-----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, LJG3g2K9hH/uOQ6rscPRgH/9rtPEwaQ7stOGnsz1U/YsPFyAJG5SDLabjlTjv9Ci qeDXH/HTSmt657gF+X0Gjg== 0001047469-06-003018.txt : 20060308 0001047469-06-003018.hdr.sgml : 20060308 20060308113149 ACCESSION NUMBER: 0001047469-06-003018 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060308 DATE AS OF CHANGE: 20060308 EFFECTIVENESS DATE: 20060308 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: 06672058 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 0000924394 S000002440 MONEY MARKET PORTFOLIO C000006559 X C000006560 Y 0000924394 S000002441 GLOBAL EQUITY PORTFOLIO C000006561 X C000006562 Y 0000924394 S000002442 DEVELOPING GROWTH PORTFOLIO C000006563 X C000006564 Y 0000924394 S000002443 FLEXIBLE INCOME PORTFOLIO C000006565 X C000006566 Y 0000924394 S000002444 BALANCED GROWTH PORTFOLIO C000006567 X C000006568 Y 0000924394 S000002445 UTILITIES PORTFOLIO C000006569 X C000006570 Y 0000924394 S000002446 DIVIDEND GROWTH PORTFOLIO C000006571 X C000006572 Y 0000924394 S000002447 EQUALLY WEIGHTED S&P 500 PORTFOLIO C000006573 X C000006574 Y 0000924394 S000002448 GROWTH PORTFOLIO C000006575 X C000006576 Y 0000924394 S000002449 AMERICAN OPPORTUNITIES PORTFOLIO C000006577 X C000006578 Y 0000924394 S000002450 CAPITAL OPPORTUNITIES PORTFOLIO C000006579 X C000006580 Y N-CSR 1 a2167622zn-csr.txt N-0CSR 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, 2005 Date of reporting period: December 31, 2005 Item 1 - Report to Shareholders MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES ANNUAL REPORT DECEMBER 31, 2005 Morgan Stanley Select Dimensions Investment Series TABLE OF CONTENTS Letter to the Shareholders 1 Expense Example 21 Portfolio of Investments: Money Market 26 Flexible Income 29 Balanced Growth 47 Utilities 60 Dividend Growth 64 Equally-Weighted S&P 500 68 Growth 80 American Opportunities 83 Capital Opportunities 86 Global Equity 89 Developing Growth 93 Financial Statements: Statements of Assets and Liabilities 98 Statements of Operations 100 Statements of Changes in Net Assets 102 Notes to Financial Statements 110 Financial Highlights 120 Report of Independent Registered Public Accounting Firm 130 Trustee and Officer Information 131 Federal Tax Notice 136
Morgan Stanley Select Dimensions Investment Series LETTER TO THE SHAREHOLDERS - DECEMBER 31, 2005 Dear Shareholders, In 2005, investors found themselves confronted with myriad uncertainties -- from soaring oil prices and inflation to natural disasters of unprecedented scope. Stock and bond markets advanced nonetheless, as the positive effects of global economic growth won the day. Broadly speaking, stocks outperformed bonds in the United States. Larger returns were to be had abroad, however, with many emerging markets generating especially strong returns. Domestic Equity Overview Energy prices, inflationary pressures, monetary policy, the strength of the consumer and the pace of economic growth were the U.S. market's dominant concerns during 2005. Yet although energy prices remained high, consumer confidence and spending held up reasonably well, inflation was largely contained and the economy advanced at a good clip. On the corporate front, strong profits, healthy balance sheets and respectable earnings were positive influences on the market, as was ongoing merger-and-acquisition activity. For the year, the stock market gained 4.91 percent, as measured by the S&P 500(R) Index. This muted return was earned in a climate of fluctuating sentiment. After a 2004 year-end rally, the market sold-off in the first four months of 2005 as investors moved to lock in profits. Rekindled anxiety about rising oil prices took hold, and trouble at U.S. automakers hinted at a potential economic slowdown. From May through July, better economic data -- including improved consumer confidence, a pick-up in retail sales and solid gross domestic product growth -- helped the stock market gain back ground. Stocks lost momentum from August through October. In the wake of the Gulf Coast hurricanes, prices for crude oil and gasoline spiked, consumer confidence fell and raw materials costs increased. Renewed inflation concerns roiled the market, as did indications from the Federal Open Market Committee ("the Fed") that ongoing increases to the federal funds rate were likely. Despite these factors, the stock market demonstrated resiliency, particularly as indications emerged that the impact of the hurricanes on economic growth would be less severe than initially anticipated. By late October, the market renewed its advance. Energy prices dipped, consumer confidence rebounded and retail sales data were stronger than many expected. During the final weeks of the period, the market was buffeted by cross currents. Yield trends in the bond market, rising gold prices and additional increases to the federal funds target rate gave investors pause. On the other hand, sentiment was boosted by a range of factors including favorable productivity and jobs data, and merger-and-acquisition activity in the oil sector. Many investors were also heartened by the Fed's comments that the pace of rate increases could slow or cease. For the year, mid-cap stocks bested their small- and large-cap counterparts. Value stocks narrowly outperformed growth stocks, with both styles returning respectable gains. Within the S&P 500(R) Index, energy and utilities were the best performing sectors during the 12-month period, driven by high commodity prices. Despite interest rate concerns, the financials sector was strong, supported by companies with exposure to capital markets and insurance companies. Health care companies (except large-cap pharmaceuticals) also showed strength in the overall market. In contrast, the Index's consumer discretionary sector was a significant laggard, hurt by flagging performance in auto and auto-related industries and media stocks. The telecommunication services sector was another significant drag in the Index. Among the factors hampering the sector were industry consolidation and the significant capital expenditures needed to fund future growth, as well as increased competition. International Equity Overview During the 12-month period ended December 31, 2005, international markets advanced on positive news from the world's major economic regions. Stubbornly high oil prices, weakening consumer confidence, devastating natural disasters, rising U.S. interest rates and mounting worries about global inflation were ongoing concerns, but markets gained nonetheless. Europe's economy showed signs of renewed strength. The European Central Bank raised interest rates to stave off inflation, bolstering confidence that the economy was indeed growing at a sustainable pace. Exports continued to drive growth, as demand from Eastern Europe, Asia and the United States remained strong. The major European markets gained as investors took a more positive view of the prospects of the German economy. In the United Kingdom, equity markets were weaker due, in part, to concerns of slowing consumer and industrial trends. Market sentiment brightened as the period progressed, however. In Japan, improved economic and political outlooks fuelled strong performance in the second half of the reporting period. Although macroeconomic indicators had recovered gradually throughout the year, it was Prime Minister Koizumi's call for postal privatization that spurred an equity market rally in August. Moreover, positive outlooks announced by Bank of Japan, dissipating deflationary pressures and the reelection of Prime Minister Koizumi further bolstered investor sentiment and attracted foreign investment. Emerging markets bested the developed markets for the overall reporting period. Strong macroeconomic growth, good corporate governance, a healthy consumer and attractive commodity prices were among the factors that helped support investors' appetites for the region. In addition, domestic economic risk in the emerging markets remained relatively low. 2 Fixed Income Overview A range of events influenced the fixed-income markets in 2005. The series of natural disasters that struck the U.S., combined with soaring energy prices, led to concerns about whether the economy could sustain its level of growth. In the wake of Hurricane Katrina, some observers initially believed that the economy would suffer lingering after effects. As the weeks progressed, however, it became apparent that the impact on the economy would be much smaller and more temporary than anticipated. Even the sharply higher energy prices failed to interrupt the positive economic momentum, and real gross domestic product growth continued at a reasonable clip throughout the year. Given the economy's continuing growth and relatively low inflation, the Federal Open Market Committee (the Fed) continued with its tightening policy, raising the federal funds target rate from 2.25 percent to 4.25 percent through eight increases of 25 basis points each. The minutes from the Fed's December meeting, however, indicated that this "measured pace" of increases may slow in the future. Short- and intermediate-term Treasury yields rose sharply during the year in response to stronger-than-expected economic data and the Fed's numerous tightening moves. In contrast, 10-year Treasury yields experienced little net change for the year and 30-year yields declined slightly. As a result, the yield curve flattened during the reporting period. The fundamentals of the high yield bond market remained positive throughout 2005. Default rates remained low, the economy advanced above historical norms, and corporate earnings trends continued to be favorable. Given the low yields available in the long-term bond market, high yield bonds were also rewarded by income-oriented investors. The period was also quite volatile, particularly from mid-March through mid-May. The credit downgrade of leading auto manufacturers into the high yield universe created doubt about corporate profitability overall and caused heightened concerns of supply-demand imbalances within the high yield market. Sentiment improved as the period progressed and investors returned their attention to the broader fundamentals of the high yield market. Investment-grade corporate bonds underperformed other major U.S. bond market sectors as leading auto manufacturer's credit woes roiled not only the high yield market, but the investment-grade segment of the corporate market as well. Sector returns were unevenly distributed, with a few key names driving performance within each sector. Overall, Aa-rated issues posted the highest returns while medium-quality, Baa-rated issues lagged. Among the corporate sub-sectors, the best performers were energy, utilities, and banking issues. The most significant industry laggards were automotive manufacturers and parts producers. 3 American Opportunities Portfolio For the 12-month period ended December 31, 2005, American Opportunities Portfolio Class X shares produced a total return of 14.39 percent versus 5.26 percent for the Russell 1000(R) Growth Index. For the same period, the Portfolio's Class Y shares returned 14.16 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio outperformed the Russell 1000(R) Growth Index due to positive stock selection. Sector allocations were also beneficial. Positioning in the energy, financial services and technology sectors contributed most to the Portfolio's returns versus its benchmark. Within energy, stock selection in crude oil producers added significantly to relative performance. Exposure to the coal industry proved advantageous, as did the Portfolio's overall overweight to the energy sector versus the Russell Index. Stock selection in the financial services sector also had a favorable impact on relative performance, driven primarily by stock selection in financial information services, and followed by diversified financial services. Within technology, stock selection in computer technology, communications technology, and semiconductor companies served the Portfolio well. A sector underweight versus the Russell benchmark further enhanced relative performance. [SIDENOTE] [CHART] GROWTH OF $10,000: AMERICAN OPPORTUNITIES -- CLASS X ($ in Thousands)
CLASS X RUSSELL 1000(R) GROWTH INDEX(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 11,295 $ 12,312 Dec-1997 $ 14,901 $ 16,066 Dec-1998 $ 19,488 $ 22,285 Dec-1999 $ 30,363 $ 29,674 Dec-2000 $ 29,022 $ 23,020 Dec-2001 $ 20,469 $ 18,318 Dec-2002 $ 16,056 $ 13,211 Dec-2003 $ 19,359 $ 17,140 Dec-2004 $ 20,965 $ 18,220 Dec-2005 $ 23,982(2) $ 19,179
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------------- Class X 14.39%(1) (3.74)%(1) 9.14%(1) 11.48%(1) Class Y 14.16%(1) (3.99)%(1) -- (4.48)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 1000(R) Growth Index measures the performance of those companies in the Russell 1000(R) 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 4 In contrast, the Portfolio's return was tempered by its materials and processing holdings. Here, gold exposure was detrimental, as was a sector overweight. Consumer staples were another area of weakness. Stock selection in the drugs and grocery store chains industry and the soaps and household chemicals industry were principal detractors. As of the close of the period, consumer discretionary was the largest sector weighting in the Portfolio, followed by health care and technology. The Portfolio's consumer discretionary position is overweighted versus the Russell benchmark, while health care and technology are underweighted versus the Index. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. Balanced Growth Portfolio For the 12-month period ended December 31, 2005, Balanced Growth Portfolio Class X shares produced a total return of 8.21 percent versus 7.05 percent for the Russell 1000(R) Value Index, 2.37 percent for the Lehman Brothers U.S. Government/Credit Index and 2.43 percent for the Lehman Brothers U.S. Aggregate Index. For the same period, the Portfolio's Class Y shares returned 7.89 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. [SIDENOTE] [CHART] GROWTH OF $10,000: BALANCED GROWTH -- CLASS X ($ in Thousands)
LEHMAN BROTHERS LEHMAN BROTHERS CLASS X RUSSELL 1000(R) VALUE INDEX(3) U.S. GOV'T /CREDIT INDEX(4) U.S. AGGREGATE INDEX(5) Dec-1995 $ 10,000 $ 10,000 $ 10,000 $ 10,000 Dec-1996 $ 11,354 $ 12,164 $ 10,290 $ 10,363 Dec-1997 $ 13,384 $ 16,444 $ 11,294 $ 11,364 Dec-1998 $ 15,313 $ 19,014 $ 12,364 $ 12,351 Dec-1999 $ 15,852 $ 20,411 $ 12,099 $ 12,249 Dec-2000 $ 16,861 $ 21,843 $ 13,533 $ 13,673 Dec-2001 $ 17,064 $ 20,622 $ 14,683 $ 14,828 Dec-2002 $ 15,104 $ 17,421 $ 16,304 $ 16,348 Dec-2003 $ 18,100 $ 22,652 $ 17,065 $ 17,019 Dec-2004 $ 20,079 $ 26,389 $ 17,780 $ 17,758 Dec-2005 $ 21,727(2) $ 28,250 $ 18,202 $ 18,189
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------- Class X 8.21%(1) 5.20%(1) 8.07%(1) 9.27%(1) Class Y 7.89%(1) 4.92%(1) -- 6.46%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 1000(R) Value Index measures the performance of those companies in the Russell 1000(R) 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. Government/Credit Index tracks the performance of government and corporate obligations, including U.S. government agency and Treasury securities and corporate and Yankee bonds. 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 fixed income benchmark is being changed from the Lehman Brothers U.S. Aggregate Index to Lehman Brothers U.S. Government/Credit Index to more accurately reflect the Portfolio's investible universe. (5) 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 5 From an absolute performance standpoint, energy was the Portfolio's best performing equity group. The Portfolio had a particular emphasis on refining and marketing companies, which generated standout gains. These companies were able to capture significantly wider profit margins as the spread between the rising cost of crude oil and the price for refining continued to increase. The Portfolio was well positioned in the financials sector. The Portfolio had limited exposure to regional banks, which tend to suffer disproportionately to other types of financial companies in a rising interest-rate and flattening yield curve environment. Diversified financial service companies, in which the Portfolio had more sizeable weighting, did well because of their capital markets exposure. Insurance securities were also a notable contributor in the financials area. Health care holdings, primarily in pharmaceuticals companies, were also a positive influence on performance. Less bad news, positive expectations for new drug launches, and favorable patent protection rulings helped buoy the beleaguered industry. In contrast, the Portfolio's telecommunication services holdings did not fare so well. Within the industry, competition has intensified, and the landline companies have begun to lose revenues to cable and wireless carriers. Media securities, part of the consumer discretionary sector, also drove down returns, as these companies continued to slump amid weak advertising revenues. The Portfolio's fixed income position posted a slightly negative return for the period, on an absolute basis. The Portfolio focuses on investment-grade corporate bonds and Treasury securities, and these groups lagged other bond market sectors for the year. Within its investment-grade bond portion, the Portfolio gained from its security selection in the insurance sector, which outperformed for the period. Additionally, a focus on higher-quality credits, strong security selection in the energy sector, and an underweight versus the Lehman indices to the automotive sector further enhanced performance. We managed the overall interest-rate exposure of the Portfolio's bond allocation conservatively. This posture was beneficial as interest rates rose across the short-term and intermediate-term portions of the curve. However, during periods of rate declines, such as we saw in the early part of the period, this defensive positioning detracted from relative performance. For the fiscal year overall, the Portfolio's stock and bond proportions remained fairly constant. As of the end of the reporting period, the Portfolio held 67 percent in stocks and 29 percent in bonds. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. 6 Capital Opportunities Portfolio For the 12-month period ended December 31, 2005, Capital Opportunities Portfolio Class X shares produced a total return of 22.62 percent versus 5.17 percent for the Russell 3000(R) Growth Index. For the same period, the Portfolio's Class Y shares returned 22.22 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio's consumer discretionary, energy and financial services portions were leading contributors to its outperformance of the Russell benchmark. Within consumer discretionary, stock selection in consumer electronics, commercial services, and retail had the most significant favorable impact on relative performance. This positive stock selection more than offset the tempering influence of a large overweight to the overall sector, which did not perform as strongly as others within the Index. In the energy sector, exposure to the crude oil producer industry was beneficial. An overweight to the energy sector relative to the benchmark also proved advantageous. Stock selection in the financial services sector also bolstered relative performance, driven primarily diversified financial services. Miscellaneous financials companies were also beneficial. The main area of weakness for the Portfolio was health care. Stock selection within the [SIDENOTE] [CHART] GROWTH OF $10,000: CAPITAL OPPORTUNITIES -- CLASS X ($ in Thousands)
CLASS X RUSSELL 3000(R) GROWTH INDEX(3) Jan-1997 $ 10,000 $ 10,000 Mar-1997 $ 9,400 $ 9,390 Jun-1997 $ 10,361 $ 11,155 Sep-1997 $ 11,739 $ 12,094 Dec-1997 $ 11,584 $ 12,154 Mar-1998 $ 12,737 $ 13,957 Jun-1998 $ 12,679 $ 14,456 Sep-1998 $ 9,875 $ 12,973 Dec-1998 $ 12,241 $ 16,410 Mar-1999 $ 12,861 $ 17,355 Jun-1999 $ 13,961 $ 18,153 Sep-1999 $ 14,687 $ 17,470 Dec-1999 $ 23,516 $ 21,961 Mar-2000 $ 27,532 $ 23,563 Jun-2000 $ 25,866 $ 22,848 Sep-2000 $ 27,194 $ 21,640 Dec-2000 $ 17,034 $ 17,038 Mar-2001 $ 10,935 $ 13,545 Jun-2001 $ 13,315 $ 14,781 Sep-2001 $ 7,847 $ 11,823 Dec-2001 $ 10,836 $ 13,694 Mar-2002 $ 10,149 $ 13,346 Jun-2002 $ 7,316 $ 10,881 Sep-2002 $ 5,988 $ 9,195 Dec-2002 $ 6,087 $ 9,855 Mar-2003 $ 6,110 $ 9,732 Jun-2003 $ 7,161 $ 11,184 Sep-2003 $ 7,726 $ 11,673 Dec-2003 $ 8,622 $ 12,907 Mar-2004 $ 9,175 $ 13,055 Jun-2004 $ 9,419 $ 13,289 Sep-2004 $ 9,419 $ 12,586 Dec-2004 $ 10,570 $ 13,801 Mar-2005 $ 10,050 $ 13,205 Jun-2005 $ 10,758 $ 13,541 Sep-2005 $ 11,810 $ 14,112 Dec-2005 $ 12,961(2) $ 14,515
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ------------------------------------------------------------------------------- Class X 22.62%(1) (5.32)%(1) -- 2.94%(1) Class Y 22.22%(1) (5.55)%(1) -- (12.80)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 3000(R) Growth Index measures the performance of those companies in the Russell 3000(R) 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. * Inception dates of January 21, 1997 for Class X and July 24, 2000 for Class Y. 7 biotechnology research and production industry was the most notable detractor, followed by stock selection in the drugs and pharmaceutical industry and the health care management services industry. A sector underweight also hindered relative performance. Meanwhile, within the consumer staples sector, stock selection in soft drink companies slowed the Portfolio's advance relative to the benchmark, as did as an avoidance of soaps and household chemical companies. As of the close of the period, consumer discretionary was the largest sector weighting in the Portfolio, followed by health care and technology. The Portfolio's consumer discretionary position is overweighted versus the Russell benchmark, while health care and technology are underweighted versus the Index. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. Developing Growth Portfolio For the 12-month period ended December 31, 2005, Developing Growth Portfolio Class X shares produced a total return of 18.69 percent versus 12.10 percent for the Russell MidCap(R) Growth Index. For the same period, the Portfolio's Class Y shares returned 18.40 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL [SIDENOTE] [CHART] GROWTH OF $10,000: DEVELOPING GROWTH -- CLASS X ($ in Thousands)
CLASS X RUSSELL MIDCAP(R) GROWTH INDEX(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 11,295 $ 11,748 Dec-1997 $ 12,850 $ 14,396 Dec-1998 $ 14,012 $ 16,967 Dec-1999 $ 26,976 $ 25,670 Dec-2000 $ 21,146 $ 22,654 Dec-2001 $ 15,756 $ 18,089 Dec-2002 $ 11,387 $ 13,132 Dec-2003 $ 16,101 $ 18,741 Dec-2004 $ 19,693 $ 21,642 Dec-2005 $ 23,373(2) $ 24,260
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - --------------------------------------------------------------------------------------- Class X 18.69%(1) 2.02%(1) 8.86%(1) 12.16%(1) Class Y 18.40%(1) 1.76%(1) -- (0.96)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell Midcap(R) Growth Index measures the performance of those Russell Midcap(R) companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000(R) 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 8 DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The Portfolio benefited particularly from strong stock selection within technology, financial services and utilities. Within technology, stocks from the computer services, software and systems industry and the communications technology industry were sources of notable gains. In the financial services sector, securities brokerage companies and miscellaneous financial companies boosted the Portfolio's return. The contribution of the utilities sector was driven primarily by wireless companies, with gas distributors further enhancing gains. In contrast, health care was an area of weakness for the Portfolio. Performance was hindered by stock selection, specifically within health care services and drugs and pharmaceuticals. A sector-level underweighting versus the Index exerted an adverse influence. The Portfolio's relative performance was slowed by its large sector overweight to consumer discretionary, an area which lagged others in the market. Moreover, although certain consumer discretionary positions performed quite well, there were also areas of weakness. Here, the toy, entertainment and hotel/motel industries were represented among the laggards. As of the close of the period, consumer discretionary was the largest sector weighting in the portfolio, followed by health care and technology. The portfolio's consumer discretionary position is overweighted versus the Russell benchmark, while health care and technology are underweighted versus the Index. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. 9 Dividend Growth Portfolio For the 12-month period ended December 31, 2005, Dividend Growth Portfolio Class X shares produced a total return of 5.57 percent versus 4.91 percent for the S&P 500(R) Index. For the same period, the Portfolio's Class Y shares returned 5.32 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. For the most part, the Portfolio's performance during the period was driven by individual stocks, rather than broad trends affecting entire industries or sectors. Positive influences on the Portfolio's return relative to the benchmark included our selections in the consumer discretionary group. Although auto components and media stocks struggled in the broad index, the Portfolio's holdings in these areas did well. Exposure to multi-line retail also enhanced relative results. Select holdings in the consumer staples sector -- specifically in beverages and the food and staples retailing industry -- generated good gains for the Portfolio, as did technology picks. Among the Portfolio's technology holdings, computers and peripherals, semiconductors, and Internet software and services companies drove outperformance relative to the benchmark. However, the Portfolio fell short of the Index in a few areas. Although the Portfolio's energy holdings [SIDENOTE] [CHART] GROWTH OF $10,000: DIVIDEND GROWTH -- CLASS X ($ in Thousands)
CLASS X S&P 500(R)(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 12,449 $ 12,295 Dec-1997 $ 15,702 $ 16,397 Dec-1998 $ 18,799 $ 21,082 Dec-1999 $ 18,898 $ 25,518 Dec-2000 $ 19,911 $ 23,192 Dec-2001 $ 18,827 $ 20,438 Dec-2002 $ 15,453 $ 15,923 Dec-2003 $ 19,738 $ 20,491 Dec-2004 $ 21,373 $ 22,721 Dec-2005 $ 22,564(2) $ 23,836
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------------- Class X 5.57%(1) 2.53%(1) 8.48%(1) 10.88%(1) Class Y 5.32%(1) 2.28%(1) -- 4.42%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 10 achieved significant gains on an absolute basis, energy represented an area of underperformance relative to the benchmark. The Portfolio's large-cap, valuation-conscious orientation limited its participation in the stronger performance of the more volatile mid-caps that led within the Index. Telecommunications exposure detracted from the Portfolio's relative performance, given the industry's ongoing challenges. Among the factors hampering the sector were industry consolidation and the significant capital expenditures needed to fund future growth, as well as increased competition (especially from cable providers). Within the industrials sector, individual selections from a variety of industry groups dampened results. Commercial services and supplies and industrial conglomerates were among those holdings that fell short. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. Equally-Weighted S&P 500 Portfolio For the 12-month period ended December 31, 2005, Equally-Weighted S&P 500 Portfolio Class X shares produced a total return of 7.81 percent versus 8.06 percent for the Standard & Poor's Equal Weight Index. For the same period, the Portfolio's Class Y shares returned 7.57 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL [SIDENOTE] [CHART] GROWTH OF $10,000: EQUALLY-WEIGHTED S&P 500 -- CLASS X ($ in Thousands)
CLASS X S&P EWI(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 11,778 $ 11,902 Dec-1997 $ 14,855 $ 15,360 Dec-1998 $ 16,666 $ 17,232 Dec-1999 $ 18,691 $ 19,304 Dec-2000 $ 20,930 $ 21,164 Dec-2001 $ 20,547 $ 21,082 Dec-2002 $ 17,266 $ 17,249 Dec-2003 $ 23,679 $ 24,082 Dec-2004 $ 27,620 $ 28,439 Dec-2005 $ 29,779(2) $ 30,731
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------------- Class X 7.81%(1) 7.31%(1) 11.53%(1) 12.61%(1) Class Y 7.57%(1) 7.05%(1) -- 8.45%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & Poor's Equal Weight Index (S&P EWI) is the equal-weighted version of the widely regarded S&P 500(R) 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(R) 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 11 DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. The energy sector was the leading driver of performance during the period. Exceptionally high oil prices, increased demand and solid earnings growth propelled energy stock gains. Insurance and diversified financial services stocks also contributed notably. Insurance stocks were well served by their reduced sensitivity to rising interest rates, while diversified financial services benefited as capital markets activity increased. Health care services providers rose briskly, boosted by increased plan enrollments and higher profit margins. In contrast, the auto and auto components groups were significant detractors. Investor sentiment deteriorated as the auto industry faced myriad woes, including credit downgrades, earning disappointments, production cuts and pension funding uncertainties. Media stocks struggled due to company-specific reasons, while technology hardware and equipment stocks faltered in the wake of earnings disappointments. Banking stocks, particularly regional banks, lagged as rising interest rates proved particularly disadvantageous. From a market-capitalization perspective, the stocks in the middle of the Index's capitalization range outperformed larger and smaller issues. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. 12 Flexible Income Portfolio For the 12-month period ended December 31, 2005, Flexible Income Portfolio Class X shares produced a total return of 2.88 percent versus 1.58 percent for the Lehman Brothers Intermediate U.S. Government/Credit Index. For the same period, the Portfolio's Class Y shares returned 2.62 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. During the period, we kept the Portfolio's overall interest-rate exposure well below that of its benchmark. This posture was beneficial as interest rates rose across the short-term and intermediate-term portions of the curve. However, during periods of rate declines, such as we saw in the early part of the period, this defensive positioning detracted from relative performance. The Portfolio's mortgage position had a positive impact on relative performance. As interest rates rose throughout much of the period, an emphasis on higher-coupon, slow- prepaying mortgage issues benefited performance as these issues outperformed their lower-coupon counterparts. Compared with lower-coupon, faster pre-paying mortgages, the mortgages favored by the Portfolio tend to be less sensitive to rising interest rates. Within the investment-grade portion of its corporate bond portfolio, the Portfolio benefited from [SIDENOTE] [CHART] GROWTH OF $10,000: FLEXIBLE INCOME -- CLASS X ($ in Thousands)
CLASS X LEHMAN BROTHERS INT. U.S. GOV'T/CREDIT INDEX(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 10,954 $ 10,405 Dec-1997 $ 11,866 $ 11,223 Dec-1998 $ 12,367 $ 12,170 Dec-1999 $ 12,140 $ 12,217 Dec-2000 $ 11,564 $ 13,453 Dec-2001 $ 11,094 $ 14,659 Dec-2002 $ 12,056 $ 16,101 Dec-2003 $ 13,690 $ 16,795 Dec-2004 $ 14,648 $ 17,306 Dec-2005 $ 15,069(2) $ 17,579
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------------- Class X 2.88%(1) 5.44%(1) 4.19%(1) 4.45%(1) Class Y 2.62%(1) 5.14%(1) -- 3.80%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 13 favorable sector and security selection decisions. Also, our decision to underweight corporate bonds proved helpful as most credit spreads widened slightly. In terms of sector and industry positioning, the Portfolio is overweight versus the Index in insurance, paper, energy and autos. Among its high yield holdings, the Portfolio benefited from an underweight to the transportation sector, the worst performing sector in the high yield market during the period. The Portfolio was particularly well served by its de-emphasis of auto-related companies. Overall security selection in the cable sector and utility sectors further enhanced relative performance. In contrast, security selection in several sectors, including forest products, housing, financials, and telecom, detracted from relative performance. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. Global Equity Portfolio For the 12-month period ended December 31, 2005, Global Equity Portfolio Class X shares produced a total return of 10.64 percent versus 9.49 percent for the MSCI World Index. For the same period, the Portfolio's Class Y shares returned 10.32 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. [SIDENOTE] [CHART] GROWTH OF $10,000: GLOBAL EQUITY -- CLASS X ($ in Thousands)
