 798,563 347,978 Shares issued on reinvestment............................... 72,126 92,361 Shares reacquired........................................... (1,675,002) (2,023,282) - --------------------------------------------------------------------------------------------------- Net Decrease................................................ (804,313) (1,582,943) - ---------------------------------------------------------------------------------------------------
5. INCOME TAX INFORMATION & DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal year ended December 31, 2004 was as follows:
CONVERTIBLE MERRILL LYNCH SECURITIES LARGE CAP CORE PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------ Distributions paid from: Ordinary income............................................. $2,307,074 $649,324 - ------------------------------------------------------------------------------------------
The tax character of distributions paid during the fiscal year ended December 31, 2003 was as follows:
CONVERTIBLE MERRILL LYNCH SECURITIES LARGE CAP CORE PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------ Distributions paid from: Ordinary income............................................. $2,082,494 $723,790 - ------------------------------------------------------------------------------------------
For the fiscal years ended December 31, 2004 and 2003, the MFS Mid Cap Growth Portfolio did not make any distributions. As of December 31, 2004, the components of accumulated earnings on a tax basis were as follows:
CONVERTIBLE MERRILL LYNCH SECURITIES MFS MID CAP LARGE CAP CORE PORTFOLIO GROWTH PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------- Undistributed ordinary income -- net.................. $ 60,030 -- -- - ------------------------------------------------------------------------------------------------------- Capital loss carryforward*............................ $(1,135,149) $(228,357,554) $(77,193,066) Unrealized appreciation**............................. 6,829,880 38,846,008 19,319,148 - ------------------------------------------------------------------------------------------------------- Total accumulated earnings/(losses)................... $5,754,761 $(189,511,546) $(57,873,918) - -------------------------------------------------------------------------------------------------------
43 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) * On December 31, 2004 the Funds had net capital loss carryforwards as follows:
CONVERTIBLE MERRILL LYNCH SECURITIES MFS MID CAP LARGE CAP CORE YEAR OF EXPIRATION PORTFOLIO GROWTH PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------ 12/31/2009 -- $ 7,213,977 $ 38,357,682 12/31/2010 $ 995,983 221,143,577 38,835,384 12/31/2011 139,166 -- -- - ------------------------------------------------------------------------------------------------------ $1,135,149 $228,357,554 $ 77,193,066 - ------------------------------------------------------------------------------------------------------
These amounts will be available to offset any future taxable capital gains. ** The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales and the difference between book and tax amortization methods for premiums and discounts on fixed income securities. The Funds are liable for excise tax payments resulting from the timing of required distribution payments made to taxable shareholders for the years 1999-2001. The actual amount of the liability is not yet determinable. However, the Funds have been indemnified by SBFM for any associated excise tax liability as well as any interest and penalties or any other costs. Accordingly, the net asset values of the Funds will not be impacted by the outcome of this matter. 6. ADDITIONAL INFORMATION In connection with an investigation previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup Asset Management ("CAM"), the Citigroup business unit that includes the funds' investment manager and other investment advisory companies; Citicorp Trust Bank ("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three other individuals, one of whom is an employee and two of whom are former employees of CAM, that the SEC Staff is considering recommending a civil injunctive action and/or an administrative proceeding against each of them relating to the creation and operation of an internal transfer agent unit to serve various CAM-managed funds. In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated subcontractor to perform some of the transfer agent services. The subcontractor, in exchange, had signed a separate agreement with CAM in 1998 that guaranteed investment management revenue to CAM and investment banking revenue to a CAM affiliate. The subcontractor's business was later taken over by PFPC Inc., and at that time the revenue guarantee was eliminated and a one-time payment was made by the subcontractor to a CAM affiliate. CAM did not disclose the revenue guarantee when the boards of various CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the boards of the various CAM-managed funds the one-time payment received by the CAM affiliate when it was made. As previously disclosed, CAM has already paid the applicable funds, primarily through voluntary fee waivers, a total of approximately $17 million (plus interest), which is the amount of the revenue received by Citigroup relating to the revenue guarantee. In addition, the SEC Staff has indicated that it is considering recommending action based on the adequacy of the disclosures made to the fund boards that approved the transfer agency arrangement, CAM's initiation and operation of, and compensation for, the transfer agent business and CAM's retention of, and agreements with, the subcontractor. Citigroup is cooperating fully in the SEC's investigation and is seeking to resolve the matter in discussions with the SEC Staff. On January 20, 2005, Citigroup stated that it had established an aggregate reserve of $196 million ($25 million in the third quarter of 2004 and $171 million in the fourth quarter of 2004) related to its discussions with the SEC Staff. Settlement negotiations are ongoing and any settlement of this matter with the SEC will require approval by the Citigroup Board and acceptance by the Commission. Unless and until any settlement is consummated, there can be no assurance that any amount reserved by Citigroup will be distributed. Nor is there at this time any certainty as to how the proceeds of any settlement would be distributed, to whom any such distribution would be made, the methodology by which such distribution would be allocated, and when such distribution would be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. 