-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JrvFKo4AJrMVZ9/FLuODFKN44li0e88npRfSvlqR/zW2TPqXaPbj2x0vN0go3raW RVOA0w6dGi8tkT2Q6S17MA== 0001047469-05-005398.txt : 20050304 0001047469-05-005398.hdr.sgml : 20050304 20050304113231 ACCESSION NUMBER: 0001047469-05-005398 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050304 DATE AS OF CHANGE: 20050304 EFFECTIVENESS DATE: 20050304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES CENTRAL INDEX KEY: 0000924394 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07185 FILM NUMBER: 05660218 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 MAIL ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERI DATE OF NAME CHANGE: 19980622 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES DATE OF NAME CHANGE: 19940602 N-CSR 1 a2152309zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-07185 Morgan Stanley Select Dimensions Investment Series (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: December 31, 2004 Date of reporting period: December 31, 2004 Item 1 - Report to Shareholders MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES ANNUAL REPORT DECEMBER 31, 2004 Morgan Stanley Select Dimensions Investment Series TABLE OF CONTENTS Letter to the Shareholders 1 Expense Example 24 Portfolio of Investments: Money Market 29 Flexible Income 32 Balanced Growth 53 Utilities 66 Dividend Growth 70 Equally-Weighted S&P 500 74 Growth 86 American Opportunities 90 Capital Opportunities 94 Global Equity 98 Developing Growth 104 Financial Statements: Statements of Assets and Liabilities 110 Statements of Operations 112 Statements of Changes in Net Assets 114 Notes to Financial Statements 122 Financial Highlights 134 Report of Independent Registered Public Accounting Firm 144 Trustee and Officer Information 145 Federal Tax Notice 150
Morgan Stanley Select Dimensions Investment Series LETTER TO THE SHAREHOLDERS - DECEMBER 31, 2004 Dear Shareholders, Global capital markets in 2004 were marked by a slowdown in returns after the torrid pace of 2003. Near-record levels of corporate profits and continued strength in the U.S. housing market were offset by a series of negative factors including weaker-than-expected job growth, geopolitical uncertainty and unease over political events in the U.S. The year ended on a positive note, however, with brief fourth-quarter rallies in both the stock and bond markets. In all, it was a year in which both bullish and bearish sentiment could find justification. Domestic Equity Overview The U.S. equity market performed solidly for the 12 months ended December 31, 2004, though its performance was somewhat uneven over the course of the year. After a strong beginning in 2004, the market made little progress for much of the year as investors attempted to balance a number of factors. Concern that slow employment growth would undermine the strength of the economic recovery in the United States, disappointing earnings for many companies, geopolitical uncertainties and higher interest rates all weighed on the market. Later in 2004, investors became more optimistic about a "soft landing" around the globe as the U.S. economy continued to grow steadily and inflation remained stable. The U.S. labor market also improved, though fewer jobs were created than some economists and investors had expected. Consumer spending also picked up significantly in the second half of 2004. Although the U.S. Federal Reserve raised short-term interest rates a number of times in 2004, these increases were not reflected in long-term interest rates, and did not seriously disrupt the stock market. In addition, orders for durable goods were strong despite some inflation. While many investors worried during the summer and early fall about terrorism and the potential for a drawn-out U.S. presidential election, these anxieties were alleviated when the election ended without incident. In addition, investors who were concerned that rising energy prices could lead to inflation were reassured when the price of crude oil retreated from its high of $56 a barrel in October. As a result, U.S. equities ended the year with a sharp rally in November and December. Of course, some sectors performed better than others in 2004. Commodity-oriented areas such as energy, basic materials and industrials were the year's top performers. Interest rate sensitive stocks such as utilities and telecommunications services also performed well as long-term interest rates did not rise in line with investors' expectations for them. At the other end of the spectrum were the health care and consumer staples sectors, which generally underperformed due largely to fundamental disappointments. Technology stocks also ended up lagging other sectors for 2004 despite having rallied during the fall. Fixed-Income Overview The 12-month review period began with interest rates generally falling and still near their historical lows. Continued low employment numbers and deflationary pressures caused rates to follow this downward path throughout the first quarter of 2004. The market then reversed course in April, after the release of March employment numbers. The surprisingly strong employment data, coupled with increasing oil prices, led investors to the conclusion that the Federal Reserve Open Market Committee (the "Fed") would move to raise interest rates. At its June meeting, the Fed initiated a series of 25-basis point rate increases that continued through the end of the year. Despite these rate increases, continued softness in the economy pushed yields on intermediate and longer maturity government securities lower during the third quarter of 2004 and into the beginning of the fourth. Investors became increasingly concerned by rising oil prices and uneven employment gains. While the bond market gained slightly following the conclusion of the election, gains were largely limited to intermediate and longer-maturity securities. Perceptions of the economy were varied during the period. The year began with concern over economic sluggishness and ended with concern over too much growth. Overall, rates were mixed, with shorter-term rates rising and longer-term rates declining from the start of the period. Against this mixed backdrop, performance varied over the major segments of the fixed income market. U.S. Treasury securities lagged other parts of the market, due in most part to their high sensitivity to fluctuating interest rates and their relatively low yields. Mortgage-backed securities (MBS) had good performance, especially in those securities with longer durations. Higher-coupon mortgage-backed securities outperformed their Treasury counterparts as declining rates resulted in increased prepayment expectations. The best-performing segments of the U.S. bond market were investment grade and high yield corporate debt, with high yield leading the performance tables. The low level of intermediate and long-term yields caused many investors to buy these securities in the pursuit of attractive income. Within the investment grade segment of the bond market, corporate bonds outperformed for similar reasons. International Equity Overview International equity markets posted strong gains for the 12 months ended December 31, 2004, with the Morgan Stanley Capital International (MSCI) EAFE Index rising 20.25 percent in U.S. dollar terms. Relatively healthy economic conditions in the United States (among other market drivers) helped to offset factors such as higher interest rates and slower growth in China as well as a record high in the price of crude oil. Early in the period, many international markets were weighed down by investors' concerns that 2 the U.S. job market was not as strong as they had expected. Uncertainty about when and how quickly the U.S. Federal Reserve would raise interest rates also kept many investors cautious. In the second half of the period, however, data indicated that the U.S. economy was continuing to grow and that the job market was recovering steadily. In addition, the conclusion of the U.S. presidential election without incident alleviated concerns that the financial markets would be hurt by a major controversy. Late in 2004, the price of crude oil also retreated from its record high, helping to drive up many international equities as the reporting period ended. Performance in the Japanese stock market was positive for the year, and was supported largely by gains in the U.S. stock market. That said, the country's economic developments were not as positive. The Japanese market came under significant pressure when key trading partner China raised interest rates in order to slow its economy. The prospect of a slowdown in China, coupled with the high price of crude oil, combined to weaken the Japanese economy. Data released later in 2004 confirmed that industrial production in Japan was declining and consumer confidence there was relatively low. The Nikkei 225 Index rose 12.69 percent in U.S. dollar terms for the year. The European economy was also weaker than many had hoped in 2004. Economic conditions in the region as a whole remained generally lackluster in 2004, with consumer spending remaining weak while the Euro's strength relative to the U.S. dollar helped curb demand for European exports. The European stock market performed better than the region's economy however, rising on improving earnings for many of its companies that benefited from improving global economic conditions. The rising Euro also boosted returns for dollar-based investors in European stocks, helping lift the MSCI Europe Index to a 20.88 percent gain in dollar terms. Although the emerging markets were somewhat volatile in the first half of 2004, their performance improved greatly over the second half of the year due to robust growth rates in many emerging economies. Several other factors helped numerous emerging markets post strong performances in 2004, including the appreciation of many countries' local currencies against the U.S. dollar during the second half of the year, considerable current account and fiscal surpluses in several countries and, for oil exporters such as Brazil, the rising price of crude oil. While the year's end was marked by the tragedy of the tsunami disaster, the financial markets of the emerging countries were not significantly hurt by the event. In fact, the emerging markets were so strong in 2004 that they outperformed the developed markets for the fourth consecutive year. Central European and Latin American markets made particularly substantial gains during 2004. Among the emerging European markets, the Czech Republic and Poland were bolstered by robust economic growth and optimism about future growth following these countries' accession to the European Union.The 3 setting of dates for negotiations concerning Turkey's accession to the EU led to that market's strong gains in the fourth quarter. Turkey's stock market was also boosted by particularly strong economic growth, low inflation and improving consumption in the country. In addition, earnings growth for many Turkish companies kept pace with the country's economic progress. Latin America, meanwhile, was driven by the strong performance of Brazil, Mexico and Colombia as those markets benefited from strength in their economies. The export-led recovery in Brazil was particularly important to that market's gains, while reform and strong demand for natural resources helped make Colombia one of the world's top-performing equity markets in 2004. In stark comparison to these strong performers was Russia, which was among the weakest emerging markets during 2004. Its stock market was particularly hurt when the Russian government took over the assets of the oil company Yukos, which raised doubts about property rights and political stability in the country. Elsewhere, the stock markets of Taiwan and South Korea suffered due to concerns about a slowdown in China's economy and generally weak demand for technology products worldwide. 4 American Opportunities Portfolio For the 12-month period ended December 31, 2004, American Opportunities Portfolio Class X shares produced a total return of 8.29(1) percent versus 6.30 percent for the Russell 1000 Growth Index and 10.88 percent for the S&P 500 Index. For the same period, the Portfolio's Class Y shares returned 7.96(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The largest contributors to the Portfolio's performance were positions in the health care, energy and consumer discretionary sectors. Within the health care sector, the Portfolio benefited primarily from underweighting large-cap pharmaceutical stocks relative to the Russell 1000 Growth Index and from overweighting health care management services and medical supplies stocks. Stock selection within the biotechnology sector was also positive for the Portfolio's relative performance. [CHART] GROWTH OF $10,000: AMERICAN OPPORTUNITIES -- CLASS X ($ in Thousands)
CLASS X RUSSELL 1000 GROWTH (3) S&P 500(4) Dec-1994 $ 10,000 $ 10,000 $ 10,000 Dec-1995 $ 13,895 $ 13,718 $ 13,758 Dec-1996 $ 15,694 $ 16,889 $ 16,915 Dec-1997 $ 20,705 $ 22,039 $ 22,559 Dec-1998 $ 27,078 $ 30,569 $ 29,004 Dec-1999 $ 42,190 $ 40,706 $ 35,107 Dec-2000 $ 40,326 $ 31,577 $ 31,907 Dec-2001 $ 28,442 $ 25,128 $ 28,118 Dec-2002 $ 22,310 $ 18,122 $ 21,907 Dec-2003 $ 26,899 $ 23,513 $ 28,191 Dec-2004 $ 29,130(2) $ 24,994 $ 31,259
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 8.29%(1) (7.14)%(1) 11.28%(1) 11.19%(1) 7/24/00 Class Y 7.96%(1) -- -- (8.24)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 1000 Growth Index measures the performance of those companies in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. The Portfolio's benchmark was changed from the S&P 500 to the Russell 1000 Growth Index to more accurately reflect the Portfolio's investable universe. (4) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 5 Within the energy sector, the Portfolio gained from its emphasis on the coal and oil services industries. The coal industry benefited indirectly from high natural gas prices and strong demand for coking coal. Within the consumer discretionary sector, overweightings in stocks of education services and internet providers further boosted the Portfolio, as did stock selection in the retail sector. Other positions were detrimental to the Portfolio's performance in 2004. The most significant detractor was the Portfolio's stock selection within the materials and processing sector, largely because of the Portfolio's overexposure to copper stocks. We also sold these stocks at a relatively inopportune time, causing the Portfolio to miss out on their subsequent recovery. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. Balanced Growth Portfolio For the 12-month period ended December 31, 2004, Balanced Growth Portfolio's Class X Shares posted a total return of 10.93(1) percent compared to 16.49 percent for the Russell 1000 Value Index and 4.34 percent for the Lehman Brothers U.S. Aggregate Bond Index. For the same period, the Portfolio's Class Y shares returned 10.68(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT [CHART] GROWTH OF $10,000 BALANCED GROWTH -- CLASS X ($ in Thousands)
CLASS X RUSSELL 1000 VALUE(3) LEHMAN AGGREGATE(4) Dec-1994 $ 10,000 $ 10,000 $ 10,000 Dec-1995 $ 12,286 $ 13,836 $ 11,847 Dec-1996 $ 13,950 $ 16,830 $ 12,278 Dec-1997 $ 16,443 $ 22,751 $ 13,463 Dec-1998 $ 18,813 $ 26,307 $ 14,632 Dec-1999 $ 19,475 $ 28,240 $ 14,512 Dec-2000 $ 20,715 $ 30,221 $ 16,199 Dec-2001 $ 20,965 $ 28,532 $ 17,567 Dec-2002 $ 18,556 $ 24,103 $ 19,369 Dec-2003 $ 22,238 $ 31,341 $ 20,164 Dec-2004 $ 24,668(2) $ 36,510 $ 21,038
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 10.93%(1) 4.84%(1) 9.45%(1) 9.37%(1) 7/24/00 Class Y 10.68%(1) -- -- 6.14%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 1000 Value Index measures the performance of those companies in the Russell 1000 Index with lower price -to-book ratios and lower forecasted growth values. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. (4) The Lehman Brothers U.S. Aggregate Index tracks the performance of all U.S. government agency and Treasury securities, investment-grade corporate debt securities, agency mortgage-backed securities, asset-backed securities and commercial mortgage-based securities. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 6 morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio's blend of equity and bond securities led it to underperform its equity benchmark -- the Russell 1000 Value Index -- while outperforming the Lehman Brothers U.S. Aggregate Bond Index. Within its equity holdings, the Portfolio's overweighting in pharmaceutical makers such as Bristol-Myers Squibb was especially detrimental. The industry faced a number of challenges in 2004, including a dearth of new drugs in its pipelines, the possibility of drug reimportation from Canada and other countries, and high-profile withdrawals of best-selling drugs such as Vioxx. The Portfolio's slight overweighting in technology stocks relative to the Russell 1000 Value Index was also a disadvantage as the sector grappled with generally weak sales. Stock selection within individual sectors was another reason why the Portfolio underperformed the Russell 1000 Value Index. In retrospect, the Portfolio had too little exposure to technology hardware and equipment makers and too much exposure to the semiconductor industry in 2004. Chip-maker Intel was one of our weakest holdings as it suffered from the general lack of spending on technology. In the consumer staples sector, Coca-Cola was another notable underperformer due to weak sales. On a more positive note, many of the Portfolio's holdings in the telecommunication services, energy and industrials sectors generated strong gains. Stock selection in the telecommunications services area was particularly helpful. Our shares of Sprint performed especially well late in 2004 after the company announced that it planned to merge with Nextel. The Portfolio's overweighting in the energy sector relative to the Russell 1000 Value Index was also rewarding as the rising price of oil benefited many energy stocks. Valero Energy performed well as the company benefited from improving refining margins during the period. Within the industrials sector, the Portfolio was helped by its positions in transportation stocks such as railroad company Norfolk Southern, which benefited greatly from improving economic conditions that led to increasing demand for the transportation of goods. Investors also looked favorably upon the efforts of the company's management team to contain the added costs resulting from higher energy prices. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. 7 Capital Opportunities Portfolio For the 12-month period ended December 31, 2004, Capital Opportunities Portfolio Class X shares produced a total return of 22.59(1) percent, versus 6.93 percent for the Russell 3000 Growth Index, 16.48 percent for the S&P MidCap 400 Index and 11.26 percent for the Lipper Multi-Cap Growth Fund's Index. For the same period, the Portfolio's Class Y shares returned 22.41(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. Stock selection was the primary driver of the Portfolio's outperformance in 2004. Sector allocations added to relative performance as well. Stock selection was favorable across most sectors with the exception of utilities and materials and processing. Selection was strongest in the health care sector, followed by technology, consumer discretionary and energy. From a sector allocation perspective, overweight positions in consumer [CHART] GROWTH OF $10,000: CAPITAL OPPORTUNITIES -- CLASS X ($ in Thousands)
CLASS X RUSSELL 3000 GROWTH(3) S&P MIDCAP 400(4) LIPPER(5) Jan-1997 $ 10,000 $ 10,000 $ 10,000 $ 10,000 Mar-1997 $ 9,400 $ 9,390 $ 9,719 $ 9,211 Jun-1997 $ 10,361 $ 11,155 $ 11,147 $ 10,696 Sep-1997 $ 11,739 $ 12,094 $ 12,939 $ 12,080 Dec-1997 $ 11,584 $ 12,154 $ 13,047 $ 11,718 Mar-1998 $ 12,737 $ 13,957 $ 14,484 $ 13,370 Jun-1998 $ 12,679 $ 14,456 $ 14,174 $ 13,680 Sep-1998 $ 9,875 $ 12,973 $ 12,123 $ 11,660 Dec-1998 $ 12,241 $ 16,410 $ 15,541 $ 14,623 Mar-1999 $ 12,861 $ 17,355 $ 14,549 $ 15,551 Jun-1999 $ 13,961 $ 18,153 $ 16,609 $ 16,713 Sep-1999 $ 14,687 $ 17,470 $ 15,214 $ 16,081 Dec-1999 $ 23,516 $ 21,961 $ 17,829 $ 21,402 Mar-2000 $ 27,532 $ 23,563 $ 20,091 $ 24,475 Jun-2000 $ 25,866 $ 22,848 $ 19,429 $ 22,985 Sep-2000 $ 27,194 $ 21,640 $ 21,789 $ 23,175 Dec-2000 $ 17,034 $ 17,038 $ 20,950 $ 18,822 Mar-2001 $ 10,935 $ 13,545 $ 18,693 $ 14,636 Jun-2001 $ 13,315 $ 14,781 $ 21,153 $ 16,094 Sep-2001 $ 7,847 $ 11,823 $ 17,649 $ 11,806 Dec-2001 $ 10,836 $ 13,694 $ 20,824 $ 14,087 Mar-2002 $ 10,149 $ 13,346 $ 22,224 $ 13,604 Jun-2002 $ 7,316 $ 10,881 $ 20,155 $ 11,250 Sep-2002 $ 5,988 $ 9,195 $ 16,820 $ 9,332 Dec-2002 $ 6,087 $ 9,855 $ 17,802 $ 9,885 Mar-2003 $ 6,110 $ 9,732 $ 17,012 $ 9,809 Jun-2003 $ 7,161 $ 11,184 $ 20,011 $ 11,431 Sep-2003 $ 7,726 $ 11,673 $ 21,330 $ 12,020 Dec-2003 $ 8,622 $ 12,907 $ 24,142 $ 13,383 Mar-2004 $ 9,175 $ 13,055 $ 25,365 $ 13,856 Jun-2004 $ 9,419 $ 13,289 $ 25,611 $ 14,001 Sep-2004 $ 9,419 $ 12,586 $ 25,073 $ 13,324 Dec-2004 $ 10,570(2) $ 13,801 $ 28,122 $ 14,891
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS SINCE INCEPTION 1/21/97 Class X 22.59%(1) (14.78)%(1) 0.70%(1) 7/24/00 Class Y 22.41%(1) -- (19.19)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 3000 Growth Index measures the performance of those companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. The Portfolio's benchmark was changed from the S&P 400 to the Russell 3000 Growth Index to more accurately reflect the Portfolio's investable universe. (4) The Standard and Poor's MidCap 400 Index (S&P 400) is a market-value weighted index, the performance of which is based on the performance of 400 domestic stocks chosen for market size, liquidity and industry group representation. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. (5) The Lipper Multi-Cap Growth Fund's Index tracks the performance of the 30 largest Multi-Cap Growth open-end mutual funds, as categorized by Lipper, Inc. Funds in this category, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap growth funds typically have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P SuperComposite 1500 Index. The Index does not include any fees or charges. The Index is unmanaged and should not be considered an investment. 8 discretionary, energy, materials and processing and utilities added significantly to relative return, as did underweight allocations to technology and health care. Underweighted positions in producer durables and auto & transportation detracted. Among the Portfolio's largest holdings, individual contributors to relative return included Ultra Petroleum in the energy sector; Station Casinos and Royal Caribbean Cruises, Wynn Resorts and GTECH Holdings in the consumer discretionary sector; QUALCOMM in the technology sector; and Crown Castle International in the producer durables sector. Univision Communications, a Spanish language broadcast company, was a significant detractor among the Portfolio's largest positions as was Newmont Mining in the materials & processing sector. Ultra Petroleum continued to benefit from strong production and reserve growth in its Wyoming operation and high energy prices. Station Casinos has benefited from continued local population growth in Las Vegas, from further expansion of California's gambling industry and partnerships with Native American tribes. Royal Caribbean Cruises has enjoyed steady bookings in an improved leisure travel market. Investors responded favorably to Wynn Resorts' common stock offering with the proceeds to be used for debt retirement and to finance the company's casino resort in China's Macau region. GTECH Holdings, a lottery system provider, continues to add new contracts in the U.S. and abroad. QUALCOMM stayed on an upward trend through most of the year, benefiting from the continuing growth of wireless products utilizing the company's patented CDMA technology. Crown Castle International, a wireless tower operator, sold its U.K. subsidiary for $2 billion in August 2004. Crown will use these proceeds to reduce debt and to finance selective opportunities in the U.S. tower market. Univision, a Spanish language radio & television broadcast company, declined after the company's forward earnings guidance fell short of analyst expectations. Newmont Mining had benefited from higher gold prices for the majority of the year, however, allegations of pollution in its Indonesian mines had an adverse impact. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. 9 Developing Growth Portfolio For the 12-month period ended December 31, 2004, Developing Growth Portfolio Class X shares produced a total return of 22.31(1) percent versus 15.48 percent for the Russell Midcap Growth Index. For the same period, the Portfolio's Class Y shares returned 21.95(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio's outperformance in 2004 was driven largely by stock selection in a number of sectors, though several sector allocations also played a role. Stock selection in the technology sector was particularly beneficial. One strong holding there was the software provider Adobe Systems, which benefited from better-than-expected sales of its Creative Suite and Acrobat product lines. Stock selection in, and a general overweighting to, the energy sector also drove the Portfolio's outperformance. Among energy holdings, Ultra Petroleum continued to benefit from strong production and expanding reserves in its Wyoming operation. High energy prices also helped to boost its earnings. [CHART] GROWTH OF $10,000: DEVELOPING GROWTH -- CLASS X ($ in Thousands)
CLASS X RUSSELL MIDCAP GROWTH(3) Dec-1994 $ 10,000 $ 10,000 Dec-1995 $ 15,126 $ 13,398 Dec-1996 $ 17,085 $ 15,739 Dec-1997 $ 19,437 $ 19,287 Dec-1998 $ 21,194 $ 22,733 Dec-1999 $ 40,803 $ 34,393 Dec-2000 $ 31,986 $ 30,352 Dec-2001 $ 23,832 $ 24,236 Dec-2002 $ 17,223 $ 17,594 Dec-2003 $ 24,354 $ 25,109 Dec-2004 $ 29,787(2) $ 28,995
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 22.31%(1) (6.10)%(1) 11.53%(1) 11.53%(1) 7/24/00 Class Y 21.95%(1) -- -- (4.87)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 10 Stock selection in the consumer discretionary, financial and producer durables sectors was also beneficial to the Portfolio. Royal Caribbean Cruises, Station Casinos, Wynn Resorts and GTECH Holdings were among the consumer discretionary stocks that were positive contributors, while an overweighted position in the sector also boosted return. Shares of Royal Caribbean benefited from an improved outlook for leisure travel. Investors responded favorably to Wynn Resorts' common stock offering with the proceeds to be used for debt retirement and to finance the company's casino resort in China's Macau region. Shares of Station Casinos rose on expectations of continued growth in the company's Las Vegas operations, further expansion in California's gambling industry and excitement about the company's new partnerships with Native American tribes. In the financials sector, the Portfolio benefited from its positioning in the diversified financial services, property & casualty insurance, and securities brokerage & services industries. Among producer durables stocks, the Portfolio was helped in particular by Crown Castle International, a wireless tower operator that successfully sold its U.K. subsidiary for $2 billion in August 2004. Crown will use these proceeds to reduce debt and to finance selective opportunities in the U.S. tower market. The strength of these positions was slightly offset by weakness in other areas. A number of holdings in the cable television & radio, electrical utilities and telecommunications industries were particularly weak. One such underperformer was NTL, which came under pressure after the company announced its intentions to sell its U.K. broadcast business and focus on its core cable and broadband businesses. Spanish language radio and TV network Univision was another underperformer. Its shares declined sharply in November when the company's forward earnings guidance fell short of analyst expectations. The Portfolio's underweighted positions in both the financial and consumer staples sectors relative to the Russell Midcap Growth Index were also modest detractors for the year. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. 11 Dividend Growth Portfolio For the 12-month period ended December 31, 2004, Dividend Growth Portfolio Class X shares produced a total return of 8.29(1) percent versus 10.88 percent for the S&P 500 Index. For the same period, the Portfolio's Class Y shares returned 8.03(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio's underperformance relative to the S&P 500 Index for the period was driven largely by stock selection. The largest detractor from performance was the Portfolio's stock selection within industrials, although an overweighted position in the sector relative to the S&P 500 Index partially mitigated the negative effect of a number of individual securities. Within the sector, Caterpillar and 3M detracted most from returns. Stock selection within the health care sector also hurt relative returns, although our underweighted position in the sector was positive and slightly offset the detrimental effect of stock selection. Within that sector, large pharmaceutical companies Pfizer and Bristol-Myers Squibb served as a drag on performance. Within consumer staples, the [CHART] GROWTH OF $10,000: DIVIDEND GROWTH -- CLASS X ($ in Thousands)
CLASS X S&P 500(3) Dec-1994 $ 10,000 $ 10,000 Dec-1995 $ 14,013 $ 13,758 Dec-1996 $ 17,445 $ 16,915 Dec-1997 $ 22,003 $ 22,559 Dec-1998 $ 26,343 $ 29,004 Dec-1999 $ 26,482 $ 35,107 Dec-2000 $ 27,901 $ 31,907 Dec-2001 $ 26,382 $ 28,118 Dec-2002 $ 21,654 $ 21,907 Dec-2003 $ 27,659 $ 28,191 Dec-2004 $ 29,950(2) $ 31,259
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 8.29%(1) 2.49%(1) 11.59%(1) 11.41%(1) 7/24/00 Class Y 8.03%(1) -- -- 4.22%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 12 Portfolio was hurt further by the weak performance of Coca-Cola and Altria Group. Stock selection in the materials sector also hampered relative performance, as weakness in Alcoa shares had the most significant negative impact. Other security holdings and sector allocations benefited performance. Stock selection was favorable within the consumer discretionary sector, as the Portfolio benefited from the strong contributions made by retailers Target and Home Depot. Within utilities, a relatively small sector, Exelon was a standout performer for the period. Performance also benefited from an overweighted position in the energy sector as energy stocks rose strongly due to high oil prices and continuing signs of economic growth. An underweighted position in information technology relative to the S&P 500 Index further helped performance as the sector underperformed for the period after making strong gains in 2003. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. Equally-Weighted S&P 500 Portfolio For the 12-month period ended December 31, 2004, Equally-Weighted S&P 500 Portfolio Class X shares produced a total return of 16.65(1) percent, versus 18.09 percent for the S&P 500 Equal Weight Index and 10.88 percent for the S&P 500 Index. For the same period, the Portfolio's Class Y shares returned 16.33(1) percent. [CHART] GROWTH OF $10,000: EQUALLY-WEIGHTED S&P 500 -- CLASS X ($ in Thousands)
CLASS X S&P EWI(3) S&P 500(4) Dec-1994 $ 10,000 $ 10,000 $ 10,000 Dec-1995 $ 12,714 $ 13,203 $ 13,758 Dec-1996 $ 14,975 $ 15,715 $ 16,915 Dec-1997 $ 18,886 $ 20,279 $ 22,559 Dec-1998 $ 21,189 $ 22,751 $ 29,004 Dec-1999 $ 23,763 $ 25,487 $ 35,107 Dec-2000 $ 26,610 $ 27,943 $ 31,907 Dec-2001 $ 26,123 $ 27,835 $ 28,118 Dec-2002 $ 21,951 $ 22,774 $ 21,907 Dec-2003 $ 30,105 $ 31,795 $ 28,191 Dec-2004 $ 35,116(2) $ 37,548 $ 31,259
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 16.65%(1) 8.12%(1) 13.38%(1) 13.10%(1) 7/24/00 Class Y 16.33%(1) -- -- 8.65%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's 500 Equal Weight Index (S&P EWI) is the equal-weighted version of the widely regarded S&P 500 Index, which measures 500 leading companies in leading U.S. industries. The S&P EWI has the same constituents as the capitalization weighted S&P 500 Index, but each company in the S&P EWI is allocated a fixed weight, rebalancing quarterly. Indexes are unmanaged and their returns do not include any expenses, sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. The Portfolio's benchmark was changed from the S&P 500 to the S&P EWI to more accurately reflect the Portfolio's investable universe. (4) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 13 PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. While all 10 sectors in the S&P 500 posted gains in 2004, some sectors considerably outperformed others. The best-performing sectors for the 12-month period were energy and telecommunications. Energy stocks benefited from the rise in oil prices and higher returns for drilling, while the telecom sector was boosted by the consolidation of Sprint and Nextel, among other factors. The worst-performing sector for the period was technology, as many technology companies were hurt by weak spending and disappointing orders. Although the Portfolio underperformed its primary benchmark, the S&P 500 Equal Weight Index, the Portfolio's "capitalization-neutral" or "equally weighted" strategy allowed it to outperform the S&P 500 Index. This policy dictates that each stock in the S&P 500 Index be weighted equally, rather than according to its market capitalization. In other words, the Portfolio initially invests the same percentage of assets in the smallest-cap stock in the S&P 500 as it does in the largest-cap stock in the Index. As a result, much of Portfolio's positive performance was driven by the strong showings of numerous smaller-cap names in the Index. These included energy stocks such as Amerada Hess and Transocean, which were helped greatly by rising oil prices and higher profits from oil drilling. Shares of Starbucks also performed well as the company opened new stores and met sales expectations. In the technology sector, Apple was another standout, thanks largely to strong sales of iPods. Other technology-related stocks that performed well included Texas Instruments and Autodesk, which appreciated after the company executed a share buyback that was well received by investors. AT&T Wireless, Sprint PCS, Goodyear Tire and Nucor Steel also helped the Portfolio excel in 2004. A number of other positions were less positive for the Portfolio during the year. Technology holdings that were hurt because of weak spending included both PMC Sierra and Cienna, which suffered due to a revenue shortfall and earnings disappointments. In the healthcare sector, shares of Chiron fell sharply after regulators forced the company to close its flu-vaccine plant in the United Kingdom. The Portfolio also included underperformers in more prosaic industries, such as grocery-store operator Winn-Dixie. THE INVESTMENT PERFORMANCE OF THE S&P 500 EQUAL WEIGHT INDEX DOES NOT INCLUDE THE IMPACT OF ANY EXPENSES, SALES CHARGES OR FEES. INDEXES ARE UNMANAGED AND SUCH COSTS WOULD LOWER PERFORMANCE. AS A RESULT, THE PORTFOLIO'S PERFORMANCE WILL NOT EXACTLY TRACK THE PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. 14 Flexible Income Portfolio For the 12-month period ended December 31, 2004, Flexible Income Portfolio's Class X Shares posted a total return of 7.00(1) percent compared to 3.04 percent for the Lehman Brothers Intermediate U.S. Government/Credit Index. For the same period, the Portfolio's Class Y shares returned 6.61(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio remained diversified across investment grade and high yield corporate bonds, emerging markets debt and mortgage-backed securities (MBS). This approach gave the Portfolio exposure to some of the best-performing segments of the bond market during the period. As was the case for its emerging markets holdings, the Portfolio's high yield component emphasized medium- and lower-quality issues. These positions benefited from the market's general preference for their attractive yields, and supported the Portfolio's outperformance of its benchmark. The Portfolio also benefited from key exposures in the gaming & lodging, energy and utilities sectors, all of which gained on improved earnings and reduced debt ratios. [CHART] GROWTH OF $10,000: FLEXIBLE INCOME -- CLASS X ($ in Thousands)
