N-CSR 1 y05011nvcsr.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 ART TOP] [UMBRELLA ART BOTTOM] THE TRAVELERS SERIES TRUST: TRAVELERS QUALITY BOND PORTFOLIO LAZARD INTERNATIONAL STOCK PORTFOLIO MFS EMERGING GROWTH PORTFOLIO FEDERATED HIGH YIELD PORTFOLIO FEDERATED STOCK PORTFOLIO DISCIPLINED MID CAP STOCK PORTFOLIO [TRAVELERS 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 TRAVELERS QUALITY BOND PORTFOLIO: MANAGER OVERVIEW....................................... 4 FUND AT A GLANCE....................................... 6 PERFORMANCE COMPARISON................................. 7 LAZARD INTERNATIONAL STOCK PORTFOLIO: MANAGER OVERVIEW....................................... 8 FUND AT A GLANCE....................................... 10 PERFORMANCE COMPARISON................................. 11 MFS EMERGING GROWTH PORTFOLIO: MANAGER OVERVIEW....................................... 12 FUND AT A GLANCE....................................... 14 PERFORMANCE COMPARISON................................. 15 FEDERATED HIGH YIELD PORTFOLIO: MANAGER OVERVIEW....................................... 16 FUND AT A GLANCE....................................... 18 PERFORMANCE COMPARISON................................. 19 FEDERATED STOCK PORTFOLIO: MANAGER OVERVIEW....................................... 20 FUND AT A GLANCE....................................... 22 PERFORMANCE COMPARISON................................. 23 DISCIPLINED MID CAP STOCK PORTFOLIO: MANAGER OVERVIEW....................................... 24 FUND AT A GLANCE....................................... 26 PERFORMANCE COMPARISON................................. 27 FUND EXPENSES............................................... 28 SCHEDULES OF INVESTMENTS.................................... 30 STATEMENTS OF ASSETS AND LIABILITIES........................ 72 STATEMENTS OF OPERATIONS.................................... 73 STATEMENTS OF CHANGES IN NET ASSETS......................... 74 FINANCIAL HIGHLIGHTS........................................ 76 NOTES TO FINANCIAL STATEMENTS............................... 81 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 89 ADDITIONAL INFORMATION...................................... 90 IMPORTANT TAX INFORMATION................................... 93
-------------------------------------------------------------------------------- LETTER FROM THE CHAIRMAN [R. JAY GERKEN PHOTO] R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer DEAR SHAREHOLDER, The stock market rallied at the start of the past year, but then slid into a fairly limited trading range that endured for most of the year, only to rally again sharply in the fourth quarter. Most major equity market indexes reported reasonable gains for 2004 and several indexes recorded double-digit growth. In many cases, most of those returns were achieved on the performance gains made in November and December alone. Record-high energy prices, rising short-term interest rates, a growing trade deficit, uncertainty over the domestic employment situation, presidential election politics, and the situation in Iraq all pressured the stock market for much of the year. Strength in the domestic economy was fairly selective, with stronger returns seen broadly in the energy, utilities and materials sectors while the information technology, healthcare, consumer staples and financials sectors languished for much of the period. Small capitalization and value-oriented stocks tended to enjoy the strongest performance over the past twelve months, while large-cap and more growth-oriented stocks posted generally positive, but weaker, results. International stocks typically outperformed the broad U.S. market, as foreign returns were boosted by the weaker U.S. dollar, which set record lows against some currencies. Stocks outperformed bonds in general, which suffered late in the year as the U.S. Federal Reserve Board ("Fed")(i) continued to incrementally raise the federal funds rate.(ii) The U.S. economy has entered its fourth year of expansion since the 2001 recession. After a slow start in 2002 and the first half of 2003, the economic expansion has gained traction over the past six quarters as corporations repaired balance sheets and earlier cost-cutting began to pay dividends. Although a series of one-off events -- surging oil prices, hurricanes, the waning effects of 2002-2003 tax cuts, etc. -- undoubtedly restrained growth in 2004, the economy proved resilient enough to grow an average of 4.0% over the past four quarters(iii) and the outlook going forward is for similar performance in 2005. Within this environment, the portfolios performed as follows: PERFORMANCE SNAPSHOT AS OF DECEMBER 31, 2004 (UNAUDITED)
6 MONTHS 12 MONTHS Travelers Quality Bond Portfolio 3.43% 3.29% Lehman Brothers Intermediate Government/Credit Bond Index 3.16% 3.04% Lipper Variable Short-Intermediate Investment Grade Debt Funds Category Average 1.55% 1.62% Lazard International Stock Portfolio 13.92% 15.75% MSCI EAFE GDP Weighted Index 16.07% 22.57% Lipper Variable International Value Funds Category Average 14.43% 20.75% MFS Emerging Growth Portfolio 7.33% 12.73% Russell 3000 Growth Index 3.86% 6.93% Lipper Variable Multi-Cap Growth Funds Category Average 6.09% 10.40% Federated High Yield Portfolio 8.13% 10.38% Lehman Brothers High-Yield Bond Index 9.64% 11.13% Lehman Brothers Aggregate Bond Index 4.18% 4.34% Lipper Variable High Current Yield Funds Category Average 8.73% 9.84% Federated Stock Portfolio 7.14% 10.55% S&P 500/Barra Value Index 11.08% 15.71% Lipper Variable Multi-Cap Value Funds Category Average 9.52% 14.62%
1 PERFORMANCE SNAPSHOT (CONTINUED) AS OF DECEMBER 31, 2004 (UNAUDITED)
6 MONTHS 12 MONTHS Disciplined Mid Cap Stock Portfolio 9.19% 16.45% S&P MidCap 400 Index 9.80% 16.48% Lipper Variable Mid-Cap Core Funds Category Average 9.94% 16.47%
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 GAINS 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 29 funds for the six-month period and among the 29 funds for the 12-month period in the variable short-intermediate investment grade debt funds category. Returns were calculated among the 29 funds for the six-month period and among the 29 funds for the 12-month period in the variable international value funds category. Returns were calculated among the 114 funds for the six-month period and among the 112 funds for the 12-month period in the variable multi-cap growth funds category. Returns were calculated among the 87 funds for the six-month period and among the 85 funds for the 12-month period in the variable high current yield funds category. Returns were calculated among the 89 funds for the six-month period and among the 86 funds for the 12-month period in the variable multi-cap value funds category. Returns were calculated among the 77 funds for the six-month period and among the 77 funds for the 12-month period in the variable mid-cap core funds category. Please read on for a more detailed look at prevailing economic and market conditions during the funds' fiscal year and to learn how those conditions have affected fund performance. INFORMATION ABOUT YOUR FUNDS As you may be aware, several issues in the mutual fund and variable product industry have recently come under the scrutiny of federal and state regulators. Travelers Life & Annuity and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees, revenue sharing, producer compensation and other mutual fund and variable product issues in connection with various investigations. The funds have been informed that 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. 2 As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals. Sincerely, /s/ R. Jay Gerken R. Jay Gerken, CFA Chairman, President and Chief Executive Officer January 20, 2005 (i) 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. (ii) The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. (iii) As measured by gross domestic product ("GDP"), a market value of goods and services produced by labor and property in a given country. Source: Bureau of Economic Analysis, U.S. Department of Commerce, December 22, 2004.
3 -------------------------------------------------------------------------------- MANAGER OVERVIEW TRAVELERS QUALITY BOND PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Travelers Quality Bond Portfolio returned 3.29%. In comparison, the portfolio's unmanaged benchmark, the Lehman Brothers Intermediate Government/Credit Bond Index,(i) returned 3.04% for the same period while the Lipper Variable Short-Intermediate Investment Grade Debt Funds Category Average,(2) was 1.62%. During the fiscal year, the portfolio's performance was aided by security selection and the overall decline in credit risk reflected by the continued tightening of credit spreads. Our shift in duration(ii) from being long, versus the benchmark, early in the fiscal year to being short, as interest rates increased, also contributed to performance. MARKET/ECONOMIC OVERVIEW The economic expansion entered its fourth year at the close of 2004. Led by strong consumer and business demand, the balance of growth was quite healthy. The employment picture improved during the year, as rising profits led to increased corporate willingness to hire new employees. Strong consumer and business fundamentals appear likely to continue into 2005 and consumer spending looks to strengthen further relative to last year. Inflation began to rise modestly in 2004 as shortages of certain goods and commodities developed around the world. In 2005, inflation pressures look to rise as healthy growth continues to improve corporate pricing power. The ongoing economic recovery and rising price pressures caused the Fed(iii) to institute a series of five 25 basis point(iv) rate hikes, beginning in mid-2004. This trend looks to continue well into 2005. After the end of the fund's reporting period, at their February meeting, the Fed once again raised the target rate by 0.25% to 2.50%. CONTRIBUTORS TO PERFORMANCE The portfolio's BBB-rated credit securities were its best performers during the fiscal year. We believe the outlook for a sustained economic recovery should result in further improvement in corporate fundamentals and may result in some modest spread narrowing on selective issuers going forward. The prospect for a further reduction of credit risks makes credit products attractive relative to Treasuries in this environment. Our relative overweight in corporate securities, especially utility and industrial bonds, was another major contributor to results. Utilities and industrials were the best performing sectors in the fixed income markets, and in the portfolio. In anticipation of further curve flattening and yield increases, we shifted the portfolio's overall duration to short of the benchmark as a defensive measure. This adjustment added to returns over the period. Overall, the curve structure of the portfolio was a significant driver of returns over the period. Conversely, our overweight in asset-backed securities relative to the benchmark negatively impacted performance. While our overweight in collateralized mortgage-backed securities outperformed Treasuries, they significantly underperformed corporate securities. Thank you for your investment in the Travelers Quality Bond Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, -s- GENE C. COLLINS Gene C. Collins Travelers Asset Management International Company LLC February 3, 2005 (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and variable life contracts, such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 29 funds in the fund's Lipper category. 4 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 sector holdings (as a percentage of net assets) as of December 31, 2004 were: Corporate Bonds and Notes (54.2%), U.S. Government Obligations and Agencies (28.8%), Collateralized Obligations (6.3%), Asset-Backed Securities (4.4%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The Lehman Brothers Intermediate Government/Credit Index is a market value weighted performance benchmark for government and corporate fixed-rate debt issues (rated Baa/BBB or higher) with maturities between one and ten years. (ii) Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates. (iii) 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. (iv) A basis point is one one-hundredth (1/100 or 0.01) of one percent.
5 -------------------------------------------------------------------------------- FUND AT A GLANCE -- TRAVELERS QUALITY BOND PORTFOLIO (UNAUDITED) (GRAPH) December 31, 2004 June 30, 2004 Corporate Bonds and Notes 54.50 48.80 U.S. Government Obligations and Agencies 29.00 38.60 Collateralized Mortgage Obligations 6.30 4.50 Repurchase Agreement 5.80 2.90 Asset-Backed Securities 4.40 5.20
6 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- TRAVELERS QUALITY BOND PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------- Twelve Months Ended 12/31/04 3.29% Five Years Ended 12/31/04 6.03 8/30/96* through 12/31/04 6.04 CUMULATIVE TOTAL RETURN -------------------------------------------- 8/30/96* through 12/31/04 63.03% * 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 Lehman Brothers Intermediate Government/Credit Bond Index. Index information is available at month-end only; therefore, the closest month-end to inception date of the Portfolio has been used. The Lehman Brothers Intermediate Government/Credit Bond Index is a weighted composite of the Lehman Brothers Government Bond Index, which is a broad-based index of all public debt obligations of the U.S. government and its agencies and has an average maturity of nine years and the Lehman Brothers Credit Bond Index, which is comprised of all public fixed-rate non-convertible investment-grade domestic corporate debt, excluding collateralized mortgage obligations. [Travelers Quality Performance Graph]
LEHMAN BROTHERS INTERMEDIATE TRAVELERS QUALITY BOND PORTFOLIO GOVERNMENT/CREDIT BOND INDEX -------------------------------- ---------------------------- 8/30/96 10000.00 10000.00 12/96 10356.00 10388.00 12/97 11095.00 11624.00 12/98 12036.00 13004.00 12/99 12168.00 13055.00 12/00 13015.00 14376.00 12/01 13944.00 15664.00 12/02 14753.00 16651.00 12/03 15784.00 17369.00 12/31/04 16303.00 17897.00
-------------------------------------------------------------------------------- Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 7 -------------------------------------------------------------------------------- MANAGER OVERVIEW LAZARD INTERNATIONAL STOCK PORTFOLIO SPECIAL SHAREHOLDER NOTICE Effective September 1, 2004, the investment advisory fee for the fund was revised from the annual rate of 0.825% of the average daily net assets of the fund, to a fee calculated at an annual rate in accordance with the following schedule:
INVESTMENT AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ First $100 million.......................................... 0.825% Next $400 million........................................... 0.775% Next $500 million........................................... 0.725% Over $1 billion............................................. 0.700%
PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Lazard International Stock Portfolio, returned 15.75%. The portfolio underperformed its unmanaged benchmark, the MSCI EAFE GDP Weighted Index,(i) which returned 22.57% for the same period. The portfolio also underperformed the Lipper Variable International Value Funds Category Average,(2) which was 20.75%. MARKET/ECONOMIC OVERVIEW International stocks spent most of 2004 in a fairly narrow trading range, as strong earnings growth was offset by concerns over rising interest rates, higher oil prices, and the sustainability of the global economic recovery. However, stocks ended 2004 with their best quarterly performance of the year as oil prices crested, easing concerns that higher energy costs would restrain earnings and economic growth. The rally started right after the U.S. presidential election, as uncertainty over the outcome, as well as its definitiveness, abated. Energy stocks were strong during the year, as oil prices rose sharply and utilities performed well as investors sought out higher yields in a low interest rate environment. In contrast, technology stocks lagged as corporate spending on information technology products didn't significantly rebound. Healthcare stocks were hurt by concerns over drug safety following Merck's high profile recall of Vioxx. On a regional basis, European markets generally outperformed, helped by the rising Euro, while the Japanese market lagged the broad index on concerns over the sustainability of its economic rebound. CONTRIBUTORS TO PERFORMANCE During 2004, stock selection in healthcare helped the portfolio, as we avoided problem stocks like AstraZeneca. Holding SCHERING AG was also beneficial, as it rose due to ongoing restructuring and product specific news. The fund's holding in AVENTIS SA enhanced results, as its shares gained on expectations of revenue and cost synergies from the proposed acquisition by Sanofi-Synthelabo Inc. Conversely, stock selection in financials detracted from results when re-insurers SWISS REINSURANCE CO. and MUNICH RE GROUP were hurt by the rash of hurricanes hitting Florida. However, while the hurricanes caused near-term costs, as payments are made to their reinsurance clients, the longer-term outlook for these companies' earnings is positive. This is because the upfront costs to the industry remove capacity and improve pricing discipline going forward. Stock selection in consumer discretionary was also a drag on performance, as NISSAN MOTOR CO., LTD. declined due to concerns regarding the steel shortage caused by the increased demand for the metal in China. However, the company stated that the shortage should have a relatively small impact on sales in the U.S. -- its largest market. (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 29 funds in the fund's Lipper category. 8 For 2004 overall, the portfolio was hurt by its overweight position in larger stocks, while small- and mid-cap stocks continued to outperform. However, we believe that the performance of large-cap stocks may improve, since the relative valuation of large-caps versus small-caps is very attractive, based on historical norms. In addition, smaller-cap stocks have been outperforming for roughly five years and the duration of this outperformance, as well as its magnitude, is similar to historical peaks in the capitalization cycle. Thank you for your investment in the Lazard International Stock 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 Lazard Asset Management LLC 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 (25.5%), Consumer Discretionary (11.6%), Energy (11.4%), Consumer Staples (10.4%) and Healthcare (8.7%). 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) The MSCI EAFE GDP Weighted Index is an unmanaged index of common stocks of companies located in Europe, Australasia and the Far East, generally considered representative of foreign markets.
9 -------------------------------------------------------------------------------- FUND AT A GLANCE -- LAZARD INTERNATIONAL STOCK PORTFOLIO (UNAUDITED) (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Financials 25.4 30.8 Consumer Discretionary 11.6 8.4 Energy 11.4 11.1 Consumer Staples 10.4 9 Healthcare 8.7 9.1 Telecommunication Services 7.2 7.1 Information Technology 6.8 5.4 Industrials 5.8 4.8 Utilities 5.5 4.6 Materials 4.9 7.5 Other 2.3 2.2
10 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- LAZARD INTERNATIONAL STOCK PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------- Twelve Months Ended 12/31/04 15.75% Five Years Ended 12/31/04 (3.28) 8/1/96* through 12/31/04 3.70 CUMULATIVE TOTAL RETURN ----------------------- 8/1/96* through 12/31/04 35.73% * Commencement of operations.
This chart assumes an initial investment of $10,000 made on August 1, 1996 (commencement of operations), assuming reinvestment of dividends, through December 31, 2004, with that of a similar investment in the MSCI EAFE GDP Weighted Index. Index information is available at month-end only; therefore, the closest month-end to inception date of the Portfolio has been used. The MSCI EAFE GDP Weighted Index is a composite portfolio consisting of equity total returns for the countries of Europe, Australasia and the Far East, weighted based on each country's gross domestic product. [Lazard Int. Performance Graph]
LAZARD INTERNATIONAL STOCK PORTFOLIO MSCI EAFE GDP WEIGHTED INDEX -------------------------- ---------------------------- 8/1/96 10000.00 10000.00 12/96 10807.00 10515.00 12/97 11696.00 11122.00 12/98 13168.00 14092.00 12/99 16036.00 18460.00 12/00 14192.00 15593.00 12/01 10476.00 12132.00 12/02 9118.00 10197.00 12/03 11726.00 14576.00 12/31/04 13573.00 17866.00
-------------------------------------------------------------------------------- Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 11 -------------------------------------------------------------------------------- MANAGER OVERVIEW MFS EMERGING GROWTH PORTFOLIO SPECIAL SHAREHOLDER NOTICE On February 18, 2005, the shareholders of MFS Emerging Growth Portfolio approved a reorganization pursuant to which MFS Mid Cap Growth Portfolio would acquire the assets and assume the liabilities of MFS Emerging Growth Portfolio in exchange for shares of the MFS Mid Cap Growth Portfolio. The merger is expected to be effective upon the close of business on February 25, 2005. PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the MFS Emerging Growth Portfolio, returned 12.73%, outperforming its unmanaged benchmark, the Russell 3000 Growth Index,(i) which returned 6.93% for the same period. The portfolio also outperformed the Lipper Variable Multi-Cap Growth Funds Category Average,(2) which was 10.40%. MARKET/ECONOMIC OVERVIEW For stock investors, 2004 was a bumpy ride with a smooth finish. In the end, improving fundamental factors, such as corporate spending and earnings growth, triumphed and drove equity markets to solid gains for the year. During the 12-month reporting period, investors endured skyrocketing oil prices, rising short-term interest rates, a volatile and retreating U.S. dollar, record budget and trade deficits and war in Iraq. For a time, it seemed these factors would lead to flat or negative annual performance for many investments. But, by the last quarter of 2004, oil prices retreated, investors seemed to adopt a less negative view of other broad economic issues, and markets appeared to recognize that both corporate profits and economic growth were up solidly, if not spectacularly, for the year. We believed that as the year came to a close, the global economy was still in the midst of a sustainable broad-based recovery. CONTRIBUTORS TO PERFORMANCE During the fiscal year, the fund's holdings in the healthcare, technology, utilities and communications sectors generated the strongest relative returns. Conversely, its special products and services, retailing, and industrial goods and services stocks detracted from relative results. In the healthcare sector, the portfolio's holding in the medical test firm CYTYC CORP. was beneficial, as it was one of the portfolio's strongest relative performers over the fiscal year. In addition, avoiding pharmaceutical firm Pfizer Inc. helped results, as its shares fell sharply over the period. In the technology sector, stock selection drove relative performance. For example, the fund's positions in EBAY INC., APPLE COMPUTER, INC., and MARVELL TECHNOLOGY GROUP LTD. all rose sharply over the period. Underweighting semiconductor giant INTEL CORP. also enhanced performance, as its stock declined over the period. In the telecommunication services sector, an overweight and, to a lesser extent, stock selection aided relative results. The strongest performers in this sector were cellular tower operators AMERICAN TOWER CORP. and SPECTRASITE, INC. Conversely, stock selection in the special products and services sector detracted from results. Our position in post-secondary education company CORINTHIAN COLLEGES, INC. was the largest detractor in the sector. We subsequently eliminated it from the portfolio. Stock selection and an underweighting in the retailing sector also hurt relative performance. The most significant detractor in the sector was our position in THE HOME DEPOT, INC. An underweighting in the industrial goods and services sector was a (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 112 funds in the fund's Lipper category. 12 drag on performance as well. For example, not owning GENERAL ELECTRIC CORP., which posted solid gains during the fiscal year, held back relative results. Other holdings that hurt relative performance included Linux operating system provider RED HAT INC., internet travel company IAC/INTERACTIVE CORP., semiconductor company PMC SIERRA, INC., radio operator and programming provider firm WESTWOOD ONE, INC., and telecom equipment supplier ANDREW CORP. We eliminated Andrew Corp. from the portfolio prior to the end of the reporting period. Not owning cellular phone technology firm QUALCOMM INC. and healthcare provider UNITEDHEALTH GROUP INC. also detracted from performance, as those stocks advanced significantly during the fiscal year. Thank you for your investment in the MFS Emerging Growth Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund's investment goals. Sincerely, /s/ ERIC B. FISCHMAN Eric B. Fischman Massachusetts Financial Services /s/ DAVID E. SETTE-DUCATI David E. Sette-Ducati Massachusetts Financial Services /S/ CAMILLE H. LEE Camille H. Lee Massachusetts Financial Services January 20, 2005 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: Cytyc Corp. (2.6%), Dell Inc. (2.2%), American Tower Corp. (2.1%), ebay Inc. (2.0%), Getty Images, Inc. (2.0%), Yahoo! Inc. (1.8%), Genzyme Corp. (1.6%), Legg Mason, Inc. (1.6%), Amdocs Ltd. (1.6%), Fisher Scientific International Inc. (1.5%). The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Information Technology (27.2%), Healthcare (23.3%), Consumer Discretionary (20.1%), Industrials (9.2%), Telecommunications Services (9.0%). 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) The Russell 3000 Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values.