44 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. SUBSEQUENT EVENT On January 31, 2005, Citigroup announced that it has reached an agreement with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction, TAMIC, currently an indirect wholly owned subsidiary of Citigroup, would become an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser to the Funds. The transaction is subject to certain regulatory approvals, as well as other customary conditions to closing. The transaction is expected to close this summer. In connection with this transaction, the Trust's Board of Trustees will be asked to approve new investment advisory and administrative services contracts, and, to the extent required by law, variable annuity and variable life contract owners, who beneficially own the shares of the funds, will be asked to approve new investment advisory agreements. 45 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE TRAVELERS SERIES TRUST: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Convertible Securities Portfolio, MFS Mid Cap Growth Portfolio, and Merrill Lynch Large Cap Core Portfolio of The Travelers Series Trust ("Trust"), as of December 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Convertible Securities Portfolio, MFS Mid Cap Growth Portfolio, and Merrill Lynch Large Cap Core Portfolio of The Travelers Series Trust as of December 31, 2004, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles. /s/ KPMG LLP New York, New York February 18, 2005 46 - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) INFORMATION ABOUT TRUSTEES AND OFFICERS The business and affairs of The Travelers Series Trust ("Trust") are managed under the direction of the Trust's Board of Trustees. Information pertaining to the Trustees and Officers of the Trust is set forth below. The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling the Trust's administrator at 1-800-842-9368.
TERM OF NUMBER OF OFFICE(1) AND PORTFOLIOS IN POSITION(S) LENGTH FUND COMPLEX OTHER NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE - -------------------------------------------------------------------------------------------------------------------------------- NON-INTERESTED TRUSTEES: Frances M. Hawk, Trustee Since 1991 Private Investor 5 Board of Managers of CFA, CFP 6 Variable Annuity 108 Oxford Hill Lane Separate Accounts of Downingtown, PA TIC Birth Year: 1948 Lewis Mandell Trustee Since 1990 Professor, University of 5 Delaware North 160 Jacobs Hall Buffalo Corp.; Board of Buffalo, NY Managers of 6 Birth Year: 1943 Variable Annuity Separate Accounts of TIC Robert E. McGill, III Trustee Since 1990 Retired 5 Lydall Inc.; Board 295 Hancock Road of Managers of 6 Williamstown, MA Variable Annuity Birth Year: 1931 Separate Accounts of The Travelers Insurance Co. ("TIC") INTERESTED TRUSTEE: R. Jay Gerken, CFA(2) Chairman, Since 2002 Managing Director of Citigroup 219 Chairman, Board of Citigroup Asset Management President Global Markets Inc. ("CGM"); Managers of 6 ("CAM") and Chief Chairman, President and Chief Variable Annuity 399 Park Avenue, 4th Floor Executive Executive Officer of Smith Separate Accounts of New York, NY 10022 Officer Barney Fund Management LLC TIC Birth Year: 1951 ("SBFM"), Travelers Investment Adviser, Inc. ("TIA") and Citi Fund Management Inc. ("CFM"); President and Chief Executive Officer of certain mutual funds associated with Citigroup Inc. ("Citigroup"); formerly, Portfolio Manager of Smith Barney Allocation Series Inc. (from 1996 to 2001) and Smith Barney Growth and Income Fund (from 1996 to 2000)
47 - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED)
TERM OF NUMBER OF OFFICE(1) AND PORTFOLIOS IN POSITION(S) LENGTH FUND COMPLEX OTHER NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS: Andrew B. Shoup Senior Vice Since 2003 Director of CAM; Senior Vice N/A N/A CAM President and President and Chief 125 Broad Street, 11th Chief Administrative Officer of Floor Administrative mutual funds associated with New York, NY 10004 Officer Citigroup; Head of Birth Year: 1956 International Funds Administration of CAM (from 2001 to 2003); Director of Global Funds Administration of CAM (from 2000 to 2001); Head of U.S. Citibank Funds Administration of CAM (from 1998 to 2000) Kaprel Ozsolak Chief Since 2004 Vice President of CGM; Chief N/A N/A CAM Financial Financial Officer and 125 Broad Street, 11th Officer and Treasurer of certain mutual Floor Treasurer funds associated with New York, NY 10004 Citigroup, Controller of Birth Year: 1965 certain mutual funds associated with Citigroup from (2002 to 2004) Andrew Beagley Chief Anti- Since 2002 Director of CGM (since 2000); N/A N/A CAM Money Director of Compliance, North 399 Park Avenue, 4th Floor Laundering America, CAM (since 2000); New York, NY 10022 Compliance Chief Anti-Money Laundering Birth Year: 1962 Officer Compliance Officer and Vice President of certain mutual funds associated with Citigroup; Director of Compliance, Europe, the Middle East and Africa, CAM (from 1999 to 2000); Compliance Officer: SBFM, CFM, TIA, Salomon Brothers Asset Management Limited, Smith Barney Global Capital Management Inc.
