N-CSR 1 y05006ncnvcsr.txt TRAVELERS SERIES TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-6465 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. ANNUAL REPORT DECEMBER 31, 2004 [UMBRELLA GRAPHIC] THE TRAVELERS SERIES TRUST: EQUITY INCOME PORTFOLIO LARGE CAP 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 EQUITY INCOME PORTFOLIO MANAGER OVERVIEW....................................... 3 FUND AT A GLANCE....................................... 5 PERFORMANCE COMPARISON................................. 6 LARGE CAP PORTFOLIO MANAGER OVERVIEW....................................... 7 FUND AT A GLANCE....................................... 9 PERFORMANCE COMPARISON................................. 10 FUND EXPENSES............................................... 11 SCHEDULES OF INVESTMENTS.................................... 13 STATEMENTS OF ASSETS AND LIABILITIES........................ 25 STATEMENTS OF OPERATIONS.................................... 26 STATEMENTS OF CHANGES IN NET ASSETS......................... 27 FINANCIAL HIGHLIGHTS........................................ 29 NOTES TO FINANCIAL STATEMENTS............................... 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 36 ADDITIONAL INFORMATION...................................... 37 IMPORTANT TAX INFORMATION................................... 40
-------------------------------------------------------------------------------- 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). After the end of the portfolios' 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 Equity Income Portfolio 9.31% 9.88% Russell 3000 Value Index 12.19% 16.94% Russell 1000 Value Index 12.08% 16.49% Lipper Variable Equity Income Funds Category Average 9.66% 13.64% Large Cap Portfolio 3.82% 6.52% S&P 500 Index 7.19% 10.87% 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 ALL FUND EXPENSES. Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2004 and include the reinvestment of dividends and capital gains, if any. Returns were calculated among the 61 funds for the six-month period and among the 61 funds for the 12-month period in the variable equity income 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 fund's 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 fund has been informed that Travelers Life & Annuity and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations. As previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup Asset Management ("CAM") and Citicorp Trust Bank ("CTB"), an affiliate of CAM, that the Staff is considering recommending a civil injunctive action and/or an administrative proceeding against CAM, CTB, the former CEO of CAM, two former employees and a current employee of CAM, relating to the creation, operation and fees of an internal transfer agent unit that serves various CAM-managed funds. Citigroup is cooperating with the SEC and will seek to resolve this matter in discussion with the SEC Staff. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. For further information, please see the "Additional Information" note in the Notes to the Financial Statements included in this report. 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 2 -------------------------------------------------------------------------------- MANAGER OVERVIEW EQUITY INCOME PORTFOLIO SPECIAL SHAREHOLDER NOTICE Effective September 1, 2004, the investment advisory fee was revised from the annual rate of 0.75% of the average daily net assets to a fee calculated at an annual rate in accordance with the following schedule:
INVESTMENT AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ First $250 million.......................................... 0.75% Next $500 million........................................... 0.70% Over $750 million........................................... 0.65%
PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Equity Income Portfolio returned 9.88%. The portfolio underperformed its unmanaged benchmark, the Russell 3000 Value Index(iii), and a comparative index, the Russell 1000 Value Index(iv), which returned 16.94% and 16.49%, respectively, for the same period. It also underperformed the Lipper Variable Equity Income Funds Category Average(2), which was 13.64%. MARKET/ECONOMIC OVERVIEW U.S. equities generated positive results for the second consecutive year in 2004. The global economy continued to expand and overall corporate profits improved at a strong, albeit slowing, rate. This expansion occurred despite dramatically higher commodity prices, investor concerns about Fed tightening, potential terrorist attacks, a tight U.S. presidential race and regulatory, accounting and product liability issues at some major U.S. companies. Among investment styles, smaller-cap stocks led large-cap, and value stocks outpaced growth stocks. Fixed-income securities posted positive returns, led by double- digit gains by high-yield bonds. CONTRIBUTORS TO PERFORMANCE In this investment climate, the portfolio underperformed its benchmark. Below-average performance and underweighting in financials detracted the most from the portfolio returns versus the index. A variety of factors hampered the portfolio's stock positions, including regulatory and accounting issues involving some high profile companies and lackluster equity market conditions. In addition, the portfolio was underexposed to relatively strong-performing real estate investment trusts and bank stocks. Other detractors from the portfolio's relative results included below-average returns in the consumer discretionary sector, including an online conglomerate that lowered its earnings guidance, and weak performance from healthcare positions, particularly pharmaceuticals. --------------- (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 61 funds in the fund's Lipper category, and excluding sales charges. 3 Conversely, good stock selection and an overweighting in the energy sector added the most to the portfolio's relative returns amid a surge in crude oil and natural gas prices and heightened Middle East security concerns. Select telecommunications stocks with attractive valuations and growing wireless operations also enhanced results, as did certain commodity-oriented materials stocks with firmer supply/demand characteristics. Thank you for your investment in the Equity Income 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, The Portfolio Management Team Fidelity Management & Research Company 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. The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Financials (26.9%); Industrials (14.0%); Information Technology (11.1%); Consumer Discretionary (11.1%); Telecommunication Services (8.0%). 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) 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. (iii) The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. (A price-to-book ratio is the price of a stock compared to the difference between a company's assets and liabilities.) (iv) The Russell 1000 Value Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth rates. 4 -------------------------------------------------------------------------------- FUND AT A GLANCE -- EQUITY INCOME PORTFOLIO (UNAUDITED) INVESTMENT BREAKDOWN AS A PERCENT OF TOTAL INVESTMENTS (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Financials 27.0 25.1 Industrials 14.0 13.5 Consumer Discretionary 11.1 9.9 Information Technology 11.1 8.4 Telecommunication Services 8.0 7.6 Energy 8.0 14.1 Healthcare 7.2 6.3 Consumer Staples 4.8 5.7 Materials 4.2 5.0 Repurchase Agreement 1.7 2.9 Utilities 2.2 1.3 Technology 0.7 0.2
5 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- EQUITY INCOME PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------- Year Ended 12/31/04 9.88% Five Years Ended 12/31/04 4.80 8/30/96* through 12/31/04 9.91 CUMULATIVE TOTAL RETURN ----------------------- 8/30/96* through 12/31/04 119.82% * Commencement of operations.