CLASS X MSCI WORLD INDEX(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 11,143 $ 11,348 Dec-1997 $ 12,108 $ 13,137 Dec-1998 $ 13,938 $ 16,334 Dec-1999 $ 18,697 $ 20,407 Dec-2000 $ 17,588 $ 17,718 Dec-2001 $ 14,560 $ 14,737 Dec-2002 $ 12,030 $ 11,806 Dec-2003 $ 16,207 $ 15,715 Dec-2004 $ 17,530 $ 18,028 Dec-2005 $ 19,396(2) $ 19,738
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------------- Class X 10.64%(1) 1.98%(1) 6.85%(1) 7.33%(1) Class Y 10.32%(1) 1.72%(1) -- (0.07)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Morgan Stanley Capital International (MSCI) World Index 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 14 The Portfolio's outperformance versus the benchmark was primarily driven by stock selection in the pharmaceuticals, energy and technology sectors. Although pharmaceutical stocks lagged in the overall market, the Portfolio's holdings performed well overall. Our emphasis was on smaller and medium-sized companies and those focused on generic drugs. In our view, these companies exhibited more attractive growth prospects than the large drug companies. Stock selection in energy contributed positively, offsetting the negative effects of the Portfolio's underweight in the market's top performing sector. In technology--one of the market's weakest sectors -- our selection among companies with consumer-driven businesses served the Portfolio well. In contrast, the materials sector hampered relative results, due to an underweight and weak stock selection. The sector performed well in the broad market, against a backdrop of rising prices for copper, steel and other raw materials. Also limiting gains was the Portfolio's selection in the electronic equipment industry. In August 2005, a new management team took the Portfolio's helm. As outlined in the Portfolio's prospectus, our team uses a bottom-up investment approach that emphasizes security selection and disposition on an individual company basis. We seek growth companies, focusing on securities believed to offer strong business fundamentals at an attractive valuation, while taking into consideration a company's history of paying dividends. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. 15 Growth Portfolio For the 12-month period ended December 31, 2005, Growth Portfolio Class X shares produced a total return of 15.55 percent versus 5.26 percent for the Russell 1000(R) Growth Index. For the same period, the Portfolio's Class Y shares returned 15.21 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. Broad strength across sectors drove the Portfolio's performance. Relative to the benchmark, the Portfolio benefited most from strong stock selection within utilities, health care and energy. Overall, stock selection was strongest in health care. Here, medical and dental instruments and supplies, health care management services, and biotechnology research and production were represented among leading contributors to relative performance. Within the energy sector, crude oil producers were most advantageous. The favorable impact of the Portfolio's utilities holdings was driven primarily by wireless companies, with gas distributors further enhancing gains. Stock selection was favorable in all sectors except technology. On an industry level, computer technology companies detracted most, followed by computer services and software, and communications technology. [SIDENOTE] [CHART] GROWTH OF $10,000: GROWTH -- CLASS X ($ in Thousands)
CLASS X RUSSELL 1000(R) GROWTH INDEX(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 12,356 $ 12,312 Dec-1997 $ 15,207 $ 16,066 Dec-1998 $ 17,218 $ 22,285 Dec-1999 $ 23,950 $ 29,674 Dec-2000 $ 21,152 $ 23,020 Dec-2001 $ 17,931 $ 18,318 Dec-2002 $ 12,938 $ 13,211 Dec-2003 $ 16,419 $ 17,140 Dec-2004 $ 17,673 $ 18,220 Dec-2005 $ 20,422(2) $ 19,179
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------------- Class X 15.55%(1) (0.70)%(1) 7.40%(1) 7.88%(1) Class Y 15.21%(1) (0.96)%(1) -- (4.61)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Russell 1000(R) Growth Index measures the performance of those companies in the Russell 1000(R) 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 16 As of the close of the period, consumer discretionary was the largest sector weighting in the Portfolio, followed by health care and technology. The Portfolio's consumer discretionary position is overweighted versus the Russell benchmark, while health care and technology are underweighted versus the Index. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. Money Market Portfolio AN INVESTMENT IN A MONEY MARKET FUND 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, 2005, Money Market Portfolio had net assets of more than $89 million with an average portfolio maturity of 32 days. For the seven-day period ended December 31, 2005, the Portfolio provided an effective annualized yield of 3.84 percent and a current yield of 3.77 percent, while its 30-day moving average yield for December was 3.70 percent. For the 12-month period ended December 31, 2005, the Portfolio's Class X shares returned 2.73 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. For the seven-day period ended December 31, 2005, the Portfolio's Class Y shares provided an effective annualized yield of 3.59 percent and a current yield of 3.53 percent, while its 30-day moving average yield for December was 3.45 percent. For the 12-month period ended December 31, 2005, the Portfolio's Class Y shares returned 2.48 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION 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. We also took advantage of the rising yields available on money market securities. As short-term interest rates climbed, we reinvested the proceeds of maturing short-term holdings into higher-yielding securities. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE PORTFOLIO IN THE FUTURE. 17 Utilities Portfolio For the 12-month period ended December 31, 2005, Utilities Portfolio Class X shares produced a total return of 16.28 percent versus 4.91 percent for the S&P 500(R) Index. For the same period, the Portfolio's Class Y shares returned 16.00 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE PERFORMANCE OF THE PORTFOLIO'S TWO SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE PORTFOLIO'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY CHARGES BY YOUR INSURANCE COMPANY. SUCH COSTS WOULD LOWER PERFORMANCE. A variety of factors drove the Portfolio's strong absolute returns and wide outperformance of the benchmark. Despite the Federal Open Market Committee's steady monetary tightening policy, interest rates remained low by historical standards. In this environment, utility stocks were rewarded by investors for their yield and dividend growth potential. The market's comfort with utilities was further bolstered by the sector's increased emphasis on basic utility service models. Such models entailed less high risk diversification efforts, and in turn, cleaner balance sheets and enhanced earnings predictability. Merger-and-acquisition activity furthered the overall appeal of the utilities sector, as did exceptionally strong oil and natural gas prices. As commodity prices soared, the Portfolio was particularly well served by its focus on electric companies. Additionally, selected electric positions were rewarded for restructuring activities or turnarounds. The Portfolio's natural gas allocation [SIDENOTE] [CHART] GROWTH OF $10,000: UTILITIES -- CLASS X ($ in Thousands)
CLASS X S&P 500(R)(3) Dec-1995 $ 10,000 $ 10,000 Dec-1996 $ 10,848 $ 12,295 Dec-1997 $ 13,717 $ 16,397 Dec-1998 $ 16,766 $ 21,082 Dec-1999 $ 24,096 $ 25,518 Dec-2000 $ 23,636 $ 23,192 Dec-2001 $ 17,607 $ 20,438 Dec-2002 $ 14,021 $ 15,923 Dec-2003 $ 16,891 $ 20,491 Dec-2004 $ 21,019 $ 22,721 Dec-2005 $ 24,440(2) $ 23,836
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, 2005
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION* - ----------------------------------------------------------------------------------- Class X 16.28%(1) 0.67%(1) 9.35%(1) 10.85%(1) Class Y 16.00%(1) 0.43%(1) -- (0.99)%(1)
(1) Figure assumes reinvestment of all distributions for the underlying portfolio 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, 2005 for the underlying portfolio. This figure does not reflect the deduction of any account fees or sales charges. (3) The Standard & 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. * Inception dates of November 9, 1994 for Class X and July 24, 2000 for Class Y. 18 contributed solid gains as well. Stocks of companies with exploration and production operations were among those that performed most strongly. During the period, telecommunications stocks across the market generated mixed performance. A number of companies were hindered by the threat of competition, a significant build-up of capital expenditures and regulatory uncertainty. The performance of the Portfolio reflected these broader trends. Exposure to wireless-related holdings offset much of the lackluster performance from wireline operators, such as the Regional Bells and independent carriers. Unlike the wireline operators where growth appears slow at best, the wireless area offered attractive organic growth prospects as well as the benefit of synergies from current and future consolidation. Throughout the period, the Portfolio was well diversified across the utilities sector. As of December 31, 2005, electric utilities stocks represented 61 percent of equity investments, natural gas and energy stocks represented 23 percent, and telecommunications represented 16 percent. We note that the Portfolio's holdings and allocation may be modified at any time, in response to our analysis of broader trends or company specific fundamentals. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR THAT SECURITIES IN SUCH SECTORS WILL 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/ Ronald E. Robison Charles A. Fiumefreddo Ronald E. Robison CHAIRMAN OF THE BOARD PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER 19 PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD You may obtain a copy of the Portfolios' Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. It is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov. You may obtain information regarding how the Portfolios voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge 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. FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters by filing the schedule electronically with the Securities and Exchange Commission (SEC). The semiannual reports are filed on Form N-CSRS and the annual reports are filed on Form N-CSR. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public Web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public Web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web site, http://www.sec.gov. You may also review and copy them at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the Public Reference section of the SEC, Washington, DC 20549-0102. 20 EXPENSE EXAMPLE - DECEMBER 31, 2005 As a shareholder of the Portfolio, you incur two types of costs: (1) insurance company charges; and (2) ongoing costs, including advisory fees; distribution and service (12b-1) fees; and other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio 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 07/01/05-12/31/05. 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 Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio'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 Portfolio 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. 21 MONEY MARKET
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (1.62% return) $ 1,000.00 $ 1,016.20 $ 2.89 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.27 $ 2.90 CLASS Y Actual (1.49% return) $ 1,000.00 $ 1,014.90 $ 4.15 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.01 $ 4.17
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.57% AND 0.82% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/364 (TO REFLECT THE ONE-HALF YEAR PERIOD). FLEXIBLE INCOME
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (1.31% return) $ 1,000.00 $ 1,013.10 $ 2.94 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.28 $ 2.96 CLASS Y Actual (1.05% return) $ 1,000.00 $ 1,010.50 $ 4.21 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.02 $ 4.23
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.58% AND 0.83% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). BALANCED GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (5.44% return) $ 1,000.00 $ 1,054.40 $ 3.73 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.58 $ 3.67 CLASS Y Actual (5.26% return) $ 1,000.00 $ 1,052.60 $ 5.02 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.32 $ 4.94
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.72% AND 0.97% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 22 UTILITIES
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (4.13% return) $ 1,000.00 $ 1,041.30 $ 3.81 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.48 $ 3.77 CLASS Y Actual (4.05% return) $ 1,000.00 $ 1,040.50 $ 5.09 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.21 $ 5.04
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.74%, AND 0.99% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). DIVIDEND GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (6.95% return) $ 1,000.00 $ 1,069.50 $ 3.34 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.98 $ 3.26 CLASS Y Actual (6.83% return) $ 1,000.00 $ 1,068.30 $ 4.64 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.72 $ 4.53
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.64% AND 0.89% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). EQUALLY-WEIGHTED S&P 500
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (7.35% return) $ 1,000.00 $ 1,073.50 $ 1.46 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,023.79 $ 1.43 CLASS Y Actual (7.24% return) $ 1,000.00 $ 1,072.40 $ 2.77 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.53 $ 2.70
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.28% AND 0.53% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 23 GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (15.50% return) $ 1,000.00 $ 1,155.00 $ 3.69 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.78 $ 3.47 CLASS Y Actual (15.30% return) $ 1,000.00 $ 1,153.00 $ 5.05 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.52 $ 4.74
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.68% AND 0.93% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). AMERICAN OPPORTUNITIES
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (15.91% return) $ 1,000.00 $ 1,159.10 $ 3.65 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.83 $ 3.41 CLASS Y Actual (15.78% return) $ 1,000.00 $ 1,157.80 $ 5.00 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.57 $ 4.69
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.67% AND 0.92% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). CAPITAL OPPORTUNITIES
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (20.47% return) $ 1,000.00 $ 1,204.70 $ 4.95 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.72 $ 4.53 CLASS Y Actual (20.31% return) $ 1,000.00 $ 1,203.10 $ 6.33 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.46 $ 5.80
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.89% AND 1.14% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 24 GLOBAL EQUITY
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (11.26% return) $ 1,000.00 $ 1,112.60 $ 6.07 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.46 $ 5.80 CLASS Y Actual (11.13% return) $ 1,000.00 $ 1,111.30 $ 7.40 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.20 $ 7.07
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 1.14% AND 1.39% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). DEVELOPING GROWTH
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 07/01/05 - 07/01/05 12/31/05 12/31/05 ------------- ------------- -------------- CLASS X Actual (15.01% return) $ 1,000.00 $ 1,150.10 $ 3.47 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.98 $ 3.26 CLASS Y Actual (14.86% return) $ 1,000.00 $ 1,148.60 $ 4.82 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.72 $ 4.53
- ---------- * EXPENSES ARE EQUAL TO THE PORTFOLIO'S ANNUALIZED EXPENSE RATIO OF 0.64% AND 0.89% FOR CLASS X AND CLASS Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 25 Money Market PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS PURCHASE MATURITY VALUE - ------------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER (83.5%) ASSET-BACKED - AUTO (3.9%) $ 3,462 DaimlerChrysler Revolving Auto Conduit LLC 4.27 - 4.48% 01/27/06 - 03/21/06 $ 3,445,279 ------------ ASSET-BACKED - CONSUMER (15.9%) 3,176 Bryant Park Funding LLC* 4.28 - 4.41 01/06/06 - 02/15/06 3,166,826 888 Kitty Hawk Funding Corp.* 4.32 01/03/06 887,681 250 Mont Blanc Capital Corp.* 4.38 01/26/06 249,213 500 Ranger Funding Co., LLC* 4.34 01/25/06 498,500 4,175 Regency Markets No, 1, LLC* 4.19 - 4.34 01/12/06 - 01/20/06 4,166,587 855 Sheffield Receivables Corp.* 4.33 01/23/06 852,646 4,320 Thames Asset Global Securitization* 4.31 - 4.39 01/09/06 - 01/13/06 4,314,631 ------------ 14,136,084 ------------ ASSET-BACKED - CORPORATE (3.4%) 3,050 Eureka Securitization, Inc.* 4.18 - 4.36 01/09/06 - 02/02/06 3,045,108 ------------ ASSET-BACKED - DIVERSIFIED (2.4%) 730 Fairway Finance Corp.* 4.22 01/03/06 729,744 1,375 Jupiter Securitization Corp.* 4.36 02/01/06 1,369,696 ------------ 2,099,440 ------------ ASSET-BACKED - MORTGAGE (3.8%) 3,447 Sydney Capital Corp.* 4.45 - 4.51 03/01/06 - 03/23/06 3,417,451 ------------ ASSET-BACKED - SECURITIES (23.0%) 4,413 Amstel Funding Corp.* 4.10 - 4.41 01/17/06 - 03/29/06 4,388,782 2,221 Cancara Asset Securitisation LLC* 4.26 - 4.44 01/05/06 - 03/01/06 2,211,690 2,780 Clipper Receivables Co., LLC* 4.27 - 4.37 01/05/06 - 01/20/06 2,775,316 1,612 Galleon Capital, LLC* 4.32 01/12/06 1,609,689 4,223 Golden Fish LLC* 4.36 - 4.38 01/10/06 - 01/27/06 4,215,777 2,100 Grampian Funding LLC* 4.21 - 4.45 02/21/06 - 03/21/06 2,084,027 1,948 Scaldis Capital Corp.* 4.32 - 4.39 01/09/06 - 02/21/06 1,938,258 1,225 Solitaire Funding LLC* 4.30 01/23/06 1,221,650 ------------ 20,445,189 ------------ FINANCE - CORPORATE (2.2%) 2,000 CIT Group, Inc. 4.18 01/06/06 1,998,617 ------------ INTERNATIONAL BANKS (27.5%) 800 Bank of Ireland* 4.33 01/30/06 797,127 1,000 Banque Generale du Luxembourg* 4.21 01/04/06 999,534 2,500 CBA (Delaware) Finance Inc. 4.28 - 4.35 01/24/06 - 01/31/06 2,491,817 600 Danske Corp. 4.36 01/09/06 599,348 4,175 DnB NOR Bank ASA 4.21 - 4.41 01/13/06 - 02/03/06 4,164,145 1,000 Fortis Funding LLC* 4.17 01/30/06 996,567 2,100 ING (U.S.) Funding LLC 4.29 - 4.33 01/18/06 - 01/31/06 2,094,262
SEE NOTES TO FINANCIAL STATEMENTS 26
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS PURCHASE MATURITY VALUE - ------------------------------------------------------------------------------------------------------------------ $ 4,000 Nordea North America Inc. 4.26 - 4.52% 01/20/06 - 05/25/06 $ 3,959,694 2,100 Skandinaviska Enskilda Banken AB* 4.37 02/03/06 2,091,373 850 Societe Generale N.A., Inc. 4.35 02/03/06 846,524 500 Spintab AB 4.33 01/31/06 498,149 1,845 Swedbank 4.22 - 4.24 01/19/06 - 01/20/06 1,840,879 2,700 UBS Finance (Delaware) LLC 4.25 - 4.33 01/26/06 - 02/28/06 2,687,387 400 Westpac Capital Corp. 4.42 02/21/06 397,469 ------------ 24,464,275 ------------ INVESTMENT BANKS/BROKERS (1.4%) 1,270 Goldman Sachs Group, Inc. (The) 4.33 01/04/06 1,269,390 ------------ TOTAL COMMERCIAL PAPER (COST $74,320,833) 74,320,833 ------------ FLOATING RATE NOTES (13.0%) BANKING (2.8%) 2,500 Wells Fargo & Co. 4.54+ 03/03/06 2,500,587 ------------ DOMESTIC BANKS (8.0%) 4,000 SunTrust Bank 4.32+ 01/26/06++ 4,000,000 1,605 U.S. Bank, N.A., Cincinnati 4.23+ 01/30/06++ 1,605,007 1,500 Wells Fargo Bank, N. A. 4.32+ 01/24/06++ 1,500,000 ------------ 7,105,007 ------------ FINANCIAL CONGLOMERATES (2.2%) 2,000 General Electric Capital Corp. 4.46+ 02/03/06 2,000,443 ------------ TOTAL FLOATING RATE NOTES (COST $11,606,037) 11,606,037 ------------ CERTIFICATES OF DEPOSIT (1.1%) DOMESTIC BANKS 1,000 Citibank, N.A. (COST $1,000,000) 4.28 02/15/06 1,000,000 ------------ BANKER'S ACCEPTANCE (1.4%) DOMESTIC BANKS 1,207 J.P. Morgan Chase Bank (COST $1,203,949) 3.90 - 4.12 01/05/06 - 02/09/06 1,203,949 ------------ TOTAL INVESTMENTS (COST $88,130,819) (a) 99.0% 88,130,819 OTHER ASSETS IN EXCESS OF LIABILITIES 1.0 908,791 ----- ------------ NET ASSETS 100.0% $ 89,039,610 ===== ============
SEE NOTES TO FINANCIAL STATEMENTS 27 - ---------- * RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. + RATE SHOWN IS THE INTEREST RATE IN EFFECT AT DECEMBER 31, 2005. ++ DATE OF NEXT INTEREST RATE RESET. (a) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES. SUMMARY OF INVESTMENTS MATURITY SCHEDULE* 1 - 30 Days 59% 31 - 60 Days 28 61 - 90 Days 11 91 - 120 Days 0 121+ Days 2 --- 100% ===
- ---------- * AS A PERCENTAGE OF TOTAL MARKET VALUE. SEE NOTES TO FINANCIAL STATEMENTS 28 Flexible Income PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- GOVERNMENT AND CORPORATE BONDS (91.3%) FOREIGN (14.0%) ARGENTINA (0.2%) GOVERNMENT OBLIGATIONS ARS 682 Republic of Argentina 0.00**% 12/15/35 $ 11,056 230 Republic of Argentina++++ 5.83 12/31/33 89,355 $ 15 Republic of Argentina (h) 0.00** 12/15/35 810 5 Republic of Argentina (d)(h)++++ 8.28 12/31/33 4,564 60 Republic of Argentina (c) 13.969 04/10/49 24,300 ------------ TOTAL ARGENTINA 130,085 ------------ AUSTRALIA (0.3%) OTHER METALS/MINERALS (0.0%) 70 Murrin Murrin Holdings Property Ltd. (c)(h) 9.375 08/31/07 0 ------------ PROPERTY - CASUALTY INSURERS (0.3%) 200 Mantis Reef Ltd. - 144A* 4.692 11/14/08 196,635 ------------ TOTAL AUSTRALIA 196,635 ------------ BRAZIL (1.3%) GOVERNMENT OBLIGATIONS 316 Federal Republic of Brazil 8.00 01/15/18 341,438 77 Federal Republic of Brazil 8.875 10/14/19 86,471 280 Federal Republic of Brazil 14.50 10/15/09 359,800 ------------ TOTAL BRAZIL 787,709 ------------ CANADA (1.6%) DRUGSTORE CHAINS (0.2%) 45 Jean Coutu Group PJC Inc. (The) 7.625 08/01/12 44,550 95 Jean Coutu Group PJC Inc. (The) 8.50 08/01/14 87,400 ------------ 131,950 ------------ FOREST PRODUCTS (0.1%) 140 Tembec Industries Inc. 8.50 02/01/11 78,400 ------------ MEDIA CONGLOMERATES (0.0%) .6 Canwest Media Inc. 8.00 09/15/12 614 ------------ OTHER METALS/MINERALS (0.2%) 80 Brascan Corp. 7.125 06/15/12 87,328 ------------ OTHER TRANSPORTATION (0.2%) 140 CHC Helicopter Corp. 7.375 05/01/14 142,275 ------------ PULP & PAPER (0.7%) 100 Abitibi-Consolidated Inc. 6.00 06/20/13 85,250
SEE NOTES TO FINANCIAL STATEMENTS 29
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- $ 140 Abitibi-Consolidated Inc. 8.85% 08/01/30 $ 120,400 190 Bowater Canada Finance 7.95 11/15/11 185,250 ------------ 390,900 ------------ TELECOMMUNICATION EQUIPMENT (0.2%) 125 Nortel Networks Ltd. 6.125 02/15/06 125,625 ------------ TOTAL CANADA 957,092 ------------ FRANCE (0.4%) CHEMICALS: SPECIALTY (0.1%) 65 Rhodia SA 8.875 06/01/11 66,950 ------------ OILFIELD SERVICES/EQUIPMENT (0.1%) 25 CIE Generale de Geophysique S.A. 7.50 05/15/15 26,000 ------------ TELECOMMUNICATIONS (0.2%) 95 France Telecom S.A. 8.50 03/01/31 127,140 ------------ TOTAL FRANCE 220,090 ------------ GERMANY (0.3%) CABLE/SATELLITE TV 155 Kabel Deutschland - 144A* 10.625 07/01/14 163,912 ------------ INDONESIA (0.5%) PULP & PAPER 264 Tjiwi Kimia Finance BV - 144A* 0.00** 04/29/27 72,497 76 Tjiwi Kimia Finance BV - 144A* 5.248** 04/29/15 66,549 213 Tjiwi Kimia Finance BV - 144A* 5.248** 04/29/18 145,144 ------------ TOTAL INDONESIA 284,190 ------------ ISRAEL (0.3%) ALTERNATIVE POWER GENERATION 167 Ormat Funding Corp. 8.25 12/30/20 169,377 ------------ JAPAN (4.0%) GOVERNMENT OBLIGATIONS JPY 178,000 Japan (Government of) 0.50 06/20/06 1,511,887 110,000 Japan (Government of) 0.50 09/20/06 935,177 ------------ TOTAL JAPAN 2,447,064 ------------ LUXEMBOURG (0.2%) TELECOMMUNICATIONS $ 30 Telecom Italia Capital SpA 4.00 11/15/08 29,113 80 Telecom Italia Capital SpA 4.00 01/15/10 76,265 ------------ TOTAL LUXEMBOURG 105,378 ------------
SEE NOTES TO FINANCIAL STATEMENTS 30
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- MEXICO (1.5%) GOVERNMENT OBLIGATIONS (0.7%) $ 50 United Mexican States Corp. 6.375% 01/16/13 $ 53,250 265 United Mexican States Corp. 8.375 01/14/11 302,762 39 United Mexican States Corp. 11.50 05/15/26 63,862 40 United Mexican States Corp. (Series MTN) 8.30 08/15/31 51,500 ------------ 471,374 ------------ OIL & GAS PRODUCTION (0.6%) 170 Pemex Project Funding Master Trust - 144A* 5.791** 06/15/10 176,375 80 Pemex Project Funding Master Trust (Issued 11/17/04) 10.00 09/15/27 107,000 30 Pemex Project Funding Master Trust (Demand date 03/15/06)#### 10.00 09/15/27 40,237 20 Pemex Project Funding Master Trust (Issued 12/30/04) 10.00 09/15/27 26,825 ------------ 350,437 ------------ SPECIALTY TELECOMMUNICATIONS (0.0%) 40 Satelites Mexicanos SA (c) 10.125 11/01/04 19,200 ------------ TELECOMMUNICATIONS (0.2%) 100 Axtel SA 11.00 12/15/13 113,500 ------------ TOTAL MEXICO 954,511 ------------ NETHERLANDS (0.1%) TELECOMMUNICATIONS 75 Deutsche Telekom International Finance Corp. NV 8.75 06/15/30 95,675 ------------ QATAR (0.4%) GAS DISTRIBUTORS (0.2%) 105 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A* 8.294 03/15/14 121,605 ------------ GOVERNMENT OBLIGATION (0.2%) 100 State of Qatar 9.75 06/15/30 153,030 ------------ TOTAL QATAR 274,635 ------------ RUSSIA (1.5%) GOVERNMENT OBLIGATIONS (1.4%) 85 Federal Republic of Russia 5.00 03/31/30 96,167 110 Federal Republic of Russia 8.25 03/31/10 117,359 201 Federal Republic of Russia 11.00 07/24/18 298,673 190 Federal Republic of Russia 12.75 06/24/28 349,059 ------------ 861,258 ------------
SEE NOTES TO FINANCIAL STATEMENTS 31
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- OIL & GAS PIPELINES (0.1%) $ 75 Gaz Capital 8.625% 04/28/34 $ 95,250 ------------ TOTAL RUSSIA 956,508 ------------ TURKEY (0.7%) GOVERNMENT OBLIGATIONS 70 Citigroup, Inc. - 144A* +++ 0.00 02/23/06 108,967 90 Republic of Turkey 11.00 01/14/13 114,638 150 Republic of Turkey 11.50 01/23/12 191,063 ------------ TOTAL TURKEY 414,668 ------------ UNITED KINGDOM (0.1%) ADVERTISING/MARKETING SERVICES 70 WPP Finance (UK) Corp. 5.875 06/15/14 71,161 ------------ VENEZUELA (0.6%) GOVERNMENT OBLIGATIONS 70 Republic of Venezuela 8.50 10/08/14 77,175 240 Republic of Venezuela 9.375 01/13/34 285,000 ------------ TOTAL VENEZUELA 362,175 ------------ TOTAL FOREIGN (COST $8,776,186) 8,590,865 ------------ UNITED STATES (77.3%) CORPORATE BONDS (27.8%) AEROSPACE & DEFENSE (0.7%) 165 K&F Acquisition Inc. 7.75 11/15/14 167,475 100 Northrop Grumman Corp. 4.079 11/16/06 99,248 45 Raytheon Co. 8.30 03/01/10 50,449 78 Systems 2001 Asset Trust - 144A* 6.664 09/15/13 82,653 ------------ 399,825 ------------ AIR FREIGHT/COURIERS (0.1%) 30 Fedex Corp. 2.65 04/01/07 29,190 40 Fedex Corp. 7.25 02/15/11 43,779 ------------ 72,969 ------------ AIRLINES (0.0%) 30 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 30,143 ------------ APPAREL/FOOTWEAR (0.5%) 125 Levi Strauss & Co. 8.804** 04/01/12 126,562 200 Phillips-Van Heusen Corp. 7.25 02/15/11 204,000 ------------ 330,562 ------------
SEE NOTES TO FINANCIAL STATEMENTS 32
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- APPAREL/FOOTWEAR RETAIL (0.2%) $ 85 Brown Shoe Co., Inc. 8.75% 05/01/12 $ 89,250 60 Limited Brands, Inc. 6.95 03/01/33 60,914 ------------ 150,164 ------------ AUTO PARTS: O.E.M. (0.7%) 100 Arvin Meritor, Inc. 8.75 03/01/12 96,250 155 Lear Corp. (Series B) 8.11 05/15/09 144,362 154 TRW Automotive, Inc. 9.375 02/15/13 167,475 ------------ 408,087 ------------ BEVERAGES: ALCOHOLIC (0.2%) 100 FBG Finance Ltd.- 144A* 5.125 06/15/15 97,471 ------------ BROADCASTING (0.3%) 65 Lin Television Corp. 6.50 05/15/13 62,644 40 Lin Television Corp. (Series B) 6.50 05/15/13 38,550 74 Salem Communications Holdings Corp. (Series B) 9.00 07/01/11 78,347 ------------ 179,541 ------------ BUILDING PRODUCTS (0.3%) 35 Interface Inc. 7.30 04/01/08 35,525 165 Interface Inc. 9.50 02/01/14 165,000 ------------ 200,525 ------------ CABLE/SATELLITE TV (1.4%) 170 Cablevision Systems Corp. (Series B) 8.716** 04/01/09 172,550 116 CCH I LLC - 144A* 11.00 10/01/15 98,020 180 Comcast Cable Communications Inc. 6.75 01/30/11 190,789 100 Cox Communications, Inc. 4.625 01/15/10 96,893 95 Echostar DBS Corp. 6.375 10/01/11 91,912 65 Echostar DBS Corp. 6.625 10/01/14 62,644 75 Intelsat Bermuda Ltd. - 144A* 8.695** 01/15/12 76,594 60 Renaissance Media Group LLC 10.00 04/15/08 60,375 ------------ 849,777 ------------ CASINO/GAMING (1.2%) 840 Aladdin Gaming Holdings/Capital Corp. LLC (Series B) (a)(c)(h) 13.50 03/01/10 0 215 Isle of Capri Casinos 7.00 03/01/14 210,700 335 MGM Mirage Inc. 6.00 10/01/09 334,581 299 Resort At Summerlin LP/Ras Co.(Series B) (a)(c)(h) 13.00^ 12/15/07 0 165 Station Casinos, Inc. 6.00 04/01/12 165,412 30 Station Casinos, Inc. 6.875 03/01/16 30,825 ------------ 741,518 ------------
SEE NOTES TO FINANCIAL STATEMENTS 33
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- CHEMICALS: MAJOR DIVERSIFIED (0.2%) $ 98 Huntsman ICI Chemicals 10.125% 07/01/09 $ 101,675 45 ICI Wilmington Inc. 4.375 12/01/08 43,880 ------------ 145,555 ------------ CHEMICALS: SPECIALTY (1.4%) 161 Equistar Chemical Funding 10.125 09/01/08 175,490 35 Equistar Chemical Funding 10.625 05/01/11 38,675 100 Innophos Inc. - 144A* 8.875 08/15/14 101,250 2 Innophos Inc. - 144A* 12.34^** 02/15/15 1,644 80 ISP Chemco 10.25 07/01/11 85,600 135 ISP Holdings Inc. (Series B) 10.625 12/15/09 142,425 40 Koppers Industry Inc. 9.875 10/15/13 43,600 175 Millennium America, Inc. 7.00 11/15/06 178,937 100 Nalco Co. 7.75 11/15/11 103,250 ------------ 870,871 ------------ COAL (0.1%) 35 Foundation PA Coal Co. 7.25 08/01/14 36,356 ------------ CONTAINERS/PACKAGING (0.9%) 100 Graham Packaging Company Inc. 8.50 10/15/12 99,000 150 Graphic Packaging International Corp. 9.50 08/15/13 144,000 150 Owens-Illinois, Inc. 7.50 05/15/10 153,000 30 Pliant Corp. 11.125 09/01/09 26,850 75 Pliant Corp.(c) 13.00 06/01/10 15,000 125 Sealed Air Corp. - 144A* 5.625 07/15/13 124,270 ------------ 562,120 ------------ DATA PROCESSING SERVICES (0.2%) 105 Sungard Data Systems Inc. - 144A* 9.125 08/15/13 109,200 ------------ DEPARTMENT STORES (0.1%) 65 Penny (JC) Co., Inc. 7.40 04/01/37 72,944 ------------ DRUGSTORE CHAINS (0.1%) 55 Rite Aid Corp. 8.125 05/01/10 56,237 ------------ ELECTRIC UTILITIES (2.3%) 80 AES Corp. (The) 7.75 03/01/14 84,300 11 AES Corp. (The) 8.875 02/15/11 11,949 16 AES Corp. (The) 9.375 09/15/10 17,560 60 AES Corp. (The) - 144A* 9.00 05/15/15 66,000 140 Arizona Public Service Co. 5.80 06/30/14 144,530 55 CC Funding Trust I 6.90 02/16/07 56,073 65 Cincinnati Gas & Electric Co. 5.70 09/15/12 66,808 60 Consolidated Natural Gas Co. 5.00 12/01/14 58,314
SEE NOTES TO FINANCIAL STATEMENTS 34
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- $ 60 Consolidated Natural Gas Co. (Series C) 6.25% 11/01/11 $ 62,907 70 Consumers Energy Co. 4.80 02/17/09 69,137 45 Entergy Gulf States, Inc. 3.60 06/01/08 43,297 100 Entergy Gulf States, Inc. 4.81** 12/01/09 97,657 80 Exelon Corp. 6.75 05/01/11 85,265 30 IPALCO Enterprises, Inc. 8.625 11/14/11 32,850 135 Monongahela Power Co. 5.00 10/01/06 134,956 115 MSW Energy Holdings/Finance 7.375 09/01/10 118,737 25 MSW Energy Holdings/Finance 8.50 09/01/10 26,750 30 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 29,180 15 PSEG Energy Holdings Inc. 7.75 04/16/07 15,600 100 PSEG Energy Holdings Inc. 8.625 02/15/08 104,500 50 Texas Eastern Transmission, LP 7.00 07/15/32 58,490 35 Wisconsin Electric Power Co. 3.50 12/01/07 34,096 ------------ 1,418,956 ------------ ELECTRICAL PRODUCTS (0.4%) 35 Cooper Industries Inc. 5.25 07/01/07 35,161 45 Cooper Industries Inc. - 144A* 5.25 11/15/12 45,324 85 Rayovac Corp. 8.50 10/01/13 74,587 135 Spectrum Brands, Inc. 7.375 02/01/15 113,400 ------------ 268,472 ------------ ELECTRONICS/APPLIANCES (0.4%) 255 Eastman Kodak Co. 7.25 11/15/13 245,008 ------------ ENVIRONMENTAL SERVICES (0.1%) 42 Allied Waste North America, Inc. 9.25 09/01/12 45,675 ------------ FINANCE/RENTAL/LEASING (0.6%) 35 CIT Group, Inc. 2.875 09/29/06 34,520 30 CIT Group, Inc. 3.65 11/23/07 29,340 125 MBNA Corp. 4.721** 05/05/08 125,990 150 Residential Capital Corp. 6.375 06/30/10 152,565 ------------ 342,415 ------------ FINANCIAL CONGLOMERATES (0.7%) 120 Chase Manhattan Corp. 6.00 02/15/09 123,340 10 Chase Manhattan Corp. 7.00 11/15/09 10,707 20 Citigroup Inc. 5.75 05/10/06 20,073 45 Citigroup Inc. 6.00 02/21/12 47,290 50 Citigroup Inc. 6.625 06/15/32 56,686 20 General Electric Capital Corp. 4.25 12/01/10 19,543 170 General Motors Acceptance Corp. 6.875 09/15/11 155,207 ------------ 432,846 ------------