CLASS X LEHMAN(3) Dec-1994 $ 10,000 $ 10,000 Dec-1995 $ 10,696 $ 11,533 Dec-1996 $ 11,717 $ 12,000 Dec-1997 $ 12,692 $ 12,944 Dec-1998 $ 13,227 $ 14,037 Dec-1999 $ 12,985 $ 14,091 Dec-2000 $ 12,369 $ 15,516 Dec-2001 $ 11,866 $ 16,907 Dec-2002 $ 12,895 $ 18,570 Dec-2003 $ 14,642 $ 19,370 Dec-2004 $ 15,667(2) $ 19,959
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 7.00%(1) 3.83%(1) 4.59%(1) 4.60%(1) 7/24/00 Class Y 6.61%(1) -- -- 4.07%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Lehman Brothers Intermediate U.S. Government/Credit Index tracks the performance of U.S. government and corporate obligations, including U.S. government agency and Treasury securities, and corporate and Yankee bonds with maturities of 1 to 10 years. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 15 The Portfolio's positioning in the MBS sector was also advantageous. Our strategy during the year was to emphasize higher-coupon MBS in the Portfolio. These securities did not benefit as much as lower-coupon issues due to the market's concerns that lower-coupon securities would continue to suffer from a decline in prepayments triggered by low interest rates. By the end of the fourth quarter, we began taking profits in these positions in order to redeploy the proceeds into securities with more compelling total return potential. The Portfolio's interest rate exposure was more of a disappointment during the period. While our analysis was correct in indicating that interest rates were likely to move upward in 2004, that upward movement was largely limited to shorter-maturity securities. As a result, the Portfolio's strategy of keeping its duration* below that of its benchmark served to limit its exposure to the ongoing gains of longer-maturity securities. * A MEASURE OF THE SENSITIVITY OF A BOND'S PRICE TO CHANGES IN INTEREST RATES, EXPRESSED IN YEARS. EACH YEAR OF DURATION REPRESENTS AN EXPECTED 1 PERCENT CHANGE IN THE PRICE OF A BOND FOR EVERY 1 PERCENT CHANGE IN INTEREST RATES. THE LONGER A BOND'S DURATION, THE GREATER THE EFFECT OF INTEREST-RATE MOVEMENTS ON ITS PRICE. TYPICALLY, FUNDS WITH SHORTER DURATIONS PERFORM BETTER IN RISING-INTEREST-RATE ENVIRONMENTS, WHILE FUNDS WITH LONGER DURATIONS PERFORM BETTER WHEN RATES DECLINE. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. 16 Global Equity Portfolio For the 12-month period ended December 31, 2004, Global Equity Portfolio Class X shares produced a total return of 8.17(1) percent versus 14.72 percent for the MSCI World Index. For the same period, the Portfolio's Class Y shares returned 7.89(1) percent PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio's underperformance relative to its benchmark -- the MSCI World Index -- in 2004 resulted from a number of specific sector and country allocations. Shares in the utilities sector performed better than would be expected in a period of rising interest rates, making the Portfolio's underweighting there relative to the MSCI World Index a disadvantage. A large allocation to the pharmaceutical sector also held back the Portfolio's returns, as the earnings of many drug makers fell short of overly optimistic outlooks. Furthermore, Merck's withdrawal of the blockbuster drug Vioxx [CHART] GROWTH OF $10,000: GLOBAL EQUITY -- CLASS X ($ in Thousands)
CLASS X MSCI WORLD INDEX(3) Dec-1994 $ 10,000 $ 10,000 Dec-1995 $ 11,376 $ 12,072 Dec-1996 $ 12,677 $ 13,699 Dec-1997 $ 13,775 $ 15,859 Dec-1998 $ 15,857 $ 19,718 Dec-1999 $ 21,270 $ 24,635 Dec-2000 $ 20,009 $ 21,388 Dec-2001 $ 16,563 $ 17,790 Dec-2002 $ 13,686 $ 14,252 Dec-2003 $ 18,437 $ 18,971 Dec-2004 $ 19,943(2) $ 21,764
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 8.17%(1) (1.28)%(1) 7.15%(1) 7.01%(1) 7/24/00 Class Y 7.89%(1) -- -- (2.28)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Morgan Stanley Capital International World Index (MSCI) measures performance from a diverse range of global stock markets including the U.S., Canada, Europe, Australia, New Zealand, and the Far East. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. "Net dividends" reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the Index. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an Index. 17 not only drove down its shares but also cast a shadow over makers of similar drugs. Pfizer, maker of Celebrex, was another notable underperformer. The Portfolio's overweighting in consumer staples relative to the MSCI World Index was also detrimental. Coca-Cola, for example, suffered over the period because its sales were weak, while Unilever was hurt by poor earnings momentum and rising commodities prices. In addition to these sector allocations, underweightings in the United Kingdom and Australia relative to the MSCI World Index contributed to the Portfolio's underperformance. The Portfolio underweighted both markets because of concerns over the potential effects of tighter interest rate policy. In the case of the U.K., however, the market performed surprisingly well as higher interest rates did not dampen consumption or derail the housing market. Returns there were also supported by several mergers and takeovers. Australia's equity market also posted a better-than-expected performance, supported by firm commodity prices. Although these sector and country allocations ultimately led the Portfolio to underperform its benchmark, other holdings had a more positive influence. One such advantage was an overweighting relative to the MSCI World Index in Japan, and particularly to banks in that market. Many Japanese companies posted surprisingly strong earnings during the period. Investors also reacted positively as loan loss write-offs in the banking sector began to ebb. Auto makers were another area of the Japanese market that fared well over the reporting period. Among the Portfolio's holdings, Toyota has taken market share from U.S. competitors and has successfully introduced new models. Another positive was the Portfolio's strong allocation to energy stocks like Suncor and Exxon Mobil, which benefited from rising oil prices. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. 18 Growth Portfolio For the 12-month period ended December 31, 2004, Growth Portfolio Class X shares produced a total return of 7.64(1) percent, versus 6.30 for the Russell 1000 Growth Index and 10.88 percent for the S&P 500 Index. For the same period, the Portfolio's Class Y shares returned 7.38(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio's performance during 2004 was driven by a number of key factors. The Portfolio's stock selection in the technology sector was quite strong overall, with large positions in both Microsoft and QUALCOMM helping to boost returns. However, an overweighted position in this underperforming sector relative to the Russell 1000 Growth Index proved a hindrance. Cisco Systems also hampered returns, as shares of the company suffered from a weak growth outlook due to lackluster technology spending in 2004. A lack of [CHART] GROWTH OF $10,000: GROWTH -- CLASS X ($ in Thousands)
CLASS X RUSSELL 1000 GROWTH(3) S&P 500(4) Dec-1994 $ 10,000 $ 10,000 $ 10,000 Dec-1995 $ 11,329 $ 13,718 $ 13,758 Dec-1996 $ 13,998 $ 16,889 $ 16,915 Dec-1997 $ 17,227 $ 22,039 $ 22,559 Dec-1998 $ 19,505 $ 30,569 $ 29,004 Dec-1999 $ 27,133 $ 40,706 $ 35,107 Dec-2000 $ 23,963 $ 31,577 $ 31,907 Dec-2001 $ 20,313 $ 25,128 $ 28,118 Dec-2002 $ 14,658 $ 18,122 $ 21,907 Dec-2003 $ 18,601 $ 23,513 $ 28,191 Dec-2004 $ 20,022(2) $ 24,994 $ 31,259
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 7.64%(1) (5.90)%(1) 7.19%(1) 7.15%(1) 7/24/00 Class Y 7.38%(1) -- -- (8.58)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 1000 Growth Index measures the performance of those companies in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. The Portfolio's benchmark was changed from the S&P 500 to the Russell 1000 Growth Index to more accurately reflect the Portfolio's investable universe. (4) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 19 exposure to the banking industry further hurt the Portfolio, as did stock selection within the rest of the financial sector. Citigroup lagged the sector because of concerns about higher interest rates, news of an SEC accounting probe, and costs related to its involvement in high-profile corporate scandals. A number of other positions further hindered the Portfolio. Its lack of exposure to both utilities and integrated oil companies detracted from its relative performance, as did stock selection among producer durables. While the Portfolio benefited from an underweighting in the struggling consumer staples sector, its returns were hurt by the weakness of individual stocks, such as soft-drink companies, that the Portfolio continued to hold in that area. Selection of companies within the health care sector had a positive impact on the Portfolio for 2004. The Portfolio benefited from its positioning in health care management services and medical and dental instruments & supplies companies. Biotechnology stocks were a minor drag on the Portfolio's performance. So was pharmaceutical giant Pfizer, which fell in 2004 due to concerns about competition from generic drugs and other new products. The stock suffered further late in the year by the release of unfavorable clinical data on Celebrex. Another key holding was Johnson & Johnson. The acquisition of Guidant further strengthens Johnson & Johnson's position in medical devices. The Portfolio's overweighting in the consumer discretionary sector, one of the market's strongest areas in 2004, was a plus. A range of holdings in that somewhat eclectic sector performed well, in industries ranging from communications and media to consumer electronics to lodging and leisure. eBay and Yahoo!, two of the Portfolio's largest holdings in 2004, were notable standouts. During the period eBay launched its PayPal services on eBay France, completed an acquisition of India's largest on-line marketplace, and launched service in the Philippines. Yahoo! benefited from strong earnings and a favorable outlook for internet advertising. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. Money Market Portfolio AN INVESTMENT IN A MONEY MARKET IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN SUCH FUNDS. As of December 31, 2004, Money Market Portfolio had net assets of more than $101 million with an average portfolio maturity of 40 days. For the seven-day period ended December 31, 2004, the Portfolio's Class X shares provided an effective annualized yield of 1.68 percent and a current yield of 1.66 percent, while its 30-day moving average yield for December was 1.62 percent. For the 12-month period ended December 31, 2004, the Portfolio's Class X shares returned 0.86 percent. 20 For the seven-day period ended December 31, 2004, the Portfolio's Class Y shares provided an effective annualized yield of 1.42 percent and a current yield of 1.41 percent, while its 30-day moving average yield for December was 1.37 percent. For the year ended December 31, 2004 the Portfolio's Class Y shares provided a total return of 0.61 percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. Our strategy in managing the Portfolio remained consistent with our long-term focus on maintaining preservation of capital and liquidity. We adhered to a conservative approach in managing the Portfolio that emphasized purchasing high-quality money market obligations and avoided the use of derivatives or structured notes that might fluctuate excessively with changing interest rates. On December 31, 2004, approximately 79 percent of the Portfolio was invested in high-quality commercial paper, 12 percent in federal agency obligations and the remaining 9 percent in certificates of deposit and short-term bank notes issued by financially strong commercial banks. At the end of the fiscal period, approximately 97 percent of the Portfolio's holdings were due to mature in less than four months. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. 21 Utilities Portfolio For the 12-month period ended December 31, 2004, Utilities Portfolio's Class X shares produced a total return on 24.44(1) percent, versus 10.88 percent for the S&P 500 Index. For the same period, the Portfolio's Class Y shares returned 24.15(1) percent. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND PORTFOLIO SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURN FIGURES ASSUMES THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE IMPACT OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio's outperformance relative to the broad market in 2004 was due largely to the very strong returns of holdings in the electric utility and natural gas industries. Our underlying strategy for allocating the Portfolio's assets is to maintain diversified and strategically balanced exposure to the electric utility, natural gas and telecommunications industries. On a tactical basis, we adjust the Portfolio's exposure to these areas if we believe market conditions warrant. During 2004, for example, the Portfolio had a relatively heavy weighting in shares of electric companies. [CHART] GROWTH OF $10,000: UTILITIES -- CLASS X ($ in Thousands)
CLASS X S&P 500(3) Dec-1994 $ 10,000 $ 10,000 Dec-1995 $ 12,805 $ 13,758 Dec-1996 $ 13,890 $ 16,915 Dec-1997 $ 17,565 $ 22,559 Dec-1998 $ 21,469 $ 29,004 Dec-1999 $ 30,854 $ 35,107 Dec-2000 $ 30,265 $ 31,907 Dec-2001 $ 22,545 $ 28,118 Dec-2002 $ 17,953 $ 21,907 Dec-2003 $ 21,628 $ 28,191 Dec-2004 $ 26,914(2) $ 31,259
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS Y SHARES WILL VARY FROM THE PERFORMANCE OF CLASS X SHARES SHOWN ABOVE DUE TO DIFFERENCES IN EXPENSES. Average Annual Total Returns as of December 31, 2004
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION 11/9/94 Class X 24.44%(1) (2.70)%(1) 10.41%(1) 10.32%(1) 7/24/00 Class Y 24.15%(1) -- -- (4.46)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying fund based on net asset value (NAV). It does not reflect the deduction of insurance expenses, an annual contract maintenance fee, or surrender charges. (2) Ending value on December 31, 2004 for the underlying fund. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 22 This allocation proved beneficial. Electric stocks performed strongly as interest rates remained low and the industry's fundamentals improved. Improving conditions in the natural-gas industry also helped to lift the Portfolio's shares in that area of the market. Higher natural gas prices buoyed many stocks in the industry, particularly those of companies involved in exploring for and producing natural gas (rather than merely distributing it). The Portfolio's gains in the electric and natural-gas sectors during 2004 were partially offset by the poor performance of several telecommunications holdings. Although we trimmed the Portfolio's weighting to the telecommunications sector and redistributed those assets during the year, continuing exposure to the Regional Bells, selective independent telephone companies and equipment providers moderated the Portfolio's gains. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE PORTFOLIO IN THE FUTURE. We appreciate your ongoing support of Morgan Stanley Select Dimensions Investment Series and look forward to continuing to serve your investment needs. Very truly yours, /s/Charles A. Fiumefreddo /s/Mitchell M. Merin Charles A. Fiumefreddo Mitchell M. Merin CHAIRMAN OF THE BOARD PRESIDENT Proxy Voting Policies and Procedures A copy of (1) the Fund's policies and procedures with respect to the voting of proxies relating to the Fund's portfolio securities; and (2) how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended December 31 is available without charge, upon request, by calling (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. This information is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov. 23 Morgan Stanley Select Dimensions Investment Series EXPENSE EXAMPLE - DECEMBER 31, 2004 As a shareholder of the Fund, you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 07/01/04-12/31/04. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any insurance company charges. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these insurance company charges were included, your costs would have been higher. 24 MONEY MARKET
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (0.59% return) $ 1,000.00 $ 1,005.90 $ 2.77 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.37 $ 2.80 CLASS Y Actual (0.46% return) $ 1,000.00 $ 1,004.60 $ 4.03 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.11 $ 4.06
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.55% AND 0.80% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). FLEXIBLE INCOME
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (6.96% return) $ 1,000.00 $ 1,069.60 $ 3.54 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.72 $ 3.46 CLASS Y Actual (6.70% return) $ 1,000.00 $ 1,067.00 $ 4.83 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.46 $ 4.72
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.68% AND 0.93% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). BALANCED GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (8.56% return) $ 1,000.00 $ 1,085.60 $ 3.62 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.67 $ 3.51 CLASS Y Actual (8.44% return) $ 1,000.00 $ 1,084.40 $ 4.93 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.41 $ 4.77
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.69% AND 0.94% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 25 UTILITIES
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (18.15% return) $ 1,000.00 $ 1,181.50 $ 3.89 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.57 $ 3.61 CLASS Y Actual (18.02% return) $ 1,000.00 $ 1,180.20 $ 5.26 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.31 $ 4.88
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.71% AND 0.96% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). DIVIDEND GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (6.06% return) $ 1,000.00 $ 1,060.60 $ 3.21 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.02 $ 3.15 CLASS Y Actual (5.94% return) $ 1,000.00 $ 1,059.40 $ 4.50 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.76 $ 4.42
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.62% AND 0.87% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). EQUALLY-WEIGHTED S&P 500
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (10.09% return) $ 1,000.00 $ 1,100.90 $ 2.43 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.82 $ 2.34 CLASS Y Actual (9.98% return) $ 1,000.00 $ 1,099.80 $ 3.75 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.57 $ 3.61
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.46% AND 0.71% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 26 GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (4.90% return) $ 1,000.00 $ 1,049.00 $ 4.79 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.46 $ 4.72 CLASS Y Actual (4.79% return) $ 1,000.00 $ 1,047.90 $ 6.07 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.20 $ 5.99
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.93% AND 1.18% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). AMERICAN OPPORTUNITIES
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (6.85% return) $ 1,000.00 $ 1,068.50 $ 3.48 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.77 $ 3.40 CLASS Y Actual (6.66% return) $ 1,000.00 $ 1,066.60 $ 4.78 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.51 $ 4.67
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.67% AND 0.92% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). CAPITAL OPPORTUNITIES
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (12.22% return) $ 1,000.00 $ 1,122.20 $ 4.69 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.71 $ 4.47 CLASS Y Actual (12.10% return) $ 1,000.00 $ 1,121.00 $ 6.02 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.46 $ 5.74
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.88% AND 1.13% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 27 GLOBAL EQUITY
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (6.77% return) $ 1,000.00 $ 1,067.70 $ 5.77 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.56 $ 5.63 CLASS Y Actual (6.60% return) $ 1,000.00 $ 1,066.00 $ 7.06 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.30 $ 6.90
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.11% AND 1.36% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). DEVELOPING GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ---------------- --------------- --------------- 07/01/04 - 07/01/04 12/31/04 12/31/04 ---------------- --------------- --------------- CLASS X Actual (12.80% return) $ 1,000.00 $ 1,128.00 $ 3.48 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.87 $ 3.30 CLASS Y Actual (12.64% return) $ 1,000.00 $ 1,126.40 $ 4.81 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.61 $ 4.57
- ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.65% AND 0.90% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 28 Money Market PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (79.6%) ASSET-BACKED - AUTO (9.6%) $ 1,630 DaimlerChrysler Revolving Auto Conduit LLC 2.30% 01/06/05 $ 1,629,479 4,150 FCAR Owner Trust 2.30 - 2.34 02/02/05 - 02/15/05 4,139,448 3,950 New Center Asset Trust 2.15 - 2.38 02/10/05 - 03/30/05 3,934,452 --------------- 9,703,379 --------------- ASSET-BACKED - CONSUMER (8.5%) 3,600 Kitty Hawk Funding Corp. - 144A* 2.18 - 2.20 01/10/05 - 01/18/05 3,597,064 2,700 Old Line Funding Corp. - 144A* 2.26 01/11/05 2,698,312 2,300 Thames Asset Global Securitization - 144A* 2.26 - 2.33 01/12/05 - 02/04/05 2,296,915 --------------- 8,592,291 --------------- ASSET-BACKED - CORPORATE (10.1%) 1,500 Amsterdam Funding Corp. - 144A* 2.35 01/19/05 1,498,245 4,500 Atlantis One Funding Corp. - 144A* 2.01 - 2.18 01/11/05 - 02/22/05 4,491,053 2,250 Eureka Securitization, Inc. - 144A* 2.26 - 2.32 01/20/05 - 02/09/05 2,245,355 2,000 Moat Funding, LLC - 144A* 2.25 02/09/05 1,995,147 --------------- 10,229,800 --------------- ASSET-BACKED - DIVERSIFIED (3.3%) 2,500 CRC Funding LLC - 144A* 2.06 - 2.19 01/07/05 - 01/12/05 2,498,659 850 Fairway Finance Corp. - 144A* 2.35 01/05/05 849,778 --------------- 3,348,437 --------------- ASSET-BACKED - MORTGAGES (4.9%) 5,000 Sydney Capital Corp. - 144A* 2.12 - 2.45 01/24/05 - 02/18/05 4,988,746 --------------- ASSET-BACKED - SECURITIES (11.8%) 1,774 Amstel Funding Corp. - 144A* 2.06 - 2.07 01/18/05 - 02/17/05 1,770,404 1,500 Clipper Receivables Co., LLC - 144A* 2.35 01/19/05 1,498,245 4,000 Galaxy Funding Inc. - 144A* 2.35 - 2.43 02/18/05 - 03/08/05 3,983,570 4,772 Scaldis Capital LLC - 144A* 2.17 - 2.43 01/28/05 - 03/01/05 4,758,603 --------------- 12,010,822 --------------- FINANCE - CORPORATE (2.0%) 2,000 CIT Group Inc. 2.33 02/07/05 1,995,231 --------------- FINANCIAL CONGLOMERATES (4.9%) 5,000 General Electric Capital Corp. 1.79 - 2.07 01/03/05 - 04/14/05 4,982,276 --------------- INTERNATIONAL BANKS (21.7%) 1,500 ABN AMRO N.A. Finance, Inc. 2.01 01/24/05 1,498,083 2,100 ANZ (Del) Inc. 2.40 02/14/05 2,093,866 943 Banque Generale du Luxembourg 2.19 - 2.40 02/23/05 - 04/01/05 938,456 2,000 Barclays U.S. Funding Corp. 2.26% 02/22/05 1,993,500
SEE NOTES TO FINANCIAL STATEMENTS 29
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF MATURITY THOUSANDS PURCHASE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- $ 3,850 CBA (Delaware) Finance Inc. 2.31 - 2.38 02/17/05 - 02/22/05 $ 3,837,388 3,600 CDC Commercial Paper Corp. - 144A* 2.29 - 2.36 02/16/05 - 02/23/05 3,588,966 2,000 KBC Financial Products International Ltd. - 144A* 2.32 03/02/05 1,992,333 1,587 HBOS Treasury Services PLC 2.13 - 2.28 02/01/05 1,583,995 2,000 Natexis Banques Populaires U.S. Finance Co. LLC 1.89 01/03/05 1,999,791 1,200 Nordea North America Inc. 2.29 02/01/05 1,197,644 460 Societe General N.A. Inc. 2.34 02/18/05 458,571 850 UniCredit Delaware Inc. 2.37 01/31/05 848,328 --------------- 22,030,921 --------------- PHARMACEUTICALS (2.8%) 2,850 GlaxoSmithkline Finance PLC - 144A* 2.39 03/03/05 2,838,507 --------------- TOTAL COMMERCIAL PAPER (COST $80,720,410) 80,720,410 --------------- U.S. GOVERNMENT AGENCIES (12.0%) 3,100 Federal Home Loan Banks 2.12 01/14/05 3,097,638 9,095 Freddie Mac 1.82 - 2.55 01/04/05 - 05/17/05 9,059,675 --------------- TOTAL U.S. GOVERNMENT AGENCIES (COST $12,157,313) 12,157,313 --------------- CERTIFICATES OF DEPOSIT (7.0%) 1,500 First Tennessee Bank, NA 2.23 01/31/2005 1,500,000 2,000 Washington Mutual Bank 2.32 01/13/2005 2,000,000 3,600 Wells Fargo Bank, NA 2.05 - 2.42 01/07/05 - 01/27/05 3,600,000 --------------- TOTAL CERTIFICATE OF DEPOSIT (COST $7,100,000) 7,100,000 --------------- BANKER'S ACCEPTANCE (1.5%) 1,571 J.P. Morgan Chase Bank (COST $1,566,742) 1.90 - 2.54 01/05/05 - 04/14/05 1,566,742 --------------- TOTAL INVESTMENTS (COST $101,544,465) (a) 100.1% 101,544,465 LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (131,578) ---- --------------- NET ASSETS 100.0% $ 101,412,887 ===== ===============
- ---------- * Resale is restricted to qualified institutional investors (a) Cost is the same for federal income tax purposes. SEE NOTES TO FINANCIAL STATEMENTS 30 MATURITY SCHEDULE* 1 - 30 Days 41% 31 - 60 Days 41 61 - 90 Days 12 91 - 120 Days 3 121+ Days 3 --- 100% ===
- ---------- * AS A PERCENTAGE OF TOTAL MARKET VALUE. SEE NOTES TO FINANCIAL STATEMENTS 31 Flexible Income PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- GOVERNMENT & CORPORATE BONDS (88.9%) FOREIGN (16.2%) ARGENTINA (0.5%) GOVERNMENT OBLIGATIONS $ 130 Republic of Argentina (c) 13.969% 04/10/05 $ 52,000 70 Republic of Argentina (c) 12.125 05/21/05 20,302 525 Republic of Argentina (c) 11.75 04/07/09 181,125 35 Republic of Argentina (c) 11.375 03/15/10 12,075 20 Republic of Argentina (c) 11.75 06/15/15 6,850 30 Republic of Argentina (c) 11.375 01/30/17 10,350 5 Republic of Argentina (c) 12.00 02/01/20 1,650 169 Republic of Argentina (c) 6.00 03/21/23 96,724 --------------- TOTAL ARGENTINA 381,076 --------------- AUSTRALIA (0.3%) OTHER METALS/MINERALS (0.0%) 70 Murrin Murrin Holdings Property Ltd. (c)(h) 9.375 08/31/07 7 --------------- PROPERTY - CASUALTY INSURANCE (0.3%) 200 Mantis Reef Ltd. - 144A* 4.692 11/14/08 200,759 --------------- TOTAL AUSTRALIA 200,766 --------------- AUSTRIA (0.1%) PULP & PAPER 65 Sappi Papier Holding AG - 144A* 6.75 06/15/12 72,329 --------------- BELGIUM (0.3%) CABLE/SATELLITE TV 290 Telenet Group Holding NV - 144A* 11.50@ 06/15/14 221,850 --------------- BRAZIL (1.2%) GOVERNMENT OBLIGATIONS 340 Federal Republic of Brazil 14.50 10/15/09 455,056 323 Federal Republic of Brazil 8.00 04/15/14 332,723 60 Federal Republic of Brazil 11.00 08/17/40 71,265 --------------- TOTAL BRAZIL 859,044 --------------- CANADA (2.8%) BROADCASTING (0.3%) 187 Canwest Media Inc. - 144A* 8.00 09/15/12 201,059 --------------- DRUGSTORE CHAINS (0.3%) 45 Jean Coutu Group PJC Inc. - 144A* 7.625 08/01/12 47,813 165 Jean Coutu Group PJC Inc. - 144A* 8.50 08/01/14 169,950 --------------- 217,763 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 32
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- GOVERNMENT OBLIGATION (1.0%) CAD 860 Canadian Government Bond 3.00% 06/01/06 $ 718,951 --------------- FOREST PRODUCTS (0.3%) $ 40 Tembec Industries Inc. 7.75 03/15/12 38,900 175 Tembec Industries Inc. 8.50 02/01/11 176,750 --------------- 215,650 --------------- INTEGRATED OIL (0.1%) 40 Petro-Canada 5.35 07/15/33 37,508 --------------- OIL & GAS PRODUCTION (0.1%) 90 Nexen Inc. 5.05 11/20/13 89,537 --------------- OTHER METALS/MINERALS (0.4%) 210 Inco Ltd. 7.20 09/15/32 245,552 5 Inco Ltd. 7.75 05/15/12 5,928 --------------- 251,480 --------------- PULP & PAPER (0.3%) 155 Abitibi-Consolidated Inc. 6.00 06/20/13 148,606 80 Bowater Canada Finance (Canada) 7.95 11/15/11 86,606 --------------- 235,212 --------------- TOTAL CANADA 1,967,160 --------------- ECUADOR (0.1%) GOVERNMENT OBLIGATION 90 Republic of Ecuador 8.00 08/15/30 77,962 --------------- FRANCE (0.5%) Chemicals: Specialty (0.2%) 140 Rhodia SA (France) 8.875 06/01/11 141,750 --------------- TELECOMMUNICATIONS (0.3%) EUR 120 France Telecom S.A. 7.25 01/28/13 198,408 $ 25 France Telecom S.A. 9.25 03/01/31 33,990 --------------- 232,398 --------------- TOTAL FRANCE 374,148 --------------- GERMANY (0.5%) CABLE/SATELLITE TV (0.3%) 190 Kabel Deutschland - 144A* 10.625 07/01/14 219,450 --------------- PHARMACEUTICALS: MAJOR (0.2%) 55 VWR International - 144A* 6.875 04/15/12 57,750 70 VWR International - 144A* 8.00 04/15/14 75,075 --------------- 132,825 --------------- TOTAL GERMANY 352,275 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 33
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------------------- IRELAND (0.3%) INVESTMENT MANAGERS $ 150 JSG Funding PLC 9.625% 10/01/12 $ 168,000 --------------- ISRAEL (0.3%) ALTERNATIVE POWER GENERATION 170 Ormat Funding Corp. - 144A* 8.25 12/30/20 170,390 --------------- JAPAN (4.0%) GOVERNMENT OBLIGATIONS JPY 113,000 Japan (Government of) 0.10 04/20/05 1,103,148 178,000 Japan (Government of) 0.50 06/20/06 1,748,635 --------------- TOTAL JAPAN 2,851,783 --------------- KYRGYZSTAN (0.3%) INDUSTRIAL CONGLOMERATES $ 165 Hutchison Whampoa International Ltd. - 144A* 6.50 02/13/13 178,158 --------------- LUXEMBOURG (0.1%) TELECOMMUNICATIONS 55 Telecom Italia Capital SA - 144A* 4.00 01/15/10 53,988 30 Telecom Italia Capital SA 4.00 11/15/08 29,912 --------------- TOTAL LUXEMBOURG 83,900 --------------- MEXICO (1.2%) GOVERNMENT OBLIGATIONS (1.0%) 405 United Mexican States Corp. 8.375 01/14/11 476,685 80 United Mexican States Corp. 11.50 05/15/26 122,600 90 United Mexican States Corp. 8.30 08/15/31 105,705 --------------- 704,990 --------------- OIL & GAS PRODUCTION (0.2%) 80 Petroleos Mexicanos 9.50 09/15/27 100,600 --------------- TOTAL MEXICO 805,590 --------------- NETHERLANDS (0.3%) TELECOMMUNICATIONS 65 Deutsche Telekom International Finance Corp. NV 8.75 06/15/30 86,086 EUR 60 Olivetti Finance NV 7.25 04/24/12 97,710 --------------- TOTAL NETHERLANDS 183,796 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 34
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- QATAR (0.4%) GAS DISTRIBUTORS (0.2%) $ 105 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A* 8.294 03/15/14 $ 124,592 --------------- GOVERNMENT OBLIGATION (0.2%) 100 State of Qatar 9.75% 06/15/30 145,500 --------------- TOTAL QATAR 270,092 --------------- RUSSIA (1.4%) GOVERNMENT OBLIGATIONS 70 Federal Republic of Russia 8.25 03/31/10 77,826 201 Federal Republic of Russia 11.00 07/24/18 282,171 190 Federal Republic of Russia 12.75 06/24/28 312,459 330 Federal Republic of Russia 5.00 03/31/30 341,682 --------------- TOTAL RUSSIA 1,014,138 --------------- TURKEY (0.9%) FINANCIAL CONGLOMERATES (0.6%) 200 Citigroup Inc. - 144A*+++ (Issued 08/30/04) 0.00 02/23/06 248,900 100 Citigroup Inc. - 144A*+++ (Issued 09/17/04) 0.00 02/23/06 121,660 70 Citigroup Inc. - 144A*+++ (Issued 09/27/04) 0.00 02/23/06 90,202 --------------- 460,762 --------------- GOVERNMENT OBLIGATIONS (0.3%) 90 Republic of Turkey 11.00 01/14/13 114,975 55 Republic of Turkey 11.50 01/23/12 70,950 --------------- 185,925 --------------- TOTAL TURKEY 646,687 --------------- UNITED KINGDOM (0.3%) ADVERTISING/MARKETING SERVICES (0.2%) 150 WPP Finance (UK) Corp. - 144A* 5.875 06/15/14 156,393 --------------- CHEMICALS: SPECIALTY (0.1%) 75 Avecia Group PLC 11.00 07/01/09 77,625 --------------- TOTAL UNITED KINGDOM 234,018 --------------- VENEZUELA ( 0.4%) GOVERNMENT OBLIGATIONS 70 Republic of Venezuela 8.50 10/08/14 74,375 120 Republic of Venezuela 9.25 09/15/27 126,900 100 Republic of Venezuela 9.375 01/13/34 106,050 --------------- TOTAL VENEZUELA 307,325 --------------- TOTAL FOREIGN (COST $10,921,822) 11,420,487 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 35
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- UNITED STATES ( 72.7%) CORPORATE BONDS (42.9%) ADVERTISING/MARKETING SERVICES (0.7%) $ 222 Advanstar Communications, Inc. 9.79%** 08/15/08 $ 233,297 90 Interep National Radio Sales, Inc. (Series B) 10.00 07/01/08 68,287 165 Interpublic Group of Companies, Inc. (The) 6.25 11/15/14 167,782 --------------- 469,366 --------------- AEROSPACE & DEFENSE (0.5%) 105 K&F Acquisition Inc. - 144A* 7.75 11/15/14 108,937 100 Northrop Grumman Corp. 4.079 11/16/06 101,056 30 Raytheon Co. 4.85 01/15/11 30,778 45 Raytheon Co. 8.30 03/01/10 53,382 84 Systems 2001 Asset Trust - 144A* 6.664 09/15/13 93,586 --------------- 387,739 --------------- AIR FREIGHT/COURIERS (0.1%) 40 FedEx Corp. 7.25 02/15/11 45,718 30 FedEx Corp. 2.65 04/01/07 29,399 --------------- 75,117 --------------- AIRLINES (0.5%) 130 CHC Helicopter Corp. 7.375 05/01/14 137,800 21 Continental Airlines, Inc. 6.545 02/02/19 20,955 195 Continental Airlines, Inc. 6.648 09/15/17 189,078 30 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 30,911 --------------- 378,744 --------------- ALTERNATIVE POWER GENERATION (0.1%) 85 Calpine Corp. - 144A* 8.50 07/15/10 73,312 --------------- APPAREL/FOOTWEAR (0.1%) 60 Oxford Industries, Inc. 8.875 06/01/11 64,725 --------------- AUTO PARTS: O.E.M. (0.4%) 95 Cooper Standard Automotive - 144A* 8.375 12/15/14 95,238 154 TRW Automotive, Inc. 9.375 02/15/13 179,410 --------------- 274,648 --------------- BROADCASTING (0.2%) 75 Clear Channel Communications, Inc. 7.65 09/15/10 85,436 74 Salem Communications Holdings Corp. (Series B) 9.00 07/01/11 81,585 --------------- 167,021 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 36
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- BUILDING PRODUCTS (1.3%) $ 120 ACIH Inc. - 144A* 11.50%@ 12/15/12 $ 87,300 290 Associated Materials Inc. 11.25@ 03/01/14 210,250 125 Brand Services Inc. 12.00 10/15/12 140,625 35 Interface Inc. 7.30 04/01/08 35,962 165 Interface Inc. 9.50 02/01/14 180,675 100 PLY Gem Industries Inc. - 144A* 9.00 02/15/12 102,000 175 THL Buildco Inc. (Nortek) Inc. 144A* 8.50 09/01/14 183,750 --------------- 940,562 --------------- CABLE/SATELLITE TV (1.5%) 38 Avalon Cable LLC 11.875 12/01/08 39,656 135 Charter Communications Holdings LLC 10.75 10/01/09 123,525 185 Charter Communications Holdings/Charter Capital 11.75@ 05/15/11 136,900 180 Comcast Cable Communications Inc. 6.75 01/30/11 202,392 85 Comcast Corp. 6.50 01/15/15 94,660 115 Cox Communications, Inc. - 144A* 4.625 01/15/10 114,862 40 Directv Holdings/Finance 8.375 03/15/13 45,050 210 Echostar DBS Corp. 6.375 10/01/11 215,775 44 Knology, Inc. - 144A* (d) 12.00~ 11/30/09 43,027 60 Renaissance Media Group LLC 10.00 04/15/08 62,100 --------------- 1,077,947 --------------- CASINO/GAMING (1.7%) 840 Aladdin Gaming Holdings/Capital Corp. LLC (Series B)(a)(c)(h) 13.50 03/01/10 0 200 Harrah's Operating Co., Inc. 5.50 07/01/10 207,269 115 Harrah's Operating Co., Inc. 7.875 12/15/05 119,887 130 Isle of Capri Casinos 7.00 03/01/14 133,250 235 MGM Mirage Inc. 6.00 10/01/09 242,050 190 Park Place Entertainment 8.875 09/15/08 215,650 299 Resort At Summerlin LP/Ras Co. (Series B)(a)(c)(h) 13.00~ 12/15/07 0 75 Station Casinos, Inc. 6.00 04/01/12 76,781 105 Station Casinos, Inc. 6.50 02/01/14 108,412 85 Venetian Casino/LV Sands 11.00 06/15/10 97,431 --------------- 1,200,730 --------------- CHEMICALS: AGRICULTURAL (0.0%) 14 IMC Global Inc. (Series B) 10.875 06/01/08 16,870 --------------- CHEMICALS: MAJOR DIVERSIFIED (0.6%) 161 Equistar Chemical Funding 10.125 09/01/08 186,357 35 Equistar Chemical Funding 10.625 05/01/11 40,775 55 Huntsman Advanced Materials Corp. - 144A* 11.00 07/15/10 65,725
SEE NOTES TO FINANCIAL STATEMENTS 37