This chart assumes an initial investment of $10,000 made at inception on August 30, 1996, assuming reinvestment of dividends, through December 31, 2004. Index information is available at month-end only; therefore, the closest month-end to inception date of the Portfolio has been used. The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. (A price-to-book ratio is the price of a stock compared to the difference between a company's assets and liabilities.) (LINE GRAPH)
EQUITY INCOME PORTFOLIO RUSSELL 3000 VALUE INDEX ----------------------- ------------------------ 8/30/96 10000.00 10000.00 12/96 11169.00 11421.00 12/97 14749.00 15399.00 12/98 16574.00 17478.00 12/99 17389.00 18640.00 12/00 18976.00 20139.00 12/01 17722.00 19267.00 12/02 15252.00 16342.00 12/03 20006.00 21431.00 12/31/04 21982.00 25061.00
-------------------------------------------------------------------------------- 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 voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 6 -------------------------------------------------------------------------------- MANAGER OVERVIEW LARGE CAP PORTFOLIO SPECIAL SHAREHOLDER NOTICE Effective September 1, 2004, the investment advisory fee was revised from the annual rate of 0.75% of the average daily net assets to a fee calculated at an annual rate in accordance with the following schedule:
INVESTMENT AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ First $250 million.......................................... 0.75% Next $500 million........................................... 0.70% Over $750 million........................................... 0.65%
PERFORMANCE UPDATE(3) For the twelve months ended December 31, 2004, the Large Cap Portfolio returned 6.52%. The portfolio underperformed its unmanaged benchmark, the S&P 500 Index(iii), which returned 10.87% for the same period. It also underperformed the Lipper Variable Large Cap Core Funds Category Average(4), which was 8.59%. MARKET/ECONOMIC OVERVIEW U.S. equities generated positive results for the second consecutive year in 2004. The global economy continued to expand and overall corporate profits improved at a strong, albeit slowing, rate. This expansion occurred despite dramatically higher commodity prices, investor concerns about Fed tightening, potential terrorist attacks, a tight U.S. presidential race and regulatory, accounting and product liability issues at some major U.S. companies. Among investment styles, smaller-cap stocks led large-cap and value stocks outpaced growth stocks. Fixed-income securities posted positive returns, led by double- digit gains by high-yield bonds. CONTRIBUTORS TO PERFORMANCE While the portfolio generated positive returns during the fiscal year, it lagged its benchmark on a relative basis. A large detractor to performance was the portfolio's position in a major pharmaceutical company. The firm's shares fell sharply after it was forced to remove one of its painkillers from the shelves. The fund further suffered from an overweighting in technology stocks, as the sector underperformed the overall market during the year. However, when compared to technology stocks in the index, the portfolio's holdings outperformed, aiding relative results. For example, the portfolio held a hardware maker that enjoyed continued success from the strong demand for its portable digital music players. The portfolio also benefited from strong security selection in the materials sector, particularly its holdings in aluminum, agricultural-chemical and metals companies. --------------- (3) 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. (4) 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. 7 Thank you for your investment in the Large Cap 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, The Portfolio Management Team Fidelity Management & Research Company 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. 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 (23.6%); Industrials (19.0%); Consumer Discretionary (14.1%); Financials (12.8%) and Healthcare (10.7%). 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) 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. (iii) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. 8 -------------------------------------------------------------------------------- FUND AT A GLANCE -- LARGE CAP PORTFOLIO (UNAUDITED) INVESTMENT BREAKDOWN AS A PERCENT OF TOTAL INVESTMENTS (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Information Technology 23.4 23.4 Industrials 18.9 11.9 Consumer Discretionary 14.0 16.3 Financials 12.7 12.4 Healthcare 10.6 16.2 Energy 6.1 5.6 Consumer Staples 5.7 6.8 Telecommunication Services 4.5 3.1 Materials 1.7 1.2 Utilities 0.4 0.0 Repurchase Agreement 2.0 3.1
9 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- LARGE CAP PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------- Year Ended 12/31/04 6.52% Five Years Ended 12/31/04 (6.23) 8/30/96* through 12/31/04 7.14 CUMULATIVE TOTAL RETURN ----------------------- 8/30/96* through 12/31/04 77.70% * Commencement of operations.
This chart assumes an initial investment of $10,000 made on August 30, 1996 (commencement of operations), assuming reinvestment of dividends, through December 31, 2004, with that of a similar investment in the S&P 500 Index. Index information is available at month-end only; therefore, the closest month-end to inception date of the Portfolio has been used. The S&P 500 Index is an unmanaged index composed of 500 widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter markets. [Line Graph]
LARGE CAP PORTFOLIO S&P 500 INDEX ------------------- ------------- 8/30/96 10000.00 10000.00 12/96 11330.00 11442.00 12/97 13982.00 15258.00 12/98 18966.00 19622.00 12/99 24513.00 23748.00 12/00 20964.00 21587.00 12/01 17332.00 19022.00 12/02 13382.00 14820.00 12/03 16682.00 19069.00 12/31/04 17770.00 21142.00
-------------------------------------------------------------------------------- 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 voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 10 -------------------------------------------------------------------------------- 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) ------------------------------------------------------------------------------------------------------------------ Equity Income Portfolio 9.31% $1,000.00 $1,093.10 0.84% $4.42 Large Cap Portfolio 3.82 1,000.00 1,038.20 0.85 4.35 ------------------------------------------------------------------------------------------------------------------
(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) 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. 11 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. -------------------------------------------------------------------------------- BASED ON HYPOTHETICAL TOTAL RETURN(1)
HYPOTHETICAL ANNUALIZED BEGINNING ENDING ANNUALIZED EXPENSES TOTAL ACCOUNT ACCOUNT EXPENSE PAID DURING RETURN VALUE VALUE RATIO THE PERIOD(2) ------------------------------------------------------------------------------------------------------------- Equity Income Portfolio................... 5.00% $1,000.00 $1,020.91 0.84% $4.27 Large Cap Portfolio....................... 5.00 1,000.00 1,020.86 0.85 4.32 -------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Expenses (net of voluntary fee waiver) 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. 12 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2004 EQUITY INCOME PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------- COMMON STOCK -- 97.3% -------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 11.1% INTERNET & CATALOG RETAIL -- 0.3% 24,600 Amazon.com, Inc. (a)........................................ $ 1,089,534 -------------------------------------------------------------------------------------------------- MEDIA -- 6.8% 15,100 Clear Channel Communications, Inc. ......................... 505,699 583,500 The News Corp., Ltd., Sponsored ADR......................... 11,203,200 53,900 Omnicom Group Inc. ......................................... 4,544,848 16,390 Tribune Co. ................................................ 690,675 44,900 The Walt Disney Co. ........................................ 1,248,220 330 The Washington Post Co., Class B Shares..................... 324,397 158,619 XM Satellite Radio Holdings Inc., Class A Shares (a)........ 5,967,247 -------------------------------------------------------------------------------------------------- 24,484,286 -------------------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 3.4% 17,000 Dollar Tree Stores, Inc. (a)................................ 487,560 36,100 J.C. Penney Co., Inc. ...................................... 1,494,540 54,200 May Department Stores Co. .................................. 1,593,480 162,800 Wal-Mart Stores, Inc. ...................................... 8,599,096 -------------------------------------------------------------------------------------------------- 12,174,676 -------------------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 0.6% 45,900 The Home Depot, Inc. ....................................... 1,961,766 -------------------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 39,710,262 -------------------------------------------------------------------------------------------------- CONSUMER STAPLES -- 4.8% BEVERAGES -- 0.4% 35,200 The Coca-Cola Co. .......................................... 1,465,376 -------------------------------------------------------------------------------------------------- FOOD PRODUCTS -- 1.2% 28,200 Campbell Soup Co. .......................................... 842,898 24,500 General Mills, Inc. ........................................ 1,217,895 64,200 McCormick & Co., Inc. ...................................... 2,478,120 -------------------------------------------------------------------------------------------------- 4,538,913 -------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 0.5% 11,300 Colgate-Palmolive Co. ...................................... 578,108 19,400 The Procter & Gamble Co. ................................... 1,068,552 -------------------------------------------------------------------------------------------------- 1,646,660 -------------------------------------------------------------------------------------------------- TOBACCO -- 2.7% 150,200 Altria Group, Inc. ......................................... 9,177,220 15,800 Loews Corp -- Carolina Group................................ 457,410 -------------------------------------------------------------------------------------------------- 9,634,630 -------------------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES...................................... 17,285,579 -------------------------------------------------------------------------------------------------- ENERGY -- 7.9% ENERGY EQUIPMENT & SERVICES -- 1.3% 121,400 Halliburton Co. ............................................ 4,763,736 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 13 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 EQUITY INCOME PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------- OIL & GAS -- 6.6% 14,800 Ashland, Inc. .............................................. $ 864,024 110,100 Burlington Resources, Inc. ................................. 4,789,350 350,010 Exxon Mobil Corp. .......................................... 17,941,513 -------------------------------------------------------------------------------------------------- 23,594,887 -------------------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 28,358,623 -------------------------------------------------------------------------------------------------- FINANCIALS -- 26.9% BANKS -- 8.7% 281,300 Bank of America Corp. ...................................... 13,218,287 19,600 First Horizon National Corp. ............................... 844,956 5,700 M&T Bank Corp. ............................................. 614,688 149,948 Wachovia Corp. ............................................. 7,887,265 140,750 Wells Fargo & Co. .......................................... 8,747,612 -------------------------------------------------------------------------------------------------- 31,312,808 -------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 10.7% 32,600 American Express Co. ....................................... 1,837,662 262,940 The Charles Schwab Corp. ................................... 3,144,762 62,600 Fannie Mae.................................................. 4,457,746 12,400 Freddie Mac................................................. 913,880 27,900 The Goldman Sachs Group, Inc. .............................. 2,902,716 105,728 JPMorgan Chase & Co. ....................................... 4,124,449 19,400 Lehman Brothers Holdings Inc. .............................. 1,697,112 113,900 Merrill Lynch & Co., Inc. .................................. 6,807,803 37,400 Morgan Stanley.............................................. 2,076,448 112,400 SLM Corp. .................................................. 6,001,036 88,300 State Street Corp. ......................................... 4,337,296 -------------------------------------------------------------------------------------------------- 38,300,910 -------------------------------------------------------------------------------------------------- INSURANCE -- 4.7% 191,900 American International Group, Inc. ......................... 