48 - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED)
TERM OF NUMBER OF OFFICE(1) AND PORTFOLIOS IN POSITION(S) LENGTH FUND COMPLEX OTHER NAME, ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS AND BIRTH YEAR FUND SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE - ----------------------------------------------------------------------------------------------------------------------------------- William D. Wilcox Chief Since 2004 Counsel and Chief Compliance N/A N/A Travelers Life Annuity Compliance Officer (since 1999); TIC One Cityplace Officer Chief Compliance Officer Hartford, CT 06103 (since 2002), 6 Variable Birth Year: 1964 Annuity Separate Accounts of The Travelers Insurance Company; Chief Compliance Officer (since 2004), 5 Mutual Funds sponsored by TIC and 6 Variable Separate Accounts Kathleen A. McGah Secretary Since 2004 Deputy General Counsel of TIC; N/A N/A Travelers Life & Annuity Assistant Secretary of 5 One Cityplace Mutual Funds and 6 Variable Hartford, CT 06103 Separate Accounts sponsored by Birth Year: 1950 TIC (from 1995 to 2004) Ernest J. Wright Assistant Since 2004 Vice President and Secretary N/A N/A Travelers Life & Annuity Secretary of TIC; Secretary of 5 Mutual One Cityplace Funds and 6 Variable Separate Hartford, CT 06103 Accounts sponsored by TIC Birth Year: 1940 (from 1974 to 2004)
- --------------- (1) Each Trustee and officer serves until his or her respective successor has been duly elected and qualified. (2) Mr. Gerken is an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is Managing Director of CGM, an indirect wholly owned subsidiary of Citigroup, and his ownership shares and options to purchase shares of Citigroup, the indirect parent of TIC. 49 - -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION (UNAUDITED) The following information is provided with respect to the distributions paid by Merrill Lynch Large Cap Core Portfolio during the taxable year ended December 31, 2004:
MERRILL LYNCH MERRILL LYNCH LARGE CAP CORE LARGE CAP CORE PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------------- Record Date:................................................ 6/24/2004 12/27/2004 Payable Date:............................................... 6/25/2004 12/28/2004 - --------------------------------------------------------------------------------------------- Dividends Qualifying for the Dividends Received Deduction for Corporations.......................................... 100.00% 100.00% - ---------------------------------------------------------------------------------------------
50 (This page intentionally left blank.) (This page intentionally left blank.) THE TRAVELERS SERIES TRUST - -------------------------------------------------------------------------------- TRUSTEES INVESTMENT ADVISER R. Jay Gerken, CFA Travelers Asset Management International Company LLC Chairman Frances M. Hawk, CFA, CFP ADMINISTRATOR Lewis Mandell Robert E. McGill, III The Travelers Insurance Company OFFICERS CUSTODIAN State Street Bank and Trust Company R. Jay Gerken, CFA President and TRANSFER AGENT Chief Executive Officer Citicorp Trust Bank, fsb. Andrew B. Shoup Senior Vice President and Chief Administrative Officer Kaprel Ozsolak Chief Financial Officer and Treasurer William D. Wilcox Chief Compliance Officer Andrew Beagley Chief Anti-Money Laundering Compliance Officer Kathleen A. McGah Secretary Ernest J. Wright Assistant Secretary
The Funds are separate investment funds of The Travelers Series Trust, a Massachusetts business trust. This report is prepared for the general information of variable annuity or life contract owners and is not an offer of shares of The Travelers Series Trust: Convertible Securities Portfolio, MFS Mid Cap Growth Portfolio, and Merrill Lynch Large Cap Core Portfolio. 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 schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter 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 Commission's Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Funds, shareholders can call 1-800-842-9368. Information on how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 and a description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-842-9368, (2) on the Fund's website at www.citgroupAM.com and (3) on the SEC's website at www.sec.gov. Series Trust (Annual) (2-05) Printed in U.S.A. ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees of the registrant has determined that Robert E. McGill, a member of the Board's Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert," and has designated Mr. McGill as the Audit Committee's financial expert. Mr. McGill is an "independent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. Item 4. Principal Accountant Fees and Services (a) Audit Fees for The Travelers Series Trust were $276,000 and $276,000 for the years ended 12/31/04 and 12/31/03. (b) Audit-Related Fees for The Travelers Series Trust were $0 and $0 for the years ended 12/31/04 and 12/31/03. (c) Tax Fees for The Travelers Series Trust of $36,400 and $36,400 for the years ended 12/31/04 and 12/31/03. These amounts represent aggregate fees paid for tax