SEE NOTES TO FINANCIAL STATEMENTS 35
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- FOOD RETAIL (0.5%) $ 39 CA FM Lease Trust - 144A* 8.50% 07/15/17 $ 42,472 145 Delhaize America, Inc. 8.125 04/15/11 158,785 55 Kroger Co. 7.50 04/01/31 61,585 30 Safeway Inc. 7.25 02/01/31 32,469 ------------ 295,311 ------------ FOOD: MAJOR DIVERSIFIED (0.1%) 35 ConAgra Foods, Inc. 7.00 10/01/28 38,137 25 General Mills Inc. 3.875 11/30/07 24,521 30 Kraft Foods Inc. 5.25 06/01/07 30,132 ------------ 92,790 ------------ FOOD: MEAT/FISH/DAIRY (0.8%) 85 Michael Foods Inc. (Series B) 8.00 11/15/13 87,550 90 Pilgrim's Pride Corp. 9.625 09/15/11 96,300 60 PPC Escrow Corp. 9.25 11/15/13 64,350 125 Smithfield Foods Inc. 7.00 08/01/11 128,125 70 Smithfield Foods Inc. 7.625 02/15/08 72,625 20 Smithfield Foods Inc. (Series B) 8.00 10/15/09 21,200 ------------ 470,150 ------------ FOREST PRODUCTS (0.0%) 5 Weyerhaeuser Co. 6.125 03/15/07 5,074 ------------ GAS DISTRIBUTORS (0.7%) 130 Dynegy Holdings, Inc. 6.875 04/01/11 128,700 130 Dynegy Holdings, Inc. - 144A* 9.875 07/15/10 143,162 120 NiSource Finance Corp. 4.95** 11/23/09 120,503 45 Sempra Energy 4.621 05/17/07 44,696 ------------ 437,061 ------------ HOME BUILDING (0.3%) 50 Tech Olympic USA, Inc. 10.375 07/01/12 49,437 50 Tech Olympic USA, Inc.(Issued 11/27/02) 9.00 07/01/10 50,813 100 Tech Olympic USA, Inc. (Issued 02/03/03) 9.00 07/01/10 101,625 ------------ 201,875 ------------ HOME FURNISHINGS (0.2%) 50 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 55,178 40 Tempur-Pedic Inc. 10.25 08/15/10 43,450 ------------ 98,628 ------------ HOSPITAL/NURSING MANAGEMENT (0.6%) 45 HCA, Inc. 6.30 10/01/12 45,450 85 HCA, Inc. 7.875 02/01/11 91,813
SEE NOTES TO FINANCIAL STATEMENTS 36
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- $ 55 Medcath Holdings Corp. 9.875% 07/15/12 $ 58,300 115 Tenet Healthcare Corp. 7.375 02/01/13 106,663 65 Tenet Healthcare Corp. 9.875 07/01/14 66,138 ------------ 368,364 ------------ HOTELS/RESORTS/CRUISELINES (0.2%) 120 Hyatt Equities LLC - 144A* 6.875 06/15/07 122,475 ------------ HOUSEHOLD/PERSONAL CARE (0.1%) 75 Clorox Co. (The) 4.614** 12/14/07 75,176 ------------ INDUSTRIAL MACHINERY (0.2%) 50 Goodman Global Holding Company, Inc. - 144A* 7.491** 06/15/12 49,750 70 Goodman Global Holding Company, Inc. - 144A* 7.875 12/15/12 65,450 ------------ 115,200 ------------ INDUSTRIAL SPECIALTIES (0.3%) 165 Johnsondiversy, Inc. 9.625 05/15/12 166,650 ------------ INSURANCE BROKERS/SERVICES (0.8%) 290 Farmers Exchange Capital - 144A* 7.05 07/15/28 307,620 185 Marsh & McLennan Co., Inc. 5.875 08/01/33 177,682 ------------ 485,302 ------------ MAJOR BANKS (0.1%) 20 Bank of New York Co., Inc. (The) 5.20 07/01/07 20,106 70 Wachovia Corp. 4.95 11/01/06 70,019 ------------ 90,125 ------------ MANAGED HEALTH CARE (0.3%) 135 Health Net, Inc. 9.875 04/15/11 157,721 30 WellPoint Health Networks Inc. 6.375 06/15/06 30,202 ------------ 187,923 ------------ MEDIA CONGLOMERATES (0.2%) 55 News America Holdings, Inc. 7.75 02/01/24 62,177 30 News America Inc. 7.125 04/08/28 32,393 ------------ 94,570 ------------ MEDICAL DISTRIBUTORS (0.1%) 70 AmerisourceBergen Corp. - 144A* 5.625 09/15/12 70,350 ------------ MEDICAL/NURSING SERVICES (0.4%) 181 Fresenius Medical Care Capital Trust 7.875 06/15/11 193,670 25 Fresenius Medical Care Capital Trust II (Units)~ 7.875 02/01/08 25,875 25 National Nephrology Assoc. Inc. - 144A* 9.00 11/01/11 27,813 ------------ 247,358 ------------
SEE NOTES TO FINANCIAL STATEMENTS 37
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- METAL FABRICATIONS (0.1%) $ 60 General Cable Corp. 9.50% 11/15/10 $ 63,900 ------------ MISCELLANEOUS COMMERCIAL SERVICES (0.3%) 55 Iron Mountain Inc. 7.75 01/15/15 55,688 140 Iron Mountain Inc. 8.625 04/01/13 146,650 ------------ 202,338 ------------ MISCELLANEOUS MANUFACTURING (0.3%) 200 Associated Materials Inc. 11.25^^ 03/01/14 99,000 70 Propex Fabrics Inc. 10.00 12/01/12 62,825 ------------ 161,825 ------------ MOTOR VEHICLES (0.8%) 55 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 66,743 605 General Motors Corp. 8.375 07/15/33 402,325 ------------ 469,068 ------------ MULTI-LINE INSURANCE (0.5%) 160 AIG Sun America Global Finance VI - 144A* 6.30 05/10/11 170,170 30 American General Finance Corp. (Series MTNH) 4.625 09/01/10 29,389 45 Hartford Financial Services Group, Inc. (The) (Note 4) 2.375 06/01/06 44,568 15 International Lease Finance Corp. 2.95 05/23/06 14,902 30 International Lease Finance Corp. 3.75 08/01/07 29,466 ------------ 288,495 ------------ OIL & GAS PIPELINES (0.9%) 85 Colorado Interstate Gas Co. - 144A* 6.80 11/15/15 87,276 140 El Paso Production Holdings 7.75 06/01/13 145,950 95 Pacific Energy Partners/Finance 7.125 06/15/14 98,325 175 Williams Companies, Inc. (The) 7.875 09/01/21 190,313 ------------ 521,864 ------------ OIL & GAS PRODUCTION (0.5%) 75 Hilcorp Energy/Finance - 144A* 7.75 11/01/15 76,688 78 Hilcorp Energy/Finance - 144A* 10.50 09/01/10 86,775 40 Magnum Hunter Resources, Inc. 9.60 03/15/12 43,600 110 Pogo Producing Co. - 144A* 6.875 10/01/17 107,800 ------------ 314,863 ------------ OIL REFINING/MARKETING (0.3%) 170 Husky Oil Ltd. 8.90 08/15/28 183,190 ------------ OILFIELD SERVICES/EQUIPMENT (0.3%) 50 Hanover Compressor Co. 9.00 06/01/14 54,750 62 Hanover Equipment Trust 2001 A (Series A) 8.50 09/01/08 64,558 60 Hanover Equipment Trust 2001 B (Series B) 8.75 09/01/11 63,750 ------------ 183,058 ------------
SEE NOTES TO FINANCIAL STATEMENTS 38
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS: MAJOR (0.1%) $ 90 Warner Chilcott Corp. - 144A* 8.75% 02/01/15 $ 83,250 ------------ PROPERTY - CASUALTY INSURERS (0.1%) 85 St. Paul Travelers Companies, Inc. (The) 5.01 08/16/07 84,993 ------------ PUBLISHING: BOOKS/MAGAZINES (0.7%) 95 Dex Media West/Finance 9.875 08/15/13 105,925 20 Houghton Mifflin Co. 8.25 02/01/11 20,750 130 Houghton Mifflin Co. 9.875 02/01/13 139,588 175 PRIMEDIA, Inc. 8.875 05/15/11 162,313 ------------ 428,576 ------------ PUBLISHING: NEWSPAPERS (0.1%) 45 Knight Ridder, Inc. 5.75 09/01/17 38,245 ------------ RAILROADS (0.4%) 22 Burlington North Santa Fe Railway Co. 4.575 01/15/21 21,234 70 Norfolk Southern Corp. 7.35 05/15/07 72,260 30 Union Pacific Corp. 3.625 06/01/10 28,326 65 Union Pacific Corp. - 144A* 5.214 09/30/14 65,035 30 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 30,979 ------------ 217,834 ------------ REAL ESTATE INVESTMENT TRUSTS (0.5%) 24 HMH Properties, Inc. (Series B) 7.875 08/01/08 24,390 85 Host Marriott LP 6.375 03/15/15 85,213 210 Host Marriott LP 7.125 11/01/13 219,450 ------------ 329,053 ------------ SAVINGS BANKS (0.0%) 25 Household Finance Corp. 4.125 12/15/08 24,428 ------------ SPECIALTY STORES (0.4%) 60 General Nutrition Centers Inc. 8.50 12/01/10 51,900 215 Sonic Automotive, Inc. 8.625 08/15/13 209,088 ------------ 260,988 ------------ SPECIALTY TELECOMMUNICATIONS (0.5%) 85 American Tower Corp. 7.125 10/15/12 87,975 90 American Tower Corp. 7.50 05/01/12 94,500 125 Qwest Communications International 7.84** 02/15/09 127,344 20 U.S. West Communications Corp. 5.625 11/15/08 19,900 ------------ 329,719 ------------ TELECOMMUNICATIONS (0.5%) 130 AT&T Corp. 9.75 11/15/31 163,780 181 Exodus Communications, Inc. (a)(c)(h) 11.625 07/15/10 0
SEE NOTES TO FINANCIAL STATEMENTS 39
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- $ 433 Rhythms Netconnections, Inc. (a)(c)(h) 12.75% 04/15/09 $ 0 60 SBC Communications, Inc. 6.15 09/15/34 60,471 55 Sprint Capital Corp. 8.75 03/15/32 73,210 ------------ 297,461 ------------ TOBACCO (0.2%) 100 RJ Reynolds Tobacco Holdings - 144A* 6.50 07/15/10 100,000 ------------ TRUCKS/CONSTRUCTION/FARM MACHINERY (0.6%) 175 Caterpillar Financial Services Corp. (Series MTNF) 4.44** 08/20/07 175,382 122 Manitowoc Inc. (The) 10.50 08/01/12 136,030 60 NMHG Holding Co. 10.00 05/15/09 64,200 ------------ 375,612 ------------ WHOLESALE DISTRIBUTORS (0.1%) 85 Nebraska Book Company, Inc. 8.625 03/15/12 78,625 ------------ WIRELESS TELECOMMUNICATIONS (0.6%) 75 Rural Cellular Corp. 8.991** 03/15/10 77,438 68 SBA Comminications Corp. 8.50 12/01/12 75,820 89 SBA Communications Corp. 9.75^^ 12/15/11 82,993 110 Ubiquitel Operating Co. 9.875 03/01/11 122,375 ------------ 358,626 ------------ TOTAL CORPORATE BONDS (COST $18,794,114) 17,087,630 ------------ ASSET-BACKED SECURITIES**(17.2%) Finance/Rental/Leasing 360 Ace Securities Corp. 2005-HE4 A2A 4.489 07/25/35 360,186 290 Aegis Asset-Backed Securities Trust 2005-3 A1 4.48 08/25/35 290,118 370 Aegis Asset-Backed Securities Trust 2005-4 1A1 4.49 10/25/35 369,818 650 American Express Credit Account Master Trust 2002-3 A 4.479 12/15/09 651,319 375 Ameriquest Mortgage Securities Inc. 2005-R4 A2B 4.52 07/25/35 375,299 87 Asset-Backed Funding Certificates 2004-OPT5 A2 4.57 06/25/25 87,243 650 BA Master Credit Card Trust 2001-A A 4.489 06/15/08 650,728 195 Bear Stearns Asset-Backed Securities, Inc. 2004-HE5 1A1 4.57 08/25/31 194,948 205 Bear Stearns Asset-Backed Securities, Inc. 2005-HE8 A1 4.50 08/25/35 205,292 325 Capital Auto Receivables Asset Trust 2005-1 A3 4.43 04/15/08 325,350 285 Carrington Mortgage Loan Trust 2005-NC4 A1 4.53 09/25/35 284,873 201 Countrywide Asset-Backed Certificates 2004-3 3A2 4.58 12/25/32 200,998 475 Countrywide Asset-Backed Certificates 2005-16 2AF1 4.529 05/25/36 475,000
SEE NOTES TO FINANCIAL STATEMENTS 40
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- $ 268 Credit-Based Asset Servicing and Securities 2005-CB4 AV1 4.48% 08/25/35 $ 268,014 338 Credit-Based Asset Servicing and Securities 2005-CB5 AV1 4.489 08/25/35 337,885 174 Equifirst Mortgage Loan Trust 2005-1 A1 4.44 04/25/35 173,972 300 First Franklin Mortgage Loan Asset-Backed Certificates 2005-FF7 A2 4.479 07/25/35 300,224 525 GE Capital Credit Card Master Note Trust 2004-1 A 4.419 06/15/10 525,641 376 GSAMP Trust 2005-HE4 A2A 4.50 08/25/35 376,440 190 GSAMP Trust 2005-HE3 A2A 4.47 06/25/35 190,162 300 Impac CMB Trust 2004-3 1A 4.629 06/25/34 300,209 248 Long Beach Mortgage Loan Trust 2005-WL1 2A1 4.49 06/25/35 247,769 600 MBNA Master Credit Card Trust 4.509 02/16/10 601,721 450 Merrill Auto Trust Securitization 2005-1 A2B 4.39 04/25/08 450,314 147 Merrill Lynch Mortgage Investors, Inc. 2005-SL1 A 4.58 06/25/35 147,152 230 Novastar Home Equity Loan 2005-1 A2A 4.50 06/25/35 230,561 299 Option One Mortgage Loan Trust 2004-3 A3 4.679 11/25/34 299,844 199 Park Place Securities Inc. 2005-WCW2 A2A 4.469 07/25/35 199,541 267 Securitized Asset-Backed Receivables LLC 2004-NC3 A2 4.77 09/25/34 267,264 354 Specialty Underwriting & Residential Finance - 2004-BC2 A2 4.65 05/25/35 355,069 108 Structured Asset Investment Loan Trust 2003-BC13 3A 4.72 11/25/33 108,600 351 Structured Asset Securities Corp. 2005-GEL1 A 4.729 12/25/34 351,168 152 Structured Asset Securities Corp. 2005-WMC1 A1 4.46 01/25/35 151,808 220 Terwin Mortgage Trust 2005-8HE A1-144A* 4.50 07/25/35 219,832 ------------ TOTAL ASSET-BACKED SECURITIES (COST $10,568,887) 10,574,362 ------------ U.S. GOVERNMENT AGENCIES - MORTGAGE-BACKED SECURITIES (7.9%) Federal Home Loan Mortgage Corp. (0.4%) 234 7.50 11/01/29 - 06/01/32 245,949 ------------ Federal National Mortgage Assoc. (7.3%) 735 6.50 07/01/29 - 11/01/33 756,352 2,725 7.00 04/01/31 - 10/01/35 2,844,967 231 7.50 02/01/31 - 03/01/32 242,313 455 8.00 02/01/12 - 06/01/31 485,469 113 8.50 06/01/30 122,367 ------------ 4,451,468 ------------
SEE NOTES TO FINANCIAL STATEMENTS 41
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- Government National Mortgage Assoc. (0.2%) $ 97 7.50% 04/15/26 - 08/15/29 $ 102,664 37 8.00 02/15/26 -06/15/26 39,267 ------------ 141,931 ------------ TOTAL U.S. GOVERNMENT AGENCIES - MORTGAGE-BACKED SECURITIES (COST $4,848,748) 4,839,348 ------------ U.S. GOVERNMENT OBLIGATIONS (21.4%) U.S. Treasury Bonds (8.6%) 2,050 6.125 08/15/29 2,497,718 565 6.375 08/15/27 700,093 100 7.625 02/15/25 137,820 185 8.125 08/15/21 256,753 460 8.75 05/15/17 631,817 705 (b) 8.75 08/15/20 1,014,429 ------------ 5,238,630 ------------ U.S. Treasury Notes (7.6%) 1,000 3.875 02/15/13 969,571 210 ^^^ 4.25 08/15/13 208,182 3,520 4.25 08/15/13 - 11/15/13 3,487,755 ------------ 4,665,508 ------------ U.S. Treasury Strips (5.2%) 1,750 0.00 08/15/17 1,031,667 700 0.00 02/15/06 696,837 1,900 0.00 08/15/22 880,755 900 0.00 02/15/25 372,330 600 0.00 02/15/27 227,265 ------------ 3,208,854 ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $12,651,912) 13,112,992 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (3.0%) U.S. GOVERNMENT AGENCIES (1.0%) 440 Federal Home Loan Mortgage Corp. (0.7%) 4.53** 09/25/45 439,916 ------------ FEDERAL NATIONAL MORTGAGE ASSOC. (0.3%) 230 IO 6.50 03/01/20 31,024 412 IO 7.00 03/01/20 - 03/01/35 61,057 302 IO 8.00 03/01/35 48,479 ------------ 140,560 ------------ Total U.S. Government Agencies 580,476 ------------
SEE NOTES TO FINANCIAL STATEMENTS 42
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- Private Issues (2.0%) $ 1,800 Countrywide Alternative Loan Trust 2005-81 X1 (IO) 0.00% 02/25/37 $ 102,094 2,875 Countrywide Alternative Loan Trust 2005-59R A (IO) 1.11 12/20/35 92,541 2,575 Countrywide Alternative Loan Trust 2005-58R A (IO) 0.95 12/20/35 130,761 3,371 Harborview Mortgage Loan Trust 2005-2 X (IO) 1.464 05/19/35 90,321 250 Washington Mutual 2005-AR19 A1B1 4.62 12/25/45 250,000 300 Washington Mutual 2005-AR17 CL A1B1 4.62 12/25/45 300,000 271 Washington Mutual 2005-AR15 A1B1 4.63 11/25/45 270,775 ------------ Total Private Issues 1,236,492 ------------ TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $1,809,232) 1,816,968 ------------ TOTAL UNITED STATES (COST $48,672,893) 47,431,300 ------------ TOTAL GOVERNMENT AND CORPORATE BONDS (COST $57,449,079) 56,022,165 ------------ CONVERTIBLE BOND (0.2%) TELECOMMUNICATION EQUIPMENT 130 Nortel Networks Corp. (COST $125,661) 4.25 09/01/08 122,525 ------------ NUMBER OF SHARES - ----------- COMMON STOCKS (e)(0.1%) CASINO/GAMING (0.0%) 787 Fitzgeralds Gaming Corp.+ (h) 0 ------------ ELECTRIC UTILITIES (0.0%) 13 PNM Resources Inc. (d) 318 1 SW Acquisition (0.03% Ownership Interest, Acquired 09/22/05)(d)(f)(h) 250 ------------ 568 ------------ 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 (0.1%) 10,137 Catalina Restaurant Group (d)(h) 36,088 ------------
SEE NOTES TO FINANCIAL STATEMENTS 43
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------------------------- SPECIALTY TELECOMMUNICATIONS (0.0%) 1,171 Birch Telecom Inc.# (d) (h) $ 12 16,679 PFB Telecom NV (Series B) (d) (h) 0 ------------ 12 ------------ TELECOMMUNICATIONS (0.0%) 352 Viatel Holdings Bermuda Ltd. (d) 14 ------------ TEXTILES (0.0%) 11,192 U.S. Leather, Inc. (d) (h) 0 ------------ WIRELESS TELECOMMUNICATIONS (0.0%) 46 USA Mobility, Inc. (d) 1,275 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 ------------ 1,275 ------------ TOTAL COMMON STOCKS (COST $2,419,653) 37,957 ------------ NON-CONVERTIBLE PREFERRED STOCK (0.0%) RESTAURANTS 23 Catalina Restaurant Group (Units)~##^ (h) (COST $22,531) 20,511 ------------ NUMBER OF EXPIRATION WARRANTS DATE - ----------- ---------- WARRANTS (e)(0.0%) CASINO/GAMING (0.0%) 9,000 Aladdin Gaming Enterprises, Inc. - 144A*(h) 03/10/10 0 250 Resort At Summerlin LP - 144A*(h) 12/15/07 0 ------------ 0 ------------ RESTAURANTS (0.0%) 4,250 Catalina Restaurant Group### (d) (h) 07/10/12 0 ------------ TOTAL WARRANTS (COST $92) 0 ------------
SEE NOTES TO FINANCIAL STATEMENTS 44
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (8.2%) REPURCHASE AGREEMENT $ 5,053 Joint repurchase agreement account (dated 12/30/05; proceeds $5,055,386) (g) (COST $5,053,000) 4.25% 01/03/06 $ 5,053,000 ------------ TOTAL INVESTMENTS (COST $65,070,016) (i) (j) 99.8% 61,256,158 OTHER ASSETS IN EXCESS OF LIABILITIES 0.2 123,442 ----- ------------ NET ASSETS 100.0% $ 61,379,600 ===== ============
- ---------- IO INTEREST ONLY SECURITY. * RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. ** FLOATING RATE SECURITY. RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31, 2005. + 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. ++++ CAPITAL APPRECIATION BOND. # RESALE IS RESTRICTED; ACQUIRED (BETWEEN 06/18/98 AND 08/05/99) AT A COST BASIS OF $573,998. ## RESALE IS RESTRICTED; ACQUIRED (05/30/02) AT A COST BASIS OF $22,531. ### RESALE IS RESTRICTED; ACQUIRED (08/27/02) AT A COST BASIS OF $0. #### DATE ON WHICH THE PRICIPAL AMOUNT CAN BE RECOVERED THROUGH DEMAND. ~ 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. ^^^ SECURITY PURCHASED ON A FORWARD COMMITMENT BASIS. (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 $24,450. (c) NON-INCOME PRODUCING SECURITY; BOND IN DEFAULT. (d) ACQUIRED THROUGH EXCHANGE OFFER. (e) NON-INCOME PRODUCING SECURITIES. (f) RESALE IS RESTRICTED. NO TRANSACTION ACTIVITY DURING THE YEAR. (g) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (h) SECURITIES WITH A TOTAL MARKET VALUE EQUAL TO $62,235 HAVE BEEN VALUED AT THEIR FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES ESTABLISHED BY AND UNDER THE GENERAL SUPERVISION OF THE FUND'S TRUSTEES. (i) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $13,611,876 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS AND OPEN FUTURES CONTRACTS. (j) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $65,776,608. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,267,694 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $5,788,144, RESULTING IN NET UNREALIZED DEPRECIATION OF $4,520,450. SEE NOTES TO FINANCIAL STATEMENTS 45 FUTURES CONTRACTS OPEN AT DECEMBER 31, 2005:
UNREALIZED NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/ CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION - -------------------------------------------------------------------------------------------------------- 8 Short U.S. Treasury Bond 20 Year March 2006 $ (913,500) $ (17,773) 7 Short U.S. Treasury Note 2 Year March 2006 (1,436,313) 79 74 Short U.S. Treasury Note 5 Year March 2006 (7,869,438) (26,608) 30 Long U.S. Treasury Note 10 Year March 2006 3,282,188 31,399 --------- Net Unrealized Depreciation $ (12,903) =========
CURRENCY ABBREVIATIONS: ARS Argentina Peso. JPY Japanese Yen. SUMMARY OF INVESTMENTS LONG-TERM CREDIT ANALYSIS AAA 57.5% AA 5.0 A 3.3 BBB 8.5 BB 9.9 B 14.7 NR 1.1 ----- 100.0%* =====
- ---------- * DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $3,282,188 AND UNREALIZED APPRECIATION OF $31,399 AND OPEN SHORT FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $10,219,251 WITH NET UNREALIZED DEPRECIATION OF $44,302. SEE NOTES TO FINANCIAL STATEMENTS 46 Balanced Growth PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- COMMON STOCKS (66.6%) ADVERTISING/MARKETING SERVICES (0.1%) 5,181 Live Nation Inc.* $ 67,874 ------------ AEROSPACE & DEFENSE (1.5%) 11,300 Northrop Grumman Corp. 679,243 17,520 Raytheon Co. 703,428 ------------ 1,382,671 ------------ BEVERAGES: ALCOHOLIC (0.5%) 8,500 Diageo PLC (ADR) (United Kingdom) 495,550 ------------ BEVERAGES: NON-ALCOHOLIC (1.0%) 23,490 Coca-Cola Co. (The) 946,882 ------------ BIOTECHNOLOGY (0.9%) 18,000 Chiron Corp.* 800,280 ------------ BROADCASTING (1.4%) 41,450 Clear Channel Communications, Inc. 1,303,603 ------------ CHEMICALS: MAJOR DIVERSIFIED (3.1%) 54,080 Bayer AG (ADR) (Germany) 2,258,381 13,860 Dow Chemical Co. (The) 607,345 ------------ 2,865,726 ------------ COMPUTER PROCESSING HARDWARE (0.7%) 21,450 Hewlett-Packard Co. 614,114 ------------ DEPARTMENT STORES (0.6%) 11,200 Kohl's Corp.* 544,320 ------------ DISCOUNT STORES (1.0%) 20,500 Wal-Mart Stores, Inc. 959,400 ------------ ELECTRIC UTILITIES (2.3%) 18,170 American Electric Power Co., Inc. 673,925 10,520 Entergy Corp. 722,198 14,000 FirstEnergy Corp. 685,860 ------------ 2,081,983 ------------ FINANCE/RENTAL/LEASING (1.6%) 18,750 Freddie Mac 1,225,312 8,700 MBNA Corp. 236,205 ------------ 1,461,517 ------------ FINANCIAL CONGLOMERATES (4.8%) 34,650 Citigroup, Inc. 1,681,564 53,796 JPMorgan Chase & Co. 2,135,163 11,970 State Street Corp. 663,617 ------------ 4,480,344 ------------
SEE NOTES TO FINANCIAL STATEMENTS 47
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- FOOD: MAJOR DIVERSIFIED (1.6%) 21,780 Unilever N.V. (ADR) (NY Registered Shares) (Netherlands) $ 1,495,633 ------------ FOOD: SPECIALTY/CANDY (0.7%) 16,800 Cadbury Schweppes PLC (ADR) (United Kingdom) 643,272 ------------ HOUSEHOLD/PERSONAL CARE (0.7%) 5,300 Avon Products, Inc. 151,315 8,650 Procter & Gamble Co. (The) 500,662 ------------ 651,977 ------------ INDUSTRIAL CONGLOMERATES (3.5%) 44,890 General Electric Co. 1,573,394 14,020 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 565,987 12,840 Siemens AG (ADR) (Germany) 1,098,976 ------------ 3,238,357 ------------ INSURANCE BROKERS/SERVICES (0.8%) 22,900 Marsh & McLennan Companies, Inc. 727,304 ------------ INTEGRATED OIL (3.6%) 14,620 BP PLC (ADR) (United Kingdom) 938,896 16,170 ConocoPhillips 940,771 7,000 Exxon Mobil Corp. 393,190 17,110 Royal Dutch Shell PLC (ADR) (Class A) (United Kingdom) 1,052,094 ------------ 3,324,951 ------------ INVESTMENT BANKS/BROKERS (3.3%) 3,300 Goldman Sachs Group Inc. (The) 421,443 25,270 Merrill Lynch & Co., Inc. 1,711,537 65,640 Schwab (Charles) Corp. (The) 962,939 ------------ 3,095,919 ------------ LIFE/HEALTH INSURANCE (0.3%) 17,800 Aegon N.V. (NY Registered Shares) (Netherlands) 290,496 ------------ MAJOR BANKS (1.8%) 21,450 Bank of America Corp. 989,917 11,490 PNC Financial Services Group 710,427 ------------ 1,700,344 ------------ MAJOR TELECOMMUNICATIONS (3.6%) 27,120 France Telecom S.A. (ADR) (France) 673,661 63,157 Sprint Nextel Corp. 1,475,348 38,040 Verizon Communications Inc. 1,145,765 ------------ 3,294,774 ------------ MANAGED HEALTH CARE (1.2%) 9,920 CIGNA Corp. 1,108,064 ------------
SEE NOTES TO FINANCIAL STATEMENTS 48
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- MEDIA CONGLOMERATES (3.6%) 40,810 Disney (Walt) Co. (The) $ 978,216 91,360 Time Warner, Inc. 1,593,318 23,400 Viacom Inc. (Class B) (Non-Voting) 762,840 ------------ 3,334,374 ------------ MEDICAL SPECIALTIES (1.2%) 10,000 Applera Corp. - Applied Biosystems Group 265,600 9,560 Bausch & Lomb, Inc. 649,124 8,800 Boston Scientific Corp.* 215,512 ------------ 1,130,236 ------------ MOTOR VEHICLES (0.6%) 19,740 Honda Motor Co., Ltd. (ADR) (Japan) 571,868 ------------ MULTI-LINE INSURANCE (0.7%) 7,470 Hartford Financial Services Group, Inc. (The) (Note 4) 641,598 ------------ OIL REFINING/MARKETING (0.4%) 6,700 Valero Energy Corp. 345,720 ------------ OILFIELD SERVICES/EQUIPMENT (1.4%) 13,380 Schlumberger Ltd. (Netherlands Antilles) 1,299,867 ------------ PACKAGED SOFTWARE (1.3%) 70,370 Symantec Corp.* 1,231,475 ------------ PHARMACEUTICALS: MAJOR (8.8%) 66,620 Bristol-Myers Squibb Co. 1,530,928 12,190 GlaxoSmithKline PLC (ADR) (United Kingdom) 615,351 18,460 Lilly (Eli) & Co. 1,044,651 21,720 Roche Holdings Ltd. (ADR) (Switzerland) 1,642,032 17,200 Sanofi-Aventis (ADR) (France) 755,080 73,810 Schering-Plough Corp. 1,538,939 22,980 Wyeth 1,058,689 ------------ 8,185,670 ------------ PRECIOUS METALS (1.2%) 21,420 Newmont Mining Corp. 1,143,828 ------------ PROPERTY - CASUALTY INSURERS (3.0%) 2,500 ACE Ltd. (Cayman Islands) 133,600 10,750 Chubb Corp. (The) 1,049,737 26,026 St. Paul Travelers Companies, Inc. (The) 1,162,581 6,300 XL Capital Ltd. (Class A) (Cayman Islands) 424,494 ------------ 2,770,412 ------------ RESTAURANTS (0.4%) 9,830 McDonald's Corp. 331,468 ------------
SEE NOTES TO FINANCIAL STATEMENTS 49
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- SEMICONDUCTORS (1.6%) 32,840 Intel Corp. $ 819,686 52,580 Micron Technology, Inc.* 699,840 ------------ 1,519,526 ------------ SPECIALTY STORES (0.3%) 7,900 Office Depot, Inc.* 248,060 ------------ TELECOMMUNICATION EQUIPMENT (0.6%) 23,380 Motorola, Inc. 528,154 ------------ TOBACCO (0.9%) 11,580 Altria Group, Inc. 865,258 ------------ TOTAL COMMON STOCKS (COST $49,825,113) 61,722,869 ------------ PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - ---------- -------- -------- CORPORATE BONDS (8.0%) ADVERTISING/MARKETING SERVICES (0.0%) $ 45 WPP Finance (UK) Corp. (United Kingdom) 5.875% 06/15/14 45,746 ------------ AEROSPACE & DEFENSE (0.2%) 55 Northrop Grumman Corp. 4.079 11/16/06 54,587 10 Raytheon Co. 6.15 11/01/08 10,385 25 Raytheon Co. 8.30 03/01/10 28,027 102 Systems 2001 Asset Trust - 144A** (Cayman Islands) 6.664 09/15/13 109,102 ------------ 202,101 ------------ AIR FREIGHT/COURIERS (0.1%) 50 Fedex Corp. 2.65 04/01/07 48,650 ------------ AIRLINES (0.2%) 104 America West Airlines, Inc. (Series 01-1) 7.10 04/02/21 111,202 45 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 45,214 ------------ 156,416 ------------ APPAREL/FOOTWEAR RETAIL (0.1%) 45 Limited Brands, Inc. 6.95 03/01/33 45,685 ------------ BEVERAGES: ALCOHOLIC (0.1%) 70 FBG Finance Ltd. - 144A**(Australia) 5.125 06/15/15 68,230 70 Miller Brewing Co. - 144A** 4.25 08/15/08 68,739 ------------ 136,969 ------------
SEE NOTES TO FINANCIAL STATEMENTS 50
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------- CABLE/SATELLITE TV (0.2%) $ 10 Comcast Cable Communications Inc. 6.75% 01/30/11 $ 10,599 10 Comcast Corp. 7.625 02/15/08 10,476 60 Cox Communications, Inc. 4.625 01/15/10 58,136 55 TCI Communications, Inc. 7.875 02/15/26 63,653 ------------ 142,864 ------------ CASINO/GAMING (0.1%) 90 Harrah's Operating Co., Inc. 5.625 06/01/15 88,577 ------------ CHEMICALS: MAJOR DIVERSIFIED (0.0%) 40 ICI Wilmington Inc. 4.375 12/01/08 39,004 ------------ CONTAINERS/PACKAGING (0.1%) 90 Sealed Air Corp. - 144A** 5.625 07/15/13 89,474 ------------ DRUGSTORE CHAINS (0.2%) 180 CVS Corp. 5.625 03/15/06 180,218 ------------ ELECTRIC UTILITIES (1.0%) 70 Ameren Corp. 4.263 05/15/07 69,020 70 Arizona Public Service Co. 5.80 06/30/14 72,265 20 Arizona Public Service Co. 6.75 11/15/06 20,267 60 Carolina Power & Light Co. 5.125 09/15/13 59,935 75 CC Funding Trust I 6.90 02/16/07 76,463 35 Cincinnati Gas & Electric Co. 5.70 09/15/12 35,974 30 Consolidated Natural Gas Co. (Series A) 5.00 12/01/14 29,157 60 Consolidated Natural Gas Co. (Series C) 6.25 11/01/11 62,907 45 Consumers Energy Co. 4.80 02/17/09 44,445 60 Detroit Edison Co. (The) 6.125 10/01/10 62,652 30 Entergy Gulf States, Inc. 3.60 06/01/08 28,865 45 Entergy Gulf States, Inc. 4.81 12/01/09 43,946 40 Exelon Corp. 6.75 05/01/11 42,632 95 FPL Group Capital Inc. 3.25 04/11/06 94,632 30 Pacific Gas & Electric Co. 6.05 03/01/34 31,155 15 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 14,590 45 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 44,553 35 Texas Eastern Transmission, LP 7.00 07/15/32 40,943 25 Wisconsin Electric Power Co. 3.50 12/01/07 24,354 ------------ 898,755 ------------ ELECTRICAL PRODUCTS (0.1%) 70 Cooper Industries Inc. 5.25 07/01/07 70,322 40 Cooper Industries Inc. - 144A** 5.25 11/15/12 40,288 ------------ 110,610 ------------
SEE NOTES TO FINANCIAL STATEMENTS 51
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------- ELECTRONICS/APPLIANCES (0.0%) $ 40 LG Electronics Inc. - 144A**(South Korea) 5.00% 06/17/10 $ 39,208 ------------ FINANCE/RENTAL/LEASING (0.7%) 55 CIT Group, Inc. 2.875 09/29/06 54,246 95 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 91,277 150 MBNA Corp. 6.125 03/01/13 159,294 95 Nationwide Building Society - 144A** (United Kingdom) 4.25 02/01/10 92,657 135 Residential Capital Corp. 6.375 06/30/10 137,308 45 SLM Corp. 4.00 01/15/10 43,316 80 SLM Corp. (Series MTNA) 5.00 10/01/13 79,195 ------------ 657,293 ------------ FINANCIAL CONGLOMERATES (0.6%) 105 Bank One Corp. (Series MTNA) 6.00 02/17/09 107,622 95 Chase Manhattan Corp. 6.00 02/15/09 97,644 65 Citigroup Inc. 5.625 08/27/12 67,089 60 Citigroup Inc. 5.75 05/10/06 60,220 90 Citigroup Inc. 6.00 02/21/12 94,580 40 General Electric Capital Corp. 4.25 12/01/10 39,087 10 General Electric Capital Corp. (Series MTNA) 5.875 02/15/12 10,444 100 General Electric Capital Corp. (Series MTNA) 6.75 03/15/32 117,775 ------------ 594,461 ------------ FOOD RETAIL (0.1%) 85 Kroger Co. 7.50 04/01/31 95,176 25 Safeway Inc. 7.25 02/01/31 27,058 ------------ 122,234 ------------ FOOD: MAJOR DIVERSIFIED (0.1%) 10 Conagra, Inc. 8.25 09/15/30 12,388 20 Conagra, Inc. 7.00 10/01/28 21,792 40 Heinz (H.J.) Co. - 144A** 6.428 12/01/08 41,118 25 Kraft Foods Inc. 5.25 06/01/07 25,110 ------------ 100,408 ------------ FOREST PRODUCTS (0.0%) 5 Weyerhaeuser Co. 6.125 03/15/07 5,074 ------------ GAS DISTRIBUTORS (0.2%) 45 NiSource Finance Corp. 4.95 11/23/09 45,189 65 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A** (Qatar) 8.294 03/15/14 75,279 45 Sempra Energy 4.621 05/17/07 44,696 ------------ 165,164 ------------
SEE NOTES TO FINANCIAL STATEMENTS 52
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------- HOME FURNISHINGS (0.0%) $ 35 Mohawk Industries, Inc. (Series D) 7.20% 04/15/12 $ 38,624 ------------ HOTELS/RESORTS/CRUISELINES (0.1%) 70 Hyatt Equities LLC - 144A** 6.875 06/15/07 71,444 ------------ HOUSEHOLD/PERSONAL CARE (0.1%) 85 Clorox Co. (The) 4.614 12/14/07 85,200 ------------ INDUSTRIAL CONGLOMERATES (0.1%) 50 Textron Financial Corp. 4.125 03/03/08 49,256 ------------ INSURANCE BROKERS/SERVICES (0.3%) 200 Farmers Exchange Capital - 144A** 7.05 07/15/28 212,152 110 Marsh & McLennan Companies, Inc. 5.375 07/15/14 108,447 ------------ 320,599 ------------ INVESTMENT BANKS/BROKERS (0.0%) 30 Goldman Sachs Group Inc. (The) 6.60 01/15/12 32,266 ------------ MAJOR BANKS (0.1%) 30 Bank of New York Co., Inc. (The) 5.20 07/01/07 30,159 55 HSBC Finance Corp. 6.75 05/15/11 59,091 ------------ 89,250 ------------ MAJOR TELECOMMUNICATIONS (0.6%) 75 Deutsche Telekom International Finance Corp. NV (Netherlands) 8.75 06/15/30 95,675 70 France Telecom S.A. (France) 8.50 03/01/31 93,682 45 SBC Communications, Inc. 6.15 09/15/34 45,353 15 Sprint Capital Corp. 8.75 03/15/32 19,966 60 Telecom Italia Capital SA (Luxembourg) 4.00 01/15/10 57,199 45 Telecom Italia Capital SA (Luxembourg) 4.00 11/15/08 43,670 160 Verizon New England Inc. 6.50 09/15/11 164,320 ------------ 519,865 ------------ MANAGED HEALTH CARE (0.1%) 60 WellPoint Health Networks Inc. 6.375 06/15/06 60,404 5 WellPoint Inc. 3.75 12/14/07 4,891 ------------ 65,295 ------------ MEDIA CONGLOMERATES (0.1%) 30 News America Holdings, Inc. 7.75 02/01/24 33,915 15 News America Inc. 7.28 06/30/28 16,448 ------------ 50,363 ------------ MOTOR VEHICLES (0.0%) 35 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 42,473 ------------
SEE NOTES TO FINANCIAL STATEMENTS 53
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ------------------------------------------------------------------------------------------------------- MULTI-LINE INSURANCE (0.4%) $ 180 AIG Sun America Global Finance VI - 144A** 6.30% 05/10/11 $ 191,441 80 American General Finance Corp. (Series MTNH) 4.625 09/01/10 78,370 20 AXA Financial Inc. 6.50 04/01/08 20,735 30 Hartford Financial Services Group, Inc. (The) (Note 4) 2.375 06/01/06 29,712 30 International Lease Finance Corp. 3.75 08/01/07 29,466 ------------ 349,724 ------------ OIL & GAS PRODUCTION (0.2%) 20 Pemex Project Funding Master Trust 7.375 12/15/14 22,270 165 Pemex Project Funding Master Trust 8.625 02/01/22 203,775 ------------ 226,045 ------------ OTHER METALS/MINERALS (0.1%) 60 Brascan Corp. (Canada) 7.125 06/15/12 65,496 ------------ PROPERTY - CASUALTY INSURERS (0.5%) 200 Mantis Reef Ltd. - 144A**(Australia) 4.692 11/14/08 196,635 55 Platinum Underwriters Finance Holdings, Ltd. 6.371 11/16/07 55,204 45 Platinum Underwriters Finance Holdings, Ltd. 7.50 06/01/17 45,946 70 St. Paul Travelers Companies, Inc. (The) 5.01 08/16/07 69,994 100 XLLIAC Global Funding - 144A** 4.80 08/10/10 98,840 ------------ 466,619 ------------ PUBLISHING: NEWSPAPERS (0.0%) 45 Knight Ridder, Inc. 5.75 09/01/17 38,245 ------------ PULP & PAPER (0.1%) 50 Sappi Papier Holding AG - 144A**(Austria) 6.75 06/15/12 47,811 ------------ RAILROADS (0.2%) 39 Burlington North Santa Fe Railway Co. 4.575 01/15/21 38,222 45 Burlington North Santa Fe Railway Co. 6.125 03/15/09 46,576 45 Norfolk Southern Corp. 7.35 05/15/07 46,453 35 Union Pacific Corp. 6.625 02/01/08 36,165 10 Union Pacific Corp. 6.65 01/15/11 10,663 25 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 25,816 ------------ 203,895 ------------ REAL ESTATE DEVELOPMENT (0.2%) 164 World Financial Properties - 144A** (Series 1996 WFP- B) 6.91 09/01/13 172,884 ------------ REAL ESTATE INVESTMENT TRUSTS (0.1%) 10 EOP Operating L.P. 4.75 03/15/14 9,466 25 EOP Operating L.P. 6.763 06/15/07 25,528 10 EOP Operating L.P. 7.875 07/15/31 11,836 ------------ 46,830 ------------