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- $ 99 Huntsman ICI Chemicals 10.125% 07/01/09 $ 104,693 45 ICI Wilmington Inc. 4.375 12/01/08 45,294 --------------- 442,844 --------------- CHEMICALS: SPECIALTY (1.7%) 50 FMC Corp. 10.25 11/01/09 57,625 60 Graham Packaging Company Inc. - 144A* 8.50 10/15/12 63,300 65 Innophos Inc. - 144A* 8.875 08/15/14 70,525 80 ISP Chemco 10.25 07/01/11 90,800 135 ISP Holdings Inc. (Series B) 10.625 12/15/09 150,187 40 Koppers Industry Inc. 9.875 10/15/13 45,800 175 Millennium America, Inc. 7.00 11/15/06 182,875 79 Millennium America, Inc. 9.25 06/15/08 90,258 100 Nalco Co. 7.75 11/15/11 108,500 115 Nalco Co. 8.875 11/15/13 126,787 160 Rockwood Specialties, Inc. 10.625 05/15/11 184,800 45 Westlake Chemical Corp. 8.75 07/15/11 51,075 --------------- 1,222,532 --------------- COAL (0.1%) 35 Foundation PA Coal Co. - 144A* 7.25 08/01/14 37,450 --------------- CONSTRUCTION MATERIALS (0.2%) 120 RMCC Acquisition Co. - 144A* 9.50 11/01/12 120,300 --------------- CONSUMER SUNDRIES (0.1%) 80 Amscan Holdings, Inc. 8.75 05/01/14 80,400 --------------- CONSUMER/BUSINESS SERVICES (0.2%) 115 Muzak LLC/Muzak Finance Corp. 9.875 03/15/09 80,931 80 Muzak LLC/Muzak Finance Corp. 10.00 02/15/09 74,900 --------------- 155,831 --------------- CONTAINERS/PACKAGING (1.4%) 225 Graphic Packaging International Corp. 9.50 08/15/13 257,062 65 Norampac, Inc. 6.75 06/01/13 68,737 345 Owens-Illinois Inc. 7.50 05/15/10 367,856 70 Pliant Corp. (Issued 04/10/02) 13.00 06/01/10 68,250 95 Pliant Corp. (Issued 08/29/00) 13.00 06/01/10 93,100 125 Sealed Air Corp - 144A* 5.625 07/15/13 129,533 --------------- 984,538 --------------- DEPARTMENT STORES (0.1%) 25 May Department Stores Co., Inc. 6.70 09/15/28 26,276 50 May Department Stores Co., Inc. 6.90 01/15/32 54,245 --------------- 80,521 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 38
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- DRUGSTORE CHAINS (0.2%) $ 15 CVS Corp. - 144A* 6.204% 10/10/25 $ 15,749 90 Rite Aid Corp. 7.125 01/15/07 90,450 30 Rite Aid Corp. 8.125 05/01/10 31,875 --------------- 138,074 --------------- ELECTRIC UTILITIES (3.6%) 80 AES Corp. (The) 7.75 03/01/14 87,200 11 AES Corp. (The) 8.875 02/15/11 12,622 16 AES Corp. (The) 9.375 09/15/10 18,680 140 AES Corp. (The) - 144A* 9.00 05/15/15 161,000 60 Allegheny Energy, Inc. 7.75 08/01/05 61,125 140 Arizona Public Service Co. 5.80 06/30/14 149,774 65 Cincinnati Gas & Electric Co. 5.70 09/15/12 68,971 15 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 14,372 40 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 38,184 65 CMS Energy Corp. 7.50 01/15/09 69,550 75 CMS Energy Corp. 8.50 04/15/11 85,594 55 Columbus Southern Power Co. (Series D) 6.60 03/01/33 61,735 35 Consolidated Natural Gas Co. 5.00 12/01/14 35,101 10 Consolidated Natural Gas Co. (Series A) 5.00 03/01/14 10,042 60 Consolidated Natural Gas Co. (Series C) 6.25 11/01/11 65,950 30 Duke Energy Corp. 4.50 04/01/10 30,389 100 Entergy Gulf States, Inc. 2.80** 12/01/09 99,988 45 Entergy Gulf States, Inc. 3.60 06/01/08 44,306 80 Exelon Corp. 6.75 05/01/11 89,606 30 IPALCO Enterprises, Inc. 8.625 11/14/11 33,750 135 Monongahela Power Co. 5.00 10/01/06 138,113 115 MSW Energy Holdings/Finance 7.375 09/01/10 121,325 25 MSW Energy Holdings/Finance 8.50 09/01/10 27,500 190 Nevada Power Co. 9.00 08/15/13 223,250 120 Nisource Finance Corp. 2.915 11/23/09 119,996 120 Ohio Power Co. (Series G) 6.60 02/15/33 134,688 55 Pacific Gas & Electric Co. 6.05 03/01/34 57,323 30 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 29,391 15 PSEG Energy Holdings Inc. 7.75 04/16/07 15,937 100 PSEG Energy Holdings Inc. 8.625 02/15/08 110,250 25 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 25,558 70 Reliant Energy, Inc. 6.75 12/15/14 69,913 20 South Carolina Electric & Gas Co. 5.30 05/15/33 19,486 30 Southern California Edison Co. 5.00 01/15/14 30,541 20 Texas Eastern Transmission, L.P. 7.00 07/15/32 23,051
SEE NOTES TO FINANCIAL STATEMENTS 39
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- $ 40 TNP Enterprises, Inc. 10.25% 04/01/10 $ 42,900 80 TXU Energy Co. 7.00 03/15/13 89,489 35 Wisconsin Electric Power Co. 3.50 12/01/07 34,883 15 Wisconsin Electric Power Co. 5.625 05/15/33 15,312 --------------- 2,566,845 --------------- ELECTRICAL PRODUCTS (0.2%) 35 Cooper Industries Inc. 5.25 07/01/07 36,282 90 Rayovac Corp. 8.50 10/01/13 100,350 --------------- 136,632 --------------- ELECTRONIC DISTRIBUTORS (0.1%) 90 BRL Universal Equipment Corp. 8.875 02/15/08 95,063 --------------- ELECTRONIC EQUIPMENT/INSTRUMENTS (0.2%) 140 Xerox Corp. 7.125 06/15/10 151,900 --------------- ENVIRONMENTAL SERVICES (0.2%) 60 Allied Waste North America, Inc. 9.25 09/01/12 65,250 75 Allied Waste North America, Inc. (Series B) 8.875 04/01/08 80,625 --------------- 145,875 --------------- FINANCE/RENTAL/LEASING (1.3%) 35 CIT Group, Inc. 2.875 09/29/06 34,650 30 CIT Group, Inc. 3.65 11/23/07 29,904 90 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 88,074 145 Ford Motor Credit Co. 7.25 10/25/11 155,711 105 Ford Motor Credit Co. 7.375 10/28/09 113,375 135 MBNA America Bank NA 7.125 11/15/12 153,798 70 MBNA Corp. 6.125 03/01/13 75,142 25 SLM Corp. 4.00 01/15/10 24,834 45 SLM Corp. (Series MTNA) 5.00 10/01/13 45,649 115 United Rentals NA, Inc. 6.50 02/15/12 112,700 120 United Rentals NA, Inc. 7.75 11/15/13 118,200 --------------- 952,037 --------------- FINANCIAL CONGLOMERATES (2.1%) 25 Bank One Corp. (Series MTNA) 6.00 02/17/09 26,747 55 Chase Manhattan Corp. 6.00 02/15/09 58,727 10 Chase Manhattan Corp. 7.00 11/15/09 11,170 40 Citicorp 6.75 08/15/05 40,931 15 Citigroup Inc. 5.625 08/27/12 15,999 20 Citigroup Inc. 5.75 05/10/06 20,660 45 Citigroup Inc. 6.00 02/21/12 49,301 50 Citigroup Inc. 6.625 06/15/32 56,188
SEE NOTES TO FINANCIAL STATEMENTS 40
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- $ 20 General Electric Capital Corp. 4.25% 12/01/10 $ 20,015 85 General Electric Capital Corp. (Series MTNA) 6.75 03/15/32 99,824 25 General Motors Acceptance Corp. 4.50 07/15/06 25,024 755 General Motors Acceptance Corp. 6.875 09/15/11 774,749 85 General Motors Acceptance Corp. 8.00 11/01/31 87,615 175 Prudential Holdings, LLC (Series B) (FSA) - 144A* 7.245 12/18/23 208,311 --------------- 1,495,261 --------------- FOOD RETAIL (0.5%) 25 Albertson's Inc. 7.45 08/01/29 29,392 50 Albertson's, Inc. 7.50 02/15/11 57,981 42 CA FM Lease Trust - 144A* 8.50 07/15/17 48,441 200 Delhaize America, Inc. 8.125 04/15/11 234,145 15 Kroger Co. 7.50 04/01/31 17,987 --------------- 387,946 --------------- FOOD: MAJOR DIVERSIFIED (0.4%) 25 General Mills Inc. 3.875 11/30/07 25,097 30 Kraft Foods Inc. 5.25 06/01/07 31,094 215 Kraft Foods Inc. 5.625 11/01/11 227,995 30 Kraft Foods Inc. 6.25 06/01/12 32,982 --------------- 317,168 --------------- FOOD: MEAT/FISH/DAIRY (1.0%) 95 Michael Foods Inc. (Series B) 8.00 11/15/13 100,700 220 Pilgrim's Pride Corp. 9.625 09/15/11 248,600 60 PPC Escrow Corp. 9.25 11/15/13 67,500 65 Smithfield Foods Inc. 7.00 08/01/11 69,713 70 Smithfield Foods Inc. 7.625 02/15/08 75,250 25 Smithfield Foods Inc. 7.75 05/15/13 27,938 130 Smithfield Foods Inc. (Series B) 8.00 10/15/09 144,625 --------------- 734,326 --------------- FOREST PRODUCTS (0.2%) 13 Weyerhaeuser Co. 6.125 03/15/07 13,695 85 Weyerhaeuser Co. 6.75 03/15/12 95,919 --------------- 109,614 --------------- GAS DISTRIBUTORS (0.4%) 130 Dynegy Holdings, Inc. 6.875 04/01/11 125,775 130 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 145,925 25 Northwest Pipeline Corp. 8.125 03/01/10 27,781 --------------- 299,481 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 41
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- HOME BUILDING (0.4%) $ 80 Tech Olympic USA, Inc. 10.375% 07/01/12 $ 90,000 100 Tech Olympic USA, Inc. (Issued 02/03/03) 9.00 07/01/10 107,500 50 Tech Olympic USA, Inc. (Issued 11/27/02) 9.00 07/01/10 53,750 --------------- 251,250 --------------- HOME FURNISHINGS (0.1%) 40 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 46,090 40 Tempur-Pedic Inc. 10.25 08/15/10 46,200 --------------- 92,290 --------------- HOSPITAL/NURSING MANAGEMENT (0.7%) 85 Community Health Systems Inc. - 144A* 6.50 12/15/12 86,063 45 HCA, Inc. 6.30 10/01/12 45,709 85 HCA, Inc. 7.875 02/01/11 93,741 110 Medcath Holdings Corp. 9.875 07/15/12 119,900 115 Tenet Healthcare Corp. 7.375 02/01/13 112,125 65 Tenet Healthcare Corp. - 144A* 9.875 07/01/14 71,175 --------------- 528,713 --------------- HOTELS/RESORTS/CRUISELINES (0.4%) 70 Hilton Hotels Corp. 7.625 12/01/12 81,984 120 Hyatt Equities LLC - 144A* 6.875 06/15/07 126,327 50 Marriott International, Inc. (Series E) 7.00 01/15/08 54,540 --------------- 262,851 --------------- HOUSEHOLD/PERSONAL CARE (0.1%) 45 Clorox Co. (The) - 144A* 2.544** 12/14/07 45,014 --------------- INDUSTRIAL MACHINERY (0.2%) 35 Flowserve Corp. 12.25 08/15/10 38,850 50 Goodman Global Holding Company, Inc. - 144A* 5.76** 06/15/12 51,000 45 Goodman Global Holding Company, Inc. - 144A* 7.875 12/15/12 44,775 --------------- 134,625 --------------- INDUSTRIAL SPECIALTIES (0.5%) 165 Johnsondiversy, Inc. 9.625 05/15/12 185,213 50 Tekni-Plex Inc. - 144A* 8.75 11/15/13 50,000 115 UCAR Finance, Inc. 10.25 02/15/12 131,963 --------------- 367,176 --------------- INFORMATION TECHNOLOGY SERVICES (0.1%) 25 Electronic Data Systems Corp. 7.125 10/15/09 27,563 30 Electronic Data Systems Corp. (Series B) 6.50 08/01/13 31,729 --------------- 59,292 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 42
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- INSURANCE BROKERS/SERVICES (0.7%) $ 290 Farmers Exchange Capital - 144A* 7.05% 07/15/28 $ 297,902 185 Marsh & McLennan Co., Inc. 5.875 08/01/33 171,981 --------------- 469,883 --------------- INTEGRATED OIL (0.3%) 30 Amerada Hess Corp. 6.65 08/15/11 33,035 115 Amerada Hess Corp. 7.875 10/01/29 136,473 30 PC Financial Partnership 5.00 11/15/14 29,947 --------------- 199,455 --------------- INTERNET SOFTWARE/SERVICES (0.1%) 184 Exodus Communications, Inc. (a) (c) (h) 11.625 07/15/10 0 50 Global Cash Access LLC 8.75 03/15/12 54,125 --------------- 54,125 --------------- INVESTMENT BANKS/BROKERS (0.5%) 55 Goldman Sachs Group Inc. 6.60 01/15/12 61,469 60 Goldman Sachs Group Inc. 6.875 01/15/11 67,775 180 Refco Finance Holdings - 144A* 9.00 08/01/12 198,000 --------------- 327,244 --------------- MAJOR BANKS (0.3%) 20 Bank of New York (The) 5.20 07/01/07 20,805 70 FleetBoston Financial Corp. 7.25 09/15/05 72,045 35 HSBC Finance Corp. 6.75 05/15/11 39,329 70 Wachovia Corp. 4.95 11/01/06 71,980 --------------- 204,159 --------------- MANAGED HEALTH CARE (0.6%) 245 Aetna, Inc. 7.875 03/01/11 287,093 90 Health Net, Inc. 9.875 04/15/11 108,704 30 WellPoint Health Networks Inc. 6.375 06/15/06 31,248 --------------- 427,045 --------------- MEDIA CONGLOMERATES (0.7%) 30 News America Inc. 7.125 04/08/28 33,822 100 News America Inc. 7.30 04/30/28 114,927 55 News America Holdings, Inc. 7.75 02/01/24 65,416 30 News America Holdings, Inc. 8.875 04/26/23 39,103 100 Time Warner, Inc. 6.625 05/15/29 108,088 120 Time Warner, Inc. 7.625 04/15/31 145,628 --------------- 506,984 --------------- MEDICAL DISTRIBUTORS (0.2%) 100 AmerisourceBergen Corp. 8.125 09/01/08 111,750 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 43
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- MEDICAL SPECIALTIES (0.3%) $ 110 Fisher Scientific International, Inc. 8.125% 05/01/12 $ 122,650 50 Fisher Scientific International, Inc. - 144A* 6.75 08/15/14 53,875 25 National Nephrology Assoc. Inc. - 144A* 9.00 11/01/11 29,063 --------------- 205,588 --------------- MEDICAL/NURSING SERVICES (0.5%) 181 Fresenius Medical Care Capital Trust 7.875 06/15/11 202,720 25 Fresenius Medical Care Capital Trust II (Units) 7.875 02/01/08 27,188 110 Team Health Inc. 9.00 04/01/12 108,075 --------------- 337,983 --------------- METAL FABRICATIONS (0.4%) 60 General Cable Corp. 9.50 11/15/10 68,100 170 Trimas Corp. 9.875 06/15/12 181,050 --------------- 249,150 --------------- MISCELLANEOUS COMMERCIAL SERVICES (0.6%) 150 Iron Mountain Inc. 7.75 01/15/15 153,000 140 Iron Mountain Inc. 8.625 04/01/13 149,450 115 Vertis Inc. - 144A* 13.50 12/07/09 121,756 --------------- 424,206 --------------- MISCELLANEOUS MANUFACTURING (0.3%) 120 Amsted Industries Inc. - 144A* 10.25 10/15/11 136,200 70 Propex Fabrics Inc. - 144A* 10.00 12/01/12 72,975 --------------- 209,175 --------------- MOTOR VEHICLES (0.2%) 125 DaimlerChrysler North American Holdings Co. 7.30 01/15/12 142,105 --------------- MOVIES/ENTERTAINMENT (0.2%) 65 Cinemark, Inc. 9.75@ 03/15/14 49,400 65 Marquee Inc. - 144A* 6.54** 08/15/10 68,738 --------------- 118,138 --------------- MULTI-LINE INSURANCE (0.4%) 160 AIG Sun America Global Finance VI - 144A* 6.30 05/10/11 174,736 30 American General Finance Corp. (Series MTNH) 4.625 09/01/10 30,042 20 AXA Financial Inc. 6.50 04/01/08 21,654 45 Hartford Financial Services Group, Inc. (The) (Note 4) 2.375 06/01/06 44,192 15 International Lease Finance Corp. 2.95 05/23/06 14,868 30 International Lease Finance Corp. 3.75 08/01/07 30,012 --------------- 315,504 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 44
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- OIL & GAS PIPELINES (1.0%) $ 260 El Paso Production Holdings 7.75% 06/01/13 $ 273,650 95 Pacific Energy Partners/Finance 7.125 06/15/14 101,650 40 Southern Natural Gas 8.875 03/15/10 45,000 35 Transcontinental Gas Pipe Line Corp. (Series B) 8.875 07/15/12 42,744 205 Williams Companies, Inc. (The) 7.875 09/01/21 229,600 --------------- 692,644 --------------- OIL & GAS PRODUCTION (1.3%) 160 Chesapeake Energy Corp. 7.50 09/15/13 175,000 160 Hilcorp Energy/Finance - 144A* 10.50 09/01/10 181,600 40 Magnum Hunter Resources, Inc. 9.60 03/15/12 45,600 170 Pemex Project Funding Master Trust - 144A* 3.79** 06/15/10 174,845 60 Plains E & P Corp. 7.125 06/15/14 65,700 225 Vintage Petroleum, Inc. 7.875 05/15/11 240,750 --------------- 883,495 --------------- OIL REFINING/MARKETING (0.5%) 35 CITGO Petroleum Corp. - 144A* 6.00 10/15/11 35,000 170 Husky Oil Ltd. 8.90 08/15/28 194,375 30 Marathon Oil Corp. 5.375 06/01/07 31,214 65 Tesoro Petroleum Corp. 9.625 04/01/12 75,075 --------------- 335,664 --------------- OILFIELD SERVICES/EQUIPMENT (0.4%) 20 Hanover Compressor Co. 8.625 12/15/10 21,950 50 Hanover Compressor Co. 9.00 06/01/14 55,875 100 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 108,000 60 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 65,400 --------------- 251,225 --------------- OTHER TRANSPORTATION (0.3%) 165 Laidlaw International Inc. 10.75 06/15/11 193,463 --------------- PHARMACEUTICALS: OTHER (0.1%) 45 Leiner Health Products Inc. 11.00 06/01/12 49,388 --------------- PUBLISHING: BOOKS/MAGAZINES (0.9%) 59 Dex Media East/Finance 12.125 11/15/12 72,201 95 Dex Media West/Finance 9.875 08/15/13 109,963 150 Houghton Mifflin Co. 9.875 02/01/13 165,000 50 Houghton Mifflin Co. 11.50@ 10/15/13 37,000 40 PEI Holdings, Inc. 11.00 03/15/10 46,800 175 PRIMEDIA, Inc. 8.875 05/15/11 185,938 --------------- 616,902 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 45
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- PULP & PAPER (0.5%) $ 115 Georgia-Pacific Corp. 8.875% 02/01/10 $ 134,406 560 TJIWI Kimia FN Mauritius (c) 10.00 08/01/04 232,400 --------------- 366,806 --------------- RAILROADS (0.4%) 25 Burlington North Santa Fe Railway Co. 4.575 01/15/21 25,315 60 CSX Corp. 2.75 02/15/06 59,501 60 Norfolk Southern Corp. 7.35 05/15/07 64,973 30 Union Pacific Corp. 3.625 06/01/10 28,904 100 Union Pacific Corp - 144A* 5.214 09/30/14 100,439 30 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 32,297 --------------- 311,429 --------------- REAL ESTATE DEVELOPMENT (0.3%) 120 CB Richard Ellis Services, Inc. 11.25 06/15/11 138,600 42 CBRE Escrow Inc. 9.75 05/15/10 48,090 --------------- 186,690 --------------- REAL ESTATE INVESTMENT TRUSTS (0.1%) 50 HMH Properties, Inc. (Series B) 7.875 08/01/08 51,625 --------------- REGIONAL BANKS (0.2%) AUD 200 KFW International Inc. 6.25 07/15/05 157,229 --------------- RESTAURANTS (0.1%) $ 70 Tricon Global Restaurants, Inc. 8.875 04/15/11 86,594 --------------- SAVINGS BANKS (0.4%) 25 Household Finance Corp. 4.125 12/15/08 25,125 15 Household Finance Corp. 5.875 02/01/09 16,043 15 Household Finance Corp. 6.375 10/15/11 16,589 35 Household Finance Corp. 6.40 06/17/08 37,790 180 Washington Mutual Inc. 8.25 04/01/10 210,817 --------------- 306,364 --------------- SPECIALTY STORES (0.8%) 130 Autonation, Inc. 9.00 08/01/08 149,175 85 General Nutrition Centers Inc. 8.50 12/01/10 80,750 150 Petro Stopping Centers LP/Petro Financial Corp. 9.00 02/15/12 159,375 150 Sonic Automotive, Inc. 8.625 08/15/13 160,688 --------------- 549,988 --------------- SPECIALTY TELECOMMUNICATIONS (1.2%) 90 American Tower Corp. 7.50 05/01/12 94,950 45 American Tower Corp. 9.375 02/01/09 47,813 85 American Tower Corp. - 144A* 7.125 10/15/12 87,338
SEE NOTES TO FINANCIAL STATEMENTS 46
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- $ 70 Panamsat Corp. - 144A* 9.00% 08/15/14 $ 78,487 190 Panamsat Holding Corp. - 144A* 10.375@ 11/01/14 131,575 125 Qwest Communications International - 144A* 5.79** 02/15/09 127,188 140 Qwest Services Corp. - 144A* 13.50 12/15/07 160,650 90 Satelites Mexicanos SA (c) 10.125 11/01/04 49,950 20 U.S. West Communications Corp. 5.625 11/15/08 20,450 45 U.S. West Communications Corp. 6.625 09/15/05 46,125 --------------- 844,526 --------------- STEEL (0.2%) 135 United States Steel Corp. 9.75 05/15/10 154,575 --------------- TELECOMMUNICATION EQUIPMENT (0.2%) 125 Nortel Networks Ltd. 6.125 02/15/06 127,813 --------------- TELECOMMUNICATIONS (0.8%) 50 AT&T Corp. 9.75 11/15/31 59,938 185 Primus Telecommunication Group, Inc. 8.00 01/15/14 163,725 433 Rhythms Netconnections, Inc. (a) (c) (h) 12.75 04/15/09 0 120 Sprint Capital Corp. 8.75 03/15/32 160,369 150 Verizon Global Funding Corp. 7.75 12/01/30 187,084 --------------- 571,116 --------------- TOBACCO (0.2%) 25 Altria Group, Inc. 7.00 11/04/13 27,134 110 Altria Group, Inc. 7.75 01/15/27 123,805 --------------- 150,939 --------------- TRUCKS/CONSTRUCTION/FARM MACHINERY (0.7%) 175 Caterpillar Financial Services Corp. 2.409** 08/20/07 175,038 190 Manitowoc Inc. (The) 10.50 08/01/12 219,450 60 NMHG Holding Co. 10.00 05/15/09 66,600 --------------- 461,088 --------------- WHOLESALE DISTRIBUTORS (0.4%) 150 Buhrmann US Inc. 8.25 07/01/14 152,437 115 Nebraska Book Company, Inc. 8.625 03/15/12 118,450 --------------- 270,887 --------------- WIRELESS TELECOMMUNICATIONS (1.2%) 30 AirGATE PCS, Inc. - 144A* 5.85** 10/15/11 30,975 70 AT&T Wireless Services, Inc. 8.75 03/01/31 94,670 40 Centennial Communications Corp. 8.125 02/01/14 41,300 140 Metropcs, Inc. 10.75 10/01/11 150,500 50 Rogers Wireless Communications, Inc. - 144A* 8.00 12/15/12 53,125 65 Rogers Wireless Communications, Inc. - 144A* 7.50 03/15/15 68,900
SEE NOTES TO FINANCIAL STATEMENTS 47
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- $ 75 Rural Cellular Corp. 6.99%** 03/15/10 $ 78,000 120 SBA Communications Corp. 9.75@ 12/15/11 101,700 110 SBA Communications Corp. - 144A* 8.50 12/01/12 112,750 110 Ubiquitel Operating Co. - 144A* 9.875 03/01/11 124,025 --------------- 855,945 --------------- TOTAL CORPORATE BONDS (COST $30,446,060) 30,301,519 --------------- MORTGAGE-BACKED SECURITIES (7.0%) Federal Home Loan Mortgage Corp. (0.6%) 359 7.50 11/01/29 - 06/01/32 385,184 --------------- Federal National Mortgage Assoc. (6.1%) 1,360 6.50 07/01/29 - 11/01/33 1,428,601 1,303 7.00 10/01/30 - 09/01/33 1,381,720 496 7.50 02/01/31 - 05/01/32 531,793 798 8.00 02/01/12 - 06/01/31 862,965 114 8.50 06/01/30 124,507 --------------- 4,329,586 --------------- Government National Mortgage Assoc. (0.3%) 121 7.50 04/15/26 - 08/15/29 130,896 47 8.00 02/15/26 - 06/15/26 51,130 --------------- 182,026 --------------- TOTAL MORTGAGE-BACKED SECURITIES (COST $4,834,776) 4,896,796 --------------- ASSET BACKED SECURITIES (1.8%) FINANCE/RENTAL/LEASING (0.1%) 80 Chase Funding Mortgage 2.528** 11/25/18 80,243 --------------- INVESTMENT TRUSTS/MUTUAL FUNDS (1.7% ) 1,106 Targeted Return 144A* 8.218 08/01/15 1,211,922 --------------- TOTAL ASSET-BACKED SECURITIES (COST $1,212,506) 1,292,165 --------------- U.S. GOVERNMENT AGENCY & OBLIGATIONS (21.0%) 270 Federal Home Loan Mortgage Corp. 5.125 11/07/13 271,135 --------------- U. S. TREASURY BONDS 3,225 6.125 08/15/29 3,787,363 185 8.125 08/15/21 256,211 1,165 8.75 05/15/17 - 08/15/20 1,663,977
SEE NOTES TO FINANCIAL STATEMENTS 48
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------- U. S. Treasury Notes $ 2,500 3.875% 02/15/13 $ 2,467,385 3,850 6.75 05/15/05 3,910,761 ------------ U. S. Treasury Strips 700 0.00 02/15/06 678,749 3,650 0.00 08/15/17 - 08/15/22 1,746,731 ------------ TOTAL U.S. GOVERNMENT AGENCY & OBLIGATIONS (COST $14,308,084) 14,782,312 ------------ TOTAL UNITED STATES (COST $50,801,426) 51,272,792 ------------ TOTAL GOVERNMENT & CORPORATE BONDS (COST $61,723,248) 62,693,279 ------------ CONVERTIBLE BOND (0.2%) TELECOMMUNICATIONS EQUIPMENT 130 Nortel Networks Ltd. (Cost $124,197) 4.25 09/01/08 127,075 ------------ NUMBER OF SHARES - ----------- COMMON STOCKS (e) (0.2%) AEROSPACE & DEFENSE (0.0%) 1,118 Orbital Sciences Corp. (d) 13,226 ------------ APPAREL/FOOTWEAR RETAIL (0.0%) 50,166 County Seat Stores Corp. (d) (h) 0 ------------ CASINO/GAMING (0.0%) 787 Fitzgeralds Gaming Corp.+ (h) 0 ------------ FOOD: SPECIALTY/CANDY (0.0%) 100 SFAC New Holdings Inc.++ (d) (h) 0 18 SFFB New Holdings Inc. (d) (h) 0 ------------ 0 ------------ MEDICAL/NURSING SERVICES (0.0%) 34,888 Raintree Healthcare Corp. (d) (h) 0 ------------ RESTAURANTS (0.0%) 10,137 Catalina Restaurant Group (d) (h) 20,274 ------------ SPECIALTY TELECOMMUNICATIONS (0.0%) 1,171 Birch Telecom Inc. (d) (h) 0 16,679 PFB Telecom NV (Series B) (d) (h) 0 ------------ 0 ------------
SEE NOTES TO FINANCIAL STATEMENTS 49
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------------- TEXTILES (0.0%) 11,192 U.S. Leather, Inc. (d) (h) $ 0 ------------ WIRELESS TELECOMMUNICATIONS (0.2%) 2,475 NII Holdings, Inc. (Class B) (d) 117,439 46 USA Mobility, Inc. (d) 1,624 4,516 Vast Solutions, Inc. (Class B1) (d) (h) 0 4,516 Vast Solutions, Inc. (Class B2) (d) (h) 0 4,516 Vast Solutions, Inc. (Class B3) (d) (h) 0 ------------ 119,063 ------------ TELECOMMUNICATIONS (0.0%) 352 Viatel Holdings Bermuda Ltd. (d) 334 ------------ TOTAL COMMON STOCKS (COST $3,233,545) 152,897 ------------ NON-CONVERTIBLE PREFERRED STOCKS (0.4%) BROADCASTING (0.1%) 11 Paxson Communications Corp.~ 78,323 ------------ ELECTRIC UTILITIES (0.3%) 167 TNP Enterprises, Inc. (Series D)~ 194,138 ------------ RESTAURANTS (0.0%) 17 Catalina Restaurant Group, Inc. (Units)^(h) 15,300 ------------ TOTAL NON-CONVERTIBLE PREFERRED STOCKS (COST $295,031) 287,761 ------------
NUMBER OF EXPIRATION WARRANTS DATE - ----------- -------------------- WARRANTS (e) (0.0%) CASINO/GAMING (0.0%) 9,000 Aladdin Gaming Enterprises, Inc. - 144A* (h) 03/01/10 0 250 Resort At Summerlin LP - 144A* (h) 12/15/07 0 ------------ 0 ------------ ELECTRIC UTILITIES (0.0%) 125 TNP Enterprises, Inc. - 144A* 04/01/11 3,781 ------------ RESTAURANTS (0.0%) 4,250 Catalina Restaurant Group (d) (h) 07/10/12 0 ------------ TOTAL WARRANTS (COST $3,842) 3,781 ------------
SEE NOTES TO FINANCIAL STATEMENTS 50
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (9.2%) U.S. GOVERNMENT OBLIGATIONS (f) (0.1%) $ 100 U.S. Treasury Bill (b) (COST $99,569) 1.895% 03/24/05 $ 99,579 ------------ REPURCHASE AGREEMENT (9.1%) 6,420 Joint repurchase agreement account (dated 12/31/04; proceeds $6,421,189) (g) (COST $6,420,000) 2.223 01/03/05 6,420,000 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $6,519,569) 6,519,579 ------------ TOTAL INVESTMENTS (COST $71,899,432) (i) (j) 98.9% 69,784,372 OTHER ASSETS IN EXCESS OF LIABILITIES 1.1 800,687 ----- ------------ NET ASSETS 100.0% $ 70,585,059 ===== ============
- ---------- * RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. ** FLOATING RATE SECURITY. RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31, 2004. + RESALE IS RESTRICTED; ACQUIRED (12/12/98) AT A COST BASIS OF $3,549. ++ RESALE IS RESTRICTED; ACQUIRED (06/10/99) AT A COST BASIS OF $1. +++ TURKISH CURRENCY INDEX CREDIT LINKED UNSECURED NOTE. ^ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; BONDS OR PREFERRED STOCK WITH ATTACHED WARRANTS. ~ PAYMENT-IN-KIND SECURITY. @ CURRENTLY A ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT A FUTURE DATE. (a) ISSUER IN BANKRUPTCY. (b) ALL OR A PORTION OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $21,250. (c) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT. (d) ACQUIRED THROUGH EXCHANGE OFFER. (e) NON-INCOME PRODUCING SECURITIES. (f) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (g) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (h) FAIR VALUED SECURITY. (i) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $15,105,106 IN CONNECTION WITH FORWARD FOREIGN CURRENCY CONTRACTS AND OPEN FUTURES CONTRACTS. (j) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $72,354,836. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $3,004,937 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $5,575,401, RESULTING IN NET UNREALIZED DEPRECIATION OF $2,570,464. BOND INSURANCE: FSA FINANCIAL SECURITY ASSURANCE INC. SEE NOTES TO FINANCIAL STATEMENTS 51 FUTURES CONTRACTS OPEN AT DECEMBER 31, 2004:
UNREALIZED NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION CONTRACTS SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION) - ---------------------------------------------------------------------------------------------------------- 81 Short US Treasury Notes 5 Year, March 2005 $ (8,872,031) $ 15,377 13 Short US Treasury Notes 10 Year, March 2005 (1,455,188) (421) 44 Short US Treasury Bonds 20 Year, March 2005 (4,950,000) (66,199) -------------- Net unrealized depreciation $ (51,243) ==============
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 2004:
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED TO DELIVER FOR DATE DEPRECIATION - --------------------------------------------------------------------------------------------------------- AUD 200,000 $ 155,378 02/22/05 $ (401) EUR 229,953 $ 305,814 01/26/05 (6,292) ------------ Total unrealized depreciation $ (6,693) ============
CURRENCY ABBREVIATIONS: AUD Australian Dollar. CAD Canadian Dollar. EUR Euro. JPY Japanese Yen. SUMMARY OF INVESTMENTS LONG-TERM CREDIT ANALYSIS AAA 39.6% AA 4.8 A 4.2 BBB 14.1 BB 12.6 B 24.1 NR 0.6 ----- 100.0%* =====
- ---------- * DOES NOT INCLUDE OUTSTANDING SHORT FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $15,277,219 AND TOTAL UNREALIZED DEPRECIATION OF $51,243 AND OUTSTANDING FORWARD FOREIGN CURRENCY CONTRACTS WITH UNREALIZED DEPRECIATION OF $6,693. SEE NOTES TO FINANCIAL STATEMENTS 52 Balanced Growth PORTFOLIO OF INVESTMENTS DECEMBER 31, 2004
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCKS (66.6%) AEROSPACE & DEFENSE (1.3%) 13,260 Northrop Grumman Corp. $ 720,814 17,100 Raytheon Co. 663,993 ------------ 1,384,807 ------------ AUTO PARTS: O.E.M. (0.9%) 10,730 Magna International Inc. (Class A) (Canada) 885,762 ------------ BEVERAGES: NON-ALCOHOLIC (1.0%) 23,500 Coca-Cola Co. (The) 978,305 ------------ BROADCASTING (1.0%) 31,480 Clear Channel Communications, Inc. 1,054,265 ------------ CHEMICALS: MAJOR DIVERSIFIED (3.0%) 60,680 Bayer AG (ADR) (Germany) 2,061,906 20,250 Dow Chemical Co. (The) 1,002,578 ------------ 3,064,484 ------------ CONTAINERS/PACKAGING (0.5%) 7,300 Temple-Inland Inc. 499,320 ------------ DATA PROCESSING SERVICES (1.2%) 15,170 Automatic Data Processing, Inc. 672,790 19,300 SunGard Data Systems Inc.* 546,769 ------------ 1,219,559 ------------ DEPARTMENT STORES (0.9%) 17,850 Kohl's Corp.* 877,685 ------------ DISCOUNT STORES (0.5%) 10,450 Target Corp. 542,669 ------------ ELECTRIC UTILITIES (3.6%) 15,500 American Electric Power Co., Inc. 532,270 12,060 Consolidated Edison, Inc. 527,625 9,250 Edison International 296,278 12,960 Entergy Corp. 875,966 16,390 Exelon Corp. 722,307 19,100 FirstEnergy Corp. 754,641 ------------ 3,709,087 ------------ ELECTRONIC PRODUCTION EQUIPMENT (0.5%) 32,250 Applied Materials, Inc.* 551,475 ------------ FINANCE/RENTAL/LEASING (1.3%) 18,100 Freddie Mac 1,333,970 ------------ FINANCIAL CONGLOMERATES (4.5%) 34,600 Citigroup, Inc. 1,667,028
SEE NOTES TO FINANCIAL STATEMENTS 53
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 56,466 JPMorgan Chase & Co. $ 2,202,739 13,210 Prudential Financial, Inc. 726,022 ------------ 4,595,789 ------------ FINANCIAL PUBLISHING/SERVICES (0.7%) 25,700 Equifax, Inc. 722,170 ------------ FOOD: MAJOR DIVERSIFIED (0.7%) 20,500 Kraft Foods Inc. (Class A) 730,005 ------------ FOOD: SPECIALTY/CANDY (0.9%) 23,150 Cadbury Schweppes PLC (ADR) (United Kingdom) 872,755 ------------ HOTELS/RESORTS/CRUISELINES (1.6%) 14,510 Hilton Hotels Corp. 329,957 13,670 Marriott International, Inc. (Class A) 860,937 7,370 Starwood Hotels & Resorts Worldwide, Inc. 430,408 ------------ 1,621,302 ------------ HOUSEHOLD/PERSONAL CARE (0.8%) 12,940 Kimberly-Clark Corp. 851,581 ------------ INDUSTRIAL CONGLOMERATES (1.8%) 34,600 General Electric Co. 1,262,900 7,160 Ingersoll-Rand Co. (Class A) (Bermuda) 574,948 ------------ 1,837,848 ------------ INDUSTRIAL MACHINERY (0.8%) 10,970 Parker-Hannifin Corp. 830,868 ------------ INFORMATION TECHNOLOGY SERVICES (1.4%) 33,660 Accenture Ltd. (Class A) (Bermuda)* 908,820 5,670 International Business Machines Corp. 558,949 ------------ 1,467,769 ------------ INTEGRATED OIL (5.4%) 29,850 BP PLC (ADR) (United Kingdom) 1,743,240 11,770 ConocoPhillips 1,021,989 24,810 Exxon Mobil Corp. 1,271,761 26,080 Royal Dutch Petroleum Co. (NY Registered Shares) (Netherlands) 1,496,470 ------------ 5,533,460 ------------ INVESTMENT BANKS/BROKERS (3.4%) 2,300 Goldman Sachs Group, Inc. (The) 239,292 17,000 Lehman Brothers Holdings Inc. 1,487,160 24,400 Merrill Lynch & Co., Inc. 1,458,388 29,000 Schwab (Charles) Corp. (The) 346,840 ------------ 3,531,680 ------------
SEE NOTES TO FINANCIAL STATEMENTS 54
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE (0.3%) 17,800 Aegon N.V. (NY Registred Shares) (Netherlands) $ 244,038 2,470 MetLife, Inc. 100,060 ------------ 344,098 ------------ MAJOR BANKS (1.5%) 21,760 Bank of America Corp. 1,022,502 8,920 PNC Financial Services Group 512,365 ------------ 1,534,867 ------------ MAJOR TELECOMMUNICATIONS (2.2%) 18,600 France Telecom S.A. (ADR) (France) 615,288 20,670 Sprint Corp. 513,650 28,220 Verizon Communications Inc. 1,143,192 ------------ 2,272,130 ------------ MANAGED HEALTH CARE (0.9%) 11,800 CIGNA Corp. 962,526 ------------ MEDIA CONGLOMERATES (3.2%) 41,940 Disney (Walt) Co. (The) 1,165,932 94,460 Time Warner, Inc.* 1,836,302 9,200 Viacom Inc. (Class B) (Non-Voting) 334,788 ------------ 3,337,022 ------------ MEDICAL SPECIALTIES (0.9%) 5,500 Applera Corp. - Applied Biosystems Group 115,005 13,210 Bausch & Lomb, Inc. 851,517 ------------ 966,522 ------------ MOTOR VEHICLES (1.5%) 57,940 Honda Motor Co., Ltd. (ADR) (Japan) 1,509,916 ------------ MULTI-LINE INSURANCE (1.0%) 14,110 Hartford Financial Services Group, Inc. (The) (Note 4) 977,964 ------------ OIL REFINING/MARKETING (0.8%) 18,160 Valero Energy Corp. 824,464 ------------ OILFIELD SERVICES/EQUIPMENT (1.5%) 22,950 Schlumberger Ltd. (Netherlands Antilles) 1,536,503 ------------ PACKAGED SOFTWARE (1.2%) 18,390 Computer Associates International, Inc. 571,193 24,620 Microsoft Corp. 657,600 ------------ 1,228,793 ------------ PHARMACEUTICALS: MAJOR (7.7%) 97,100 Bristol-Myers Squibb Co. 2,487,702 11,000 GlaxoSmithKline PLC (ADR) (United Kingdom) 521,290
SEE NOTES TO FINANCIAL STATEMENTS 55
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------- 9,000 Lilly (Eli) & Co. $ 510,750 12,370 Roche Holdings Ltd. (ADR) (Switzerland) 1,431,828 17,000 Sanofi-Aventis (ADR) (France) 680,850 72,130 Schering-Plough Corp. 1,506,074 18,270 Wyeth 778,119 ------------ 7,916,613 ------------ PRECIOUS METALS (0.9%) 20,830 Newmont Mining Corp. 925,060 ------------ PROPERTY - CASUALTY INSURERS (2.1%) 16,370 Chubb Corp. (The) 1,258,853 24,846 St. Paul Travelers Companies, Inc. (The) 921,041 ------------ 2,179,894 ------------ RAILROADS (1.4%) 41,140 Norfolk Southern Corp. 1,488,857 ------------ RESTAURANTS (0.3%) 8,510 McDonald's Corp. 272,830 ------------ SEMICONDUCTORS (0.4%) 1,174 Freescale Semiconductor Inc. (Class B)* 21,554 16,650 Intel Corp. 389,443 ------------ 410,997 ------------ TELECOMMUNICATION EQUIPMENT (0.4%) 21,050 Motorola, Inc. 362,060 ------------ TOBACCO (0.7%) 12,230 Altria Group, Inc. 747,253 ------------ TOTAL COMMON STOCKS (COST $52,772,386) 68,494,984 ------------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - --------- ---------- ------------ CORPORATE BONDS (9.0%) ADVERTISING/MARKETING SERVICES (0.1%) $ 80 WPP Finance Corp. - 144A** (United Kingdom) 5.875% 06/15/14 83,410 ------------ AEROSPACE & DEFENSE (0.2%) 55 Northrop Grumman Corp. 4.079 11/16/06 55,581 15 Raytheon Co. 4.85 01/15/11 15,389 25 Raytheon Co. 8.30 03/01/10 29,657 122 Systems 2001 Asset Trust - 144A** (Cayman Islands) 6.664 09/15/13 134,764 ------------ 235,391 ------------
SEE NOTES TO FINANCIAL STATEMENTS 56
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- AIR FREIGHT/COURIERS (0.0%) $ 50 Fedex Corp. 2.65% 04/01/07 $ 48,998 ------------ AIRLINES (0.2%) 108 America West Airlines, Inc. (Series 01-1) 7.10 04/02/21 115,067 45 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 46,366 ------------ 161,433 ------------ BEVERAGES: ALCOHOLIC (0.0%) 50 Miller Brewing Co. - 144A** 4.25 08/15/08 50,496 ------------ BROADCASTING (0.1%) 50 Clear Channel Communications, Inc. 7.65 09/15/10 56,958 ------------ CABLE/SATELLITE TV (0.2%) 10 Comcast Cable Communications Inc. 6.75 01/30/11 11,244 55 Comcast Corp. 6.50 01/15/15 61,250 10 Comcast Corp. 7.625 02/15/08 11,028 65 Cox Communications, Inc. - 144A** 4.625 01/15/10 64,922 55 TCI Communications, Inc. 7.875 02/15/26 67,732 ------------ 216,176 ------------ CHEMICALS: MAJOR DIVERSIFIED (0.0%) 40 ICI Wilmington Inc. 4.375 12/01/08 40,262 ------------ CONTAINERS/PACKAGING (0.1%) 70 Sealed Air Corp - 144A** 5.625 07/15/13 72,539 ------------ DEPARTMENT STORES (0.2%) 145 May Department Stores Co., Inc. 6.70 09/15/28 152,401 10 May Department Stores Co., Inc. 6.90 01/15/32 10,849 ------------ 163,250 ------------ DRUGSTORE CHAINS (0.2%) 180 CVS Corp. 5.625 03/15/06 184,624 15 CVS Corp. - 144A** 6.204 10/10/25 15,749 ------------ 200,373 ------------ ELECTRIC UTILITIES (1.0%) 20 Appalachian Power Co. (Series H) 5.95 05/15/33 20,276 70 Arizona Public Service Co. 5.80 06/30/14 74,887 70 Carolina Power & Light Co. 5.125 09/15/13 71,737 35 Cincinnati Gas & Electric Co. 5.70 09/15/12 37,138 10 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 9,581 30 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 28,638 15 Columbus Southern Power Co. (Series D) 6.60 03/01/33 16,837 10 Consolidated Natural Gas Co. 5.00 12/01/14 10,029 60 Consolidated Natural Gas Co. (Series C) 6.25 11/01/11 65,950
SEE NOTES TO FINANCIAL STATEMENTS 57
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 15 Consolidated Natural Gas Co. (Series A) 5.00% 03/01/14 $ 15,062 70 Detroit Edison Co. 6.125 10/01/10 76,453 45 Duke Energy Corp. 3.75 03/05/08 44,982 45 Duke Energy Corp. 4.50 04/01/10 45,584 45 Entergy Gulf States Inc. 2.80 12/01/09 44,995 30 Entergy Gulf States, Inc. 3.60 06/01/08 29,538 50 Exelon Corp. 6.75 05/01/11 56,004 45 Ohio Edison Co. 5.45 05/01/15 45,735 55 Ohio Power Co. (Series G) 6.60 02/15/33 61,732 65 Pacific Gas & Electric Co. 6.05 03/01/34 67,745 15 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 14,695 45 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 46,005 20 South Carolina Electric & Gas Co. 5.30 05/15/33 19,486 15 Southern California Edison Co. 5.00 01/15/14 15,270 20 Texas Eastern Transmission, L.P. 7.00 07/15/32 23,051 40 TXU Energy Co. 7.00 03/15/13 44,745 25 Wisconsin Electric Power Co. 3.50 12/01/07 24,917 10 Wisconsin Electric Power Co. 5.625 05/15/33 10,208 ------------ 1,021,280 ------------ ELECTRICAL PRODUCTS (0.1%) 70 Cooper Industries Inc. 5.25 07/01/07 72,563 ------------ FINANCE/RENTAL/LEASING (0.4%) 55 CIT Group Inc. 2.875 09/29/06 54,450 25 CIT Group Inc. 7.375 04/02/07 27,008 105 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 102,753 110 MBNA Corp. 6.125 03/01/13 118,080 60 SLM Corp. 4.00 01/15/10 59,603 75 SLM Corp. (Series MTNA) 5.00 10/01/13 76,081 ------------ 437,975 ------------ FINANCIAL CONGLOMERATES (1.2%) 105 Bank One Corp. (Series MTNA) 6.00 02/17/09 112,339 95 Chase Manhattan Corp. 6.00 02/15/09 101,437 40 Citicorp 6.75 08/15/05 40,931 90 Citigroup Inc. 5.625 08/27/12 95,994 60 Citigroup Inc. 5.75 05/10/06 61,979 90 Citigroup Inc. 6.00 02/21/12 98,602 40 General Electric Capital Corp. 4.25 12/01/10 40,030 125 General Electric Capital Corp. (Series MTNA) 6.75 03/15/32 146,800 35 General Motors Acceptance Corp. 4.50 07/15/06 35,034 265 General Motors Acceptance Corp. 6.875 09/15/11 271,932 100 General Motors Acceptance Corp. 8.00 11/01/31 103,076