13 -------------------------------------------------------------------------------- FUND AT A GLANCE -- MFS EMERGING GROWTH PORTFOLIO (UNAUDITED) (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Information Technology 26.70 24.40 Healthcare 22.90 25.40 Consumer Discretionary 19.70 21.60 Industrials 9.00 11.60 Telecommunication Services 8.80 6.30 Financials 4.80 4.60 Consumer Staples 2.70 2.00 Short-Term Investment 2.40 2.20 Energy 2.20 1.80 Materials 0.60 0.10 Basic Materials 0.20 0.00
14 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- MFS EMERGING GROWTH PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 12.73% Five Years Ended 12/31/04 (13.37) 8/30/96* through 12/31/04 4.88 CUMULATIVE TOTAL RETURN -------------------------------------------- 8/30/96* through 12/31/04 48.79% * 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 Russell 3000 Growth Index. 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 Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. [MFS Emerging Growth Portfolio Performance Graph]
MFS EMERGING GROWTH PORTFOLIO RUSSELL 3000 GROWTH INDEX ----------------------------- ------------------------- 8/30/96 10000 10000 12/96 10600 11291 12/97 12843 15508 12/98 17250 18950 12/99 30491 25361 12/00 24353 19675 12/01 15529 15814 12/02 10221 14322 12/03 13200 18758 12/31/04 14879 20058
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gain distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 15 -------------------------------------------------------------------------------- MANAGER OVERVIEW FEDERATED HIGH YIELD PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Federated High Yield Portfolio returned 10.38%. In comparison, the fund's unmanaged benchmarks, the Lehman Brothers High-Yield Bond Index(i) and the Lehman Brothers Aggregate Bond Index,(ii) returned 11.13% and 4.34%, respectively, for the same period. The Lipper Variable High Current Yield Funds Category Average(2) was 9.84%. MARKET/ECONOMIC OVERVIEW The combination of sustained economic growth and stable interest rates provided a particularly good environment for the high yield market in 2004. During the year, an increase in corporate profitability allowed companies the opportunity to either reduce overall debt or to refinance at attractive rates. The combination of improved profitability and balance sheet repair led the way for credit quality improvement and the lowest default rate since the late 1990's. The significant decline in corporate defaults led to a contraction of the risk premium, or "credit spread," investors require for investing in the high yield market. This, in turn, consequently led to the price appreciation experienced in the high yield market. The lower credit quality sector of the high yield market generated the strongest performance during 2004. For example, CCC-rated bonds, the lowest credit quality, returned 13.80%, versus higher rated B bonds, which returned 10.36%, and BB-rated bonds, which returned 9.61%. From an industry perspective, the financial institutions, metals & mining and natural gas utility sectors all had good relative performance, while the airline, environmental and retail sectors lagged the overall market. From a technical standpoint, demand for high yield bonds remained strong throughout the reporting period. Although high yield mutual funds experienced net cash outflows during 2004, increased allocations to the high yield market from hedge funds, pension funds, and insurance companies created more than ample demand for what was one of the busiest years for new high yield bond issuance in recent years. CONTRIBUTORS TO PERFORMANCE The fund underperformed its benchmark during the fiscal year. The portfolio's less aggressive positioning in the lower quality tier of the high yield market and shorter duration(iii) negatively impacted its relative performance. From an industry sector perspective, the fund benefited from its overweight position in the building products and textile sectors and remained underweighted in the airline sector. On the negative side, the fund's underweight in the metals and mining and electric utility sectors and overweight in the gaming sector detracted somewhat from relative performance. Specific holdings that underperformed during the period included packaging company TEKNI-PLEX, INC., retailer PCA INTERNATIONAL, INC., wireless telecommunications firm AMERICAN CELLULAR CORP., industrial company EAGLE PICHER INDUSTRIES, INC., and consumer product firm ICON HEALTH & FITNESS, INC. Conversely, portfolio holdings that had a positive impact on overall portfolio performance included natural gas company EL PASO CORP., textile firm LEVI STRAUSS & CO. wireline telecommunications company AT&T CORP., chemical firm BCP CAYLUX HOLDINGS and industrial company NEENAH CORP. Thank you for your investment in the Federated High Yield 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 Federated Investment Management Company January 20, 2005 (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and variable life contracts, such as administrative fees, account charges and surrender charges which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 85 funds in the fund's Lipper category. 16 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: Targeted Return Index Sector, Trains HY-2004-1, Secured Notes, 8.2105% due 8/1/15 (2.9%), AT&T Corp., Sr. Notes, 9.750% due 11/15/31 (1.3%), Qwest Corp., Notes, 9.125% due 3/15/12 (1.1%),Qwest Services Corp., Sr. Sub. Notes, 14.000% due 12/15/10 (1.0%), Rogers Wireless, Inc., Secured Notes, 6.375% due 3/1/14 (0.8%), Allied Waste North America, Inc., Series B, Sr. Notes, 7.625% due 1/1/06 (0.7%), Nextel Communications, Inc., Sr. Notes, 7.375% due 8/1/15 (0.7%),Vertis, Inc, Notes, Series B, 10.875% due 6/15/09 (0.7%), J.C. Penney Co., Inc., Notes, 9.000% due 8/1/12 (0.7%), MCI Inc., Sr. Notes, 8.375% due 5/1/14 (0.7%). The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager's current or future investments. The fund's top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Media-Non-Cable (9.7%), Food & Beverage (6.0%), Wireless Communications (5.8%), Gaming (5.7%), Chemicals (5.7%). 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) The Lehman Brothers High-Yield Index covers the universe of fixed rate, non-investment grade debt, including corporate and non-corporate sectors. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets are excluded, but Canadian and global bonds (SEC registered) of issuers in non-emerging market countries are included. Original issue zero coupon bonds, step-up coupon structures, and 144-As are also included. (ii) The Lehman Brothers Aggregate Bond Index is a broad-based bond index comprised of Government, Corporate, Mortgage and Asset-backed issues, rated investment grade or higher, and having at least one year to maturity. (iii) Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
17 -------------------------------------------------------------------------------- FUND AT A GLANCE -- FEDERATED HIGH YIELD PORTFOLIO (UNAUDITED) (GRAPH) December 31, 2004 June 30, 2004 Corporate Bonds & Notes 97.30 96.90 Repurchase Agreement 1.90 2.30 Preferred Stock 0.50 0.60 Commmon Stock 0.20 0.10 Warrants 0.10 0.10
18 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- FEDERATED HIGH YIELD PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 10.38% Five Years Ended 12/31/04 5.58 8/30/96* through 12/31/04 6.98 CUMULATIVE TOTAL RETURN --------------------------------------------- 8/30/96* through 12/31/04 75.55% * 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 Lehman Brothers High-Yield Bond Index and Lehman Brothers Aggregate Bond Index. Index information is available at month-end only; therefore, the closest month-end to inception date of the Portfolio has been used. The Lehman Brothers High-Yield Bond Index is composed of fixed rate non-investment grade debt with at least one year remaining to maturity that are dollar-denominated, nonconvertible and have an outstanding par value of at least $100 million. The Lehman Brothers Aggregate Bond Index, an unmanaged index, is composed of the Lehman Brothers Intermediate Government/Credit Bond Index, formerly known as the Lehman Brothers Intermediate Government/Corporate Bond Index, and the Mortgage Backed Securities Index and includes treasury issues, agency issues, corporate bond issues and mortgage-backed securities. [Federated High Yield Portfolio Performance Graph]
FEDERATED HIGH YIELD LEHMAN BROTHERS HIGH- LEHMAN BROTHERS PORTFOLIO YIELD BOND INDEX AGGREGATE BOND INDEX -------------------- --------------------- -------------------- 8/30/96 10000.00 10000.00 10000.00 12/96 10761.00 10599.00 10480.00 12/97 12394.00 11952.00 11491.00 12/98 12978.00 12161.00 12490.00 12/99 13380.00 12452.00 12388.00 12/00 12289.00 11723.00 13829.00 12/01 12528.00 12342.00 14997.00 12/02 12994.00 12788.00 15932.00 12/03 15904.00 16493.00 16585.00 12/31/04 17555.00 18328.00 17305.00
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gain distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 19 -------------------------------------------------------------------------------- MANAGER OVERVIEW FEDERATED STOCK PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Federated Stock Portfolio returned 10.55%. The portfolio underperformed its unmanaged benchmark, the S&P 500/Barra Value Index,(i) which returned 15.71% for the same period. The portfolio also underperformed the Lipper Variable Multi-Cap Value Funds Category Average,(2) which was 14.62%. MARKET/ECONOMIC OVERVIEW 2004 was another positive year for U.S. equity investors as a strong showing toward the end of the year drove equity benchmarks higher. The S&P 500 Index(ii) ("S&P 500") returned 10.87% during the year, with 85% of the total return for the year coming in the fourth quarter. This enabled the benchmark to post its second year of double-digit returns. Earnings growth for the S&P 500 exceeded analysts' expectations, but it appears that 2004 may be the peak year for profit growth during this market cycle. Leading sectors included energy, utilities and telecommunication services. Lagging sectors included healthcare, information technology and consumer staples. Large-capitalization stocks underperformed their mid- and small-cap counterparts during the year and value-oriented equities outperformed growth across most market capitalizations. CONTRIBUTORS TO PERFORMANCE During the fiscal year, positive influences on performance relative to the S&P 500 included an underweight position and favorable security selection in financials, with BANK OF AMERICA CORP., THE ALLSTATE CORP. and CAPITAL ONE FINANCIAL CORP. boosting returns. In addition, an overweighted position in industrials enhanced results. Favorable security selection in telecommunication services also positively influenced relative performance, with SPRINT CORP. and VERIZON COMMUNICATIONS INC. generating strong results. Negative influences on relative performance included an overweighted position and unfavorable security selection in the materials sector. Holdings in this area that detracted from relative results included ALCOA INC., E.I. DU PONT DE NEMOURS & CO., and INTERNATIONAL PAPER CO. An underweighted position and unfavorable security selection in consumer discretionary also hurt results, with VIACOM INC., GENERAL MOTORS CORP., and FORD MOTOR CO. all generating weak results. Unfavorable security selection in healthcare, specifically PFIZER INC. and TENET HEALTHCARE CORP., also negatively influenced relative performance. Thank you for your investment in the Federated Stock 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 Equity Management Company of Pennsylvania Team January 20, 2005 (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and variable life contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 86 funds in the fund's Lipper category. 20 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: Bank of America Corp. (4.3%), Tyco International Ltd. (3.7%), JPMorgan Chase & Co. (3.6%), Altria Group, Inc. (3.1%), ChevronTexaco Corp. (2.9%), Exxon Mobile Corp. (2.5%), The Allstate Corp. (2.4%), BP PLC, Sponsored ADR (2.3%), Morgan Stanley (2.2%), News Corp., Class A Shares (2.1%). 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 (31.2%), Industrials (11.5%), Energy (11.3%), Consumer Discretionary (11.1%), Information Technology (9.8%). The fund's portfolio composition is subject to change at any time. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. (i) The S&P 500 Barra Value is a market-capitalization weighted index of stocks in the S&P 500 having lower price-to-book ratios relative to the S&P 500 as a whole. (A price-to-book ratio is the price of a stock compared to the difference between a company's assets and liabilities.) (ii) The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks.
21 -------------------------------------------------------------------------------- FUND AT A GLANCE -- FEDERATED STOCK PORTFOLIO (UNAUDITED) (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Financials 31.30 28.40 Industrials 11.50 14.80 Energy 11.30 10.90 Consumer Discretionary 11.20 13.70 Information Technology 9.80 10.50 Consumer Staples 5.20 3.30 Healthcare 4.90 4.00 Utilities 4.90 2.40 Materials 4.80 6.50 Telecommunication Services 4.60 3.80 Repurchase Agreement 0.50 1.70
22 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- FEDERATED STOCK PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 10.55% Five Years Ended 12/31/04 3.73 8/30/96* through 12/31/04 10.15 CUMULATIVE TOTAL RETURN -------------------------------------------- 8/30/96* through 12/31/04 123.90% * 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/Barra Value Index is a market-capitalization weighted index of stocks in the S&P 500 having lower price-to-book ratios relative to the S&P 500 as a whole. (A price-to-book ratio is the price of a stock compared to the difference between a company's assets and liabilities.) [Federated Stock Performance Graph]
FEDERATED STOCK PORTFOLIO S&P 500/BARRA VALUE INDEX++ ------------------------- --------------------------- 8/30/96 10000 10000 12/96 11261 11416 12/97 15021 14839 12/98 17700 17015 12/99 18646 19180 12/00 19349 20346 12/01 19672 17963 12/02 15871 14218 12/03 20253 18738 12/31/04 22390 21682
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gain distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 23 -------------------------------------------------------------------------------- MANAGER OVERVIEW DISCIPLINED MID CAP STOCK PORTFOLIO PERFORMANCE UPDATE(1) For the twelve months ended December 31, 2004, the Disciplined Mid Cap Stock Portfolio, returned 16.45%. In comparison, the portfolio's unmanaged benchmark, S&P MidCap 400 Index,(i) returned 16.48% for the same period and the Lipper Variable Mid-Cap Core Funds Category Average(2) was 16.47%. MARKET OVERVIEW The economic expansion entered its fourth year at the close of 2004. Led by strong consumer and business investment demand, the balance of growth was quite healthy. Job growth accelerated last year, as continued profit growth increased corporate willingness to hire. With improving earnings fundamentals, the equity market performed well, particularly during the fourth quarter of the year. Energy stocks were among the biggest contributors because of historically high oil prices and solid earnings. As investors began to focus their attention on higher quality stocks with solid dividends and strong cash flow, less-cyclical industries such as foods, chemicals and building materials also realized substantial gains. The outcome of the presidential election removed some uncertainties surrounding the healthcare and defense industries. However, technology stocks were generally weak, despite an impressive start in January. Concerns on terrorism, oil prices and weak profits also led to a significant decline in the Auto & Transportation sector, especially the airlines. In the next several weeks, as retail sales data from the holiday season trickle out, the equity market could potentially experience more volatility as investors re-position their portfolios for the coming year. FUND PERFORMANCE Stock selection, primarily in the consumer discretionary and industrials sectors, contributed positively to the performance of the fund in comparison to the benchmark during the period. However, in general, our holdings in the consumer staples and materials sectors did not perform. The three biggest individual contributors to performance were SEPRACOR, INC., MANDALAY RESORT GROUP, and J.B. HUNT TRANSPORT SERVICES, INC. Sepracor, a biotech firm, received an approval letter from the FDA for one of its new drugs during the first quarter. Mandalay Resort agreed to be acquired by another major entertainment company. Hunt Transport Services experienced strong business momentum in its trucking segment. Both revenue and operating profit grew substantially and the company gained market share during the second quarter. Conversely, SILICON LABORATORIES INC., MILLENNIUM PHARMACEUTICALS, INC., and ATMEL CORP. negatively impacted our performance. Silicon Laboratories traded lower due to weak demand in wireless products in the networking communications industry. Millennium Pharmaceuticals fell on concerns that the company might not meet its earnings growth target. The company remained aggressive in its effort to reduce costs. Atmel suffered from pricing pressure due to a slowdown in the semiconductor industry. The stock fell sharply last year. Thank you for your investment in the Disciplined Mid Cap Stock Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on seeking to achieve the fund's investment goals. Sincerely, The Portfolio Management Team The Travelers Investment Management Company January 20, 2005 (1) The fund is an underlying investment option of various variable annuity and variable life products. The fund's performance returns do not reflect the deduction of sales charges and expenses imposed in connection with investing in variable annuity and variable life contracts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (2) Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004 including the reinvestment of dividends and capital gains, if any, calculated among the 77 funds in the fund's Lipper category. 24 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. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index. Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager's current or future investments. The fund's top ten holdings (as a percentage of net assets) as of this date were: Lennar Corp., Class A Shares (1.1%), Fidelity National Financial, Inc. (1.0%), D.R. Horton, Inc. (1.0%), Washington Post Co., Class B Shares (0.8%), Precision Castparts Corp. (0.8%), Coventry Health Care, Inc. (0.8%), Hibernia Corp., Class A Shares (0.8%), Weatherford International Ltd. (0.8%), Constellation Brands, Inc., Class A Shares (0.8%), J.B. Hunt Transport Services, Inc. (0.8%). 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: Consumer Discretionary (21.8%), Financials (17.7%), Industrials (13.4%), Information Technology (11.8%), Healthcare (10.2%). The fund's portfolio composition is subject to change at any time. (i) The S&P MidCap 400 Index is a market-value weighted index, which consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation.
25 -------------------------------------------------------------------------------- FUND AT A GLANCE -- DISCIPLINED MID CAP STOCK PORTFOLIO (UNAUDITED) (GRAPH)
DECEMBER 31, 2004 JUNE 30, 2004 ----------------- ------------- Consumer Discretionary 21.8 18.9 Financials 17.6 17.1 Industrials 13.4 14.1 Information Technology 11.8 12.9 Healthcare 10.2 10.5 Energy 6.5 6.7 Utilities 6.1 6.3 Materials 5.4 4.4 Consumer Staples 4.3 4.7 Other 2.9 4.4
26 -------------------------------------------------------------------------------- PERFORMANCE COMPARISON -- DISCIPLINED MID CAP STOCK PORTFOLIO AS OF 12/31/04 (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS ---------------------------- Twelve Months Ended 12/31/04 16.45% Five Years Ended 12/31/04 8.35 4/1/97* through 12/31/04 13.47 CUMULATIVE TOTAL RETURN -------------------------------------------- 4/1/97* through 12/31/04 166.21% * Commencement of operations.
This chart assumes an initial investment of $10,000 made on April 1, 1997 (commencement of operations), assuming reinvestment of dividends, through December 31, 2004, with that of a similar investment in the S&P MidCap 400 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 MidCap 400 Index is an unmanaged index composed of 400 widely held mid cap common stocks listed on the New York Stock Exchange, American Stock Exchange and the over-the-counter markets. [Disciplined Mid Cap Stock Performance Graph]
DISCIPLINED MID CAP STOCK PORTFOLIO S&P MIDCAP 400 INDEX ------------------------- -------------------- 4/1/97 10000 10000 12/97 13438 11512 12/98 15710 12603 12/99 17826 14459 12/00 20786 16989 12/01 19950 16885 12/02 17092 14913 12/03 22862 20225 12/31/04 26621 23558
-------------------------------------------------------------------------------- Assumes reinvestment of dividends and capital gain distributions, if any, at net asset value. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. 27 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) EXAMPLE As a shareholder of the Funds, 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) ------------------------------------------------------------------------------------------------------------------ Travelers Quality Bond Portfolio 3.43% $1,000.00 $1,034.30 0.41% $2.10 ------------------------------------------------------------------------------------------------------------------ Lazard International Stock Portfolio 13.92 1,000.00 1,139.20 0.95 5.11 ------------------------------------------------------------------------------------------------------------------ MFS Emerging Growth Portfolio 7.33 1,000.00 1,073.30 0.86 4.48 ------------------------------------------------------------------------------------------------------------------ Federated High Yield Portfolio 8.13 1,000.00 1,081.30 0.79 4.13 ------------------------------------------------------------------------------------------------------------------ Federated Stock Portfolio 7.14 1,000.00 1,071.40 0.78 4.06 ------------------------------------------------------------------------------------------------------------------ Disciplined Mid Cap Stock Portfolio 9.19 1,000.00 1,091.90 0.79 4.15 ------------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Assumes reinvestment of dividends and capital gains distributions, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Total returns do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (3) Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal to each Fund's respective 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. 28 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. -------------------------------------------------------------------------------- BASED ON HYPOTHETICAL TOTAL RETURN(1)
EXPENSES HYPOTHETICAL BEGINNING ENDING ANNUALIZED PAID TOTAL ACCOUNT ACCOUNT EXPENSE DURING THE RETURN VALUE VALUE RATIO PERIOD(2) ----------------------------------------------------------------------------------------------------------------- Travelers Quality Bond Portfolio 5.00% $1,000.00 $1,023.08 0.41% $2.08 ----------------------------------------------------------------------------------------------------------------- Lazard International Stock Portfolio 5.00 1,000.00 1,020.36 0.95 4.82 ----------------------------------------------------------------------------------------------------------------- MFS Emerging Growth Portfolio 5.00 1,000.00 1,020.81 0.86 4.37 ----------------------------------------------------------------------------------------------------------------- Federated High Yield Portfolio 5.00 1,000.00 1,021.17 0.79 4.01 ----------------------------------------------------------------------------------------------------------------- Federated Stock Portfolio 5.00 1,000.00 1,021.20 0.78 3.96 ----------------------------------------------------------------------------------------------------------------- Disciplined Mid Cap Stock Portfolio 5.00 1,000.00 1,021.17 0.79 4.01 -----------------------------------------------------------------------------------------------------------------
(1) For the six months ended December 31, 2004. (2) Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal to each Fund's respective 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. 29 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS DECEMBER 31, 2004 TRAVELERS QUALITY BOND PORTFOLIO
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS AND AGENCIES -- 28.8% U.S. Treasury Bonds: $ 1,000,000 5.250% due 2/15/29........................................ $ 1,049,297 700,000 5.375% due 2/15/31........................................ 757,149 U.S. Treasury Notes: 9,760,000 5.875% due 11/15/05....................................... 10,022,690 21,350,000 3.500% due 11/15/06....................................... 21,536,834 2,600,000 2.750% due 8/15/07........................................ 2,572,274 1,920,000 3.375% due 11/15/08....................................... 1,915,427 4,550,000 4.750% due 11/15/08....................................... 4,767,017 1,000,000 3.500% due 11/15/09....................................... 995,626 4,400,000 5.750% due 8/15/10........................................ 4,845,676 Fannie Mae: 2,400,000 Benchmark Notes, 1.750% due 6/16/06....................... 2,354,268 2,600,000 Notes, 2.000% due 2/9/07 (a).............................. 2,588,791 1,200,000 Freddie Mac, Medium-Term Notes, 2.900% due 2/27/19 (a)...... 1,191,527 -------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS AND AGENCIES (Cost -- $55,311,785)....................................... 54,596,576 -------------------------------------------------------------------------------------------------------- FACE AMOUNT RATING(B) -------------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 54.2% -------------------------------------------------------------------------------------------------------- AEROSPACE & DEFENSE -- 0.6% 1,100,000 BBB Northrop Grumman Corp., Notes, 4.079% due 11/16/06.......... 1,111,612 -------------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 1.3% 1,300,000 BBB DaimlerChrysler North America Holding Corp., Notes, 7.300% due 1/15/12............................................... 1,477,888 1,000,000 BBB- Lear Corp., Notes, Series B, 7.960% due 5/15/05............. 1,016,060 -------------------------------------------------------------------------------------------------------- 2,493,948 -------------------------------------------------------------------------------------------------------- BANKING -- 7.9% 1,720,000 AA- ABN AMRO Bank N.V., Sr. Notes, 2.334% due 5/11/07 (a)....... 1,721,656 1,000,000 A+ Bank of America Corp., Sr. Notes, 5.375% due 6/15/14........ 1,045,507 1,170,000 BBB Capital One Bank, Notes, 5.000% due 6/15/09................. 1,205,952 Credit Suisse First Boston (USA), Inc., Notes: 600,000 A+ 6.125% due 11/15/11....................................... 655,207 1,400,000 A+ 4.875% due 1/15/15........................................ 1,385,364 700,000 A+ HSBC Bank (USA), Sub. Notes, 5.875% due 11/1/34............. 711,323 700,000 A Huntington National Bank, Sr. Notes, 4.650% due 6/30/09..... 714,085 1,700,000 A JPMorgan Chase & Co., Sub. Notes, 5.25% due 5/1/15.......... 1,722,670 300,000 AA Rabobank Capital Funding Trust III, Sub. Bonds, 5.254% due 12/31/16 (c).............................................. 299,019 1,200,000 A+ Royal Bank of Scotland PLC, Bonds, 5.050% due 1/8/15........ 1,215,251 US Bank NA: 1,800,000 AA- Notes, 2.870% due 2/1/07.................................. 1,785,308 1,000,000 A+ Sub. Notes, 4.950% due 10/30/14........................... 1,005,582 500,000 A Wachovia Bank NA, Sub. Notes, 4.800% due 11/1/14............ 497,829 900,000 A- Washington Mutual Bank, Sub. Notes, 5.650% due 8/15/14...... 932,673 -------------------------------------------------------------------------------------------------------- 14,897,426 --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 30 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 TRAVELERS QUALITY BOND PORTFOLIO
FACE AMOUNT RATING(B) SECURITY VALUE -------------------------------------------------------------------------------------------------------- BROKERAGE -- 3.8% $ 600,000 BBB- Glencore Funding LLC, Notes, 6.000% due 4/15/14 (c)......... $ 581,501 2,100,000 A+ The Goldman Sachs Group, Inc., Notes, 5.250% due 10/15/13... 2,152,271 1,300,000 A Lehman Brothers Holdings Inc., Medium-Term Notes, Series G, 4.800% due 3/13/14........................................ 1,284,629 Merrill Lynch & Co., Inc., Notes, Series C: 1,400,000 A+ 4.125% due 9/10/09........................................ 1,400,519 700,000 A+ 5.000% due 1/15/15........................................ 698,618 1,000,000 A+ Morgan Stanley, Notes, 6.600% due 4/1/12.................... 1,116,941 -------------------------------------------------------------------------------------------------------- 7,234,479 -------------------------------------------------------------------------------------------------------- CONGLOMERATES -- 1.0% 1,800,000 BBB Tyco International Group SA, Notes, 6.125% due 11/1/08...... 1,940,974 -------------------------------------------------------------------------------------------------------- CONSTRUCTION -- 0.4% 800,000 BBB- MDC Holdings, Inc., Notes, 5.500% due 5/15/13............... 813,605 -------------------------------------------------------------------------------------------------------- DISTRIBUTORS -- 0.4% 700,000 A+ Southern California Gas Co., First Mortgage Bonds, Series II, 4.375% due 1/15/11........................................ 703,048 -------------------------------------------------------------------------------------------------------- ENERGY -- 6.5% 700,000 BBB+ Anadarko Finance Co., Notes, Series B, 6.750% due 5/1/11.... 789,380 300,000 BBB+ Consolidated Natural Gas Co., Sr. Notes, 5.000% due 12/1/14................................................... 300,870 400,000 A- Cooper Cameron Corp., Sr. Notes, 2.650% due 4/15/07......... 389,742 700,000 BBB+ Dominion Resources, Inc., Sr. Notes, Series F, 5.250% due 8/1/33.................................................... 702,677 700,000 BBB- Duke Capital LLC, Sr. Notes, 4.331% due 11/16/06............ 709,098 870,000 BBB Duke Energy Field Services LLC, Notes, 7.500% due 8/16/05... 893,121 2,400,000 AAA General Electric Co., Notes, 5.000% due 2/1/13.............. 2,466,386 300,000 BBB+ Kinder Morgan Energy Partners L.P., Notes, 5.125% due 11/15/14.................................................. 299,978 3,600,000 B+ Transcontinental Gas Pipe Line Corp., Notes, 6.125% due 1/15/05................................................... 3,600,000 2,200,000 BBB- Xcel Energy Inc., Sr. Notes, 3.400% due 7/1/08.............. 2,158,666 -------------------------------------------------------------------------------------------------------- 12,309,918 -------------------------------------------------------------------------------------------------------- FINANCE CAPTIVE -- 2.8% 1,000,000 BBB Devon Financing Corp., ULC, Notes, 6.875% due 9/30/11....... 1,134,106 Ford Motor Credit Co.: Global Landmark Securities(TM): 1,900,000 BBB- 6.875% due 2/1/06....................................... 1,957,885 400,000 BBB- 7.450% due 7/16/31...................................... 403,458 200,000 BBB- Notes, 5.700% due 1/15/10................................. 202,039 General Motors Acceptance Corp., Notes: 1,200,000 BBB- 7.250% due 3/2/11......................................... 1,257,910 300,000 BBB- 6.875% due 9/15/11........................................ 307,847 -------------------------------------------------------------------------------------------------------- 5,263,245 --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 31 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 TRAVELERS QUALITY BOND PORTFOLIO