SEE NOTES TO FINANCIAL STATEMENTS 54
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- REGIONAL BANKS (0.1%) $ 110 Marshall & Ilsley Bank (Series BKNT) 3.80% 02/08/08 $ 107,977 ------------ SAVINGS BANKS (0.3%) 40 Household Finance Corp. 4.125 12/15/08 39,085 20 Household Finance Corp. 5.875 02/01/09 20,454 15 Household Finance Corp. 6.375 10/15/11 15,875 65 Household Finance Corp. 6.40 06/17/08 67,094 55 Washington Mutual Bank 5.50 01/15/13 55,940 45 Washington Mutual Inc. 8.25 04/01/10 50,151 ------------ 248,599 ------------ TRUCKS/CONSTRUCTION/FARM MACHINERY (0.1%) 20 Caterpillar Financial Services Corp. (Series MTNF) 3.625 11/15/07 19,569 80 Caterpillar Financial Services Corp. (Series MTNF) 4.44 08/20/07 80,175 ------------ 99,744 ------------ WIRELESS TELECOMMUNICATIONS (0.1%) 70 Vodafone Group PLC (United Kingdom) 4.61 12/28/07 70,023 ------------ TOTAL CORPORATE BONDS (COST $7,241,695) 7,377,438 ------------ FOREIGN GOVERNMENT OBLIGATIONS (0.1%) 50 United Mexican States (Mexico) 8.375 01/14/11 57,125 45 United Mexican States (Mexico) (Series MTN) 8.30 08/15/31 57,937 ------------ TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST $108,261) 115,062 ------------ U.S. GOVERNMENT AGENCIES & OBLIGATIONS (13.2%) U.S. Treasury Bonds 50 6.125 08/15/29 60,920 410 6.375 08/15/27 508,032 1,540 7.625 02/15/25 2,122,434 740 8.125 8/15/19 - 08/15/21 1,020,831 200 8.50 02/15/20 280,625 425 8.75 08/15/20 611,535 U.S. Treasury Notes 210 1.625 02/28/06 209,278 1,025 3.875 02/15/13 993,810 2,225 4.25 8/15/13 - 11/15/13 2,205,251 2,460 ++ 4.25 08/15/13 2,438,709 90 4.625 05/15/06 90,120 750 5.00 02/15/11 772,706
SEE NOTES TO FINANCIAL STATEMENTS 55
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- U.S. Treasury Strips $ 425 0.00% 02/15/27 $ 160,979 1,860 0.00 02/15/25 769,235 ------------ TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS (COST $11,918,413) 12,244,465 ------------ MORTGAGE-BACKED SECURITIES (2.9%) Federal Home Loan Mortgage Corp. 225 6.50 03/01/33 231,395 1 7.50 08/01/30 1,472 230 Federal Home Loan Mortgage Corp. (Gold) 7.50 09/01/25 - 06/01/32 241,661 Federal National Mortgage Assoc. 148 (ARM) 4.10 07/01/33 148,694 239 6.50 01/01/32 245,939 1,265 7.00 05/01/31 - 08/01/35 1,321,151 100 7.50 08/01/29 - 01/01/31 105,160 281 8.00 12/01/28 - 01/01/32 300,407 62 Government National Mortgage Assoc. 7.50 08/15/23 - 10/15/29 65,524 ------------ TOTAL MORTGAGE-BACKED SECURITIES (COST $2,667,625) 2,661,403 ------------ ASSET-BACKED SECURITIES (5.3%) FINANCE/RENTAL/LEASING 150 American Express Credit Account Master Trust 2002-3 A 4.479+ 12/15/09 150,304 300 American Express Credit Account Master Trust 2003-3 A 4.479+ 11/15/10 300,856 175 Banc of America Securities Auto Trust 2005-WF1 A3 3.99 08/18/09 172,984 100 Capital Auto Receivables Asset Trust 2004-2 A 3.35 02/15/08 98,786 175 Capital Auto Receivables Asset Trust 2005-1 A4 4.05 07/15/09 173,184 150 Caterpillar Financial Asset Trust 2005-A A3 3.90 02/25/09 148,272 215 Chase Credit Card Master Trust 2001-4 A 5.50 11/17/08 215,982 75 CIT Equipment Collateral 2004-EF1 A3 3.50 09/20/08 73,917 100 CNH Equipment Trust 2005-A A3 4.02 04/15/09 98,969 225 CNH Equipment Trust 2005-B A3 4.27 01/15/10 222,769 125 Daimler Chrysler Auto Trust 2005-B A3 4.04 09/08/09 123,682 125 Ford Credit Auto Owner Trust 2005B A3 4.17 01/15/09 124,091 150 GE Dealer Floorplan Master Note Trust 2004-1 A 4.42+ 07/20/08 150,108 175 GE Equipment Small Ticket LLC -2005-2A 4.88 10/22/09 175,027 200 Harley-Davidson Motorcycle Trust 2005-1 A2 3.76 12/17/12 196,194 125 Harley-Davidson Motorcycle Trust 2005-2 A2 4.07 02/15/12 123,168
SEE NOTES TO FINANCIAL STATEMENTS 56
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- $ 100 Hertz Vehicle Financing LLC 2005-2A 4.93% 02/25/10 $ 100,250 100 Honda Auto Receivables Owner Trust 2005-2 A3 3.93 01/15/09 98,896 150 Honda Auto Receivables Owner Trust 2005-3 A3 3.87 04/20/09 147,955 125 Honda Auto Receivables Owner Trust 2005-6 A3 4.85 10/19/09 125,208 100 Hyundai Auto Receivables Trust 2005-A A3 3.98 11/16/09 98,668 100 MBNA Master Credit Card Trust 1999-B A 5.90 08/15/11 103,382 200 Merrill Auto Trust Securitization 2005-1 A3 4.10 08/25/09 197,830 125 National City Auto Receivables Trust 2004-A A4 2.88 05/15/11 120,517 175 Nissan Auto Receivables Owner Trust 2005-B A3 3.99 07/15/09 173,073 50 TXU Electric Delivery Transition Bond Co. LLC 2004-1 A2 4.81 11/17/14 49,550 200 USAA Auto Owner Trust 2004-2 A-4 3.58 02/15/11 196,162 200 USAA Auto Owner Trust 2004-3 A3 3.16 02/17/09 197,283 125 USAA Auto Owner Trust 2005-1 A3 3.90 07/15/09 123,646 125 Volkswagen Auto Lease Trust 2005-A A3 3.82 05/20/08 123,822 175 Volkswagen Auto Loan Enhanced Trust 4.80 07/20/09 175,047 75 Wachovia Auto Owner Trust 2004-B A3 2.91 04/20/09 73,920 75 Wachovia Auto Owner Trust 2005-A A3 4.06 09/21/09 74,220 125 Wachovia Auto Owner Trust 2005-B A3 4.79 04/20/10 125,000 75 World Omni Auto Receivables Trust 2004-A A3 3.29 11/12/08 74,207 ------------ TOTAL ASSET-BACKED SECURITIES (COST $4,958,824) 4,926,929 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%) 196 Freddie Mac Whole Loan 2005-S001-2 A2 4.53+ 09/25/45 195,518 386 Fannie Mae 2005-68 X1 (IO) 6.00 08/25/35 116,609 ------------ TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $263,450) 312,127 ------------ SHORT-TERM INVESTMENTS (6.0%) REPURCHASE AGREEMENT (5.9%) 5,415 Joint repurchase agreement account (dated 12/30/05; proceeds $5,417,557) (b) (COST $5,415,000) 4.25 01/03/06 5,415,000 ------------ U.S. GOVERNMENT AGENCY & OBLIGATION (a)(0.1%) 100 U.S. Treasury Bills***(COST $99,897) 3.35 01/12/06 99,897 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $5,514,897) 5,514,897 ------------
SEE NOTES TO FINANCIAL STATEMENTS 57
VALUE - ---------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST $82,498,278) (c)(d) 102.4% $ 94,875,190 LIABILITIES IN EXCESS OF OTHER ASSETS (2.4) (2,241,819) ----- ------------ NET ASSETS 100.0% $ 92,633,371 ===== ============
- ---------- ADR AMERICAN DEPOSITARY RECEIPT. ARM ADJUSTABLE RATE MORTGAGE. IO INTEREST-ONLY SECURITY. * NON-INCOME PRODUCING SECURITY. ** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS. *** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS IN AN AMOUNT EQUAL TO $15,180. + FLOATING RATE SECURITY, RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31, 2005. ++ 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 $5,868,527, IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS AND OPEN FUTURES CONTRACTS. (d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $83,637,402. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $13,398,766 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $2,160,978, RESULTING IN NET UNREALIZED APPRECIATION OF $11,237,788. SEE NOTES TO FINANCIAL STATEMENTS 58 FUTURES CONTRACTS OPEN AT DECEMBER 31, 2005:
UNREALIZED NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/ CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION - ------------------------------------------------------------------------------------------------------- 7 Short U.S. Treasury Bond 20 Year, March 2006 $ (799,312) $ (15,496) 1 Long U.S. Treasury Note 10 Year, March 2006 109,406 1,388 20 Short U.S. Treasury Note 5 Year, March 2006 (2,126,875) (10,709) 2 Short U.S. Treasury Note 2 Year, March 2006 (410,375) 245 --------- Net Unrealized Depreciation $ (24,572) =========
SUMMARY OF INVESTMENTS
PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS - --------------------------------------------------------------------- Common Stocks $ 61,722,869 66.6% U.S. Government Agencies & Obligations 12,244,465 13.2 Corporate Bonds 7,377,438 8.0 Short-Term Investments 5,514,897 6.0 Asset-Backed Securities 4,926,929 5.3 Mortgage-Backed Securities 2,661,403 2.9 Collateralized Mortgage Obligations 312,127 0.3 Foreign Government Obligations 115,062 0.1 ------------ ----- $ 94,875,190* 102.4% ============ =====
- ---------- * DOES NOT INCLUDE OPEN SHORT FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $3,336,562 WITH NET DEPRECIATION OF $25,960 AND AN OPEN LONG FUTURES CONTRACT WITH AN UNDERLYING FACE AMOUNT OF $109,406 AND UNREALIZED APPRECIATION OF $1,388. SEE NOTES TO FINANCIAL STATEMENTS 59 Utilities PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS (96.0%) ELECTRIC UTILITIES (58.3%) 100,000 AES Corp. (The)* $ 1,583,000 32,000 Allegheny Energy, Inc.* 1,012,800 30,000 Ameren Corp. 1,537,200 43,000 American Electric Power Co., Inc. 1,594,870 42,000 CMS Energy Corp.* 609,420 25,000 Consolidated Edison, Inc. 1,158,250 38,000 Constellation Energy Group, Inc. 2,188,800 33,000 Dominion Resources, Inc. 2,547,600 30,000 DPL, Inc. 780,300 55,710 Duke Energy Corp. 1,529,240 60,000 Edison International 2,616,600 31,500 Entergy Corp. 2,162,475 45,000 Exelon Corp. 2,391,300 35,000 FirstEnergy Corp. 1,714,650 60,000 FPL Group, Inc. 2,493,600 44,000 NRGEnergy, Inc.* 2,073,280 45,000 NSTAR 1,291,500 54,000 PG&E Corp. 2,004,480 21,400 Pinnacle West Capital Corp. 884,890 47,000 PNM Resources Inc. 1,151,030 80,000 PPL Corp. 2,352,000 38,000 Reliant Energy, Inc.* 392,160 50,000 SCANA Corp. 1,969,000 50,000 Southern Co. (The) 1,726,500 30,000 TECO Energy, Inc. 515,400 46,000 TXU Corp. 2,308,740 46,000 Wisconsin Energy Corp. 1,796,760 ------------ 44,385,845 ------------ ENERGY (22.4%) 49,000 AGL Resources, Inc. 1,705,690 12,000 Burlington Resources, Inc. 1,034,400 50,000 Equitable Resources, Inc. 1,834,500 22,600 KeySpan Corp. 806,594 17,000 Kinder Morgan, Inc. 1,563,150 53,500 MDU Resources Group, Inc. 1,751,590 33,000 New Jersey Resources Corp. 1,382,370 15,000 Peabody Energy Corp. 1,236,300 26,000 Questar Corp. 1,968,200 47,000 Sempra Energy 2,107,480 71,000 Williams Companies, Inc. (The) 1,645,070 ------------ 17,035,344 ------------
SEE NOTES TO FINANCIAL STATEMENTS 60
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS (15.3%) 25,160 ALLTEL Corp. $ 1,587,596 53,000 American Tower Corp. (Class A)* 1,436,300 51,272 AT&T Inc. 1,255,651 40,500 BellSouth Corp. 1,097,550 17,625 CenturyTel, Inc. 584,445 98,025 Sprint Nextel Corp. 2,289,864 22,400 Telefonica de Espana S.A. (ADR) (Spain) 1,008,448 50,000 Telefonos de Mexico S.A. (Series L) (ADR) (Mexico) 1,234,000 25,394 Verizon Communications Inc. 764,867 19,000 Vodafone Group PLC (ADR) (United Kingdom) 407,930 ------------ 11,666,651 ------------ TOTAL COMMON STOCKS (COST $45,423,038) 73,087,840 ------------ PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - ---------- -------- ------------------- CORPORATE BONDS (1.3%) ELECTRIC UTILITIES (0.8%) $ 15 Appalachian Power Co. (Series G) 3.60% 05/15/08 14,540 25 Carolina Power & Light Co. 5.13 09/15/13 24,973 45 Cleco Power LLC 5.38 05/01/13 44,728 60 Commonwealth Edison Co. (Series 98) 6.15 03/15/12 62,590 35 Duquesne Light Co. (Series O) 6.70 04/15/12 38,029 10 Entergy Gulf States, Inc. 3.60 06/01/08 9,622 10 Entergy Gulf States, Inc. 4.81 12/01/09 9,766 45 Exelon Corp. 6.75 05/01/11 47,962 25 FirstEnergy Corp. (Series B) 6.45 11/15/11 26,532 15 Indianapolis Power & Light Co. - 144A** 6.30 07/01/13 15,803 60 Jersey Central Power & Light Co. (Series MTN) 6.45 05/15/06 60,367 20 Pacific Gas & Electric Co. 6.05 03/01/34 20,770 60 Pinnacle West Capital Corp. 6.40 04/01/06 60,266 55 Public Service Co. of New Mexico (Series B) 7.50 08/01/18 62,863 30 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 29,702 30 Texas-New Mexico Power Co. 6.25 01/15/09 30,811 20 TXU Energy Co. 7.00 03/15/13 21,343 ------------ 580,667 ------------ ENERGY (0.0%) 15 Panhandle Eastern Pipe Line Co. 4.80 08/15/08 14,839 10 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 9,727 ------------ 24,566 ------------
SEE NOTES TO FINANCIAL STATEMENTS 61
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS (0.5%) $ 10 AT&T Corp. 9.05% 11/15/11 $ 11,081 60 France Telecom S.A. (France) 8.75 03/01/31 80,299 110 GTE Corp. 7.90 02/01/27 116,547 80 SBC Communications, Inc. 6.15 09/15/34 80,628 35 Sprint Capital Corp. 8.38 03/15/12 40,614 35 Sprint Capital Corp. 8.75 03/15/32 46,588 25 Vodafone Airtouch PLC (United Kingdom) 7.75 02/15/10 27,405 ------------ 403,162 ------------ TOTAL CORPORATE BONDS (COST $972,251) 1,008,395 ------------ U.S. GOVERNMENT OBLIGATIONS (0.1%) 30 U.S. Treasury Bond 6.13 08/15/29 36,552 100 U.S. Treasury Strip 0.00 02/15/25 41,370 ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $69,287) 77,922 ------------ SHORT-TERM INVESTMENT(2.5%) REPURCHASE AGREEMENT 1,883 Joint repurchase agreement account (dated 12/30/05; proceeds $1,883,889) (a) (COST $1,883,000) 4.25 01/03/06 1,883,000 ------------ TOTAL INVESTMENTS (COST $48,347,576)(b) 99.9% 76,057,157 OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 32,525 ----- ------------ NET ASSETS 100.0% $ 76,089,682 ===== ============
- ---------- ADR AMERICAN DEPOSITARY 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 $49,288,776. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $27,117,690 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $349,309, RESULTING IN NET UNREALIZED APPRECIATION OF $26,768,381. SEE NOTES TO FINANCIAL STATEMENTS 62 SUMMARY OF INVESTMENTS
PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------------------- Electric Utilities $ 44,966,512 59.1% Energy 17,059,910 22.4 Telecommunications 12,069,813 15.8 Repurchase Agreement 1,883,000 2.5 U.S. Government Obligations 77,922 0.1 --------------- ----- $ 76,057,157 99.9% =============== =====
SEE NOTES TO FINANCIAL STATEMENTS 63 Dividend Growth PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCKS (96.5%) ADVERTISING/MARKETING SERVICES (0.2%) 24,000 Clear Channel Outdoor Holdings, Inc. (Class A)* $ 481,200 ------------- AEROSPACE & DEFENSE (1.0%) 53,063 Northrop Grumman Corp. 3,189,617 ------------- APPAREL/FOOTWEAR (1.4%) 75,228 V.F. Corp. 4,163,117 ------------- AUTO PARTS: O.E.M. (0.8%) 33,651 Johnson Controls, Inc. 2,453,494 ------------- BEVERAGES: NON-ALCOHOLIC (1.7%) 127,041 Coca-Cola Co. (The) 5,121,023 ------------- BIOTECHNOLOGY (1.0%) 32,507 Genentech, Inc.* 3,006,897 ------------- CHEMICALS: AGRICULTURAL (1.9%) 76,281 Monsanto Co. 5,914,066 ------------- COMPUTER COMMUNICATIONS (1.3%) 181,443 Juniper Networks, Inc.* 4,046,179 ------------- COMPUTER PROCESSING HARDWARE (1.9%) 81,112 Apple Computer, Inc.* 5,831,142 ------------- CONTRACT DRILLING (0.6%) 26,500 Transocean Inc. (Cayman Islands)* 1,846,785 ------------- DISCOUNT STORES (2.9%) 161,324 Target Corp. 8,867,980 ------------- DRUGSTORE CHAINS (2.1%) 240,502 CVS Corp. 6,354,063 ------------- ELECTRIC UTILITIES (2.5%) 77,448 Exelon Corp. 4,115,587 87,579 FPL Group, Inc. 3,639,783 ------------- 7,755,370 ------------- FINANCIAL CONGLOMERATES (5.5%) 189,789 Citigroup, Inc. 9,210,460 67,310 JPMorgan Chase & Co. $ 2,671,534 51,059 UBS AG (Switzerland) 4,858,264 ------------- 16,740,258 ------------- FINANCIAL PUBLISHING/ SERVICES (1.0%) 58,111 McGraw-Hill Companies, Inc. (The) 3,000,271 ------------- FOOD: MAJOR DIVERSIFIED (3.8%) 198,032 PepsiCo, Inc. 11,699,731 ------------- HOME IMPROVEMENT CHAINS (1.4%) 107,568 Home Depot, Inc. (The) 4,354,353 ------------- HOTELS/RESORTS/ CRUISELINES (0.6%) 29,300 Starwood Hotels & Resorts Worldwide, Inc. 1,871,098 ------------- HOUSEHOLD/PERSONAL CARE (3.3%) 172,685 Procter & Gamble Co. (The) 9,995,008 ------------- INDUSTRIAL CONGLOMERATES (10.0%) 106,700 3M Co. 8,269,250 289,423 General Electric Co. 10,144,276 215,446 United Technologies Corp. 12,045,586 ------------- 30,459,112 ------------- INFORMATION TECHNOLOGY SERVICES (1.8%) 66,318 International Business Machines Corp. 5,451,340 ------------- INSURANCE BROKERS/ SERVICES (0.4%) 34,600 Marsh & McLennan Companies, Inc. 1,098,896 ------------- INTEGRATED OIL (6.9%) 142,400 BP PLC (ADR) (United Kingdom) 9,144,928 214,929 Exxon Mobil Corp. 12,072,562 ------------- 21,217,490 -------------
SEE NOTES TO FINANCIAL STATEMENTS 64
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- INTERNET SOFTWARE/ SERVICES (3.1%) 11,200 Google, Inc. (Class A)* $ 4,646,432 123,997 Yahoo!, Inc.* 4,858,202 ------------- 9,504,634 ------------- INVESTMENT BANKS/ BROKERS (3.3%) 30,783 Goldman Sachs Group, Inc. (The) 3,931,297 5,100 Legg Mason, Inc. 610,419 84,098 Merrill Lynch & Co., Inc. 5,695,957 ------------- 10,237,673 ------------- INVESTMENT MANAGERS (2.0%) 183,092 Mellon Financial Corp. 6,270,901 ------------- LIFE/HEALTH INSURANCE (1.4%) 81,552 Lincoln National Corp. 4,324,703 ------------- MAJOR BANKS (3.4%) 223,996 Bank of America Corp. 10,337,415 ------------- MANAGED HEALTH CARE (4.3%) 97,027 Caremark Rx, Inc.* 5,025,028 130,056 UnitedHealth Group Inc. 8,081,680 ------------- 13,106,708 ------------- MEDICAL SPECIALTIES (2.8%) 8,758 Alcon, Inc. (Switzerland) 1,135,037 43,900 Boston Scientific Corp.* 1,075,111 41,008 Fisher Scientific International, Inc.* 2,536,755 67,900 Medtronic, Inc. 3,909,003 ------------- 8,655,906 ------------- OFFICE EQUIPMENT/ SUPPLIES (2.5%) 179,589 Pitney Bowes, Inc. 7,587,635 ------------- OIL & GAS PRODUCTION (2.2%) 152,041 XTO Energy Inc. 6,680,682 ------------- OILFIELD SERVICES/ EQUIPMENT (1.9%) 64,544 Halliburton Co. $ 3,999,146 47,000 Weatherford International Ltd. (Bermuda)* 1,701,400 ------------- 5,700,546 ------------- PACKAGED SOFTWARE (2.1%) 247,661 Microsoft Corp. 6,476,335 ------------- PHARMACEUTICALS: MAJOR (5.4%) 144,736 Bristol-Myers Squibb Co. 3,326,033 88,919 Johnson & Johnson 5,344,032 169,388 Wyeth 7,803,705 ------------- 16,473,770 ------------- PROPERTY - CASUALTY INSURERS (0.7%) 30,500 XL Capital Ltd. (Class A) (Cayman Islands) 2,055,090 ------------- SEMICONDUCTORS (4.6%) 46,600 Advanced Micro Devices, Inc.* 1,425,960 167,820 Intel Corp. 4,188,787 66,103 Marvell Technology Group, Ltd. (Bermuda)* 3,707,717 148,522 Texas Instruments Inc. 4,763,101 ------------- 14,085,565 ------------- TELECOMMUNICATION EQUIPMENT (1.0%) 68,270 QUALCOMM Inc. 2,941,072 ------------- TOBACCO (1.8%) 72,789 Altria Group, Inc. 5,438,794 ------------- TOTAL COMMON STOCKS (COST $221,877,371) 294,795,919 -------------
SEE NOTES TO FINANCIAL STATEMENTS 65
PRINCIPAL AMOUNT IN THOUSANDS VALUE - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT(3.4%) REPURCHASE AGREEMENT $ 10,547 Joint repurchase agreement account 4.25% due 01/03/06 (dated 12/30/05; proceeds $10,551,981) (a) (COST $10,547,000) $ 10,547,000 ------------- TOTAL INVESTMENTS (COST $232,424,371)(b) 99.9% 305,342,919 OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 234,822 ----- ------------- NET ASSETS 100.0% $ 305,577,741 ===== =============
- ---------- ADR AMERICAN DEPOSITARY 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 $234,648,613. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $73,646,521 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $2,952,215, RESULTING IN NET UNREALIZED APPRECIATION OF $70,694,306. SEE NOTES TO FINANCIAL STATEMENTS 66 SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------------- Industrial Conglomerates $ 30,459,112 10.0% Integrated Oil 21,217,490 6.9 Financial Conglomerates 16,740,258 5.5 Pharmaceuticals: Major 16,473,770 5.4 Semiconductors 14,085,565 4.6 Managed Health Care 13,106,708 4.3 Food: Major Diversified 11,699,731 3.8 Repurchase Agreement 10,547,000 3.4 Major Banks 10,337,415 3.4 Investment Banks/Brokers 10,237,673 3.3 Household/Personal Care 9,995,008 3.3 Internet Software/Services 9,504,634 3.1 Discount Stores 8,867,980 2.9 Medical Specialties 8,655,906 2.8 Electric Utilities 7,755,370 2.5 Office Equipment/Supplies 7,587,635 2.5 Oil & Gas Production 6,680,682 2.2 Packaged Software 6,476,335 2.1 Drugstore Chains 6,354,063 2.1 Investment Managers 6,270,901 2.0 Chemicals: Agricultural 5,914,066 1.9 Computer Processing Hardware 5,831,142 1.9 Oilfield Services/Equipment 5,700,546 1.9 Information Technology Services $ 5,451,340 1.8% Tobacco 5,438,794 1.8 Beverages: Non-Alcoholic 5,121,023 1.7 Home Improvement Chains 4,354,353 1.4 Life/Health Insurance 4,324,703 1.4 Apparel/Footwear 4,163,117 1.4 Computer Communications 4,046,179 1.3 Aerospace & Defense 3,189,617 1.0 Biotechnology 3,006,897 1.0 Financial Publishing/Services 3,000,271 1.0 Telecommunication Equipment 2,941,072 1.0 Auto Parts: O.E.M. 2,453,494 0.8 Property - Casualty Insurers 2,055,090 0.7 Hotels/Resorts/Cruiselines 1,871,098 0.6 Contract Drilling 1,846,785 0.6 Insurance Brokers/Services 1,098,896 0.4 Advertising/Marketing Services 481,200 0.2 ------------- ---- $ 305,342,919 99.9% ============= ====
SEE NOTES TO FINANCIAL STATEMENTS 67 EQUALLY-WEIGHTED S&P 500 PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCKS (97.8%) ADVERTISING/MARKETING SERVICES (0.4%) 1,668 Live Nation Inc.* $ 21,856 44,645 Interpublic Group of Companies, Inc. (The)* 430,824 4,998 Omnicom Group, Inc. 425,480 ------------- 878,160 ------------- AEROSPACE & DEFENSE (1.6%) 6,204 Boeing Co. 435,769 3,835 General Dynamics Corp. 437,382 10,988 Goodrich Corp. 451,607 6,080 L-3 Communications Holdings, Inc. 452,048 6,878 Lockheed Martin Corp. 437,647 7,421 Northrop Grumman Corp. 446,076 11,080 Raytheon Co. 444,862 9,264 Rockwell Collins, Inc. 430,498 ------------- 3,535,889 ------------- AGRICULTURAL COMMODITIES/ MILLING (0.2%) 17,513 Archer-Daniels-Midland Co. 431,871 ------------- AIR FREIGHT/COURIERS (0.4%) 4,394 FedEx Corp. 454,296 5,774 United Parcel Service, Inc. (Class B) 433,916 ------------- 888,212 ------------- AIRLINES (0.2%) 26,092 Southwest Airlines Co. 428,692 ------------- ALUMINUM (0.2%) 15,547 Alcoa, Inc. 459,725 ------------- APPAREL/FOOTWEAR (1.4%) 10,281 Cintas Corp. 423,372 12,954 Coach, Inc.* 431,886 14,620 Jones Apparel Group, Inc. 449,126 12,539 Liz Claiborne, Inc. 449,147 4,959 Nike, Inc. (Class B) 430,392 7,586 Reebok International Ltd. 441,733 7,793 V.F. Corp. 431,265 ------------- 3,056,921 ------------- APPAREL/FOOTWEAR RETAIL (0.8%) 24,060 Gap, Inc. (The) $ 424,418 19,165 Limited Brands, Inc. 428,338 12,063 Nordstrom, Inc. 451,156 19,007 TJX Companies, Inc. (The) 441,533 ------------- 1,745,445 ------------- AUTO PARTS: O.E.M. (0.6%) 64,539 Dana Corp. 463,390 6,525 Eaton Corp. 437,762 5,936 Johnson Controls, Inc. 432,794 ------------- 1,333,946 ------------- AUTOMOTIVE AFTERMARKET (0.4%) 29,753 Cooper Tire & Rubber Co. 455,816 25,079 Goodyear Tire & Rubber Co. (The)* 435,873 ------------- 891,689 ------------- BEVERAGES: ALCOHOLIC (0.8%) 9,911 Anheuser-Busch Companies, Inc. 425,777 6,143 Brown-Forman Corp. (Class B) 425,833 17,540 Constellation Brands Inc. (Class A)* 460,074 6,626 Molson Coors Brewing Co. (Class B) 443,876 ------------- 1,755,560 ------------- BEVERAGES: NON-ALCOHOLIC (0.6%) 10,649 Coca-Cola Co. (The) 429,261 22,054 Coca-Cola Enterprises Inc. 422,775 14,897 Pepsi Bottling Group, Inc. (The) 426,203 ------------- 1,278,239 ------------- BIOTECHNOLOGY (1.4%) 5,555 Amgen Inc.* 438,067 9,686 Biogen Idec Inc.* 439,066 9,786 Chiron Corp.* 435,086 6,167 Genzyme Corp.* 436,500 8,658 Gilead Sciences, Inc.* 455,671
SEE NOTES TO FINANCIAL STATEMENTS 68
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 12,440 MedImmune, Inc.* $ 435,649 6,533 Millipore Corp.* 431,439 ------------- 3,071,478 ------------- BROADCASTING (0.4%) 13,347 Clear Channel Communications, Inc. 419,763 14,508 Univision Communications, Inc. (Class A)* 426,390 ------------- 846,153 ------------- BUILDING PRODUCTS (0.4%) 10,636 American Standard Companies, Inc. 424,908 14,324 Masco Corp. 432,442 ------------- 857,350 ------------- CABLE/SATELLITE TV (0.2%) 16,357 Comcast Corp. (Class A)* 424,628 ------------- CASINO/GAMING (0.4%) 6,530 Harrah's Entertainment, Inc. 465,524 14,877 International Game Technology 457,914 ------------- 923,438 ------------- CHEMICALS: AGRICULTURAL (0.2%) 5,805 Monsanto Co. 450,062 ------------- CHEMICALS: MAJOR DIVERSIFIED (1.2%) 10,038 Dow Chemical Co. (The) 439,865 10,327 Du Pont (E.I.) de Nemours & Co. 438,897 8,626 Eastman Chemical Co. 445,015 14,571 Engelhard Corp. 439,316 37,477 Hercules Inc.* 423,490 9,132 Rohm & Haas Co. 442,171 ------------- 2,628,754 ------------- CHEMICALS: SPECIALTY (0.8%) 7,399 Air Products & Chemicals, Inc. 437,947 7,756 Ashland Inc. 449,072 8,387 Praxair, Inc. 444,176 6,885 Sigma-Aldrich Corp. 435,752 ------------- 1,766,947 ------------- COMMERCIAL PRINTING/FORMS (0.2%) 12,640 Donnelley (R.R.) & Sons Co. $ 432,414 ------------- COMPUTER COMMUNICATIONS (0.6%) 41,403 Avaya Inc.* 441,770 25,049 Cisco Systems, Inc.* 428,839 13,545 QLogic Corp.* 440,348 ------------- 1,310,957 ------------- COMPUTER PERIPHERALS (0.6%) 32,011 EMC Corp.* 435,990 9,210 Lexmark International, Inc. (Class A)* 412,884 14,698 Network Appliance, Inc.* 396,846 5,600 Seagate Technology Inc. (Escrow) (a) 0 ------------- 1,245,720 ------------- COMPUTER PROCESSING HARDWARE (1.1%) 6,152 Apple Computer, Inc.* 442,267 13,482 Dell, Inc.* 404,325 161,347 Gateway, Inc.* 404,981 15,175 Hewlett-Packard Co. 434,460 12,699 NCR Corp.* 431,004 99,067 Sun Microsystems, Inc.* 415,091 ------------- 2,532,128 ------------- CONSTRUCTION MATERIALS (0.2%) 6,247 Vulcan Materials Co. 423,234 ------------- CONTAINERS/PACKAGING (1.0%) 10,934 Ball Corp. 434,298 16,279 Bemis Company, Inc. 453,696 19,940 Pactiv Corp.* 438,680 8,089 Sealed Air Corp.* 454,359 10,138 Temple-Inland Inc. 454,689 ------------- 2,235,722 ------------- CONTRACT DRILLING (0.8%) 5,782 Nabors Industries, Ltd. (Bermuda)* 437,986 6,105 Noble Corp. (Cayman Islands) 430,647
SEE NOTES TO FINANCIAL STATEMENTS 69
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 12,033 Rowan Companies, Inc. $ 428,856 6,494 Transocean Inc. (Cayman Islands)* 452,567 ------------- 1,750,056 ------------- DATA PROCESSING SERVICES (1.4%) 7,949 Affiliated Computer Services, Inc. (Class A)* 470,422 9,418 Automatic Data Processing, Inc. 432,192 8,922 Computer Sciences Corp.* 451,810 25,635 Convergys Corp.* 406,315 10,062 First Data Corp. 432,767 10,232 Fiserv, Inc.* 442,739 10,712 Paychex, Inc. 408,341 ------------- 3,044,586 ------------- DEPARTMENT STORES (0.8%) 18,091 Dillard's, Inc. (Class A) 449,019 6,754 Federated Department Stores, Inc. 447,993 9,607 Kohl's Corp.* 466,900 8,228 Penney (J.C.) Co., Inc. 457,477 ------------- 1,821,389 ------------- DISCOUNT STORES (1.4%) 36,573 Big Lots, Inc.* 439,242 9,003 Costco Wholesale Corp. 445,378 22,940 Dollar General Corp. 437,466 19,123 Family Dollar Stores, Inc. 474,059 3,668 Sears Holdings Corp.* 423,764 8,146 Target Corp. 447,786 8,908 Wal-Mart Stores, Inc. 416,894 ------------- 3,084,589 ------------- DRUGSTORE CHAINS (0.4%) 15,529 CVS Corp. 410,276 9,480 Walgreen Co. 419,585 ------------- 829,861 ------------- ELECTRIC UTILITIES (5.0%) 27,041 AES Corp. (The)* 428,059 13,694 Allegheny Energy, Inc.* 433,415 8,396 Ameren Corp. $ 430,211 11,728 American Electric Power Co., Inc. 434,992 32,997 CenterPoint Energy, Inc. 424,011 10,449 Cinergy Corp. 443,665 29,593 CMS Energy Corp.* 429,394 9,367 Consolidated Edison, Inc. 433,973 7,123 Constellation Energy Group, Inc. 410,285 5,426 Dominion Resources, Inc. 418,887 9,929 DTE Energy Co. 428,834 16,087 Duke Energy Corp. 441,588 9,322 Edison International 406,532 6,233 Entergy Corp. 427,895 8,039 Exelon Corp. 427,192 8,839 FirstEnergy Corp. 433,023 10,218 FPL Group, Inc. 424,660 11,699 PG&E Corp. 434,267 10,165 Pinnacle West Capital Corp. 420,323 14,565 PPL Corp. 428,211 9,757 Progress Energy, Inc. 428,527 6,599 Public Service Enterprise Group, Inc. 428,737 12,404 Southern Co. (The) 428,310 24,490 TECO Energy, Inc. 420,738 8,191 TXU Corp. 411,106 23,220 Xcel Energy, Inc. 428,641 ------------- 11,105,476 ------------- ELECTRICAL PRODUCTS (0.8%) 19,644 American Power Conversion Corp. 432,168 5,855 Cooper Industries Ltd. (Class A) (Bermuda) 427,415 5,812 Emerson Electric Co. 434,156 16,436 Molex Inc. 426,514 ------------- 1,720,253 ------------- ELECTRONIC COMPONENTS (0.6%) 12,493 Jabil Circuit, Inc.* 463,365 102,299 Sanmina-SCI Corp.* 435,794 117,343 Solectron Corp.* 429,475 ------------- 1,328,634 -------------
SEE NOTES TO FINANCIAL STATEMENTS 70
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS (1.6%) 12,433 Agilent Technologies, Inc.* $ 413,895 167,506 JDS Uniphase Corp.* 395,314 7,338 Rockwell Automation, Inc. 434,116 10,134 Scientific-Atlanta, Inc. 436,471 35,710 Symbol Technologies, Inc. 457,802 16,147 Tektronix, Inc. 455,507 13,999 Thermo Electron Corp.* 421,790 29,200 Xerox Corp.* 427,780 ------------- 3,442,675 ------------- ELECTRONIC PRODUCTION EQUIPMENT (0.8%) 23,184 Applied Materials, Inc. 415,921 8,661 KLA-Tencor Corp. 427,247 17,832 Novellus Systems, Inc.* 430,108 29,693 Teradyne, Inc.* 432,627 ------------- 1,705,903 ------------- ELECTRONICS/APPLIANCE STORES (0.6%) 9,761 Best Buy Co., Inc. 424,408 20,653 Circuit City Stores - Circuit City Group 466,551 19,777 RadioShack Corp. 415,910 ------------- 1,306,869 ------------- ELECTRONICS/APPLIANCES (0.6%) 18,225 Eastman Kodak Co. 426,465 23,160 Maytag Corp. 435,871 5,231 Whirlpool Corp. 438,149 ------------- 1,300,485 ------------- ENGINEERING & CONSTRUCTION (0.2%) 5,737 Fluor Corp. 443,241 ------------- ENVIRONMENTAL SERVICES (0.4%) 48,069 Allied Waste Industries, Inc.* 420,123 14,153 Waste Management, Inc. 429,544 ------------- 849,667 ------------- FINANCE/RENTAL/LEASING (1.6%) 5,161 Capital One Financial Corp. $ 445,910 8,390 CIT Group, Inc. 434,434 12,384 Countrywide Financial Corp. 423,409 9,237 Fannie Mae 450,858 6,648 Freddie Mac 434,447 15,948 MBNA Corp. 432,988 10,576 Ryder System, Inc. 433,827 8,193 SLM Corp. 451,352 ------------- 3,507,225 ------------- FINANCIAL CONGLOMERATES (1.2%) 8,451 American Express Co. 434,888 8,890 Citigroup, Inc. 431,432 11,030 JPMorgan Chase & Co. 437,781 8,827 Principal Financial Group, Inc. 418,665 5,867 Prudential Financial, Inc. 429,406 7,518 State Street Corp. 416,798 ------------- 2,568,970 ------------- FINANCIAL PUBLISHING/SERVICES (0.6%) 11,565 Equifax, Inc. 439,701 8,381 McGraw-Hill Companies, Inc. (The) 432,711 7,137 Moody's Corp. 438,355 ------------- 1,310,767 ------------- FOOD DISTRIBUTORS (0.2%) 13,454 SYSCO Corp. 417,747 ------------- FOOD RETAIL (0.9%) 18,038 Albertson's, Inc. 385,111 22,965 Kroger Co.* 433,579 17,971 Safeway Inc. 425,194 13,693 Supervalu, Inc. 444,749 3,900 Whole Foods Market, Inc. 301,821 ------------- 1,990,454 ------------- FOOD: MAJOR DIVERSIFIED (1.4%) 14,479 Campbell Soup Co. 431,040 21,397 ConAgra Foods Inc. 433,931 8,822 General Mills, Inc. 435,101
SEE NOTES TO FINANCIAL STATEMENTS 71
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 12,607 Heinz (H.J.) Co. $ 425,108 9,833 Kellogg Co. 424,982 7,337 PepsiCo, Inc. 433,470 23,220 Sara Lee Corp. 438,858 ------------- 3,022,490 ------------- FOOD: MEAT/FISH/DAIRY (0.2%) 26,029 Tyson Foods, Inc. (Class A) 445,096 ------------- FOOD: SPECIALTY/CANDY (0.6%) 7,583 Hershey Foods Corp. 418,961 14,493 McCormick & Co., Inc. (Non-Voting) 448,124 6,367 Wrigley (Wm.) Jr. Co. 423,342 ------------- 1,290,427 ------------- FOREST PRODUCTS (0.4%) 16,430 Louisiana-Pacific Corp. 451,332 6,622 Weyerhaeuser Co. 439,303 ------------- 890,635 ------------- GAS DISTRIBUTORS (1.2%) 92,006 Dynegy, Inc. (Class A)* 445,309 12,404 KeySpan Corp. 442,699 10,608 Nicor Inc. 417,000 19,984 NiSource, Inc. 416,866 11,647 Peoples Energy Corp. 408,460 9,401 Sempra Energy 421,541 ------------- 2,551,875 ------------- HOME BUILDING (1.0%) 6,146 Centex Corp. 439,378 11,608 D.R. Horton, Inc. 414,754 5,860 KB Home 425,788 6,983 Lennar Corp. (Class A) 426,103 10,345 Pulte Homes, Inc. 407,179 ------------- 2,113,202 ------------- HOME FURNISHINGS (0.4%) 18,196 Leggett & Platt, Inc. 417,780 18,279 Newell Rubbermaid, Inc. 434,675 ------------- 852,455 ------------- HOME IMPROVEMENT CHAINS (0.6%) 10,327 Home Depot, Inc. (The) $ 418,037 6,323 Lowe's Companies, Inc. 421,491 9,990 Sherwin-Williams Co. 453,746 ------------- 1,293,274 ------------- HOSPITAL/NURSING MANAGEMENT (0.8%) 8,422 HCA, Inc. 425,311 19,324 Health Management Associates, Inc. (Class A) 424,355 11,035 Manor Care, Inc. 438,862 51,936 Tenet Healthcare Corp.* 397,830 ------------- 1,686,358 ------------- HOTELS/RESORTS/CRUISELINES (0.8%) 8,336 Carnival Corp. (Panama) 445,726 19,090 Hilton Hotels Corp. 460,260 6,481 Marriott International, Inc. (Class A) 434,033 6,870 Starwood Hotels & Resorts Worldwide, Inc. 438,718 ------------- 1,778,737 ------------- HOUSEHOLD/PERSONAL CARE (1.4%) 9,585 Alberto-Culver Co. 438,514 14,978 Avon Products, Inc. 427,622 7,870 Clorox Co. (The) 447,724 7,846 Colgate-Palmolive Co. 430,353 13,100 International Flavors & Fragrances, Inc. 438,850 7,423 Kimberly-Clark Corp. 442,782 7,583 Procter & Gamble Co. (The) 438,904 ------------- 3,064,749 ------------- INDUSTRIAL CONGLOMERATES (1.8%) 5,693 3M Co. 441,207 7,867 Danaher Corp. 438,821 12,171 General Electric Co. ** 426,594