12,602,073 8,500 Fidelity National Financial, Inc. .......................... 388,195 19,300 The Hartford Financial Services Group, Inc. ................ 1,337,683 11,100 Marsh & McLennan Cos., Inc. ................................ 365,190 52,400 Willis Group Holdings Ltd. ................................. 2,157,308 -------------------------------------------------------------------------------------------------- 16,850,449 -------------------------------------------------------------------------------------------------- REAL ESTATE -- 2.8% 8,445 Capital Automotive REIT..................................... 300,008 19,000 CenterPoint Properties Trust................................ 909,910 6,800 Equity Lifestyle Properties, Inc. .......................... 243,100 59,400 Equity Office Properties Trust.............................. 1,729,728 193,604 General Growth Properties, Inc. ............................ 7,000,721 -------------------------------------------------------------------------------------------------- 10,183,467 -------------------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 96,647,634 -------------------------------------------------------------------------------------------------- HEALTHCARE -- 7.2% HEALTHCARE EQUIPMENT & SUPPLIES -- 0.2% 11,800 Medtronic, Inc. ............................................ 586,106 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 EQUITY INCOME PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 2.3% 8,400 Aetna Inc. ................................................. $ 1,047,900 34,400 Cardinal Health, Inc. ...................................... 2,000,360 16,000 McKesson Corp. ............................................. 503,360 54,400 UnitedHealth Group Inc. .................................... 4,788,832 -------------------------------------------------------------------------------------------------- 8,340,452 -------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 4.7% 78,600 Bristol-Myers Squibb Co. ................................... 2,013,732 44,400 Johnson & Johnson........................................... 2,815,848 79,700 Merck & Co. Inc. ........................................... 2,561,558 255,630 Pfizer Inc. ................................................ 6,873,891 12,300 Roche Holding AG, Sponsored ADR............................. 1,415,944 27,900 Wyeth....................................................... 1,188,261 -------------------------------------------------------------------------------------------------- 16,869,234 -------------------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 25,795,792 -------------------------------------------------------------------------------------------------- INDUSTRIALS -- 14.0% AEROSPACE & DEFENSE -- 1.7% 63,300 Goodrich Corp. ............................................. 2,066,112 15,755 Lockheed Martin Corp. ...................................... 875,190 24,100 Northrop Grumman Corp. ..................................... 1,310,076 28,700 Precision Castparts Corp. .................................. 1,885,016 -------------------------------------------------------------------------------------------------- 6,136,394 -------------------------------------------------------------------------------------------------- AIRLINES -- 0% 35 Continental Airlines, Inc., Class B Shares (a).............. 474 -------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 4.8% 469,900 General Electric Co. ....................................... 17,151,350 -------------------------------------------------------------------------------------------------- MACHINERY -- 4.2% 33,300 Caterpillar Inc. ........................................... 3,247,083 183,100 Dover Corp. ................................................ 7,679,214 23,100 Eaton Corp. ................................................ 1,671,516 36,800 Navistar International Corp. (a)............................ 1,618,464 20,600 Volvo AB, Sponsored ADR..................................... 816,790 -------------------------------------------------------------------------------------------------- 15,033,067 -------------------------------------------------------------------------------------------------- MARINE -- 0.1% 3,916 Alexander & Baldwin, Inc. .................................. 166,117 -------------------------------------------------------------------------------------------------- ROAD & RAIL -- 3.2% 25,440 Landstar System, Inc. (a)................................... 1,873,402 266,300 Norfolk Southern Corp. ..................................... 9,637,396 -------------------------------------------------------------------------------------------------- 11,510,798 -------------------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 49,998,200 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 15 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 EQUITY INCOME PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 11.1% COMMUNICATIONS EQUIPMENT -- 1.0% 70,800 Cisco Systems, Inc. (a)..................................... $ 1,366,440 20,600 Emulex Corp. (a)............................................ 346,904 81,100 Nokia Oyj, Sponsored ADR.................................... 1,270,837 15,800 QUALCOMM Inc. .............................................. 669,920 -------------------------------------------------------------------------------------------------- 3,654,101 -------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 0.2% 14,500 Dell Inc.(a)................................................ 611,030 -------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.9% 72,600 Agilent Technologies, Inc. (a).............................. 1,749,660 28,000 Arrow Electronics, Inc. (a)................................. 680,400 45,000 Avnet, Inc. (a)............................................. 820,800 -------------------------------------------------------------------------------------------------- 3,250,860 -------------------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 0.2% 29,633 IAC/InterActiveCorp. (a).................................... 818,463 -------------------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 6.5% 36,700 Altera Corp. (a)............................................ 759,690 79,300 Analog Devices, Inc. ....................................... 2,927,756 140,100 Applied Materials, Inc. (a)................................. 2,395,710 52,121 Axcelis Technologies, Inc. (a).............................. 423,744 12,100 Credence Systems Corp. (a).................................. 110,715 23,100 Fairchild Semiconductor International, Inc. (a)............. 375,606 49,300 Freescale Semiconductor Inc. (a)............................ 905,148 172,500 Intel Corp. ................................................ 4,034,775 84,500 KLA-Tencor Corp. (a)........................................ 3,936,010 25,600 Kulicke & Soffa Industries, Inc. (a)........................ 220,672 68,500 Lam Research Corp. (a)...................................... 1,980,335 38,900 LTX Corp. (a)............................................... 299,141 17,700 MKS Instruments, Inc. (a)................................... 328,335 128,600 National Semiconductor Corp. ............................... 2,308,370 61,400 Novellus Systems, Inc. (a).................................. 1,712,446 33,700 Teradyne, Inc. (a).......................................... 575,259 -------------------------------------------------------------------------------------------------- 23,293,712 -------------------------------------------------------------------------------------------------- SOFTWARE -- 2.3% 309,800 Microsoft Corp. ............................................ 8,274,758 -------------------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 39,902,924 -------------------------------------------------------------------------------------------------- MATERIALS -- 4.2% CHEMICALS -- 4.2% 17,800 Air Products & Chemicals, Inc. ............................. 1,031,866 50,300 E.I. du Pont de Nemours & Co. .............................. 2,467,215 112,400 Eastman Chemical Co. ....................................... 6,488,852 46,400 FMC Corp. (a)............................................... 2,241,120 28,900 The Lubrizol Corp. ......................................... 1,065,254 57,100 Lyondell Chemical Co. ...................................... 1,651,332 -------------------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 14,945,639 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 16 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 EQUITY INCOME PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 8.0% DIVERSIFIED TELECOMMUNICATION SERVICES -- 7.6% 18,300 Citizens Communications Co. ................................ $ 252,357 429,300 Sprint Corp. ............................................... 10,668,105 402,600 Verizon Communications Inc. ................................ 16,309,326 -------------------------------------------------------------------------------------------------- 27,229,788 -------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.4% 54,700 Vodafone Group PLC, Sponsored ADR........................... 1,497,686 -------------------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 28,727,474 -------------------------------------------------------------------------------------------------- UTILITIES -- 2.1% ELECTRIC UTILITIES -- 2.0% 3,800 American Electric Power Co., Inc. .......................... 130,492 27,700 Edison International........................................ 887,231 43,500 Entergy Corp. .............................................. 2,940,165 44,400 Exelon Corp. ............................................... 1,956,708 44,300 The Southern Co. ........................................... 1,484,936 -------------------------------------------------------------------------------------------------- 7,399,532 -------------------------------------------------------------------------------------------------- GAS UTILITIES -- 0.1% 8,400 AGL Resources Inc. ......................................... 279,216 -------------------------------------------------------------------------------------------------- TOTAL UTILITIES............................................. 7,678,748 -------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $313,450,480)................... 349,050,875 -------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK -- 0.6% -------------------------------------------------------------------------------------------------- TECHNOLOGY -- 0.6% OFFICE & BUSINESS EQUIPMENT -- 0.6% 14,600 Xerox Corp., 6.250% (Cost -- $2,069,846).................... 2,158,026 --------------------------------------------------------------------------------------------------
FACE AMOUNT RATING(B) -------------------------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.1% -------------------------------------------------------------------------------------------------- TECHNOLOGY -- 0.1% SEMICONDUCTOR EQUIPMENT -- 0.1% $ 240,000 B- ASM International N.V., Sub. Notes, 4.250% due 12/6/11(c) (Cost -- $246,065)........................................ $ 254,100 -------------------------------------------------------------------------------------------------- WARRANTS -------------------------------------------------------------------------------------------------- WARRANTS(A) -- 0.00% -------------------------------------------------------------------------------------------------- COMMUNICATIONS -- 0.0% TELECOMMUNICATIONS -- 0.0% 1,715 Lucent Technologies Inc., Expire 12/10/07 (Cost -- $0)...... 2,710 --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 17 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 EQUITY INCOME PORTFOLIO
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.7% $6,174,000 State Street Bank & Trust Co. dated 12/31/04, 2.050% due 1/3/05; Proceeds at maturity -- $6,175,055; (Fully collateralized by Federal Home Loan Bank Notes, 1.625% due 6/17/05; Market value -- $6,299,599) (Cost -- $6,174,000)...................................... $ 6,174,000 -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 99.7% (Cost -- $321,940,391*).......... 357,639,711 Assets in Excess of Other Liabilities -- 0.3%............... 1,202,750 -------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $358,842,461 --------------------------------------------------------------------------------------------------
(a) Non-income producing security. (b) All ratings are by Standard & Poor's Ratings Service. (c) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. These securities have been deemed liquid pursuant to guidelines established by the Board of Trustees. * Aggregate cost for federal income tax purposes is $322,142,423. Abbreviations used in this schedule: ADR -- American Depositary Receipt REIT -- Real Estate Investment Trust Bond Ratings (unaudited): 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. B -- Bonds rated "B" are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents a lower degree of speculation than "B", "CCC" 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.
