N-CSR 1 a2129014zn-csr.txt N-CSR [ANNOTATED FORM N-CSR FOR ANNUAL REPORTS] 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: 811-05624 ------------------------------------------------- Morgan Stanley Institutional Fund, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1221 Avenue of the America's 22nd Floor New York, NY 10020 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, 34th Floor New York, New York 10020 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-221-6726 ----------------------------------- Date of fiscal year end: 12/31 -------------------------------------------------------------- Date of reporting period: 12/31 -------------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. The Fund's as annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: [Provide annual report.] [MORGAN STANLEY LOGO] ANNUAL REPORT DECEMBER 31, 2003 MORGAN STANLEY INSTITUTIONAL FUND, INC. GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS ACTIVE INTERNATIONAL ALLOCATION ASIAN REAL ESTATE EMERGING MARKETS EUROPEAN REAL ESTATE EUROPEAN VALUE EQUITY GLOBAL FRANCHISE GLOBAL VALUE EQUITY INTERNATIONAL EQUITY INTERNATIONAL MAGNUM INTERNATIONAL SMALL CAP JAPANESE VALUE EQUITY LATIN AMERICAN U.S. EQUITY PORTFOLIOS EQUITY GROWTH FOCUS EQUITY SMALL COMPANY GROWTH TECHNOLOGY U.S. REAL ESTATE VALUE EQUITY FIXED INCOME PORTFOLIO EMERGING MARKETS DEBT MONEY MARKET PORTFOLIOS MONEY MARKET MUNICIPAL MONEY MARKET 2003 ANNUAL REPORT December 31, 2003 TABLE OF CONTENTS SHAREHOLDER'S LETTER 3 PERFORMANCE SUMMARY 4 INVESTMENT OVERVIEWS AND STATEMENTS OF NET ASSETS GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS: Active International Allocation 6 Asian Real Estate 17 Emerging Markets 20 European Real Estate 27 European Value Equity 31 Global Franchise 35 Global Value Equity 38 International Equity 42 International Magnum 47 International Small Cap 54 Japanese Value Equity 58 Latin American 62 U.S. EQUITY PORTFOLIOS: Equity Growth 66 Focus Equity 69 Small Company Growth 72 Technology 76 U.S. Real Estate 79 Value Equity 83 FIXED INCOME PORTFOLIO: Emerging Markets Debt 86 MONEY MARKET PORTFOLIOS: Money Market 91 Municipal Money Market 93 STATEMENTS OF OPERATIONS 97 STATEMENTS OF CHANGES IN NET ASSETS 101 FINANCIAL HIGHLIGHTS 112 NOTES TO FINANCIAL STATEMENTS 132 INDEPENDENT AUDITOR'S REPORT 141 FEDERAL INCOME TAX INFORMATION 142 DIRECTOR AND OFFICER INFORMATION 143
This report is authorized for distribution only when preceded or accompanied by prospectuses of the Morgan Stanley Institutional Fund, Inc. To receive a prospectus and/or SAI, which contains more complete information such as charges, expenses, policies for voting proxies, risk considerations, and describes in detail each of the Portfolio's investment policies to the prospective investor, please call 1-(800)-548-7786. Please read the prospectuses carefully before you invest or send money. Additionally, you can access portfolio information including performance, characteristics, and investment team commentary through Morgan Stanley Investment Management's website: www.morganstanley.com/im. 1 2003 ANNUAL REPORT December 31, 2003 (This page has been left blank intentionally.) 2 2003 ANNUAL REPORT December 31, 2003 Dear Shareholders: We are pleased to present to you the Fund's Annual Report for the year ended December 31, 2003. Our Fund currently offers 21 portfolios providing investors with a full array of global and domestic equity and fixed-income products. The Fund's portfolios, together with the portfolios of the Morgan Stanley Institutional Fund Trust, provide investors with a means to help them meet specific investment needs and to allocate their investments among equities (e.g., value and growth; small, medium, and large capitalization), fixed income (e.g., short, medium, and long duration; investment grade and high yield) and cash (e.g., money market). Sincerely, /s/ Ronald E. Robison Ronald E. Robison Executive Vice President and Principal Executive Officer January 2004 3 2003 ANNUAL REPORT December 31, 2003 PERFORMANCE SUMMARY (UNAUDITED)
ONE YEAR INCEPTION DATES TOTAL RETURN ------------------------------------------------------------------------------------------------------------------------- COMPARABLE CLASS A CLASS B CLASS A CLASS B INDICES ------------------------------------------------------------------------------------------------------------------------- GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS: Active International Allocation 1/17/92 1/2/96 33.65% 33.13% 38.59%(1) Asian Real Estate 10/1/97 10/1/97 42.76 42.42 47.43(2) Emerging Markets 9/25/92 1/2/96 55.08 54.31 55.82(3) European Real Estate 10/1/97 10/1/97 42.41 42.06 45.03(4) European Value Equity 4/2/93 1/2/96 30.15 29.80 38.54(5) Global Franchise 11/28/01 11/28/01 27.92 27.62 33.11(6) Global Value Equity 7/15/92 1/2/96 29.21 28.95 33.11(6) International Equity 8/4/89 1/2/96 32.82 32.46 38.59(1) International Magnum 3/15/96 3/15/96 29.07 28.49 38.59(1) International Small Cap 12/15/92 -- 48.32 -- 61.35(7) Japanese Value Equity 4/25/94 1/2/96 31.97 31.59 35.91(8) Latin American 1/18/95 1/2/96 59.35 58.90 73.51(9) ------------------------------------------------------------------------------------------------------------------------- U.S. EQUITY PORTFOLIOS: Equity Growth* 4/2/91 1/2/96 26.41 26.13 28.68(10) Focus Equity* 3/8/95 1/2/96 30.99 30.62 28.68(10) Small Company Growth 11/1/89 1/2/96 44.13 43.80 48.54(11) Technology* 9/16/96 9/16/96 46.94 46.44 50.01(12) U.S. Real Estate 2/24/95 1/2/96 37.61 37.23 37.13(13) Value Equity 1/31/90 1/2/96 31.05 30.86 30.03(14) ------------------------------------------------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO: Emerging Markets Debt 2/1/94 1/2/96 28.46 28.34 25.66(15) ------------------------------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIOS: Money Market 11/15/88 -- -- -- -- Municipal Money Market 2/10/89 -- -- -- --
YIELD INFORMATION AS OF DECEMBER 31, 2003
7 DAY 7 DAY 30 DAY 30 DAY CURRENT EFFECTIVE CURRENT COMPARABLE YIELD+ YIELD+ YIELD++ YIELD ---------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIOS: Money Market 0.61% 0.61% 0.59% 0.53%(16) Municipal Money Market 0.67 0.67 0.54 0.51(17)
+ The 7 day current yield and 7 day effective yield assume an annualization of the current yield with all dividends reinvested. As with all money market portfolios, yields will fluctuate as market conditions change and the 7 day yields are not necessarily indicative of future performance. ++ The current 30 day yield reflects the net investment income generated by the Portfolio over a specified 30 day period expressed as an annual percentage. Expenses accrued for the 30 day period include any fees charged to all shareholders. Yields will fluctuate as market conditions change and are not necessarily indicative of future performance. * Performance was positively impacted due to the receipt of proceeds from the settlement of class action suits involving, primarily, one of the Portfolio's holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. 4 2003 ANNUAL REPORT December 31, 2003 PERFORMANCE SUMMARY (CONT'D)
FIVE YEAR TEN YEAR AVERAGE ANNUAL TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN ------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE CLASS A CLASS B INDICES CLASS A CLASS B INDICES ------------------------------------------------------------------------------------------------------------------- GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS: Active International Allocation 0.76% 0.44% (0.05)%(1) 5.05% -- 4.47%(1) Asian Real Estate 6.67 6.42 7.57(2) -- -- --(2) Emerging Markets 11.28 11.25 10.45(3) 1.09 -- 0.11(3) European Real Estate 12.89 12.57 13.67(4) -- -- --(4) European Value Equity 3.77 3.49 (0.78)(5) 8.80 -- 8.71(5) Global Franchise -- -- --(6) -- -- --(6) Global Value Equity 2.61 2.36 (0.77)(6) 9.66 -- 7.14(6) International Equity 8.01 7.77 (0.05)(1) 11.52 -- 4.47(1) International Magnum 0.32 0.04 (0.05)(1) -- -- --(1) International Small Cap 12.86 -- 6.37(7) 9.12 -- 1.38(7) Japanese Value Equity 0.50 0.25 (0.02)(8) -- -- --(8) Latin American 12.37 12.06 12.11(9) -- -- --(9) ------------------------------------------------------------------------------------------------------------------- U.S. EQUITY PORTFOLIOS: Equity Growth* (0.81) (1.06) (0.57)(10) 11.40 -- 11.07(10) Focus Equity* 0.46 0.22 (0.57)(10) -- -- --(10) Small Company Growth 12.55 12.29 0.86(11) 13.41 -- 5.43(11) Technology* (4.15) (4.33) (1.79)(12) -- -- --(12) U.S. Real Estate 13.98 13.65 14.35(13) -- -- --(13) Value Equity 5.21 4.99 3.56(14) 11.09 -- 11.88(14) ------------------------------------------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO: Emerging Markets Debt 18.17 17.72 15.40(15) -- -- --(15) ------------------------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIOS: Money Market -- -- -- -- -- -- Municipal Money Market -- -- -- -- -- -- SINCE INCEPTION AVERAGE ANNUAL TOTAL RETURN ---------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE INDICES - INDICES - CLASS A CLASS A CLASS B CLASS B ---------------------------------------------------------------------------------------------- GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS: Active International Allocation 6.20% 5.46% 4.85% 3.25%(1) Asian Real Estate (0.40) (2.48) (0.68) (2.48)(2) Emerging Markets 6.88 5.91 3.63 1.68(3) European Real Estate 10.15 10.73 9.87 10.73(4) European Value Equity 10.77 9.95 7.77 7.93(5) Global Franchise 19.42 3.96 19.03 3.96(6) Global Value Equity 11.65 7.98 8.57 5.76(6) International Equity 11.14 3.51 11.05 3.25(1) International Magnum 2.99 3.38 2.71 3.38(1) International Small Cap 12.04 4.17 -- --(7) Japanese Value Equity (0.57) (3.69) (0.32) (4.67)(8) Latin American 9.00 6.15 10.55 7.67(9) ---------------------------------------------------------------------------------------------- U.S. EQUITY PORTFOLIOS: Equity Growth* 10.84 10.98 8.48 9.28(10) Focus Equity* 13.82 11.77 10.12 9.28(10) Small Company Growth 13.16 7.10 12.73 3.59(11) Technology* 8.65 7.36 8.43 7.36(12) U.S. Real Estate 15.71 13.29 14.32 12.83(13) Value Equity 10.88 12.31 9.80 10.68(14) ---------------------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO: Emerging Markets Debt 11.36 10.96 12.48 13.27(15) ---------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIOS: Money Market -- -- -- -- Municipal Money Market -- -- -- --
INDICES: (1) MSCI EAFE (Europe, Australasia, and Far East) (2) GPR General Real Estate Securities Index - Far East (3) MSCI Emerging Markets Free (4) GPR General Real Estate Securities Index - Europe (5) MSCI Europe (6) MSCI World (7) MSCI EAFE Small Cap Total Return (8) MSCI Japan (9) MSCI Emerging Markets Free Latin America (10) S&P 500 (11) Russell 2000 Growth (12) NASDAQ Composite (13) National Association of Real Estate Investment Trusts (NAREIT) Equity (14) Russell 1000 Value (15) J.P. Morgan Emerging Markets Bond Global (16) iMoneyNet Money Fund Comparable Yield (17) iMoneyNet Municipal Money Fund Comparable Yield Past performance should not be construed as a guarantee of future performance and assumes that all dividends and distributions, if any, were reinvested. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Investments in the Money Market or Municipal Money Market Portfolios are neither insured nor guaranteed by the Federal Deposit Insurance Corporation. Although the Money Market and Municipal Money Market Portfolios seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these portfolios. Please read the Portfolios' prospectuses carefully before you invest or send money. 5 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
ACTIVE INTERNATIONAL MSCI EAFE ALLOCATION INDEX PORTFOLIO - CLASS A "1993" $ 500,000 $ 500,000 "1994" $ 538,850 $ 497,400 "1995" $ 599,255 $ 549,975 "1996" $ 635,510 $ 603,378 "1997" $ 646,822 $ 655,329 "1998" $ 776,187 $ 787,181 "1999" $ 985,446 $ 1,006,192 "2000" $ 845,791 $ 855,565 "2001" $ 664,453 $ 704,729 "2002" $ 558,539 $ 612,339 "2003" $ 774,080 $ 818,391
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
TOTAL RETURNS(2) ------------------------------------ AVERAGE ANNUAL ---------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ------------------------------------------------------------------- Portfolio - Class A (3) 33.65% 0.76% 5.05% 6.20% Index - Class A 38.59 (0.05) 4.47 5.46 Portfolio - Class B (4) 33.13 0.44 N/A 4.85 Index - Class B 38.59 (0.05) N/A 3.25
(1) The MSCI EAFE Index is an unmanaged index of common stocks in Europe, Australasia and the Far East. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on January 17, 1992 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Active International Allocation Portfolio seeks long-term capital appreciation by investing primarily, in accordance with country and sector weightings determined by the investment adviser, in equity securities of non-U.S. issuers which, in the aggregate, replicate broad market indices. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 33.65% for the Class A shares and 33.13% for the Class B shares compared to 38.59% for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). FACTORS AFFECTING PERFORMANCE - In 2003, global equities posted their strongest gain in over 15 years. The MSCI World index rose more than 33% and every MSCI country (20+) and sector (10) had positive performance. - Given that environment, however, the gains came in spurts. In the first quarter, Europe, Japan, and Hong Kong hit multi-year lows, followed by an amazingly strong second quarter (the Index 19% in U.S. dollars), a third quarter pause (except for Japan and Asia), and then a whopping 31% increase in Germany in the fourth quarter (20% for Europe overall), while Japan ended in line with its second quarter highs. - The Portfolio's overweight position (relative to the Index) in developed Asia, specifically Japan, Hong Kong, and Singapore, detracted from relative returns, while an allocation of roughly 3% of the Portfolio to some of the Asian emerging markets (Thailand, China, and India) somewhat offset this, and contributed to performance. - In Europe, an above benchmark allocation to Germany was positive, but was not enough to overcome the drag from an underweight position in the United Kingdom (18.2%). From a sector perspective, overweight positions in materials and energy added to returns; underweight allocations to financials and telecommunications services detracted from Portfolio performance. MANAGEMENT STRATEGIES - We reduced the Portfolio's overweight position in Asia ex-Japan. - We added to the Portfolio's positions in Continental Europe, particularly France and Germany. This resulted in a large part from a trip to Germany-wherein it became clear from policy leaders (and from the Morgan Stanley Economics team on the ground) that Germany was serious about the reform Agenda 2010. In the fourth quarter, economic growth in Europe steadily accelerated out of its mild first half of 2003 recession and business confidence surveys (e.g. German IFO and Belgian BNB) improved quite dramatically. January 2004 6 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ COMMON STOCKS (84.5%) AUSTRALIA (3.5%) Alumina Ltd. 56,634 $ 280 Amcor Ltd. (c)41,326 257 AMP Ltd. 64,643 243 Ansell Ltd. 6,268 30 Australia & New Zealand Banking Group Ltd. 31,242 415 Australian Gas Light Co., Ltd. 22,603 191 BHP Billiton Ltd. 173,259 1,588 BlueScope Steel Ltd. 42,780 180 Boral Ltd. 13,558 52 Brambles Industries Ltd. (c)48,120 191 Centro Properties Group 14,703 44 CFS Gandel Retail Trust 32,671 33 Coca-Cola Amatil Ltd. 24,502 115 Coles Myer Ltd. 52,212 297 Commonwealth Bank of Australia 25,815 572 CSL Ltd. 6,454 87 CSR Ltd. 24,666 34 Foster's Group Ltd. 99,230 336 General Property Trust 42,779 96 Insurance Australia Group Ltd. 36,721 117 Investa Property Group 27,715 41 James Hardie Industries N.V. 10,751 56 John Fairfax Holdings Ltd. 46,580 123 Leighton Holdings Ltd. 16,450 146 Lend Lease Corp., Ltd. 8,959 68 Macquarie Bank Ltd. 4,516 121 Macquarie Infrastructure Group 92,924 238 Mayne Group Ltd. 43,767 107 Mirvac Group 16,593 54 National Australia Bank Ltd. 31,659 713 Newcrest Mining Ltd. 17,840 174 News Corp., Ltd. 69,032 622 News Corp., Ltd. (Limited Voting Shares) (c)98,153 738 OneSteel Ltd. 18,129 28 Orica Ltd. 14,905 156 Origin Energy Ltd. 15,058 54 PaperlinX Ltd. 20,637 77 Patrick Corp., Ltd. 9,067 100 QBE Insurance Group Ltd. 13,859 110 Rinker Group Ltd. 21,090 104 Rio Tinto Ltd. (c)14,944 418 Santos Ltd. 30,380 157 Sonic Healthcare Ltd. 6,667 35 Southcorp Ltd. 34,621 70 Stockland 25,570 100 Stockland (New) 1,546 6 Suncorp-Metway Ltd. 11,598 108 TABCORP Holdings Ltd. 18,666 158 Telstra Corp., Ltd. 104,925 380 Transurban Group 26,160 88 Wesfarmers Ltd. 18,263 364 Westfield Holdings Ltd. 9,237 97 Westfield Trust 48,057 129 Westfield Trust (New) (a)3,961 10 Westpac Banking Corp. 36,508 $ 439 WMC Resources Ltd. (a)56,887 241 Woodside Petroleum Ltd. 23,173 258 Woolworths Ltd. 48,044 426 ------------------------------------------------------------------------------ 12,472 ============================================================================== AUSTRIA (0.3%) Bank Austria Creditanstalt AG (a)2,579 131 Boehler-Uddeholm AG 464 31 Erste Bank der Oesterreichischen Sparkassen AG 2,087 257 Flughafen Wien AG 751 35 IMMOFINANZ Immobilien Anlagen AG (a)13,458 107 Mayr-Melnhof Karton AG 300 36 OMV AG 946 141 RHI AG (a)1,264 24 Telekom Austria AG (a)13,990 173 VA Technologie AG (a)600 19 Verbund-Oesterreichische Elektrizitaetswirtschafts AG, Class A 250 29 Voestalpine AG 1,531 62 Wienerberger AG (c)2,301 61 ------------------------------------------------------------------------------ 1,106 ============================================================================== BELGIUM (0.7%) AGFA-Gevaert N.V. 7,790 221 Bekaert S.A. 329 21 Dexia (c)37,624 647 Electrabel S.A. 708 222 Fortis 46,259 928 KBC Bankverzekeringsholding (c)3,312 154 Solvay S.A. 2,883 249 UCB S.A. 2,261 85 Umicore 398 28 ------------------------------------------------------------------------------ 2,555 ============================================================================== DENMARK (0.3%) Danske Bank A/S 34,445 806 Group 4 Falck A/S 900 18 ISS A/S 500 25 Novo-Nordisk A/S, Class B 6,900 280 Novozymes A/S, Class B 1,114 41 Vestas Wind Systems A/S (c)1,900 31 ------------------------------------------------------------------------------ 1,201 ============================================================================== FINLAND (0.8%) Fortum Oyj 14,610 150 Kesko Oyj, Class B 558 10 Kone Oyj, Class B 3,046 174 Metso Oyj (c)14,179 173 Nokia Oyj 55,855 963 Outokumpu Oyj 11,667 158 Sampo Oyj, Class A 13,305 137 Stora Enso Oyj, Class R 32,405 435 TietoEnator Oyj 5,556 152 UPM-Kymmene Oyj 24,422 465 Uponor Oyj 957 30
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ FINLAND (CONT'D) Wartsila Oyj, Class B (c)2,976 $ 57 ------------------------------------------------------------------------------ 2,904 ============================================================================== FRANCE (6.7%) Accor S.A. 7,231 326 Air France 3,149 48 Alcatel S.A. (a)(c)18,624 239 Alstom (a)(c)2,427 4 Arcelor 17,133 298 Aventis S.A. (c)25,081 1,653 AXA 48,302 1,031 BNP Paribas S.A. 26,718 1,678 Bouygues S.A. 14,780 515 Business Objects S.A. (a)662 23 Cap Gemini S.A. (a)(c)4,233 187 Carrefour S.A. (c)10,371 568 Casino Guichard Perrachon S.A. (c)1,367 133 Cie de Saint-Gobain 22,364 1,092 CNP Assurances 2,289 119 Credit Agricole S.A. 7,840 187 Dassault Systemes S.A. 828 38 Essilor International S.A. 1,185 61 France Telecom S.A. (a)39,514 1,126 Groupe Danone 2,720 443 Imerys S.A. 610 128 L'Air Liquide S.A. (c)4,180 736 Lafarge S.A. (c)6,223 553 Lagardere S.C.A. (c)4,493 259 LVMH Moet Hennessy Louis Vuitton S.A. 14,391 1,044 Michelin (CGDE), Class B 4,885 224 Peugeot S.A. 6,727 342 Publicis Groupe 3,199 103 Renault S.A. 6,079 418 Sagem S.A. 247 26 Sanofi-Synthelabo S.A. 13,026 978 Schneider Electric S.A. (c)12,513 817 Societe BIC S.A. 1,806 83 Societe Generale 10,233 901 Societe Television Francaise 1 3,990 139 Sodexho Alliance S.A. 4,221 127 Suez S.A. 23,208 465 Technip S.A. 157 17 Thales S.A. 8,154 273 Total S.A., Class B 28,373 5,261 Valeo S.A. 2,635 105 Veolia Environnement 4,022 108 Vinci S.A. 2,953 244 Vivendi Universal S.A. (a)34,142 828 Wanadoo (a)9,345 76 Zodiac S.A. 458 13 ------------------------------------------------------------------------------ 24,037 ============================================================================== GERMANY (6.1%) Adidas-Salomon AG 774 88 Allianz AG 14,119 1,777 Altana AG 1,090 65 BASF AG 23,021 $ 1,291 Bayer AG 27,979 817 Bayerische Hypo-und Vereinsbank AG (a)(c)29,948 691 Beiersdorf AG 3,670 444 Celesio AG (c)1,121 54 Commerzbank AG 35,493 694 Continential AG 4,600 174 DaimlerChrysler AG 30,838 1,435 Deutsche Bank AG (Registered) 26,399 2,182 Deutsche Boerse AG 7,587 414 Deutsche Lufthansa AG (Registered) (c)30,150 502 Deutsche Post AG (Registered) 19,839 408 Deutsche Telekom AG (Registered) (a)80,420 1,468 Douglas Holding AG 878 24 E. ON AG 23,651 1,539 Epcos AG (a)292 7 Fresenius Medical Care AG (c)1,633 116 HeidelbergCement AG (a)1,471 62 Henkel KGaA (Non-Voting Shares) 331 26 KarstadtQuelle AG 814 20 Linde AG 4,461 240 MAN AG 4,599 139 Merck KGaA 1,765 73 Metro AG 2,391 105 Muenchener Rueckversicherungs AG (Registered) 3,478 421 Porsche AG (Non-Voting Shares) 289 171 ProSiebenSat.1 Media AG (Non-Voting Shares) 2,100 35 Puma AG Rudolf Dassler Sport 302 53 RWE AG 12,566 496 SAP AG 4,937 827 Schering AG 4,281 216 Siemens AG (Registered) (c)49,516 3,955 ThyssenKrupp AG (c)13,373 264 TUI AG (c)4,635 96 Volkswagen AG 8,096 450 Volkswagen AG (Non-Voting Shares) 3,949 143 ------------------------------------------------------------------------------ 21,982 ============================================================================== GREECE (0.1%) Alpha Bank A.E. 5,100 154 EFG Eurobank Ergasias S.A. 3,200 62 National Bank of Greece S.A. 8,641 225 Titan Cement Co. S.A. 1,200 49 ------------------------------------------------------------------------------ 490 ============================================================================== HONG KONG (2.9%) Aluminum Corp. of China Ltd. (c)378,000 287 Bank of East Asia Ltd. 65,583 201 Beijing Capital International Airport Co., Ltd. 186,000 64 Beijing Datang Power Generation Co., Ltd., Class H (c)198,000 142 BOC Hong Kong Holdings Ltd. 124,500 234 Cathay Pacific Airways Ltd. 48,000 91 Cheung Kong Holdings Ltd. 70,000 557 Cheung Kong Infrastructure Holdings Ltd. 26,000 58 China Eastern Airlines Corp., Ltd., Class H (a)216,000 37 China Petroleum & Chemical Corp., Class H (c)2,310,000 1,034
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ HONG KONG (CONT'D) China Shipping Development Co., Ltd., Class H 178,000 $ 132 China Southern Airlines Co., Ltd., Class H (a)(c)162,000 69 China Telecom Corp., Ltd. (c)1,106,000 456 CLP Holdings Ltd. 82,300 392 Esprit Holdings Ltd. 41,000 137 Guangshen Railway Co., Ltd. 198,000 56 Hang Lung Properties Ltd. (c)57,000 73 Hang Seng Bank Ltd. (c)33,100 435 Henderson Land Development Co., Ltd. 32,000 141 Hong Kong & China Gas Co., Ltd. 181,079 276 Hong Kong Exchanges & Clearing Ltd. 49,000 106 HongKong Electric Holdings Ltd. 64,500 255 Hopewell Holdings Ltd. 15,000 23 Huadian Power International Co., Class H 335,000 140 Huaneng Power International, Inc., Class H 210,000 364 Hutchison Whampoa Ltd. 102,200 754 Hysan Development Co., Ltd. 11,000 17 Jiangsu Express Co., Ltd., Class H 168,000 89 Jiangxi Copper Co., Ltd., Class H 159,000 88 Johnson Electric Holdings Ltd. 69,000 88 Li & Fung Ltd. 75,000 129 MTR Corp. 63,850 84 New World Development Ltd. 64,179 52 PCCW Ltd. (a)(c)146,411 95 PetroChina Co., Ltd., Class H 2,420,000 1,387 Qingling Motors Co., Class H 170,000 34 SCMP Group Ltd. 18,000 8 Shangri-La Asia Ltd. (c)52,802 50 Sino Land Co. (c)45,466 26 Sinopec Shangai Petrochemical Co., Ltd., Class H 320,000 142 Sinopec Yizheng Chemical Fibre Co., Ltd., Class H 192,000 48 Sinotrans Ltd. 246,000 111 Sun Hung Kai Properties Ltd. 62,000 513 Swire Pacific Ltd., Class A 44,000 271 Techtronic Industries Co. 21,000 58 Television Broadcasts Ltd. 8,000 40 Travelsky Technology Ltd. 43,000 46 Tsingtao Brewing Co., Ltd., Class H 56,000 66 Wharf Holdings Ltd. 57,600 160 Yanzhou Coal Mining Co., Ltd. 140,000 142 Yue Yuen Industrial Holdings Ltd. 22,000 61 Zhejiang Expressway Co., Ltd., Class H (c)197,000 138 ------------------------------------------------------------------------------ 10,457 ============================================================================== INDIA (1.1%) Bajaj Auto Ltd. 3,800 95 Dr. Reddy's Laboratories Ltd. 5,500 172 GAIL India Ltd. 22,300 127 Grasim Industries Ltd. 1,900 42 HDFC Bank Ltd. 10,100 81 Hero Honda Motors Ltd. 8,500 84 Hindalco Industries Ltd. 5,700 176 Hindustan Lever Ltd. 71,500 321 Hindustan Petroleum Corp. 10,200 98 Housing Development Finance Corp. 14,200 $ 200 ICICI Bank, Ltd. 33,300 216 I-Flex Solutions Ltd. 2,100 39 Infosys Technologies Ltd. 3,200 390 ITC Ltd. 7,600 164 Larsen & Toubro Ltd. 23,600 273 Mahanagar Telephone Nigam Ltd. 6,900 21 Maruti Udyog Ltd. (a)4,000 33 Ranbaxy Laboratories Ltd. 7,800 188 Reliance Industries Ltd. 49,300 619 Satyam Computer Services Ltd. 17,300 139 Tata Iron & Steel Co., Ltd. 15,700 153 Tata Motors Ltd. 11,300 112 Wipro Ltd. 1,900 72 ------------------------------------------------------------------------------ 3,815 ============================================================================== IRELAND (0.4%) Allied Irish Banks plc 26,996 431 Bank of Ireland (London Shares) 30,894 420 CRH plc 7,082 145 CRH plc (London Shares) 4,100 84 DCC plc 1,800 24 Grafton Group plc (a)3,800 26 Independent News & Media plc 8,500 20 Irish Life & Permanent plc 5,600 127 ------------------------------------------------------------------------------ 1,277 ============================================================================== ITALY (1.6%) Alleanza Assicurazioni S.p.A. 9,219 101 Assicurazioni Generali S.p.A. 12,129 320 Autogrill S.p.A. (a)3,112 44 Banca Fideuram S.p.A. 4,060 24 Banca Intesa S.p.A. 99,599 388 Banca Intesa S.p.A. RNC 7,091 20 Banca Monte dei Paschi di Siena S.p.A. 7,569 24 Banca Nazionale del Lavoro S.p.A. (a)10,534 25 Banca Popolare di Milano Scrl 2,773 18 Banco Popolare di Verona e Novara Scrl 10,497 177 Benetton Group S.p.A. (c)2,526 29 Enel S.p.A. 39,571 268 ENI S.p.A. 63,879 1,202 Fiat S.p.A. (a)9,237 71 Finmeccanica S.p.A. 64,703 51 Italcementi S.p.A. (c)2,528 32 Mediaset S.p.A. 18,783 223 Mediobanca S.p.A. 6,362 69 Mediolanum S.p.A. 3,051 24 Pirelli & C. S.p.A. 52,675 54 Riunione Adriatica di Sicurta S.p.A. 3,906 66 Sanpaolo IMI S.p.A. 38,756 504 Seat Pagine Gialle S.p.A. (a)60,586 58 Snam Rete Gas S.p.A. 2,328 10 SNIA S.p.A. 7,597 19 Telecom Italia S.p.A. (a)(c)210,889 623 Telecom Italia S.p.A. RNC (a)129,017 262 TIM S.p.A. 77,360 419 Tiscali S.p.A. (a)629 4
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ ITALY (CONT'D) UniCredito Italiano S.p.A. 130,103 $ 700 ------------------------------------------------------------------------------ 5,829 ============================================================================== JAPAN (20.3%) Advantest Corp. 1,590 126 Aeon Co., Ltd. 4,300 144 Ajinomoto Co., Inc. 41,400 475 Alps Electric Co., Ltd. 6,000 88 Amada Co., Ltd. 13,000 68 Asahi Breweries Ltd. 20,800 189 Asahi Glass Co., Ltd. (c)67,800 556 Asahi Kasei Corp. 66,000 358 Asatsu-DK, Inc. 2,200 57 Bellsystem 24, Inc. 130 27 Benesse Corp. 3,200 78 Bridgestone Corp. 49,000 658 Canon, Inc. 31,600 1,469 Casio Computer Co., Ltd. (c)24,800 262 Central Japan Railway Co. 88 759 Chubu Electric Power Co., Inc. 6,500 135 Chugai Pharmaceutical Co., Ltd. 21,100 303 Citizen Watch Co., Ltd. (c)10,000 92 COMSYS Holdings Corp. (a)1,000 6 CSK Corp. (c)2,600 94 Dai Nippon Printing Co., Ltd. 23,600 331 Daicel Chemical Industries Ltd. (c)8,000 33 Daiichi Pharmaceutical Co., Ltd. (c)15,900 286 Daikin Industries Ltd. 9,600 221 Dainippon Ink & Chemicals, Inc. 34,000 65 Daito Trust Construction Co., Ltd. 6,400 190 Daiwa House Industry Co., Ltd. 33,600 357 Daiwa Securities Group, Inc. 165,000 1,120 Denki Kagaku Kogyo KK 22,000 71 Denso Corp. 38,550 758 Dowa Mining Co., Ltd. (c)12,000 64 East Japan Railway Co. 196 922 Ebara Corp. 20,800 90 Eisai Co., Ltd. 16,200 436 Fanuc Ltd. 10,300 616 Fast Retailing Co., Ltd. 300 18 Fuji Photo Film Co., Ltd. 28,000 902 Fuji Television Network, Inc. 10 54 Fujikura Ltd. 10,000 59 Fujisawa Pharmaceutical Co., Ltd. 12,600 268 Fujitsu Ltd. (a)64,200 378 Furukawa Electric Co., Ltd. (c)33,800 112 Hankyu Department Stores, Inc. 2,000 13 Hirose Electric Co., Ltd. 1,200 137 Hitachi Ltd. 111,000 668 Honda Motor Co., Ltd. (c)52,304 2,319 Hoya Corp. 4,100 376 Isetan Co., Ltd. 2,700 30 Ishihara Sangyo Kaisha Ltd. (a)(c)9,000 18 Ishikawajima-Harima Heavy Industries Co., Ltd 42,000 60 Ito-Yokado Co., Ltd. 5,000 157 Itochu Corp. 65,000 214 Japan Airlines System Corp. 51,000 $ 134 Japan Tobacco, Inc. 29 212 JFE Holdings, Inc. 22,700 618 JGC Corp. 7,000 73 JSR Corp. 8,000 178 Kajima Corp. (c)63,400 205 Kaken Pharmaceutical Co., Ltd. 2,000 10 Kaneka Corp. 13,000 97 Kansai Electric Power Co., Inc. (The) 27,000 472 Kao Corp. 36,000 731 Kawasaki Heavy Industries Ltd. (c)42,000 52 Kawasaki Kisen Kaisha Ltd. 3,000 15 Keihin Electric Express Railway Co., Ltd. (c)20,000 117 Keio Electric Railway Co., Ltd. 11,000 57 Keyence Corp. 1,000 210 Kikkoman Corp. 4,000 28 Kinden Corp. 1,000 5 Kintetsu Corp. (a)(c)89,200 268 Kirin Brewery Co., Ltd. (c)58,400 497 Kokuyo Co., Ltd. 3,600 39 Komatsu Ltd. 60,400 383 Konami Corp. 4,900 142 Konica Minolta Holdings, Inc. 7,000 94 Kubota Corp. 85,000 350 Kuraray Co., Ltd. 18,000 152 Kurita Water Industries Ltd. 3,600 43 Kyocera Corp. 6,300 419 Kyowa Hakko Kogyo Co., Ltd. 23,600 150 Kyushu Electric Power Co., Inc. 4,300 74 Lawson, Inc. 200 7 Mabuchi Motor Co., Ltd. 1,100 85 Marubeni Corp. (c)65,000 124 Marui Co., Ltd. 10,300 130 Matsushita Electric Industrial Co., Ltd. 110,000 1,518 Matsushita Electric Works Ltd. (c)7,000 63 Meiji Seika Kaisha Ltd. (c)9,000 36 Meitec Corp. 1,400 54 Millea Holdings, Inc. 72 939 Minebea Co., Ltd. (c)14,000 71 Mitsubishi Chemical Corp. 95,000 247 Mitsubishi Corp. 64,000 677 Mitsubishi Electric Corp. 110,800 459 Mitsubishi Estate Co., Ltd. (c)53,000 502 Mitsubishi Heavy Industries Ltd. 191,000 530 Mitsubishi Logistics Corp. 4,000 33 Mitsubishi Rayon Co., Ltd. 26,000 97 Mitsubishi Tokyo Financial Group, Inc. 272 2,118 Mitsui & Co., Ltd. 67,800 545 Mitsui Chemicals, Inc. 25,000 146 Mitsui Fudosan Co., Ltd. (c)37,400 337 Mitsui Mining & Smelting Co., Ltd. 30,000 124 Mitsui OSK Lines Ltd. 4,000 19 Mitsui Sumitomo Insurance Co., Ltd. 132,000 1,082 Mitsui Trust Holdings, Inc. (a)86,545 483 Murata Manufacturing Co., Ltd. 8,700 469 Namco Ltd. 300 8
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ JAPAN (CONT'D) NEC Corp. 57,400 $ 422 NGK Insulators Ltd. 23,600 176 NGK Spark Plug Co., Ltd. 17,000 138 Nidec Corp. 1,200 114 Nikko Cordial Corp. 54,000 300 Nikon Corp. (a)6,000 90 Nintendo Co., Ltd. 6,400 596 Nippon Express Co., Ltd. 48,800 230 Nippon Meat Packers, Inc. 13,600 133 Nippon Mining Holdings, Inc. 13,000 45 Nippon Oil Corp. 78,800 401 Nippon Sheet Glass Co., Ltd. 19,000 55 Nippon Steel Corp. (c)361,000 773 Nippon Telegraph & Telephone Corp. 376 1,810 Nippon Unipac Holding Corp. 42 216 Nippon Yusen Kabushiki Kaisha 67,000 303 Nissan Chemical Industries Ltd. 8,000 71 Nissan Motor Co., Ltd. 144,700 1,650 Nisshin Seifun Group, Inc. 5,000 44 Nisshinbo Industries, Inc. 4,000 22 Nissin Food Products Co., Ltd. 3,700 92 Nitto Denko Corp. 8,100 430 Nomura Holdings, Inc. 112,000 1,904 NSK Ltd. 40,000 146 NTN Corp. 22,000 105 NTT Data Corp. 58 219 NTT DoCoMo, Inc. 393 889 Obayashi Corp. 30,000 134 OJI Paper Co., Ltd. 66,400 428 Oki Electric Industry Co., Ltd. (a)27,000 105 Olympus Corp. 8,000 173 Omron Corp. 9,500 192 Onward Kashiyama Co., Ltd. 10,000 121 Oracle Corp. Japan 2,100 109 Oriental Land Co., Ltd. 4,000 246 Osaka Gas Co., Ltd. 66,600 180 Pioneer Corp. (c)9,254 255 Ricoh Co., Ltd. 23,000 453 Rohm Co., Ltd. 2,600 304 Sanden Corp. 1,000 6 Sankyo Co., Ltd. 34,600 649 Sanyo Electric Co., Ltd. (c)98,000 511 Secom Co., Ltd. 7,600 283 Sekisui Chemical Co., Ltd. 19,000 97 Sekisui House Ltd. 39,600 408 Seven-Eleven Japan Co., Ltd. 5,000 151 Sharp Corp. 49,200 775 Shimamura Co., Ltd. 400 27 Shimano, Inc. 6,000 124 Shimizu Corp. 48,600 185 Shin-Etsu Chemical Co., Ltd. 16,496 673 Shionogi & Co., Ltd. 21,000 390 Shiseido Co., Ltd. 22,000 267 Showa Denko K.K. 4,000 9 Showa Shell Sekiyu K.K. 9,900 80 Skylark Co., Ltd. (c)7,700 $ 127 SMC Corp. 3,500 435 Softbank Corp. (c)12,900 394 Sompo Japan Insurance, Inc. 48,000 394 Sony Corp. 41,397 1,430 Stanley Electric Co., Ltd. 2,700 52 Sumitomo Bakelite Co., Ltd. 8,000 52 Sumitomo Chemical Co., Ltd. (c)77,600 319 Sumitomo Corp. 42,400 316 Sumitomo Electric Industries Ltd. 31,400 280 Sumitomo Metal Industries Ltd. 17,000 17 Sumitomo Metal Mining Co., Ltd. (c)28,800 213 Sumitomo Realty & Development Co., Ltd. 2,000 18 Sumitomo Trust & Banking Co., Ltd. (The) (c)90,000 528 Taiheiyo Cement Corp. (c)4,000 11 Taisei Corp. 4,000 15 Taisho Pharmaceutical Co., Ltd. 22,800 407 Taiyo Yuden Co., Ltd. 4,000 52 Takara Holdings, Inc. 4,000 37 Takashimaya Co., Ltd. (c)4,000 29 Takeda Chemical Industries Ltd. 61,000 2,415 Takuma Co., Ltd. 4,000 22 TDK Corp. 4,300 309 Teijin Ltd. (c)48,400 142 Teikoku Oil Co., Ltd. 5,000 25 Terumo Corp. 11,700 222 THK Co., Ltd. (c)1,200 24 TIS, Inc. 1,404 47 Tobu Railway Co., Ltd. 48,400 173 Toho Co., Ltd. 3,700 47 Tohoku Electric Power Co., Inc. 13,200 218 Tokyo Broadcasting System, Inc. 7,200 114 Tokyo Electric Power Co., Inc. (The) 38,600 845 Tokyo Electron Ltd. 3,600 273 Tokyo Gas Co., Ltd. 74,600 265 Tokyu Corp. (c)54,400 279 TonenGeneral Sekiyu K.K. 5,000 41 Toppan Printing Co., Ltd. 22,600 235 Toray Industries, Inc. 66,100 276 Toshiba Corp. 117,000 442 Tosoh Corp. 25,000 83 Tostem Inax Holding Corp. 11,000 212 Toto Ltd. 30,600 259 Toyo Seikan Kaisha Ltd. 11,000 153 Toyoba Co., Ltd. 4,000 9 Toyoda Gosei Co., Ltd. 700 20 Toyota Industries Corp. 4,850 103 Toyota Motor Corp. 150,400 5,071 Trend Micro, Inc. (a)(c)2,200 59 UFJ Holdings, Inc. (a)252 1,209 Uni-Charm Corp. 2,300 113 UNY Co., Ltd. 2,000 20 Ushio, Inc. 1,000 17 Wacoal Corp. 4,000 33 West Japan Railway Co. 18 71 World Co., Ltd. (c)1,500 48
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 11 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ JAPAN (CONT'D) Yakult Honsha Co., Ltd. 4,000 $ 62 Yamada Denki Co., Ltd. (c)400 13 Yamaha Corp. 5,400 106 Yamaha Motor Co., Ltd. 2,000 22 Yamanouchi Pharmaceutical Co., Ltd. 27,500 853 Yamato Transport Co., Ltd. 15,000 176 Yamazaki Baking Co., Ltd. (c)4,000 33 Yokogawa Electric Corp. (c)3,000 43 ------------------------------------------------------------------------------ 73,052 ============================================================================== MALAYSIA (0.0%) Media Prima Bhd (A)1 @-- ------------------------------------------------------------------------------ NETHERLANDS (4.7%) ABN AMRO Holding N.V. 68,400 1,596 Aegon N.V. 75,031 1,107 Akzo Nobel N.V. 12,431 479 DSM N.V. 2,246 110 Euronext N.V. 4,100 104 European Aeronautic Defense & Space Co. (c)11,927 283 Hagemeyer N.V. 4,373 10 Heineken N.V. 22,522 855 ING Groep N.V. CVA 54,430 1,266 Koninklijke Philips Electronics N.V. 59,778 1,741 OCE N.V. 873 13 Reed Elsevier N.V. 28,684 355 Royal Dutch Petroleum Co. 99,146 5,213 Royal KPN N.V. (a)65,211 502 TPG N.V. 26,559 620 Unilever N.V. CVA 28,223 1,841 Vedior N.V. CVA 7,702 120 VNU N.V. 7,997 252 Wolters Kluwer N.V. CVA 14,704 229 ------------------------------------------------------------------------------ 16,696 ============================================================================== NEW ZEALAND (0.0%) Carter Holt Harvey Ltd. 50,568 62 Telecom Corp. of New Zealand Ltd. 13,851 49 ------------------------------------------------------------------------------ 111 ============================================================================== NORWAY (0.3%) DNB NOR ASA (c)13,299 89 Norsk Hydro ASA 7,419 456 Norske Skogindustrier ASA 5,600 107 Orkla ASA 7,350 164 Statoil ASA 12,800 143 Tandberg ASA (a)900 7 Tomra Systems ASA 5,453 33 ------------------------------------------------------------------------------ 999 ============================================================================== PORTUGAL (0.1%) Banco Commercial Portugues S.A. (Registered) 31,810 71 Electricidade de Portugal S.A. 15,231 40 Portugal Telecom SGPS S.A. (Registered) 38,617 388 PT Multimedia SGPS S.A. (a)416 8 ------------------------------------------------------------------------------ 507 ============================================================================== RUSSIA (1.0%) LUKOIL ADR 7,100 $ 660 MMC Norilsk Nickel ADR 9,900 645 Mosenergo ADR 22,500 151 OAO Gazprom ADR (Registered) 4,400 112 Rostelecom ADR 6,046 76 Surgutneftegaz ADR 19,100 556 Unified Energy System ADR 36,800 1,027 Vimpel Communications ADR (a)1,400 103 YUKOS ADR 7,973 340 ------------------------------------------------------------------------------ 3,670 ============================================================================== SINGAPORE (0.3%) City Developments Ltd. 6,719 24 ComfortDelgro Corp., Ltd. 31,477 15 Creative Technology Ltd. 670 7 DBS Group Holdings Ltd. 18,612 161 Oversea-Chinese Banking Corp., Ltd. 16,356 117 Overseas Union Enterprise Ltd. 7,468 31 SembCorp Industries Ltd. 29,493 22 Singapore Exchange Ltd. 29,539 29 Singapore Press Holdings Ltd. 8,536 95 Singapore Technologies Engineering Ltd. (c)55,296 66 Singapore Telecommunications Ltd. 144,872 167 United Overseas Bank Ltd. 17,389 135 United Overseas Land Ltd. (London Shares) 28,851 33 Venture Corp., Ltd. 3,444 41 ------------------------------------------------------------------------------ 943 ============================================================================== SPAIN (4.9%) Abertis Infraestructuras S.A. (c)25,082 378 Acciona S.A. 4,707 286 Acerinox S.A. 3,505 165 Actividades de Construccion y Servicios S.A. 16,470 802 Altadis S.A. 16,139 457 Amadeus Global Travel Distribution S.A., Class A (c)29,509 191 Antena 3 Television S.A. (a)875 38 Banco Bilbao Vizcaya Argentaria S.A. (c)148,850 2,050 Banco Popular Espanol S.A. 3,129 186 Banco Santander Central Hispano S.A. 200,193 2,365 Endesa S.A. (c)48,397 928 Fomento de Construcciones y Contratas S.A. (c)11,676 429 Gas Natural SDG S.A. (c)69,465 1,621 Grupo Ferrovial S.A. (c)10,600 370 Iberdrola S.A. (c)41,862 825 Iberia Lineas Aereas de Espana S.A. 108,062 310 Inditex S.A. 3,711 75 Indra Sistemas S.A. 1,725 22 Repsol YPF S.A. (c)61,632 1,199 Sacyr Vallehermoso S.A. 16,652 251 Sociedad General de Aguas de Barcelona S.A. (c)10,447 156 Telefonica S.A. (c)286,710 4,198 Union Fenosa S.A. (c)10,802 202 ------------------------------------------------------------------------------ 17,504 ============================================================================== SWEDEN (2.1%) Alfa Laval AB 1,100 17
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 12 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ SWEDEN (CONT'D) Assa Abloy AB, Class B 12,527 $ 149 Atlas Copco AB, Class A 11,266 403 Atlas Copco AB, Class B 6,099 199 Electrolux AB, Class B 19,600 430 Eniro AB 4,500 43 Holmen AB, Class B (c)4,500 160 Modern Times Group AB, Class B (a)1,200 25 Nordea AB 116,544 874 Sandvik AB (c)21,968 757 SAS AB (a)3,446 33 Securitas AB, Class B 21,940 296 Skandia Forsakrings AB 52,265 190 Skandinaviska Enskilda Banken AB, Class A 17,066 251 Skanska AB, Class B (c)39,051 345 SKF AB, Class B 7,116 275 Svenska Cellulosa AB, Class B 9,572 391 Svenska Handelsbanken, Class A 35,436 724 Svenskt Stal AB, Class A 6,600 118 Swedish Match AB (c)16,700 171 Tele2 AB, Class B (a)3,108 166 Telefonaktiebolaget LM Ericsson, Class B (a)192,717 345 TeliaSonera AB (c)90,587 473 Volvo AB, Class A 5,425 159 Volvo AB, Class B 18,435 563 Wm-Data AB, Class B (a)10,675 23 ------------------------------------------------------------------------------ 7,580 ============================================================================== SWITZERLAND (6.3%) ABB Ltd. (a)42,649 216 Adecco S.A. (Registered) 16,210 1,039 Ciba Specialty Chemicals AG (Registered) (a)3,521 272 Clariant AG (Registered) (a)7,023 103 Compagnie Financiere Richemont AG, Class A 5,272 126 Credit Suisse Group 52,442 1,913 Geberit AG (Registered) 82 40 Givaudan (Registered) 517 268 Holcim Ltd. (Registered) 7,774 361 Kudelski S.A. (a)583 19 Logitech International S.A. (Registered) (a)1,422 61 Lonza Group AG (Registered) 2,102 121 Nestle S.A. (Registered) 11,699 2,914 Novartis AG (Registered) 100,814 4,563 Roche Holding AG 29,906 3,008 Roche Holding AG (Bearer) (c)1,656 229 Schindler Holding AG (a)173 42 Serono S.A. 480 341 SGS S.A. 433 271 Sulzer AG (Registered) 64 17 Swatch Group AG (Registered) 1,389 33 Swatch Group AG, Class B 1,306 157 Swiss Reinsurance (Registered) 9,082 611 Swisscom AG (Registered) 1,430 470 Syngenta AG 5,572 374 UBS AG (Registered) 62,058 4,237 Valora Holding AG 61 15 Zurich Financial Services AG (a)6,085 $ 873 ------------------------------------------------------------------------------ 22,694 ============================================================================== THAILAND (1.8%) Advanced Info Sevice PCL (Foreign) 280,200 598 Bangkok Bank PCL (a)110,800 305 Bangkok Bank PCL (Foreign) (a)213,100 618 BEC World plc (Foreign) (d)28,200 161 Charoen Pokphand Foods PCL (Foreign) (d)702,352 78 Delta Electronics Thai PCL (Foreign) (d)99,600 67 Electricity Generating PCL 53,856 122 Hana Microelectronics Co., Ltd. (Foreign) (d)12,016 38 Kasikornbank PCL (a)178,400 293 Kasikornbank PCL (Foreign) (a)267,261 472 Land & Houses PCL 549,039 170 Land & Houses PCL (Foreign, Registered) 410,436 132 National Finance PCL (Foreign) 201,300 85 PTT Exploration & Production PCL (Foreign) 32,394 219 PTT PCL (Foreign) 233,500 1,019 Sahaviriya Steel Industries PCL (Foreign) (a)(d)132,700 116 Shin Corp. PCL (Foreign) 363,200 357 Siam Cement PCL 53,536 343 Siam Cement PCL (Foreign) 96,600 673 Siam City Bank PCL (Foreign, Registered) 1 @-- Siam City Cement PCL (Foreign) (d)31,400 181 Siam Commercial Bank PCL (Foreign) (a)158,000 215 Tisco Finance PCL (a)(d)120,800 100 ------------------------------------------------------------------------------ 6,362 ============================================================================== UNITED KINGDOM (18.2%) Aegis Group plc 32,384 57 Amec plc 11,260 52 Amersham plc 38,133 521 AstraZeneca plc 61,745 2,955 Aviva plc 27,314 239 BAA plc 56,955 505 BAE Systems plc 278,950 838 Balfour Beatty plc 7,642 30 Barclays plc 165,684 1,474 Barratt Developments plc 7,557 73 BG Group plc 143,482 735 BHP Billiton plc 104,483 910 BOC Group plc 21,576 329 Boots Group plc 21,134 261 BP plc 979,308 7,921 BPB plc 17,017 105 Brambles Industries plc 41,037 149 British Airways plc (a)85,768 356 British American Tobacco plc 51,313 706 British Sky Broadcasting plc (a)59,061 741 BT Group plc 325,805 1,095 Bunzl plc 13,485 103 Cable & Wireless plc 71,129 170 Cadbury Schweppes plc 62,440 457 Capita Group plc 43,838 190 Carlton Communications plc 20,144 83 Carnival plc 6,117 246
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 13 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------ UNITED KINGDOM (CONT'D) Centrica plc 83,632 $ 315 Cobham plc 1,869 39 Compass Group plc 77,314 525 Daily Mail & General Trust 10,063 118 Davis Service Group plc 2,167 14 De La Rue plc 22,562 112 Diageo plc 118,251 1,552 Dixons Group plc 47,304 117 Electrocomponents plc 12,512 73 Emap plc 8,639 132 EMI Group plc 25,217 72 Enterprise Inns plc 6,448 117 Exel plc 13,445 177 FKI plc 8,261 16 Friends Provident plc 30,315 71 GKN plc 33,915 162 GlaxoSmithKline plc 206,909 4,729 Granada plc 98,006 214 GUS plc 30,389 420 Hanson plc 35,093 257 Hays plc 105,486 226 HBOS plc 96,002 1,240 HHG plc CDI (a)64,643 47 Hilton Group plc 58,674 235 HSBC Holdings plc 390,390 6,120 IMI plc 13,001 78 Imperial Chemical Industries plc 51,327 182 Imperial Tobacco Group plc 21,679 426 Intercontinental Hotels Group plc 27,635 261 Invensys plc (a)56,502 18 Johnson Matthey plc 10,252 180 Kelda Group plc 20,058 168 Kesa Electricals plc 6,602 30 Kidde plc 20,295 39 Kingfisher plc 28,883 144 Legal & General Group plc 199,189 357 Lloyds TSB Group plc 141,559 1,132 LogicaCMG plc 24,720 113 Marks & Spencer Group plc 63,235 326 MFI Furniture plc 6,439 17 Misys plc 15,753 60 Mitchells & Butlers plc 27,030 109 National Grid Transco plc 127,197 909 Novar plc 1,882 5 Pearson plc 27,701 308 Peninsular & Oriental Steam Navigation Co. 30,947 127 Persimmon plc 8,213 79 Pilkington plc 25,810 44 Prudential plc 61,262 517 Rank Group plc 24,000 120 Reckitt Benckiser plc 38,453 868 Reed Elsevier plc 43,419 362 Rentokil Initial plc 120,543 409 Reuters Group plc 50,851 213 Rexam plc 20,558 157 Rio Tinto plc 46,082 $ 1,270 RMC Group plc 9,662 120 Rolls-Royce Group plc 131,916 418 Royal & Sun Alliance Insurance Group 17,424 27 Royal Bank of Scotland Group plc 70,853 2,082 Sage Group plc 32,400 102 Sainsbury (J) plc 49,449 276 Scottish & Southern Energy plc 30,772 370 Scottish Power plc 67,436 448 Securicor plc 5,088 9 Serco Group plc 29,265 90 Severn Trent plc 17,743 237 Shell Transport & Trading Co. plc 421,930 3,130 Smith & Nephew plc 20,830 175 Smiths Group plc 16,703 197 Taylor Woodrow plc 5,663 27 Tesco plc 181,288 834 TI Automotive Ltd., Class A (a)(d)1,505 @-- Tomkins plc 15,705 75 Unilever plc 99,804 928 United Business Media plc 10,872 95 Vodafone Group plc 2,814,260 6,960 Whitbread plc 13,339 171 William Hill plc 20,333 155 Wimpey (George) plc 14,900 99 Wolseley plc 30,794 434 WPP Group plc 43,368 425 Yell Group plc 14,084 77 ------------------------------------------------------------------------------ 65,390 ============================================================================== TOTAL COMMON STOCKS (COST $279,550) 303,633 ============================================================================== PREFERRED STOCK (0.0%) THAILAND (0.0%) Siam Commercial Bank PCL (COST $78) (a)74,968 102 ------------------------------------------------------------------------------ TOTAL FOREIGN SECURITIES (84.5%) (COST $279,628) 303,735 ============================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS (18.7%) SHORT-TERM DEBT SECURITIES HELD AS COLLATERAL ON LOANED SECURITIES (8.3%) American Express Credit Corp., 1.17%, 5/17/04 $ 432 432 BETA Finance, Inc., 1.08%, 6/16/04 2,014 2,014 Canadian Imperial Bank NY, 1.11%, 8/3/04 719 719 CC USA, Inc., 1.09%, 2/6/04 720 720 Chase Credit Card Master Trust, 1.18%, 10/15/04 576 576 Credit Industrial et Commercial (CIC)/NY, 1.14%, 2/10/04 748 748 Dorado Finance, Inc., 1.09%, 2/5/04 719 719 Federal National Mortgage Association, 0.96%, 1/29/04 4,316 4,316 Federal National Mortgage Association - Discounted, 1.13%, 4/14/04 635 635 Goldman Sachs & Co., 1.02%, 1/2/04 4,714 4,714 International Credit Card Funding No. 1 Ltd., 1.15%, 3/19/04 1,669 1,669
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 14 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------ SHORT-TERM DEBT SECURITIES HELD AS COLLATERAL ON LOANED (CONT'D) Securities Landesbank Baden Wuerttemberg, 1.50%, 11/19/04 $ 720 $ 720 Links Finance LLC, 1.08%, 6/16/04 719 719 Links Finance LLC, 1.09%, 5/24/04 1,151 1,151 Macquarie Bank Ltd., 1.24%, 6/24/04 633 633 Natexis Banques Populaires NY, 1.15%, 12/20/04 1,150 1,150 Sears Credit Account Master Trust, 1.19%, 10/15/04 1,152 1,152 Societe Generale/London, 1.54%, 11/12/04 719 719 SWIFT 2001, Series A6, 1.16%, 1/15/04 509 509 SWIFT 2001, Series A7, 1.16%, 3/15/04 1,439 1,439 Target Credit Card Master Trust, 1.17%, 7/26/04 1,137 1,137 Wachovia Bank, NA, 1.06%, 11/15/04 1,440 1,440 Wells Fargo Bank, San Francisco NA, 1.06%, 1/30/04 403 403 Westdeutsche Landesbank N.Y., 1.09%, 11/29/04 1,410 1,410 ------------------------------------------------------------------------------ 29,844 ============================================================================== REPURCHASE AGREEMENT (10.4%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $37,390 (f)37,388 37,388 ------------------------------------------------------------------------------ TOTAL SHORT-TERM INVESTMENTS (COST $67,232) 67,232 ============================================================================== FOREIGN CURRENCY (2.6%) Australian Dollar AUD 176 133 British Pound GBP 79 141 Euro EUR 2,148 2,702 Hong Kong Dollar HKD 135 17 Indian Rupee INR 55 1 Japanese Yen JPY 500,536 4,662 Malaysian Ringgit MYR 27 7 Norwegian Krone NOK 28 4 Singapore Dollar SGD 11 7 Swedish Krona SEK 3,755 522 Swiss Franc CHF 1,176 948 Thai Baht THB 296 7 ------------------------------------------------------------------------------ TOTAL FOREIGN CURRENCY (COST $9,070) 9,151 ============================================================================== TOTAL INVESTMENTS (105.8%) (COST $355,930)-- INCLUDING $28,550 OF SECURITIES LOANED 380,118 ============================================================================== AMOUNT AMOUNT (000) (000) ------------------------------------------------------------------------------ OTHER ASSETS (3.9%) Due from Broker $ 7,417 Receivable for Investments Sold 4,439 Net Unrealized Appreciation on Foreign Currency Exchange Contracts 1,020 Receivable for Portfolio Shares Sold 779 Dividends Receivable 310 Foreign Withholding Tax Reclaim Receivable 77 Interest Receivable 1 Other 12 $ 14,055 ------------------------------------------------------------------------------ LIABILITIES (-9.7%) Collateral on Securities Loaned, at Value (29,844) Payable for Investments Purchased (4,471) Investment Advisory Fees Payable (383) Bank Overdraft Payable (104) Payable for Portfolio Shares Redeemed (85) Administrative Fees Payable (48) Custodian Fees Payable (45) Directors' Fees and Expenses Payable (44) Distribution Fees, Class B (4) Other Liabilities (22) (35,050) ------------------------------------------------------------------------------ NET ASSETS (100%) $ 359,123 ============================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 446,821 Undistributed (Distributions in Excess of) Net Investment Income 1,349 Accumulated Net Realized Gain (Loss) (115,652) Unrealized Appreciation (Depreciation) on: Investments 24,188 Foreign Currency Exchange Contracts and Translations 1,047 Futures Contracts 1,370 ------------------------------------------------------------------------------ NET ASSETS $ 359,123 ============================================================================== CLASS A: NET ASSETS $ 353,488 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 36,905,504 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 9.58 ============================================================================== CLASS B: NET ASSETS $ 5,635 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 579,752 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 9.72 ==============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 15 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (a) Non-income producing security. (c) All or portion of security on loan at December 31, 2003. (d) Security was valued at fair value -- At December 31, 2003, the Portfolio held $741,000 of fair valued securities, representing 0.2% of net assets. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. ADR American Depositary Receipts CDI Chess Depositary Interests CVA Certificaten Van Aandelen RNC Non-Convertible Savings Shares FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) --------------------------------------------------------------------------------------------------------- EUR 53 $ 67 1/5/04 US$ 67 $ 67 $ @-- EUR 115 144 1/6/04 US$ 144 144 @-- EUR 36,339 45,618 3/18/04 US$ 44,430 44,430 (1,188) EUR 10,147 12,737 3/18/04 US$ 12,429 12,429 (308) JPY 1,199,882 11,201 3/18/04 US$ 11,220 11,220 19 JPY 897,299 8,377 3/18/04 US$ 8,394 8,394 17 JPY 18,758 175 3/18/04 US$ 175 175 @-- US$ 244 244 1/7/04 EUR 194 245 1 US$ 56,131 56,131 3/18/04 EUR 45,944 57,675 1,544 US$ 16,415 16,415 3/18/04 EUR 13,424 16,852 437 US$ 7,685 7,685 3/18/04 EUR 6,283 7,887 202 US$ 2,630 2,630 3/18/04 EUR 2,154 2,704 74 US$ 1,151 1,151 3/18/04 EUR 944 1,184 33 US$ 1,400 1,400 3/18/04 EUR 1,131 1,420 20 US$ 3,225 3,225 3/18/04 GBP 1,875 3,329 104 US$ 2,337 2,337 3/18/04 GBP 1,350 2,397 60 US$ 3,315 3,315 3/18/04 GBP 1,912 3,395 80 US$ 21,268 21,268 3/18/04 JPY 2,272,361 21,213 (55) US$ 3,415 3,415 3/18/04 JPY 364,931 3,407 (8) US$ 159 159 3/18/04 JPY 17,065 159 @-- US$ 1,956 1,956 3/18/04 JPY 208,955 1,951 (5) US$ 2,341 2,341 3/18/04 JPY 250,270 2,336 (5) US$ 1,797 1,797 3/18/04 JPY 192,280 1,795 (2) --------------- --------------- --------------- $ 203,788 $ 204,808 $ 1,020 =============== =============== ===============
FUTURES CONTRACTS: The Portfolio had the following futures contract(s) open at period end:
NET UNREALIZED NUMBER APPRECIATION OF VALUE EXPIRATION (DEPRECIATION) CONTRACTS (000) DATE 000 ------------------------------------------------------------------------------- LONG: Hang Seng Index (Hong Kong) 22 $ 1,790 Jan-04 $ 4 CAC 40 Index (France) 202 9,076 Mar-04 140 DAX Index (Germany) 125 15,703 Mar-04 374 DJ Euro Stoxx 50 (Germany) 151 5,240 Mar-04 131 FTSE 100 Index (United Kingdom) 118 9,411 Mar-04 255 TOPIX Index (Japan) 119 11,582 Mar-04 466 ------------ $ 1,370 ============
SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------------------------------------------------------------------------- Automobiles $ 12,352 3.4% Beverages 3,816 1.0 Building Products 3,525 1.0 Capital Markets 11,870 3.3 Chemicals 9,474 2.6 Commercial Banks 39,422 11.0 Commercial Services & Supplies 4,312 1.2 Construction & Engineering 3,599 1.0 Diversified Financial Services 3,583 1.0 Diversified Telecommunication Services 15,409 4.3 Electric Utilities 8,516 2.4 Electronic Equipment & Instruments 3,530 1.0 Food Products 7,488 2.1 Household Durables 10,321 2.9 Industrial Conglomerates 5,502 1.5 Insurance 11,024 3.1 Machinery 6,554 1.8 Media 7,585 2.1 Metals & Mining 9,692 2.7 Oil & Gas 31,615 8.8 Pharmaceuticals 23,709 6.6 Wireless Telecommunication Services 9,484 2.6 Other 61,353 17.1 ------------------------------------------------------------------------- $ 303,735 84.5% =========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 16 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) ASIAN REAL ESTATE PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
"ASIAN REAL ESTATE PORTFOLIO "ASIAN REAL ESTATE PORTFOLIO "GPR GENERAL REAL ESTATE SECURITIES INDEX -CLASS A" -CLASS B" -FAR EAST"(1) "*" $ 500,000 $ 100,000 $ 500,000 "1997" $ 400,400 $ 80,300 $ 330,450 "1998" $ 353,073 $ 70,238 $ 296,711 "1999" $ 438,764 $ 87,011 $ 357,418 "2000" $ 453,857 $ 89,874 $ 356,596 "2001" $ 386,187 $ 76,231 $ 309,918 "2002" $ 341,582 $ 67,297 $ 289,804 "2003" $ 487,643 $ 95,844 $ 427,259
* Commenced operations on October 1, 1997 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different fees assessed to that class. The GPR General Real Estate Securities Index - Far East value at December 31, 2003 assumes a minimum investment of $500,000; if a minimum initial investment of $100,000 (the minimum investment for Class B shares) is assumed, the value at December 31, 2003 would be $85,452. PERFORMANCE COMPARED TO THE GPR GENERAL REAL ESTATE SECURITIES INDEX - FAR EAST(1)
TOTAL RETURNS(2) --------------------------- AVERAGE ANNUAL ------------------- ONE FIVE SINCE YEAR YEARS INCEPTION ------------------------------------------------------------- Portfolio - Class A (3) 42.76% 6.67% (0.40)% Portfolio - Class B (3) 42.42 6.42 (0.68) Index 47.43 7.57 (2.48)
(1) The GPR General Real Estate Securities Index - Far East is a market capitalization weighted index measuring total return of listed property/real estate securities in the Far East. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on October 1, 1997 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Asian Real Estate Portfolio seeks to provide long-term capital appreciation by investing primarily in equity securities of companies in the Asian real estate industry. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. The Portfolio's concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified and the value of its shares may be substantially affected by economic events in the real estate industry. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 42.76% for the Class A shares and 42.42% for the Class B shares compared to 47.43% for the GPR General Real Estate Securities Index - Far East (the "Index"). FACTORS AFFECTING PERFORMANCE - In 2003, the reversal of sentiment and return of confidence in the Hong Kong and Japanese property markets led to a powerful rally in real estate stocks in the third quarter. - Our Portfolio has underperformed the Index as property stocks in Asia performed poorly due to economic and political concerns, SARS, and negative effects from the Iraq war. - Security selection detracted from performance. The fundamentally backed large cap property names were being sold off in the first half of 2003 due to economic and SARS concerns. Conversely, the large-cap stable companies rallied significantly less than the highly leveraged mid to small cap property companies when sentiments rebounded in the third quarter. - From a country allocation perspective, our underweight in Australia and New Zealand detracted from performance as strong gains in the domestic currencies significantly lifted total returns from the listed property trust sector. Our underweight in property stocks in Malaysia and the Philippines detracted from performance as domestic liquidity drove up share prices despite weak fundamentals. MANAGEMENT STRATEGIES - In 2003, we were overweight the Hong Kong property developers and investors and the Japanese property majors as their valuations were trading at or near historical lows and presented compelling investment opportunities. We were underweight the diversified and office property trusts in Australia as we believed stocks were trading at par to their net asset value. January 2004 17 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS ASIAN REAL ESTATE PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (101.5%) AUSTRALIA (22.0%) Centro Properties Group 14,896 $ 45 CFS Gandel Retail Trust 43,200 43 Deutsche Office Trust 15,500 13 General Property Trust 47,710 107 Investa Property Group 55,070 81 Macquarie Goodman Industrial Trust 14,300 18 Mirvac Group 18,705 61 Stockland 26,255 103 Stockland (New) 790 3 Westfield Holdings Ltd. 3,600 38 Westfield Trust 51,566 138 Westfield Trust (New) (a)1,713 5 ------------------------------------------------------------------------------------------- 655 =========================================================================================== HONG KONG (46.9%) Cheung Kong Holdings Ltd. 4,000 32 Hang Lung Properties Ltd. 82,000 105 Henderson Land Development Co., Ltd. 67,000 296 Hongkong Land Holdings Ltd. 56,000 95 Hysan Development Co., Ltd. 31,166 48 Kerry Properties Ltd. 42,000 55 New World Development Ltd. 75,000 60 Sino Land Co. 96,014 55 Sun Hung Kai Properties Ltd. 61,000 505 Wharf Holdings Ltd. 52,000 144 ------------------------------------------------------------------------------------------- 1,395 =========================================================================================== JAPAN (25.3%) Daibiru Corp. 3,000 16 Japan Real Estate Investment Corp. REIT 4 25 Japan Retail Fund Investment Corp. REIT 3 19 Mitsubishi Estate Co., Ltd. 34,000 322 Mitsui Fudosan Co., Ltd. 25,000 226 Nippon Building Fund, Inc. REIT 5 32 Sumitomo Realty & Development Co., Ltd. 13,000 114 ------------------------------------------------------------------------------------------- 754 =========================================================================================== SINGAPORE (6.3%) CapitaLand Ltd. 64,500 59 City Developments Ltd. 5,000 18 Fortune Real Estate Investment Trust REIT (a)61,000 38 Keppel Land Ltd. 23,000 21 United Overseas Land Ltd. 16,000 18 Wing Tai Holdings Ltd. 70,000 34 ------------------------------------------------------------------------------------------- 188 =========================================================================================== THAILAND (1.0%) Land & Houses PCL (Foreign) 94,600 30 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $2,581) 3,022 =========================================================================================== TOTAL FOREIGN SECURITIES (101.5%) (COST $2,581) 3,022 =========================================================================================== AMOUNT AMOUNT (000) (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (3.8%) Receivable for Investments Sold $ 95 Dividends Receivable 9 Due from Investment Adviser 9 $ 113 ------------------------------------------------------------------------------------------- LIABILITIES (-5.3%) Bank Overdraft Payable (93) Payable for Portfolio Shares Redeemed (53) Custodian Fees Payable (4) Administrative Fees Payable (2) Other Liabilities (8) (160) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 2,975 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 4,864 Undistributed (Distributions in Excess of) Net Investment Income (105) Accumulated Net Realized Gain (Loss) (2,225) Unrealized Appreciation (Depreciation) on: Investments 441 ------------------------------------------------------------------------------------------- NET ASSETS $ 2,975 =========================================================================================== CLASS A: NET ASSETS $ 2,962 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 390,534 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 7.58 =========================================================================================== CLASS B: NET ASSETS $ 13 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,751 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 7.70 ===========================================================================================
(a) Non-income producing security. @ Face Amount/Value is less than $500. REIT Real Estate Investment Trust THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 18 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) ASIAN REAL ESTATE PORTFOLIO FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ------------------------------------------------------------------------------------------- AUD 41 $ 31 1/5/04 US$ 31 $ 31 $ @-- HKD 324 42 1/5/04 US$ 42 42 @-- JPY 536 5 1/5/04 US$ 5 5 @-- JPY 1,902 18 1/7/04 US$ 18 18 @-- ------------- ----------- --------------- $ 96 $ 96 $ @-- ============= =========== ===============
AUD -- Australian Dollar HKD -- Hong Kong Dollar JPY -- Japanese Yen SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------------------------------------------------------------------------- Diversified Financial Services $ 144 4.8% Household Durables 30 1.0 Media 60 2.0 Real Estate 2,788 93.7 ------------------------------------------------------------------------- $ 3,022 101.5% =========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 19 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) EMERGING MARKETS PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
"MSCI EMERGING MARKETS FREE INDEX"(1) "EMERGING MARKETS PORTFOLIO-CLASS A" "1993" $ 500,000 $ 500,000 "1994" $ 463,400 $ 451,875 "1995" $ 439,257 $ 394,193 "1996" $ 465,744 $ 442,261 "1997" $ 411,764 $ 437,728 "1998" $ 307,423 $ 326,479 "1999" $ 511,583 $ 658,783 "2000" $ 354,987 $ 405,646 "2001" $ 345,687 $ 387,736 "2002" $ 324,358 $ 363,561 "2003" $ 505,414 $ 563,810
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE INDEX(1)
TOTAL RETURNS(2) ------------------------------------------ AVERAGE ANNUAL ------------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ----------------------------------------------------------------------- Portfolio - Class A (3) 55.08% 11.28% 1.09% 6.88% Index - Class A 55.82 10.45 0.11 5.91 Portfolio - Class B (4) 54.31 11.25 N/A 3.63 Index - Class B 55.82 10.45 N/A 1.68