SEE NOTES TO FINANCIAL STATEMENTS 72
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 11,585 Honeywell International, Inc. $ 431,541 10,744 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 433,735 4,308 ITT Industries, Inc. 442,949 5,678 Textron, Inc. 437,092 15,463 Tyco International Ltd. (Bermuda) 446,262 7,563 United Technologies Corp. 422,847 ------------- 3,921,048 ------------- INDUSTRIAL MACHINERY (0.4%) 4,875 Illinois Tool Works Inc. 428,951 6,385 Parker Hannifin Corp. 421,155 ------------- 850,106 ------------- INDUSTRIAL SPECIALTIES (0.4%) 12,294 Ecolab Inc. 445,903 7,744 PPG Industries, Inc. 448,378 ------------- 894,281 ------------- INFORMATION TECHNOLOGY SERVICES (0.8%) 16,255 Citrix Systems, Inc.* 467,819 18,692 Electronic Data Systems Corp. 449,356 5,272 International Business Machines Corp. 433,358 71,593 Unisys Corp.* 417,387 ------------- 1,767,920 ------------- INSURANCE BROKERS/SERVICES (0.4%) 12,141 AON Corp. 436,469 13,630 Marsh & McLennan Companies, Inc. 432,889 ------------- 869,358 ------------- INTEGRATED OIL (1.0%) 3,465 Amerada Hess Corp. 439,431 7,631 Chevron Corp. 433,212 7,652 ConocoPhillips 445,193 7,558 Exxon Mobil Corp. 424,533 8,150 Murphy Oil Corp. 440,019 ------------- 2,182,388 ------------- INTERNET RETAIL (0.2%) 8,918 Amazon.com, Inc.* $ 420,484 ------------- INTERNET SOFTWARE/SERVICES (0.4%) 41,677 Siebel Systems, Inc. 440,943 10,371 Yahoo!, Inc.* 406,336 ------------- 847,279 ------------- INVESTMENT BANKS/BROKERS (1.6%) 10,385 Ameriprise Financial, Inc. 425,785 3,733 Bear Stearns Companies, Inc. (The) 431,273 20,682 E*TRADE Group, Inc.* 431,427 3,470 Goldman Sachs Group, Inc. (The) 443,154 3,403 Lehman Brothers Holdings Inc. 436,163 6,378 Merrill Lynch & Co., Inc. 431,982 7,716 Morgan Stanley (Note 4) 437,806 29,084 Schwab (Charles) Corp. (The) 426,662 ------------- 3,464,252 ------------- INVESTMENT MANAGERS (1.0%) 11,716 Federated Investors, Inc. (Class B) 433,961 4,524 Franklin Resources, Inc. 425,301 23,270 Janus Capital Group, Inc. 433,520 12,864 Mellon Financial Corp. 440,592 5,891 Price (T.) Rowe Group, Inc. 424,329 ------------- 2,157,703 ------------- LIFE/HEALTH INSURANCE (1.4%) 9,226 AFLAC, Inc. 428,271 12,546 Genworth Financial Inc. (Class A) 433,841 7,863 Jefferson-Pilot Corp. 447,641 8,413 Lincoln National Corp. 446,141 8,809 MetLife, Inc. 431,641 7,962 Torchmark Corp. 442,687 20,068 UnumProvident Corp. 456,547 ------------- 3,086,769 -------------
SEE NOTES TO FINANCIAL STATEMENTS 73
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MAJOR BANKS (2.3%) 9,344 Bank of America Corp. $ 431,226 13,711 Bank of New York Co., Inc. (The) 436,695 10,117 BB&T Corp. 424,003 7,599 Comerica, Inc. 431,319 17,987 Huntington Bancshares, Inc. 427,191 12,893 KeyCorp 424,566 12,603 National City Corp. 423,083 6,870 PNC Financial Services Group 424,772 12,561 Regions Financial Corp. 429,084 5,987 SunTrust Banks, Inc. 435,614 8,143 Wachovia Corp. 430,439 6,885 Wells Fargo & Co. 432,585 ------------- 5,150,577 ------------- MAJOR TELECOMMUNICATIONS (1.0%) 6,861 ALLTEL Corp. 432,929 17,583 AT&T Inc. 430,608 15,810 BellSouth Corp. 428,451 17,890 Sprint Nextel Corp. 417,910 14,393 Verizon Communications Inc. 433,517 ------------- 2,143,415 ------------- MANAGED HEALTH CARE (1.4%) 4,544 Aetna, Inc. 428,545 8,264 Caremark Rx, Inc.* 427,993 3,941 CIGNA Corp. 440,210 7,688 Coventry Health Care, Inc.* 437,908 9,303 Humana, Inc.* 505,432 6,951 UnitedHealth Group Inc. 431,935 5,610 WellPoint Inc.* 447,622 ------------- 3,119,645 ------------- MEDIA CONGLOMERATES (0.8%) 17,767 Disney (Walt) Co. (The) 425,875 27,636 News Corp Inc. (Class A) 429,740 24,381 Time Warner, Inc. 425,205 12,897 Viacom Inc. (Class B) (Non-Voting) 420,442 ------------- 1,701,262 ------------- MEDICAL DISTRIBUTORS (0.8%) 10,840 AmerisourceBergen Corp. $ 448,776 6,376 Cardinal Health, Inc. 438,350 8,406 McKesson Corp. 433,666 12,813 Patterson Companies, Inc.* 427,954 ------------- 1,748,746 ------------- MEDICAL SPECIALTIES (3.3%) 16,382 Applera Corp. - Applied Biosystems Group 435,106 6,559 Bard (C.R.), Inc. 432,369 5,376 Bausch & Lomb, Inc. 365,030 11,396 Baxter International, Inc. 429,059 7,386 Becton, Dickinson & Co. 443,751 11,719 Biomet, Inc. 428,564 17,117 Boston Scientific Corp.* 419,195 6,955 Fisher Scientific International, Inc.* 430,236 6,555 Guidant Corp. 424,436 9,966 Hospira, Inc.* 426,345 7,600 Medtronic, Inc. 437,532 16,111 Pall Corp. 432,741 18,620 PerkinElmer, Inc. 438,687 8,479 St. Jude Medical, Inc.* 425,646 9,192 Stryker Corp. 408,401 11,369 Waters Corp.* 429,748 6,133 Zimmer Holdings, Inc.* 413,610 ------------- 7,220,456 ------------- MISCELLANEOUS COMMERCIAL SERVICES (0.2%) 18,218 Sabre Holdings Corp. (Class A) 439,236 ------------- MISCELLANEOUS MANUFACTURING (0.2%) 10,618 Dover Corp. 429,923 ------------- MOTOR VEHICLES (0.6%) 52,875 Ford Motor Co. 408,195 20,048 General Motors Corp. 389,332 8,354 Harley-Davidson, Inc. 430,147 ------------- 1,227,674 -------------
SEE NOTES TO FINANCIAL STATEMENTS 74
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE (0.8%) 6,737 American International Group, Inc. $ 459,665 5,073 Hartford Financial Services Group, Inc. (The) (Note 4) 435,720 4,548 Loews Corp. 431,378 7,692 Safeco Corp. 434,598 ------------- 1,761,361 ------------- OFFICE EQUIPMENT/SUPPLIES (0.4%) 7,844 Avery Dennison Corp. 433,538 10,414 Pitney Bowes, Inc. 439,991 ------------- 873,529 ------------- OIL & GAS PIPELINES (0.6%) 35,651 El Paso Corp. 433,516 4,670 Kinder Morgan, Inc. 429,406 18,487 Williams Companies, Inc. (The) 428,344 ------------- 1,291,266 ------------- OIL & GAS PRODUCTION (1.6%) 4,581 Anadarko Petroleum Corp. 434,050 6,314 Apache Corp. 432,635 5,158 Burlington Resources, Inc. 444,620 6,840 Devon Energy Corp. 427,774 5,652 EOG Resources, Inc. 414,687 4,743 Kerr-McGee Corp. 430,949 5,428 Occidental Petroleum Corp. 433,589 9,558 XTO Energy Inc. 419,979 ------------- 3,438,283 ------------- OIL REFINING/MARKETING (0.6%) 7,102 Marathon Oil Corp. 433,009 5,531 Sunoco, Inc. 433,520 8,396 Valero Energy Corp. 433,234 ------------- 1,299,763 ------------- OILFIELD SERVICES/EQUIPMENT (1.2%) 7,163 Baker Hughes Inc. 435,367 11,559 BJ Services Co. 423,869 6,887 Halliburton Co. $ 426,719 6,891 National OilwellVarco, Inc.* 432,066 4,393 Schlumberger Ltd. (Netherlands Antilles) 426,780 11,884 Weatherford International Ltd. (Bermuda)* 430,201 ------------- 2,575,002 ------------- OTHER CONSUMER SERVICES (0.8%) 6,885 Apollo Group, Inc. (Class A)* 416,267 18,157 Block (H.&R.), Inc. 445,754 26,232 Cendant Corp. 452,502 9,554 eBay, Inc.* 413,211 ------------- 1,727,734 ------------- OTHER CONSUMER SPECIALTIES (0.2%) 5,638 Fortune Brands, Inc. 439,877 ------------- OTHER METALS/MINERALS (0.2%) 3,113 Phelps Dodge Corp. 447,867 ------------- PACKAGED SOFTWARE (2.3%) 11,306 Adobe Systems, Inc. 417,870 9,952 Autodesk, Inc. 427,438 21,565 BMC Software, Inc.* 441,867 15,118 Computer Associates International, Inc. 426,176 47,342 Compuware Corp.* 424,658 8,251 Intuit Inc.* 439,778 13,507 Mercury Interactive Corp.* 375,360 16,361 Microsoft Corp. ** 427,840 50,913 Novell, Inc.* 449,562 34,583 Oracle Corp.* 422,258 71,476 Parametric Technology Corp.* 436,004 25,664 Symantec Corp.* 449,120 ------------- 5,137,931 ------------- PERSONNEL SERVICES (0.4%) 10,904 Monster Worldwide, Inc.* 445,101 11,216 Robert Half International, Inc. 424,974 ------------- 870,075 -------------
SEE NOTES TO FINANCIAL STATEMENTS 75
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- PHARMACEUTICALS: GENERIC DRUGS (0.4%) 20,939 Mylan Laboratories, Inc. $ 417,942 13,380 Watson Pharmaceuticals, Inc.* 434,984 ------------- 852,926 ------------- PHARMACEUTICALS: MAJOR (1.6%) 10,925 Abbott Laboratories 430,773 19,930 Bristol-Myers Squibb Co. 457,991 7,211 Johnson & Johnson 433,381 7,746 Lilly (Eli) & Co. 438,346 14,624 Merck & Co., Inc. 465,189 19,436 Pfizer, Inc. 453,248 22,198 Schering-Plough Corp. 462,828 9,778 Wyeth 450,472 ------------- 3,592,228 ------------- PHARMACEUTICALS: OTHER (0.6%) 4,044 Allergan, Inc. 436,590 10,675 Forest Laboratories, Inc.* 434,259 25,816 King Pharmaceuticals, Inc.* 436,807 ------------- 1,307,656 ------------- PRECIOUS METALS (0.4%) 8,158 Freeport-McMoRan Copper & Gold, Inc. (Class B) 438,900 8,691 Newmont Mining Corp. 464,099 ------------- 902,999 ------------- PROPERTY - CASUALTY INSURERS (1.4%) 8,009 ACE Ltd. (Cayman Islands) 428,001 8,083 Allstate Corp. (The) 437,048 4,546 Chubb Corp. (The) 443,917 9,753 Cincinnati Financial Corp. 435,764 3,665 Progressive Corp. (The) 427,999 9,805 St. Paul Travelers Companies, Inc. (The) 437,989 6,649 XL Capital Ltd. (Class A) (Cayman Islands) 448,010 ------------- 3,058,728 ------------- PUBLISHING: BOOKS/MAGAZINES (0.2%) 8,510 Meredith Corp. $ 445,413 ------------- PUBLISHING: NEWSPAPERS (1.2%) 12,341 Dow Jones & Co., Inc. 437,982 7,099 Gannett Co., Inc. 429,986 6,903 Knight-Ridder, Inc. 436,960 16,105 New York Times Co. (The) (Class A) 425,977 9,600 Scripps (E.W.) Co. (Class A) 460,992 14,248 Tribune Co. 431,144 ------------- 2,623,041 ------------- PULP & PAPER (0.4%) 13,027 International Paper Co. 437,837 15,651 MeadWestvaco Corp. 438,698 ------------- 876,535 ------------- RAILROADS (0.8%) 6,522 Burlington Northern Santa Fe Corp. 461,888 8,895 CSX Corp. 451,599 10,204 Norfolk Southern Corp. 457,445 5,639 Union Pacific Corp. 453,996 ------------- 1,824,928 ------------- REAL ESTATE INVESTMENT TRUSTS (1.8%) 11,334 Apartment Investment & Management Co. (Class A) 429,219 10,271 Archstone-Smith Trust 430,252 15,081 Equity Office Properties Trust 457,407 11,044 Equity Residential 432,041 11,762 Plum Creek Timber Co., Inc. 424,020 9,556 ProLogis 446,456 6,282 Public Storage, Inc. 425,417 5,563 Simon Property Group, Inc. 426,293 5,177 Vornado Realty Trust 432,124 ------------- 3,903,229 -------------
SEE NOTES TO FINANCIAL STATEMENTS 76
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- RECREATIONAL PRODUCTS (0.8%) 10,863 Brunswick Corp. $ 441,690 8,215 Electronic Arts, Inc.* 429,727 21,629 Hasbro, Inc. 436,473 26,597 Mattel, Inc. 420,765 ------------- 1,728,655 ------------- REGIONAL BANKS (2.1%) 16,345 AmSouth Bancorporation 428,402 8,852 Compass Bancshares, Inc. 427,463 11,127 Fifth Third Bancorp 419,710 11,131 First Horizon National Corp. 427,876 3,985 M&T Bank Corp. 434,564 9,994 Marshall & Ilsley Corp. 430,142 15,844 North Fork Bancorporation, Inc. 433,492 8,104 Northern Trust Corp. 419,949 15,477 Synovus Financial Corp. 418,034 14,194 U.S. Bancorp 424,259 5,786 Zions Bancorporation 437,190 ------------- 4,701,081 ------------- RESTAURANTS (1.0%) 11,309 Darden Restaurants, Inc. 439,694 12,630 McDonald's Corp. 425,884 14,071 Starbucks Corp.* 422,271 8,024 Wendy's International, Inc. 443,406 9,080 Yum! Brands, Inc. 425,670 ------------- 2,156,925 ------------- SAVINGS BANKS (0.6%) 6,491 Golden West Financial Corp. 428,406 20,374 Sovereign Bancorp, Inc. 440,486 10,018 Washington Mutual, Inc. 435,783 ------------- 1,304,675 ------------- SEMICONDUCTORS (3.1%) 15,580 Advanced Micro Devices, Inc.* 476,748 23,001 Altera Corp.* 426,209 11,612 Analog Devices, Inc. 416,522 163,146 Applied Micro Circuits Corp.* 419,285 8,953 Broadcom Corp. (Class A)* $ 422,134 16,612 Freescale Semiconductor Inc. (Class B)* 418,124 16,637 Intel Corp. 415,260 11,718 Linear Technology Corp. 422,668 53,716 LSI Logic Corp.* 429,728 11,662 Maxim Integrated Products, Inc. 422,631 32,105 Micron Technology, Inc.* 427,318 16,123 National Semiconductor Corp. 418,876 11,910 NVIDIA Corp.* 435,430 56,192 PMC - Sierra, Inc.* 433,240 13,271 Texas Instruments Inc. 425,601 16,164 Xilinx, Inc. 407,494 ------------- 6,817,268 ------------- SERVICES TO THE HEALTH INDUSTRY (1.0%) 4,976 Express Scripts, Inc.* 416,989 17,603 IMS Health Inc. 438,667 8,047 Laboratory Corp. of America Holdings* 433,331 7,636 Medco Health Solutions Inc.* 426,089 8,427 Quest Diagnostics Inc. 433,822 ------------- 2,148,898 ------------- SPECIALTY INSURANCE (0.6%) 5,639 Ambac Financial Group, Inc. 434,541 7,266 MBIA Inc. 437,123 6,765 MGIC Investment Corp. 445,272 ------------- 1,316,936 ------------- SPECIALTY STORES (1.3%) 19,419 AutoNation, Inc.* 421,975 4,761 AutoZone, Inc.* 436,822 10,457 Bed Bath & Beyond Inc.* 378,021 14,513 Office Depot, Inc.* 455,708 15,623 OfficeMax Inc. 396,199 19,411 Staples, Inc. 440,824 11,205 Tiffany & Co. 429,039 ------------- 2,958,588 -------------
SEE NOTES TO FINANCIAL STATEMENTS 77
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- SPECIALTY TELECOMMUNICATIONS (0.6%) 12,999 CenturyTel, Inc. $ 431,047 34,152 Citizens Communications Co. 417,679 74,133 Qwest Communications International, Inc.* 418,851 ------------- 1,267,577 ------------- STEEL (0.6%) 12,870 Allegheny Technologies Inc. 464,350 6,626 Nucor Corp. 442,087 9,364 United States Steel Corp. 450,127 ------------- 1,356,564 ------------- TELECOMMUNICATION EQUIPMENT (1.7%) 18,256 ADC Telecommunications, Inc.* 407,839 39,969 Andrew Corp.* 428,867 149,274 CIENA Corp.* 443,344 16,094 Comverse Technology, Inc.* 427,939 20,909 Corning, Inc.* 411,071 155,076 Lucent Technologies Inc.* 412,502 19,583 Motorola, Inc. 442,380 9,764 QUALCOMM Inc. 420,633 40,043 Tellabs, Inc.* 436,469 ------------- 3,831,044 ------------- TOBACCO (0.6%) 5,676 Altria Group, Inc. 424,111 4,511 Reynolds American, Inc. 430,034 10,553 UST, Inc. 430,879 ------------- 1,285,024 ------------- TOOLS/HARDWARE (0.6%) 5,157 Black & Decker Corp. 448,453 11,388 Snap-On, Inc. 427,733 9,062 Stanley Works (The) 435,338 ------------- 1,311,524 ------------- TRUCKS/CONSTRUCTION/FARM MACHINERY (1.0%) 7,359 Caterpillar Inc. 425,129 4,930 Cummins Inc. 442,369 6,268 Deere & Co. 426,913 15,696 Navistar International Corp.* $ 449,220 6,258 PACCAR, Inc. 433,241 ------------- 2,176,872 ------------- WHOLESALE DISTRIBUTORS (0.4%) 10,015 Genuine Parts Co. 439,859 6,226 Grainger (W.W.), Inc. 442,669 ------------- 882,528 ------------- TOTAL COMMON STOCKS (COST $133,486,030) 216,488,531 -------------
PRINCIPAL AMOUNT IN THOUSANDS - ------------ SHORT-TERM INVESTMENT (2.1%) REPURCHASE AGREEMENT $ 4,630 Joint repurchase agreement account 4.25% due 01/03/06 (dated 12/30/05; proceeds $4,632,186) (b) (COST $4,630,000) 4,630,000 ------------- TOTAL INVESTMENTS (COST $138,116,030) (c)(d) 99.9% 221,118,531 ----- ------------- OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 154,403 ----- ------------- NET ASSETS 100.0% $ 221,272,934 ===== =============
* NON-INCOME PRODUCING SECURITY. ** A PORTION OF THIS SECURITY IS PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $128,250. (a) A SECURITY WITH TOTAL MARKET VALUE EQUAL TO $0 HAS BEEN VALUED AT ITS FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES ESTABLISHED BY AND UNDER GENERAL SUPERVISION OF THE FUND'S TRUSTEES. (b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (c) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $3,059,529 IN CONNECTION WITH OPEN FUTURES CONTRACTS. (d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $138,623,225. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $86,366,367 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $3,871,061, RESULTING IN NET UNREALIZED APPRECIATION OF $82,495,306. SEE NOTES TO FINANCIAL STATEMENTS 78 FUTURES CONTRACTS OPEN AT DECEMBER 31, 2005:
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE DEPRECIATION - ----------------------------------------------------------------------------------- 3 Long S&P Midcap 400 Index March 2006 $ 1,114,800 $ (5,190) 15 Long S&P Midcap 400 Mini Index March 2006 1,114,800 (8,452) 3 Long S&P 500 Index March 2006 941,100 (3,504) ------------- Total Unrealized Depreciation $ (17,146) =============
SUMMARY OF INVESTMENTS
PERCENT OF SECTOR VALUE NET ASSETS - ------------------------ -------------------------------- Finance $ 36,850,864 16.7% Electronic Technology 25,750,218 11.6 Health Technology 16,044,744 7.2 Retail Trade 15,450,953 7.0 Consumer Non-Durables 15,198,506 6.9 Utilities 13,657,351 6.2 Consumer Services 12,649,187 5.7 Producer Manufacturing 12,163,027 5.5 Technology Services 10,797,716 4.9 Consumer Durables 9,865,561 4.5 Process Industries 9,284,172 4.2 Health Services 6,954,901 3.1 Energy Minerals 6,920,434 3.1 Industrial Services 6,909,232 3.1 Repurchase Agreement 4,630,000 2.1 Non-Energy Minerals 4,481,024 2.0 Commercial Services 3,908,796 1.8 Communications 3,410,992 1.5 Transportation 3,141,832 1.4 Distribution Services 3,049,021 1.4 ------------- ---------- Total $ 221,118,531* 99.9% ============= ==========
* DOES NOT INCLUDE OUTSTANDING LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $3,170,700 WITH TOTAL UNREALIZED DEPRECIATION OF $17,146. SEE NOTES TO FINANCIAL STATEMENTS 79 GROWTH PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCKS (98.4%) ADVERTISING/MARKETING SERVICES (1.9%) 11,418 Getty Images, Inc.* $ 1,019,285 ------------ AIR FREIGHT/COURIERS (2.8%) 19,640 C.H. Robinson Worldwide, Inc. 727,269 11,200 Expeditors International of Washington, Inc. 756,112 ------------ 1,483,381 ------------ BIOTECHNOLOGY (2.0%) 11,200 Genentech, Inc.* 1,036,000 ------------ CASINO/GAMING (2.2%) 38,500 International Game Technology 1,185,030 ------------ CHEMICALS: AGRICULTURAL (4.2%) 28,420 Monsanto Co. 2,203,403 ------------ COMPUTER PERIPHERALS (0.0%) 20,100 Seagate Technology Inc. (Escrow) (a) 0 ------------ COMPUTER PROCESSING HARDWARE (4.2%) 13,000 Apple Computer, Inc.* 934,570 42,819 Dell, Inc.* 1,284,142 ------------ 2,218,712 ------------ DATA PROCESSING SERVICES (1.4%) 19,150 Paychex, Inc. 729,998 ------------ DISCOUNT STORES (7.0%) 42,500 Costco Wholesale Corp. 2,102,475 13,900 Sears Holdings Corp.* 1,605,867 ------------ 3,708,342 ------------ FINANCE/RENTAL/LEASING (1.5%) 23,000 Countrywide Financial Corp. 786,370 ------------ FINANCIAL CONGLOMERATES (2.7%) Brookfield Asset Management 28,000 Inc. (Class A) (Canada) 1,409,240 ------------ FINANCIAL PUBLISHING/SERVICES (1.5%) 13,250 Moody's Corp. 813,815 ------------ GAS DISTRIBUTORS (1.2%) 8,700 Questar Corp. $ 658,590 ------------ HOME BUILDING (1.5%) 20,100 Pulte Homes, Inc. 791,136 ------------ HOME IMPROVEMENT CHAINS (2.6%) 34,075 Home Depot, Inc. (The) 1,379,356 ------------ HOTELS/RESORTS/CRUISELINES (2.9%) 28,500 Carnival Corp. (Panama) 1,523,895 ------------ INDUSTRIAL CONGLOMERATES (1.3%) 24,900 Tyco International Ltd. (Bermuda) 718,614 ------------ INSURANCE BROKERS/SERVICES (1.5%) 24,600 Marsh & McLennan Companies, Inc. 781,296 ------------ INTERNET RETAIL (2.5%) 27,600 Amazon.com, Inc.* 1,301,340 ------------ INTERNET SOFTWARE/SERVICES (8.3%) 6,310 Google, Inc. (Class A)* 2,617,767 45,440 Yahoo!, Inc.* 1,780,339 ------------ 4,398,106 ------------ INVESTMENT BANKS/BROKERS (2.0%) 2,900 Chicago Mercantile Exchange Holdings, Inc. 1,065,721 ------------ MANAGED HEALTH CARE (3.1%) 26,800 UnitedHealth Group Inc. 1,665,352 ------------ MEDICAL SPECIALTIES (4.1%) 5,500 Alcon, Inc. (Switzerland) 712,800 16,500 Dade Behring Holdings, Inc. 674,685 15,200 St. Jude Medical, Inc.* 763,040 ------------ 2,150,525 ------------ MISCELLANEOUS COMMERCIAL SERVICES (3.4%) 11,900 Corporate Executive Board Co. (The) 1,067,430 17,166 Iron Mountain Inc.* 724,749 ------------ 1,792,179 ------------
SEE NOTES TO FINANCIAL STATEMENTS 80
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MOTOR VEHICLES (2.3%) 23,300 Harley-Davidson, Inc. $ 1,199,717 ------------ OIL & GAS PRODUCTION (5.7%) 20,000 Southwestern Energy Co.* 718,800 40,940 Ultra Petroleum Corp. (Canada)* 2,284,452 ------------ 3,003,252 ------------ OTHER CONSUMER SERVICES (6.8%) 18,500 Apollo Group, Inc. (Class A)* 1,118,510 56,936 eBay, Inc.* 2,462,482 ------------ 3,580,992 ------------ PERSONNEL SERVICES (1.7%) 22,400 Monster Worldwide, Inc.* 914,368 ------------ PROPERTY - CASUALTY INSURERS (3.5%) 641 Berkshire Hathaway, Inc. (Class B)* 1,881,655 ------------ RECREATIONAL PRODUCTS (2.3%) 22,900 Electronic Arts, Inc.* 1,197,899 ------------ SEMICONDUCTORS (1.5%) 14,060 Marvell Technology Group, Ltd. (Bermuda)* 788,625 ------------ SPECIALTY TELECOMMUNICATIONS (1.4%) 27,231 Crown Castle International Corp.* 732,786 ------------ TELECOMMUNICATION EQUIPMENT (1.0%) 26,200 Corning, Inc.* 515,092 ------------ TOBACCO (2.3%) 16,387 Altria Group, Inc. 1,224,437 ------------ WIRELESS TELECOMMUNICATIONS (4.1%) 75,000 America Movil S.A. de C.V. (Series L) (ADR) (Mexico) 2,194,500 ------------ TOTAL COMMON STOCKS (COST $42,597,573) 52,053,009 ------------ PRINCIPAL AMOUNT IN THOUSANDS VALUE - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (1.5%) REPURCHASE AGREEMENT $ 788 Joint repurchase agreement account 4.25% due 01/03/06 (dated 12/30/05; proceeds $788,372) (b) (COST $788,000) $ 788,000 ------------ TOTAL INVESTMENTS (COST $43,385,573)(c) 99.9% 52,841,009 OTHER ASSETS IN EXCESS OF LIABILITIES 0.1 31,140 ----- ------------ NET ASSETS 100.0% $ 52,872,149 ===== ============
ADR AMERICAN DEPOSITARY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) A SECURITY WITH TOTAL MARKET VALUE EQUAL TO $0 HAS BEEN VALUED AT ITS FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES ESTABLISHED BY AND UNDER THE GENERAL SUPERVISION OF THE FUND'S TRUSTEES. (b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $43,456,231. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $10,278,304 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $893,526, RESULTING IN NET UNREALIZED APPRECIATION OF $9,384,778. SEE NOTES TO FINANCIAL STATEMENTS 81 GROWTH SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
PERCENT OF INDUSTRY VALUE NET ASSETS - ---------------------------------------------------------------------- Internet Software/Services $ 4,398,106 8.3% Discount Stores 3,708,342 7.0 Other Consumer Services 3,580,992 6.8 Oil & Gas Production 3,003,252 5.7 Computer Processing Hardware 2,218,712 4.2 Chemicals: Agricultural 2,203,403 4.2 Wireless Telecommunications 2,194,500 4.1 Medical Specialties 2,150,525 4.1 Property - Casualty Insurers 1,881,655 3.5 Miscellaneous Commercial Services 1,792,179 3.4 Managed Health Care 1,665,352 3.1 Hotels/Resorts/Cruiselines 1,523,895 2.9 Air Freight/Couriers 1,483,381 2.8 Financial Conglomerates 1,409,240 2.7 Home Improvement Chains 1,379,356 2.6 Internet Retail 1,301,340 2.5 Tobacco 1,224,437 2.3 Motor Vehicles 1,199,717 2.3 Recreational Products 1,197,899 2.3 Casino/Gaming $ 1,185,030 2.2% Investment Banks/Brokers 1,065,721 2.0 Biotechnology 1,036,000 2.0 Advertising/Marketing Services 1,019,285 1.9 Personnel Services 914,368 1.7 Financial Publishing/Services 813,815 1.5 Home Building 791,136 1.5 Semiconductors 788,625 1.5 Repurchase Agreement 788,000 1.5 Finance/Rental/Leasing 786,370 1.5 Insurance Brokers/Services 781,296 1.5 Specialty Telecommunications 732,786 1.4 Data Processing Services 729,998 1.4 Industrial Conglomerates 718,614 1.3 Gas Distributors 658,590 1.2 Telecommunication Equipment 515,092 1.0 Computer Peripherals 0 0.0 ------------ ------------ $ 52,841,009 99.9% ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 82 AMERICAN OPPORTUNITIES PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- COMMON STOCKS (97.4%) ADVERTISING/MARKETING SERVICES (2.3%) 57,973 Getty Images, Inc.* $ 5,175,250 ---------------- APPAREL/FOOTWEAR RETAIL (1.2%) 61,700 Chico's FAS, Inc.* 2,710,481 ---------------- BIOTECHNOLOGY (6.6%) 50,436 Amgen Inc.* 3,977,383 47,500 Genentech, Inc.* 4,393,750 44,000 Genzyme Corp.* 3,114,320 68,833 Gilead Sciences, Inc.* 3,622,681 ---------------- 15,108,134 ---------------- CASINO/GAMING (0.9%) 29,500 Station Casinos, Inc. 2,000,100 ---------------- CHEMICALS: AGRICULTURAL (4.4%) 94,140 Monsanto Co. 7,298,674 33,900 Potash Corp. of Saskatchewan, Inc. (Canada) 2,719,458 ---------------- 10,018,132 ---------------- COAL (2.1%) 59,100 Peabody Energy Corp. 4,871,022 ---------------- COMPUTER PROCESSING HARDWARE (6.1%) 118,600 Apple Computer, Inc.* 8,526,154 182,800 Dell, Inc.* 5,482,172 ---------------- 14,008,326 ---------------- DATA PROCESSING SERVICES (1.1%) 54,600 CheckFree Corp.* 2,506,140 ---------------- DISCOUNT STORES (3.7%) 152,600 Target Corp. 8,388,422 ---------------- ELECTRONICS/APPLIANCE STORES (1.7%) 88,500 Best Buy Co., Inc. 3,847,980 ---------------- FINANCIAL PUBLISHING/ SERVICES (2.3%) 85,400 Moody's Corp. 5,245,268 ---------------- HOME IMPROVEMENT CHAINS (1.7%) 97,900 Home Depot, Inc. (The) $ 3,962,992 ---------------- HOTELS/RESORTS/ CRUISELINES (3.0%) 130,100 Carnival Corp. (Panama) 6,956,447 ---------------- INDUSTRIAL CONGLOMERATES (1.0%) 66,200 General Electric Co. 2,320,310 ---------------- INFORMATION TECHNOLOGY SERVICES (0.8%) 35,100 Cognizant Technology Solutions Corp. (Class A)* 1,767,285 ---------------- INTERNET SOFTWARE/ SERVICES (9.7%) 33,347 Google, Inc. (Class A)* 13,834,336 214,248 Yahoo!, Inc.* 8,394,237 ---------------- 22,228,573 ---------------- INVESTMENT BANKS/ BROKERS (4.3%) 4,000 Chicago Mercantile Exchange Holdings, Inc. 1,469,960 53,378 Goldman Sachs Group, Inc. (The) 6,816,904 110,000 Schwab (Charles) Corp. (The) 1,613,700 ---------------- 9,900,564 ---------------- MAJOR BANKS (3.8%) 820 Sumitomo Mitsui Financial Group, Inc. (Japan) 8,686,441 ---------------- MAJOR TELECOMMUNICATIONS (2.8%) 280,038 Sprint Nextel Corp. 6,541,688 ---------------- MANAGED HEALTH CARE (4.4%) 162,800 UnitedHealth Group Inc. 10,116,392 ---------------- MEDICAL SPECIALTIES (7.2%) 62,275 Alcon, Inc. (Switzerland) 8,070,840 33,600 Dade Behring Holdings, Inc. 1,373,904 15,200 INAMED Corp.* 1,332,736 75,420 Medtronic, Inc. 4,341,929
SEE NOTES TO FINANCIAL STATEMENTS 83
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- 30,200 St. Jude Medical, Inc.* $ 1,516,040 ---------------- 16,635,449 ---------------- MISCELLANEOUS COMMERCIAL SERVICES (0.4%) 24,900 Bright Horizons Family Solutions, Inc.* 922,545 ---------------- MULTI-LINE INSURANCE (1.1%) 30,800 Hartford Financial Services Group, Inc. (The) (Note 4) 2,645,412 ---------------- OIL & GAS PRODUCTION (6.5%) 47,300 EnCana Corp. (Canada) 2,136,068 41,800 Southwestern Energy Co.* 1,502,292 204,060 Ultra Petroleum Corp. (Canada)* 11,386,548 ---------------- 15,024,908 ---------------- OTHER CONSUMER SERVICES (5.0%) 25,115 Apollo Group, Inc. (Class A)* 1,518,453 231,933 eBay, Inc.* 10,031,102 ---------------- 11,549,555 ---------------- PACKAGED SOFTWARE (1.2%) 72,500 Adobe Systems, Inc. 2,679,600 ---------------- PERSONNEL SERVICES (2.0%) 114,500 Monster Worldwide, Inc.* 4,673,890 ---------------- PROPERTY - CASUALTY INSURERS (1.0%) 802 Berkshire Hathaway, Inc. (Class B)* 2,354,271 ---------------- SEMICONDUCTORS (5.1%) 237,900 Intel Corp. 5,937,984 103,300 Marvell Technology Group, Ltd. (Bermuda)* 5,794,097 ---------------- 11,732,081 ---------------- SPECIALTY TELECOMMUNICATIONS (1.5%) 128,317 Crown Castle International Corp.* 3,453,010 ---------------- TELECOMMUNICATION EQUIPMENT (0.5%) 55,100 Corning, Inc.* $ 1,083,266 ---------------- WIRELESS TELECOMMUNICATIONS (2.0%) 158,000 America Movil S.A. de C.V. (Series L) (ADR) (Mexico) 4,623,080 ---------------- TOTAL COMMON STOCKS (COST $170,440,428) 223,737,014 ----------------
PRINCIPAL AMOUNT IN THOUSANDS - --------- SHORT-TERM INVESTMENT (2.7%) REPURCHASE AGREEMENT $ 6,117 Joint repurchase agreement account 4.25% due 01/03/06 (dated 12/30/05; proceeds $6,119,889) (a) (COST $6,117,000) 6,117,000 ---------------- TOTAL INVESTMENTS (COST $176,557,428) (b) 100.1% 229,854,014 LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (314,905) ----- ---------------- NET ASSETS 100.0% $ 229,539,109 ===== ================
ADR AMERICAN DEPOSITARY 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 THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $56,092,650 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $2,796,064, RESULTING IN NET UNREALIZED APPRECIATION OF $53,296,586. SEE NOTES TO FINANCIAL STATEMENTS 84 SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
PERCENT OF INDUSTRY VALUE NET ASSETS - ---------------------------------------------------------------------------- Internet Software/Services $ 22,228,573 9.7% Medical Specialties 16,635,449 7.2 Biotechnology 15,108,134 6.6 Oil & Gas Production 15,024,908 6.5 Computer Processing Hardware 14,008,326 6.1 Semiconductors 11,732,081 5.1 Other Consumer Services 11,549,555 5.0 Managed Health Care 10,116,392 4.4 Chemicals: Agricultural 10,018,132 4.4 Investment Banks/Brokers 9,900,564 4.3 Major Banks 8,686,441 3.8 Discount Stores 8,388,422 3.7 Hotels/Resorts/Cruiselines 6,956,447 3.0 Major Telecommunications 6,541,688 2.8 Repurchase Agreement 6,117,000 2.7 Financial Publishing/Services 5,245,268 2.3 Advertising/Marketing Services 5,175,250 2.3 Coal 4,871,022 2.1 Personnel Services $ 4,673,890 2.0% Wireless Telecommunications 4,623,080 2.0 Home Improvement Chains 3,962,992 1.7 Electronics/Appliance Stores 3,847,980 1.7 Specialty Telecommunications 3,453,010 1.5 Apparel/Footwear Retail 2,710,481 1.2 Packaged Software 2,679,600 1.2 Multi-Line Insurance 2,645,412 1.1 Data Processing Services 2,506,140 1.1 Property - Casualty Insurers 2,354,271 1.0 Industrial Conglomerates 2,320,310 1.0 Casino/Gaming 2,000,100 0.9 Information Technology Services 1,767,285 0.8 Telecommunication Equipment 1,083,266 0.5 Miscellaneous Commercial Services 922,545 0.4 --------------- ----- $ 229,854,014 100.1% =============== =====
SEE NOTES TO FINANCIAL STATEMENTS 85 CAPITAL OPPORTUNITIES PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- COMMON STOCKS (97.8%) ADVERTISING/MARKETING SERVICES (3.9%) 17,700 Getty Images, Inc.* $ 1,580,079 ---------------- AIR FREIGHT/COURIERS (3.7%) 19,400 C.H. Robinson Worlwide, Inc. 718,382 11,100 Expeditors International of Washington, Inc. 749,361 ---------------- 1,467,743 ---------------- CASINO/GAMING (5.4%) 38,300 International Game Technology 1,178,874 14,400 Station Casinos, Inc. 976,320 ---------------- 2,155,194 ---------------- CHEMICALS: AGRICULTURAL (3.6%) 18,645 Monsanto Co. 1,445,547 ---------------- DISCOUNT STORES (5.8%) 27,500 Costco Wholesale Corp. 1,360,425 8,450 Sears Holdings Corp.* 976,229 ---------------- 2,336,654 ---------------- ELECTRONIC PRODUCTION EQUIPMENT (1.4%) 21,100 Tessera Technologies, Inc.* 545,435 ---------------- FINANCIAL CONGLOMERATES (2.1%) 16,600 Brookfield Asset Management Inc. (Class A) (Canada) 835,478 ---------------- GAS DISTRIBUTORS (1.0%) 5,100 Questar Corp. 386,070 ---------------- HOME BUILDING (2.9%) 17,900 Desarrolladora Homex S.A. de C.V. (ADR) (Mexico)* 549,172 858 NVR, Inc.* 602,316 ---------------- 1,151,488 ---------------- HOTELS/RESORTS/ CRUISELINES (3.1%) 23,500 Carnival Corp. (Panama) 1,256,545 ---------------- INTERNET RETAIL (1.9%) 16,300 Amazon.com, Inc.* 768,545 ---------------- INTERNET SOFTWARE/SERVICES (9.1%) 5,600 Google, Inc. (Class A)* $ 2,323,216 33,600 Yahoo!, Inc.* 1,316,448 ---------------- 3,639,664 ---------------- INVESTMENT BANKS/ BROKERS (4.6%) 2,135 Chicago Mercantile Exchange Holdings, Inc. 784,591 18,783 Greenhill & Co., Inc. 1,054,853 ---------------- 1,839,444 ---------------- MEDICAL SPECIALTIES (2.3%) 23,000 Dade Behring Holdings, Inc. 940,470 ---------------- MISCELLANEOUS COMMERCIAL SERVICES (6.5%) 22,000 Corporate Executive Board Co. (The) 1,973,400 15,074 Iron Mountain Inc.* 636,424 ---------------- 2,609,824 ---------------- MOTOR VEHICLES (1.3%) 10,300 Harley-Davidson, Inc. 530,347 ---------------- OIL & GAS PRODUCTION (9.4%) 17,082 Southwestern Energy Co.* 613,927 56,600 Ultra Petroleum Corp. (Canada)* 3,158,280 ---------------- 3,772,207 ---------------- OTHER CONSUMER SERVICES (7.0%) 48,100 eBay, Inc.* 2,080,325 7,500 Strayer Education, Inc. 702,750 457 Homestore Inc.* 2,335 ---------------- 2,785,410 ---------------- PACKAGED SOFTWARE (2.9%) 21,700 Red Hat, Inc.* 591,108 18,400 Salesforce.com Inc.* 589,720 ---------------- 1,180,828 ---------------- PERSONNEL SERVICES (2.1%) 20,300 Monster Worldwide, Inc.* 828,646 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 86
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- PROPERTY - CASUALTY INSURERS (3.0%) 408 Berkshire Hathaway, Inc. (Class B)* $ 1,197,684 ---------------- RECREATIONAL PRODUCTS (2.4%) 18,000 Electronic Arts, Inc.* 941,580 ---------------- RESTAURANTS (1.4%) 11,120 P.F. Chang's China Bistro, Inc.* 551,886 ---------------- SEMICONDUCTORS (1.5%) 10,400 Marvell Technology Group, Ltd. (Bermuda)* 583,336 ---------------- SERVICES TO THE HEALTH INDUSTRY (2.2%) 14,827 Stericycle, Inc.* 873,014 ---------------- SPECIALTY TELECOMMUNICATIONS (2.6%) 38,018 Crown Castle International Corp.* 1,023,064 ---------------- WIRELESS TELECOMMUNICATIONS (4.7%) 63,900 America Movil S.A. de C.V. (Series L) (ADR) (Mexico) 1,869,714 ---------------- TOTAL COMMON STOCKS (COST $29,848,213) 39,095,896 ----------------