compliance, tax advice and tax planning services, which include (the filing and amendment of federal, state and local income tax returns, timely RIC qualification review and tax distribution and analysis planning) rendered by the Accountant to Travelers Series Trust. (d) All Other Fees for The Travelers Series Trust of $0 and $0 for the years ended 12/31/04 and 12/31/03. (e) (1) Audit Committee's pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X. The Charter for the Audit Committee (the "Committee") of the Board of each registered investment company (the "Fund") advised by Smith Barney Fund Management LLC or Salomon Brothers Asset Management Inc or one of their affiliates (each, an "Adviser") requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund's independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee. The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible. Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund ("Covered Service Providers") constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. (2) For The Travelers Series Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03; Tax Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03; and Other Fees were 100% and 100% for the years ended 12/31/04 and 12/31/03. (f) N/A (g) Non-audit fees billed by the Accountant for services rendered to Travelers Series Trust and CAM and any entity controlling, controlled by, or under common control with CAM that provides ongoing services to Travelers Series Trust. Fees billed to and paid by Citigroup Global Markets, Inc. related to the transfer agent matter as fully described in the notes to the financial statements titled "additional information" were $75,000 and $0 for the years ended 12/31/04 and 12/31/03. (h) Yes. The Travelers Series Trust's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining the Accountant's independence. All services provided by the Accountant to the Travelers Series Trust or to Service Affiliates which were required to be pre-approved were pre-approved as required. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. 2 of 18 ITEM 11. EXHIBITS. (a) Code of Ethics attached hereto. Exhibit 99.CODE ETH (b) Attached hereto. Exhibit 99.CERT Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 99.906CERT Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. THE TRAVELERS SERIES TRUST By: /s/ R. Jay Gerken (R. Jay Gerken) Chief Executive Officer of THE TRAVELERS SERIES TRUST Date: March 9, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ R. Jay Gerken (R. Jay Gerken) Chief Executive Officer of THE TRAVELERS SERIES TRUST Date: March 9, 2005 By: /s/ KAPREL OZSOLAK (KAPREL OZSOLAK) Chief Financial Officer of THE TRAVELERS SERIES TRUST Date: March 9, 2005 3 of 18 EX-99.CODE ETH 2 y05012exv99wcodeeth.txt CODE OF ETHICS EX 99.CODE ETH SARBANES-OXLEY ACT CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS OF CAM/U.S. REGISTERED INVESTMENT COMPANIES I. COVERED OFFICERS/PURPOSE OF THE CODE This code of ethics (the "Code") for Citigroup Asset Management's ("CAM's") U. S. registered proprietary investment companies (collectively, "Funds" and each a, "Company") applies to each Company's Chief Executive Officer, Chief Administrative Officer, Chief Financial Officer and Controller (the "Covered Officers") for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Company; - compliance with applicable laws and governmental rules and regulations; - the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. ADMINISTRATION OF CODE The Regional Director of CAM Compliance, North America ("Compliance Officer") is responsible for administration of this Code, including granting pre-approvals (see Section III below) and waivers (as described in Section VI below), applying this Code in specific situations in which questions are presented under it and interpreting this Code in any particular situation. 4 of 18 III. COVERED OFFICERS SHOULD ETHICALLY HANDLE ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the Company. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Company. Certain conflicts of interest arise out of the relationships between Covered Officers and the Company and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Company because of their status as "affiliated persons" of the Company. The compliance programs and procedures of the Company and its investment adviser are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code (see Section VII below). Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Company and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for a Company or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and a Company. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Company and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of a Company. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors\Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Company. * * * * Each Covered Officer must: - not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting ( e.g. through fraudulent accounting 5 of 18 practices) by the Company whereby the Covered Officer(1) would benefit personally to the detriment of the Company; or - not cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than for the benefit of the Company; and - not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market affect of such transactions. - There are some potential conflict of interest situations that should always be discussed with the Compliance Officer, if material. Examples are as follows: (1) service as a director on the board of any public or private company; (2) any ownership interest in, or any consulting or employment relationship with, any of the Company's service providers, other than its investment adviser, (3) a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership; and (4) the receipt of any gifts or the conveyance of any value (including entertainment ) from any company with which the Company has current or prospective business dealings, except: (a) any non-cash gifts of nominal value (nominal value is less than $100); and (b) customary and reasonable meals and entertainment at which the giver is present, such as the occasional business meal or sporting event. IV. DISCLOSURE AND COMPLIANCE Each Covered Officer: - should be familiar with his or her responsibilities in connection with the disclosure requirements generally applicable to the Company; - ------------------------- (1) Any activity or relationship that would present a conflict for a Covered Officer would also present a conflict for the Covered Officer if a member of a Covered Officer's family (spouse, minor children and any account over which a Covered Officer is deemed to have beneficial interest) engages in such an activity or has such a relationship. 6 of 18 - should not knowingly misrepresent, or knowingly cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company's directors and auditors, and to governmental regulators and self-regulatory organizations; - should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and the investment adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - is responsible to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that the Covered Officer has received, read, and understands the Code; - annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; - annually disclose affiliations and other relationships related to conflicts of interest; - not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the Compliance Officer promptly if he knows of any violation of this Code (failure to do so is itself a violation of this Code). In rendering decisions and interpretations and in conducting investigations of potential violations under the Code, the Compliance Officer may, at his discretion, consult with such persons as he determines to be appropriate, including, but not limited to, a senior legal officer of the Company or its investment adviser or its affiliates, independent auditors or other consultants, subject to any requirement to seek pre-approval from the Company's audit committee for the retention of independent auditors to perform permissible non-audit services. The Funds will follow these procedures in investigating and enforcing the Code: - the Compliance Officer will take all appropriate action to investigate any potential violation of which he becomes aware; - if, after investigation the Compliance Officer believes that no violation has occurred, the Compliance Officer is not required to take any further action; 7 of 18 - any matter that the Compliance Officer believes is a violation will be reported to the Directors of the Fund who are not "interested persons" as defined in the Investment Company Act the ("Non-interested Directors") - if the Non-interested Directors of the Board concur that a violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules The Compliance Officer shall submit an annual report to the Board describing any waivers granted. VI. WAIVERS(2) A Covered Officer may request a waiver of any of the provisions of the Code by submitting a written request for such waiver to the Compliance Officer, setting forth the basis of such request and explaining how the waiver would be consistent with the standards of conduct described herein. The Compliance Officer shall review such request and make a determination thereon in writing, which shall be binding. In determining whether to waive any provisions of this Code, the Compliance Officer shall consider whether the proposed waiver is consistent with honest and ethical conduct and other purposes of this Code. VII. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The codes of ethics of the funds and the investment advisers and principal underwriters under Rule 17j-1 of the Investment Company Act and the Citigroup Code of Conduct and Citigroup Statement of Business Practices as well as other policies of the Fund's investment advisers or their affiliates are separate requirements applying to the Covered Officers and others, and are not part of this Code. - ----------------------- (2) For purposes of this Code, Item 2 of Form N-CSR defines "waiver" as "the approval by a Company of a material departure from a provision of the Code" and includes an "implicit waiver," which means a Company's failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an executive officer of the Company. 