(1) The MSCI Emerging Markets Free Index is a market capitalization weighted index comprised of companies that are representative of the market structure of developing countries in Latin America, Asia, Eastern Europe, the Middle East and Africa. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on September 25, 1992 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Emerging Markets Portfolio seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of issuers in emerging market countries. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. In addition, investing in emerging markets may involve a relative higher degree of volatility. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 55.08% for the Class A shares and 54.31% for the Class B shares compared with 55.82% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index (the "Index"). FACTORS AFFECTING PERFORMANCE - Global emerging markets rebounded from early year weakness to return 55.8% during the period in review. The region benefited from a bounce in investor sentiment following the successful U.S. campaign in Iraq, accommodative global monetary policy and a recovery in global growth. - All emerging market regions experienced strong double-digit gains with particular strength in Latin America as Brazil outperformed given reduced political and debt concerns. Asia also performed well as the threat of SARS eased for most markets in the region at mid-year, while strong domestic demand and export growth continued for select countries, notably Thailand, Indonesia, and India. Meanwhile, commodity and oil-producing countries continued to benefit from still firm prices. - In terms of relative performance, positive contributors came from the Portfolio's holdings in India, Russia, South Korea and Indonesia and from overweight positions in outperforming countries such Turkey, Thailand, and Indonesia. - Stock selection in Brazil, China, and Israel coupled with underweight positions in Chile and China were the largest detractors to relative performance. 20 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) EMERGING MARKETS PORTFOLIO MANAGEMENT STRATEGIES - We continued to focus on countries where gross domestic product growth, fiscal policy, and reform agendas remained strong, and on companies with strong management and earnings visibility. - In 2003, we continued to increase our overweight position in Turkey and Thailand while moving to a neutral position in South Africa (reduced overweight) and China (closed underweight). Going into 2004, the Portfolio's key overweight positions were in Turkey, Russia, Thailand, and Indonesia given better valuations and earning growth opportunities. - Brazil and Mexico remained neutral positions. Taiwan, after further reducing our exposure in technology related names, is now an underweight. Malaysia, South Korea, Israel, and Chile remain the largest underweight countries in the Portfolio. January 2004 21 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS EMERGING MARKETS PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (96.0%) (UNLESS OTHERWISE NOTED) ARGENTINA (0.2%) Tenaris S.A. ADR (a)(c)67,000 $ 2,232 ------------------------------------------------------------------------------------------- BRAZIL (9.2%) AmBev ADR (Preferred) 479,710 12,237 Aracruz Celulose S.A. ADR 131,200 4,597 Banco Bradesco S.A. (Preferred) 338,794,000 1,781 Banco Bradesco S.A. ADR (c)105,600 2,789 Banco Itau Holding Financeira S.A. (Preferred) 10,437,269 1,036 Banco Itau Holding Financeira S.A. ADR 135,516 6,609 Banco Nacional S.A. (Preferred) (a)(d)295,998,880 @-- CEMIG S.A. (Preferred) 120,704,000 2,202 CEMIG S.A. ADR (Preferred) (c)144,600 2,661 Cia Brasileira de Distribuicao Grupo Pao de Acucar ADR 129,600 3,259 CSN S.A. ADR (c)71,000 3,806 CVRD ADR (c)11,210 656 CVRD ADR (Preferred) (c)306,097 15,767 Lojas Arapua S.A. (Preferred) (a)(d)119,019,000 @-- Lojas Arapua S.A. GDR (a)(d)120,830 @-- Petrobras S.A. (Preferred) 28,943 765 Petrobras S.A. ADR (c)362,875 10,610 Petrobras S.A. ADR (Preferred) 579,598 15,452 Telesp Celular Participacoes S.A. (Preferred) (a)1,021,119,000 2,673 Telesp Celular Participacoes S.A. ADR (a)(c)221,400 1,457 Unibanco GDR (c)182,000 4,541 Votorantim Celulose e Papel S.A. ADR (c)147,300 4,618 ------------------------------------------------------------------------------------------- 97,516 =========================================================================================== CHINA/HONG KONG (7.0%) Asia Aluminum Holdings Ltd. 7,586,000 1,505 AviChina Industry & Technology Co., Class H (a)8,209,000 1,734 Byd Co., Ltd., Class H (c)1,682,000 4,431 China Life Insurance Co., Ltd. (a)7,028,000 5,748 China Merchants Holdings International Co., Ltd. 1,832,000 2,419 China Oilfield Services Ltd., Class H (c)12,923,000 4,578 China Petroleum & Chemical Corp., Class H 9,344,000 4,182 China Resources Power Holdings Co. (a)2,579,000 1,204 China Shipping Development Co., Ltd., Class H (c)5,204,000 3,854 China Telecom Corp., Ltd. 5,787,000 2,385 China Unicom Ltd. (c)2,646,000 2,471 CNOOC Ltd. 6,274,000 12,284 Fountain Set Holdings Ltd. (c)3,863,000 2,637 Grande Holdings Ltd. 1,407,000 1,803 Hopewell Highway Infrastructure Ltd. (a)5,009,000 2,839 Huaneng Power International, Inc., Class H 2,384,000 4,130 Kingboard Chemicals Holdings (c)1,479,000 2,276 Lianhua Supermarket Holdings Co., Ltd. (a)388,000 410 Moulin International Holdings Ltd. 1,162,000 771 Norstar Founders Group Ltd. (a)2,915,000 $ 939 PetroChina Co., Ltd., Class H 5,720,000 3,279 PICC Property & Casualty Co., Ltd. (a)2,804,000 1,255 Shougang Concord Century Holdings Ltd. 12,407,000 1,822 TPV Technology Ltd. 7,770,000 4,118 Victory City International Holdings 1,785,000 782 Wumart Stores, Inc. (a)377,000 369 ------------------------------------------------------------------------------------------- 74,225 =========================================================================================== EGYPT (1.2%) Commercial International Bank 55,958 200 MobiNil 281,390 3,435 Orascom Construction Industries 734,731 8,642 ------------------------------------------------------------------------------------------- 12,277 =========================================================================================== HUNGARY (0.8%) Gedeon Richter Rt. 57,434 6,736 Matav Rt. ADR (c)94,292 1,764 ------------------------------------------------------------------------------------------- 8,500 =========================================================================================== INDIA (5.9%) Bharat Heavy Electricals Corp. 536,465 5,973 Colgate-Palmolive (India) Ltd. 339,029 1,186 Container Corp. of India Ltd. 234,619 3,422 GlxoSmithKline Pharmaceuticals Ltd. 103,000 1,298 Gujarat Ambuja Cements Ltd. 366,939 2,444 Hero Honda Motors Ltd. 262,075 2,578 Hindalco Industries Ltd. 69,980 2,160 Hindustan Lever Ltd. 455,260 2,043 Hindustan Petroleum Corp. 226,000 2,167 Housing Development Finance Corp. 70 1 India Info.com PCL (d)393,611 @-- Industrial Development Bank of India 1,698,000 2,311 Infosys Technologies Ltd. 47,734 5,821 ITC Ltd. 108,000 2,331 Morgan Stanley Growth Fund (a)(k)17,282,900 6,390 Oil & Natural Gas Corp., Ltd. 157,500 2,760 Ranbaxy Laboratories Ltd. 124,604 2,999 Reliance Industries Ltd. 241,700 3,036 State Bank of India Ltd. (d)318,152 4,256 Steel Authority of India Ltd. (a)1,984,082 2,222 Tata Iron & Steel Co., Ltd. 340,030 3,309 Tata Motors Ltd. 426,914 4,232 ------------------------------------------------------------------------------------------- 62,939 =========================================================================================== INDONESIA (3.1%) Astra International Tbk PT 10,780,269 6,400 Bank Central Asia Tbk PT 7,178,000 2,834 Bank Mandiri Persero Tbk PT (a)16,513,000 1,960 Bank Rakyat Indonesia (a)17,086,500 2,536 Bumi Resources Tbk PT 61,799,000 3,669 HM Sampoerna Tbk PT 4,594,500 2,441 Indocement Tunggal Prakarsa Tbk PT (a)9,786,500 2,469 Ramayana Lestari Sentosa Tbk PT 8,592,500 4,438 Telekomunikasi Indonesia Tbk PT 8,153,000 6,534 ------------------------------------------------------------------------------------------- 33,281 =========================================================================================== ISRAEL (1.0%) Check Point Software Technologies Ltd. (a)572,784 9,634
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 22 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EMERGING MARKETS PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- ISRAEL (CONT'D) ECI Telecom Ltd. (a)248,952 $ 1,427 ------------------------------------------------------------------------------------------- 11,061 =========================================================================================== JORDAN (0.1%) Arab Bank plc 3,090 1,329 ------------------------------------------------------------------------------------------- MALAYSIA (1.4%) Astro All Asia Networks plc (a)(d)724,000 842 Commerce Asset Holdings Bhd 1,909,000 2,060 Magnum Corp. Bhd 4,301,000 3,147 Malayan Banking Bhd 1,096,500 2,785 Resorts World Bhd 774,000 2,057 SP Setia Bhd 2,630,999 2,423 YTL Corp. Bhd 1,531,000 1,740 ------------------------------------------------------------------------------------------- 15,054 =========================================================================================== MEXICO (6.6%) America Movil S.A. de C.V., ADR 749,403 20,489 Cemex S.A. de C.V. 117,300 615 Cemex S.A. de C.V., ADR (c)177,700 4,656 Coca-Cola Femsa S.A. ADR (a)(c)87,000 1,848 Grupo Aeroportuario del Sureste S.A. de C.V., ADR 139,390 2,453 Grupo Financiero BBVA Bancomer S.A. de C.V., ADR (a)(c)30,500 521 Grupo Financiero BBVA Bancomer S.A. de C.V., Class B (a)7,260,353 6,222 Grupo Televisa S.A. ADR 163,500 6,517 Telmex, Class L ADR (c)479,468 15,837 Wal-Mart de Mexico S.A. de C.V., ADR (c)77,822 2,218 Wal-Mart de Mexico S.A. de C.V., Class C 1,664,042 4,464 Wal-Mart de Mexico S.A. de C.V., Class V 1,325,344 3,790 ------------------------------------------------------------------------------------------- 69,630 =========================================================================================== PERU (0.7%) Cia de Minas Buenaventura S.A. ADR 249,700 7,062 ------------------------------------------------------------------------------------------- POLAND (0.1%) Eastbridge N.V. (d)33,400 1,336 ------------------------------------------------------------------------------------------- RUSSIA (7.3%) Alliance Cellulose Ltd. (d)592,359 @-- LukOil ADR (c)173,934 16,176 MMC Norilsk Nickel ADR (c)371,300 24,190 Mobile Telesystems 63,700 5,048 Mobile Telesystems ADR (c)45,000 3,726 OAO Gazprom ADR (Registered) 327,440 8,481 Surgutneftegaz ADR (c)466,089 13,563 Surgutneftegaz ADR (Preferred) (c)119,090 4,603 YUKOS ADR (a)33,682 1,405 ------------------------------------------------------------------------------------------- 77,192 =========================================================================================== SOUTH AFRICA (13.6%) ABSA Group Ltd. 541,100 3,408 African Bank Investments Ltd. 4,878,400 6,883 African Life Assurance Co., Ltd. 2,354,600 5,384 Anglo American Platinum Corp., Ltd. 86,500 3,769 Anglo American plc (London Shares) 369,491 7,963 Anglo American plc 1,363,047 29,131 AngloGold Ltd. 98,000 4,599 AngloGold Ltd. ADR (c)48,273 2,254 Edgars Consolidated Stores Ltd. 163,800 $ 3,121 FirstRand Ltd. 7,223,890 9,630 Gold Fields Ltd. 586,080 8,365 Harmony Gold Mining Co., Ltd. 123,900 2,009 Impala Platinum Holdings Ltd. 100,038 8,672 Massmart Holdings Ltd. 571,900 2,607 MTN Group Ltd. (a)2,592,350 11,023 Naspers Ltd. 421,000 2,612 Pretoria Portland Cement Co., Ltd. 8,800 189 Shoprite Holdings Ltd. 1,769,562 2,473 Standard Bank Group Ltd. 2,563,780 15,013 Steinhoff International Holdings Ltd. 1,794,000 2,051 Telkom S.A. Ltd. 1,293,330 13,424 Telkom S.A. Ltd. ADR 3,200 135 ------------------------------------------------------------------------------------------- 144,715 =========================================================================================== SOUTH KOREA (16.0%) Cheil Industries, Inc. 180,870 2,624 Daewoo Shipbuilding & Marine Engineering Co., Ltd. (a)579,370 7,433 Daishin Securities Co., Ltd. 344,420 5,054 Daishin Securities Co., Ltd. (Preferred) 110,920 795 Good Morning Shinhan Securities Co., Ltd. (a)505,340 2,331 Handsome Co., Ltd. 372,290 3,778 Hankook Tire Co., Ltd. 549,340 4,146 Honam Petrochemical Corp. 110,800 5,714 Hyundai Department Store Co., Ltd. (a)248,200 8,096 Hyundai Mobis 253,510 13,627 Kookmin Bank Ltd. 132,120 4,947 KT&G Corp. 225,070 3,907 LG Card Co., Ltd. (a)85,389 218 LG Investment & Securities Co., Ltd. 408,120 2,841 Orion Corp. 47,830 3,506 POSCO 8,163 1,116 Samsung Electronics Co., Ltd. 139,543 52,775 Samsung Electronics Co., Ltd. (Preferred) 25,940 5,340 Samsung SDI Co., Ltd. 249,070 29,345 Shinhan Financial Group Co., Ltd. 198,330 3,168 SK Telecom Co., Ltd. 28,850 4,814 STX Corp. 17,970 138 STX Shipbuilding Co., Ltd. 262,980 3,495 ------------------------------------------------------------------------------------------- 169,208 =========================================================================================== TAIWAN (10.2%) Acer, Inc. 2,309,207 3,434 Asia Optical Co., Inc. 1,013,200 6,981 Catcher Technology Co., Ltd. 524,000 1,890 Chinatrust Financial Holding Co., Ltd. 5,974,972 6,000 CTCI Corp. 3,643,000 2,950 Cyberlink Corp. 516,000 2,127 Eva Airways Corp. 4,473,069 1,824 Evergreen Marine Corp. 5,958,700 5,194 Fubon Financial Holding Co., Ltd. 3,879,000 3,712 Grand Hall Enterprise Co., Ltd. 163,000 754 HON HAI Precision Industry Co., Ltd. 1,778,560 6,992 Infortrend Technology, Inc. 892,900 2,932 Kaulin Manufacturing Co., Ltd. 1,055,000 1,528 Largan Precision Co., Ltd. 442,580 4,301
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 23 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EMERGING MARKETS PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- TAIWAN (CONT'D) MediaTek, Inc. 835,000 $ 7,844 Nan Ya Plastic Corp. 2,712,860 3,914 Novatek Microelectronics Corp., Ltd. 907,400 2,565 Phoenixtec Power Co., Ltd. 3,048,355 3,573 Pihsiang Machinery Manufacturing Co., Ltd. 172,200 598 Polaris Securities Co., Ltd. (a)10,346,120 4,844 Sunplus Technology Co., Ltd. 1,077,000 2,014 Taishin Financial Holdings Co., Ltd. 4,210,000 3,112 Taiwan Cellular Corp. 3,777,000 3,281 Taiwan Cement Corp. 12,485,940 6,140 Taiwan Navigation Co., Ltd. 3,340,040 2,213 Taiwan Semiconductor Manufacturing Co., Ltd. (a)1,613,010 3,016 Waffer Technology Co., Ltd. 1,309,000 3,989 Ya Hsin Industrial Co., Ltd. 5,139,000 6,643 Yuanta Core Pacific Securities Co. 4,376,495 2,616 Zyxel Communications Corp. 860,200 1,798 ------------------------------------------------------------------------------------------- 108,779 =========================================================================================== THAILAND (5.5%) Asian Property Development PCL (d)5,409,100 785 Bangkok Bank PCL (Foreign) (a)(c)4,663,300 13,534 Banpu PCL (Foreign) (d)344,000 1,111 BEC World PCL (Foreign) (d)205,900 1,174 CP Seven Eleven PCL (Foreign) (a)738,500 1,044 Italian-Thai Development PCL (Foreign) (a)(d)1,740,800 6,063 Kasikornbank PCL (Foreign) (a)(c)2,916,900 5,153 Kasikornbank PCL NVDR (a)(c)2,719,100 4,461 Land & Houses PCL (Foreign, Registered) (c)15,981,900 5,122 MBK PCL (Foreign) (d)28,600 36 PTT PCL (Foreign) 588,600 2,570 Ratchaburi Electricity Generating Holding PCL (Foreign) (d)1,063,600 1,315 Siam Cement PCL (The) NVDR (a)1,228,600 7,876 Siam Commercial Bank PCL (Foreign, Registered) (a)2,497,000 3,403 Sino Thai Engineering & Construction PCL (Foreign) (a)(d)2,269,700 1,180 Thai Airways International (Foreign) (d)1,516,200 1,751 Thai Olefins PCL (a)(d)440,000 811 Thai Plastics & Chemical Co. (Foreign) (d)240,200 1,188 ------------------------------------------------------------------------------------------- 58,577 =========================================================================================== TURKEY (5.9%) Akbank T.A.S. 1,110,072,529 5,817 Akcansa Cimento A.S. 1,468,456,750 4,214 Arcelik A.S. 957,573,750 5,325 Enka Insaat ve Sanayi A.S. 166,662,914 4,337 Ford Otomotive Sanayii A.S. (a)83,573,000 560 Hurriyet Gazetecilik ve Matbaacilik A.S. (a)1,871,012,000 6,670 Migros Turk T.A.S. (Registered) 65,726,000 942 Tofas Turk Otomobil Fabrikasi A.S. (a)1,518,099,285 3,355 Trakya Cam Sanayii A.S. 1,049,837,826 2,320 Turkcell Iletisim Hizmet A.S. (a)647,257,000 6,460 Turkiye Garanti Bankasi A.S. (a)2,886,828,000 8,439 Turkiye IS Bankasi, Class C (a)2,579,871,360 10,484 Yapi Ve Kredi Bankasi A.S. (a)1,652,946,000 $ 3,418 ------------------------------------------------------------------------------------------- 62,341 =========================================================================================== VENEZUELA (0.2%) CANTV ADR 152,065 2,321 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $780,651) 1,019,575 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- FIXED INCOME SECURITIES (1.4%) INDIA (0.0%) DCM Shriram Industries Ltd. INR (b)(d)677 @-- Saurashtra Cement & Chemicals Ltd. (b)(d)700 @-- ------------------------------------------------------------------------------------------- @-- =========================================================================================== RUSSIA (1.4%) Mustcom Ltd. $ (d)(e)66,270 15,242 ------------------------------------------------------------------------------------------- TOTAL FIXED INCOME SECURITIES (COST $62,480 ) 15,242 =========================================================================================== TOTAL FOREIGN SECURITIES (97.4%) (COST $843,131 ) 1,034,817 =========================================================================================== SHORT-TERM INVESTMENTS (13.1%) SHORT-TERM DEBT SECURITIES HELD AS COLLATERAL ON LOANED SECURITIES (10.7%) American Express Credit Corp., 1.17%, 5/17/04 1,640 1,640 BETA Finance, Inc., 1.08%, 6/16/04 7,648 7,648 Canadian Imperial Bank NY, 1.11%, 8/3/04 2,732 2,732 CC USA, Inc., 1.09%, 2/6/04 2,732 2,732 Chase Credit Card Master Trust, 1.18%, 10/15/04 2,187 2,187 Credit Industrial et Commercial (CIC)/NY, 1.14%, 2/10/04 2,841 2,841 Dorado Finance, Inc., 1.09%, 2/5/04 2,732 2,732 Federal National Mortgage Association, 0.96%, 1/29/04 16,391 16,391 Federal National Mortgage Association - discounted, 1.13%, 4/14/04 2,409 2,409 Goldman Sachs & Co., 1.02%, 1/2/04 17,900 17,900 International Credit Card Funding No. 1 Ltd., 1.15%, 3/19/04 6,339 6,339 Landesbank Baden Wuerttemberg, 1.50%, 11/19/04 2,735 2,735 Links Finance LLC, 1.08%, 6/16/04 2,732 2,732 Links Finance LLC, 1.09%, 5/24/04 4,371 4,371 Macquarie Bank Ltd., 1.24%, 6/24/04 2,405 2,405 Natexis Banques Populaires NY, 1.15%, 12/20/04 4,368 4,368 Sears Credit Account Master Trust, 1.19%, 10/15/04 4,376 4,376 Societe Generale/London, 1.54%, 11/12/04 2,732 2,732 SWIFT 2001, Series A6, 1.16%, 1/15/04 1,934 1,934 SWIFT 2001, Series A7, 1.16%, 3/15/04 5,465 5,465 Target Credit Card Master Trust, 1.17%, 7/26/04 4,319 4,319 Wachovia Bank, NA, 1.06%, 11/15/04 5,468 5,468 Wells Fargo Bank, San Francisco NA, 1.06%, 1/30/04 1,530 1,530
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 24 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EMERGING MARKETS PORTFOLIO
FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------------------- SHORT-TERM DEBT SECURITIES HELD AS COLLATERAL ON LOANED SECURITIES (CONT'D) Westdeutsche Landesbank N.Y., 1.09%, 11/29/04 $ 5,353 $ 5,353 ------------------------------------------------------------------------------------------- 113,339 =========================================================================================== REPURCHASE AGREEMENT (2.4%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $25,587 (f)25,586 25,586 ------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $138,925 ) 138,925 =========================================================================================== FOREIGN CURRENCY (0.2%) Brazilian Real BRL 561 194 British Pound GBP 2 3 Egyptian Pound EGP 628 102 Euro EUR 131 165 Hong Kong Dollar HKD 2 @-- Hungarian Forint HUF 917 4 Indian Rupee INR 40,200 882 Isreali Shekel ILS 78 18 Malaysian Ringgit MYR 535 141 Polish Zloty PLN 101 27 South African Rand ZAR 738 110 South Korean Won KRW 1,482 1 Taiwan Dollar TWD 21,065 620 Turkish Lira TRL 19,683,163 14 ------------------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $2,275) 2,281 =========================================================================================== VALUE (000) ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (110.7%) (COST $984,331) -- INCLUDING $110,437 OF SECURITIES LOANED $ 1,176,023 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (1.2%) Receivable for Portfolio Shares Sold $ 6,555 Dividends Receivable 3,181 Receivable for Investments Sold 2,127 Foreign Withholding Tax Reclaim Receivable 376 Interest Receivable 1 Other 34 12,274 ------------------------------------------------------------------------------------------- LIABILITIES (-11.9%) Collateral on Securities Loaned, at Value (113,339) Payable for Portfolio Shares Redeemed (3,728) Payable for Investments Purchased (3,263) Investment Advisory Fees Payable (3,036) Deferred Country Taxes (1,929) Directors' Fees and Expenses Payable (177) Custodian Fees Payable (173) Administrative Fees Payable (141) Bank Overdraft Payable (40) Distribution Fees, Class B (23) Other Liabilities (49) (125,898) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 1,062,399 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 1,213,800 Undistributed (Distributions in Excess of) Net Investment Income (4,916) Accumulated Net Realized Gain (Loss) (336,248) Unrealized Appreciation (Depreciation) on Investments (Net of $1,929 Deferred Country Tax) 189,763 ------------------------------------------------------------------------------------------- NET ASSETS $ 1,062,399 =========================================================================================== CLASS A: NET ASSETS $ 1,020,353 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 65,755,520 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.52 =========================================================================================== CLASS B: NET ASSETS $ 42,046 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,737,482 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.36 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 25 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EMERGING MARKETS PORTFOLIO (a) Non-income producing security. (b) Issuer is in default. (c) All or portion of security on loan at December 31, 2003. (d) Security was valued at fair value -- At December 31, 2003, the Portfolio held $37,090,000 of fair valued securities, representing 3.5% of net assets. (e) 144A security -- certain conditions for public sale may exist. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (k) The Morgan Stanley Growth Fund is advised by an affiliate of the Adviser. At the beginning of the period the Portfolio held 17,902,900 shares of the security valued at $3,528,000. For the year ended December 31, 2003, the Portfolio had no purchases and sold 620,000 shares of the security, for a loss of $10,803. The Portfolio did not derive income from this security during the year ended December 31, 2003. @ Face Amount/Value is less than $500. ADR American Depositary Receipts GDR Global Depositary Receipts NVDR Non Voting Depositary Receipts FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ------------------------------------------------------------------------------------------- BRL 241 $ 83 1/2/04 US$ 83 $ 83 $ @-- US$ 105 105 1/2/04 HKD 812 105 @-- US$ 264 264 1/5/04 HKD 2,047 264 @-- US$ 15 15 1/2/04 IDR 130,060 15 @-- US$ 47 47 1/5/04 THB 1,851 47 @-- US$ 41 41 1/6/04 THB 1,625 41 @-- ------------- ----------- --------------- $ 555 $ 555 $ @-- ============= =========== ===============
IDR -- Indonesian Rupiah THB -- Thai Baht SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------------------------------------------------------------------------- Auto Components $ 18,711 1.8% Automobiles 17,125 1.6 Beverages 14,085 1.3 Chemicals 13,449 1.3 Commercial Banks 143,755 13.5 Computers & Peripherals 10,484 1.0 Construction & Engineering 18,834 1.8 Construction Materials 28,602 2.7 Diversified Financial Services 26,776 2.5 Diversified Telecommunication Services 57,643 5.4 Electric Utilities 13,253 1.3 Electrical Equipment 15,425 1.4 Electronic Equipment & Instruments 49,687 4.7 Food & Staples Retailing 10,325 1.0 Household Durables 15,055 1.4 Insurance 12,388 1.2 Leisure Equipment & Products 12,053 1.1 Marine 11,261 1.1 Media 16,974 1.6 Metals & Mining 131,829 12.4 Multiline Retail 25,121 2.4 Oil & Gas 98,762 9.3 Pharmaceuticals 11,033 1.0 Semiconductors & Semiconductor Equipment 73,554 6.9 Software 11,761 1.1 Textiles, Apparel & Luxury Goods 10,661 1.0 Wireless Telecommunication Services 64,878 6.1 Other 101,333 9.5 ------------------------------------------------------------------------- $ 1,034,817 97.4% =========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 26 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) EUROPEAN REAL ESTATE PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
EUROPEAN EUROPEAN GPR REAL ESTATE REAL ESTATE GENERAL REAL PORTFOLIO - PORTFOLIO - ESTATE SECURITIES CLASS A CLASS B INDEX - EUROPE(1) "*" $ 500,000 $ 100,000 $ 500,000 "1997" $ 476,400 $ 95,240 $ 500,650 "1998" $ 499,029 $ 99,621 $ 498,647 "1999" $ 487,252 $ 97,021 $ 515,601 "2000" $ 559,901 $ 111,138 $ 562,263 "2001" $ 515,949 $ 102,158 $ 533,306 "2002" $ 642,460 $ 126,788 $ 652,447 "2003" $ 914,927 $ 180,115 $ 946,243
* Commenced operations on October 1, 1997 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different fees assessed to that class. The GPR General Real Estate Securities Index - Europe value at December 31, 2003 assumes a minimum investment of $500,000; if a minimum initial investment of $100,000 (the minimum investment for Class B shares) is assumed, the value at December 31, 2003 would be $189,249. PERFORMANCE COMPARED TO THE GPR GENERAL REAL ESTATE SECURITIES INDEX - EUROPE(1)
TOTAL RETURNS(2) --------------------------- AVERAGE ANNUAL ------------------- ONE FIVE SINCE YEAR YEARS INCEPTION ------------------------------------------------------------- Portfolio - Class A (3) 42.41% 12.89% 10.15% Portfolio - Class B (3) 42.06 12.57 9.87 Index 45.03 13.67 10.73
(1) The GPR General Real Estate Securities Index - Europe is a market capitalization weighted index of listed property/real estate securities in Europe measuring total return. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on October 1, 1997 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The European Real Estate Portfolio seeks to provide current income and long-term capital appreciation by investing primarily in equity securities of companies in the European real estate industry. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. The Portfolio's concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified and the value of its shares may be substantially affected by economic events in the real estate industry. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 42.41% for the Class A shares and 42.06% for the Class B shares compared to 45.03% for the GPR General Real Estate Securities Index - Europe (the "Index"). FACTORS AFFECTING PERFORMANCE - European real estate securities advanced strongly for a second year in a row. Following a weak first quarter, the Index increased in each of the remaining three quarters, finishing up 45% for the year. - The strong performance during the year was aided by a depreciation of the U.S. dollar, which lost 20% versus the euro and 9% versus the British pound. - The best performing markets during the year were Finland, Sweden, and Spain with U.S. dollar returns of 75.0%, 71.1% and 59.4%, respectively. - Compared to the Index, the Portfolio was underweight in Sweden, which resulted in negative relative performance that was only partly compensated for by overweights in Spain and Finland. - The worst performing countries during the year were Switzerland, Germany and Austria with dollar returns of 15.7%, 25.4% and 28.7%, respectively. Compared to the Index, the Portfolio was underweighted in these lagging countries, which helped account for the positive relative performance. - Security selection added to returns in France, Spain, and Switzerland, but this was more than offset by a negative contribution from stock picking in the United Kingdom, Sweden, and Italy. 27 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) EUROPEAN REAL ESTATE PORTFOLIO MANAGEMENT STRATEGIES - The Portfolio continued its long-term strategy of trying to achieve superior returns in real estate securities by focusing on the underlying properties' risk and return characteristics. We continued to focus on both the top-down allocation across countries and real estate sectors, as well as on a thorough bottom-up stock selection process based on fundamental analysis. - In 2003, we implemented this strategy through overweights in the French and Italian real estate markets, where we found several opportunities to invest in robust real estate markets at attractive valuations. - We also maintained underweights in markets where we viewed that real estate fundamentals were less appealing compared to the European average. This resulted in underweights in Sweden and Germany during the year. - Our focus on relative valuation also resulted in underweights in the Austrian and Belgian markets and overweights in Spain and Finland. January 2004 28 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS EUROPEAN REAL ESTATE PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (97.7%) BELGIUM (0.4%) Cofinimmo 705 $ 98 ------------------------------------------------------------------------------------------- FINLAND (1.8%) Sponda Oyj 49,294 410 ------------------------------------------------------------------------------------------- FRANCE (24.0%) Bail-Investissement 12,875 389 Gecina S.A. (a)10,683 1,567 Klepierre 11,184 671 Silic 3,499 233 Societe Fonciere Lyonnaise 18,926 818 Sophia 8,915 458 Unibail 15,057 1,408 ------------------------------------------------------------------------------------------- 5,544 =========================================================================================== GERMANY (1.4%) IVG Immobilien AG 27,392 319 ------------------------------------------------------------------------------------------- ITALY (7.4%) Aedes S.p.A. 170,179 719 Beni Stabili S.p.A. 1,377,983 900 Risanamento S.p.A. 48,153 88 ------------------------------------------------------------------------------------------- 1,707 =========================================================================================== NETHERLANDS (12.6%) AM N.V. 39,400 305 Corio N.V. 6,689 258 Eurocommercial Properties N.V. 24,836 651 Rodamco Europe N.V. 23,478 1,364 Wereldhave N.V. 4,332 324 ------------------------------------------------------------------------------------------- 2,902 =========================================================================================== NORWAY (1.7%) Steen & Strom ASA (a)20,500 389 ------------------------------------------------------------------------------------------- SPAIN (5.4%) Inmobiliaria Colonial S.A. 23,759 568 Inmobiliaria Urbis S.A. 47,293 467 Metrovacesa S.A. 6,053 206 ------------------------------------------------------------------------------------------- 1,241 =========================================================================================== SWEDEN (0.7%) JM AB 11,940 176 ------------------------------------------------------------------------------------------- SWITZERLAND (1.4%) PSP Swiss Property AG 2,378 335 ------------------------------------------------------------------------------------------- UNITED KINGDOM (40.9%) British Land Co. plc 138,540 1,445 Brixton plc 28,100 135 Canary Wharf Group plc (a)100,701 482 Capital & Regional Properties plc 12,843 92 Chelsfield plc 155,561 851 CLS Holdings plc (a)26,933 130 Derwent Valley Holdings plc 12,234 163 Freeport plc 49,510 356 Hammerson plc 51,362 594 Land Securities Group plc 118,230 2,094 Liberty International plc 67,435 822 London Merchant Securities plc 56,900 175 Minerva plc 76,700 294 Pillar Property plc 26,006 240 Shaftesbury plc 31,393 $ 138 Slough Estates plc 92,014 722 Unite Group plc 217,974 708 ------------------------------------------------------------------------------------------- 9,441 =========================================================================================== TOTAL COMMON STOCKS (COST $16,914) 22,562 =========================================================================================== TOTAL FOREIGN SECURITIES (97.7%) (COST $16,914) 22,562 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- FOREIGN CURRENCY (0.0%) British Pound GBP 2 3 Euro EUR 1 1 ------------------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $4) 4 =========================================================================================== TOTAL INVESTMENTS (97.7%) (COST $16,918) 22,566 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (5.6%) Receivable for Investments Sold $ 1,135 Foreign Withholding Tax Reclaim Receivable 127 Dividends Receivable 34 Other 1 1,297 ------------------------------------------------------------------------------------------- LIABILITIES (-3.3%) Bank Overdraft Payable (710) Investment Advisory Fees Payable (30) Custodian Fees Payable (6) Administrative Fees Payable (5) Directors' Fees and Expenses Payable (3) Distribution Fees, Class B (1) Other Liabilities (9) (764) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 23,099 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 21,705 Undistributed (Distributions in Excess of) Net Investment Income (274) Accumulated Net Realized Gain (Loss) (4,011) Unrealized Appreciation (Depreciation) on: Investments 5,648 Foreign Currency Translations 31 ------------------------------------------------------------------------------------------- NET ASSETS $ 23,099 =========================================================================================== CLASS A: NET ASSETS $ 22,184 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,466,655 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.13 =========================================================================================== CLASS B: NET ASSETS $ 915 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 60,317 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.17 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 29 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EUROPEAN REAL ESTATE PORTFOLIO (a) Non-income producing security. SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------------------------------------------------------------------------- Apartments $ 2,241 9.7% Diversified 11,887 51.5 Office & Industrial 5,366 23.2 Office Buildings 2,145 9.3 Shopping Centers 838 3.6 Other 85 0.4 ------------------------------------------------------------------------- $ 22,562 97.7% =========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 30 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) EUROPEAN VALUE EQUITY PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
"EUROPEAN VALUE EQUITY PORTFOLIO-CLASS A" "MSCI EUROPE INDEX"(1) "1993" $ 500,000 $ 500,000 "1994" $ 554,415 $ 511,412 "1995" $ 620,113 $ 621,980 "1996" $ 758,336 $ 753,156 "1997" $ 893,926 $ 932,407 "1998" $ 966,246 $ 1,198,423 "1999" $ 1,059,005 $ 1,388,852 "2000" $ 1,137,160 $ 1,272,328 "2001" $ 983,985 $ 1,019,135 "2002" $ 893,064 $ 831,818 "2003" $ 1,162,323 $ 1,152,400
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1)
TOTAL RETURNS(2) --------------------------------------- AVERAGE ANNUAL ---------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION -------------------------------------------------------------------- Portfolio - Class A (3) 30.15% 3.77% 8.80% 10.77% Index - Class A 38.54 (0.78) 8.71 9.95 Portfolio - Class B (4) 29.80 3.49 N/A 7.77 Index - Class B 38.54 (0.78) N/A 7.93
(1) The MSCI Europe Index is an unmanaged market value weighted index of common stocks listed on the stock exchanges of countries in Europe. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on April 2, 1993 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The European Value Equity Portfolio seeks long-term capital appreciation by investing primarily in equity securities of European issuers. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 30.15% for the Class A shares and 29.80% for the Class B shares compared to 38.54% for the Morgan Stanley Capital International (MSCI) Europe Index (the "Index"). FACTORS AFFECTING PERFORMANCE - In 2003, European equity markets rebounded strongly, driven by strong performance in the most cyclical sectors: information technology, industrials, and financials. - Defensive sectors such as healthcare, consumer staples, and energy were the worst performing sectors. - The Portfolio's underperformance was primarily driven by weaker stock selection in industrials, materials, and information technology. - Our value discipline leads us to invest in stocks that have a solid business model, a sound balance sheet, and an attractive valuation relative to their long-term fair value. This emphasis has led us to stay away from the higher beta, higher financial leverage and low profitability stocks that led the equity market recovery. - In terms of sector allocation, the Portfolio's overweight in industrials was positive. However, both the underweight in financials and the overweight in consumer staples had a negative impact on the overall return. MANAGEMENT STRATEGIES - As patient long-term investors, we continued to search for undervalued securities that we believed would provide both capital appreciation and a margin of safety. We paid particular attention to free cash flow generation, as we believe it is the key driver to economic value creation. January 2004 31 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS EUROPEAN VALUE EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (95.8%) BELGIUM (2.8%) AGFA-Gevaert N.V. 9,847 $ 280 Fortis 16,747 337 Solvay S.A., Class A 3,855 333 ------------------------------------------------------------------------------------------- 950 =========================================================================================== DENMARK (0.9%) Danske Bank A/S 13,231 310 ------------------------------------------------------------------------------------------- FINLAND (2.7%) Nokia Oyj 43,770 755 Sampo Oyj, Class A 17,062 176 ------------------------------------------------------------------------------------------- 931 =========================================================================================== FRANCE (16.0%) Aventis S.A. (c)13,738 905 AXA 9,830 210 BNP Paribas S.A. 11,836 743 Carrefour S.A. (c)3,097 170 France Telecom S.A. (a)18,628 531 Groupe Danone 1,877 306 Neopost S.A. 3,487 175 Peugeot S.A. 3,514 179 Schneider Electric S.A. 8,757 572 Societe Generale 4,889 430 Total S.A. 6,496 1,204 ------------------------------------------------------------------------------------------- 5,425 =========================================================================================== GERMANY (4.5%) Adidas-Salomon AG 3,338 379 Deutsche Boerse AG 6,458 352 Deutsche Telekom AG (Registered) (a)11,600 212 E. ON AG 3,006 196 Siemens AG (Registered) 4,860 388 ------------------------------------------------------------------------------------------- 1,527 =========================================================================================== IRELAND (2.2%) Allied Irish Banks plc 20,800 332 Bank of Ireland (London Shares) 30,690 417 ------------------------------------------------------------------------------------------- 749 =========================================================================================== ITALY (5.2%) ENI S.p.A. 27,965 526 Telecom Italia S.p.A. (a)(c)128,703 381 Telecom Italia S.p.A. RNC (Non-Voting Shares) (a)220,508 448 UniCredito Italiano S.p.A. 76,909 414 ------------------------------------------------------------------------------------------- 1,769 =========================================================================================== NETHERLANDS (5.6%) European Aeronautic Defense & Space Co. (c)6,345 150 Heineken N.V. 6,860 261 Royal Dutch Petroleum Co. 15,505 815 Unilever N.V. CVA 10,352 675 ------------------------------------------------------------------------------------------- 1,901 =========================================================================================== NORWAY (1.5%) DNB NOR ASA (c)56,373 375 Telenor ASA 17,970 117 ------------------------------------------------------------------------------------------- 492 =========================================================================================== SPAIN (1.4%) Telefonica S.A. 32,267 $ 472 ------------------------------------------------------------------------------------------- SWITZERLAND (19.2%) ABB Ltd. (a)53,116 269 Ciba Specialty Chemicals AG (Registered) (a)4,246 328 Converium Holding AG 7,387 392 Credit Suisse Group 7,675 280 Holcim Ltd. (Registered) 6,923 321 Nestle S.A. (Registered) 4,476 1,115 Novartis AG (Registered) 26,415 1,196 Roche Holding AG 1,682 169 Schindler Holding AG (Registered) (a)731 202 STMicroelectronics N.V 13,568 367 Swiss Reinsurance (Registered) 5,023 338 Swisscom AG (Registered) 719 236 Syngenta AG 8,954 601 UBS AG (Registered) 10,601 724 ------------------------------------------------------------------------------------------- 6,538 =========================================================================================== UNITED KINGDOM (33.8%) Allied Domecq plc 59,776 460 Barclays plc 42,713 380 BOC Group plc 27,886 425 British American Tobacco plc 25,148 346 Cadbury Schweppes plc 24,780 182 Diageo plc 16,414 215 GlaxoSmithKline plc 55,842 1,276 GUS plc 14,854 205 Hays plc 157,271 337 HSBC Holdings plc 26,327 413 Invensys plc (a)180,153 59 Lloyds TSB Group plc 46,420 371 National Grid Transco plc 41,131 294 Pearson plc 14,644 163 Prudential plc 60,530 510 Reed Elsevier plc 86,800 724 Rentokil Initial plc 170,167 577 Rolls-Royce Group plc 76,739 243 Royal Bank of Scotland Group plc 30,248 889 Scottish & Southern Energy plc 14,847 178 Shell Transport & Trading Co. plc 147,624 1,095 Smiths Group plc 37,336 441 Vodafone Group plc 554,214 1,371 Yell Group plc 59,241 323 ------------------------------------------------------------------------------------------- 11,477 =========================================================================================== TOTAL COMMON STOCKS (COST $27,116) 32,541 =========================================================================================== TOTAL FOREIGN SECURITIES (95.8%) (COST $27,116) 32,541 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 32 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EUROPEAN VALUE EQUITY PORTFOLIO
FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (5.0%) SHORT-TERM DEBT SECURITIES HELD AS COLLATERAL ON LOANED SECURITIES (4.0%) American Express Credit Corp., 1.17%, 5/17/04 $ 20 $ 20 BETA Finance, Inc., 1.08%, 6/16/04 92 92 Canadian Imperial Bank NY, 1.11%, 8/3/04 33 33 CC USA, Inc., 1.09%, 2/6/04 33 33 Chase Credit Card Master Trust, 1.18%, 10/15/04 26 26 Credit Industrial et Commercial (CIC)/NY, 1.14%, 2/10/04 34 34 Dorado Finance, Inc., 1.09%, 2/5/04 33 33 Federal National Mortgage Association, 0.96%, 1/29/04 198 198 Federal National Mortgage Association - Discounted, 1.13%, 4/14/04 29 29 Goldman Sachs & Co., 1.02%, 1/2/04 216 216 International Credit Card Funding No. 1 Ltd., 1.15%, 3/19/04 77 77 Landesbank Baden Wuerttemberg, 1.50%, 11/19/04 33 33 Links Finance LLC, 1.08%, 6/16/04 33 33 Links Finance LLC, 1.09%, 5/24/04 53 53 Macquarie Bank Ltd., 1.24%, 6/24/04 29 29 Natexis Banques Populaires NY, 1.15%, 12/20/04 53 53 Sears Credit Account Master Trust, 1.19%, 10/15/04 53 53 Societe Generale/London, 1.54%, 11/12/04 33 33 SWIFT 2001, Series A6, 1.16%, 1/15/04 23 23 SWIFT 2001, Series A7, 1.16%, 3/15/04 66 66 Target Credit Card Master Trust, 1.17%, 7/26/04 52 52 Wachovia Bank, NA, 1.06%, 11/15/04 66 66 Wells Fargo Bank, San Francisco NA, 1.06%, 1/30/04 19 19 Westdeutsche Landesbank N.Y., 1.09%, 11/29/04 65 65 ------------------------------------------------------------------------------------------- 1,369 =========================================================================================== REPURCHASE AGREEMENT (1.0%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $339 (f)339 339 ------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $1,708) 1,708 =========================================================================================== FOREIGN CURRENCY (0.2%) British Pound GBP 2 4 Danish Krone DKK 35 6 Euro EUR 11 14 Norwegian Krone NOK 153 23 Swedish Krona SEK 29 4 Swiss Franc CHF @-- @-- ------------------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $51) 51 =========================================================================================== VALUE (000) ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (101.0%) (COST $28,875) -- INCLUDING $1,321 OF SECURITIES LOANED $ 34,300 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (3.4%) Receivable for Investments Sold $ 774 Foreign Withholding Tax Reclaim Receivable 321 Dividends Receivable 54 Other 2 1,151 ------------------------------------------------------------------------------------------- LIABILITIES (-4.4%) Collateral on Securities Loaned, at Value (1,369) Investment Advisory Fees Payable (51) Directors' Fees and Expenses Payable (24) Custodian Fees Payable (13) Administrative Fees Payable (6) Net Unrealized Depreciation on Foreign Currency Exchange Contracts (4) Bank Overdraft Payable (3) Distribution Fees, Class B (1) Other Liabilities (9) (1,480) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 33,971 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 31,980 Undistributed (Distributions in Excess of) Net Investment Income (4) Accumulated Net Realized Gain (Loss) (3,518) Unrealized Appreciation (Depreciation) on: Investments 5,425 Foreign Currency Exchange Contracts and Translations 88 ------------------------------------------------------------------------------------------- NET ASSETS $ 33,971 =========================================================================================== CLASS A: NET ASSETS $ 32,791 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,518,148 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 13.02 =========================================================================================== CLASS B: NET ASSETS $ 1,180 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 90,502 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 13.04 ===========================================================================================
(a) Non-income producing security. (c) All or portion of security on loan at December 31, 2003. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. CVA Certificaten Van Aandelen RNC Non-Convertible Savings Shares THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 33 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EUROPEAN VALUE EQUITY PORTFOLIO FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ----------------------------------------------------------------------------- CHF 473 $ 381 1/5/04 US$ 379 $ 379 $ (2) DKK 114 19 1/5/04 US$ 19 19 @-- EUR 157 198 1/2/04 US$ 197 197 (1) EUR 112 141 1/5/04 US$ 140 140 (1) NOK 112 17 1/5/04 US$ 17 17 @-- ------- ------- -------- $ 756 $ 752 $ (4) ======= ======= ========
SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ----------------------------------------------------------------------------- Aerospace & Defense $ 393 1.2% Beverages 936 2.8 Capital Markets 1,004 3.0 Chemicals 1,687 5.0 Commercial Banks 5,075 14.9 Commercial Services & Supplies 914 2.7 Communications Equipment 755 2.2 Diversified Financial Services 689 2.0 Diversified Telecommunication Services 2,397 7.0 Electric Utilities 374 1.1 Electrical Equipment 840 2.5 Food Products 2,277 6.7 Household Durables 905 2.7 Industrial Conglomerates 829 2.4 Insurance 1,626 4.8 Media 1,209 3.6 Oil & Gas 3,641 10.7 Pharmaceuticals 2,641 7.8 Semiconductors & Semiconductor Equipment 367 1.1 Textiles, Apparel & Luxury Goods 379 1.1 Tobacco 346 1.0 Wireless Telecommunication Services 1,371 4.0 Other 1,886 5.5 ----------------------------------------------------------------------------- $ 32,541 95.8% =============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 34 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) GLOBAL FRANCHISE PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
"MSCI WORLD INDEX"(1) "GLOBAL FRANCHISE PORTFOLIO-CLASS A" "GLOBAL FRANCHISE PORTFOLIO-CLASS B" "*" $ 500,000 $ 500,000 $ 100,000 "2001" $ 503,100 $ 524,000 $ 104,600 "2002" $ 403,033 $ 566,444 $ 112,780 "2003" $ 536,478 $ 724,595 $ 143,929
* Commenced operations on November 28, 2001 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different fees assessed to that class. The MSCI World Index value at December 31, 2003 assumes a minimum investment of $500,000; if a minimum initial investment of $100,000 (the minimum for Class B shares) is assumed, the value at December 31, 2003 would be $103,112. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1)
TOTAL RETURNS(2) ---------------------------- AVERAGE ANNUAL ONE SINCE YEAR INCEPTION ----------------------------------------------------------------- Portfolio - Class A (3) 27.92% 19.42% Portfolio - Class B (3) 27.62 19.03 Index 33.11 3.96
(1) The MSCI World Index is an unmanaged index of common stocks and includes securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on November 28, 2001 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Global Franchise Portfolio seeks long-term capital appreciation by investing primarily in equity securities of issuers located throughout the world, that it believes have, among other things, resilient business franchises and growth potential. This Portfolio's concentration of its assets in a smaller number of companies may subject it to greater investment risk than a portfolio with a larger number of companies. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 27.92% for the Class A shares and 27.62% for the Class B shares compared to 33.11% for the Morgan Stanley Capital International (MSCI) World Index (the "Index"). FACTORS AFFECTING PERFORMANCE - In 2003, equity markets rallied driven by strong performance in materials (+46%), information technology (+37%), and industrials (+33%). - The lowest performing sectors included healthcare (+14%), consumer staples (+21%), and utilities (+23%). - In this environment, value stocks underperformed growth stocks. - The Portfolio's investment strategy prevents us from investing in the sectors that drove the market this year. As long-only investors, we seek high quality companies that are relatively less affected by various economic cycles. We avoid investing in sectors that are characterized by cyclicality, leverage, high capital expenditure, or obsolescence risk. Consequently, zero allocation to the highest performing sectors this year has been the largest deterrent to our performance. - The largest contribution to our performance came from stock selection in industrials. The two elevator-servicing companies in the Portfolio rose 92% for the year. The second largest contributor to our performance has been stock selection in consumer staples. Security selection detracted from performance in the consumer discretionary sector. MANAGEMENT STRATEGIES - Overall, we continued to invest in companies with strong business franchises protected by a dominant intangible asset. Additionally, we demanded sound management, substantial free cash flow, and growth potential. We invested in these high quality companies only when we could identify compelling value as measured by a current free cash flow yield in excess of the risk-free bond yield. January 2004 35 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS GLOBAL FRANCHISE PORTFOLIO
VALUE SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (94.8%) CANADA (3.0%) Torstar Corp., Class B 110,980 $ 2,482 -------------------------------------------------------------------------------- FINLAND (4.5%) Kone Oyj, Class B 64,588 3,697 -------------------------------------------------------------------------------- FRANCE (7.0%) Aventis S.A. 34,288 2,260 Groupe Danone 21,439 3,490 -------------------------------------------------------------------------------- 5,750 ================================================================================ ITALY (2.6%) Davide Campari-Milano S.p.A. 45,091 2,184 -------------------------------------------------------------------------------- NETHERLANDS (2.7%) Reed Elsevier N.V. 179,980 2,230 -------------------------------------------------------------------------------- SPAIN (3.9%) Zardoya Otis S.A. 156,445 3,247 -------------------------------------------------------------------------------- SWEDEN (4.5%) Swedish Match AB 360,384 3,680 -------------------------------------------------------------------------------- SWITZERLAND (7.3%) Nestle S.A. (Registered) 14,603 3,637 Novartis AG (Registered) 52,902 2,395 -------------------------------------------------------------------------------- 6,032 ================================================================================ UNITED KINGDOM (37.9%) Allied Domecq plc 425,745 3,276 British American Tobacco plc 442,056 6,078 Cadbury Schweppes plc 617,013 4,520 Capital Radio plc 199,732 1,676 Diageo plc 267,665 3,513 GlaxoSmithKline plc 116,281 2,658 Imperial Tobacco Group plc 112,038 2,201 Reckitt Benckiser plc 150,050 3,387 SMG plc 1,161,802 2,406 WPP Group plc 152,657 1,495 -------------------------------------------------------------------------------- 31,210 ================================================================================ UNITED STATES (21.4%) Altria Group, Inc. 69,363 3,775 Bristol-Myers Squibb Co. 70,611 2,019 Brown-Forman Corp., Class B 16,349 1,528 Fortune Brands, Inc. 23,158 1,655 Kimberly-Clark Corp. 49,975 2,953 Merck & Co., Inc. 54,223 2,505 New York Times Co., (The) Class A 66,241 3,166 -------------------------------------------------------------------------------- 17,601 ================================================================================ TOTAL COMMON STOCKS (COST $61,041) 78,113 ================================================================================ FACE AMOUNT (000) -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (5.5%) REPURCHASE AGREEMENT (5.5%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $4,575 (COST $4,575) $ (f)4,575 4,575 ================================================================================ FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------- FOREIGN CURRENCY (0.0%) British Pound GBP @-- $ @-- Canadian Dollar CAD 15 12 Euro EUR 18 22 ------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $34) 34 =============================================================================== TOTAL INVESTMENTS (100.3%) (COST $65,650) 82,722 =============================================================================== AMOUNT (000) ------------------------------------------------------------------------------- OTHER ASSETS (0.4%) Dividends Receivable $ 177 Foreign Withholding Tax Reclaim Receivable 138 Receivable for Portfolio Shares Sold 25 Other 2 342 ------------------------------------------------------------------------------- LIABILITIES (-0.7%) Net Unrealized Depreciation on Foreign Currency Exchange Contracts (464) Investment Advisory Fees Payable (122) Administrative Fees Payable (13) Custodian Fees Payable (7) Bank Overdraft Payable (7) Distribution Fees, Class B (1) Directors' Fees and Expenses Payable (1) Other Liabilities (11) (626) ------------------------------------------------------------------------------- NET ASSETS (100%) $ 82,438 =============================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 66,098 Undistributed (Distributions in Excess of ) Net Investment Income (212) Accumulated Net Realized Gain (Loss) (86) Unrealized Appreciation (Depreciation) on: Investments 17,072 Foreign Currency Exchange Contracts and Translations (434) ------------------------------------------------------------------------------- NET ASSETS $ 82,438 =============================================================================== CLASS A: NET ASSETS $ 79,756 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 5,582,725 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 14.29 =============================================================================== CLASS B: NET ASSETS $ 2,682 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 188,615 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 14.22 ===============================================================================
(f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 36 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) GLOBAL FRANCHISE PORTFOLIO FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) -------------------------------------------------------------------------------- GBP 6,750 $ 12,050 1/8/04 US$ 11,586 $ 11,586 $ (464) ======== ======== =======
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS -------------------------------------------------------------------------------- Beverages $ 10,501 12.7% Food Products 11,647 14.1 Household Durables 3,916 4.8 Household Products 6,340 7.7 Machinery 6,943 8.4 Media 10,290 12.5 Metals & Mining 3,166 3.9 Pharmaceuticals 9,577 11.6 Tobacco 15,733 19.1 -------------------------------------------------------------------------------- $ 78,113 94.8% ================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 37 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) GLOBAL VALUE EQUITY PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
MSCI WORLD NET INDEX(1) GLOBAL VALUE EQUITY PORTFOLIO-CLASS A "1993" $ 500,000 $ 500,000 "1994" $ 525,400 $ 534,770 "1995" $ 634,263 $ 634,579 "1996" $ 719,762 $ 779,479 "1997" $ 833,196 $ 964,637 "1998" $ 1,035,996 $ 1,105,512 "1999" $ 1,294,373 $ 1,149,888 "2000" $ 1,123,750 $ 1,285,046 "2001" $ 934,735 $ 1,177,680 "2002" $ 748,817 $ 973,482 "2003" $ 996,750 $ 1,257,836
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1)
TOTAL RETURNS(2) --------------------------------------- AVERAGE ANNUAL ---------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION -------------------------------------------------------------------- Portfolio - Class A (3) 29.21% 2.61% 9.66% 11.65% Index - Class A 33.11 (0.77) 7.14 7.98 Portfolio - Class B (4) 28.95 2.36 N/A 8.57 Index - Class B 33.11 (0.77) N/A 5.76
(1) The MSCI World Index is an unmanaged index of common stocks and includes securities representative of the market structure over 20 developed market countries in North America, Europe, and the Asia/Pacific region. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on July 15, 1992 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Global Value Equity Portfolio seeks long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including U.S. issuers. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 29.21% for the Class A shares and 28.95% for the Class B shares compared to 33.11% for the Morgan Stanley Capital International (MSCI) World Index (the "Index"). FACTORS AFFECTING PERFORMANCE - Marked improvements in economic growth in the world's major regions ensured the year finished off on a resolutely positive note. Confirmation that the difficulties of the first quarter were behind us came as equity markets staged a significant rally post March, which has continued to the end of the year. - Early in the year, the Iraq war and its impact on the global economy dominated investors' thinking. During this period, the Portfolio was overweight relative to the Index in the defensive consumer staples sector, but this sector also suffered through the impact of the general retreat from equities. In addition, the more economically sensitive sectors such as financials, consumer discretionary, materials, and industrials, which the Portfolio was at Index weight or overweight, also suffered. As a consequence, the Portfolio underperformed in the first quarter. - In the second quarter, the Iraq conflict ended and a relief rally ensued. The market rose 17.0% during the quarter, and returns from all sectors were positive. The Portfolio's positioning remained similar to the first quarter, and the Portfolio outperformed in this environment. However, the rebound was not sufficient to fully recover the losses incurred in the anomalous conditions of the first quarter. - As an economic recovery began to gain momentum and the year progressed, the Portfolio continued to outperform in the third quarter and its performance was in line with the Index for the fourth quarter. MANAGEMENT STRATEGIES - Relative to the Index at the end of the period, the Portfolio maintained its significant overweight in the consumer staples sector. We remained underweight in the information technology sector where stocks that meet our quality criteria continue to be too expensive. - Finally, we have been able to identify a number of attractive opportunities in Japan, particularly in the pharmaceutical and household products categories, which meet our stringent quality and value criteria, and we have nominally increased the weighting of the Portfolio there. January 2004 38 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS GLOBAL VALUE EQUITY PORTFOLIO
VALUE SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (95.4%) BERMUDA (0.7%) XL Capital Ltd., Class A 8,283 $ 642 -------------------------------------------------------------------------------- DENMARK (0.7%) Danisco A/S 13,970 620 -------------------------------------------------------------------------------- FINLAND (0.2%) Nokia Oyj 11,615 200 -------------------------------------------------------------------------------- FRANCE (7.1%) Aventis S.A. 22,076 1,455 BNP Paribas S.A. 21,316 1,338 Cie de Saint-Gobain 15,204 742 Groupe Danone 2,940 479 Lafarge S.A. 11,971 1,063 Total S.A., Class B 6,266 1,162 -------------------------------------------------------------------------------- 6,239 ================================================================================ GERMANY (1.6%) BASF AG 19,427 1,089 Porsche AG (non-voting shares) 534 316 -------------------------------------------------------------------------------- 1,405 ================================================================================ HONG KONG (0.5%) HongKong Electric Holdings Ltd. 107,180 424 -------------------------------------------------------------------------------- IRELAND (0.6%) Bank of Ireland (London Shares) 39,673 539 -------------------------------------------------------------------------------- ITALY (2.7%) ENI S.p.A. 77,987 1,467 Telecom Italia S.p.A. RNC (a)427,738 869 -------------------------------------------------------------------------------- 2,336 ================================================================================ JAPAN (12.5%) Canon, Inc. 20,000 930 Fuji Photo Film Co., Ltd. 37,000 1,192 Fuji Television Network, Inc. 44 238 Fujitsu Ltd. (a)66,000 388 Hitachi Ltd. 77,000 463 Kao Corp. 43,000 873 Mitsubishi Estate Co., Ltd. 87,000 823 Mitsui Sumitomo Insurance Co., Ltd. 138,000 1,131 Nippon Telegraph & Telephone Corp. 179 862 Rohm Co., Ltd. 5,100 597 Sankyo Co., Ltd. 33,900 636 Sekisui House Ltd. 68,000 701 Sumitomo Electric Industries Ltd. 81,000 723 Takeda Chemical Industries Ltd. 28,800 1,140 Toyota Motor Corp. 10,200 344 -------------------------------------------------------------------------------- 11,041 ================================================================================ NETHERLANDS (4.7%) Heineken N.V. 23,279 884 ING Groep N.V. CVA 19,304 449 Koninklijke Philips Electronics N.V. 28,138 819 Royal Dutch Petroleum Co. (NY Shares) 34,025 1,783 Unilever N.V. CVA 3,652 238 -------------------------------------------------------------------------------- 4,173 ================================================================================ SOUTH KOREA (0.2%) Samsung Electronics Co., Ltd. GDR (Registered) 1,145 215 -------------------------------------------------------------------------------- SPAIN (1.0%) Telefonica S.A. 58,004 $ 849 -------------------------------------------------------------------------------- SWEDEN (0.5%) Nordea AB 59,652 448 -------------------------------------------------------------------------------- SWITZERLAND (6.9%) Converium Holding AG 19,250 1,020 Holcim Ltd. (Registered) 15,079 700 Nestle S.A. (Registered) 6,741 1,679 Novartis AG (Registered) 16,444 745 Roche Holding AG 5,937 597 Syngenta AG 12,445 836 UBS AG (Registered) 7,572 517 -------------------------------------------------------------------------------- 6,094 ================================================================================ UNITED KINGDOM (15.8%) Allied Domecq plc 157,134 1,209 BAA plc 57,807 512 Cadbury Schweppes plc 194,068 1,422 Diageo plc 75,875 996 GlaxoSmithKline plc 74,132 1,694 Lloyds TSB Group plc 60,492 484 National Grid Transco plc 63,179 452 Prudential plc 54,487 460 Reed Elsevier plc 224,750 1,875 Rentokil Initial plc 135,103 458 Rolls-Royce Group plc 173,184 548 Royal Bank of Scotland Group plc 16,238 477 Scottish & Southern Energy plc 61,572 740 Vodafone Group plc 657,334 1,626 WPP Group plc 48,729 477 Yell Group plc 88,440 482 -------------------------------------------------------------------------------- 13,912 ================================================================================ UNITED STATES (39.7%) Alcoa, Inc. 26,022 989 Altria Group, Inc. 34,862 1,897 BellSouth Corp. 16,928 479 BJ's Wholesale Club, Inc. (a)28,880 663 Boeing Co. (The) 16,766 706 Boise Cascade Corp. 38,346 1,260 Bristol-Myers Squibb Co. 35,557 1,017 ChevronTexaco Corp. 6,708 579 Coca Cola Co. (The) 9,907 503 DuPont (E.I.) De Nemours & Co. 5,182 238 Emerson Electric Co. 4,711 305 Exxon Mobil Corp. 12,712 521 First Data Corp. 24,067 989 Gap, Inc. (The) 12,461 289 General Dynamics Corp. 8,868 802 Georgia-Pacific Corp. 31,452 965 Hewlett-Packard Co. 44,172 1,015 International Business Machines Corp. 20,479 1,898 J.P. Morgan Chase & Co. 12,158 447 Kimberly-Clark Corp. 25,913 1,531 Kroger Co. (a)39,508 731 Loews Corp. - Carolina Group 24,204 611 MBIA, Inc. 16,686 988