PRINCIPAL AMOUNT IN THOUSANDS VALUE - ----------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (2.3%) REPURCHASE AGREEMENT $ 919 Joint repurchase agreement account 4.25% due 01/03/06 (dated 12/30/05; proceeds $919,434) (a) (COST $919,000) $ 919,000 ---------------- TOTAL INVESTMENTS (COST $30,767,213) (b) 100.1% 40,014,896 LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (30,907) ----- ---------------- NET ASSETS 100.0% $ 39,983,989 ===== ================
ADR AMERICAN DEPOSITARY 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 $30,770,065. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $9,695,047 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $450,216, RESULTING IN NET UNREALIZED APPRECIATION OF $9,244,831. SEE NOTES TO FINANCIAL STATEMENTS 87 SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
PERCENT OF INDUSTRY VALUE NET ASSETS - ---------------------------------------------------------------------------- Oil & Gas Production $ 3,772,207 9.4% Internet Software/Services 3,639,664 9.1 Other Consumer Services 2,785,410 7.0 Miscellaneous Commercial Services 2,609,824 6.5 Discount Stores 2,336,654 5.8 Casino/Gaming 2,155,194 5.4 Wireless Telecommunications 1,869,714 4.7 Investment Banks/Brokers 1,839,444 4.6 Advertising/Marketing Services 1,580,079 3.9 Air Freight/Couriers 1,467,743 3.7 Chemicals: Agricultural 1,445,547 3.6 Hotels/Resorts/Cruiselines 1,256,545 3.1 Property - Casualty Insurers 1,197,684 3.0 Home Building 1,151,488 2.9 Packaged Software 1,180,828 2.9 Specialty Telecommunications $ 1,023,064 2.6% Recreational Products 941,580 2.4 Medical Specialties 940,470 2.3 Repurchase Agreement 919,000 2.3 Services to the Health Industry 873,014 2.2 Financial Conglomerates 835,478 2.1 Personnel Services 828,646 2.1 Internet Retail 768,545 1.9 Semiconductors 583,336 1.5 Restaurants 551,886 1.4 Electronic Production Equipment 545,435 1.4 Motor Vehicles 530,347 1.3 Gas Distributors 386,070 1.0 --------------- ----- $ 40,014,896 100.1% =============== =====
SEE NOTES TO FINANCIAL STATEMENTS 88 GLOBAL EQUITY PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- COMMON STOCKS (99.2%) AUSTRALIA (3.2%) BEVERAGES: ALCOHOLIC 404,900 McGuigan Simeon Wines Ltd. $ 861,048 ---------------- DATA PROCESSING SERVICES 143,000 Computershare Ltd. 712,012 ---------------- OTHER CONSUMER SERVICES 146,000 A.B.C. Learning Centres Ltd. 770,845 ---------------- TOTAL AUSTRALIA 2,343,905 ---------------- BERMUDA (3.3%) INSURANCE BROKERS/SERVICES 33,900 Willis Group Holdings Ltd. 1,252,266 ---------------- MULTI-LINE INSURANCE 37,700 Axis Capital Holdings Ltd. 1,179,256 ---------------- TOTAL BERMUDA 2,431,522 ---------------- BRITISH VIRGIN ISLANDS (1.5%) ELECTRONIC EQUIPMENT/INSTRUMENTS 48,200 Nam Tai Electronics, Inc. 1,084,500 ---------------- CANADA (2.2%) BIOTECHNOLOGY 51,900 Angiotech Pharmaceuticals, Inc.* 682,485 ---------------- FOOD: SPECIALTY/CANDY 184,300 SunOpta Inc.* 969,418 ---------------- TOTAL CANADA 1,651,903 ---------------- DENMARK (1.5%) MAJOR BANKS 30,700 Danske Bank A/S 1,080,712 ---------------- GERMANY (6.0%) APPAREL/FOOTWEAR 5,300 Adidas-Salomon AG 1,003,523 ---------------- FINANCE/RENTAL/LEASING 18,200 Grenkeleasing AG 1,040,280 ---------------- FINANCIAL CONGLOMERATES 22,200 Hypo Real Estate Holding AG 1,155,420 ---------------- PHARMACEUTICALS: MAJOR 18,000 Schering AG $ 1,205,648 ---------------- TOTAL GERMANY 4,404,871 ---------------- HONG KONG (6.1%) AGRICULTURAL COMMODITIES/MILLING 2,502,000 Global Bio-Chem Technology Group Co., Ltd. 1,097,015 ---------------- APPAREL/FOOTWEAR RETAIL 274,500 Esprit Holdings Ltd. 1,950,474 ---------------- COMPUTER PROCESSING HARDWARE 1,588,000 Lenovo Group Ltd. 732,104 ---------------- WHOLESALE DISTRIBUTORS 344,000 Li & Fung Ltd. 663,202 ---------------- TOTAL HONG KONG 4,442,795 ---------------- ISRAEL (2.0%) PHARMACEUTICALS: OTHER 33,700 Teva Pharmaceutical Industries Ltd. (ADR) 1,449,437 ---------------- ITALY (2.6%) MAJOR BANKS 281,700 UniCredito Italiano SpA 1,940,177 ---------------- JAPAN (3.7%) HOME BUILDING 35,200 Daito Trust Construction Co., Ltd. 1,819,661 ---------------- INDUSTRIAL MACHINERY 42,200 OSG Corp. 874,398 ---------------- TOTAL JAPAN 2,694,059 ---------------- MEXICO (1.3%) BEVERAGES: NON-ALCOHOLIC 13,500 Fomento Economico Mexicano, S.A. de C.V. (ADR) (Units)+ 978,885 ---------------- NORWAY (1.1%) TELECOMMUNICATION EQUIPMENT 129,600 Tandberg ASA 792,584 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 89
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- SINGAPORE (4.2%) AIRLINES 159,100 Singapore Airlines Ltd. $ 1,186,100 ---------------- ELECTRONIC COMPONENTS 117,760 Flextronics International Ltd.* 1,229,414 ---------------- MARINE SHIPPING 513,000 Cosco Corp Ltd. 666,194 ---------------- TOTAL SINGAPORE 3,081,708 ---------------- SOUTH AFRICA (1.1%) PHARMACEUTICALS: GENERIC DRUGS 156,500 Aspen Pharmacare Holdings Ltd.* 823,749 ---------------- SPAIN (7.0%) APPAREL/FOOTWEAR RETAIL 25,200 Industria de Diseno Textil, S.A. 821,587 ---------------- BROADCASTING 36,900 Antena 3 Television S.A. 879,463 47,000 Gestevision Telecinco S.A. 1,185,814 ---------------- 2,065,277 ---------------- MAJOR BANKS 109,100 Banco Santander Central Hispano S.A. 1,439,565 ---------------- MAJOR TELECOMMUNICATIONS 55,100 Telefonica S.A. 828,760 ---------------- TOTAL SPAIN 5,155,189 ---------------- TAIWAN (1.7%) SEMICONDUCTORS 122,800 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) 1,216,948 ---------------- UNITED KINGDOM (10.2%) BEVERAGES: ALCOHOLIC 77,800 SABMiller PLC 1,419,953 ---------------- HOTELS/RESORTS/CRUISELINES 19,900 Carnival PLC 1,129,655 ---------------- INVESTMENT MANAGERS 39,900 Man Group PLC $ 1,310,947 ---------------- MAJOR BANKS 38,500 Royal Bank of Scotland Group PLC 1,162,296 51,000 Standard Chartered PLC 1,136,106 ---------------- 2,298,402 ---------------- PHARMACEUTICALS: OTHER 105,500 Shire PLC 1,350,219 ---------------- TOTAL UNITED KINGDOM 7,509,176 ---------------- UNITED STATES (40.5%) AEROSPACE & DEFENSE 17,210 Northrop Grumman Corp. 1,034,493 24,180 Raytheon Co. 970,827 ---------------- 2,005,320 ---------------- AGRICULTURAL COMMODITIES/ MILLING 53,615 Archer-Daniels-Midland Co. 1,322,146 ---------------- APPAREL/FOOTWEAR 40,500 Under Armour, Inc. (Class A)* 1,551,555 ---------------- BIOTECHNOLOGY 23,915 Gilead Sciences, Inc.* 1,258,647 ---------------- CHEMICALS: AGRICULTURAL 13,530 Monsanto Co. 1,048,981 ---------------- CHEMICALS: MAJOR DIVERSIFIED 17,050 Dow Chemical Co. (The) 747,131 ---------------- COMPUTER COMMUNICATIONS 54,130 Cisco Systems, Inc.* 926,706 ---------------- COMPUTER PROCESSING HARDWARE 30,660 Apple Computer, Inc.* 2,204,147 ---------------- DISCOUNT STORES 20,735 Costco Wholesale Corp. 1,025,760 ---------------- ELECTRICAL PRODUCTS 14,205 Emerson Electric Co. 1,061,114 ---------------- ELECTRONIC COMPONENTS 25,200 Amphenol Corp. (Class A) 1,115,352 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 90
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- ENVIRONMENTAL SERVICES 31,860 Waste Management, Inc. $ 966,951 ---------------- FINANCIAL CONGLOMERATES 15,780 American Express Co. 812,039 ---------------- FOOD: MAJOR DIVERSIFIED 23,645 Kellogg Co. 1,021,937 ---------------- FOOD: MEAT/FISH/DAIRY 27,305 Dean Foods Co.* 1,028,306 ---------------- MEDIA CONGLOMERATES 84,800 News Corp Inc. (Class A) 1,318,640 ---------------- MEDICAL SPECIALTIES 19,950 Bard (C.R.), Inc. 1,315,104 15,805 Fisher Scientific International, Inc.* 977,697 ---------------- 2,292,801 ---------------- OIL & GAS PRODUCTION 20,110 Burlington Resources, Inc. 1,733,482 ---------------- PHARMACEUTICALS: MAJOR 24,550 Johnson & Johnson 1,475,455 ---------------- SEMICONDUCTORS 56,320 Intel Corp. 1,405,747 ---------------- SPECIALTY STORES 23,180 Bed Bath & Beyond Inc.* 837,957 ---------------- TELECOMMUNICATION EQUIPMENT 69,480 Corning, Inc.* 1,365,977 ---------------- TRUCKS/CONSTRUCTION/ FARM MACHINERY 20,270 Caterpillar Inc. 1,170,998 ---------------- TOTAL UNITED STATES 29,697,149 ---------------- TOTAL COMMON STOCKS (COST $64,420,594) 72,779,269 ----------------
PRINCIPAL AMOUNT IN THOUSANDS VALUE - ----------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (0.8%) REPURCHASE AGREEMENT $ 550 Joint repurchase agreement account 4.25% due 01/03/06 (dated 12/30/05; proceeds $550,260) (a) (COST $550,000) $ 550,000 ---------------- TOTAL INVESTMENTS (COST $64,970,594) (b) 100.0% 73,329,269 OTHER ASSETS IN EXCESS OF LIABILITIES 0.0 23,087 ----- ---------------- NET ASSETS 100.0% $ 73,352,356 ===== ================
ADR AMERICAN DEPOSITARY RECEIPT. * NON-INCOME PRODUCING SECURITY. + CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; STOCKS WITH ATTACHED WARRANTS. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $10,108,315 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $1,749,640, RESULTING IN NET UNREALIZED APPRECIATION OF $8,358,675. SEE NOTES TO FINANCIAL STATEMENTS 91 SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
PERCENT OF INDUSTRY VALUE NET ASSETS - ---------------------------------------------------------------------------- Major Banks $ 6,758,856 9.2% Computer Processing Hardware 2,936,251 4.0 Pharmaceuticals: Other 2,799,656 3.8 Apparel/Footwear Retail 2,772,061 3.8 Pharmaceuticals: Major 2,681,103 3.7 Semiconductors 2,622,695 3.6 Apparel/Footwear 2,555,078 3.5 Agricultural Commodities/Milling 2,419,161 3.3 Electronic Components 2,344,766 3.2 Medical Specialties 2,292,801 3.1 Beverages: Alcoholic 2,281,001 3.1 Telecommunication Equipment 2,158,561 2.9 Broadcasting 2,065,277 2.8 Aerospace & Defense 2,005,320 2.7 Financial Conglomerates 1,967,459 2.7 Biotechnology 1,941,132 2.7 Home Building 1,819,661 2.5 Oil & Gas Production 1,733,482 2.4 Media Conglomerates 1,318,640 1.8 Investment Managers 1,310,947 1.8 Insurance Brokers/Services 1,252,266 1.7 Airlines 1,186,100 1.6 Multi-Line Insurance 1,179,256 1.6 Trucks/Construction/Farm Machinery $ 1,170,998 1.6% Hotels/Resorts/Cruiselines 1,129,655 1.5 Electronic Equipment/Instruments 1,084,500 1.5 Electrical Products 1,061,114 1.5 Chemicals: Agricultural 1,048,981 1.4 Finance/Rental/Leasing 1,040,280 1.4 Food: Meat/Fish/Dairy 1,028,306 1.4 Discount Stores 1,025,760 1.4 Food: Major Diversified 1,021,937 1.4 Beverages: Non-Alcoholic 978,885 1.3 Food: Specialty/Candy 969,418 1.3 Environmental Services 966,951 1.3 Computer Communications 926,706 1.3 Industrial Machinery 874,398 1.2 Specialty Stores 837,957 1.1 Major Telecommunications 828,760 1.1 Pharmaceuticals: Generic Drugs 823,749 1.1 Other Consumer Services 770,845 1.1 Chemicals: Major Diversified 747,131 1.0 Data Processing Services 712,012 1.0 Marine Shipping 666,194 0.9 Wholesale Distributors 663,202 0.9 Repurchase Agreement 550,000 0.8 --------------- ----- $ 73,329,269 100.0% =============== =====
SEE NOTES TO FINANCIAL STATEMENTS 92 DEVELOPING GROWTH PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- COMMON STOCKS (98.6%) ADVERTISING/MARKETING SERVICES (4.8%) 22,746 Getty Images, Inc.* $ 2,030,535 18,400 Lamar Advertising Co. (Class A)* 848,976 ---------------- 2,879,511 ---------------- AIR FREIGHT/COURIERS (4.6%) 36,300 C.H. Robinson Worlwide, Inc. 1,344,189 20,900 Expeditors International of Washington, Inc. 1,410,959 ---------------- 2,755,148 ---------------- APPAREL/FOOTWEAR RETAIL (1.0%) 13,650 Chico's FAS, Inc.* 599,644 ---------------- BIOTECHNOLOGY (1.9%) 12,200 Gen-Probe Inc.* 595,238 10,100 Techne Corp.* 567,115 ---------------- 1,162,353 ---------------- CASINO/GAMING (6.5%) 59,000 International Game Technology 1,816,020 17,975 Station Casinos, Inc. 1,218,705 15,140 Wynn Resorts, Ltd.* 830,429 ---------------- 3,865,154 ---------------- CONSTRUCTION MATERIALS (1.0%) 9,550 Rinker Group Ltd. (ADR) (Australia) 572,809 ---------------- DATA PROCESSING SERVICES (1.0%) 12,400 CheckFree Corp.* 569,160 ---------------- ELECTRONIC PRODUCTION EQUIPMENT (1.0%) 22,700 Tessera Technologies, Inc.* 586,795 ---------------- FINANCIAL CONGLOMERATES (2.1%) 24,700 Brookfield Asset Management Inc. (Class A) (Canada) 1,243,151 ---------------- GAS DISTRIBUTORS (1.0%) 8,200 Questar Corp. 620,740 ---------------- HOME BUILDING (2.8%) 25,250 Desarrolladora Homex S.A. de C.V. (ADR) (Mexico)* $ 774,670 1,251 NVR, Inc.* 878,202 ---------------- 1,652,872 ---------------- HOTELS/RESORTS/ CRUISELINES (1.0%) 14,200 Gaylord Entertainment Co.* 618,978 ---------------- INSURANCE BROKERS/ SERVICES (2.1%) 22,700 Brown & Brown, Inc. 693,258 12,200 ChoicePoint, Inc.* 543,022 ---------------- 1,236,280 ---------------- INTERNET SOFTWARE/ SERVICES (1.4%) 10,200 Netease.com Inc. (ADR) (Cayman Islands)* 572,832 12,200 SINA Corp. (Cayman Islands)* 294,752 ---------------- 867,584 ---------------- INVESTMENT BANKS/ BROKERS (3.1%) 28,200 Ameritrade Holding Corp.* 676,800 3,165 Chicago Mercantile Exchange Holdings, Inc. 1,163,106 ---------------- 1,839,906 ---------------- INVESTMENT MANAGERS (1.6%) 30,081 Calamos Asset Management Inc. (Class A) 946,047 ---------------- MEDICAL SPECIALTIES (2.4%) 35,100 Dade Behring Holdings, Inc. 1,435,239 ---------------- MEDICAL/NURSING SERVICES (1.0%) 11,300 DaVita, Inc.* 572,232 ---------------- MISCELLANEOUS COMMERCIAL SERVICES (6.5%) 26,025 Corporate Executive Board Co. (The) 2,334,443 36,955 Iron Mountain Inc.* 1,560,240 ---------------- 3,894,683 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 93
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------- MISCELLANEOUS MANUFACTURING (1.4%) 24,500 Pentair, Inc. $ 845,740 ---------------- MOTOR VEHICLES (1.6%) 18,300 Harley-Davidson, Inc. 942,267 ---------------- MOVIES/ENTERTAINMENT (1.0%) 13,000 International Speedway Corp. (Class A) 622,700 ---------------- OIL & GAS PRODUCTION (7.8%) 35,248 Southwestern Energy Co.* 1,266,813 60,990 Ultra Petroleum Corp. (Canada)* 3,403,242 ---------------- 4,670,055 ---------------- OTHER CONSUMER SERVICES (6.9%) 19,600 Career Education Corp.* 660,912 5,830 HomeStore, Inc.* 29,735 37,500 Expedia, Inc.* 898,500 19,400 ITT Educational Services, Inc.* 1,146,734 10,500 Strayer Education, Inc. 983,850 9,300 Weight Watchers International, Inc.* 459,699 ---------------- 4,179,430 ---------------- PACKAGED SOFTWARE (3.4%) 38,000 Red Hat, Inc.* 1,035,120 30,600 Salesforce.com Inc.* 980,730 ---------------- 2,015,850 ---------------- PERSONNEL SERVICES (3.4%) 49,300 Monster Worldwide, Inc.* 2,012,426 ---------------- PROPERTY - CASUALTY INSURERS (0.8%) 845 White Mountains Insurance Group, Ltd. (Bermuda) 471,975 ---------------- REAL ESTATE DEVELOPMENT (2.2%) 12,075 CB Richard Ellis Group, Inc. (Class A)* 710,614 8,677 St. Joe Co. (The) 583,268 ---------------- 1,293,882 ---------------- RECREATIONAL PRODUCTS (2.1%) 92,388 Activision, Inc.* $ 1,269,411 ---------------- RESTAURANTS (4.0%) 16,700 Cheesecake Factory, Inc. (The)* 624,413 16,600 P.F. Chang's China Bistro, Inc.* 823,858 17,600 Wendy's International, Inc. 972,576 ---------------- 2,420,847 ---------------- SEMICONDUCTORS (2.1%) 20,900 Freescale Semiconductor Inc. (Class A)* 526,471 12,600 Marvell Technology Group, Ltd. (Bermuda)* 706,734 ---------------- 1,233,205 ---------------- SERVICES TO THE HEALTH INDUSTRY (2.2%) 22,782 Stericycle, Inc.* 1,341,404 ---------------- SPECIALTY STORES (4.3%) 19,600 AutoZone, Inc.* 1,798,300 14,970 Tractor Supply Co.* 792,512 ---------------- 2,590,812 ---------------- SPECIALTY TELECOMMUNICATIONS (2.5%) 54,982 Crown Castle International Corp.* 1,479,566 ---------------- TOBACCO (1.5%) 21,100 Loews Corp. - Carolina Group 928,189 ---------------- WHOLESALE DISTRIBUTORS (1.0%) 16,000 SCP Pool Corp. 595,520 ---------------- WIRELESS TELECOMMUNICATIONS (3.6%) 49,000 NII Holdings, Inc. (Class B)* 2,140,320 ---------------- TOTAL COMMON STOCKS (COST $47,890,255) 58,971,885 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 94
PRINCIPAL AMOUNT IN THOUSANDS VALUE - ----------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (1.5%) REPURCHASE AGREEMENT $ 906 Joint repurchase agreement account 4.25% due 01/03/06 (dated 12/30/05; proceeds $906,428) (a) (COST $906,000) $ 906,000 ---------------- TOTAL INVESTMENTS (COST $48,796,255) (b) 100.1% 59,877,885 LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (57,470) ----- ---------------- NET ASSETS 100.0% $ 59,820,415 ===== ================
ADR AMERICAN DEPOSITARY 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 $48,819,183. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $12,322,877 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $1,264,175, RESULTING IN NET UNREALIZED APPRECIATION OF $11,058,702. SEE NOTES TO FINANCIAL STATEMENTS 95 DEVELOPING GROWTH SUMMARY OF INVESTMENTS - DECEMBER 31, 2005
PERCENT OF INDUSTRY VALUE NET ASSETS - ---------------------------------------------------------------------------- Oil & Gas Production $ 4,670,055 7.8% Other Consumer Services 4,179,430 6.9 Miscellaneous Commercial Services 3,894,683 6.5 Casino/Gaming 3,865,154 6.5 Advertising/Marketing Services 2,879,511 4.8 Air Freight/Couriers 2,755,148 4.6 Specialty Stores 2,590,812 4.3 Restaurants 2,420,847 4.0 Wireless Telecommunications 2,140,320 3.6 Packaged Software 2,015,850 3.4 Personnel Services 2,012,426 3.4 Investment Banks/Brokers 1,839,906 3.1 Home Building 1,652,872 2.8 Specialty Telecommunications 1,479,566 2.5 Medical Specialties 1,435,239 2.4 Services to the Health Industry 1,341,404 2.2 Real Estate Development 1,293,882 2.2 Recreational Products 1,269,411 2.1 Financial Conglomerates $ 1,243,151 2.1% Insurance Brokers/Services 1,236,280 2.1 Semiconductors 1,233,205 2.1 Biotechnology 1,162,353 1.9 Investment Managers 946,047 1.6 Motor Vehicles 942,267 1.6 Repurchase Agreement 906,000 1.5 Tobacco 928,189 1.5 Miscellaneous Manufacturing 845,740 1.4 Internet Software/Services 867,584 1.4 Movies/Entertainment 622,700 1.0 Gas Distributors 620,740 1.0 Hotels/Resorts/Cruiselines 618,978 1.0 Apparel/Footwear Retail 599,644 1.0 Wholesale Distributors 595,520 1.0 Electronic Production Equipment 586,795 1.0 Construction Materials 572,809 1.0 Medical/Nursing Services 572,232 1.0 Data Processing Services 569,160 1.0 Property - Casualty Insurers 471,975 0.8 --------------- ----- $ 59,877,885 100.1% =============== =====
SEE NOTES TO FINANCIAL STATEMENTS 96 (This page has been intentionally left blank.) 97 Morgan Stanley Select Dimensions Investment Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2005
MONEY FLEXIBLE BALANCED MARKET INCOME GROWTH -------------- -------------- -------------- ASSETS: Investments in securities, at value* $ 88,130,819 $ 61,211,590 $ 94,203,880 Investment in affiliates** -- 44,568 671,310 Cash 6,639 100,941+ 7,388 Receivable for: Investments sold -- -- -- Interest 43,713 659,954 323,514 Dividends -- -- 73,622 Shares of beneficial interest sold 966,367 22,163 6,041 Foreign withholding taxes reclaimed -- -- -- Variation margin -- 859 2,672 Prepaid expenses and other assets 2,506 2,817 3,591 -------------- -------------- -------------- TOTAL ASSETS 89,150,044 62,042,892 95,292,018 -------------- -------------- -------------- LIABILITIES: Payable for: Investments purchased -- 210,428 2,471,284 Shares of beneficial interest redeemed 43,473 312,824 103,322 Investment advisory fee 32,561 16,789 41,257 Variation margin -- -- -- Distribution fee 7,401 5,481 5,937 Administration fee 3,618 4,197 6,347 Transfer agent fee 500 500 500 Accrued expenses and other payables 22,881 113,073 30,000 -------------- -------------- -------------- TOTAL LIABILITIES 110,434 663,292 2,658,647 -------------- -------------- -------------- NET ASSETS $ 89,039,610 $ 61,379,600 $ 92,633,371 ============== ============== ============== COMPOSITION OF NET ASSETS: Paid-in-capital $ 89,039,554 $ 85,417,143 $ 76,971,239 Accumulated undistributed net investment income (net investment loss) 56 480,573 (99,929) Accumulated net realized gain (loss) -- (20,691,088) 3,409,721 Net unrealized appreciation (depreciation) -- (3,827,028) 12,352,340 -------------- -------------- -------------- NET ASSETS $ 89,039,610 $ 61,379,600 $ 92,633,371 ============== ============== ============== *COST $ 88,130,819 $ 65,025,068 $ 82,120,523 ============== ============== ============== CLASS X SHARES: Net Assets $ 52,029,914 $ 35,755,422 $ 64,663,299 Shares Outstanding (unlimited authorized shares of $.01 par value) 52,029,868 4,866,697 3,831,190 NET ASSET VALUE PER SHARE $ 1.00 $ 7.35 $ 16.88 ============== ============== ============== CLASS Y SHARES: Net Assets $ 37,009,696 $ 25,624,178 $ 27,970,072 Shares Outstanding (unlimited authorized shares of $.01 par value) 37,009,685 3,497,795 1,660,916 NET ASSET VALUE PER SHARE $ 1.00 $ 7.33 $ 16.84 ============== ============== ==============
- ---------- ** COST OF $44,948, $377,755, $339,988 AND $2,293,491, RESPECTIVELY. + INCLUDING $100,000 SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS. SEE NOTES TO FINANCIAL STATEMENTS 98
EQUALLY- DIVIDEND WEIGHTED UTILITIES GROWTH S&P 500 GROWTH -------------- -------------- -------------- -------------- ASSETS: Investments in securities, at value* $ 76,057,157 $ 305,342,919 $ 220,245,005 $ 52,841,009 Investment in affiliates** -- -- 873,526 -- Cash 934 342 -- 3,064 Receivable for: Investments sold -- 512,484 416,392 -- Interest 20,329 2,490 1,093 -- Dividends 164,728 234,575 263,611 65,844 Shares of beneficial interest sold 1,187 263 47,679 22,431 Foreign withholding taxes reclaimed -- 13,042 -- -- Variation margin -- -- -- -- Prepaid expenses and other assets 3,684 9,110 12,563 2,426 -------------- -------------- -------------- -------------- TOTAL ASSETS 76,248,019 306,115,225 221,859,869 52,934,774 -------------- -------------- -------------- -------------- LIABILITIES: Payable for: Investments purchased -- -- 302,906 -- Shares of beneficial interest redeemed 89,142 324,331 161,099 9,532 Investment advisory fee 37,381 137,971 22,813 22,878 Variation margin -- -- 11,475 -- Distribution fee 3,494 12,082 21,638 4,660 Administration fee 5,247 21,225 15,208 3,660 Transfer agent fee 500 500 500 500 Accrued expenses and other payables 22,573 41,375 51,296 21,395 -------------- -------------- -------------- -------------- TOTAL LIABILITIES 158,337 537,484 586,935 62,625 -------------- -------------- -------------- -------------- NET ASSETS $ 76,089,682 $ 305,577,741 $ 221,272,934 $ 52,872,149 ============== ============== ============== ============== COMPOSITION OF NET ASSETS: Paid-in-capital $ 77,105,038 $ 370,833,541 $ 124,693,377 $ 77,069,561 Accumulated undistributed net investment income (net investment loss) 16,244 8,286 2,558,833 (57) Accumulated net realized gain (loss) (28,741,181) (138,182,634) 11,035,369 (33,652,791) Net unrealized appreciation (depreciation) 27,709,581 72,918,548 82,985,355 9,455,436 -------------- -------------- -------------- -------------- NET ASSETS $ 76,089,682 $ 305,577,741 $ 221,272,934 $ 52,872,149 ============== ============== ============== ============== *COST $ 48,347,576 $ 232,424,371 $ 137,776,042 $ 43,385,573 ============== ============== ============== ============== CLASS X SHARES: Net Assets $ 59,823,069 $ 249,516,293 $ 120,117,214 $ 31,125,668 Shares Outstanding (unlimited authorized shares of $.01 par value) 2,791,023 15,141,414 4,671,134 1,778,046 NET ASSET VALUE PER SHARE $ 21.43 $ 16.48 $ 25.71 $ 17.51 ============== ============== ============== ============== CLASS Y SHARES: Net Assets $ 16,266,613 $ 56,061,448 $ 101,155,720 $ 21,746,481 Shares Outstanding (unlimited authorized shares of $.01 par value) 759,444 3,406,989 3,970,646 1,254,743 NET ASSET VALUE PER SHARE $ 21.42 $ 16.45 $ 25.48 $ 17.33 ============== ============== ============== ============== AMERICAN CAPITAL DEVELOPING OPPORTUNITIES OPPORTUNITIES GLOBAL EQUITY GROWTH -------------- -------------- -------------- -------------- ASSETS: Investments in securities, at value* $ 227,208,602 $ 40,014,896 $ 73,329,269 $ 59,877,885 Investment in affiliates** 2,645,412 -- -- -- Cash 8,391 2,251 -- 375 Receivable for: Investments sold -- -- -- -- Interest 1,444 217 -- 214 Dividends 116,338 44,370 67,076 12,185 Shares of beneficial interest sold 200 -- 27,623 29,495 Foreign withholding taxes reclaimed 3,929 -- 30,550 -- Variation margin -- -- -- -- Prepaid expenses and other assets 20,107 1,252 3,926 3,385 -------------- -------------- -------------- -------------- TOTAL ASSETS 230,004,423 40,062,986 73,458,444 59,923,539 -------------- -------------- -------------- -------------- LIABILITIES: Payable for: Investments purchased -- -- -- -- Shares of beneficial interest redeemed 289,908 30,620 10,154 48,455 Investment advisory fee 108,928 23,193 57,544 21,680 Variation margin -- -- -- -- Distribution fee 9,281 3,427 1,908 2,273 Administration fee 15,989 2,769 5,004 4,129 Transfer agent fee 500 500 500 500 Accrued expenses and other payables 40,708 18,488 30,978 26,087 -------------- -------------- -------------- -------------- TOTAL LIABILITIES 465,314 78,997 106,088 103,124 -------------- -------------- -------------- -------------- NET ASSETS $ 229,539,109 $ 39,983,989 $ 73,352,356 $ 59,820,415 ============== ============== ============== ============== COMPOSITION OF NET ASSETS: Paid-in-capital $ 427,028,225 $ 115,724,663 $ 59,409,573 $ 79,165,827 Accumulated undistributed net investment income (net investment loss) 34,807 (47) 463,157 (73) Accumulated net realized gain (loss) (250,821,518) (84,988,310) 5,117,706 (30,426,969) Net unrealized appreciation (depreciation) 53,297,595 9,247,683 8,361,920 11,081,630 -------------- -------------- -------------- -------------- NET ASSETS $ 229,539,109 $ 39,983,989 $ 73,352,356 $ 59,820,415 ============== ============== ============== ============== *COST $ 174,263,937 $ 30,767,213 $ 64,970,594 $ 48,796,255 ============== ============== ============== ============== CLASS X SHARES: Net Assets $ 186,633,236 $ 24,086,746 $ 64,377,615 $ 49,115,795 Shares Outstanding (unlimited authorized shares of $.01 par value) 10,854,214 2,056,425 3,833,032 2,067,438 NET ASSET VALUE PER SHARE $ 17.19 $ 11.71 $ 16.80 $ 23.76 ============== ============== ============== ============== CLASS Y SHARES: Net Assets $ 42,905,873 $ 15,897,243 $ 8,974,741 $ 10,704,620 Shares Outstanding (unlimited authorized shares of $.01 par value) 2,508,542 1,375,932 537,959 456,884 NET ASSET VALUE PER SHARE $ 17.10 $ 11.55 $ 16.68 $ 23.43 ============== ============== ============== ==============
99 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005
MONEY FLEXIBLE BALANCED MARKET INCOME GROWTH -------------- -------------- -------------- INVESTMENT INCOME: INCOME Interest $ 3,040,902 $ 3,720,692 $ 1,377,125 Interest and dividends from affiliates -- 1,069 11,098 Dividends -- 28,187 1,277,093* -------------- -------------- -------------- TOTAL INCOME 3,040,902 3,749,948 2,665,316 -------------- -------------- -------------- EXPENSES Investment advisory fee 421,188 210,290 499,567 Distribution fee (Class Y shares) 88,021 65,588 67,199 Administration fee 46,799 52,573 76,856 Professional fees 23,001 40,888 22,542 Shareholder reports and notices 18,247 13,728 17,930 Custodian fees 11,804 33,557 40,049 Trustees' fees and expenses 1,119 772 1,123 Transfer agent fees and expenses 500 500 500 Other 6,741 44,412 18,333 -------------- -------------- -------------- TOTAL EXPENSES 617,420 462,308 744,099 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) 2,423,482 3,287,640 1,921,217 -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN (LOSS) ON: Investments -- (104,395) 9,861,346 Futures contracts -- 87,595 (175,615) Foreign exchange transactions -- 163,413 -- -------------- -------------- -------------- NET REALIZED GAIN -- 146,613 9,685,731 -------------- -------------- -------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments -- (1,698,798) (4,264,145) Futures contracts -- 38,340 21,659 Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies -- 5,815 -- -------------- -------------- -------------- NET APPRECIATION (DEPRECIATION) -- (1,654,643) (4,242,486) -------------- -------------- -------------- NET GAIN (LOSS) -- (1,508,030) 5,443,245 -------------- -------------- -------------- NET INCREASE $ 2,423,482 $ 1,779,610 $ 7,364,462 ============== ============== ==============
- ---------- * NET OF FOREIGN WITHHOLDING TAX OF $33,033, $12,543, $12,265, $4,195, $20,336, $1,511, $82,121 AND $2,182, RESPECTIVELY. SEE NOTES TO FINANCIAL STATEMENTS 100
EQUALLY- DIVIDEND WEIGHTED UTILITIES GROWTH S&P 500 GROWTH -------------- -------------- -------------- -------------- INVESTMENT INCOME: INCOME Interest $ 137,846 $ 258,165 $ 79,886 $ 29,038 Interest and dividends from affiliates -- -- 15,717 -- Dividends 2,100,518* 5,926,397* 3,341,228 318,827* -------------- -------------- -------------- -------------- TOTAL INCOME 2,238,364 6,184,562 3,436,831 347,865 -------------- -------------- -------------- -------------- EXPENSES Investment advisory fee 448,740 1,692,414 262,242 232,462 Distribution fee (Class Y shares) 40,475 141,066 225,427 39,290 Administration fee 62,981 262,841 174,828 37,194 Professional fees 20,158 27,902 24,601 22,554 Shareholder reports and notices 20,052 56,839 59,200 15,775 Custodian fees 8,470 20,996 40,922 9,942 Trustees' fees and expenses 909 4,098 2,551 516 Transfer agent fees and expenses 500 500 500 500 Other 8,807 19,155 34,688 4,771 -------------- -------------- -------------- -------------- TOTAL EXPENSES 611,092 2,225,811 824,959 363,004 -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) 1,627,272 3,958,751 2,611,872 (15,139) -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN (LOSS) ON: Investments 10,568,009 29,123,199 11,421,569 2,602,183 Futures contracts -- -- 105,915 -- Foreign exchange transactions -- -- -- -- -------------- -------------- -------------- -------------- NET REALIZED GAIN 10,568,009 29,123,199 11,527,484 2,602,183 -------------- -------------- -------------- -------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments (315,935) (16,681,483) 2,202,383 4,489,067 Futures contracts -- -- (80,003) -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies -- -- -- -- -------------- -------------- -------------- -------------- NET APPRECIATION (DEPRECIATION) (315,935) (16,681,483) 2,122,380 4,489,067 -------------- -------------- -------------- -------------- NET GAIN (LOSS) 10,252,074 12,441,716 13,649,864 7,091,250 -------------- -------------- -------------- -------------- NET INCREASE $ 11,879,346 $ 16,400,467 $ 16,261,736 $ 7,076,111 ============== ============== ============== ============== AMERICAN CAPITAL GLOBAL DEVELOPING OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH -------------- -------------- -------------- -------------- INVESTMENT INCOME: INCOME Interest $ 260,484 $ 15,155 $ 69,799 $ 28,403 Interest and dividends from affiliates 26,292 -- -- -- Dividends 1,403,148* 191,129* 1,396,457* 246,245* -------------- -------------- -------------- -------------- TOTAL INCOME 1,689,924 206,284 1,466,256 274,648 -------------- -------------- -------------- -------------- EXPENSES Investment advisory fee 1,245,496 246,920 691,474 242,044 Distribution fee (Class Y shares) 101,180 34,654 21,251 22,996 Administration fee 182,836 29,483 60,128 46,104 Professional fees 26,860 21,005 25,955 23,548 Shareholder reports and notices 45,843 14,129 23,733 17,217 Custodian fees 16,874 10,010 18,070 30,018 Trustees' fees and expenses 2,741 422 889 1,151 Transfer agent fees and expenses 500 500 500 500 Other 14,999 4,481 20,600 4,625 -------------- -------------- -------------- -------------- TOTAL EXPENSES 1,637,329 361,604 862,600 388,203 -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) 52,595 (155,320) 603,656 (113,555) -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN (LOSS) ON: Investments 10,792,298 5,418,673 8,204,922 9,390,269 Futures contracts -- -- -- -- Foreign exchange transactions 7,952 -- (124,286) -- -------------- -------------- -------------- -------------- NET REALIZED GAIN 10,800,250 5,418,673 8,080,636 9,390,269 -------------- -------------- -------------- -------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments 18,447,651 2,192,107 (1,344,050) 483,072 Futures contracts -- -- -- -- Translation of forward foreign currency contracts, other assets and liabilities denominated in foreign currencies (1,005) -- (8,832) -- -------------- -------------- -------------- -------------- NET APPRECIATION (DEPRECIATION) 18,446,646 2,192,107 (1,352,882) 483,072 -------------- -------------- -------------- -------------- NET GAIN (LOSS) 29,246,896 7,610,780 6,727,754 9,873,341 -------------- -------------- -------------- -------------- NET INCREASE $ 29,299,491 $ 7,455,460 $ 7,331,410 $ 9,759,786 ============== ============== ============== ==============
101 STATEMENTS OF CHANGES IN NET ASSETS