SEE NOTES TO FINANCIAL STATEMENTS. 18 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LARGE CAP PORTFOLIO
SHARES SECURITY VALUE --------------------------------------------------------------------------------------- COMMON STOCK -- 98.8% --------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 14.1% HOTELS, RESTAURANTS & LEISURE -- 0.6% 117,603 Hilton Group PLC............................................ $ 641,005 190,321 Rank Group PLC.............................................. 962,613 --------------------------------------------------------------------------------------- 1,603,618 --------------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL -- 0.7% 16,600 eBay Inc. (a)............................................... 1,930,248 --------------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS -- 0.2% 40,500 Konica Minolta Holdings, Inc. .............................. 536,163 --------------------------------------------------------------------------------------- MEDIA -- 6.9% 16,348 Antena 3 de Television SA (a)............................... 1,176,225 28,324 British Sky Broadcasting PLC, Sponsored ADR................. 1,236,909 53,650 Citadel Broadcasting Co. (a)................................ 868,057 36,900 Comcast Corp., Special Class A Shares (a)................... 1,211,796 319,800 Time Warner Inc. (a)........................................ 6,216,912 19,280 Tribune Co. ................................................ 812,459 29,900 Vivendi Universal SA, Sponsored ADR......................... 958,893 219,100 The Walt Disney Co. ........................................ 6,090,980 --------------------------------------------------------------------------------------- 18,572,231 --------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 1.8% 14,000 Tuesday Morning Corp. (a)................................... 428,820 83,400 Wal-Mart Stores, Inc. ...................................... 4,405,188 --------------------------------------------------------------------------------------- 4,834,008 --------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 2.3% 10,600 CDW Corp. .................................................. 703,310 40,200 The Gap, Inc. .............................................. 849,024 104,900 The Home Depot, Inc. ....................................... 4,483,426 --------------------------------------------------------------------------------------- 6,035,760 --------------------------------------------------------------------------------------- TEXTILES & APPAREL -- 1.6% 27,400 Nike, Inc., Class B Shares.................................. 2,484,906 44,900 Polo Ralph Lauren Corp. .................................... 1,912,740 --------------------------------------------------------------------------------------- 4,397,646 --------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 37,909,674 --------------------------------------------------------------------------------------- CONSUMER STAPLES -- 5.8% BEVERAGES -- 1.2% 36,700 The Coca-Cola Co. .......................................... 1,527,821 33,700 PepsiCo, Inc. .............................................. 1,759,140 --------------------------------------------------------------------------------------- 3,286,961 ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 19 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LARGE CAP PORTFOLIO
SHARES SECURITY VALUE --------------------------------------------------------------------------------------- FOOD & DRUG RETAILING -- 1.1% 71,800 Safeway Inc. (a)............................................ $ 1,417,332 39,100 Walgreen Co. ............................................... 1,500,267 --------------------------------------------------------------------------------------- 2,917,599 --------------------------------------------------------------------------------------- FOOD PRODUCTS -- 0.6% 35,200 Kellogg Co. ................................................ 1,572,032 --------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 1.0% 50,500 The Procter & Gamble Co. ................................... 2,781,540 --------------------------------------------------------------------------------------- PERSONAL PRODUCTS -- 1.9% 49,050 Alberto-Culver Co., Class B Shares.......................... 2,382,359 57,400 The Gillette Co. ........................................... 2,570,372 --------------------------------------------------------------------------------------- 4,952,731 --------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES...................................... 15,510,863 --------------------------------------------------------------------------------------- ENERGY -- 6.2% ENERGY EQUIPMENT & SERVICES -- 2.2% 27,100 Baker Hughes Inc. .......................................... 1,156,357 68,700 Schlumberger Ltd. .......................................... 4,599,465 --------------------------------------------------------------------------------------- 5,755,822 --------------------------------------------------------------------------------------- OIL & GAS -- 4.0% 49,700 ChevronTexaco Corp. ........................................ 2,609,747 99,700 Exxon Mobil Corp. .......................................... 5,110,622 23,300 Occidental Petroleum Corp. ................................. 1,359,788 36,100 Valero Energy Corp. ........................................ 1,638,940 --------------------------------------------------------------------------------------- 10,719,097 --------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 16,474,919 --------------------------------------------------------------------------------------- FINANCIALS -- 12.8% BANKS -- 3.4% 66,600 Bank of America Corp. ...................................... 3,129,534 37,300 The Bank of New York Co., Inc. ............................. 1,246,566 45,900 Wachovia Corp. ............................................. 2,414,340 38,100 Wells Fargo & Co. .......................................... 2,367,915 --------------------------------------------------------------------------------------- 9,158,355 --------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 6.7% 93,300 American Express Co. ....................................... 5,259,321 48,500 Ameritrade Holding Corp. (a)................................ 689,670 83,500 The Charles Schwab Corp. ................................... 998,660 19,455 Deutsche Boerse AG.......................................... 1,166,169 52,296 JPMorgan Chase & Co. ....................................... 2,040,067 47,100 Knight Trading Group, Inc. (a).............................. 515,745 85,600 MBNA Corp. ................................................. 2,413,064 88,400 Morgan Stanley.............................................. 4,907,968 --------------------------------------------------------------------------------------- 17,990,664 ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LARGE CAP PORTFOLIO
SHARES SECURITY VALUE --------------------------------------------------------------------------------------- INSURANCE -- 2.7% 15,100 AFLAC Inc. ................................................. $ 601,584 20,300 Ambac Financial Group, Inc. ................................ 1,667,239 75,390 American International Group, Inc. ......................... 4,950,861 --------------------------------------------------------------------------------------- 7,219,684 --------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 34,368,703 --------------------------------------------------------------------------------------- HEALTHCARE -- 10.7% BIOTECHNOLOGY -- 2.8% 42,800 Biogen Idec Inc. (a)........................................ 2,850,908 38,200 Cephalon, Inc. (a).......................................... 1,943,616 23,100 Genentech, Inc. (a)......................................... 1,257,564 48,000 Millennium Pharmaceuticals, Inc. (a)........................ 581,760 43,120 Protein Design Labs, Inc. (a)............................... 890,859 --------------------------------------------------------------------------------------- 7,524,707 --------------------------------------------------------------------------------------- HEALTHCARE EQUIPMENT & SUPPLIES -- 1.4% 28,400 Baxter International, Inc. ................................. 980,936 55,400 Medtronic, Inc. ............................................ 2,751,718 --------------------------------------------------------------------------------------- 3,732,654 --------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 0.9% 28,600 UnitedHealth Group Inc. .................................... 2,517,658 --------------------------------------------------------------------------------------- PHARMACEUTICALS -- 5.6% 24,200 Allergan, Inc. ............................................. 1,961,894 49,100 Johnson & Johnson........................................... 3,113,922 37,380 Merck & Co. Inc. ........................................... 1,201,393 163,160 Pfizer Inc. ................................................ 4,387,372 24,041 Roche Holding AG............................................ 2,758,078 35,100 Wyeth....................................................... 1,494,909 --------------------------------------------------------------------------------------- 14,917,568 --------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 28,692,587 --------------------------------------------------------------------------------------- INDUSTRIALS -- 19.0% AEROSPACE & DEFENSE -- 3.3% 22,200 Armor Holdings, Inc. (a).................................... 1,043,844 58,300 The Boeing Co. ............................................. 3,018,191 14,000 L-3 Communications Holdings, Inc. .......................... 1,025,360 11,000 Precision Castparts Corp. .................................. 722,480 29,300 United Technologies Corp. .................................. 3,028,155 --------------------------------------------------------------------------------------- 8,838,030 --------------------------------------------------------------------------------------- AIR FREIGHT & COURIERS -- 0.3% 19,000 Ryder Systems, Inc. ........................................ 907,630 ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 21 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LARGE CAP PORTFOLIO