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 39 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) GLOBAL VALUE EQUITY PORTFOLIO
VALUE SHARES (000) -------------------------------------------------------------------------------- UNITED STATES (CONT'D) McDonald's Corp. 34,256 $ 851 Mellon Financial Corp. 34,915 1,121 Merck & Co., Inc. 11,978 553 Merrill Lynch & Co., Inc. 12,969 761 Motorola, Inc. 95,724 1,347 New York Times Co., (The) Class A 12,058 576 Northrop Grumman Corp. 10,270 982 Parker Hannifin Corp. 7,854 467 Pfizer, Inc. 32,555 1,150 Prudential Financial, Inc. 16,814 702 SBC Communications, Inc. 43,877 1,144 Travelers Property Casualty Corp., Class A 64,824 1,088 U.S. Bancorp 17,196 512 Verizon Communications, Inc. 33,718 1,183 Viacom, Inc., Class B 10,498 466 Wells Fargo & Co. 6,418 378 Wyeth 43,317 1,839 Xerox Corp. (a)39,771 549 -------------------------------------------------------------------------------- 35,092 ================================================================================ TOTAL COMMON STOCKS (COST $72,587) 84,229 ================================================================================ PREFERRED STOCK (0.7%) UNITED STATES (0.7%) Ford Motor Co., Capital Trust II (COST $495) (a)10,355 578 -------------------------------------------------------------------------------- FACE AMOUNT (000) -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (3.7%) REPURCHASE AGREEMENT (3.7%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $3,311 (COST $3,311) $ (f)3,311 3,311 -------------------------------------------------------------------------------- FOREIGN CURRENCY (0.1%) British Pound GBP 24 44 Danish Krone DKK 63 11 Euro EUR 11 14 Hong Kong Dollar HKD 1 @-- Japanese Yen JPY 2,907 27 Norwegian Krone NOK 101 15 Swiss Franc CHF 26 21 -------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $129) 132 ================================================================================ VALUE (000) -------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.9%) (COST $76,522) $ 88,250 ================================================================================ AMOUNT (000) -------------------------------------------------------------------------------- OTHER ASSETS (0.4%) Cash $ 4 Foreign Withholding Tax Reclaim Receivable 158 Dividends Receivable 134 Receivable for Portfolio Shares Sold 31 Receivable for Investments Sold 25 Other 5 357 -------------------------------------------------------------------------------- LIABILITIES (-0.3%) Investment Advisory Fees Payable (142) Payable for Portfolio Shares Redeemed (83) Directors' Fees and Expenses Payable (22) Distribution Fees, Class B (19) Administrative Fees Payable (13) Custodian Fees Payable (10) Other Liabilities (12) (301) -------------------------------------------------------------------------------- NET ASSETS (100%) $ 88,306 ================================================================================ NET ASSETS CONSIST OF: Paid-in Capital $ 84,283 Undistributed (Distributions in Excess of) Net Investment Income (12) Accumulated Net Realized Gain (Loss) (7,733) Unrealized Appreciation (Depreciation) on: Investments 11,728 Foreign Currency Translations 40 -------------------------------------------------------------------------------- NET ASSETS $ 88,306 ================================================================================ CLASS A: NET ASSETS $ 55,545 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,505,949 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.84 ================================================================================ CLASS B: NET ASSETS $ 32,761 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,086,921 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.70 ================================================================================
(a) Non-income producing security. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. CVA Certificaten Van Aandelen GDR Global Depositary Receipts RNC Non-Convertible Savings Shares THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 40 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) GLOBAL VALUE EQUITY PORTFOLIO SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31,2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS -------------------------------------------------------------------------------- Aerospace & Defense $ 3,038 3.4% Automobiles 1,238 1.4 Beverages 3,592 4.1 Capital Markets 2,845 3.2 Chemicals 2,163 2.5 Commercial Banks 4,176 4.7 Communications Equipment 1,547 1.8 Computers & Peripherals 3,301 3.7 Construction Materials 1,763 2.0 Diversified Telecommunication Services 5,386 6.1 Electric Utilities 1,164 1.3 Electrical Equipment 1,028 1.2 Food & Staples Retailing 1,394 1.6 Food Products 4,437 5.0 Hotels, Restaurants & Leisure 851 1.0 Household Durables 2,976 3.4 Household Products 2,404 2.7 Insurance 6,032 6.8 IT Services 989 1.1 Leisure Equipment & Products 1,192 1.3 Media 3,538 4.0 Metals & Mining 1,565 1.8 Office Electronics 1,478 1.7 Oil & Gas 5,513 6.3 Paper & Forest Products 2,225 2.5 Pharmaceuticals 9,371 10.6 Tobacco 2,508 2.8 Wireless Telecommunication Services 1,626 1.8 Other 5,467 6.3 -------------------------------------------------------------------------------- $ 84,807 96.1% ================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 41 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) INTERNATIONAL EQUITY PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
MSCI EAFE INDEX(1) INTERNATIONAL EQUITY PORTFOLIO - CLASS A "1993" $ 500,000 $ 500,000 "1994" $ 538,950 $ 561,943 "1995" $ 599,366 $ 627,971 "1996" $ 635,628 $ 751,304 "1997" $ 646,942 $ 855,811 "1998" $ 776,305 $ 1,012,424 "1999" $ 985,596 $ 1,183,625 "2000" $ 845,898 $ 1,293,584 "2001" $ 664,504 $ 1,167,537 "2002" $ 558,582 $ 1,120,602 "2003" $ 774,138 $ 1,488,383
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
TOTAL RETURNS(2) --------------------------------------- AVERAGE ANNUAL ---------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION -------------------------------------------------------------------- Portfolio - Class A (3) 32.82% 8.01% 11.52% 11.14% Index - Class A 38.59 (0.05) 4.47 3.51 Portfolio - Class B (4) 32.46 7.77 N/A 11.05 Index - Class B 38.59 (0.05) N/A 3.25
(1) The MSCI EAFE Index is an unmanaged index of common stocks in Europe, Australasia and the Far East. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on August 4, 1989 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The International Equity Portfolio seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 32.82% for the Class A shares and 32.46% for the Class B shares compared to 38.59% for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). FACTORS AFFECTING PERFORMANCE - The Index had its strongest annual return in 17 years, helped, in no small way, by the fall in the U.S. dollar. The euro finished the year at a lifetime high of 1.26 against the U.S. dollar, while sterling reached a 12-year high of 1.78. The Japanese yen also appreciated by over 10% despite heavy intervention by the Bank of Japan. - Assisted by euro strength, the euro-bloc markets recorded a return of 41.6%. The commodity-based markets of Canada (+54.6%), Australia (+49.5%) and New Zealand (+55.4%) also enjoyed strong performances, primarily on the back of strong currency appreciation against the U.S. dollar. Japan and the heavily defensive-weighted United Kingdom market both underperformed with returns of 35.9% and 32.1%, respectively. - The Portfolio's large overweight position in consumer staples was the single largest detractor from relative performance for the year, while poor stock selection in materials and industrials (characterized more by what the Portfolio did not own rather than what it did own) also explains a large part of the underperformance. Favorable stock selection in financials (mainly Japanese insurance) compensated for the underweight in the sector, while stock selection in the telecommunications sector was also a positive contributor. Throughout the year, however, the Portfolio's relative performance was overwhelmed by the relentless divergence in returns between cyclicals and defensives. 42 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) INTERNATIONAL EQUITY PORTFOLIO - Size also mattered with an almost perfect linear relationship between market capitalization and performance, with smaller capitalization stocks outperforming. The Portfolio's bias towards the larger capitalization stocks was therefore a negative factor. MANAGEMENT STRATEGIES - The Portfolio continued its long-term strategy of trying to find attractively priced, high-quality companies capable of generating sustainable free cash flow. - The underperformance of Japan in the first quarter opened up a clear relative and absolute valuation opportunity, and we added to the Portfolio's Japanese holdings across the board. The subsequent rally in Japan in the third quarter pushed many Japanese holdings above our fair value targets and accordingly the Portfolio took profits, particularly in the technology and financial sectors. January 2004 43 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS INTERNATIONAL EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (94.8%) AUSTRALIA (2.0%) AMP Ltd. (c)4,613,496 $ 17,380 National Australia Bank Ltd. 1,444,979 32,542 Telstra Corp., Ltd. 20,959,314 75,965 ------------------------------------------------------------------------------------------- 125,887 =========================================================================================== BELGIUM (0.5%) Fortis 1,462,464 29,378 ------------------------------------------------------------------------------------------- DENMARK (0.5%) Danisco A/S 667,462 29,614 ------------------------------------------------------------------------------------------- FINLAND (1.0%) Nokia Oyj 3,542,876 61,097 ------------------------------------------------------------------------------------------- FRANCE (9.3%) Aventis S.A. (c)3,031,360 199,801 BNP Paribas S.A. (c)930,105 58,403 France Telecom S.A. (a)2,392,073 68,181 Groupe Danone (c)382,107 62,194 Societe Generale (c)438,976 38,652 Total S.A., Class B (c)905,159 167,823 ------------------------------------------------------------------------------------------- 595,054 =========================================================================================== GERMANY (2.7%) Deutsche Telekom AG (Registered) (a)2,180,948 39,805 E. ON AG (c)576,356 37,510 Muenchener Rueckversicherungs AG (Registered) 224,411 27,132 Porsche AG (Non-Voting Shares) (c)57,960 34,303 Volkswagen AG (c)568,183 31,554 ------------------------------------------------------------------------------------------- 170,304 =========================================================================================== HONG KONG (0.1%) Hongkong Land Holdings Ltd. 3,323,306 5,649 ------------------------------------------------------------------------------------------- ITALY (3.8%) ENI S.p.A. 4,165,232 78,379 Telecom Italia S.p.A. RNC (a)(c)48,381,122 98,283 UniCredito Italiano S.p.A. 12,432,049 66,929 ------------------------------------------------------------------------------------------- 243,591 =========================================================================================== JAPAN (20.4%) Asatsu-DK, Inc. (c)439,400 11,295 Canon, Inc. 1,631,500 75,824 Central Japan Railway Co. (c)6,750 58,215 Dai Nippon Printing Co., Ltd. (c)6,579,000 92,217 Daiwa Securities Group, Inc. (c)3,495,000 23,730 Fuji Photo Film Co., Ltd. (c)5,021,200 161,808 Fuji Television Network, Inc. 8,182 44,198 Fujitsu Ltd. (a)(c)4,570,560 26,903 Japan Tobacco, Inc. 5,456 39,890 Kao Corp. 2,880,000 58,474 Konica Minolta Holdings, Inc. 1,842,000 24,721 Lawson, Inc. (c)853,200 29,084 Matsushita Electric Industrial Co., Ltd. 2,189,700 30,224 Millea Holdings, Inc. (c)6,829 89,043 Mitsubishi Estate Co., Ltd. (c)5,608,400 53,070 Mitsui Sumitomo Insurance Co., Ltd. (c)3,512,000 28,784 Nintendo Co., Ltd. 249,800 23,265 Nippon Telegraph & Telephone Corp. 14,847 $ 71,490 Oriental Land Co., Ltd. 194,000 11,943 Rohm Co., Ltd. 325,400 38,065 Sankyo Co., Ltd. 3,721,000 69,832 Sekisui House Ltd. 2,895,000 29,848 Shionogi & Co., Ltd. (c)719,800 13,381 Sumitomo Electric Industries Ltd. 3,679,000 32,826 Tokyo Electric Power Co., Inc. (The) 1,392,700 30,482 Tokyo Gas Co., Ltd. (c)13,390,200 47,640 Vodafone Holdings K.K. 1,881 5,028 Yamanouchi Pharmaceutical Co., Ltd. 2,728,100 84,610 ------------------------------------------------------------------------------------------- 1,305,890 =========================================================================================== NETHERLANDS (8.9%) Akzo Nobel N.V. 1,402,037 53,965 CSM N.V. CVA 1,063,417 23,194 ING Groep N.V. CVA 2,660,757 61,883 Royal Dutch Petroleum Co. (c)3,481,931 183,073 Royal KPN N.V. (a)8,290,876 63,824 Unilever N.V. CVA (c)2,854,659 186,180 ------------------------------------------------------------------------------------------- 572,119 =========================================================================================== NEW ZEALAND (0.5%) Telecom Corp. of New Zealand Ltd. (c)9,017,560 31,706 ------------------------------------------------------------------------------------------- PORTUGAL (0.2%) Electricidade de Portugal S.A. 5,802,703 15,255 ------------------------------------------------------------------------------------------- SOUTH KOREA (1.1%) Samsung Electronics Co., Ltd. GDR (Registered) (c)391,823 73,663 ------------------------------------------------------------------------------------------- SPAIN (1.2%) Telefonica S.A. 5,077,921 74,348 ------------------------------------------------------------------------------------------- SWEDEN (1.3%) ForeningsSparbanken AB (c)1,034,301 20,335 Nordea AB 8,533,834 64,029 ------------------------------------------------------------------------------------------- 84,364 =========================================================================================== SWITZERLAND (10.5%) Ciba Specialty Chemicals AG (Registered) (a)377,170 29,097 Credit Suisse Group 1,031,180 37,615 Holcim Ltd. (Registered) 1,009,815 46,889 Nestle S.A. (Registered) 713,325 177,684 Novartis AG (Registered) 3,159,122 142,995 Roche Holding AG 675,624 67,944 Schindler Holding AG (a)77,160 18,785 Syngenta AG 1,055,888 70,903 UBS AG (Registered) 1,121,290 76,560 ------------------------------------------------------------------------------------------- 668,472 =========================================================================================== TAIWAN (0.2%) Chunghwa Telecom Co., Ltd. ADR 1,134,540 16,451 ------------------------------------------------------------------------------------------- UNITED KINGDOM (30.6%) Allied Domecq plc (c)11,152,742 85,831 BAA plc 1,620,552 14,360 Barclays plc 14,033,610 124,854 BHP Billiton plc 8,515,004 74,197 BOC Group plc 3,790,687 57,770 BP plc 19,474,260 157,523 British American Tobacco plc 9,889,818 135,976
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 44 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- UNITED KINGDOM (CONT'D) Bunzl plc 4,736,341 $ 36,091 Cadbury Schweppes plc 13,505,790 98,936 GlaxoSmithKline plc 5,006,999 114,438 Granada plc 30,300,679 66,008 GUS plc 3,761,155 51,948 Hays plc 27,468,610 58,858 HHG plc CDI (a)4,613,496 3,330 Imperial Tobacco Group plc 7,447,328 146,277 International Power plc (a)1,445,804 3,188 Lloyds TSB Group plc 2,196,706 17,573 National Grid Transco plc 6,895,928 49,284 Prudential plc 5,023,006 42,357 Reckitt Benckiser plc 2,195,446 49,551 Reed Elsevier plc 15,125,407 126,195 Rentokil Initial plc 22,043,323 74,785 RMC Group plc 1,479,948 18,432 Rolls-Royce Group plc 10,990,691 34,785 Royal Bank of Scotland Group plc 4,473,418 131,478 Vodafone Group plc 50,692,085 125,364 Wolseley plc 3,984,934 56,212 ------------------------------------------------------------------------------------------- 1,955,601 =========================================================================================== TOTAL COMMON STOCKS (COST $4,944,681) 6,058,443 =========================================================================================== TOTAL FOREIGN SECURITIES (94.8%) (COST $4,944,681) 6,058,443 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (9.1%) SHORT-TERM DEBT SECURITIES HELD AS COLLATERAL ON LOANED SECURITIES (6.8%) American Express Credit Corp., 1.17%, 5/17/04 $ 6,320 6,320 BETA Finance, Inc., 1.08%, 6/16/04 29,474 29,474 Canadian Imperial Bank NY, 1.11%, 8/3/04 10,526 10,526 CC USA, Inc., 1.09%, 2/6/04 10,528 10,528 Chase Credit Card Master Trust, 1.18%, 10/15/04 8,428 8,428 Credit Industrial et Commercial (CIC)/NY, 1.14%, 2/10/04 10,950 10,950 Dorado Finance, Inc., 1.09%, 2/5/04 10,528 10,528 Federal National Mortgage Association, 0.96%, 1/29/04 63,165 63,165 Federal National Mortgage Association - Discounted, 1.13%, 4/14/04 9,285 9,285 Goldman Sachs & Co., 1.02%, 1/2/04 68,982 68,982 International Credit Card Funding No. 1 Ltd., 1.15%, 3/19/04 24,430 24,430 Landesbank Baden Wuerttemberg, 1.50%, 11/19/04 10,538 10,538 Links Finance LLC, 1.08%, 6/16/04 10,527 10,527 Links Finance LLC, 1.09%, 5/24/04 16,842 16,842 Macquarie Bank Ltd., 1.24%, 6/24/04 9,268 9,268 Natexis Banques Populaires NY, 1.15%, 12/20/04 16,833 16,833 FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------------------- Sears Credit Account Master Trust, 1.19%, 10/15/04 $ 16,863 $ 16,863 Societe Generale/London, 1.54%, 11/12/04 10,528 10,528 SWIFT 2001, Series A6, 1.16%, 1/15/04 7,454 7,454 SWIFT 2001, Series A7, 1.16%, 3/15/04 21,060 21,060 Target Credit Card Master Trust, 1.17%, 7/26/04 16,642 16,642 Wachovia Bank, NA, 1.06%, 11/15/04 21,074 21,074 Wells Fargo Bank, San Francisco NA, 1.06%, 1/30/04 5,896 5,896 Westdeutsche Landesbank N.Y., 1.09%, 11/29/04 20,630 20,630 ------------------------------------------------------------------------------------------- 436,771 =========================================================================================== REPURCHASE AGREEMENT (2.3%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $144,405 (f)144,399 144,399 ------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $581,170) 581,170 =========================================================================================== FOREIGN CURRENCY (2.2%) Australian Dollar AUD 48 36 British Pound GBP @-- 1 Canadian Dollar CAD @-- @-- Euro EUR 110,318 138,763 Japanese Yen JPY 3,159 29 New Zealand Dollar NZD 2 1 ------------------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $136,745) 138,830 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 45 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL EQUITY PORTFOLIO
VALUE (000) ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (106.1%) (COST $5,662,596) -- INCLUDING $418,289 OF SECURITIES LOANED $ 6,778,443 ------------------------------------------------------------------------------------------- AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (1.0%) Cash $ 3,160 Net Unrealized Appreciation on Foreign Currency Exchange Contracts 28,607 Receivable for Portfolio Shares Sold 27,033 Dividends Receivable 6,497 Foreign Withholding Tax Reclaim Receivable 2,368 Interest Receivable 3 Other 207 67,875 ------------------------------------------------------------------------------------------- LIABILITIES (-7.1%) Collateral on Securities Loaned, at Value (436,771) Investment Advisory Fees Payable (11,544) Payable for Portfolio Shares Redeemed (4,308) Administrative Fees Payable (842) Directors' Fees and Expenses Payable (507) Distribution Fees, Class B (413) Custodian Fees Payable (247) Payable for Investments Purchased (235) Other Liabilities (212) (455,079) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 6,391,239 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 5,307,928 Undistributed (Distributions in Excess of) Net Investment Income 13,763 Accumulated Net Realized Gain (Loss) (75,547) Unrealized Appreciation (Depreciation) on: Investments 1,115,847 Foreign Currency Exchange Contracts and Translations 29,248 ------------------------------------------------------------------------------------------- NET ASSETS $ 6,391,239 =========================================================================================== CLASS A: NET ASSETS $ 5,657,941 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 296,833,307 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 19.06 =========================================================================================== CLASS B: NET ASSETS $ 733,298 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 38,685,826 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 18.96 ===========================================================================================
(a) Non-income producing security. (c) All or portion of security on loan at December 31, 2003. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. ADR American Depositary Receipts CDI Chess Depositary Interests CVA Certificaten Van Aandelen GDR Global Depositary Receipts RNC Non-Convertible Savings Shares FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ---------------------------------------------------------------------------------------- JPY 42,500,000 $ 396,370 2/17/04 EUR 338,268 $ 424,978 $ 28,608 US$ 236 236 1/6/04 JPY 25,237 235 (1) ---------- ---------- -------------- $ 396,606 $ 425,213 $ 28,607 ========== ========== ==============
SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------------------------------------------------------------------------------------------- Automobiles $ 65,857 1.0% Beverages 85,831 1.3 Capital Markets 137,905 2.2 Chemicals 211,736 3.3 Commercial Banks 554,795 8.7 Commercial Services & Supplies 261,951 4.1 Communications Equipment 61,097 1.0 Construction Materials 65,321 1.0 Diversified Financial Services 91,261 1.4 Diversified Telecommunication Services 575,562 9.0 Food Products 577,802 9.0 Household Durables 259,873 4.1 Household Products 108,026 1.7 Insurance 208,027 3.3 Leisure Equipment & Products 161,808 2.5 Media 247,696 3.9 Metals & Mining 74,197 1.2 Office Electronics 100,545 1.6 Oil & Gas 586,798 9.2 Pharmaceuticals 493,199 7.7 Semiconductors & Semiconductor Equipment 111,728 1.7 Tobacco 322,143 5.0 Wireless Telecommunication Services 125,364 2.0 Other 569,921 8.9 ------------------------------------------------------------------------------------------- $ 6,058,443 94.8% ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 46 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) INTERNATIONAL MAGNUM PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
INTERNATIONAL MAGNUM INTERNATIONAL MAGNUM MSCI EAFE INDEX(1) PORTFOLIO-CLASS A PORTFOLIO-CLASS B "*" 500,000 500,000 100,000 "1996" 526,300 541,250 107,900 "1997" 535,668 576,864 114,730 "1998" 642,802 619,148 122,910 "1999" 816,101 773,130 153,121 "2000" 700,459 691,951 136,569 "2001" 550,281 562,487 110,798 "2002" 462,566 487,338 95,851 "2003" 641,071 629,008 123,159
* Commenced operations on March 15, 1996 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different fees assessed to that class. The MSCI EAFE Index value at December 31, 2003 assumes a minimum investment of $500,000; if a minimum initial investment of $100,000 (the minimum investment for Class B shares) is assumed, the value at December 31, 2003 would be $128,214. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
TOTAL RETURNS(2) -------------------------- AVERAGE ANNUAL ---------------- SINCE ONE FIVE INCEP- YEAR YEARS TION -------------------------------------------------------------------------------- Portfolio - Class A (3) 29.07% 0.32% 2.99% Portfolio - Class B (3) 28.49 0.04 2.71 Index 38.59 (0.05) 3.38
(1) The MSCI EAFE Index is an unmanaged index of common stocks in Europe, Australasia and the Far East. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on March 15, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The International Magnum Portfolio seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers domiciled in EAFE countries. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 29.07% for the Class A shares and 28.49% for the Class B shares compared to 38.59% for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). FACTORS AFFECTING PERFORMANCE - World financial markets ended the year with one of the best performances in three years despite a turbulent first half marked by geopolitical fears, economic uncertainties, and the threat of SARS. - Global equity markets staged an impressive rally during the second half on a wave of investor enthusiasm following the end of the Iraq war and massive liquidity stimulus. The rally was further supported by evidence of a synchronized global recovery, as stronger demand merged in Asia and Europe. - High beta, low quality and economically geared companies were the strongest performers as investors increased their appetite for risk. - Our preference for higher quality, less leveraged companies caused the Portfolio to lag in the market recovery and explains the majority of the underperformance during the year. - Security selection within european financials, healthcare and industrials were negatively impacted in this trend. - Offsetting the underperformance was security selection within the Pacific Rim. Within Japan, security selection within healthcare, consumer discretionary, and financials contributed the most to performance. - Within Asia ex-Japan, strong stock selection, particularly within consumer discretionary, added to overall results. 47 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) INTERNATIONAL MAGNUM PORTFOLIO MANAGEMENT STRATEGIES - The Portfolio began the year with a defensive posture and a less sanguine outlook towards the ownership of equities. - As the markets sold off and better valuations were found, we moved to an overweight position relative to the Index in the Pacific including Japan, Hong Kong and Singapore. - In the fourth quarter the economic recovery gained traction with positive economic news in Europe and continued improvements in Asia. - This turnaround in market activity led us to begin decreasing the Portfolio's underweight position (relative to the Index) in Europe. January 2004 48 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS INTERNATIONAL MAGNUM PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (97.3%) AUSTRALIA (2.7%) Amcor Ltd. 11,900 $ 74 Australia & New Zealand Banking Group Ltd. 12,408 165 BHP Billiton Ltd. 53,239 488 Coles Myer Ltd. 13,850 79 Commonwealth Bank of Australia 10,100 224 Foster's Group Ltd. 52,100 176 National Australia Bank Ltd. 10,030 226 News Corp., Ltd. 40,200 362 Qantas Airways Ltd. 34,800 86 Rio Tinto Ltd. 14,550 407 Westpac Banking Corp. 17,400 209 ------------------------------------------------------------------------------------------- 2,496 =========================================================================================== BELGIUM (1.2%) AGFA-Gevaert N.V. 12,424 353 Fortis 19,983 401 Solvay S.A. 4,724 409 ------------------------------------------------------------------------------------------- 1,163 =========================================================================================== DENMARK (0.7%) Danske Bank A/S 15,751 369 Novo-Nordisk A/S, Class B 6,827 277 ------------------------------------------------------------------------------------------- 646 =========================================================================================== FINLAND (2.5%) Nokia Oyj 101,845 1,756 Sampo Oyj, Class A 32,652 337 Tietoenator Oyj 9,444 258 ------------------------------------------------------------------------------------------- 2,351 =========================================================================================== FRANCE (10.8%) Aventis S.A. (c)16,468 1,086 AXA 36,157 772 BNP Paribas S.A. 21,808 1,369 Carrefour S.A. (c)6,089 333 France Telecom S.A. (a)32,274 920 Groupe Danone 2,268 369 Neopost S.A. 4,301 216 Peugeot S.A. 4,195 213 Schneider Electric S.A. 19,643 1,282 Societe Generale 9,381 826 Technip S.A. 2,388 258 Total S.A., Class B 12,868 2,386 ------------------------------------------------------------------------------------------- 10,030 =========================================================================================== GERMANY (4.8%) Adidas-Salomon AG 6,927 787 Bayerische Motoren Werke AG 2,779 128 Deutsche Boerse AG 14,240 776 Deutsche Telekom AG (Registered) (a)30,819 563 E. ON AG 10,106 658 Porsche AG (Non-Voting Shares) 435 257 SAP AG 1,903 319 Siemens AG (Registered) (c)12,443 994 ------------------------------------------------------------------------------------------- 4,482 =========================================================================================== HONG KONG (2.4%) Bank of East Asia Ltd. 30,000 92 Cathay Pacific Airways Ltd. 135,000 $ 257 Cheung Kong Holdings Ltd. 41,900 333 Esprit Holdings Ltd. 79,800 266 Great Eagle Holdings Co. 66,000 79 Henderson Land Development Co., Ltd. 126,000 557 Hong Kong & China Gas Co., Ltd. 78,000 119 Hysan Development Co., Ltd. 66,000 102 Johnson Electric Holdings Ltd. 91,000 116 Li & Fung Ltd. 125,000 214 Television Broadcasts Ltd. 28,000 141 ------------------------------------------------------------------------------------------- 2,276 =========================================================================================== IRELAND (1.2%) Allied Irish Banks plc 24,824 397 Bank of Ireland 770 10 Bank of Ireland (London Shares) 50,773 690 ------------------------------------------------------------------------------------------- 1,097 =========================================================================================== ITALY (3.3%) ENI S.p.A. 52,226 983 Telecom Italia S.p.A. (a)228,869 676 Telecom Italia S.p.A. RNC (a)(c)272,532 554 UniCredito Italiano S.p.A. (c)163,019 878 ------------------------------------------------------------------------------------------- 3,091 =========================================================================================== JAPAN (21.3%) Amada Co., Ltd. 50,000 260 Canon, Inc. 12,000 558 Casio Computer Co., Ltd. (c)38,000 401 Dai Nippon Printing Co., Ltd. 21,000 294 Daicel Chemical Industries Ltd. (c)70,000 288 Daifuku Co., Ltd. 55,000 245 Daikin Industries Ltd. 22,000 507 Denki Kagaku Kogyo KK 80,000 257 East Japan Railway Co. 68 320 FamilyMart Co., Ltd. (c)14,800 336 Fuji Machine Manufacturing Co., Ltd. 12,700 161 Fuji Photo Film Co., Ltd. 14,000 451 Fujitec Co., Ltd. 21,000 90 Fujitsu Ltd. (a)67,000 394 Furukawa Electric Co., Ltd. (c)35,000 116 Hitachi Capital Corp. (c)23,200 321 Hitachi High-Technologies Corp. (c)7,000 111 Hitachi Ltd. 71,000 427 House Foods Corp. (c)13,000 147 Kaneka Corp. 46,000 343 Kurita Water Industries Ltd. 23,600 284 Kyocera Corp. 5,100 339 Kyudenko Corp. 16,000 66 Lintec Corp. (c)17,000 270 Matsushita Electric Industrial Co., Ltd. 40,000 552 Minebea Co., Ltd. (c)48,000 243 Mitsubishi Chemical Corp. 112,000 291 Mitsubishi Corp. 48,000 508 Mitsubishi Estate Co., Ltd. (c)37,000 350 Mitsubishi Heavy Industries Ltd. 112,000 311 Mitsubishi Logistics Corp. 13,000 108 Mitsumi Electric Co., Ltd. (c)18,100 199
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 49 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL MAGNUM PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- JAPAN (CONT'D) Nagase & Co., Ltd. 13,000 $ 86 NEC Corp. (c)66,000 485 Nifco, Inc. 19,000 238 Nintendo Co., Ltd. 4,700 438 Nippon Meat Packers, Inc. 17,000 166 Nippon Telegraph & Telephone Corp. 90 433 Nissan Motor Co., Ltd. 64,900 740 Nissha Printing Co., Ltd. 16,000 209 Nisshinbo Industries, Inc. 24,000 133 Obayashi Corp. 53,000 236 Ono Pharmaceutical Co., Ltd. 9,000 338 Ricoh Co., Ltd. 25,000 492 Rinnai Corp. 7,200 171 Rohm Co., Ltd. 1,600 187 Ryosan Co., Ltd. (c)11,000 192 Sangetsu Co., Ltd. 1,000 19 Sanki Engineering Co., Ltd. 6,000 31 Sankyo Co., Ltd. 22,700 426 Sanwa Shutter Corp. 47,000 265 Sekisui Chemical Co., Ltd. 43,000 219 Sekisui House Ltd. 31,000 320 Shin-Etsu Polymer Co., Ltd. 30,000 183 Sony Corp. 10,000 346 Suzuki Motor Corp. 23,000 340 TDK Corp. 6,700 482 Toho Co., Ltd. 11,000 140 Tokyo Electric Power Co., Inc. (The) 15,600 341 Toshiba Corp. (c)119,000 450 Toyo Ink Manufacturing Co., Ltd. (c)31,000 110 Toyota Motor Corp. 18,400 620 Tsubakimoto Chain Co. 68,000 224 Yamaha Corp. 29,100 571 Yamaha Motor Co., Ltd. (c)18,000 196 Yamanouchi Pharmaceutical Co., Ltd. 15,000 465 ------------------------------------------------------------------------------------------- 19,840 =========================================================================================== NETHERLANDS (5.5%) Aegon N.V. 19,252 284 European Aeronautic Defense & Space Co. (c)7,568 179 Heineken N.V. 8,271 314 ING Groep N.V. CVA 9,348 217 Koninklijke Philips Electronics N.V. 16,190 471 Numico N.V. CVA (a)10,230 282 Royal Dutch Petroleum Co. 31,847 1,675 Royal KPN N.V. (a)30,098 232 Unilever N.V. CVA 18,916 1,234 Wolters Kluwer N.V. CVA 13,302 208 ------------------------------------------------------------------------------------------- 5,096 =========================================================================================== NORWAY (0.8%) DNB NOR ASA (c)86,999 579 Telenor ASA 21,460 140 ------------------------------------------------------------------------------------------- 719 =========================================================================================== SINGAPORE (1.8%) CapitaLand Ltd. (c)269,000 245 City Developments Ltd. 71,000 $ 253 Neptune Orient Lines Ltd. (a)136,000 173 Oversea-Chinese Banking Corp., Ltd. 30,000 214 SembCorp Industries Ltd. 144,000 107 Singapore Airlines Ltd. 63,000 415 Venture Corp., Ltd. (c)24,000 283 ------------------------------------------------------------------------------------------- 1,690 =========================================================================================== SPAIN (1.6%) Antena 3 Television S.A. (a)1 @-- Banco Bilbao Vizcaya Argentaria S.A. (c)22,121 305 Grupo Ferrovial S.A. 4,059 142 Inditex S.A. 5,704 115 Telefonica S.A. 64,163 939 ------------------------------------------------------------------------------------------- 1,501 =========================================================================================== SWEDEN (0.6%) Assa Abloy AB 27,533 327 Securitas AB, Class B 18,368 248 ------------------------------------------------------------------------------------------- 575 =========================================================================================== SWITZERLAND (11.1%) ABB Ltd. (a)59,933 303 Adecco S.A. (Registered) 2,821 181 Ciba Specialty Chemicals AG (Registered) (a)5,052 390 Converium Holding AG 8,841 468 Credit Suisse Group 9,093 332 Holcim Ltd. (Registered) 8,309 386 Nestle S.A. (Registered) 5,387 1,342 Novartis AG (Registered) 50,145 2,270 Roche Holding AG 5,720 575 Schindler Holding AG (Registered) (a)(c)914 253 STMicroelectronics N.V. 25,065 678 Swiss Reinsurance (Registered) 5,995 403 Swisscom AG (Registered) 858 282 Syngenta AG 14,547 977 UBS AG (Registered) 22,849 1,560 ------------------------------------------------------------------------------------------- 10,400 =========================================================================================== UNITED KINGDOM (25.0%) Allied Domecq plc 75,051 578 AstraZeneca plc 9,551 457 Barclays plc 95,147 847 BOC Group plc 33,376 509 BP plc 36,943 299 British American Tobacco plc 30,006 413 British Sky Broadcasting plc (a)17,692 222 Cadbury Schweppes plc 29,535 216 Celltech Group plc (a)13,529 91 Compass Group plc 39,369 267 Diageo plc 48,093 631 Emap plc 17,747 272 GlaxoSmithKline plc 107,699 2,462 Granada plc 119,458 260 GUS plc 18,195 251 Hays plc 283,969 608 HSBC Holdings plc 69,170 1,084 Invensys plc (a)198,747 65 Lloyds TSB Group plc 82,032 656
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 50 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL MAGNUM PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- UNITED KINGDOM (CONT'D) Marks & Spencer Group plc 43,673 $ 225 MFI Furniture plc 83,684 226 National Grid Transco plc 83,445 596 Pearson plc 17,041 189 Prudential plc 109,232 921 Reed Elsevier plc 103,593 864 Rentokil Initial plc 203,515 690 Rolls-Royce Group plc 91,601 290 Royal Bank of Scotland Group plc 65,859 1,936 Scottish & Southern Energy plc 17,712 213 Shell Transport & Trading Co. plc 302,603 2,245 Smith & Nephew plc 37,923 318 Smiths Group plc 43,786 517 Tesco plc 66,366 305 Vedanta Resources plc (a)27,654 182 Vodafone Group plc 1,053,798 2,606 WPP Group plc 21,221 208 Yell Group plc 108,509 591 ------------------------------------------------------------------------------------------- 23,310 =========================================================================================== TOTAL COMMON STOCKS (COST $79,399) 90,763 =========================================================================================== TOTAL FOREIGN SECURITIES (97.3%) (COST $79,399) 90,763 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (13.2%) SHORT-TERM DEBT SECURITIES HELD AS COLLATERAL ON LOANED SECURITIES (7.8%) American Express Credit Corp., 1.17%, 5/17/04 $ 106 106 BETA Finance, Inc., 1.08%, 6/16/04 492 492 Canadian Imperial Bank NY, 1.11%, 8/3/04 176 176 CC USA, Inc., 1.09%, 2/6/04 176 176 Chase Credit Card Master Trust, 1.18%, 10/15/04 141 141 Credit Industrial et Commercial (CIC)/NY, 1.14%, 2/10/04 183 183 Dorado Finance, Inc., 1.09%, 2/5/04 176 176 Federal National Mortgage Association, 0.96%, 1/29/04 1,055 1,055 Federal National Mortgage Association - Discounted, 1.13%, 4/14/04 155 155 Goldman Sachs & Co., 1.02%, 1/2/04 1,152 1,152 International Credit Card Funding No. 1 Ltd., 1.15%, 3/19/04 408 408 Landesbank Baden Wuerttemberg, 1.50%, 11/19/04 176 176 Links Finance LLC, 1.08%, 6/16/04 176 176 Links Finance LLC, 1.09%, 5/24/04 281 281 Macquarie Bank Ltd., 1.24%, 6/24/04 155 155 Natexis Banques Populaires NY, 1.15%, 12/20/04 281 281 Sears Credit Account Master Trust, 1.19%, 10/15/04 282 282 Societe Generale/London, 1.54%, 11/12/04 176 176 SWIFT 2001, Series A6, 1.16%, 1/15/04 125 125 SWIFT 2001, Series A7, 1.16%, 3/15/04 $ 352 $ 352 Target Credit Card Master Trust, 1.17%, 7/26/04 278 278 Wachovia Bank, NA, 1.06%, 11/15/04 352 352 Wells Fargo Bank, San Francisco NA, 1.06%, 1/30/04 98 98 Westdeutsche Landesbank N.Y., 1.09%, 11/29/04 345 345 ------------------------------------------------------------------------------------------- 7,297 =========================================================================================== REPURCHASE AGREEMENT (5.4%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $5,018 (f)5,018 5,018 ------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $12,315) 12,315 =========================================================================================== FOREIGN CURRENCY (0.4%) British Pound GBP 83 149 Euro EUR 125 158 Norwegian Krone NOK 177 26 Singapore Dollar SGD 22 13 Swiss Franc CHF 32 26 ------------------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $369) 372 =========================================================================================== TOTAL INVESTMENTS (110.9%) (COST $92,083) -- INCLUDING $6,968 OF SECURITIES LOANED 103,450 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (5.0%) Due from Broker $ 3,599 Receivable for Investments Sold 511 Net Unrealized Appreciation on Foreign Currency Exchange Contracts 368 Dividends Receivable 98 Foreign Withholding Tax Reclaim Receivable 54 Receivable for Portfolio Shares Sold 23 Other 3 4,656 ------------------------------------------------------------------------------------------- LIABILITIES (-15.9%) Collateral on Securities Loaned, at Value (7,297) Payable for Portfolio Shares Redeemed (7,274) Investment Advisory Fees Payable (139) Directors' Fees and Expenses Payable (25) Custodian Fees Payable (20) Administrative Fees Payable (15) Distribution Fees, Class B (6) Other Liabilities (11) (14,787) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 93,319 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 51 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL MAGNUM PORTFOLIO
AMOUNT (000) ------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid-in Capital $ 102,909 Undistributed (Distributions in Excess of) Net Investment Income 168 Accumulated Net Realized Gain (Loss) (21,773) Unrealized Appreciation (Depreciation) on: Investments 11,367 Foreign Currency Exchange Contracts and Translations 386 Futures Contracts 262 ------------------------------------------------------------------------- NET ASSETS $ 93,319 ========================================================================= CLASS A: NET ASSETS $ 91,087 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 8,928,405 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 10.20 ========================================================================= CLASS B: NET ASSETS $ 2,232 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 219,204 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 10.18 =========================================================================
(a) Non-income producing security. (c) All or portion of security on loan at December 31, 2003. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. CVA Certificaten Van Aandelen RNC Non-Convertible Savings Shares FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ---------------------------------------------------------------------------------- AUD 661 $ 492 3/18/04 US$ 491 $ 491 $ (1) CHF 119 96 1/5/04 US$ 95 95 (1) DKK 30 5 1/5/04 US$ 5 5 @-- EUR 152 191 1/2/04 US$ 190 190 (1) EUR 29 37 1/5/04 US$ 37 37 @-- EUR 2,753 3,456 3/18/04 US$ 3,370 3,370 (86) EUR 498 625 3/18/04 US$ 608 608 (17) GBP 101 180 1/2/04 US$ 179 179 (1) GBP 692 1,228 3/18/04 US$ 1,198 1,198 (30) GBP 1,735 3,080 3/18/04 US$ 3,003 3,003 (77) JPY 64,214 600 3/18/04 US$ 601 601 1 NOK 13 2 1/5/04 US$ 2 2 @-- US$ 2,380 2,380 3/18/04 AUD 3,301 2,461 81 US$ 40 40 3/18/04 AUD 55 41 1 US$ 4,200 4,200 3/18/04 EUR 3,516 4,414 214 US$ 594 594 3/18/04 EUR 486 610 16 US$ 2,451 2,451 3/18/04 EUR 2,004 2,516 65 US$ 914 914 3/18/04 EUR 749 940 26 US$ 3,353 3,353 3/18/04 GBP 1,947 3,456 103 US$ 776 776 3/18/04 GBP 449 796 20 US$ 1,816 1,816 3/18/04 GBP 1,049 1,863 47 US$ 680 680 3/18/04 GBP 393 698 18 US$ 1,235 1,235 3/18/04 JPY 131,925 1,232 (3) US$ 1,246 1,246 3/18/04 JPY 133,237 1,244 (2) US$ 2,095 2,095 3/18/04 JPY 223,982 2,091 (4) US$ 378 378 3/18/04 JPY 40,385 377 (1) ---------- ----------- -------------- $ 32,150 $ 32,518 $ 368 ========== =========== ==============
AUD -- Australian Dollar DKK -- Danish Krone JPY -- Japanese Yen FUTURES CONTRACTS: The Portfolio had the following futures contract(s) open at period end:
NET UNREALIZED NUMBER APPRECIATION OF VALUE EXPIRATION (DEPRECIATION) CONTRACTS (000) DATE (000) ---------------------------------------------------------------------------------- LONG: FTSE 100 Index 28 $ 2,233 Mar-04 $ 60 (United Kingdom) TOPIX Index 46 4,477 Mar-04 202 (Japan) ------ $ 262 ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 52 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL MAGNUM PORTFOLIO SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS --------------------------------------------------------------- Automobiles $ 2,495 2.7% Beverages 1,699 1.8 Building Products 1,099 1.2 Capital Markets 1,892 2.0 Chemicals 4,264 4.6 Commercial Banks 11,075 11.9 Commercial Services & Supplies 2,230 2.4 Communications Equipment 1,756 1.9 Computers & Peripherals 1,528 1.6 Diversified Financials 1,395 1.5 Diversified Telecommunication Services 5,081 5.4 Electrical Equipment 1,817 1.9 Electronic Equipment & Instruments 1,834 2.0 Food & Staples Retailing 1,054 1.1 Food Products 3,756 4.0 Household Durables 3,809 4.1 Industrial Conglomerates 1,618 1.7 Insurance 3,186 3.4 Leisure Equipment & Products 1,375 1.5 Machinery 2,136 2.3 Media 3,457 3.7 Metals & Mining 1,077 1.2 Office Electronics 1,267 1.4 Oil & Gas 7,587 8.1 Pharmaceuticals 7,270 7.8 Real Estate 1,920 2.1 Textiles, Apparel & Luxury Goods 920 1.0 Wireless Telecommunication Services 2,606 2.8 Other 9,560 10.2 --------------------------------------------------------------- $ 90,763 97.3% ===============================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 53 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) INTERNATIONAL SMALL CAP PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
MSCI EAFE SMALL CAP INTERNATIONAL SMALL TOTAL RETURN INDEX CAP PORTFOLIO - CLASS A "1993" $ 500,000 $ 500,000 "1994" $ 541,550 $ 526,250 "1995" $ 530,611 $ 539,933 "1996" $ 529,868 $ 630,371 "1997" $ 399,308 $ 628,077 "1998" $ 421,031 $ 653,953 "1999" $ 495,427 $ 911,219 "2000" $ 449,699 $ 884,036 "2001" $ 393,442 $ 832,019 "2002" $ 362,675 $ 807,142 "2003" $ 585,175 $ 1,197,153
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE SMALL CAP TOTAL RETURN INDEX(1)
TOTAL RETURNS(2) ------------------------------------- AVERAGE ANNUAL ----------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ------------------------------------------------------------------------- Portfolio - Class A (3) 48.32% 12.86% 9.12% 12.04% Index 61.35 6.37 1.38 4.17
(1) The MSCI EAFE Small Cap Total Return Index is an unmanaged, market value weighted average of the performance of over 900 securities of companies listed on the stock exchanges of countries in Europe, Australasia and the Far East, including price performance and income from dividend payments. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on December 15, 1992 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The International Small Cap Portfolio seeks long-term capital appreciation by investing primarily in equity securities of small non-U.S. companies. Investments in small sized corporations are more vulnerable to financial risks and other risks than larger corporations and may involve a higher degree of price volatility than investments in the general equity markets. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 48.32% compared to 61.35% for the Morgan Stanley Capital International (MSCI) EAFE Small Cap Total Return Index (the "Index"). FACTORS AFFECTING PERFORMANCE - In the first quarter of the year, the pending Iraq war combined with economic uncertainty weighed on investor sentiment. By the beginning of the second quarter, the initial stages of the war were decisive and along with enthusiasm for a brighter economic outlook, most markets around the world embarked on a nine-month rally. - In general, our long-term value approach suffered in a market where the more cyclical, often lower quality stocks rallied the most. The underperformance of the Portfolio for the full year is primarily explained by poor stock selection within the consumer discretionary and information technology sectors. - Stock selection in the materials, the Portfolio's best contributing sector, and the consumer staples sectors were strong contributors to performance for the year. MANAGEMENT STRATEGIES - The Portfolio remained underweight in much of the consumer discretionary sector (retail, consumer dura-bles, autos), feeling that the consumer was over-borrowed and vulnerable to increasing interest rates and, specifically in the United Kingdom, to the housing bubble. The Portfolio's overweight to the hotels and leisure sector through gambling and licensed bars, typically a less economically sensitive segment, contributed to the Portfolio. However, the resilience of the consumer was a surprise and stock selection in autos, retail, and media detracted from performance over the year. - Regarding technology, even following a correction after the boom in 1999/2000 we felt the sector was still trading at fair value over the year. We preferred hardware and semiconductor equipment over software and information technology services, owing to a greater prevalence of strong franchises and high barriers to entry (more akin to our investment philosophy). However, stock selection, particularly in information technology services, contributed to the Portfolio's underperformance in the sector over the year. January 2004 54 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS INTERNATIONAL SMALL CAP PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (97.1%) AUSTRALIA (2.9%) Infomedia Ltd. 6,516,316 $ 4,508 John Fairfax Holdings Ltd. 4,899,192 12,967 Promina Group Ltd. 1,546,852 3,815 Ramsay Health Care Ltd. 1,328,430 4,765 ------------------------------------------------------------------------------------------- 26,055 =========================================================================================== BELGIUM (1.1%) Omega Pharma S.A. 300,259 9,517 ------------------------------------------------------------------------------------------- DENMARK (1.6%) Danisco A/S 127,791 5,670 Kobenhavns Lufthavne A/S 75,065 8,779 ------------------------------------------------------------------------------------------- 14,449 =========================================================================================== FINLAND (5.8%) KCI Konecranes Oyj 468,208 16,254 Kone Oyj, Class B 329,354 18,850 Metso Oyj 947,738 11,540 Uponor Oyj 176,072 5,537 ------------------------------------------------------------------------------------------- 52,181 =========================================================================================== FRANCE (5.0%) Algeco 65,608 5,624 Autoroutes du Sud de la France 288,848 9,664 Chargeurs S.A. 72,140 2,359 Europeenne d'Extincteurs (a)(d)131,043 @-- Neopost S.A. 335,882 16,900 Zodiac S.A. 366,047 10,710 ------------------------------------------------------------------------------------------- 45,257 =========================================================================================== GERMANY (4.9%) Beru AG 129,759 8,438 Celesio AG 93,787 4,536 Hugo Boss AG (Non-Voting Shares) 253,596 5,088 MPC Muenchmeyer Petersen Capital AG 189,994 6,049 Pfeiffer Vacuum Technology AG 129,006 4,544 Rational AG 37,830 2,142 Sartorius AG (Non-Voting Shares) 328,639 2,811 SCS Standard Computer Systeme AG (d)21,289 @-- Techem AG (a)419,736 8,104 WMF Wuerttembergische Metallwarenfabrik AG (Non-Voting Shares) 147,082 2,294 ------------------------------------------------------------------------------------------- 44,006 =========================================================================================== GREECE (0.8%) OPAP S.A. 530,209 7,603 ------------------------------------------------------------------------------------------- HONG KONG (1.7%) Asia Satellite Telecommunications Holdings Ltd. 5,596,500 10,633 Hongkong Land Holdings Ltd. 369,000 627 Television Broadcasts Ltd. 784,000 3,959 ------------------------------------------------------------------------------------------- 15,219 =========================================================================================== IRELAND (0.5%) Kingspan Group plc 939,636 4,954 ------------------------------------------------------------------------------------------- ITALY (3.9%) Buzzi Unicem S.p.A. 922,063 10,844 Cassa di Risparmio di Firenze S.p.A. 2,478,668 4,427 Davide Campari-Milano S.p.A. 195,608 9,473 SAES Getters S.p.A. 154,570 $ 1,915 SAES Getters S.p.A. RNC 266,305 1,953 Sogefi S.p.A. 1,875,799 6,442 ------------------------------------------------------------------------------------------- 35,054 =========================================================================================== JAPAN (31.2%) Aiful Corp. 339,000 24,753 Ariake Japan Co., Ltd. 516,000 16,388 Asatsu-DK, Inc. 667,800 17,166 Asia Securities Printing Co., Ltd. 719,000 4,018 Daibiru Corp. 3,695,500 19,859 Fujimi, Inc. 187,300 5,739 Fukuda Denshi Co., Ltd. 418,900 8,817 Hurxley Corp. 253,637 3,662 ITO EN Ltd. 173,500 7,449 Jaccs Co., Ltd. 3,461,000 12,733 Leopalace21 Corp. 2,586,000 24,326 Maezawa Kasei Industries Co., Ltd. 129,200 1,612 Megane Top Co., Ltd. 296,100 2,739 Mirai Co., Ltd. 99,000 447 Nakanishi, Inc. 186,000 8,047 Nihon Trim Co., Ltd. 97,900 4,997 Nippon Broadcasting System, Inc. 106,000 4,926 Nissei Corp. 313,900 2,339 Nitta Corp. 908,400 12,572 Osaki Electric Co., Ltd. 1,588,000 8,208 OZEKI Co., Ltd. 19,900 778 Shidax Corp. 5,759 3,728 Shinkawa Ltd. 415,000 8,716 Sumitomo Osaka Cement Co., Ltd. 6,223,000 12,171 Taisei Lamick Co., Ltd. 239,300 5,215 Takuma Co., Ltd. 775,000 4,223 Tenma Corp. 810,000 8,238 TOC Co., Ltd. 2,023,000 11,267 Tokyo Kikai Seisakusho Ltd. 1,805,000 4,589 Tomy Co., Ltd. (a)433,100 6,389 Toppan Forms Co., Ltd. 571,900 6,344 Union Tool Co. 163,900 5,389 Yamaichi Electronics Co., Ltd. 655,600 7,114 Yomiuri Land Co., Ltd. 2,000,000 6,203 ------------------------------------------------------------------------------------------- 281,161 =========================================================================================== NETHERLANDS (4.2%) BE Semiconductor Industries N.V. (a)760,555 6,429 CSM N.V. CVA 113,004 2,465 IHC Caland N.V. 200,937 10,868 Laurus N.V. (a)6,042,411 9,196 Nutreco Holding N.V. 319,742 8,760 ------------------------------------------------------------------------------------------- 37,718 =========================================================================================== NEW ZEALAND (3.2%) Fisher & Paykel Appliances Holdings Ltd. 1,718,424 4,320 Fisher & Paykel Healthcare Corp., Ltd. 1,684,709 13,954 Sky City Entertainment Group Ltd. 3,463,616 10,455 ------------------------------------------------------------------------------------------- 28,729 =========================================================================================== NORWAY (2.0%) DNB NOR ASA 2,288,599 15,230
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 55 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL SMALL CAP PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- NORWAY (CONT'D) Storebrand ASA 420,280 $ 2,728 ------------------------------------------------------------------------------------------- 17,958 =========================================================================================== SOUTH KOREA (0.9%) KT&G Corp. 475,700 8,257 ------------------------------------------------------------------------------------------- SPAIN (1.9%) Abertis Infraestructuras S.A. 317,906 4,794 Amadeus Global Travel Distribution S.A., Series A 699,109 4,529 Miquel y Costas & Miquel S.A. 194,565 8,199 ------------------------------------------------------------------------------------------- 17,522 =========================================================================================== SWEDEN (4.2%) D. Carnegie & Co. AB (a)414,551 4,090 Getinge AB, Class B 496,695 4,762 Hoganas AB, Class B 232,376 4,972 Intrum Justitia AB 2,249,906 11,879 Swedish Match AB 1,179,722 12,048 ------------------------------------------------------------------------------------------- 37,751 =========================================================================================== SWITZERLAND (6.1%) Converium Holding AG 167,674 8,887 Edipresse S.A. (Bearer), Class B 23,663 11,445 Galenica Holding AG (Registered), Class B 43,344 6,290 Schindler Holding AG (a)18,456 4,493 SIG Holding AG (Registered) 32,126 4,422 Valora Holding AG 50,753 12,601 Zehnder Group AG, Class B 7,851 6,329 ------------------------------------------------------------------------------------------- 54,467 =========================================================================================== UNITED KINGDOM (15.2%) British Vita plc 1,442,839 6,183 Capital Radio plc 1,000,712 8,398 Cattles plc 2,601,351 15,526 De La Rue plc 916,959 4,539 Devro plc 2,617,584 4,235 HMV Group plc 1,835,892 5,475 Jarvis plc 1,334,779 4,940 Keller Group plc 1,166,201 4,499 Luminar plc 1,491,821 10,842 Michael Page International plc 1,153,213 3,830 Novar plc 3,752,679 9,247 PHS Group plc 4,636,347 6,933 Regent Inns plc 2,391,895 3,182 Rotork plc 1,380,469 9,028 SIG plc 1,212,966 7,039 Spirax-Sarco Engineering plc 987,834 9,525 SSL International plc 1,259,660 7,422 William Hill plc 757,009 5,772 Wincanton plc 2,638,448 9,787 ------------------------------------------------------------------------------------------- 136,402 =========================================================================================== TOTAL COMMON STOCKS (COST $712,510) 874,260 =========================================================================================== TOTAL FOREIGN SECURITIES (97.1%) (COST $712,510) 874,260 =========================================================================================== FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (2.6%) REPURCHASE AGREEMENT (2.6%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $22,908 (COST $22,907) $ (f)22,907 $ 22,907 =========================================================================================== FOREIGN CURRENCY (0.0%) Australian Dollar AUD 1 1 British Pound GBP @-- 1 Euro EUR 84 105 Japanese Yen JPY 55 1 New Zealand Dollar NZD @-- @-- Norwegian Krone NOK @-- @-- Swedish Krona SEK 10 1 ------------------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $107) 109 =========================================================================================== TOTAL INVESTMENTS (99.7%) (COST $735,524) 897,276 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (0.6%) Cash $ 467 Receivable for Portfolio Shares Sold 2,002 Dividends Receivable 1,599 Foreign Withholding Tax Reclaim Receivable 1,195 Receivable for Investments Sold 56 Interest Receivable 1 Other 26 5,346 ------------------------------------------------------------------------------------------- LIABILITIES (-0.3%) Investment Advisory Fees Payable (1,925) Payable for Portfolio Shares Redeemed (427) Administrative Fees Payable (121) Custodian Fees Payable (66) Directors' Fees and Expenses Payable (45) Payable for Investments Purchased (9) Other Liabilities (33) (2,626) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 899,996 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 733,611 Undistributed (Distributions in Excess of) Net Investment Income (660) Accumulated Net Realized Gain (Loss) 4,996 Unrealized Appreciation (Depreciation) on: Investments 161,752 Foreign Currency Exchange Contracts and Translations 297 ------------------------------------------------------------------------------------------- NET ASSETS $ 899,996 =========================================================================================== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 43,856,360 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 20.52 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 56 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) INTERNATIONAL SMALL CAP PORTFOLIO (a) Non-income producing security. (d) Security was valued at fair value -- At December 31, 2003, the Portfolio held fair valued securities, each valued at less than $500, representing less than 0.05% of net assets. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. CVA Certificaten Van Aandelen RNC Non-Convertible Savings Shares FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET IN UNREALIZED CURRENCY TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ------------------------------------------------------------------------------------------ JPY 5,997 $ 56 1/6/04 US$ 56 $ 56 $ @-- US$ 9 9 1/7/04 JPY 958 9 @-- ------- -------- ------- $ 65 $ 65 $ @-- ======= ======== =======
SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS --------------------------------------------------------------- Aerospace & Defense $ 10,710 1.2% Auto Components 19,388 2.1 Beverages 16,922 1.9 Building Products 61,192 6.8 Chemicals 11,922 1.3 Commercial Banks 19,657 2.2 Commercial Services & Supplies 38,653 4.3 Construction & Engineering 13,279 1.5 Consumer Finance 53,012 5.9 Diversified Financial Services 12,606 1.4 Diversified Telecommunication Services 10,633 1.2 Electrical Equipment 15,335 1.7 Electronic Equipment & Instruments 17,845 2.0 Energy Equipment & Services 18,972 2.1 Food & Staples Retailing 13,636 1.5 Food Products 37,517 4.2 Health Care Equipment & Supplies 34,185 3.8 Health Care Providers & Services 21,214 2.3 Hotels, Restaurants & Leisure 40,181 4.5 Insurance 12,702 1.4 Machinery 115,448 12.8 Media 58,862 6.5 Office Electronics 16,900 1.9 Pharmaceuticals 9,518 1.0 Real Estate 56,080 6.2 Semiconductors & Semiconductor Equipment 22,258 2.5 Specialty Retail 18,076 2.0 Tobacco 20,305 2.3 Transportation Infrastructure 14,459 1.6 Other 62,793 7.0 --------------------------------------------------------------- $ 874,260 97.1% ===============================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 57 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) JAPANESE VALUE EQUITY PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,00** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
"JAPANESE VALUE "MSCI JAPAN INDEX(1)" EQUITY PORTFOLIO-CLASS A" "*" $ 500,000 $ 500,000 "1994" $ 512,000 $ 491,500 "1995" $ 515,533 $ 473,609 "1996" $ 435,625 $ 466,979 "1997" $ 332,513 $ 423,877 "1998" $ 349,304 $ 461,263 "1999" $ 564,231 $ 755,318 "2000" $ 405,344 $ 576,383 "2001" $ 286,173 $ 403,699 "2002" $ 256,754 $ 358,404 "2003" $ 348,955 $ 472,986
* Commenced operations on April 25, 1994 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1)
TOTAL RETURNS(2) -------------------------------- AVERAGE ANNUAL --------------------- ONE FIVE SINCE YEAR YEARS INCEPTION ----------------------------------------------------------------- Portfolio - Class A (3) 31.97% 0.50% (0.57)% Index - Class A 35.91 (0.02) (3.69) Portfolio - Class B (4) 31.59 0.25 (0.32) Index - Class B 35.91 (0.02) (4.67)