FACE AMOUNT RATING(B) SECURITY VALUE -------------------------------------------------------------------------------------------------------- FINANCE NON-CAPTIVE -- 3.6% $ 1,000,000 AAA AIG Sunamerica Global Financing VII, Sr. Notes, 5.850% due 8/1/08 (c)................................................ $ 1,066,138 1,700,000 A+ American General Finance, Medium-Term Notes, Series I, 3.875% due 10/1/09........................................ 1,674,616 1,130,000 A Countrywide Home Loans, Inc., Medium-Term Notes, Series L, 4.000% due 3/22/11........................................ 1,100,147 2,590,000 A Household Finance Corp., Notes, 6.375% due 11/27/12......... 2,866,133 -------------------------------------------------------------------------------------------------------- 6,707,034 -------------------------------------------------------------------------------------------------------- FOOD & BEVERAGE -- 1.2% 700,000 A+ Bottling Group LLC, Notes, 4.625% due 11/15/12.............. 712,094 1,400,000 BBB Safeway Inc., Notes, 6.500% due 3/1/11...................... 1,535,215 -------------------------------------------------------------------------------------------------------- 2,247,309 -------------------------------------------------------------------------------------------------------- HEALTHCARE -- 0.4% 700,000 BBB+ Anthem Inc., Bonds, 6.800% due 8/1/12....................... 793,645 -------------------------------------------------------------------------------------------------------- INSURANCE -- 1.9% 1,700,000 AAA MassMutual Global Funding II, Notes, 2.550% due 7/15/08 (c)....................................................... 1,632,830 1,900,000 AA+ New York Life Global Funding, Medium-Term Notes, 5.375% due 9/15/13 (c).................................... 1,980,421 -------------------------------------------------------------------------------------------------------- 3,613,251 -------------------------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 0.5% 1,000,000 BBB- Computer Associates Inc., Sr. Notes, 4.750% due 12/1/09 (c)....................................................... 1,008,410 -------------------------------------------------------------------------------------------------------- MEDIA -- 6.1% 400,000 BBB- Clear Channel Communications, Inc., Sr. Notes, 4.400% due 5/15/11................................................... 388,905 900,000 BBB Comcast Cable Communications, Inc., Exchange Notes, 8.500% due 5/1/27................................................ 1,197,907 3,700,000 BB+ Cox Enterprises Inc., Notes, 7.875% due 9/15/10 (c)......... 4,170,807 2,000,000 BBB- Liberty Media Corp., Sr. Notes, 3.380% due 9/17/06 (a)...... 2,025,020 3,600,000 BBB+ Time Warner Inc., Notes, 6.150% due 5/1/07.................. 3,810,708 -------------------------------------------------------------------------------------------------------- 11,593,347 -------------------------------------------------------------------------------------------------------- METALS -- 0.4% 600,000 BBB- Phelps Dodge Corp., Sr. Notes, 8.750% due 6/1/11............ 732,491 -------------------------------------------------------------------------------------------------------- PAPER PRODUCTS -- 0.4% 700,000 BBB International Paper Co., Notes, 5.300% due 4/1/15........... 709,604 -------------------------------------------------------------------------------------------------------- PHARMACEUTICALS -- 1.2% 2,200,000 A Wyeth, Notes, 5.500% due 2/1/14............................. 2,280,148 -------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST -- 3.4% 500,000 BBB HRPT Properties Trust, Sr. Notes, 6.250% due 8/15/16........ 528,492 460,000 BBB- iStar Financial Inc., Sr. Notes, 6.000% due 12/15/10........ 485,826 200,000 A- Kimco Realty Corp., Notes, 2.360% due 8/1/06 (a)............ 200,056 250,000 BBB- Nationwide Health Properties, Inc., Medium-Term Notes, Series C, 6.900% due 10/1/37........................................ 270,395 5,000,000 BBB Post Apartment Homes, L.P., MOPPRS(SM), 6.850% due 3/16/15................................................... 5,024,585 -------------------------------------------------------------------------------------------------------- 6,509,354 -------------------------------------------------------------------------------------------------------- SUPERMARKETS -- 0.8% 1,300,000 BBB Fred Meyer, Inc., Notes, 7.450% due 3/1/08.................. 1,434,311 --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 32 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 TRAVELERS QUALITY BOND PORTFOLIO
FACE AMOUNT RATING(B) SECURITY VALUE -------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS -- 4.4% $ 400,000 A Bellsouth Corp., Notes, 4.750% due 11/15/12................. $ 403,111 2,000,000 BBB+ Deutsche Telekom International Finance B.V., Bonds, 7.750% due 6/15/05............................................... 2,046,834 700,000 A SBC Communications, Notes, 5.100% due 9/15/14............... 707,848 1,350,000 BBB- Sprint Capital Corp., Notes, 6.125% due 11/15/08............ 1,449,018 Telecom Italia Capital SA, Global Notes: 300,000 BBB+ 4.000% due 1/15/10 (c).................................... 294,477 2,700,000 BBB+ 5.250% due 11/15/13 (c)................................... 2,733,785 600,000 A+ Verizon New York, Inc., Debentures, Series A, 6.875% due 4/1/12.................................................... 674,460 -------------------------------------------------------------------------------------------------------- 8,309,533 -------------------------------------------------------------------------------------------------------- TOBACCO -- 0.9% 1,700,000 BBB Altria Group, Inc., Notes, 5.625% due 11/4/08............... 1,768,292 -------------------------------------------------------------------------------------------------------- UTILITIES -- 4.3% 2,800,000 BBB Pepco Holdings, Inc., Notes, 5.500% due 8/15/07............. 2,913,532 750,000 BB- PSEG Energy Holdings Inc., Sr. Notes, 8.625% due 2/15/08.... 826,875 1,800,000 BBB+ SCANA Corp., Sr. Notes, 2.740% due 11/15/06 (a)............. 1,804,950 1,700,000 AA- SP PowerAssets Ltd., Notes, 5.000% due 10/22/13 (c)......... 1,728,072 800,000 BBB- TransAlta Corp., Notes, 5.750% due 12/15/13................. 825,237 -------------------------------------------------------------------------------------------------------- 8,098,666 -------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $100,263,861)...... 102,573,650 -------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 4.4% 1,031,836 AAA California Infrastructure PG&E-1, Series 1997-1, Class A7, 6.420% due 9/25/08........................................ 1,063,571 1,000,000 AAA Chase Funding Trust, Series 2002-2, Class 1A5, 5.833% due 4/25/32................................................... 1,040,813 1,352,894 AAA DaimlerChrysler Auto Trust, Series 2001-C, Class A4, 4.630% due 12/6/06............................................... 1,360,327 1,700,000 AAA Discover Card Master Trust I, Series 1996-3, Class A, 6.050% due 8/18/08............................................... 1,754,733 2,200,000 AAA Ford Credit Auto Owner Trust, Series 2002-B, Class A4, 4.750% due 8/15/06........................................ 2,218,394 795,269 AAA Toyota Auto Receivables Owner Trust, Series 2002-C, Class A3, 2.650% due 11/15/06....................................... 795,241 -------------------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (Cost -- $8,553,246).......... 8,233,079 -------------------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 6.3% 2,800,000 AAA Banc of America Commercial Mortgage Inc., Series 2004-6, Class AJ, 4.870% due 12/10/42............................. 2,792,453 1,500,000 AAA Credit Suisse First Boston Mortgage Securities Corp., Series 2003-C5, Class A4, 4.900% due 12/15/36.................... 1,515,701 3,000,000 AAA JPMorgan Chase Commercial Mortgage Securities Corp., Series 2004-C3, Class AJ, 4.922% due 1/15/42..................... 2,995,890 LB-UBS Commercial Mortgage Trust: 1,090,000 AAA Series 2002-C4, Class A5, 4.853% due 9/15/31.............. 1,111,124 2,000,000 AAA Series 2003-C3, Class A2, 3.086% due 5/15/27.............. 1,950,799 1,450,000 AAA Wachovia Bank Commercial Mortgage Trust, Series, 2003-C6, Class A3, 4.957% due 8/15/35.............................. 1,491,861 -------------------------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost -- $11,863,061) 11,857,828 --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 33 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 TRAVELERS QUALITY BOND PORTFOLIO
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 5.7% $10,862,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $10,863,267; (Fully collateralized by U.S. Treasury Bond, 11.250% due 2/15/15; Market value -- $11,084,865) (Cost -- $10,862,000)........ $ 10,862,000 -------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 99.4% (Cost -- $186,853,953*).......... 188,123,133 Other Assets in Excess of Liabilities -- 0.6%............... 1,191,854 -------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $189,314,987 --------------------------------------------------------------------------------------------------------
(a) Variable rate 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 $188,418,237. Abbreviation used in this schedule: MOPPRS(SM) -- MandatOry Par Put Remarketed Securities(SM) and MOPPRS(SM) are service marks owned by Merrill Lynch & Co., Inc. See page 71 for definitions of ratings. SEE NOTES TO FINANCIAL STATEMENTS. 34 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LAZARD INTERNATIONAL STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------- COMMON STOCK -- 98.1% FINLAND -- 4.6% 377,200 Nokia Oyj................................................... $ 5,933,355 154,900 Stora Enso Oyj, Series R Shares (a)......................... 2,363,186 ------------------------------------------------------------------------------------------- 8,296,541 ------------------------------------------------------------------------------------------- FRANCE -- 11.7% 55,000 Carrefour S.A. (a).......................................... 2,608,851 113,300 Credit Agricole S.A. (a).................................... 3,404,908 27,000 Lagardere S.C.A. (a)........................................ 1,940,800 55,185 Sanofi-Aventis (a).......................................... 4,392,592 12,800 Schneider Electric S.A. .................................... 887,161 23,251 Total S.A. (a).............................................. 5,058,014 91,400 Vivendi Universal S.A. (b).................................. 2,906,375 ------------------------------------------------------------------------------------------- 21,198,701 ------------------------------------------------------------------------------------------- GERMANY -- 11.5% 235,000 Deutsche Telekom AG (a)(b).................................. 5,296,690 45,300 E.ON AG (a)................................................. 4,112,295 1,440 Porsche AG, Preferred Shares (a)............................ 915,210 53,200 Schering AG................................................. 3,961,647 37,900 Siemens AG (a).............................................. 3,200,421 75,600 Volkswagen AG............................................... 3,413,030 ------------------------------------------------------------------------------------------- 20,899,293 ------------------------------------------------------------------------------------------- IRELAND -- 2.9% 193,400 Bank of Ireland............................................. 3,186,174 76,042 CRH PLC..................................................... 2,027,579 ------------------------------------------------------------------------------------------- 5,213,753 ------------------------------------------------------------------------------------------- ITALY -- 4.1% 196,900 Enel S.p.A.................................................. 1,927,110 173,650 Eni S.p.A. (a).............................................. 4,329,990 414,000 Terna S.p.A. (b)............................................ 1,182,511 ------------------------------------------------------------------------------------------- 7,439,611 ------------------------------------------------------------------------------------------- JAPAN -- 19.1% 20,650 ACOM CO., LTD. ............................................. 1,541,765 8,100 AIFUL CORP. ................................................ 888,611 309 East Japan Railway Co. ..................................... 1,714,494 43,700 FANUC LTD. ................................................. 2,850,093 359,000 FUJITSU LTD. (a)............................................ 2,330,897 214,000 Mitsubishi Estate Co., Ltd. ................................ 2,499,757 53,300 MURATA MANUFACTURING CO., LTD. ............................. 2,972,929 26,700 NEC Electronics Corp. (a)................................... 1,299,523 317,000 NISSAN MOTOR CO., LTD. (a).................................. 3,437,535 263,000 Nomura Holdings, Inc. ...................................... 3,824,803 1,173 NTT DoCoMo, Inc. (a)........................................ 2,158,055 67,000 Shin-Etsu Chemical Co., Ltd. ............................... 2,739,219 253,000 The Sumitomo Trust and Banking Co., Ltd. ................... 1,824,910
SEE NOTES TO FINANCIAL STATEMENTS. 35 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LAZARD INTERNATIONAL STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------- JAPAN -- 19.1% (CONTINUED) 34,900 Takeda Pharmaceutical Co., Ltd. ............................ $ 1,752,984 683,000 TOKYO GAS CO., LTD. (a)..................................... 2,792,368 ------------------------------------------------------------------------------------------- 34,627,943 ------------------------------------------------------------------------------------------- THE NETHERLANDS -- 6.3% 50,457 Heineken NV (a)............................................. 1,675,489 117,572 Koninklijke (Royal) Philips Electronics N.V. ............... 3,105,158 116,500 Royal Dutch Petroleum Co. (a)............................... 6,678,852 ------------------------------------------------------------------------------------------- 11,459,499 ------------------------------------------------------------------------------------------- NORWAY -- 1.8% 123,000 DNB NOR ASA................................................. 1,208,202 129,500 Statoil ASA................................................. 2,022,506 ------------------------------------------------------------------------------------------- 3,230,708 ------------------------------------------------------------------------------------------- SINGAPORE -- 1.2% 252,800 Oversea-Chinese Banking Corp., Ltd. ........................ 2,090,664 ------------------------------------------------------------------------------------------- SWITZERLAND -- 6.8% 56,200 Compagnie Financiere Richemont AG, Class A Shares........... 1,864,303 111,030 Credit Suisse Group (b)..................................... 4,651,388 9,900 Nestle S.A. ................................................ 2,581,288 45,600 Swiss Reinsurance Co. ...................................... 3,241,157 ------------------------------------------------------------------------------------------- 12,338,136 ------------------------------------------------------------------------------------------- UNITED KINGDOM -- 28.1% 378,800 Barclays PLC................................................ 4,252,739 260,800 BP PLC...................................................... 2,538,238 197,696 Cadbury Schweppes PLC....................................... 1,836,964 274,974 Diageo PLC.................................................. 3,914,187 72,100 EMAP PLC.................................................... 1,126,472 240,800 GlaxoSmithKline PLC......................................... 5,637,529 323,107 HSBC Holdings PLC........................................... 5,441,221 93,220 Imperial Tobacco Group PLC.................................. 2,548,556 148,260 Kesa Electricals PLC........................................ 802,423 241,700 Marks & Spencer Group PLC................................... 1,588,298 340,200 Prudential PLC.............................................. 2,952,525 640,500 Rentokil Initial PLC........................................ 1,813,041 61,700 Rio Tinto PLC............................................... 1,812,126 156,400 Royal Bank of Scotland Group PLC............................ 5,249,670 383,500 Unilever PLC................................................ 3,758,133 2,053,800 Vodafone Group PLC.......................................... 5,557,862 ------------------------------------------------------------------------------------------- 50,829,984 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $147,714,557)................... 177,624,833 -------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 36 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 LAZARD INTERNATIONAL STOCK PORTFOLIO
FACE AMOUNT SECURITY VALUE ------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 2.3% $ 4,184,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $4,184,488; (Fully collateralized by U.S. Treasury Bond, 8.125% due 8/15/21; Market value -- $4,268,559) (Cost -- $4,184,000).......... $ 4,184,000 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.4% (Cost -- $151,898,557*)......... 181,808,833 Liabilities in Excess of Other Assets -- (0.4)%............. (634,659) ------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $181,174,174 ------------------------------------------------------------------------------------------- SHARES ------------------------------------------------------------------------------------------- LOANED SECURITIES COLLATERAL 44,468,432 State Street Navigator Securities Lending Trust Prime Portfolio (Cost -- $44,468,432)........................... $ 44,468,432 -------------------------------------------------------------------------------------------
(a) All or a portion of this security is on loan (See Notes 1 and 3). (b) Non-income producing security. * Aggregate cost for federal income tax purposes is $153,239,749. SUMMARY OF INVESTMENTS BY SECTOR** ----------------------------------------------------------------------- Financials.................................................. 25.4% Consumer Discretionary...................................... 11.6 Energy...................................................... 11.4 Consumer Staples............................................ 10.4 Healthcare.................................................. 8.7 Telecommunication Services.................................. 7.2 Information Technology...................................... 6.8 Industrials................................................. 5.8 Utilities................................................... 5.5 Other....................................................... 7.2 ----------------------------------------------------------------------- 100.0% -----------------------------------------------------------------------
** As a percentage of total investments. Please note that Fund holdings are as of December 31, 2004 and are subject to change. SEE NOTES TO FINANCIAL STATEMENTS. 37 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- COMMON STOCK -- 99.5% ----------------------------------------------------------------------------------------- BASIC MATERIALS -- 0.2% CHEMICALS -- 0.2% 13,730 Nalco Holding Co. (a)....................................... $ 268,010 ----------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 20.1% HOTELS RESTAURANTS & LEISURE -- 4.3% 40,890 Carnival Corp. ............................................. 2,356,491 12,160 The Cheesecake Factory Inc. (a)............................. 394,835 5,920 Four Seasons Hotels, Inc. .................................. 484,197 19,070 International Game Technology............................... 655,627 40,180 Royal Caribbean Cruises Ltd. ............................... 2,187,399 6,900 Starbucks Corp. (a)......................................... 430,284 17,770 WMS Industries Inc. (a)..................................... 596,006 ----------------------------------------------------------------------------------------- 7,104,839 ----------------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 1.8% 13,160 Harman International Industries, Inc. ...................... 1,671,320 10,800 Nintendo Co., Ltd. ......................................... 1,353,022 ----------------------------------------------------------------------------------------- 3,024,342 ----------------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL -- 2.0% 28,840 eBay Inc. (a)............................................... 3,353,515 ----------------------------------------------------------------------------------------- MEDIA -- 7.5% 44,230 Citadel Broadcasting Co. (a)................................ 715,641 10,280 DreamWorks Animation SKG, Inc. (a).......................... 385,603 54,640 EchoStar Communications Corp., Class A Shares (a)........... 1,816,234 46,790 Getty Images, Inc. (a)...................................... 3,221,492 21,990 Grupo Televisa, SA, Sponsored ADR........................... 1,330,395 49,480 News Corp., Class A Shares.................................. 923,297 21,200 Playboy Enterprises, Inc., Class B Shares (a)............... 260,548 40,730 Publishing & Broadcasting Ltd. ............................. 556,071 35,910 Telewest Global, Inc. (a)................................... 631,298 40,490 The Walt Disney Co. ........................................ 1,125,622 50,080 Westwood One, Inc. (a)...................................... 1,348,654 ----------------------------------------------------------------------------------------- 12,314,855 ----------------------------------------------------------------------------------------- MULTI-LINE RETAIL -- 1.8% 38,010 Family Dollar Stores, Inc. ................................. 1,187,052 33,490 Target Corp. ............................................... 1,739,136 ----------------------------------------------------------------------------------------- 2,926,188 ----------------------------------------------------------------------------------------- SPECIALTY RETAIL -- 1.6% 34,240 The Home Depot, Inc. ....................................... 1,463,418 37,690 Tiffany & Co. .............................................. 1,204,949 ----------------------------------------------------------------------------------------- 2,668,367 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 38 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- TEXTILES & APPAREL -- 1.1% 9,480 Coach, Inc. (a)............................................. $ 534,672 14,570 Nike, Inc., Class B Shares.................................. 1,321,353 ----------------------------------------------------------------------------------------- 1,856,025 ----------------------------------------------------------------------------------------- TOTAL CONSUMER DISCRETIONARY................................ 33,248,131 ----------------------------------------------------------------------------------------- CONSUMER STAPLES -- 2.7% BEVERAGES -- 1.2% 15,820 Anheuser-Busch Cos., Inc. .................................. 802,549 23,910 PepsiCo, Inc. .............................................. 1,248,102 ----------------------------------------------------------------------------------------- 2,050,651 ----------------------------------------------------------------------------------------- FOOD & DRUG RETAILING -- 1.5% 26,000 CVS Corp. .................................................. 1,171,820 35,790 Walgreen Co. ............................................... 1,373,262 ----------------------------------------------------------------------------------------- 2,545,082 ----------------------------------------------------------------------------------------- TOTAL CONSUMER STAPLES...................................... 4,595,733 ----------------------------------------------------------------------------------------- ENERGY -- 2.3% ENERGY EQUIPMENT & SERVICES -- 2.3% 28,810 BJ Services Co. ............................................ 1,340,817 41,710 GlobalSantaFe Corp. ........................................ 1,381,018 18,840 Smith International, Inc. (a)............................... 1,025,084 ----------------------------------------------------------------------------------------- TOTAL ENERGY................................................ 3,746,919 ----------------------------------------------------------------------------------------- FINANCIALS -- 4.9% BANKS -- 0.5% 18,030 Investors Financial Services Corp. ......................... 901,139 ----------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 4.4% 37,650 American Express Co. ....................................... 2,122,331 57,350 Ameritrade Holding Corp. (a)................................ 815,517 8,020 The Goldman Sachs Group, Inc. .............................. 834,401 35,910 Legg Mason, Inc. ........................................... 2,630,767 9,610 Lehman Brothers Holdings Inc. .............................. 840,683 ----------------------------------------------------------------------------------------- 7,243,699 ----------------------------------------------------------------------------------------- TOTAL FINANCIALS............................................ 8,144,838 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 39 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- HEALTHCARE -- 23.3% BIOTECHNOLOGY -- 6.2% 19,610 Amgen Inc. (a).............................................. $ 1,257,982 26,040 Celgene Corp. (a)........................................... 690,841 23,570 Gen-Probe Inc. (a).......................................... 1,065,600 45,690 Genzyme Corp. (a)........................................... 2,653,218 37,040 Gilead Sciences, Inc. (a)................................... 1,296,030 29,450 ImClone Systems Inc. (a).................................... 1,357,056 45,700 MedImmune, Inc. (a)......................................... 1,238,927 15,170 Neurocrine Biosciences, Inc. (a)............................ 747,881 ----------------------------------------------------------------------------------------- 10,307,535 ----------------------------------------------------------------------------------------- HEALTHCARE EQUIPMENT & SUPPLIES -- 9.5% 38,010 Baxter International, Inc. ................................. 1,312,865 10,980 C.R. Bard, Inc. ............................................ 702,500 154,950 Cytyc Corp. (a)............................................. 4,271,972 14,610 DENTSPLY International Inc. ................................ 821,082 40,923 Fisher Scientific International Inc. (a).................... 2,552,777 23,260 Guidant Corp. .............................................. 1,677,046 47,620 Medtronic, Inc. ............................................ 2,365,285 33,810 Millipore Corp. (a)......................................... 1,684,076 3,700 Synthes, Inc. (a)........................................... 413,453 ----------------------------------------------------------------------------------------- 15,801,056 ----------------------------------------------------------------------------------------- HEALTHCARE PROVIDERS & SERVICES -- 1.3% 21,090 Community Health Systems Inc. (a)........................... 587,989 37,640 HCA Inc. ................................................... 1,504,094 ----------------------------------------------------------------------------------------- 2,092,083 ----------------------------------------------------------------------------------------- PHARMACEUTICALS -- 6.3% 23,650 Allergan, Inc. ............................................. 1,917,306 21,510 Endo Pharmaceuticals Holdings Inc. (a)...................... 452,140 24,440 Johnson & Johnson........................................... 1,549,985 64,680 Medicis Pharmaceutical Corp., Class A Shares................ 2,270,915 24,460 Novartis AG................................................. 1,228,359 14,190 Roche Holding AG............................................ 1,627,933 10,440 Watson Pharmaceuticals, Inc. (a)............................ 342,536 24,710 Wyeth....................................................... 1,052,399 ----------------------------------------------------------------------------------------- 10,441,573 ----------------------------------------------------------------------------------------- TOTAL HEALTHCARE............................................ 38,642,247 ----------------------------------------------------------------------------------------- INDUSTRIALS -- 9.2% AIR FREIGHT & COURIERS -- 0.4% 11,840 Expeditors International of Washington, Inc. ............... 661,619 ----------------------------------------------------------------------------------------- AIRLINES -- 0.4% 31,150 JetBlue Airways Corp. (a)................................... 723,303 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 40 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 6.5% 36,260 Alliance Data Systems Corp. (a)............................. $ 1,721,625 14,090 Apollo Group, Inc., Class A Shares (a)...................... 1,137,204 41,090 Career Education Corp. (a).................................. 1,643,600 40,010 Ceridian Corp. (a).......................................... 731,383 10,880 The Corporate Executive Board Co. .......................... 728,307 44,450 DST Systems, Inc. (a)....................................... 2,316,734 484 Employee Solutions, Inc. (a)................................ 0 10,240 Hewitt Associates, Inc. (a)................................. 327,782 15,530 Manpower Inc. .............................................. 750,099 21,280 Paychex, Inc. .............................................. 725,222 5,480 Strayer Education, Inc. .................................... 