SHARES SECURITY VALUE --------------------------------------------------------------------------------------- AIRLINES -- 0.6% 17,000 Ryanair Holdings PLC, Sponsored ADR (a)..................... $ 692,750 59,400 Southwest Airlines Co. ..................................... 967,032 --------------------------------------------------------------------------------------- 1,659,782 --------------------------------------------------------------------------------------- BUILDING PRODUCTS -- 0.8% 48,900 American Standard Cos. Inc. (a)............................. 2,020,548 --------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 1.0% 29,600 DST Systems, Inc. (a)....................................... 1,542,752 35,800 Monster Worldwide Inc. (a).................................. 1,204,312 --------------------------------------------------------------------------------------- 2,747,064 --------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 7.4% 14,900 3M Co. ..................................................... 1,222,843 248,600 General Electric Co. ....................................... 9,073,900 112,300 Honeywell International Inc. ............................... 3,976,543 158,400 Tyco International Ltd. .................................... 5,661,216 --------------------------------------------------------------------------------------- 19,934,502 --------------------------------------------------------------------------------------- MACHINERY -- 3.8% 54,500 AGCO Corp. (a).............................................. 1,193,005 51,600 Caterpillar Inc. ........................................... 5,031,516 26,500 Deere & Co. ................................................ 1,971,600 50,125 Graco Inc. ................................................. 1,872,169 --------------------------------------------------------------------------------------- 10,068,290 --------------------------------------------------------------------------------------- MARINE -- 0.0% 2,200 Alexander & Baldwin, Inc.................................... 93,324 --------------------------------------------------------------------------------------- ROAD & RAIL -- 1.1% 78,100 Norfolk Southern Corp. ..................................... 2,826,439 --------------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS -- 0.7% 17,700 MSC Industrial Direct Co., Inc. Class A Shares.............. 636,846 17,900 W.W. Grainger, Inc. ........................................ 1,192,498 --------------------------------------------------------------------------------------- 1,829,344 --------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 50,924,953 --------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 23.6% COMMUNICATIONS EQUIPMENT -- 3.7% 283,361 Cisco Systems, Inc. (a)..................................... 5,468,867 53,200 Juniper Networks, Inc. (a).................................. 1,446,508 93,000 Motorola, Inc. ............................................. 1,599,600 35,100 QUALCOMM Inc. .............................................. 1,488,240 --------------------------------------------------------------------------------------- 10,003,215 ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 22 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LARGE CAP PORTFOLIO
SHARES SECURITY VALUE --------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 5.6% 49,300 Apple Computer, Inc. (a).................................... $ 3,174,920 145,000 Dell Inc. (a)............................................... 6,110,300 160,900 EMC Corp. (a)............................................... 2,392,583 26,700 International Business Machines Corp. ...................... 2,632,086 22,400 Storage Technology Corp. (a)................................ 708,064 --------------------------------------------------------------------------------------- 15,017,953 --------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.8% 198,000 Hon Hai Precision Industry Co., Ltd. ....................... 915,571 31,300 Molex, Inc. ................................................ 939,000 223,800 Solectron Corp. (a)......................................... 1,192,854 27,100 Thermo Electron Corp. (a)................................... 818,149 53,700 Vishay Intertechnology, Inc. (a)............................ 806,574 --------------------------------------------------------------------------------------- 4,672,148 --------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 2.0% 102,786 CNET Networks, Inc. (a)..................................... 1,154,287 114,500 Yahoo! Inc. (a)............................................. 4,314,360 --------------------------------------------------------------------------------------- 5,468,647 --------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 5.8% 68,700 Altera Corp. (a)............................................ 1,422,090 70,000 Analog Devices, Inc. ....................................... 2,584,400 50,800 Applied Materials, Inc. (a)................................. 868,680 179,900 Intel Corp. ................................................ 4,207,861 12,300 KLA-Tencor Corp. (a)........................................ 572,934 56,500 Marvell Technology Group Ltd. (a)........................... 2,004,055 22,600 Microchip Technology Inc. .................................. 602,516 77,800 Texas Instruments Inc. ..................................... 1,915,436 12,500 Tokyo Electron Ltd. ........................................ 767,789 20,300 Xilinx, Inc. ............................................... 601,895 --------------------------------------------------------------------------------------- 15,547,656 --------------------------------------------------------------------------------------- SOFTWARE -- 4.7% 57,150 Ascential Software Corp. (a)................................ 932,117 381,900 Microsoft Corp. ............................................ 10,200,549 106,800 Oracle Corp. (a)............................................ 1,465,296 --------------------------------------------------------------------------------------- 12,597,962 --------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 63,307,581 --------------------------------------------------------------------------------------- MATERIALS -- 1.7% CHEMICALS -- 1.4% 68,400 Monsanto Co. ............................................... 3,799,620 --------------------------------------------------------------------------------------- METALS & MINING -- 0.3% 17,600 Newmont Mining Corp. ....................................... 781,616 --------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 4,581,236 ---------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 23 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LARGE CAP PORTFOLIO
SHARES SECURITY VALUE --------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 4.5% DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.2% 31,100 Philippine Long Distance Telephone Co. (a).................. $ 775,323 38,200 PT Indonesian Satellite Corp., ADR.......................... 1,191,076 62,900 PT Telekomunikasi Indonesia, Sponsored ADR.................. 1,322,158 50,800 SBC Communications Inc. .................................... 1,309,116 97,400 Verizon Communications Inc. ................................ 3,945,674 --------------------------------------------------------------------------------------- 8,543,347 --------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.3% 67,800 Nextel Communications, Inc., Class A Shares (a)............. 2,034,000 74,300 Nextel Partners, Inc. (a)................................... 1,451,822 --------------------------------------------------------------------------------------- 3,485,822 --------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 12,029,169 --------------------------------------------------------------------------------------- UTILITIES -- 0.4% ELECTRIC UTILITIES -- 0.4% 23,100 Exelon Corp. ............................................... 1,018,017 --------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $243,909,178)................... 264,817,702 --------------------------------------------------------------------------------------- WARRANTS --------------------------------------------------------------------------------------- WARRANTS -- 0.0% --------------------------------------------------------------------------------------- COMMUNICATIONS -- 0.0% TELECOMMUNICATIONS -- 0.0% 9,536 Lucent Technologies Inc. Expire 12/10/07 (Cost -- $0)....... 15,067 --------------------------------------------------------------------------------------- FACE AMOUNT --------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 2.0% $5,488,000 State Street Bank & Trust Co., dated 12/31/04, 2.050% due 1/3/05; Proceeds at maturity -- $5,488,938; (Fully collateralized by Fannie Mae Floating Rate Notes, 2.590% due 7/3/18; Market value -- $5,599,781) (Cost -- $5,488,000)...................................... 5,488,000 --------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.8% (Cost -- $249,397,178*)......... 270,320,769 Liabilities in Excess of Other Assets -- (0.8%)............. (2,160,347) --------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $268,160,422 ---------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for federal income tax purposes is $250,069,987. Abbreviation used in this schedule: ADR -- American Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. 24 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
EQUITY INCOME LARGE CAP PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------ ASSETS: Investments, at cost...................................... $321,940,391 $249,397,178 Foreign currency, at cost................................. 664 123,628 ------------------------------------------------------------------------------------------ Investments, at value..................................... $357,639,711 $270,320,769 Foreign currency, at value................................ 723 127,620 Cash...................................................... 274 49 Receivable for securities sold............................ 2,915,358 1,050,757 Dividends and interest receivable......................... 459,219 236,975 Other receivables......................................... 43,600 13,960 Prepaid expenses.......................................... 1,759 -- Receivable for Fund shares sold........................... -- 250 ------------------------------------------------------------------------------------------ TOTAL ASSETS.............................................. 361,060,644 271,750,380 ------------------------------------------------------------------------------------------ LIABILITIES: Payable for securities purchased.......................... 1,404,566 1,934,474 Payable for Fund shares reacquired........................ 506,490 1,415,039 Investment advisory fees payable.......................... 203,756 168,067 Administration fees payable............................... 34,100 13,492 Trustees' fees payable.................................... 2,300 2,000 Payable for foreign currency contracts.................... -- 135 Accrued expenses.......................................... 66,971 56,751 ------------------------------------------------------------------------------------------ TOTAL LIABILITIES......................................... 2,218,183 3,589,958 ------------------------------------------------------------------------------------------ TOTAL NET ASSETS............................................ $358,842,461 $268,160,422 ------------------------------------------------------------------------------------------ NET ASSETS: Paid-in capital (Note 4).................................. $318,162,766 $348,842,230 Undistributed net investment income....................... 78,439 135 Accumulated net realized gain (loss) from investment transactions and foreign currencies..................... 4,901,877 (101,611,678) Net unrealized appreciation of investments and foreign currencies.............................................. 35,699,379 20,929,735 ------------------------------------------------------------------------------------------ TOTAL NET ASSETS............................................ $358,842,461 $268,160,422 ------------------------------------------------------------------------------------------ SHARES OUTSTANDING.......................................... 20,903,670 19,247,574 ------------------------------------------------------------------------------------------ NET ASSET VALUE, PER SHARE.................................. $17.17 $13.93 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 25 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