SEE NOTES TO FINANCIAL STATEMENTS 58
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 125 Prudential Holdings, LLC (Series B) (FSA) - 144A** 7.245% 12/18/23 $ 148,793 ------------ 1,256,947 ------------ FOOD RETAIL (0.2%) 40 Albertson's, Inc. 7.50 02/15/11 46,385 110 Kroger Co. 6.80 04/01/11 124,126 ------------ 170,511 ------------ FOOD: MAJOR DIVERSIFIED (0.1%) 20 General Mills Inc. 3.875 11/30/07 20,078 25 Kraft Foods Inc. 5.25 06/01/07 25,912 40 Kraft Foods Inc. 5.625 11/01/11 42,418 30 Kraft Foods Inc. 6.25 06/01/12 32,982 ------------ 121,390 ------------ FOREST PRODUCTS (0.1%) 30 Weyerhaeuser Co. 6.00 08/01/06 31,187 11 Weyerhaeuser Co. 6.125 03/15/07 11,588 10 Weyerhaeuser Co. 6.75 03/15/12 11,285 ------------ 54,060 ------------ GAS DISTRIBUTORS (0.1%) 45 Nisource Finance Corp. 2.915 11/23/09 44,998 65 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A** (Qatar) 8.294 03/15/14 77,128 ------------ 122,126 ------------ HOME FURNISHINGS (0.0%) 35 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 40,329 ------------ HOME IMPROVEMENT CHAINS (0.0%) 15 Lowe's Companies, Inc. 6.50 03/15/29 17,046 10 Lowe's Companies, Inc. 6.875 02/15/28 11,832 ------------ 28,878 ------------ HOTELS/RESORTS/CRUISELINES (0.2%) 70 Hyatt Equities LLC - 144A** 6.875 06/15/07 73,691 110 Marriott International, Inc. (Series E) 7.00 01/15/08 119,987 ------------ 193,678 ------------ HOUSEHOLD/PERSONAL CARE (0.0%) 50 Clorox Co. (The) - 144A** 2.544 12/14/07 50,015 ------------ INDUSTRIAL CONGLOMERATES (0.1%) 80 Hutchison Whampoa International Ltd. - 144A** (Virgin Islands) 6.50 02/13/13 86,380 ------------
SEE NOTES TO FINANCIAL STATEMENTS 59
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- INSURANCE BROKERS/SERVICES (0.3%) $ 200 Farmers Exchange Capital - 144A** 7.05% 07/15/28 $ 205,450 110 Marsh & McLennan Companies, Inc. 5.375 07/15/14 107,674 ------------ 313,124 ------------ INTEGRATED OIL (0.1%) 25 Amerada Hess Corp. 6.65 08/15/11 27,529 30 Amerada Hess Corp. 7.875 10/01/29 35,602 10 Petro-Canada (Canada) 4.00 07/15/13 9,384 35 Petro-Canada (Canada) 5.35 07/15/33 32,820 ------------ 105,335 ------------ INVESTMENT BANKS/BROKERS (0.2%) 50 Goldman Sachs Group Inc. 5.25 10/15/13 51,245 30 Goldman Sachs Group Inc. 6.60 01/15/12 33,529 95 Goldman Sachs Group Inc. 6.875 01/15/11 107,311 ------------ 192,085 ------------ LIFE/HEALTH INSURANCE (0.1%) 100 John Hancock Financial Services, Inc. 5.625 12/01/08 106,302 ------------ MAJOR BANKS (0.1%) 30 Bank of New York (The) 5.20 07/01/07 31,208 65 FleetBoston Financial Corp. 7.25 09/15/05 66,899 35 HSBC Finance Corp. 6.75 05/15/11 39,329 ------------ 137,436 ------------ MAJOR TELECOMMUNICATIONS (0.5%) 85 Deutsche Telekom International Finance Corp. NV (Netherlands) 8.75 06/15/30 112,574 35 France Telecom S.A. (France) 9.25 03/01/31 47,586 20 Sprint Capital Corp. 8.75 03/15/32 26,728 45 Telecom Italia Capital SA - 144A** (Italy) 4.00 01/15/10 44,172 45 Telecom Italia Capital SA (Italy) 4.00 11/15/08 44,868 15 Verizon Global Funding Corp. 7.75 12/01/30 18,708 160 Verizon New England Inc. 6.50 09/15/11 176,248 ------------ 470,884 ------------ MANAGED HEALTH CARE (0.2%) 125 Aetna, Inc. 7.875 03/01/11 146,476 60 Wellpoint Health Network, Inc. 6.375 06/15/06 62,496 5 Wellpoint Inc. - 144A** 3.75 12/14/07 5,001 ------------ 213,973 ------------
SEE NOTES TO FINANCIAL STATEMENTS 60
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- MEDIA CONGLOMERATES (0.3%) $ 90 Historic TW Inc. 6.625% 05/15/29 $ 97,279 80 News America Holdings, Inc. 7.28 06/30/28 91,699 30 News America Holdings, Inc. 7.75 02/01/24 35,681 45 Time Warner Inc. 7.70 05/01/32 55,216 ------------ 279,875 ------------ MOTOR VEHICLES (0.3%) 45 DaimlerChrysler North American Holdings Co. 7.30 01/15/12 51,157 35 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 43,861 105 Ford Motor Co. 7.45 07/16/31 105,908 60 General Motors Corp. 8.375 07/15/33 62,337 ------------ 263,263 ------------ MULTI-LINE INSURANCE (0.4%) 180 AIG Sun America Global Finance VI - 144A** 6.30 05/10/11 196,578 90 American General Finance Corp. (Series MTNH) 4.625 09/01/10 90,128 15 AXA Financial Inc. 6.50 04/01/08 16,240 30 Hartford Financial Services Group, Inc. (The)(Note 4) 2.375 06/01/06 29,461 30 International Lease Finance Corp. 3.75 08/01/07 30,011 ------------ 362,418 ------------ OIL & GAS PRODUCTION (0.4%) 50 Nexen Inc. (Canada) 5.05 11/20/13 49,743 40 Pemex Project Funding Master Trust 7.375 12/15/14 44,560 235 Pemex Project Funding Master Trust 8.625 02/01/22 274,010 ------------ 368,313 ------------ OIL REFINING/MARKETING (0.0%) 30 Marathon Oil Corp. 5.375 06/01/07 31,214 ------------ OTHER METALS/MINERALS (0.1%) 90 Inco Ltd. (Canada) 7.20 09/15/32 105,236 25 Inco Ltd. (Canada) 7.75 05/15/12 29,642 ------------ 134,878 ------------ PROPERTY - CASUALTY INSURERS (0.2%) 200 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 200,759 ------------ PULP & PAPER (0.1%) 50 Sappi Papier Holding AG - 144A** (Austria) 6.75 06/15/12 55,637 ------------ RAILROADS (0.2%) 45 Burlington North Santa Fe Railway Co. 4.575 01/15/21 45,567 35 CSX Corp. 2.75 02/15/06 34,709 25 CSX Corp. 9.00 08/15/06 27,086 20 Norfolk Southern Corp. 7.35 05/15/07 21,658
SEE NOTES TO FINANCIAL STATEMENTS 61
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 10 Union Pacific Corp. 6.65% 01/15/11 $ 11,195 25 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 26,914 ------------ 167,129 ------------ REAL ESTATE DEVELOPMENT (0.2%) 180 World Financial Properties - 144A* 6.91 09/01/13 199,251 ------------ REAL ESTATE INVESTMENT TRUSTS (0.0%) 10 EOP Operating L.P. 4.75 03/15/14 9,691 25 EOP Operating LP 6.763 06/15/07 26,610 ------------ 36,301 ------------ SAVINGS BANKS (0.3%) 40 Household Finance Corp. 4.125 12/15/08 40,200 50 Household Finance Corp. 5.875 02/01/09 53,478 25 Household Finance Corp. 6.375 10/15/11 27,648 65 Household Finance Corp. 6.40 06/17/08 70,181 55 Washington Mutual Bank 5.50 01/15/13 56,890 45 Washington Mutual Inc. 8.25 04/01/10 52,704 ------------ 301,101 ------------ TOBACCO (0.1%) 45 Altria Group, Inc. 7.00 11/04/13 48,840 60 Altria Group, Inc. 7.75 01/15/27 67,530 ------------ 116,370 ------------ TRUCKS/CONSTRUCTION/FARM MACHINERY (0.1%) 95 Caterpillar Financial Services Corp. 2.409 08/20/07 95,020 20 Caterpillar Financial Services Corp. 3.625 11/15/07 20,035 ------------ 115,055 ------------ WIRELESS TELECOMMUNICATIONS (0.0%) 35 AT&T Wireless Services, Inc. 8.75 03/01/31 47,335 ------------ TOTAL CORPORATE BONDS (COST $8,707,731) 9,203,456 ------------ FOREIGN GOVERNMENT OBLIGATIONS (0.2%) 10 United Mexican States (Mexico) (Series MTNA) 8.00 09/24/22 11,560 150 United Mexican States (Mexico) (Series MTN) 8.30 08/15/31 176,175 15 United Mexican States (Mexico) 8.375 01/14/11 17,655 ------------ TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST $199,635) 205,390 ------------
SEE NOTES TO FINANCIAL STATEMENTS 62
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------- MORTGAGE-BACKED SECURITIES (3.2%) Federal Home Loan Mortgage Corp. $ 281 6.50% 03/01/33 $ 295,527 399 7.50 09/01/25 - 06/01/32 428,106 Federal National Mortgage Assoc. 783 6.50 01/01/32 - 09/01/34 822,020 555 7.00 05/01/31 - 03/01/33 588,708 162 7.50 08/01/29 - 01/01/31 173,735 350 7.50 @ 374,718 498 8.00 12/01/28 - 04/01/32 539,808 91 Government National Mortgage Association 7.50 08/15/23 - 10/15/29 98,360 ------------ TOTAL MORTGAGE-BACKED SECURITIES (COST $3,279,598) 3,320,982 ------------ U.S. GOVERNMENT & AGENCY OBLIGATIONS (15.0%) 290 Federal Home Loan Mortgage Corp 5.125 11/07/13 291,220 1,575 Federal National Mortgage Assoc@@ 4.25 05/15/09 1,600,515 U.S. Treasury Bonds 1,475 5.50 08/15/28 1,596,919 1,540 7.625 02/15/25 2,086,159 200 8.125 08/15/19 273,047 2,050 8.125 08/15/21 2,839,090 200 8.50 02/15/20 282,328 U.S. Treasury Notes 2,450 3.50 11/15/06 2,471,440 1,600 3.875 02/15/13 1,579,126 900 5.625 02/15/06 928,126 425 8.75 08/15/20 614,457 2,460 U.S. Treasury Strip 0.00 02/15/25 886,267 ------------ TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS (COST $15,087,558) 15,448,694 ------------ ASSET-BACKED SECURITIES (1.3%) FINANCE/RENTAL/LEASING 150 American Express Credit Account Master Trust 2002-3 A 2.51 12/15/09 150,444 76 Asset Backed Funding Certificates 2004-HE1 A1 2.548 06/25/22 75,832 100 Capital Auto Receivables Asset Trust 2004-2 A 3.35 02/15/08 99,844 215 Chase Credit Card Master Trust 2001-4 A 5.50 11/17/08 222,068 200 Citibank Credit Card Issuance Trust 2000-A1 A1 6.90 10/15/07 206,102
SEE NOTES TO FINANCIAL STATEMENTS 63
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------- $ 150 GE Dealer Floorplan Master Note Trust 2004-1 A 2.46% 07/20/08 $ 150,111 100 MBNA Master Credit Card Trust 5.90 08/15/11 107,879 44 Nissan Auto Receivables Owner Trust 2001-C A4 4.80 02/15/07 43,776 50 TXU Electric Delivery Transition Bond Company LLC 2004-1 A2 4.81 11/17/14 51,248 200 USAA Auto Owner Trust 2004-3 A3 3.16 02/17/09 199,278 ------------- TOTAL ASSET-BACKED SECURITIES (COST $1,292,081) 1,306,582 ------------- SHORT-TERM INVESTMENTS (6.5%) U.S. GOVERNMENT OBLIGATIONS (a) (0.5%) 200 U.S. Treasury Bill*** 1.895 03/24/05 199,158 300 U. S. Treasury Note 6.75 05/15/05 304,735 ------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $503,935) 503,893 ------------- REPURCHASE AGREEMENT (6.0%) 6,147 Joint repurchase agreement account (dated 12/31/04; proceeds $6,147,379) (b) (COST $6,147,000) 2.223 01/03/05 6,147,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $6,650,935) 6,650,893 ------------- TOTAL INVESTMENTS (COST $87,989,924) (c)(d) 101.8% 104,630,981 LIABILITIES IN EXCESS OF OTHER ASSETS (1.8) (1,806,556) ----- ------------- NET ASSETS 100.0% $ 102,824,425 ===== =============
- ---------- ADR AMERICAN DEPOSITORY RECEIPT. FSA FINANCIAL SECURITY ASSURANCE. * NON-INCOME PRODUCING SECURITY. ** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. *** A PORTION OF THIS SECURITY IS PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $65,300. @ SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE. @@ SECURITY PURCHASED ON A FORWARD COMMITMENT BASIS. (a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD. (b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (c) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $7,277,270 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS AND OPEN FUTURES CONTRACTS. (d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $89,214,242. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $16,520,826 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $1,104,087, RESULTING IN NET UNREALIZED APPRECIATION OF $15,416,739. SEE NOTES TO FINANCIAL STATEMENTS 64 FUTURES CONTRACTS OPEN AT DECEMBER 31, 2004:
UNREALIZED NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE APPRECIATION CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE (DEPRECIATION) - ---------------------------------------------------------------------------------------------- 2 Long U.S. Treasury Bonds 10 Year, March 2005 $ 223,875 $ (1,099) 1 Short U.S. Treasury Notes 5 Year, March 2005 (109,531) 185 45 Short U.S. Treasury Notes 20 Year, March 2005 (5,062,500) (45,317) ------------ Net unrealized depreciation $ (46,231) ============
SUMMARY OF INVESTMENTS
PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS - ------------------------------------------------------------------------ Common Stocks $ 68,494,984 66.6% U.S. Government Agencies and Obligations 15,448,694 15.0 Corporate Bonds 9,203,456 9.0 Short-Term 6,650,893 6.5 Mortgage-Backed Securities 3,320,982 3.2 Asset-Backed Securities 1,306,582 1.3 Foreign Government Obligations 205,390 0.2 -------------- ---------- $ 104,630,981* 101.8% ============== ==========
- ---------- * DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $223,875 AND UNREALIZED DEPRECIATION OF $1,099 AND OPEN SHORT FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $5,172,031 WITH NET UNREALIZED DEPRECIATION OF $45,132. SEE NOTES TO FINANCIAL STATEMENTS 65 Utilities PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS (94.6%) ELECTRIC UTILITIES (55.0%) 120,000 AES Corp. (The)* $ 1,640,400 60,000 Allegheny Energy, Inc.* 1,182,600 30,000 American Electric Power Co., Inc. 1,030,200 48,500 Cinergy Corp. 2,019,055 35,000 Constellation Energy Group, Inc. 1,529,850 25,000 Dominion Resources, Inc. 1,693,500 56,710 Duke Energy Corp. 1,436,464 65,000 Edison International 2,081,950 40,000 El Paso Electric Co.* 757,600 32,500 Entergy Corp. 2,196,675 60,000 Exelon Corp. 2,644,200 30,000 FPL Group, Inc. 2,242,500 70,000 NRG Energy Inc.** 2,523,500 47,000 NSTAR 2,551,160 60,000 PG&E Corp.* 1,996,800 29,400 Pinnacle West Capital Corp. 1,305,654 60,000 PNM Resources Inc. 1,517,400 40,000 PPL Corp. 2,131,200 20,000 Public Service Enterprise Group, Inc. 1,035,400 50,000 Reliant Energy, Inc.* 682,500 56,000 SCANA Corp. 2,206,400 30,000 Sempra Energy 1,100,400 40,000 Sierra Pacific Resources* 420,000 42,000 Southern Co. (The) 1,407,840 40,000 TXU Corp. 2,582,400 41,000 Wisconsin Energy Corp. 1,382,110 ------------- 43,297,758 ------------- ENERGY (17.5%) 35,000 AGL Resources, Inc. 1,163,400 45,000 Burlington Resources, Inc. 1,957,500 35,600 KeySpan Corp. 1,404,420 25,000 Kinder Morgan, Inc. 1,828,250 67,500 MDU Resources Group, Inc. 1,800,900 39,000 New Jersey Resources Corp. 1,690,260 45,000 Questar Corp. 2,293,200 100,000 Williams Companies, Inc. (The) 1,629,000 ------------- 13,766,930 ------------- TELECOMMUNICATIONS (22.1%) 29,160 ALLTEL Corp. 1,713,442
SEE NOTES TO FINANCIAL STATEMENTS 66
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- 105,000 American Tower Corp. (Class A)* $ 1,932,000 55,500 BellSouth Corp. 1,542,345 30,625 CenturyTel, Inc. 1,086,269 50,000 Citizens Communications Co. 689,500 75,000 MCI Inc. 1,512,000 55,000 Nextel Communications, Inc. (Class A)* 1,650,000 66,272 SBC Communications, Inc. 1,707,829 105,000 Sprint Corp. 2,609,250 42,394 Verizon Communications Inc. 1,717,381 45,000 Vodafone Group PLC (ADR) (United Kingdom) 1,232,100 ------------- 17,392,116 ------------- TOTAL COMMON STOCKS (COST $46,553,188) 74,456,804 -------------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - ---------- ------ -------- CORPORATE BONDS (2.1%) ELECTRIC UTILITIES (1.1%) $ 45 Appalachian Power Co. (Series G) 3.60% 05/15/08 44,497 55 Carolina Power & Light Co. 5.125 09/15/13 56,365 45 Cleco Power LLC 5.375 05/01/13 44,788 60 Commonwealth Edison Co. (Series 98) 6.15 03/15/12 66,053 35 Consolidated Natural Gas Co. (Series B) 5.375 11/01/06 36,166 30 Duke Energy Corp. 4.50 04/01/10 30,389 35 Duquesne Light Co. (Series O) 6.70 04/15/12 39,173 10 Entergy Gulf States Inc. 2.80 12/01/09 9,999 10 Entergy Gulf States, Inc. 3.60 06/01/08 9,846 45 Exelon Corp. 6.75 05/01/11 50,404 25 FirstEnergy Corp. (Series B) 6.45 11/15/11 27,200 15 Indianapolis Power & Light Co. - 144A** 6.30 07/01/13 16,129 60 Jersey Central Power & Light Co. (Series MTN) 6.45 05/15/06 62,251 20 Pacific Gas & Electric Co. 6.05 03/01/34 20,845 15 Panhandle Eastern Pipe Line Co. 4.80 08/15/08 15,332 10 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 9,797 65 Pinnacle West Capital Corp. 6.40 04/01/06 66,917 55 Public Service Co. of New Mexico (Series B) 7.50 08/01/18 64,292 50 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 51,116 10 Southern California Edison Co. 5.00 01/15/14 10,180 65 Texas-New Mexico Power Co. 6.25 01/15/09 68,691 30 TXU Energy Co. 7.00 03/15/13 33,559 ---------- 833,989 ----------
SEE NOTES TO FINANCIAL STATEMENTS 67
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS (1.0%) $ 20 AT&T Corp. 9.05% 11/15/11 $ 23,125 60 AT&T Wireless Services, Inc. 7.875 03/01/11 70,805 35 AT&T Wireless Services, Inc. 8.75 03/01/31 47,335 30 British Telecommunications PLC (United Kingdom) 8.375 12/15/10 36,069 85 Deutsche Telekom International Finance Corp. NV (Netherlands) 8.75 06/15/30 112,574 60 France Telecom S.A. (France) 9.25 03/01/31 81,576 180 GTE Corp. 7.90 02/01/27 197,018 20 SBC Communications, Inc. 6.45 06/15/34 21,501 35 Sprint Capital Corp. 8.375 03/15/12 42,695 35 Sprint Capital Corp. 8.75 03/15/32 46,774 65 Telecom Italia Capital SpA (Luxembourg) 4.00 11/15/08 64,809 75 Verizon Global Funding Corp. 6.875 06/15/12 85,742 ---------- 830,023 ---------- TOTAL CORPORATE BONDS (COST $1,558,756) 1,664,012 ---------- ASSET-BACKED SECURITIES (0.1%) FINANCE/RENTAL/LEASING 100 PSE&G Transition Funding LLC (Series 2001 - 1 Class A6) (COST $107,469) 6.61 06/15/15 113,863 ---------- U.S. GOVERNMENT OBLIGATIONS (0.1%) 100 U.S. Treasury Strip 0.00 02/15/25 36,097 90 U.S. Treasury Strip 0.00 05/15/25 31,888 ---------- TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $59,841) 67,985 ----------
NUMBER OF EXPIRATION WARRANTS DATE - ---------- ----------- WARRANTS (0.0%) TELECOMMUNICATIONS 1,333 Lucent Technologies Inc.* (COST $0) 12/10/07 2,106 -------------
SEE NOTES TO FINANCIAL STATEMENTS 68
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENT (3.0%) REPURCHASE AGREEMENT $ 2,327 Joint repurchase agreement account (dated 12/31/04; proceeds $2,327,431) (a) (COST $2,327,000) 2.223% 01/03/05 $ 2,327,000 ------------- TOTAL INVESTMENTS (COST $50,606,254)(b) 99.9% 78,631,770 OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 70,875 ------ ------------- NET ASSETS 100.0% $ 78,702,645 ====== =============
- ---------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $52,018,223. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $26,634,188 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $20,641, RESULTING IN NET UNREALIZED APPRECIATION OF $26,613,547. SUMMARY OF INVESTMENTS
PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------------------------ Electric Utilities $ 44,131,747 56.1% Telecommunications 18,224,245 23.1 Energy 13,766,930 17.5 Repurchase Agreement 2,327,000 3.0 Finance/Rental/Leasing 113,863 0.1 U.S. Government Obligations 67,985 0.1 --------------- ------------ $ 78,631,770 99.9% =============== ============
SEE NOTES TO FINANCIAL STATEMENTS 69 Dividend Growth PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
NUMBER OF SHARES VALUE - --------------------------------------------------------------------- COMMON STOCKS (97.6%) AEROSPACE & DEFENSE (0.8%) 51,500 Northrop Grumman Corp. $ 2,799,540 ------------- AIR FREIGHT/COURIERS (0.2%) 8,700 FedEx Corp. 856,863 ------------- ALUMINUM (1.4%) 161,600 Alcoa, Inc. 5,077,472 ------------- APPAREL/FOOTWEAR (1.6%) 105,600 V.F. Corp. 5,848,128 ------------- AUTO PARTS: O.E.M. (1.5%) 84,900 Johnson Controls, Inc. 5,386,056 ------------- BEVERAGES: NON-ALCOHOLIC (1.4%) 123,300 Coca-Cola Co. (The) 5,132,979 ------------- BIOTECHNOLOGY (0.7%) 42,800 Amgen Inc.* 2,745,620 ------------- CASINO/GAMING (0.3%) 26,571 Las Vegas Sands Corp.* 1,275,408 ------------- CHEMICALS: AGRICULTURAL (0.4%) 28,900 Monsanto Co. 1,605,395 ------------- CHEMICALS: MAJOR DIVERSIFIED (2.5%) 182,700 Dow Chemical Co. (The) 9,045,477 ------------- COMPUTER COMMUNICATIONS (1.1%) 187,700 Cisco Systems, Inc.* 3,622,610 20,600 Juniper Networks, Inc.* 560,114 ------------- 4,182,724 ------------- COMPUTER PERIPHERALS (1.3%) 152,000 EMC Corp.* 2,260,240 ------------- 31,500 Lexmark International, Inc. (Class A)* 2,677,500 ------------- 4,937,740 ------------- COMPUTER PROCESSING HARDWARE (1.4%) 124,600 Dell Inc.* 5,250,644 ------------- DATA PROCESSING SERVICES (1.9%) 167,200 First Data Corp. $ 7,112,688 ------------- DISCOUNT STORES (3.0%) 211,700 Target Corp. 10,993,581 ------------- DRUGSTORE CHAINS (1.5%) 120,400 CVS Corp. 5,426,428 ------------- ELECTRIC UTILITIES (3.2%) 196,400 Exelon Corp. 8,655,348 42,500 FPL Group, Inc. 3,176,875 ------------- 11,832,223 ------------- FINANCE/RENTAL/ LEASING (1.7%) 219,100 MBNA Corp. 6,176,429 ------------- FINANCIAL CONGLOMERATES (3.7%) 205,600 Citigroup, Inc. 9,905,808 92,800 J.P. Morgan Chase & Co. 3,620,128 ------------- 13,525,936 ------------- FOOD: MAJOR DIVERSIFIED (2.7%) 192,200 PepsiCo, Inc. 10,032,840 ------------- HOME IMPROVEMENT CHAINS (2.7%) 227,400 Home Depot, Inc. (The) 9,719,076 ------------- HOUSEHOLD/PERSONAL CARE (4.2%) 156,400 Avon Products, Inc. 6,052,680 167,600 Procter & Gamble Co. (The) 9,231,408 ------------- 15,284,088 ------------- INDUSTRIAL CONGLOMERATES (9.7%) 139,800 3M Co. 11,473,386 280,900 General Electric Co. 10,252,850 48,600 Tyco International Ltd. (Bermuda) 1,736,964 116,100 United Technologies Corp. 11,998,935 ------------- 35,462,135 -------------
SEE NOTES TO FINANCIAL STATEMENTS 70
NUMBER OF SHARES VALUE - --------------------------------------------------------------------- INFORMATION TECHNOLOGY SERVICES (2.6%) 96,800 International Business Machines Corp. $ 9,542,544 ------------- INTEGRATED OIL (7.0%) 164,800 BP PLC (ADR) (United Kingdom) 9,624,320 100,500 ChevronTexaco Corp. 5,277,255 208,600 Exxon Mobil Corp. 10,692,836 25,594,411 ------------- INTERNET SOFTWARE/ SERVICES (0.3%) 31,100 Yahoo! Inc.* 1,171,848 ------------- INVESTMENT BANKS/ Brokers (4.7%) 49,100 Goldman Sachs Group, Inc. (The) 5,108,364 45,500 Lehman Brothers Holdings Inc. 3,980,340 133,400 Merrill Lynch & Co., Inc. 7,973,318 ------------- 17,062,022 ------------- INVESTMENT MANGERS (1.5%) 177,700 Mellon Financial Corp. 5,528,247 ------------- LIFE/HEALTH INSURANCE (1.5%) 17,200 AFLAC, Inc. 685,248 105,400 Lincoln National Corp. 4,920,072 ------------- 5,605,320 ------------- MAJOR BANKS (4.7%) 326,000 Bank of America Corp. 15,318,740 28,700 Comerica, Inc. 1,751,274 ------------- 17,070,014 ------------- MAJOR TELECOMMUNICATIONS (2.2%) 198,300 Verizon Communications Inc. 8,033,133 ------------- Managed Health Care (2.4%) 88,000 Caremark Rx, Inc.* 3,469,840 58,600 UnitedHealth Group Inc. 5,158,558 ------------- 8,628,398 ------------- MEDICAL SPECIALTIES (1.3%) 20,300 Fisher Scientific International, Inc.* $ 1,266,314 71,800 Medtronic, Inc. 3,566,306 ------------- 4,832,620 ------------- MOTOR VEHICLES (0.3%) 17,600 Harley-Davidson, Inc. 1,069,200 ------------- MULTI-LINE INSURANCE (0.7%) 38,100 American International Group, Inc. 2,502,027 ------------- OFFICE EQUIPMENT/ SUPPLIES (2.2%) 174,300 Pitney Bowes, Inc. 8,066,604 ------------- OIL & GAS PRODUCTION (1.3%) 79,800 Devon Energy Corp. 3,105,816 46,000 XTO Energy Inc. 1,627,480 ------------- 4,733,296 ------------- OILFIELD SERVICES/ EQUIPMENT (1.3%) 117,200 Halliburton Co. 4,598,928 ------------- PACKAGED SOFTWARE (3.4%) 10,100 Mercury Interactive Corp.* 460,055 312,000 Microsoft Corp. 8,333,520 47,000 SAP AG (ADR) (Germany) 2,077,870 29,400 Symantec Corp.* 757,344 26,400 VERITAS Software Corp.* 753,720 ------------- 12,382,509 ------------- PHARMACEUTICALS: MAJOR (6.3%) 32,800 Abbott Laboratories 1,530,120 156,100 Bristol-Myers Squibb Co. 3,999,282 86,300 Johnson & Johnson 5,473,146 184,260 Pfizer, Inc. 4,954,751 166,700 Wyeth 7,099,753 ------------- 23,057,052 ------------- PHARMACEUTICALS: OTHER (0.9%) 108,200 Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 3,230,852 -------------
SEE NOTES TO FINANCIAL STATEMENTS 71
NUMBER OF SHARES VALUE - --------------------------------------------------------------------- RAILROADS (0.5%) 40,400 Burlington Northern Santa Fe Corp. $ 1,911,324 ------------- SEMICONDUCTORS (2.2%) 171,700 Intel Corp. 4,016,063 42,700 Marvell Technology Group Ltd. (Bermuda)* 1,514,569 79,300 RF Micro Devices, Inc.* 542,412 76,900 Texas Instruments Inc. 1,893,278 ------------- 7,966,322 ------------- TELECOMMUNICATION EQUIPMENT (0.7%) 61,800 QUALCOMM Inc. 2,620,320 ------------- TRUCKS/CONSTRUCTION/ FARM MACHINERY (0.7%) 34,600 Deere & Co. 2,574,240 ------------- TOTAL COMMON STOCKS (COST $267,916,395) 357,490,701 -------------
PRINCIPAL AMOUNT IN THOUSANDS - ---------- CONVERTIBLE BOND (0.1%) WIRELESS TELECOMMUNICATIONS $ 408 Nextel Communications, Inc. 5.25% due 01/15/10 (COST $394,005) 419,730 -------------
PRINCIPAL AMOUNT IN THOUSANDS VALUE - --------------------------------------------------------------------- SHORT-TERM INVESTMENT (2.4%) REPURCHASE AGREEMENT $ 8,711 Joint repurchase agreement account 2.223% due 01/03/05 (dated 12/31/04; proceeds $8,712,613) (a) (COST $8,711,000) $ 8,711,000 ------------- TOTAL INVESTMENTS (COST $277,021,400) (b) 100.1% 366,621,431 LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (214,367) ----- ------------- NET ASSETS 100.0% $ 366,407,064 ===== =============
- ---------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $282,049,677. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $87,714,734 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $3,142,980, RESULTING IN NET UNREALIZED APPRECIATION OF $84,571,754. SEE NOTES TO FINANCIAL STATEMENTS 72 Dividend Growth SUMMARY OF INVESTMENTS - DECEMBER 31, 2004
PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------------ Industrial Conglomerates $ 35,462,135 9.7% Integrated Oil 25,594,411 7.0 Pharmaceuticals: Major 23,057,052 6.3 Major Banks 17,070,014 4.7 Investment Banks/Brokers 17,062,022 4.7 Household/Personal Care 15,284,088 4.2 Financial Conglomerates 13,525,936 3.7 Packaged Software 12,382,509 3.4 Electric Utilities 11,832,223 3.2 Discount Stores 10,993,581 3.0 Food: Major Diversified 10,032,840 2.7 Home Improvement Chains 9,719,076 2.7 Information Technology Services 9,542,544 2.6 Chemicals: Major Diversified 9,045,477 2.5 Repurchase Agreement 8,711,000 2.4 Managed Health Care 8,628,398 2.4 Office Equipment/Supplies 8,066,604 2.2 Major Telecommunications 8,033,133 2.2 Semiconductors 7,966,322 2.2 Data Processing Services 7,112,688 1.9 Finance/Rental/Leasing 6,176,429 1.7 Apparel/Footwear 5,848,128 1.6 Life/Health Insurance 5,605,320 1.5 Investment Managers 5,528,247 1.5 Drugstore Chains 5,426,428 1.5 Auto Parts: O.E.M. 5,386,056 1.5 Computer Processing Hardware $ 5,250,644 1.4% Beverages: Non-Alcoholic 5,132,979 1.4 Aluminum 5,077,472 1.4 Computer Peripherals 4,937,740 1.3 Medical Specialties 4,832,620 1.3 Oil & Gas Production 4,733,296 1.3 Oilfield Services/ Equipment 4,598,928 1.3 Computer Communications 4,182,724 1.1 Pharmaceuticals: Other 3,230,852 0.9 Aerospace & Defense 2,799,540 0.8 Biotechnology 2,745,620 0.7 Telecommunication Equipment 2,620,320 0.7 Trucks/Construction/ Farm Machinery 2,574,240 0.7 Multi-Line Insurance 2,502,027 0.7 Railroads 1,911,324 0.5 Chemicals: Agricultural 1,605,395 0.4 Casino/Gaming 1,275,408 0.3 Internet Software/Services 1,171,848 0.3 Motor Vehicles 1,069,200 0.3 Air Freight/Couriers 856,863 0.2 Wireless Telecommunications 419,730 0.1 ------------- ---------- $ 366,621,431 100.1% ============= ==========
See Notes to Financial Statements 73 Equally-Weighted S&P 500 PORTFOLIO OF INVESTMENTS DECEMBER 31, 2004
NUMBER OF SHARES VALUE - --------------------------------------------------------------------- COMMON STOCKS (99.1%) ADVERTISING/MARKETING SERVICES (0.4%) 32,769 Interpublic Group of Companies, Inc. (The)* $ 439,105 5,289 Omnicom Group, Inc. 445,968 ------------- 885,073 ------------- AEROSPACE & DEFENSE (1.5%) 8,374 Boeing Co. 433,522 4,139 General Dynamics Corp. 432,939 13,912 Goodrich Corp. 454,088 5,838 L-3 Communications Holdings, Inc. 427,575 7,360 Lockheed Martin Corp. 408,848 7,552 Northrop Grumman Corp. 410,527 11,183 Raytheon Co. 434,236 10,917 Rockwell Collins, Inc. 430,566 ------------- 3,432,301 ------------- AGRICULTURAL COMMODITIES/ MILLING (0.2%) 19,798 Archer-Daniels-Midland Co. 441,693 ------------- AIR FREIGHT/COURIERS (0.4%) 4,463 FedEx Corp. 439,561 5,077 United Parcel Service, Inc. (Class B) 433,880 ------------- 873,441 ------------- AIRLINES (0.4%) 57,089 Delta Air Lines, Inc.* 427,026 27,640 Southwest Airlines Co. 449,979 ------------- 877,005 ------------- ALTERNATIVE POWER GENERATION (0.2%) 120,155 Calpine Corp.* 473,411 ------------- ALUMINUM (0.2%) 14,042 Alcoa, Inc. 441,200 ------------- APPAREL/FOOTWEAR (1.4%) 9,459 Cintas Corp. 414,872 7,895 Coach, Inc.* 445,278 12,025 Jones Apparel Group, Inc. $ 439,754 10,801 Liz Claiborne, Inc. 455,910 5,077 Nike, Inc. (Class B) 460,433 10,669 Reebok International Ltd. 469,436 8,108 V.F. Corp. 449,021 ------------- 3,134,704 ------------- APPAREL/FOOTWEAR RETAIL (0.7%) 21,422 Gap, Inc. (The) 452,433 18,181 Limited Brands, Inc. 418,527 9,430 Nordstrom, Inc. 440,664 17,687 TJX Companies, Inc. (The) 444,474 ------------- 1,756,098 ------------- AUTO PARTS: O.E.M. (1.0%) 26,070 Dana Corp. 451,793 51,617 Delphi Corp. 465,585 6,264 Eaton Corp. 453,263 7,072 Johnson Controls, Inc. 448,648 44,826 Visteon Corp. 437,950 ------------- 2,257,239 ------------- AUTOMOTIVE AFTERMARKET (0.4%) 20,819 Cooper Tire & Rubber Co. 448,649 30,543 Goodyear Tire & Rubber Co. (The)* 447,760 ------------- 896,409 ------------- BEVERAGES: ALCOHOLIC (0.6%) 8,624 Anheuser-Busch Companies, Inc. 437,495 8,839 Brown-Forman Corp. (Class B) 430,282 5,844 Coors (Adolph) Co. (Class B) 442,215 ------------- 1,309,992 ------------- BEVERAGES: NON-ALCOHOLIC (0.6%) 10,604 Coca-Cola Co. (The) 441,444 20,352 Coca-Cola Enterprises Inc. 424,339 15,616 Pepsi Bottling Group, Inc. (The) 422,257 ------------- 1,288,040 -------------
SEE NOTES TO FINANCIAL STATEMENTS 74
NUMBER OF SHARES VALUE - ------------------------------------------------------------- BIOTECHNOLOGY (1.4%) 6,896 Amgen Inc.* $ 442,378 6,619 Biogen Idec Inc.* 440,892 13,647 Chiron Corp.* 454,854 7,846 Genzyme Corp.* 455,617 12,248 Gilead Sciences, Inc.* 428,557 15,814 MedImmune, Inc.* 428,717 8,624 Millipore Corp.* 429,561 ------------ 3,080,576 ------------ BROADCASTING (0.4%) 12,594 Clear Channel Communications, Inc. 421,773 14,720 Univision Communications Inc. (Class A)* 430,854 ------------ 852,627 ------------ BUILDING PRODUCTS (0.4%) 10,566 American Standard Companies, Inc.* 436,587 11,913 Masco Corp. 435,182 ------------ 871,769 ------------ CABLE/SATELLITE TV (0.2%) 14,015 Comcast Corp. (Class A)* 466,419 ------------ CASINO/GAMING (0.4%) 6,709 Harrah's Entertainment, Inc. 448,765 12,734 International Game Technology. 437,795 ------------ 886,560 ------------ CHEMICALS: AGRICULTURAL (0.2%) 8,550 Monsanto Co. 474,952 ------------ CHEMICALS: MAJOR DIVERSIFIED (1.2%) 8,852 Dow Chemical Co. (The) 438,262 9,094 Du Pont (E.I.) de Nemours & Co. 446,061 7,614 Eastman Chemical Co. 439,556 15,128 Engelhard Corp. 463,976 29,410 Hercules Inc.* 436,739 9,852 Rohm & Haas Co. 435,754 ------------ 2,660,348 ------------ CHEMICALS: SPECIALTY (0.8%) 7,650 Air Products & Chemicals, Inc. $ 443,471 15,144 Great Lakes Chemical Corp. 431,453 9,926 Praxair, Inc. 438,233 7,202 Sigma-Aldrich Corp. 435,433 ------------ 1,748,590 ------------ COMMERCIAL PRINTING/ FORMS (0.2%) 12,734 Donnelley (R.R.) & Sons Co. 449,383 ------------ COMPUTER COMMUNICATIONS (0.6%) 25,432 Avaya Inc.* 437,430 22,482 Cisco Systems, Inc.* 433,903 11,949 QLogic Corp.* 438,887 ------------ 1,310,220 ------------ COMPUTER PERIPHERALS (0.6%) 30,479 EMC Corp.* 453,223 4,987 Lexmark International, Inc. (Class A)* 423,895 12,794 Network Appliance, Inc.* 425,017 ------------ 1,302,135 ------------ COMPUTER PROCESSING HARDWARE (1.2%) 6,549 Apple Computer, Inc.* 421,756 10,318 Dell Inc.* 434,801 74,558 Gateway, Inc.* 448,094 20,720 Hewlett-Packard Co. 434,498 6,276 NCR Corp.* 434,487 82,606 Sun Microsystems, Inc.* 444,420 ------------ 2,618,056 ------------ CONSTRUCTION MATERIALS (0.2%) 8,031 Vulcan Materials Co. 438,573 ------------ CONTAINERS/PACKAGING (1.0%) 9,803 Ball Corp. 431,136 15,293 Bemis Company, Inc. 444,873 17,622 Pactiv Corp.* 445,660 8,349 Sealed Air Corp.* 444,751 6,841 Temple-Inland Inc. 467,924 ------------ 2,234,344 ------------
SEE NOTES TO FINANCIAL STATEMENTS 75
NUMBER OF SHARES VALUE - ------------------------------------------------------------- CONTRACT DRILLING (0.8%) 8,408 Nabors Industries, Ltd. (Bermuda)* $ 431,246 8,921 Noble Corp.* 443,731 17,071 Rowan Companies, Inc.* 442,139 10,781 Transocean Inc. (Cayman Islands)* 457,007 ------------ 1,774,123 ------------ DATA PROCESSING SERVICES (1.6%) 7,480 Affiliated Computer Services, Inc. (Class A)* 450,221 9,872 Automatic Data Processing, Inc 437,823 7,670 Computer Sciences Corp.* 432,358 30,226 Convergys Corp.* 453,088 10,409 First Data Corp. 442,799 11,538 Fiserv, Inc.* 463,712 13,169 Paychex, Inc. 448,800 16,154 SunGard Data Systems Inc.* 457,643 ------------ 3,586,444 ------------ DEPARTMENT STORES (1.2%) 16,571 Dillard's, Inc. (Class A) 445,263 7,934 Federated Department Stores, Inc. 458,506 9,430 Kohl's Corp.* 463,673 15,538 May Department Stores Co. 456,817 10,912 Penney (J.C.) Co., Inc. 451,757 8,397 Sears, Roebuck & Co. 428,499 ------------ 2,704,515 ------------ DISCOUNT STORES (1.2%) 36,286 Big Lots, Inc.* 440,149 9,096 Costco Wholesale Corp. 440,337 21,743 Dollar General Corp. 451,602 14,660 Family Dollar Stores, Inc. 457,832 8,513 Target Corp. 442,080 8,268 Wal-Mart Stores, Inc. 436,716 ------------ 2,668,716 ------------ DRUGSTORE CHAINS (0.4%) 9,716 CVS Corp. $ 437,900 11,203 Walgreen Co. 429,859 ------------ 867,759 ------------ ELECTRIC UTILITIES (5.1%) 34,809 AES Corp. (The)* 475,839 22,378 Allegheny Energy, Inc.* 441,070 8,772 Ameren Corp. 439,828 12,497 American Electric Power Co., Inc. 429,147 38,873 CenterPoint Energy, Inc. 439,265 10,389 Cinergy Corp. 432,494 42,845 CMS Energy Corp.* 447,730 9,867 Consolidated Edison, Inc. 431,681 10,122 Constellation Energy Group, Inc. 442,433 6,383 Dominion Resources, Inc. 432,384 9,876 DTE Energy Co. 425,952 16,938 Duke Energy Corp. 429,040 13,934 Edison International 446,306 6,575 Entergy Corp. 444,404 10,238 Exelon Corp. 451,189 11,241 FirstEnergy Corp. 444,132 5,829 FPL Group, Inc. 435,718 13,241 PG&E Corp.* 440,660 9,861 Pinnacle West Capital Corp. 437,927 8,373 PPL Corp. 446,113 9,569 Progress Energy, Inc. 432,902 9,562 Public Service Enterprise Group, Inc. 495,025 13,137 Southern Co. (The) 440,352 29,058 TECO Energy, Inc. 445,750 6,812 TXU Corp. 439,783 23,847 Xcel Energy, Inc. 434,015 ------------ 11,501,139 ------------ ELECTRICAL PRODUCTS (1.0%) 21,349 American Power Conversion Corp. 456,869
SEE NOTES TO FINANCIAL STATEMENTS 76
NUMBER OF SHARES VALUE - ------------------------------------------------------------- 6,453 Cooper Industries Ltd. (Class A) (Bermuda) $ 438,094 6,228 Emerson Electric Co. 436,583 14,810 Molex Inc. 444,300 46,106 Power-One, Inc.* 411,266 ------------ 2,187,112 ------------ ELECTRONIC COMPONENTS (0.5%) 16,685 Jabil Circuit, Inc.* 426,802 51,373 Sanmina-SCI Corp.* 435,129 73,304 Solectron Corp.* 390,710 ------------ 1,252,641 ------------ ELECTRONIC EQUIPMENT/ INSTRUMENTS (1.6%) 18,419 Agilent Technologies, Inc.* 443,898 143,004 JDS Uniphase Corp.* 453,323 9,207 Rockwell Automation, Inc. 456,207 13,690 Scientific-Atlanta, Inc. 451,907 28,267 Symbol Technologies, Inc. 489,019 14,138 Tektronix, Inc. 427,109 14,161 Thermo Electron Corp.* 427,521 26,354 Xerox Corp.* 448,282 ------------ 3,597,266 ------------ ELECTRONIC PRODUCTION EQUIPMENT (0.8%) 25,551 Applied Materials, Inc.* 436,922 9,475 KLA-Tencor Corp.* 441,346 15,872 Novellus Systems, Inc.* 442,670 26,579 Teradyne, Inc.* 453,704 ------------ 1,774,642 ------------ ELECTRONICS/APPLIANCE STORES (0.6%) 7,520 Best Buy Co., Inc. 446,838 28,544 Circuit City Stores - Circuit City Group 446,428 13,824 RadioShack Corp. 454,533 ------------ 1,347,799 ------------ ELECTRONICS/APPLIANCES (0.6%) 13,613 Eastman Kodak Co. 439,019 20,989 Maytag Corp. $ 442,868 6,445 Whirlpool Corp. 446,058 ------------ 1,327,945 ------------ ENGINEERING & CONSTRUCTION (0.2%) 8,197 Fluor Corp. 446,818 ------------ ENVIRONMENTAL SERVICES (0.4%) 48,842 Allied Waste Industries, Inc.* 453,254 14,428 Waste Management, Inc. 431,974 ------------ 885,228 ------------ FINANCE/RENTAL/LEASING (1.8%) 5,330 Capital One Financial Corp. 448,839 9,834 CIT Group, Inc. 450,594 12,166 Countrywide Financial Corp. 450,264 6,293 Fannie Mae 448,125 6,164 Freddie Mac 454,287 15,924 MBNA Corp. 448,898 27,959 Providian Financial Corp.* 460,485 8,068 Ryder System, Inc. 385,408 8,152 SLM Corp. 435,235 ------------ 3,982,135 ------------ FINANCIAL CONGLOMERATES (1.2%) 7,811 American Express Co. 440,306 9,270 Citigroup, Inc. 446,629 11,203 JP Morgan Chase & Co. 437,029 10,920 Principal Financial Group, Inc. 447,065 8,158 Prudential Financial, Inc. 448,364 9,062 State Street Corp. 445,125 ------------ 2,664,518 ------------ FINANCIAL PUBLISHING/ Services (0.6%) 15,571 Equifax, Inc. 437,545 4,893 McGraw-Hill Companies, Inc. (The) 447,905 5,194 Moody's Corp. 451,099 ------------ 1,336,549 ------------