601,649 ----------------------------------------------------------------------------------------- 10,683,605 ----------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 0.8% 38,040 Tyco International Ltd. .................................... 1,359,550 ----------------------------------------------------------------------------------------- MACHINERY -- 1.1% 2,930 Caterpillar Inc. ........................................... 285,704 15,720 Illinois Tool Works Inc. ................................... 1,456,930 ----------------------------------------------------------------------------------------- 1,742,634 ----------------------------------------------------------------------------------------- TOTAL INDUSTRIALS........................................... 15,170,711 ----------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY -- 27.2% COMMUNICATIONS EQUIPMENT -- 3.6% 15,530 AudioCodes Ltd. (a)......................................... 257,953 102,378 Cisco Systems, Inc. (a)..................................... 1,975,895 74,180 Comverse Technology, Inc. (a)............................... 1,813,701 13,920 Harris Corp. ............................................... 860,117 41,011 Juniper Networks, Inc. (a).................................. 1,115,089 ----------------------------------------------------------------------------------------- 6,022,755 ----------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS -- 3.7% 10,650 Apple Computer, Inc. (a).................................... 685,860 84,670 Dell Inc. (a)............................................... 3,567,994 63,340 EMC Corp. (a)............................................... 941,866 10,480 Lexmark International, Inc., Class A Shares (a)............. 890,800 ----------------------------------------------------------------------------------------- 6,086,520 ----------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.5% 26,230 Symbol Technologies, Inc. .................................. 453,779 44,620 Waters Corp. (a)............................................ 2,087,770 ----------------------------------------------------------------------------------------- 2,541,549 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 41 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 5.0% 35,190 Akamai Technologies, Inc. (a)............................... $ 458,526 40,340 Check Point Software Technologies (a)....................... 993,574 11,860 Google Inc., Class A Shares (a)............................. 2,290,166 25,710 IAC/InterActiveCorp. (a).................................... 710,110 18,100 Softbank Corp. ............................................. 879,188 78,150 Yahoo! Inc. (a)............................................. 2,944,692 ----------------------------------------------------------------------------------------- 8,276,256 ----------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 3.7% 29,630 Analog Devices, Inc. ....................................... 1,093,940 13,840 Integrated Circuit Systems, Inc. (a)........................ 289,533 27,590 Marvell Technology Group Ltd. (a)........................... 978,617 56,740 PMC-Sierra, Inc. (a)........................................ 638,325 5,180 Samsung Electronics Co., Ltd. .............................. 1,134,420 30,060 Silicon Laboratories Inc. (a)............................... 1,061,419 32,140 Xilinx, Inc. ............................................... 952,951 ----------------------------------------------------------------------------------------- 6,149,205 ----------------------------------------------------------------------------------------- SOFTWARE -- 9.7% 29,850 Activision, Inc. (a)........................................ 602,373 98,800 Amdocs Ltd. (a)............................................. 2,593,500 10,120 Business Objects S.A., Sponsored ADR (a).................... 256,441 36,290 Citrix Systems, Inc. (a).................................... 890,194 784 Computer Associates International, Inc. .................... 24,351 39,390 Electronic Arts Inc. (a).................................... 2,429,575 19,600 Macromedia, Inc. (a)........................................ 609,952 47,360 Mercury Interactive Corp. (a)............................... 2,157,248 16,930 National Instruments Corp. ................................. 461,342 161,860 Oracle Corp. (a)............................................ 2,220,719 32,040 Red Hat, Inc. (a)........................................... 427,734 39,340 Symantec Corp. (a).......................................... 1,013,398 81,740 VERITAS Software Corp. (a).................................. 2,333,677 ----------------------------------------------------------------------------------------- 16,020,504 ----------------------------------------------------------------------------------------- TOTAL INFORMATION TECHNOLOGY................................ 45,096,789 ----------------------------------------------------------------------------------------- MATERIALS -- 0.6% METALS & MINING -- 0.6% 7,400 Aber Diamond Corp. (a)...................................... 261,100 23,230 Companhia Vale do Rio Doce, ADR............................. 673,902 ----------------------------------------------------------------------------------------- TOTAL MATERIALS............................................. 935,002 ----------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 9.0% DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.3% 32,987 NTL Inc. (a)................................................ 2,406,732 53,900 Sprint Corp. ............................................... 1,339,415 ----------------------------------------------------------------------------------------- 3,746,147 -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 42 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 MFS EMERGING GROWTH PORTFOLIO
SHARES SECURITY VALUE ----------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 6.7% 39,960 America Movil S.A. de C.V., ADR, Series L Shares............ $ 2,091,906 190,410 American Tower Corp., Class A Shares (a).................... 3,503,544 61,290 Crown Castle International Corp. (a)........................ 1,019,866 43,220 SpectraSite, Inc. (a)....................................... 2,502,438 72,813 Vodafone Group PLC, Sponsored ADR........................... 1,993,620 ----------------------------------------------------------------------------------------- 11,111,374 ----------------------------------------------------------------------------------------- TOTAL TELECOMMUNICATION SERVICES............................ 14,857,521 ----------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $131,038,785)................... 164,705,901 ----------------------------------------------------------------------------------------- WARRANTS ----------------------------------------------------------------------------------------- WARRANTS (A) -- 0.0% COMMUNICATIONS -- 0.0% TELECOMMUNICATIONS -- 0.0% 174 Lucent Technologies Inc. Expire 12/10/07 (Cost -- $0)....... 275 ----------------------------------------------------------------------------------------- FACE AMOUNT ----------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT -- 2.4% $ 3,950,000 Fannie Mae Discount Notes, zero coupon bond to yield 1.270% due 1/3/05 (Cost -- $3,949,726)........................................ 3,949,726 ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 101.9% (Cost -- $134,988,511*)......... 168,655,902 Liabilities in Excess of Other Assets -- (1.9%)............. (3,211,272) ----------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%.................................. $165,444,630 -----------------------------------------------------------------------------------------
(a) Non-income producing security. * Aggregate cost for federal income tax purposes is $136,867,777. Abbreviation used in this schedule: ADR -- American Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. 43 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- 95.8% ---------------------------------------------------------------------------------------------------------- AEROSPACE & DEFENSE -- 2.0% $ 175,000 B Alliant Techsystems, Inc., 8.500% due 5/15/11.................... $ 192,500 150,000 B Argo-Tech Corp., Sr. Notes, 9.250% due 6/1/11.................... 165,375 Hexcel Corp.: 50,000 B Sr. Secured Notes, 9.875% due 10/1/08.......................... 55,750 350,000 CCC+ Sr. Sub. Notes, 9.750% due 1/15/09............................. 365,750 75,000 B- K & F Acquisition, Inc., Sr. Sub. Notes, 7.750% due 11/15/14 (b)............................................................ 77,813 425,000 BB+ L-3 Communications Corp., Sr. Sub. Notes, 6.125% due 1/15/14..... 439,875 150,000 B- Standard Aero Holdings, Inc., Sr. Sub. Notes, 8.250% due 9/1/14 (b)............................................................ 162,750 225,000 B- Transdigm, Inc., Sr. Sub. Notes, 8.375% due 7/15/11.............. 242,437 ---------------------------------------------------------------------------------------------------------- 1,702,250 ---------------------------------------------------------------------------------------------------------- AUTOMOTIVE -- 3.8% 200,000 CCC+ Accuride Corp., Sr. Sub. Notes, Series B, 9.250% due 2/1/08...... 204,000 250,000 CCC+ Advanced Accessory Systems LLC, Sr. Notes, 10.750% due 6/15/11... 238,750 100,000 B Affinia Group, Inc., 9.000% due 11/30/14 (b)..................... 104,750 250,000 B Cooper Standard Auto, Notes, 8.375% due 12/15/14 (b)............. 250,625 General Motors, Corp.: 325,000 BBB- Debentures, 8.375% due 7/15/33................................. 337,659 275,000 BBB- Sr. Notes, 7.125% due 7/15/13.................................. 281,863 100,000 BBB- Lear Corp., Sr. Notes, Series B, 7.960% due 5/15/05.............. 101,606 Stanadyne Corp.: 125,000 B- Sr. Discount Notes, step bond to yield 8.904% due 2/15/15 (b)............................................................ 74,531 250,000 B- Sr. Sub. Notes, 10.000% due 8/15/14 (b)........................ 271,250 275,000 B+ Stoneridge, Inc., Sr. Notes, 11.500% due 5/1/12.................. 321,062 175,000 B- Tenneco Automotive Inc., Sr. Sub. Notes, 8.625% due 11/15/14 (b)............................................................ 182,875 225,000 CCC+ Transportation Technologies Industries, Inc., Sr. Sub. Notes, 12.500% due 3/31/10 (b)........................................ 232,313 385,000 BB- TRW Automotive, Inc., Sr. Sub. Notes, 11.000% due 2/15/13........ 465,850 225,000 B United Components, Inc., Sr. Sub. Notes, 9.375% due 6/15/13...... 245,250 ---------------------------------------------------------------------------------------------------------- 3,312,384 ---------------------------------------------------------------------------------------------------------- BUILDING MATERIALS -- 2.1% 275,000 B- AMH Holdings Inc., Sr. Discount Notes, step bond to yield 10.957% due 3/1/14..................................................... 199,375 125,000 B- Associated Materials, Inc., Sr. Sub. Notes, 9.750% due 4/15/12... 140,312 200,000 B- Collins & Aikman Floorcovering, Inc., Sr. Sub. Notes, Series B, 9.750% due 2/15/10................................... 216,000 Goodman Global Holdings Co., Inc.: 100,000 B- Sr. Notes, 5.760% due 6/15/12 (b)(c)........................... 102,000 200,000 B- Sr. Sub. Notes, 7.875% due 12/15/12 (b)........................ 199,000 150,000 B- Norcraft Cos LP/Norcraft Finance Corp., Sr. Sub. Notes, 9.000% due 11/1/11............................................. 162,750 425,000 B- Norcraft Holdings LP/Norcraft Capital Corp., Sr. Discount Notes, step bond to yield 9.746% due 9/1/12........................... 320,875 200,000 B- Ply Gem Industries, Inc., Sr. Sub. Notes, 9.000% due 2/15/12..... 204,000 100,000 B- THL BuildCo Inc., Sr. Sub. Notes, 8.500% due 9/1/14 (b).......... 105,000
SEE NOTES TO FINANCIAL STATEMENTS. 44 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- BUILDING MATERIALS -- 2.1% (CONTINUED) $ 200,000 B- U.S. Concrete, Inc., Sr. Sub. Notes, 8.375% due 4/1/14........... $ 216,500 ---------------------------------------------------------------------------------------------------------- 1,865,812 ---------------------------------------------------------------------------------------------------------- CHEMICALS -- 5.7% 100,000 CCC+ Aventine Renewable Energy, Secured Notes, 8.50125% due 12/15/11 (b)(c)......................................................... 101,500 275,000 B- BCP Caylux Holding Luxembourg SCA, Sr. Sub. Notes, 9.625% due 6/15/14 (b).................................................... 311,438 250,000 B- Borden U.S. Finance Corp./Nova Scotia Finance ULC, Secured Notes, 9.000% due 7/15/14 (b)......................................... 278,750 225,000 B- Compass Minerals Group, Inc., Sr. Sub. Notes, 10.000% due 8/15/11........................................................ 254,250 Compass Minerals International, Inc.: 275,000 B- Sr. Discount Notes, Series B, step bond to yield 11.980% due 6/1/13......................................................... 224,125 150,000 B- Sr. Notes, step bond to yield 12.740% due 12/15/12............. 129,000 500,000 B- Crystal U.S. Holdings 3 LLC/Crystal U.S. Sub. 3 Corp., Sr. Discount Notes, step bond to yield 9.919% due 10/1/14 (b)...................... 345,000 250,000 B+ Equistar Chemical, LP/Equistar Funding Corp., Sr. Notes, 10.125% due 9/1/08..................................................... 289,375 125,000 BB+ FMC Corp., Secured Notes, 10.250% due 11/1/09.................... 144,063 150,000 B Huntsman Advanced Materials LLC, Sr. Secured Notes, 11.000% due 7/15/10 (b).................................................... 179,250 260,000 CCC+ Huntsman International LLC, Sr. Sub. Notes, 10.125% due 7/1/09... 274,950 27,000 BB IMC Global, Inc., Sr. Notes, Series B, 10.875% due 6/1/08........ 32,535 225,000 B+ INVISTA, Notes, 9.250% due 5/1/12 (b)............................ 252,000 150,000 B Koppers Inc., Sr. Notes, 9.875% due 10/15/13..................... 171,750 Lyondell Chemical Co.: Sr. Secured Notes: 275,000 B+ 9.500% due 12/15/08.......................................... 299,750 50,000 B+ 10.500% due 6/1/13........................................... 59,750 75,000 B+ Series A, 9.625% due 5/1/07.................................. 82,875 105,000 B+ Series B, 9.875% due 5/1/07.................................. 110,513 250,000 B- Sr. Sub. Notes, 10.875% due 5/1/09............................. 265,625 27,616 B+ Millennium America Inc., Sr. Notes, 9.250% due 6/15/08........... 31,552 175,000 B- Nalco Co., Sr. Sub. Notes, 8.875% due 11/15/13................... 192,938 216,000 B- Nalco Finance Holdings, Inc., Sr. Notes, step bond to yield 9.711% due 2/1/14.............................................. 160,920 250,000 CCC+ Polypore Inc., Sr. Sub. Notes, 8.750% due 5/15/12................ 262,500 75,000 B- Rockwood Specialties Group, Inc., Sub. Notes, 7.500% due 11/15/14 (b)............................................................ 78,188 Union Carbide Chemicals & Plastics Co. Inc.: 50,000 BBB- Debentures, 7.875% due 4/1/23.................................. 52,750 200,000 BBB- Sr. Notes, 8.750% due 8/1/22................................... 211,750 Union Carbide Corp., Debentures: 75,000 BBB- 6.790% due 6/1/25.............................................. 76,688 50,000 BBB- 7.500% due 6/1/25.............................................. 51,250 ---------------------------------------------------------------------------------------------------------- 4,925,035 ---------------------------------------------------------------------------------------------------------- CONSTRUCTION MACHINERY -- 1.6% 175,000 BB- AGCO Corp., Sr. Notes, 9.500% due 5/1/08......................... 187,250 400,000 BB- Case New Holland, Inc., Sr. Notes, 9.250% due 8/1/11 (b)......... 447,000 150,000 NR Clark Material Handling Co., Sr. Notes, Series D, 10.750% due 11/15/06 (d)(e)+............................................... 0 Columbus McKinnon Corp.: 50,000 B- Sr. Secured Notes, 10.000% due 8/1/10.......................... 56,500 275,000 CCC+ Sr. Sub. Notes, 8.500% due 4/1/08.............................. 277,750
SEE NOTES TO FINANCIAL STATEMENTS. 45 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- CONSTRUCTION MACHINERY -- 1.6% (CONTINUED) $ 300,000 BB- NationsRent Co., Inc., Secured Notes, 9.500% due 10/15/10........ $ 337,500 125,000 BB- United Rentals North America Inc., Sr. Notes, 6.500% due 2/15/12........................................................ 122,500 ---------------------------------------------------------------------------------------------------------- 1,428,500 ---------------------------------------------------------------------------------------------------------- CONSUMER PRODUCTS -- 4.8% 225,000 B- AAC Group Holding Corp., Sr. Discount Notes, step bond to yield 8.904% due 10/1/12 (b)......................................... 152,437 75,000 B- American Achievement Corp., Sr. Sub. Notes, 8.250% due 4/1/12.... 78,187 200,000 CCC+ Ames True Temper, Inc., Sr. Sub. Notes, 10.000% due 7/15/12...... 206,000 150,000 B Chattem, Inc., Sr. Sub. Notes, 7.000% due 3/1/14................. 155,250 125,000 B+ Church & Dwight Co. Inc., Sr. Sub. Notes, 6.000% due 12/15/12 (b)............................................................ 127,813 50,000 NR Diamond Brands Operating Corp., Sr. Sub. Notes, 10.125% due 4/15/08 (d)(e)+................................................ 3,475 200,000 B- Icon Health & Fitness, Inc., Sr. Sub. Notes, 11.250% due 4/1/12......................................................... 169,000 325,000 B- Jarden Corp., Sr. Sub. Notes, 9.750% due 5/1/12.................. 362,375 475,000 B- Jostens Holding Corp., Sr. Discount Notes, step bond to yield 10.039% due 12/1/13............................................ 339,625 250,000 B- Jostens IH Corp., 7.625% due 10/1/12 (b)......................... 261,250 50,000 BB K2, Inc., Sr. Notes, 7.375% due 7/1/14 (b)....................... 55,000 200,000 CCC+ Leiner Health Products, Inc., Sr. Sub. Notes, 11.000% due 6/1/12......................................................... 219,500 275,000 CCC+ Playtex Products, Inc., Sr. Sub. Notes, 9.375% due 6/1/11........ 294,937 250,000 B- Sealy Mattress Co., Sr. Sub. Notes, 8.250% due 6/15/14........... 266,250 Simmons Bedding Co.: 275,000 B- Sr. Discount Notes, step bond to yield 11.323% due 12/15/14 (b)............................................................ 169,125 350,000 B- Sr. Sub. Notes, 7.875% due 1/15/14............................. 364,000 205,000 B Tempur-Pedic, Inc./Tempur Production U.S.A. Inc., Sr. Sub. Notes, 10.250% due 8/15/10............................................ 236,775 150,000 CCC+ True Temper Sports, Inc., Sr. Sub. Notes, 8.375% due 9/15/11..... 140,250 350,000 B- United Industries Corp., Sr. Sub. Notes, Series D, 9.875% due 4/1/09......................................................... 367,937 150,000 B WH Holdings Ltd./WH Capital Corp., Sr. Notes, 9.500% due 4/1/11......................................................... 165,750 ---------------------------------------------------------------------------------------------------------- 4,134,936 ---------------------------------------------------------------------------------------------------------- DIVERSIFIED -- 2.9% 2,264,535 BB- Targeted Return Index Sector, Trains HY-2004-1, Secured Notes, 8.2105% due 8/1/15 (b)(c)...................................... 2,481,305 ---------------------------------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING -- 0.4% 375,000 BBB Tyco International Group S.A., Notes, 5.800% due 8/1/06.......... 388,409 ---------------------------------------------------------------------------------------------------------- ENERGY -- 1.1% 225,000 B Compton Petroleum Corp., Sr. Notes, 9.900% due 5/15/09........... 249,750 125,000 B- Inergy LP/Inergy Finance Corp., Sr. Notes, 6.875% due 12/15/14 (b)............................................................ 126,250 50,000 B- Lone Star Technologies, Inc., Sr. Sub. Notes, Series B, 9.000% due 6/1/11..................................................... 53,750 150,000 BB- Petroleum Helicopters, Inc., Sr. Notes, Series B, 9.375% due 5/1/09......................................................... 165,000 75,000 B Range Resources, Corp., Sr. Sub. Notes, 7.375% due 7/15/13....... 80,812 250,000 B Swift Energy Co., Sr. Sub. Notes, 9.375% due 5/1/12.............. 281,250 ---------------------------------------------------------------------------------------------------------- 956,812 ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 46 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- ENTERTAINMENT -- 2.4% $ 300,000 CCC+ AMC Entertainment, Inc., Sr. Sub. Notes, 9.875% due 2/1/12....... $ 328,500 525,000 B- Cinemark, Inc., Sr. Discount Notes, step bond to yield 9.474% due 3/15/14........................................................ 399,000 150,000 B- Cinemark U.S.A. Inc., Sr. Sub. Notes, 9.000% due 2/1/13.......... 171,937 200,000 B+ Intrawest Corp., Sr. Notes, 7.500% due 10/15/13 (b).............. 213,750 325,000 CCC+ LCE Acquisition Corp., Sr. Sub. Notes, 9.000% due 8/1/014 (b).... 353,438 425,000 B- Universal City Development Partners, Sr. Notes, 11.750% due 4/1/10......................................................... 504,156 Universal City Florida Holdings UCD, Sr. Notes: 50,000 B- 8.375% due 5/1/10 (b).......................................... 52,125 75,000 B- Step bond to yield 10.234% due 5/1/10 (b)(c)................... 78,375 ---------------------------------------------------------------------------------------------------------- 2,101,281 ---------------------------------------------------------------------------------------------------------- ENVIRONMENTAL -- 1.4% Allied Waste North America, Inc., Series B: 175,000 BB- 9.250% due 9/1/12.............................................. 190,313 625,000 BB- Sr. Notes, 7.625% due 1/1/06................................... 646,875 200,000 B Clean Harbors, Inc., Sr. Secured Notes, 11.250% due 7/15/12 (b)............................................................ 225,000 125,000 B Synagro Technologies, Inc., Sr. Sub. Notes, 9.500% due 4/1/09.... 136,875 ---------------------------------------------------------------------------------------------------------- 1,199,063 ---------------------------------------------------------------------------------------------------------- FOOD & BEVERAGE -- 6.0% 63,000 B- AgriLink Foods, Inc., Sr. Sub. Notes, 11.875% due 11/1/08........ 65,914 300,000 B- American Seafood Group LLC, Sr. Sub. Notes, 10.125% due 4/15/10........................................................ 322,500 425,000 B- ASG Consolidated LLC/ASG Finance Inc., Sr. Discount Notes, step bond to yield 11.505% due 11/1/11 (b)..................... 273,062 150,000 B B&G Foods, Inc., Sr. Notes, 8.000% due 10/1/11................... 160,500 150,000 BB Constellation Brands, Inc., Sr. Notes, Series B, 8.000% due 2/15/08........................................................ 163,875 200,000 B+ Cott Beverages, Inc., Sr. Sub. Notes, 8.000% due 12/15/11........ 218,750 Del Monte Corp.: 150,000 B Series B, 9.250% due 5/15/11................................... 165,000 400,000 B Sr. Sub. Notes, 8.625% due 12/15/12............................ 450,000 Dole Foods Co., Sr. Notes: 275,000 B+ 8.625% due 5/1/09.............................................. 300,438 275,000 B+ 7.250% due 6/15/10............................................. 283,938 175,000 CCC Eagle Family Foods Holdings, Inc., Sr. Sub. Notes, Series B, 8.750% due 1/15/08............................................. 135,625 98,000 B Gold Kist, Inc., Sr. Notes, 10.250% due 3/15/14.................. 115,150 275,000 B- Michael Foods, Inc., Sr. Sub. Notes, 8.000% due 11/15/13......... 291,500 150,000 B- National Beef Packing Co./NB Finance Corp., LLC, Sr. Notes, 10.500% due 8/1/11............................................. 158,250 100,000 NR Nebco Evans Holding Co., Sr. Discount Notes, 12.375% due 7/15/07 (d)(e)+........................................................ 0 275,000 B- Pierre Foods, Inc., Sr. Sub. Notes, 9.875% due 7/15/12 (b)....... 286,000 Pilgrim's Pride Corp.: 100,000 BB- Sr. Notes, 9.625% due 9/15/11.................................. 113,000 175,000 B+ Sr. Sub. Notes, 9.250% due 11/15/13............................ 196,875 Reddy Ice Group, Inc.: 325,000 B- Sr. Discount Notes, step bond to yield 11.013% due 11/1/12 (b)............................................................ 225,875 200,000 B- Sr. Sub. Notes, 8.875% due 8/1/11.............................. 217,000
SEE NOTES TO FINANCIAL STATEMENTS. 47 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- FOOD & BEVERAGE -- 6.0% (CONTINUED) Smithfield Foods, Inc., Sr. Notes, Series B: $ 250,000 BB 8.000% due 10/15/09............................................ $ 278,125 200,000 BB 7.750% due 5/15/13............................................. 223,500 Swift & Co.: 100,000 B+ Sr. Notes, 10.125% due 10/1/09................................. 112,000 125,000 B Sr. Sub. Notes, 12.500% due 1/1/10............................. 141,875 300,000 B- UAP Holding Corp., Sr. Discount Notes, step bond to yield 10.750% due 7/15/12 (b)........................................ 237,000 67,000 B United Agricultural Products Inc., Sr. Notes, 8.250% due 12/15/11 (b)(c)......................................................... 72,193 ---------------------------------------------------------------------------------------------------------- 5,207,945 ---------------------------------------------------------------------------------------------------------- GAMING -- 5.7% Boyd Gaming Corp., Sr. Sub. Notes: 100,000 B+ 8.750% due 4/15/12............................................. 111,750 175,000 B+ 7.750% due 12/15/12............................................ 191,844 Caesars Entertainment Inc., Sr. Sub. Notes: 275,000 BB- 7.875% due 3/15/10............................................. 311,094 300,000 BB- 8.125% due 5/15/11............................................. 348,000 500,000 BB+ Harrah's Operating Co., Inc., Sr. Sub. Notes, 7.875% due 12/15/05....................................................... 521,250 75,000 B- Herbst Gaming Inc., Sr. Sub. Notes, 7.000% due 11/15/14 (b)...... 76,313 Isle of Capri Casinos, Inc., Sr. Sub. Notes: 225,000 B 9.000% due 3/15/12............................................. 249,187 50,000 B 7.000% due 3/1/14.............................................. 51,250 225,000 B Kerzner International Ltd., Sr. Sub. Notes, 8.875% due 8/15/11... 246,937 150,000 B Majestic Star Casino LLC, Sr. Secured Notes, 9.500% due 10/15/10....................................................... 159,750 Mandalay Resort Group: 125,000 BB+ Sr. Notes, 9.500% due 8/1/08................................... 143,437 475,000 BB- Sr. Sub. Notes, Series B, 10.250% due 8/1/07................... 539,125 MGM MIRAGE: 150,000 BB+ Sr. Notes, 8.500% due 9/15/10.................................. 171,375 500,000 BB- Sr. Sub. Notes, 9.750% due 6/1/07.............................. 557,500 175,000 B+ Mohegan Tribal Gaming Authority, Sr. Sub. Notes, 8.000% due 4/1/12......................................................... 190,750 225,000 B+ MTR Gaming Group, Inc., Sr. Notes, Series B, 9.750% due 4/1/10... 248,625 Penn National Gaming, Inc., Sr. Sub. Notes: 50,000 B 8.875% due 3/15/10............................................. 54,813 175,000 B Series B, 11.125% due 3/1/08................................... 187,688 Station Casinos, Inc.: 50,000 BB- Sr. Notes, 6.000% due 4/1/12................................... 51,188 200,000 B+ Sr. Sub. Notes, 6.500% due 2/1/14.............................. 206,500 225,000 B Venetian Casino Resort LLC/Las Vegas Sands Inc., Mortgage Notes, 11.000% due 6/15/10............................................ 257,906 50,000 B Virgin River Casino Corp., Secured Notes, 9.000% due 1/15/12 (b)............................................................ 52,250 ---------------------------------------------------------------------------------------------------------- 4,928,532 ---------------------------------------------------------------------------------------------------------- HEALTHCARE -- 4.7% 300,000 B- AmeriPath, Inc., Sr. Sub. Notes, 10.500% due 4/1/13.............. 320,250 225,000 B- Ardent Health Services Inc., Sr. Sub. Notes, 10.000% due 8/15/13........................................................ 237,375 125,000 BB- Bio-Rad Laboratories, Inc., Sr. Sub. Notes, 6.125% due 12/15/14 (b)............................................................ 126,562