EQUITY INCOME LARGE CAP PORTFOLIO PORTFOLIO ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends................................................. $ 6,932,019 $ 4,044,026 Interest.................................................. 108,529 82,990 Less: Foreign withholding tax............................. (3,753) (20,560) ----------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................... 7,036,795 4,106,456 ----------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2)......................... 2,383,119 1,848,132 Administration fees (Note 2).............................. 191,813 147,939 Custody................................................... 68,734 38,264 Audit and legal........................................... 50,173 54,642 Shareholder communications................................ 27,269 20,687 Trustees' fees............................................ 9,327 6,777 Transfer agency services (Note 2)......................... 2,500 2,500 Other..................................................... 2,549 1,184 ----------------------------------------------------------------------------------------- TOTAL EXPENSES............................................ 2,735,484 2,120,125 Less: Expense reimbursement and fee waiver (Notes 2 and 7)...................................................... (5,362) (5,362) ----------------------------------------------------------------------------------------- NET EXPENSES.............................................. 2,730,122 2,114,763 ----------------------------------------------------------------------------------------- NET INVESTMENT INCOME....................................... 4,306,673 1,991,693 ----------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES (NOTES 1 AND 3): Realized Gain (Loss) From: Investment transactions................................. 14,556,084 7,903,448 Foreign currency transactions........................... (46) 2,018 ----------------------------------------------------------------------------------------- NET REALIZED GAIN......................................... 14,556,038 7,905,466 ----------------------------------------------------------------------------------------- Net Change in Unrealized Appreciation/Depreciation From: Investments............................................. 13,069,515 7,148,654 Foreign currencies...................................... 50 4,741 ----------------------------------------------------------------------------------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION........ 13,069,565 7,153,395 ----------------------------------------------------------------------------------------- NET GAIN ON INVESTMENTS AND FOREIGN CURRENCIES.............. 27,625,603 15,058,861 ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS...................... $31,932,276 $17,050,554 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 26 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
EQUITY INCOME PORTFOLIO 2004 2003 ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 4,306,673 $ 2,400,537 Net realized gain......................................... 14,556,038 21,170,113 Net change in unrealized appreciation/depreciation........ 13,069,565 41,407,182 ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 31,932,276 64,977,832 ----------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................... (4,384,748) (2,393,549) Net realized gains........................................ (15,860,220) -- ----------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS............................................ (20,244,968) (2,393,549) ----------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 49,762,623 54,800,464 Net asset value of shares issued for reinvestment of dividends and distributions............................. 20,244,968 2,393,549 Cost of shares reacquired................................. (20,346,265) (13,294,129) ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 49,661,326 43,899,884 ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 61,348,634 106,484,167 NET ASSETS: Beginning of year......................................... 297,493,827 191,009,660 ----------------------------------------------------------------------------------------- END OF YEAR*.............................................. $358,842,461 $297,493,827 ----------------------------------------------------------------------------------------- * Includes undistributed net investment income of: ......... $78,439 $207,403 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 27 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
LARGE CAP PORTFOLIO 2004 2003 ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income..................................... $ 1,991,693 $ 795,435 Net realized gain (loss).................................. 7,905,466 (4,045,358) Net change in unrealized appreciation/depreciation........ 7,153,395 47,412,211 ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 17,050,554 44,162,288 ----------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income..................................... (2,103,304) (808,832) ----------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS TO SHAREHOLDERS..... (2,103,304) (808,832) ----------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.......................... 54,371,360 25,978,086 Net asset value of shares issued for reinvestment of dividends............................................... 2,103,304 808,832 Cost of shares reacquired................................. (31,061,137) (22,203,616) ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS....... 25,413,527 4,583,302 ----------------------------------------------------------------------------------------- INCREASE IN NET ASSETS...................................... 40,360,777 47,936,758 NET ASSETS: Beginning of year......................................... 227,799,645 179,862,887 ----------------------------------------------------------------------------------------- END OF YEAR*.............................................. $268,160,422 $227,799,645 ----------------------------------------------------------------------------------------- * Includes undistributed net investment income of: ......... $135 $39,202 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 28 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31:
EQUITY INCOME PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1) --------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................... $16.59 $12.75 $14.99 $16.26 $15.05 --------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income.............................. 0.21 0.14 0.16 0.20 0.13 Net realized and unrealized gain (loss)............ 1.39 3.83 (2.25) (1.27) 1.24 --------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations.................. 1.60 3.97 (2.09) (1.07) 1.37 --------------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income.............................. (0.22) (0.13) (0.15) (0.16) (0.16) Net realized gains................................. (0.80) -- -- (0.04) -- --------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions.................... (1.02) (0.13) (0.15) (0.20) (0.16) --------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR......................... $17.17 $16.59 $12.75 $14.99 $16.26 --------------------------------------------------------------------------------------------------------------- TOTAL RETURN(2)...................................... 9.88% 31.17% (13.94)% (6.61)% 9.13% --------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S)...................... $358,842 $297,494 $191,010 $200,389 $170,727 --------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)........................................ 0.85%(4) 0.87% 0.84% 0.85% 0.87% Net investment income.............................. 1.35 1.11 1.14 1.28 1.17 --------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.............................. 119% 141% 131% 121% 151% ---------------------------------------------------------------------------------------------------------------
(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 0.95%. (4) During the year ended December 31, 2004, Smith Barney Fund Management LLC voluntarily waived a portion of its fees and/or reimbursed the Fund for certain expenses. If such fees were not voluntarily waived and/or reimbursed, the actual expense ratio would have been 0.86%. SEE NOTES TO FINANCIAL STATEMENTS. 29 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
LARGE CAP PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1) ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR................. $13.18 $10.61 $13.82 $16.81 $21.11 ------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income............................ 0.10 0.05 0.05 0.07 0.03 Net realized and unrealized gain (loss).......... 0.76 2.57 (3.20) (2.98) (3.05) ------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations................ 0.86 2.62 (3.15) (2.91) (3.02) ------------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income............................ (0.11) (0.05) (0.06) (0.07) (0.02) In excess of net investment income............... -- -- -- -- (0.01) Net realized gains............................... -- -- -- (0.01) (0.94) In excess of net realized gains.................. -- -- -- -- (0.31) ------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions.................. (0.11) (0.05) (0.06) (0.08) (1.28) ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR....................... $13.93 $13.18 $10.61 $13.82 $16.81 ------------------------------------------------------------------------------------------------------------- TOTAL RETURN(2).................................... 6.52% 24.67% (22.79)% (17.33)% (14.48)% ------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000'S).................... $268,160 $227,800 $179,863 $249,292 $277,897 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)...................................... 0.86%(4) 0.86% 0.85% 0.83% 0.84% Net investment income............................ 0.81 0.43 0.44 0.50 0.15 ------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE............................ 56% 60% 95% 131% 96% -------------------------------------------------------------------------------------------------------------