(1) The MSCI Japan Index is an unmanaged index of common stocks. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on April 25, 1994 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Japanese Value Equity Portfolio seeks long-term capital appreciation by investing primarily in equity securities of Japanese issuers. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 31.97% for the Class A shares and 31.59% for the Class B shares compared to 35.91% for the Morgan Stanley Capital International (MSCI) Japan Index (the "Index"). FACTORS AFFECTING PERFORMANCE - The Japanese market declined over the first quarter, weighed heavily by geopolitical concerns in Iraq and North Korea, and a lack of confidence in the global economic recovery, which was dragged further down by the effects of SARS. In addition, many domestic corporate pension funds returned portions of their unfunded portfolios back to the government, further weakening supply and demand in an already fragile environment. - In April, the Japanese markets started rallying together with major global equity markets. Earnings released for the fiscal year ending in March 2003 confirmed that restructuring efforts over the last several years were beginning to bear fruit, led by massive purchases by non-resident investors as well as increased activity by domestic Japanese individuals. In addition, the Japanese Government's decisive move to provide public funds for Resona Bank in April led many observers to conclude that the Government had the ability to act quickly to resolve a potential financial crisis. - Japanese equity markets were generally range bound during the fourth quarter, owing largely to consolidation of gains for the prior six months. In addition, a falling U.S. dollar versus the Japanese yen, investors' "wait and see" attitude towards Lower House elections in Japan, and semi-annual corporate earnings all weighed on the investor sentiment, despite improving economic data. - The Portfolio's small exposure to the languishing banking sector helped it sidestep major declines in that sector during the first eight months of the period. However, this stance detracted from performance for the entire period by causing the Portfolio to miss out on the banking sector's sharp, momentum-driven rise in September. The Portfolio's minimal exposure to steel 58 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) JAPANESE VALUE EQUITY PORTFOLIO companies, which fared well, also negatively affected performance. - On a more positive note, the Portfolio enjoyed strong performance in several areas. While smaller cap stocks were very strong during the first half of 2003, investors shifted focus to large-capitalization Japanese companies in technology and other globally competitive sectors in June. As a result, the Portfolio benefited from its higher exposure to large cap blue chip stocks, specifically within the capital goods and the technology hardware and equipment sectors during the June to August period. Strong stock selection within the pharmaceutical and automobile sectors also supported the Portfolio's relative performance. MANAGEMENT STRATEGIES - The Portfolio continued its long-term strategy of trying to find high-quality value-oriented companies with earnings potential. - The Portfolio benefited from our strategy of emphasizing large-capitalization high quality stocks, especially within the technology and capital goods sectors. For example, although we believed the Japanese technology sector had a generally positive profit outlook, we modestly reduced exposure to the sector, while increasing number of holdings in companies with relatively strong balance sheets. This approach bore fruit early in the second half of the year when investors shifted their attention away from small capitalization stocks to larger capitalization companies in technology and other globally competitive sectors. January 2004 59 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS JAPANESE VALUE EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (100.2%) AUTOMOBILES (8.9%) Nissan Motor Co., Ltd. 100,200 $ 1,142 Suzuki Motor Corp. 46,900 693 Toyota Motor Corp. 31,600 1,065 Yamaha Motor Co., Ltd. 36,000 392 ------------------------------------------------------------------------------------------- 3,292 =========================================================================================== BUILDING PRODUCTS (3.3%) Daikin Industries Ltd. 36,000 830 Sanwa Shutter Corp. 70,000 395 ------------------------------------------------------------------------------------------- 1,225 =========================================================================================== CHEMICALS (10.1%) Daicel Chemical Industries Ltd. 123,000 506 Denki Kagaku Kogyo Kabushiki Kaisha 176,000 565 Kaneka Corp. 91,000 678 Lintec Corp. 24,000 381 Mitsubishi Chemical Corp. 220,000 572 Nifco, Inc. 34,000 426 Shin-Etsu Polymer Co., Ltd. 54,000 329 Toyo Ink Manufacturing Co., Ltd. 74,000 263 ------------------------------------------------------------------------------------------- 3,720 =========================================================================================== COMMERCIAL SERVICES & SUPPLIES (1.9%) Dai Nippon Printing Co., Ltd. 41,000 575 Nissha Printing Co., Ltd. 9,000 117 ------------------------------------------------------------------------------------------- 692 =========================================================================================== COMPUTERS & PERIPHERALS (8.8%) Fujitsu Ltd. (a)162,000 953 Mitsumi Electric Co., Ltd. 42,100 463 NEC Corp. 120,000 882 Toshiba Corp. 245,000 926 ------------------------------------------------------------------------------------------- 3,224 =========================================================================================== CONSTRUCTION & ENGINEERING (1.5%) Kyudenko Corp. 19,000 78 Obayashi Corp. 91,000 406 Sanki Engineering Co., Ltd. 16,000 82 ------------------------------------------------------------------------------------------- 566 =========================================================================================== CONSUMER FINANCE (1.4%) Hitachi Capital Corp. 36,900 511 ------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES (3.4%) Nippon Telegraph & Telephone Corp. 137 659 Tokyo Electric Power Co., Inc. (The) 26,400 578 ------------------------------------------------------------------------------------------- 1,237 =========================================================================================== ELECTRICAL EQUIPMENT (0.9%) Furukawa Electric Co., Ltd. 100,000 332 ------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (8.2%) Hitachi High-Technologies Corp. 14,300 226 Hitachi Ltd. 144,000 866 Kyocera Corp. 10,400 692 Ryosan Co., Ltd. 21,400 374 TDK Corp. 11,800 848 ------------------------------------------------------------------------------------------- 3,006 =========================================================================================== FOOD & STAPLES RETAILING (1.6%) FamilyMart Co., Ltd. 25,200 573 ------------------------------------------------------------------------------------------- FOOD PRODUCTS (1.6%) House Foods Corp. 23,600 $ 266 Nippon Meat Packers, Inc. 34,000 332 ------------------------------------------------------------------------------------------- 598 =========================================================================================== HOUSEHOLD DURABLES (11.0%) Casio Computer Co., Ltd. 63,000 665 Matsushita Electric Industrial Co., Ltd. 82,000 1,132 Rinnai Corp. 13,400 318 Sangetsu Co., Ltd. 2,000 38 Sekisui Chemical Co., Ltd. 113,000 574 Sekisui House Ltd. 57,000 588 Sony Corp. 20,900 722 ------------------------------------------------------------------------------------------- 4,037 =========================================================================================== LEISURE EQUIPMENT & PRODUCTS (4.8%) Fuji Photo Film Co., Ltd. 29,000 935 Yamaha Corp. 41,900 821 ------------------------------------------------------------------------------------------- 1,756 =========================================================================================== MACHINERY (9.0%) Amada Co., Ltd. 89,000 462 Daifuku Co., Ltd. 77,000 343 Fuji Machine Manufacturing Co., Ltd. 17,500 222 Fujitec Co., Ltd. 36,000 155 Kurita Water Industries Ltd. 48,000 578 Minebea Co., Ltd. 103,000 522 Mitsubishi Heavy Industries Ltd. 237,000 658 Tsubakimoto Chain Co. 108,000 355 ------------------------------------------------------------------------------------------- 3,295 =========================================================================================== MEDIA (0.6%) Toho Co., Ltd. 18,800 239 ------------------------------------------------------------------------------------------- OFFICE ELECTRONICS (5.9%) Canon, Inc. 23,000 1,069 Ricoh Co., Ltd. 56,000 1,103 ------------------------------------------------------------------------------------------- 2,172 =========================================================================================== PHARMACEUTICALS (5.8%) Ono Pharmaceutical Co., Ltd. 17,900 672 Sankyo Co., Ltd. 34,600 649 Yamanouchi Pharmaceutical Co., Ltd. 26,100 810 ------------------------------------------------------------------------------------------- 2,131 =========================================================================================== REAL ESTATE (1.9%) Mitsubishi Estate Co., Ltd. 73,000 691 ------------------------------------------------------------------------------------------- ROAD & RAIL (1.8%) East Japan Railway Co. 142 668 ------------------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.2%) Rohm Co., Ltd. 3,900 456 ------------------------------------------------------------------------------------------- SOFTWARE (2.4%) Nintendo Co., Ltd. 9,600 894 ------------------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS (0.8%) Nisshinbo Industries, Inc. 51,000 284 ------------------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS (2.7%) Mitsubishi Corp. 73,000 773 Nagase & Co., Ltd. 32,000 211 ------------------------------------------------------------------------------------------- 984 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 60 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) JAPANESE VALUE EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE (0.7%) Mitsubishi Logistics Corp. 30,000 $ 249 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $38,695) 36,832 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- FOREIGN CURRENCY (0.0%) Japanese Yen (COST $3) JPY 310 3 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.2%) (COST $38,698) 36,835 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (0.2%) Receivable for Investments Sold $ 71 Dividends Receivable 7 Receivable for Portfolio Shares Sold 4 Other 2 84 ------------------------------------------------------------------------------------------- LIABILITIES (-0.4%) Bank Overdraft Payable (79) Investment Advisory Fees Payable (57) Directors' Fees and Expenses Payable (15) Administrative Fees Payable (7) Custodian Fees Payable (6) Other Liabilities (9) (173) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 36,746 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 74,722 Undistributed Net Investment Income (Accumulated Net Investment Loss) (15) Accumulated Net Realized Gain (Loss) (36,098) Unrealized Appreciation (Depreciation) on Investments (1,863) ------------------------------------------------------------------------------------------- NET ASSETS $ 36,746 =========================================================================================== CLASS A: NET ASSETS $ 36,295 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 5,899,299 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 6.15 =========================================================================================== CLASS B: NET ASSETS $ 451 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 74,584 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 6.04 ===========================================================================================
(a) Non-income producing security. @ Face Amount/Value is less than $500. FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s)open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ------------------------------------------------------------------------------------------- JPY 7,615 $ 71 1/7/04 US$ 71 $ 71 $ @-- ====== ===== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 61 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) LATIN AMERICAN PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
MSCI EMERGING MARKETS LATIN AMERICAN FREE LATIN AMERICAN INDEX(1) PORTFOLIO-CLASS A "*" $ 500,000 $ 500,000 "1995" $ 460,100 $ 456,600 "1996" $ 562,288 $ 679,284 "1997" $ 740,196 $ 959,692 "1998" $ 480,313 $ 603,647 "1999" $ 763,170 $ 1,033,927 "2000" $ 636,713 $ 866,326 "2001" $ 632,638 $ 853,504 "2002" $ 490,294 $ 678,109 "2003" $ 850,709 $ 1,080,567
* Commenced operations on January 18, 1995 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE LATIN AMERICA INDEX(1)
TOTAL RETURNS(2) ---------------------------- AVERAGE ANNUAL ------------------- ONE FIVE SINCE YEAR YEARS INCEPTION ---------------------------------------------------------------------------------- Portfolio - Class A (3) 59.35% 12.37% 9.00% Index - Class A 73.51 12.11 6.15 Portfolio - Class B (4) 58.90 12.06 10.55 Index - Class B 73.51 12.11 7.67
(1) The MSCI Emerging Markets Free Latin America Index (the "Index") is a broad based market cap weighted composite index covering at least 60% of markets in Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. The Index takes into account local market restrictions for specific securities or classes of shares that may be excluded from or limited for foreign investor ownership. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on January 18, 1995 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Latin American Portfolio seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of Latin American issuers. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. In addition, investing in emerging markets may involve a relative higher degree of volatility. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 59.35% for the Class A shares and 58.90% for the Class B shares compared to 73.51% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free Latin America Index (the "Index"). FACTORS AFFECTING PERFORMANCE - Latin American markets rebounded from early year weakness to return 73.5% during the period in review. The region benefited from a bounce in investor sentiment due to accommodative global monetary policy and a recovery in global growth. - All Latin markets experienced strong double-digit gains with particular strength in major markets such as Brazil (given improving domestic economy and reduced political and debt concerns) and Chile (given strong commodity prices and economic growth). The smaller markets of Argentina, Peru, and Colombia also performed well. The Mexican market, given weak economic growth and disappointing reform momentum, was the weakest performer in the region in 2003. - In terms of relative performance, negative contributors came from stock selection in Brazil, Venezuela, Mexico, and Chile, and our overweight position in Mexico. - Stock selection in Peru coupled with overweight positions in Brazil and Venezuela were the largest contributors to relative performance. MANAGEMENT STRATEGIES - We continued to focus on countries where gross domestic product growth, fiscal policy, and reform agendas remain strong and on companies with strong management and earnings visibility. 62 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) LATIN AMERICAN PORTFOLIO - In Mexico we focused the Portfolio on consumer names and followed a bottom-up stock selection strategy, based on individual earnings quality and visibility. In Brazil we continued to increase our position focusing on domestically oriented companies that trade at attractive valuation levels, demonstrate strong pricing power, and offer a positive-growth outlook. The Portfolio's largest country allocations remained Brazil and Mexico. On a relative basis, we were overweight in Mexico and Brazil, neutral Venezuela, and underweight the rest of the region. January 2004 63 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS LATIN AMERICAN PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (98.4%) (UNLESS OTHERWISE NOTED) ARGENTINA (1.4%) Tenaris S.A. ADR (a)10,765 $ 359 ------------------------------------------------------------------------------------------- BRAZIL (52.2%) AmBev ADR (Preferred) 62,098 1,584 Aracruz Celulose S.A. ADR 12,000 420 Banco Bradesco S.A. (Preferred) 21,648,000 114 Banco Bradesco S.A. ADR 15,890 420 Banco Itau Holding Financeira S.A. (Preferred) 260,000 26 Banco Itau Holding Financeira S.A. ADR 17,481 853 Banco Nacional S.A. (Preferred) (a)(d)11,847,000 @-- Brasil Telecom Participacoes S.A. (Preferred) 13,030,000 97 Brasil Telecom Participacoes S.A. ADR 13,006 492 Brasil Telecom S.A. 237,581 1 Caemi Mineracao E Metalurgica S.A. (Preferred) (a)170,000 75 CEMIG S.A. (Preferred) 11,300,000 206 CEMIG S.A. ADR (Preferred) 28,128 518 Cia Brasileira de Distribuicao Grupo Pao de Acucar ADR 24,299 611 Cia De Bebidas das Americas (Preferred) 380,000 97 CSN S.A. ADR 5,188 278 CVRD (Bonus Shares) (d)34,986 @-- CVRD ADR 4,460 261 CVRD ADR (Preferred) 33,413 1,721 CVRD, Class A (Preferred) 772 39 Empresa Brasileira de Aeronautica S.A. (Preferred) 1,942 17 Empresa Brasileira de Aeronautica S.A. ADR 3,200 112 Gerdau S.A. ADR 10,941 221 Klabin S.A. (Preferred) 63,000 82 Lojas Arapua S.A. (Preferred) (a)(d)10,009,300 @-- Lojas Arapua S.A. GDR (a)(d)13,460 @-- Petrobras S.A. (Preferred) 965 26 Petrobras S.A. ADR 64,914 1,898 Petrobras S.A. ADR (Preferred) 65,970 1,759 Tele Leste Celular Participacoes S.A. (Preferred) (a)1 @-- Telesp Celular Participacoes S.A. (Preferred) (a)201,021,000 526 Telesp Celular Participacoes S.A. ADR (a)65,927 434 Unibanco GDR 25,200 629 Usinas Siderurgicas de Minas Gerais S.A. (Preferred) 20,897 245 Votorantim Celulose e Papel S.A. (Preferred) 943,000 60 Votorantim Celulose e Papel S.A. ADR 6,292 197 ------------------------------------------------------------------------------------------- 14,019 =========================================================================================== CHILE (5.3%) Banco de Chile ADR 1 @-- Banco Santander Chile S.A. (Preferred) 13,516 321 Colbun S.A. 692,783 95 Distribucion y Servicio S.A. ADR 11,521 238 Empresa Nacional de Telecomunicaciones S.A. 13,947 86 Enersis S.A. 77,650 571 S.A.C.I. Falabella S.A. 67,900 120 ------------------------------------------------------------------------------------------- 1,431 =========================================================================================== MEXICO (37.7%) Alfa S.A. de C.V., Class A 69,700 $ 210 America Movil S.A. de C.V., Class L ADR 105,423 2,882 Carso Global Telecom S.A.de C.V., Class A1 (a)50,136 70 Cemex S.A. de C.V. 55,687 292 Cemex S.A. de C.V. ADR 15,849 415 Coca-Cola Femsa S.A. ADR (a)12,500 266 Controladora Comercial Mexicana S.A. de C.V. 24,500 25 Grupo Aeroportuario del Sureste S.A. de C.V., ADR 16,520 291 Grupo Financiero Banorte S.A. de C.V., Class O 43,000 150 Grupo Financiero BBVA Bancomer S.A. de C.V., Class B (a)795,761 682 Grupo Mexico S.A. de C.V., Class B (a)33,200 85 Grupo Televisa S.A. ADR 25,400 1,012 Telmex, Class L ADR 71,096 2,348 Wal-Mart de Mexico S.A. de C.V. ADR 980 28 Wal-Mart de Mexico S.A. de C.V., Class C 156,079 419 Wal-Mart de Mexico S.A. de C.V., Class V 325,280 930 ------------------------------------------------------------------------------------------- 10,105 =========================================================================================== PERU (1.0%) Cia de Minas Buenaventura S.A. ADR 9,300 263 ------------------------------------------------------------------------------------------- VENEZUELA (0.8%) CANTV ADR 14,454 220 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $22,339) 26,397 =========================================================================================== TOTAL FOREIGN SECURITIES (98.4%) (COST $22,339) 26,397 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (2.5%) REPURCHASE AGREEMENT (2.5%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $671 (COST $671) $ (f)671 671 ------------------------------------------------------------------------------------------- FOREIGN CURRENCY (0.1%) Brazilian Real BRL 93 32 Mexican Peso MXN @-- @-- ------------------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $33) 32 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 64 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) LATIN AMERICAN PORTFOLIO
VALUE (000) ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (101.0%) (COST $23,043) $ 27,100 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (2.2%) Cash $ 2 Receivable for Investments Sold 392 Dividends Receivable 213 Other 1 608 ------------------------------------------------------------------------------------------- LIABILITIES (-3.2%) Payable for Investments Purchased (776) Investment Advisory Fees Payable (64) Custodian Fees Payable (8) Directors' Fees and Expenses Payable (6) Administrative Fees Payable (5) Other Liabilities (10) (869) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 26,839 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 49,381 Undistributed (Distributions in Excess of) Net Investment Income 22 Accumulated Net Realized Gain (Loss) (26,621) Unrealized Appreciation (Depreciation) on Investments 4,057 ------------------------------------------------------------------------------------------- NET ASSETS $ 26,839 =========================================================================================== CLASS A: NET ASSETS $ 26,817 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,398,504 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 11.18 =========================================================================================== CLASS B: NET ASSETS $ 22 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,924 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 11.33 ===========================================================================================
(a) Non-income producing security. (d) Security was valued at fair value -- At December 31, 2003, the Portfolio held fair valued securities, each valued at less than $500, representing less than 0.05% of net assets. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. ADR American Depositary Receipts GDR Global Depositary Receipts FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Portfolio had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ------------------------------------------------------------------------------------------- MXN 1,613 $ 144 1/2/04 US$ 144 $ 144 $ @-- ============= =========== ===============
SUMMARY OF TOTAL FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2003 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------------------------------------------------------------------------- Airlines $ 291 1.1% Beverages 1,947 7.2 Commercial Banks 3,194 11.9 Construction Materials 985 3.7 Diversified Telecommunication Services 3,315 12.3 Electric Utilities 1,184 4.4 Energy Equipment & Services 565 2.1 Food & Staples Retailing 849 3.2 Media 1,012 3.8 Metals & Mining 2,911 10.9 Multiline Retail 1,522 5.7 Oil & Gas 3,682 13.7 Paper & Forest Products 562 2.1 Wireless Telecommunication Services 3,843 14.3 Other 535 2.0 ------------------------------------------------------------------------- $ 26,397 98.4% =========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 65 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) EQUITY GROWTH PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
S&P 500 INDEX(1) EQUITY GROWTH PORTFOLIO-CLASS A "1993" $ 500,000 $ 500,000 "1994" $ 506,702 $ 516,300 "1995" $ 696,938 $ 748,738 "1996" $ 856,982 $ 980,622 "1997" $ 1,142,906 $ 1,287,787 "1998" $ 1,469,480 $ 1,533,033 "1999" $ 1,778,717 $ 2,144,621 "2000" $ 1,616,587 $ 1,891,985 "2001" $ 1,424,617 $ 1,608,755 "2002" $ 1,109,991 $ 1,164,095 "2003" $ 1,428,336 $ 1,471,532
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. Performance was positively impacted due to the receipt of proceeds from the settlement of class action suits involving, primarlily one of the Portfolio's holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
TOTAL RETURNS(2) ------------------------------------ AVERAGE ANNUAL ---------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ------------------------------------------------------------------- Portfolio - Class A (3) 26.41% (0.81)% 11.40% 10.84% Index - Class A 28.68 (0.57) 11.07 10.98 Portfolio - Class B (4) 26.13 (1.06) N/A 8.48 Index - Class B 28.68 (0.57) N/A 9.28
(1) The S&P 500 Index is an unmanaged stock index comprised of 500 large-cap U.S. companies with market capitalization of $1 billion or more. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on April 2, 1991 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Equity Growth Portfolio seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of large capitalization companies. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 26.41% for the Class A shares and 26.13% for the Class B shares compared to 28.68% for the S&P 500 Index (the "Index"). FACTORS AFFECTING PERFORMANCE - During 2003, across the market cap spectrum, smaller cap and lower quality, more speculative stocks exceeded larger, higher quality names. Our emphasis on the larger, higher quality names we favor detracted from the Portfolio's performance. - Stock selection was weakest in the consumer discretionary sector. The Portfolio was hampered by weak performance from a number of retailer and media companies. - Favorable stock selection in the healthcare sector was unfortunately overshadowed by the negative effect of our sector overweight, as compared to the Index. Healthcare did not advance as strongly as other economically sensitive sectors. - Compared to the Index, an overweight in the information technology sector was the largest positive contributor to relative results for the year. This was augmented by strong stock selection. The Portfolio generally benefited from its semi-conductor overweight as the semi-conductor industry advanced amid the improved economic environment. MANAGEMENT STRATEGIES - On average the three largest sectors in the Portfolio during 2003 were technology, healthcare and consumer discretionary. - In 2003, the Portfolio owned a mix of stable and cyclical companies, although at the margin we increased exposure to cyclicals. We implemented this strategy through overweights in the technology and healthcare sectors (as compared to the Index), where we found attractive investment opportunities. January 2004 66 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS EQUITY GROWTH PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (97.8%) AIR FREIGHT & LOGISTICS (0.7%) United Parcel Service, Inc., Class B 77,600 $ 5,785 ------------------------------------------------------------------------------------------- BEVERAGES (3.6%) Anheuser Busch Cos., Inc. 112,000 5,900 Coca Cola Co. (The) 305,063 15,482 PepsiCo., Inc. 150,970 7,038 ------------------------------------------------------------------------------------------- 28,420 =========================================================================================== BIOTECHNOLOGY (3.0%) Amgen, Inc. (a)266,442 16,466 Biogen Idec, Inc. (a)38,500 1,416 Genzyme Corp. (a)67,900 3,350 Gilead Sciences, Inc. (a)45,630 2,653 ------------------------------------------------------------------------------------------- 23,885 =========================================================================================== CAPITAL MARKETS (4.4%) Bank of New York Co., Inc. (The) 228,000 7,552 Charles Schwab Corp. (The) 355,000 4,203 Goldman Sachs Group, Inc. 150,715 14,880 Lehman Brothers Holdings, Inc. 105,300 8,131 ------------------------------------------------------------------------------------------- 34,766 =========================================================================================== COMMERCIAL BANKS (1.4%) Wells Fargo & Co. 183,800 10,824 ------------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES (0.7%) Apollo Group, Inc., Class A (a)84,150 5,722 ------------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (5.1%) Analog Devices, Inc. (a)246,800 11,266 Cisco Systems, Inc. (a)870,350 21,141 Juniper Networks, Inc. (a)105,700 1,974 QUALCOMM, Inc. 104,163 5,618 ------------------------------------------------------------------------------------------- 39,999 =========================================================================================== COMPUTERS & PERIPHERALS (4.0%) Dell, Inc. (a)345,025 11,717 EMC Corp. (a)256,425 3,313 International Business Machines Corp. 94,550 8,763 Network Appliance, Inc. (a)258,700 5,311 SanDisk Corp. (a)44,600 2,727 Seagate Technology, Inc. (d)186,100 @-- ------------------------------------------------------------------------------------------- 31,831 =========================================================================================== CONSUMER FINANCE (1.3%) American Express Co. 219,050 10,565 ------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES (3.6%) Citigroup, Inc. 586,779 28,482 ------------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT (0.7%) Emerson Electric Co. 92,000 5,957 ------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.4%) Amphenol Corp., Class A (a)44,600 2,851 ------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (0.9%) Smith International, Inc. (a)163,100 6,772 ------------------------------------------------------------------------------------------- FOOD & STAPLES RETAILING (2.5%) Walgreen Co. 58,669 2,135 Wal-Mart Stores, Inc. 331,238 17,572 ------------------------------------------------------------------------------------------- 19,707 =========================================================================================== HEALTH CARE EQUIPMENT & SUPPLIES (2.3%) Boston Scientific Corp. (a)169,960 $ 6,248 Guidant Corp. 64,900 3,907 Medtronic, Inc. 84,200 4,093 St. Jude Medical, Inc. (a)62,300 3,822 ------------------------------------------------------------------------------------------- 18,070 =========================================================================================== HEALTH CARE PROVIDERS & SERVICES (2.4%) Anthem, Inc. (a)99,549 7,466 Caremark Rx, Inc. (a)127,700 3,235 UnitedHealth Group, Inc. 140,900 8,197 ------------------------------------------------------------------------------------------- 18,898 =========================================================================================== HOTELS, RESTAURANTS & LEISURE (1.7%) Carnival Corp. 130,400 5,181 McDonald's Corp. 191,700 4,760 Yum! Brands, Inc. (a)94,420 3,248 ------------------------------------------------------------------------------------------- 13,189 =========================================================================================== HOUSEHOLD PRODUCTS (2.5%) Colgate-Palmolive Co. 99,688 4,990 Procter & Gamble Co. 145,288 14,511 ------------------------------------------------------------------------------------------- 19,501 =========================================================================================== INDUSTRIAL CONGLOMERATES (7.4%) 3M Co. 191,700 16,300 General Electric Co. 1,360,800 42,158 ------------------------------------------------------------------------------------------- 58,458 =========================================================================================== INSURANCE (2.9%) American International Group, Inc. 345,050 22,870 ------------------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL (3.2%) eBay, Inc. (a)256,600 16,574 InterActiveCorp (a)257,400 8,733 ------------------------------------------------------------------------------------------- 25,307 =========================================================================================== INTERNET SOFTWARE & SERVICES (1.0%) Yahoo!, Inc. (a)184,400 8,329 ------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY SERVICES (2.0%) Accenture Ltd., Class A (a)296,450 7,803 First Data Corp. 125,400 5,153 Paychex, Inc. 77,400 2,879 ------------------------------------------------------------------------------------------- 15,835 =========================================================================================== MEDIA (4.2%) Clear Channel Communications, Inc. 180,150 8,436 EchoStar Communications Corp., Class A (a)175,300 5,960 News Corp., Ltd. (Limited Voting Shares) ADR 105,400 3,189 Univision Communications, Inc., Class A (a)133,475 5,298 Viacom, Inc., Class B 226,180 10,038 ------------------------------------------------------------------------------------------- 32,921 =========================================================================================== MULTILINE RETAIL (2.5%) Dollar Tree Stores, Inc. (a)250,170 7,520 Target Corp. 309,136 11,871 ------------------------------------------------------------------------------------------- 19,391 =========================================================================================== OIL & GAS (0.9%) Exxon Mobil Corp. 183,250 7,513 -------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 67 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EQUITY GROWTH PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- PHARMACEUTICALS (10.0%) Abbott Laboratories 151,813 $ 7,074 Allergan, Inc. 25,600 1,966 Bristol-Myers Squibb Co. 96,500 2,760 Eli Lilly & Co. 74,800 5,261 INAMED Corp. (a)41,050 1,973 Johnson & Johnson 317,800 16,418 Merck & Co., Inc. 77,075 3,561 Pfizer, Inc. 1,063,342 37,568 Wyeth 49,678 2,109 ------------------------------------------------------------------------------------------- 78,690 =========================================================================================== SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (7.9%) Applied Materials, Inc. (a)320,301 7,191 Broadcom Corp., Class A (a)67,800 2,311 Intel Corp. 768,425 24,743 Linear Technology Corp. 179,650 7,558 Marvell Technology Group Ltd. (a)133,900 5,079 Maxim Integrated Products, Inc. 52,800 2,630 Novellus Systems, Inc. (a)71,700 3,015 Texas Instruments, Inc. 264,650 7,775 Xilinx, Inc. (a)52,100 2,018 ------------------------------------------------------------------------------------------- 62,320 =========================================================================================== SOFTWARE (9.5%) Mercury Interactive Corp. (a)160,900 7,826 Microsoft Corp. 1,635,526 45,042 Novell, Inc. (a)507,800 5,342 Oracle Corp. (a)581,050 7,670 Peoplesoft, Inc. (a)165,900 3,783 VERITAS Software Corp. (a)145,150 5,394 ------------------------------------------------------------------------------------------- 75,057 =========================================================================================== SPECIALTY RETAIL (4.5%) Abercrombie & Fitch Co. (a)105,900 2,617 Bed Bath & Beyond, Inc. (a)110,300 4,781 Chico's FAS, Inc. (a)87,120 3,219 Home Depot, Inc. 375,745 13,335 Lowe's Cos., Inc. 76,000 4,210 Tiffany & Co. 96,270 4,351 TJX Cos., Inc. 127,100 2,803 ------------------------------------------------------------------------------------------- 35,316 =========================================================================================== TOBACCO (0.6%) Altria Group, Inc. 87,800 4,778 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $675,930) 772,009 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (1.0%) REPURCHASE AGREEMENT (1.0%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $8,144 (COST $8,144) $ (f)8,144 8,144 ------------------------------------------------------------------------------------------- VALUE (000) ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (98.8%) (COST $684,074) $ 780,153 ------------------------------------------------------------------------------------------- AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (2.9%) Receivable for Investments Sold $ 13,894 Receivable for Portfolio Shares Sold 7,738 Litigation Recovery Receivable 895 Dividends Receivable 519 Other 27 23,073 ------------------------------------------------------------------------------------------- LIABILITIES (-1.7%) Payable for Investments Purchased (11,604) Investment Advisory Fees Payable (1,122) Payable for Portfolio Shares Redeemed (822) Directors' Fees and Expenses Payable (117) Distribution Fees, Class B (116) Administrative Fees Payable (108) Custodian Fees Payable (9) Bank Overdraft Payable (4) Other Liabilities (35) (13,937) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 789,289 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 888,929 Undistributed (Distributions in Excess of) Net Investment Income (117) Accumulated Net Realized Gain (Loss) (195,602) Unrealized Appreciation (Depreciation) on Investments 96,079 ------------------------------------------------------------------------------------------- NET ASSETS $ 789,289 =========================================================================================== CLASS A: NET ASSETS $ 589,698 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 37,461,432 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.74 =========================================================================================== CLASS B: NET ASSETS $ 199,591 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 12,836,833 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 15.55 ===========================================================================================
(a) Non-income producing security. (d) Security was valued at fair value -- At December 31, 2003, the Portfolio held a fair valued security, valued at less than $500, representing less than 0.05% of net assets. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. @ Face Amount/Value is less than $500. ADR American Depositary Receipts THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 68 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) FOCUS EQUITY PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
S&P 500 INDEX(1) FOCUS EQUITY PORTFOLIO - CLASS A "*" $ 500,000 $ 500,000 "1995" $ 650,860 $ 706,250 "1996" $ 800,285 $ 995,106 "1997" $ 1,067,260 $ 1,326,576 "1998" $ 1,372,176 $ 1,530,205 "1999" $ 1,660,883 $ 2,240,832 "2000" $ 1,509,410 $ 1,979,551 "2001" $ 1,330,092 $ 1,678,263 "2002" $ 1,036,275 $ 1,194,755 "2003" $ 1,333,478 $ 1,565,010
* Commenced operations on March 8, 1995 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. Performance was positively impacted due to the receipt of proceeds from the settlement of class action suits involving, primarily one of the Portfolio's holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
TOTAL RETURNS(2) ------------------------------- AVERAGE ANNUAL -------------------- ONE FIVE SINCE YEAR YEARS INCEPTION --------------------------------------------------------------- Portfolio - Class A (3) 30.99% 0.46% 13.82% S&P 500 Index - Class A 28.68 (0.57) 11.77 Portfolio - Class B (4) 30.62 0.22 10.12 S&P 500 Index - Class B 28.68 (0.57) 9.28
(1) The S&P 500 Index is an unmanaged stock index comprised of 500 large-cap U.S. companies with market capitalization of $1 billion or more. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on March 8, 1995 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Focus Equity Portfolio seeks capital appreciation by investing primarily in growth-oriented equity securities of large capitalization companies. The Portfolio's concentration of its assets in a small number of issuers will subject it to greater risks. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 30.99% for the Class A shares and 30.62% for the Class B shares compared to 28.68% for the S&P 500 Index (the "Index"). FACTORS AFFECTING PERFORMANCE - A meaningful underweight in telecommunications stocks was the largest positive contributor to relative results for the year. Although telecommunications stocks were among the leaders in the early stages of the 2003 rally, telecommunications finished the year as the worst performing Index sector. Strong stock selection in the telecommunications sector also proved beneficial as our single holding far exceeded the Index sector return. - An overweight in the information technology sector added to relative return. The Portfolio generally benefited from its semi-conductor overweight as the semi-conductor industry advanced amid the improved economic environment. - Stock selection was weakest in the consumer discretionary sector. The Portfolio was hampered by weak performance from a number of retailers. - In the healthcare sector, weak stock selection and a sector overweight had a negative effect on performance. Healthcare did not advance as strongly as other economically sensitive sectors. MANAGEMENT STRATEGIES - On average the three largest sectors in the Portfolio during 2003 were technology, healthcare and financials. - In 2003, we owned a mix of stable and cyclical companies, although we increased our exposure to cyclicals. We implemented this strategy through overweights in the technology and healthcare sectors, where we found attractive investment opportunities. January 2004 69 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS FOCUS EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (104.7%) AIR FREIGHT & LOGISTICS (1.1%) United Parcel Service, Inc., Class B 9,900 $ 738 ------------------------------------------------------------------------------------------- BEVERAGES (4.1%) Anheuser Busch Cos., Inc. 10,900 574 Coca Cola Co. (The) 45,075 2,288 ------------------------------------------------------------------------------------------- 2,862 =========================================================================================== BIOTECHNOLOGY (3.7%) Amgen, Inc. (a)32,582 2,014 Genzyme Corp. (a)11,500 567 ------------------------------------------------------------------------------------------- 2,581 =========================================================================================== CAPITAL MARKETS (4.0%) Bank of New York Co., Inc. (The) 29,750 985 Goldman Sachs Group, Inc. 18,000 1,777 ------------------------------------------------------------------------------------------- 2,762 =========================================================================================== COMMERCIAL BANKS (2.4%) Wells Fargo & Co. 27,800 1,637 ------------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (3.3%) Cisco Systems, Inc. (a)94,200 2,288 ------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS (4.5%) Dell, Inc. (a)41,725 1,417 International Business Machines Corp. 12,550 1,163 Network Appliance, Inc. (a)28,100 577 ------------------------------------------------------------------------------------------- 3,157 =========================================================================================== CONSUMER FINANCE (2.2%) American Express Co. 32,350 1,560 ------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES (5.0%) Citigroup, Inc. 72,270 3,508 ------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.1%) Smith International, Inc. (a)18,200 756 ------------------------------------------------------------------------------------------- FOOD & STAPLES RETAILING (2.9%) Wal-Mart Stores, Inc. 38,600 2,048 ------------------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES (2.7%) Boston Scientific Corp. (a)20,600 757 Guidant Corp. 19,100 1,150 ------------------------------------------------------------------------------------------- 1,907 =========================================================================================== HEALTH CARE PROVIDERS & SERVICES (2.5%) Anthem, Inc. (a)22,951 1,721 ------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (2.7%) Procter & Gamble Co. 19,175 1,915 ------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (10.0%) 3M Co. 34,200 2,908 General Electric Co. 131,150 4,063 ------------------------------------------------------------------------------------------- 6,971 =========================================================================================== INSURANCE (4.1%) American International Group, Inc. 43,075 2,855 ------------------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL (5.1%) eBay, Inc. (a)38,900 2,513 InterActiveCorp (a)30,800 1,045 ------------------------------------------------------------------------------------------- 3,558 =========================================================================================== INFORMATION TECHNOLOGY SERVICES (0.8%) First Data Corp. 12,775 525 ------------------------------------------------------------------------------------------- MEDIA (4.5%) Clear Channel Communications, Inc. 34,350 $ 1,609 EchoStar Communications Corp., Class A (a)20,800 707 Univision Communications, Inc., Class A (a)20,250 804 ------------------------------------------------------------------------------------------- 3,120 =========================================================================================== MULTILINE RETAIL (4.4%) Dollar Tree Stores, Inc. (a)40,930 1,230 Target Corp. 47,723 1,833 ------------------------------------------------------------------------------------------- 3,063 =========================================================================================== OIL & GAS (2.1%) Exxon Mobil Corp. 34,950 1,433 ------------------------------------------------------------------------------------------- PHARMACEUTICALS (8.9%) Bristol-Myers Squibb Co. 24,600 703 Johnson & Johnson 30,775 1,590 Pfizer, Inc. 109,450 3,867 ------------------------------------------------------------------------------------------- 6,160 =========================================================================================== SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (9.7%) Applied Materials, Inc. (a)41,375 929 Intel Corp. 86,000 2,769 Linear Technology Corp. 36,225 1,524 Texas Instruments, Inc. 32,575 957 Xilinx, Inc. (a)14,500 562 ------------------------------------------------------------------------------------------- 6,741 =========================================================================================== SOFTWARE (9.3%) Mercury Interactive Corp. (a)21,100 1,026 Microsoft Corp. 154,400 4,252 Oracle Corp. (a)90,175 1,191 ------------------------------------------------------------------------------------------- 6,469 =========================================================================================== SPECIALTY RETAIL (3.6%) Bed, Bath & Beyond, Inc. (a)19,750 856 Home Depot, Inc. 47,400 1,682 ------------------------------------------------------------------------------------------- 2,538 =========================================================================================== TOTAL COMMON STOCKS (COST $67,691) 72,873 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 70 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) FOCUS EQUITY PORTFOLIO
VALUE (000) ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (104.7%) (COST $67,691) $ 72,873 ------------------------------------------------------------------------------------------- AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (4.1%) Receivable for Investments Sold $ 2,334 Litigation Recovery Receivable 369 Receivable for Portfolio Shares Sold 120 Dividends Receivable 43 Other 3 2,869 ------------------------------------------------------------------------------------------- LIABILITIES (-8.8%) Payable for Portfolio Shares Redeemed (4,141) Payable for Investments Purchased (1,833) Investment Advisory Fees Payable (126) Directors' Fees and Expenses Payable (19) Bank Overdraft Payable (17) Administrative Fees Payable (12) Distribution Fees, Class B (5) Custodian Fees Payable (3) Other Liabilities (10) (6,166) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 69,576 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 99,937 Undistributed (Distributions in Excess of) Net Investment Income (19) Accumulated Net Realized Gain (Loss) (35,524) Unrealized Appreciation (Depreciation) on Investments 5,182 ------------------------------------------------------------------------------------------- NET ASSETS $ 69,576 =========================================================================================== CLASS A: NET ASSETS $ 61,420 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 5,207,719 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 11.79 =========================================================================================== CLASS B: NET ASSETS $ 8,156 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 705,126 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 11.57 ===========================================================================================
(a) Non-income producing security. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 71 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) SMALL COMPANY GROWTH PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
RUSSELL 2000 GROWTH INDEX(1) SMALL COMPANY GROWTH PORTFOLIO - CLASS A "1993" $ 500,000 $ 500,000 "1994" $ 487,850 $ 496,886 "1995" $ 639,279 $ 662,398 "1996" $ 711,261 $ 687,039 "1997" $ 803,370 $ 765,087 "1998" $ 813,251 $ 975,792 "1999" $ 1,163,681 $ 1,916,943 "2000" $ 902,667 $ 1,789,581 "2001" $ 819,351 $ 1,571,539 "2002" $ 571,416 $ 1,221,400 "2003" $ 848,781 $ 1,760,404
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE RUSSELL 2000 GROWTH INDEX(1)
TOTAL RETURNS(2) --------------------------------------------- AVERAGE ANNUAL --------------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION --------------------------------------------------------------------------- Portfolio - Class A (3) 44.13% 12.55% 13.41% 13.16% Index - Class A 48.54 0.86 5.43 7.10 Portfolio - Class B (4) 43.80 12.29 N/A 12.73 Index - Class B 48.54 0.86 N/A 3.59
(1) The Russell 2000 Growth Index is a market capitalization - weighted index comprised of those companies of the Russell 2000 Index with higher forecasted growth values and higher price-to-book ratios. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on November 1, 1989 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Small Company Growth Portfolio seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of small U.S. and, to a limited extent, foreign companies that are listed on U.S. exchanges or traded in U.S. markets. Investments in small sized corporations are more vulnerable to financial risks and other risks than larger corporations and may involve a higher degree of price volatility than investments in the general equity markets. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 44.13% for the Class A shares and 43.80% for the Class B shares compared to 48.54% for the Russell 2000 Growth Index (the "Index"). FACTORS AFFECTING PERFORMANCE - The largest positive contributor to the Portfolio's relative results was stock selection in the consumer discretionary sector, although this was slightly offset by the negative effect of the Portfolio's substantial sector overweight, as compared to the Index. A number of consumer discretionary stocks ranked among the Portfolio's largest individual positions and several of these added meaningfully to relative results. - In the technology sector, the favorable impact of an overweight (as compared to the Index) in semiconductor companies was offset by underperformance in other areas such as software. During 2003, higher beta technology stocks rallied. Many of these companies did not pass our tests for portfolio inclusion. - The Portfolio's healthcare position had the most significant negative impact from a stock selection perspective, primarily due to weakness in pharmaceuticals and biotechnology. MANAGEMENT STRATEGIES - On average, the three largest sectors in the Portfolio during 2003 were consumer discretionary, healthcare and technology. January 2004 72 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS SMALL COMPANY GROWTH PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (98.4%) ADVERTISING AGENCIES (0.5%) R.H. Donnelley Corp. (a)107,100 $ 4,267 ------------------------------------------------------------------------------------------- AEROSPACE (0.6%) Moog, Inc., Class A (a)91,675 4,529 ------------------------------------------------------------------------------------------- AIR TRANSPORT (0.3%) Airtran Holdings, Inc. (a)207,700 2,472 ------------------------------------------------------------------------------------------- AUTO PARTS: AFTER MARKET (0.4%) TBC Corp. (a)130,900 3,379 ------------------------------------------------------------------------------------------- BANKS: OUTSIDE NEW YORK CITY (1.5%) TierOne Corp. (a)260,800 5,988 UCBH Holdings, Inc. 149,300 5,818 ------------------------------------------------------------------------------------------- 11,806 =========================================================================================== BIOTECHNOLOGY RESEARCH & PRODUCTION (4.2%) Digene Corp. (a)135,600 5,438 Idexx Laboratories, Inc. (a)86,600 4,008 Martek Biosciences Corp. (a)65,800 4,275 MGI Pharma, Inc. (a)134,900 5,551 Taro Pharmaceuticals Industries Ltd. (a)113,550 7,324 Telik, Inc. (a)265,325 6,105 ------------------------------------------------------------------------------------------- 32,701 =========================================================================================== CASINOS & GAMBLING (4.5%) Alliance Gaming Corp. (a)146,700 3,616 GTECH Holdings Corp. 317,654 15,721 Kerzner International Ltd. (a)106,700 4,157 Shuffle Master, Inc. (a)81,900 2,835 Station Casinos, Inc. 290,600 8,901 ------------------------------------------------------------------------------------------- 35,230 =========================================================================================== COMMERCIAL INFORMATION SERVICES (0.5%) Viad Corp. 153,000 3,825 ------------------------------------------------------------------------------------------- COMMUNICATIONS & MEDIA (1.1%) Media General, Inc., Class A 131,775 8,579 ------------------------------------------------------------------------------------------- COMMUNICATIONS TECHNOLOGY (3.9%) Crown Castle International Corp. (a)841,000 9,276 Dobson Communications Corp. (a)422,200 2,774 F5 Networks, Inc. (a)109,700 2,753 Sonus Networks, Inc. (a)763,500 5,772 Spectrasite, Inc. (a)289,600 10,064 ------------------------------------------------------------------------------------------- 30,639 =========================================================================================== COMPUTER SERVICES SOFTWARE & SYSTEMS (10.1%) Akamai Technologies, Inc. (a)349,400 3,756 Emulex Corp. (a)108,573 2,897 Espeed, Inc., Class A (a)169,800 3,975 FileNET Corp. (a)146,300 3,962 Hyperion Solutions Corp. (a)128,200 3,864 Informatica Corp. (a)365,120 3,761 Merge Technologies, Inc. (a)154,700 2,729 Micromuse, Inc. (a)691,700 4,773 MicroStrategy, Inc., Class A (a)53,200 2,792 Neoforma, Inc. (a)446,629 4,752 NetIQ Corp. (a)564,475 7,479 Quest Software, Inc. (a)335,750 4,768 Red Hat, Inc. (a)280,600 5,267 SERENA Software, Inc. (a)165,100 3,030 SkillSoft plc ADR (a)942,700 $ 8,154 ValueClick, Inc. (a)348,350 3,163 Verint Systems, Inc. (a)141,600 3,194 Websense, Inc. (a)228,200 6,672 ------------------------------------------------------------------------------------------- 78,988 =========================================================================================== COMPUTER TECHNOLOGY (0.3%) Intergraph Corp. (a)112,400 2,689 ------------------------------------------------------------------------------------------- CONSTRUCTION (0.8%) Chicago Bridge & Iron Co. N.V. (NY Shares) 209,800 6,063 ------------------------------------------------------------------------------------------- CONSUMER ELECTRONICS (0.3%) CNET Networks, Inc. (a)359,800 2,454 ------------------------------------------------------------------------------------------- DRUGS & PHARMACEUTICALS (1.7%) Gen-Probe, Inc. (a)235,300 8,581 Medicines Co. (a)98,300 2,896 Valeant Pharmaceuticals International 60,400 1,519 ------------------------------------------------------------------------------------------- 12,996 =========================================================================================== EDUCATION SERVICES (0.6%) Strayer Education, Inc. 43,450 4,729 ------------------------------------------------------------------------------------------- ELECTRICAL & ELECTRONICS (0.5%) Power Integrations, Inc. (a)123,500 4,132 ------------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT & COMPONENTS (0.5%) MKS Instruments, Inc. (a)124,800 3,619 ------------------------------------------------------------------------------------------- ELECTRONICS (2.0%) Amphenol Corp., Class A (a)70,500 4,507 Avid Technology, Inc. (a)81,900 3,931 Planar Systems, Inc. (a)118,100 2,872 Trimble Navigation Ltd. (a)112,100 4,175 ------------------------------------------------------------------------------------------- 15,485 =========================================================================================== ELECTRONICS: SEMICONDUCTORS/COMPONENTS (3.6%) Actel Corp. (a)151,550 3,652 Brooks Automation, Inc. (a)208,700 5,044 Entegris, Inc. (a)259,800 3,339 Integrated Circuit Systems, Inc. (a)98,500 2,806 O2Micro International Ltd. (a)134,600 3,015 PMC-Sierra, Inc. (a)161,400 3,252 Rambus, Inc. (a)130,200 3,997 Tessera Technologies, Inc. (a)156,700 2,948 ------------------------------------------------------------------------------------------- 28,053 =========================================================================================== ELECTRONICS: TECHNOLOGY (0.5%) Secure Computing Corp. (a)224,900 4,028 ------------------------------------------------------------------------------------------- ENERGY MISCELLANEOUS (3.6%) Evergreen Resources, Inc. (a)210,100 6,830 PetroKazakhstan, Inc. (a)140,600 3,165 Ultra Petroleum Corp. (a)755,500 18,601 ------------------------------------------------------------------------------------------- 28,596 =========================================================================================== ENGINEERING & CONTRACTING SERVICES (0.4%) Washington Group International, Inc. (a)81,600 2,772 ------------------------------------------------------------------------------------------- FINANCIAL MISCELLANEOUS (2.5%) First Marblehead Corp. (The) (a)122,200 2,674 Interactive Data Corp. (a)668,595 11,072 PMI Group, Inc. (The) 153,400 5,711 ------------------------------------------------------------------------------------------- 19,457 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 73 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) SMALL COMPANY GROWTH PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- FOODS (0.8%) J&J Snack Foods Corp. (a)157,341 $ 5,941 ------------------------------------------------------------------------------------------- HEALTH CARE FACILITIES (1.3%) VistaCare, Inc., Class A (a)287,400 10,102 ------------------------------------------------------------------------------------------- HEALTH CARE MANAGEMENT SERVICES (0.8%) Eclipsys Corp. (a)522,900 6,087 ------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (6.1%) Apria Healthcare Group, Inc. (a)208,132 5,925 Dade Behring Holdings, Inc. (a)535,000 19,121 Genesis HealthCare Corp. (a)131,200 2,989 Immucor, Inc. (a)358,300 7,306 Stericycle, Inc. (a)258,425 12,068 ------------------------------------------------------------------------------------------- 47,409 =========================================================================================== HOMEBUILDING (1.1%) Brookfield Homes Corp. 324,850 8,371 Levitt Corp., Class A (a)29,700 591 ------------------------------------------------------------------------------------------- 8,962 =========================================================================================== HOTEL/MOTEL (1.6%) Wynn Resorts Ltd. (a)436,090 12,215 ------------------------------------------------------------------------------------------- HOUSEHOLD FURNISHINGS (0.4%) Select Comfort Corp. (a)115,450 2,859 ------------------------------------------------------------------------------------------- INSURANCE: PROPERTY & CASUALTY (1.1%) Markel Corp. (a)34,250 8,683 ------------------------------------------------------------------------------------------- INVESTMENT MANAGEMENT COMPANIES (0.5%) Affiliated Managers Group, Inc. (a)56,400 3,925 ------------------------------------------------------------------------------------------- LEISURE TIME (0.4%) WMS Industries, Inc. (a)118,500 3,105 ------------------------------------------------------------------------------------------- MACHINERY & ENGINEERING (0.5%) Graco, Inc. 101,400 4,066 ------------------------------------------------------------------------------------------- MACHINERY: OIL WELL EQUIPMENT & SERVICES (0.9%) Maverick Tube Corp. (a)383,250 7,378 ------------------------------------------------------------------------------------------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (0.8%) INAMED Corp. (a)134,900 6,483 ------------------------------------------------------------------------------------------- MEDICAL SERVICES (0.6%) Specialty Laboratories, Inc. (a)280,030 4,702 ------------------------------------------------------------------------------------------- METALS & MINING (0.2%) Glamis Gold, Ltd. (a)99,300 1,700 ------------------------------------------------------------------------------------------- MISCELLANEOUS HEALTH CARE (2.6%) CV Therapeutics, Inc. (a)131,500 1,928 NPS Pharmaceuticals, Inc. (a)211,100 6,489 VCA Antech, Inc. (a)398,400 12,342 ------------------------------------------------------------------------------------------- 20,759 =========================================================================================== OFFICE FURNITURE & BUSINESS EQUIPMENT (2.4%) Imagistics International, Inc. (a)493,700 18,514 ------------------------------------------------------------------------------------------- OIL: INTEGRATED DOMESTIC (0.4%) Whiting Petroleum Corp. (a)174,200 3,205 ------------------------------------------------------------------------------------------- PRODUCTION TECHNOLOGY EQUIPMENT (1.8%) Cymer, Inc. (a)96,300 4,448 Dionex Corp. (a)123,500 5,683 Varian Semiconductor Equipment Associates, Inc. (a)88,300 3,858 ------------------------------------------------------------------------------------------- 13,989 =========================================================================================== PUBLISHING: NEWSPAPERS (1.0%) Pulitzer, Inc. 149,374 $ 8,066 ------------------------------------------------------------------------------------------- RADIO & TV BROADCASTERS (1.7%) Citadel Broadcasting Corp. (a)239,150 5,350 Radio One, Inc., Class D (a)431,536 8,328 ------------------------------------------------------------------------------------------- 13,678 =========================================================================================== REAL ESTATE INVESTMENT TRUSTS (REIT) (0.8%) MI Developments, Inc., Class A (a)226,500 6,324 ------------------------------------------------------------------------------------------- RESTAURANTS (3.2%) Buffalo Wild Wings, Inc. (a)113,800 2,953 Checkers Drive-In Restaurant, Inc. (a)191,500 1,994 Chicago Pizza & Brewery, Inc. (a)210,800 3,145 P.F. Chang's China Bistro, Inc. (a)112,225 5,710 Sonic Corp. (a)335,438 10,271 Steak n Shake Co. (The) (a)57,900 1,034 ------------------------------------------------------------------------------------------- 25,107 =========================================================================================== RETAIL (6.4%) Brookstone, Inc. (a)193,775 4,129 CEC Entertainment, Inc. (a)79,200 3,753 Cost Plus, Inc. (a)67,550 2,770 Dick's Sporting Goods, Inc. (a)110,050 5,355 Fred's, Inc. 100,867 3,125 HOT Topic, Inc. (a)144,575 4,259 Petco Animal Supplies, Inc. (a)186,600 5,682 Tractor Supply Co. (a)199,700 7,766 Tuesday Morning Corp. (a)349,700 10,579 Urban Outfitters, Inc. (a)73,200 2,712 ------------------------------------------------------------------------------------------- 50,130 =========================================================================================== SAVINGS & LOAN (0.7%) Provident Financial Services, Inc. 300,700 5,683 ------------------------------------------------------------------------------------------- SERVICES: COMMERCIAL (7.1%) Advisory Board Co. (The) (a)232,900 8,130 Arbitron, Inc. (a)420,475 17,542 Autobytel, Inc. (a)296,700 2,694 Corporate Executive Board Co. (a)203,499 9,497 DeVry, Inc. (a)224,900 5,652 ITT Educational Services, Inc. (a)205,400 9,648 Roto-Rooter, Inc. 51,600 2,379 ------------------------------------------------------------------------------------------- 55,542 =========================================================================================== TELECOMMUNICATIONS EQUIPMENT (0.4%) Inter-Tel, Inc. 122,500 3,060 ------------------------------------------------------------------------------------------- TEXTILE APPAREL MANUFACTURES (1.4%) Carter's, Inc. (a)315,500 8,029 Oxford Industries, Inc. 81,600 2,765 ------------------------------------------------------------------------------------------- 10,794 =========================================================================================== TRUCKERS (1.5%) Landstar System, Inc. (a)101,700 3,869 Overnite Corp. (a)350,000 7,962 ------------------------------------------------------------------------------------------- 11,831 =========================================================================================== UTILITIES: TELECOMMUNICATIONS (5.0%) IDT Corp., Class B (a)489,200 11,315 NTL, Inc. (a)257,051 17,929 PTEK Holdings, Inc. (a)1,128,300 9,940 ------------------------------------------------------------------------------------------- 39,184 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 74 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) SMALL COMPANY GROWTH PORTFOLIO
VALUE (000) ------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $660,283) $ 770,971 =========================================================================================== SHARES ------------------------------------------------------------------------------------------- PREFERRED STOCK (0.0%) COMMUNICATIONS TECHNOLOGY (0.0%) Warp Solutions, Inc., Series A (COST $11) (a)(i)12,301 1 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (3.7%) REPURCHASE AGREEMENT (3.7%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $28,958 (COST $28,957) $ (f)28,957 28,957 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (102.1%) (COST $689,251) 799,929 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (1.5%) Receivable for Portfolio Shares Sold 7,089 Receivable for Investments Sold 4,889 Dividends Receivable 30 Litigation Recovery Receivable 5 Interest Receivable 1 Other 19 12,033 ------------------------------------------------------------------------------------------- LIABILITIES (-3.6%) Payable for Investments Purchased (21,866) Payable for Portfolio Shares Redeemed (4,820) Investment Advisory Fees Payable (1,482) Distribution Fees, Class B (274) Administrative Fees Payable (104) Directors' Fees and Expenses Payable (30) Custodian Fees Payable (17) Other Liabilities (35) (28,628) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 783,334 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 822,003 Undistributed Net Investment Income (Accumulated Net Investment Loss) (30) Accumulated Net Realized Gain (Loss) (149,317) Unrealized Appreciation (Depreciation) on: Investments 110,678 ------------------------------------------------------------------------------------------- NET ASSETS $ 783,334 =========================================================================================== CLASS A: NET ASSETS $ 299,198 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 27,681,455 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 10.81 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- CLASS B: NET ASSETS $ 484,136 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 46,395,991 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 10.43 ===========================================================================================
(a) Non-income producing security. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (i) Restricted security valued at fair value and not registered under the Securities Act of 1933. Acquired July 2000 at a cost of $11,000. At December 31, 2003, this security had an aggregate market value of $1,000, representing less than 0.05% of net assets. ADR American Depositary Receipts THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 75 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) TECHNOLOGY PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $250,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