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, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 2,423,482 $ 891,776 $ 3,287,640 $ 3,526,533 Net realized gain (loss) -- -- 146,613 (54,178) Net change in unrealized appreciation/depreciation -- -- (1,654,643) 1,234,876 -------------- -------------- -------------- -------------- NET INCREASE 2,423,482 891,776 1,779,610 4,707,231 -------------- -------------- -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (1,554,481) (660,775) (2,853,279) (3,999,321) Class Y shares (868,981) (231,005) (1,823,025) (1,962,637) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- -------------- -------------- -------------- -------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (2,423,462) (891,780) (4,676,304) (5,961,958) -------------- -------------- -------------- -------------- Net increase (decrease) from transactions in shares of beneficial interest (12,373,297) (29,500,076) (6,308,765) (2,384,666) -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) (12,373,277) (29,500,080) (9,205,459) (3,639,393) NET ASSETS: Beginning of period 101,412,887 130,912,967 70,585,059 74,224,452 -------------- -------------- -------------- -------------- END OF PERIOD $ 89,039,610 $ 101,412,887 $ 61,379,600 $ 70,585,059 ============== ============== ============== ============== ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ 56 $ 36 $ 480,573 $ 1,013,386 ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS 102
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, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 1,921,217 $ 2,029,479 $ 1,627,272 $ 1,615,827 Net realized gain (loss) 9,685,731 7,293,308 10,568,009 3,923,834 Net change in unrealized appreciation/depreciation (4,242,486) 1,087,476 (315,935) 10,826,751 -------------- -------------- -------------- -------------- NET INCREASE 7,364,462 10,410,263 11,879,346 16,366,412 -------------- -------------- -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (1,507,473) (1,745,020) (1,313,166) (1,337,452) Class Y shares (532,905) (517,526) (304,838) (280,659) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- -------------- -------------- -------------- -------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (2,040,378) (2,262,546) (1,618,004) (1,618,111) -------------- -------------- -------------- -------------- Net increase (decrease) from transactions in shares of beneficial interest (15,515,138) (12,373,214) (12,874,305) (13,214,499) -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) (10,191,054) (4,225,497) (2,612,963) 1,533,802 NET ASSETS: Beginning of period 102,824,425 107,049,922 78,702,645 77,168,843 -------------- -------------- -------------- -------------- END OF PERIOD $ 92,633,371 $ 102,824,425 $ 76,089,682 $ 78,702,645 ============== ============== ============== ============== ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ (99,929) $ (125,048) $ 16,244 $ (306) ============== ============== ============== ============== 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, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 3,958,751 $ 5,717,506 $ 2,611,872 $ 1,998,371 Net realized gain (loss) 29,123,199 23,968,536 11,527,484 4,539,624 Net change in unrealized appreciation/depreciation (16,681,483) (607,109) 2,122,380 25,181,978 -------------- -------------- -------------- -------------- NET INCREASE 16,400,467 29,078,933 16,261,736 31,719,973 -------------- -------------- -------------- -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (3,377,533) (4,953,801) (1,219,310) (1,140,613) Class Y shares (572,922) (760,026) (707,827) (441,970) Net realized gain Class X shares -- -- (1,943,393) -- Class Y shares -- -- (1,375,977) -- -------------- -------------- -------------- -------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (3,950,455) (5,713,827) (5,246,507) (1,582,583) -------------- -------------- -------------- -------------- Net increase (decrease) from transactions in shares of beneficial interest (73,279,335) (64,541,240) (12,961,790) 2,508,241 -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) (60,829,323) (41,176,134) (1,946,561) 32,645,631 NET ASSETS: Beginning of period 366,407,064 407,583,198 223,219,495 190,573,864 -------------- -------------- -------------- -------------- END OF PERIOD $ 305,577,741 $ 366,407,064 $ 221,272,934 $ 223,219,495 ============== ============== ============== ============== ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ 8,286 $ 5,006 $ 2,558,833 $ 1,945,336 ============== ============== ============== ==============
103
GROWTH AMERICAN OPPORTUNITIES ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004 ----------------- ----------------- ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (15,139) $ 146,548 $ 52,595 $ 1,523,351 Net realized gain 2,602,183 3,944,191 10,800,250 19,613,051 Net change in unrealized appreciation/depreciation 4,489,067 (898,297) 18,446,646 (1,729,238) ----------------- ----------------- ----------------- ----------------- NET INCREASE 7,076,111 3,192,442 29,299,491 19,407,164 ----------------- ----------------- ----------------- ----------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares (113,999) (76,820) (1,350,337) (813,707) Class Y shares (39,568) (3,537) (182,664) (63,498) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- ----------------- ----------------- ----------------- ----------------- TOTAL DIVIDENDS AND DISTRIBUTIONS (153,567) (80,357) (1,533,001) (877,205) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) from transactions in shares of beneficial interest 977,238 (5,345,903) (54,233,048) (68,880,465) ----------------- ----------------- ----------------- ----------------- TOTAL INCREASE (DECREASE) 7,899,782 (2,233,818) (26,466,558) (50,350,506) NET ASSETS: Beginning of period 44,972,367 47,206,185 256,005,667 306,356,173 ----------------- ----------------- ----------------- ----------------- END OF PERIOD $ 52,872,149 $ 44,972,367 $ 229,539,109 $ 256,005,667 ================= ================= ================= ================= ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ (57) $ 146,548 $ 34,807 $ 1,532,848 ================= ================= ================= =================
SEE NOTES TO FINANCIAL STATEMENTS 104
CAPITAL OPPORTUNITIES GLOBAL EQUITY ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004 ----------------- ----------------- ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (155,320) $ (149,171) $ 603,656 $ 522,507 Net realized gain 5,418,673 5,644,119 8,080,636 7,765,089 Net change in unrealized appreciation/depreciation 2,192,107 2,128,100 (1,352,882) (1,992,900) ----------------- ----------------- ----------------- ----------------- NET INCREASE 7,455,460 7,623,048 7,331,410 6,294,696 ----------------- ----------------- ----------------- ----------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class X shares -- -- (450,564) (187,657) Class Y shares -- -- (38,510) (6,397) Net realized gain Class X shares -- -- -- -- Class Y shares -- -- -- -- ----------------- ----------------- ----------------- ----------------- TOTAL DIVIDENDS AND DISTRIBUTIONS -- -- (489,074) (194,054) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) from transactions in shares of beneficial interest (6,859,148) (5,009,990) (15,179,555) (15,611,453) ----------------- ----------------- ----------------- ----------------- TOTAL INCREASE (DECREASE) 596,312 2,613,058 (8,337,219) (9,510,811) NET ASSETS: Beginning of period 39,387,677 36,774,619 81,689,575 91,200,386 ----------------- ----------------- ----------------- ----------------- END OF PERIOD $ 39,983,989 $ 39,387,677 $ 73,352,356 $ 81,689,575 ================= ================= ================= ================= ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ (47) $ 1,624 $ 463,157 $ 472,861 ================= ================= ================= ================= DEVELOPING GROWTH ------------------------------------- FOR THE YEAR FOR THE YEAR ENDED ENDED DECEMBER 31, 2005 DECEMBER 31, 2004 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (113,555) $ (130,385) Net realized gain 9,390,269 10,331,339 Net change in unrealized appreciation/depreciation 483,072 1,649,421 ----------------- ----------------- NET INCREASE 9,759,786 11,850,375 ----------------- ----------------- 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 (11,241,461) (11,342,279) ----------------- ----------------- TOTAL INCREASE (DECREASE) (1,481,675) 508,096 NET ASSETS: Beginning of period 61,302,090 60,793,994 ----------------- ----------------- END OF PERIOD $ 59,820,415 $ 61,302,090 ================= ================= ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (NET INVESTMENT LOSS) $ (73) $ 1,791 ================= =================
105 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, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- CLASS X SHARES SHARES Sold 25,422,553 37,685,076 143,276 288,951 Reinvestment of dividends and distributions 1,554,481 660,775 384,390 527,610 Redeemed (42,891,928) (62,131,314) (1,349,263) (1,955,037) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X (15,914,894) (23,785,463) (821,597) (1,138,476) ============== ============== ============== ============== AMOUNT Sold $ 25,422,553 $ 37,685,076 $ 1,070,048 $ 2,190,958 Reinvestment of dividends and distributions 1,554,481 660,775 2,853,279 3,999,321 Redeemed (42,891,928) (62,131,314) (10,076,678) (14,847,279) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X $ (15,914,894) $ (23,785,463) $ (6,153,351) $ (8,657,000) ============== ============== ============== ============== CLASS Y SHARES SHARES Sold 30,390,244 35,158,148 617,267 1,352,342 Reinvestment of dividends and distributions 868,981 231,005 246,385 259,727 Redeemed (27,717,628) (41,103,766) (883,707) (786,215) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y 3,541,597 (5,714,613) (20,055) 825,854 ============== ============== ============== ============== AMOUNT Sold $ 30,390,244 $ 35,158,148 $ 4,596,574 $ 10,264,647 Reinvestment of dividends and distributions 868,981 231,005 1,823,025 1,962,637 Redeemed (27,717,628) (41,103,766) (6,575,013) (5,954,950) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y $ 3,541,597 $ (5,714,613) $ (155,414) $ 6,272,334 ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS 106
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, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- CLASS X SHARES SHARES Sold 153,509 182,919 109,433 94,493 Reinvestment of dividends and distributions 92,265 115,168 62,808 79,241 Redeemed (1,148,143) (1,283,677) (731,587) (945,802) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X (902,369) (985,590) (559,346) (772,068) ============== ============== ============== ============== AMOUNT Sold $ 2,504,210 $ 2,757,310 $ 2,198,991 $ 1,577,053 Reinvestment of dividends and distributions 1,507,473 1,745,020 1,313,166 1,337,452 Redeemed (18,690,123) (19,230,565) (14,922,675) (15,529,676) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X $ (14,678,440) $ (14,728,235) $ (11,410,518) $ (12,615,171) ============== ============== ============== ============== CLASS Y SHARES SHARES Sold 159,591 384,916 86,563 153,046 Reinvestment of dividends and distributions 32,645 34,166 14,571 16,608 Redeemed (246,766) (263,108) (173,814) (207,468) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y (54,530) 155,974 (72,680) (37,814) ============== ============== ============== ============== AMOUNT Sold $ 2,614,737 $ 5,760,801 $ 1,755,196 $ 2,522,900 Reinvestment of dividends and distributions 532,905 517,526 304,838 280,659 Redeemed (3,984,340) (3,923,306) (3,523,821) (3,402,887) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y $ (836,698) $ 2,355,021 $ (1,463,787) $ (599,328) ============== ============== ============== ============== 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, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- CLASS X SHARES SHARES Sold 290,573 585,391 258,801 604,921 Reinvestment of dividends and distributions 212,823 324,040 132,054 51,356 Redeemed (4,781,282) (5,503,008) (1,539,510) (1,603,447) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X (4,277,886) (4,593,577) (1,148,655) (947,170) ============== ============== ============== ============== AMOUNT Sold $ 4,570,165 $ 8,741,228 $ 6,289,680 $ 13,301,341 Reinvestment of dividends and distributions 3,377,533 4,953,801 3,162,703 1,140,613 Redeemed (75,728,076) (82,348,524) (37,656,881) (35,266,843) -------------- -------------- -------------- -------------- NET DECREASE - CLASS X $ (67,780,378) $ (68,653,495) $ (28,204,498) $ (20,824,889) ============== ============== ============== ============== CLASS Y SHARES SHARES Sold 266,223 836,368 1,133,459 1,404,141 Reinvestment of dividends and distributions 36,130 49,628 87,702 20,044 Redeemed (651,676) (609,582) (586,503) (353,978) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y (349,323) 276,414 634,658 1,070,207 ============== ============== ============== ============== AMOUNT Sold $ 4,212,365 $ 12,480,219 $ 27,352,074 $ 30,602,353 Reinvestment of dividends and distributions 572,922 760,026 2,083,804 441,970 Redeemed (10,284,244) (9,127,990) (14,193,170) (7,711,193) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) - CLASS Y $ (5,498,957) $ 4,112,255 $ 15,242,708 $ 23,333,130 ============== ============== ============== ==============
107
GROWTH AMERICAN OPPORTUNITIES ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004 ----------------- ----------------- ----------------- ----------------- CLASS X SHARES SHARES Sold 45,621 74,011 160,189 294,249 Reinvestment of dividends 7,520 5,298 91,054 57,424 Redeemed (512,566) (692,429) (3,450,991) (4,841,589) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X (459,425) (613,120) (3,199,748) (4,489,916) ================= ================= ================= ================= AMOUNT Sold $ 701,221 $ 1,062,006 $ 2,445,263 $ 4,131,293 Reinvestment of dividends 113,999 76,820 1,350,336 813,707 Redeemed (7,862,509) (9,833,826) (52,562,192) (67,866,315) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X $ (7,047,289) $ (8,695,000) $ (48,766,593) $ (62,921,315) ================= ================= ================= ================= CLASS Y SHARES SHARES Sold 751,355 344,824 106,325 341,328 Reinvestment of dividends 2,633 246 12,367 4,500 Redeemed (224,282) (107,687) (484,568) (775,389) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y 529,706 237,383 (365,876) (429,561) ================= ================= ================= ================= AMOUNT Sold $ 11,461,513 $ 4,859,789 $ 1,644,441 $ 4,768,395 Reinvestment of dividends 39,568 3,537 182,665 63,498 Redeemed (3,476,554) (1,514,229) (7,293,561) (10,791,043) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y $ 8,024,527 $ 3,349,097 $ (5,466,455) $ (5,959,150) ================= ================= ================= =================
SEE NOTES TO FINANCIAL STATEMENTS 108
CAPITAL OPPORTUNITIES GLOBAL EQUITY ------------------------------------- ------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2004 ----------------- ----------------- ----------------- ----------------- CLASS X SHARES SHARES Sold 118,513 213,276 96,667 178,142 Reinvestment of dividends -- -- 29,839 13,104 Redeemed (721,670) (825,656) (1,086,697) (1,299,648) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X (603,157) (612,380) (960,191) (1,108,402) ================= ================= ================= ================= AMOUNT Sold $ 1,200,955 $ 1,784,560 $ 1,498,231 $ 2,537,436 Reinvestment of dividends -- -- 450,564 187,657 Redeemed (7,112,174) (6,926,163) (16,883,416) (18,510,485) ----------------- ----------------- ----------------- ----------------- NET DECREASE - CLASS X $ (5,911,219) $ (5,141,603) $ (14,934,621) $ (15,785,392) ================= ================= ================= ================= CLASS Y SHARES SHARES Sold 155,416 394,029 53,393 178,690 Reinvestment of dividends -- -- 2,566 449 Redeemed (259,330) (378,563) (70,931) (165,283) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y (103,914) 15,466 (14,972) 13,856 ================= ================= ================= ================= AMOUNT Sold $ 1,600,462 $ 3,257,263 $ 812,220 $ 2,526,862 Reinvestment of dividends -- -- 38,510 6,397 Redeemed (2,548,391) (3,125,650) (1,095,664) (2,359,320) ----------------- ----------------- ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y $ (947,929) $ 131,613 $ (244,934) $ 173,939 ================= ================= ================= ================= DEVELOPING GROWTH ------------------------------------- FOR THE YEAR FOR THE YEAR ENDED ENDED DECEMBER 31, 2005 DECEMBER 31, 2004 ----------------- ----------------- CLASS X SHARES SHARES Sold 66,506 94,520 Reinvestment of dividends -- -- Redeemed (615,572) (778,488) ----------------- ----------------- NET DECREASE - CLASS X (549,066) (683,968) ================= ================= AMOUNT Sold $ 1,391,587 $ 1,639,068 Reinvestment of dividends -- -- Redeemed (12,779,261) (13,552,390) ----------------- ----------------- NET DECREASE - CLASS X $ (11,387,674) $ (11,913,322) ================= ================= CLASS Y SHARES SHARES Sold 68,441 126,054 Reinvestment of dividends -- -- Redeemed (63,548) (93,254) ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y 4,893 32,800 ================= ================= AMOUNT Sold $ 1,442,286 $ 2,186,269 Reinvestment of dividends -- -- Redeemed (1,296,073) (1,615,226) ----------------- ----------------- NET INCREASE (DECREASE) - CLASS Y $ 146,213 $ 571,043 ================= =================
109 MORGAN STANLEY SELECT DIMENSIONS INVESTMENT SERIES NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 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 when 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 S&P 500 combination of capital appreciation and current income. 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.
110 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 111 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 Adviser, 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 Portfolio'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 112 securities held. 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 AGREEMENTS 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. Money Market - 0.45% to the portion of the daily net assets not exceeding $250 million; 0.375% to the portion of the daily net assets exceeding $250 million but not exceeding $750 million; 0.325% to the portion of the daily net assets exceeding $750 million but not exceeding $1.25 billion; 0.30% to the portion of the daily net assets exceeding $1.25 billion but not exceeding $1.5 billion and 0.275% to the portion of the daily net assets in excess of $1.5 billion. Flexible Income - 0.32%. Balanced Growth - 0.52% to the portion of the daily net assets not exceeding $500 million and 0.495% to the portion of the daily net assets in excess of $500 million. Utilities - 0.57% to the portion of the daily net assets not exceeding $500 million; 0.47% to the portion of the daily net assets exceeding $500 million but not exceeding $1 billion; 0.445% to the portion of the daily net 113 assets exceeding $1 billion but not exceeding $1.5 billion; 0.42% to the portion of the daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.395% to the portion of the daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the portion of the daily net assets exceeding $3.5 billion but not exceeding $5 billion and 0.345% to the portion of the daily net assets in excess of $5.0 billion. Dividend Growth - 0.545% to the portion of the daily net assets not exceeding $250 million; 0.42% to the portion of the daily net assets exceeding $250 million, but not exceeding $1 billion; 0.395% to the portion of the daily net assets exceeding $1 billion but not exceeding $2 billion and 0.37% to the portion of the daily net assets in excess of $2 billion. Equally-Weighted S&P 500 - 0.12% to the portion of the daily net assets not exceeding $2 billion and 0.10% to the portion of daily net assets in excess of $2 billion. (Prior to June 1, 2005, 0.12%). Growth - 0.50% to the portion of the daily net assets not exceeding $1 billion; 0.45% to the portion of the daily net assets exceeding $1 billion but not exceeding $2 billion; 0.40% to the portion of the daily net assets exceeding $2 billion but not exceeding $3 billion and 0.35% to the portion of the daily net assets in excess of $3 billion. American Opportunities - 0.545% to the portion of the daily net assets not exceeding $250 million; 0.42% to the portion of the daily net assets exceeding $250 million but not exceeding $2.5 billion; 0.395% to the portion of the daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% to the portion of the daily net assets exceeding $3.5 billion but not exceeding $4.5 billion and 0.345% to the portion of the daily net assets in excess of $4.5 billion. Capital Opportunities - 0.67% to the portion of the daily net assets not exceeding $500 million; 0.645% to the portion of the daily net assets exceeding $500 million but not exceeding $2 billion; 0.62% to the portion of the daily net assets exceeding $2 billion but not exceeding $3 billion and 0.595% to the portion of the daily net assets in excess of $3 billion. Global Equity - 0.92%. Developing Growth - 0.42% to the portion of the daily net assets not exceeding $500 million and 0.395% to the portion of the daily net assets in excess of $500 million. 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 Portfolio's daily net assets. 114 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. 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES Purchases and sales/prepayments/maturities of portfolio securities, excluding short-term investments (except for the Money Market Portfolio), for the year ended December 31, 2005 were as follows:
U.S. GOVERNMENT SECURITIES OTHER -------------------------------- ---------------------------------- SALES/PREPAYMENTS SALES/PREPAYMENTS PURCHASES /MATURITIES PURCHASES /MATURITIES ------------ ----------------- ------------- ----------------- Money Market $ 23,403,382 $ 35,687,633 $ 670,553,512 $ 674,323,798 Flexible Income 17,569,450 13,984,598 29,743,503 34,900,610 Balanced Growth 24,802,459 28,484,266 25,518,660 35,831,252 Utilities 174,057 169,483 28,887,654 41,233,298 Dividend Growth -- -- 121,237,403 196,793,658 Equally-Weighted S&P 500 -- -- 37,231,118 54,987,364 Growth -- -- 38,157,336 38,035,045 American Opportunities -- -- 160,872,630 212,334,106 Capital Opportunities -- -- 32,039,239 39,069,498 Global Equity -- -- 54,907,569 69,390,842 Developing Growth -- -- 58,632,965 70,668,215
Equally-Weighted S&P 500 had transactions in Morgan Stanley common stock, an affiliate of the Investment Adviser, Administrator and Distributor:
NET REALIZED PURCHASES SALES GAINS INCOME VALUE --------- -------- ------------ -------- ---------- $ 61,998 $ 82,641 $ 7,537 $ 8,754 $ 437,806 ========= ======== ======== ======== ==========
The following Portfolios had transactions in Hartford Financial Services Group, Inc., an affiliate of the Fund:
NET REALIZED PURCHASES SALES GAINS INCOME VALUE ----------- ---------- ------------ --------- ----------- Flexible Income -- -- -- $ 1,069 $ 44,568 Balanced Growth $ 14,765 $ 485,215 $ 208,336 11,098 671,310 American Opportunities 2,293,491 -- -- 26,292 2,645,412 Equally-Weighted S&P 500 -- 111,893 40,706 6,963 435,720
115 The following Portfolios had transactions with other Morgan Stanley funds during the year ended December 31, 2005:
NET REALIZED PURCHASES SALES GAINS ----------- ---------- ------------ Balanced Growth $ 162,395 $ 24,155 $ 1,654 Utilities 259,524 404,388 19,814 Dividend Growth 158,124 433,654 246,402 Growth 14,087 399,927 26,410 American Opportunities 754,057 579,165 87,118 Capital Opportunities 4,788 11,036 6,977 Developing Growth 802,721 16,554 10,334
For the year ended December 31, 2005, the following Portfolios incurred brokerage commissions with Morgan Stanley & Co., Inc., for portfolio transactions executed on behalf of the Portfolio:
DIVIDEND AMERICAN GLOBAL CAPITAL DEVELOPING UTILITIES GROWTH OPPORTUNITIES EQUITY OPPORTUNITIES GROWTH GROWTH --------- -------- ------------- -------- ------------- ------ ---------- $ 41,122 $ 42,726 $ 36,454 $ 28,262 $ 823 $ 40 $ 1,637 ========= ======== ========= ======== ======= ====== ========
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. Forward contracts involve elements of market risk in excess of the amounts 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. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. 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 Portfolio's securities or an increase in prices of securities that may be purchased. These futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Portfolio bears the risk of 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 counterparts 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 116 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 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 year ended December 31, 2004 and December 31, 2005 for all portfolios was the same as the book character shown on the Statement of Changes except as follows: For the year ended December 31, 2005
EQUALLY-WEIGHTED S&P 500 ---------------- Ordinary income $ 3,065,501 Long-term capital gains 2,181,006 ----------- Total distributions $ 5,246,507 ===========
As of December 31, 2005, 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 $ 694,386 $ 267,730 $ 22,151 $ 8,746 $ 4,246,715 Undistributed long-term gains -- 4,156,752 -- -- 9,837,820 -------------- -------------- -------------- -------------- -------------- Net accumulated earnings 694,386 4,424,482 22,151 8,746 14,084,535 Capital loss carryforward* (20,187,008) -- (27,805,781) (135,958,357) -- Post-October losses (99) -- -- -- -- Temporary differences (24,107) (138) (107) (495) (284) Net unrealized appreciation (depreciation) (4,520,715) 11,237,788 26,768,381 70,694,306 82,495,306 -------------- -------------- -------------- -------------- -------------- Total accumulated earnings (losses) $ (24,037,543) $ 15,662,132 $ (1,015,356) $ (65,255,800) $ 96,579,557 ============== ============== ============== ============== ============== AMERICAN CAPITAL GLOBAL DEVELOPING GROWTH OPPORTUNITIES OPPORTUNITIES EQUITY GROWTH -------------- -------------- -------------- -------------- -------------- Undistributed ordinary income -- $ 35,129 -- $ 683,396 -- Undistributed long-term gains -- -- -- 4,949,023 -- -------------- -------------- -------------- -------------- -------------- Net accumulated earnings -- 35,129 -- 5,632,419 -- Foreign tax credit pass-through -- -- -- 81,458 -- Capital loss carryforward* $ (33,577,093) (250,821,492) $ (84,985,455) -- $ (30,404,031) Post-October losses (5,036) -- -- (50,785) -- Temporary differences (61) (349) (50) (82,233) (83) Net unrealized appreciation 9,384,778 53,297,596 9,244,831 8,361,924 11,058,702 -------------- -------------- -------------- -------------- -------------- Total accumulated earnings (losses) $ (24,197,412) $ (197,489,116) $ (75,740,674) $ 13,942,783 $ (19,345,412) ============== ============== ============== ============== ==============
* As of December 31, 2005, the following Portfolios had a net capital loss carryforward which may be used to offset future capital gains to the extent provided by regulations. 117
(AMOUNTS IN THOUSANDS) AVAILABLE THROUGH --------------------------------------------------------------------------------------------------------- DECEMBER 31, 2006 2007 2008 2009 2010 2011 2012 2013 TOTAL - -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Flexible Income $ 153 $ 941 $ 1,681 $ 2,688 $ 6,782 $ 6,161 $ 1,199 $ 582 $ 20,187 Utilities -- -- -- 6,663 21,143 -- -- -- 27,806 Dividend Growth -- -- 34,940 21,046 58,750 21,222 -- -- 135,958 Growth -- -- -- 13,972 16,400 3,145 60 -- 33,577 American Opportunities -- -- -- 176,036 74,785 -- -- -- 250,821 Capital Opportunities -- -- -- 27,418 57,567 -- -- -- 84,985 Developing Growth -- -- -- 12,092 18,312 -- -- -- 30,404
During the year ended December 31, 2005, the following Portfolios utilized net capital loss carryforwards: Balanced Growth -- $4,864,899; Utilities -- $10,092,484; Dividend Growth -- $26,747,148; Growth -- $1,130,666 American Opportunities -- $10,296,746; Capital Opportunities -- $5,424,013; Global Equity - -- $3,087,214; Developing Growth -- $9,335,089. At December 31, 2005, 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. Equally-Weighted S&P 500 -- tax adjustments on real estate investment trusts (REITs) held by the Portfolio. Flexible Income and Balanced Growth had permanent differences attributable to the 118 reclassification of net losses on paydowns. Dividend Growth, Equally-Weighted S&P 500, Capital Opportunities and Developing Growth had permanent differences attributable to tax adjustments on REITs sold 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 $ 855,851 $ (855,851) -- Balanced Growth 144,280 (144,280) -- Utilities 7,282 (7,282) -- Dividend Growth (5,016) 5,016 -- Equally-Weighted S&P 500 (71,238) 71,238 -- Growth 22,101 (6,994) $ (15,107) American Opportunities (17,635) 17,635 -- Capital Opportunities 153,649 11,334 (164,983) Global Equity (124,286) 124,286 -- Developing Growth 111,691 15,198 (126,889)
119 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 2001 $ 1.00 $ 0.04 -- $ 0.04 $ (0.04) 2002 1.00 0.01 -- 0.01 (0.01) 2003 1.00 0.01 -- 0.01 (0.01) 2004 1.00 0.01 -- 0.01 (0.01) 2005 1.00 0.03 -- 0.03 (0.03) CLASS Y SHARES 2001 1.00 0.04 -- 0.04 (0.04) 2002 1.00 0.01 -- 0.01 (0.01) 2003 1.00 0.00 -- 0.00 (0.00) 2004 1.00 0.01 -- 0.01 (0.01) 2005 1.00 0.02 -- 0.02 (0.02) FLEXIBLE INCOME CLASS X SHARES 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) 2005 7.68 0.38 (0.17) 0.21 (0.54) CLASS Y SHARES 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) 2005 7.65 0.36 (0.16) 0.20 (0.52) BALANCED GROWTH CLASS X SHARES 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) 2005 15.95 0.34 0.95 1.29 (0.36)
SEE NOTES TO FINANCIAL STATEMENTS 120
RATIOS TO AVERAGE NET ASSETS** TOTAL NET ASSET NET ASSETS ----------------------- FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE - ------------ ------------- ------------- --------- ------- ---------- -------- ------------- --------- MONEY MARKET CLASS X SHARES 2001 -- $ (0.04) $ 1.00 3.88% $ 175,957 0.52% 3.63% N/A 2002 -- (0.01) 1.00 1.34 152,479 0.52 1.34 N/A 2003 -- (0.01) 1.00 0.65 91,730 0.54 0.66 N/A 2004 -- (0.01) 1.00 0.86 67,945 0.55 0.84 N/A 2005 -- (0.03) 1.00 2.73 52,030 0.57 2.68 N/A CLASS Y SHARES 2001 -- (0.04) 1.00 3.62 31,189 0.77 3.38 N/A 2002 -- (0.01) 1.00 1.09 41,006 0.77 1.09 N/A 2003 -- (0.00) 1.00 0.40 39,183 0.79 0.41 N/A 2004 -- (0.01) 1.00 0.61 33,468 0.80 0.59 N/A 2005 -- (0.02) 1.00 2.48 37,010 0.82 2.43 N/A FLEXIBLE INCOME CLASS X SHARES 2001 $ (0.10)++ (0.52) 6.99 (4.06) 56,745 0.49 7.48 114% 2002 -- (0.35) 7.23 8.67 54,669 0.50 7.26 115 2003 -- (0.39) 7.80 13.54 53,270 0.57 4.49 258 2004 -- (0.64) 7.68 7.00 43,658 0.69 4.96 201 2005 -- (0.54) 7.35 2.88 35,755 0.60 5.11 83 CLASS Y SHARES 2001 (0.09)++ (0.50) 6.97 (4.41) 3,859 0.74 7.23 114 2002 -- (0.33) 7.22 8.59 14,626 0.75 7.01 115 2003 -- (0.37) 7.78 13.15 20,955 0.82 4.24 258 2004 -- (0.62) 7.65 6.61 26,927 0.94 4.71 201 2005 -- (0.52) 7.33 2.62 25,624 0.85 4.86 83 BALANCED GROWTH CLASS X SHARES 2001 -- (0.44) 14.62 1.21 116,002 0.64 2.95 71 2002 -- (0.38) 12.58 (11.49) 84,846 0.66 2.58 161 2003 -- (0.33) 14.71 19.84 84,151 0.68 2.01 124 2004 -- (0.35) 15.95 10.93 75,517 0.69 2.04 62 2005 -- (0.36) 16.88 8.21 64,663 0.70 2.07 55
121
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 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) 2005 15.92 0.30 0.95 1.24 (0.32) UTILITIES CLASS X SHARES 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) 2005 18.82 0.43 2.62 3.05 (0.44) CLASS Y SHARES 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) 2005 18.81 0.38 2.62 3.00 (0.39) DIVIDEND GROWTH CLASS X SHARES 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) 2005 15.81 0.20 0.67 0.87 (0.20) CLASS Y SHARES 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) 2005 15.79 0.16 0.66 0.82 (0.16)
SEE NOTES TO FINANCIAL STATEMENTS 122