(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 0.95%. (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 reimbursed, the actual expense ratio would have been the same. SEE NOTES TO FINANCIAL STATEMENTS. 30 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Equity Income and Large Cap Portfolios ("Fund(s)") are separate diversified investment funds of The Travelers Series Trust ("Trust"). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Shares of the Trust are offered exclusively for use with certain variable annuity and variable life insurance contracts offered through separate accounts of various 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 traded in the over-the-counter market and listed securities for which no sales prices were reported are valued at the mean between the bid and asked prices. 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 primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges. Bonds and other fixed income securities (other than short-term obligations) are valued on the basis of valuations furnished by a pricing service, which has been approved by the Board of Trustees. When market quotations or official closing prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before 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 or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Funds may be delayed or limited. (C) FORWARD FOREIGN CURRENCY CONTRACTS. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The contract is marked-to-market daily and the change in value is recorded by the Funds as an unrealized gain or loss. When a forward foreign currency contract is extinguished, through either delivery or offset by entering into another forward foreign currency contract, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was extinguished or offset. The Funds bear the market risk that arises from changes in foreign currency exchange rates and the credit risk should a counterparty fail to meet the terms of such contracts. (D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Funds determine the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. (E) 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. (F) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net investment income and distributions of net realized gains to shareholders of the Funds, if any, are declared at least annually. Dividends and distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP. 31 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) (G) FEDERAL AND OTHER TAXES. It is the Funds' policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (H) 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, $50,889 has been reclassified between accumulated net investment income and accumulated net realized gain from investment transactions due to book/tax differences attributed to distributions from Real Estate Investment Trusts and differences between book foreign currency transactions treated as ordinary income for tax purposes for Equity Income Portfolio. Additionally, $70,526 has been reclassified between paid-in capital and accumulated net investment income as a result of permanent differences attributable to an overdistribution of net investment income, and $2,018 has been reclassified between accumulated net realized loss from investment transactions and accumulated net investment income due to differences between book foreign currency transactions treated as ordinary income for tax purposes for Large Cap Portfolio. These reclassifications have no effect on net assets or net asset values per share. 2. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly owned subsidiary of Citigroup, Inc. provides the Funds with investment management related services. Prior to September 1, 2004, TAMIC received an investment advisory fee calculated at the annual rate of 0.75% 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 Fidelity Management & Research Company ("FMR"). Pursuant to the sub-advisory agreement FMR is responsible for the day-to-day fund operations and investment decisions. Prior to September 1, 2004, for its services as each Fund's sub-adviser, FMR was paid a portion of TAMIC's management fee computed at an annual rate of 0.45% of each Fund's respective average daily net assets. Effective September 1, 2004, the investment advisory fee and sub-advisory fee were revised from the annual rates of 0.75% and 0.45%, respectively, of the average daily net assets of each Fund, to a fee calculated at the annual rates in accordance with the following schedule:
INVESTMENT SUB-ADVISORY ADVISORY FEE FEE ----------------------------------------------------------------------------------------- AVERAGE DAILY NET ASSETS First $250 million.......................................... 0.75% 0.45% Next $500 million........................................... 0.70% 0.40% Over $750 million........................................... 0.65% 0.35% -----------------------------------------------------------------------------------------
The Travelers Insurance Company ("TIC"), another 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 each respective Fund's average daily net assets. The fee is calculated daily and paid monthly. TIC has entered into a sub-administration 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 respective average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund's respective average daily net assets. Previously, Fidelity Service Company, Inc., an affiliate of FMR, maintained each Fund's accounting records. During the year ended December 31, 2004, Equity Income Portfolio and Large Cap Portfolio both had a contractual expense limitation in place of 0.95%. This expense limitation is renewed annually and can be terminated at any time by TIC with 60 days' notice. During the year ended December 31, 2004, SBFM voluntarily waived a portion of its fee payable from both the Equity Income Portfolio and Large Cap Portfolio in the amount of $111 from each fund. In addition, SBFM reimbursed expenses in the amount of $5,251 for each Fund in connection with the overpayment of transfer agency 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 approximately $2,500 to CTB. 32 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) For the year ended December 31, 2004, Citigroup Global Markets Inc., another indirect wholly-owned subsidiary of Citigroup, or its affiliates received brokerage commissions of $168 for Large Cap Portfolio. One Trustee and all officers 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 ------------------------------------------------------------------------------------------ Equity Income Portfolio..................................... $400,419,507 $371,999,807 Large Cap Portfolio......................................... 162,587,860 134,965,491 ------------------------------------------------------------------------------------------
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 -------------------------------------------------------------------------------------------------------- Equity Income Portfolio..................................... $42,496,072 $(6,998,784) $35,497,288 Large Cap Portfolio......................................... 35,741,992 (15,491,210) 20,250,782 --------------------------------------------------------------------------------------------------------
At December 31, 2004, Large Cap Portfolio had open forward foreign currency contracts as described below. The unrealized loss on the contracts reflected in the financial statements was as follows:
LOCAL MARKET SETTLEMENT UNREALIZED FOREIGN CURRENCY CURRENCY VALUE DATE LOSS ----------------------------------------------------------------------------------------------------------- CONTRACTS TO BUY: Japanese Yen................................................ 677,675 $ 6,597 1/4/05 $ (17) Japanese Yen................................................ 675,500 6,575 1/5/05 (71) Japanese Yen................................................ 1,358,627 13,225 1/6/05 (47) ----------------------------------------------------------------------------------------------------------- NET UNREALIZED LOSS ON OPEN FORWARD FOREIGN CURRENCY CONTRACTS................................ $(135) -----------------------------------------------------------------------------------------------------------
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 --------------------------------------------------------------------------------------------------- EQUITY INCOME PORTFOLIO Shares sold................................................. 2,991,545 3,752,047 Shares issued on reinvestment............................... 1,203,210 144,451 Shares reacquired........................................... (1,225,319) (944,979) --------------------------------------------------------------------------------------------------- Net Increase................................................ 2,969,436 2,951,519 --------------------------------------------------------------------------------------------------- LARGE CAP PORTFOLIO Shares sold................................................. 4,158,997 2,190,153 Shares issued on reinvestment............................... 150,788 61,461 Shares reacquired........................................... (2,340,686) (1,928,969) --------------------------------------------------------------------------------------------------- Net Increase................................................ 1,969,099 322,645 ---------------------------------------------------------------------------------------------------
33 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. COMMISSION RECAPTURE PROGRAM In addition to trade execution, many of the brokers with whom FMR places trades pay for certain expenses of these Funds or provide other services. During the year ended December 31, 2004, the Funds received cash rebates from these brokers in lieu of additional services or expense reductions. The amounts of these rebates, included in realized gains in the statement of operations, are noted below.