SEE NOTES TO FINANCIAL STATEMENTS 77
NUMBER OF SHARES VALUE - ------------------------------------------------------------- Food Distributors (0.2%) 11,753 SYSCO Corp. $ 448,612 ------------ FOOD RETAIL (0.8%) 18,599 Albertson's, Inc. 444,144 25,284 Kroger Co.* 443,481 22,764 Safeway Inc.* 449,361 12,805 Supervalu, Inc. 442,029 ------------ 1,779,015 ------------ FOOD: MAJOR DIVERSIFIED (1.4%) 14,390 Campbell Soup Co. 430,117 15,785 ConAgra Foods Inc. 464,868 9,019 General Mills, Inc. 448,334 11,296 Heinz (H.J.) Co. 440,431 9,801 Kellogg Co. 437,713 8,336 PepsiCo, Inc. 435,139 17,809 Sara Lee Corp. 429,909 ------------ 3,086,511 ------------ FOOD: SPECIALTY/CANDY (0.6%) 7,759 Hershey Foods Corp. 430,935 11,447 McCormick & Co., Inc. (Non-Voting) 441,854 6,377 Wrigley (Wm.) Jr. Co. 441,225 ------------ 1,314,014 ------------ FOREST PRODUCTS (0.4%) 16,634 Louisiana-Pacific Corp. 444,793 6,525 Weyerhaeuser Co. 438,611 ------------ 883,404 ------------ GAS DISTRIBUTORS (1.2%) 100,037 Dynegy, Inc. (Class A)* 462,171 11,200 KeySpan Corp. 441,840 11,671 Nicor Inc. 431,127 20,072 NiSource, Inc. 457,240 9,688 Peoples Energy Corp. 425,788 12,008 Sempra Energy 440,453 ------------ 2,658,619 ------------ HOME BUILDING (0.6%) 7,468 Centex Corp. 444,943 4,130 KB Home $ 431,172 6,730 Pulte Homes, Inc. 429,374 ------------ 1,305,489 ------------ HOME FURNISHINGS (0.4%) 14,685 Leggett & Platt, Inc. 417,495 19,130 Newell Rubbermaid, Inc. 462,755 ------------ 880,250 ------------ Home Improvement Chains (0.6%) 10,241 Home Depot, Inc. (The) 437,700 7,580 Lowe's Companies, Inc. 436,532 9,937 Sherwin-Williams Co. 443,488 ------------ 1,317,720 ------------ Hospital/Nursing Management (0.8%) 10,737 HCA, Inc. 429,051 19,239 Health Management Associates, Inc.(Class A) 439,024 12,522 Manor Care, Inc. 443,654 41,698 Tenet Healthcare Corp.* 457,844 ------------ 1,767,659 ------------ HOTELS/RESORTS/ CRUISELINES (0.8%) 7,813 Carnival Corp. (Panama) 450,263 19,576 Hilton Hotels Corp. 445,158 6,971 Marriott International, Inc. (Class A) 439,034 7,665 Starwood Hotels & Resorts Worldwide, Inc. 447,636 ------------ 1,782,091 ------------ HOUSEHOLD/PERSONAL CARE (1.5%) 9,170 Alberto-Culver Co. (Class B) 445,387 11,334 Avon Products, Inc. 438,626 7,415 Clorox Co. (The) 436,966 8,740 Colgate-Palmolive Co. 447,138 9,660 Gillette Co. (The) 432,575
SEE NOTES TO FINANCIAL STATEMENTS 78
NUMBER OF SHARES VALUE - ------------------------------------------------------------- 10,248 International Flavors & Fragrances, Inc. $ 439,024 6,736 Kimberly-Clark Corp. 443,296 7,774 Procter & Gamble Co. (The) 428,192 ------------ 3,511,204 ------------ INDUSTRIAL CONGLOMERATES (1.8%) 5,458 3M Co. 447,938 7,715 Danaher Corp. 442,918 11,753 General Electric Co.** 428,985 12,248 Honeywell International, Inc. 433,702 5,418 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 435,065 5,264 ITT Industries, Inc. 444,545 5,987 Textron, Inc. 441,841 12,613 Tyco International Ltd. (Bermuda) 450,789 4,276 United Technologies Corp. 441,925 ------------ 3,967,708 ------------ INDUSTRIAL MACHINERY (0.4%) 4,748 Illinois Tool Works Inc. 440,045 5,744 Parker-Hannifin Corp. 435,051 ------------ 875,096 ------------ INDUSTRIAL SPECIALTIES (0.4%) 12,587 Ecolab Inc. 442,181 6,491 PPG Industries, Inc. 442,427 ------------ 884,608 ------------ INFORMATION TECHNOLOGY SERVICES (1.0%) 17,349 Citrix Systems, Inc.* 425,571 19,673 Electronic Data Systems Corp. 454,446 4,475 International Business Machines Corp. 441,146 16,527 PeopleSoft, Inc.* 437,635 44,965 Unisys Corp.* 457,744 ------------ 2,216,542 ------------ INSURANCE BROKERS/ SERVICES (0.4%) 18,816 AON Corp. $ 448,950 13,651 Marsh & McLennan Companies, Inc. 449,118 ------------ 898,068 ------------ INTEGRATED OIL (0.8%) 5,159 Amerada Hess Corp. 424,998 8,392 ChevronTexaco Corp. 440,664 5,009 ConocoPhillips 434,931 8,705 Exxon Mobil Corp. 446,218 ------------ 1,746,811 ------------ INTERNET SOFTWARE/ SERVICES (0.4%) 43,791 Siebel Systems, Inc.* 459,806 11,762 Yahoo! Inc.* 443,192 ------------ 902,998 ------------ INVESTMENT BANKS/ BROKERS (1.4%) 4,138 Bear Stearns Companies, Inc. (The) 423,359 29,711 E*TRADE Group, Inc.* 444,179 4,138 Goldman Sachs Group, Inc. (The) 430,518 5,013 Lehman Brothers Holdings Inc. 438,537 7,290 Merrill Lynch & Co., Inc. 435,723 7,951 Morgan Stanley (Note 4) 441,440 36,560 Schwab (Charles) Corp. (The) 437,258 ------------ 3,051,014 ------------ INVESTMENT MANAGERS (1.0%) 13,979 Federated Investors, Inc. (Class B) 424,962 6,507 Franklin Resources, Inc. 453,213 26,354 Janus Capital Group, Inc. 443,011 14,106 Mellon Financial Corp. 438,838 7,022 T. Rowe Price Group, Inc. 436,768 ------------ 2,196,792 ------------
SEE NOTES TO FINANCIAL STATEMENTS 79
NUMBER OF SHARES VALUE - ------------------------------------------------------------- LIFE/HEALTH INSURANCE (1.2%) 11,030 AFLAC, Inc. $ 439,435 8,285 Jefferson-Pilot Corp. 430,489 9,288 Lincoln National Corp. 433,564 10,690 MetLife, Inc. 433,052 7,676 Torchmark Corp. 438,607 25,808 UnumProvident Corp. 462,996 ------------ 2,638,143 ------------ MAJOR BANKS (2.4%) 9,463 Bank of America Corp. 444,666 13,217 Bank of New York Co., Inc. (The) 441,712 10,360 BB&T Corp. 435,638 7,291 Comerica, Inc. 444,897 18,395 Huntington Bancshares, Inc. 455,828 13,181 KeyCorp 446,836 11,804 National City Corp. 443,240 7,832 PNC Financial Services Group 449,870 12,444 Regions Financial Corp. 442,882 5,987 SunTrust Banks, Inc. 442,320 8,214 Wachovia Corp. 432,056 6,949 Wells Fargo & Co. 431,880 ------------ 5,311,825 ------------ MAJOR TELECOMMUNICATIONS (1.1%) 7,462 ALLTEL Corp. 438,467 22,752 AT&T Corp. 433,653 15,336 BellSouth Corp. 426,187 16,971 SBC Communications, Inc. 437,343 17,788 Sprint Corp. 442,032 10,796 Verizon Communications Inc. 437,346 ------------ 2,615,028 ------------ MANAGED HEALTH CARE (1.2%) 3,529 Aetna, Inc. 440,243 11,405 Caremark Rx, Inc.* 449,699 5,458 CIGNA Corp. 445,209 14,770 Humana, Inc.* 438,521 5,068 UnitedHealth Group Inc. 446,136 3,762 WellPoint Inc.* 432,630 ------------ 2,652,438 ------------ MEDIA CONGLOMERATES (0.8%) 15,831 Disney (Walt) Co. (The) $ 440,102 23,918 News Corp Inc. (Class A) 446,310 22,367 Time Warner, Inc.* 434,814 12,173 Viacom Inc. (Class B) (Non-Voting) 442,975 ------------ 1,764,201 ------------ MEDICAL DISTRIBUTORS (0.6%) 6,929 AmerisourceBergen Corp. 406,594 7,546 Cardinal Health, Inc. 438,800 13,466 McKesson Corp. 423,640 ------------ 1,269,034 ------------ MEDICAL SPECIALTIES (3.2%) 20,477 Applera Corp. - Applied Biosystems Group 428,174 6,862 Bard (C.R.), Inc. 439,031 6,699 Bausch & Lomb, Inc. 431,818 13,008 Baxter International, Inc. 449,296 7,559 Becton, Dickinson & Co. 429,351 10,082 Biomet, Inc. 437,458 12,296 Boston Scientific Corp.* 437,123 7,130 Fisher Scientific International, Inc.* 444,769 6,083 Guidant Corp. 438,584 13,051 Hospira, Inc.* 437,209 9,032 Medtronic, Inc. 448,619 15,107 Pall Corp. 437,348 19,222 PerkinElmer, Inc. 432,303 10,703 St. Jude Medical, Inc.* 448,777 9,544 Stryker Corp. 460,498 9,309 Waters Corp.* 435,568 5,472 Zimmer Holdings, Inc.* 438,417 ------------ 7,474,343 ------------ MISCELLANEOUS COMMERCIAL SERVICES (0.2%) 19,462 Sabre Holdings Corp. 431,278 ------------ MISCELLANEOUS MANUFACTURING (0.2%) 10,384 Dover Corp. 435,505 ------------
SEE NOTES TO FINANCIAL STATEMENTS 80
NUMBER OF SHARES VALUE - ------------------------------------------------------------- MOTOR VEHICLES (0.6%) 30,672 Ford Motor Co. $ 449,038 11,118 General Motors Corp. 445,387 7,380 Harley-Davidson, Inc. 448,335 ------------ 1,342,760 ------------ MULTI-LINE INSURANCE (0.8%) 6,765 American International Group, Inc. 444,258 6,491 Hartford Financial Services Group, Inc. (The) (Note 4) 449,891 6,284 Loews Corp. 441,765 8,550 Safeco Corp. 446,652 ------------ 1,782,566 ------------ OFFICE EQUIPMENT/ Supplies (0.4%) 7,123 Avery Dennison Corp. 427,166 9,699 Pitney Bowes, Inc. 448,870 ------------ 876,036 ------------ OIL & Gas Pipelines (0.6%) 42,428 El Paso Corp. 441,251 6,074 Kinder Morgan, Inc. 444,192 27,007 Williams Companies, Inc. (The) 439,944 ------------ 1,325,387 ------------ OIL & Gas Production (1.6%) 6,539 Anadarko Petroleum Corp. 423,793 8,636 Apache Corp. 436,723 9,962 Burlington Resources, Inc. 433,347 10,923 Devon Energy Corp. 425,123 6,070 EOG Resources, Inc. 433,155 7,405 Kerr-McGee Corp. 427,935 7,635 Occidental Petroleum Corp. 445,579 10,082 Unocal Corp. 435,946 6,300 XTO Energy Inc. 222,894 ------------ 3,684,495 ------------ OIL REFINING/MARKETING (0.8%) 7,574 Ashland, Inc. 442,170 11,696 Marathon Oil Corp. 439,887 5,268 Sunoco, Inc. $ 430,448 9,664 Valero Energy Corp. 438,746 ------------ 1,751,251 ------------ OILFIELD SERVICES/ EQUIPMENT (0.8%) 10,200 Baker Hughes Inc. 435,234 9,213 BJ Services Co. 428,773 11,047 Halliburton Co. 433,484 6,659 Schlumberger Ltd. (Netherlands Antilles) 445,820 ------------ 1,743,311 ------------ OTHER CONSUMER SERVICES (0.8%) 5,477 Apollo Group, Inc. (Class A)* 442,049 8,967 Block (H.&R.), Inc. 439,383 19,419 Cendant Corp. 454,016 3,769 eBay Inc.* 438,259 ------------ 1,773,707 ------------ OTHER CONSUMER SPECIALTIES (0.2%) 5,712 Fortune Brands, Inc. 440,852 ------------ OTHER METALS/MINERALS (0.2%) 4,537 Phelps Dodge Corp. 448,800 ------------ PACKAGED SOFTWARE (2.6%) 7,137 Adobe Systems, Inc.* 447,775 12,560 Autodesk, Inc. 476,652 23,150 BMC Software, Inc.* 430,590 14,340 Computer Associates International, Inc. 445,400 73,676 Compuware Corp.* 476,684 9,921 Intuit Inc.* 436,623 9,812 Mercury Interactive Corp.* 446,937 16,059 Microsoft Corp.** 428,936 64,047 Novell, Inc.* 432,317 30,955 Oracle Corp.* 424,703 76,252 Parametric Technology Corp.* 449,124 17,356 Symantec Corp.* 447,091 15,582 VERITAS Software Corp.* 444,866 ------------ 5,787,698 ------------
SEE NOTES TO FINANCIAL STATEMENTS 81
NUMBER OF SHARES VALUE - ------------------------------------------------------------- PERSONNEL SERVICES (0.4%) 13,379 Monster Worldwide Inc.* $ 450,070 16,647 Robert Half International, Inc. 489,921 ------------ 939,991 ------------ PHARMACEUTICALS: GENERIC DRUGS (0.4%) 24,258 Mylan Laboratories, Inc. 428,881 13,284 Watson Pharmaceuticals, Inc.* 435,848 ------------ 864,729 ------------ PHARMACEUTICALS: MAJOR (1.5%) 9,442 Abbott Laboratories 440,469 17,064 Bristol-Myers Squibb Co. 437,180 6,874 Johnson & Johnson 435,949 7,598 Lilly (Eli) & Co. 431,187 13,720 Merck & Co., Inc. 440,961 15,050 Pfizer, Inc. 404,695 21,317 Schering-Plough Corp. 445,099 10,462 Wyeth 445,577 ------------ 3,481,117 ------------ PHARMACEUTICALS: OTHER (0.6%) 5,465 Allergan, Inc. 443,048 9,339 Forest Laboratories, Inc.* 418,948 35,259 King Pharmaceuticals, Inc.* 437,212 ------------ 1,299,208 ------------ PRECIOUS METALS (0.4%) 11,709 Freeport-McMoRan Copper & Gold, Inc. (Class B) 447,635 9,731 Newmont Mining Corp. 432,154 ------------ 879,789 ------------ PROPERTY - CASUALTY INSURERS (1.4%) 10,459 ACE Ltd. (Cayman Islands) 447,122 8,628 Allstate Corp. (The) 446,240 5,685 Chubb Corp. (The) 437,177 9,850 Cincinnati Financial Corp. 435,961 5,138 Progressive Corp. (The) 435,908 11,756 St. Paul Travelers Companies, Inc. (The) $ 435,795 5,545 XL Capital Ltd. (Class A) 430,569 ------------ 3,068,772 ------------ PUBLISHING: BOOKS/MAGAZINES (0.2%) 8,203 Meredith Corp. 444,603 ------------ PUBLISHING: NEWSPAPERS (1.0%) 10,387 Dow Jones & Co., Inc. 447,264 5,474 Gannett Co., Inc. 447,226 6,619 Knight-Ridder, Inc. 443,076 11,058 New York Times Co. (The) (Class A) 451,166 10,494 Tribune Co. 442,217 ------------ 2,230,949 ------------ PULP & Paper (0.6%) 11,677 Georgia-Pacific Corp. 437,654 10,477 International Paper Co. 440,034 13,008 MeadWestvaco Corp. 440,841 ------------ 1,318,529 ------------ RAILROADS (0.8%) 9,448 Burlington Northern Santa Fe Corp. 446,985 11,180 CSX Corp. 448,094 12,422 Norfolk Southern Corp. 449,552 7,021 Union Pacific Corp. 472,162 ------------ 1,816,793 ------------ REAL ESTATE INVESTMENT TRUSTS (1.4%) 11,813 Apartment Investment & Management Co. (Class A) 455,273 11,386 Archstone-Smith Trust 436,084 15,384 Equity Office Properties Trust 447,982 12,334 Equity Residential 446,244 11,244 Plum Creek Timber Co., Inc. 432,219 10,553 ProLogis 457,261 6,809 Simon Property Group, Inc. 440,338 ------------ 3,115,401 ------------
SEE NOTES TO FINANCIAL STATEMENTS 82
NUMBER OF SHARES VALUE - ------------------------------------------------------------- RECREATIONAL PRODUCTS (0.8%) 9,079 Brunswick Corp. $ 449,411 7,373 Electronic Arts Inc.* 454,767 23,249 Hasbro, Inc. 450,566 22,599 Mattel, Inc. 440,455 ------------ 1,795,199 ------------ REGIONAL BANKS (2.2%) 17,397 AmSouth Bancorporation 450,582 9,251 Compass Bancshares, Inc. 450,246 9,130 Fifth Third Bancorp 431,666 10,148 First Horizon National Corp. 437,480 4,172 M&T Bank Corp. 449,908 10,214 Marshall & Ilsley Corp. 451,459 15,097 North Fork Bancorporation, Inc. 435,548 8,856 Northern Trust Corp. 430,224 15,499 Synovus Financial Corp. 442,961 14,404 U.S. Bancorp 451,133 6,582 Zions Bancorporation 447,773 ------------ 4,878,980 ------------ Restaurants (1.0%) 15,633 Darden Restaurants, Inc. 433,659 13,354 McDonald's Corp. 428,129 7,514 Starbucks Corp.* 468,573 11,349 Wendy's International, Inc. 445,562 9,418 Yum! Brands, Inc. 444,341 ------------ 2,220,264 ------------ Savings Banks (0.6%) 7,221 Golden West Financial Corp. 443,514 20,202 Sovereign Bancorp, Inc. 455,555 10,614 Washington Mutual, Inc. 448,760 ------------ 1,347,829 ------------ Semiconductors (3.2%) 19,393 Advanced Micro Devices, Inc.* 427,034 21,656 Altera Corp.* 448,279 11,750 Analog Devices, Inc. 433,810 116,310 Applied Micro Circuits Corp.* 489,665 13,668 Broadcom Corp. (Class A)* 441,203 25,792 Freescale Semiconductor Inc. (Class B)* $ 473,541 19,071 Intel Corp. 446,071 11,367 Linear Technology Corp. 440,585 81,985 LSI Logic Corp.* 449,278 10,462 Maxim Integrated Products, Inc. 443,484 37,503 Micron Technology, Inc.* 463,162 24,669 National Semiconductor Corp. 442,809 18,442 NVIDIA Corp.* 434,494 39,759 PMC - Sierra, Inc.* 447,289 18,150 Texas Instruments Inc. 446,853 14,800 Xilinx, Inc. 438,820 ------------ 7,166,377 ------------ SERVICES TO THE HEALTH INDUSTRY (1.0%) 5,723 Express Scripts, Inc. (Class A)* 437,466 18,751 IMS Health Inc. 435,211 8,894 Laboratory Corp. of America Holdings* 443,099 11,039 Medco Health Solutions Inc.* 459,222 4,643 Quest Diagnostics Inc. 443,639 ------------ 2,218,637 ------------ SPECIALTY INSURANCE (0.6%) 5,242 Ambac Financial Group, Inc. 430,525 6,778 MBIA Inc. 428,912 6,441 MGIC Investment Corp. 443,849 ------------ 1,303,286 ------------ SPECIALTY STORES (1.6%) 23,678 AutoNation, Inc.* 454,854 4,918 AutoZone, Inc.* 449,063 11,003 Bed Bath & Beyond Inc.* 438,249 25,358 Office Depot, Inc.* 440,215 13,346 OfficeMax Inc. 418,797 13,225 Staples, Inc. 445,815 14,092 Tiffany & Co. 450,521 21,667 Toys 'R' Us, Inc.* 443,523 ------------ 3,541,037 ------------
SEE NOTES TO FINANCIAL STATEMENTS 83
NUMBER OF SHARES VALUE - -------------------------------------------------------------- SPECIALTY TELECOMMUNICATIONS (0.6%) 12,723 CenturyTel, Inc. $ 451,285 32,070 Citizens Communications Co. 442,245 105,099 Qwest Communications International, Inc.* 466,640 ------------- 1,360,170 ------------- STEEL (0.6%) 19,515 Allegheny Technologies Inc. 422,890 8,268 Nucor Corp. 432,747 8,480 United States Steel Corp. 434,600 ------------- 1,290,237 ------------- TELECOMMUNICATION EQUIPMENT (1.8%) 166,475 ADC Telecommunications, Inc.* 446,153 33,295 Andrew Corp.* 453,811 151,973 CIENA Corp.* 507,590 17,839 Comverse Technology, Inc.* 436,164 37,535 Corning Inc.* 441,787 116,621 Lucent Technologies Inc.* 438,495 25,432 Motorola, Inc. 437,430 10,038 QUALCOMM Inc. 425,611 52,613 Tellabs, Inc.* 451,946 ------------- 4,038,987 ------------- TOBACCO (0.6%) 7,160 Altria Group, Inc. 437,476 5,530 Reynolds American, Inc. 434,658 9,232 UST, Inc. 444,152 ------------- 1,316,286 ------------- TOOLS/HARDWARE (0.6%) 5,071 Black & Decker Corp. 447,921 12,824 Snap-On, Inc. 440,633 9,178 Stanley Works (The) 449,630 ------------- 1,338,184 ------------- TRUCKS/CONSTRUCTION/ FARM MACHINERY (1.0%) 4,601 Caterpillar Inc. 448,644 5,341 Cummins Inc. 447,522 6,021 Deere & Co. 447,962 10,432 Navistar International Corp.* $ 458,799 5,573 PACCAR, Inc. 448,515 ------------- 2,251,442 ------------- WHOLESALE DISTRIBUTORS (0.4%) 10,131 Genuine Parts Co. 446,372 6,760 Grainger (W.W.), Inc. 450,351 ------------- 896,723 ------------- WIRELESS TELECOMMUNICATIONS (0.2%) 14,646 Nextel Communications, Inc. (Class A)* 439,380 ------------- TOTAL COMMON STOCKS (Cost $140,452,171) 221,252,289 ------------- PRINCIPAL AMOUNT IN THOUSANDS - ------------ SHORT-TERM INVESTMENT (0.8%) REPURCHASE AGREEMENT $ 1,670 Joint repurchase agreement account 2.223% due 01/03/05 (dated 12/31/04; proceeds $1,670,309) (a) (Cost $1,670,000) 1,670,000 ------------- TOTAL INVESTMENTS (Cost $142,122,171)(b)(c) 99.9% 222,922,289 OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 297,206 ----- ------------- NET ASSETS 100.0% $ 223,219,495 ===== =============
- ----------------------------------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** A PORTION OF THIS SECURITY IS PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $120,000. (A) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (B) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $1,451,343 IN CONNECTION WITH OPEN FUTURES CONTRACTS. (C) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $142,604,342. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $82,447,423 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $2,129,476, RESULTING IN NET UNREALIZED APPRECIATION OF $80,317,947 SEE NOTES TO FINANCIAL STATEMENTS 84 FUTURES CONTRACTS OPEN AT DECEMBER 31, 2004:
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION - --------------------------------------------------------------------------------------------------------- 4 Long S&P Midcap 400 Index March/2005 $ 1,330,800 $ 54,480 1 Long S&P 500 Index March/2005 303,425 8,377 ---------- Total unrealized appreciation $ 62,857 ----------
SUMMARY OF INVESTMENTS PERCENT OF SECTOR VALUE NET ASSETS - ---------------------------------------------------------- Finance $ 36,239,329 16.2% Electronic Technology 26,492,625 11.9 Health Technology 16,199,973 7.3 Retail Trade 15,982,659 7.2 Consumer Non-Durables 14,960,751 6.7 Utilities 14,633,169 6.5 Producer Manufacturing 13,721,907 6.1 Technology Services 12,493,682 5.6 Consumer Services 12,421,421 5.6 Process Industries 9,763,064 4.4 Consumer Durables 9,327,088 4.2 Energy Minerals 7,182,557 3.2 Health Services 6,638,734 3.0 Industrial Services 6,174,867 2.8 Non-Energy Minerals 4,382,003 2.0 Communications 4,414,578 1.9 Commercial Services 4,042,274 1.8 Transportation 3,567,239 1.6 Distribution Services 2,614,369 1.2 Repurchase Agreement 1,670,000 0.7 -------------- ------------ $ 222,922,289* 99.9% ============== ============
* DOES NOT INCLUDE OUTSTANDING LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $1,634,225 AND TOTAL UNREALIZED APPRECIATION OF $62,857. SEE NOTES TO FINANCIAL STATEMENTS 85 Growth PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
NUMBER OF SHARES VALUE - ------------------------------------------------------------- COMMON STOCKS (99.8%) ADVERTISING/MARKETING SERVICES (0.7%) 7,000 Lamar Advertising Co. (Class A)* $ 299,460 ------------ AIR FREIGHT/COURIERS (0.8%) 6,595 C.H. Robinson Worldwide, Inc. 366,154 ------------ APPAREL/FOOTWEAR (0.8%) 6,350 Coach, Inc.* 358,140 ------------ APPAREL/FOOTWEAR RETAIL (0.5%) 5,351 Chico's FAS, Inc.* 243,631 ------------ BIOTECHNOLOGY (4.0%) 5,430 Amgen Inc.* 348,335 3,400 Biogen Idec Inc.* 226,474 9,200 Genentech, Inc.* 500,848 3,900 Genzyme Corp.* 226,473 14,618 Gilead Sciences, Inc.* 511,484 ------------ 1,813,614 ------------ BROADCASTING (1.0%) 14,732 Univision Communications Inc. (Class A)* 431,206 ------------ CASINO/GAMING (4.4%) 9,340 GTECH Holdings Corp. 242,373 22,500 International Game Technology 773,550 4,783 Las Vegas Sands Corp.* 229,584 8,000 Station Casinos, Inc. 437,440 4,645 Wynn Resorts, Ltd.* 310,843 ------------ 1,993,790 ------------ CHEMICALS: AGRICULTURAL (0.8%) 6,100 Monsanto Co. 338,855 ------------ COAL (0.7%) 3,700 Peabody Energy Corp. 299,367 ------------ COMPUTER COMMUNICATIONS (1.3%) 21,809 Cisco Systems, Inc.* 420,914 5,200 Juniper Networks, Inc.* 141,388 ------------ 562,302 ------------ COMPUTER PROCESSING HARDWARE (3.0%) 32,319 Dell Inc.* $ 1,361,923 ------------ CONTAINERS/PACKAGING (0.4%) 3,000 Sealed Air Corp.* 159,810 ------------ DATA PROCESSING SERVICES (2.0%) 10,100 First Data Corp. 429,654 13,450 Paychex, Inc. 458,376 ------------ 888,030 ------------ DISCOUNT STORES (4.4%) 4,500 Costco Wholesale Corp. 217,845 4,500 Kmart Holding Corp.* 445,275 24,954 Wal-Mart Stores, Inc. 1,318,070 ------------ 1,981,190 ------------ FINANCE/RENTAL/LEASING (0.8%) 6,900 SLM Corp. 368,391 ------------ FINANCIAL CONGLOMERATES (2.8%) 6,700 American Express Co. 377,679 18,400 Brascan Corp. (Class A) (Canada) 662,584 4,570 Citigroup, Inc. 220,183 ------------ 1,260,446 ------------ FINANCIAL PUBLISHING/ SERVICES (1.1%) 5,800 Moody's Corp. 503,730 ------------ FOOD: MAJOR DIVERSIFIED (1.0%) 8,506 PepsiCo, Inc. 444,013 ------------ FOOD: SPECIALTY/CANDY (1.5%) 9,700 Wrigley (Wm.) Jr. Co. 671,143 ------------ GAS DISTRIBUTORS (1.0%) 9,100 Questar Corp. 463,736 ------------ HOME IMPROVEMENT CHAINS (1.5%) 15,275 Home Depot, Inc. (The) 652,854 ------------ HOTELS/RESORTS/CRUISELINES (3.5%) 27,100 Carnival Corp. (Panama) 1,561,773 ------------ HOUSEHOLD/PERSONAL CARE (1.7%) 10,000 Gillette Co. (The) 447,800
SEE NOTES TO FINANCIAL STATEMENTS 86
NUMBER OF SHARES VALUE - ------------------------------------------------------------- 6,105 Procter & Gamble Co. (The) $ 336,263 ------------ 784,063 ------------ INDUSTRIAL CONGLOMERATES (1.8%) 4,150 3M Co. 340,591 12,600 Tyco International Ltd. (Bermuda) 450,324 ------------ 790,915 ------------ INFORMATION TECHNOLOGY SERVICES (0.5%) 3,200 Infosys Technologies Ltd. (ADR) (India) 221,792 ------------ INSURANCE BROKERS/SERVICES(0.5%) 4,700 ChoicePoint Inc.* 216,153 ------------ INTEGRATED OIL (1.4%) 17,400 Suncor Energy, Inc. (Canada) 615,960 ------------ INTERNET RETAIL (1.0%) 5,300 Amazon.com, Inc.* 234,737 8,200 IAC/InterActiveCorp.* 226,484 ------------ 461,221 ------------ INTERNET SOFTWARE/ SERVICES (3.5%) 1,300 Google Inc. (Class A)* 251,030 35,540 Yahoo! Inc.* 1,339,147 ------------ 1,590,177 ------------ INVESTMENT BANKS/BROKERS (0.5%) 16,000 Ameritrade Holding Corp.* 227,520 ------------ INVESTMENT MANAGERS (1.5%) 9,800 Franklin Resources, Inc. 682,570 ------------ MANAGED HEALTH CARE (3.7%) 12,050 Caremark Rx, Inc.* 475,131 13,500 UnitedHealth Group Inc. 1,188,405 ------------ 1,663,536 ------------ MEDIA CONGLOMERATES (1.5%) 23,710 News Corp. (Class B) 455,232 12,400 Time Warner, Inc.* 241,056 ------------ 696,288 ------------ MEDICAL DISTRIBUTORS (0.6%) 5,700 Patterson Companies Inc.* $ 247,323 ------------ MEDICAL SPECIALTIES (6.5%) 11,800 Alcon, Inc. (Switzerland) 951,080 5,900 Fisher Scientific International, Inc.* 368,042 4,741 Kinetic Concepts, Inc.* 361,738 11,536 Medtronic, Inc. 572,993 8,300 Zimmer Holdings, Inc.* 664,996 ------------ 2,918,849 ------------ MISCELLANEOUS COMMERCIAL SERVICES (0.7%) 4,900 Corporate Executive Board Co. (The) 328,006 ------------ OIL & GAS PRODUCTION (2.4%) 4,100 EnCana Corp. (Canada) 233,946 17,180 Ultra Petroleum Corp. (Canada)* 826,873 ------------ 1,060,819 ------------ OILFIELD SERVICES/ EQUIPMENT (1.0%) 5,400 Halliburton Co. 211,896 3,300 Schlumberger Ltd. (Netherlands Antilles) 220,935 ------------ 432,831 ------------ OTHER CONSUMER SERVICES (6.0%) 12,000 Apollo Group, Inc. (Class A)* 968,520 14,918 eBay Inc.* 1,734,665 ------------ 2,703,185 ------------ PACKAGED SOFTWARE (4.9%) 6,800 Adobe Systems, Inc.* 426,632 86 Computer Associates* 2,671 60,780 Microsoft Corp. 1,623,434 5,200 Symantec Corp.* 133,952 ------------ 2,186,689 ------------ PHARMACEUTICALS: MAJOR (4.1%) 22,000 Johnson & Johnson 1,395,240 8,900 Novartis AG (ADR) (Switzerland) 449,806 ------------ 1,845,046 ------------
SEE NOTES TO FINANCIAL STATEMENTS 87
NUMBER OF SHARES VALUE - ------------------------------------------------------------- PRECIOUS METALS (3.1%) 31,800 Newmont Mining Corp. $ 1,412,238 ------------ PROPERTY - CASUALTY INSURERS (1.5%) 231 Berkshire Hathaway, Inc. (Class B)* 678,216 ------------ RECREATIONAL PRODUCTS (2.9%) 18,400 Electronic Arts Inc.* 1,134,912 4,000 Shanda Interactive Entertainment Ltd. (Cayman Islands)* 170,000 ------------ 1,304,912 ------------ RESTAURANTS (0.5%) 3,600 Starbucks Corp.* 224,496 ------------ SEMICONDUCTORS (2.2%) 9,222 Intel Corp. 215,703 5,651 Linear Technology Corp. 219,033 15,260 Marvell Technology Group Ltd. (Bermuda)* 541,272 ------------ 976,008 ------------ SPECIALTY STORES (1.0%) 12,660 PETsMART, Inc. 449,810 ------------ SPECIALTY TELECOMMUNICATIONS (1.2%) 19,731 Crown Castle International Corp.* 328,324 3,200 NTL, Inc.* 233,472 ------------ 561,796 ------------ TELECOMMUNICATION EQUIPMENT (2.9%) 30,938 QUALCOMM Inc. 1,311,771 ------------ TOBACCO (0.5%) 3,800 Altria Group, Inc. 232,180 ------------ WIRELESS TELECOMMUNICATIONS (2.2%) 10,400 America Movil S.A. de C.V. (Series L) (ADR) (Mexico) 544,440 15,500 Nextel Communications, Inc. (Class A)* 465,000 ------------ 1,009,440 ------------ TOTAL COMMON STOCKS (Cost $39,901,618) 44,857,368 ------------ NUMBER OF WARRANTS VALUE - ---------------------------------------------------------------------------- WARRANTS (0.0%) TELECOMMUNICATION EQUIPMENT 6,721 Lucent Technologies (due 12/10/07) (Cost $0)* $ 10,619 ------------ PRINCIPAL AMOUNT IN THOUSANDS - ------------ SHORT-TERM INVESTMENT (0.4%) REPURCHASE AGREEMENT $ 188 Joint repurchase agreement account 2.223% due 01/03/05 (dated 12/31/04; proceeds $188,035)(a) (Cost $188,000) 188,000 ------------ TOTAL INVESTMENTS (Cost $40,089,618)(b) 100.2% 45,055,987 LIABILITIES IN EXCESS OF OTHER ASSETS (0.2) (83,620) ----- ------------ NET ASSETS 100.0% $ 44,972,367 ===== ============ - -----------------------------------------------------------------------------
ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (A) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $41,575,529. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $3,726,603 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $246,145, RESULTING IN NET UNREALIZED APPRECIATION OF $3,480,458. SEE NOTES TO FINANCIAL STATEMENTS 88 Growth SUMMARY OF INVESTMENTS - DECEMBER 31, 2004
PERCENT OF INDUSTRY VALUE NET ASSETS - -------------------------------------------------------------- Medical Specialties $ 2,918,849 6.5% Other Consumer Services 2,703,185 6.0 Packaged Software 2,186,689 4.9 Casino/Gaming 1,993,790 4.4 Discount Stores 1,981,190 4.4 Pharmaceuticals: Major 1,845,046 4.1 Biotechnology 1,813,614 4.0 Managed Health Care 1,663,536 3.7 Internet Software/Services 1,590,177 3.5 Hotels/Resorts/Cruiselines 1,561,773 3.5 Precious Metals 1,412,238 3.1 Computer Processing Hardware 1,361,923 3.0 Telecommunication Equipment 1,322,390 2.9 Recreational Products 1,304,912 2.9 Financial Conglomerates 1,260,446 2.8 Oil & Gas Production 1,060,819 2.4 Wireless Telecommunications 1,009,440 2.2 Semiconductors 976,008 2.2 Data Processing Services 888,030 2.0 Industrial Conglomerates 790,915 1.8 Household/Personal Care 784,063 1.7 Media Conglomerates 696,288 1.5 Investment Managers 682,570 1.5 Property - Casualty Insurers 678,216 1.5 Food: Specialty/Candy 671,143 1.5 Home Improvement Chains 652,854 1.5 Integrated Oil 615,960 1.4 Computer Communications 562,302 1.3 Specialty Telecommunications 561,796 1.2 Financial Publishing/ Services 503,730 1.1 Gas Distributors 463,736 1.0 Internet Retail 461,221 1.0 Specialty Stores 449,810 1.0 Food: Major Diversified 444,013 1.0 Oilfield Services/ Equipment $ 432,831 1.0% Broadcasting 431,206 1.0 Finance/Rental/Leasing 368,391 0.8 Air Freight/Couriers 366,154 0.8 Apparel/Footwear 358,140 0.8 Chemicals: Agricultural 338,855 0.8 Miscellaneous Commercial Services 328,006 0.7 Advertising/Marketing Services 299,460 0.7 Coal 299,367 0.7 Medical Distributors 247,323 0.6 Apparel/Footwear Retail 243,631 0.5 Tobacco 232,180 0.5 Investment Banks/Brokers 227,520 0.5 Restaurants 224,496 0.5 Information Technology Services 221,792 0.5 Insurance Brokers/ Services 216,153 0.5 Repurchase Agreement 188,000 0.4 Containers/Packaging 159,810 0.4 ------------- ------------ $ 45,055,987 100.2% ============= ============
SEE NOTES TO FINANCIAL STATEMENTS 89 American Opportunities PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
NUMBER OF SHARES VALUE - ------------------------------------------------------------- COMMON STOCKS (96.1%) ADVERTISING/MARKETING SERVICES (0.5%) 32,300 Lamar Advertising Co. (Class A)* $ 1,381,794 ------------ APPAREL/FOOTWEAR RETAIL (0.7%) 40,200 Chico's FAS, Inc.* 1,830,306 ------------ BIOTECHNOLOGY (4.8%) 32,700 Amgen Inc.* 2,097,705 49,800 Biogen Idec Inc.* 3,317,178 31,000 Genentech, Inc.* 1,687,640 28,800 Genzyme Corp.* 1,672,416 104,000 Gilead Sciences, Inc.* 3,638,960 ------------ 12,413,899 ------------ BROADCASTING (0.5%) 43,700 Univision Communications Inc. (Class A)* 1,279,099 ------------ CASINO/GAMING (2.7%) 50,000 GTECH Holdings Corp. 1,297,500 27,811 Las Vegas Sands Corp.* 1,334,928 47,100 Station Casinos, Inc. 2,575,428 26,900 Wynn Resorts, Ltd.* 1,800,148 ------------ 7,008,004 ------------ CHEMICALS: AGRICULTURAL (1.0%) 30,400 Potash Corp. of Saskatchewan, Inc. (Canada) 2,525,024 ------------ COAL (2.0%) 62,800 Peabody Energy Corp. 5,081,148 ------------ COMPUTER COMMUNICATIONS (1.1%) 101,100 Cisco Systems, Inc.* 1,951,230 34,600 Juniper Networks, Inc.* 940,774 ------------ 2,892,004 ------------ COMPUTER PROCESSING HARDWARE (2.5%) 153,700 Dell Inc.* 6,476,918 ------------ DATA PROCESSING SERVICES (1.4%) 42,400 CheckFree Corp.* $ 1,614,592 44,500 First Data Corp. 1,893,030 ------------ 3,507,622 ------------ DISCOUNT STORES (3.5%) 10,000 Kmart Holding Corp. 989,500 152,000 Target Corp. 7,893,360 ------------ 8,882,860 ------------ ELECTRICAL PRODUCTS (0.5%) 17,800 Cooper Industries Ltd. (Class A) (Bermuda) 1,208,442 ------------ FINANCE/RENTAL/LEASING (1.7%) 14,000 Capital One Financial Corp. 1,178,940 44,000 Freddie Mac 3,242,800 ------------ 4,421,740 ------------ FINANCIAL CONGLOMERATES (1.3%) 37,900 American Express Co. 2,136,423 22,900 Citigroup, Inc. 1,103,322 ------------ 3,239,745 ------------ FINANCIAL PUBLISHING/ SERVICES (0.8%) 22,900 Moody's Corp. 1,988,865 ------------ FOOD: MAJOR DIVERSIFIED (1.8%) 34,200 Campbell Soup Co. 1,022,238 26,400 Kellogg Co. 1,179,024 48,270 PepsiCo, Inc. 2,519,694 ------------ 4,720,956 ------------ HOME IMPROVEMENT CHAINS (1.5%) 88,800 Home Depot, Inc. (The) 3,795,312 ------------ HOTELS/RESORTS/ CRUISELINES (2.7%) 119,200 Carnival Corp. (Panama) 6,869,496 ------------ HOUSEHOLD/PERSONAL CARE (2.9%) 45,200 Clorox Co. (The) 2,663,636 59,800 Gillette Co. (The) 2,677,844 36,600 Procter & Gamble Co. (The) 2,015,928 ------------ 7,357,408 ------------
SEE NOTES TO FINANCIAL STATEMENTS 90
NUMBER OF SHARES VALUE - ------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (6.0%) 38,800 Danaher Corp. $ 2,227,508 201,300 General Electric Co. 7,347,450 125,600 Tyco International Ltd. (Bermuda) 4,488,944 13,400 United Technologies Corp. 1,384,890 ------------ 15,448,792 ------------ INFORMATION TECHNOLOGY SERVICES (1.2%) 72,100 Cognizant Technology Solutions Corp. (Class A)* 3,051,993 ------------ INTEGRATED OIL (2.7%) 37,400 BP PLC (ADR) (United Kingdom) 2,184,160 66,200 Suncor Energy, Inc. (Canada) 2,343,480 7,998 Total S.A. (France) 1,744,123 4,700 Total SA (ADR) (France) 516,248 ------------ 6,788,011 ------------ INTERNET SOFTWARE/ SERVICES (3.2%) 215,800 Yahoo! Inc.* 8,131,344 ------------ INVESTMENT BANKS/ BROKERS (2.8%) 3,700 Chicago Mercantile Exchange (The) 846,190 40,175 Goldman Sachs Group, Inc. (The) 4,179,807 30,950 Legg Mason, Inc. 2,267,397 ------------ 7,293,394 ------------ MAJOR BANKS (1.6%) 89,200 Bank of America Corp. 4,191,508 ------------ MAJOR TELECOMMUNICATIONS (1.3%) 136,400 Sprint Corp. (FON Group) 3,389,540 ------------ MANAGED HEALTH CARE (3.7%) 55,500 Caremark Rx, Inc.* 2,188,365 83,500 UnitedHealth Group Inc. 7,350,505 ------------ 9,538,870 ------------ MEDIA CONGLOMERATES (1.3%) 105,200 News Corp. (Class B) $ 2,019,840 65,800 Time Warner, Inc.* 1,279,152 ------------ 3,298,992 ------------ MEDICAL SPECIALTIES (5.1%) 36,800 Alcon, Inc. (Switzerland) 2,966,080 21,400 Fisher Scientific International, Inc.* 1,334,932 25,800 Kinetic Concepts, Inc.* 1,968,540 67,300 Medtronic, Inc. 3,342,791 41,700 Zimmer Holdings, Inc.* 3,341,004 ------------ 12,953,347 ------------ MISCELLANEOUS COMMERCIAL SERVICES (0.4%) 23,200 Laureate Education Inc.* 1,022,888 ------------ OIL & GAS PRODUCTION (1.8%) 93,180 Ultra Petroleum Corp. (Canada)* 4,484,753 ------------ OILFIELD SERVICES/ EQUIPMENT (1.6%) 53,700 Halliburton Co. 2,107,188 30,600 Schlumberger Ltd. (Netherlands Antilles) 2,048,670 ------------ 4,155,858 ------------ OTHER CONSUMER SERVICES (5.6%) 59,115 Apollo Group, Inc. (Class A)* 4,771,172 82,200 eBay Inc.* 9,558,216 ------------ 14,329,388 ------------ PACKAGED SOFTWARE (7.6%) 51,300 Adobe Systems, Inc. 3,218,562 871 Computer Associates International, Inc 27,053 106,400 McAfee Inc.* 3,078,152 400,800 Microsoft Corp. 10,705,368 36,700 SAP AG (ADR) (Germany) 1,622,507 34,600 Symantec Corp.* 891,296 ------------ 19,542,938 ------------
SEE NOTES TO FINANCIAL STATEMENTS 91
NUMBER OF SHARES VALUE - ------------------------------------------------------------- PHARMACEUTICALS: MAJOR (5.4%) 136,000 Johnson & Johnson $ 8,625,120 38,800 Novartis AG (ADR) (Switzerland) 1,960,952 149,200 Schering-Plough Corp. 3,115,296 ------------ 13,701,368 ------------ PRECIOUS METALS (3.3%) 187,800 Newmont Mining Corp. 8,340,198 ------------ PROPERTY - CASUALTY INSURERS (0.8%) 717 Berkshire Hathaway, Inc. (Class B)* 2,105,112 ------------ SEMICONDUCTORS (1.6%) 117,700 Marvell Technology Group Ltd. (Bermuda)* 4,174,819 ------------ SPECIALTY STORES (1.0%) 71,400 PETsMART, Inc. 2,536,842 ------------ SPECIALTY TELECOMMUNICATIONS (0.7%) 112,268 Crown Castle International Corp.* 1,868,139 ------------ TELECOMMUNICATION EQUIPMENT (2.9%) 176,384 QUALCOMM Inc. 7,478,682 ------------ WIRELESS TELECOMMUNICATIONS (0.6%) 50,400 Nextel Communications, Inc. (Class A)* 1,512,000 ------------ TOTAL COMMON STOCKS (Cost $211,370,483) 246,219,418 ------------ PRINCIPAL AMOUNT IN THOUSANDS VALUE - ------------------------------------------------------------------------- SHORT-TERM INVESTMENT (2.6%) REPURCHASE AGREEMENT $ 6,561 Joint repurchase agreement account 2.223% due 01/03/05 (dated 12/31/04; proceeds $6,561,405) (a) (Cost $6,561,000) $ 6,561,000 ------------ TOTAL INVESTMENTS (Cost $217,931,483) (b) 98.7% 252,780,418 OTHER ASSETS IN EXCESS OF LIABILITIES 1.3 3,225,249 ----- ------------ NET ASSETS 100.0% $256,005,667 ===== ============ - -------------------------------------------------------------------------
ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (A) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $218,463,010. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $36,076,109 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $1,758,701, RESULTING IN NET UNREALIZED APPRECIATION OF $34,317,408. SEE NOTES TO FINANCIAL STATEMENTS 92
PERCENT OF INDUSTRY VALUE NET ASSETS - --------------------------------------------------------------- Packaged Software $ 19,542,938 7.6% Industrial Conglomerates 15,448,792 6.0 Other Consumer Services 14,329,388 5.6 Pharmaceuticals: Major 13,701,368 5.4 Medical Specialties 12,953,347 5.1 Biotechnology 12,413,899 4.8 Managed Health Care 9,538,870 3.7 Discount Stores 8,882,860 3.5 Precious Metals 8,340,198 3.3 Internet Software/Services 8,131,344 3.2 Telecommunication Equipment 7,478,682 2.9 Household/Personal Care 7,357,408 2.9 Investment Banks/Brokers 7,293,394 2.8 Casino/Gaming 7,008,004 2.7 Hotels/Resorts/Cruiselines 6,869,496 2.7 Integrated Oil 6,788,011 2.7 Repurchase Agreement 6,561,000 2.6 Computer Processing Hardware 6,476,918 2.5 Coal 5,081,148 2.0 Food: Major Diversified 4,720,956 1.8 Oil & Gas Production 4,484,753 1.8 Finance/Rental/Leasing 4,421,740 1.7 Major Banks 4,191,508 1.6 Semiconductors 4,174,819 1.6 Oilfield Services/Equipment $ 4,155,858 1.6% Home Improvement Chains 3,795,312 1.5 Data Processing Services 3,507,622 1.4 Major Telecommunications 3,389,540 1.3 Media Conglomerates 3,298,992 1.3 Financial Conglomerates 3,239,745 1.3 Information Technology Services 3,051,993 1.2 Computer Communications 2,892,004 1.1 Specialty Stores 2,536,842 1.0 Chemicals: Agricultural 2,525,024 1.0 Property - Casualty Insurers 2,105,112 0.8 Financial Publishing/Services 1,988,865 0.8 Specialty Telecommunications 1,868,139 0.7 Apparel/Footwear Retail 1,830,306 0.7 Wireless Telecommunications 1,512,000 0.6 Advertising/Marketing Services 1,381,794 0.5 Broadcasting 1,279,099 0.5 Electrical Products 1,208,442 0.5 Miscellaneous Commercial Services 1,022,888 0.4 ------------- ------------ $ 252,780,418 98.7% ============= ============
SEE NOTES TO FINANCIAL STATEMENTS 93 Capital Opportunities PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
NUMBER OF SHARES VALUE - ------------------------------------------------------------- COMMON STOCKS (97.8%) ADVERTISING/MARKETING SERVICES (2.4%) 21,600 Lamar Advertising Co. (Class A)* $ 924,048 ------------ AIR FREIGHT/COURIERS (1.1%) 7,800 C.H. Robinson Worldwide, Inc. 433,056 ------------ APPAREL/FOOTWEAR (1.1%) 8,000 Coach, Inc.* 451,200 ------------ APPAREL/FOOTWEAR RETAIL (1.0%) 9,050 Chico's FAS, Inc.* 412,046 ------------ BIOTECHNOLOGY (2.4%) 9,500 Genentech, Inc.* 517,180 11,900 Gilead Sciences, Inc.* 416,381 ------------ 933,561 ------------ BROADCASTING (1.9%) 26,050 Univision Communications Inc. (Class A)* 762,484 ------------ CASINO/GAMING (9.2%) 29,180 GTECH Holdings Corp. 757,221 28,200 International Game Technology 969,516 4,282 Las Vegas Sands Corp.* 205,536 26,200 Station Casinos, Inc. 1,432,616 4,105 Wynn Resorts, Ltd.* 274,707 ------------ 3,639,596 ------------ COMPUTER PROCESSING HARDWARE (1.1%) 10,500 Dell Inc.* 442,470 ------------ CONSTRUCTION MATERIALS (1.8%) 8,300 Rinker Group Ltd. (ADR) (Australia) 689,481 ------------ DISCOUNT STORES (1.4%) 19,800 Dollar Tree Stores, Inc.* 567,864 ------------ FINANCIAL CONGLOMERATES (1.6%) 17,550 Brascan Corp. (Class A) (Canada) 631,975 ------------ FINANCIAL PUBLISHING/ SERVICES (1.2%) 5,200 Moody's Corp. $ 451,620 ------------ FOOD: SPECIALTY/CANDY (1.5%) 8,300 Wrigley (Wm.) Jr. Co. 574,277 ------------ GAS DISTRIBUTORS (1.1%) 8,400 Questar Corp. 428,064 ------------ HOTELS/RESORTS/ CRUISELINES (3.8%) 27,400 Royal Caribbean Cruises Ltd. (Liberia) 1,491,656 ------------ INSURANCE BROKERS/ SERVICES (1.0%) 8,400 ChoicePoint Inc.* 386,316 ------------ INTEGRATED OIL (1.3%) 14,900 Suncor Energy, Inc. (Canada) 527,460 ------------ INTERNET SOFTWARE/ SERVICES (3.0%) 31,300 Yahoo! Inc.* 1,179,384 ------------ INVESTMENT BANKS/ BROKERS (2.2%) 28,200 Ameritrade Holding Corp.* 401,004 16,200 Greenhill & Co., Inc. 464,940 ------------ 865,944 ------------ INVESTMENT MANAGERS (1.2%) 18,000 Calamos Asset Management Inc. (Class A)* 486,000 ------------ MANAGED HEALTH CARE (1.0%) 4,600 UnitedHealth Group Inc. 404,938 ------------ MEDICAL DISTRIBUTORS (1.1%) 9,800 Patterson Companies Inc.* 425,222 ------------ MEDICAL SPECIALTIES (9.2%) 12,600 Dade Behring Holdings Inc.* 705,600 12,528 Fisher Scientific International, Inc.* 781,497 13,500 INAMED Corp.* 853,875 11,921 Kinetic Concepts, Inc.* 909,572 4,900 Zimmer Holdings, Inc.* 392,588 ------------ 3,643,132 ------------
SEE NOTES TO FINANCIAL STATEMENTS 94
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- MEDICAL/NURSING SERVICES (1.5%) 30,700 VCA Antech, Inc.* $ 601,720 -------------- MISCELLANEOUS COMMERCIAL SERVICES (3.1%) 17,950 Corporate Executive Board Co. (The) 1,201,573 -------------- OIL & GAS PRODUCTION (3.5%) 28,610 Ultra Petroleum Corp. (Canada)* 1,376,999 -------------- OTHER CONSUMER SERVICES (6.0%) 10,400 Apollo Group, Inc. (Class A)* 839,384 13,100 eBay Inc.* 1,523,268 -------------- 2,362,652 -------------- PACKAGED SOFTWARE (2.3%) 6,500 Adobe Systems, Inc.* 407,810 19,100 Microsoft Corp. 510,161 -------------- 917,971 -------------- PRECIOUS METALS (3.3%) 29,400 Newmont Mining Corp. 1,305,654 -------------- PROPERTY - CASUALTY INSURERS (3.5%) 306 Berkshire Hathaway, Inc. (Class B)* 898,416 715 White Mountains Insurance Group, Ltd. (Bermuda) 461,890 -------------- 1,360,306 -------------- REAL ESTATE INVESTMENT TRUSTS (1.1%) 10,800 Plum Creek Timber Co., Inc. 415,152 -------------- RECREATIONAL PRODUCTS (3.6%) 16,200 Electronic Arts Inc.* 999,216 9,700 Shanda Interactive Entertainment Ltd. (ADR) (Cayman Islands)* 412,250 -------------- 1,411,466 -------------- RESTAURANTS (3.6%) 20,120 AFC Enterprises, Inc.* 475,838 7,920 P.F. Chang's China Bistro, Inc.* $ 446,292 16,687 Sonic Corp.* 508,954 -------------- 1,431,084 -------------- SEMICONDUCTORS (1.4%) 15,700 Marvell Technology Group Ltd. (Bermuda)* 556,879 -------------- SERVICES TO THE HEALTH INDUSTRY (1.3%) 11,075 Stericycle, Inc.* 508,896 -------------- SPECIALTY STORES (3.3%) 8,100 Guitar Center, Inc.* 426,789 13,320 PETsMART, Inc. 473,260 13,000 Tuesday Morning Corp.* 398,190 -------------- 1,298,239 -------------- SPECIALTY TELECOMMUNICATIONS (3.7%) 53,118 Crown Castle International Corp.* 883,883 7,585 NTL, Inc.* 553,402 -------------- 1,437,285 -------------- TELECOMMUNICATION EQUIPMENT (2.9%) 27,100 QUALCOMM Inc. 1,149,040 -------------- WHOLESALE DISTRIBUTORS (1.1%) 13,500 SCP Pool Corp. 430,650 -------------- TOTAL COMMON STOCKS (Cost $31,461,784) 38,517,360 --------------
PRINCIPAL AMOUNT IN THOUSANDS - ----------- SHORT-TERM INVESTMENT (1.9%) REPURCHASE AGREEMENT $ 756 Joint repurchase agreement account 2.223% due 01/03/05 (dated 12/31/04: proceeds $756,140) (a) (Cost $756,000) 756,000 --------------
SEE NOTES TO FINANCIAL STATEMENTS 95
VALUE - -------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $32,217,784) (b) 99.7% $ 39,273,360 OTHER ASSETS IN EXCESS OF LIABILITIES 0.3 114,317 ----- -------------- NET ASSETS 100.0% $ 39,387,677 ===== ==============
ADR American Depository Receipt. * Non-income producing security. (a) Collateralized by federal agency and U.S. Treasury obligations. (b) The aggregate cost for federal income tax purposes is $32,225,037. The aggregate gross unrealized appreciation is $7,676,523 and the aggregate gross unrealized depreciation is $628,200, resulting in net unrealized appreciation of $7,048,323. SEE NOTES TO FINANCIAL STATEMENTS 96 Capital Opportunities SUMMARY OF INVESTMENTS - DECEMBER 31, 2004
PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------------------ Medical Specialties $ 3,643,132 9.2% Casino/Gaming 3,639,596 9.2 Other Consumer Services 2,362,652 6.0 Hotels/Resorts/Cruiselines 1,491,656 3.8 Specialty Telecommunications 1,437,285 3.7 Restaurants 1,431,084 3.6 Recreational Products 1,411,466 3.6 Oil & Gas Production 1,376,999 3.5 Property - Casualty Insurers 1,360,306 3.5 Precious Metals 1,305,654 3.3 Specialty Stores 1,298,239 3.3 Miscellaneous Commercial Services 1,201,573 3.1 Internet Software/Services 1,179,384 3.0 Telecommunication Equipment 1,149,040 2.9 Advertising/Marketing Services 924,048 2.4 Biotechnology 933,561 2.4 Packaged Software 917,971 2.3 Investment Banks/Brokers 865,944 2.2 Broadcasting 762,484 1.9 Repurchase Agreement 756,000 1.9 Construction Materials $ 689,481 1.8% Financial Conglomerates 631,975 1.6 Medical/Nursing Services 601,720 1.5 Food: Specialty/Candy 574,277 1.5 Discount Stores 567,864 1.4 Semiconductors 556,879 1.4 Integrated Oil 527,460 1.3 Services to the Health Industry 508,896 1.3 Investment Managers 486,000 1.2 Financial Publishing/Services 451,620 1.2 Apparel/Footwear 451,200 1.1 Computer Processing Hardware 442,470 1.1 Air Freight/Couriers 433,056 1.1 Wholesale Distributors 430,650 1.1 Gas Distributors 428,064 1.1 Medical Distributors 425,222 1.1 Real Estate Investment Trusts 415,152 1.1 Apparel/Footwear Retail 412,046 1.0 Managed Health Care 404,938 1.0 Insurance Brokers/Services 386,316 1.0 ------------ ------------ $ 39,273,360 99.7% ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 97 Global Equity PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- COMMON STOCKS (97.9%) BELGIUM (1.1%) BEVERAGES: ALCOHOLIC 18,000 InBev $ 697,118 -------------- FINANCIAL CONGLOMERATES 8,000 Fortis 220,920 -------------- TOTAL BELGIUM 918,038 -------------- BRAZIL (0.3%) WIRELESS TELECOMMUNICATIONS 33,763 Telesp Celular Participacoes S.A. (ADR)* 229,588 -------------- CANADA (0.7%) INTEGRATED OIL 15,000 Suncor Energy, Inc. 530,088 -------------- CHINA (0.1%) ELECTRIC UTILITIES 100,000 Huaneng Power International, Inc. (Class H) 74,614 -------------- FINLAND (1.9%) PULP & PAPER 20,000 Stora Enso Oyj (Registered Shares) 305,868 -------------- TELECOMMUNICATION EQUIPMENT 81,000 Nokia Corp. (ADR) 1,269,270 -------------- TOTAL FINLAND 1,575,138 -------------- FRANCE (9.5%) ADVERTISING/MARKETING SERVICES 15,000 Publicis Groupe 485,467 -------------- AUTOMOTIVE AFTERMARKET 5,000 Compagnie Generale des Etablissements Michelin (B Shares) 320,184 -------------- BROADCASTING 10,000 M6 Metropole Television 283,613 -------------- BUILDING PRODUCTS 6,000 Compagnie de Saint-Gobain 360,853 -------------- ELECTRICAL PRODUCTS 4,000 Schneider Electric S.A. $ 277,914 -------------- ENGINEERING & CONSTRUCTION 4,000 Vinci S.A. 536,286 -------------- FOOD DISTRIBUTORS 10,000 Sodexho Alliance S.A. 302,068 -------------- FOOD RETAIL 6,000 Carrefour S.A. 285,296 -------------- FOOD: MAJOR DIVERSIFIED 4,000 Groupe Danone 368,833 -------------- HOTELS/RESORTS/CRUISELINES 8,000 Accor S.A. Ltd. 349,672 -------------- INFORMATION TECHNOLOGY SERVICES 13,000 Cap Gemini S.A.* 415,622 -------------- INTEGRATED OIL 4,022 Total S.A. 877,077 -------------- INTERNET SOFTWARE/SERVICES 10,000 Business Objects S.A.* 252,131 -------------- MAJOR BANKS 10,200 BNP Paribas S.A. 737,747 -------------- MAJOR TELECOMMUNICATIONS 10,000 France Telecom S.A.* 330,565 -------------- MEDIA CONGLOMERATES 10,000 Vivendi Universal S.A.* 318,759 -------------- MOTOR VEHICLES 6,000 PSA Peugeot Citroen 380,231 -------------- MULTI-LINE INSURANCE 25,000 Axa 616,757 -------------- REGIONAL BANKS 10,000 Credit Agricole S.A. 301,254 -------------- TOTAL FRANCE 7,800,329 -------------- GERMANY (6.5%) AIRLINES 20,000 Deutsche Lufthansa AG (Registered Shares)* 286,327 --------------
SEE NOTES TO FINANCIAL STATEMENTS 98
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- APPAREL/FOOTWEAR 3,000 Adidas-Salomon AG $ 483,431 -------------- AUTO PARTS: O.E.M. 5,000 Continental AG 317,063 -------------- CHEMICALS: MAJOR DIVERSIFIED 8,000 BASF AG 575,368 -------------- ELECTRIC UTILITIES 6,000 E. ON AG 546,003 10,000 RWE AG 552,299 -------------- 1,098,302 -------------- FINANCIAL CONGLOMERATES 12,000 Hypo Real Estate Holding AG* 496,662 -------------- INDUSTRIAL CONGLOMERATES 8,000 MAN AG 307,659 3,000 Siemens AG (Registered Shares) 253,949 -------------- 561,608 -------------- MAJOR BANKS 4,000 Deutsche Bank AG (Registered Shares) 354,557 -------------- MAJOR TELECOMMUNICATIONS 20,000 Deutsche Telekom AG (Registered Shares)* 451,881 -------------- PACKAGED SOFTWARE 3,700 SAP AG 659,746 -------------- TOTAL GERMANY 5,284,945 -------------- IRELAND (0.3%) MAJOR TELECOMMUNICATIONS 100,000 Eircom Group PLC 236,118 -------------- ITALY (0.3%) INVESTMENT BANKS/BROKERS 15,000 Mediobanca SpA 242,428 -------------- JAPAN (9.3%) ELECTRONIC COMPONENTS 3,000 Hoya Corp. 338,766 -------------- ELECTRONIC EQUIPMENT/INSTRUMENTS 5,000 Canon, Inc. $ 269,861 38,000 Konica Minolta Holdings, Inc. 504,392 21,000 Ricoh Co., Ltd. 405,202 -------------- 1,179,455 -------------- ELECTRONICS/APPLIANCES 10,000 Fuji Photo Film Co., Ltd. 365,020 -------------- FOOD RETAIL 11,000 Ito-Yokado Co., Ltd. 461,644 -------------- GAS DISTRIBUTORS 150,000 Tokyo Gas Co., Ltd. 614,874 -------------- HOUSEHOLD/PERSONAL CARE 10,000 Kao Corp. 255,710 -------------- INDUSTRIAL MACHINERY 5,900 Fanuc Ltd. 385,809 -------------- INVESTMENT BANKS/BROKERS 27,400 Nomura Holdings, Inc. 399,528 -------------- MAJOR BANKS 40 Mitsubishi Tokyo Financial Group, Inc. 406,012 70 UFJ Holdings, Inc.* 424,263 -------------- 830,275 -------------- MAJOR TELECOMMUNICATIONS 50 Nippon Telegraph & Telephone Corp. 224,478 -------------- MOTOR VEHICLES 10,000 Toyota Motor Corp. 406,988 -------------- PHARMACEUTICALS: MAJOR 15,000 Takeda Pharmaceutical Co., Ltd. 755,417 -------------- RAILROADS 90 East Japan Railway Co. 500,683 -------------- RECREATIONAL PRODUCTS 7,000 Nintendo Co., Ltd. 879,270 -------------- TOTAL JAPAN 7,597,917 --------------
SEE NOTES TO FINANCIAL STATEMENTS 99
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- NETHERLANDS (3.4%) AIR FREIGHT/COURIERS 10,000 TPG N.V. $ 271,129 -------------- ELECTRONIC PRODUCTION EQUIPMENT 20,000 ASML Holding NV* 320,523 -------------- FINANCIAL CONGLOMERATES 15,000 ING Groep NV (Share Certificates) 453,102 -------------- INTEGRATED OIL 10,000 Royal Dutch Petroleum Co. 574,690 -------------- LIFE/HEALTH INSURANCE 25,000 Aegon NV 340,268 -------------- MAJOR BANKS 17,000 ABN AMRO Holding NV 449,615 -------------- PERSONNEL SERVICES 25,000 Vedior NV 406,761 -------------- TOTAL NETHERLANDS 2,816,088 -------------- NORWAY (1.4%) INTEGRATED OIL 30,000 Statoil ASA 469,507 -------------- MAJOR TELECOMMUNICATIONS 75,000 Telenor ASA 679,549 -------------- TOTAL NORWAY 1,149,056 -------------- PHILIPPINES (0.2%) SPECIALTY TELECOMMUNICATIONS 7,000 Philippine Long Distance Telephone Co. (ADR)* 174,510 -------------- SINGAPORE (1.6%) ELECTRONIC COMPONENTS 92,800 Flextronics International Ltd.* 1,282,496 -------------- SOUTH KOREA (0.3%) WIRELESS TELECOMMUNICATIONS 10,000 SK Telecom Co., Ltd. (ADR) 222,500 -------------- SPAIN (1.0%) APPAREL/FOOTWEAR RETAIL 15,000 Industria de Diseno Texil, S.A. $ 441,704 -------------- MAJOR TELECOMMUNICATIONS 20,000 Telefonica S.A. 376,160 -------------- TOTAL SPAIN 817,864 -------------- SWEDEN (0.8%) TELECOMMUNICATION EQUIPMENT 80,000 Telefonaktiebolaget LM Ericsson (B Shares)* 255,084 -------------- TRUCKS/CONSTRUCTION/ FARM MACHINERY 11,000 Volvo AB (B Shares) 435,943 -------------- TOTAL SWEDEN 691,027 -------------- SWITZERLAND (1.4%) FINANCIAL CONGLOMERATES 6,000 UBS AG (Registered Shares) 501,842 -------------- MAJOR BANKS 5,000 Credit Suisse Group 209,649 -------------- PHARMACEUTICALS: MAJOR 8,000 Novartis AG (Registered Shares) 402,105 -------------- TOTAL SWITZERLAND 1,113,596 -------------- UNITED KINGDOM (6.7%) Advertising/Marketing Services 45,000 WPP Group PLC 494,737 -------------- AIRLINES 40,000 British Airways PLC* 180,358 -------------- HOTELS/RESORTS/CRUISELINES 13,000 Carnival PLC 792,692 -------------- INTEGRATED OIL 7,256 BP PLC (ADR) 423,750 -------------- INVESTMENT MANAGERS 40,000 Amvescap PLC 246,169 --------------
SEE NOTES TO FINANCIAL STATEMENTS 100
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE 25,000 Prudential PLC $ 217,293 -------------- MAJOR BANKS 9,000 Royal Bank of Scotland Group PLC 302,541 23,000 Standard Chartered PLC 427,400 -------------- 729,941 -------------- MEDICAL SPECIALTIES 25,000 Smith & Nephew PLC 255,667 -------------- MISCELLANEOUS COMMERCIAL SERVICES 80,000 Group 4 Securicor PLC* 214,894 -------------- MOVIES/ENTERTAINMENT 70,000 Rank Group PLC 354,576 -------------- OTHER METALS/MINERALS 20,000 BHP Billiton PLC 234,273 10,300 Rio Tinto PLC 302,961 -------------- 537,234 -------------- PHARMACEUTICALS: MAJOR 16,000 GlaxoSmithKline PLC 375,144 -------------- WIRELESS TELECOMMUNICATIONS 251,534 Vodafone Group PLC 681,698 -------------- TOTAL UNITED KINGDOM 5,504,153 -------------- UNITED STATES (51.1%) ADVERTISING/MARKETING SERVICES 94,750 Interpublic Group of Companies, Inc. (The)* 1,269,650 -------------- AEROSPACE & DEFENSE 22,050 Northrop Grumman Corp. 1,198,638 31,140 Raytheon Co. 1,209,166 -------------- 2,407,804 -------------- AGRICULTURAL COMMODITIES/ MILLING 53,560 Archer-Daniels-Midland Co. 1,194,924 -------------- BEVERAGES: NON-ALCOHOLIC 28,400 Coca-Cola Co. (The) 1,182,292 -------------- BIOTECHNOLOGY 33,500 Gilead Sciences, Inc.* $ 1,172,165 -------------- CHEMICALS: MAJOR DIVERSIFIED 39,130 Dow Chemical Co. (The) 1,937,326 -------------- COMPUTER COMMUNICATIONS 66,550 Cisco Systems, Inc.* 1,284,415 -------------- DISCOUNT STORES 26,250 Costco Wholesale Corp. 1,270,762 -------------- ELECTRICAL PRODUCTS 17,310 Emerson Electric Co. 1,213,431 -------------- ELECTRONIC PRODUCTION EQUIPMENT 75,770 Applied Materials, Inc.* 1,295,667 -------------- FINANCIAL CONGLOMERATES 21,830 American Express Co. 1,230,557 25,450 Citigroup, Inc. 1,226,181 31,530 J.P. Morgan Chase & Co. 1,229,985 -------------- 3,686,723 -------------- FOOD: MAJOR DIVERSIFIED 26,680 Kellogg Co. 1,191,529 -------------- FOOD: MEAT/FISH/DAIRY 35,900 Dean Foods Co.* 1,182,905 -------------- HOUSEHOLD/PERSONAL CARE 26,460 Gillette Co. (The) 1,184,879 -------------- INDUSTRIAL CONGLOMERATES 33,240 General Electric Co. 1,213,260 -------------- INFORMATION TECHNOLOGY SERVICES 13,050 International Business Machines Corp. 1,286,469 -------------- INTEGRATED OIL 26,490 Exxon Mobil Corp. 1,357,877 -------------- MAJOR BANKS 26,240 Bank of America Corp. 1,233,018 -------------- MAJOR TELECOMMUNICATIONS 58,220 SBC Communications, Inc. 1,500,329 -------------- MEDIA CONGLOMERATES 64,950 Time Warner, Inc.* 1,262,628 --------------
SEE NOTES TO FINANCIAL STATEMENTS 101
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- MEDICAL SPECIALTIES 18,620 Bard (C.R.), Inc. $ 1,191,308 -------------- OIL & GAS PRODUCTION 31,260 Burlington Resources, Inc. 1,359,810 -------------- PHARMACEUTICALS: MAJOR 18,730 Johnson & Johnson 1,187,857 20,880 Lilly (Eli) & Co. 1,184,940 44,020 Pfizer, Inc. 1,183,698 -------------- 3,556,495 -------------- SEMICONDUCTORS 54,950 Intel Corp. 1,285,281 -------------- SPECIALTY STORES 31,540 Bed Bath & Beyond Inc.* 1,256,238 -------------- TELECOMMUNICATION EQUIPMENT 109,200 Corning Inc.* 1,285,284 74,490 Motorola, Inc. 1,281,228 -------------- 2,566,512 -------------- TRUCKS/CONSTRUCTION/ FARM MACHINERY 12,350 Caterpillar Inc. 1,204,248 -------------- TOTAL UNITED STATES 41,747,945 -------------- TOTAL COMMON STOCKS (Cost $70,390,277) 80,008,438 -------------- PREFERRED STOCK (0.5%) GERMANY BROADCASTING 22,500 ProSiebenSat.1 Media AG (Cost $327,625) 412,189 -------------- TOTAL INVESTMENTS (Cost $70,717,902) (a) 98.4% 80,420,627 OTHER ASSETS IN EXCESS OF LIABILITIES 1.6 1,268,948 ----- -------------- NET ASSETS 100.0% $ 81,689,575 ===== ==============
ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $13,266,067 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $3,563,342, RESULTING IN NET UNREALIZED APPRECIATION OF $9,702,725. SEE NOTES TO FINANCIAL STATEMENTS 102 Global Equity SUMMARY OF INVESTMENTS - DECEMBER 31, 2004
PERCENT OF INDUSTRY VALUE NET ASSETS - ---------------------------------------------------------------------------- Financial Conglomerates $ 5,359,249 6.5% Pharmaceuticals: Major 5,089,161 6.2 Major Banks 4,544,802 5.5 Integrated Oil 4,232,989 5.2 Telecommunication Equipment 4,090,866 5.0 Major Telecommunications 3,799,080 4.6 Chemicals: Major Diversified 2,512,694 3.1 Aerospace & Defense 2,407,804 2.9 Advertising/Marketing Services 2,249,854 2.7 Industrial Conglomerates 1,774,868 2.2 Information Technology Services 1,702,091 2.1 Trucks/Construction/ Farm Machinery 1,640,191 2.0 Electronic Components 1,621,262 2.0 Electronic Production Equipment 1,616,190 2.0 Media Conglomerates 1,581,387 1.9 Food: Major Diversified 1,560,362 1.9 Electrical Products 1,491,345 1.8 Medical Specialties 1,446,975 1.8 Household/Personal Care 1,440,589 1.7 Oil & Gas Production 1,359,810 1.7 Semiconductors 1,285,281 1.6 Computer Communications 1,284,415 1.6 Discount Stores 1,270,762 1.6 Specialty Stores 1,256,238 1.5 Agricultural Commodities/ Milling 1,194,924 1.5 Food: Meat/Fish/Dairy 1,182,905 1.4 Beverages: Non-Alcoholic 1,182,292 1.4 Electronic Equipment/ Instruments 1,179,455 1.4 Electric Utilities 1,172,916 1.4 Biotechnology 1,172,165 1.4 Hotels/Resorts/Cruiselines 1,142,364 1.4 Wireless Telecommunications 1,133,786 1.4 Recreational Products 879,270 1.1 Motor Vehicles 787,219 1.0 Food Retail $ 746,940 0.9% Beverages: Alcoholic 697,118 0.9 Broadcasting 695,802 0.9 Packaged Software 659,746 0.8 Investment Banks/ Brokers 641,956 0.8 Multi-Line Insurance 616,757 0.8 Gas Distributors 614,874 0.8 Life/Health Insurance 557,561 0.7 Other Metals/Minerals 537,234 0.7 Engineering & Construction 536,286 0.7 Railroads 500,683 0.6 Apparel/Footwear 483,431 0.6 Airlines 466,685 0.6 Apparel/Footwear Retail 441,704 0.5 Personnel Services 406,761 0.5 Industrial Machinery 385,809 0.5 Electronics/Appliances 365,020 0.4 Building Products 360,853 0.4 Movies/Entertainment 354,576 0.4 Automotive Aftermarket 320,184 0.4 Auto Parts: O.E.M 317,063 0.4 Pulp & Paper 305,868 0.4 Food Distributors 302,068 0.4 Regional Banks 301,254 0.4 Air Freight/Couriers 271,129 0.3 Internet Software/Services 252,131 0.3 Investment Managers 246,169 0.3 Miscellaneous Commercial Services 214,894 0.3 Specialty Telecommunications 174,510 0.2 ------------ ------------ $ 80,420,627 98.4% ============ ============ TYPE OF INVESTMENT - ---------------------------------------------------------------------------- Common Stocks $ 80,008,438 97.9% Preferred Stock 412,189 0.5 ------------ ------------ $ 80,420,627 98.4% ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 103 Developing Growth PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- COMMON STOCKS (99.9%) ADVERTISING/MARKETING SERVICES (3.9%) 8,700 Dex Media, Inc. $ 217,152 13,425 Getty Images, Inc.* 924,311 22,400 Lamar Advertising Co. (Class A)* 958,272 5,000 R.H. Donnelley Corp.* 295,250 -------------- 2,394,985 -------------- AEROSPACE & DEFENSE (1.1%) 4,800 FLIR Systems, Inc.* 306,192 2,900 Precision Castparts Corp. 190,472 5,100 Rockwell Collins, Inc. 201,144 -------------- 697,808 -------------- AIR FREIGHT/COURIERS (1.5%) 10,750 C.H. Robinson Worldwide, Inc. 596,840 5,700 Expeditors International of Washington, Inc. 318,516 -------------- 915,356 -------------- APPAREL/FOOTWEAR (1.0%) 11,100 Coach, Inc.* 626,040 -------------- APPAREL/FOOTWEAR RETAIL (2.6%) 10,400 Abercrombie & Fitch Co. (Class A) 488,280 13,125 Chico's FAS, Inc.* 597,581 10,800 Urban Outfitters, Inc.* 479,520 -------------- 1,565,381 -------------- BIOTECHNOLOGY (3.7%) 8,400 Amylin Pharmaceuticals, Inc.* 196,224 10,600 Celgene Corp.* 281,218 10,470 Charles River Laboratories International, Inc.* 481,724 7,500 Gen-Probe Inc.* 339,075 12,200 Genzyme Corp.* 708,454 9,300 MedImmune, Inc.* 252,123 -------------- 2,258,818 -------------- BROADCASTING (1.7%) 25,200 Univision Communications Inc. (Class A)* $ 737,604 7,800 XM Satellite Radio Holdings Inc. (Class A)* 293,436 -------------- 1,031,040 -------------- CASINO/GAMING (6.9%) 32,850 GTECH Holdings Corp. 852,458 17,400 International Game Technology 598,212 4,441 Las Vegas Sands Corp.* 213,168 8,800 Penn National Gaming, Inc.* 532,840 29,100 Station Casinos, Inc. 1,591,188 6,340 Wynn Resorts, Ltd.* 424,273 -------------- 4,212,139 -------------- COAL (0.8%) 6,200 Peabody Energy Corp. 501,642 -------------- COMPUTER COMMUNICATIONS (1.4%) 18,900 Avaya Inc.* 325,080 20,000 Juniper Networks, Inc.* 543,800 -------------- 868,880 -------------- COMPUTER PERIPHERALS (1.3%) 4,275 Lexmark International, Inc. (Class A)* 363,375 13,600 Network Appliance, Inc.* 451,792 -------------- 815,167 -------------- COMPUTER PROCESSING Hardware (0.8%) 7,600 Apple Computer, Inc.* 489,440 -------------- CONSTRUCTION MATERIALS (1.6%) 11,800 Rinker Group Ltd. (ADR) (Australia) 980,226 -------------- CONTAINERS/PACKAGING (1.0%) 10,900 Sealed Air Corp.* 580,643 -------------- DATA PROCESSING SERVICES (1.3%) 5,600 CheckFree Corp.* 213,248 10,000 Global Payments Inc. 585,400 -------------- 798,648 --------------
SEE NOTES TO FINANCIAL STATEMENTS 104
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- DISCOUNT STORES (2.2%) 26,300 Dollar Tree Stores, Inc.* $ 754,284 6,125 Kmart Holding Corp.* 606,069 -------------- 1,360,353 -------------- ELECTRONIC DISTRIBUTORS (0.4%) 3,800 CDW Corp. 252,130 -------------- ELECTRONIC PRODUCTION EQUIPMENT (0.9%) 4,600 KLA-Tencor Corp.* 214,268 9,400 Tessera Technologies, Inc.* 349,774 -------------- 564,042 -------------- ELECTRONICS/APPLIANCES (0.7%) 3,275 Harman International Industries, Inc. 415,925 -------------- FINANCE/RENTAL/LEASING (0.5%) 6,025 Doral Financial Corp. (Puerto Rico) 296,731 -------------- FINANCIAL CONGLOMERATES (1.5%) 25,300 Brascan Corp. (Class A) (Canada) 911,053 -------------- FINANCIAL PUBLISHING/ SERVICES (1.5%) 14,600 Interactive Data Corp.* 317,404 7,075 Moody's Corp. 614,464 -------------- 931,868 -------------- GAS DISTRIBUTORS (1.0%) 11,400 Questar Corp. 580,944 -------------- HOME BUILDING (0.5%) 425 NVR, Inc.* 326,995 -------------- HOME FURNISHINGS (0.5%) 3,000 Mohawk Industries, Inc.* 273,750 -------------- HOME IMPROVEMENT CHAINS (0.5%) 4,500 Fastenal Co. 277,020 -------------- HOTELS/RESORTS/ CRUISELINES (3.5%) 4,300 Four Seasons Hotels, Inc. (Canada) 351,697 32,950 Royal Caribbean Cruises Ltd. (Liberia) $ 1,793,798 -------------- 2,145,495 -------------- INDUSTRIAL MACHINERY (0.9%) 15,000 Graco Inc. 560,250 -------------- INFORMATION TECHNOLOGY SERVICES (1.0%) 14,400 Cognizant Technology Solutions Corp. (Class A)* 609,552 -------------- INSURANCE BROKERS/ SERVICES (0.8%) 11,000 ChoicePoint Inc.* 505,890 -------------- INTEGRATED OIL (0.7%) 12,875 Suncor Energy, Inc. (Canada) 455,775 -------------- INTERNET RETAIL (0.4%) 3,100 Overstock.com, Inc.* 213,900 -------------- INTERNET SOFTWARE/ SERVICES (0.8%) 21,800 Akamai Technologies, Inc.* 284,054 6,500 VeriSign, Inc.* 217,880 -------------- 501,934 -------------- INVESTMENT BANKS/ BROKERS (2.7%) 39,000 AmeriTrade Holding Corp.* 554,580 2,100 Chicago Mercantile Exchange (The) 480,270 8,487 Legg Mason, Inc. 621,758 -------------- 1,656,608 -------------- INVESTMENT MANAGERS (1.2%) 26,100 Calamos Asset Management Inc. (Class A)* 704,700 -------------- MEDICAL DISTRIBUTORS (1.0%) 14,700 Patterson Companies Inc.* 637,833 -------------- MEDICAL SPECIALTIES (9.7%) 5,000 Advanced Medical Optics, Inc.* 205,700 8,800 Bard (C.R.), Inc. 563,024
SEE NOTES TO FINANCIAL STATEMENTS 105
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- 14,600 Biomet, Inc. $ 633,494 4,600 Cooper Companies, Inc. (The) 324,714 14,300 Dade Behring Holdings Inc.* 800,800 16,356 Fisher Scientific International, Inc.* 1,020,287 5,375 IDEXX Laboratories, Inc.* 293,421 13,400 INAMED Corp.* 847,550 16,783 Kinetic Concepts, Inc.* 1,280,543 -------------- 5,969,533 -------------- MEDICAL/NURSING Services (1.3%) 39,400 VCA Antech, Inc.* 772,240 -------------- MISCELLANEOUS COMMERCIAL SERVICES (4.0%) 26,050 Corporate Executive Board Co. (The) 1,743,787 9,275 Iron Mountain Inc.* 282,795 9,700 Laureate Education Inc.* 427,673 -------------- 2,454,255 -------------- MISCELLANEOUS MANUFACTURING (0.3%) 4,900 Pentair, Inc. 213,444 -------------- MOVIES/ENTERTAINMENT (0.4%) 6,900 DreamWorks Animation SKG, Inc. (Class A)* 258,819 -------------- OIL & GAS PIPELINES (0.5%) 3,900 Kinder Morgan, Inc. 285,207 -------------- OIL & GAS PRODUCTION (3.6%) 36,895 Ultra Petroleum Corp. (Canada)* 1,775,756 12,000 XTO Energy Inc. 424,560 -------------- 2,200,316 -------------- OILFIELD SERVICES/ EQUIPMENT (0.4%) 4,750 Smith International, Inc.* 258,448 -------------- OTHER CONSUMER SERVICES (1.6%) 7,300 Career Education Corp.* 292,000 6,000 ITT Educational Services, Inc.* $ 285,300 3,525 Strayer Education, Inc. 387,010 -------------- 964,310 -------------- OTHER METALS/MINERALS (0.5%) 3,000 Cameco Corporation 314,580 -------------- PACKAGED SOFTWARE (4.1%) 14,200 Adobe Systems, Inc.* 890,908 14,350 Autodesk, Inc. 544,583 7,200 McAfee Inc.* 208,296 12,600 Mercury Interactive Corp.* 573,930 18,600 Salesforce.com Inc.* 315,084 -------------- 2,532,801 -------------- PERSONNEL SERVICES (0.4%) 7,500 Monster Worldwide Inc.* 252,300 -------------- PHARMACEUTICALS: OTHER (0.5%) 11,400 Elan Corp. PLC (ADR) (Ireland)* 310,650 -------------- PRECIOUS METALS (1.9%) 18,400 Freeport-McMoRan Copper & Gold, Inc. (Class B) 703,432 25,300 Placer Dome Inc. (Canada) 477,158 -------------- 1,180,590 -------------- PROPERTY - CASUALTY INSURERS (1.0%) 950 White Mountains Insurance Group, Ltd. (Bermuda) 613,700 -------------- REAL ESTATE INVESTMENT TRUSTS (0.8%) 12,800 Plum Creek Timber Co., Inc. 492,032 -------------- RECREATIONAL PRODUCTS (2.2%) 11,940 Electronic Arts Inc.* 736,459 14,400 Shanda Interactive Entertainment Ltd. (China)* 612,000 -------------- 1,348,459 --------------
SEE NOTES TO FINANCIAL STATEMENTS 106
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------- RESTAURANTS (2.8%) 13,200 Cheesecake Factory, Inc. (The)* $ 428,604 10,700 P.F. Chang's China Bistro, Inc.* 602,945 11,150 Sonic Corp.* 340,075 6,600 Yum! Brands, Inc. 311,388 -------------- 1,683,012 -------------- SEMICONDUCTORS (2.4%) 10,400 Altera Corp.* 215,280 13,700 Linear Technology Corp. 531,012 20,900 Marvell Technology Group Ltd. (Bermuda)* 741,323 -------------- 1,487,615 -------------- SERVICES TO THE HEALTH INDUSTRY (1.1%) 14,575 Stericycle, Inc.* 669,721 -------------- SPECIALTY INSURANCE (0.5%) 9,600 Assurant, Inc. 293,280 -------------- SPECIALTY STORES (1.5%) 20,980 PETsMART, Inc. 745,419 9,600 Toys 'R' Us, Inc.* 196,512 -------------- 941,931 -------------- SPECIALTY TELECOMMUNICATIONS (3.2%) 67,282 Crown Castle International Corp.* 1,119,572 11,126 NTL, Inc.* 811,753 -------------- 1,931,325 -------------- TELECOMMUNICATION EQUIPMENT (0.3%) 13,500 Andrew Corp.* 184,005 -------------- WHOLESALE DISTRIBUTORS (0.3%) 6,300 SCP Pool Corp. 200,970 -------------- WIRELESS TELECOMMUNICATIONS (0.8%) 10,150 NII Holdings, Inc.* 481,618 -------------- TOTAL COMMON STOCKS (Cost $50,615,564) 61,214,122 -------------- PRINCIPAL AMOUNT IN THOUSANDS VALUE - -------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (0.8%) REPURCHASE AGREEMENT $ 521 Joint repurchase agreement account 2.223% due 01/03/05 (dated 12/31/04; proceeds $521,096) (a) (Cost $521,000) $ 521,000 -------------- TOTAL INVESTMENTS (Cost $51,136,564) (b) 100.7% 61,735,122 LIABILITIES IN EXCESS OF OTHER ASSETS (0.7) (433,032) ------------- -------------- NET ASSETS 100.0% $ 61,302,090 ============= ==============
ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $51,225,012. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $11,031,875 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $521,765, RESULTING IN NET UNREALIZED APPRECIATION OF $10,510,110. SEE NOTES TO FINANCIAL STATEMENTS 107 Developing Growth SUMMARY OF INVESTMENTS - DECEMBER 31, 2004
PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------------------------------- Medical Specialties $ 5,969,533 9.7% Casino/Gaming 4,212,139 6.9 Packaged Software 2,532,801 4.1 Miscellaneous Commercial Services 2,454,255 4.0 Advertising/Marketing Services 2,394,985 3.9 Biotechnology 2,258,818 3.7 Oil & Gas Production 2,200,316 3.6 Hotels/Resorts/Cruiselines 2,145,495 3.5 Specialty Telecommunications 1,931,325 3.2 Restaurants 1,683,012 2.8 Investment Banks/Brokers 1,656,608 2.7 Apparel/Footwear Retail 1,565,381 2.6 Semiconductors 1,487,615 2.4 Discount Stores 1,360,353 2.2 Recreational Products 1,348,459 2.2 Precious Metals 1,180,590 1.9 Broadcasting 1,031,040 1.7 Construction Materials 980,226 1.6 Other Consumer Services 964,310 1.6 Specialty Stores 941,931 1.5 Financial Publishing/ Services 931,868 1.5 Air Freight/Couriers 915,356 1.5 Financial Conglomerates 911,053 1.5 Computer Communications 868,880 1.4 Computer Peripherals 815,167 1.3 Data Processing Services 798,648 1.3 Medical/Nursing Services 772,240 1.3 Investment Managers 704,700 1.2 Aerospace & Defense 697,808 1.1 Services To The Health Industry 669,721 1.1 Medical Distributors 637,833 1.0 Apparel/Footwear 626,040 1.0 Property - Casualty Insurers 613,700 1.0 Gas Distributors 580,944 1.0 Containers/Packaging 580,643 1.0 Information Technology Services $ 609,552 1.0 Electronic Production Equipment 564,042 0.9 Industrial Machinery 560,250 0.9 Repurchase Agreement 521,000 0.8 Insurance Brokers/ Services 505,890 0.8 Internet Software/ Services 501,934 0.8 Coal 501,642 0.8 Real Estate Investment Trusts 492,032 0.8 Computer Processing Hardware 489,440 0.8 Wireless Telecommunications 481,618 0.8 Integrated Oil 455,775 0.7 Electronics/Appliances 415,925 0.7 Home Building 326,995 0.5 Other Metals/Minerals 314,580 0.5 Pharmaceuticals: Other 310,650 0.5 Finance/Rental/Leasing 296,731 0.5 Specialty Insurance 293,280 0.5 Oil & Gas Pipelines 285,207 0.5 Home Improvement Chains 277,020 0.5 Home Furnishings 273,750 0.5 Movies/Entertainment 258,819 0.4 Oilfield Services/ Equipment 258,448 0.4 Personnel Services 252,300 0.4 Electronic Distributors 252,130 0.4 Internet Retail 213,900 0.4 Miscellaneous Manufacturing 213,444 0.3 Wholesale Distributors 200,970 0.3 Telecommunication Equipment 184,005 0.3 ------------- ---------- $ 61,735,122 100.7% ============= ==========
SEE NOTES TO FINANCIAL STATEMENTS 108 (This page has been intentionally left blank.) 109 Morgan Stanley Select Dimensions Investment Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
MONEY FLEXIBLE BALANCED MARKET INCOME GROWTH ---------------- ---------------- ---------------- ASSETS: Investments in securities, at value $ 101,544,465 $ 69,740,180 $ 103,623,556 Investments in affiliates** -- 44,192 1,007,425 Cash 15,098 102,388+ 554 Receivable for: Investments sold -- -- 163,167 Interest/principal paydowns 15,911 924,011 397,875 Dividends -- -- 83,132 Shares of beneficial interest sold 24,774 1,744 -- Foreign withholding taxes reclaimed -- -- -- Variation margin -- -- -- Prepaid expenses and other assets 2,316 1,724 3,139 ---------------- ---------------- ---------------- TOTAL ASSETS 101,602,564 70,814,239 105,278,848 ---------------- ---------------- ---------------- LIABILITIES: Payable for: Investments purchased -- -- 2,306,122 Shares of beneficial interest redeemed 113,564 16,408 24,079 Investment advisory fee 39,217 19,131 44,985 Variation margin -- 47,843 33,359 Compensated forward foreign currency contracts -- 32,692 -- Distribution fee 7,299 5,654 5,709 Administration fee 4,357 4,783 6,921 Unrealized depreciation on open forward foreign currency contracts -- 6,693 -- Accrued expenses and other payables 25,240 95,976 33,248 ---------------- ---------------- ---------------- TOTAL LIABILITIES 189,677 229,180 2,454,423 ---------------- ---------------- ---------------- NET ASSETS $ 101,412,887 $ 70,585,059 $ 102,824,425 ================ ================ ================ COMPOSITION OF NET ASSETS: Paid-in-capital $ 101,412,851 $ 91,725,908 $ 92,486,377 Accumulated undistributed net investment income (net investment loss) 36 1,013,386 (125,048) Accumulated undistributed net realized gain (loss) -- (19,981,850) (6,131,730) Net unrealized appreciation (depreciation) -- (2,172,385) 16,594,826 ---------------- ---------------- ---------------- NET ASSETS $ 101,412,887 $ 70,585,059 $ 102,824,425 ================ ================ ================ TOTAL COST $ 101,544,465 $ 71,899,432 $ 87,989,924 ================ ================ ================ CLASS X SHARES: Net Assets $ 67,944,771 $ 43,657,958 $ 75,516,778 Shares Outstanding (unlimited authorized shares of $.01 par value) 67,944,762 5,688,294 4,733,559 NET ASSET VALUE PER SHARE $ 1.00 $ 7.68 $ 15.95 ================ ================ ================ CLASS Y SHARES: Net Assets $ 33,468,116 $ 26,927,101 $ 27,307,647 Shares Outstanding (unlimited authorized shares of $.01 par value) 33,468,088 3,517,850 1,715,446 NET ASSET VALUE PER SHARE $ 1.00 $ 7.65 $ 15.92 ================ ================ ================