RATIOS TO AVERAGE NET ASSETS** TOTAL NET ASSET NET ASSETS ----------------------- FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE - ------------ ------------- ------------- --------- ------- ---------- -------- ------------- --------- CLASS Y SHARES 2001 -- $ (0.41) $ 14.59 0.86% $ 8,463 0.89% 2.70% 71% 2002 -- (0.34) 12.56 (11.66) 12,327 0.91 2.33 161 2003 -- (0.30) 14.68 19.51 22,898 0.93 1.76 124 2004 -- (0.31) 15.92 10.68 27,308 0.94 1.79 62 2005 -- (0.32) 16.84 7.89 27,970 0.95 1.82 55 UTILITIES CLASS X SHARES 2001 $ (0.42) (0.87) 17.10 (25.51) 118,964 0.69 2.15 49 2002 -- (0.48) 13.16 (20.37) 66,825 0.70 3.22 77 2003 -- (0.36) 15.46 20.47 63,728 0.71 2.51 91 2004 -- (0.37) 18.82 24.44 63,052 0.71 2.19 29 2005 -- (0.44) 21.43 16.28 59,823 0.72 2.12 38 CLASS Y SHARES 2001 (0.42) (0.82) 17.09 (25.69) 12,471 0.94 1.90 49 2002 -- (0.45) 13.15 (20.58) 10,749 0.95 2.97 77 2003 -- (0.32) 15.45 20.20 13,440 0.96 2.26 91 2004 -- (0.33) 18.81 24.15 15,650 0.96 1.94 29 2005 -- (0.39) 21.42 16.00 16,267 0.97 1.87 38 DIVIDEND GROWTH CLASS X SHARES 2001 -- (0.28) 14.71 (5.45) 527,738 0.62 1.79 22 2002 -- (0.26) 11.83 (17.92) 341,673 0.64 1.89 22 2003 -- (0.24) 14.83 27.73 356,056 0.66 1.85 42 2004 -- (0.24) 15.81 8.29 307,093 0.65 1.54 44 2005 -- (0.20) 16.48 5.57 249,516 0.63 1.26 38 CLASS Y SHARES 2001 -- (0.25) 14.69 (5.71) 22,602 0.87 1.54 22 2002 -- (0.23) 11.81 (18.15) 29,318 0.89 1.64 22 2003 -- (0.21) 14.81 27.48 51,527 0.91 1.60 42 2004 -- (0.20) 15.79 8.03 59,314 0.90 1.29 44 2005 -- (0.16) 16.45 5.32 56,061 0.88 1.01 38
123
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 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) 2005 24.45 0.32 1.54 1.86 (0.23) CLASS Y SHARES 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) 2005 24.25 0.26 1.53 1.79 (0.19) GROWTH CLASS X SHARES 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) 2005 15.21 0.01 2.35 2.36 (0.06) CLASS Y SHARES 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) 2005 15.08 (0.03) 2.32 2.29 (0.04) AMERICAN OPPORTUNITIES CLASS X SHARES 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) 2005 15.14 0.01 2.15 2.16 (0.11)
SEE NOTES TO FINANCIAL STATEMENTS 124
RATIOS TO AVERAGE NET ASSETS** TOTAL NET ASSET NET ASSETS ----------------------- FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE - ------------ ------------- ------------- --------- ------- ---------- -------- ------------- --------- EQUALLY-WEIGHTED S&P 500 CLASS X SHARES 2001 $ (1.10) $ (1.29) $ 19.12 (1.83)% $ 181,881 0.54% 1.12% 6% 2002 -- (0.21) 15.88 (15.97) 121,065 0.54 1.09 8 2003 (0.32) (0.53) 21.13 37.14 143,019 0.55 1.11 24 2004 -- (0.18) 24.45 16.65 142,320 0.50 1.07 20 2005 (0.37) (0.60) 25.71 7.81 120,117 0.27 1.30 17 CLASS Y SHARES 2001 (1.10) (1.28) 19.05 (2.04) 10,985 0.79 0.87 6 2002 -- (0.20) 15.79 (16.21) 18,843 0.79 0.84 8 2003 (0.32) (0.51) 20.99 36.87 47,554 0.80 0.86 24 2004 -- (0.15) 24.25 16.33 80,900 0.75 0.82 20 2005 (0.37) (0.56) 25.48 7.57 101,156 0.52 1.05 17 GROWTH CLASS X SHARES 2001 (1.03) (1.03) 15.48 (15.23) 80,096 0.86 (0.04) 81 2002 -- -- 11.17 (27.84) 39,834 0.91 0.08 135 2003 -- (0.01) 14.16 26.90 40,356 0.93 0.21 128 2004 -- (0.03) 15.21 7.64 34,038 0.93 0.37 168 2005 -- (0.06) 17.51 15.55 31,126 0.70 0.05 83 CLASS Y SHARES 2001 (1.03) (1.03) 15.42 (15.46) 4,383 1.11 (0.29) 81 2002 -- -- 11.10 (28.02) 3,520 1.16 (0.17) 135 2003 -- -- 14.05 26.58 6,850 1.18 (0.04) 128 2004 -- (0.01) 15.08 7.38 10,934 1.18 0.12 168 2005 -- (0.04) 17.33 15.21 21,746 0.95 (0.20) 83 AMERICAN OPPORTUNITIES CLASS X SHARES 2001 (5.65) (5.70) 14.99 (29.47) 463,012 0.65 0.46 393 2002 -- (0.09) 11.68 (21.56) 274,710 0.66 0.27 309 2003 -- (0.05) 14.03 20.57 260,230 0.67 0.33 261 2004 -- (0.05) 15.14 8.29 212,736 0.67 0.60 134 2005 -- (0.11) 17.19 14.39 186,633 0.67 0.06 73
125
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 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) 2005 15.05 (0.03) 2.15 2.12 (0.07) CAPITAL OPPORTUNITIES CLASS X SHARES 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 -- 2005 9.55 (0.03) 2.19 2.16 -- CLASS Y SHARES 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 -- 2005 9.45 (0.06) 2.16 2.10 -- GLOBAL EQUITY CLASS X SHARES 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) 2005 15.29 0.13 1.49 1.62 (0.11) CLASS Y SHARES 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) 2005 15.19 0.09 1.47 1.56 (0.07)
SEE NOTES TO FINANCIAL STATEMENTS 126
RATIOS TO AVERAGE NET ASSETS** TOTAL NET ASSET NET ASSETS ----------------------- FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE - ------------ ------------- ------------- --------- ------- ---------- -------- ------------- --------- CLASS Y SHARES 2001 $ (5.65) $ (5.70) $ 14.93 (29.67)% $ 30,768 0.90% 0.21% 393% 2002 -- (0.06) 11.63 (21.73) 30,035 0.91 0.02 309 2003 -- (0.02) 13.96 20.25 46,126 0.92 0.08 261 2004 -- (0.02) 15.05 7.96 43,269 0.92 0.35 134 2005 -- (0.07) 17.10 14.16 42,906 0.92 (0.19) 73 CAPITAL OPPORTUNITIES CLASS X SHARES 2001 -- -- 9.79 (36.39) 55,488 0.80 (0.63) 16 2002 -- -- 5.50 (43.82) 22,097 0.90 (0.71) 103 2003 -- -- 7.79 41.64 25,473 0.87 (0.57) 184 2004 -- -- 9.55 22.59 25,408 0.90 (0.32) 118 2005 -- -- 11.71 22.62 24,087 0.89 (0.33) 87 CLASS Y SHARES 2001 -- -- 9.75 (36.56) 11,410 1.05 (0.88) 16 2002 -- -- 5.46 (44.00) 6,537 1.15 (0.96) 103 2003 -- -- 7.72 41.39 11,302 1.12 (0.82) 184 2004 -- -- 9.45 22.41 13,980 1.15 (0.57) 118 2005 -- -- 11.55 22.22 15,897 1.14 (0.58) 87 GLOBAL EQUITY CLASS X SHARES 2001 (1.52) (1.63) 12.79 (17.22) 118,747 1.07 0.29 89 2002 -- (0.01) 10.56 (17.37) 75,611 1.08 0.35 44 2003 -- (0.05) 14.17 34.71 83,607 1.08 0.35 72 2004 -- (0.03) 15.29 8.17 73,290 1.11 0.64 48 2005 -- (0.11) 16.80 10.64 64,377 1.12 0.83 75 CLASS Y SHARES 2001 (1.52) (1.62) 12.75 (17.38) 3,825 1.32 0.04 89 2002 -- -- 10.50 (17.57) 3,951 1.33 0.10 44 2003 -- (0.02) 14.09 34.33 7,593 1.33 0.10 72 2004 -- (0.01) 15.19 7.89 8,399 1.36 0.39 48 2005 -- (0.07) 16.68 10.32 8,975 1.37 0.58 75
127
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 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 -- 2005 20.01 (0.03) 3.78 3.75 -- CLASS Y SHARES 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 -- 2005 19.79 (0.08) 3.72 3.64 --
- ---------- * 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. SEE NOTES TO FINANCIAL STATEMENTS 128
RATIOS TO AVERAGE NET ASSETS** TOTAL NET ASSET NET ASSETS ----------------------- FOR THE YEAR DISTRIBUTIONS DIVIDENDS VALUE END OF NET PORTFOLIO ENDED TO AND END OF TOTAL PERIOD INVESTMENT TURNOVER DECEMBER 31 SHAREHOLDERS DISTRIBUTIONS PERIOD RETURN+ (OOO'S) EXPENSES INCOME (LOSS) RATE - ------------ ------------- ------------- --------- ------- ---------- -------- ------------- --------- DEVELOPING GROWTH $ (3.44) $ (3.66) $ 16.01 (25.49)% $ 85,513 0.59% (0.05)% 196% CLASS X SHARES -- -- 11.57 (27.73) 45,892 0.61 (0.26) 251 2001 -- -- 16.36 41.40 53,996 0.62 (0.20) 193 2002 -- -- 20.01 22.31 52,359 0.64 (0.19) 135 2003 -- -- 23.76 18.69 49,116 0.63 (0.15) 102 2004 2005 (3.44) (3.65) 15.95 (25.67) 2,973 0.84 (0.30) 196 CLASS Y SHARES -- -- 11.49 (27.96) 2,602 0.86 (0.51) 251 2001 -- -- 16.22 41.17 6,798 0.87 (0.45) 193 2002 -- -- 19.79 21.95 8,943 0.89 (0.44) 135 2003 -- -- 23.43 18.40 10,704 0.88 (0.40) 102 2004 2005
129 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, of Morgan Stanley Select Dimensions Investment Series (the "Fund"), including the portfolios of investments, comprising the Money Market Portfolio, Flexible Income Portfolio, Balanced Growth Portfolio, Utilities Portfolio, Dividend Growth Portfolio, Equally-Weighted S&P 500 Portfolio, Growth Portfolio, American Opportunities Portfolio, Capital Opportunities Portfolio, Global Equity Portfolio and Developing Growth Portfolio (the "Portfolios"), as of December 31, 2005, 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 Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included 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 Fund's 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, 2005, by correspondence with the custodian 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 of each of the portfolios constituting the Morgan Stanley Select Dimensions Investment Series as of December 31, 2005, 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 21, 2006 130 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 INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE - -------------------------- ----------- ------------ ----------------------- ------------- ----------------------------------- Michael Bozic (64) Trustee Since Private Investor; 197 Director of various business c/o Kramer Levin Naftalis April 1994 Director or Trustee of organizations. & Frankel LLP the Retail Funds (since Counsel to the Independent April 1994) and the Trustees Institutional Funds 1177 Avenue of the (since July 2003); Americas formerly Vice Chairman New York, NY 10036 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 (73) Trustee Since Consultant; Director or 197 Director of Franklin Covey (time 1031 N. Chartwell Court January 1993 Trustee of the Retail management systems), BMW Bank of Salt Lake City, UT 84103 Funds (since January North America, Inc. (industrial 1993) and the loan corporation), Escrow Bank USA Institutional Funds (industrial loan corporation), (since July 2003); United Space Alliance (joint member of the Utah venture between Lockheed Martin and Regional Advisory Board the Boeing Company) and Nuskin Asia of Pacific Corp. Pacific (multilevel marketing); (utility company); member of the board of various formerly Managing civic and charitable organizations. Director of Summit Ventures LLC (2000-2004) (lobbying and consulting firm); United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (71) Trustee Since Retired; Director or 197 Director of The PMI Group Inc. c/o Kramer Levin Naftalis September Trustee of the Retail (private mortgage insurance); & Frankel LLP 1997 Funds (since September Trustee and Vice Chairman of The Counsel to the Independent 1997) and the Field Museum of Natural History; Trustees Institutional Funds director of various other business 1177 Avenue of the (since July 2003); and charitable organizations. Americas formerly associated New York, NY 10036 with the Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994).
131
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 INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE - -------------------------- ----------- ------------ ----------------------- ------------- ----------------------------------- Dr. Manuel H. Johnson (56) Trustee Since Senior Partner, Johnson 197 Director of NVR, Inc. (home c/o Johnson Smick Group, July 1991 Smick International, construction); Director of KFX Inc. Inc., a consulting Energy; Director of RBS Greenwich 888 16th Street, NW firm; Chairman of the Capital Holdings (financial holding Suite 740 Audit Committee and company). Washington, D.C. 20006 Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); 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 (63) Trustee Since President, Kearns & 198 Director of Electro Rent c/o Kearns & Associates July 2003 Associates LLC Corporation (equipment leasing), LLC (investment The Ford Family Foundation, and the PMB754 consulting); Deputy UCLA Foundation. 23852 Pacific Coast Chairman of the Audit Highway Committee and Director Malibu, CA 90265 or Trustee of 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. Paul Getty Trust. Michael E. Nugent (69) Trustee Since General Partner of 197 None. c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P., 445 Park Avenue a private investment 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 (73) Trustee Since Chairman of Lumelite 198 Trustee and Director of certain c/o Lumelite Plastics July 2003 Plastics Corporation; investment companies in the Corporation Chairman of the JPMorgan Funds complex managed by 85 Charles Colman Blvd. Governance Committee J.P. Morgan Investment Management Pawling, NY 12564 and Director or Trustee Inc. of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992).
132 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 INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE - -------------------------- ----------- ------------ ----------------------- ------------- ----------------------------------- Charles A. Fiumefreddo Chairman of Since Chairman and Director 197 None. (72) the Board July 1991 or Trustee of the c/o Morgan Stanley Trust and Trustee Retail Funds (since Harborside Financial July 1991) and the Center, Institutional Funds Plaza Two, (since July 2003); Jersey City, NJ 07311 formerly Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (57) Trustee Since Director or Trustee of 197 Director of AXA Financial, Inc. and c/o Morgan Stanley Trust June 2000 the Retail Funds (since The Equitable Life Assurance Harborside Financial June 2000) and the Society of the United States Center, Institutional Funds (financial services). Plaza Two, (since July 2003); Jersey City, NJ 07311 Senior Advisor of Morgan Stanley (since August 2000); 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.). 133 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** - -------------------------- ----------- ------------ ---------------------------------------------------------------------- Ronald E. Robison (66) President Since May President (since September 2005) and Principal Executive Officer of 1221 Avenue of the and 2003 funds in the Fund Complex (since May 2003); Managing Director of Americas Principal Morgan Stanley & Co. Incorporated and Morgan Stanley; Managing New York, NY 10020 Executive Director and Director of Morgan Stanley Investment Management Inc., Officer Morgan Stanley Distribution Inc. and Morgan Stanley Distributors Inc.; Managing Director, Chief Administrative Officer and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Chief Executive Officer and Director of Morgan Stanley Trust; Director of Morgan Stanley SICAV (since May 2004); President (since September 2005) and Principal Executive Officer (since May 2003) of the Van Kampen Funds; previously, Executive Vice President (July 2003-September 2005) of funds in the Fund Complex and the Van Kampen Funds. He was also previously President and Director of the Institutional Funds (March 2001-July 2003), Chief Global Operations Officer of Morgan Stanley Investment Management Inc. and Chief Executive Officer and Chairman of Van Kampen Investor Services. J. David Germany (51) Vice Since Managing Director and Chief Investment Officer - Global Fixed Income 25 Cabot Square, President February of Morgan Stanley Investment Management Inc., Morgan Stanley Canary Wharf, London, 2006 Investment Advisors Inc., and Van Kampen Asset Management. Managing United Kingdom E144QA Director and Director of Morgan Stanley Investment Management Ltd. Vice President (since February 2006) of the Morgan Stanley Retail Funds and Morgan Stanley Institutional Funds. Dennis F. Shea (52) Vice Since Managing Director and Chief Investment Officer - Global Equity of 1221 Avenue of the President February Morgan Stanley Investment Advisors Inc., Morgan Stanley Investment Americas 2006 Management Inc. and Van Kampen Asset Management. Vice President (since New York, NY 10020 February 2006) of the Morgan Stanley Retail Funds and Morgan Stanley Institutional Funds. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley. Barry Fink (50) Vice Since General Counsel (since May 2000) and Managing Director (since December 1221 Avenue of the President February 2000) of Morgan Stanley Investment Management; Managing Director Americas 1997 (since December 2000) of the Investment Adviser and the Administrator; New York, NY 10020 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; previously Secretary (1997-2006) and Director (1997-2005) of the Investment Adviser and the Administrator; and Secretary and Director of the Distributor (1997-2005). Amy R. Doberman (43) Vice Since July Managing Director and General Counsel, U.S. Investment Management; 1221 Avenue of the President 2004 Managing Director (since July 2004) and Secretary (since February Americas 2006) of Morgan Stanley Investment Management Inc. and the Investment New York, NY 10020 Adviser, Managing Director and Secretary of the Distributor (since February 2006); Managing Director (since February 2005) and Secretary (since February 2006) of the Administrator; Vice President of the Institutional and Retail Funds (since July 2004); various positions with the Van Kampen Funds and certain of their service providers; previously, Managing Director and General Counsel - Americas, UBS Global Asset Management (July 2000-July 2004).
134
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** - -------------------------- ----------- ------------ ---------------------------------------------------------------------- Carsten Otto (42) Chief Since Managing Director and U.S. Director of Compliance for Morgan Stanley 1221 Avenue of the Compliance October Investment Management Inc. (since October 2004); Managing Director of Americas Officer 2004 the Investment Adviser and Morgan Stanley Investment Management Inc.; New York, NY 10020 formerly Assistant Secretary and Assistant General Counsel of the Morgan Stanley Retail Funds. Stefanie V. Chang (39) Vice Since July Executive Director of Morgan Stanley & Co. Incorporated, Morgan 1221 Avenue of the President 2003 Stanley Investment Management Inc. and the Investment Adviser; Vice Americas President of the Institutional Funds (since December 1997) and the New York, NY 10020 Retail Funds (since July 2003); various positions with the Van Kampen Funds; formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP). Francis J. Smith (40) Treasurer Treasurer Executive Director of the Investment Adviser and the Administration c/o Morgan Stanley Trust and Chief since (since December 2001); previously, Vice President of the Retail Funds Harborside Financial Financial July 2003 (September 2002-July 2003); Vice President of the Investment Adviser Center, Officer and Chief and the Administrator (August 2000-November 2001). Plaza Two, Financial Jersey City, NJ 07311 Officer since September 2002 Thomas F. Caloia (59) Vice Since July Executive Director (since December 2002) and Assistant Treasurer of c/o Morgan Stanley Trust President 2003 the Investment Adviser, the Distributor and the Administrator; Harborside Financial previously Treasurer of the Retail Funds (April 1989-July 2003); Center, formerly First Vice President of the Investment Adviser, the Plaza Two, Distributor and the Administrator. Jersey City, NJ 07311 Mary E. Mullin (38) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated, Morgan 1221 Avenue of the 2003 Stanley Investment Management Inc. and the Investment Adviser; Americas Secretary of the Institutional Funds (since June 1999) and the Retail New York, NY 10020 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. 135 FEDERAL TAX NOTICE - DECEMBER 31, 2005 (UNAUDITED) During the fiscal year ended December 31, 2005, Equally-Weighted S&P 500 Portfolio paid to its shareholders $0.245 per share from long-term capital gains. Additionally, each Portfolio's income dividends had the following qualifying percentages as indicated below:
DIVIDENDS RECEIVED U.S. GOVERNMENT FUND DEDUCTION% (a) INCOME% (b) - ---- ------------------ --------------- Money Market Portfolio 0.00% 0.08% Flexible Income Portfolio 0.00% 16.43% Balanced Growth Portfolio 48.50% 22.17% Utilities Portfolio 100.00% 0.21% 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. 136 Trustees Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid Officers Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Ronald E. Robison PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER J. David Germany VICE PRESIDENT Dennis F. Shea VICE PRESIDENT Barry Fink VICE PRESIDENT 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 Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 Independent Registered Public Accounting Firm Deloitte & Touche LLP Two World Financial Center 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. # 4 0 4 7 4 RA06-00124P-Y12/05 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)." Additionally, Exhibit B was amended to remove Mitchell M. Merin as a covered officer. (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: 2005
REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 169,641 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 540(2) $ (2) TAX FEES $ 42,107(3) $ (4) ALL OTHER FEES $ - $ - TOTAL NON-AUDIT FEES $ 42,647 $ TOTAL $ 212,288 $
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 $ - $ - (5) TOTAL NON-AUDIT FEES $ 44,449 $ 3,826,295 TOTAL $ 206,015 $ 3,826,295
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 reports filed by closed-end funds. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable only to reports filed by closed-end funds. Item 9. Closed-End Fund Repurchases Applicable only to reports filed by closed-end funds. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. 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 12. 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 9, 2006 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 9, 2006 /s/ Francis Smith Francis Smith Principal Financial Officer February 9, 2006 EX-99.CODEETH 2 a2167622zex-99_codeeth.txt EX-99.CODEETH Exhibit 99.CODEETH EXHIBIT 12 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED SEPTEMBER 28, 2004, AS AMENDED SEPTEMBER 20, 2005 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 A FUND LIST AT SEPTEMBER 20, 2005 RETAIL FUNDS OPEN-END RETAIL FUNDS TAXABLE MONEY MARKET FUNDS 1. Active Assets Government Securities Trust ("AA GOVERNMENT") 2. Active Assets Institutional Government Securities Trust ("AA INSTITUTIONAL GOVERNMENT") 3. Active Assets Institutional Money Trust ("AA INSTITUTIONAL MONEY") 4. Active Assets Money Trust ("AA MONEY") 5. Morgan Stanley Liquid Asset Fund Inc. ("LIQUID ASSET") 6. Morgan Stanley U.S. Government Money Market Trust ("GOVERNMENT MONEY") TAX-EXEMPT MONEY MARKET FUNDS 7. Active Assets California Tax-Free Trust ("AA CALIFORNIA") 8. Active Assets Tax-Free Trust ("AA TAX-FREE") 9. Morgan Stanley California Tax-Free Daily Income Trust ("CALIFORNIA TAX-FREE DAILY") 10. Morgan Stanley New York Municipal Money Market Trust ("NEW YORK MONEY") 11. Morgan Stanley Tax-Free Daily Income Trust ("TAX-FREE DAILY") EQUITY FUNDS 12. Morgan Stanley Aggressive Equity Fund ("AGGRESSIVE EQUITY")+ 13. Morgan Stanley Allocator Fund ("ALLOCATOR FUND")+ 14. Morgan Stanley American Opportunities Fund ("AMERICAN OPPORTUNITIES")+ 15. Morgan Stanley Biotechnology Fund ("BIOTECHNOLOGY FUND")+ 16. Morgan Stanley Capital Opportunities Trust ("CAPITAL OPPORTUNITIES")+ 17. Morgan Stanley Developing Growth Securities Trust ("DEVELOPING GROWTH")+ 18. Morgan Stanley Dividend Growth Securities Inc. ("DIVIDEND GROWTH")+ 19. Morgan Stanley Equally-Weighted S&P 500 Fund ("EQUALLY-WEIGHTED S&P 500")+ 20. Morgan Stanley European Equity Fund Inc. ("EUROPEAN EQUITY")+ 21. Morgan Stanley Financial Services Trust ("FINANCIAL SERVICES")+ 22. Morgan Stanley Fundamental Value Fund ("FUNDAMENTAL VALUE")+ 23. Morgan Stanley Global Advantage Fund ("GLOBAL ADVANTAGE")+ 24. Morgan Stanley Global Dividend Growth Securities ("GLOBAL DIVIDEND GROWTH")+ 25. Morgan Stanley Global Utilities Fund ("GLOBAL UTILITIES")+ 26. Morgan Stanley Growth Fund ("GROWTH FUND")+ 27. Morgan Stanley Health Sciences Trust ("HEALTH SCIENCES")+ 28. Morgan Stanley Income Builder Fund ("INCOME BUILDER")+ 29. Morgan Stanley Information Fund ("INFORMATION FUND")+ 30. Morgan Stanley International Fund ("INTERNATIONAL FUND")+ 31. Morgan Stanley International SmallCap Fund ("INTERNATIONAL SMALLCAP")+ 32. Morgan Stanley International Value Equity Fund ("INTERNATIONAL VALUE")+ 33. Morgan Stanley Japan Fund ("JAPAN FUND")+ 34. Morgan Stanley KLD Social Index Fund ("KLD SOCIAL INDEX")+ 35. Morgan Stanley Mid-Cap Value Fund (MID-CAP VALUE")+ 36. Morgan Stanley Multi-Asset Class Fund ("MULTI-ASSET CLASS")+ - Domestic Portfolio 37. Morgan Stanley Nasdaq-100 Index Fund ("NASDAQ-100")+ 38. Morgan Stanley Natural Resource Development Securities Inc. ("NATURAL RESOURCE")+ 39. Morgan Stanley Pacific Growth Fund Inc. ("PACIFIC GROWTH")+ 40. Morgan Stanley Real Estate Fund ("REAL ESTATE")+ 41. Morgan Stanley Small-Mid Special Value Fund (SMALL-MID SPECIAL VALUE")+ 42. Morgan Stanley S&P 500 Index Fund ("S&P500 INDEX")+ 43. Morgan Stanley Special Growth Fund ("SPECIAL GROWTH")+ 44. Morgan Stanley Special Value Fund ("SPECIAL VALUE")+ 45. Morgan Stanley Total Market Index Fund ("TOTAL MARKET INDEX")+ 46. Morgan Stanley Total Return Trust ("TOTAL RETURN")+ 47. Morgan Stanley Utilities Fund ("UTILITIES FUND")+ 48. Morgan Stanley Value Fund ("VALUE FUND")+ BALANCED FUNDS 49. Morgan Stanley Balanced Growth Fund ("BALANCED GROWTH")+ 50. Morgan Stanley Balanced Income Fund ("BALANCED INCOME")+ ASSET ALLOCATION FUND 51. Morgan Stanley Strategist Fund ("STRATEGIST FUND")+ TAXABLE FIXED-INCOME FUNDS 52. Morgan Stanley Convertible Securities Trust ("CONVERTIBLE SECURITIES")+ 53. Morgan Stanley Flexible Income Trust ("FLEXIBLE INCOME")+ 54. Morgan Stanley Income Trust ("INCOME TRUST")+ 55. Morgan Stanley High Yield Securities Inc. ("HIGH YIELD SECURITIES")+ 56. Morgan Stanley Limited Duration Fund ("LIMITED DURATION FUND") 57. Morgan Stanley Mortgage Securities Trust ("MORTGAGE SECURITIES")+ 58. Morgan Stanley Limited Duration U.S. Treasury Trust ("LIMITED DURATION TREASURY") 59. Morgan Stanley Total Return Income Securities Fund ("TOTAL RETURN INCOME")+ 60. Morgan Stanley U.S. Government Securities Trust ("GOVERNMENT SECURITIES")+ TAX-EXEMPT FIXED-INCOME FUNDS 61. Morgan Stanley California Tax-Free Income Fund ("CALIFORNIA TAX-FREE")+ 62. Morgan Stanley Limited Term Municipal Trust ("LIMITED TERM MUNICIPAL") 63. Morgan Stanley New York Tax-Free Income Fund ("NEW YORK TAX-FREE")+ 64. Morgan Stanley Tax-Exempt Securities Trust ("TAX-EXEMPT SECURITIES")+ SPECIAL PURPOSE FUNDS 65. Morgan Stanley Select Dimensions Investment Series ("SELECT DIMENSIONS") - American Opportunities Portfolio - Balanced Growth Portfolio - Capital Opportunities Portfolio - Developing Growth Portfolio - Dividend Growth Portfolio - Equally-Weighted S&P 500 Portfolio - Flexible Income Portfolio - Global Equity Portfolio - Growth Portfolio - Money Market Portfolio - Utilities Portfolio 66. Morgan Stanley Variable Investment Series ("VARIABLE INVESTMENT") - Aggressive Equity Portfolio - Dividend Growth Portfolio - Equity Portfolio - European Growth Portfolio - Global Advantage Portfolio - Global Dividend Growth Portfolio - High Yield Portfolio - Income Builder Portfolio - Information Portfolio - Limited Duration Portfolio - Money Market Portfolio - Quality Income Plus Portfolio - S&P 500 Index Portfolio - Strategist Portfolio - Utilities Portfolio CLOSED-END RETAIL FUNDS TAXABLE FIXED-INCOME CLOSED-END FUNDS 67. Morgan Stanley Government Income Trust ("GOVERNMENT INCOME") 68. Morgan Stanley Income Securities Inc. ("INCOME SECURITIES") 69. Morgan Stanley Prime Income Trust ("PRIME INCOME") TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS 70. Morgan Stanley California Insured Municipal Income Trust ("CALIFORNIA INSURED MUNICIPAL") 71. Morgan Stanley California Quality Municipal Securities ("CALIFORNIA QUALITY MUNICIPAL") 72. Morgan Stanley Insured California Municipal Securities ("INSURED CALIFORNIA SECURITIES") 73. Morgan Stanley Insured Municipal Bond Trust ("INSURED MUNICIPAL BOND") 74. Morgan Stanley Insured Municipal Income Trust ("INSURED MUNICIPAL INCOME") 75. Morgan Stanley Insured Municipal Securities ("INSURED MUNICIPAL SECURITIES") 76. Morgan Stanley Insured Municipal Trust ("INSURED MUNICIPAL TRUST") 77. Morgan Stanley Municipal Income Opportunities Trust ("MUNICIPAL OPPORTUNITIES") 78. Morgan Stanley Municipal Income Opportunities Trust II ("MUNICIPAL OPPORTUNITIES II") 79. Morgan Stanley Municipal Income Opportunities Trust III ("MUNICIPAL OPPORTUNITIES III") 80. Morgan Stanley Municipal Premium Income Trust ("MUNICIPAL PREMIUM") 81. Morgan Stanley New York Quality Municipal Securities ("NEW YORK QUALITY MUNICIPAL") 82. Morgan Stanley Quality Municipal Income Trust ("QUALITY MUNICIPAL INCOME") 83. Morgan Stanley Quality Municipal Investment Trust ("QUALITY MUNICIPAL INVESTMENT") 84. Morgan Stanley Quality Municipal Securities ("QUALITY MUNICIPAL SECURITIES") +- Denotes Retail Multi-Class Fund INSTITUTIONAL FUNDS OPEN-END INSTITUTIONAL FUNDS 1. Morgan Stanley Institutional Fund, Inc. ("INSTITUTIONAL FUND INC.") ACTIVE PORTFOLIOS: - Active International Allocation Portfolio - Emerging Markets Portfolio - Emerging Markets Debt Portfolio - Equity Growth Portfolio - European Real Estate Portfolio - Focus Equity Portfolio - Global Franchise Portfolio - Global Value Equity Portfolio - International Equity Portfolio - International Magnum Portfolio - International Small Cap Portfolio - Money Market Portfolio - Municipal Money Market Portfolio - Small Company Growth Portfolio - U.S. Real Estate Portfolio - Value Equity Portfolio INACTIVE PORTFOLIOS*: - China Growth Portfolio - Gold Portfolio - Large Cap Relative Value Portfolio - MicroCap Portfolio - Mortgage-Backed Securities Portfolio - Municipal Bond Portfolio - U.S. Equity Plus Portfolio 2. Morgan Stanley Institutional Fund Trust ("INSTITUTIONAL FUND TRUST") ACTIVE PORTFOLIOS: - Advisory Foreign Fixed Income II Portfolio - Advisory Foreign Fixed Income Portfolio - Advisory Mortgage Portfolio - Balanced Portfolio - Core Plus Fixed Income Portfolio - Equity Portfolio - High Yield Portfolio - Intermediate Duration Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Limited Duration Portfolio - Mid-Cap Growth Portfolio - Municipal Portfolio - U.S. Core Fixed Income Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Small-Cap Value Portfolio - Value Portfolio - ---------- * Have not commenced or have ceased operations INACTIVE PORTFOLIOS*: - Balanced Plus Portfolio - Growth Portfolio - Investment Grade Credit Advisory Portfolio - Mortgage Advisory Portfolio - New York Municipal Portfolio - Targeted Duration Portfolio - Value II Portfolio 3. The Universal Institutional Funds, Inc. ("UNIVERSAL FUNDS") ACTIVE PORTFOLIOS: - Core Plus Fixed Income Portfolio - Emerging Markets Debt Portfolio - Emerging Markets Equity Portfolio - Equity and Income Portfolio - Equity Growth Portfolio - Global Franchise Portfolio - Global Value Equity Portfolio - High Yield Portfolio - International Magnum Portfolio - Mid-Cap Growth Portfolio - Money Market Portfolio - Small Company Growth Portfolio - Technology Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Real Estate Portfolio - Value Portfolio INACTIVE PORTFOLIOS*: - Balanced Portfolio - Capital Preservation Portfolio - Core Equity Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Latin American Portfolio - Multi-Asset Class Portfolio - Targeted Duration Portfolio 4. Morgan Stanley Institutional Liquidity Funds ("LIQUIDITY FUNDS") ACTIVE PORTFOLIOS: - Government Portfolio - Money Market Portfolio - Prime Portfolio - Tax-Exempt Portfolio - Treasury Portfolio INACTIVE PORTFOLIOS*: - Government Securities Portfolio - Treasury Securities Portfolio CLOSED-END INSTITUTIONAL FUNDS 5. Morgan Stanley Asia-Pacific Fund, Inc. ("ASIA-PACIFIC FUND") 6. Morgan Stanley Eastern Europe Fund, Inc. ("EASTERN EUROPE") 7. Morgan Stanley Emerging Markets Debt Fund, Inc. ("EMERGING MARKETS DEBT") 8. Morgan Stanley Emerging Markets Fund, Inc. ("EMERGING MARKETS FUND") 9. Morgan Stanley Global Opportunity Bond Fund, Inc. ("GLOBAL OPPORTUNITY") 10. Morgan Stanley High Yield Fund, Inc. ("HIGH YIELD FUND") 11. The Latin American Discovery Fund, Inc. ("LATIN AMERICAN DISCOVERY") 12 The Malaysia Fund, Inc. ("MALAYSIA FUND") 13. The Thai Fund, Inc. ("THAI FUND") 14. The Turkish Investment Fund, Inc. ("TURKISH INVESTMENT") CLOSED-END FUND OF HEDGE FUNDS 15. Morgan Stanley Institutional Fund of Hedge Funds ("FUND OF HEDGE FUNDS") IN REGISTRATION MORGAN STANLEY RETAIL FUNDS 1. Morgan Stanley American Franchise Fund FUNDS OF HEDGE FUNDS 1. Morgan Stanley Absolute Return Fund 2. Morgan Stanley Institutional Fund of Hedge Funds II - ---------- * Have not commenced or have ceased operations EXHIBIT B INSTITUTIONAL FUNDS COVERED OFFICERS Ronald E. Robison -President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer RETAIL FUNDS COVERED OFFICERS Ronald E. Robison -President and Principal Executive Officer Frank Smith - Chief Financial Officer and Treasurer MORGAN STANLEY INDIA INVESTMENT FUND, INC. COVERED OFFICERS Ronald E. Robison - President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer EXHIBIT C GENERAL COUNSEL Barry Fink EX-99.CERT 3 a2167622zex-99_cert.txt EX-99.CERT Exhibit 99.CERT EXHIBIT 12 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 9, 2006 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer EXHIBIT 12 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 9, 2006 /s/ Francis Smith Francis Smith Principal Financial Officer EX-99.906CERT 4 a2167622zex-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, 2005 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 9, 2006 /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, 2005 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 9, 2006 /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-----