SEE NOTES TO FINANCIAL STATEMENTS. 48 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- HEALTHCARE -- 4.7% (CONTINUED) $ 600,000 B- CDRV Investors, Inc., Sr. Discount Notes, step bond to yield 9.297% due 1/1/15 (b).......................................... $ 375,750 350,000 BB+ Columbia HCA Healthcare Co., Notes, 6.910% due 6/15/05........... 355,167 Concentra Operating Corp., Sr. Sub. Notes: 175,000 B- 9.500% due 8/15/10............................................. 198,625 50,000 NR 9.125% due 6/1/12 (b).......................................... 56,750 Fisher Scientific International Inc., Sr. Sub. Notes: 325,000 BB+ 8.000% due 9/1/13.............................................. 370,500 50,000 BB+ 6.750% due 8/15/14 (b)......................................... 53,875 100,000 CCC+ Hanger Orthopedic Group, Inc., Sr. Notes, 10.375% due 2/15/09.... 103,750 HCA Inc., Notes: 375,000 BB+ 8.750% due 9/1/10.............................................. 429,143 200,000 BB+ 6.750% due 7/15/13............................................. 208,201 175,000 BB+ 7.500% due 11/6/33............................................. 179,055 143,382 B+ Magellan Health Services, Inc., Sr. Notes, Series A, 9.375% due 11/15/08....................................................... 156,824 275,000 B- Medical Device Manufacturing, Inc., Sr. Sub. Notes, 10.000% due 7/15/12 (b).................................................... 297,687 250,000 B- National Mentor Inc., Sr. Sub. Notes, 9.625% due 12/1/12 (b)..... 266,875 150,000 BB- Sybron Dental Specialties, Inc., Sr. Sub. Notes, 8.125% due 6/15/12........................................................ 164,250 75,000 BB Ventas Realty LP, Sr. Notes, 6.625% due 10/15/14 (b)............. 77,063 75,000 B- VWR International, Inc., Sr. Sub. Notes, 8.000% due 4/15/14...... 80,438 ---------------------------------------------------------------------------------------------------------- 4,058,140 ---------------------------------------------------------------------------------------------------------- INDUSTRIAL - OTHER -- 4.7% 250,000 B- Aearo Co. I., Sr. Sub. Notes, 8.250% due 4/15/12................. 258,750 100,000 B Amsted Industries, Inc., Sr. Notes, 10.250% due 10/15/11 (b)..... 113,500 300,000 CCC+ Brand Services, Inc., Sr. Sub. Notes, 12.000% due 10/15/12....... 337,500 175,000 B- Coleman Cable, Inc., Sr. Notes, 9.875% due 10/1/12 (b)........... 186,812 150,000 B- Da-Lite Screen Co., Inc., Sr. Notes, 9.500% due 5/15/11.......... 165,750 350,000 B- Eagle-Picher Industries, Inc., Sr. Notes, 9.750% due 9/1/13...... 351,750 50,000 NR Glenoit Corp., Sr. Sub. Notes, 11.000% due 4/15/07 (d)(e)........ 0 200,000 B Hawk Corp., Sr. Notes, 8.750% due 11/1/14 (b).................... 206,000 225,000 B Interline Brands, Inc., Sr. Sub. Notes, 11.500% due 5/15/11...... 254,250 175,000 B- Mueller Group, Inc., Sr. Sub. Notes, 10.000% due 5/1/12.......... 191,625 Neenah Corp.: 191,000 CCC+ Sr. Secured Notes, 11.000% due 9/30/10 (b)..................... 212,010 159,574 CCC+ Sr. Sub. Notes, 13.000% due 9/30/13 (b)........................ 164,361 250,000 B- Norcross Safety Products LLC/Norcross Capital Co., Sr. Sub. Notes, Series B, 9.875% due 8/15/11............................ 277,500 100,000 B- NSP Holdings/NSP Capital Corp., Sr. Notes, 11.750% due 1/1/12 (b)(g)......................................................... 101,500 200,000 B- Rexnord Corp., Sr. Sub. Notes, 10.125% due 12/15/12.............. 227,000 300,000 B- Sensus Metering Systems, Inc., Sr. Sub. Notes, 8.625% due 12/15/13....................................................... 309,000 250,000 B Superior Essex Communications LLC/Essex Group., Inc., Sr. Notes, 9.000% due 4/15/12............................................. 258,750 200,000 B- Thermadyne Holdings Corp., Sr. Sub. Notes, 9.250% due 2/1/14..... 196,000 100,000 B+ Valmont Industries, Inc., Sr. Sub. Notes, 6.875% due 5/1/14...... 104,500 125,000 B Wesco Distribution, Inc., Sr. Sub. Notes, 9.125% due 6/1/08...... 129,375 ---------------------------------------------------------------------------------------------------------- 4,045,933 ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 49 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- LODGING -- 1.7% $ 150,000 B Gaylord Entertainment Co., Sr. Notes, 6.750% due 11/15/14 (b).... $ 151,500 63,000 B+ HMH Properties, Inc., Sr. Notes, Series B, 7.875% due 8/1/08..... 65,047 325,000 B+ Host Marriott L.P., Sr. Notes, 7.125% due 11/1/13................ 348,969 175,000 B- Lodgenet Entertainment Corp., Sr. Sub. Debentures, 9.500% due 6/15/13........................................................ 194,250 175,000 BB+ Royal Caribbean Cruises Ltd., Sr. Notes, 8.000% due 5/15/10...... 198,625 Starwood Hotels & Resorts Worldwide, Inc., Sr. Notes: 350,000 BB+ 7.375% due 5/1/07.............................................. 374,937 100,000 BB+ 7.875% due 5/1/12.............................................. 114,750 ---------------------------------------------------------------------------------------------------------- 1,448,078 ---------------------------------------------------------------------------------------------------------- MEDIA - CABLE -- 2.5% 400,000 B+ Cablevision Systems Corp., Sr. Notes, 8.000% due 4/15/12 (b)..... 429,000 425,000 CCC- Charter Communications Holdings LLC/Charter Communications Holdings Capital Corp., Sr. Discount Notes, step bond to yield 11.397% due 4/1/11............................................. 364,438 425,000 CCC- Charter Communications Holdings II LLC/Charter Communications Holdings II Capital Corp., Sr. Notes, 10.250% due 9/15/10...... 452,625 375,000 BB- CSC Holdings, Inc., Sr. Notes, 7.875% due 12/15/07............... 404,063 450,000 B- Kabel Deutschland GMBH, Sr. Notes, 10.625% due 7/1/14 (b)........ 519,750 ---------------------------------------------------------------------------------------------------------- 2,169,876 ---------------------------------------------------------------------------------------------------------- MEDIA - NON-CABLE -- 9.7% Advanstar Communications, Inc.: 125,000 B- Sr. Secured Notes, 10.750% due 8/15/10......................... 141,719 250,000 CCC+ Sr. Sub. Notes, Series B, 12.000% due 2/15/11.................. 270,937 175,000 NR Advanstar, Inc., Sr. Sub. Notes, Series B, step bond to yield 14.681% due 10/15/11 (f)....................................... 148,969 50,000 B- Advertising Direct Solutions, Sr. Notes, 9.250% due 11/15/12 (b)............................................................ 52,750 150,000 B- Affinity Group, Inc., Sr. Sub. Notes, 9.000% due 2/15/12......... 163,125 American Media Operations, Inc., Sr. Sub. Notes: 200,000 B- 8.875% due 1/15/11............................................. 213,750 175,000 B- Series B, 10.250% due 5/1/09................................... 185,281 150,000 B- Block Communications, Inc., Sr. Sub. Notes, 9.250% due 4/15/09... 164,250 100,000 B Cadmus Communication, Corp., Sr. Sub. Notes, 8.375% due 6/15/14........................................................ 109,375 225,000 CCC+ CBD Media Holdings LLC & Finance Inc., Sr. Notes, 9.250% due 7/15/12 (b).................................................... 232,594 276,000 B Dex Media East, LLC/Dex Media East Finance Co., Sr. Sub. Notes, 12.125% due 11/15/12........................................... 337,755 275,000 B Dex Media Inc., Discount Notes, step bond to yield 9.371% due 11/15/13....................................................... 216,906 488,000 B Dex Media West, LLC/Dex Media East Finance Co., Sr. Sub. Notes, Series B, 9.875% due 8/15/13................................... 564,860 325,000 BB- DirectTV Holdings, LLC/DirectTV Financing Co., Sr. Notes, 8.375% due 3/15/13.................................................... 366,031 Echostar DBS Corp., Sr. Notes: 225,000 BB- 5.750% due 10/1/08............................................. 228,937 200,000 BB- 6.375% due 10/1/11............................................. 205,500 100,000 BB- 6.625% due 10/1/14 (b)......................................... 101,750 75,000 B- Fisher Communications, Inc., Sr. Notes, 8.625% due 9/15/14 (b)... 81,375 150,000 B- Houghton Mifflin Co., Sr. Discount Notes, step bond to yield 11.536% due 10/15/13........................ 111,000 175,000 B Lamar Media Corp., Sr. Sub. Notes, 7.250% due 1/1/13............. 189,875
SEE NOTES TO FINANCIAL STATEMENTS. 50 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- MEDIA - NON-CABLE -- 9.7% (CONTINUED) $ 150,000 CCC+ Liberty Group Operating, Inc., Sr. Sub. Notes, 9.375% due 2/1/08......................................................... $ 153,000 175,000 CCC+ NBC Acquisition Corp., Sr. Discount Notes, step bond to yield 11.013% due 3/15/13............................................ 128,625 150,000 CCC+ Nebraska Book Co., Inc., Sr. Sub. Notes, 8.625% due 3/15/12...... 154,500 250,000 B+ PanAmSat Corp., Sr. Notes, 9.000% due 8/15/14 (b)................ 280,312 575,000 B+ PanAmSat Holding Corp., Sr. Discount Notes, step bond to yield 10.513% due 11/1/14 (b)........................................ 398,187 200,000 B Primedia, Inc., Sr. Notes, 8.875% due 5/15/11.................... 212,500 300,000 B Quebecor Media, Inc., Sr. Notes, 11.125% due 7/15/11............. 344,250 325,000 CCC+ Rainbow National Services LLC, Sr. Sub. Debentures, 10.375% due 9/1/14 (b)..................................................... 368,062 200,000 BB- The Reader's Digest Association, Inc., Sr. Notes, 6.500% due 3/1/11......................................................... 210,000 275,000 B+ R. H. Donnelley Finance Corp. I, Sr. Sub. Notes, 10.875% due 12/15/12 (b)................................................... 327,938 Sinclair Broadcast Group, Inc., Sr. Sub. Notes: 300,000 B 8.750% due 12/15/11............................................ 328,125 50,000 B 8.000% due 3/15/12............................................. 53,375 Vertis, Inc.: 550,000 B- Notes, Series B, 10.875% due 6/15/09........................... 599,500 50,000 B- Sr. Secured Notes, 9.750% due 4/1/09........................... 54,500 125,000 CCC+ WDAC Subsidiary Corp., Sr. Notes, 8.375% due 12/1/14 (b)......... 123,906 XM Satellite Radio, Inc.: 186,747 CCC+ Sr. Discount Notes, step bond to yield 21.777% due 12/31/09.... 191,416 94,000 CCC+ Sr. Secured Notes, 12.000% due 6/15/10 (f)..................... 111,508 Yell Finance B.V.: 179,000 BB- Sr. Discount Notes, step bond to yield 16.740% due 8/1/11...... 176,763 97,000 BB- Sr. Notes, 10.750% due 8/1/11.................................. 112,520 ---------------------------------------------------------------------------------------------------------- 8,415,726 ---------------------------------------------------------------------------------------------------------- METALS & MINING -- 1.4% 175,000 BB- California Steel Industries, Inc., Sr. Notes, 6.125% due 3/15/14........................................................ 174,563 100,000 B- IMCO Recycling Escrow, Inc., Sr. Notes, 9.000% due 11/15/14 (b)............................................................ 104,500 225,000 B IMCO Recycling, Inc., Sr. Secured Notes, 10.375% due 10/15/10.... 256,500 97,000 BBB Ispat Inland ULC., Sr. Secured Notes, 9.750% due 4/1/14.......... 120,280 150,000 NR Republic Technology International, LLC/RTI Capital Corp., Sr. Secured Notes, 13.750% due 7/15/09 (d)(e)(f)+.................. 0 150,000 B Ryerson Tull, Inc., Notes, 9.125% due 7/15/06.................... 153,750 210,000 BB United States Steel Corp., Sr. Notes, 9.750% due 5/15/10......... 240,450 150,000 B- Wise Metals Group LLC, Sr. Secured Notes, 10.250% due 5/15/12.... 152,250 ---------------------------------------------------------------------------------------------------------- 1,202,293 ---------------------------------------------------------------------------------------------------------- PACKAGING -- 2.4% 225,000 B- Berry Plastics Corp., Sr. Sub. Notes, 10.750% due 7/15/12........ 258,750 150,000 CCC+ Graham Packaging Co., Inc., Sr. Sub. Notes, 8.500% due 10/15/12 (b)............................................................ 158,250 200,000 B+ Greif Bros. Corp., Sr. Sub. Notes, 8.875% due 8/1/12............. 223,500 Owens-Brockway Glass Containers, Sr. Secured Notes: 250,000 BB- 8.875% due 2/15/09............................................. 272,812 150,000 BB- 7.750% due 5/15/11............................................. 163,125 100,000 B 8.250% due 5/15/13............................................. 110,500 350,000 B Owens Illinois, Inc., Sr. Notes, 8.100% due 5/15/07.............. 374,500
SEE NOTES TO FINANCIAL STATEMENTS. 51 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- PACKAGING -- 2.4% (CONTINUED) Pliant Corp.: $ 50,000 CCC+ Sr. Secured Notes, 11.125% due 9/1/09.......................... $ 54,750 300,000 CCC+ Sr. Secured Sub. Notes, 13.000% due 6/1/10..................... 293,250 17,465 NR Russell-Stanley Holdings, Inc., Sr. Sub. Notes, 9.000% due 11/30/08 (b)(e)(g)+............................................ 10,105 200,000 CCC Tekni-Plex, Inc., Sr. Sub. Notes, Series B, 12.750% due 6/15/10........................................................ 191,000 ---------------------------------------------------------------------------------------------------------- 2,110,542 ---------------------------------------------------------------------------------------------------------- PAPER -- 3.7% Boise Cascade LLC: 75,000 B+ Sr. Notes, 5.005% due 10/15/12 (b)(c).......................... 78,188 100,000 B+ Sr. Sub. Notes, 7.125% due 10/15/14 (b)........................ 106,250 Georgia-Pacific Corp.: 500,000 BB+ Notes, 7.500% due 5/15/06...................................... 526,250 Sr. Notes: 250,000 BB+ 8.125% due 5/15/11........................................... 288,750 400,000 BB+ 9.375% due 2/1/13............................................ 468,000 250,000 B- Graphic Packaging International, Corp., Sr. Sub. Notes, 9.500% due 8/15/13.................................................... 285,625 300,000 B Jefferson Smurfit Corp., Sr. Notes, 8.250% due 10/1/12........... 328,500 JSG Fund PLC: 250,000 B- Sr. Notes, 9.625% due 10/1/12.................................. 280,000 230,309 B- Sub. Notes, 15.500% due 10/1/13 (g)............................ 270,613 150,000 B+ Riverside Forest Products Ltd., Sr. Notes, 7.875% due 3/1/14..... 165,750 225,000 B Stone Container Corp., Sr. Notes, 9.750% due 2/1/11.............. 247,500 200,000 B Tembec Industries, Inc., Sr. Notes, 8.500% due 2/1/11............ 202,000 ---------------------------------------------------------------------------------------------------------- 3,247,426 ---------------------------------------------------------------------------------------------------------- RESTAURANTS -- 0.6% 50,000 CCC+ Buffets, Inc., Sr. Sub. Notes, 11.250% due 7/15/10............... 53,750 150,000 B- Carrols Corp., Sr. Sub. Notes, 9.000% due 1/15/13 (b)............ 156,000 128,000 B- Domino's, Inc., Sr. Sub. Notes, 8.250% due 7/1/11................ 140,480 200,000 B Landry's Restaurants Inc., Sr. Notes, 7.500% due 12/15/14 (b).... 199,500 ---------------------------------------------------------------------------------------------------------- 549,730 ---------------------------------------------------------------------------------------------------------- RETAILERS -- 3.5% 250,000 B Couche-Tard U.S. L.P./Couche-Tard Finance Corp., Sr. Sub. Notes, 7.500% due 12/15/13............................................ 269,375 75,000 B+ Finlay Fine Jewelry Corp., Sr. Notes, 8.375% due 6/1/12.......... 81,375 200,000 B- FTD, Inc., Sr. Sub. Notes, 7.750% due 2/15/14.................... 207,000 125,000 CCC+ General Nutritions Center, Sr. Sub. Notes, 8.500% due 12/1/10.... 118,750 175,000 B Hines Nurseries, Inc., Sr. Notes, 10.250% due 10/1/11............ 192,063 J.C. Penney Co., Inc., Notes: 50,000 BB+ 7.600% due 4/1/07.............................................. 54,250 476,000 BB+ 9.000% due 8/1/12.............................................. 589,050 350,000 B Jean Coutu Group PJC, Sr. Sub. Notes, 8.500% due 8/1/14 (b)...... 360,500 200,000 B- Lazydays RV Center, Inc., Sr. Notes, 11.750% due 5/15/12......... 218,500 150,000 BB+ Michaels Stores, Inc., Sr. Notes, 9.250% due 7/1/09.............. 161,486 250,000 B- PCA LLC/PCA Finance Corp., Sr. Notes, 11.875% due 8/1/09......... 221,250
SEE NOTES TO FINANCIAL STATEMENTS. 52 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- RETAILERS -- 3.5% (CONTINUED) Rite Aid Corp.: $ 100,000 B+ Sr. Notes, 9.500% due 2/15/11.................................. $ 110,250 300,000 B+ Sr. Secured Notes, 8.125% due 5/1/10........................... 318,750 150,000 B United Auto Group, Inc., Sr. Sub. Notes, 9.625% due 3/15/12...... 166,500 400,000 NR U.S. Office Products Co., Sr. Sub. Notes, 9.750% due 6/15/08 (d)(e)+........................................................ 0 ---------------------------------------------------------------------------------------------------------- 3,069,099 ---------------------------------------------------------------------------------------------------------- SERVICES -- 1.0% 225,000 B Brickman Group, Ltd., Sr. Sub. Notes, Series B, 11.750% due 12/15/09....................................................... 264,375 114,000 B+ CB Richard Ellis Services Inc., Sr. Notes, 9.750% due 5/15/10.... 130,530 275,000 B- Global Cash Access LLC/Global Cash Finance Corp., Sr. Sub. Notes, 8.750% due 3/15/12............................................. 297,688 157,000 CCC SITEL Corp., Sr. Sub. Notes, 9.250% due 3/15/06.................. 159,355 ---------------------------------------------------------------------------------------------------------- 851,948 ---------------------------------------------------------------------------------------------------------- SUPERMARKETS -- 0.0% 150,000 NR Jitney-Jungle Stores of America, Inc., Sr. Sub. Notes, 10.375% due 9/15/07 (d)(e)+.................................... 0 ---------------------------------------------------------------------------------------------------------- TECHNOLOGY -- 2.7% 250,000 B+ Activant Solutions, Inc., Sr. Notes, 10.500% due 6/15/11......... 270,000 155,000 B AMI Semiconductor, Inc., Sr. Sub. Notes, 10.750% due 2/1/13...... 182,900 125,000 B+ Danka Business Systems PLC, Sr. Notes, 11.000% due 6/15/10....... 133,125 175,000 BB+ Freescale Semiconductor, Inc., Sr. Notes, 7.125% due 7/15/14..... 190,750 250,000 BB- Ingram Micro Inc., Sr. Sub. Notes, 9.875% due 8/15/08............ 273,125 225,000 BB+ Seagate Technology HDD Holdings, Sr. Notes, 8.000% due 5/15/09... 244,125 225,000 BB+ Unisys Corp., Sr. Notes, 6.875% due 3/15/10...................... 241,875 Xerox Corp., Sr. Notes: 450,000 B+ 9.750% due 1/15/09............................................. 531,000 225,000 B+ 7.625% due 6/15/13............................................. 248,063 ---------------------------------------------------------------------------------------------------------- 2,314,963 ---------------------------------------------------------------------------------------------------------- TEXTILES -- 0.8% 125,000 Caa1* GFSI, Inc., Sr. Sub. Notes, Series B, 9.625% due 3/1/07.......... 121,875 150,000 BB- Phillips Van-Heusen Corp., Sr. Notes, 8.125% due 5/1/13.......... 163,500 225,000 B Warnaco, Inc., Sr. Notes, 8.875% due 6/15/13..................... 248,625 162,000 B+ The William Carter Co., Sr. Sub. Notes, Series B, 10.875% due 8/15/11........................................................ 182,250 ---------------------------------------------------------------------------------------------------------- 716,250 ---------------------------------------------------------------------------------------------------------- TOBACCO -- 0.8% 225,000 NR Commonwealth Brands, Inc., Secured, 10.625% due 9/1/08 (b)....... 237,375 DIMON, Inc., Sr. Notes: 50,000 BB 7.750% due 6/1/13.............................................. 52,750 200,000 BB Series B, 9.625% due 10/15/11.................................. 220,000 200,000 BB+ Standard Commercial Corp., Sr. Notes, 8.000% due 4/15/12......... 206,500 ---------------------------------------------------------------------------------------------------------- 716,625 ---------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 0.6% 150,000 CCC+ Allied Holdings, Inc., Sr. Notes, Series B, 8.625% due 10/1/07... 120,937
SEE NOTES TO FINANCIAL STATEMENTS. 53 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 0.6% (CONTINUED) $ 100,000 NR The Holt Group, Inc., Sr. Sub. Notes, 9.750% due 1/15/06 (d)(e)+........................................................ $ 0 Stena AB, Sr. Notes: 250,000 BB- 9.625% due 12/1/12............................................. 283,750 150,000 BB- 7.500% due 11/1/13............................................. 157,875 ---------------------------------------------------------------------------------------------------------- 562,562 ---------------------------------------------------------------------------------------------------------- UTILITY - ELECTRIC -- 3.1% 256,758 BB+ Caithness Coso Fund Corp., Secured Notes, Series B, 9.050% due 12/15/09....................................................... 283,717 375,000 CCC+ Calpine Corp., Sr. Notes, 8.500% due 2/15/11..................... 287,812 200,000 B+ CMS Energy Corp., Sr. Notes, 8.900% due 7/15/08.................. 221,750 Nevada Power Co.: General and Refunding Mortgage Notes, Series I: 50,000 BB 6.500% due 4/15/12........................................... 53,125 50,000 BB 5.875% due 1/15/15 (b)....................................... 50,625 400,000 BB 2nd Mortgage, 9.000% due 8/15/13............................... 470,000 75,000 BB Northwestern Corp., Secured Notes, 5.875% due 11/1/14 (b)........ 77,097 175,000 B NRG Energy, Inc., Sr. Secured Notes, 8.000% due 12/15/13 (b)..... 191,625 PSEG Energy Holdings LLC, Sr. Notes: 200,000 BB- 8.625% due 2/15/08............................................. 220,500 250,000 BB- 10.000% due 10/1/09............................................ 296,875 Reliant Resources, Inc., Sr. Secured Notes: 125,000 B+ 9.250% due 7/15/10............................................. 140,000 325,000 B+ 9.500% due 7/15/13............................................. 370,906 ---------------------------------------------------------------------------------------------------------- 2,664,032 ---------------------------------------------------------------------------------------------------------- UTILITY - NATURAL GAS -- 3.9% El Paso Corp.: 175,000 CCC+ Medium-Term Notes, 6.950% due 12/15/07......................... 184,188 Sr. Medium-Term Notes: 325,000 Caa1* 8.050% due 10/15/30.......................................... 316,063 450,000 CCC+ 7.800% due 8/1/31............................................ 434,250 225,000 CCC+ Sr. Notes, 6.750% due 5/15/09.................................. 229,500 175,000 B- El Paso Production Holding Co., 7.750% due 6/1/13................ 184,188 150,000 BB- Ferrellgas Escrow LLC, Sr. Notes, 6.750% due 5/1/14.............. 154,875 50,000 B+ Markwest Energy Partners LLC., Sr. Notes, 6.875% due 11/1/14 (b)............................................................ 51,000 175,000 BB- Pacific Energy Partners L.P./Pacific Energy Finance Corp., Sr. Notes, 7.125% due 6/15/14............................................. 187,250 125,000 BB- SEMCO Energy, Inc., Sr. Notes, 7.125% due 5/15/08................ 134,409 Tennesse Gas Pipeline Co.: 150,000 B- Debentures, 7.500% due 4/1/17.................................. 166,125 450,000 B- Notes, 8.375% due 6/15/32...................................... 509,625 150,000 B+ Transcontinental Gas Pipe Line Corp., Sr. Notes, Series B, 8.875% due 7/15/12.................................................... 183,187 The Williams Cos., Inc., Notes: 200,000 B+ 7.625% due 7/15/19............................................. 221,000 425,000 B+ 7.875% due 9/1/21.............................................. 476,000 ---------------------------------------------------------------------------------------------------------- 3,431,660 ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 54 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT RATING(A) SECURITY VALUE ---------------------------------------------------------------------------------------------------------- WIRELESS COMMUNICATIONS -- 2.3% $ 50,000 B- Inmarsat Finance PLC, Sr. Notes, 7.625% due 6/30/12.............. $ 52,250 125,000 CCC+ Inmarsat Finance II PLC, step bond to yield 10.379% due 11/15/12 (b)............................................................ 90,625 100,000 B- New Skies Satellites N.V., Sr. Sub. Notes, 9.125% due 11/1/12 (b)............................................................ 102,500 575,000 BB Nextel Communications, Inc., Sr. Notes, 7.375% due 8/1/15........ 635,375 Nextel Partners, Inc., Sr. Notes: 95,000 B- 12.500% due 11/15/09........................................... 108,062 50,000 B- 8.125% due 7/1/11.............................................. 55,750 700,000 BB Rogers Wireless, Inc., Secured Notes, 6.375% due 3/1/14.......... 696,500 200,000 CCC- U.S. Unwired, Inc., Sr. Secured Notes, Series B, 10.000% due 6/15/12........................................................ 226,500 ---------------------------------------------------------------------------------------------------------- 1,967,562 ---------------------------------------------------------------------------------------------------------- WIRELINE COMMUNICATIONS -- 5.8% 250,000 B- Alaska Communications Systems Holdings, Inc., Sr. Notes, 9.875% due 8/15/11.................................................... 270,000 950,000 BB+ AT&T Corp., Sr. Notes, 9.750% due 11/15/31....................... 1,138,812 Cincinnati Bell, Inc.: 250,000 B- Sr. Notes, 7.250% due 7/15/13.................................. 258,125 200,000 B- Sr. Sub. Notes, 8.375% due 1/15/14............................. 203,500 Citizens Communications Co.: 75,000 BB+ Notes, 9.250% due 5/15/11...................................... 88,125 Sr. Notes: 150,000 BB+ 6.250% due 1/15/13........................................... 151,875 200,000 BB+ 9.000% due 8/15/31........................................... 229,500 125,000 BB- Eircom Funding, Sr. Sub. Notes, 8.250% due 8/15/13............... 138,750 525,000 B+ MCI Inc., Sr. Notes, 8.735% due 5/1/14........................... 565,688 200,000 CCC Primus Telecommunications Group, Inc., Sr. Notes, 8.000% due 1/15/14........................................................ 177,000 850,000 BB- Qwest Corp., Notes, 9.125% due 3/15/12 (b)....................... 986,000 725,000 B Qwest Services Corp., Sr. Sub. Notes, 14.000% due 12/15/10 (b)... 875,438 ---------------------------------------------------------------------------------------------------------- 5,082,813 ---------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $78,622,289)............ 83,257,522 ---------------------------------------------------------------------------------------------------------- SHARES ---------------------------------------------------------------------------------------------------------- COMMON STOCK (h) -- 0.2% ---------------------------------------------------------------------------------------------------------- CHEMICALS -- 0.0% 45 General Chemical Industrial Products, Inc. (e)+.................. 8,349 ---------------------------------------------------------------------------------------------------------- CONTAINERS & PACKAGING -- 0.0% 2,000 Russell-Stanley Holdings, Inc. (b)(e)+........................... 1,000 ---------------------------------------------------------------------------------------------------------- FOOD & BEVERAGE -- 0.1% 5,715 B&G Food Inc. ................................................... 85,611 ---------------------------------------------------------------------------------------------------------- MEDIA - CABLE -- 0.1% 710 NTL, Inc. ....................................................... 51,802 ---------------------------------------------------------------------------------------------------------- WIRELINE COMMUNICATIONS -- 0.0% 1,237 Viatel Holding Bermuda Ltd. ..................................... 1,484 ---------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $588,225) 148,246 ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 55 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
SHARES SECURITY VALUE -------------------------------------------------------------------------------------------------------- PREFERRED STOCK -- 0.5% -------------------------------------------------------------------------------------------------------- MEDIA - NON-CABLE -- 0.3% PRIMEDIA, Inc.: 1,150 Series F, 9.200%............................................... $ 110,975 1,500 Series H, 8.625%............................................... 138,000 -------------------------------------------------------------------------------------------------------- 248,975 -------------------------------------------------------------------------------------------------------- RETAILERS -- 0.2% 200 General Nutrition Center Holding Co., Series A (b)............... 194,000 -------------------------------------------------------------------------------------------------------- WIRELINE COMMUNICATIONS -- 0.0% 1,878 McLeodUSA, Inc., Series A (f).................................... 6,845 -------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost -- $915,705)......................... 449,820 -------------------------------------------------------------------------------------------------------- WARRANTS -------------------------------------------------------------------------------------------------------- WARRANTS (H) -- 0.1% -------------------------------------------------------------------------------------------------------- CHEMICALS -- 0.0% General Chemical Industrial Products, Inc: 26 Series A, Expire 4/30/11 (e)+.................................. 0 19 Series B, Expire 4/30/11 (e)+.................................. 0 -------------------------------------------------------------------------------------------------------- 0 -------------------------------------------------------------------------------------------------------- ENTERTAINMENT -- 0.0% 901 AMF Bowling Worldwide, Inc., Class B Shares, Expire 3/9/09 (e)... 0 -------------------------------------------------------------------------------------------------------- INDUSTRIAL - OTHER -- 0.1% 30,652 ACP Holdings Corp., Expire 10/7/13 (b)........................... 54,407 -------------------------------------------------------------------------------------------------------- MEDIA - NON-CABLE -- 0.0% 75 Advanstar Holdings Corp., Expire 10/15/11 (b).................... 2 125 XM Satellite Radio Holdings, Inc., Expire 3/15/10 (b)............ 10,750 -------------------------------------------------------------------------------------------------------- 10,752 -------------------------------------------------------------------------------------------------------- PAPER -- 0.0% 100 MDP Acquisitions PLC, Expire 10/1/13 (b)......................... 3,500 -------------------------------------------------------------------------------------------------------- PACKAGING -- 0.0% 100 Pliant Corp., Expire 6/1/10 (b)+................................. 1 -------------------------------------------------------------------------------------------------------- WIRELINE COMMUNICATIONS -- 0.0% 4,162 McLeodUSA, Inc., Class A Shares, Expire 4/16/07.................. 874 -------------------------------------------------------------------------------------------------------- TOTAL WARRANTS (Cost -- $105,613)................................ 69,534 -------------------------------------------------------------------------------------------------------- SHARES -------------------------------------------------------------------------------------------------------- ESCROW SHARES (E)(H)+ -- 0.0% 175,000 Pillowtex Corp., 9.000% due 12/15/49 (Cost -- $0)................ 0 --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 56 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED HIGH YIELD PORTFOLIO
FACE AMOUNT SECURITY VALUE -------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.8% $1,632,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $1,632,190; (Fully collateralized by U.S. Treasury Notes, 1.875% due 12/31/05; Market value -- $1,665,590) (Cost -- $1,632,000)...................... $ 1,632,000 -------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 98.4% (Cost -- $81,863,832*)................ 85,557,122 Other Assets in Excess of Liabilities -- 1.6%.................... 1,380,169 -------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0%....................................... $86,937,291 --------------------------------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Ratings Service, except for those identified by an asterisk (*), which are rated by Moody's Investors Service. (b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees. (c) Interest rate shown reflects current rate on instrument which is a floater or has a variable rate. (d) Security is currently in default. (e) Security is fair valued in good faith by or under the direction of the Board of Trustees. (f) Security has been issued with attached warrants. (g) Payment-in-kind security for which all or part of the dividend earned is paid by the issuance of additional security. (h) Non-income producing security. + This security has been deemed illiquid. * Aggregate cost for federal income tax purposes is $82,135,674. See page 71 for definitions of ratings.