- ---------- + INCLUDING $100,000 SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS. ** COST OF $44,948, $639,870 AND $424,280, RESPECTIVELY. SEE NOTES TO FINANCIAL STATEMENTS 110
EQUALLY- DIVIDEND WEIGHTED UTILITIES GROWTH S&P 500 ---------------- ---------------- ---------------- ASSETS: Investments in securities, at value $ 78,631,770 $ 366,621,431 $ 222,030,958 Investments in affiliates** -- -- 891,331 Cash 196 631 918 Receivable for: Investments sold -- -- -- Interest/principal paydowns 26,963 10,433 103 Dividends 154,537 260,476 272,898 Shares of beneficial interest sold 638 1,912 242,916 Foreign withholding taxes reclaimed 8,371 -- -- Variation margin -- -- 3,550 Prepaid expenses and other assets 3,101 8,171 10,372 ---------------- ---------------- ---------------- TOTAL ASSETS 78,825,576 366,903,054 223,453,046 ---------------- ---------------- ---------------- LIABILITIES: Payable for: Investments purchased -- -- -- Shares of beneficial interest redeemed 52,952 261,280 147,497 Investment advisory fee 37,563 156,690 22,345 Variation margin -- -- -- Compensated forward foreign currency contracts -- -- -- Distribution fee 3,254 12,501 16,591 Administration fee 5,272 24,804 14,896 Unrealized depreciation on open forward foreign currency contracts -- -- -- Accrued expenses and other payables 23,890 40,715 32,222 ---------------- ---------------- ---------------- TOTAL LIABILITIES 122,931 495,990 233,551 ---------------- ---------------- ---------------- NET ASSETS $ 78,702,645 $ 366,407,064 $ 223,219,495 ================ ================ ================ COMPOSITION OF NET ASSETS: Paid-in-capital $ 89,979,343 $ 444,112,876 $ 137,655,167 Accumulated undistributed net investment income (net investment loss) (306) 5,006 1,945,336 Accumulated undistributed net realized gain (loss) (39,301,908) (167,310,849) 2,756,017 Net unrealized appreciation (depreciation) 28,025,516 89,600,031 80,862,975 ---------------- ---------------- ---------------- NET ASSETS $ 78,702,645 $ 366,407,064 $ 223,219,495 ================ ================ ================ TOTAL COST $ 50,606,254 $ 277,021,400 $ 142,122,171 ================ ================ ================ CLASS X SHARES: Net Assets $ 63,052,255 $ 307,092,641 $ 142,319,656 Shares Outstanding (unlimited authorized shares of $.01 par value) 3,350,369 19,419,300 5,819,789 NET ASSET VALUE PER SHARE $ 18.82 $ 15.81 $ 24.45 ================ ================ ================ CLASS Y SHARES: Net Assets $ 15,650,390 $ 59,314,423 $ 80,899,839 Shares Outstanding (unlimited authorized shares of $.01 par value) 832,124 3,756,312 3,335,988 NET ASSET VALUE PER SHARE $ 18.81 $ 15.79 $ 24.25 ================ ================ ================ AMERICAN CAPITAL GROWTH OPPORTUNITIES OPPORTUNITIES ---------------- ---------------- ---------------- ASSETS: Investments in securities, at value $ 45,055,987 $ 252,780,418 $ 39,273,360 Investments in affiliates** -- -- -- Cash -- 966 52 Receivable for: Investments sold 447,480 3,985,391 167,418 Interest/principal paydowns -- 405 47 Dividends 17,451 108,689 6,889 Shares of beneficial interest sold 17,395 2,128 91 Foreign withholding taxes reclaimed -- 6,348 -- Variation margin -- -- -- Prepaid expenses and other assets 7,198 9,796 410 ---------------- ---------------- ---------------- TOTAL ASSETS 45,545,511 256,894,141 39,448,267 ---------------- ---------------- ---------------- LIABILITIES: Payable for: Investments purchased 499,215 611,895 -- Shares of beneficial interest redeemed 21,939 88,938 9,153 Investment advisory fee 18,777 117,684 22,202 Variation margin -- -- -- Compensated forward foreign currency contracts -- -- -- Distribution fee 2,193 9,159 2,922 Administration fee 3,004 17,374 2,651 Unrealized depreciation on open forward foreign currency contracts -- -- -- Accrued expenses and other payables 28,016 43,424 23,662 ---------------- ---------------- ---------------- TOTAL LIABILITIES 573,144 888,474 60,590 ---------------- ---------------- ---------------- NET ASSETS $ 44,972,367 $ 256,005,667 $ 39,387,677 ================ ================ ================ COMPOSITION OF NET ASSETS: Paid-in-capital $ 76,107,430 $ 481,261,273 $ 122,748,794 Accumulated undistributed net investment income (net investment loss) 146,548 1,532,848 1,624 Accumulated undistributed net realized gain (loss) (36,247,980) (261,639,403) (90,418,317) Net unrealized appreciation (depreciation) 4,966,369 34,850,949 7,055,576 ---------------- ---------------- ---------------- NET ASSETS $ 44,972,367 $ 256,005,667 $ 39,387,677 ================ ================ ================ TOTAL COST $ 40,089,618 $ 217,931,483 $ 32,217,784 ================ ================ ================ CLASS X SHARES: Net Assets $ 34,038,446 $ 212,736,440 $ 25,407,671 Shares Outstanding (unlimited authorized shares of $.01 par value) 2,237,471 14,053,962 2,659,582 NET ASSET VALUE PER SHARE $ 15.21 $ 15.14 $ 9.55 ================ ================ ================ CLASS Y SHARES: Net Assets $ 10,933,921 $ 43,269,227 $ 13,980,006 Shares Outstanding (unlimited authorized shares of $.01 par value) 725,037 2,874,418 1,479,846 NET ASSET VALUE PER SHARE $ 15.08 $ 15.05 $ 9.45 ================ ================ ================ DEVELOPING GLOBAL EQUITY GROWTH ---------------- ---------------- ASSETS: Investments in securities, at value $ 80,420,627 $ 61,735,122 Investments in affiliates** -- -- Cash 18,089 379 Receivable for: Investments sold 15,539,883 -- Interest/principal paydowns -- 32 Dividends 39,320 7,859 Shares of beneficial interest sold 93,280 240 Foreign withholding taxes reclaimed 57,568 -- Variation margin -- -- Prepaid expenses and other assets 2,807 1,178 ---------------- ---------------- TOTAL ASSETS 96,171,574 61,744,810 ---------------- ---------------- LIABILITIES: Payable for: Investments purchased 14,295,511 376,637 Shares of beneficial interest redeemed 83,092 8,917 Investment advisory fee 63,487 21,553 Variation margin -- -- Compensated forward foreign currency contracts -- -- Distribution fee 1,770 1,839 Administration fee 5,521 4,105 Unrealized depreciation on open forward foreign currency contracts -- -- Accrued expenses and other payables 32,618 29,669 ---------------- ---------------- TOTAL LIABILITIES 14,481,999 442,720 ---------------- ---------------- NET ASSETS $ 81,689,575 $ 61,302,090 ================ ================ COMPOSITION OF NET ASSETS: Paid-in-capital $ 74,589,128 $ 90,534,177 Accumulated undistributed net investment income (net investment loss) 472,861 1,791 Accumulated undistributed net realized gain (loss) (3,087,216) (39,832,436) Net unrealized appreciation (depreciation) 9,714,802 10,598,558 ---------------- ---------------- NET ASSETS $ 81,689,575 $ 61,302,090 ================ ================ TOTAL COST $ 70,717,902 $ 51,136,564 ================ ================ CLASS X SHARES: Net Assets $ 73,290,495 $ 52,358,953 Shares Outstanding (unlimited authorized shares of $.01 par value) 4,793,223 2,616,504 NET ASSET VALUE PER SHARE $ 15.29 $ 20.01 ================ ================ CLASS Y SHARES: Net Assets $ 8,399,080 $ 8,943,137 Shares Outstanding (unlimited authorized shares of $.01 par value) 552,931 451,991 NET ASSET VALUE PER SHARE $ 15.19 $ 19.79 ================ ================
111 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
MONEY FLEXIBLE BALANCED MARKET INCOME GROWTH ---------------- ---------------- ---------------- INVESTMENT INCOME: INCOME Dividends -- $ 52,081 $ 1,324,130* Interest $ 1,634,522 4,032,805 1,444,801 Interest and dividends from affiliates -- 1,718 25,399 ---------------- ---------------- ---------------- TOTAL INCOME 1,634,522 4,086,604 2,794,330 ---------------- ---------------- ---------------- EXPENSES Investment advisory fee 580,239 279,875 600,518 Distribution fee (Class Y shares) 96,389 61,600 61,846 Professional fees 25,116 93,458 27,293 Custodian fees 12,036 58,660 29,102 Administration fee 8,777 9,473 13,520 Shareholder reports and notices 13,131 13,226 15,218 Trustees' fees and expenses 1,505 763 1,246 Transfer agent fees and expenses 500 500 500 Other 5,053 42,516 15,608 ---------------- ---------------- ---------------- TOTAL EXPENSES 742,746 560,071 764,851 ---------------- ---------------- ---------------- NET INVESTMENT INCOME (LOSS) 891,776 3,526,533 2,029,479 ---------------- ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN (LOSS) ON: Investments -- (274,167) 7,757,128 Futures contracts -- (757,295) (463,820) Foreign exchange transactions -- 977,284 -- ---------------- ---------------- ---------------- NET REALIZED GAIN (LOSS) -- (54,178) 7,293,308 ---------------- ---------------- ---------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments -- 1,156,153 1,096,657 Futures contracts -- 903 (9,181) Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies -- 77,820 -- ---------------- ---------------- ---------------- NET APPRECIATION (DEPRECIATION) -- 1,234,876 1,087,476 ---------------- ---------------- ---------------- NET GAIN -- 1,180,698 8,380,784 ---------------- ---------------- ---------------- NET INCREASE $ 891,776 $ 4,707,231 $ 10,410,263 ================ ================ ================
- ---------- * NET OF FOREIGN WITHHOLDING TAX OF $26,383, $15,269, $998, $30,609, $1,639, $86,818 AND $2,942, RESPECTIVELY. SEE NOTES TO FINANCIAL STATEMENTS 112
EQUALLY- DIVIDEND WEIGHTED UTILITIES GROWTH S&P 500 ---------------- ---------------- ---------------- INVESTMENT INCOME: INCOME Dividends $ 2,026,589 $ 8,188,029* $ 3,099,326 Interest 160,289 130,849 48,038 Interest and dividends from affiliates -- 14,448 14,270 ---------------- ---------------- ---------------- TOTAL INCOME 2,186,878 8,333,326 3,161,634 ---------------- ---------------- ---------------- EXPENSES Investment advisory fee 479,136 2,309,085 871,452 Distribution fee (Class Y shares) 35,469 139,495 155,519 Professional fees 25,521 26,132 23,665 Custodian fees -- 26,730 24,017 Administration fee 10,343 48,785 28,888 Shareholder reports and notices 16,206 45,309 29,402 Trustees' fees and expenses 910 4,906 2,406 Transfer agent fees and expenses 500 500 500 Other 2,966 14,878 27,414 ---------------- ---------------- ---------------- TOTAL EXPENSES 571,051 2,615,820 1,163,263 ---------------- ---------------- ---------------- NET INVESTMENT INCOME (LOSS) 1,615,827 5,717,506 1,998,371 ---------------- ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN (LOSS) ON: Investments 3,923,834 23,968,536 4,306,312 Futures contracts -- -- 233,312 Foreign exchange transactions -- -- -- ---------------- ---------------- ---------------- NET REALIZED GAIN (LOSS) 3,923,834 23,968,536 4,539,624 ---------------- ---------------- ---------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments 10,826,751 (607,109) 25,119,121 Futures contracts -- -- 62,857 Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies -- -- -- ---------------- ---------------- ---------------- NET APPRECIATION (DEPRECIATION) 10,826,751 (607,109) 25,181,978 ---------------- ---------------- ---------------- NET GAIN 14,750,585 23,361,427 29,721,602 ---------------- ---------------- ---------------- NET INCREASE $ 16,366,412 $ 29,078,933 $ 31,719,973 ================ ================ ================ AMERICAN CAPITAL GROWTH OPPORTUNITIES OPPORTUNITIES ---------------- ---------------- ---------------- INVESTMENT INCOME: INCOME Dividends $ 571,578* $ 3,351,293* $ 207,437* Interest 4,862 97,972 7,998 Interest and dividends from affiliates -- -- -- ---------------- ---------------- ---------------- TOTAL INCOME 576,440 3,449,265 215,435 ---------------- ---------------- ---------------- EXPENSES Investment advisory fee 331,853 1,661,955 273,541 Distribution fee (Class Y shares) 19,626 109,061 30,817 Professional fees 22,634 27,309 20,885 Custodian fees 36,250 35,229 18,011 Administration fee 5,837 34,039 5,151 Shareholder reports and notices 10,625 43,192 13,467 Trustees' fees and expenses 495 3,517 444 Transfer agent fees and expenses 500 500 500 Other 2,072 11,112 1,790 ---------------- ---------------- ---------------- TOTAL EXPENSES 429,892 1,925,914 364,606 ---------------- ---------------- ---------------- NET INVESTMENT INCOME (LOSS) 146,548 1,523,351 (149,171) ---------------- ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN (LOSS) ON: Investments 3,944,191 19,603,553 5,644,119 Futures contracts -- -- -- Foreign exchange transactions -- 9,498 -- ---------------- ---------------- ---------------- NET REALIZED GAIN (LOSS) 3,944,191 19,613,051 5,644,119 ---------------- ---------------- ---------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments (898,297) (1,729,644) 2,128,100 Futures contracts -- -- -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies -- 406 -- ---------------- ---------------- ---------------- NET APPRECIATION (DEPRECIATION) (898,297) (1,729,238) 2,128,100 ---------------- ---------------- ---------------- NET GAIN 3,045,894 17,883,813 7,772,219 ---------------- ---------------- ---------------- NET INCREASE $ 3,192,442 $ 19,407,164 $ 7,623,048 ================ ================ ================ GLOBAL DEVELOPING EQUITY GROWTH ---------------- ---------------- INVESTMENT INCOME: INCOME Dividends $ 1,438,965* $ 253,871* Interest 38,925 10,752 Interest and dividends from affiliates -- -- ---------------- ---------------- TOTAL INCOME 1,477,890 264,623 ---------------- ---------------- EXPENSES Investment advisory fee 833,873 287,143 Distribution fee (Class Y shares) 20,009 18,876 Professional fees 24,550 24,013 Custodian fees 30,252 38,730 Administration fee 10,863 7,992 Shareholder reports and notices 18,919 14,164 Trustees' fees and expenses 974 230 Transfer agent fees and expenses 500 500 Other 15,443 3,360 ---------------- ---------------- TOTAL EXPENSES 955,383 395,008 ---------------- ---------------- NET INVESTMENT INCOME (LOSS) 522,507 (130,385) ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN (LOSS) ON: Investments 7,814,738 10,331,339 Futures contracts -- -- Foreign exchange transactions (49,649) -- ---------------- ---------------- NET REALIZED GAIN (LOSS) 7,765,089 10,331,339 ---------------- ---------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments (1,996,440) 1,649,421 Futures contracts -- -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies 3,540 -- ---------------- ---------------- NET APPRECIATION (DEPRECIATION) (1,992,900) 1,649,421 ---------------- ---------------- NET GAIN 5,772,189 11,980,760 ---------------- ---------------- NET INCREASE $ 6,294,696 $ 11,850,375 ================ ================
113 STATEMENTS OF CHANGES IN NET ASSETS
MONEY MARKET FLEXIBLE INCOME -------------------------------- -------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 891,776 $ 997,750 $ 3,526,533 $ 3,238,705 Net realized gain (loss) -- -- (54,178) (646,350) Net change in unrealized appreciation/depreciation -- -- 1,234,876 6,565,255 -------------- -------------- -------------- -------------- NET INCREASE 891,776 997,750 4,707,231 9,157,610 -------------- -------------- -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (660,775) (827,889) (3,999,321) (2,773,979) Class Y shares (231,005) (169,941) (1,962,637) (925,237) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- -------------- -------------- -------------- -------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (891,780) (997,830) (5,961,958) (3,699,216) -------------- -------------- -------------- -------------- Net increase (decrease) from transactions in shares of beneficial interest (29,500,076) (62,571,493) (2,384,666) (529,307) -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) (29,500,080) (62,571,573) (3,639,393) 4,929,087 NET ASSETS: Beginning of period 130,912,967 193,484,540 74,224,452 69,295,365 -------------- -------------- -------------- -------------- END OF PERIOD $ 101,412,887 $ 130,912,967 $ 70,585,059 $ 74,224,452 ============== ============== ============== ============== [ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ 36 $ 40 $ 1,013,386 $ 2,169,219 ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS 114
BALANCED GROWTH UTILITIES -------------------------------- -------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 2,029,479 $ 1,913,396 $ 1,615,827 $ 1,862,279 Net realized gain (loss) 7,293,308 5,718,894 3,923,834 1,780,791 Net change in unrealized appreciation/depreciation 1,087,476 10,200,229 10,826,751 10,330,998 -------------- -------------- -------------- -------------- NET INCREASE 10,410,263 17,832,519 16,366,412 13,974,068 -------------- -------------- -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (1,745,020) (1,967,896) (1,337,452) (1,584,703) Class Y shares (517,526) (396,811) (280,659) (281,994) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- -------------- -------------- -------------- -------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (2,262,546) (2,364,707) (1,618,111) (1,866,697) -------------- -------------- -------------- -------------- Net increase (decrease) from transactions in shares of beneficial interest (12,373,214) (5,590,818) (13,214,499) (12,512,023) -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) (4,225,497) 9,876,994 1,533,802 (404,652) NET ASSETS: Beginning of period 107,049,922 97,172,928 77,168,843 77,573,495 -------------- -------------- -------------- -------------- END OF PERIOD $ 102,824,425 $ 107,049,922 $ 78,702,645 $ 77,168,843 ============== ============== ============== ============== ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ (125,048) $ (23,336) $ (306) $ (15,243) ============== ============== ============== ============== DIVIDEND GROWTH EQUALLY-WEIGHTED S&P 500 -------------------------------- -------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 5,717,506 $ 6,827,801 $ 1,998,371 $ 1,635,302 Net realized gain (loss) 23,968,536 (12,830,310) 4,539,624 (1,891,365) Net change in unrealized appreciation/depreciation (607,109) 97,796,849 25,181,978 50,755,753 -------------- -------------- -------------- -------------- NET INCREASE 29,078,933 91,794,340 31,719,973 50,499,690 -------------- -------------- -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (4,953,801) (6,163,835) (1,140,613) (1,481,946) Class Y shares (760,026) (662,650) (441,970) (312,854) Net realized gain Class X shares -- -- -- (2,267,155) Class Y shares -- -- -- (533,709) -------------- -------------- -------------- -------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (5,713,827) (6,826,485) (1,582,583) (4,595,664) -------------- -------------- -------------- -------------- Net increase (decrease) from transactions in shares of beneficial interest (64,541,240) (48,375,157) 2,508,241 4,762,027 -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) (41,176,134) 36,592,698 32,645,631 50,666,053 NET ASSETS: Beginning of period 407,583,198 370,990,500 190,573,864 139,907,811 -------------- -------------- -------------- -------------- END OF PERIOD $ 366,407,064 $ 407,583,198 $ 223,219,495 $ 190,573,864 ============== ============== ============== ============== ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ 5,006 $ 1,327 $ 1,945,336 $ 1,594,467 ============== ============== ============== ==============
115
GROWTH AMERICAN OPPORTUNITIES ------------------------------------ ------------------------------------ FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2003 ----------------- ----------------- ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 146,548 $ 80,358 $ 1,523,351 $ 879,026 Net realized gain (loss) 3,944,191 1,923,241 19,613,051 12,506,831 Net change in unrealized appreciation/depreciation (898,297) 8,291,544 (1,729,238) 41,524,131 ----------------- ----------------- ----------------- ----------------- NET INCREASE 3,192,442 10,295,143 19,407,164 54,909,988 ----------------- ----------------- ----------------- ----------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (76,820) (41,761) (813,707) (963,468) Class Y shares (3,537) -- (63,498) (70,108) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- ----------------- ----------------- ----------------- ----------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (80,357) (41,761) (877,205) (1,033,576) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) from transactions in shares of beneficial interest (5,345,903) (6,401,441) (68,880,465) (52,264,903) ----------------- ----------------- ----------------- ----------------- TOTAL INCREASE (DECREASE) (2,233,818) 3,851,941 (50,350,506) 1,611,509 NET ASSETS: Beginning of period 47,206,185 43,354,244 306,356,173 304,744,664 ----------------- ----------------- ----------------- ----------------- END OF PERIOD $ 44,972,367 $ 47,206,185 $ 256,005,667 $ 306,356,173 ================= ================= ================= ================= ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ 146,548 $ 80,357 $ 1,532,848 $ 877,204 ================= ================= ================= =================
SEE NOTES TO FINANCIAL STATEMENTS 116
CAPITAL OPPORTUNITIES GLOBAL EQUITY ------------------------------------ ------------------------------------ FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2003 ----------------- ----------------- ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (149,171) $ (202,747) $ 522,507 $ 265,681 Net realized gain (loss) 5,644,119 6,411,535 7,765,089 (511,061) Net change in unrealized appreciation/depreciation 2,128,100 4,645,509 (1,992,900) 24,567,675 ----------------- ----------------- ----------------- ----------------- NET INCREASE 7,623,048 10,854,297 6,294,696 24,322,295 ----------------- ----------------- ----------------- ----------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares -- -- (187,657) (300,580) Class Y shares -- -- (6,397) (10,185) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- ----------------- ----------------- ----------------- ----------------- TOTAL DIVIDENDS AND DISTRIBUTIONS -- -- (194,054) (310,765) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) from transactions in shares of beneficial interest (5,009,990) (2,713,544) (15,611,453) (12,372,405) ----------------- ----------------- ----------------- ----------------- TOTAL INCREASE (DECREASE) 2,613,058 8,140,753 (9,510,811) 11,639,125 NET ASSETS: Beginning of period 36,774,619 28,633,866 91,200,386 79,561,261 ----------------- ----------------- ----------------- ----------------- END OF PERIOD $ 39,387,677 $ 36,774,619 $ 81,689,575 $ 91,200,386 ================= ================= ================= ================= ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ 1,624 $ -- $ 472,861 $ 194,057 ================= ================= ================= ================= DEVELOPING GROWTH ------------------------------------ FOR THE YEAR FOR THE YEAR ENDED ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (130,385) $ (117,933) Net realized gain (loss) 10,331,339 8,256,395 Net change in unrealized appreciation/depreciation 1,649,421 10,239,030 ----------------- ----------------- NET INCREASE 11,850,375 18,377,492 ----------------- ----------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares -- -- Class Y shares -- -- Net realized gain Class X shares -- -- Class Y shares -- -- ----------------- ----------------- TOTAL DIVIDENDS AND DISTRIBUTIONS -- -- ----------------- ----------------- Net increase (decrease) from transactions in shares of beneficial interest (11,342,279) (6,077,045) ----------------- ----------------- TOTAL INCREASE (DECREASE) 508,096 12,300,447 NET ASSETS: Beginning of period 60,793,994 48,493,547 ----------------- ----------------- END OF PERIOD $ 61,302,090 $ 60,793,994 ================= ================= ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ 1,791 $ -- ================= =================
117 SUMMARY OF TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
MONEY MARKET FLEXIBLE INCOME -------------------------------- -------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- -------------- CLASS X SHARES SHARES Sold 37,685,076 48,686,635 288,951 819,656 Reinvestment of dividends and distributions 660,775 827,889 527,610 368,963 Redeemed (62,131,314) (110,263,101) (1,955,037) (1,918,631) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X (23,785,463) (60,748,577) (1,138,476) (730,012) ============== ============== ============== ============== AMOUNT Sold $ 37,685,076 $ 48,686,635 $ 2,190,958 $ 6,110,077 Reinvestment of dividends and distributions 660,775 827,889 3,999,321 2,773,979 Redeemed (62,131,314) (110,263,101) (14,847,279) (14,378,272) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X $ (23,785,463) $ (60,748,577) $ (8,657,000) $ (5,494,216) ============== ============== ============== ============== CLASS Y SHARES SHARES Sold 35,158,148 61,345,479 1,352,342 1,404,030 Reinvestment of dividends and distributions 231,005 169,941 259,727 123,307 Redeemed (41,103,766) (63,338,336) (786,215) (861,581) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y (5,714,613) (1,822,916) 825,854 665,756 ============== ============== ============== ============== AMOUNT Sold $ 35,158,148 $ 61,345,479 $ 10,264,647 $ 10,478,359 Reinvestment of dividends and distributions 231,005 169,941 1,962,637 925,237 Redeemed (41,103,766) (63,338,336) (5,954,950) (6,438,687) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y $ (5,714,613) $ (1,822,916) $ 6,272,334 $ 4,964,909 ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS 118
BALANCED GROWTH UTILITIES -------------------------------- -------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- -------------- CLASS X SHARES SHARES Sold 182,919 522,053 94,493 214,482 Reinvestment of dividends and distributions 115,168 146,503 79,241 111,657 Redeemed (1,283,677) (1,694,288) (945,802) (1,281,303) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X (985,590) (1,025,732) (772,068) (955,164) ============== ============== ============== ============== AMOUNT Sold $ 2,757,310 $ 6,847,511 $ 1,577,053 $ 2,983,710 Reinvestment of dividends and distributions 1,745,020 1,967,896 1,337,452 1,584,703 Redeemed (19,230,565) (22,040,823) (15,529,676) (17,688,607) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X $ (14,728,235) $ (13,225,416) $ (12,615,171) $ (13,120,194) ============== ============== ============== ============== CLASS Y SHARES SHARES Sold 384,916 751,891 153,046 293,544 Reinvestment of dividends and distributions 34,166 29,284 16,608 19,859 Redeemed (263,108) (203,489) (207,468) (260,617) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y 155,974 577,686 (37,814) 52,786 ============== ============== ============== ============== AMOUNT Sold $ 5,760,801 $ 9,921,937 $ 2,522,900 $ 3,996,627 Reinvestment of dividends and distributions 517,526 396,811 280,659 281,994 Redeemed (3,923,306) (2,684,150) (3,402,887) (3,670,450) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y $ 2,355,021 $ 7,634,598 $ (599,328) $ 608,171 ============== ============== ============== ============== DIVIDEND GROWTH EQUALLY-WEIGHTED S&P 500 -------------------------------- -------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- -------------- CLASS X SHARES SHARES Sold 585,391 1,772,994 604,921 927,026 Reinvestment of dividends and distributions 324,040 480,186 51,356 214,234 Redeemed (5,503,008) (7,130,986) (1,603,447) (2,000,060) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X (4,593,577) (4,877,806) (947,170) (858,800) ============== ============== ============== ============== AMOUNT Sold $ 8,741,228 $ 22,505,914 $ 13,301,341 $ 16,395,002 Reinvestment of dividends and distributions 4,953,801 6,163,835 1,140,613 3,749,101 Redeemed (82,348,524) (89,625,898) (35,266,843) (34,615,230) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X $ (68,653,495) $ (60,956,149) $ (20,824,889) $ (14,471,127) ============== ============== ============== ============== CLASS Y SHARES SHARES Sold 836,368 1,465,207 1,404,141 1,317,054 Reinvestment of dividends and distributions 49,628 51,209 20,044 48,653 Redeemed (609,582) (518,581) (353,978) (293,426) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y 276,414 997,835 1,070,207 1,072,281 ============== ============== ============== ============== AMOUNT Sold $ 12,480,219 $ 18,555,581 $ 30,602,353 $ 23,315,043 Reinvestment of dividends and distributions 760,026 662,650 441,970 846,563 Redeemed (9,127,990) (6,637,239) (7,711,193) (4,928,452) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y $ 4,112,255 $ 12,580,992 $ 23,333,130 $ 19,233,154 ============== ============== ============== ==============
119
GROWTH AMERICAN OPPORTUNITIES ------------------------------------ ------------------------------------ FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2003 ----------------- ----------------- ----------------- ----------------- CLASS X SHARES SHARES Sold 74,011 300,887 294,249 984,541 Reinvestment of dividends and distributions 5,298 3,325 57,424 77,139 Redeemed (692,429) (1,018,781) (4,841,589) (6,039,452) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X (613,120) (714,569) (4,489,916) (4,977,772) ================= ================= ================= ================= AMOUNT Sold $ 1,062,006 $ 3,719,693 $ 4,131,293 $ 12,118,391 Reinvestment of dividends and distributions 76,820 41,761 813,707 963,468 Redeemed (9,833,826) (12,302,379) (67,866,315) (74,062,012) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X $ (8,695,000) $ (8,540,925) $ (62,921,315) $ (60,980,153) ================= ================= ================= ================= CLASS Y SHARES SHARES Sold 344,824 242,391 341,328 1,348,244 Reinvestment of dividends and distributions 246 -- 4,500 5,636 Redeemed (107,687) (71,767) (775,389) (633,416) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y 237,383 170,624 (429,561) 720,464 ================= ================= ================= ================= AMOUNT Sold $ 4,859,789 $ 3,010,578 $ 4,768,395 $ 16,488,980 Reinvestment of dividends and distributions 3,537 -- 63,498 70,108 Redeemed (1,514,229) (871,094) (10,791,043) (7,843,838) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y $ 3,349,097 $ 2,139,484 $ (5,959,150) $ 8,715,250 ================= ================= ================= =================
SEE NOTES TO FINANCIAL STATEMENTS 120
CAPITAL OPPORTUNITIES GLOBAL EQUITY ------------------------------------ ------------------------------------ FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2004 DECEMBER 31, 2003 ----------------- ----------------- ----------------- ----------------- CLASS X SHARES SHARES Sold 213,276 364,879 178,142 384,457 Reinvestment of dividends and distributions -- -- 13,104 25,048 Redeemed (825,656) (1,111,639) (1,299,648) (1,668,617) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X (612,380) (746,760) (1,108,402) (1,259,112) ================= ================= ================= ================= AMOUNT Sold $ 1,784,560 $ 2,408,037 $ 2,537,436 $ 4,428,039 Reinvestment of dividends and distributions -- -- 187,657 300,580 Redeemed (6,926,163) (6,859,678) (18,510,485) (19,093,417) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X $ (5,141,603) $ (4,451,641) $ (15,785,392) $ (14,364,798) ================= ================= ================= ================= CLASS Y SHARES SHARES Sold 394,029 546,847 178,690 234,174 Reinvestment of dividends and distributions -- -- 449 852 Redeemed (378,563) (278,698) (165,283) (72,031) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y 15,466 268,149 13,856 162,995 ================= ================= ================= ================= AMOUNT Sold $ 3,257,263 $ 3,465,304 $ 2,526,862 $ 2,790,650 Reinvestment of dividends and distributions -- -- 6,397 10,185 Redeemed (3,125,650) (1,727,207) (2,359,320) (808,442) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y $ 131,613 $ 1,738,097 $ 173,939 $ 1,992,393 ================= ================= ================= ================= DEVELOPING GROWTH ------------------------------------ FOR THE YEAR FOR THE YEAR ENDED ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 ----------------- ----------------- CLASS X SHARES SHARES Sold 94,520 339,110 Reinvestment of dividends and distributions -- -- Redeemed (778,488) (1,006,209) ----------------- ----------------- NET DECREASE - CLASS X (683,968) (667,099) ================= ================= AMOUNT Sold $ 1,639,068 $ 4,568,617 Reinvestment of dividends and distributions -- -- Redeemed (13,552,390) (13,279,669) ----------------- ----------------- NET DECREASE - CLASS X $ (11,913,322) $ (8,711,052) ================= ================= CLASS Y SHARES SHARES Sold 126,054 235,623 Reinvestment of dividends and distributions -- -- Redeemed (93,254) (42,796) ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y 32,800 192,827 ================= ================= AMOUNT Sold $ 2,186,269 $ 3,194,704 Reinvestment of dividends and distributions -- -- Redeemed (1,615,226) (560,697) ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y $ 571,043 $ 2,634,007 ================= =================
121 Morgan Stanley Select Dimensions Investment Series NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley Select Dimensions Investment Series (the "Fund") is registered under the Investment Company Act of 1940 as amended (the "Act"), as a diversified, open-end management investment company. The Fund, which consists of 11 separate portfolios ("Portfolios"), was organized on June 2, 1994, as a Massachusetts business trust and commenced operations on November 9, 1994, with the exception of Capital Opportunities which commenced operations on January 21, 1997. On July 24, 2000, the Fund commenced offering one additional class of shares (Class Y shares). The two classes are identical except that Class Y shares incur distribution expenses. Class X shares are generally available to holders of contracts offered before May 1, 2000. Class Y shares are available to holders of contracts offered on or after July 24, 2000. The investment objectives of each Portfolio are as follows:
PORTFOLIO INVESTMENT OBJECTIVE - ------------------------------------------------------------------------------------------------------------------------------ Money Market Seeks high current income, preservation of capital and liquidity. Flexible Income Seeks, as a primary objective, to earn a high level of current income and, as a secondary objective, to maximize total return, but only to the extent consistent with its primary objective. Balanced Growth Seeks to provide capital growth with reasonable current income. Utilities Seeks both capital appreciation and current income. Dividend Growth Seeks to provide reasonable current income and long-term growth of income and capital. Equally-Weighted Seeks to achieve a high level of total return on its assets through a combination of capital S&P 500 (formerly appreciation and current income. Value-Added Market) Growth Seeks long-term growth of capital. American Opportunities Seeks long-term capital growth consistent with an effort to reduce volatility. Capital Opportunities Seeks long-term capital growth. Global Equity Seeks to obtain total return on its assets primarily through long-term capital growth and to a lesser extent from income. Developing Growth Seeks long-term capital growth.