NASDAQ COMPOSITE INDEX(1) TECHNOLOGY PORTFOLIO - CLASS A TECHNOLOGY PORTFOLIO - CLASS B "*" $ 250,000 $ 250,000 $ 50,000 "1996" $ 270,325 $ 267,750 $ 53,550 "1997" $ 328,823 $ 367,540 $ 73,310 "1998" $ 459,136 $ 565,645 $ 112,545 "1999" $ 852,111 $ 1,474,184 $ 292,910 "2000" $ 517,316 $ 1,139,984 $ 225,952 "2001" $ 408,421 $ 594,046 $ 117,518 "2002" $ 279,646 $ 311,458 $ 61,556 "2003" $ 419,497 $ 457,657 $ 90,143
* Commenced operations on September 16, 1996 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different fees assessed to that class. The NASDAQ Composite Index value at December 31, 2003 assumes a minimum investment of $250,000; if a minimum initial investment of $50,000 (the minimum investment for Class B shares) is assumed, the value at December 31, 2003 would be $83,900. Performance was positively impacted due to the receipt of proceeds from the settlement of class action suits involving, primarily one of the Portfolio's holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. PERFORMANCE COMPARED TO THE NASDAQ COMPOSITE INDEX AND THE S&P 500 INDEX(1)
TOTAL RETURNS(2) ------------------------------------ AVERAGE ANNUAL ----------------------- ONE FIVE SINCE YEAR YEARS INCEPTION -------------------------------------------------------------- Portfolio - Class A (3) 46.94% (4.15)% 8.65% Portfolio - Class B (3) 46.44 (4.33) 8.43 NASDAQ Composite Index 50.01 (1.79) 7.36 S&P 500 Index 28.68 (0.57) 8.60
(1) The NASDAQ Composite Index is a market capitalization - weighted index comprised of all common stocks listed on the NASDAQ Stock Market. The S&P 500 Index is an unmanaged stock index comprised of 500 large-cap U.S. companies with market capitalization of $1 billion or more. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on September 16, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Technology Portfolio seeks long-term capital appreciation by investing primarily in equity securities of companies that the investment adviser expects will benefit from their involvement in technology and technology-related industries. The Portfolio's concentration in the technology sector makes it subject to greater risk and volatility than portfolios that are more diversified, and the value of its shares may be substantially affected by economic events. In addition, the Portfolio may invest up to 35% of its total assets in the equity or fixed income securities of foreign issuers. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 46.94% for the Class A shares and 46.44% for the Class B shares compared to 50.01% for the NASDAQ Composite Index (the "Index") and 28.68% for the S&P 500 Index. FACTORS AFFECTING PERFORMANCE - Technology proved to be one of the top performing sectors in the broad equity market for the year. Among the major technology groups within the Index, internet software and services, wireless telecommunications, and electronic equipment and instruments were the leading industries. Semiconductors also outpaced the Index return, while software, computers and peripherals, and biotechnology were among the lagging groups for the year. - The largest positive influence on relative return came from our semiconductor position where a substantial overweight added meaningfully to results and was only partially offset by modest underperformance of individual semiconductor holdings. - An overweight in the software sector was the largest detractor from relative performance; however, this was more than offset by favorable stock selection. - A substantial underweight in internet and catalog retail was a major detractor, as that industry was among the leaders in the Index. The combination of weak stock performance and a slight underweight in wireless telecommunications also had a negative impact on relative results. Although the Portfolio's wireless positions provided a triple-digit return, the average return for the wireless industry was even higher. MANAGEMENT STRATEGIES - We continued our strategy of seeking to achieve long-term capital appreciation by investing in equity securities of companies that we expected to benefit from their involvement in technology and technology-related industries. January 2004 76 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS TECHNOLOGY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (100.4%) BIOTECHNOLOGY (3.1%) Amgen, Inc. (a)5,223 $ 323 Celgene Corp. (a)5,050 227 Gilead Sciences, Inc. (a)1,425 83 NPS Pharmaceuticals, Inc. (a)4,500 138 Telik, Inc. (a)6,700 154 ------------------------------------------------------------------------------------------- 925 =========================================================================================== COMMUNICATIONS (0.3%) Avaya, Inc. (a)5,800 75 ------------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (18.2%) Advanced Fibre Communications, Inc. (a)2,800 56 Alcatel S.A. ADR (a)21,500 276 Analog Devices, Inc. (a)9,913 453 Cisco Systems, Inc. (a)65,975 1,603 Corning, Inc. (a)12,300 128 Emulex Corp. (a)10,150 271 Extreme Networks, Inc. (a)15,113 109 F5 Networks, Inc. (a)4,200 105 Finisar Corp. (a)38,338 120 Inter-Tel, Inc. 3,350 84 Juniper Networks, Inc. (a)8,300 155 Motorola, Inc. 16,800 236 Nokia Oyj ADR 11,600 197 Nortel Networks Corp. (a)34,900 148 QLogic Corp. (a)8,063 416 QUALCOMM, Inc. 7,850 423 Sonus Networks, Inc. (a)39,400 298 Telefonaktiebolaget LM Ericsson ADR (a)5,800 103 Tellabs, Inc. (a)17,900 151 ------------------------------------------------------------------------------------------- 5,332 =========================================================================================== COMPUTERS & PERIPHERALS (5.9%) Dell, Inc. (a)15,300 520 EMC Corp. (a)33,310 431 Magal Security Systems Ltd. (a)9,487 74 Network Appliance, Inc. (a)21,050 432 SanDisk Corp. (a)2,750 168 Western Digital Corp. (a)8,000 94 ------------------------------------------------------------------------------------------- 1,719 =========================================================================================== DIVERSIFIED TELECOMMUNICATION SERVICES (0.9%) Amdocs Ltd. (a)8,500 191 Optical Communication Products, Inc. (a)18,700 69 ------------------------------------------------------------------------------------------- 260 =========================================================================================== ELECTRONIC EQUIPMENT & INSTRUMENTS (3.3%) Amphenol Corp., Class A (a)2,300 147 Flextronics International Ltd. (a)21,800 324 Jabil Circuit, Inc. (a)7,025 199 Power Integrations, Inc. (a)2,400 80 Solectron Corp. (a)23,550 139 Veeco Instruments, Inc. (a)2,700 76 ------------------------------------------------------------------------------------------- 965 =========================================================================================== INTERNET & CATALOG RETAIL (1.0%) InterActiveCorp. (a)8,900 $ 302 ------------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES (1.7%) Akamai Technologies, Inc. (a)5,700 61 VeriSign, Inc. (a)15,700 256 Verso Technologies, Inc. (a)21,900 70 Yahoo!, Inc. (a)2,638 119 ------------------------------------------------------------------------------------------- 506 =========================================================================================== OFFICE ELECTRONICS (0.5%) Zebra Technologies Corp. (a)2,200 146 ------------------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (32.8%) Actel Corp. (a)2,700 65 Agere Systems, Inc., Class A (a)71,150 217 Amkor Technologies, Inc. (a)9,900 180 Applied Materials, Inc. (a)35,825 804 Applied Micro Circuits Corp. (a)26,600 159 ASML Holding N.V. (NY Shares) (a)18,175 364 Broadcom Corp., Class A (a)9,900 338 Brooks Automation, Inc. (a)10,500 254 Credence Systems Corp. (a)24,200 319 Integrated Circuit Systems, Inc. (a)5,700 162 Intel Corp. 54,325 1,749 Intersil Corp., Class A 8,325 207 KLA-Tencor Corp. (a)5,775 339 Kopin Corp. (a)13,300 89 Lam Research Corp. (a)7,200 233 Linear Technology Corp. 10,588 445 LTX Corp. (a)4,400 66 Marvell Technology Group Ltd. (a)19,850 753 Maxim Integrated Products, Inc. 11,438 570 Microchip Technology, Inc. 4,100 137 MKS Instruments, Inc. (a)2,800 81 Novellus Systems, Inc. (a)6,800 286 PMC-Sierra, Inc. (a)14,000 282 RF Micro Devices, Inc. (a)25,900 260 STMicroelectronics N.V. (NY Shares) 2,500 68 Taiwan Semiconductor Manufacturing Co., Ltd. ADR (a)7,300 75 Texas Instruments, Inc. 19,400 570 United Microelectronics Corp., ADR (a)26,000 129 Vitesse Semiconductor Corp. (a)18,800 110 Xilinx, Inc. (a)8,050 312 ------------------------------------------------------------------------------------------- 9,623 =========================================================================================== SOFTWARE (31.5%) Adobe Systems, Inc. 6,350 250 BEA Systems, Inc. (a)9,500 117 Check Point Software Technologies Ltd. (a)11,475 193 Citrix Systems, Inc. (a)3,350 71 Computer Associates International, Inc. 8,163 223 Hyperion Solutions Corp. (a)5,475 165 Informatica Corp. (a)11,658 120 Lexar Media, Inc. (a)7,700 134 Macromedia, Inc. (a)6,400 114 Mercury Interactive Corp. (a)8,150 396 Micromuse, Inc. (a)27,800 192
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 77 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) TECHNOLOGY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- SOFTWARE (CONT'D) Microsoft Corp. 77,700 $ 2,140 NetScreen Technologies, Inc. (a)6,000 148 Network Associates, Inc. (a)18,225 274 Novell, Inc. (a)60,600 638 Oracle Corp. (a)73,113 965 Peoplesoft, Inc. (a)23,500 536 Quest Software, Inc. (a)17,575 250 Red Hat, Inc. (a)8,400 158 SAP AG ADR 8,600 357 Siebel Systems, Inc. (a)36,550 507 Symantec Corp. (a)15,200 527 Verint Systems, Inc. (a)4,300 97 VERITAS Software Corp. (a)18,625 692 ------------------------------------------------------------------------------------------- 9,264 =========================================================================================== WIRELESS TELECOMMUNICATION SERVICES (1.2%) Nextel Communications, Inc., Class A (a)12,738 357 ------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $27,056) 29,474 =========================================================================================== PREFERRED STOCK (0.5%) INTERNET SOFTWARE & SERVICES (0.5%) Warp Solutions, Inc., Series A (COST $800) (a)(i)1,473,124 155 ------------------------------------------------------------------------------------------- FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (0.0%) REPURCHASE AGREEMENT (0.0%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $11 (COST $11) $ (f)11 11 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.9%) (COST $27,867) 29,640 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (1.3%) Cash 1 Receivable for Investments Sold 293 Receivable for Portfolio Shares Sold 55 Litigation Recovery Receivable 18 Dividends Receivable 1 Other 1 369 ------------------------------------------------------------------------------------------- LIABILITIES (-2.2%) Payable for Portfolio Shares Redeemed (407) Payable for Investments Purchased (141) Investment Advisory Fees Payable (64) Directors' Fees and Expenses Payable (7) Administrative Fees Payable (6) Custodian Fees Payable (3) Distribution Fees, Class B (2) Other Liabilities (8) (638) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 29,371 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid-in Capital $ 112,091 Undistributed Net Investment Income (Accumulated Net Investment Loss) (7) Accumulated Net Realized Gain (Loss) (84,486) Unrealized Appreciation (Depreciation) on Investments 1,773 ------------------------------------------------------------------------------------------- NET ASSETS $ 29,371 =========================================================================================== CLASS A: NET ASSETS $ 24,934 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,536,400 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 9.83 =========================================================================================== CLASS B: NET ASSETS $ 4,437 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 458,065 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 9.69 ===========================================================================================
(a) Non-income producing security. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (i) Restricted security valued at fair value and not registered under the Securities Act of 1933. Acquired December 1999 at a cost of $800,000. At December 31, 2003, this security had a market value of $155,000, representing 0.5% of net assets. ADR American Depositary Receipts THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 78 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) U.S. REAL ESTATE PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
NAREIT EQUITY INDEX(1) U.S. REAL ESTATE PORTFOLIO - CLASS A "*" $ 500,000 $ 500,000 "1995" $ 575,000 $ 605,350 "1996" $ 777,803 $ 844,826 "1997" $ 935,385 $ 1,078,167 "1998" $ 771,693 $ 945,660 "1999" $ 736,040 $ 931,664 "2000" $ 930,134 $ 1,207,902 "2001" $ 1,059,702 $ 1,319,875 "2002" $ 1,100,183 $ 1,322,251 "2003" $ 1,508,681 $ 1,819,549
* Commenced operations on February 24, 1995 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS (NAREIT) EQUITY INDEX(1)
TOTAL RETURNS(2) ------------------------------------ AVERAGE ANNUAL ----------------------- ONE FIVE SINCE YEAR YEARS INCEPTION -------------------------------------------------------------- Portfolio - Class A (3) 37.61% 13.98% 15.71% Index - Class A 37.13 14.35 13.29 Portfolio - Class B (4) 37.23 13.65 14.32 Index - Class B 37.13 14.35 12.83
(1) The NAREIT Equity Index is an unmanaged market weighted index of tax qualified REITs listed on the New York Stock Exchange, American Stock Exchange and the NASDAQ National Market System, including dividends. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on February 24, 1995 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The U.S. Real Estate Portfolio seeks to provide above average current income and long-term capital appreciation by investing primarily in equity securities of companies in the U.S. real estate industry, including real estate investment trusts ("REITs"). The Portfolio's concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified, and the value of its shares may be substantially affected by economic events in the real estate industry. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 37.61% for the Class A shares and 37.23% for the Class B shares compared to 37.13% for the National Association of Real Estate Investment Trusts (NAREIT) Equity Index (the "Index"). FACTORS AFFECTING PERFORMANCE - We believe that REITs were able to achieve strong performance primarily due to continued strong funds flow to the sector from a number of constituents. Retail investors have been attracted to REITs primarily due to the absolute level of the dividend of these securities. In addition, the continuous inflows are likely part of the self-fulfilling reality that the group is performing strongly. - In 2003, dedicated REIT mutual funds received more than $4.5 billion, their highest annual level of inflows, and closed end funds that invest in common and preferred REIT shares raised an additional $4 billion. REIT shares also benefited from favorable funds flow from pension plans and endowments, which continue to implement a favorable shift to real estate and REITs in asset allocation models due to the historical diversification attributes and attractive returns. - Aside from the dramatic favorable flows to the sector, the improvement in underlying real estate values partially supported the year's improvement in share prices. Finally, the sector also benefited from continued optimism with regard to an economic recovery, which helped all stocks. - For the full year, among the major asset classes, retail was the big winner, the office sector modestly underperformed, and apartments were the weakest sector. Within retail, the mall sub-sector had the best performance and although the strip shopping centers trailed the malls, they posted strong outperformance as well. The office sector only modestly underperformed for the full year. The apartments were the worst 79 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) U.S. REAL ESTATE PORTFOLIO performing sector. Among the smaller sectors, the hotels trailed for the year due to a very weak first quarter. Storage was about even with the Index, and healthcare REITs had the best performance, just beating out the malls. - The Portfolio's outperformance this year was a result of stock selection. While the bottom-up effects were positive across most sectors, the most significant contributions were generated in the office and hotel sectors. The prospects for the overall office sector were weak, yet we continued to find value among selected owners of central business district (CBD) office properties. We believe there was a significant disparity in pricing between CBD assets relative to suburban assets in the private markets, which was not reflected in the public market. In the lodging sector, we were rewarded for owning those companies that are owners of major urban hotel assets, that have superior balance sheets, and that are affiliated with a major brand. Despite this sector's underperformance, our stock selection provided significant outperformance for the sector as a whole. Other favorable areas were the manufactured home sector and the mall sub-sector of retail. In manufactured homes, the Portfolio held a large position in one company which was taken private at a healthy premium. The malls provided outperformance for the Portfolio both due to the overweight stance relative to the Index, and due to the bottom up stock selection, where we favor owners of the more dominant malls in the major metropolitan areas. MANAGEMENT STRATEGIES - We have maintained our core investment philosophy as a real estate value investor. This results in the ownership of stocks that provide what we believe is the best valuation relative to their underlying real estate values. - The top-down themes included an overweighting of the hotel, mall, and apartment sectors and an underweighting of the strip shopping center and office sectors. - The overweighting in the hotel sector was accomplished through the ownership of selected companies that are owners of major urban hotel assets. Although weak demand fundamentals, in particular a depressed level of corporate travel, have put pressure on cash flows, these companies were trading at favorable discounts to asset value. In the second half of the year, the sector posted favorable occupancy comparisons versus the previous year due to improved leisure travel. - We remained cautious on the office sector given the sector's reliance on a job recovery, the level of excess office space available and the costs required for attracting tenants. We continued to have a below consensus outlook for the prospects of a recovery in rental rates. - In the apartment sector, the most favorable factor was that valuation remained attractive as the stocks were trading below private market values. In addition, given that the sector has been weak for almost two years and the tenants have short lease terms, the cash flows have absorbed the majority of their downside. January 2004 80 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS U.S. REAL ESTATE PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (95.5%) DIVERSIFIED (2.8%) Correctional Properties Trust REIT 112,800 $ 3,249 Frontline Capital Group (a)(d)1,179,600 @-- Vornado Realty Trust REIT 426,700 23,362 ------------------------------------------------------------------------------------------- 26,611 =========================================================================================== HEALTH CARE (0.7%) Nationwide Health Properties, Inc. REIT 120,749 2,361 Ventas, Inc. REIT 208,100 4,578 ------------------------------------------------------------------------------------------- 6,939 =========================================================================================== INDUSTRIAL (7.0%) AMB Property Corp. REIT 933,500 30,694 BRCP REIT LLC I (d)34,429 34 ProLogis REIT 1,123,199 36,043 PS Business Parks, Inc. REIT 32,300 1,333 ------------------------------------------------------------------------------------------- 68,104 =========================================================================================== LODGING/RESORTS (11.1%) FelCor Lodging Trust, Inc. REIT (a)292,200 3,237 Hilton Hotels Corp. 1,285,500 22,021 Host Marriot Corp. REIT (a)2,893,800 35,652 Interstate Hotels & Resorts, Inc. (a)28,830 154 La Quinta Corp. (a)102,150 655 Starwood Hotels & Resorts Worldwide, Inc. 1,248,993 44,926 Wyndham International, Inc., Class A (a)1,468,154 984 ------------------------------------------------------------------------------------------- 107,629 =========================================================================================== OFFICE (21.0%) Arden Realty, Inc. REIT 1,134,500 34,421 Beacon Capital Partners, Inc. (i)335,100 1,513 Boston Properties, Inc. REIT 813,050 39,181 Brookfield Properties Co. 2,146,901 61,616 Equity Office Properties Trust REIT 1,410,707 40,417 Mack-Cali Realty Corp. REIT 152,000 6,326 Reckson Associates Realty Corp. REIT 409,800 9,958 SL Green Realty Corp. REIT 228,450 9,378 ------------------------------------------------------------------------------------------- 202,810 =========================================================================================== OTHER (1.2%) Atlantic Gulf Communities Corp., Class B (a)(i)140,284 @-- Brookfield Homes Corp. 15,300 394 Cabot Industrial Value LP (d)475 237 Pacific Gulf Properties, Inc. (d)413,000 @-- St. Joe Co. (The) 136,900 5,105 Wellsford Real Properties, Inc. (a)305,949 5,691 ------------------------------------------------------------------------------------------- 11,427 =========================================================================================== RESIDENTIAL APARTMENTS (19.4%) Amli Residential Properties Trust REIT 266,500 7,142 Apartment Investment & Management Co., Class A REIT 836,500 28,859 Archstone-Smith Trust REIT 1,748,596 48,926 AvalonBay Communities, Inc. REIT 1,057,562 50,552 Equity Residential Properties Trust REIT 859,750 25,371 Essex Property Trust, Inc. REIT 317,400 20,384 Post Properties, Inc. REIT 237,150 $ 6,621 ------------------------------------------------------------------------------------------- 187,855 =========================================================================================== RESIDENTIAL MANUFACTURED HOMES (1.1%) Manufactured Home Communities, Inc. REIT 273,100 10,282 ------------------------------------------------------------------------------------------- RETAIL REGIONAL MALLS (19.2%) Forest City Enterprises, Inc., Class A 84,700 4,024 General Growth Properties, Inc. REIT 1,364,700 37,871 Macerich Co. (The) REIT 150,300 6,688 Rouse Co. (The) REIT 1,007,000 47,329 Simon Property Group, Inc. REIT 1,508,300 69,895 Taubman Centers, Inc. REIT 992,778 20,451 ------------------------------------------------------------------------------------------- 186,258 =========================================================================================== RETAIL STRIP CENTERS (5.8%) Burnham Pacific Properties, Inc. (d)113,290 53 Chelsea Property Group, Inc. REIT 6,400 351 Federal Realty Investment Trust REIT 866,500 33,265 Heritage Property Investment Trust REIT 33,700 959 Pan Pacific Retail Properties, Inc. REIT 5,100 243 Regency Centers Corp. REIT 530,400 21,136 ------------------------------------------------------------------------------------------- 56,007 =========================================================================================== SELF STORAGE (6.2%) Public Storage, Inc. REIT 855,190 37,107 Shurgard Storage Centers, Inc., Class A REIT 605,300 22,789 ------------------------------------------------------------------------------------------- 59,896 =========================================================================================== TOTAL COMMON STOCKS (COST $698,404) 923,818 =========================================================================================== PREFERRED STOCKS (0.9%) LODGING/RESORTS (0.9%) Wyndham International, Inc., Series I (d)91,243 5,498 Wyndham International, Inc., Series II (d)48,837 3,090 ------------------------------------------------------------------------------------------- 8,588 =========================================================================================== OTHER (0.0%) Atlantic Gulf Communities Corp., Series B (a)(d)107,021 @-- ------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS (COST $6,159) 8,588 =========================================================================================== CONVERTIBLE PREFERRED STOCKS (0.0%) OTHER (0.0%) Atlantic Gulf Communities Corp., Series B (COST $758) (a)(d)75,765 @-- ------------------------------------------------------------------------------------------- WARRANTS (0.0%) OTHER (0.0%) Atlantic Gulf Communities Corp., Class A, expiring 6/24/04 (a)(d)62,000 @-- Atlantic Gulf Communities Corp., Class B, expiring 6/23/04 (a)(d)50,510 @-- Atlantic Gulf Communities Corp., Class B, expiring 6/24/04 (a)(d)62,000 @-- Atlantic Gulf Communities Corp., Class C, expiring 6/23/04 (a)(d)50,510 @-- Atlantic Gulf Communities Corp., Class C, expiring 6/24/04 (a)(d)62,000 @-- ------------------------------------------------------------------------------------------- TOTAL WARRANTS (COST $ @--) @-- ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 81 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) U.S. REAL ESTATE PORTFOLIO
FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (3.2%) REPURCHASE AGREEMENT (3.2%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $30,972 (COST $30,971) $ (f)30,971 $ 30,971 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.6%) (COST $736,292) 963,377 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (0.8%) Cash 369 Dividends Receivable 5,623 Receivable for Portfolio Shares Sold 2,314 Interest Receivable 1 Other 33 8,340 ------------------------------------------------------------------------------------------- LIABILITIES (-0.4%) Payable for Portfolio Shares Redeemed (1,875) Investment Advisory Fees Payable (1,870) Administrative Fees Payable (134) Directors' Fees and Expenses Payable (52) Distribution Fees, Class B (40) Custodian Fees Payable (9) Other Liabilities (40) (4,020) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 967,697 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 737,677 Undistributed (Distributions in Excess of) Net Investment Income (52) Accumulated Net Realized Gain (Loss) 2,987 Unrealized Appreciation (Depreciation) on Investments 227,085 ------------------------------------------------------------------------------------------- NET ASSETS $ 967,697 =========================================================================================== CLASS A: NET ASSETS $ 897,551 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 50,091,213 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 17.92 =========================================================================================== CLASS B: NET ASSETS $ 70,146 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,939,737 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 17.80 ===========================================================================================
(a) Non-income producing security. (d) Security was valued at fair value -- At December 31, 2003, the Portfolio held $8,912,000 of fair valued securities, representing 0.9% of net assets. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (i) Restricted security valued at fair value and not registered under the Securities Act of 1933. Atlantic Gulf Communities Corp. and Beacon Capital Partners, Inc. were acquired June 1997and March 1998, respectively, at a cost of $790,000 and $1,743,000, respectively. At December 31, 2003, these securities had an aggregate market value of $1,513,000, representing 0.2% of net assets. @ Face Amount/Value is less than $500. REIT Real Estate Investment Trust THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 82 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) VALUE EQUITY PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000* INVESTMENT OVER 10 YEARS FISCAL YEAR ENDED DECEMBER 31
RUSSELL 1000 VALUE INDEX(1) VALUE EQUITY PORTFOLIO-CLASS A "1993" $ 500,000 $ 500,000 "1994" $ 490,080 $ 493,575 "1995" $ 678,075 $ 659,880 "1996" $ 824,810 $ 790,101 "1997" $ 1,114,978 $ 1,020,822 "1998" $ 1,289,249 $ 1,110,553 "1999" $ 1,384,009 $ 1,239,710 "2000" $ 1,481,167 $ 1,463,849 "2001" $ 1,398,309 $ 1,441,160 "2002" $ 1,181,291 $ 1,092,111 "2003" $ 1,536,033 $ 1,431,211
* Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE RUSSELL 1000 VALUE INDEX AND S&P 500 INDEX(1)
TOTAL RETURNS(2) ----------------------------------------------------- AVERAGE ANNUAL --------------------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ------------------------------------------------------------------------------------------ Portfolio - Class A (3) 31.05% 5.21% 11.09% 10.88% Russell 1000 Value Index - Class A 30.03 3.56 11.88 12.31 S&P 500 Index - Class A 28.68 (0.57) 11.07 11.57 Portfolio - Class B (4) 30.86 4.99 N/A 9.80 Russell 1000 Value Index - Class B 30.03 3.56 N/A 10.68 S&P 500 Index - Class B 28.68 (0.57) N/A 9.28
(1) The Russell 1000 Value Index consists of the largest 1000 companies in the Russell 3000 Index. This Index represents the universe of large capitalization stocks from which most active money managers typically select. The S&P 500 Index is comprised of 500 large-cap U.S. companies with market capitalization of $1 billion or more. These 500 companies represent approximately 100 industries chosen mainly for market size, liquidity and industry group representation. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on January 31, 1990 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Value Equity Portfolio seeks high total return by investing primarily in equity securities that the investment adviser sees as attractively valued large capitalization U.S. stocks. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 31.05% for the Class A shares and 30.86% for the Class B shares compared to 30.03% for the Russell 1000 Value Index (the "Index") and 28.68% for the S&P 500 Index. FACTORS AFFECTING PERFORMANCE - Stock prices advanced sharply during the year as economic strength gathered momentum fueled by fiscal and monetary stimulus. - Total returns in the market were strongest in sectors that were most sensitive to positive economic signals, including information technology and consumer discretionary. - Sector weightings and stock selection within sectors contributed to the Portfolio's relative outperformance versus the Index for the year. - Compared to the Index, a sector underweight in telecommunication services (the poorest performing market sector) contributed the most to relative performance, followed by an underweight in energy and an overweight in information technology (the best performing market sector for the period). - Stock selection was positive overall, led by strong performance in holdings within materials, consumer discretionary, and industrials. Weaker selection within information technology and healthcare detracted from relative performance. MANAGEMENT STRATEGIES - The Large Value management team began overseeing the Portfolio on September 30, 2003. - The team has reduced somewhat the degree of economic sensitivity in the Portfolio, consistent with appropriate valuations, but without losing contact with the continued market expansion. As of the end of the period, the Portfolio emphasized materials, healthcare, and consumer staples, and a smaller overweight (compared to the Index) in industrials. The team has also decreased the weightings in financials, information technology, and telecommunications. January 2004 83 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS VALUE EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- COMMON STOCKS (98.7%) ADVERTISING AGENCIES (0.7%) Interpublic Group of Cos., Inc. (a)86,210 $ 1,345 ------------------------------------------------------------------------------------------- AEROSPACE (0.4%) Raytheon Co. 23,180 696 ------------------------------------------------------------------------------------------- AUTOMOBILES (2.4%) Honda Motor Co., Ltd. ADR 105,750 2,379 Magna International, Inc., Class A 25,190 2,017 ------------------------------------------------------------------------------------------- 4,396 =========================================================================================== BEVERAGES: SOFT DRINKS (0.9%) PepsiCo., Inc. 32,920 1,535 ------------------------------------------------------------------------------------------- CABLE TELEVISION SERVICES (3.0%) Time Warner, Inc. (a)299,580 5,390 ------------------------------------------------------------------------------------------- CHEMICALS (3.6%) Bayer AG ADR 116,400 3,423 Dow Chemical Co. (The) 46,650 1,939 DuPont (E.I.) De Nemours & Co. 26,860 1,233 ------------------------------------------------------------------------------------------- 6,595 =========================================================================================== COMMUNICATIONS & MEDIA (2.0%) Walt Disney Co. (The) 157,730 3,680 ------------------------------------------------------------------------------------------- COMMUNICATIONS TECHNOLOGY (1.1%) Nokia Oyj ADR 117,870 2,004 ------------------------------------------------------------------------------------------- COMPUTER SERVICES SOFTWARE & SYSTEMS (1.7%) Microsoft Corp. 113,510 3,126 ------------------------------------------------------------------------------------------- COMPUTER TECHNOLOGY (2.5%) Hewlett-Packard Co. 86,940 1,997 International Business Machines Corp. 28,090 2,603 ------------------------------------------------------------------------------------------- 4,600 =========================================================================================== COPPER (1.7%) Phelps Dodge Corp. (a)39,890 3,035 ------------------------------------------------------------------------------------------- COSMETICS (1.9%) Kimberly-Clark Corp. 58,750 3,472 ------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES (5.6%) Bank of America Corp. 24,690 1,986 Bank One Corp. 50,390 2,297 PNC Financial Services Group, Inc. 73,100 4,001 Wachovia Corp. 38,600 1,798 ------------------------------------------------------------------------------------------- 10,082 =========================================================================================== DRUGS & PHARMACEUTICALS (8.1%) AstraZeneca plc ADR 34,830 1,685 Bristol-Myers Squibb Co. 254,340 7,274 Roche Holding AG ADR 31,030 3,130 Schering-Plough Corp. 151,260 2,631 ------------------------------------------------------------------------------------------- 14,720 =========================================================================================== ELECTRONICS: INSTRUMENTS GAUGES & METERS (1.1%) Parker Hannifin Corp. 33,500 1,993 ------------------------------------------------------------------------------------------- ENERGY EQUIPMENT (2.3%) Schlumberger Ltd. 77,300 4,230 ------------------------------------------------------------------------------------------- ENERGY MISCELLANEOUS (1.9%) EOG Resources, Inc. 36,740 1,696 Valero Energy Corp. 38,450 1,782 ------------------------------------------------------------------------------------------- 3,478 =========================================================================================== FINANCIAL DATA PROCESSING SERVICES & SYSTEMS (0.9%) Automatic Data Processing, Inc. 42,460 $ 1,682 ------------------------------------------------------------------------------------------- FINANCIAL MISCELLANEOUS (5.4%) Equifax, Inc. 110,350 2,704 Fannie Mae 39,950 2,999 Freddie Mac 69,500 4,053 ------------------------------------------------------------------------------------------- 9,756 =========================================================================================== FOODS (2.4%) Cadbury Schweppes plc ADR 53,350 1,595 Kraft Foods, Inc., Class A 42,570 1,371 Nestle S.A. ADR (Registered) 22,320 1,397 ------------------------------------------------------------------------------------------- 4,363 =========================================================================================== HEALTH CARE FACILITIES (1.4%) Tenet Healthcare Corp. (a)156,130 2,506 ------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (1.5%) Bausch & Lomb, Inc. 51,550 2,675 ------------------------------------------------------------------------------------------- HOTEL/MOTEL (3.0%) Hilton Hotels Corp. 169,240 2,899 Starwood Hotels & Resorts Worldwide, Inc. 69,340 2,494 ------------------------------------------------------------------------------------------- 5,393 =========================================================================================== INSURANCE: LIFE (1.0%) Cigna Corp. 30,960 1,780 ------------------------------------------------------------------------------------------- INSURANCE: MULTI-LINE (4.8%) Hartford Financial Services Group, Inc. 74,700 4,410 Metlife, Inc. 50,060 1,686 Prudential Financial, Inc. 60,750 2,537 ------------------------------------------------------------------------------------------- 8,633 =========================================================================================== INSURANCE: PROPERTY & CASUALTY (4.3%) Chubb Corp. 70,770 4,819 Travelers Property Casualty Corp., Class A 169,680 2,847 Travelers Property Casualty Corp., Class B 10,800 183 ------------------------------------------------------------------------------------------- 7,849 =========================================================================================== INVESTMENT MANAGEMENT COMPANIES (9.1%) Citigroup, Inc. 130,500 6,334 Edwards (A.G.), Inc. 29,980 1,086 J.P. Morgan Chase & Co. 81,680 3,000 Lehman Brothers Holdings, Inc. 30,300 2,340 Merrill Lynch & Co., Inc. 62,400 3,660 ------------------------------------------------------------------------------------------- 16,420 =========================================================================================== MANUFACTURING (2.2%) Ingersoll Rand Co., Class A 32,390 2,199 Textron, Inc. 29,820 1,701 ------------------------------------------------------------------------------------------- 3,900 =========================================================================================== MINING (1.2%) Newmont Mining Corp. 45,900 2,231 ------------------------------------------------------------------------------------------- OIL: INTEGRATED DOMESTIC (6.2%) BP plc ADR 99,740 4,922 ConocoPhillips 39,400 2,583 Exxon Mobil Corp. 89,750 3,680 ------------------------------------------------------------------------------------------- 11,185 =========================================================================================== PAPER (1.5%) Temple-Inland, Inc. 43,740 2,741 -------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 84 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) VALUE EQUITY PORTFOLIO
VALUE SHARES (000) ------------------------------------------------------------------------------------------- RADIO & TV BROADCASTERS (0.7%) Clear Channel Communications, Inc. 27,400 $ 1,283 ------------------------------------------------------------------------------------------- RAILROADS (3.0%) Norfolk Southern Corp. 142,760 3,377 Union Pacific Corp. 29,580 2,055 ------------------------------------------------------------------------------------------- 5,432 =========================================================================================== RETAIL (2.0%) McDonald's Corp. 51,070 1,268 Wal-Mart Stores, Inc. 42,720 2,266 ------------------------------------------------------------------------------------------- 3,534 =========================================================================================== TOBACCO (1.6%) Altria Group, Inc. 54,400 2,960 ------------------------------------------------------------------------------------------- UTILITIES: ELECTRICAL (3.3%) Edison International 66,660 1,462 Entergy Corp. 26,210 1,498 Exelon Corp. 26,120 1,733 FirstEnergy Corp. 37,980 1,337 ------------------------------------------------------------------------------------------- 6,030 =========================================================================================== UTILITIES: TELECOMMUNICATIONS (2.3%) Sprint Corp. 79,980 1,313 Verizon Communications, Inc. 79,200 2,779 ------------------------------------------------------------------------------------------- 4,092 =========================================================================================== TOTAL COMMON STOCKS (COST $161,357) 178,822 =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (0.8%) REPURCHASE AGREEMENT (0.8%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $1,419 (COST $1,419) $ (f)1,419 1,419 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.5%) (COST $162,776) 180,241 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (0.8%) Receivable for Portfolio Shares Sold 695 Dividends Receivable 387 Receivable for Investments Sold 346 Other 5 1,433 ------------------------------------------------------------------------------------------- LIABILITIES (-0.3%) Investment Advisory Fees Payable (191) Payable for Investments Purchased (147) Distribution Fees, Class B (51) Payable for Portfolio Shares Redeemed (29) Administrative Fees Payable (26) Directors' Fees and Expenses Payable (24) Bank Overdraft Payable (12) Custodian Fees Payable (5) Other Liabilities (12) (497) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 181,177 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid-in Capital $ 187,344 Undistributed (Distributions in Excess of) Net Investment Income (20) Accumulated Net Realized Gain (Loss) (23,612) Unrealized Appreciation (Depreciation) on Investments 17,465 ------------------------------------------------------------------------------------------- NET ASSETS $ 181,177 =========================================================================================== CLASS A: NET ASSETS $ 108,997 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 11,714,605 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 9.30 =========================================================================================== CLASS B: NET ASSETS $ 72,180 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 7,756,628 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 9.31 ===========================================================================================
(a) Non-income producing security. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. ADR American Depositary Receipts THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 85 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) EMERGING MARKETS DEBT PORTFOLIO [CHART] COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT SINCE INCEPTION FISCAL YEAR ENDED DECEMBER 31
J.P. MORGAN EMERGING EMERGING MARKETS DEBT MARKETS BOND GLOBAL INDEX(1) PORTFOLIO-CLASS A "*" $ 500,000 $ 500,000 "1994" $ 404,780 $ 429,500 "1995" $ 511,541 $ 550,748 "1996" $ 691,741 $ 828,986 "1997" $ 774,404 $ 978,949 "1998" $ 685,007 $ 627,017 "1999" $ 850,641 $ 810,231 "2000" $ 973,218 $ 914,022 "2001" $ 986,454 $ 1,010,634 "2002" $ 1,115,778 $ 1,124,735 "2003" $ 1,402,087 $ 1,444,834
* Commenced operations on February 1, 1994 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE J.P. MORGAN EMERGING MARKETS BOND GLOBAL INDEX(1)
TOTAL RETURNS(2) ------------------------------------ AVERAGE ANNUAL ----------------------- ONE FIVE SINCE YEAR YEARS INCEPTION -------------------------------------------------------------- Portfolio - Class A (3) 28.46% 18.17% 11.36% Index - Class A 25.66 15.40 10.96 Portfolio - Class B (4) 28.34 17.72 12.48 Index - Class B 25.66 15.40 13.27
(1) The J.P. Morgan Emerging Markets Bond Global Index tracks total returns for U.S. dollar - denominated debt instruments issued by emerging market sovereign and quasi - sovereign entities, including Brady Bonds, loans, Eurobonds and local market instruments for over 30 emerging market countries. (2) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. Fee waivers and/or reimbursements are voluntary and the Adviser reserves the right to commence or terminate any waiver and/or reimbursement at any time. (3) Commenced operations on February 1, 1994 (4) Commenced operations on January 2, 1996 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The Emerging Markets Debt Portfolio seeks high total return by investing primarily in fixed income securities of government and government-related issuers and, to a lesser extent, of corporate issuers in emerging market countries. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. In addition, investing in emerging markets may involve a relatively higher degree of volatility. PERFORMANCE For the year ended December 31, 2003, the Portfolio had a total return of 28.46% for the Class A shares and 28.34% for the Class B shares compared to 25.66% for the J.P. Morgan Emerging Markets Bond Global Index (the "Index"). FACTORS AFFECTING PERFORMANCE - By almost any measure, 2003 was a remarkable year for emerging-markets debt (EMD) investors. With the exception of a brief summer respite, the market rallied from start to finish with yield spreads on the Index plummeting by more than 300 basis points versus U.S. treasuries. Thanks to this significant yield-spread compression and attractive coupon income, the asset class generated total returns in excess of 25%, one of its best years on record. - Supportive external conditions, including strong global economic growth, rising commodity prices, and ample global liquidity, in conjunction with significant improvements in emerging markets fundamentals led to a dramatic reduction of sovereign risk and improved credit quality over the course of the year. Most remarkably, Moody's upgrade of Russia's credit-quality rating to Baa3 shifted over half of the Index's market value to investment-grade status; clearly, this represented a dramatic change from the 1998 environment when Russia's default led many to speculate about the "death" of the asset class. - Investors' EMD perceptions shifted remarkably during 2003, leading to significant new inflows into the asset class. This was perhaps the first year in which the notion that EMD could provide a diversified source of income to most fixed-income strategies gained widespread support. Although some inflows reflected tactical allocations seeking higher returns in a low-yield and low-return environment, we find it reassuring that the majority of new inflows stemmed from strategic asset allocation decisions with long-term horizons. Improving 86 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (CONT'D) EMERGING MARKETS DEBT PORTFOLIO fundamentals and a ten-year history of high returns and declining volatility attracted strategic investors in search of additional yield to meet liabilities or funding requirements. MANAGEMENT STRATEGIES - Key factors contributing to our favorable relative performance during the period included our overweights in Brazil, Peru, and Russia, as well as an underweight to the Asian region. In addition, effective interest-rate risk management during the second half of the year aided performance. An underweight allocation to Ecuador part of the year detracted from relative returns. - From a country-specific standpoint, both Brazil and Ecuador generated some of the asset class' best returns last year. In both cases, the newly elected presidents pleasantly surprised deeply skeptical investors with their ability to implement reasonable policies. In Brazil, President Lula adhered to cautious fiscal and monetary policies and negotiated approval of crucial structural reforms with the Brazilian congress. In Ecuador, President Gutierrez's adherence to International Monetary Fund commitments, albeit with hiccups, allowed his nation to benefit from higher oil production and prices. Better-than-expected economic performance and favorable external conditions led the value of Brazilian and Ecuadorian assets to increase by almost 70% and 100%, respectively, during 2003. January 2004 87 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS EMERGING MARKETS DEBT PORTFOLIO
FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------------------- DEBT INSTRUMENTS (95.2%) ARGENTINA (1.3%) SOVEREIGN (1.3%) Republic of Argentina, 2.063%, 3/31/23 $ (b)440 $ 220 Republic of Argentina, 6.00%, 3/31/23 (b)202 100 Republic of Argentina, (Linked Variable Rate) 76.953%, 4/10/05 (b)(h)1,210 405 ------------------------------------------------------------------------------------------- 725 =========================================================================================== BRAZIL (24.0%) SOVEREIGN (24.0%) Federative Republic of Brazil, 8.875%, 4/15/24 3,040 2,968 Federative Republic of Brazil, 11.00%, 8/17/40 3,210 3,547 Federative Republic of Brazil, 11.25%, 7/26/07 1,220 1,433 Federative Republic of Brazil, 12.25%, 3/6/30 1,000 1,250 Federative Republic of Brazil, 14.50%, 10/15/09 1,740 2,284 Federative Republic of Brazil, PIK, 8.00%, 4/15/14 1,755 1,735 ------------------------------------------------------------------------------------------- 13,217 =========================================================================================== BULGARIA (1.6%) SOVEREIGN (1.6%) Republic of Bulgaria, 8.25%, 1/15/15 (e)373 439 Republic of Bulgaria (Registered), 8.25%, 1/15/15 370 438 ------------------------------------------------------------------------------------------- 877 =========================================================================================== CHILE (1.8%) CORPORATE (1.8%) Empresa Nacional de Petroleo, 6.75%, 11/15/12 (e)900 993 ------------------------------------------------------------------------------------------- COLOMBIA (1.5%) SOVEREIGN (1.5%) Republic of Colombia, 9.75%, 4/9/11 731 834 ------------------------------------------------------------------------------------------- DOMINICAN REPUBLIC (0.7%) SOVEREIGN (0.7%) Dominican Republic (Registered), 9.04%, 1/23/13 490 365 ------------------------------------------------------------------------------------------- ECUADOR (4.4%) SOVEREIGN (4.4%) Government of Ecuador (Registered), 7.00%, 8/15/30 (n)3,160 2,449 ------------------------------------------------------------------------------------------- INDONESIA (2.2%) CORPORATE (2.2%) Pindo Deli Finance Mauritius, 10.75%, 10/1/07 (b)(e)3,200 672 Tjiwi Kimia Finance Mauritius Ltd., 10.00%, 8/1/04 (b)460 149 Tjiwi Kimia International BV, 13.25%, 8/1/49 (b)1,190 387 ------------------------------------------------------------------------------------------- 1,208 =========================================================================================== IVORY COAST (0.2%) SOVEREIGN (0.2%) Ivory Coast, 2.00%, 3/29/18 (b)580 93 ------------------------------------------------------------------------------------------- MALAYSIA (1.4%) SOVEREIGN (1.4%) Government of Malaysia, 7.50%, 7/15/11 650 771 ------------------------------------------------------------------------------------------- MEXICO (18.3%) CORPORATE (6.4%) Pemex Project Funding Master Trust, 2.95%, 10/15/09 $ (e)(h)570 $ 583 Pemex Project Funding Master Trust, 9.125%, 10/13/10 990 1,180 Petroleos Mexicanos (Registered), 8.625%, 12/1/23 410 452 Petroleos Mexicanos, 9.50%, 9/15/27 650 777 Satelites Mexicanos S.A. de C.V., 10.125%, 11/1/04 (b)1,207 549 ------------------------------------------------------------------------------------------- 3,541 =========================================================================================== SOVEREIGN (11.9%) United Mexican States, 8.375%, 1/14/11 1,630 1,940 United Mexican States, 10.375%, 2/17/09 340 432 United Mexican States, 11.375%, 9/15/16 2,960 4,203 ------------------------------------------------------------------------------------------- 6,575 =========================================================================================== 10,116 =========================================================================================== NIGERIA (1.2%) SOVEREIGN (1.2%) Central Bank of Nigeria, 6.25%, 11/15/20 (n)750 667 ------------------------------------------------------------------------------------------- PANAMA (1.5%) SOVEREIGN (1.5%) Republic of Panama, 9.375%, 4/1/29 440 497 Republic of Panama, 9.625%, 2/8/11 295 342 ------------------------------------------------------------------------------------------- 839 =========================================================================================== PERU (2.9%) SOVEREIGN (2.9%) Republic of Peru, 8.75%, 11/21/33 560 563 Republic of Peru, 9.875%, 2/6/15 910 1,060 ------------------------------------------------------------------------------------------- 1,623 =========================================================================================== PHILIPPINES (1.7%) SOVEREIGN (1.7%) Republic of Philippines, 9.375%, 1/18/17 843 913 ------------------------------------------------------------------------------------------- QATAR (0.8%) SOVEREIGN (0.8%) State of Qatar (Registered), 9.75%, 6/15/30 300 424 ------------------------------------------------------------------------------------------- RUSSIA (19.6%) SOVEREIGN (19.6%) Russian Federation, 5.00%, 3/31/30 (e)(n)65 63 Russian Federation (Registered), 5.00%, 3/31/30 (n)6,633 6,417 Russian Federation (Registered), 8.25%, 3/31/10 880 984 Russian Federation (Registered), 11.00%, 7/24/18 1,626 2,191 Russian Federation (Registered), 12.75%, 6/24/28 720 1,147 ------------------------------------------------------------------------------------------- 10,802 =========================================================================================== SOUTH AFRICA (1.9%) SOVEREIGN (1.9%) Republic of South Africa, 8.50%, 6/23/17 860 1,030 -------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 88 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EMERGING MARKETS DEBT PORTFOLIO
FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------------------- SOUTH KOREA (0.6%) SOVEREIGN (0.6%) Republic of Korea, 4.25%, 6/1/13 $ 320 $ 310 ------------------------------------------------------------------------------------------- TUNISIA (0.4%) SOVEREIGN (0.4%) Banque Centrale de Tunisie, 7.375%, 4/25/12 210 237 ------------------------------------------------------------------------------------------- TURKEY (2.7%) SOVEREIGN (2.7%) Republic of Turkey, 11.50%, 1/23/12 570 728 Republic of Turkey, 11.75%, 6/15/10 270 343 Republic of Turkey, 12.375%, 6/15/09 320 411 ------------------------------------------------------------------------------------------- 1,482 =========================================================================================== UKRAINE (1.0%) SOVEREIGN (1.0%) Ukraine Government (Registered), 11.00%, 3/15/07 495 553 ------------------------------------------------------------------------------------------- VENEZUELA (3.5%) SOVEREIGN (3.5%) Republic of Venezuela, 9.25%, 9/15/27 640 586 Republic of Venezuela, 10.75%, 9/19/13 (e)1,230 1,319 ------------------------------------------------------------------------------------------- 1,905 =========================================================================================== TOTAL DEBT INSTRUMENTS (COST $49,658) 52,433 =========================================================================================== NO. OF WARRANTS ------------------------------------------------------------------------------------------- WARRANTS (0.0%) COLOMBIA (0.0%) Occidente y Caribe Cellular, expiring 3/15/04 (a)(d)(e)20,600 @-- ------------------------------------------------------------------------------------------- NIGERIA (0.0%) Central Bank of Nigeria, expiring 11/15/20 (a)(d)8,500 @-- ------------------------------------------------------------------------------------------- VENEZUELA (0.0%) Republic of Venezuela, expiring 4/15/20 (a)(d)2,700 @-- ------------------------------------------------------------------------------------------- TOTAL WARRANTS (COST $13) @-- =========================================================================================== FACE AMOUNT (000) ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (2.5%) REPURCHASE AGREEMENT (2.5%) J.P. Morgan Securities, Inc., 0.75%, dated 12/31/03, due 1/2/04, repurchase price $1,386 (COST $1,386) $ (f)1,386 1,386 ------------------------------------------------------------------------------------------- FOREIGN CURRENCY (0.0%) Euro (COST $13) EUR 11 14 =========================================================================================== TOTAL INVESTMENTS (97.7%) (COST $51,070) 53,833 =========================================================================================== AMOUNT AMOUNT (000) (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (3.1%) Cash $ 1 Interest Receivable 1,151 Due from Broker 462 Receivable for Portfolio Shares Sold 90 Other 2 $ 1,706 ------------------------------------------------------------------------------------------- LIABILITIES (-0.8%) Payablefor Investments Purchased (318) Investment Advisory Fees Payable (102) Directors' Fees and Expenses Payable (17) Administrative Fees Payable (9) Custodian Fees Payable (5) Other Liabilities (12) (463) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 55,076 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 139,235 Undistributed (Distributions in Excess of) Net Investment Income (174) Accumulated Net Realized Gain (Loss) (86,570) Unrealized Appreciation (Depreciation) on: Investments 2,763 Futures Contracts (178) ------------------------------------------------------------------------------------------- NET ASSETS $ 55,076 =========================================================================================== CLASS A: NET ASSETS $ 54,647 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 15,486,461 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 3.53 =========================================================================================== CLASS B: NET ASSETS $ 429 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 119,160 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 3.60 ===========================================================================================
(a) Non-income producing security. (b) Issuer is in default. (d) Security was valued at fair value -- At December 31, 2003, the Portfolio held fair valued securities, each valued at less than $500, representing less than 0.05% of net assets. (e) 144A security -- certain conditions for public sale may exist. (f) The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (h) Variable/Floating Rate Security -- interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on December 31, 2003. (n) Step Bond -- coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2003. Maturity date disclosed is the ultimate maturity date. @ Face Amount/Value is less than $500. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 89 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) EMERGING MARKETS DEBT PORTFOLIO FUTURES CONTRACTS: The Portfolio had the following futures contract(s) open at period end:
NET UNREALIZED NUMBER APPRECIATION OF VALUE EXPIRATION (DEPRECIATION) CONTRACTS (000) DATE (000) ------------------------------------------------------------------------------------- SHORT: U.S. 5 Year Treasury Note 179 $ 19,981 Mar-04 $ (150) U.S. 10 Year Treasury Note 32 3,593 Mar-04 (28) --------------- $ (178) ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 90 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) MONEY MARKET PORTFOLIO [CHART] COMPARATIVE YIELDS FISCAL YEAR ENDED DECEMBER 31, 2003
"MONEY MARKET PORTFOLIO "iMONEYNET MONEY 30 DAY YIELDS" FUND COMPARABLE YIELDS" "Jan" 1.01% 0.83% "Feb" 0.89% 0.79% "Mar" 0.83% 0.75% "Apr" 0.79% 0.72% "May" 0.74% 0.70% "Jun" 0.71% 0.67% "Jul" 0.57% 0.54% "Aug" 0.51% 0.52% "Sept" 0.53% 0.51% "Oct" 0.54% 0.51% "Nov" 0.55% 0.52% "Dec" 0.59% 0.53%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE. The Money Market Portfolio seeks to maximize current income and preserve capital while maintaining high levels of liquidity. Investments in shares of the Portfolio are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. PERFORMANCE The seven day yield and seven day effective yield (which assumes an annualization of the current yield with all dividends reinvested) for the Portfolio as of December 31, 2003, were 0.61% and 0.61%, respectively. The yield quotation more closely reflects the current earnings of the Portfolio than the total return. As with all money market portfolios, the seven day yields are not necessarily indicative of future performance. FACTORS AFFECTING PERFORMANCE - The Federal Open Market Committee lowered its target rate for federal funds to 1.00%, a 45-year low, on June 25, 2003. It maintained that target throughout the second half of 2003 to encourage a faster pace of economic activity. Against this backdrop, money market fund yields have fallen to record lows. - Third quarter gross domestic product growth jumped to 8.2%, its highest rate of expansion since the fourth quarter 1983. The December ISM Manufacturing Index rose to 66.2, its highest level since December 1983, and has remained above 50 since July, while non-farm payrolls have risen monthly since August. MANAGEMENT STRATEGY - As of December 31, 2003, the Portfolio had net assets of $795 million. The average maturity of the Portfolio was 18 days. - The Portfolio seeks high liquidity and preservation of capital while generating a yield reflecting prevailing money market conditions. - Throughout the past year, we continued our longstanding policy of purchasing only high quality, very liquid money market securities. The Portfolio does not contain any derivative securities. January 2004 91 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS MONEY MARKET PORTFOLIO
FACE AMORTIZED AMOUNT COST (000) (000) ------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (87.2%) BANKING (7.6%) Citicorp, 1.07%, 2/2/04 $ 35,000 $ 34,967 Northern Trust Co., Ltd., 1.06%, 2/2/04 25,000 24,976 ------------------------------------------------------------------------------------------- 59,943 =========================================================================================== DIVERSIFIED FINANCIAL SERVICES (8.8%) General Electric Capital Corp., 1.09%, 1/15/04 35,000 34,985 Mortgage Interest Networking Trust, 1.09%, 1/20/04 35,000 34,980 ------------------------------------------------------------------------------------------- 69,965 =========================================================================================== FINANCE - AUTOMOTIVE (13.2%) DaimlerChrysler Revolving Auto Conduit LLC, 1.10%, 1/6/04 35,000 34,995 Fcar Owner Trust, 1.07%, 1/14/04 35,000 34,986 New Center Asset Trust, 1.08%, 1/6/04 35,000 34,995 ------------------------------------------------------------------------------------------- 104,976 =========================================================================================== FINANCE - CONSUMER (4.4%) American Express Co., 1.05%, 1/30/04 35,000 34,970 ------------------------------------------------------------------------------------------- INTERNATIONAL BANKS (12.9%) CBA Delaware Finance, Inc., 1.08%, 1/12/04 30,000 29,990 Danske Corp., 1.07%, 1/23/04 35,000 34,977 Dexia Delaware LLC, 1.08%, 1/9/04 38,000 37,991 ------------------------------------------------------------------------------------------- 102,958 =========================================================================================== MAJOR BANKS (8.8%) State Street Bank & Trust Co., 1.05%, 2/2/04 35,000 35,000 Wells Fargo Bank NA, 1.05%, 2/2/04 35,000 35,000 ------------------------------------------------------------------------------------------- 70,000 =========================================================================================== US GOVERNMENT & AGENCY SECURITIES (31.5%) Federal Home Loan Bank, 1.00%, 2/4/04 50,000 49,953 Federal Home Loan Bank, 1.00%, 2/6/04 50,000 49,950 Federal Home Loan Mortgage Corporation, 1.01%, 1/27/04 50,000 49,964 Federal National Mortgage Association, 1.04%, 1/21/04 25,450 25,435 Federal National Mortgage Association, 1.05%, 1/5/04 75,000 74,991 ------------------------------------------------------------------------------------------- 250,293 =========================================================================================== TOTAL MONEY MARKET INSTRUMENTS (COST $693,105) 693,105 =========================================================================================== REPURCHASE AGREEMENT (13.0%) Bear Stearns & Co., Tri-Party, 1.03%, dated 12/31/03, due 1/2/04, repurchase price $103,506, collateralized by Federal National Mortgage Association ARM Pools, having various maturities and interest rates valued at $105,571 (COST $103,500) 103,500 103,500 =========================================================================================== TOTAL INVESTMENTS (100.2%) (COST $796,605) 796,605 =========================================================================================== AMOUNT AMOUNT (000) (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (0.0%) Cash $ 85 Interest Receivable 15 Other 45 $ 145 ------------------------------------------------------------------------------------------- LIABILITIES (-0.2%) Investment Advisory Fees Payable (656) Directors' Fees and Expenses Payable (264) Dividends Declared Payable (221) Administrative Fees Payable (124) Custodian Fees Payable (8) Other Liabilities (78) (1,351) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 795,399 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 795,311 Undistributed Net Investment Income 88 ------------------------------------------------------------------------------------------- NET ASSETS $ 795,399 =========================================================================================== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 795,481,197outstanding $0.001 par value shares (authorized 4,000,000,000 shares) $ 1.00 ===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 92 2003 ANNUAL REPORT December 31, 2003 INVESTMENT OVERVIEW (UNAUDITED) MUNICIPAL MONEY MARKET PORTFOLIO [CHART] COMPARATIVE YIELDS FISCAL YEAR ENDED DECEMBER 31, 2003