SEE NOTES TO FINANCIAL STATEMENTS. 57 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------ COMMON STOCK -- 99.2% ------------------------------------------------------------------------------------ CONSUMER DISCRETIONARY -- 11.1% AUTO COMPONENTS -- 1.0% 5,400 Johnson Controls, Inc. ..................................... $ 342,576 ------------------------------------------------------------------------------------ AUTOMOBILES -- 0.8% 16,857 Ford Motor Co. ............................................. 246,786 ------------------------------------------------------------------------------------ HOUSEHOLD DURABLES -- 1.1% 13,875 Koninklijke Philips Electronics N.V., Sponsored ADR......... 367,688 ------------------------------------------------------------------------------------ MEDIA -- 5.4% 22,900 The Interpublic Group of Cos., Inc. (a)..................... 306,860 36,800 News Corp., Class A Shares.................................. 686,688 12,000 Viacom Inc., Class B Shares................................. 436,680 11,700 The Walt Disney Co. ........................................ 325,260 ------------------------------------------------------------------------------------ 1,755,488 ------------------------------------------------------------------------------------ SPECIALTY RETAIL -- 2.8% 15,900 The Gap, Inc. .............................................. 335,808 13,300 The Home Depot, Inc. ....................................... 568,442 ------------------------------------------------------------------------------------ 904,250 ------------------------------------------------------------------------------------ TOTAL CONSUMER DISCRETIONARY................................ 3,616,788 ------------------------------------------------------------------------------------ CONSUMER STAPLES -- 5.2% FOOD & DRUG RETAILING -- 1.1% 24,100 Rite Aid Corp. (a).......................................... 88,206 7,600 SUPERVALU Inc. ............................................. 262,352 ------------------------------------------------------------------------------------ 350,558 ------------------------------------------------------------------------------------ FOOD PRODUCTS -- 1.0% 17,300 Tyson Foods, Inc., Class A Shares........................... 318,320 ------------------------------------------------------------------------------------ TOBACCO -- 3.1% 16,700 Altria Group, Inc. ......................................... 1,020,370 ------------------------------------------------------------------------------------ TOTAL CONSUMER STAPLES...................................... 1,689,248 ------------------------------------------------------------------------------------ ENERGY -- 11.3% ENERGY EQUIPMENT & SERVICES -- 1.7% 14,100 Halliburton Co. ............................................ 553,284 ------------------------------------------------------------------------------------ OIL & GAS -- 9.6% 12,700 BP PLC, Sponsored ADR....................................... 741,680 17,902 ChevronTexaco Corp. ........................................ 940,034 3,000 ConocoPhillips.............................................. 260,490 15,600 Exxon Mobil Corp. .......................................... 799,656 9,800 Marathon Oil Corp. ......................................... 368,578 ------------------------------------------------------------------------------------ 3,110,438 ------------------------------------------------------------------------------------ TOTAL ENERGY................................................ 3,663,722 ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 58 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------ FINANCIALS -- 31.2% BANKS -- 8.4% 29,400 Bank of America Corp. ...................................... $ 1,381,506 21,700 U.S. Bancorp................................................ 679,644 6,700 Wachovia Corp. ............................................. 352,420 5,200 Wells Fargo & Co. .......................................... 323,180 ------------------------------------------------------------------------------------ 2,736,750 ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS -- 13.8% 5,600 Capital One Financial Corp. ................................ 471,576 8,000 Fannie Mae.................................................. 569,680 4,600 Freddie Mac................................................. 339,020 4,300 The Goldman Sachs Group, Inc. .............................. 447,372 29,900 JPMorgan Chase & Co. ....................................... 1,166,399 15,200 MBNA Corp. ................................................. 428,488 6,000 Merrill Lynch & Co., Inc. .................................. 358,620 13,000 Morgan Stanley.............................................. 721,760 ------------------------------------------------------------------------------------ 4,502,915 ------------------------------------------------------------------------------------ INSURANCE -- 9.0% 11,500 ACE Ltd. ................................................... 491,625 15,300 The Allstate Corp. ......................................... 791,316 7,900 American International Group, Inc. ......................... 518,793 12,600 Aon Corp. .................................................. 300,636 6,800 The Hartford Financial Services Group, Inc. ................ 471,308 9,200 Nationwide Financial Services, Inc., Class A Shares......... 351,716 ------------------------------------------------------------------------------------ 2,925,394 ------------------------------------------------------------------------------------ TOTAL FINANCIALS............................................ 10,165,059 ------------------------------------------------------------------------------------ HEALTHCARE -- 4.9% HEALTHCARE PROVIDERS & SERVICES -- 2.5% 10,300 McKesson Corp. ............................................. 324,038 29,700 Tenet Healthcare Corp. (a).................................. 326,106 2,000 UnitedHealth Group Inc. .................................... 176,060 ------------------------------------------------------------------------------------ 826,204 ------------------------------------------------------------------------------------ PHARMACEUTICALS -- 2.4% 5,800 Johnson & Johnson........................................... 367,836 15,200 Pfizer Inc. ................................................ 408,728 ------------------------------------------------------------------------------------ 776,564 ------------------------------------------------------------------------------------ TOTAL HEALTHCARE............................................ 1,602,768 ------------------------------------------------------------------------------------ INDUSTRIALS -- 11.5% AEROSPACE & DEFENSE -- 1.1% 6,234 Northrop Grumman Corp. ..................................... 338,880 ------------------------------------------------------------------------------------ BUILDING PRODUCTS -- 1.3% 11,400 Masco Corp. ................................................ 416,442 ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 59 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES -- 4.2% 27,570 Cendant Corp. .............................................. $ 644,587 5,100 H&R Block, Inc. ............................................ 249,900 10,200 Pitney Bowes, Inc. ......................................... 472,056 ------------------------------------------------------------------------------------ 1,366,543 ------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES -- 3.7% 33,891 Tyco International Ltd. .................................... 1,211,264 ------------------------------------------------------------------------------------ MACHINERY -- 1.2% 5,400 Eaton Corp. ................................................ 390,744 ------------------------------------------------------------------------------------ TOTAL INDUSTRIALS........................................... 3,723,873 ------------------------------------------------------------------------------------ INFORMATION TECHNOLOGY -- 9.8% COMMUNICATIONS EQUIPMENT -- 1.3% 25,100 Motorola, Inc. ............................................. 431,720 ------------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS -- 3.4% 12,493 Hewlett-Packard Co. ........................................ 261,978 3,500 International Business Machines Corp. ...................... 345,030 15,600 Storage Technology Corp. (a)................................ 493,116 ------------------------------------------------------------------------------------ 1,100,124 ------------------------------------------------------------------------------------ IT CONSULTING & SERVICES -- 1.9% 4,900 Computer Sciences Corp. (a)................................. 276,213 11,700 SunGard Data Systems Inc. (a)............................... 331,461 ------------------------------------------------------------------------------------ 607,674 ------------------------------------------------------------------------------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 1.2% 23,300 Applied Materials, Inc. (a)................................. 398,430 ------------------------------------------------------------------------------------ SOFTWARE -- 2.0% 17,800 BMC Software, Inc. (a)...................................... 331,080 11,900 Microsoft Corp. ............................................ 317,849 ------------------------------------------------------------------------------------ 648,929 ------------------------------------------------------------------------------------ TOTAL INFORMATION TECHNOLOGY................................ 3,186,877 ------------------------------------------------------------------------------------ MATERIALS -- 4.7% CHEMICALS -- 2.8% 6,800 Air Products & Chemicals, Inc. ............................. 394,196 7,800 PPG Industries, Inc. ....................................... 531,648 ------------------------------------------------------------------------------------ 925,844 ------------------------------------------------------------------------------------ METALS & MINING -- 1.1% 11,800 Alcoa Inc. ................................................. 370,756 ------------------------------------------------------------------------------------ PAPER & FOREST PRODUCTS -- 0.8% 6,500 Georgia-Pacific Corp. ...................................... 243,620 ------------------------------------------------------------------------------------ TOTAL MATERIALS............................................. 1,540,220 ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 60 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 FEDERATED STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------ TELECOMMUNICATION SERVICES -- 4.6% DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.6% 20,600 SBC Communications Inc. .................................... $ 530,862 14,000 Sprint Corp. ............................................... 347,900 15,450 Verizon Communications Inc. ................................ 625,880 ------------------------------------------------------------------------------------ TOTAL TELECOMMUNICATION SERVICES............................ 1,504,642 ------------------------------------------------------------------------------------ UTILITIES -- 4.9% ELECTRIC UTILITIES -- 3.3% 11,700 American Electric Power Co., Inc. .......................... 401,778 14,300 Edison International........................................ 458,029 5,700 FirstEnergy Corp. .......................................... 225,207 ------------------------------------------------------------------------------------ 1,085,014 ------------------------------------------------------------------------------------ MULTI-UTILITIES -- 1.6% 22,200 NiSource Inc. .............................................. 505,716 ------------------------------------------------------------------------------------ TOTAL UTILITIES............................................. 1,590,730 ------------------------------------------------------------------------------------ TOTAL COMMON STOCK (Cost -- $27,149,749).................... 32,283,927 ------------------------------------------------------------------------------------ ESCROW SHARES (A)(B)(C) -- 0.0% 10,300 ESC Seagate Technology (Cost -- $0) ........................ 0 ------------------------------------------------------------------------------------ FACE AMOUNT ------------------------------------------------------------------------------------ REPURCHASE AGREEMENT -- 0.5% $173,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $173,020; (Fully collateralized by U.S. Treasury Bonds, 6.125% due 8/15/29; Market value -- $178,875) (Cost -- $173,000).............. 173,000 ------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 99.7% (Cost -- $27,322,749*)........... 32,456,927 Other Assets in Excess of Liabilities -- 0.3%............... 81,968 ------------------------------------------------------------------------------------ TOTAL NET ASSETS -- 100.0%.................................. $32,538,895 ------------------------------------------------------------------------------------
(a) Non-income producing security. (b) Security is fair valued in good faith by or under the direction of the Board of Trustees. (c) This security has been deemed illiquid. * Aggregate cost for federal income tax purposes is $27,333,284. Abbreviation used in this schedule: ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 61 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ COMMON STOCK -- 97.8% ------------------------------------------------------------------------------------------ CONSUMER DISCRETIONARY -- 21.8% AUTO COMPONENTS -- 1.8% 51,536 ArvinMeritor, Inc. ......................................... $ 1,152,860 12,029 Autoliv, Inc. .............................................. 581,001 23,178 BorgWarner, Inc. ........................................... 1,255,552 9,094 Johnson Controls, Inc. ..................................... 576,923 ------------------------------------------------------------------------------------------ 3,566,336 ------------------------------------------------------------------------------------------ AUTOMOBILES -- 0.2% 10,133 Thor Industries, Inc. ...................................... 375,428 ------------------------------------------------------------------------------------------ HOTELS, RESTAURANTS & LEISURE -- 2.6% 15,419 Boyd Gaming Corp. .......................................... 642,201 56,523 Caesars Entertainment, Inc. (a)............................. 1,138,373 19,725 CBRL Group, Inc. ........................................... 825,491 32,154 Darden Restaurants, Inc. ................................... 891,952 17,253 International Speedway Corp., Class A Shares................ 910,959 11,646 Mandalay Resort Group....................................... 820,228 ------------------------------------------------------------------------------------------ 5,229,204 ------------------------------------------------------------------------------------------ HOUSEHOLD DURABLES -- 6.0% 27,811 American Greetings Corp., Class A Shares.................... 705,009 46,980 D.R. Horton, Inc. .......................................... 1,893,764 6,390 Harman International Industries, Inc. ...................... 811,530 23,304 HNI Corp. .................................................. 1,003,237 17,381 Lancaster Colony Corp. ..................................... 745,124 39,596 Lennar Corp., Class A Shares................................ 2,244,301 11,650 Mohawk Industries Inc. (a).................................. 1,063,063 1,021 NVR, Inc. (a)............................................... 785,557 17,100 The Ryland Group, Inc. ..................................... 983,934 13,071 Toll Brothers, Inc. (a)..................................... 896,801 33,635 Tupperware Corp. ........................................... 696,917 ------------------------------------------------------------------------------------------ 11,829,237 ------------------------------------------------------------------------------------------ LEISURE EQUIPMENT & PRODUCTS -- 0.3% 12,740 Brunswick Corp. ............................................ 630,630 ------------------------------------------------------------------------------------------ MEDIA -- 2.4% 20,148 Belo Corp., Class A Shares.................................. 528,684 20,384 Catalina Marketing Corp. ................................... 603,978 23,704 Emmis Communications Corp., Class A Shares (a).............. 454,880 22,774 Harte-Hanks, Inc. .......................................... 591,668 33,863 Macrovision Corp. (a)....................................... 870,956 1,693 Washington Post Co., Class B Shares......................... 1,664,253 ------------------------------------------------------------------------------------------ 4,714,419 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 62 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ MULTI-LINE RETAIL -- 1.1% 38,446 BJ's Wholesale Club, Inc. (a)............................... $ 1,119,932 13,554 The Neiman Marcus Group, Inc., Class A Shares............... 969,653 ------------------------------------------------------------------------------------------ 2,089,585 ------------------------------------------------------------------------------------------ SPECIALTY RETAIL -- 6.9% 29,371 Abercrombie & Fitch Co., Class A Shares..................... 1,378,968 26,688 Aeropostale, Inc. (a)....................................... 785,428 16,471 American Eagle Outfitters, Inc. ............................ 775,784 12,835 AnnTaylor Stores Corp. (a).................................. 276,338 35,099 AutoNation, Inc. (a)........................................ 674,252 19,209 Barnes & Noble, Inc. (a).................................... 619,874 22,525 Borders Group, Inc. (b)..................................... 572,135 11,611 CDW Corp. .................................................. 770,390 22,881 Chico's FAS, Inc. (a)....................................... 1,041,772 47,223 Claire's Stores, Inc. ...................................... 1,003,489 23,178 Copart, Inc. (a)............................................ 610,045 8,161 GameStop Corp., Class B Shares (a).......................... 182,888 43,440 Michaels Stores, Inc. ...................................... 1,301,897 31,119 Pacific Sunwear of California, Inc. (a)..................... 692,709 31,717 PETsMART, Inc. ............................................. 1,126,905 20,843 RadioShack Corp. ........................................... 685,318 16,723 Rent-A-Center, Inc. (a)..................................... 443,159 20,529 Williams-Sonoma, Inc. (a)................................... 719,336 ------------------------------------------------------------------------------------------ 13,660,687 ------------------------------------------------------------------------------------------ TEXTILES & APPAREL -- 0.5% 16,696 The Timberland Co., Class A Shares (a)...................... 1,046,338 ------------------------------------------------------------------------------------------ TOTAL CONSUMER DISCRETIONARY................................ 43,141,864 ------------------------------------------------------------------------------------------ CONSUMER STAPLES -- 4.4% BEVERAGES -- 1.2% 32,704 Constellation Brands, Inc., Class A Shares (a).............. 1,521,063 40,945 PepsiAmericas Inc. ......................................... 869,672 ------------------------------------------------------------------------------------------ 2,390,735 ------------------------------------------------------------------------------------------ FOOD & DRUG RETAILING -- 0.7% 20,829 SUPERVALU Inc. ............................................. 719,017 7,460 Whole Foods Market, Inc. ................................... 711,311 ------------------------------------------------------------------------------------------ 1,430,328 ------------------------------------------------------------------------------------------ FOOD PRODUCTS -- 2.0% 26,596 Archer-Daniels-Midland Co. ................................. 593,357 20,133 Dean Foods Co. (a).......................................... 663,382 18,809 Pilgrim's Pride Corp. ...................................... 577,060 33,127 Sensient Technologies Corp. ................................ 794,717 19,969 Smithfield Foods, Inc. (a).................................. 590,883 33,345 Tyson Foods, Inc., Class A Shares........................... 613,548 ------------------------------------------------------------------------------------------ 3,832,947 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 63 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ HOUSEHOLD PRODUCTS -- 0.5% 28,584 Church & Dwight, Inc. ...................................... $ 960,994 ------------------------------------------------------------------------------------------ TOTAL CONSUMER STAPLES...................................... 8,615,004 ------------------------------------------------------------------------------------------ ENERGY -- 6.5% ENERGY EQUIPMENT & SERVICES -- 3.8% 13,974 BJ Services Co. ............................................ 650,350 14,865 Cooper Cameron Corp. (a).................................... 799,886 34,392 FMC Technologies, Inc. (a).................................. 1,107,422 36,677 Grant Prideco, Inc. (a)..................................... 735,374 42,525 Patterson-UTI Energy, Inc. ................................. 827,111 12,084 Smith International, Inc. (a)............................... 657,490 43,259 Varco International, Inc. (a)............................... 1,261,000 30,149 Weatherford International Ltd. (a).......................... 1,546,644 ------------------------------------------------------------------------------------------ 7,585,277 ------------------------------------------------------------------------------------------ OIL & GAS -- 2.7% 6,013 Amerada Hess Corp. ......................................... 495,351 10,843 Equitable Resources, Inc. .................................. 657,736 18,300 Forest Oil Corp. (a)........................................ 580,476 9,626 Murphy Oil Corp. ........................................... 774,412 9,814 Newfield Exploration Co. (a)................................ 579,517 16,444 Noble Energy, Inc. ......................................... 1,013,937 24,423 Plains Exploration & Production Co. (a)..................... 634,998 17,910 Western Gas Resources, Inc. ................................ 523,867 ------------------------------------------------------------------------------------------ 5,260,294 ------------------------------------------------------------------------------------------ TOTAL ENERGY................................................ 12,845,571 ------------------------------------------------------------------------------------------ FINANCIALS -- 17.7% BANKS -- 5.9% 28,024 Associated Banc-Corp. ...................................... 930,677 22,216 Banco Popular, Inc. ........................................ 640,487 9,470 Bank of Hawaii Corp. ....................................... 480,508 15,621 Banknorth Group, Inc. (b)................................... 571,729 55,479 The Colonial BancGroup, Inc. ............................... 1,177,819 13,606 Commerce Bancorp, Inc. ..................................... 876,226 53,107 Hibernia Corp., Class A Shares.............................. 1,567,188 20,723 Huntington Bancshares Inc. ................................. 513,516 28,431 Independence Community Bank Corp. .......................... 1,210,592 23,916 Investors Financial Services Corp. ......................... 1,195,322 16,142 New York Community Bancorp, Inc. ........................... 332,041 30,495 Sovereign Bancorp, Inc. .................................... 687,662 31,614 W Holding Co., Inc. ........................................ 725,222 16,034 Westcorp.................................................... 736,442 ------------------------------------------------------------------------------------------ 11,645,431 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 64 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS -- 3.1% 28,181 AmeriCredit Corp. (a)....................................... $ 689,025 6,775 The Bear Stearns Cos. Inc. ................................. 693,150 38,236 E*TRADE Financial Corp. (a)................................. 571,628 12,092 Eaton Vance Corp. .......................................... 630,598 27,181 IndyMac Bancorp, Inc. ...................................... 936,385 29,460 Jefferies Group, Inc. ...................................... 1,186,649 7,699 Legg Mason, Inc. ........................................... 564,029 18,277 SEI Investments Co. ........................................ 766,355 ------------------------------------------------------------------------------------------ 6,037,819 ------------------------------------------------------------------------------------------ INSURANCE -- 7.2% 21,515 American Financial Group, Inc. ............................. 673,635 8,021 AmerUs Group Co. ........................................... 363,351 14,817 Brown & Brown, Inc. ........................................ 645,280 12,984 Everest Re Group, Ltd. ..................................... 1,162,847 45,412 Fidelity National Financial, Inc. .......................... 2,073,966 32,077 First American Corp. ....................................... 1,127,186 11,344 HCC Insurance Holdings, Inc. ............................... 375,713 34,683 Ohio Casualty Corp. (a)..................................... 804,993 50,344 Old Republic International Corp. ........................... 1,273,703 6,715 The PMI Group, Inc. ........................................ 280,351 25,106 Protective Life Corp. ...................................... 1,071,775 28,274 Radian Group Inc. .......................................... 1,505,308 16,738 Stancorp Financial Group, Inc. ............................. 1,380,885 18,462 Unitrin, Inc. .............................................. 839,098 14,835 W.R. Berkley Corp. (b)...................................... 699,767 ------------------------------------------------------------------------------------------ 14,277,858 ------------------------------------------------------------------------------------------ REAL ESTATE -- 1.5% 21,598 General Growth Properties, Inc. ............................ 780,984 28,481 Highwoods Properties, Inc. ................................. 788,924 19,597 Mack-Cali Realty Corp. ..................................... 902,050 18,481 New Plan Excel Realty Trust, Inc. .......................... 500,465 ------------------------------------------------------------------------------------------ 2,972,423 ------------------------------------------------------------------------------------------ TOTAL FINANCIALS............................................ 34,933,531 ------------------------------------------------------------------------------------------ HEALTHCARE -- 10.2% BIOTECHNOLOGY -- 1.5% 22,101 Cephalon, Inc. (a).......................................... 1,124,499 25,659 Charles River Laboratories International, Inc. (a).......... 1,180,571 9,242 Invitrogen Corp. (a)........................................ 620,415 ------------------------------------------------------------------------------------------ 2,925,485 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 65 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ HEALTHCARE EQUIPMENT & SUPPLIES -- 2.6% 9,111 Bausch & Lomb Inc. ......................................... $ 587,295 10,749 Beckman Coulter, Inc. ...................................... 720,075 9,907 Dade Behring Holdings Inc. (a).............................. 554,792 23,099 DENTSPLY International Inc. ................................ 1,298,164 10,791 Edwards Lifesciences Corp. (a).............................. 445,237 11,436 Patterson Cos. Inc. (a)..................................... 496,208 24,133 Varian Medical Systems, Inc. (a)............................ 1,043,511 ------------------------------------------------------------------------------------------ 5,145,282 ------------------------------------------------------------------------------------------ HEALTHCARE PROVIDERS & SERVICES -- 4.9% 10,146 AmerisourceBergen Corp. .................................... 595,367 22,080 Apria Healthcare Group Inc. (a)............................. 727,536 27,239 Community Health Systems Inc. (a)........................... 759,423 29,681 Covance Inc. (a)............................................ 1,150,139 30,132 Coventry Health Care, Inc. (a).............................. 1,599,407 24,207 Health Net, Inc. (a)........................................ 698,856 28,871 LifePoint Hospitals, Inc. (a)............................... 1,005,288 17,970 Lincare Holdings Inc. (a)................................... 766,420 15,209 PacifiCare Health Systems, Inc. (a)......................... 859,613 14,330 Pharmaceutical Product Development, Inc. (a)................ 591,686 28,708 Triad Hospitals, Inc. (a)................................... 1,068,225 ------------------------------------------------------------------------------------------ 9,821,960 ------------------------------------------------------------------------------------------ PHARMACEUTICALS -- 1.2% 10,721 American Pharmaceutical Partners, Inc. (a).................. 401,073 18,427 Barr Pharmaceuticals Inc. (a)............................... 839,165 20,767 Eon Labs, Inc. (a).......................................... 560,709 15,307 Medicis Pharmaceutical Corp., Class A Shares................ 537,429 ------------------------------------------------------------------------------------------ 2,338,376 ------------------------------------------------------------------------------------------ TOTAL HEALTHCARE............................................ 20,231,103 ------------------------------------------------------------------------------------------ INDUSTRIALS -- 13.4% AEROSPACE & DEFENSE -- 1.4% 6,577 Alliant Techsystems Inc. (a)................................ 430,005 9,113 L-3 Communications Holdings, Inc. .......................... 667,436 25,315 Precision Castparts Corp. .................................. 1,662,689 ------------------------------------------------------------------------------------------ 2,760,130 ------------------------------------------------------------------------------------------ AIR FREIGHT & COURIERS -- 0.9% 22,000 CNF Inc. ................................................... 1,102,200 11,801 Expeditors International of Washington, Inc. ............... 659,440 ------------------------------------------------------------------------------------------ 1,761,640 ------------------------------------------------------------------------------------------ AIRLINES -- 0.3% 19,076 Alaska Air Group, Inc. (a).................................. 638,855 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 66 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES -- 4.9% 25,507 Alliance Data Systems Corp. (a)............................. $ 1,211,072 27,881 Career Education Corp. (a).................................. 1,115,240 21,604 CheckFree Corp. (a)......................................... 822,680 14,947 DST Systems, Inc. (a)....................................... 779,038 29,307 Education Management Corp. (a).............................. 967,424 24,504 ITT Educational Services, Inc. (a).......................... 1,165,165 36,013 Korn/Ferry International (a)................................ 747,270 17,534 Laureate Education, Inc. (a)................................ 773,074 23,191 Manpower Inc. .............................................. 1,120,125 20,582 Valassis Communications, Inc. (a)........................... 720,576 7,205 West Corp. (a).............................................. 238,558 ------------------------------------------------------------------------------------------ 9,660,222 ------------------------------------------------------------------------------------------ CONSTRUCTION & ENGINEERING -- 0.7% 25,463 Dycom Industries, Inc. (a).................................. 777,131 21,883 Granite Construction, Inc. ................................. 582,088 ------------------------------------------------------------------------------------------ 1,359,219 ------------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT -- 1.1% 26,034 Ametek, Inc. ............................................... 928,633 10,655 Hubbell Inc., Class B Shares................................ 557,256 25,845 Thomas & Betts Corp. (a).................................... 794,734 ------------------------------------------------------------------------------------------ 2,280,623 ------------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES -- 0.2% 5,670 Carlisle Cos. Inc. ......................................... 368,096 ------------------------------------------------------------------------------------------ MACHINERY -- 1.9% 51,976 AGCO Corp. (a).............................................. 1,137,755 9,816 Flowserve Corp. (a)......................................... 270,333 16,006 Graco Inc. ................................................. 597,824 17,294 Harsco Corp. ............................................... 963,967 13,083 Oshkosh Truck Corp. ........................................ 894,615 ------------------------------------------------------------------------------------------ 3,864,494 ------------------------------------------------------------------------------------------ MARINE -- 0.6% 20,841 Overseas Shipholding Group, Inc. ........................... 1,150,423 ------------------------------------------------------------------------------------------ ROAD & RAIL -- 1.2% 33,691 J.B. Hunt Transport Services, Inc. ......................... 1,511,041 36,673 Swift Transportation Co., Inc. (a).......................... 787,736 ------------------------------------------------------------------------------------------ 2,298,777 ------------------------------------------------------------------------------------------ TRADING COMPANIES & DISTRIBUTORS -- 0.2% 6,378 Fastenal Co. ............................................... 392,630 ------------------------------------------------------------------------------------------ TOTAL INDUSTRIALS........................................... 26,535,109 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 67 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ INFORMATION TECHNOLOGY -- 11.8% COMMUNICATIONS EQUIPMENT -- 1.7% 8,994 Avocent Corp. (a)........................................... $ 364,437 18,729 Harris Corp................................................. 1,157,265 22,853 Plantronics Inc. ........................................... 947,714 38,717 Polycom, Inc. (a)........................................... 902,880 ------------------------------------------------------------------------------------------ 3,372,296 ------------------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS -- 1.3% 27,334 SanDisk Corp. (a)........................................... 682,530 41,057 Storage Technology Corp. (a)................................ 1,297,812 55,480 Western Digital Corp. (a)................................... 601,403 ------------------------------------------------------------------------------------------ 2,581,745 ------------------------------------------------------------------------------------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.1% 30,711 Amphenol Corp., Class A Shares (a).......................... 1,128,322 9,684 Diebold, Inc. .............................................. 539,689 28,196 Ingram Micro Inc., Class A Shares (a)....................... 586,477 27,011 Tech Data Corp. (a)......................................... 1,226,299 20,184 Tektronix, Inc. ............................................ 609,759 ------------------------------------------------------------------------------------------ 4,090,546 ------------------------------------------------------------------------------------------ IT CONSULTING & SERVICES -- 1.4% 32,946 Acxiom Corp. ............................................... 866,480 22,996 Cognizant Technology Solutions Corp., Class A Shares (a).... 973,421 10,724 Computer Sciences Corp. (a)................................. 604,512 28,642 Keane, Inc. (a)............................................. 421,037 ------------------------------------------------------------------------------------------ 2,865,450 ------------------------------------------------------------------------------------------ OFFICE ELECTRONICS -- 0.4% 40,788 Xerox Corp. (a)............................................. 693,804 ------------------------------------------------------------------------------------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 2.7% 20,645 Cabot Microelectronics Corp. (a)............................ 826,832 29,885 Cree, Inc. (a).............................................. 1,197,791 26,283 International Rectifier Corp. (a)........................... 1,171,433 44,706 Lam Research Corp. (a)...................................... 1,292,451 67,154 MEMC Electronic Materials, Inc. (a)......................... 889,791 ------------------------------------------------------------------------------------------ 5,378,298 ------------------------------------------------------------------------------------------ SOFTWARE -- 2.2% 66,969 Activision Inc. (a)......................................... 1,351,434 36,065 Jack Henry & Associates, Inc. .............................. 718,054 12,426 Macromedia, Inc. (a)........................................ 386,697 31,756 RSA Security Inc. (a)....................................... 637,025 37,011 Sybase, Inc. (a)............................................ 738,370 26,648 Transaction Systems Architects, Inc., Class A Shares (a).... 528,963 ------------------------------------------------------------------------------------------ 4,360,543 ------------------------------------------------------------------------------------------ TOTAL INFORMATION TECHNOLOGY................................ 23,342,682 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 68 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ MATERIALS -- 5.4% CHEMICALS -- 2.7% 21,458 Albemarle Corp. ............................................ $ 830,639 18,299 Cytec Industries, Inc. ..................................... 940,935 17,466 FMC Corp. (a)............................................... 843,608 9,896 PPG Industries, Inc. ....................................... 674,511 54,442 RPM International Inc. ..................................... 1,070,330 12,567 The Scotts Co., Class A Shares (a).......................... 923,926 ------------------------------------------------------------------------------------------ 5,283,949 ------------------------------------------------------------------------------------------ CONTAINERS & PACKAGING -- 0.5% 25,699 Longview Fibre Co. ......................................... 466,180 17,307 Sonoco Products Co. ........................................ 513,152 ------------------------------------------------------------------------------------------ 979,332 ------------------------------------------------------------------------------------------ METALS & MINING -- 1.7% 8,840 Arch Coal, Inc. ............................................ 314,173 9,654 Nucor Corp. ................................................ 505,290 17,092 Peabody Energy Corp. ....................................... 1,382,914 13,047 Southern Peru Copper Corp. ................................. 615,949 25,496 Worthington Industries, Inc. ............................... 499,212 ------------------------------------------------------------------------------------------ 3,317,538 ------------------------------------------------------------------------------------------ PAPER & FOREST PRODUCTS -- 0.5% 17,836 Georgia-Pacific Corp. ...................................... 668,494 9,075 Rayonier, Inc. ............................................. 443,858 ------------------------------------------------------------------------------------------ 1,112,352 ------------------------------------------------------------------------------------------ TOTAL MATERIALS............................................. 10,693,171 ------------------------------------------------------------------------------------------ TELECOMMUNICATION SERVICES -- 0.5% DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3% 145,047 Cincinnati Bell, Inc. (a)................................... 601,945 ------------------------------------------------------------------------------------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.2% 4,423 Telephone & Data Systems, Inc. ............................. 340,350 ------------------------------------------------------------------------------------------ TOTAL TELECOMMUNICATION SERVICES............................ 942,295 ------------------------------------------------------------------------------------------ UTILITIES -- 6.1% ELECTRIC UTILITIES -- 2.8% 34,270 Alliant Energy Corp. ....................................... 980,122 23,540 IDACORP, Inc. .............................................. 719,618 57,779 Pepco Holdings, Inc. ....................................... 1,231,848 13,939 PPL Corp. .................................................. 742,670 38,963 Puget Energy, Inc. ......................................... 962,386 28,659 Wisconsin Energy Corp. ..................................... 966,095 ------------------------------------------------------------------------------------------ 5,602,739 ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 69 -------------------------------------------------------------------------------- SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2004 DISCIPLINED MID CAP STOCK PORTFOLIO
SHARES SECURITY VALUE ------------------------------------------------------------------------------------------ ii(x GAS UTILITIES -- 2.1% 35,328 AGL Resources, Inc. ........................................ $ 1,174,303 41,393 MDU Resources Group, Inc. .................................. 1,104,365 38,490 National Fuel Gas Co. ...................................... 1,090,807 28,298 ONEOK, Inc. ................................................ 804,229 ------------------------------------------------------------------------------------------ 4,173,704 ------------------------------------------------------------------------------------------ MULTI-UTILITIES -- 1.2% 23,377 Questar Corp. .............................................. 1,191,292 29,999 SCANA Corp. ................................................ 1,181,960 ------------------------------------------------------------------------------------------ 2,373,252 ------------------------------------------------------------------------------------------ TOTAL UTILITIES............................................. 12,149,695 ------------------------------------------------------------------------------------------ TOTAL COMMON STOCK (Cost -- $155,363,858)................... 193,430,025 ------------------------------------------------------------------------------------------
FACE AMOUNT ------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS -- 2.4% U.S. TREASURY BILLS -- 0.2% $ 300,000 U.S. Treasury Bills due 3/17/05 (c) (Cost -- $298,644)...... $ 298,733 ------------------------------------------------------------------------------------------ REPURCHASE AGREEMENT -- 2.2% 4,420,000 State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity -- $4,420,516; (Fully collateralized by U.S. Treasury Bonds, 8.125% due 8/15/21; Market value -- $4,508,445) (Cost -- $4,420,000).......... 4,420,000 ------------------------------------------------------------------------------------------ TOTAL SHORT-TERM INVESTMENTS (Cost -- $4,718,644)........... 4,718,733 ------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100.2% (Cost -- $160,082,502*)......... 198,148,758 Liabilities in Excess of Other Assets -- (0.2%)............. (320,700) ------------------------------------------------------------------------------------------ TOTAL NET ASSETS -- 100.0%.................................. $197,828,058 ------------------------------------------------------------------------------------------
(a)Non-income producing security. (b)All or a portion of this security is segregated as collateral for open futures contracts. (c)All or a portion of this security is held as collateral for open futures contracts. * Aggregate cost for federal income tax purposes is $160,144,420. SEE NOTES TO FINANCIAL STATEMENTS. 70 -------------------------------------------------------------------------------- BOND RATINGS (UNAUDITED) The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay principal and differ from the highest rated issue only in a small degree. A -- Bonds rated "A" have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories. BB, B, CCC and CC -- Bonds rated "BB" and "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. C -- Bonds rated "C" are bonds on which no interest is being paid. D -- Bonds rated "D" are in default, and payment of interest and/or repayment of principal is in arrears.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating from "Aa" to "Caa," where 1 is the highest and 3 the lowest rating within its generic category. Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds rated "Aa" are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payment or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. Ca and C -- Bonds rated "Ca" and "C" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. NR -- Indicates that the bond is not rated by Standard & Poor's, Moody's or Fitch.