BROKERAGE SERVICE ARRANGEMENTS -------------------------------------------------------------------------- Equity Income Portfolio..................................... $139,976 Large Cap Portfolio......................................... 44,824 --------------------------------------------------------------------------
Certain amounts on the prior year statements of changes in net assets with respect to these arrangements have been reclassified to conform with the current year presentation. 6. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal year ended December 31, 2004 was as follows:
EQUITY INCOME LARGE CAP PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income........................................... $12,673,525 $2,103,304 Net Long-term Capital Gains............................... 7,571,443 -- ------------------------------------------------------------------------------------------- Total Distributions Paid.................................... $20,244,968 $2,103,304 -------------------------------------------------------------------------------------------
The tax character of distributions paid during the fiscal year ended December 31, 2003 was as follows:
EQUITY INCOME LARGE CAP PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------- Ordinary Income............................................. $ 2,393,549 $ 808,832 -------------------------------------------------------------------------------------------
As of December 31, 2004, the components of accumulated earnings on a tax basis were as follows:
EQUITY INCOME LARGE CAP PORTFOLIO PORTFOLIO ---------------------------------------------------------------------------------------------- Undistributed ordinary income -- net........................ $ 881,261 $ -- Undistributed long-term capital gains -- net................ 4,301,088 -- ---------------------------------------------------------------------------------------------- Total undistributed earnings................................ $ 5,182,349 -- Capital loss carryforward(1)................................ -- $(100,628,014) Other book/tax temporary differences(2)..................... -- (310,720) Unrealized appreciation(3).................................. 35,497,347 20,256,926 ---------------------------------------------------------------------------------------------- Total accumulated earnings/(losses) -- net.................. $40,679,696 $ (80,681,808) ----------------------------------------------------------------------------------------------
(1) On December 31, 2004 the Fund had net capital loss carryforwards as follows:
YEAR OF LARGE CAP EXPIRATION PORTFOLIO ------------------------ 12/31/2009.. 34,154,428 12/31/2010.. 52,058,326 12/31/2011.. 14,415,260 ------------------------ $100,628,014 ------------------------
These amounts will be available to offset any future capital gains. 34 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) (2) Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized gains/(losses) on certain foreign currency contracts and the deferral of post-October capital losses for tax purposes. (3) The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales, the difference between book & tax amortization methods for premiums and discounts on fixed income securities and the difference between book & tax cost basis on real-estate investment trusts. 7. 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. 8. 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. 35 -------------------------------------------------------------------------------- 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 Equity Income Portfolio and Large Cap Portfolio of The Travelers Series Trust (the "Trust"), as of December 31, 2004 and the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the years in the two-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. The financial highlights for each of the years in the three-year period ended December 31, 2002 were audited by other auditors whose report thereon dated February 12, 2003, expressed an unqualified opinion on the financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Equity Income Portfolio and Large Cap Portfolio of The Travelers Series Trust as of December 31, 2004, and the results of their operations for the year then ended, and the changes in their net assets and the financial highlights for each of the years in the two-year period then ended, in conformity with U.S. generally accepted accounting principles. [KPMG LLP SIGNATURE] New York, New York February 18, 2005 36 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) 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, CFA, CFP Trustee Since 1991 Private Investor 5 Board of Managers of 6 108 Oxford Hill Lane Variable Annuity Downingtown, PA Separate Accounts of TIC Birth Year: 1948 Lewis Mandell Trustee Since 1990 Professor, University of 5 Delaware North Corp.; 160 Jacobs Hall Buffalo Board of Managers of 6 Buffalo, NY Variable Annuity Birth Year: 1943 Separate Accounts of TIC Robert E. McGill, III Trustee Since 1990 Retired 5 Lydall Inc.; Board of 295 Hancock Road Managers of 6 Variable Williamstown, MA Annuity Separate Birth Year: 1931 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 ("CGM"); Managers of 6 Variable ("CAM") Chief Chairman, President and Chief Annuity Separate 399 Park Avenue, 4th Floor Executive Executive Officer of Smith Accounts of TIC New York, NY 10022 Officer and Barney Fund Management LLC Birth Year: 1951 Trustee ("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)
37 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (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 2004 Director of CAM; Senior Vice N/A N/A CAM President and President and Chief 125 Broad Street Chief Administrative Officer of 11th 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 Officer and Treasurer of certain mutual 11th 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) William D. Wilcox Chief Anti- Since 2004 Counsel and Chief Compliance N/A N/A Travelers Life & Money Officer (since 1999); The Annuity Laundering Travelers Insurance Company; One Cityplace Compliance Chief AML Compliance (since Hartford, CT 06103 Officer and 2002), six Variable Annuity Birth Year: 1964 Chief Separate Accounts of The Compliance Travelers Insurance Company; Officer Chief Compliance Officer (since 2004), 5 Mutual Funds and 6 variable separate accounts sponsored by TIC.
38 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (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 --------------------------------------------------------------------------------------------------------------------------- Andrew Beagley Chief Anti- Since 2002 Director of CGM (since 2000); N/A N/A CAM Money Director of Compliance, North 399 Park Avenue, Laundering America, CAM (since 2000); 4th Floor Compliance Chief Anti-Money Laundering New York, NY 10022 Officer Compliance Officer Chief Birth Year: 1962 Compliance Officer and Vice President of certain mutual funds associated with Citigroup; Director of Compliance, Europe, the Middle East and Africa, Citigroup Asset Management (from 1999 to 2000); Compliance Officer, SBFM, CFM, TIA, Salomon Brothers Asset Management Limited, Smith Barney Global Capital Management Inc. Kathleen A. McGah Secretary Since 2004 Deputy General Counsel of TIC; N/A N/A Travelers Life & Assistant Secretary of 5 Annuity mutual funds and 6 variable One Cityplace separate accounts sponsored by Hartford, CT 06103 TIC (from 1995 to 2004) Birth Year: 1950 Ernest J. Wright Assistant Since 2004 Vice President and Secretary N/A N/A Travelers Life & Secretary of TIC; Secretary of 5 mutual Annuity funds and 6 variable separate One Cityplace accounts sponsored by TIC Hartford, CT 06103 (from 1994 to 2004) Birth Year: 1940
--------------- (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. 39 -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION (UNAUDITED) The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2004:
EQUITY INCOME LARGE CAP PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------- Record Date: 6/24/2004 6/24/2004 Payable Date: 6/25/2004 6/25/2004 -------------------------------------------------------------------------------------- Dividends Qualifying for the Dividends Received Deduction for Corporations 44.96% 100.00% -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- Record Date: 12/27/2004 12/27/2004 Payable Date: 12/28/2004 12/28/2004 -------------------------------------------------------------------------------------- Dividends Qualifying for the Dividends Received Deduction for Corporations 97.73% 100.00% -------------------------------------------------------------------------------------- Long-Term Capital Gain Dividend $ 0.375600 $ -- --------------------------------------------------------------------------------------
Please retain this information for your records. 40 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 R. Jay Gerken, CFA State Street Bank and Trust Company President and Chief Executive Officer TRANSFER AGENT Andrew B. Shoup Citicorp Trust Bank, fsb. Senior Vice President and Chief Administrative Officer Kaprel Ozsolak Chief Financial Officer and Treasurer Andrew Beagley Chief Anti-Money Laundering Compliance Officer William D. Wilcox Chief 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 and life contract owners and is not an offer of shares of The Travelers Series Trust: Equity Income and Large Cap Portfolios. All the Funds contained in this report may not be available under your variable annuity or life contract. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS SHOULD CONSIDER THE FUNDS' INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the Commission's website at www.sec.gov. The Funds' Forms N-Q may be reviewed and copied at the 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 Funds' website at www.citigroupAM.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. 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 10, 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 10, 2005 By: /s/ KAPREL OZSOLAK (KAPREL OZSOLAK) Chief Financial Officer of THE TRAVELERS SERIES TRUST Date: March 10, 2005