"MUNICIPAL MONEY MARKET "iMONEYNET MUNICIPAL MONEY PORTFOLIO 30 DAY YIELDS" FUND COMPARABLE YIELDS" "Jan" 0.74% 0.62% "Feb" 0.60% 0.62% "Mar" 0.62% 0.61% "Apr" 0.64% 0.67% "May" 0.70% 0.72% "Jun" 0.62% 0.59% "Jul" 0.42% 0.36% "Aug" 0.32% 0.36% "Sept" 0.33% 0.39% "Oct" 0.41% 0.45% "Nov" 0.45% 0.51% "Dec" 0.54% 0.51%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE AND ASSUMES THAT ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, WERE REINVESTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELD WILL FLUCTUATE AS MARKET CONDITIONS CHANGE. The Municipal Money Market Portfolio seeks to maximize current tax-exempt income and preserve capital. Investments in shares of the Portfolio are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to preserve its net asset value of $1.00 per share, it is possible to lose money by investing in the Portfolio. PERFORMANCE The seven day yield and seven day effective yield (assumes an annualization of the current yield with all dividends reinvested) for the Portfolio as of December 31, 2003, were 0.67% and 0.67%, respectively. The seven day taxable equivalent yield and the seven day taxable equivalent effective yield for the Portfolio at December 31, 2003 assuming a Federal income tax rate of 35.0% (maximum rate) were 1.03% and 1.03%, respectively. The seven day yields are not necessarily indicative of future performance. FACTORS AFFECTING PERFORMANCE - The 12 months ended December 31, 2003, was a period of record low yields in the municipal money market. Following its latest cut in the federal funds rate target in June, the Federal Reserve Open Market Committee indicated its intentions to remain accommodative for a considerable period. - The short end of the tax-free money market yield curve was largely flat through much of the year, though it inverted in the last quarter of the period as seasonal redemptions pushed yields for the shortest maturities higher. - Yields on municipal money market paper were highly attractive relative to taxable instruments. Tax-free to taxable yield ratios exceeded 90% for much of the year and for overnight paper the ratio at times rose above 100%. - Accommodative monetary policy appeared to have an effect. As the year drew to a close, improvements in the economy were reflected in better prospects for most municipalities with tax receipts on the rise and the general trend toward widespread credit downgrades slowing. - Many states worked to close budget gaps through a combination of increased fees and service cuts and onetime measures such as tobacco bond receipts and long-term refinancing. - Against this backdrop, the issuance of traditional notes rose considerably in 2003. Rising deficits led many issuers to turn to the capital markets for temporary borrowing to meet shortfalls in cash flow. MANAGEMENT STRATEGIES - Because of the flatness of the yield curve and very low interest rates, we placed an emphasis on the short-to-intermediate maturity range of the municipal money market. At the end of December, the Portfolio's average maturity was 26 days. - Our generally cautious approach was reflected in the Portfolio's composition. By the end of the period, the Portfolio was comprised of 75-80% short-term variable rate paper, with the remainder in short-term tax-exempt commercial paper and fixed rate notes. As always, we remained highly selective in our investment commitments and thoroughly screened potential purchases to ensure that they met the Portfolio's credit criteria. January 2004 93 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS MUNICIPAL MONEY MARKET PORTFOLIO
FACE AMORTIZED AMOUNT COST (000) (000) ------------------------------------------------------------------------------------------- TAX-EXEMPT INSTRUMENTS (98.9%) FIXED RATE INSTRUMENTS (20.1%) COMMERCIAL PAPER (2.6%) San Antonio, Texas, Electric & Gas, Ser. 1995 A, 1.05%, 1/27/04 $ 7,200 $ 7,200 Tennessee School Bond Authority, Higher Educational Facilities, Ser. 1997 A, 0.95%, 1/14/04 6,000 6,000 ------------------------------------------------------------------------------------------- 13,200 =========================================================================================== MUNICIPAL BONDS & NOTES (9.2%) Erie County, New York, Ser. 2003 A RANs (FGIC), 1.50%, 6/23/04 5,000 5,014 Indiana Bond Bank, Midyear Funding Notes, Ser. 2003 A, 1.25%, 4/15/04 15,000 15,014 Indianapolis Local Public Improvement Bond Bank, Indiana, Ser. 2003 F Notes, 1.25%, 1/8/04 5,000 5,000 Kentucky Association of Counties Advance Revenue Program, Ser. 2003 A COPs TRANs, 2.00%, 6/30/04 15,000 15,081 New York State Thruway Authority, Ser. 2003 A BANs, 1.125%, 3/25/04 7,000 7,000 ------------------------------------------------------------------------------------------- 47,109 =========================================================================================== PUT OPTION BONDS (8.3%) Intermountain Power Agency, Utah, 1985 Ser. E (Ambac), (Put 3/15/04), 0.92%, 7/1/14 23,500 23,500 Northside Independent School District, Texas, Ser. 2003 (Put 6/15/04), 1.02%, 6/15/33 4,000 4,000 Northside Independent School District, Texas, Ser. 2003-A (Put 8/1/04), 1.00%, 8/1/31 6,000 6,000 Oklahoma Water Resources Board, State Loan, Ser. 1995 (Put 3/3/04), 0.90%, 9/1/24 8,845 8,845 ------------------------------------------------------------------------------------------- 42,345 =========================================================================================== 102,654 =========================================================================================== VARIABLE/FLOATING RATE INSTRUMENTS (78.8%) DAILY VARIABLE RATE BONDS (13.6%) Bell County Health Facilities Development Corp., Texas, Scott & White Memorial Hospital, Ser. 2001-2 (MBIA), 1.30%, 8/15/31 1,600 1,600 Breckinridge County, Kentucky, Kentucky Association of Counties Leasing Trust, 2002 Ser. A, 1.30%, 2/1/32 4,500 4,500 California Health Facilities Financing Authority, Adventist Health System/West, 1998 Ser. A (MBIA), 1.27%, 9/1/28 1,100 1,100 Clark County School District, Nevada, Ser. 2001 B (FSA), 1.14%, 6/15/21 5,850 5,850 Geisinger Authority, Pennsylvania, Geisinger Health System, Ser. 2002, 1.30%, 11/15/32 600 600 Harris County Health Facilities Development Corp., Texas, Methodist Hospital, Ser. 2002, 1.30%, 12/1/32 14,900 14,900 Illinois Health Facilities Authority, Northwestern Memorial Hospital, Ser. 1995, 1.33%, 8/15/25 4,450 4,450 Illinois Health Facilities Authority, Northwestern Memorial Hospital, Ser. 2002 B, 1.33%, 8/15/09 7,400 7,400 Illinois Health Facilities Authority, Northwestern Memorial Hospital, Ser. 2002 B, 1.33%, 8/15/32 7,100 7,100 Los Angeles Department of Water & Power, California, Power System, 2001 Ser. B Sub-Ser. B-6, 1.27%, 7/1/34 $ 7,600 $ 7,600 Massachusetts Health & Educational Facilities Authority, Capital Asset, Ser. D (MBIA), 1.26%, 1/1/35 720 720 Metropolitan Government of Nashville & Davidson County Health & Education Facilities Board, Tennessee, Vanderbilt University, Ser. 2002 B, 1.30%, 10/1/32 5,800 5,800 Murray City, Utah, IHC Health Services, Inc., Ser. 2003 C, 1.30%, 5/15/36 1,300 1,300 Nassau County Industrial Development Agency, New York, 1999 Cold Spring Harbor Laboratory, 1.27%, 1/1/34 700 700 Ward County, North Dakota, Trinity Obligated Group, Ser. 2002 A, 1.37%, 7/1/29 4,250 4,250 Weber County, Utah, IHC Health Services, Inc., Ser. 2000 C, 1.30%, 2/15/35 1,500 1,500 ------------------------------------------------------------------------------------------- 69,370 =========================================================================================== WEEKLY VARIABLE RATE BONDS (65.2%) Allegheny County Hospital Development Authority, Pennsylvania, Presbyterian-University Health System, Inc., Ser. 1990 C (MBIA), 1.27%, 3/1/20 8,000 8,000 American Public Energy Agency, Nebraska, National Public Gas Agency, 2003 Ser. A, 1.28%, 2/1/14 5,000 5,000 Arizona Board of Regents, Arizona State University, Ser. 2003 A (Ambac), 1.15%, 7/1/34 10,000 10,000 Arizona Health Facilities Authority, Northern Arizona Healthcare, Ser. 1996 B (MBIA), 1.25%, 10/1/26 6,850 6,850 Arkansas Development Finance Authority, Higher Education Capital Asset Program, 1985 Ser. A (FGIC), 1.22%, 12/1/15 6,900 6,900 Atlanta, Georgia, Water & Wastewater, Ser. 2001 B (FSA), 1.22%, 11/1/38 16,875 16,875 Chicago, Illinois, Neighborhoods Alive, Ser. 21 B (MBIA), 1.30%, 1/1/37 8,000 8,000 Chicago, Illinois, Ser. 1997, 1.10%, 1/1/12 2,910 2,910 Clackamas County Hospital Facility Authority, Oregon, Legacy Health System, Ser. 2003, 1.10%, 2/15/30 10,000 10,000 Clarksville Public Building Authority, Tennessee, Pooled Financing, Ser. 1994, 1.25%, 6/1/24 4,205 4,205 Detroit, Michigan, Sewage Disposal System, Senior Lien, Ser. 2001 C-1 (FSA), 1.22%, 7/1/27 10,570 10,570 District of Columbia, George Washington University, Ser. 1999 C (MBIA), 1.25%, 9/15/29 5,000 5,000 Eastern Municipal Water District, California, Water & Sewer, Ser. 1993 B COPs (FGIC), 1.20%, 7/1/20 9,000 9,000 Fulton County Development Authority, Georgia, Morehouse College, Ser. 1997, 1.15%, 8/1/17 3,215 3,215 Illinois Development Finance Authority, Jewish Federation of Metropolitan Chicago, Ser. 1999 (Ambac), 1.15%, 9/1/24 3,000 3,000 Indiana Health Facility Financing Authority, Community Hospitals of Indiana, Inc., Ser. 2000 A, 1.25%, 7/1/28 7,500 7,500 Jackson Energy Authority, Tennessee, Water System, Ser. 2002 (FSA), 1.15%, 12/1/23 5,210 5,210
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 94 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) MUNICIPAL MONEY MARKET PORTFOLIO
FACE AMORTIZED AMOUNT COST (000) (000) ------------------------------------------------------------------------------------------- VARIABLE/FLOATING RATE INSTRUMENTS (CONT'D) WEEKLY VARIABLE RATE BONDS (CONT'D) JEA, Florida, Water & Sewer System, 2003 Ser. B (XLCA), 1.07%, 10/1/36 $ 4,400 $ 4,400 Lakeland, Florida, Energy System, Ser. 2003, 1.10%, 10/1/37 6,000 6,000 Lee's Summit, Missouri, Multifamily Housing, Ser. 2001 A, 1.46%, 7/1/46 10,000 10,000 Louisiana Public Facilities Authority, College & University Equipment, Ser. A (FGIC), 1.25%, 9/1/10 4,700 4,700 Massachusetts Bay Transportation Authority, Ser. 2000, 1.10%, 3/1/30 7,000 7,000 Mecklenburg County, North Carolina, Ser. 2001 COPs, 1.25%, 12/1/21 9,900 9,900 Minneapolis, Minnesota, Guthrie Theater on the River, Ser. 2003 A, 1.27%, 10/1/23 5,000 5,000 Montgomery County Public Building Authority, Tennessee, Pooled Financing, Ser. 1997, 1.25%, 11/1/27 5,955 5,955 New York City Transitional Finance Authority, New York, Fiscal 1999, 2nd Series, Sub-Ser. A-1, 1.25%, 11/15/22 9,135 9,135 New York City, New York, Fiscal 2003 Ser. G, Sub-Ser. G-3, 1.10%, 8/1/14 3,000 3,000 Niagara Falls Bridge Commission, New York, Toll Bridge Refg., Ser. 1993 A (FGIC), 1.05%, 10/1/19 1,900 1,900 North Carolina Educational Facilities Finance Agency, Duke University, Ser. 1987 B, 1.15%, 12/1/21 15,000 15,000 North Carolina Medical Care Commission, North Carolina Baptist Hospitals, Ser. 2000, 1.13%, 6/1/30 10,000 10,000 Oregon, Veterans' Welfare, Ser. 73 F, 1.10%, 12/1/17 20,500 20,500 Orlando-Orange County Expressway Authority, Florida, Ser. 2003 C4 (FSA), 1.20%, 7/1/25 4,950 4,950 Pennsylvania Higher Educational Facilities Authority, University of Pennsylvania Health Services, Ser. 1994 B, 1.25%, 1/1/24 10,500 10,500 Pennsylvania Turnpike Commission, 2002 Ser. A-2, 1.15%, 12/1/30 8,200 8,200 Private Colleges & Universities Authority, Georgia, Emory University, 2001 Ser. B, 1.08%, 9/1/33 5,000 5,000 Regional Transportation District, Colorado, Transit Vehicles, Ser. 2002 A COPs (Ambac), 1.22%, 12/1/22 11,000 11,000 Triborough Bridge & Tunnel Authority, New York, Ser. 2002 F, 1.25%, 11/1/32 3,400 3,400 University of Delaware, Ser. 1998, 1.15%, 11/1/23 10,000 10,000 University of Minnesota Regents, Ser. 1999 A, 1.28%, 1/1/34 12,525 12,525 University of Texas System, Refunding, Ser. 2001 A, 1.15%, 8/15/13 13,200 13,200 Washington State, Ser. VR-96 B, 1.00%, 6/1/20 10,700 10,700 Williamsburg, Kentucky, Cumberland College, Ser. 2002, 1.25%, 9/1/32 9,430 9,430 ------------------------------------------------------------------------------------------- 333,630 =========================================================================================== 403,000 =========================================================================================== TOTAL TAX-EXEMPT INSTRUMENTS (COST $505,654) 505,654 =========================================================================================== VALUE (000) ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (98.9%) (COST $505,654) $ 505,654 =========================================================================================== AMOUNT (000) ------------------------------------------------------------------------------------------- OTHER ASSETS (1.3%) Cash $ 3,772 Receivable for Investments Sold 2,022 Interest Receivable 966 Other 32 6,792 ------------------------------------------------------------------------------------------- LIABILITIES (-0.2%) Investment Advisory Fees Payable (459) Directors' Fees and Expenses Payable (146) Dividends Declared Payable (145) Administrative Fees Payable (85) Custodian Fees Payable (7) Other Liabilities (53) (895) ------------------------------------------------------------------------------------------- NET ASSETS (100%) $ 511,551 =========================================================================================== NET ASSETS CONSIST OF: Paid-in Capital $ 511,532 Undistributed Net Investment Income 19 ------------------------------------------------------------------------------------------- NET ASSETS $ 511,551 =========================================================================================== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 511,532,031 outstanding $0.001 par value shares (authorized 4,000,000,000 shares) $ 1.00 ===========================================================================================
Ambac Ambac Assurance Corp. FGIC Financial Guaranty Insurance Co. FSA Financial Security Assurance Inc. MBIA MBIA Insurance Corp. XLCA XL Capital Assurance THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 95 2003 ANNUAL REPORT December 31, 2003 STATEMENT OF NET ASSETS (CONT'D) MUNICIPAL MONEY MARKET PORTFOLIO SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE (UNAUDITED)
AMORTIZED PERCENT COST OF NET STATE (000) ASSETS ----------------------------------------------- Arizona $ 16,850 3.3% Arkansas 6,900 1.3 California 17,700 3.5 Colorado 11,000 2.2 Florida 15,350 3.0 Georgia 25,090 4.9 Illinois 32,860 6.4 Indiana 27,514 5.4 Kentucky 29,010 5.7 Louisiana 4,700 0.9 Maryland 10,000 2.0 Massachusetts 7,720 1.5 Michigan 23,095 4.5 Minnesota 5,000 1.0 Missouri 10,000 2.0 Nebraska 5,000 1.0 Nevada 5,850 1.1 New York 30,150 5.9 North Carolina 34,900 6.8 North Dakota 4,250 0.8 Oklahoma 8,845 1.7 Oregon 30,500 6.0 Pennsylvania 27,300 5.3 Tennessee 27,170 5.3 Texas 46,900 9.2 Utah 26,300 5.1 Washington 10,700 2.1 Washington D.C 5,000 1.0 ----------------------------------------------- $ 505,654 98.9% ===============================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 96 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
ACTIVE ASIAN EUROPEAN EUROPEAN INTERNATIONAL REAL EMERGING REAL VALUE ALLOCATION ESTATE MARKETS ESTATE EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 7,382 $ 89 $ 23,064 $ 747 $ 962 Interest 340 1 600 12 23 Less: Foreign Taxes Withheld (683) (5) (1,490) (93) (114) --------------------------------------------------------------------------------------------------------------------------------- Total Investment Income 7,039 85 22,174 666 871 --------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment Advisory Fees 1,860 20 9,933 165 258 Administrative Fees 454 8 1,248 36 55 Custodian Fees 240 21 934 47 105 Directors' Fees and Expenses 20 -- 74 1 9 Country Tax Expense -- -- 203 -- -- Interest Expense 1 -- 28 1 1 Professional Fees 42 21 90 22 24 Shareholder Reporting Fees 59 1 192 4 4 Distribution Fees on Class B Shares 18 1 68 2 3 Other Expenses 83 29 362 31 33 --------------------------------------------------------------------------------------------------------------------------------- Total Expenses 2,777 101 13,132 309 492 --------------------------------------------------------------------------------------------------------------------------------- Waiver of Investment Advisory Fees (469) (20) -- (100) (165) Expenses Reimbursed by Adviser -- (55) -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Net Expenses 2,308 26 13,132 209 327 --------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 4,731 59 9,042 457 544 --------------------------------------------------------------------------------------------------------------------------------- REALIZED GAIN (LOSS): Investments Sold (22,168) 138 60,773 2,485 493 Foreign Currency Transactions 2,706 2 (629) 24 34 Futures Contracts 2,131 -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Net Realized Gain (Loss) (17,331) 140 60,144 2,509 527 --------------------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments 100,262 702 310,151* 4,760 7,751 Foreign Currency Exchange Contracts and Translations 521 (1) 33 21 38 Futures Contracts 1,354 -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Net Change in Unrealized Appreciation (Depreciation) 102,137 701 310,184 4,781 7,789 --------------------------------------------------------------------------------------------------------------------------------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 84,806 841 370,328 7,290 8,316 --------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 89,537 $ 900 $ 379,370 $ 7,747 $ 8,860 =================================================================================================================================
* Net of $1,929 Deferred Country Taxes THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 97 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
GLOBAL GLOBAL VALUE INTERNATIONAL INTERNATIONAL INTERNATIONAL FRANCHISE EQUITY EQUITY MAGNUM SMALL CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 1,682 $ 1,837 $ 135,747 $ 1,905 $ 17,946 Interest 14 37 6,136 153 283 Less: Foreign Taxes Withheld (63) (117) (17,011) (171) (2,006) ---------------------------------------------------------------------------------------------------------------------------------- Total Investment Income 1,633 1,757 124,872 1,887 16,223 ---------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment Advisory Fees 448 574 40,205 669 6,040 Administrative Fees 92 117 7,856 131 992 Custodian Fees 46 85 1,407 152 389 Directors' Fees and Expenses 1 9 267 10 26 Interest Expense -- 2 -- 1 1 Professional Fees 31 29 215 24 56 Shareholder Reporting Fees 29 9 574 31 69 Distribution Fees on Class B Shares 5 70 1,304 25 -- Other Expenses 43 37 497 65 81 ---------------------------------------------------------------------------------------------------------------------------------- Total Expenses 695 932 52,325 1,108 7,654 ---------------------------------------------------------------------------------------------------------------------------------- Waiver of Investment Advisory Fees (126) (141) (755) (245) (342) ---------------------------------------------------------------------------------------------------------------------------------- Net Expenses 569 791 51,570 863 7,312 ---------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 1,064 966 73,302 1,024 8,911 ---------------------------------------------------------------------------------------------------------------------------------- REALIZED GAIN (LOSS): Investments Sold 1,398 (3,100) 42,840 (1,867) 35,209 Foreign Currency Transactions (1,087) (128) 23,889 761 (98) Futures Contracts -- -- -- 229 -- ---------------------------------------------------------------------------------------------------------------------------------- Net Realized Gain (Loss) 311 (3,228) 66,729 (877) 35,111 ---------------------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments 14,516 22,495 1,402,664 24,024 219,181 Foreign Currency Exchange Contracts and Translations (230) 62 17,775 94 122 Futures Contracts -- -- -- 289 -- ---------------------------------------------------------------------------------------------------------------------------------- Net Change in Unrealized Appreciation (Depreciation) 14,286 22,557 1,420,439 24,407 219,303 ---------------------------------------------------------------------------------------------------------------------------------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 14,597 19,329 1,487,168 23,530 254,414 ---------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 15,661 $ 20,295 $ 1,560,470 $ 24,554 $ 263,325 ==================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 98 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
JAPANESE SMALL VALUE LATIN EQUITY FOCUS COMPANY EQUITY AMERICAN GROWTH EQUITY GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 368 $ 781 $ 7,485 $ 794 $ 636 Interest 9 4 210 25 153 Less: Foreign Taxes Withheld (37) -- -- -- -- ----------------------------------------------------------------------------------------------------------------------------- Total Investment Income 340 785 7,695 819 789 ----------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment Advisory Fees 265 231 4,059 535 4,580 Administrative Fees 56 37 1,066 110 715 Custodian Fees 48 43 56 26 89 Directors' Fees and Expenses 5 3 52 8 14 Interest Expense 11 2 -- 1 -- Professional Fees 24 25 46 26 62 Shareholder Reporting Fees 15 5 189 19 122 Distribution Fees on Class B Shares 1 -- 426 18 763 Other Expenses 36 31 100 36 190 ----------------------------------------------------------------------------------------------------------------------------- Total Expenses 461 377 5,994 779 6,535 ----------------------------------------------------------------------------------------------------------------------------- Waiver of Investment Advisory Fees (119) (17) (153) (90) (730) ----------------------------------------------------------------------------------------------------------------------------- Net Expenses 342 360 5,841 689 5,805 ----------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) (2) 425 1,854 130 (5,016) ----------------------------------------------------------------------------------------------------------------------------- REALIZED GAIN (LOSS): Investments Sold 3,965 1,951 30,184 8,486 69,288 Foreign Currency Transactions (5) 2 -- -- -- ----------------------------------------------------------------------------------------------------------------------------- Net Realized Gain (Loss) 3,960 1,953 30,184 8,486 69,288 ----------------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments 7,682 7,711 128,831 9,403 104,359 Foreign Currency Exchange Contracts and Translations (2) 1 -- -- -- ----------------------------------------------------------------------------------------------------------------------------- Net Change in Unrealized Appreciation (Depreciation) 7,680 7,712 128,831 9,403 104,359 ----------------------------------------------------------------------------------------------------------------------------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 11,640 9,665 159,015 17,889 173,647 ----------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 11,638 $ 10,090 $ 160,869 $ 18,019 $ 168,631 =============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 99 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
EMERGING MUNICIPAL U.S. REAL VALUE MARKETS MONEY MONEY TECHNOLOGY ESTATE EQUITY DEBT MARKET MARKET PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) (000) ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 45 $ 32,943 $ 3,054 $ -- $ -- $ -- Interest 6 282 38 4,805 13,152 8,239 Less: Foreign Taxes Withheld -- (161) (1) -- -- -- ---------------------------------------------------------------------------------------------------------------------------------- Total Investment Income 51 33,064 3,091 4,805 13,152 8,239 ---------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment Advisory Fees 266 6,476 665 417 3,301 2,385 Administrative Fees 46 1,271 213 92 1,754 1,263 Custodian Fees 23 48 25 32 61 40 Directors' Fees and Expenses 3 33 11 7 120 68 Country Tax Expense -- -- -- 9 -- -- Interest Expense 3 -- 1 5 -- -- Professional Fees 21 49 25 33 64 50 Shareholder Reporting Fees 7 168 38 13 170 91 Distribution Fees on Class B Shares 7 112 148 1 -- -- Other Expenses 33 109 50 35 151 113 ---------------------------------------------------------------------------------------------------------------------------------- Total Expenses 409 8,266 1,176 644 5,621 4,010 ---------------------------------------------------------------------------------------------------------------------------------- Waiver of Investment Advisory Fees (67) (55) (94) -- -- -- ---------------------------------------------------------------------------------------------------------------------------------- Net Expenses 342 8,211 1,082 644 5,621 4,010 ---------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) (291) 24,853 2,009 4,161 7,531 4,229 ---------------------------------------------------------------------------------------------------------------------------------- REALIZED GAIN (LOSS): Investments Sold 324 23,763 2,159 7,521 -- 10 Foreign Currency Transactions -- -- -- (15) -- -- Futures Contracts -- -- -- (314) -- -- ---------------------------------------------------------------------------------------------------------------------------------- Net Realized Gain (Loss) 324 23,763 2,159 7,192 -- 10 ---------------------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments 10,687 215,670 32,309 2,858 -- -- Futures Contracts -- -- -- (81) -- -- ---------------------------------------------------------------------------------------------------------------------------------- Net Change in Unrealized Appreciation (Depreciation) 10,687 215,670 32,309 2,777 -- -- ---------------------------------------------------------------------------------------------------------------------------------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 11,011 239,433 34,468 9,969 -- 10 ---------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 10,720 $ 264,286 $ 36,477 $ 14,130 $ 7,531 $ 4,239 ==================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 100 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO --------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2003 2002 (000) (000) --------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 4,731 $ 4,963 Net Realized Gain (Loss) (17,331) (44,653) Net Change in Unrealized Appreciation (Depreciation) 102,137 5,061 --------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 89,537 (34,629) --------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (6,132) (7,427) CLASS B: Net Investment Income (86) (222) --------------------------------------------------------------------------------------------------------- Total Distributions (6,218) (7,649) --------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 150,855 159,875 Distributions Reinvested 5,120 4,778 Redeemed (133,423) (261,623) CLASS B: Subscribed 40,954 71,895 Distributions Reinvested 86 216 Redeemed (45,948) (73,290) --------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions 17,644 (98,149) --------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 100,963 (140,427) NET ASSETS: Beginning of Period 258,160 398,587 --------------------------------------------------------------------------------------------------------- End of Period $ 359,123 $ 258,160 ========================================================================================================= Undistributed (distributions in excess of) net investment income included in end of period net assets $ 1,349 $ (121) ========================================================================================================= (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 19,765 20,117 Shares Issued on Distributions Reinvested 555 635 Shares Redeemed (17,615) (31,429) --------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 2,705 (10,677) ========================================================================================================= CLASS B: Shares Subscribed 5,167 9,059 Shares Issued on Distributions Reinvested 9 28 Shares Redeemed (5,732) (9,132) --------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding (556) (45) =========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 101 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
ASIAN REAL ESTATE EMERGING MARKETS PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 59 $ 57 $ 9,042 $ 2,786 Net Realized Gain (Loss) 140 33 60,144 (56,372) Net Change in Unrealized Appreciation (Depreciation) 701 (377) 310,184 4,603 ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 900 (287) 379,370 (48,983) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (160) (69) (11,316) (324) Return of Capital -- -- (653) -- CLASS B: Net Investment Income (4) (13) (408) -- Return of Capital -- -- (24) -- ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (164) (82) (12,401) (324) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 515 160 861,356 888,416 Distributions Reinvested 34 5 11,229 306 Redeemed (118) (41) (860,411) (928,810) CLASS B: Subscribed 100 33 554,055 446,446 Distributions Reinvested 2 13 421 -- Redeemed (536) -- (541,631) (449,154) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (3) 170 25,019 (42,796) ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 733 (199) 391,988 (92,103) NET ASSETS: Beginning of Period 2,242 2,441 670,411 762,514 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 2,975 $ 2,242 $ 1,062,399 $ 670,411 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ (105) $ (38) $ (4,916) $ -- Accumulated net investment loss included in end of period net assets -- -- -- (2,432) =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 75 27 72,921 85,929 Shares Issued on Distributions Reinvested 4 1 742 30 Shares Redeemed (16) (6) (72,761) (90,310) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 63 22 902 (4,351) =============================================================================================================================== CLASS B: Shares Subscribed 14 5 49,916 40,886 Shares Issued on Distributions Reinvested @-- 2 28 -- Shares Redeemed (83) -- (48,519) (40,921) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding (69) 7 1,425 (35) ===============================================================================================================================
@ Amount/Shares are less than 500. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 102 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
EUROPEAN REAL ESTATE EUROPEAN VALUE EQUITY PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 457 $ 583 $ 544 $ 552 Net Realized Gain (Loss) 2,509 654 527 (1,959) Net Change in Unrealized Appreciation (Depreciation) 4,781 2,366 7,789 (1,640) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 7,747 3,603 8,860 (3,047) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (609) (1,033) (591) (497) CLASS B: Net Investment Income (23) (54) (19) (13) ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (632) (1,087) (610) (510) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 6,645 4,490 14,811 40,190 Distributions Reinvested 607 959 554 470 Redeemed (11,123) (2,366) (19,988) (41,916) CLASS B: Subscribed 50 148 496 530 Distributions Reinvested 12 37 17 13 Redeemed (375) (1,129) (536) (489) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (4,184) 2,139 (4,646) (1,202) ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 2,931 4,655 3,604 (4,759) NET ASSETS: Beginning of Period 20,168 15,513 30,367 35,126 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 23,099 $ 20,168 $ 33,971 $ 30,367 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ (274) $ (163) $ (4) $ 29 =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 551 407 1,409 3,704 Shares Issued on Distributions Reinvested 41 88 44 46 Shares Redeemed (884) (223) (1,823) (3,850) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (292) 272 (370) (100) =============================================================================================================================== CLASS B: Shares Subscribed 3 13 49 46 Shares Issued on Distributions Reinvested 1 3 1 1 Shares Redeemed (30) (110) (52) (43) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding (26) (94) (2) 4 ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 103 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
GLOBAL FRANCHISE GLOBAL VALUE EQUITY PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 1,064 $ 825 $ 966 $ 655 Net Realized Gain (Loss) 311 (1,160) (3,228) (3,233) Net Change in Unrealized Appreciation (Depreciation) 14,286 2,089 22,557 (9,850) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 15,661 1,754 20,295 (12,428) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (197) -- (552) (527) Net Realized Gain (581) (164) (296) (335) CLASS B: Net Investment Income (2) -- (260) (334) Net Realized Gain (19) (5) (176) (266) ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (799) (169) (1,284) (1,462) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 29,757 60,250 50,855 143,418 Distributions Reinvested 771 164 837 844 Redeemed (13,703) (24,012) (42,293) (135,881) CLASS B: Subscribed 1,050 1,835 12,816 15,905 Distributions Reinvested 21 4 436 600 Redeemed (391) (765) (14,519) (14,001) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions 17,505 37,476 8,132 10,885 ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 32,367 39,061 27,143 (3,005) NET ASSETS: Beginning of Period 50,071 11,010 61,163 64,168 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 82,438 $ 50,071 $ 88,306 $ 61,163 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ (212) $ -- $ (12) $ (38) =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 2,451 5,437 4,031 10,431 Shares Issued on Distributions Reinvested 56 14 57 66 Shares Redeemed (1,234) (2,152) (3,335) (9,948) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 1,273 3,299 753 549 =============================================================================================================================== CLASS B: Shares Subscribed 92 154 1,014 1,143 Shares Issued on Distributions Reinvested 2 1 30 47 Shares Redeemed (32) (68) (1,133) (978) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 62 87 (89) 212 ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 104 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
INTERNATIONAL EQUITY INTERNATIONAL MAGNUM PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 73,302 $ 51,748 $ 1,024 $ 633 Net Realized Gain (Loss) 66,729 (32,221) (877) (9,210) Net Change in Unrealized Appreciation (Depreciation) 1,420,439 (184,451) 24,407 (3,010) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 1,560,470 (164,924) 24,554 (11,587) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (93,410) (87,623) (1,476) (442) Net Realized Gain -- (7,616) -- -- CLASS B: Net Investment Income (11,014) (8,590) (164) (23) Net Realized Gain -- (802) -- -- ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (104,424) (104,631) (1,640) (465) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 2,674,838 1,471,477 26,857 86,175 Distributions Reinvested 76,093 79,948 1,369 433 Redeemed (2,347,373) (1,351,956) (23,785) (127,233) CLASS B: Subscribed 493,867 654,576 312,397 116,041 Distributions Reinvested 10,897 9,264 164 23 Redeemed (366,206) (370,933) (321,516) (119,763) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions 542,116 492,376 (4,514) (44,324) ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 1,998,162 222,821 18,400 (56,376) NET ASSETS: Beginning of Period 4,393,077 4,170,256 74,919 131,295 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 6,391,239 $ 4,393,077 $ 93,319 $ 74,919 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ 13,763 $ (13,902) $ 168 $ 22 =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 172,150 129,820 3,223 9,726 Shares Issued on Distributions Reinvested 4,076 5,495 141 51 Shares Redeemed (150,128) (121,464) (2,922) (14,222) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 26,098 13,851 442 (4,445) =============================================================================================================================== CLASS B: Shares Subscribed 31,747 43,886 37,663 13,932 Shares Issued on Distributions Reinvested 587 640 17 3 Shares Redeemed (23,883) (24,947) (38,288) (14,240) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 8,451 19,579 (608) (305) ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 105 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
INTERNATIONAL SMALL CAP JAPANESE VALUE EQUITY PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 8,911 $ 4,266 $ (2) $ (41) Net Realized Gain (Loss) 35,111 (15,521) 3,960 (3,529) Net Change in Unrealized Appreciation (Depreciation) 219,303 (5,530) 7,680 896 ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 263,325 (16,785) 11,638 (2,674) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (9,894) (4,135) -- -- Net Realized Gain (13,236) (1,006) -- -- ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (23,130) (5,141) -- -- ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 322,236 243,823 40,742 36,263 Distributions Reinvested 21,202 4,538 -- -- Redeemed (123,761) (163,292) (40,176) (32,381) CLASS B: Subscribed -- -- 275 1,345 Redeemed -- -- (200) (2,064) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions 219,677 85,069 641 3,163 ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 459,872 63,143 12,279 489 NET ASSETS: Beginning of Period 440,124 376,981 24,467 23,978 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 899,996 $ 440,124 $ 36,746 $ 24,467 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ (660) $ 416 $ -- $ -- Accumulated net investment loss included in end of period net assets -- -- (15) (11) =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 19,043 16,577 8,384 7,334 Shares Issued on Distributions Reinvested 1,059 313 -- -- Shares Redeemed (7,215) (11,351) (7,673) (6,511) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 12,887 5,539 711 823 =============================================================================================================================== CLASS B: Shares Subscribed -- -- 51 252 Shares Redeemed -- -- (44) (389) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding -- -- 7 (137) ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 106 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
LATIN AMERICAN EQUITY GROWTH PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 425 $ 315 $ 1,854 $ 1,055 Net Realized Gain (Loss) 1,953 (4,124) 30,184 (161,941) Net Change in Unrealized Appreciation (Depreciation) 7,712 (990) 128,831 (66,890) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 10,090 (4,799) 160,869 (227,776) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (413) (233) (1,800) (1,002) CLASS B: Net Investment Income @-- (1) (170) -- ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (413) (234) (1,970) (1,002) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 9,658 5,693 215,085 152,575 Distributions Reinvested 401 230 1,755 978 Redeemed (10,903) (5,623) (179,059) (158,888) CLASS B: Subscribed -- 99 46,547 39,890 Distributions Reinvested @-- 2 168 -- Redeemed (222) (664) (42,814) (44,367) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Net Assets Resulting from Capital Share Transactions (1,066) (263) 41,682 (9,812) ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 8,611 (5,296) 200,581 (238,590) NET ASSETS: Beginning of Period 18,228 23,524 588,708 827,298 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 26,839 $ 18,228 $ 789,289 $ 588,708 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ 22 $ 8 $ (117) $ (37) =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 1,263 741 20,284 19,117 Shares Issued on Distributions Reinvested 37 32 113 77 Shares Redeemed (1,432) (741) (17,540) (19,492) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (132) 32 2,857 (298) =============================================================================================================================== CLASS B: Shares Subscribed -- 10 3,359 2,672 Shares Issued on Distributions Reinvested @-- 1 11 -- Shares Redeemed (26) (74) (3,217) (3,079) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding (26) (63) 153 (407) ===============================================================================================================================
@ Amount/Shares are less than 500. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 107 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
FOCUS EQUITY SMALL COMPANY GROWTH PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 130 $ (5) $ (5,016) $ (2,744) Net Realized Gain (Loss) 8,486 (22,037) 69,288 (42,857) Net Change in Unrealized Appreciation (Depreciation) 9,403 (4,056) 104,359 (27,447) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 18,019 (26,098) 168,631 (73,048) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (137) -- -- -- ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 39,096 23,618 137,063 46,585 Issued on Portfolio Merger -- -- 98,228 -- Distributions Reinvested 132 -- -- -- Redeemed (45,080) (34,446) (58,979) (33,493) CLASS B: Subscribed 2,464 2,113 247,321 147,135 Issued on Portfolio Merger -- -- 1,975 -- Redeemed (2,679) (5,773) (101,358) (63,125) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (6,067) (14,488) 324,250 97,102 ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 11,815 (40,586) 492,881 24,054 NET ASSETS: Beginning of Period 57,761 98,347 290,453 266,399 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 69,576 $ 57,761 $ 783,334 $ 290,453 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ (19) $ -- $ -- $ -- Accumulated net investment loss included in end of period net assets -- (13) (30) (10) =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,847 5,039 13,630 5,967 Shares Issued on Portfolio Merger -- -- 10,221 -- Shares Issued on Distributions Reinvested 11 -- -- -- Shares Redeemed (4,344) (6,073) (6,106) (4,557) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (486) (1,034) 17,745 1,410 =============================================================================================================================== CLASS B: Shares Subscribed 275 228 27,650 18,139 Shares Issued on Portfolio Merger -- -- 213 -- Shares Redeemed (295) (558) (11,195) (8,081) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding (20) (330) 16,668 10,058 ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 108 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
TECHNOLOGY U.S. REAL ESTATE PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ (291) $ (309) $ 24,853 $ 27,570 Net Realized Gain (Loss) 324 (22,790) 23,763 20,011 Net Change in Unrealized Appreciation (Depreciation) 10,687 3,898 215,670 (55,613) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 10,720 (19,201) 264,286 (8,032) ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income -- -- (23,648) (26,650) Net Realized Gain -- -- (8,798) (29,124) CLASS B: Net Investment Income -- -- (1,359) (996) Net Realized Gain -- -- (689) (1,321) ------------------------------------------------------------------------------------------------------------------------------- Total Distributions -- -- (34,494) (58,091) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 22,239 15,412 236,560 290,341 Distributions Reinvested -- -- 29,125 50,451 Redeemed (27,493) (19,397) (240,705) (319,193) CLASS B: Subscribed 11,079 6,182 40,038 24,064 Distributions Reinvested -- -- 1,994 2,306 Redeemed (9,377) (6,125) (15,965) (15,057) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (3,552) (3,928) 51,047 32,912 ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 7,168 (23,129) 280,839 (33,211) NET ASSETS: Beginning of Period 22,203 45,332 686,858 720,069 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 29,371 $ 22,203 $ 967,697 $ 686,858 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ -- $ -- $ (52) $ (32) Accumulated net investment loss included in end of period net assets (7) (5) -- -- =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 2,976 1,912 16,166 24,809 Shares Issued on Distributions Reinvested -- -- 1,764 3,577 Shares Redeemed (3,478) (2,180) (16,197) (27,657) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (502) (268) 1,733 729 =============================================================================================================================== CLASS B: Shares Subscribed 1,388 831 2,488 1,630 Shares Issued on Distributions Reinvested -- -- 120 166 Shares Redeemed (1,213) (797) (1,013) (1,046) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 175 34 1,595 750 ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 109 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
VALUE EQUITY EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 2,009 $ 2,158 $ 4,161 $ 4,653 Net Realized Gain (Loss) 2,159 (21,579) 7,192 1,754 Net Change in Unrealized Appreciation (Depreciation) 32,309 (19,695) 2,777 (1,246) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 36,477 (39,116) 14,130 5,161 ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (1,250) (1,456) (3,737) (5,033) CLASS B: Net Investment Income (778) (693) (28) (33) ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (2,028) (2,149) (3,765) (5,066) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 66,165 42,581 20,057 10,976 Distributions Reinvested 1,164 1,266 3,619 4,640 Redeemed (53,059) (42,155) (28,095) (19,493) CLASS B: Subscribed 45,709 43,271 -- -- Distributions Reinvested 752 644 28 33 Redeemed (37,212) (7,421) (10) (129) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions 23,519 38,186 (4,401) (3,973) ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 57,968 (3,079) 5,964 (3,878) NET ASSETS: Beginning of Period 123,209 126,288 49,112 52,990 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 181,177 $ 123,209 $ 55,076 $ 49,112 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ (20) $ (1) $ (174) $ (570) ------------------------------------------------------------------------------------------------------------------------------- (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 7,984 6,387 6,560 7,995 Shares Issued on Distributions Reinvested 142 162 1,028 1,578 Shares Redeemed (7,020) (6,448) (8,658) (10,813) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 1,106 101 (1,070) (1,240) =============================================================================================================================== CLASS B: Shares Subscribed 5,461 4,789 -- -- Shares Issued on Distributions Reinvested 93 84 8 11 Shares Redeemed (4,284) (930) (3) (40) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 1,270 3,943 5 (29) ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 110 2003 ANNUAL REPORT December 31, 2003 STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET MUNICIPAL MONEY MARKET PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 (000) (000) (000) (000) ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 7,531 $ 23,617 $ 4,229 $ 10,310 Net Realized Gain (Loss) -- -- 10 -- ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 7,531 23,617 4,239 10,310 ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: CLASS A: Net Investment Income (7,531) (23,615) (4,229) (10,310) ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 3,249,589 6,805,999 3,422,911 5,534,478 Distributions Reinvested 7,829 23,615 4,390 10,310 Redeemed (3,831,954) (8,165,964) (3,826,186) (5,981,180) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (574,536) (1,336,350) (398,885) (436,392) ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (574,536) (1,336,348) (398,875) (436,392) NET ASSETS: Beginning of Period 1,369,935 2,706,283 910,426 1,346,818 ------------------------------------------------------------------------------------------------------------------------------- End of Period $ 795,399 $ 1,369,935 $ 511,551 $ 910,426 =============================================================================================================================== Undistributed (distributions in excess of) net investment income included in end of period net assets $ 88 $ 88 $ 19 $ 9 =============================================================================================================================== (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,249,588 6,805,999 3,422,906 5,534,480 Shares Issued on Distributions Reinvested 7,829 23,615 4,390 10,310 Shares Redeemed (3,831,950) (8,165,964) (3,826,184) (5,981,170) ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (574,533) (1,336,350) (398,888) (436,380) ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 111 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.30 $ 8.65 $ 10.68 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.13+ 0.13+ 0.12 Net Realized and Unrealized Gain (Loss) on Investments 2.32 (1.26) (2.01) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.45 (1.13) (1.89) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.17) (0.22) (0.14) Net Realized Gain -- -- (0.00)++ --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.17) (0.22) (0.14) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.58 $ 7.30 $ 8.65 ===================================================================================================================== TOTAL RETURN 33.65% (13.11)% (17.63)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 353,488 $ 249,742 $ 388,225 Ratio of Expenses to Average Net Assets(1) 0.80% 0.80% 0.81% Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.80% N/A 0.80% Ratio of Net Investment Income (Loss) to Average Net Assets(1) 1.66% 1.57% 1.25% Portfolio Turnover Rate 55% 42% 36% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 0.96% 0.93% 0.89% Net Investment Income (Loss) to Average Net Assets 1.50% 1.44% 1.17% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.26 $ 11.90 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.19 0.22 Net Realized and Unrealized Gain (Loss) on Investments (2.32) 3.01 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.13) 3.23 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.01) (0.11) Net Realized Gain (1.44) (0.76) ---------------------------------------------------------------------------------------------------- Total Distributions (1.45) (0.87) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.68 $ 14.26 ==================================================================================================== TOTAL RETURN (14.97)% 27.82% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 509,309 $ 583,607 Ratio of Expenses to Average Net Assets(1) 0.82% 0.80% Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.80% N/A Ratio of Net Investment Income (Loss) to Average Net Assets(1) 1.55% 1.71% Portfolio Turnover Rate 80% 53% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 0.93% 0.92% Net Investment Income (Loss) to Average Net Assets 1.45% 1.59% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.41 $ 8.77 $ 10.80 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.12+ 0.11+ 0.13 Net Realized and Unrealized Gain (Loss) on Investments 2.33 (1.27) (2.06) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.45 (1.16) (1.93) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.14) (0.20) (0.10) Net Realized Gain -- -- (0.00)++ --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.14) (0.20) (0.10) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.72 $ 7.41 $ 8.77 ===================================================================================================================== TOTAL RETURN 33.13% (13.29)% (17.81)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 5,635 $ 8,418 $ 10,362 Ratio of Expenses to Average Net Assets(2) 1.05% 1.05% 1.06% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.05% N/A 1.05% Ratio of Net Investment Income (Loss) to Average Net Assets(2) 1.41% 1.32% 1.05% Portfolio Turnover Rate 55% 42% 36% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.21% 1.18% 1.14% Net Investment Income (Loss) to Average Net Assets 1.25% 1.19% 0.97% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.41 $ 12.12 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.27 0.13 Net Realized and Unrealized Gain (Loss) on Investments (2.43) 3.02 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.16) 3.15 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.01) (0.10) Net Realized Gain (1.44) (0.76) ---------------------------------------------------------------------------------------------------- Total Distributions (1.45) (0.86) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.80 $ 14.41 ==================================================================================================== TOTAL RETURN (15.02)% 26.63% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 19,814 $ 9,959 Ratio of Expenses to Average Net Assets(2) 1.07% 1.05% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.05% N/A Ratio of Net Investment Income (Loss) to Average Net Assets(2) 1.42% 1.16% Portfolio Turnover Rate 80% 53% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.18% 1.17% Net Investment Income (Loss) to Average Net Assets 1.31% 0.95% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. ++ Amount is less than $0.005 per share. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 112 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS ASIAN REAL ESTATE PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.63 $ 6.60 $ 8.01 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.15+ 0.15+ 0.12 Net Realized and Unrealized Gain (Loss) on Investments 2.22 (0.91) (1.31) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.37 (0.76) (1.19) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.42) (0.21) (0.22) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 7.58 $ 5.63 $ 6.60 ===================================================================================================================== TOTAL RETURN 42.76% (11.55)% (14.91)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 2,962 $ 1,843 $ 2,020 Ratio of Expenses to Average Net Assets(1) 1.00% 1.00% 1.02% Ratio of Expenses to Average Net Assets Excluding Interest Expense N/A N/A 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets(1) 2.39% 2.41% 1.69% Portfolio Turnover Rate 55% 38% 40% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 4.04% 3.81% 3.29% Net Investment Income (Loss) to Average Net Assets (0.65)% (0.40)% (0.58)% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.90 $ 6.63 ---------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.15 0.11 Net Realized and Unrealized Gain (Loss) on Investments 0.11 1.50 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 0.26 1.61 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.15) (0.34) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.01 $ 7.90 ---------------------------------------------------------------------------------------------------- TOTAL RETURN 3.44% 24.27% ---------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 2,786 $ 2,912 Ratio of Expenses to Average Net Assets(1) 1.02% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets(1) 2.03% 1.64% Portfolio Turnover Rate 87% 98% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 4.04% 3.19% Net Investment Income (Loss) to Average Net Assets (0.98)% (0.54)% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.67 $ 6.64 $ 8.06 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.14+ 0.14+ 0.10 Net Realized and Unrealized Gain (Loss) on Investments 2.24 (0.91) (1.32) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.38 (0.77) (1.22) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.35) (0.20) (0.20) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 7.70 $ 5.67 $ 6.64 ===================================================================================================================== TOTAL RETURN 42.42% (11.72)% (15.18)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 13 $ 399 $ 421 Ratio of Expenses to Average Net Assets(2) 1.25% 1.25% 1.27% Ratio of Expenses to Average Net Assets Excluding Interest Expense N/A N/A 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(2) 2.14% 2.16% 1.33% Portfolio Turnover Rate 55% 38% 40% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 4.29% 4.06% 3.54% Net Investment Income (Loss) to Average Net Assets (0.90)% (0.65)% (0.94)% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.93 $ 6.66 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.09 0.13 Net Realized and Unrealized Gain (Loss) on Investments 0.16 1.46 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 0.25 1.59 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.12) (0.32) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.06 $ 7.93 ==================================================================================================== TOTAL RETURN 3.29% 23.88% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 484 $ 1,372 Ratio of Expenses to Average Net Assets(2) 1.27% 1.25% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(2) 1.56% 1.39% Portfolio Turnover Rate 87% 98% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 4.20% 3.10% Net Investment Income (Loss) to Average Net Assets (1.36)% (0.45)% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 113 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS EMERGING MARKETS PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.13 $ 10.81 $ 11.31 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.14+ 0.04+ 0.05 Net Realized and Unrealized Gain (Loss) on Investments 5.44 (0.71) (0.55) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.58 (0.67) (0.50) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.18) (0.01) -- Net Realized Gain -- -- -- Return of Capital (0.01) -- -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.19) (0.01) -- --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.52 $ 10.13 $ 10.81 ===================================================================================================================== TOTAL RETURN 55.08% (6.24)% (4.42)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,020,353 $ 657,203 $ 748,058 Ratio of Expenses to Average Net Assets 1.64% 1.65% 1.65% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense 1.61% 1.58% N/A Ratio of Net Investment Income (Loss) to Average Net Assets 1.15% 0.35% 0.47% Portfolio Turnover Rate 92% 91% 93% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.27 $ 9.55 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.10) (0.03) Net Realized and Unrealized Gain (Loss) on Investments (7.28) 9.75 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (7.38) 9.72 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- -- Net Realized Gain (0.58) -- Return of Capital -- -- ---------------------------------------------------------------------------------------------------- Total Distributions (0.58) -- ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.31 $ 19.27 ==================================================================================================== TOTAL RETURN (38.43)% 101.78% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 917,091 $ 1,544,893 Ratio of Expenses to Average Net Assets 1.63% 1.64% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets (0.63)% (0.26)% Portfolio Turnover Rate 92% 133% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.06 $ 10.73 $ 11.26 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.11+ 0.01+ 0.03 Net Realized and Unrealized Gain (Loss) on Investments 5.35 (0.68) (0.56) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.46 (0.67) (0.53) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.15) -- -- Net Realized Gain -- -- -- Return of Capital (0.01) -- -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.16) -- -- --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.36 $ 10.06 $ 10.73 ===================================================================================================================== TOTAL RETURN 54.31% (6.24)% (4.71)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 42,046 $ 13,208 $ 14,456 Ratio of Expenses to Average Net Assets 1.89% 1.90% 1.90% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense 1.86% 1.83% N/A Ratio of Net Investment Income (Loss) to Average Net Assets 0.90% 0.10% 0.22% Portfolio Turnover Rate 92% 91% 93% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.24 $ 9.56 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.11) (0.04) Net Realized and Unrealized Gain (Loss) on Investments (7.29) 9.72 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (7.40) 9.68 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- -- Net Realized Gain (0.58) -- Return of Capital -- -- ---------------------------------------------------------------------------------------------------- Total Distributions (0.58) -- ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.26 $ 19.24 ==================================================================================================== TOTAL RETURN (38.60)% 101.26% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 13,949 $ 16,999 Ratio of Expenses to Average Net Assets 1.88% 1.88% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets (0.82)% (0.51)% Portfolio Turnover Rate 92% 133% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 114 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS EUROPEAN REAL ESTATE PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.93 $ 9.30 $ 10.38 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.27+ 0.37+ 0.27 Net Realized and Unrealized Gain (Loss) on Investments 4.35 1.90 (1.09) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.62 2.27 (0.82) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.42) (0.64) (0.26) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.13 $ 10.93 $ 9.30 ===================================================================================================================== TOTAL RETURN 42.41% 24.52% (7.85)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 22,184 $ 19,215 $ 13,826 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% N/A 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 2.23% 3.37% 2.30% Portfolio Turnover Rate 47% 79% 46% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.49% 1.56% 1.53% Net Investment Income (Loss) to Average Net Assets 1.74% 2.81% 1.74% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.16 $ 9.58 ---------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.07 (0.05) Net Realized and Unrealized Gain (Loss) on Investments 1.30 (0.17) ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.37 (0.22) ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.15) (0.20) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.38 $ 9.16 ==================================================================================================== TOTAL RETURN 14.91% (2.36)% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 7,766 $ 9,931 Ratio of Expenses to Average Net Assets (1) 1.03% 1.23% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.55% 2.33% Portfolio Turnover Rate 74% 35% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.90% 1.71% Net Investment Income (Loss) to Average Net Assets 0.69% 1.85% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.96 $ 9.33 $ 10.41 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.28+ 0.27+ 0.08 Net Realized and Unrealized Gain (Loss) on Investments 4.32 1.97 (0.93) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.60 2.24 (0.85) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.39) (0.61) (0.23) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.17 $ 10.96 $ 9.33 ===================================================================================================================== TOTAL RETURN 42.06% 24.11% (8.08)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 915 $ 953 $ 1,687 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% N/A 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.98% 3.12% 1.53% Portfolio Turnover Rate 47% 79% 46% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.74% 1.81% 1.78% Net Investment Income (Loss) to Average Net Assets 1.49% 2.56% 0.96% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.19 $ 9.61 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.18 0.19 Net Realized and Unrealized Gain (Loss) on Investments 1.16 (0.43) ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.34 (0.24) ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.12) (0.18) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.41 $ 9.19 ==================================================================================================== TOTAL RETURN 14.55% (2.61)% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,449 $ 1,786 Ratio of Expenses to Average Net Assets (2) 1.28% 1.47% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.50% 2.35% Portfolio Turnover Rate 74% 35% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 2.15% 1.96% Net Investment Income (Loss) to Average Net Assets 0.61% 1.91% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 115 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS EUROPEAN VALUE EQUITY PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.19 $ 11.42 $ 14.17 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.18+ 0.18+ 0.18 Net Realized and Unrealized Gain (Loss) on Investments 2.88 (1.24) (2.08) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.06 (1.06) (1.90) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.23) (0.17) (0.36) Net Realized Gain -- -- (0.49) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.23) (0.17) (0.85) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 13.02 $ 10.19 $ 11.42 ===================================================================================================================== TOTAL RETURN 30.15% (9.24)% (13.47)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 32,791 $ 29,425 $ 34,117 Ratio of Expenses to Average Net Assets (1) 1.00% 1.01% 1.07% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.70% 1.65% 1.42% Portfolio Turnover Rate 75% 104% 59% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.51% 1.50% 1.31% Net Investment Income (Loss) to Average Net Assets 1.19% 1.16% 1.19% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 15.09 $ 15.75 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.25 0.29 Net Realized and Unrealized Gain (Loss) on Investments 0.76 1.10 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.01 1.39 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.21) (0.35) Net Realized Gain (1.72) (1.70) ---------------------------------------------------------------------------------------------------- Total Distributions (1.93) (2.05) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.17 $ 15.09 ==================================================================================================== TOTAL RETURN 7.38% 9.60% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 65,747 $ 105,030 Ratio of Expenses to Average Net Assets (1) 1.02% 1.09% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.22% 1.46% Portfolio Turnover Rate 47% 74% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.14% 1.22% Net Investment Income (Loss) to Average Net Assets 1.09% 1.34% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.21 $ 11.44 $ 14.19 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.16+ 0.18+ 0.03 Net Realized and Unrealized Gain (Loss) on Investments 2.88 (1.26) (1.96) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.04 (1.08) (1.93) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.21) (0.15) (0.33) Net Realized Gain -- -- (0.49) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.21) (0.15) (0.82) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 13.04 $ 10.21 $ 11.44 --------------------------------------------------------------------------------------------------------------------- TOTAL RETURN 29.80% (9.48)% (13.71)% --------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,180 $ 942 $ 1,009 Ratio of Expenses to Average Net Assets (2) 1.25% 1.26% 1.32% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.45% 1.40% 1.05% Portfolio Turnover Rate 75% 104% 59% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.76% 1.75% 1.56% Net Investment Income (Loss) to Average Net Assets 0.94% 0.91% 0.81% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 15.11 $ 15.74 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.19 0.12 Net Realized and Unrealized Gain (Loss) on Investments 0.78 1.23 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 0.97 1.35 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.17) (0.28) Net Realized Gain (1.72) (1.70) ---------------------------------------------------------------------------------------------------- Total Distributions (1.89) (1.98) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.19 $ 15.11 ==================================================================================================== TOTAL RETURN 7.08% 9.36% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 2,287 $ 2,196 Ratio of Expenses to Average Net Assets (2) 1.27% 1.34% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 0.96% 1.30% Portfolio Turnover Rate 47% 74% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.39% 1.48% Net Investment Income (Loss) to Average Net Assets 0.83% 1.16% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 116 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS GLOBAL FRANCHISE PORTFOLIO