71 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
TRAVELERS LAZARD MFS DISCIPLINED QUALITY INTERNATIONAL EMERGING FEDERATED FEDERATED MID CAP BOND STOCK GROWTH HIGH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost............ $186,853,953 $151,898,557 $ 134,988,511 $ 81,863,832 $27,322,749 $160,082,502 Loaned securities collateral, at cost.......................... -- 44,468,432 -- -- -- -- Foreign currency, at cost....... -- -- 1,873 -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Investments, at value........... $188,123,133 $181,808,833 $ 168,655,902 $ 85,557,122 $32,456,927 $198,148,758 Loaned securities collateral, at value (Notes 1 and 3)......... -- 44,468,432 -- -- -- -- Foreign currency, at value...... -- -- 1,901 -- -- -- Cash............................ 934 9 707 769 218 505 Dividends and interest receivable.................... 1,882,464 257,298 75,138 1,660,577 50,986 101,448 Receivable for Fund shares sold.......................... -- 15,522 -- 15,005 18,146 -- Receivable for securities sold.......................... -- -- 268,908 76,467 198,383 -- Receivable for open forward foreign currency contracts (Notes 1 and 3)............... -- -- 101 -- -- -- Receivable from broker -- variation margin for open futures contracts........ -- -- -- -- -- 2,775 Other receivables............... -- -- 147 -- 5,347 -- Prepaid expenses................ 2,215 1,450 1,007 472 203 1,781 --------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS.................... 190,008,746 226,551,544 169,003,811 87,310,412 32,730,210 198,255,267 --------------------------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for Fund shares reacquired.................... 573,715 721,266 854,458 89,293 24,654 250,296 Payable for loaned securities collateral (Notes 1 and 3).... -- 44,468,432 -- -- -- -- Investment advisory fees payable....................... 52,490 120,485 104,284 47,628 15,496 114,578 Administration fees payable..... 9,354 9,881 8,345 4,382 3,367 9,819 Payable for securities purchased..................... -- -- 2,527,486 185,058 114,193 -- Payable for open forward foreign currency contracts (Notes 1 and 3)........................ -- -- 381 -- -- -- Trustees' fees payable.......... 2,000 2,300 2,300 2,300 2,300 2,300 Accrued expenses................ 56,200 55,006 61,927 44,460 31,305 50,216 --------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES............... 693,759 45,377,370 3,559,181 373,121 191,315 427,209 --------------------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS.................. $189,314,987 $181,174,174 $ 165,444,630 $ 86,937,291 $32,538,895 $197,828,058 --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid-in capital................. $191,295,023 $186,409,786 $ 323,913,565 $ 95,981,473 $28,191,483 $157,598,303 Undistributed (overdistributed) net investment income......... (1,564,284) (547,069) 280 (263,984) -- 7,623 Accumulated net realized gain (loss) from investment transactions and futures contracts..................... (1,684,932) (34,603,797) (192,136,917) (12,473,488) (786,766) 2,131,750 Net unrealized appreciation of investments, futures contracts and foreign currencies........ 1,269,180 29,915,254 33,667,702 3,693,290 5,134,178 38,090,382 --------------------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS.................. $189,314,987 $181,174,174 $ 165,444,630 $ 86,937,291 $32,538,895 $197,828,058 --------------------------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING................ 17,169,941 15,868,394 15,700,343 10,090,819 1,965,275 10,011,726 --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, PER SHARE........ $11.03 $11.42 $10.54 $8.62 $16.56 $19.76 ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 72 -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
TRAVELERS LAZARD MFS DISCIPLINED QUALITY INTERNATIONAL EMERGING FEDERATED FEDERATED MID CAP BOND STOCK GROWTH HIGH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest............................... $ 8,030,237 $ 59,899 $ 45,434 $6,584,771 $ 19,483 $ 52,490 Dividends.............................. -- 3,956,515 873,090 27,118 688,118 1,865,624 Securities lending..................... -- 102,085 -- -- -- -- Less: Foreign withholding tax.......... -- (450,997) (17,139) -- (1,717) (859) --------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................ 8,030,237 3,667,502 901,385 6,611,889 705,884 1,917,255 --------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 2)...... 642,159 1,264,681 1,217,061 520,768 196,073 1,237,113 Administration fees (Note 2)........... 119,176 92,801 97,365 48,071 18,823 106,038 Audit and legal........................ 42,962 42,454 46,946 43,092 48,626 41,897 Custody................................ 28,997 116,900 66,791 57,960 11,919 27,302 Shareholder communications............. 27,561 18,046 24,136 13,468 5,177 22,498 Trustees' fees......................... 10,096 9,564 10,173 11,798 10,283 9,718 Transfer agency services (Note 2)...... 2,500 2,500 2,500 2,500 2,500 2,500 Other.................................. 2,103 15,575 2,782 1,473 1,028 1,673 --------------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES......................... 875,554 1,562,521 1,467,754 699,130 294,429 1,448,739 Less: Expense reimbursements and fee waivers (Notes 2 and 6).............. (33,485) (33,485) (33,448) (33,485) (33,485) (29,011) --------------------------------------------------------------------------------------------------------------------------------- NET EXPENSES........................... 842,069 1,529,036 1,434,306 665,645 260,944 1,419,728 --------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS)........... 7,188,168 2,138,466 (532,921) 5,946,244 444,940 497,527 --------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 1 AND 3): Realized Gain (Loss) From: Investment transactions.............. 865,318 14,092,075 15,461,217 1,202,342 1,268,513 14,922,089 Futures contracts.................... -- -- -- -- -- 271,038 Foreign currency transactions........ -- (230,809) (1,562) -- -- -- --------------------------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN...................... 865,318 13,861,266 15,459,655 1,202,342 1,268,513 15,193,127 --------------------------------------------------------------------------------------------------------------------------------- Net Change in Unrealized Appreciation/Depreciation From: Investments and futures contracts.... (1,671,033) 8,417,220 4,395,319 749,397 1,454,617 11,904,347 Foreign currencies................... -- (7,013) (185) -- -- -- --------------------------------------------------------------------------------------------------------------------------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION............ (1,671,033) 8,410,207 4,395,134 749,397 1,454,617 11,904,347 --------------------------------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCIES....... (805,715) 22,271,473 19,854,789 1,951,739 2,723,130 27,097,474 --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS... $ 6,382,453 $24,409,939 $19,321,868 $7,897,983 $3,168,070 $27,595,001 ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 73 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
TRAVELERS QUALITY LAZARD INTERNATIONAL MFS EMERGING BOND PORTFOLIO STOCK PORTFOLIO GROWTH PORTFOLIO ---------------------------- ----------------------------- ---------------------------- 2004 2003 2004 2003 2004 2003 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss).... $ 7,188,168 $ 8,841,220 $ 2,138,466 $ 1,877,744 $ (532,921) $ (468,854) Net realized gain (loss)........ 865,318 (813,388) 13,861,266 (4,181,788) 15,459,655 3,125,140 Net change in unrealized appreciation/depreciation..... (1,671,033) 6,204,698 8,410,207 30,563,454 4,395,134 36,792,310 --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS.................... 6,382,453 14,232,530 24,409,939 28,259,410 19,321,868 39,448,596 --------------------------------------------------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1): Net investment income........... (8,995,106) (10,103,492) (2,613,383) (2,035,977) -- -- Net realized gains.............. -- (474,419) -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS.................. (8,995,106) (10,577,911) (2,613,383) (2,035,977) -- -- --------------------------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares........................ 16,645,993 43,240,349 53,475,176 104,649,317 5,697,473 8,640,718 Net asset value of shares issued for reinvestment of dividends and distributions............. 8,995,106 10,577,911 2,613,383 2,035,977 -- -- Cost of shares reacquired....... (42,786,580) (54,268,288) (24,585,856) (102,506,397) (27,632,701) (24,103,589) --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS.................. (17,145,481) (450,028) 31,502,703 4,178,897 (21,935,228) (15,462,871) --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS............................ (19,758,134) 3,204,591 53,299,259 30,402,330 (2,613,360) 23,985,725 NET ASSETS: Beginning of year............... 209,073,121 205,868,530 127,874,915 97,472,585 168,057,990 144,072,265 --------------------------------------------------------------------------------------------------------------------------------- END OF YEAR*.................... $189,314,987 $209,073,121 $181,174,174 $ 127,874,915 $165,444,630 $168,057,990 --------------------------------------------------------------------------------------------------------------------------------- *Includes undistributed (overdistributed) net investment income of:......... $(1,564,284) $(650,983) $(547,069) $(237,139) $280 -- ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 74 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31,
FEDERATED HIGH FEDERATED DISCIPLINED MID CAP YIELD PORTFOLIO STOCK PORTFOLIO STOCK PORTFOLIO --------------------------- -------------------------- ---------------------------- 2004 2003 2004 2003 2004 2003 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income............... $ 5,946,244 $ 4,932,912 $ 444,940 $ 421,055 $ 497,527 $ 492,767 Net realized gain (loss)............ 1,202,342 (800,373) 1,268,513 27,649 15,193,127 3,281,954 Net change in unrealized appreciation/depreciation......... 749,397 8,350,883 1,454,617 6,552,918 11,904,347 35,315,211 --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS........................ 7,897,983 12,483,422 3,168,070 7,001,622 27,595,001 39,089,932 --------------------------------------------------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1): Net investment income............... (6,213,875) (5,110,185) (451,992) (414,269) (508,893) (426,728) Net realized gains.................. -- -- -- -- (5,360,391) -- --------------------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS..... (6,213,875) (5,110,185) (451,992) (414,269) (5,869,284) (426,728) --------------------------------------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 4): Net proceeds from sale of shares.... 14,459,403 45,580,198 2,342,984 2,031,831 24,387,730 27,684,956 Net asset value of shares issued for reinvestment of dividends and distributions.... 6,213,875 5,110,185 451,992 414,269 5,869,284 426,728 Cost of shares reacquired........... (11,216,237) (30,064,428) (4,775,545) (4,280,218) (19,071,361) (12,959,405) --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS...... 9,457,041 20,625,955 (1,980,569) (1,834,118) 11,185,653 15,152,279 --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS................ 11,141,149 27,999,192 735,509 4,753,235 32,911,370 53,815,483 NET ASSETS: Beginning of year................... 75,796,142 47,796,950 31,803,386 27,050,151 164,916,688 111,101,205 --------------------------------------------------------------------------------------------------------------------------------- END OF YEAR*........................ $86,937,291 $ 75,796,142 $32,538,895 $31,803,386 $197,828,058 $164,916,688 --------------------------------------------------------------------------------------------------------------------------------- *Includes undistributed (overdistributed) net investment income of:........................ $(263,984) $(99,971) -- $6,786 $7,623 $69,223 ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 75 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share of beneficial interest outstanding throughout each year ended December 31:
TRAVELERS QUALITY BOND PORTFOLIO(1) 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR............ $11.21 $11.03 $11.39 $11.00 $10.82 ------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income....................... 0.41 0.48 0.51 0.59(2) 0.73 Net realized and unrealized gain (loss)..... (0.04) 0.29 0.14 0.20(2) 0.00* ------------------------------------------------------------------------------------------------------ Total Income From Operations.................. 0.37 0.77 0.65 0.79 0.73 ------------------------------------------------------------------------------------------------------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income....................... (0.55) (0.56) (0.85) (0.40) (0.55) Net realized gains.......................... -- (0.03) (0.16) -- -- ------------------------------------------------------------------------------------------------------ Total Dividends and Distributions............. (0.55) (0.59) (1.01) (0.40) (0.55) ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR.................. $11.03 $11.21 $11.03 $11.39 $11.00 ------------------------------------------------------------------------------------------------------ TOTAL RETURN(3)............................... 3.29% 6.98% 5.81% 7.13% 6.97% ------------------------------------------------------------------------------------------------------ NET ASSETS, END OF YEAR (MILLIONS)............ $189 $209 $206 $152 $73 ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses(4)................................. 0.42%(5) 0.43% 0.44% 0.45% 0.49% Net investment income....................... 3.62 4.15 4.48 5.14(2) 6.81 ------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE....................... 90% 191% 176% 225% 157% ------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Effective January 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended December 31, 2001, these amounts would have been $0.61, $0.18 and 5.31% for net investment income, net realized and unrealized gain and the ratio of net investment income to average net assets, respectively. Per share information, ratios and supplemental data for the periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (3) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (4) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 0.75%. (5) 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 expenses not reimbursed, the actual expense ratio would have been 0.44%. * Amount represents less than $0.01 per share. SEE NOTES TO FINANCIAL STATEMENTS. 76 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
LAZARD INTERNATIONAL STOCK PORTFOLIO(1) 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR............ $10.01 $7.91 $9.30 $13.15 $15.65 ------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS: Net investment income....................... 0.14 0.15 0.11 0.11 0.13 Net realized and unrealized gain (loss)..... 1.44 2.11 (1.31) (3.50) (1.88) ------------------------------------------------------------------------------------------------------ Total Income (Loss) From Operations........... 1.58 2.26 (1.20) (3.39) (1.75) ------------------------------------------------------------------------------------------------------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income....................... (0.17) (0.16) (0.19) (0.02) (0.32) Net realized gains.......................... -- -- -- (0.44) (0.43) ------------------------------------------------------------------------------------------------------ Total Dividends and Distributions............. (0.17) (0.16) (0.19) (0.46) (0.75) ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR.................. $11.42 $10.01 $7.91 $ 9.30 $13.15 ------------------------------------------------------------------------------------------------------ TOTAL RETURN(2)............................... 15.75% 28.60% (12.96)% (26.19)% (11.50)% ------------------------------------------------------------------------------------------------------ NET ASSETS, END OF YEAR (MILLIONS)............ $181 $128 $97 $120 $141 ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: Expenses(3)................................. 0.99%(4) 1.00% 1.06% 1.01% 1.02% Net investment income....................... 1.38 1.79 1.32 1.01 0.92 ------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE....................... 59% 44% 55% 81% 39% ------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH PORTFOLIO 2004 2003 2002(1) 2001(1) 2000(1) ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............ $9.35 $7.24 $11.00 $22.60 $29.82 ------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment loss......................... (0.03) (0.03) (0.03) (0.02) (0.05) Net realized and unrealized gain (loss)..... 1.22 2.14 (3.73) (8.20) (5.70) ------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations........... 1.19 2.11 (3.76) (8.22) (5.75) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net realized gains.......................... -- -- -- (3.38) (1.47) ------------------------------------------------------------------------------------------------------------- Total Distributions........................... -- -- -- (3.38) (1.47) ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR.................. $10.54 $9.35 $7.24 $11.00 $22.60 ------------------------------------------------------------------------------------------------------------- TOTAL RETURN(2)............................... 12.73% 29.14% (34.18)% (36.18)% (20.13)% ------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (MILLIONS)............ $165 $168 $144 $258 $420 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(5)................................. 0.88%(6) 0.89% 0.89% 0.89% 0.90% Net investment loss......................... (0.33) (0.30) (0.32) (0.12) (0.18) ------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE....................... 99% 106% 114% 266% 203% -------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (3) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 1.25%. (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 expenses not reimbursed, the actual expense ratio would have been 1.01%. (5) As a result of an expense limitation, the ratio of expenses to average net assets (excluding interest expense) will not exceed 0.95%. (6) 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 expenses not reimbursed, the actual expense ratio would have been 0.90%. SEE NOTES TO FINANCIAL STATEMENTS. 77 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
FEDERATED HIGH YIELD PORTFOLIO 2004(1) 2003(1) 2002(1) 2001(1) 2000 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR........... $8.41 $7.37 $8.55 $9.50 $11.44 ------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income...................... 0.64 0.65 0.74 0.97(2) 1.25 Net realized and unrealized gain (loss).... 0.23 1.00 (0.46) (0.77)(2) (2.11) ------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations.......... 0.87 1.65 0.28 0.20 (0.86) ------------------------------------------------------------------------------------------------------------- LESS DIVIDENDS FROM: Net investment income...................... (0.66) (0.61) (1.46) (1.15) (1.08) ------------------------------------------------------------------------------------------------------------- Total Dividends.............................. (0.66) (0.61) (1.46) (1.15) (1.08) ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR................. $8.62 $8.41 $7.37 $8.55 $9.50 ------------------------------------------------------------------------------------------------------------- TOTAL RETURN(3).............................. 10.38% 22.39% 3.72% 1.94% (8.15)% ------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (MILLIONS)........... $87 $76 $48 $40 $39 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4)................................ 0.83%(5) 0.90% 0.89% 0.89% 0.88% Net investment income...................... 7.42 7.93 9.09 10.45(2) 10.61 ------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE...................... 38% 57% 58% 44% 19% -------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Effective January 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended December 31, 2001, these amounts would have been $0.98, $0.78 and 10.51% for net investment income, net realized and unrealized loss and the ratio of net investment income to average net assets, respectively. Per share information, ratios and supplemental data for the periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (3) Total returns do not reflect expenses associated with your variable contract such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. (4) As a result of an expense limitation, the ratio of expenses to average net assets will not exceed 0.95%. (5) 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 expenses not reimbursed, the actual expense ratio would have been 0.87%. SEE NOTES TO FINANCIAL STATEMENTS. 78 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
FEDERATED STOCK PORTFOLIO 2004 2003(1) 2002(1) 2001(1) 2000 ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR............ $15.19 $12.06 $15.40 $15.99 $16.34 ---------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income....................... 0.23 0.20 0.16 0.16 0.21 Net realized and unrealized gain (loss)..... 1.37 3.13 (3.13) 0.11 0.33 ---------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations........... 1.60 3.33 (2.97) 0.27 0.54 ---------------------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income....................... (0.23) (0.20) (0.37) (0.20) (0.18) Net realized gains.......................... -- -- -- (0.66) (0.71) ---------------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions............. (0.23) (0.20) (0.37) (0.86) (0.89) ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR.................. $16.56 $15.19 $12.06 $15.40 $15.99 ---------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(2)............................... 10.55% 27.61% (19.32)% 1.67% 3.77% ---------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (MILLIONS)............ $33 $32 $27 $44 $45 ---------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3)................................. 0.83%(4) 0.91% 0.84% 0.81% 0.82% Net investment income....................... 1.42 1.50 1.14 0.99 1.23 ---------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE....................... 31% 41% 13% 14% 24% ----------------------------------------------------------------------------------------------------------------------
(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 expenses not reimbursed, the actual expense ratio would have been 0.94%. SEE NOTES TO FINANCIAL STATEMENTS. 79 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) For a share of beneficial interest outstanding throughout each year ended December 31:
DISCIPLINED MID CAP STOCK PORTFOLIO 2004(1) 2003 2002 2001(1) 2000(1) ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR......... $17.49 $13.11 $15.41 $17.26 $15.61 ---------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income.................... 0.05 0.05 0.03 0.06 0.08 Net realized and unrealized gain (loss)................................ 2.82 4.38 (2.23) (0.78) 2.46 ---------------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations........ 2.87 4.43 (2.20) (0.72) 2.54 ---------------------------------------------------------------------------------------------------------------------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income.................... (0.05) (0.05) (0.08) (0.04) (0.03) Net realized gains....................... (0.55) -- (0.02) (1.09) (0.86) ---------------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions.......... (0.60) (0.05) (0.10) (1.13) (0.89) ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR............... $19.76 $17.49 $13.11 $15.41 $17.26 ---------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(2)............................ 16.45% 33.75% (14.32)% (4.02)% 16.61% ---------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (MILLIONS)......... $198 $165 $111 $113 $95 ---------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(3).............................. 0.80%(4) 0.82% 0.85% 0.83% 0.88% Net investment income.................... 0.28 0.38 0.23 0.37 0.49 ---------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE.................... 91% 61% 67% 40% 67% ----------------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares method. (2) Total returns do no 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 expenses not reimbursed, the actual expense ratio would have been 0.82%. SEE NOTES TO FINANCIAL STATEMENTS. 80 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock Portfolios ("Fund(s)") are separate diversified investment funds of The Travelers Series Trust ("Trust"). The Trust, a Massachusetts business trust, is registered under the Investment Company Act of 1940 ("1940 Act"), 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 the separate accounts of various affiliated life insurance companies. The following are significant accounting policies consistently followed by the Funds and are in conformity with U.S. generally accepted accounting principles ("GAAP"). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. (A) INVESTMENT VALUATION. Securities traded on national securities markets are valued at the closing price on such markets. 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 primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges. Securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sale price. 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. In making such valuations, the pricing service utilizes both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices since such valuations are believed to reflect the market value of such securities. 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. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. 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) FUTURES CONTRACTS. Certain Funds may enter into futures contracts to the extent permitted by their investment policies and objectives. Upon entering into a futures contract, the Funds are required to deposit cash or pledge securities as initial margin. Additional securities are also segregated up to the current market value of the futures contracts. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying financial instrument, are made or received by the Funds each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Funds record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Funds' basis in the contracts. The Funds typically enter into such contracts as a substitution for buying or selling securities and as a cash flow management technique, or to hedge a portion of the portfolio. The risks associated with entering into futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. In addition, investing in futures contracts involves the risk that the Funds could lose more than the original margin deposit and subsequent payments required for a futures transaction. 81 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) (D) FORWARD FOREIGN CURRENCY CONTRACTS. Certain Funds may enter into forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The contract is marked-to-market daily and the change in value is recorded by the 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. (E) LENDING OF PORTFOLIO SECURITIES. The Funds have an agreement with their custodian whereby the custodian may lend securities owned by the Funds to brokers, dealers and other financial organizations, and receive a lender's fee. Loans of securities by the Funds are collateralized by cash, U.S. government securities or high quality money market instruments that are maintained at all times in an amount at least equal to the current market value of the loaned securities, plus a margin which may vary depending on the type of securities loaned. The custodian establishes and maintains the collateral in a segregated account. The Funds maintain exposure for the risk of any losses in the investment of amounts received as collateral. The Funds also maintain exposure for the risk of any loss in the investment securities loaned. The Funds have the right under the lending agreement to recover the securities from the borrower on demand. (F) CREDIT AND MARKET RISK. Certain Funds may invest in high-yield instruments that are subject to certain credit and market risks. The yields of high-yield debt obligations reflect, among other things, perceived credit risk. The Funds' investments in securities rated below investment-grade typically involve risks not associated with higher rated securities including, among others, greater risk of timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. In addition, certain Funds may invest in foreign securities. The Funds' investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in a foreign currency and may require settlement in foreign currencies and pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Funds to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments. (G) 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. To the extent that any issuer defaults on an expected interest payment, the Funds' policy is to generally halt any additional interest income accruals and consider the realization of interest accrued up to the date of default. (H) 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 is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities. (I) 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. (J) 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, 82 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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. (K) 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, $887,596 has been reclassified between accumulated net realized gain from investment transactions and futures contracts and accumulated net investment loss as a result of permanent differences between book and tax amortization of premium on fixed income securities, tax treatment of consent fees and income from mortgage backed securities treated as capital gains for tax and $6,041 has been reclassified between paid-in capital and accumulated net investment loss as a result of a taxable overdistribution paid by Travelers Quality Bond Portfolio. Additionally, $164,987 has been reclassified between accumulated net realized loss from investment transactions and futures contracts and accumulated net investment loss as a result of permanent differences due to book foreign currency transactions treated as ordinary income for tax purposes and the realization for tax purposes of gains on investments in passive foreign investment companies for Lazard International Stock Portfolio. Additionally, $534,762 has been reclassified between paid-in capital and accumulated net investment loss as a result of permanent differences attributable to a tax net operating loss and $1,561 has been reclassified between accumulated net realized gain from investment transactions and futures contracts and accumulated net investment loss due to foreign currency transactions treated as ordinary income for tax for MFS Emerging Growth Portfolio. Additionally, $95,907 has been reclassified between accumulated net realized loss from investment transactions and futures contracts and accumulated net investment loss due to book/tax differences in the recognition of market premium on securities sold and $7,711 has been reclassified between paid-in capital and accumulated net investment loss due to a taxable overdistribution by Federated High Yield Portfolio. Additionally, $266 has been reclassified between paid-in capital and accumulated net investment loss due to a taxable overdistribution by Federated Stock Portfolio. Finally, $50,234 has been reclassified between accumulated net investment income and accumulated net realized gain from investment transactions and futures contracts due to the tax treatment of distributions from real estate investment trusts for Disciplined Mid Cap Stock Portfolio. These reclassifications have no effect on net assets or net asset values per share. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Travelers Asset Management International Company LLC ("TAMIC"), an indirect wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment adviser to the Travelers Quality Bond ("TQB"), Lazard International Stock ("LIS"), MFS Emerging Growth ("MEG"), Federated High Yield ("FHY"), Federated Stock ("FSP") and Disciplined Mid Cap Stock ("DMCS") Portfolios. TQB, FHY, FSP and DMCS each pay TAMIC an investment advisory fee calculated at the annual rate of 0.3233%, 0.65%, 0.625% and 0.70%, respectively, of each Fund's respective average daily net assets. These fees are calculated daily and paid monthly. TAMIC has entered into sub-advisory agreements with Lazard Asset Management LLC ("Lazard"), Massachusetts Financial Services ("MFS"), Federated Investment Management Company ("Federated") and The Travelers Investment Management Company ("TIMCO"), another indirect wholly-owned subsidiary of Citigroup. Pursuant to each sub-advisory agreement, Lazard, MFS and TIMCO are responsible for the day-to-day fund operations and investment decisions for LIS, MEG and DMCS, respectively. Federated is responsible for the day-to-day fund operations and investment decisions for FHY and FSP. As a result, the following fees are calculated and paid at an annual rate: - TAMIC pays Federated 0.40% and 0.375% of the average daily net assets of FHY and FSP, respectively. - TAMIC pays TIMCO 0.35% of DMCS's average daily net assets. The Board of Trustees of the Trust, on behalf of LIS, has approved an amendment to the investment advisory agreement between LIS and TAMIC, and an amendment to the sub-advisory agreement between TAMIC and Lazard. 83 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) Prior to September 1, 2004, the investment advisory fee and sub-advisory fee for LIS were calculated at the annual rates of 0.825% and 0.475%, respectively, of the average daily net assets of LIS. Effective September 1, 2004 the investment advisory fee and sub-advisory fee were revised to a fee calculated at the annual rates in accordance with the following schedule:
INVESTMENT ADVISORY SUB-ADVISORY AVERAGE DAILY NET ASSETS FEE RATE FEE RATE --------------------------------------------------------------------------------------------------- First $100 million.......................................... 0.825% 0.475% Next $400 million........................................... 0.775 0.425 Next $500 million........................................... 0.725 0.375 Over $1 billion............................................. 0.700 0.350 ---------------------------------------------------------------------------------------------------
The Board of Trustees of the Trust, on behalf of MEG, has approved an amendment to the investment advisory agreement between MEG and TAMIC, and an amendment to the sub-advisory agreement between TAMIC and MFS. Prior to September 1, 2004, the investment advisory fee and sub-advisory fee for MEG were calculated at the annual rates of 0.750% and 0.375%, respectively, of the average daily net assets of MEG. Effective September 1, 2004, the investment advisory fee and sub-advisory fee were revised to a fee calculated at the annual rates in accordance with the following schedule:
INVESTMENT ADVISORY SUB-ADVISORY AVERAGE DAILY NET ASSETS FEE RATE FEE RATE --------------------------------------------------------------------------------------------------- First $600 million.......................................... 0.750% 0.375% Next $300 million........................................... 0.725 0.350 Next $600 million........................................... 0.700 0.325 Next $1 billion............................................. 0.675 0.300 Over $2.5 billion........................................... 0.625 0.250 ---------------------------------------------------------------------------------------------------
The Travelers Insurance Company ("TIC"), another indirect wholly-owned subsidiary of Citigroup, acts as administrator to the Funds. The Funds pay TIC an administration fee calculated at an annual rate of 0.06% of each Fund's respective average daily net assets. This fee is calculated daily and paid monthly. TIC has entered into a sub-administrative service agreement with Smith Barney Fund Management LLC ("SBFM"), another indirect wholly-owned subsidiary of Citigroup. TIC pays SBFM, as sub-administrator, a fee calculated at an annual rate of 0.02% of the average daily net assets of each Fund, plus $30,000 per Fund, subject to a maximum of 0.06% of each Fund's respective average daily net assets. During the year ended December 31, 2004, TQB, LIS, MEG, FHY, FSP and DMCS had contractual expense limitations in place of 0.75%, 1.25%, 0.95%, 0.95%, 0.95% and 0.95%, respectively. These expense limitations are renewed annually and can be terminated at any time by TIC with 60 days' notice. During the year ended December 31, 2004, SBFM voluntarily waived a portion of its fee in the amount of $1,726, $1,726, $1,689, $1,726, $1,726 and $1,726 for TQB, LIS, MEG, FHY, FSP and DMS, respectively. In addition, SBFM reimbursed expenses in the amount of $31,759, $31,759, $31,759, $31,759, $31,759 and $27,285 for TQB, LIS, MEG, FHY, FSP and DMS, respectively, for the year ended December 31, 2004, in connection with the overpayment of transfer agent fees relating to the period from June 1999 through June 2004. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Funds' transfer agent. For the year ended December 31, 2004, each Fund paid transfer agent fees of $2,500 to CTB. For the year ended December 31, 2004, Citigroup Global Markets Inc., another indirect wholly-owned subsidiary of Citigroup, did not receive any brokerage commissions from the Funds. One Trustee and all officers of the Trust are employees of Citigroup or its subsidiaries and do not receive compensation from the Trust. 84 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 ----------------------------------------------------------------------------------------- Travelers Quality Bond Portfolio............................ $172,007,799 $186,660,849 Lazard International Stock Portfolio........................ 119,877,867 88,610,760 MFS Emerging Growth Portfolio............................... 157,571,834 180,864,306 Federated High Yield Portfolio.............................. 38,469,474 29,146,404 Federated Stock Portfolio................................... 9,505,814 11,518,125 Disciplined Mid Cap Stock Portfolio......................... 166,586,136 157,544,682 -----------------------------------------------------------------------------------------
At December 31, 2004, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION APPRECIATION DEPRECIATION (DEPRECIATION) ---------------------------------------------------------------------------------------------------------- Travelers Quality Bond Portfolio............................ $ 2,624,206 $(2,919,310) $ (295,104) Lazard International Stock Portfolio........................ 30,400,990 (1,831,906) 28,569,084 MFS Emerging Growth Portfolio............................... 34,907,262 (3,119,137) 31,788,125 Federated High Yield Portfolio.............................. 6,071,987 (2,650,539) 3,421,448 Federated Stock Portfolio................................... 5,860,880 (737,237) 5,123,643 Disciplined Mid Cap Stock Portfolio......................... 38,661,153 (656,815) 38,004,338 ----------------------------------------------------------------------------------------------------------
At December 31, 2004, DMCS had the following open futures contracts:
NUMBER OF EXPIRATION BASIS MARKET UNREALIZED CONTRACTS DATE VALUE VALUE GAIN ------------------------------------------------------------------------------------------------------- PURCHASED CONTRACTS: S&P MidCap 400.............................. 3 3/05 $973,899 $998,025 $24,126 -------------------------------------------------------------------------------------------------------
At December 31, 2004, MEG had open forward foreign currency contracts as described below. The unrealized gain (loss) on the contracts reflected in the financial statements was as follows:
LOCAL MARKET SETTLEMENT UNREALIZED FOREIGN CURRENCY CURRENCY VALUE DATE (GAIN) LOSS ------------------------------------------------------------------------------------------------------------ CONTRACTS TO BUY: Australian Dollar........................................... 9,298 $ 7,254 1/5/05 $ 19 Canadian Dollar............................................. 4,241 3,525 1/5/05 4 Canadian Dollar............................................. 8,487 7,054 1/6/05 (18) Swiss Franc................................................. 49,014 42,957 1/4/05 (363) Japanese Yen................................................ 2,279,088 22,185 1/6/05 78 ------------------------------------------------------------------------------------------------------------ NET UNREALIZED LOSS ON OPEN FORWARD FOREIGN CURRENCY CONTRACTS................................ $(280) ------------------------------------------------------------------------------------------------------------
At December 31, 2004, LIS loaned securities having a market value of $42,146,155. LIS received cash collateral amounting to $44,468,432 which was invested in the State Street Navigator Securities Lending Trust Prime Portfolio, a Rule 2a-7 money market fund, under the 1940 Act. 85 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. SHARES OF BENEFICIAL INTEREST The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of each Fund were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 ------------------------------------------------------------------------------------------------------ TRAVELERS QUALITY BOND PORTFOLIO Shares sold................................................. 1,465,860 3,799,891 Shares issued on reinvestment............................... 817,628 943,628 Shares reacquired........................................... (3,769,397) (4,753,702) ------------------------------------------------------------------------------------------------------ Net Decrease................................................ (1,485,909) (10,183) ------------------------------------------------------------------------------------------------------ LAZARD INTERNATIONAL STOCK PORTFOLIO Shares sold................................................. 5,246,816 13,041,118 Shares issued on reinvestment............................... 228,579 204,469 Shares reacquired........................................... (2,381,102) (12,799,010) ------------------------------------------------------------------------------------------------------ Net Increase................................................ 3,094,293 446,577 ------------------------------------------------------------------------------------------------------ MFS EMERGING GROWTH PORTFOLIO Shares sold................................................. 598,883 1,024,938 Shares reacquired........................................... (2,869,644) (2,951,286) ------------------------------------------------------------------------------------------------------ Net Decrease................................................ (2,270,761) (1,926,348) ------------------------------------------------------------------------------------------------------ FEDERATED HIGH YIELD PORTFOLIO Shares sold................................................. 1,653,448 5,705,531 Shares issued on reinvestment............................... 721,724 607,710 Shares reacquired........................................... (1,293,767) (3,792,186) ------------------------------------------------------------------------------------------------------ Net Increase................................................ 1,081,405 2,521,055 ------------------------------------------------------------------------------------------------------ FEDERATED STOCK PORTFOLIO Shares sold................................................. 151,666 152,214 Shares issued on reinvestment............................... 27,337 27,308 Shares reacquired........................................... (307,228) (328,610) ------------------------------------------------------------------------------------------------------ Net Decrease................................................ (128,225) (149,088) ------------------------------------------------------------------------------------------------------ DISCIPLINED MID CAP STOCK PORTFOLIO Shares sold................................................. 1,329,948 1,842,815 Shares issued on reinvestment............................... 297,265 24,260 Shares reacquired........................................... (1,043,953) (913,912) ------------------------------------------------------------------------------------------------------ Net Increase................................................ 583,260 953,163 ------------------------------------------------------------------------------------------------------
5. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal year ended December 31, 2004 was as follows:
TRAVELERS LAZARD DISCIPLINED QUALITY INTERNATIONAL FEDERATED FEDERATED MID CAP BOND STOCK HIGH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary income...................... $ 8,995,106 $2,613,383 $6,213,875 $451,992 $ 508,893 Net long-term capital gains.......... -- -- -- -- 5,360,391 --------------------------------------------------------------------------------------------------------------- Total Distributions Paid............... $ 8,995,106 $2,613,383 $6,213,875 $451,992 $5,869,284 ---------------------------------------------------------------------------------------------------------------
86 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) The tax character of distributions paid during the fiscal year ended December 31, 2003 was as follows:
TRAVELERS LAZARD DISCIPLINED QUALITY INTERNATIONAL FEDERATED FEDERATED MID CAP BOND STOCK HIGH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ---------------------------------------------------------------------------------------------------------------- Ordinary income......................... $10,577,911 $2,035,977 $5,110,185 $414,269 $426,728 ----------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2004 and 2003, MFS Emerging Growth Portfolio did not make any distributions. As of December 31, 2004, the components of accumulated earnings (losses) on a tax basis were as follows:
TRAVELERS LAZARD MFS EMERGING QUALITY BOND INTERNATIONAL GROWTH PORTFOLIO STOCK PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------- Undistributed ordinary income -- net........................ $ -- $ 104,081 $ -- ------------------------------------------------------------------------------------------------------------- Total undistributed earnings................................ -- 104,081 -- Capital loss carryforward(1)................................ (1,684,932) (33,913,755) (190,257,651) Other book/tax temporary differences(2)..................... -- -- 280 Unrealized appreciation (depreciation)(3)................... (295,104) 28,574,062 31,788,436 ------------------------------------------------------------------------------------------------------------- Total accumulated losses.................................... $(1,980,036) $ (5,235,612) $(158,468,935) -------------------------------------------------------------------------------------------------------------
DISCIPLINED FEDERATED FEDERATED MID CAP HIGH YIELD STOCK STOCK PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------ Undistributed long-term capital gains -- net................ $ -- $ -- $ 2,217,795 ------------------------------------------------------------------------------------------------------ Total undistributed earnings................................ -- -- 2,217,795 Capital loss carryforward(1)................................ (12,465,630) (776,231) -- Other book/tax temporary differences(2)..................... -- -- (16,504) Unrealized appreciation(4).................................. 3,421,448 5,123,643 38,028,464 ------------------------------------------------------------------------------------------------------ Total accumulated earnings (losses)......................... $ (9,044,182) $4,347,412 $40,229,755 ------------------------------------------------------------------------------------------------------
(1) On December 31, 2004, the Funds had net capital loss carryforwards as follows:
TRAVELERS LAZARD QUALITY INTERNATIONAL MFS EMERGING FEDERATED FEDERATED YEAR OF BOND STOCK GROWTH HIGH YIELD STOCK EXPIRATION PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------------------------- 12/31/2009......................... $ -- $ 3,632,501 $109,972,382 $ 4,648,588 $ -- 12/31/2010......................... -- 22,825,140 75,063,731 6,217,956 -- 12/31/2011......................... 1,232,729 7,456,114 5,221,538 1,599,086 776,231 12/31/2012......................... 452,203 -- -- -- -- --------------------------------------------------------------------------------------------------------- $1,684,932 $33,913,755 $190,257,651 $12,465,630 $776,231 ---------------------------------------------------------------------------------------------------------
These amounts will be available to offset any future taxable capital gains. (2) Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized gains/(losses) on certain futures and foreign currency contracts. (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 and tax amortization methods for premiums and discounts on fixed income securities and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies. (4) 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 and tax amortization methods for premiums and discounts on fixed income securities, and the difference between book and tax cost basis on Real Estate Investment Trusts. 87 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) TQB, LIS, FHY, FSP and DMCS are liable for excise tax payments resulting from the timing of required distribution payments made to taxable shareholders for the years 1999-2001. The actual amount of the liability is not yet determinable. However, the Funds have been indemnified by SBFM for any associated excise tax liability as well as any interest and penalties or any other costs. Accordingly, the Funds' net asset values will not be impacted by the outcome of this matter. 6. ADDITIONAL INFORMATION In connection with an investigation previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission ("SEC") has notified Citigroup Asset Management ("CAM"), the Citigroup business unit that includes the funds' investment manager and other investment advisory companies; Citicorp Trust Bank ("CTB"), an affiliate of CAM; Thomas W. Jones, the former CEO of CAM; and three other individuals, one of whom is an employee and two of whom are former employees of CAM, that the SEC Staff is considering recommending a civil injunctive action and/or an administrative proceeding against each of them relating to the creation and operation of an internal transfer agent unit to serve various CAM-managed funds. In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated subcontractor to perform some of the transfer agent services. The subcontractor, in exchange, had signed a separate agreement with CAM in 1998 that guaranteed investment management revenue to CAM and investment banking revenue to a CAM affiliate. The subcontractor's business was later taken over by PFPC Inc., and at that time the revenue guarantee was eliminated and a one-time payment was made by the subcontractor to a CAM affiliate. CAM did not disclose the revenue guarantee when the boards of various CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the boards of the various CAM-managed funds the one-time payment received by the CAM affiliate when it was made. As previously disclosed, CAM has already paid the applicable funds, primarily through voluntary fee waivers, a total of approximately $17 million (plus interest), which is the amount of the revenue received by Citigroup relating to the revenue guarantee. In addition, the SEC Staff has indicated that it is considering recommending action based on the adequacy of the disclosures made to the fund boards that approved the transfer agency arrangement, CAM's initiation and operation of, and compensation for, the transfer agent business and CAM's retention of, and agreements with, the subcontractor. Citigroup is cooperating fully in the SEC's investigation and is seeking to resolve the matter in discussions with the SEC Staff. On January 20, 2005, Citigroup stated that it had established an aggregate reserve of $196 million ($25 million in the third quarter of 2004 and $171 million in the fourth quarter of 2004) related to its discussions with the SEC Staff. Settlement negotiations are ongoing and any settlement of this matter with the SEC will require approval by the Citigroup Board and acceptance by the Commission. Unless and until any settlement is consummated, there can be no assurance that any amount reserved by Citigroup will be distributed. Nor is there at this time any certainty as to how the proceeds of any settlement would be distributed, to whom any such distribution would be made, the methodology by which such distribution would be allocated, and when such distribution would be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. 7. SUBSEQUENT EVENT On January 31, 2005, Citigroup announced that it has reached an agreement with MetLife, Inc. ("MetLife") to sell Citigroup's life insurance and annuity businesses ("Travelers Life & Annuity") to MetLife. As part of this transaction, TAMIC currently an indirect wholly owned subsidiary of Citigroup, would become an indirect wholly owned subsidiary of MetLife. TAMIC is the investment adviser to the Funds. The transaction is subject to certain regulatory approvals, as well as other customary conditions to closing. The transaction is expected to close this summer. In connection with this transaction, the Trust's Board of Trustees will be asked to approve new investment advisory and administrative services contracts, and, to the extent required by law, variable annuity and variable life contract owners, who beneficially own the shares of the funds, will be asked to approve new investment advisory agreements. On February 18, 2005, the shareholders of MFS Emerging Growth Portfolio approved a reorganization pursuant to which MFS Mid Cap Growth Portfolio would acquire the assets and assume the liabilities of MFS Emerging Growth Portfolio in exchange for shares of the MFS Mid Cap Growth Portfolio. The merger is expected to be effective upon the close of business on February 25, 2005. 88 -------------------------------------------------------------------------------- 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 Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock and Disciplined Mid Cap Stock Portfolios of The Travelers Series Trust ("Trust") as of December 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two- year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the 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 Travelers Quality Bond, Lazard International Stock, MFS Emerging Growth, Federated High Yield, Federated Stock, and Disciplined Mid Cap Stock Portfolios of The Travelers Series Trust as of December 31, 2004, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles. [KPMG LLP SIGNATURE] New York, New York February 18, 2005 89 -------------------------------------------------------------------------------- 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 Trustees and is available, without charge, upon request by calling the Trust's administrator at 1-800-842-9368.
NUMBER OF TERM OF PORTFOLIOS OFFICE(1) AND IN FUND POSITION(S) LENGTH COMPLEX OTHER HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS NAME, ADDRESS AND BIRTH YEAR TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE ---------------------------- ------------ ------------- ------------------------------ ----------- ------------------------ NON-INTERESTED TRUSTEES:(2) Robert E. McGill, III Trustee Since Retired 5 Lydall Inc.; Board of 295 Hancock Road 1990 Managers of 6 Variable Williamstown, MA Annuity Separate Birth Year: 1931 Accounts of The Travelers Insurance Company ("TIC") Lewis Mandell Trustee Since Professor, University of 5 Delaware North Corp.; 160 Jacobs Hall 1990 Buffalo Board of Managers of 6 Buffalo, NY Variable Annuity Birth Year: 1943 Separate Accounts of TIC Frances M. Hawk, CFA, CFP Trustee Since Private Investor 5 Board of Managers of 6 108 Oxford Hill Lane 1991 Variable Annuity Downingtown, PA Separate Accounts of TIC Birth Year: 1948 INTERESTED TRUSTEE: R. Jay Gerken, CFA(3) Chairman, Since Managing Director of Citigroup 219 Chairman, Board of Citigroup Asset Management President 2002 Global Markets Inc. ("CGM"); Managers of 6 Variable ("CAM") and 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)
90 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
NUMBER OF TERM OF PORTFOLIOS OFFICE(1) AND IN FUND POSITION(S) LENGTH COMPLEX OTHER HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS NAME, ADDRESS AND BIRTH YEAR TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE ---------------------------- ------------ ------------- ------------------------------ ----------- ------------------------ OFFICERS: Andrew B. Shoup Senior Vice Since Director of CAM; Senior Vice N/A N/A CAM President 2004 President and Chief 125 Broad Street and 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, 11th Floor Officer and Treasurer of certain mutual New York, NY 10004 Treasurer funds associated with Birth Year: 1965 Citigroup; Controller of certain mutual funds associated with Citigroup (since 2002) William D. Wilcox Chief Since 2004 Counsel and Chief Compliance N/A N/A One Cityplace Compliance Officer (since 1999), TIC; Hartford, CT 06103 Officer Chief Anti-Money Laundering Birth Year: 1964 Compliance Officer (since 2002), 6 Variable Annuity Separate Accounts of TIC; Chief Compliance Officer (since 2004), 5 mutual funds and 6 Variable Separate Accounts sponsored by TIC
91 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
NUMBER OF TERM OF PORTFOLIOS OFFICE(1) AND IN FUND POSITION(S) LENGTH COMPLEX OTHER HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY BOARD MEMBERSHIPS NAME, ADDRESS AND BIRTH YEAR TRUST SERVED PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE ---------------------------- ------------ ------------- ------------------------------ ----------- ------------------------ Andrew Beagley Chief Since Director of CGM (since 2000); N/A N/A CAM Anti-Money 2002 Director of Compliance, North 399 Park Avenue, 4th Floor Laundering America, CAM (since 2000); New York, NY 10022 Compliance Chief Anti-Money Laundering Birth Year: 1962 Officer Compliance Officer, Chief 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); Chief Compliance Officer, Salomon Brothers Asset Management Limited, Smith Barney Global Capital Management Inc. Kathleen A. McGah Secretary Since Deputy General Counsel of TIC; N/A N/A Travelers Life & Annuity 2004 Assistant Secretary of 5 One Cityplace mutual funds and 6 Variable Hartford, CT 06103 Separate Accounts sponsored by Birth Year: 1950 TIC (from 1995 to 2004) Ernest J. Wright Assistant Since Vice President and Secretary N/A N/A Travelers Life & Annuity Secretary 2004 of TIC; Secretary of 5 mutual One Cityplace funds and 6 Variable Separate Hartford, CT 06103 Accounts sponsored by TIC Birth Year: 1940 (from 1995 to 2004)
--------------- (1) Each Trustee and officer serves until his or her successor has been duly elected and qualified. (2) Mr. Knight Edwards is an Emeritus Trustee. An Emeritus Trustee is permitted to attend meetings, but has no voting power. (3) Mr. Gerken is an "interested person" of the Company as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is an officer of SBFM and certain of its affiliates. 92 -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION (UNAUDITED) The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2004:
LAZARD TRAVELERS INTERNATIONAL STOCK QUALITY BOND PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------- Record Date................................................. 12/27/2004 12/27/2004 Payable Date................................................ 12/28/2004 12/28/2004 ------------------------------------------------------------------------------------------------- Interest from Federal Obligations........................... -- 26.56% ------------------------------------------------------------------------------------------------- Foreign Source Income....................................... 100%* -- ------------------------------------------------------------------------------------------------- Foreign Taxes Paid Per Share................................ $0.0287 -- -------------------------------------------------------------------------------------------------
DISCIPLINED FEDERATED STOCK MID CAP STOCK PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------- 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.......................................... 100.00% 100.00% ------------------------------------------------------------------------------------------------- Long-Term Capital Gains Per Share........................... -- $0.553 -------------------------------------------------------------------------------------------------
* Expressed as a percentage of the cash distribution grossed-up for foreign taxes. The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult with your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes. The foreign taxes paid represent taxes incurred by the Fund on income received by the Fund from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax adviser regarding the appropriate treatment of foreign taxes paid. Please retain this information for your records. 93 (This page intentionally left blank.) (This page intentionally left blank.) (This page intentionally left blank.) THE TRAVELERS SERIES TRUST -------------------------------------------------------------------------------- TRUSTEES INVESTMENT ADVISER R. Jay Gerken, CFA Travelers Asset Management International Company LLC Chairman ADMINISTRATOR Frances M. Hawk, CFA, CFP Lewis Mandell The Travelers Insurance Company Robert E. McGill, III CUSTODIAN OFFICERS State Street Bank and Trust Company R. Jay Gerken, CFA President and TRANSFER AGENT Chief Executive Officer Citicorp Trust Bank, fsb. Andrew B. Shoup Senior Vice President and Chief Administrative Officer Kaprel Ozsolak Chief Financial Officer and Treasurer William D. Wilcox Chief Compliance Officer Andrew Beagley Chief Anti-Money Laundering Compliance Officer Kathleen McGah Secretary Ernest J. Wright Assistant Secretary
The Funds are separate investment funds of The Travelers Series Trust, a Massachusetts business trust. This report is prepared for the general information of variable annuity or life contract owners and is not an offer of shares of the Travelers Quality Bond Portfolio, Lazard International Stock Portfolio, MFS Emerging Growth Portfolio, Federated High Yield Portfolio, Federated Stock Portfolio, and Disciplined Mid Cap Stock Portfolio and is not for use with the general public. All the Funds contained in this report may not be available under our variance 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 11, 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 11, 2005 By: /s/ Kaprel Ozsolak (Kaprel Ozsolak) Chief Financial Officer of THE TRAVELERS SERIES TRUST Date: March 11, 2005