8 of 18 VIII. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B and C must be approved or ratified by a majority vote of the Board, including a majority of Non-interested Directors. IX. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and Company and their respective counsel, counsel to the non-Interested Directors or independent auditors or other consultants referred to in Section V above. X. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Company, as to any fact, circumstance, or legal conclusion. 9 of 18 EX-99.CERT 3 y05012exv99wcert.txt CERTIFICATION CERTIFICATIONS PURSUANT TO SECTION 302 EX-99.CERT CERTIFICATIONS I, R. Jay Gerken, certify that: 1. I have reviewed this report on Form N-CSR of The Travelers Series Trust - Convertible Securities Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ R. Jay Gerken ----------------------------- R. Jay Gerken Chief Executive Officer 10 of 18 I, Kaprel Ozsolak, certify that: 1. I have reviewed this report on Form N-CSR of The Travelers Series Trust - Convertible Securities Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ Kaprel Ozsolak ----------------------------- Kaprel Ozsolak Chief Financial Officer 11 of 18 CERTIFICATIONS PURSUANT TO SECTION 302 EX-99.CERT CERTIFICATIONS I, R. Jay Gerken, certify that: 1. I have reviewed this report on Form N-CSR of The Travelers Series Trust - MFS Mid Cap Growth Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ R. Jay Gerken ----------------------------- R. Jay Gerken Chief Executive Officer 12 of 18 I, Kaprel Ozsolak, certify that: 1. I have reviewed this report on Form N-CSR of The Travelers Series Trust - MFS Mid Cap Growth Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ Kaprel Ozsolak ----------------------------- Kaprel Ozsolak Chief Financial Officer 13 of 18 CERTIFICATIONS PURSUANT TO SECTION 302 EX-99.CERT CERTIFICATIONS I, R. Jay Gerken, certify that: 1. I have reviewed this report on Form N-CSR of The Travelers Series Trust - Merrill Lynch Large Cap Core Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ R. Jay Gerken ----------------------------- R. Jay Gerken Chief Executive Officer 14 of 18 I, Kaprel Ozsolak, certify that: 1. I have reviewed this report on Form N-CSR of The Travelers Series Trust - Merrill Lynch Large Cap Core Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2005 /s/ Kaprel Ozsolak ----------------------------- Kaprel Ozsolak Chief Financial Officer 15 of 18 EX-99.906CERT 4 y05012exv99w906cert.txt 906 CERTIFICATION CERTIFICATIONS PURSUANT TO SECTION 906 EX-99.906CERT CERTIFICATION R. JAY GERKEN, Chief Executive Officer, and KAPREL OSZOLAK, Chief Financial Officer of The Travelers Series Trust - Convertible Securities Portfolio (the "Registrant"), each certify to the best of his knowledge that: 1. The Registrant's periodic report on Form N-CSR for the period ended December 31, 2004 (the "Form N-CSR") fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Chief Executive Officer Chief Financial Officer The Travelers Series Trust - The Travelers Series Trust - Convertible Securities Portfolio Convertible Securities Portfolio /s/ R. Jay Gerken /s/ Kaprel Ozsolak - ----------------------- ----------------------- R. Jay Gerken Kaprel Ozsolak Date: March 9, 2005 Date: March 9, 2005 This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Commission. 16 of 18 CERTIFICATIONS PURSUANT TO SECTION 906 EX-99.906CERT CERTIFICATION R. JAY GERKEN, Chief Executive Officer, and KAPREL OSZOLAK, Chief Financial Officer of The Travelers Series Trust - MFS Mid Cap Growth Portfolio (the "Registrant"), each certify to the best of his knowledge that: 1. The Registrant's periodic report on Form N-CSR for the period ended December 31, 2004 (the "Form N-CSR") fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Chief Executive Officer Chief Financial Officer The Travelers Series Trust - The Travelers Series Trust - MFS Mid Cap Growth Portfolio MFS Mid Cap Growth Portfolio /s/ R. Jay Gerken /s/ Kaprel Ozsolak - ----------------------- ----------------------- R. Jay Gerken Kaprel Ozsolak Date: March 9, 2005 Date: March 9, 2005 This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Commission. 17 of 18 CERTIFICATIONS PURSUANT TO SECTION 906 EX-99.906CERT CERTIFICATION R. JAY GERKEN, Chief Executive Officer, and KAPREL OSZOLAK, Chief Financial Officer of The Travelers Series Trust - Merrill Lynch Large Cap Core Portfolio (the "Registrant"), each certify to the best of his knowledge that: 1. The Registrant's periodic report on Form N-CSR for the period ended December 31, 2004 (the "Form N-CSR") fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Chief Executive Officer Chief Financial Officer The Travelers Series Trust - The Travelers Series Trust - Merrill Lynch Large Cap Core Portfolio Merrill Lynch Large Cap Core Portfolio /s/ R. Jay Gerken /s/ Kaprel Ozsolak - ----------------------- ------------------------ R. Jay Gerken Kaprel Ozsolak Date: March 9, 2005 Date: March 9, 2005 This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Commission. 18 of 18 -----END PRIVACY-ENHANCED MESSAGE-----