CLASS A ------------------------------------------------------ YEAR ENDED DECEMBER 31, PERIOD FROM ----------------------------- NOVEMBER 28, 2001* SELECTED PER SHARE DATA AND RATIOS 2003 2002 TO DECEMBER 31, 2001 -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.29 $ 10.48 $ 10.00 ========================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.23+ 0.17+ 0.01 Net Realized and Unrealized Gain (Loss) on Investments 2.91 0.68 0.47 -------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.14 0.85 0.48 -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.03) -- -- Net Realized Gain (0.11) (0.04) -- -------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.14) (0.04) -- -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.29 $ 11.29 $ 10.48 ========================================================================================================================== TOTAL RETURN 27.92% 8.10% 4.80%# ========================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 79,756 $ 48,644 $ 10,595 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% 1.00%** Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.91% 1.41% 1.30%** Portfolio Turnover Rate 32% 62% N/A -------------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.23% 1.28% 16.47%** Net Investment Income (Loss) to Average Net Assets 1.68% 1.13% (14.17)%** -------------------------------------------------------------------------------------------------------------------------- CLASS B ------------------------------------------------------ YEAR ENDED DECEMBER 31, PERIOD FROM ----------------------------- NOVEMBER 28, 2001* SELECTED PER SHARE DATA AND RATIOS 2003 2002 TO DECEMBER 31, 2001 -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.24 $ 10.46 $ 10.00 ========================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.22+ 0.11+ (0.09) Net Realized and Unrealized Gain (Loss) on Investments 2.88 0.71 0.55 -------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.10 0.82 0.46 -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.01) -- -- Net Realized Gain (0.11) (0.04) -- -------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.12) (0.04) -- -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.22 $ 11.24 $ 10.46 ========================================================================================================================== TOTAL RETURN 27.62% 7.82% 4.60%# ========================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 2,682 $ 1,427 $ 415 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.25%** Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.66% 1.16% (13.29)%** Portfolio Turnover Rate 32% 62% N/A -------------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.48% 1.53% 16.72%** Net Investment Income (Loss) to Average Net Assets 1.43% 0.88% (21.62)%** --------------------------------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. * Commencement of Operations ** Annualized # Not annualized. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 117 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS GLOBAL VALUE EQUITY PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 12.46 $ 15.45 $ 17.05 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.19+ 0.15+ 0.13 Net Realized and Unrealized Gain (Loss) on Investments 3.43 (2.82) (1.56) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.62 (2.67) (1.43) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.16) (0.20) (0.17) Net Realized Gain (0.08) (0.12) -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.24) (0.32) (0.17) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.84 $ 12.46 $ 15.45 ===================================================================================================================== TOTAL RETURN 29.21% (17.34)% (8.36)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 55,545 $ 34,297 $ 34,079 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% N/A 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.44% 1.08% 0.79% Portfolio Turnover Rate 53% 42% 51% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.20% 1.12% 1.16% Net Investment Income (Loss) to Average Net Assets 1.24% 0.96% 0.64% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 18.32 $ 20.74 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.26 0.44 Net Realized and Unrealized Gain (Loss) on Investments 1.75 0.32 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 2.01 0.76 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.62) (0.44) Net Realized Gain (2.66) (2.74) ---------------------------------------------------------------------------------------------------- Total Distributions (3.28) (3.18) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 17.05 $ 18.32 ==================================================================================================== TOTAL RETURN 11.75% 4.01% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 40,418 $ 115,646 Ratio of Expenses to Average Net Assets (1) 1.01% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.16% 1.26% Portfolio Turnover Rate 48% 41% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.17% 1.06% Net Investment Income (Loss) to Average Net Assets 1.00% 1.20% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 12.35 $ 15.33 $ 16.92 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.16+ 0.12+ 0.13 Net Realized and Unrealized Gain (Loss) on Investments 3.40 (2.82) (1.58) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.56 (2.70) (1.45) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.13) (0.16) (0.14) Net Realized Gain (0.08) (0.12) -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.21) (0.28) (0.14) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.70 $ 12.35 $ 15.33 ===================================================================================================================== TOTAL RETURN 28.95% (17.63)% (8.58)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 32,761 $ 26,866 $ 30,089 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% N/A 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.19% 0.83% 0.78% Portfolio Turnover Rate 53% 42% 51% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.45% 1.37% 1.41% Net Investment Income (Loss) to Average Net Assets 0.99% 0.71% 0.64% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 18.20 $ 20.63 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.27 0.21 Net Realized and Unrealized Gain (Loss) on Investments 1.68 0.50 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.95 0.71 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.57) (0.40) Net Realized Gain (2.66) (2.74) ---------------------------------------------------------------------------------------------------- Total Distributions (3.23) (3.14) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 16.92 $ 18.20 ==================================================================================================== TOTAL RETURN 11.52% 3.75% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 30,196 $ 28,089 Ratio of Expenses to Average Net Assets (2) 1.26% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.14% 0.89% Portfolio Turnover Rate 48% 41% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.42% 1.31% Net Investment Income (Loss) to Average Net Assets 0.97% 0.83% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 118 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS INTERNATIONAL EQUITY PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.60 $ 15.59 $ 17.88 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.24+ 0.19+ 0.25 Net Realized and Unrealized Gain (Loss) on Investments 4.54 (0.82) (2.00) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.78 (0.63) (1.75) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.32) (0.33) (0.34) Net Realized Gain -- (0.03) (0.20) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.32) (0.36) (0.54) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 19.06 $ 14.60 $ 15.59 ===================================================================================================================== TOTAL RETURN 32.82% (4.02)% (9.74)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 5,657,941 $ 3,953,655 $ 4,004,817 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.48% 1.24% 1.35% Portfolio Turnover Rate 45% 51% 63% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.02% 1.00% 1.01% Net Investment Income (Loss) to Average Net Assets 1.46% 1.24% 1.34% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.62 $ 18.25 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.25 0.24 Net Realized and Unrealized Gain (Loss) on Investments 1.44 2.80 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.69 3.04 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.04) (0.18) Net Realized Gain (3.39) (1.49) ---------------------------------------------------------------------------------------------------- Total Distributions (3.43) (1.67) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 17.88 $ 19.62 ==================================================================================================== TOTAL RETURN 9.29% 16.91% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 4,810,852 $ 4,630,035 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.45% 1.28% Portfolio Turnover Rate 53% 37% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.00% 1.01% Net Investment Income (Loss) to Average Net Assets 1.45% 1.27% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.53 $ 15.53 $ 17.81 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.18+ 0.12+ 0.07 Net Realized and Unrealized Gain (Loss) on Investments 4.54 (0.78) (1.83) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.72 (0.66) (1.76) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.29) (0.31) (0.32) Net Realized Gain -- (0.03) (0.20) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.29) (0.34) (0.52) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 18.96 $ 14.53 $ 15.53 ===================================================================================================================== TOTAL RETURN 32.46% (4.25)% (9.83)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 733,298 $ 439,422 $ 165,439 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.23% 0.99% 0.73% Portfolio Turnover Rate 45% 51% 63% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.27% 1.25% 1.26% Net Investment Income (Loss) to Average Net Assets 1.21% 0.99% 0.72% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.58 $ 18.22 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.23 0.19 Net Realized and Unrealized Gain (Loss) on Investments 1.39 2.81 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.62 3.00 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- (0.15) Net Realized Gain (3.39) (1.49) ---------------------------------------------------------------------------------------------------- Total Distributions (3.39) (1.64) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 17.81 $ 19.58 ==================================================================================================== TOTAL RETURN 8.94% 16.68% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 59,945 $ 41,374 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.44% 0.93% Portfolio Turnover Rate 53% 37% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.25% 1.26% Net Investment Income (Loss) to Average Net Assets 1.44% 0.92% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 119 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS INTERNATIONAL MAGNUM PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.04 $ 9.34 $ 11.56 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.11+ 0.07+ 0.11 Net Realized and Unrealized Gain (Loss) on Investments 2.22 (1.31) (2.27) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.33 (1.24) (2.16) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.17) (0.06) (0.06) Net Realized Gain -- -- -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.17) (0.06) (0.06) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.20 $ 8.04 $ 9.34 ===================================================================================================================== TOTAL RETURN 29.07% (13.36)% (18.71)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 91,087 $ 68,275 $ 120,753 Ratio of Expenses to Average Net Assets(1) 1.00% 1.01% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets(1) 1.25% 0.81% 1.00% Portfolio Turnover Rate 53% 59% 44% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.29% 1.30% 1.14% Net Investment Income (Loss) to Average Net Assets 0.96% 0.52% 0.87% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 13.62 $ 11.57 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.11 0.19 Net Realized and Unrealized Gain (Loss) on Investments (1.52) 2.64 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (1.41) 2.83 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.16) (0.15) Net Realized Gain (0.49) (0.63) ---------------------------------------------------------------------------------------------------- Total Distributions (0.65) (0.78) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.56 $ 13.62 ==================================================================================================== TOTAL RETURN (10.50)% 24.87% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 183,566 $ 188,586 Ratio of Expenses to Average Net Assets(1) 1.01% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets(1) 0.84% 0.89% Portfolio Turnover Rate 56% 59% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.10% 1.11% Net Investment Income (Loss) to Average Net Assets 0.75% 0.80% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.04 $ 9.32 $ 11.52 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.10+ 0.06+ 0.01 Net Realized and Unrealized Gain (Loss) on Investments 2.18 (1.31) (2.18) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.28 (1.25) (2.17) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.14) (0.03) (0.03) Net Realized Gain -- -- -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.14) (0.03) (0.03) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.18 $ 8.04 $ 9.32 --------------------------------------------------------------------------------------------------------------------- TOTAL RETURN 28.49% (13.49)% (18.87)% --------------------------------------------------------------------------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 2,232 $ 6,644 $ 10,542 Ratio of Expenses to Average Net Assets(2) 1.25% 1.26% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(2) 1.00% 0.56% 0.75% Portfolio Turnover Rate 53% 59% 44% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.54% 1.55% 1.39% Net Investment Income (Loss) to Average Net Assets 0.71% 0.27% 0.62% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 13.58 $ 11.54 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.08 0.11 Net Realized and Unrealized Gain (Loss) on Investments (1.54) 2.68 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (1.46) 2.79 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.12) (0.12) Net Realized Gain (0.48) (0.63) ---------------------------------------------------------------------------------------------------- Total Distributions (0.60) (0.75) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.52 $ 13.58 ==================================================================================================== TOTAL RETURN (10.81)% 24.58% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 23,474 $ 30,770 Ratio of Expenses to Average Net Assets(2) 1.26% 1.25% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(2) 0.58% 0.87% Portfolio Turnover Rate 56% 59% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.35% 1.35% Net Investment Income (Loss) to Average Net Assets 0.49% 0.54% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 120 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS INTERNATIONAL SMALL CAP PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.21 $ 14.82 $ 16.30 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.24+ 0.15+ 0.21 Net Realized and Unrealized Gain (Loss) on Investments ^^ 6.61 (0.59) (1.18) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 6.85 (0.44) (0.97) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.23) (0.13) (0.27) Net Realized Gain (0.31) (0.04) (0.24) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.54) (0.17) (0.51) --------------------------------------------------------------------------------------------------------------------- TRANSACTION FEES -- -- 0.00++ ===================================================================================================================== NET ASSET VALUE, END OF PERIOD $ 20.52 $ 14.21 $ 14.82 ===================================================================================================================== TOTAL RETURN 48.32% (2.99)% (5.88)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 899,996 $ 440,124 $ 376,981 Ratio of Expenses to Average Net Assets (1) 1.15% 1.15% 1.15% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.15% N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.40% 1.00% 1.38% Portfolio Turnover Rate 38% 34% 39% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.20% 1.19% 1.19% Net Investment Income (Loss) to Average Net Assets 1.35% 0.96% 1.34% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.67 $ 15.25 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.24 0.22 Net Realized and Unrealized Gain (Loss) on Investments ^^ (0.86) 5.66 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (0.62) 5.88 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.17) (0.29) Net Realized Gain (2.61) (1.20) ---------------------------------------------------------------------------------------------------- Total Distributions (2.78) (1.49) ---------------------------------------------------------------------------------------------------- TRANSACTION FEES 0.03 0.03 ==================================================================================================== NET ASSET VALUE, END OF PERIOD $ 16.30 $ 19.67 ==================================================================================================== TOTAL RETURN (2.92)% 39.34% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 374,924 $ 357,708 Ratio of Expenses to Average Net Assets (1) 1.16% 1.15% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.15% N/A Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.32% 1.30% Portfolio Turnover Rate 54% 48% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.22% 1.20% Net Investment Income (Loss) to Average Net Assets 1.38% 1.25% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. ++ Amount is less than $0.005 per share. ^^ Includes a 1.0% transaction fee on subscriptions and redemptions of capital shares through 1999 and 0.50% for the years ended 2000 and 2001. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 121 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS JAPANESE VALUE EQUITY PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.66 $ 5.25 $ 7.62 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.00)+++ (0.01)+ (0.01)+ Net Realized and Unrealized Gain (Loss) on Investments 1.49 (0.58) (2.25) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 1.49 (0.59) (2.26) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- -- (0.11) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 6.15 $ 4.66 $ 5.25 ===================================================================================================================== TOTAL RETURN 31.97% (11.22)% (29.96)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 36,295 $ 24,159 $ 22,921 Ratio of Expenses to Average Net Assets (1) 1.03% 1.02% 1.02% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.00)%^ (0.15)% (0.21)% Portfolio Turnover Rate 79% 45% 14% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.39% 1.29% 1.26% Net Investment Income (Loss) to Average Net Assets (0.36)% (0.42)% (0.45)% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.12 $ 6.18 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.02) (0.02)+ Net Realized and Unrealized Gain (Loss) on Investments (2.37) 3.96 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.39) 3.94 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.11) -- ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 7.62 $ 10.12 ==================================================================================================== TOTAL RETURN (23.69)% 63.75% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 56,306 $ 73,666 Ratio of Expenses to Average Net Assets (1) 1.03% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.29)% (0.28)% Portfolio Turnover Rate 14% 26% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.12% 1.14% Net Investment Income (Loss) to Average Net Assets (0.38)% (0.41)% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.59 $ 5.18 $ 7.54 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.02)+ (0.03)+ (0.03)+ Net Realized and Unrealized Gain (Loss) on Investments 1.47 (0.56) (2.22) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 1.45 (0.59) (2.25) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- -- (0.11) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 6.04 $ 4.59 $ 5.18 ===================================================================================================================== TOTAL RETURN 31.59% (11.39)% (30.15)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 451 $ 308 $ 1,057 Ratio of Expenses to Average Net Assets (2) 1.28% 1.27% 1.27% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.25)% (0.40)% (0.50)% Portfolio Turnover Rate 79% 45% 14% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.64% 1.54% 1.51% Net Investment Income (Loss) to Average Net Assets (0.61)% (0.67)% (0.74)% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.02 $ 6.13 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.02 0.08+ Net Realized and Unrealized Gain (Loss) on Investments (2.41) 3.81 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.39) 3.89 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.09) -- ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 7.54 $ 10.02 ==================================================================================================== TOTAL RETURN (23.93)% 63.46% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 3,851 $ 3,538 Ratio of Expenses to Average Net Assets (2) 1.28% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.54)% (0.57)% Portfolio Turnover Rate 14% 26% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.37% 1.39% Net Investment Income (Loss) to Average Net Assets (0.62)% (0.67)% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. ++ Amount is less than $0.005 per share. ^ Amount is less than 0.005%. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 122 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS LATIN AMERICAN PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.13 $ 9.09 $ 9.36 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.17+ 0.12+ 0.23 Net Realized and Unrealized Gain (Loss) on Investments 4.06 (1.99) (0.36) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.23 (1.87) (0.13) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.18) (0.09) (0.14) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.18 $ 7.13 $ 9.09 ===================================================================================================================== TOTAL RETURN 59.35% (20.55)% (1.48)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 26,817 $ 18,032 $ 22,699 Ratio of Expenses to Average Net Assets (1) 1.71% 1.67% 1.80% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.70% 1.58% 1.72% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 2.02% 1.52% 2.27% Portfolio Turnover Rate 110% 76% 58% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.79% 1.67% 1.80% Net Investment Income (Loss) to Average Net Assets 1.94% 1.52% 2.25% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.32 $ 6.74 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.01 0.18 Net Realized and Unrealized Gain (Loss) on Investments (1.82) 4.59 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (1.81) 4.77 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.15) (0.19) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.36 $ 11.32 ==================================================================================================== TOTAL RETURN (16.21)% 71.28% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 25,403 $ 13,809 Ratio of Expenses to Average Net Assets (1) 1.84% 1.79% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.70% 1.70% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.03)% 1.40% Portfolio Turnover Rate 133% 124% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 2.06% 2.12% Net Investment Income (Loss) to Average Net Assets (0.25)% 1.07% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.15 $ 9.10 $ 9.37 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.16+ 0.13+ 0.25 Net Realized and Unrealized Gain (Loss) on Investments 4.05 (2.02) (0.41) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.21 (1.89) (0.16) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.03) (0.06) (0.11) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.33 $ 7.15 $ 9.10 ===================================================================================================================== TOTAL RETURN 58.90% (20.83)% (1.77)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 22 $ 196 $ 825 Ratio of Expenses to Average Net Assets (2) 1.96% 1.92% 2.05% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.95% 1.83% 1.97% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.77% 1.27% 2.05% Portfolio Turnover Rate 110% 76% 58% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 2.04% 1.92% 2.05% Net Investment Income (Loss) to Average Net Assets 1.69% 1.27% 2.03% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.36 $ 6.78 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.01) 0.19 Net Realized and Unrealized Gain (Loss) on Investments (1.83) 4.58 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (1.84) 4.77 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.15) (0.19) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.37 $ 11.36 ==================================================================================================== TOTAL RETURN (16.42)% 70.85% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,140 $ 1,387 Ratio of Expenses to Average Net Assets (2) 2.09% 2.05% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.95% 1.95% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 0.33% 1.04% Portfolio Turnover Rate 133% 124% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 2.31% 2.35% Net Investment Income (Loss) to Average Net Assets (0.26)% 0.75% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 123 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS EQUITY GROWTH PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 12.49 $ 17.29 $ 20.51 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.05+ 0.03+ 0.01 Net Realized and Unrealized Gain (Loss) on Investments 3.25 (4.80) (3.08) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.30 (4.77) (3.07) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.05) (0.03) -- Net Realized Gain -- -- (0.15) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.05) (0.03) (0.15) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.74 $ 12.49 $ 17.29 ===================================================================================================================== TOTAL RETURN 26.41%~ (27.64)% (14.97)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 589,698 $ 432,207 $ 603,652 Ratio of Expenses to Average Net Assets (1) 0.80% 0.80% 0.80% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 0.34% 0.21% 0.05% Portfolio Turnover Rate 131% 143% 94% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 0.82% 0.81% 0.81% Net Investment Income (Loss) to Average Net Assets 0.32% 0.21% 0.06% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 25.04 $ 19.04 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.01) (0.02) Net Realized and Unrealized Gain (Loss) on Investments (2.76) 7.49 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.77) 7.47 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- (0.00)++ Net Realized Gain (1.76) (1.47) ---------------------------------------------------------------------------------------------------- Total Distributions (1.76) (1.47) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 20.51 $ 25.04 ==================================================================================================== TOTAL RETURN (11.78)% 39.89% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 886,824 $ 977,005 Ratio of Expenses to Average Net Assets (1) 0.80% 0.80% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 0.79% (0.10)% Portfolio Turnover Rate 71% 91% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 0.80% 0.80% Net Investment Income (Loss) to Average Net Assets (0.06)% (0.10)% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 12.34 $ 17.08 $ 20.32 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.01+ (0.00)+++ (0.04) Net Realized and Unrealized Gain (Loss) on Investments 3.21 (4.74) (3.05) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.22 (4.74) (3.09) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.01) -- -- Net Realized Gain -- -- (0.15) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.01) -- (0.15) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.55 $ 12.34 $ 17.08 ===================================================================================================================== TOTAL RETURN 26.13%~ (27.75)% (15.26)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 199,591 $ 156,501 $ 223,646 Ratio of Expenses to Average Net Assets (2) 1.05% 1.05% 1.05% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 0.09% (0.04)% (0.22)% Portfolio Turnover Rate 131% 143% 94% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.07% 1.06% 1.06% Net Investment Income (Loss) to Average Net Assets 0.07% (0.04)% (0.22)% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 24.90 $ 18.97 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.04) (0.04) Net Realized and Unrealized Gain (Loss) on Investments (2.78) 7.44 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.82) 7.40 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- (0.00)++ Net Realized Gain (1.76) (1.47) ---------------------------------------------------------------------------------------------------- Total Distributions (1.76) (1.47) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 20.32 $ 24.90 ==================================================================================================== TOTAL RETURN (12.01)% 39.61% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 350,556 $ 246,889 Ratio of Expenses to Average Net Assets (2) 1.05% 1.05% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (1.04)% (0.34)% Portfolio Turnover Rate 71% 91% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.05% 1.05% Net Investment Income (Loss) to Average Net Assets (0.30)% (0.34)% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. ++ Amount is less than $0.005 per share. ~ Performance was positively impacted by approximately 1.34%, due to the receipt of proceeds from the settlement of class action suits involving, primarily, one of the Portfolio's holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had these settlements not occured, the total return for Class A shares and Class B shares would have been approximately 25.07% and 24.79%, respectively. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 124 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS FOCUS EQUITY PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.02 $ 12.67 $ 15.31 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.02+ 0.00+++ (0.03) Net Realized and Unrealized Gain (Loss) on Investments 2.77 (3.65) (2.28) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.79 (3.65) (2.31) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.02) -- -- Net Realized Gain -- -- (0.33) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.02) -- (0.33) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.79 $ 9.02 $ 12.67 ===================================================================================================================== TOTAL RETURN 30.99%~ (28.81)% (15.22)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 61,420 $ 51,347 $ 85,204 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% N/A 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 0.22% 0.02% (0.21)% Portfolio Turnover Rate 160% 173% 95% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.14% 1.09% 1.08% Net Investment Income (Loss) to Average Net Assets 0.08% (0.07)% (0.28)% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.70 $ 17.50 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.05) (0.06) Net Realized and Unrealized Gain (Loss) on Investments (2.05) 7.89 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.10) 7.83 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income -- -- Net Realized Gain (2.29) (5.63) ---------------------------------------------------------------------------------------------------- Total Distributions (2.29) (5.63) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.31 $ 19.70 ==================================================================================================== TOTAL RETURN (11.66)% 46.44% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 126,531 $ 136,128 Ratio of Expenses to Average Net Assets (1) 1.00% 1.01% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.27)% (0.33)% Portfolio Turnover Rate 93% 155% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.04% 1.07% Net Investment Income (Loss) to Average Net Assets (0.29)% (0.39)% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.85 $ 12.45 $ 15.09 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.00)+++ (0.03)+ (0.07) Net Realized and Unrealized Gain (Loss) on Investments 2.72 (3.57) (2.24) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.72 (3.60) (2.31) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain -- -- (0.33) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.57 $ 8.85 $ 12.45 ===================================================================================================================== TOTAL RETURN 30.62%~ (28.92)% (15.45)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 8,156 $ 6,414 $ 13,143 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% N/A 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.03)% (0.23)% (0.45)% Portfolio Turnover Rate 160% 173% 95% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.39% 1.34% 1.33% Net Investment Income (Loss) to Average Net Assets (0.17)% (0.32)% (0.53)% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.50 $ 17.40 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.08) (0.08) Net Realized and Unrealized Gain (Loss) on Investments (2.04) 7.81 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (2.12) 7.73 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain (2.29) (5.63) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.09 $ 19.50 ==================================================================================================== TOTAL RETURN (11.89)% 46.13% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 18,876 $ 22,168 Ratio of Expenses to Average Net Assets (2) 1.25% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.52)% (0.58)% Portfolio Turnover Rate 93% 155% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.29% 1.32% Net Investment Income (Loss) to Average Net Assets (0.54)% (0.64)% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. ++ Amount is less than $0.005 per share. ~ Performance was positively impacted by approximately 5.64%, due to the receipt of proceeds from the settlement of class action suits involving, primarily, one of the Portfolio's holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had these settlements not occured, the total return for Class A shares and Class B shares would have been approximately 25.35% and 24.98%, respectively. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 125 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS SMALL COMPANY GROWTH PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.50 $ 9.65 $ 10.99 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.09)+ (0.07)+ (0.06) Net Realized and Unrealized Gain (Loss) on Investments 3.40 (2.08) (1.28) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.31 (2.15) (1.34) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain -- -- (0.00)++ --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.81 $ 7.50 $ 9.65 ===================================================================================================================== TOTAL RETURN 44.13% (22.28)% (12.18)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 299,198 $ 74,554 $ 82,300 Ratio of Expenses to Average Net Assets (1) 1.10% 1.10% 1.10% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.93)% (0.82)% (0.69)% Portfolio Turnover Rate 160% 133% 144% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.26% 1.22% 1.25% Net Investment Income (Loss) to Average Net Assets (1.09)% (0.94)% (0.83)% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 13.32 $ 8.07 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.08) (0.05) Net Realized and Unrealized Gain (Loss) on Investments (0.69) 7.40 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (0.77) 7.35 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain (1.56) (2.10) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.99 $ 13.32 ==================================================================================================== TOTAL RETURN (6.64)% 96.45% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 89,367 $ 77,193 Ratio of Expenses to Average Net Assets (1) 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.68)% (0.59)% Portfolio Turnover Rate 129% 204% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.30% 1.43% Net Investment Income (Loss) to Average Net Assets (0.73)% (0.78)% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.26 $ 9.36 $ 10.68 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.10)+ (0.09)+ (0.06) Net Realized and Unrealized Gain (Loss) on Investments 3.27 (2.01) (1.26) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.17 (2.10) (1.32) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain -- -- (0.00)++ --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.43 $ 7.26 $ 9.36 ===================================================================================================================== TOTAL RETURN 43.80% (22.44)% (12.35)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 484,136 $ 215,899 $ 184,099 Ratio of Expenses to Average Net Assets (2) 1.35% 1.35% 1.35% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (1.18)% (1.07)% (0.97)% Portfolio Turnover Rate 160% 133% 144% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.51% 1.47% 1.50% Net Investment Income (Loss) to Average Net Assets (1.34)% (1.19)% (1.12)% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 13.01 $ 7.93 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.10) (0.08) Net Realized and Unrealized Gain (Loss) on Investments (0.67) 7.26 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (0.77) 7.18 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain (1.56) (2.10) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.68 $ 13.01 ==================================================================================================== TOTAL RETURN (6.81)% 95.97% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 91,069 $ 14,775 Ratio of Expenses to Average Net Assets (2) 1.50% 1.50% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.97)% (0.87)% Portfolio Turnover Rate 129% 204% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.55% 1.66% Net Investment Income (Loss) to Average Net Assets (1.02)% 1.03% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. ++ Amount is less than $0.005 per share. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 126 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS TECHNOLOGY PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.69 $ 12.76 $ 25.82 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.09)+ (0.10)+ (0.18) Net Realized and Unrealized Gain (Loss) on Investments 3.23 (5.97) (12.00) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.14 (6.07) (12.18) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain -- -- (0.88) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.83 $ 6.69 $ 12.76 ===================================================================================================================== TOTAL RETURN 46.94%~ (47.57)% (47.89)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 24,934 $ 20,331 $ 42,195 Ratio of Expenses to Average Net Assets(1) 1.26% 1.26% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(1) (1.07)% (1.11)% (1.09)% Portfolio Turnover Rate 156% 122% 107% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.51% 1.46% 1.34% Net Investment Income (Loss) to Average Net Assets (1.32)% (1.32)% (1.17)% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 38.91 $ 17.98 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.34) (0.28)+ Net Realized and Unrealized Gain (Loss) on Investments (7.69) 28.07 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (8.03) 27.79 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain (5.06) (6.86) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 25.82 $ 38.91 ==================================================================================================== TOTAL RETURN (22.67)% 160.62% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 101,588 $ 82,190 Ratio of Expenses to Average Net Assets(1) 1.26% 1.26% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(1) (1.05)% (1.06)% Portfolio Turnover Rate 150% 250% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.29% 1.28% Net Investment Income (Loss) to Average Net Assets (1.08)% (1.09)% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.61 $ 12.61 $ 25.58 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.11)+ (0.12)+ (0.21) Net Realized and Unrealized Gain (Loss) on Investments 3.19 (5.88) (11.88) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.08 (6.00) (12.09) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain -- -- (0.88) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.69 $ 6.61 $ 12.61 ===================================================================================================================== TOTAL RETURN 46.44%~ (47.62)% (47.99)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 4,437 $ 1,872 $ 3,137 Ratio of Expenses to Average Net Assets(2) 1.51% 1.51% 1.51% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.50% 1.50% 1.50% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (1.32)% (1.36)% (1.34)% Portfolio Turnover Rate 156% 122% 107% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.76% 1.71% 1.59% Net Investment Income (Loss) to Average Net Assets (1.57)% (1.57)% (1.42)% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 38.69 $ 17.92 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.41) (0.35)+ Net Realized and Unrealized Gain (Loss) on Investments (7.64) 27.98 ---------------------------------------------------------------------------------------------------- Total from Investment Operations (8.05) 27.63 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Realized Gain (5.06) (6.86) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 25.58 $ 38.69 ==================================================================================================== TOTAL RETURN (22.86)% 160.26% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 6,251 $ 4,192 Ratio of Expenses to Average Net Assets(2) 1.51% 1.51% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.50% 1.50% Ratio of Net Investment Income (Loss) to Average Net Assets (2) (1.30)% (1.31)% Portfolio Turnover Rate 150% 250% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.54% 1.53% Net Investment Income (Loss) to Average Net Assets (1.34)% (1.32)% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. ~ Performance was positively impacted by approximately 0.68%, due to the receipt of proceeds from the settlement of class action suits involving, primarily, one of the Portfolio's holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had these settlements not occured, the total return for Class A shares and Class B shares would have been approximately 46.26% and 45.76%, respectively. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 127 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS U.S. REAL ESTATE PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 13.55 $ 14.63 $ 14.50 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.48+ 0.52+ 0.60 Net Realized and Unrealized Gain (Loss) on Investments 4.55 (0.48) 0.71 --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.03 0.04 1.31 --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.48) (0.52) (0.57) Net Realized Gain (0.18) (0.60) (0.61) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.66) (1.12) (1.18) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 17.92 $ 13.55 $ 14.63 ===================================================================================================================== TOTAL RETURN 37.61% 0.18% 9.27% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 897,551 $ 655,274 $ 696,871 Ratio of Expenses to Average Net Assets(1) 1.00% 0.99% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets(1) 3.08% 3.49% 4.19% Portfolio Turnover Rate 17% 47% 33% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.01% 0.99% 1.01% Net Investment Income (Loss) to Average Net Assets 3.07% 3.49% 4.18% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.84 $ 12.71 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.51 0.81 Net Realized and Unrealized Gain (Loss) on Investments 2.94 (0.98) ---------------------------------------------------------------------------------------------------- Total from Investment Operations 3.45 (0.17) ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.56) (0.66) Net Realized Gain (0.23) (0.04) ---------------------------------------------------------------------------------------------------- Total Distributions (0.79) (0.70) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.50 $ 11.84 ==================================================================================================== TOTAL RETURN 29.65% (1.48)% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 584,263 $ 311,064 Ratio of Expenses to Average Net Assets(1) 1.00% 1.00% Ratio of Net Investment Income (Loss) to Average Net Assets(1) 4.13% 6.52% Portfolio Turnover Rate 31% 47% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 1.01% 1.02% Net Investment Income (Loss) to Average Net Assets 4.11% 6.51% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 13.47 $ 14.55 $ 14.45 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.45+ 0.45+ 0.56 Net Realized and Unrealized Gain (Loss) on Investments 4.50 (0.45) 0.68 --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.95 -- 1.24 --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.44) (0.48) (0.53) Net Realized Gain (0.18) (0.60) (0.61) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.62) (1.08) (1.14) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 17.80 $ 13.47 $ 14.55 ===================================================================================================================== TOTAL RETURN 37.23% (0.07)% 8.78% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 70,146 $ 31,584 $ 23,198 Ratio of Expenses to Average Net Assets(2) 1.25% 1.24% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(2) 2.83% 3.24% 3.96% Portfolio Turnover Rate 17% 47% 33% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.26% 1.24% 1.26% Net Investment Income (Loss) to Average Net Assets 2.82% 3.24% 3.95% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.80 $ 12.67 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.49 0.82 Net Realized and Unrealized Gain (Loss) on Investments 2.92 (1.02) ---------------------------------------------------------------------------------------------------- Total from Investment Operations 3.41 (0.20) ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.53) (0.63) Net Realized Gain (0.23) (0.04) ---------------------------------------------------------------------------------------------------- Total Distributions (0.76) (0.67) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.45 $ 11.80 ==================================================================================================== TOTAL RETURN 29.36% (1.73)% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 20,235 $ 13,418 Ratio of Expenses to Average Net Assets(2) 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets(2) 3.83% 6.13% Portfolio Turnover Rate 31% 47% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.26% 1.27% Net Investment Income (Loss) to Average Net Assets 3.81% 6.12% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 128 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS VALUE EQUITY PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.21 $ 9.68 $ 10.32 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.13+ 0.14+ 0.15+ Net Realized and Unrealized Gain (Loss) on Investments 2.09 (2.47) (0.31) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.22 (2.33) (0.16) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.13) (0.14) (0.15) Net Realized Gain -- -- (0.33) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.13) (0.14) (0.48) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.30 $ 7.21 $ 9.68 ===================================================================================================================== TOTAL RETURN 31.05% (24.22)% (1.55)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 108,997 $ 76,452 $ 101,691 Ratio of Expenses to Average Net Assets (1) 0.70% 0.70% 0.70% Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.70% N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.62% 1.69% 1.56% Portfolio Turnover Rate 130% 45% 50% --------------------------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 0.77% 0.76% 0.79% Net Investment Income (Loss) to Average Net Assets 1.55% 1.63% 1.47% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.63 $ 10.78 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.16 0.26 Net Realized and Unrealized Gain (Loss) on Investments 1.54 0.97 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.70 1.23 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.16) (0.17) Net Realized Gain (0.85) (2.21) ---------------------------------------------------------------------------------------------------- Total Distributions (1.01) (2.38) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.32 $ 9.63 ==================================================================================================== TOTAL RETURN 18.08% 11.63% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 70,454 $ 46,768 Ratio of Expenses to Average Net Assets (1) 0.70% 0.73% Ratio of Expenses to Average Net Assets Excluding Interest Expense N/A 0.70% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.64% 1.25% Portfolio Turnover Rate 62% 80% ---------------------------------------------------------------------------------------------------- (1) Ratios before expense limitation: Expenses to Average Net Assets 0.81% 0.86% Net Investment Income (Loss) to Average Net Assets 1.54% 1.12% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.21 $ 9.67 $ 10.32 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.11+ 0.12+ 0.13+ Net Realized and Unrealized Gain (Loss) on Investments 2.10 (2.46) (0.32) --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.21 (2.34) (0.19) --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.11) (0.12) (0.13) Net Realized Gain -- -- (0.33) --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.11) (0.12) (0.46) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.31 $ 7.21 $ 9.67 ===================================================================================================================== TOTAL RETURN 30.86% (24.32)% (1.89)% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 72,180 $ 46,757 $ 24,597 Ratio of Expenses to Average Net Assets (2) 0.95% 0.95% 0.95% Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.95% N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.37% 1.44% 1.25% Portfolio Turnover Rate 130% 45% 50% --------------------------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.02% 1.01% 1.04% Net Investment Income (Loss) to Average Net Assets 1.30% 1.38% 1.17% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.60 $ 10.76 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income (Loss) 0.12 0.20 Net Realized and Unrealized Gain (Loss) on Investments 1.56 0.99 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 1.68 1.19 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.11) (0.13) Net Realized Gain (0.85) (2.22) ---------------------------------------------------------------------------------------------------- Total Distributions (0.96) (2.35) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.32 $ 9.60 ==================================================================================================== TOTAL RETURN 17.92% 11.22% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 891 $ 921 Ratio of Expenses to Average Net Assets (2) 0.95% 0.98% Ratio of Expenses to Average Net Assets Excluding Interest Expense N/A 0.95% Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.35% 1.01% Portfolio Turnover Rate 62% 80% ---------------------------------------------------------------------------------------------------- (2) Ratios before expense limitation: Expenses to Average Net Assets 1.11% 1.13% Net Investment Income (Loss) to Average Net Assets 1.24% 0.87% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 129 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS EMERGING MARKETS DEBT PORTFOLIO
CLASS A ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 2.95 $ 2.95 $ 2.88 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income 0.25+ 0.27+ 0.21 Net Realized and Unrealized Gain (Loss) on Investments 0.59 0.06 0.09 --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 0.84 0.33 0.30 --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.26) (0.33) (0.23) Return of Capital -- -- -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.26) (0.33) (0.23) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 3.53 $ 2.95 $ 2.95 ===================================================================================================================== TOTAL RETURN 28.46% 11.29% 10.57% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 54,647 $ 48,769 $ 52,561 Ratio of Expenses to Average Net Assets 1.16% 1.06% 1.13% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense 1.13% N/A N/A Ratio of Net Investment Income to Average Net Assets 7.48% 8.79% 8.22% Portfolio Turnover Rate 216% 157% 316% --------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 3.00 $ 2.61 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income 0.55 0.43+ Net Realized and Unrealized Gain (Loss) on Investments (0.17) 0.34 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 0.38 0.77 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.50) (0.37) Return of Capital -- (0.01) ---------------------------------------------------------------------------------------------------- Total Distributions (0.50) (0.38) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 2.88 $ 3.00 ==================================================================================================== TOTAL RETURN 12.81% 29.22% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 47,080 $ 52,654 Ratio of Expenses to Average Net Assets 1.15% 1.40% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense 1.10% 1.29% Ratio of Net Investment Income to Average Net Assets 13.33% 13.12% Portfolio Turnover Rate 375% 249% ---------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 3.00 $ 3.01 $ 2.92 ===================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income 0.25+ 0.26+ 0.30 Net Realized and Unrealized Gain (Loss) on Investments 0.60 0.05 0.02 --------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 0.85 0.31 0.32 --------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.25) (0.32) (0.23) Return of Capital -- -- -- --------------------------------------------------------------------------------------------------------------------- Total Distributions (0.25) (0.32) (0.23) --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 3.60 $ 3.00 $ 3.01 ===================================================================================================================== TOTAL RETURN 28.34% 10.34% 10.50% ===================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 429 $ 343 $ 429 Ratio of Expenses to Average Net Assets 1.41% 1.31% 1.38% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense 1.38% N/A N/A Ratio of Net Investment Income to Average Net Assets 7.23% 8.54% 7.97% Portfolio Turnover Rate 216% 157% 316% --------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- SELECTED PER SHARE DATA AND RATIOS 2000 1999 ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 3.03 $ 2.66 ==================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income 0.20 0.28+ Net Realized and Unrealized Gain (Loss) on Investments 0.17 0.46 ---------------------------------------------------------------------------------------------------- Total from Investment Operations 0.37 0.74 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.48) (0.05) Return of Capital -- (0.32) ---------------------------------------------------------------------------------------------------- Total Distributions (0.48) (0.37) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 2.92 $ 3.03 ==================================================================================================== TOTAL RETURN 12.50% 28.01% ==================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 387 $ 860 Ratio of Expenses to Average Net Assets 1.40% 1.65% Ratio of Expenses to Average Net Assets Excluding Country Tax Expense and Interest Expense 1.35% 1.55% Ratio of Net Investment Income to Average Net Assets 13.28% 12.85% Portfolio Turnover Rate 375% 249% ----------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 130 2003 ANNUAL REPORT December 31, 2003 FINANCIAL HIGHLIGHTS MONEY MARKET PORTFOLIO