122 The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- Money Market: securities are valued at amortized cost which approximates market value. All remaining Portfolios: (1) an equity portfolio security listed or traded on the New York Stock Exchange ("NYSE") or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) futures are valued at the latest price published by the commodities exchange on which they trade; (6) when market quotations are not readily available or Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. Occasionally, developments affecting 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 developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund's Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (7) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; and (8) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except certain dividends on foreign securities which are recorded as soon as the Fund is informed after the 123 ex-dividend date. Interest income is accrued daily except where collection is not expected. The Fund amortizes premiums and accretes discounts over the life of the respective securities. C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Portfolios, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, or U.S. Treasury or federal agency obligations. The Portfolio may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract which is known as variation margin. Such receipts or payments are recorded by the Fund as unrealized gains or losses. Upon closing of the contract, the Fund realizes a gain or loss 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. F. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts ("forward contracts") are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. 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 changes in the market prices of the 124 securities. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency gain or loss. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. G. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply individually for each Portfolio with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and distributions to its shareholders on the ex-dividend date. I. EXPENSES -- Direct expenses are charged to the respective Portfolio and general Fund expenses are allocated on the basis of relative net assets or equally among the Portfolios. J. USE OF ESTIMATES -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. INVESTMENT ADVISORY/ADMINISTRATION AND SUB-ADVISORY AGREEMENTS Effective November 1, 2004, pursuant to an Investment Advisory Agreement, the Fund pays the Investment Adviser an advisory fee, accrued daily and payable monthly, by applying the annual rates listed below to each Portfolio's net assets determined at the close of each business day. Prior to November 1, 2004, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets pursuant to an investment management agreement pursuant to which the Fund paid the Investment Adviser a monthly management fee accrued daily and payable monthly at annual rates listed below parenthetically. Money Market - 0.45% to the portion of daily net assets not exceeding $250 million; 0.375% to the portion of daily net assets exceeding $250 million but not exceeding $750 million; 0.325% to the portion of daily net assets exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of daily net assets exceeding $1.25 billion but not exceeding $1.5 billion; and 0.275% to the portion of daily net assets in excess of $1.5 billion. (Prior to November 1, 2004, 0.50%). Flexible Income - 0.32%. (Prior to November 1, 2004, 0.40%). 125 Balanced Growth - 0.52% to the portion of daily net assets not exceeding $500 million and 0.495% to the portion of daily net assets exceeding $500 million. (Prior to November 1, 2004, 0.60%). Utilities - 0.57% to the portion of daily net assets not exceeding $500 million; 0.47% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion; 0.445% to the portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.42% to the portion of daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.395% to the portion of daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the portion of daily net assets exceeding $3.5 billion but not exceeding $5 billion; and 0.345% to the portion of daily net assets in excess of $5.0 billion. (Prior to November 1, 2004, 0.65%). Dividend Growth - 0.545% to the portion of daily net assets not exceeding $250 million; 0.42% to the portion of daily net assets exceeding $250 million, but not exceeding $1 billion; 0.395% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion and 0.37% to the portion of daily net assets exceeding $2 billion. (Prior to November 1, 2004, 0.625% to the portion of daily net assets not exceeding $500 million; 0.50% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion and 0.475% to the portion of daily net assets exceeding $1 billion). Equally-Weighted S&P 500 - 0.12%. (Prior to November 1, 2004, 0.50%). Growth - 0.50% to the portion of daily net assets not exceeding $1 billion; 0.45% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion; 0.40% to the portion of daily net assets exceeding $2 billion, but not exceeding $3 billion and 0.35% to the portion of daily net assets exceeding $3 billion. (Prior to November 1, 2004, 0.80%). American Opportunities - 0.545% to the portion of daily net assets not exceeding $250 million; 0.42% to the portion of daily net assets exceeding $250 million but not exceeding $2.5 billion; 0.395% to the portion of daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the portion of daily net assets exceeding $3.5 billion but not exceeding $4.5 billion; and 0.345% to the portion of daily net assets in excess of $4.5 billion. (Prior to November 1, 2004, 0.625% to the portion of daily net assets not exceeding $500 million; 0.60% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion and 0.575% to the portion of daily net assets exceeding $1 billion). Capital Opportunities - 0.67% to the portion of daily net assets not exceeding $500 million; 0.645% to the portion of daily net assets exceeding $500 million but not exceeding $2.0 billion; 0.62% to the portion of daily net assets exceeding $2.0 billion but not exceeding $3.0 billion and 0.595% to the portion of daily net assets in excess of $3.0 billion. (Prior to November 1, 2004, 0.75%). 126 Global Equity - 0.92%. (Prior to November 1, 2004, 1.00%). Developing Growth - 0.42% to the portion of daily net assets not exceeding $500 million and 0.395% to the portion of daily net assets exceeding $500 million. (Prior to November 1, 2004, 0.50%). Prior to May 1, 2004, under a Sub-Advisory Agreement between the Investment Adviser and Morgan Stanley Investment Management Inc. (the "Sub-Advisor"), an affiliate of the Investment Adviser, the Sub-Advisor provided Growth with investment advice and portfolio management relating to the Portfolio's investments in securities, subject to the overall supervision of the Investment Manager. As compensation for its services provided pursuant to the Sub-Advisory Agreement, the Investment Manager paid the Sub-Advisor compensation of $49,777 for the period January 1, 2004 through April 30, 2004. Effective May 1, 2004, the Investment Adviser assumed direct responsibility for the investment of the Portfolio. Effective November 1, 2004, pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, each Portfolio pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% (Money Market 0.05%) to the Fund's daily net assets. 3. PLAN OF DISTRIBUTION Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Adviser and Administrator. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. Under the Plan, Class Y shares of each Portfolio bear a distribution fee which is accrued daily and paid monthly at the annual rate of 0.25% of the average daily net assets of the class. 127 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES Purchases and sales/maturities of portfolio securities, excluding short-term investments (except for the Money Market Portfolio), for the year ended December 31, 2004 were as follows:
U.S. GOVERNMENT SECURITIES OTHER -------------------------------- -------------------------------- PURCHASES SALES/MATURITIES PURCHASES SALES/MATURITIES ------------- ---------------- ------------- ---------------- Money Market $ 64,347,453 $ 77,931,756 $ 624,157,299 $ 641,415,001 Flexible Income 98,414,562 102,161,119 38,089,784 46,906,520 Balanced Growth 30,845,160 30,265,890 29,632,958 43,690,819 Utilities 103,287 225,227 21,183,888 33,723,528 Dividend Growth -- -- 161,817,341 213,879,297 Equally-Weighted S&P 500 -- -- 43,821,214 39,963,360 Growth -- -- 74,166,130 79,146,358 American Opportunities -- -- 356,557,293 429,085,698 Capital Opportunities -- -- 43,261,722 48,858,774 Global Equity -- -- 39,196,679 53,661,644 Developing Growth -- -- 79,427,835 90,546,850
Equally-Weighted S&P 500 had the following transactions in Morgan Stanley, an affiliate of the Investment Adviser, Administrator and Distributor:
NET REALIZED PURCHASES SALES GAINS INCOME VALUE --------- ----- ------------ ------ ----- $ 66,366 $ 1,905 $ 65 $ 7,259 $ 441,440 ========= ======== ======= ======== =========
The following Portfolios had the following transactions in Hartford Financial Services Group, Inc., an affiliate of the Fund:
NET REALIZED PURCHASES SALES GAINS (LOSSES) INCOME VALUE ---------- ----------- -------------- --------- ----------- Flexible Income -- $ 5,850 $ (149) $ 1,718 $ 44,192 Balanced Growth $ 105,258 594,870 226,635 25,399 1,007,425 Dividend Growth -- 2,090,052 624,952 14,448 -- Equally-Weighted S&P 500 36,714 25,512 6,672 7,011 449,891
The following Portfolios had transactions with other Morgan Stanley funds during the year ended December 31, 2004:
NET REALIZED PURCHASES SALES GAINS (LOSSES) ------------ ------------ -------------- Flexible Income -- $ 2,599,134 $ 80,930 Dividend Growth $ 287,865 -- -- Growth 246,081 166,713 44,959 American Opportunities 2,093,615 398,397 (54,022) Capital Opportunities 170,378 277,702 145,820 Developing Growth 170,279 566,723 211,424
128 At December 31, 2004, Global Equity had open payables and receivables of $4,141,348 and $2,326,391, respectively, with Morgan Stanley & Co., Inc., an affiliate of the Investment Adviser, Administrator and Distributor. For the year ended December 31, 2004, the following Portfolios incurred brokerage commissions with Morgan Stanley & Co., Inc. for executed portfolio transactions:
BALANCED DIVIDEND AMERICAN CAPITAL GLOBAL DEVELOPING GROWTH UTILITIES GROWTH GROWTH OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH -------- --------- -------- ------ ------------- ------------- -------- ---------- $ 1,408 $ 11,130 $ 63,598 $ 360 $ 134,356 $ 8,383 $ 15,630 $ 502 ======== ========= ======== ====== ========== ========== ========= ==========
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent. 5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS Some of the Portfolios may enter into forward contracts to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Some of the Portfolios may purchase and sell interest rate and index futures ("futures contracts") to facilitate trading, increase or decrease the Portfolio's market exposure, seek higher investment returns, or to seek to protect against a decline in the value of the Portfolios securities or an increase in prices of securities that may be purchased. Forward contracts and futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Portfolios bear the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts or an unfavorable change in the value of the underlying securities. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. 6. FEDERAL INCOME TAX STATUS The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require 129 reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital. The tax character of distributions paid for the years ended December 31, 2003 and December 31, 2004 for all portfolios was the same as the book character shown on the Statement of Changes. As of December 31, 2004, the tax-basis components of accumulated earnings (losses) were as follows:
EQUALLY- FLEXIBLE BALANCED DIVIDEND WEIGHTED INCOME GROWTH UTILITIES GROWTH S&P 500 --------------- --------------- --------------- --------------- -------------- Undistributed ordinary income $ 1,261,156 $ 7,584 $ 4,442 $ 5,217 $ 3,065,713 Undistributed long-term gains -- -- -- -- 2,180,779 --------------- --------------- --------------- --------------- -------------- Net accumulated earnings 1,261,156 7,584 4,442 5,217 5,246,492 Capital loss carryforward* (19,804,935) (5,086,217) (37,894,645) (162,282,568) -- Temporary differences (27,219) (58) (42) (215) (111) Net unrealized appreciation (depreciation) (2,569,851) 15,416,739 26,613,547 84,571,754 80,317,947 --------------- --------------- --------------- --------------- -------------- Total accumulated earnings (losses) $ (21,140,849) $ 10,338,048 $ (11,276,698) $ (77,705,812) $ 85,564,328 =============== =============== =============== =============== ==============
AMERICAN CAPITAL GLOBAL DEVELOPING GROWTH OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH --------------- --------------- --------------- --------------- ------------- Undistributed ordinary income $ 146,572 $ 1,532,998 $ -- $ 489,069 $ -- Undistributed long-term gains -- -- -- -- -- --------------- --------------- --------------- --------------- ------------- Net accumulated earnings 146,572 1,532,998 -- 489,069 -- Capital loss carryforward* (34,762,069) (261,107,873) (90,409,420) (3,087,214) (39,742,164) Post-October losses -- -- -- (16,167) -- Temporary differences (24) (153) (20) (43) (33) Net unrealized appreciation 3,480,458 34,319,422 7,048,323 9,714,802 10,510,110 --------------- --------------- --------------- --------------- ------------- Total accumulated earnings (losses) $ (31,135,063) $ (225,255,606) $ (83,361,117) $ 7,100,447 $ (29,232,087) =============== =============== =============== =============== =============
* As of December 31, 2004, the following Portfolios had a net capital loss carryforward which may be used to offset future capital gains to the extent provided by regulations. 130
(AMOUNTS IN THOUSANDS) ---------------------------------------------------------------------------------------------------- AVAILABLE THROUGH DECEMBER 31, 2006 2007 2008 2009 2010 2011 2012 TOTAL - ------------------------------ -------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Flexible Income $ 153 $ 941 $ 1,681 $ 2,688 $ 6,782 $ 6,161 $ 1,399 $ 19,805 Balanced Growth -- -- -- -- 5,086 -- -- 5,086 Utilities -- -- -- 16,752 21,143 -- -- 37,895 Dividend Growth -- -- 61,265 21,046 58,750 21,222 -- 162,283 Growth -- -- -- 15,102 16,400 3,145 115 34,762 American Opportunities -- -- -- 186,323 74,785 -- -- 261,108 Capital Opportunities -- -- -- 32,842 57,567 -- -- 90,409 Global Equity -- -- -- 424 2,663 -- -- 3,087 Developing Growth -- -- -- 21,430 18,312 -- -- 39,742
During the year ended December 31, 2004, the following Portfolios utilized net capital loss carryforwards: Balanced Growth -- $7,240,239; Utilities -- $3,613,819; Dividend Growth -- $22,268,238; Equally-Weighted S&P 500 -- $1,189,572; American Opportunities -- $17,202,881; Capital Opportunities -- $5,649,572; Global Equity -- $6,074,849; Developing Growth -- $10,368,480. At December 31, 2004, the primary reason(s) for significant temporary/permanent book/tax differences were as follows:
TEMPORARY DIFFERENCES PERMANENT DIFFERENCES ----------------------- -------------------------- POST- LOSS FOREIGN NET OCTOBER DEFERRALS FROM CURRENCY OPERATING LOSSES WASH SALES GAINS/LOSSES LOSS ------- -------------- ------------ --------- Flexible Income - - Balanced Growth - Utilities - Dividend Growth - Equally-Weighted S&P 500 - Growth - American Opportunities - - Capital Opportunities - - Global Equity - - Developing Growth - -
Additionally, the following Portfolios had other temporary differences: Flexible Income -- interest on bonds in default; Flexible Income and Balanced Growth -- capital loss deferrals on straddles; Flexible Income, Balanced Growth and Equally-Weighted S&P 500 -- capital gain/loss from the mark-to-market of futures contracts. Flexible Income and Balanced Growth had permanent differences attributable to the 131 reclassification of net losses on paydowns. Equally-Weighted S&P 500, Capital Opportunities and Developing Growth had temporary and permanent differences attributable to tax adjustments on real estate investment trusts held and sold, respectively, by the Portfolios. The following Portfolios had temporary and permanent differences attributable to book amortization of premiums/discounts on debt securities: Flexible Income, Balanced Growth and Utilities. To reflect reclassifications arising from the permanent differences, the following accounts were (charged) credited:
ACCUMULATED UNDISTRIBUTED ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) NET REALIZED GAIN (LOSS) PAID-IN-CAPITAL ---------------------------- ------------------------- --------------- Flexible Income $ 1,279,592 $ (1,279,592) -- Balanced Growth 131,355 (131,355) -- Utilities 17,221 (17,221) -- Equally-Weighted S&P 500 (64,919) 64,919 -- American Opportunities 9,498 (9,498) -- Capital Opportunities 150,795 14,777 $ (165,572) Global Equity (49,649) 49,649 -- Developing Growth 132,176 21,572 (153,748)
132 (This page has been intentionally left blank.) 133 Morgan Stanley Select Dimensions Investment Series FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
NET ASSET FOR THE YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS)* GAIN (LOSS) OPERATIONS SHAREHOLDERS - ------------ --------------- -------------- -------------- -------------- -------------- MONEY MARKET CLASS X SHARES 2000(a) $ 1.00 $ 0.06 -- $ 0.06 $ (0.06) 2001 1.00 0.04 -- 0.04 (0.04) 2002 1.00 0.01 -- 0.01 (0.01) 2003 1.00 0.006 -- 0.006 (0.006) 2004 1.00 0.010 -- 0.010 (0.010) CLASS Y SHARES 2000(b) 1.00 0.03 -- 0.03 (0.03) 2001 1.00 0.04 -- 0.04 (0.04) 2002 1.00 0.01 -- 0.01 (0.01) 2003 1.00 0.004 -- 0.004 (0.004) 2004 1.00 0.010 -- 0.010 (0.010) FLEXIBLE INCOME CLASS X SHARES 2000(a) 8.96 0.76 $ (1.15) (0.39) (0.65) 2001 7.83 0.56 (0.88) (0.32) (0.42) 2002 6.99 0.51 0.08 0.59 (0.35) 2003 7.23 0.34 0.62 0.96 (0.39) 2004 7.80 0.38 0.14 0.52 (0.64) CLASS Y SHARES 2000(b) 8.58 0.33 (0.73) (0.40) (0.33) 2001 7.81 0.52 (0.86) (0.34) (0.41) 2002 6.97 0.48 0.10 0.58 (0.33) 2003 7.22 0.32 0.61 0.93 (0.37) 2004 7.78 0.36 0.13 0.49 (0.62) BALANCED GROWTH CLASS X SHARES 2000(a) 14.63 0.47 0.42 0.89 (0.51) 2001 14.90 0.44 (0.28) 0.16 (0.44) 2002 14.62 0.36 (2.02) (1.66) (0.38) 2003 12.58 0.27 2.19 2.46 (0.33) 2004 14.71 0.31 1.28 1.59 (0.35)
SEE NOTES TO FINANCIAL STATEMENTS 134
TOTAL NET ASSET FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE ENDED TO AND END OF TOTAL DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ - ------------ --------------- -------------- -------------- -------------- MONEY MARKET CLASS X SHARES 2000(a) -- $ (0.06) $ 1.00 5.98% 2001 -- (0.04) 1.00 3.88 2002 -- (0.01) 1.00 1.34 2003 -- (0.006) 1.00 0.65 2004 -- (0.010) 1.00 0.86 CLASS Y SHARES 2000(b) -- (0.03) 1.00 2.58(1) 2001 -- (0.04) 1.00 3.62 2002 -- (0.01) 1.00 1.09 2003 -- (0.004) 1.00 0.40 2004 -- (0.010) 1.00 0.61 FLEXIBLE INCOME CLASS X SHARES 2000(a) $ (0.09)++ (0.74) 7.83 (4.74) 2001 (0.10)++ (0.52) 6.99 (4.06) 2002 -- (0.35) 7.23 8.67 2003 -- (0.39) 7.80 13.54 2004 -- (0.64) 7.68 7.00 CLASS Y SHARES 2000(b) (0.04)++ (0.37) 7.81 (4.68)(1) 2001 (0.09)++ (0.50) 6.97 (4.41) 2002 -- (0.33) 7.22 8.59 2003 -- (0.37) 7.78 13.15 2004 (0.62) 7.65 6.61 BALANCED GROWTH CLASS X SHARES 2000(a) (0.11) (0.62) 14.90 6.37 2001 -- (0.44) 14.62 1.21 2002 -- (0.38) 12.58 (11.49) 2003 -- (0.33) 14.71 19.84 2004 -- (0.35) 15.95 10.93 RATIOS TO AVERAGE NET ASSETS** NET ASSETS ---------------------------------- FOR THE YEAR END OF NET PORTFOLIO ENDED PERIOD INVESTMENT TURNOVER DECEMBER 31 (000'S) EXPENSES INCOME (LOSS) RATE - ------------ --------------- -------------- -------------- -------------- MONEY MARKET CLASS X SHARES 2000(a) $ 118,274 0.55% 5.80% N/A 2001 175,957 0.52 3.63 N/A 2002 152,479 0.52 1.34 N/A 2003 91,730 0.54 0.66 N/A 2004 67,945 0.55 0.84 N/A CLASS Y SHARES 2000(b) 2,673 0.80(2) 5.55(2) N/A 2001 31,189 0.77 3.38 N/A 2002 41,006 0.77 1.09 N/A 2003 39,183 0.79 0.41 N/A 2004 33,468 0.80 0.59 N/A FLEXIBLE INCOME CLASS X SHARES 2000(a) 69,443 0.47 8.92 33% 2001 56,745 0.49 7.48 114 2002 54,669 0.50 7.26 115 2003 53,270 0.57 4.49 258 2004 43,658 0.69 4.96 201 CLASS Y SHARES 2000(b) 602 0.72(2) 9.23(2) 33 2001 3,859 0.74 7.23 114 2002 14,626 0.75 7.01 115 2003 20,955 0.82 4.24 258 2004 26,927 0.94 4.71 201 BALANCED GROWTH CLASS X SHARES 2000(a) 120,911 0.64 3.29 39 2001 116,002 0.64 2.95 71 2002 84,846 0.66 2.58 161 2003 84,151 0.68 2.01 124 2004 75,517 0.69 2.04 62
135
NET ASSET FOR THE YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS)* GAIN (LOSS) OPERATIONS SHAREHOLDERS - ------------ --------------- -------------- -------------- -------------- -------------- CLASS Y SHARES 2000(b) $ 13.67 $ 0.18 $ 1.25 $ 1.43 $ (0.22) 2001 14.88 0.39 (0.27) 0.12 (0.41) 2002 14.59 0.32 (2.01) (1.69) (0.34) 2003 12.56 0.23 2.19 2.42 (0.30) 2004 14.68 0.27 1.28 1.55 (0.31) UTILITIES CLASS X SHARES 2000(a) 26.25 0.38 (0.79) (0.41) (0.40) 2001 23.99 0.43 (6.45) (6.02) (0.45) 2002 17.10 0.47 (3.93) (3.46) (0.48) 2003 13.16 0.35 2.31 2.66 (0.36) 2004 15.46 0.36 3.37 3.73 (0.37) CLASS Y SHARES 2000(b) 26.06 0.15 (2.04) (1.89) (0.18) 2001 23.99 0.40 (6.48) (6.08) (0.40) 2002 17.09 0.44 (3.93) (3.49) (0.45) 2003 13.15 0.31 2.31 2.62 (0.32) 2004 15.45 0.32 3.37 3.69 (0.33) DIVIDEND GROWTH CLASS X SHARES 2000(a) 19.92 0.33 0.05 0.38 (0.37) 2001 15.85 0.27 (1.13) (0.86) (0.28) 2002 14.71 0.26 (2.88) (2.62) (0.26) 2003 11.83 0.24 3.00 3.24 (0.24) 2004 14.83 0.23 0.99 1.22 (0.24) CLASS Y SHARES 2000(b) 14.14 0.10 1.73 1.83 (0.13) 2001 15.84 0.23 (1.13) (0.90) (0.25) 2002 14.69 0.23 (2.88) (2.65) (0.23) 2003 11.81 0.20 3.01 3.21 (0.21) 2004 14.81 0.20 0.98 1.18 (0.20)
136
TOTAL NET ASSET FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE ENDED TO AND END OF TOTAL DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ - ------------ -------------- -------------- -------------- -------------- CLASS Y SHARES 2000(b) -- $ (0.22) $ 14.88 10.55(1)% 2001 -- (0.41) 14.59 0.86 2002 -- (0.34) 12.56 (11.66) 2003 -- (0.30) 14.68 19.51 2004 -- (0.31) 15.92 10.68 UTILITIES CLASS X SHARES 2000(a) $ (1.45) (1.85) 23.99 (1.91) 2001 (0.42) (0.87) 17.10 (25.51) 2002 -- (0.48) 13.16 (20.37) 2003 -- (0.36) 15.46 20.47 2004 -- (0.37) 18.82 24.44 CLASS Y SHARES 2000(b) -- (0.18) 23.99 (7.26)(1) 2001 (0.42) (0.82) 17.09 (25.69) 2002 -- (0.45) 13.15 (20.58) 2003 -- (0.32) 15.45 20.20 2004 -- (0.33) 18.81 24.15 DIVIDEND GROWTH CLASS X SHARES 2000(a) (4.08) (4.45) 15.85 5.36 2001 -- (0.28) 14.71 (5.45) 2002 -- (0.26) 11.83 (17.92) 2003 -- (0.24) 14.83 27.73 2004 -- (0.24) 15.81 8.29 CLASS Y SHARES 2000(b) -- (0.13) 15.84 13.02(1) 2001 -- (0.25) 14.69 (5.71) 2002 -- (0.23) 11.81 (18.15) 2003 -- (0.21) 14.81 27.48 2004 -- (0.20) 15.79 8.03 RATIOS TO AVERAGE NET ASSETS** NET ASSETS ---------------------------------- FOR THE YEAR END OF NET PORTFOLIO ENDED PERIOD INVESTMENT TURNOVER DECEMBER 31 (000'S) EXPENSES INCOME (LOSS) RATE - ------------ --------------- -------------- -------------- -------------- CLASS Y SHARES 2000(b) $ 1,455 0.86(2)% 2.90(2)% 39% 2001 8,463 0.89 2.70 71 2002 12,327 0.91 2.33 161 2003 22,898 0.93 1.76 124 2004 27,308 0.94 1.79 62 UTILITIES CLASS X SHARES 2000(a) 196,489 0.69 1.43 32 2001 118,964 0.69 2.15 49 2002 66,825 0.70 3.22 77 2003 63,728 0.71 2.51 91 2004 63,052 0.71 2.19 29 CLASS Y SHARES 2000(b) 5,494 0.95(2) 1.40(2) 32 2001 12,471 0.94 1.90 49 2002 10,749 0.95 2.97 77 2003 13,440 0.96 2.26 91 2004 15,650 0.96 1.94 29 DIVIDEND GROWTH CLASS X SHARES 2000(a) 619,469 0.63 2.01 41 2001 527,738 0.62 1.79 22 2002 341,673 0.64 1.89 22 2003 356,056 0.66 1.85 42 2004 307,093 0.65 1.54 44 CLASS Y SHARES 2000(b) 2,780 0.88(2) 1.45(2) 41 2001 22,602 0.87 1.54 22 2002 29,318 0.89 1.64 22 2003 51,527 0.91 1.60 42 2004 59,314 0.90 1.29 44
SEE NOTES TO FINANCIAL STATEMENTS 137
NET ASSET FOR THE YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS)* GAIN (LOSS) OPERATIONS SHAREHOLDERS - ------------ --------------- -------------- -------------- -------------- -------------- EQUALLY-WEIGHTED S&P 500 CLASS X SHARES 2000(a) $ 20.54 $ 0.26 $ 1.95 $ 2.21 $ (0.09) 2001 20.75 0.22 (0.56) (0.34) (0.19) 2002 19.12 0.19 (3.22) (3.03) (0.21) 2003 15.88 0.19 5.59 5.78 (0.21) 2004 21.13 0.23 3.27 3.50 (0.18) CLASS Y SHARES 2000(b) 18.74 0.09 1.89 1.98 -- 2001 20.72 0.16 (0.55) (0.39) (0.18) 2002 19.05 0.16 (3.22) (3.06) (0.20) 2003 15.79 0.15 5.56 5.71 (0.19) 2004 20.99 0.18 3.23 3.41 (0.15) GROWTH CLASS X SHARES 2000(a) 23.27 (0.02) (2.47) (2.49) -- 2001 19.42 (0.01) (2.90) (2.91) -- 2002 15.48 0.01 (4.32) (4.31) -- 2003 11.17 0.03 2.97 3.00 (0.01) 2004 14.16 0.05 1.03 1.08 (0.03) CLASS Y SHARES 2000(b) 23.90 (0.03) (4.47) (4.50) -- 2001 19.40 (0.05) (2.90) (2.95) -- 2002 15.42 (0.02) (4.30) (4.32) -- 2003 11.10 (0.01) 2.96 2.95 -- 2004 14.05 0.03 1.01 1.04 (0.01) AMERICAN OPPORTUNITIES CLASS X SHARES 2000(a) 32.60 0.05 (1.39) (1.34) -- 2001 28.57 0.09 (7.97) (7.88) (0.05) 2002 14.99 0.04 (3.26) (3.22) (0.09) 2003 11.68 0.04 2.36 2.40 (0.05) 2004 14.03 0.08 1.08 1.16 (0.05)
SEE NOTES TO FINANCIAL STATEMENTS 138
TOTAL NET ASSET FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE ENDED TO AND END OF TOTAL DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ - ------------ --------------- -------------- -------------- -------------- EQUALLY-WEIGHTED S&P 500 CLASS X SHARES 2000(a) $ (1.91) $ (2.00) $ 20.75 11.98% 2001 (1.10) (1.29) 19.12 (1.83) 2002 -- (0.21) 15.88 (15.97) 2003 (0.32) (0.53) 21.13 37.14 2004 -- (0.18) 24.45 16.65 CLASS Y SHARES 2000(b) -- -- 20.72 10.57(1) 2001 (1.10) (1.28) 19.05 (2.04) 2002 -- (0.20) 15.79 (16.21) 2003 (0.32) (0.51) 20.99 36.87 2004 -- (0.15) 24.25 16.33 GROWTH CLASS X SHARES 2000(a) (1.36) (1.36) 19.42 (11.68) 2001 (1.03) (1.03) 15.48 (15.23) 2002 -- -- 11.17 (27.84) 2003 -- (0.01) 14.16 26.90 2004 -- (0.03) 15.21 7.64 CLASS Y SHARES 2000(b) -- -- 19.40 (18.83)(1) 2001 (1.03) (1.03) 15.42 (15.46) 2002 -- -- 11.10 (28.02) 2003 -- -- 14.05 26.58 2004 -- (0.01) 15.08 7.38 AMERICAN OPPORTUNITIES CLASS X SHARES 2000(a) (2.69) (2.69) 28.57 (4.42) 2001 (5.65) (5.70) 14.99 (29.47) 2002 -- (0.09) 11.68 (21.56) 2003 -- (0.05) 14.03 20.57 2004 -- (0.05) 15.14 8.29 RATIOS TO AVERAGE NET ASSETS** NET ASSETS ---------------------------------- FOR THE YEAR END OF NET PORTFOLIO ENDED PERIOD INVESTMENT TURNOVER DECEMBER 31 (000'S) EXPENSES INCOME (LOSS) RATE - ------------ --------------- -------------- -------------- -------------- EQUALLY-WEIGHTED S&P 500 CLASS X SHARES 2000(a) $ 186,887 0.54% 1.31% 8% 2001 181,881 0.54 1.12 6 2002 121,065 0.54 1.09 8 2003 143,019 0.55 1.11 24 2004 142,320 0.50 1.07 20 CLASS Y SHARES 2000(b) 890 0.78(2) 1.02(2) 8 2001 10,985 0.79 0.87 6 2002 18,843 0.79 0.84 8 2003 47,554 0.80 0.86 24 2004 80,900 0.75 0.82 20 GROWTH CLASS X SHARES 2000(a) 132,909 0.88 (0.10) 68 2001 80,096 0.86 (0.04) 81 2002 39,834 0.91 0.08 135 2003 40,356 0.93 0.21 128 2004 34,038 0.93 0.37 168 CLASS Y SHARES 2000(b) 2,536 1.14(2) (0.34)(2) 68 2001 4,383 1.11 (0.29) 81 2002 3,520 1.16 (0.17) 135 2003 6,850 1.18 (0.04) 128 2004 10,934 1.18 0.12 168 AMERICAN OPPORTUNITIES CLASS X SHARES 2000(a) 832,971 0.64 0.17 426 2001 463,012 0.65 0.46 393 2002 274,710 0.66 0.27 309 2003 260,230 0.67 0.33 261 2004 212,736 0.67 0.60 134
139
NET ASSET FOR THE YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS)* GAIN (LOSS) OPERATIONS SHAREHOLDERS - ------------ --------------- -------------- -------------- -------------- -------------- CLASS Y SHARES 2000(b) $ 29.89 $ 0.05 $ (1.39) $ (1.34) -- 2001 28.55 0.03 (7.95) (7.92) $ (0.05) 2002 14.93 0.01 (3.25) (3.24) (0.06) 2003 11.63 0.01 2.34 2.35 (0.02) 2004 13.96 0.05 1.06 1.11 (0.02) CAPITAL OPPORTUNITIES CLASS X SHARES 2000(a) 22.66 (0.09) (5.64) (5.73) -- 2001 15.38 (0.07) (5.52) (5.59) -- 2002 9.79 (0.05) (4.24) (4.29) -- 2003 5.50 (0.04) 2.33 2.29 -- 2004 7.79 (0.03) 1.79 1.76 -- CLASS Y SHARES 2000(b) 24.41 (0.05) (8.99) (9.04) -- 2001 15.37 (0.09) (5.53) (5.62) -- 2002 9.75 (0.07) (4.22) (4.29) -- 2003 5.46 (0.05) 2.31 2.26 -- 2004 7.72 (0.05) 1.78 1.73 -- GLOBAL EQUITY CLASS X SHARES 2000(a) 19.63 0.13 (1.19) (1.06) (0.06) 2001 17.26 0.04 (2.88) (2.84) (0.11) 2002 12.79 0.04 (2.26) (2.22) (0.01) 2003 10.56 0.04 3.62 3.66 (0.05) 2004 14.17 0.09 1.06 1.15 (0.03) CLASS Y SHARES 2000(b) 18.85 0.00 (1.61) (1.61) -- 2001 17.24 (0.01) (2.86) (2.87) (0.10) 2002 12.75 0.01 (2.26) (2.25) -- 2003 10.50 0.01 3.60 3.61 (0.02) 2004 14.09 0.06 1.05 1.11 (0.01)
SEE NOTES TO FINANCIAL STATEMENTS 140
TOTAL NET ASSET FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE ENDED TO AND END OF TOTAL DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ - ------------ --------------- -------------- -------------- -------------- CLASS Y SHARES 2000(b) -- -- $ 28.55 (4.48)(1)% 2001 $ (5.65) $ (5.70) 14.93 (29.67) 2002 -- (0.06) 11.63 (21.73) 2003 -- (0.02) 13.96 20.25 2004 -- (0.02) 15.05 7.96 CAPITAL OPPORTUNITIES CLASS X SHARES 2000(a) (1.55) (1.55) 15.38 (27.56) 2001 -- -- 9.79 (36.39) 2002 -- -- 5.50 (43.82) 2003 -- -- 7.79 41.64 2004 -- -- 9.55 22.59 CLASS Y SHARES 2000(b) -- -- 15.37 (36.83)(1) 2001 -- -- 9.75 (36.56) 2002 -- -- 5.46 (44.00) 2003 -- -- 7.72 41.39 2004 -- -- 9.45 22.41 GLOBAL EQUITY CLASS X SHARES 2000(a) (1.25) (1.31) 17.26 (5.93) 2001 (1.52) (1.63) 12.79 (17.22) 2002 -- (0.01) 10.56 (17.37) 2003 -- (0.05) 14.17 34.71 2004 -- (0.03) 15.29 8.17 CLASS Y SHARES 2000(b) -- -- 17.24 (8.54)(1) 2001 (1.52) (1.62) 12.75 (17.38) 2002 -- -- 10.50 (17.57) 2003 -- (0.02) 14.09 34.33 2004 -- (0.01) 15.19 7.89 RATIOS TO AVERAGE NET ASSETS** NET ASSETS ---------------------------------- FOR THE YEAR END OF NET PORTFOLIO ENDED PERIOD INVESTMENT TURNOVER DECEMBER 31 (000'S) EXPENSES INCOME (LOSS) RATE - ------------ --------------- -------------- -------------- -------------- CLASS Y SHARES 2000(b) $ 13,930 0.88(2)% 0.40(2)% 426% 2001 30,768 0.90 0.21 393 2002 30,035 0.91 0.02 309 2003 46,126 0.92 0.08 261 2004 43,269 0.92 0.35 134 CAPITAL OPPORTUNITIES CLASS X SHARES 2000(a) 116,991 0.79 (0.41) 21 2001 55,488 0.80 (0.63) 16 2002 22,097 0.90 (0.71) 103 2003 25,473 0.87 (0.57) 184 2004 25,408 0.90 (0.32) 118 CLASS Y SHARES 2000(b) 4,895 1.02(2) (0.62)(2) 21 2001 11,410 1.05 (0.88) 16 2002 6,537 1.15 (0.96) 103 2003 11,302 1.12 (0.82) 184 2004 13,980 1.15 (0.57) 118 GLOBAL EQUITY CLASS X SHARES 2000(a) 171,523 1.06 0.68 68 2001 118,747 1.07 0.29 89 2002 75,611 1.08 0.35 44 2003 83,607 1.08 0.35 72 2004 73,290 1.11 0.64 48 CLASS Y SHARES 2000(b) 883 1.29(2) 0.02(2) 68 2001 3,825 1.32 0.04 89 2002 3,951 1.33 0.10 44 2003 7,593 1.33 0.10 72 2004 8,399 1.36 0.39 48
141
NET ASSET FOR THE YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT TO DECEMBER 31 OF PERIOD INCOME (LOSS)* GAIN (LOSS) OPERATIONS SHAREHOLDERS - ------------ --------------- -------------- -------------- -------------- -------------- DEVELOPING GROWTH CLASS X SHARES 2000(a) $ 40.04 $ 0.22 $ (7.89) $ (7.67) -- 2001 25.93 (0.01) (6.25) (6.26) $ (0.22) 2002 16.01 (0.03) (4.41) (4.44) -- 2003 11.57 (0.03) 4.82 4.79 -- 2004 16.36 (0.03) 3.68 3.65 -- CLASS Y SHARES 2000(b) 29.79 0.09 (3.98) (3.89) -- 2001 25.90 (0.05) (6.25) (6.30) (0.21) 2002 15.95 (0.06) (4.40) (4.46) -- 2003 11.49 (0.07) 4.80 4.73 -- 2004 16.22 (0.07) 3.64 3.57 --
- ---------- (a) PRIOR TO JULY 24, 2000, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF THE FUND HELD PRIOR TO MAY 1, 2000 HAVE BEEN DESIGNATED CLASS X SHARES. (b) FOR THE PERIOD JULY 24, 2000 (ISSUED DATE) THROUGH DECEMBER 31, 2000. * THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. ** REFLECTS OVERALL PORTFOLIO RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. + CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. ++ DISTRIBUTION FROM PAID-IN CAPITAL. (1) NOT ANNUALIZED. (2) ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS 142
TOTAL NET ASSET FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE ENDED TO AND END OF TOTAL DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ - ------------ --------------- -------------- -------------- -------------- DEVELOPING GROWTH CLASS X SHARES 2000(a) $ (6.44) $ (6.44) $ 25.93 (21.61)% 2001 (3.44) (3.66) 16.01 (25.49) 2002 -- 11.57 (27.73) 2003 -- -- 16.36 41.40 2004 -- -- 20.01 22.31 CLASS Y SHARES 2000(b) -- -- 25.90 (13.06)(1) 2001 (3.44) (3.65) 15.95 (25.67) 2002 -- -- 11.49 (27.96) 2003 -- -- 16.22 41.17 2004 -- -- 19.79 21.95 RATIOS TO AVERAGE NET ASSETS** NET ASSETS ---------------------------------- FOR THE YEAR END OF NET PORTFOLIO ENDED PERIOD INVESTMENT TURNOVER DECEMBER 31 (000'S) EXPENSES INCOME (LOSS) RATE - ------------ --------------- -------------- -------------- -------------- DEVELOPING GROWTH CLASS X SHARES 2000(a) $ 142,640 0.56% 0.66% 207% 2001 85,513 0.59 (0.05) 196 2002 45,892 0.61 (0.26) 251 2003 53,996 0.62 (0.20) 193 2004 52,359 0.64 (0.19) 135 CLASS Y SHARES 2000(b) 1,716 0.83(2) 0.74(2) 207 2001 2,973 0.84 (0.30) 196 2002 2,602 0.86 (0.51) 251 2003 6,798 0.87 (0.45) 193 2004 8,943 0.89 (0.44) 135
143 Morgan Stanley Select Dimensions Investment Series REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Morgan Stanley Select Dimensions Investment Series (the "Funds"), comprising Money Market Portfolio, Flexible Income Portfolio, Balanced Growth Portfolio, Utilities Portfolio, Dividend Growth Portfolio, Equally-Weighted S&P 500 Index Portfolio (formerly Value-Added Market Portfolio), Growth Portfolio, American Opportunities Portfolio, Capital Opportunities Portfolio, Global Equity Portfolio and Developing Growth Portfolio (the "Portfolios") as of December 31, 2004, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodians and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position each of the Portfolios constituting of Morgan Stanley Select Dimensions Investment Series as of December 31, 2004, 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK FEBRUARY 17, 2005 144 Morgan Stanley Select Dimensions Investment Series TRUSTEE AND OFFICER INFORMATION Independent Trustees:
NUMBER OF PORTFOLIOS TERM OF IN FUND POSITION(S) OFFICE AND COMPLEX NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- -------------- ------------------------- ------------- -------------------- Michael Bozic (63) Trustee Since Private Investor; 208 None. c/o Kramer Levin Naftalis & Frankel LLP April 1994 Director or Trustee of Counsel to the Independent Trustees the Retail Funds (since 919 Third Avenue April 1994) and the New York, NY 10022-3902 Institutional Funds (since July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991- July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck& Co. Edwin J. Garn (72) Trustee Since Consultant; Managing 208 Director of Franklin 1031 N. Chartwell Court January 1993 Director of Summit Covey (time Salt Lake City, UT 84103 Ventures LLC; Director or management systems), Trustee of the Retail BMW Bank of North Funds (since January America, Inc. 1993) and the (industrial loan Institutional Funds corporation), United (since July 2003); member Space Alliance of the Utah Regional (joint venture Advisory Board of Pacific between Lockheed Corp.; formerly Managing Martin and the Director of Summit Boeing Company) and Ventures LLC (2000-2004); Nuskin Asia Pacific United States Senator (multilevel (R-Utah) (1974-1992) and marketing); member Chairman, Senate Banking of the board of Committee (1980-1986), various civic and Mayor of Salt Lake City, charitable Utah (1971-1974), organizations. Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (70) Trustee Since Retired; Director or 208 Director of The PMI c/o Kramer Levin Naftalis & Frankel LLP September Trustee of the Retail Group Inc. (private Counsel to the Independent Trustees 1997 Funds (since September mortgage insurance); 919 Third Avenue 1997) and the Trustee and Vice New York, NY 10022-3902 Institutional Funds Chairman of The (since July 2003); Field Museum of formerly associated with Natural History; the Allstate Companies director of various (1966-1994), most other business and recently as Chairman of charitable The Allstate Corporation organizations. (March 1993--December 1994) and Chairman and Chief Executive Officer of its wholly--owned subsidiary, Allstate Insurance Company (July 1989-December 1994).
145
NUMBER OF PORTFOLIOS TERM OF IN FUND POSITION(S) OFFICE AND COMPLEX NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- -------------- ------------------------- ------------- -------------------- Dr.Manuel H. Johnson (55) Trustee Since Senior Partner, Johnson 208 Director of NVR, c/o Johnson Smick International, Inc. July 1991 Smick International, Inc. (home 2099 Pennsylvania Avenue, N.W. Inc., a consulting firm; construction); Suite 950 Chairman of the Audit Director of KFX Washington, D.C. 20006 Committee and Director or Energy; Director of Trustee of the Retail RBS Greenwich Funds (since July 1991) Capital Holdings and the Institutional (financial holding Funds (since July 2003); company). Co-Chairman and a founder of the Group of Seven Council (G7C), an international 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 (62) Trustee Since President, Kearns & 209 Director of Electro c/o Kearns & Associates LLC July 2003 Associates LLC Rent Corporation PMB754 (investment consulting); (equipment leasing), 23852 Pacific Coast Highway Deputy Chairman of the The Ford Family Malibu, CA 90265 Audit Committee and Foundation, and the Director or Trustee of UCLA Foundation. the Retail Funds (since July 2003) and the Institutional Funds (since August 1994);previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J.PaulGetty Trust. Michael E. Nugent (68) Trustee Since General Partner of 208 Director of various c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P., a business 445 Park Avenue private investment organizations. New York, NY 10022 partnership; Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (72) Trustee Since Chairman of Lumelite 209 Trustee and Director c/o Lumelite Plastics Corporation July 2003 Plastics Corporation; of certain 85 Charles Colman Blvd. Chairman of the investment companies Pawling, NY 12564 Governance Committee and in the JPMorgan Director or Trustee of Funds complex the Retail Funds (since managed by J.P. July 2003) and the Morgan Investment Institutional Funds Management Inc. (since June 1992).
146 Interested Trustees:
NUMBER OF PORTFOLIOS TERM OF IN FUND POSITION(S) OFFICE AND COMPLEX NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- -------------- ------------------------- ------------- -------------------- Charles A. Fiumefreddo (71) Chairman of Since Chairman and Director or 208 None. c/o Morgan Stanley Trust the Board July 1991 Trustee of the Retail Harborside Financial Center, and Trustee Funds (since July 1991) Plaza Two, and the Institutional Jersey City, NJ 07311 Funds (since July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (56) Trustee Since Director or Trustee of 208 Director of AXA c/o Morgan Stanley Trust June 2000 the Retail Funds (since Financial, Inc. and Harborside Financial Center, June 2000) and the The Equitable Life Plaza Two, Institutional Funds Assurance Society of Jersey City, NJ 07311 (since July 2003); Senior the United States Advisor of Morgan Stanley (financial (since August 2000); services). Director of the Distributor and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999- August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999).
- ---------- * THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT ADVISER") (THE "RETAIL FUNDS"). ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE. *** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT ADVISER AND ANY FUNDS THAT HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT ADVISER (INCLUDING, BUT NOT LIMITED TO, MORGAN STANLEY INVESTMENT MANAGEMENT INC.). 147 Officers:
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** - ---------------------------- ----------------- ----------------- ------------------------------------------------------------ Mitchell M. Merin (51) President Since May 1999 President and Chief Operating Officer of Morgan Stanley 1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief New York, NY 10020 Executive Officer of the Investment Adviser and the Administrator; Chairman and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds; Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee and President (since October 2002) of the Van Kampen Open-End Funds. Ronald E. Robison (65) Executive Vice Since Principal Executive Officer of Funds in the Fund Complex 1221 Avenue of the Americas President and April 2003 (since May 2003); Managing Director of Morgan Stanley & Co. New York, NY 10020 Principal Incorporated, Morgan Stanley Investment Management Inc. and Executive Morgan Stanley; Managing Director, Chief Administrative Officer Officer and Director of the Investment Adviser and the Administrator; Director of the Transfer Agent; Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Retail Funds (March 2001-July 2003) and Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc. Joseph J. McAlinden (61) Vice President Since July 1995 Managing Director and Chief Investment Officer of the 1221 Avenue of the Americas Investment Adviser and Morgan Stanley Investment Management New York, NY 10020 Inc., Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Barry Fink (49) Vice President Since General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas February 1997 (since December 2000) of Morgan Stanley Investment New York, NY 10020 Management; Managing Director (since December 2000), Secretary (since February 1997) and Director of the Investment Adviser and the Administrator; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of the Distributor; previously Secretary (February 1997-July 2003) and General Counsel (February 1997-April 2004) of the Retail Funds; Vice President and Assistant General Counsel of the Investment Adviser and the Administrator (February 1997- December 2001). Amy R. Doberman (42) Vice President Since July 2004 Managing Director and General Counsel, U.S. Investment 1221 Avenue of the Americas Management; Managing Director of Morgan Stanley Investment New York, NY 10020 Management Inc. and the Investment Adviser, Vice President of the Institutional and Retail Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); previously, Managing Director and General Counsel - Americas, UBS Global Asset Management (July 2000 - July 2004) and General Counsel, Aeltus Investment Management, Inc. (January 1997 -- July 2000). Carsten Otto (41) Chief Since October Executive Director and U.S. Director of Compliance for 1221 Avenue of the Americas Compliance 2004 Morgan Stanley Investment Management (since October 2004); New York, NY 10020 Officer Executive Director of the Investment Adviser and Morgan Stanley Investment Management Inc.; formerly Assistant Secretary and Assistant General Counsel of the Morgan Stanley Retail Funds.
148
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** - ---------------------------- ----------------- ----------------- ------------------------------------------------------------ Stefanie V. Chang (38) Vice President Since July 2003 Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas Morgan Stanley Investment Management Inc., and the New York, NY 10020 Investment Adviser; Vice President of the Institutional Funds and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP). Francis J. Smith (39) Treasurer and Treasurer since Executive Director of the Investment Adviser and Morgan c/o Morgan Stanley Trust Chief Financial July 2003 and Stanley Services (since December 2001); previously, Vice Harborside Financial Center, Officer Chief Financial President of the Retail Funds (September 2002-July 2003), Plaza Two, Officer since and Vice President of the Investment Adviser and the Jersey City, NJ 07311 September 2002 Administrator (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998- August 2000). Thomas F. Caloia (58) Vice President Since July 2003 Executive Director (since December 2002) and Assistant c/o Morgan Stanley Trust Treasurer of the Investment Adviser, the Distributor and the Harborside Financial Center, Administrator; previously Treasurer of the Retail Funds Plaza Two, (April 1989-July 2003); formerly First Vice President of the Jersey City, NJ 07311 Investment Adviser, the Distributor and the Administrator. Mary E. Mullin (37) Secretary Since July 2003 Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas Morgan Stanley Investment Management Inc. and the Investment New York, NY 10020 Adviser; Secretary of the Institutional Funds and the Retail Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
- ---------- * THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS, AS APPLICABLE. 149 Morgan Stanley Select Dimensions Investment Series FEDERAL TAX NOTICE - DECEMBER 31, 2004 (UNAUDITED)
DIVIDENDS RECEIVED U.S. GOVERNMENT FUND DEDUCTION% (a) INCOME% (b) - ---- ------------------ --------------- Money Market Portfolio 0.00% 3.00% Flexible Income Portfolio 0.00% 8.62% Balanced Growth Portfolio 48.40% 20.70% Utilities Portfolio 100.00% 0.30% Dividend Growth Portfolio 100.00% 0.00% Equally-Weighted S&P 500 Portfolio 100.00% 0.00% Growth Portfolio 100.00% 0.00% American Opportunities Portfolio 100.00% 0.00% Capital Opportunities Portfolio 0.00% 0.00% Global Equity Portfolio 100.00% 0.00% Developing Growth Portfolio 0.00% 0.00%
- ---------- (a) THESE PERCENTAGES REPRESENT THE PORTION OF INCOME DIVIDENDS PAID BY EACH PORTFOLIO THAT QUALIFIED FOR THE DIVIDENDS RECEIVED DEDUCTION AVAILABLE TO CORPORATIONS. (b) THESE PERCENTAGES REPRESENT THE PORTION OF INCOME DIVIDENDS PAID BY EACH PORTFOLIO THAT WERE ATTRIBUTABLE TO QUALIFYING U.S. GOVERNMENT OBLIGATIONS. 150 Trustees Michael Bozic Dr. Manuel H. Johnson Charles A. Fiumefreddo Joseph J. Kearns Edwin J. Garn Michael E. Nugent Wayne E. Hedien Fergus Reid James F. Higgins Officers Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Mitchell M. Merin PRESIDENT Ronald E. Robison EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER Joseph J. McAlinden VICE PRESIDENT Barry Fink VICE PRESIDENT AND GENERAL COUNSEL Amy R. Doberman VICE PRESIDENT Carsten Otto CHIEF COMPLIANCE OFFICER Stefanie V. Chang VICE PRESIDENT Francis J. Smith TREASURER AND CHIEF FINANCIAL OFFICER Thomas F. Caloia VICE PRESIDENT Mary E. Mullin SECRETARY
TRANSFER AGENT INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Morgan Stanley Trust Deloitte & Touche LLP Harborside Financial Center, Plaza Two Two World Financial Center Jersey City, New Jersey 07311 New York, New York 10281
Investment Adviser Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Funds are distributed by Morgan Stanley Distributors Inc. Morgan Stanley Distributors Inc., member NASD. PRSRT STD U.S. POSTAGE PAID HUDSON, MA 01749 PERMIT NO. 6 RA05-00091P-Y12/04 #40474 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 amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto to delete from the end of the following paragraph on page 2 of the Code the phrase "to the detriment of the Fund.": "Each Covered Officer must not use his personal influence or personal relationship improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly)." (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: 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 Trustees 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: 2004
REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 161,566 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 453 (2) $ 3,746,495 (2) TAX FEES $ 43,996 (3) $ 79,800 (4) ALL OTHER FEES $ - $ - TOTAL NON-AUDIT FEES $ 44,449 $ 3,826,295 TOTAL $ 206,015 $ 3,826,295
2003
REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 161,328 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 9,684 (2) $ 2,847,161 (2) TAX FEES $ 38,878 (3) $ 736,810 (4) ALL OTHER FEES $ - $ - (5) TOTAL NON-AUDIT FEES $ 48,562 $ 3,583,971 TOTAL $ 209,890 $ 3,583,971
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 data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements. (3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant's tax returns. (4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities' tax returns. (5) All other fees represent project management for future business applications and improving business and operational processes. (e)(1) The audit committee's pre-approval policies and procedures are as follows: APPENDIX A AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED AND AMENDED JULY 23, 2004,(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. 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. - ---------- (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "POLICY"), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time. 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 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 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 Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 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 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 Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 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. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 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 All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 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. 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 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. 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 Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Van Kampen Asset Management Morgan Stanley Services Company, Inc. Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB MORGAN STANLEY INSTITUTIONAL FUNDS Morgan Stanley Investment Management Inc. Morgan Stanley Investment Advisors Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company 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. Item 5. Audit Committee of Listed Registrants. (a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J. Kearns, Michael Nugent and Fergus Reid. (b) Not applicable. Item 6. Schedule of Investments Refer to Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Applicable only to annual reports filed by closed-end funds. Item 8. Closed-End Fund Repurchases Applicable to reports filed by closed-end funds. Item 9. Submission of Matters to a Vote of Security Holders Not applicable. Item 10 - Controls and Procedures (a) The Fund's principal executive officer and principal 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 registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11 Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 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. Morgan Stanley Select Dimensions Investment Series /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer February 17, 2005 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. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer February 17, 2005 /s/ Francis Smith Francis Smith Principal Financial Officer February 17, 2005 EX-99.CODEETH 2 a2152309zex-99_codeeth.txt EX-99.CODEETH Exhibit 99.CODE OF ETHICS EXHIBIT 11 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED SEPTEMBER 28, 2004 I. This Code of Ethics (the "Code") for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly); - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(2) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable - ---------- (2) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - -------------------------- Date: --------------------- EXHIBIT B INSTITUTIONAL FUNDS COVERED OFFICERS Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer RETAIL FUNDS COVERED OFFICERS Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer Frank Smith - Chief Financial Officer and Treasurer EXHIBIT C GENERAL COUNSEL Barry Fink EX-99.CERT 3 a2152309zex-99_cert.txt EX-99.CERT Exhibit 99.CERT EXHIBIT 11 B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Select Dimensions Investment Series; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 17, 2005 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer EXHIBIT 11 B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Select Dimensions Investment Series; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 17, 2005 /s/ Francis Smith Francis Smith Principal Financial Officer EX-99.906CERT 4 a2152309zex-99_906cert.txt EX-99.906CERT Exhibit 99.906CERT SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Select Dimensions Investment Series In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended December 31, 2004 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: February 17, 2005 /s/ Ronald E. Robison --------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Select Dimensions Investment Series and will be retained by Morgan Stanley Select Dimensions Investment Series and furnished to the Securities and Exchange Commission or its staff upon request. SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Select Dimensions Investment Series In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended December 31, 2004 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: February 17, 2005 /s/ Francis Smith ----------------- Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Select Dimensions Investment Series and will be retained by Morgan Stanley Select Dimensions Investment Series and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----