CLASS A -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 =============================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income 0.007+ 0.013 0.038 0.060 0.047 ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.007) (0.013) (0.038) (0.060) (0.047) =============================================================================================================================== NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 =============================================================================================================================== TOTAL RETURN 0.64% 1.30% 3.82% 6.06% 4.80% =============================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 795,399 $ 1,369,935 $ 2,706,283 $ 3,026,412 $ 2,931,316 Ratio of Expenses to Average Net Assets 0.51% 0.48% 0.48% 0.48% 0.50% Ratio of Net Investment Income to Average Net Assets 0.69% 1.32% 3.90% 6.07% 4.73% -------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
CLASS A -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- SELECTED PER SHARE DATA AND RATIOS 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 =============================================================================================================================== INCOME (LOSS) FROM INVESTMENT OPERATIONS Net Investment Income 0.005+ 0.009 0.022 0.035 0.027 ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS FROM AND/OR IN EXCESS OF: Net Investment Income (0.005) (0.009) (0.022) (0.035) (0.027) ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 =============================================================================================================================== TOTAL RETURN 0.50% 0.90% 2.23% 3.57% 2.77% =============================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 511,551 $ 910,426 $ 1,346,818 $ 1,476,436 $ 1,405,646 Ratio of Expenses to Average Net Assets 0.50% 0.48% 0.49% 0.48% 0.50% Ratio of Net Investment Income to Average Net Assets 0.54% 0.90% 2.25% 3.50% 2.76% -------------------------------------------------------------------------------------------------------------------------------
+ Per share amount is based on average shares outstanding. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 131 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund is comprised of twenty-one separate, active, diversified and non-diversified portfolios (individually referred to as a "Portfolio", collectively as the "Portfolios"). Each Portfolio (with the exception of the International Small Cap, Money Market and Municipal Money Market Portfolios) offers two classes of shares - Class A and Class B. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights. For detailed descriptions of the investment objectives of each of the Portfolios and other related information, please refer to the Prospectuses of the Fund. Generally, the investment objective of the domestic and international equity portfolios is to seek capital appreciation by investing in equity and equity-related securities. The investment objective of the international fixed income portfolio is primarily to seek a high total return consistent with preservation of capital. The investment objective of the money market portfolios is to seek current income and preserve capital. The International Equity Portfolio is authorized to issue 500 million shares per class but is currently closed to new accounts. On September 26, 2003, the net assets of the Small Cap Growth Portfolio's (formerly a Portfolio of Morgan Stanley Institutional Fund Trust) Institutional and Adviser Class shares were merged into the Small Company Growth Portfolio's Class A and B shares, respectively, through a tax-free exchange. In exchange for the $100,203,000 in net assets received, including $13,556,000 in unrealized appreciation, 10,221,445 Class A and 212,563 Class B shares of the Small Company Growth Portfolio were issued. Prior to the combination, the net assets of the Small Company Growth Portfolio totaled $497,416,000. Immediately after the combination, the net assets of the Small Company Growth Portfolio totaled $597,618,000. A. ACCOUNTING POLICIES: The following significant accounting policies are in conformity with accounting principles generally accepted in the United States. Such policies are consistently followed by the Fund in the preparation of the financial statements. Accounting principles generally accepted in the United States may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates. 1. SECURITY VALUATION: Equity securities listed on a U.S. exchange are valued at the latest quoted sales price on the valuation date. Equity securities listed or traded on NAS-DAQ, for which market quotations are available, are valued at the NASDAQ Official Closing Price. Securities listed on a foreign exchange are valued at their closing price. Unlisted securities and listed securities not traded on the valuation date for which market quotations are readily available are valued at the mean between the current bid and asked prices obtained from reputable brokers. Bonds and other fixed income securities may be valued according to the broadest and most representative market. In addition, bonds and other fixed income securities may be valued on the basis of prices provided by a pricing service. The prices provided by a pricing service take into account broker dealer market price quotations for institutional size trading in similar groups of securities, security quality, maturity, coupon and other security characteristics as well as any developments related to the specific securities. Debt securities purchased with remaining maturities of 60 days or less are valued at amortized cost, if it approximates value. Securities owned by the Money Market and Municipal Money Market Portfolios are stated at amortized cost, which approximates market value. All other securities and investments for which market values are not readily available, including restricted securities, and those securities for which it is inappropriate to determine prices in accordance with the aforementioned procedures, are valued at fair value as determined in good faith under procedures adopted by the Board of Directors, although the actual calculations may be done by others. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. Most foreign markets close before the New York Stock Exchange (NYSE). Occasionally, developments that could affect the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If these developments are expected to materially affect the value of the securities, the valuations may be adjusted to reflect the estimated fair value as of the close of the NYSE, as determined in good faith under procedures established by the Board of Directors. 2. REPURCHASE AGREEMENTS: The Portfolios may enter into repurchase agreements under which a Portfolio lends 132 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) excess cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine the adequacy of the collateral. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. The Portfolios, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements. 3. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the mean of the bid and asked prices of such currencies against U.S. dollars last quoted by a major bank as follows: - investments, other assets and liabilities-at the prevailing rates of exchange on the valuation date; - investment transactions, investment income and expenses-at the prevailing rates of exchange on the dates of such transactions. Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. Federal income tax purposes. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on the Statement of Net Assets. The change in net unrealized currency gains (losses) for the period is reflected on the Statement of Operations. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of government supervision and regulation of foreign securities markets and the possibility of political or economic instability. Prior governmental approval for foreign investments may be required under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Statement of Net Assets) may be created and offered for investment. The "local" and "foreign shares" market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares. Such securities, if any, are identified as fair valued on the Statement of Net Assets. 4. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into foreign currency exchange contracts generally to attempt to protect securities and related receivables and payables against changes in future foreign currency exchange rates and, in certain situations, to gain exposure to foreign currencies. A foreign currency exchange contract is an agreement between two parties to buy or sell currency at a set price on a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by the Portfolios as unrealized gain or loss. The Portfolios record 133 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) realized gains or losses when the contract is closed equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Credit risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and is generally limited to the amount of the unrealized gains on the contracts, if any, at the date of default. Risks may also arise from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. 5. LOAN AGREEMENTS: Certain Portfolios may invest in fixed and floating rate loans ("Loans") arranged through private negotiations between an issuer of sovereign debt obligations and one or more financial institutions ("Lenders") deemed to be creditworthy by the investment adviser. A Portfolio's investments in Loans may be in the form of participations in Loans ("Participations") or assignments of all or a portion of Loans ("Assignments") from third parties. A Portfolio's investment in Participations typically results in the Portfolio having a contractual relationship with only the Lender and not with the borrower. The Portfolios have the right to receive payments of principal, interest and any fees to which it is entitled only upon receipt by the Lender of the payments from the borrower. The Portfolios generally have no right to enforce compliance by the borrower under the terms of the loan agreement. As a result, the Portfolio may be subject to the credit risk of both the borrower and the Lender that is selling the Participation and any intermediaries between the Lender and the Portfolio. When a Portfolio purchases Assignments from Lenders, it typically acquires direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Portfolio as the purchaser of an Assignment may differ from, and be more limited than, those held by the assigningLender. 6. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a transaction in which a Portfolio sells securities it may or may not own, but has borrowed, in anticipation of a decline in the market price of the securities. The Portfolio is obligated to replace the borrowed securities at the market price at the time of replacement. The Portfolio may have to pay a premium to borrow the securities as well as pay any dividends or interest payable on the securities until they are replaced. Dividends and interest payable on such securities sold short are included in dividend expense and interest expense, respectively, in the Statement of Operations. A Portfolio's obligation to replace the securities borrowed in connection with a short sale will generally be secured by collateral deposited with the broker that consists of cash, U.S. government securities or other liquid, high grade debt obligations. In addition, the Portfolio will either designate on the Portfolio's records or place in a segregated account with its Custodian an amount of cash, U.S. government securities or other liquid high grade debt obligations equal to the difference, if any, between (1) the market value of the securities sold at the time they were sold short and (2) cash, U.S. government securities or other liquid high grade debt obligations deposited as collateral with the broker in connection with the short sale. Short sales by the Portfolios involve certain risks and special considerations. Possible losses from short sales differ from losses that could be incurred from the purchase of a security, because losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested. 8. SECURITY LENDING: Certain Portfolios may lend investment securities to investors who borrow securities in order to complete certain transactions. By lending investment securities, a Portfolio attempts to increase its net investment income through the receipt of interest earned on loan collateral. Any increase or decline in the market price of the securities loaned would be for the account of the Portfolio. Risks of delay in recovery of the securities or even loss of rights in the collateral may occur should the borrower of the securities fail financially. Risks may also arise to the extent that the value of securities loaned increases above the value of the collateral received. Portfolios that lend securities receive cash or securities as collateral in the amount equal to or exceeding 100% of the current market value of the loaned securities. Any cash received as collateral is invested by the securities lending agent in accordance with pre-established guidelines. A portion of the interest received on the loan collateral is retained by the Portfolio, and the remainder is rebated to the borrower of the securities. From the interest retained by the Portfolio, 25% of such amount is paid to the securities lending agent for its services. The net amount of interest earned, after the interest rebate and allocation to the securities lending agent, is included in the Statement of Operations in interest income. The value of the loaned securities and related collateral outstanding at December 31, 2003 were as follows:
VALUE OF LOANED VALUE OF SECURITIES COLLATERAL PORTFOLIO (000) (000) ---------------------------------------------------------- Active International Allocation $ 28,550 $ 29,844 Emerging Markets 110,437 113,339 European Value Equity 1,321 1,369 International Equity 418,289 436,771 International Magnum 6,968 7,297
134 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) The following Portfolios had income from securities lending (after rebates to borrowers and fee paid to securities lending agent):
NET INTEREST EARNED BY PORTFOLIO PORTFOLIO (000) -------------------------------------------------- Active International Allocation $ 164 Emerging Markets 253 European Value Equity 13 International Equity 3,779 International Magnum 60
9. STRUCTURED SECURITIES: The Emerging Markets Debt Portfolio may invest in interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of sovereign debt obligations. This type of restructuring involves the deposit with or purchase by an entity of specified instruments and the issuance by that entity of one or more classes of securities ("Structured Securities") backed by, or representing interests in, the underlying instruments. Structured Securities generally will expose the Portfolio to credit risks of the underlying instruments as well as of the issuer of the structured security. Structured securities are typically sold in private placement transactions with no active trading market. Investments in Structured Securities may be more volatile than their underlying instruments; however, any loss is limited to the amount of the original investment. 10. FUTURES: Certain Portfolios may purchase and sell futures contracts. Futures contracts provide for the sale by one party and purchase by another party of a specified amount of a specified security, index, instrument or basket of instruments. Futures contracts (secured by cash, government securities or other high grade liquid investments deposited with brokers or custodians as "initial margin") are valued based upon their quoted daily settlement prices; changes in initial settlement value (represented by cash paid to or received from brokers as "variation margin") are accounted for as unrealized appreciation (depreciation). When futures contracts are closed, the difference between the opening value at the date the contract was entered into and the value at closing is recorded as a realized gain or loss in the Statement of Operations. Due from (to) broker includes both initial margin and variation margin, as stated in the Statement of Net Assets. Certain Portfolios may use futures contracts in order to manage their exposure to the stock and bond markets, to hedge against unfavorable changes in the value of securities or to remain fully invested and to reduce transaction costs. Futures contracts involve market risk in excess of the amounts recognized in the Statement of Net Assets. Risks arise from the possible movements in security values underlying these instruments. The change in value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in value of hedged investments. 11. PURCHASED AND WRITTEN OPTIONS: Certain Portfolios may write covered call and put options on portfolio securities and other financial instruments. Premiums are received and are recorded as liabilities. The liabilities are subsequently adjusted to reflect the current value of the options written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the net realized gain or loss. By writing a covered call option, a Portfolio, in exchange for the premium, foregoes the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase. By writing a put option, a Portfolio, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current market price. Certain Portfolios may purchase call and put options on their portfolio securities or other financial instruments. Each Portfolio may purchase call options to protect against an increase in the price of the security or financial instrument it anticipates purchasing. Each Portfolio may purchase put options on securities which it holds or other financial instruments to protect against a decline in the value of the security or financial instrument or to close out covered written put positions. Risks may arise from an imperfect correlation between the change in market value of the securities held by the Portfolio and the prices of options relating to the securities purchased or sold by the Portfolio and from the possible lack of a liquid secondary market for an option. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option. 12. UNFUNDED COMMITMENTS: Subject to the terms of a Subscription Agreement between the U.S. Real Estate Portfolio and Cabot Industrial Value Fund, Inc., the Portfolio has made a subscription commitment of $5,000,000 for which it will receive 10,000 shares of common stock. As of December 31, 2003, Cabot Industrial Value Fund, Inc. has drawn down $237,500, which represents 4.8% of the commitment. Subject to the terms of a Subscription Agreement between the U.S. Real Estate Portfolio and BRCP REIT, LLC I, the Portfolio has made a subscription commit- 135 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) ment of $7,000,000 for which it will receive 7,000,000 shares of common stock. As of December 31, 2003, BRCP REIT, LLC I has drawn down $34,429, which represents 0.5% of the commitment. 13. OTHER: Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses on the sale of investment securities are determined on the specific identified cost basis. Dividend income is recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts and premiums on securities purchased are amortized according to the effective yield method over their respective lives. Most expenses of the Fund can be directly attributed to a particular Portfolio. Expenses which cannot be directly attributed are apportioned among the Portfolios based upon relative net assets. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets. Dividends to the shareholders of the Money Market and the Municipal Money Market Portfolios are accrued daily and are distributed on or about the 15th of each month. Distributions for the remaining Portfolios are recorded on the ex-distribution date. The U.S. Real Estate Portfolio owns shares of real estate investment trusts ("REITs") which report information on the source of their distributions annually. A portion of distributions received from REITs during the year is estimated to be a return of capital and is recorded as a reduction of their cost. For certain Portfolios that invest in international securities, a 2.00% redemption fee is imposed on shares purchased in those Portfolios and held less than 60 days. The purpose of the redemption fees is to protect the Portfolios and their shareholders from the effects of short-term trading in Portfolios' shares. These fees, if any, are included in Capital Share Redemptions on the Statement of Changes in Net Assets. B. INVESTMENT ADVISORY FEES: Morgan Stanley Investment Management, Inc. (the "Adviser" or "MS Investment Management"), a wholly-owned subsidiary of Morgan Stanley, provides the Fund with investment advisory services under the terms of an Investment Advisory and Management Agreement (the "Agreement") at the annual rates of average daily net assets indicated below. MS Investment Management has voluntarily agreed to reduce fees payable to it and to reimburse the Portfolios, if necessary, if the annual operating expenses, as defined, expressed as a percentage of average daily net assets, exceed the maximum ratios indicated as follows:
MAXIMUM EXPENSE RATIO ADVISORY ------------------ PORTFOLIO FEE CLASS A CLASS B ---------------------------------------------------------------------- Active International Allocation 0.65% 0.80% 1.05% Asian Real Estate 0.80 1.00 1.25 Emerging Markets 1.25 1.75 2.00 European Real Estate 0.80 1.00 1.25 European Value Equity 0.80 1.00 1.25 Global Franchise 0.80 1.00 1.25 Global Value Equity 0.80 1.00 1.25 International Equity 0.80 1.00 1.25 International Magnum 0.80 1.00 1.25 International Small Cap 0.95 1.15 N/A Japanese Value Equity 0.80 1.00 1.25 Latin American 1.10 1.70 1.95 Equity Growth 0.60 0.80 1.05 Focus Equity 0.80 1.00 1.25 Small Company Growth 1.00 1.10 1.35 Technology 1.00 1.25 1.50 U.S. Real Estate 0.80 1.00 1.25 Value Equity 0.50 0.70 0.95 Emerging Markets Debt 0.75 1.75 2.00 Money Market 0.30 0.55 N/A Municipal Money Market 0.30 0.57 N/A
The Adviser has entered into Sub-Advisory Agreements with Morgan Stanley Investment Advisors Inc., Morgan Stanley Investment Management Limited, Morgan Stanley Asset & Investment Trust Management Co., Limited and Morgan Stanley Investment Management Company (each a "Sub-Adviser"), all wholly-owned subsidiaries of Morgan Stanley. The Sub-Advisers, subject to the control and supervision of the Fund, its officers, Directors and the Adviser, and in accordance with the investment objectives, policies and restrictions of the Portfolios, make certain day-to-day investment decisions for certain Portfolios and place certain of the Portfolios' purchase and sales orders. The Adviser pays the Sub-Advisers on a monthly basis a portion of the net advisory fees the Adviser receives from the Portfolios which receive these services. C. ADMINISTRATOR: MS Investment Management (the "Administrator") also provides the Fund with administrative services pursuant to an administrative agreement for a monthly fee which on an annual basis equals 0.15% of the average daily net assets of each Portfolio, plus reimbursement of out-of-pocket expenses. Under an agreement between the Administrator and J.P. Morgan Investor Services Co. ("JPMIS"), a corporate affiliate of JPMorgan Chase Bank, JPMIS provides certain administrative services to the Fund. For such services, the Administrator pays JPMIS a portion of the fee the Administrator receives from the Fund. An employee of JPMIS is an officer of the Fund. In addition, the 136 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) Fund incurs local administration fees in connection with doing business in certain emerging market countries. D. DISTRIBUTOR: Morgan Stanley & Co., Incorporated (the "Distributor"), a wholly-owned subsidiary of Morgan Stanley, and an affiliate of MS Investment Management, serves as the distributor of the Fund and provides Class B shareholders of the applicable Portfolios with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Distributor is entitled to receive from each applicable Portfolio, a distribution fee, which is accrued daily and paid quarterly, at an annual rate of 0.25% of the Class B shares' average daily net assets. The Distributor may voluntarily waive from time to time all or any portion of its distribution fee. E. CUSTODIAN: JPMorgan Chase Bank serves as custodian for the Fund in accordance with a custodian agreement. F. PURCHASES AND SALES: During the year ended December 31, 2003, purchases and sales of investment securities, other than long-term U.S. Government securities and short-term investments, were:
PURCHASES SALES PORTFOLIO (000) (000) -------------------------------------------------------------------------------- Active International Allocation $ 145,205 $ 166,095 Asian Real Estate 1,337 1,349 Emerging Markets 708,162 715,195 European Real Estate 9,280 13,500 European Value Equity 23,587 28,477 Global Franchise 30,421 17,508 Global Value Equity 41,782 36,694 International Equity 2,629,170 2,161,239 International Magnum 41,643 39,782 International Small Cap 423,267 231,569 Japanese Value Equity 25,206 26,275 Latin American 22,649 23,483 Equity Growth 901,712 853,645 Focus Equity 102,600 101,989 Small Company Growth 1,025,075 720,552 Technology 40,328 43,656 U.S. Real Estate 157,688 134,323 Value Equity 194,304 171,046 Emerging Markets Debt 113,477 119,656
There were no purchases and sales of U.S. Government securities for the year ended December 31, 2003. During the year ended December 31, 2003, the following Portfolios paid brokerage commissions to Morgan Stanley & Co., an affiliated broker/dealer:
BROKERAGE COMMISSIONS PORTFOLIO (000) ---------------------------------------------------- Asian Real Estate $ 1 Emerging Markets 36 Global Value Equity 5 International Magnum 1 Japanese Value Equity 3 Latin American $ 1 Equity Growth 3 Focus Equity 1 Technology 3 Value Equity 1
Additionally, during the year ended December 31, 2003, Emerging Markets Portfolio paid $12,000 brokerage commissions to China International Capital Corporation, an affiliated broker/dealer. G. FEDERAL INCOME TAXES: It is each Portfolio's intention to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for Federal income taxes is required in the financial statements. A Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as income and/or capital gains are earned. Taxes may also be based on the movement of foreign currency and are accrued based on the value of investments denominated in such currency. The tax character of distributions paid may differ from the character of distributions shown on the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The Municipal Money Market Portfolio's ordinary income distributions shown below include tax-exempt as well as taxable components. The tax character of distributions paid during 2003 and 2002 were as follows:
2003 DISTRIBUTIONS 2002 DISTRIBUTIONS PAID FROM: PAID FROM: ------------------------ ------------------------ ORDINARY LONG-TERM ORDINARY LONG-TERM INCOME CAPITAL GAIN INCOME CAPITAL GAIN PORTFOLIO (000) (000) (000) (000) ------------------------------------------------------------------------------------- Active International Allocation $ 6,218 $ -- $ 7,649 $ -- Asian Real Estate 164 -- 82 -- Emerging Markets 11,724 -- 324 -- European Real Estate 632 -- 1,087 -- European Value Equity 610 -- 510 -- Global Franchise 440 359 169 -- Global Value Equity 812 472 861 601 International Equity 104,424 -- 104,631 -- International Magnum 1,640 -- 465 -- International Small Cap 13,275 9,855 4,992 149 Latin American 413 -- 234 -- Equity Growth 1,970 -- 1,002 -- Focus Equity 137 -- -- -- U.S. Real Estate 27,350 7,144 30,807 27,284 Value Equity 2,028 -- 2,149 -- Emerging Markets Debt 3,765 -- 5,066 -- Money Market 7,531 -- 23,615 -- Municipal Money Market 4,229 -- 10,310 --
137 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) In addition to the amount shown in the table above for 2003, the Emerging Markets Portfolio had a Return of Capital of approximately $677,000. The amount and character of income and capital gain distributions to be paid by the Portfolios of the Fund are determined in accordance with Federal income tax regulations, which may differ from generally accepted accounting principles. The book/tax differences are either considered temporary or permanent in nature. Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains and losses on certain investment transactions and the timing of the deductibility of certain expenses. Permanent book and tax basis differences may result in reclassification among undistributed (distributions in excess of) net investment income (or accumulated net investment loss), accumulated net realized gain (loss) and paid-in capital. At December 31, 2003, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM ORDINARY INCOME CAPITAL GAIN PORTFOLIO (000) (000) -------------------------------------------------------------------------------- Active International Allocation $ 2,516 $ -- Asian Real Estate 12 -- European Real Estate 2 -- European Value Equity 18 -- Global Franchise 62 164 Global Value Equity 10 -- International Magnum 563 -- International Small Cap 851 11,169 Latin American 28 -- U.S. Real Estate 2,120 2,445 Value Equity 5 -- Money Market 352 -- Municipal Money Market 165 --
Any Portfolios not shown above had no distributable earnings on a tax basis at December 31, 2003. The undistributed ordinary income for the Municipal Money Market represents tax-exempt income. At December 31, 2003, cost, unrealized appreciation, unrealized depreciation, and net unrealized appreciation (depreciation) for U.S. Federal income tax purposes of the investments of each of the Portfolios (excluding foreign currency if applicable) were:
NET APPRECIATION COST APPRECIATION DEPRECIATION (DEPRECIATION) PORTFOLIO (000) (000) (000) (000) ---------------------------------------------------------------------------------------------- Active International Allocation $ 353,210 $ 41,946 $ (24,189) $ 17,757 Asian Real Estate 2,731 369 (78) 291 Emerging Markets 993,862 271,462 (91,582) 179,880 European Real Estate 17,221 5,543 (202) 5,341 European Value Equity $ 30,185 $ 4,119 $ (55) $ 4,064 Global Franchise 65,930 17,024 (266) 16,758 Global Value Equity 80,889 9,192 (1,963) 7,229 International Equity 5,573,695 1,099,393 (33,475) 1,065,918 International Magnum 94,292 13,136 (4,350) 8,786 International Small Cap 742,822 173,243 (18,898) 154,345 Japanese Value Equity 40,179 2,518 (5,865) (3,347) Latin American 23,565 4,510 (1,007) 3,503 Equity Growth 707,220 81,119 (8,186) 72,933 Focus Equity 71,909 3,346 (2,382) 964 Small Company Growth 690,927 116,229 (7,227) 109,002 Technology 29,989 2,233 (2,582) (349) U.S. Real Estate 741,462 245,168 (23,253) 221,915 Value Equity 163,099 18,534 (1,392) 17,142 Emerging Markets Debt 51,077 3,719 (977) 2,742 Money Market 796,605 -- -- -- Municipal Money Market 505,654 -- -- --
At December 31, 2003, the following Portfolios had available capital loss carryforwards to offset future net capital gains, to theextent provided by regulations, through the indicated expirationdates:
EXPIRATION DATE DECEMBER 31, (000) -------------------------------------------------------------------------------------------------------------- PORTFOLIO 2005 2006 2007 2008 2009 2010 2011 TOTAL -------------------------------------------------------------------------------------------------------------- Active International Allocation $ -- $ -- $ -- $ -- $ 20,350 $ 60,663 $ 25,496 $ 106,509 Asian Real Estate -- 2,124 -- -- -- 68 -- 2,192 Emerging Markets -- -- -- -- 226,877 102,772 -- 329,649 European Real Estate -- -- 3,661 215 101 -- -- 3,977 European Value Equity -- -- -- -- 717 1,359 82 2,158 Global Value Equity -- -- -- -- -- -- 3,058 3,058 International Equity* -- -- -- -- -- -- 41,510 41,510 International Magnum -- -- -- -- 11,881 4,936 2,377 19,194 Japanese Value Equity 7,168 23,700 583 -- -- 3,162 -- 34,613 Latin American -- 14,256 5,508 -- 1,705 4,597 -- 26,066 Equity Growth -- -- -- -- 33,000 117,051 22,405 172,456 Focus Equity -- -- -- -- 10,195 21,111 -- 31,306 Small Company Growth -- -- -- -- -- 35,937 -- 35,937 Technology -- -- -- -- 50,529 28,302 3,366 82,197 Value Equity -- -- -- -- -- 22,807 -- 22,807 Emerging Markets Debt -- 76,263 9,761 -- 704 -- -- 86,728
* Amounts based on October 31 tax year end. 138 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) In addition to the $35,937,000 in unused capital losses attributed to the Small Company Growth Portfolio in the table above, approximately $111,705,000 has been brought forward as a result of the Portfolio's merger with the MSIFT Small Cap Growth Portfolio. Based on certain provisions in the Internal Revenue Code, various limitations regarding the future utilization of these carryforwards may apply. This acquired capital loss carryforward is expected to expire between 2009-2010. During the year ended December 31, 2003, the following Portfolios utilized capital loss carryforwards for U.S. Federal income tax purposes of approximately:
CAPITAL LOSS CARRYFORWARD UTILIZED PORTFOLIO (000) ------------------------------------------------------ Asian Real Estate $ 66 Emerging Markets 40,108 European Real Estate 2,330 International Small Cap 9,475 Japanese Value Equity 2,544 Latin American 797 Focus Equity 4,455 Small Company Growth 54,233 Value Equity 294 Emerging Markets Debt 6,752
In addition to the $54,233,000 utilized capital loss carryfor-ward attributed to the Small Company Growth Portfolio in the table above, approximately $8,305,000 of capital losses acquired from MSIFT Small Cap Growth Portfolio were utilized for federal tax purposes during the year ended December 31, 2003. To the extent that capital loss carryovers are used to offset any future capital gains realized during the carryover period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by a Portfolio for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. Net capital, passive investment company (PFIC), and currency losses incurred after October 31, and within the taxable year are deemed to arise on the first day of the Portfolio's next taxable year. For the year ended December 31, 2003, the Portfolio deferred to January 1, 2004 for U.S. Federal income tax purposes, post-October capital, PFIC and currency losses as indicated:
CAPITAL CURRENCY LOSSES PFIC LOSSES PORTFOLIO (000) (000) (000) ------------------------------------------------------------------ Active International Allocation $ 2,897 $ -- $ -- Emerging Markets -- -- 185 Global Franchise -- -- 675 Global Value Equity 179 -- -- International Small Cap -- 235 -- Latin American -- -- 1 Technology 167 -- -- Value Equity 483 -- --
For the fiscal year ended December 31, 2003, the Global Franchise and International Equity Portfolios realized gains from in-kind redemptions of $584,000 and $14,820,000, respectively. H. OTHER: The net assets of certain Portfolios include foreign denominated securities and currency. Changes in currency exchange rates will affect the U.S. dollar value of and investment income from such securities. Further, at times certain of the Portfolios' investments are concentrated in a limited number of countries and regions. This concentration may further increase the risk of the Portfolio. The Emerging Markets Debt Portfolio holds a significant portion of its investments in securities which are traded by a small number of market makers who may also be utilized by the Portfolio to provide pricing information used to value such investments. The amounts realized upon disposition of these securities may differ from the value reflected on the Statement of Net Assets. Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, including Russia, ownership of shares is defined according to entries in the issuer's share register. In Russia, currently no central registration system exists and the share registrars may not be subject to effective state supervision. It is possible that a Portfolio could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange is complete. This may subject the Portfolio to further risk of loss in the event of a counterparty's failure to complete the transaction. A portion of the securities of the Municipal Money Market Portfolio are insured by certain companies specializing in the insurance of municipal debt obligations. At December 31, 2003, approximately 30.2% of the net assets of the Municipal Money Market Portfolio are covered by such insurance. The insurers and their obligations are as follows: Ambac 9.3% FSA 8.5 MBIA 6.1 FGIC 5.4 XLCA 0.9
At December 31, 2003, certain Portfolios had otherwise unaffiliated record owners of 10% or greater. Investment activities of these shareholders could have a material impact on these Portfolios. 139 2003 ANNUAL REPORT December 31, 2003 NOTES TO FINANCIAL STATEMENTS (CONT'D) These Portfolios and the aggregate percentage of such owners were as follows:
PERCENTAGE OF OWNERSHIP ----------------------- PORTFOLIO CLASS A CLASS B ------------------------------------------------------------------------------- Active International Allocation 13.3% 78.4% Asian Real Estate -- 99.9 Emerging Markets -- 90.4 European Real Estate 70.9 84.8 European Value Equity 23.1 93.1 Global Franchise 34.4 28.3 Global Value Equity 62.9 83.3 International Equity -- 70.7 International Magnum 41.5 94.7 International Small Cap 13.4 N/A Japanese Value Equity 24.0 85.2 Latin American 81.5 89.3 Equity Growth 38.8 81.4 Focus Equity 54.3 27.1 Small Company Growth -- 54.7 Technology 58.2 77.6 U.S. Real Estate 33.8 68.4 Value Equity 72.5 83.7 Emerging Markets Debt 75.6 89.7 Money Market 11.1 N/A
140 2003 ANNUAL REPORT December 31, 2003 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF MORGAN STANLEY INSTITUTIONAL FUND, INC. We have audited the accompanying statements of net assets of the Morgan Stanley Institutional Fund, Inc. (comprising, respectively, the Active International Allocation Portfolio, Asian Real Estate Portfolio, Emerging Markets Portfolio, European Real Estate Portfolio, European Value Equity Portfolio, Global Franchise Portfolio, Global Value Equity Portfolio, International Equity Portfolio, International Magnum Portfolio, International Small Cap Portfolio, Japanese Value Equity Portfolio, Latin American Portfolio, Equity Growth Portfolio, Focus Equity Portfolio, Small Company Growth Portfolio, Technology Portfolio, U.S. Real Estate Portfolio, Value Equity Portfolio, Emerging Markets Debt Portfolio, Money Market Portfolio and Municipal Money Market Portfolio) (the "Fund") as of December 31, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended December 31, 1999 were audited by other auditors whose report, dated February 18, 2000, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the 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, 2003 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 each of the respective portfolios constituting Morgan Stanley Institutional Fund, Inc. at December 31, 2003, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 11, 2004 141 2003 ANNUAL REPORT December 31, 2003 FEDERAL TAX INFORMATION (UNAUDITED) For the year ended December 31, 2003, the percentage of dividends paid that qualify for the 70% dividend received deduction for corporate shareholders for the Global Franchise, Global Value Equity, Equity Growth, Focus Equity and Value Equity Portfolios are 67.8%, 78.0%, 100%, 100% and 100%, respectively. For the year ended December 31, 2003, the percentage of income earned from direct U.S. Treasury Obligations for the Money Market Portfolio is 8.5%. For the year ended December 31, 2003, the percentage of exempt interest dividends paid by the Municipal Money Market Portfolios is 99.7%. For the year ended December 31, 2003, the following Portfolios intend to pass through foreign tax credits and have derived gross income from sources within foreign countries amounting to:
FOREIGN FOREIGN TAX CREDIT SOURCE PASS-THROUGH INCOME PORTFOLIO (000) (000) ----------------------------------------------------------------------------- Active International Allocation $ 437 $ 7,413 Asian Real Estate 4 88 Emerging Markets 1,675 23,480 European Real Estate 93 748 European Value Equity 90 921 Global Value Equity 118 966 International Equity* 11,930 135,560 International Magnum 119 1,925 International Small Cap 2,006 17,946 Latin American 23 804
*Amounts based on October 31 tax year end. Each applicable Portfolio hereby designates the following amount as long-term capital gain dividends for the purpose of the dividend paid deduction on its federal tax return:
LONG-TERM CAPITAL GAIN - 20% ----------------------------------------------------------------------------- PORTFOLIO (000) Global Franchise $ 359 Global Value Equity 472 International Small Cap 9,855 U.S. Real Estate 7,145
For the year ended December 31, 2003, qualified dividend income for each applicable Portfolio totaled:
QUALIFYING DIVIDEND INCOME PORTFOLIO (000) ----------------------------------------------------------------------------- Active International Allocation $ 4,769 Asian Real Estate 8 Emerging Markets 14,205 European Real Estate 648 European Value Equity 681 Global Franchise 2,045 Global Value Equity 1,636 International Equity 76,688 International Magnum 1,313 International Small Cap 15,167 Latin American 768 Equity Growth 7,364 Focus Equity 749 Value Equity 3,028
142 2003 ANNUAL REPORT December 31, 2003 DIRECTOR AND OFFICER INFORMATION (UNAUDITED) INDEPENDENT DIRECTORS:
NUMBER OF PORTFOLIOS IN TERM OF FUND OFFICE AND COMPLEX POSITION(S) LENGTH OF OVERSEEN NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS DIRECTOR REGISTRANT SERVED* DURING PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR --------------------------- ----------- ------------ ------------------------ -------------- ------------------------- Michael Bozic (62) Director Director Retired; Director or 208 Director of Weirton c/o Kramer Levin Naftalis & since 2003 Trustee of the Steel Corporation. Frankel LLP Retail Funds and the Counsel to the Independent Institutional Funds; Directors formerly Vice 919 Third Avenue Chairman of Kmart New York, NY 10022 Corporation, Chairman and Chief Executive Officer of Levitz Furniture Corporation and President and Chief Executive Officer of Hills Department Stores; formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (71) Director Director Director or Trustee 208 Director of Franklin Summit Ventures LLC since 2003 of the Retail Funds Covey (time One Utah Center and the management systems), 201 South Main Street Institutional Funds; BMW Bank of North Salt Lake City, UT 84111 member of the Utah America, Inc. Regional Advisory (industrial loan Board of Pacific corporation), United Corp.; formerly, Space Alliance United States (joint venture Senator (R-Utah) and between Lockheed Chairman, Senate Martin and The Banking Committee, Boeing Company) and Mayor of Salt Lake Nuskin Asia Pacific City, Utah, (multilevel Astronaut, Space marketing); member Shuttle Discovery of the board of and Vice Chairman, various civic and Huntsman Corporation charitable (chemical company). organizations. Wayne E. Hedien (69) Director Director Retired; Director or 208 Director of the PMI WEH Associates since 2003 Trustee of the Group Inc. (private 5750 Old Orchard Road Retail Funds and the mortgage insurance); Suite 530 Institutional Funds; Trustee and Vice Skokie, IL 60077 formerly associated Chairman of the with the Allstate Field Museum of Companies, most Natural History; recently as Chairman director of various of The Allstate other business and Corporation and charitable Chairman and Chief organizations. Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company. Dr. Manuel H. Johnson (54) Director Director Chairman of the 208 Director of NVR, Johnson Smick since 2003 Audit Committee and Inc. (home International, Inc. Director or Trustee construction); 2099 Pennsylvania Avenue, of the Retail Funds Chairman and Trustee NW Suite 950 and the of the Financial Washington, D.C. 20006 Institutional Funds; Accounting Senior Partner, Foundation Johnson Smick (oversight International, Inc. organization of the (consulting firm); Financial Accounting Co-Chairman and a Standards Board); founder of the Group Director of RBS of Seven Council Greenwich Capital (G7C), an Holdings (financial international holdings company). economic commission; formerly, Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (61) Director Director Deputy Chairman of 209 Director of Electro Kearns & Associates LLC since 1994 the Audit Committee Rent Corporation PMB754 and Director or (equipment leasing), 23852 Pacific Coast Hwy. Trustee of the The Ford Family Malibu, CA 90265 Retail Funds and the Foundation and the Institutional Funds; UCLA Foundation. previously Chairman of the Audit Committee of the Institutional Funds; President, Kearns & Associates LLC (investment consulting); formerly CFO of The J. Paul Getty Trust. Michael Nugent (67) Director Director Chairman of the 208 Director of various Triumph Capital, L.P. since 2001 Insurance Committee business organizations. 445 Park Avenue, 10th Floor and Director or New York, NY 10022 Trustee of the Retail Funds and the Institutional Funds; General Partner of Triumph Capital, L.P., (private investment partnership); formerly Vice President, Bankers Trust Company and BT Capital Corporation. Fergus Reid (71) Director Director Chairman of the 209 Trustee and Lumelite Plastics since 2001 Governance Committee Director of certain 85 Charles Coleman Blvd. and Director or investment companies Pawling, NY 12564 Trustee of the in the JPMorgan Retail Funds and the Funds complex Institutional Funds; managed by JP Morgan Chairman of Lumelite Investment Plastics Management Inc. Corporation.
143 2003 ANNUAL REPORT December 31, 2003 DIRECTOR AND OFFICER INFORMATION (CONT'D) INTERESTED DIRECTORS:
NUMBER OF PORTFOLIOS IN TERM OF FUND OFFICE AND COMPLEX POSITION(S) LENGTH OF OVERSEEN NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS DIRECTOR REGISTRANT SERVED* DURING PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR --------------------------- ----------- ------------ ------------------------ -------------- ------------------------- Charles A. Fiumefreddo (70) Chairman Chairman Chairman and Director or 208 None Morgan Stanley Funds and and Trustee of the Retail Harborside Financial Center Director Director Funds and the Plaza Two 3rd Floor since Institutional Funds; Jersey City, NJ 07311 2003 formerly Chief Executive Officer of the Retail Funds. James F. Higgins (55) Director Director Director or Trustee of 208 Director of AXA Morgan Stanley since 2003 the Retail Funds and the Financial, Inc. and The Harborside Financial Center Institutional Funds; Equitable Life Assurance Plaza Two 2nd Floor Senior Advisor of Morgan Society of the United Jersey City, NJ 07311 Stanley; Director of States (financial Morgan Stanley services). Distributors Inc. and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley and President and Chief Operating Officer of Individual Securities of Morgan Stanley. Philip J. Purcell (60) Director Director Director or Trustee of 208 Director of American Morgan Stanley since 2003 the Retail Funds and the Airlines, Inc. and its 1585 Broadway 39th Floor Institutional Funds; parent company, AMR New York, NY 10036 Chairman of the Board of Corporation. Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW Inc.; Director of Morgan Stanley Distributors Inc.; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/or officer of various Morgan Stanley subsidiaries.
* Each Director serves an indefinite term, until his or her successor is elected. ** The Fund Complex includes all funds advised by Morgan Stanley Investment Management Inc. and any funds that have an investment adviser that is an affiliated entity of Morgan Stanley Investment Management Inc. (including, but not limited to, Morgan Stanley Investment Advisors Inc. and Van Kampen Asset Management Inc.). Additional information about the Fund's Directors can be found in the Fund's Statement of Additional Information (SAI). The SAI may be obtained without charge upon request, by calling the Fund at 1(800) 281-2715. You may also retrieve this information on-line at the Securities and Exchange Commission's web site at "http://www.sec.gov". To aid you in obtaining this information on-line, the Fund's Central Index Key (CIK) number is 836487 and the SAI is found within form type 485BPOS. 144 2003 ANNUAL REPORT December 31, 2003 DIRECTOR AND OFFICER INFORMATION (CONT'D) OFFICERS:
TERM OF OFFICE AND POSITION(S) HELD LENGTH OF TIME NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ------------------------------------------ ---------------- --------------- ------------------------------------------- Mitchell M. Merin (50) President President since President and Chief Operating Officer of Morgan Stanley Investment Management Inc. 2003 Morgan Stanley Investment Management 1221 Avenue of the Americas 33rd Floor Inc.; President, Director and Chief New York, NY 10020 Executive Officer of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Chairman, Chief Executive Officer and Director of Morgan Stanley Distributors Inc.; Chairman and Director of Morgan Stanley Trust; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds and the Retail Funds. Trustee and President of the Van Kampen Open-End and Closed-End funds. Ronald E. Robison (64) Executive Vice Executive Vice Chief Global Operations Officer and Morgan Stanley Investment Management Inc. President and President and Managing Director of Morgan Stanley 1221 Avenue of the Americas 33rd Floor Principal Principal Investment Management Inc.; Managing New York, NY 10020 Executive Executive Director of Morgan Stanley & Co. Officer Officer since Incorporated; Managing Director of 2003 Morgan Stanley; Managing Director, Chief Administrative Officer and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Chief Executive Officer and Director of Morgan Stanley Trust; Executive Vice President and Principal Executive Officer of the Institutional Funds and the Retail Funds; previously President and Director of the Institutional Funds. Barry Fink (48) Vice President Vice President General Counsel and Managing Director of Morgan Stanley Investment Management Inc. since 2003 Morgan Stanley Investment Management; 1221 Avenue of the Americas 22nd Floor Managing Director, Secretary and New York, NY 10020 Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Assistant Secretary of Morgan Stanley DW Inc.; Vice President and General Counsel of the Retail Funds; Vice President of the Institutional Funds; Vice President and Secretary of Morgan Stanley Distributors Inc.; previously Secretary of the Retail Funds; previously Vice President and Assistant General Counsel of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Joseph J. McAlinden (60) Vice President Vice President Managing Director and Chief Investment Morgan Stanley Investment Management Inc. since 2003 Officer of Morgan Stanley Investment 1221 Avenue of the Americas 33rd Floor Advisors Inc. and Morgan Stanley New York, NY 10020 Investment Management Inc.; Director of Morgan Stanley Trust, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds and the Retail Funds. Stefanie V. Chang (37) Vice President Vice President Executive Director of Morgan Stanley & Morgan Stanley Investment Management Inc. since 2001 Co. Incorporated and Morgan Stanley 1221 Avenue of the Americas 22nd Floor Investment Management Inc.; Vice New York, NY 10020 President of the Institutional Funds and the Retail Funds; formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP). James W. Garrett (35) Treasurer and Treasurer since Executive Director of Morgan Stanley & Morgan Stanley Investment Management Inc. Chief Financial 2002 Co. Incorporated and Morgan Stanley 1221 Avenue of the Americas 34th Floor Officer CFO since 2003 Investment Management Inc.; Treasurer New York, NY 10020 and Chief Financial Officer of the Institutional Funds; previously with Price Waterhouse LLP (now PricewaterhouseCoopers LLP). Michael J. Leary (38) Assistant Assistant Assistant Director and Vice President of J.P. Morgan Investor Services Co. Treasurer Treasurer since Fund Administration, J.P. Morgan 73 Tremont Street 2003 Investor Services Co. (formerly Chase Boston, MA 02108 Global Funds Company); formerly Audit Manager at Ernst & Young LLP. Mary E. Mullin (36) Secretary Secretary since Executive Director of Morgan Stanley & Morgan Stanley Investment Management Inc. 2001 Co. Incorporated and Morgan Stanley 1221 Avenue of the Americas 22nd Floor Investment Management Inc.; Secretary of New York, NY 10020 the Institutional Funds and the Retail Funds; formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
---------- * Each Officer serves an indefinite term, until his or her successor is elected. 145 2003 ANNUAL REPORT December 31, 2003 INVESTMENT ADVISER AND ADMINISTRATOR Morgan Stanley Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR Morgan Stanley & Co. Incorporated 1221 Avenue of the Americas New York, New York 10020 CUSTODIAN JPMorgan Chase Bank 270 Park Avenue New York, New York 10017 LEGAL COUNSEL Mayer, Brown, Rowe & Maw LLP 1675 Broadway New York, New York 10019-5820 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116-5072 This report is authorized for distribution only when preceded or accompanied by the prospectus of The Morgan Stanley Institutional Fund, Inc. which describes in detail each Investment Portfolio's investment policies, risks, fees and expenses. Please read the prospectus carefully before you invest or send money. For additional information, including information regarding the investments comprising the Portfolio, please visit our website at www.morganstanley.com/im. or call 1(800) 548-7786. Additionally, a description of the Fund's proxy voting policies and procedures is available without charge at our website at www.morganstanley.com/im/legal, at the SEC's website at www.sec.gov or by calling 1(800) 281-2715. 146 (This page has been left blank intentionally.) (This page has been left blank intentionally.) Printed in U.S.A. This Report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus. Morgan Stanley Investment Management Inc. 1221 Avenue of the Americas New York, NY 10020 MSIF: (800) 548-7786 (C) 2004 Morgan Stanley [MORGAN STANLEY LOGO] 1231-fibaleqseman-0204 ITEM 2. CODE OF ETHICS. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) The Fund has not amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto. (d) The Fund has not granted a waiver or an implicit waiver from a provision of its Code of Ethics. (e) Not applicable. (f) (1) The Fund Code of Ethics is attached hereto as Exhibit A. (2) Not applicable. (3) Not applicable. For Retail and Institutional Funds ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Fund's Board of Directors has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Directors: Dr. Manuel H. Johnson and Joseph J. Kearns. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Directors in the absence of such designation or identification. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown: 2003
REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 539,617 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 0 $ 93,000(2) TAX FEES $ 54,693(3) $ 163,414(4) ALL OTHER FEES $ 0 $ 341,775(5) TOTAL NON-AUDIT FEES $ 54,693 $ 598,189 TOTAL $ 594,310 $ 598,189
2002
REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 555,400 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 0 $ 179,000(2) TAX FEES $ 64,100(3) $ 0 ALL OTHER FEES $ 0 $ 595,150(6) TOTAL NON-AUDIT FEES $ 64,100 $ 774,150 TOTAL $ 619,500 $ 774,150
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically attestation services provided in connection with a SAS 70 Report. (3) Tax Fees represent tax advice and compliance services provided in connection with the review of the Registrant's tax return. (4) Tax Fees represent tax advice services provided to Covered Entities, including research and identification of Passive Foreign Investment Company entities. (5) All Other Fees represent attestation services provided in connection with performance presentation standards. (6) All Other Fees represent attestation services provided in connection with performance presentation standards, general industry education seminars provided, and a regulatory review project performed. (e)(1) The audit committee's pre-approval policies and procedures are as follows: AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED JULY 31, 2003(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund. The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. ---------- (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "POLICY"), adopted as of the date above, supercedes and replaces all prior versions that may have been adopted from time to time. 2 For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC's rules on auditor independence. The Audit Committee will also consider whether the Independent Auditors are best positioned to provide the most effective and efficient services, for reasons such as its familiarity with the Fund's business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Fund's ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine for each fiscal year, the appropriate ratio between the total amount of fees for Audit, Audit-related and Tax services for the Fund (including any Audit-related or Tax service fees for Covered Entities that were subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES 3 The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will monitor the Audit services engagement as necessary, but no less than on a quarterly basis, and will also approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the following Audit services. All other Audit services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Statutory audits or financial audits for the Fund - Services associated with SEC registration statements (including new funds), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end fund offerings, consents), and assistance in responding to SEC comment letters - Consultations by the Fund's management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard setting bodies (Note: Under SEC rules, some consultations may be "audit related" services rather than "audit" services) 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit services"; assistance with understanding and 4 implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the following Audit-related services. All other Audit-related services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Attest procedures not required by statute or regulation (including agreed upon procedures related to the Closed-End Fund asset coverage tests required by the rating agencies and/or lenders and agreed upon procedures related to fund profitability analysis in connection with 15c management contract renewal process - Services associated with registration statement with Japanese regulatory authorities, including issuance of consent and opinion for Morgan Stanley Asia-Pacific Fund - Due diligence services pertaining to potential fund mergers - Issuance of SAS-70 reports on internal controls of a service provider - Consultations by the Fund's management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be "audit" services rather than "audit-related" services) - Information systems reviews not performed in connection with the audit (e.g., application data center and technical reviews) - General assistance with implementation of the requirements of SEC rules or listing standards promulgated pursuant to the Sarbanes-Oxley Act 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those Tax services that have historically been provided by the Independent Auditors, that the Audit Committee has reviewed and believes would not impair the independence of the Independent Auditors, and that are consistent with the SEC's rules on auditor independence. The Audit Committee will not permit the retention of the Independent Auditors in connection with a transaction initially recommended by the Independent Auditors, the sole business purpose of which may be tax avoidance and the tax treatment, 5 of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with Director of Tax or outside counsel to determine that the tax planning and reporting positions are consistent with this policy. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the following Tax Services. All Tax services involving large and complex transactions not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated), including tax services proposed to be provided by the Independent Auditors to any executive officer or trustee/director/managing general partner of the Fund, in his or her individual capacity, where such services are paid for by the Fund (generally applicable only to internally managed investment companies): - U.S. federal, state and local tax planning and advice - U.S. federal, state and local tax compliance - International tax planning and advice - International tax compliance - Review/preparation of federal, state, local and international income, franchise, and other tax returns - Identification of Passive Foreign Investment Companies - Preparation of local Indian Tax Returns - Domestic and foreign tax planning, compliance, and advice - Assistance with tax audits and appeals before the IRS and similar state, local and foreign agencies - Tax advice and assistance regarding statutory, regulatory or administrative developments (e.g., excise tax reviews, evaluation of Fund's tax compliance function) - Review the calculations of taxable income from corporate actions including reorganizations related to bankruptcy filings and provide guidance related to the foregoing 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the following All Other services. Permissible All Other services not listed below must be specifically pre-approved by the 6 Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Risk management advisory services, e.g., assessment and testing of security infrastructure controls The following is a list of the SEC's prohibited non-audit services. The SEC's rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions: - Bookkeeping or other services related to the accounting records or financial statements of the audit client - Financial information systems design and implementation - Appraisal or valuation services, fairness opinions or contribution-in-kind reports - Actuarial services - Internal audit outsourcing services - Management functions - Human resources - Broker-dealer, investment adviser or investment banking services - Legal services - Expert services unrelated to the audit 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriate ratio between the total amount of fees for Audit, Audit-related, and Tax services for the Fund (including any Audit-related or Tax services fees for Covered Entities subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the 7 Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. The Audit Committee will also review the internal auditor's annual internal audit plan to determine that the plan provides for the monitoring of the Independent Auditors' services. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: MORGAN STANLEY RETAIL FUNDS Morgan Stanley Investment Advisors Inc. Morgan Stanley & Co. Incorporated Morgan Stanley DW Inc. Morgan Stanley Investment Management Morgan Stanley Investments LP Van Kampen Asset Management Inc. Morgan Stanley Services Company, Inc. 8 Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB MORGAN STANLEY INSTITUTIONAL FUNDS Morgan Stanley Investment Management Inc. Morgan Stanley Investments LP Morgan Stanley & Co. Incorporated Morgan Stanley Distribution, Inc. Morgan Stanley AIP GP LP Morgan Stanley Alternative Investment Partners LP (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. 9 ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED.] ITEM 9. CONTROLS AND PROCEDURES. (a) The Fund's chief executive officer and chief financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the Fund's internal control over financial reporting that occurred during the registrant's most recent second fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting. ITEM 10. EXHIBITS. (a) [Attach the Code of Ethics] (b)(1) [Attach the 302 Certification of Chief Executive Officer] (b)(2) [Attach the 302 Certification of Chief Financial Officer] [Note: the 906 Certifications are not exhibits to the Form but are filed with the Form.] 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Morgan Stanley Institutional Fund, Inc. -------------------------------------------------------------------- By: /s/ Ronald E. Robison ----------------------------------------------------------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: 2/18/2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison ----------------------------------------------------------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: 2/18/2004 By: /s/ James W. Garrett ----------------------------------------------------------------------------- Name: James W. Garrett Title: Chief Financial Officer Date: 2/18/2004